VIISAGE TECHNOLOGY INC, POS AM, 2000-05-05

VIISAGE TECHNOLOGY INC
POS AM, 2000-05-05
COMPUTER INTEGRATED SYSTEMS DESIGN

Previous: CORPORATE SPONSORED VUL SEPARATE ACCOUNT I, 497, 2000-05-05

Next: AMAZON COM INC, 424B3, 2000-05-05

<PAGE>

As filed with the Securities and Exchange Commission on May 5, 2000

Registration No. 333-88497

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1 to
FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

VIISAGE TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 04-3320515
- --------------------------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)

30 Porter Road Littleton, MA 01460
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices, including zip code)

Thomas J. Colatosti
President and Chief Executive Officer
Viisage Technology, Inc.
30 Porter Road
Littleton, MA 01460
--------------------
(Name and address of agent for service)

(978) 952-2200
--------------
(Telephone number, including area code, of agent for service)

Copy to:
Charles J. Johnson, Esq.
Finnegan, Hickey, Dinsmoor & Johnson, P.C.
175 Federal Street
Boston, Massachusetts 02110
(617) 523-2500

Approximate date of commencement of proposed sale to public: From time to time,
after this registration statement becomes effective. If any of the securities
being registered on this form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933, check the following box.
[X]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
=================================================================================================
Title of Amount to be Proposed maximum Proposed maximum Amount of
securities registered offering price aggregate Registration fee/2/
to be registered per share/1/ offering
price/1/
=================================================================================================
<S> <C> <C> <C> <C>
Common Stock, 1,826,972 $2.00 $3,653,944 $1,015.80
$0.001 par value
=================================================================================================
</TABLE>

(1) Estimated pursuant to Rule 457 under the Securities Act solely for the
purpose of calculating the registration fee based upon the average of the high
and low sale prices of our common stock on September 30, 1999 on The Nasdaq
National Market.

(2) Previously paid by the registrant in connection with Registration Statement
on Form S-1, filed with the Securities and Exchange Commission on October 5,
1999.

The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state which prohibits the offer or sale.

- -------------------------
<PAGE>

PROSPECTUS

1,826,972 Shares

Viisage Technology, Inc.

COMMON STOCK

- --------------------------------------------------------------------------------

Certain of our stockholders are registering up to 1,826,972 shares of our
common stock. The selling stockholders may offer and sell their shares publicly
or through private transactions at prevailing market prices or at negotiated
prices.

We will not receive any of the proceeds from the sale of the shares by the
selling stockholders. We have agreed to bear all expenses (other than selling
discounts, concessions or commissions) in connection with the registration and
sale of the shares that the selling stockholders are offering.

Our common stock is listed on The Nasdaq National Market under the symbol
"VISG." The last reported sale price of our shares on May 2, 2000 was $6.00 per
share.

Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 6.

Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.

The date of this prospectus is May 5, 2000.
<PAGE>

TABLE OF CONTENTS
-----------------

Page
Prospectus Summary........................................... 1

The Offering................................................. 3

Summary Financial Data....................................... 5

Risk Factors................................................. 6

Use of Proceeds.............................................. 10

Price Range of Common Stock.................................. 11

Dividend Policy.............................................. 11

Capitalization............................................... 12

Selected Financial Data...................................... 13

Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 15

Business..................................................... 24

Relationship and Certain Transactions with Lau Technologies.. 36

Management................................................... 39

Description of Capital Stock................................. 47

Selling Stockholders and Plan of Distribution................ 51

Transfer Agent and Registrar................................. 53

Legal Matters................................................ 53

Experts...................................................... 53

Where You Can Find More Information.......................... 54

Financial Statements......................................... F-1
________________________

You should only rely on the information contained in this document or to which
we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. This information in this document may only be
accurate on the date of this document.
<PAGE>

PROSPECTUS SUMMARY

This summary highlights certain information found in greater detail
elsewhere in this prospectus. In addition to this summary, we urge you to read
the entire prospectus carefully, especially the risks of investing in our common
stock discussed under "Risk Factors" on page 6 before you decide to buy our
common stock.

Overview of Our Business

Viisage is a leader in the emerging field of biometrics technology and in
providing digital identification systems and solutions.

Our identification systems and solutions improve personal convenience and
security, deter fraud and reduce identification program costs. We create
complete customized solutions by combining our systems integration capabilities,
software design capabilities, proprietary software and hardware products, and
standard products in the industry. Our turnkey solutions (1) integrate image
and data capture, (2) create relational databases, (3) incorporate multiple
biometrics, and (4) improve customers' abilities to move and manage information.
Customers can apply our technology to:

. drivers' licenses
. voter registration cards
. national identification cards
. law enforcement and corrections applications
. social services applications
. facility access control and surveillance, and
. personal computer network and internet access security.

Our primary customers for these products are United States drivers
licensing agencies. Since our inception in 1993, we have captured approximately
30% of the domestic driver's license market. Each year, our products facilitate
the production of more than 20 million identification documents at about 1,500
locations throughout 12 states and in two foreign countries.

Our biometrics technology includes our patented facial recognition products
used for access control, PC network and internet access security and the real-
time large database identification and verification of individuals. Our "Face-
in-the-Crowd" products can recognize real-time facial images in a crowd from
video and can be used for access control and surveillance. We have current
projects for a police surveillance system in Western Europe and for public
sector customers in Massachusetts, Wisconsin and Illinois, where we have
deployed the world's largest facial recognition database.

1
<PAGE>

Our principal executive offices are located at 30 Porter Road, Littleton,
Massachusetts 01460, our telephone number is (978) 952-2200 and our internet
website address on the world wide web is Viisage.com. The contents of our
website are not part of this prospectus. In this prospectus, we refer to
Viisage Technologies, Inc., a Delaware corporation, as "Viisage", the "Company",
"we", "us" and "our".

2
<PAGE>

THE OFFERING

Common stock offered by selling stockholders....................1,826,972 shares

Common stock offered by Viisage.................................0 shares

Common stock outstanding before offering........................8,585,745 shares

Common stock outstanding after offering.........................8,585,745 shares

Use of proceeds.................................................The selling
stockholders are
offering from
time to time all
of the shares
offered by this
prospectus. We
will not receive
any proceeds
from these sales
of shares.

Nasdaq National Market symbol...................................VISG

The number of shares of common stock outstanding after this offering is based on
shares of our common stock outstanding as of September 30, 1999 (prior to the
commencement of this offering). This calculation also:

. excludes 1,110,390 shares of common stock issuable upon the conversion of
all of our outstanding series A convertible preferred stock, assuming
conversion at 77% of the market price on The Nasdaq National Market on
September 30, 1999, which are being registered hereunder;

. excludes 716,582 shares of common stock underlying the warrants, stock
options, and convertible debt outstanding as of September 30, 1999 which
are being registered hereunder which are exercisable at prices between
$1.44 and $4.00;

. excludes 1,881,823 shares of common stock issuable upon exercise of all
options outstanding under our 1996 Management Stock Plan and our 1996
Director Stock Option Plan as of September 30, 1999, at prices between
$0.93 and $12.50; and

. excludes 1,375,968 shares of common stock underlying other stock options
and convertible debt outstanding as of September 30, 1999 at prices between
$1.26 and $2.75.

. excludes 417,847 shares of common stock issued since September 30, 1999.

3
<PAGE>

. excludes 751,540 shares of common stock issuable upon the conversion of all
of our outstanding series B convertible preferred stock, assuming
conversion at 77% of the market price on The Nasdaq National Market on
March 10, 2000, and all other shares of common stock underlying the
warrants and stock options issued since September 30, 1999.

4
<PAGE>

SUMMARY FINANCIAL DATA

The following tables set forth our summary financial data. You should read this
information together with the financial statements and the notes to those
statements appearing elsewhere in this prospectus and the information under
"Selected Financial Data" on page 13 and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on 15.

<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 (3) 1997 (2) 1996 1995
---- ---- ---- ---- ----
(in thousands, except per share amounts)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues........................................ $19,297 $ 16,259 $ 29,388 $24,971 $11,221
Operating income (loss)......................... 1,235 (4,498) (3,921) 1,520 (2,432)
Net income (loss) (995) (7,203) (4,362) 601 (2,947)
Basic and Diluted net income (loss) per share (1) $ (0.23) $ (0.88) $(0.54) $0.09 $(0.52)
Weighted average common shares.................. 8,610 8,175 8,060 6,537 5,680

Balance Sheet Data:
Working Capital................................. $13,549 $ 11,089 $ 15,261 $20,676 $ 7,413
Total assets.................................... 44,680 46,444 47,463 36,119 11,285
Long-term obligations........................... 15,721 18,058 13,300 4,420 8,319
Shareholders' equity............................ 15,790 12,618 18,736 23,020 -
Net assets(4)................................... - - - - 1,323
</TABLE>

(1) See note 2 of Notes to Financial Statements for information concerning the
computation of basic and diluted net income (loss) per share.
(2) 1997 amounts reflect the impact of $7.6 million for investments in
technology, services and markets.
(3) December 1998 amounts reflect the impact of charges of $230 for
restructuring, $1,321 for the early adoption of SOP 98-5, Reporting on the
costs of start-up activities, and $2,322 to revise project margins and
contract cost-to-complete estimates. June 1998 amounts reflect the
restructuring charges and SOP adoption.
(4) Net assets represents divisional investment during the time the Company
operated as a division of Lau Technologies.

5
<PAGE>

RISK FACTORS

Any investment in our common stock involves a high degree of risk. You
should carefully consider the following information about these risks, together
with the other information contained in this prospectus, before you decide
whether to buy our common stock. If any of the following risks actually occur,
our business, results of operations and financial condition would likely suffer.
In any such case, the market price of our common stock could decline, and you
may lose all or part of the money you paid to buy our common stock.

The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties, including those not presently known to us or
that we currently deem immaterial, may also impair our business.

Our business depends on large public sector contracts which can involve delays.

Our business largely depends on a limited number of large public sector
contracts. These contracts result from purchasing decisions made by public
sector agencies that are often subject to political influence, onerous
procurement procedures, budget changes and award protests. These factors can
cause delays which make our quarterly results difficult to predict. This can
also make our ability to meet analysts' expectations equally uncertain and
adversely affect the price of our common stock.

Our quarterly results could be volatile and may cause our stock price to
fluctuate.

We have experienced fluctuations in our quarterly operating results and
expect those fluctuations to continue. Our quarterly results are affected by,
among other things, factors such as:

. the size and timing of contract awards
. the timing of our contract performance
. variations in the mix of our products and services, and
. contract losses and changes in management estimates incident to
accounting for contracts.

The loss of any significant customer could cause our revenue to decline.

For 1999, four customers each accounted for over 10% of our revenues and a
total of 52% of our revenues for the year. The loss of any significant customer
could cause our revenue to decline and thus have an adverse material effect on
our business and financial condition.

We have had a history of losses and are currently not profitable.

Our business operations began in 1993 and, except in 1996, have resulted in
net losses from inception through December 31, 1999. At December 31, 1999, we
had an accumulated

6
<PAGE>

deficit of $13,546,000. We intend to continue to invest in the development of
our biometrics division and thus we cannot predict when or if we will ever
achieve overall profitability. Further, no assurance can be given that we will
not need to raise additional funds through public or private financings.

Our leverage creates financial and operating risk that could limit the growth of
our business.

We have a significant amount of indebtedness. As of December 31, 1999, we
had approximately $22 million in short and long-term debt, lease financing and
subordinated convertible debt. Our leverage could have important consequences
to us including:

. limiting our ability to obtain necessary financing for future working
capital

. limiting our ability to finance the acquisition of equipment needed to
meet customer requirements

. limiting our ability to finance the development of new technologies

. requiring that we use a substantial portion of our cash flow from
operations for debt service and not other purposes, and

. requiring us to comply with financial and operating covenants which
could cause an event of default under our debt instruments

Further, our ability to make principal and interest payments under long-term
indebtedness and bank loans will be dependent upon our future performance, which
is subject to financial, economic and other factors affecting us, some of which
are beyond our control.

We may be unable to obtain additional capital required to fund our operations
and finance our growth.

The installation of our digital identification systems requires significant
capital expenditures. Although we have been successful in the past in obtaining
project financing, we will have ongoing capital needs. If we are unable to
obtain additional funds in a timely manner or on acceptable terms, we may not be
able to fund our operations or expand our business to meet our plans. In
addition, the further development of our biometric and other advanced
technologies is expected to require additional capital. If we are unable to
obtain capital when we need it, we may have to restructure our business or delay
or abandon our development and expansion plans. That could have a material
adverse effect on our business and financial condition.

7
<PAGE>

Our reliance on sole and single-source suppliers could cause delays or increases
in project costs.

We rely on outside vendors to manufacture or develop components, software
and consumables which are used for our systems and services. Some of these
items are obtained from a single supplier or a limited group of suppliers. Our
inability to obtain adequate deliveries or alternative sources of supply could
cause delays or increases in project costs.

If our target customers do not accept our biometric technologies, our growth may
be restricted.

Our growth plan assumes, in part, that biometric technologies will gain
widespread market acceptance. Although we have had recent success with several
projects, the widespread market acceptance of biometric technologies remains
uncertain.

If we fail to keep pace with changing technologies, we may not win new
customers.

Our market is characterized by rapidly changing customer requirements and
evolving industry standards. If we cannot keep pace with these changes, our
business could suffer. To achieve our goals, we need to develop cost-effective
business solutions and methodologies to keep pace with continuing changes in
industry standards and customer preferences.

System failures could seriously damage our business.

We depend on our ability to provide customers with complex systems which
can operate on an "as needed" basis. Although we deploy back up systems, system
failures could result in increased costs, lower margins, liquidated damage
payment obligations and harm to our reputation. This could result in contract
terminations and have a material adverse effect on our business and financial
results.

We are controlled by a single stockholder which could result in it taking
actions which other stockholders do not approve.

Lau Technologies ("Lau") owns approximately 59% of our outstanding common
stock. As a result, Lau is currently able to control matters requiring approval
by our stockholders, including the election of all of the directors and most
corporate actions. We have also entered into certain agreements with Lau,
including the licensing of technologies and the provision of administrative
services and facilities. Under the terms of the license agreements, Lau has
reserved the right to use biometric and other technologies in the federal access
control field. There can be no assurance that conflicts of interest will not
arise out of these contractual arrangements.

8
<PAGE>

Competition from new entrants and bigger, more established competitors with
greater financial resources could diminish our business opportunities and limit
our growth.

The business areas in which we compete are intensely competitive and
subject to rapid technological change. We expect competition to continue and
intensify. Some of our competitors, notably Polaroid Corporation, have greater
financial resources and name recognition than we have. Our competitors may be
able to respond more quickly to technological developments and changes in
customers' needs.

Misappropriation of our intellectual property could harm our reputation, affect
our competitive position and cost us money.

We believe our intellectual property, including our proprietary
methodologies, is important to our success and competitive position. If we are
unable to protect our intellectual property against others' unauthorized use,
our reputation among existing and potential customers could be damaged and our
competitive position adversely affected.

Our strategies to deter misappropriation could be undermined in light of
the following risks:

. non-recognition of the proprietary nature of or inadequate protection of
our methodologies in the United States or foreign countries

. undetected misappropriation of our proprietary methodologies, and

. development of similar software or applications by our competitors.

The materialization of any of these risks could require us to spend
significant amounts to defend our rights and could divert our managerial
resources. In addition, our proprietary methodologies may decline in value or
our rights to them may be unenforceable.

Others could claim that we infringe on their intellectual property rights which
may result in substantial costs, diversion of resources and management
attention, and harm to our reputation.

Although we believe that our products and services do not infringe the
intellectual property rights of others, we cannot give any assurances that we
can successfully defend an infringement claim. A successful infringement claim
against us could materially and adversely affect us in the following ways:

. we may be liable for damages and litigation costs, including attorneys'
fees

. we may be enjoined from further use of the intellectual property

9
<PAGE>

. we may have to license the intellectual property, incurring licensing
fees

. we may have to develop a non-infringing alternative, which could be
costly and delay projects, and

. we may have to indemnify clients with respect to losses incurred as a
result of our infringement of the intellectual property.

Regardless of the outcome, an infringement claim could result in
substantial costs, diversion of resources and management attention, termination
of customer contracts and harm to our reputation.

Our failure to meet Nasdaq National Market System listing requirements could
adversely affect the market for our common stock.

Although our common stock is listed on The Nasdaq National Market System,
continued listing on the National Market System is subject to our ability to
maintain a $5 million public float and to satisfy other Nasdaq criteria. If we
are unable to satisfy this criteria in the future, we could be required to apply
for listing on The Nasdaq SmallCap Market, which may result in less market
visibility and thus adversely affect the price of our common stock..

You may be subject to dilution.

Our outstanding preferred stock is convertible into $2.25 million of common
stock at a discount of either 85% or 77% of the then-current market price,
depending on the timing of the conversion. We also have convertible debt,
warrants and stock options outstanding that could result in dilution for our
common stockholders.

You should not expect dividends from us.

We do not expect to declare or pay any cash dividends in the near future.

___________________

This prospectus also contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described above and elsewhere in this
prospectus. We assume no obligation to update any forward-looking statements or
reason why actual results might differ.

USE OF PROCEEDS

We will not receive any proceeds from the selling stockholders' sale of
shares.

10
<PAGE>

PRICE RANGE OF COMMON STOCK

Our common stock is listed on The Nasdaq National Market under the symbol
"VISG." The following is the range of high and low closing prices on The Nasdaq
National Market for the common stock for the periods indicated.

High Low
---- ---
Calendar Year 1997
First Quarter 14-3/4 9-1/8
Second Quarter 18-1/4 7-7/8
Third Quarter 20-1/2 9-7/8
Fourth Quarter 12-1/4 5-1/2

Calendar Year 1998
First Quarter 7-3/8 4-7/8
Second Quarter 5-3/8 1-15/16
Third Quarter 3-1/2 1-1/4
Fourth Quarter 2-1/4 5/8

Calendar Year 1999
First Quarter 1-13/16 1-1/16
Second Quarter 1-5/8 3/4
Third Quarter 2-1/2 1-3/16
Fourth Quarter 8-1/16 1-1/2

The last sale price of the common stock on The Nasdaq National Market on
May 2, 2000 was $6.00.

DIVIDEND POLICY

We have never paid cash dividends on our common stock and we have no plans
to do so in the foreseeable future. We intend to retain earnings, if any, to
develop and expand our business. In addition, the terms of our credit
facilities and the series A preferred stock restrict our ability to pay cash
dividends on our common stock. We also expect the terms of agreements governing
any future indebtedness to restrict our ability to pay cash dividends.

11
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 1999
on an actual basis. This information should be read in conjunction with our
financial statements and notes appearing elsewhere in this prospectus. See
"Selected Financial Data" on page 13 and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on page 15.

As of December 31, 1999
-----------------------

(dollars in thousands)
Current portion of long-term obligations
Current portion of long-term debt................ $ 2,500
Obligations under capital leases................. 4,048
--------
$ 6,548
--------

Obligations under capital leases...................... 7,964
Long Term Debt........................................ 4,000
Obligations under related party capital leases........ 2,757
Convertible subordinated debt......................... 1,000

Shareholder's Equity
Preferred stock, $.001 par
value, 2,000,000 shares authorized, 3,000
shares outstanding as of December 31, 1999.. 2,782
Common stock, $0.001 par value, 20,000,000 shares
authorized, 9,275,940 shares issued and
outstanding.................................. 9

Additional paid-in-capital........................ 26,545
Retained earnings (deficit)....................... (13,546)
--------
Total shareholder's equity........................ $ 15,790
--------
Total capitalization.................................. $ 38,059
========

12
<PAGE>

SELECTED FINANCIAL DATA

The financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 15, and our Financial Statements and related notes thereto
included elsewhere in this registration statement.

<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 (1) 1997 (2) 1996 1995
---- ---- ---- ---- ----
(in thousands, except per share amounts)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues.................................. $19,297 $ 16,259 $ 29,388 $24,971 $11,221
Project costs............................. 15,131 15,957 26,122 19,484 10,361
------- -------- -------- ------- -------
Project margin............................ 4,166 302 3,266 5,487 860
------- -------- -------- ------- -------
Operating expenses:
Sales and marketing...................... 739 2,195 4,930 1,852 999
Research and development................. 253 358 152 235 1,089
General and administrative............... 1,939 2,247 2,105 1,880 1,204
------- -------- -------- ------- --------
Total operating expenses............. 2,931 4,800 7,187 3,967 3,292
------- -------- -------- ------- --------
Operating income (loss)................... 1,235 (4,498) (3,921) 1,520 (2,432)
Interest expense, net..................... 2,230 1,667 441 714 515
------- -------- -------- ------- --------
Income (loss) before income taxes and
cumulative effect of accounting change (995) (6,165) (4,362) 806 (2,947)
Income taxes.............................. - - - 205 -
------- -------- -------- ------- --------
Income (loss) before cumulative effect of
accounting change (995) (6,165) (4,362) 601 (2,947)
Cumulative effect of accounting change - 1,038 - - -
------- -------- -------- ------- --------
Net income (loss) (995) (7,203) (4,362) 601 (2,947)
Preferred stock dividends 1,003 - - - -
------- -------- -------- ------- --------
Net income (loss) applicable to common
shareholders $(1,998) $ (7,203) $ (4,362) $ 601 $ (2,947)
======= ======== ======== ======= ========
Basic income (loss) per share applicable
to common shareholders before
cumulative effect of accounting change $ (0.23) $ (0.75) $ (0.54) $ 0.10 $ (0.52)
Basic net income (loss) per share
applicable to common shareholders (3) $ (0.23) $ (0.88) $ (0.54) $ 0.10 $ (0.52)
======= ======== ======== ======= ========
Weighted average basic common shares
outstanding 8,610 8,175 8,060 6,022 5,680
======= ======== ======== ======= ========
Diluted income (loss) per share applicable
to common shareholders before
cumulative effect of accounting change $ (0.23) $ (0.75) $ (0.54) $ 0.09 $ (0.52)
Diluted net income (loss) per share
applicable to common shareholders (3) $ (0.23) $ (0.88) $ (0.54) $ 0.09 $ (0.52)
======= ======== ======== ======= ========
</TABLE>

13
<PAGE>

<TABLE>

<S> <C> <C> <C> <C> <C>
Weighted average diluted common shares
outstanding 8,610 8,175 8,060 6,537 5,680
======= ======== ========= ======= ========
</TABLE>

<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------
1999 1998 (1) 1997 (2) 1996 1995
---- ---- ---- ---- ----
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Working Capital........................ $13,549 $ 11,089 $ 15,261 $20,676 $ 7,413
Total assets........................... 44,680 46,444 47,463 36,119 11,285
Long-term obligations.................. 15,721 18,058 13,300 4,420 8,319
Shareholders' equity................... 15,790 12,618 18,736 23,020 -
Net assets (4)......................... - - - - 1,323
</TABLE>

(1) 1998 amounts reflect the impact of charges of $230 for restructuring, $1,321
for the early adoption of SOP 98-5, Reporting on the Costs of Start-Up
Activities, and $2,322 to revise project margins and contract cost-to-
complete estimates.
(2) 1997 amounts reflect the impact of charges of $7.6 million for investments
in technology, services and markets.
(3) See note 2 of Notes to Financial Statements for information concerning the
computation of basic and diluted net income (loss) per share.
(4) Net assets represents divisional investment during the time the Company
operated as a division of Lau Technologies.

14
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with
the "Selected Financial Data" on page13 and the financial statements and notes
included elsewhere in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in "Risk
Factors" on page 6, as well as those discussed in the section below entitled
"Certain Factors that may Affect Future Results." The cautionary statements
made herein should be read as being applicable to all related forward-looking
statements in this prospectus.

Overview

Viisage is a leader in the emerging field of biometrics technology and in
providing digital identification systems and solutions. We focus on
identification solutions that improve personal convenience and security, deter
fraud and reduce identification program costs. We combine our systems
integration and software design capabilities with our proprietary software and
hardware products and other industry standard products to create complete
customized solutions. These turnkey solutions integrate image and data capture,
create relational databases, incorporate multiple biometrics and improve
customers' ability to move and manage information. Applications can include
driver's licenses, voter registration, national ID's, law enforcement, social
services, access control and PC network and internet access security. To date,
our primary customers have been government agencies with particular emphasis on
U.S. drivers licensing agencies. Since Viisage's inception in 1993, we have
captured approximately 30% of the domestic driver's license market. Our products
annually produce more than 20 million identification documents at approximately
1,500 locations in 12 states. We have also provided services under subcontracts
for projects in Jamaica, the Philippines and for the U.S. Immigration and
Naturalization Service.

Viisage began operations in 1993 as a division of Lau Technologies ("Lau"),
a provider of systems integration services and products for sophisticated
electronic systems. In November 1996, Lau transferred substantially all of the
assets, liabilities and operations of the division to us and we completed our
initial public offering. Lau currently owns 59% of Viisage.

Since 1997, our revenue growth has slowed due primarily to lengthening
procurement cycles in our principal markets and a strong competitive
marketplace. We believe that the acceptance of digital identification
technology in recent years, our commitment to providing customized solutions for
our customers needs, our expertise in facial imaging and biometric solutions and
our proprietary software and hardware products will continue to contribute to
our growth.

15
<PAGE>

Effective June 1, 1998, we reorganized our operations to create a separate
biometrics division to respond to the growing market interest in biometric
solutions. The biometrics division is focused on product, market and channel
development activities in three principal areas: facility access control; PC
network and internet access security; and real-time large database
identification and verification of individuals. The systems integration and
identification card division (SI division) focuses on our public sector markets
and serves as a channel to existing customers and the public sector for our
biometric technologies.

We are engaged in one business, the development and implementation of
digital identification systems and solutions. As discussed above, since June 1,
1998, we have operated in two segments. Amounts for the biometrics division
prior to the reorganization are not material or meaningful.

The SI division provides systems and services principally under contracts
that have five to seven year terms and provide for several annual renewals after
the initial contract term. Contracts generally provide for a fixed price for
the system and/or for each card produced. Contract prices vary depending on,
among other things, design and integration complexities, the nature and number
of workstations and sites, the projected number of cards to be produced, the
size of the database, the level of post-installation support and the competitive
environment. Substantially all of our revenues are currently derived from the
SI division's public sector customers and contractors to such customers. We
believe for the foreseeable future that we will continue to derive a significant
portion of our revenues from a limited number of large contracts. For the years
ended December 31, 1999, 1998 and 1997, one customer, three customers, and four
customers, respectively, each accounted for more than 10% of our revenues and an
aggregate of 52%, 40%, and 46% of revenues for each of the periods,
respectively.

Our results of operations are significantly affected by, among other
things, the timing of award and performance on contracts. As a result, our
revenues and income may fluctuate from quarter to quarter, and comparisons over
longer periods of time may be more meaningful. Our results of operations are
not seasonal since contracts are awarded and performed throughout the year.
However, we believe our public sector business is subject to cyclical
procurement delays that may be related to state-wide election cycles. Biometric
division revenues have not been material to date and operations are not expected
to be seasonal.

Results of Operations
Year ended December 31, 1999 and 1998

Revenues. Revenues are derived principally from multi-year contracts for
system implementation, card production and related services. Revenue grew to
$19.3 million in 1999 from $16.3 million in 1998. The 18.7% increase between
the two years was primarily the result of contract extensions with the State of
Ohio and the Commonwealth of Massachusetts along with new contracts with the
States of Maryland, South Carolina and Wisconsin Department of Corrections.

16
<PAGE>

Margins. Gross margins increased to 21.6% in 1999 from 1.9% in 1998. The
increase in gross margins between the two periods is due principally to the
positive impact of higher margin new business on the overall revenue mix in
1999 and the negative impact of start-up and restructuring costs in 1998.

Sales and Marketing. Sales and marketing expenses decreased $1.5 million
in 1999 from 1998. This represents a decrease to 3.8% from 13.5% of revenue for
the year to year period. The decrease is due principally to restructuring and
the related reductions in headcount, more focused marketing efforts, and the
Company's ongoing cost reduction efforts.

Research and Development. Research and development expenses decreased $0.1
million in 1999 from 1998. This represents a decrease to 1.3% from 2.2% of
revenue for the year to year period. The decrease is due principally to
restructuring and related reductions in headcount, more focused R & D efforts,
and the Company's ongoing cost reduction efforts. Research and development
costs do not include amounts for specific projects that are allocated to project
costs and do not reflect the benefits to Viisage under license arrangements from
the research and development efforts of Lau and the Massachusetts Institute of
Technology for projects that are not directly related to the Company.

General and Administrative. General and administrative expenses fell $0.3
million in 1999 from 1998, a decrease to 10.0% from 13.8% of revenue. The
saving is due principally to restructuring and related reductions in headcount
and the Company's ongoing cost reduction efforts.

Interest Expense. Interest expense rose $0.6 million in 1999 from 1998.
This represents an increase to 11.6% from 10.3% of revenue. The additional cost
is due principally to increased borrowing and leasing activity due to new
business.

Income Taxes. The Company did not record any tax benefit for the 1999 loss
due to the uncertainty of when such benefits will be realized.

Year ended December 31, 1998 and 1997

Charges and Accounting Change. During the first quarter of 1998, the
Company recorded charges of approximately $230,000 related to a restructuring to
reduce expenses in line with the Company's revised plan for 1998. Approximately
$50,000 of such charges are included in project costs, $170,000 are included in
sales and marketing expenses and $10,000 are included in general and
administrative expenses in the statement of operations. During the third and
fourth quarters of 1998, the Company recorded charges of $472,000 and
$1,850,000, respectively, to revise project margins and contract cost-to-
complete estimates. Approximately $2,222,000 of such charges are included in
project costs and $100,000 are included in general and administrative expenses
in the statement of operations.

The Company elected early adoption of Statement of Position No. 98-5 (SOP
98-5),

17
<PAGE>

Reporting on the Costs of Start-Up Activities, which requires start-up costs to
be expensed as incurred rather than capitalized. The Company previously
capitalized certain start-up costs as pre-contract costs under SOP 81-1,
Accounting for Performance of Construction-Type and Certain Production-Type
Contracts, and charged such costs to contracts upon award. As required, the
adoption of SOP 98-5 has been made effective as of the beginning of 1998. The
cumulative effect of the change in accounting principle of $1,038,000 was
recorded as a one-time charge in the Company's results for the year. Project
costs also include start-up costs of $283,000, which were incurred in the first
quarter of 1998.

Revenues. SI division revenues are derived principally from systems
implementation, card production and related services under multi-year contracts.
Biometrics division revenues are derived principally from software development
services. Revenues decreased 45% to $16.3 million for 1998 from $29.4 million
in 1997. This decrease reflects the slowdown in new business awards during 1997
and 1998. Biometrics division revenues for the period were approximately
$500,000, all of which were earned under a subcontract from Lau.

Project Costs and Margin. SI division project costs consist primarily of
hardware, consumables (printer ribbons, cards, holographic overlays, etc.),
system design, software development and implementation labor, maintenance and
overhead. Biometrics division project costs consist primarily of labor and
related overhead. As a percentage of revenues, project costs, excluding charges
and accounting change, increased to 82% for 1998 from 71% for 1997. This
increase reflects the impact of lower margin contracts in the overall revenue
mix and overhead variances resulting from lower than anticipated 1998 revenues.
Including charges and accounting change, project costs increased to 98% for 1998
compared to 89% for 1997. This increase reflects the charges discussed above
which are due in part to enhancements to central production operations and
technology and transitioning to an in-house maintenance organization during
1998. Project margin, excluding charges and accounting change, decreased 66% to
$2.9 million (18% of revenues) for 1998 from $8.5 million (29% of revenues) for
1997. This decrease reflects lower revenues in 1998 and the increases in project
costs discussed above. Including charges and accounting change, project margin
decreased 91% to $302,000 (2% of revenues) compared to $3.3 million (11% of
revenues) for 1997. Biometrics division project costs for 1998 were $516,000,
including a portion of the overhead variances discussed above.

Sales and Marketing. Sales and marketing expenses consist primarily of
compensation and professional service fees for marketing, bid and proposal and
customer support activities. Sales and marketing expenses, excluding charges,
decreased 23% to $2.0 million from $2.6 million for 1997. This decrease reflects
the reduction in headcount and related expenses in connection with the
restructuring mentioned above. Including charges, sales and marketing expenses
decreased 55% to $2.2 million for 1998 compared to $4.9 million for 1997. As a
percentage of revenues, sales and marketing expenses, excluding charges,
increased to 12% for 1998 from 9% for 1997 due to the decrease in 1998 revenues
discussed above. Including charges, sales and marketing expenses were 14% for
1998 compared to 17% for 1997. Sales and marketing expenses since the
reorganization for the biometrics division were $380,000.

18
<PAGE>

Research and Development. Research and development expenses consist
principally of compensation, outside services and materials utilized for product
and software development activities that are not related to specific projects.
Research and development expenses increased 135% to $358,000 for 1998 from
$152,000 for 1997. Expenditures for 1998 and 1997 relate primarily to the
Company's facial recognition products. Such amounts do not include amounts for
specific projects that are allocated to project costs and do not reflect the
benefits to the Company under license arrangements from the research and
development efforts of Lau Technologies and the Massachusetts Institute of
Technology for projects that are not directly related to the Company.

General and Administrative. General and administrative expenses consist
principally of compensation for executive management, finance and administrative
personnel and outside professional fees and are shared by the Company's two
divisions. General and administrative expenses, excluding charges, remained
constant at approximately $2.1 million for 1998 and 1997. Amounts for 1998
reflect the restructuring and reorganization charges discussed above and the
related transfer of certain management expenses to general and administrative
expenses. Including charges, general and administrative costs increased 7% to
$2.3 million. As a percentage of revenues, general and administrative expenses,
excluding charges, increased to 13% for 1998 compared to 7% for 1997 due
primarily to lower revenues in 1998. Including charges, general and
administrative costs were 14% of revenues.

Interest Expense. The increase in net interest expense to $1.7 million for
1998 from $441,000 for 1997 reflects increased borrowings during 1998 and a
reduction in interest earned on cash equivalents in 1998.

Income Taxes. The Company did not record any tax benefit for the 1998 or
1997 losses due to the uncertainty of whether such benefit will be realized.

Liquidity and Capital Resources

Cash and equivalents were $0.4 million at December 31, 1999, an increase of
$0.3 million from December 31, 1998. The increase is primarily the result of
cash generated by operating and financing activities. These cash inflows were
largely offset by cash outflows for investing activities.

Accounts receivable decreased 23.8% from December 31, 1998 to December 31,
1999. Day's sales outstanding in receivables improved to 62 days at December
31, 1999 from 96 days at December 31, 1998.

Costs and estimated earnings in excess of billings increased 2.3% from
December 31, 1998 to December 31, 1999, which reflects the impact of additional
business volume that will be billable in the future.

Historically, the Company has not made substantial capital expenditures for
facilities,

19
<PAGE>

office and computer equipment, instead, satisfying its needs in these areas
principally through leasing.

The Company has a revolving credit facility with a commercial bank that
provides for borrowings of up to $6.5 million through June 30, 2000 at the prime
rate plus 1%. The revolving credit facility is secured by substantially all of
the Company's assets and requires the Company to maintain certain financial
ratios and minimum levels of earnings and tangible capital funds, as defined.
At December 31, 1999, the Company was in compliance with all loan covenants.
The revolving credit facility also requires the Company to raise funds, as
needed, from other sources to cover biometrics division expenses. These sources
are expected to include a combination of biometrics division revenues,
subordinated debt and equity capital.

In March 2000, the Company received a two-year commitment letter from a
commercial bank to provide a new revolving credit facility to the Company
through April 2002. In connection with the bank's commitment, the revolving
credit facility is amended to provide for borrowings of up to $4 million at the
prime rate plus 1 1/4%. The facility is secured by substantially all of the
Company's assets and requires the Company to maintain certain financial ratios
and minimum levels of earnings and tangible capital funds, as defined.

The Company also has a system project lease financing arrangement with a
commercial leasing organization. Pursuant to this arrangement, the lessor
purchases certain of our digital identification systems and leases them back to
the Company for deployment with identified and contracted customers approved by
the lessor. The lessor retains title to the systems and has an assignment of
the Company's rights under the related customer contracts, including rights to
use the software and technology underlying the related systems. Under this
arrangement, the lessor bears the credit risk associated with payments by the
Company's customers, but the Company bears performance and appropriation risk
and is generally required to repurchase a system in the event of a termination
by a customer for any reason except credit default. The Company is also
required to maintain certain financial ratios and minimum levels of tangible
capital funds, as defined. As of December 31, 1999, the Company was in
compliance with all lease covenants. These project lease arrangements are
accounted for as capital leases. The current arrangement provides for project
financing of up to $15.0 million. At December 31, 1999, the Company had
approximately $11.6 million outstanding under the lease financing arrangement.
The Company has a similar lease financing arrangement with Lau that provides for
up to $3.1 million of capital lease financing in 1999 with $3.1 million
outstanding at December 31, 1999.

The Company believes that it will continue to meet its debt covenants.
However, this expectation is dependent in part on achieving business forecasts
and raising funds to cover biometrics division expenses. If the Company does
not meet such covenants, the bank and the lessor could require immediate
repayment of amounts outstanding.

In May 1999, the Company received a commitment from Lau to lend up to $2
million in exchange for a 4% convertible subordinated note. Amounts drawn under
the note, with Lau's consent, and related accrued interest are convertible at
Lau's option into shares of the Company's

20
<PAGE>

common stock at any time prior to January 1, 2001 at $1.26 per share. In May
1999, the Company borrowed $1 million under this commitment. The Company plans
to raise additional funding, as needed, from other sources.

In July 1999, the Company completed a $1.5 million private placement of
Series A Convertible Preferred Stock (the "preferred stock") and warrants with a
private equity fund. The preferred stock accrues dividends at 7% per annum,
payable in cash or stock at the Company's option upon conversion. Subject to
certain limits on the number of shares the holder can convert at any one time,
the holder can convert up to 50% of the preferred stock into shares of the
Company's common stock beginning six months after closing and the balance
beginning nine months after closing. Shares can be converted at the lesser of
$3.00 per share or 85% of the market price prior to conversion of the Company's
common stock for conversions within ten months from the closing date or 77% of
the market price prior to conversion for conversions after ten months from the
closing date. The Company has the right at any time to redeem the preferred
shares. Subject to certain volume limitations, the preferred stock is required
to be converted into the Company's common stock on June 30, 2002. Within ten
(10) business days after that date, the Company may either (i) redeem the
outstanding shares of Series A Preferred Stock, together with all accrued and
unpaid dividends thereon, in cash, to the date of redemption or (ii) extend the
mandatory conversion date for a period of one year. The Company has agreed to
register for resale the common stock underlying the preferred shares, related
dividends and warrants. This transaction was an exempt transaction under Section
4(2) of the Securities Act of 1933, as amended. In connection with this
transaction, the Company paid an investment banking fee of $112,500 and a
warrant to purchase 75,000 shares of the Company's common stock, exercisable for
three years, at an exercise price of $1.79 per share which was 130% of the then
current closing price of the Company's common stock. The Company also issued a
warrant to purchase 75,000 shares of the Company's common stock, exercisable for
three years, at an exercise price of $1.58 per share to the investor.

In December 1999, the Company completed a $1.5 million private placement of
Series B Convertible Preferred Stock (the "preferred stock") and warrants with a
private equity fund. The preferred stock accrues dividends at 7% per annum,
payable in cash or stock at the Company's option upon conversion. Subject to
certain limits on the number of shares the holder can convert at any one time,
the holder can convert up to 50% of the preferred stock into shares of the
Company's common stock beginning six months after closing and the balance
beginning nine months after closing. Shares can be converted at the lesser of
$7.00 per share or 85% of the market price prior to conversion of the Company's
common stock for conversions within ten months from the closing date or 77% of
the market price prior to conversion for conversions after ten months from the
closing date. The Company has the right at any time to redeem the preferred
shares. Subject to certain volume limitations, the preferred stock is required
to be converted into the Company's common stock on October 30, 2002. Within ten
(10) business days after that date, the Company may either (i) redeem the
outstanding shares of Series B Preferred Stock, together with all accrued and
unpaid dividends thereon, in cash, to the date of redemption or (ii) extend the
mandatory conversion date for a period of one year. The Company has agreed to
register for resale the common stock underlying the preferred shares, related
dividends and

21
<PAGE>

warrants. This transaction was an exempt transaction under Section 4(2) of the
Securities Act of 1933, as amended. In connection with this transaction, the
Company paid an investment banking fee of $60,000 and a warrant to purchase
20,000 shares of the Company's common stock, exercisable for three years, at an
exercise price of $8.94 per share which was 130% of the then current closing
price of the Company's common stock. The Company also issued a warrant to
purchase 50,000 shares of the Company's common stock, exercisable for three
years, at an exercise price of $8.94 per share to the investor.

On December 9, 1999, a warrant issued through the placement of the series A
preferred stock was exercised at $1.79 for the purchase of 75,000 shares of
common stock.

In January 2000, 750 shares of series A preferred stock were converted into
259,356 shares of common stock.

On March 10, 2000, for an initial investment of $4,000,000 (of which
$1,500,000 is to be funded following the effectiveness of a registration
statement on Form S-3), we agreed to issue to Strong River Investments, Inc.
("SRI") 391,917 shares of common stock, a closing warrant to purchase 97,979
shares of the Company's common stock, exercisable for five years at $11.77 per
share, and an adjustable warrant, exercisable at nominal consideration during
three 25 trading day periods beginning four months following closing (which may
be delayed to December 31, 2000). On March 10, 2000, we issued 244,948 of these
shares of common stock to SRI, and agreed to issue the balance to SRI upon the
funding of $1,500,000 following the effectiveness of this registration
statement. The adjustable warrant terminates if the market value of the Company
common stock exceeds $14.28 for any 20 consecutive trading days prior to the
adjustment periods. If not terminated, the number of shares that may be acquired
under the adjustable warrant is determined by a formula that is dependent on the
extent to which the market value of the Company's common stock is less than
$11.09 per share during the adjustment periods. Subject to certain closing
conditions, two additional investments of $3,000,000 each may be invested by
SRI between 150 and 170 days after the initial investment and between 120 and
140 days thereafter on similar terms. The purchase price of the common stock for
each additional investment will be equal to 115% of the average per share market
value for the ten trading days prior to the applicable closing date and the
number of shares of common stock underlying the closing warrant will be equal to
25% of the common stock sold pursuant to each investment at an exercise price
equal to 125% of the average per share market price for the five trading days
prior to such closing date. The subsequent adjustable warrant will terminate
when the market value of the common stock on the applicable closing date exceeds
140% for any 20 consecutive trading days prior to the adjustment period. If not
terminated, the number of shares that may be acquired under the adjustable
warrant will be determined by a formula that is based on 108% of the market
value of the Company's common stock. In connection with this transaction,
Viisage paid an investment banking fee of $160,000 to Cardinal Securities,
L.L.C. ("Cardinal"), and issued warrants to purchase 75,000 shares of the
Company's common stock to Cardinal exercisable for five years, of which a
warrant to purchase 46,875 shares has an exercise price of $12.35 per share, and
a warrant to purchase 28,125 shares has an exercise price of one hundred thirty
percent (130%) of the current market price as of the applicable date following
the

22
<PAGE>

effectiveness of this registration statement.

The Company believes that if it meets its business forecast for 2000, cash
flows from available borrowings, project leasing, operations and capital raising
will be sufficient to meet the Company's working capital and capital expenditure
needs for the foreseeable future. There can be no assurance, however, that
additional capital will be available on favorable terms or at all.

Market Risk

Except for our revolving credit facility, which has a variable interest
rate, we have no material exposure to market risk that could affect our future
results of operations and financial condition.

Certain Factors That May Affect Future Results

We operate in an environment that involves a number of risks, some of which
are beyond our control. Forward-looking statements in this document and those
made from time to time by our senior management are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements concerning future plans or results are necessarily
only estimates and actual results could differ materially from expectations.
Certain factors that could cause or contribute to such differences include,
among other things, potential fluctuations in quarterly results, the size and
timing of award and performance on contracts, dependence on large contracts and
a limited number of customers, lengthy sales and implementation cycles, changes
in management estimates incident to accounting for contracts, availability and
cost of key components, market acceptance of new or enhanced products and
services, proprietary technology and changing technology, competitive
conditions, system performance, management of growth, dependence on key
personnel, and general economic and political conditions and other factors
affecting spending by customers.

Inflation

Although certain of our expenses increase with general inflation in the
economy, inflation has not had a material impact on our financial results to
date.

Accounting Pronouncements

There are no accounting pronouncements pending adoption that are expected
to have a significant impact our current disclosures.

23
<PAGE>

BUSINESS

Overview

Viisage is a leader in the emerging field of biometrics technology and in
providing digital identification systems and solutions.

Our biometrics division develops and markets biometrics technology that
includes our patented facial recognition products used for access control, PC
network and internet access security and the real-time large database
identification and verification of individuals. Our "Face-in-the-Crowd"
products can recognize real-time facial images in a crowd from video and can be
used for access control and surveillance applications. We focus on facial
images as a key biometric because the human face is a unique and prominent
feature, and a digital camera easily captures a facial image. In addition, most
individuals can visually verify human facial features without special training.

Viisage was formed in 1993 as a division of Lau, a systems integration
services and products provider for sophisticated electronic systems. In
November 1996, Lau transferred substantially all of the assets, liabilities and
operations of the division to Viisage. At that time, we also completed an
initial public offering. Lau currently owns 59% of Viisage and remains our
technology partner.

Industry Background

Most people need proper identification on a daily basis. The desire for
personal convenience, the significant and increasing costs of fraud, and the
growing concern over declining personal security have created the global need
for effective identification solutions. For example, an individual can use a
fake driver's license to create multiple identities, commit

24
<PAGE>

fraud, evade law enforcement and engage in other criminal activities.
Additionally, individuals can compromise security systems by fraudulently
obtaining a password or identity card and using it to gain unauthorized access
to facilities, networks or information. The development of photographic
identification cards encapsulated within laminated pouches attempted to combat
such fraud and tampering. However, individuals can replicate photographic
identification cards using widely available advanced color copiers and printers,
and laminated pouches have proven easy to delaminate.

There exists an increasing demand for digital identification systems to
replace the existing systems due to advances in, and the acceptance of, digital
technology. Digital systems enable the fabric of the card to capture
information and images through the use of dye-sublimation techniques. The
benefits of digital systems are that:

. digital cards are significantly more resistant to tampering than
laminated pouches

. customers can store information in, and later access information from
the card itself, through the use of bar codes, magnetic stripes and
"smart" cards (cards which contain computer chips)

. digital systems also facilitate the storage of information in computer
databases, and thereby reduce the need for manual record-keeping, file
cabinets, and cumbersome indexing systems, and

. digital systems can be networked to enable customers to share up-to-date
information and distribute it across geographic and organizational
boundaries. The ability to move and manage information increases
personal convenience for system users.

Additionally, identification systems using biometrics, or unique biological
characteristics, to verify personal identities improve personal convenience,
improve security, and deter fraud. Biometric identifiers include:

. facial images
. fingerprints
. iris scans
. retinal scans
. voice data, and
. hand geometry.

Each of these biometrics has limitations relative to accuracy, ease of use, and
availability. Facial recognition has unique advantages over other biometrics in
that it is the most accurate, non-intrusive biometric technology. Moreover,
unlike other biometric identifiers, it is the most intuitive way to recognize
people and is one of the easiest biometrics to collect both overtly and
discreetly through photography. Facial recognition technology is therefore a
practical means of personal identification.

25
<PAGE>

As the technology relating to applications for digital identification
systems and biometrics becomes more sophisticated and user-friendly, the
public's demand for the applications increases. For example, multiple licensing
or other agencies, including departments of motor vehicles, exist in most
American states. These agencies have a need for secure identification cards and
identification and verification solutions.

We believe that public and commercial sector applications for digital
identification systems and biometrics include:

. national identifications
. driver's licenses
. law enforcement
. voter registration
. social services
. access control
. personal computer network and internet access security
. automated teller machines
. retail point-of-sale transaction processing, and
. administration of health care benefits.

The Viisage Solution

We operate our business through two separate divisions - a systems
integration and identification card division ("SI Division") that delivers
secure quality identification solutions, and a biometrics division that
responds to the growing market demand for biometric solutions.

Our SI Division develops and implements digital identification systems and
solutions and serves as a channel for the biometrics division to the public
sector. The SI Division produces identification cards that are virtually
tamper-proof. It also implements facial recognition technology and other
biometrics with and without cards for the real-time identification and
verification of individuals.

The SI Division offers our customers ''instant issue'' systems which
produce identification cards on location in minutes. Central production systems
receive the information electronically from the point of capture, produce cards
from a secure off-site processing location, and then mail the cards to
recipients within several days. The SI Division card systems capture the facial
images in digital format at the Image Capture Workstation and can thereby
provide the content (face bases) for identification and verification
applications. The personal computer-based workstation often incorporates the SI
Division's proprietary SensorMast unit. See "Products and Services" on page 27.
Our workstations are compact and self-contained, and we typically network them
to a central image storage device, central card production unit and other remote
devices using an existing network, custom designed data communications or the
World Wide Web. This flexibility makes the Image Capture Workstation ideal for
instant issue, central

26
<PAGE>

production, mobile use and multiple site systems.

Additionally, we can use our Quality Advisor to assess image quality at the
point of capture. In an instant issue system, dye-sublimation printers produce
single-piece, tamper-resistant identification cards. Alternatively, in a central
production system, a high speed manufacturing unit produces the cards, and an
integrated card delivery unit prepares the cards for mailing. Central
production systems incorporate the SI Division's proprietary Visual Inspection
System for quality control of all cards produced. Every system delivers top
quality, tamper-resistant identification cards customized to meet the customer's
information, delivery and security needs. We also offer our customers a wide
range of optional features, including:

. bar codes
. holographic overlays
. ghost imaging
. ultraviolet or micro preprinting
. smart cards, and
. a number of other security and information features.

The biometrics division develops our biometric technologies in cooperation
with Lau, our principal shareholder and technology partner. We particularly
focus on facial recognition technology. We believe that the facial image is a
key biometric because the human face is a unique and prominent feature that most
individuals without special training can verify visually. Digital cameras can
also easily capture the image of the human face. The biometrics division
concentrates on developing technology for three principal areas:

. facility access control and surveillance
. personal computer network and internet access security, and
. real-time large database products.

We are involved in several on-going facial recognition identification projects,
including projects with the Massachusetts Department of Transitional Assistance,
Wisconsin Department of Corrections, Illinois Secretary of State, and as a
subcontractor to Lau for a police surveillance system in Western Europe.

Products and Services

SI Division
- -----------

The SI Division has developed the following proprietary products and related
software:

. SensorMast. The SensorMast is a fully-integrated, secure tower unit which
incorporates computer-controlled image capture equipment. The equipment
include s:

. commercially available digital cameras

27
<PAGE>

. adjustable lighting
. frame grabbers
. step motors
. fingerprint and signature capture devices, and
. bar code readers.

An integrated version includes the computer in the SensorMast.

. Visual Inspection System. The Visual Inspection System automatically
evaluates cards produced by the SI Division's central production systems.
Its evaluation determines whether the image and data on a person's
identification card corresponds to the information about that person in
the system database. If the information does not match, the Visual
Inspection System rejects the printed card and identifies the defect for
immediate corrective action. This system incorporates robotics, high-
speed cameras and sophisticated software to automate an activity
otherwise performed manually. The Visual Inspection System is therefore a
potential cost-effective technology for customers.

. Viisage Quality Advisor. Customers can use our Viisage Quality Advisor to
ensure proper image quality. This software product instantly and
precisely assesses image quality against desired standards. We
immediately reject images that fail to meet such standards.

We also integrate our systems with and into our customers' existing
software, hardware and computing environments and design customized software to
deliver turnkey solutions to our customers.

Our proprietary software controls the system and integrates the system
components, including SensorMast, Visual Inspection System, and a variety of
third party components and technologies which our customers use. The SI Division
has designed software to support all current industry:

. standard operating systems, such as Windows NT, Windows 95, Unix and OS/2
. network protocols, such as Novell Netware, TCP/IP and SNA
. database products, such as Sybase or Oracle, and
. client/server architectures.

The SI division's software design and systems integration capabilities
enable it to accommodate customers with special requirements in most computing
environments.

Customer Service and Support. In addition to installing its digital
identification systems, the SI Division offers its customers extensive customer
training, help desk telephone support, consumables procurement and management,
and ongoing maintenance services. The SI Division's service and support teams,
which vary depending on the customer and contract, rely

28
<PAGE>

on the expertise of our software and hardware engineers. In some cases, we have
contracted with third party service organizations to provide maintenance
support.

Biometrics Division
- -------------------

Viisage and Lau have enhanced the facial recognition technology initially
developed by Professor Alex Pentland of the Massachusetts Institute of
Technology ("MIT"). We have developed products for access control,
surveillance, and real-time large database identification and verification of
individuals. We each license the underlying MIT technology for our respective
markets through Facia Reco Associates Limited Partnership ("Facia Reco"), an
entity which Dr. Pentland formed. Although Dr. Pentland's software serves as
the basis of our facial recognition technologies, we believe that the
proprietary software which we developed over the last five years is essential to
making these technologies commercially viable.

Our patented facial recognition software offers customers the ability to
create unique identification solutions which enhance existing identification
solutions and offer opportunities for new applications. Our software uses a
sophisticated algorithm to translate facial characteristics into a unique number
or eigenface. Our system uses the eigenface for identification, a one-to-many
search of a database, and verification, a one-to-one match to a specific stored
image. Our facial recognition products are unique because they are scaleable to
databases of millions of faces.

We offer several facial recognition software systems that customers can
utilize in virtually any solution that requires identification or verification
of an individual. For example, Viisage's identification software instantly
calculates an individual's eigenface identifier, and searches an existing
database of millions of records in less than 10 seconds for similar images. Our
Face-in-the-Crowd technology finds and identifies specific individuals in a
crowd by searching real-time for a match between individuals in the field and
images in a database. When a match is located, the system tracks the individual
and reports to the user. Early adopters of our identification and Face-in-the-
Crowd technology use the software for access control, fraud reduction,
surveillance and law enforcement applications. Customers can also use the
software with other biometrics, personal identification numbers and
identification cards, or by itself for a variety of applications.

We envision a day when society will be free from access cards, keys,
personal identification numbers and signatures, and your face will be the
private, secure and convenient password of choice.

Research and Development
- ------------------------

We have developed proprietary software in prior years to support all
current industry standard operating systems and networking environments. We
have also developed proprietary image capture products and inspection products
for our card-based identification systems. We believe that these products will
support our card-based identification system offerings in the

29
<PAGE>

foreseeable future. We record development costs for specific projects as project
costs, and costs that do not benefit specific projects as research and
development expenses. We have not capitalized any software development costs
because the costs which we have incurred subsequent to attaining technological
feasibility have been immaterial.

Our current development activities focus on our facial recognition products
and further commercialization of our facial recognition technology. In addition
to our own development efforts, we have benefited, and expect to continue to
benefit, from Lau's on-going research and development and from certain research
activities at MIT. We also benefit from research and development activities
which the manufacturers of components integrated into our systems conduct. For
the years ended December 31, 1999, 1998 and 1997, research and development
expenses were $253,000, $358,000 and $152,000, respectively. Such figures do
not include amounts for specific projects that we allocate to project costs, or
the cost of others' research and development activities from which we benefit.

Sales and Marketing Process

SI Division
- -----------

The SI Division markets its products through its internal sales force. The
SI Division strategically partners with lending systems integrators and service
organizations. Internationally, we form partnerships with established quality
local or multinational companies. These alliances provide us with access to
such organizations' existing relationships and marketing resources, and with
credibility in new markets. Our engineering department supports the internal
sales staff by providing pre- and post-sale technical support to customers.
This support entails:

. conducting joint customer calls
. defining solutions for customers
. designing systems for proposal activity
. supporting the implementation process, and
. providing post-implementation support.

The SI Division also uses its program managers to identify opportunities with
existing customers and coordinate related selling efforts.

The SI Division provides systems and services generally for five to seven
years under contracts that include several annual renewal options. The
contracts usually establish a fixed price for the system and/or for each card
produced. Contract prices vary depending on, among other things:

. design and integration complexities
. the nature and number of workstations and sites
. the projected number of cards the customer intends to produce
. the size of the database

30
<PAGE>

. the level of post-installation support required, and
. the competitive environment.

The SI Division's systems are generally provided to public sector customers
through a formal bidding process. The sales and marketing personnel regularly
conduct visits and attend industry trade shows to identify bid opportunities,
particular customer preferences, and to establish and cultivate relationships.
Agencies may require several years to secure funding for systems, complete the
request for proposal and bid processes, execute actual contracts, and install
systems. Our customers may also seek to modify the system either during or
after its implementation.

We believe that long sales cycles in our public sector markets will
continue and will require the commitment of marketing resources and investments
of working capital. We also believe, though, that the long sales cycles serve
as a barrier for smaller companies to enter the market and provide us with early
indicators of potential competitors for particular projects. Shorter sales and
implementation cycles may be involved for existing public and private sector
customers.

Biometrics Division
- -------------------

The biometrics division is a software content provider. Our sales force
and business development activities focus on establishing original equipment
manufacturer and other distribution arrangements with vendors, systems
integrators and service organizations that serve our principal market areas.
The SI Division and Lau also serve as marketing channels for the division's
products. The biometrics division's engineering department provides technical
support for the division's sales and channel development activities.

Manufacturers and Suppliers

Contract manufacturers, including Lau, manufacture proprietary subsystems
and assemblies to our specifications. We purchase other non-proprietary system
components, such as personal computers, printers and related components, from
third-party vendors. We generally purchase major contracted assemblies from
single vendors to ensure high quality, prompt delivery and low cost. We have
occasionally experienced delays due to unavailability of component parts and
assemblies. Consequently, we qualify second sources for most components,
contracted assemblies and purchased subsystems, and at least identify
alternative sources of supply. We believe that our systems' open architecture
facilitates necessary or desirable substitution of components or software.

Intellectual Property

We develop and customize technology to meet our customers' requirements,
and also utilize patented technology and trade secrets that Lau has developed.
We have an exclusive, perpetual, irrevocable, paid-up royalty-free worldwide
license to use all of the technology that

31
<PAGE>

Lau owns or controls relating to our business. This license does not include the
field that controls human entry through doorways, gates, turnstiles, or similar
thresholds in and to buildings or facilities located on United States federal
government property, or property of any other national government, through use
of apparatus at the entry point ("federal access control field"). Lau ownership
of intellectual property includes:

. a U.S. patent on a card production system which we use that expires in
2014
. a number of U.S. patent applications in process for facial recognition
technologies
. a copyright for SensorMast
. a copyright application filing for our Visual Inspection System and
related proprietary software, and
. foreign patent applications, which correspond to three of the U.S. patent
applications.

We also license patented technology and trade secrets from Facia Reco
relating to de-duplicating or querying databases which we or our sublicensees
create, control and/or manage and which directly or indirectly utilize personal
identification cards. Such license excludes federal access control. Our
license agreement with Facia Reco provides that we pay a royalty of $350 per
machine copy that incorporates the licensed technology. Until June 1, 2001, we
must pay a minimum annual royalty of approximately $21,000 for the U.S. rights,
and an amount ranging from $21,000 to $42,000 per year for the foreign rights.
This license expires when the final patent included in the license expires. The
license also includes Facia Reco's rights to use MIT's patented facial
recognition technology exclusively through June 1, 2001, except for certain
research rights and rights MIT granted to sponsors of the MIT Media Lab.
Thereafter, Facia Reco's patent license from MIT extends to 2010 on a non-
exclusive basis. MIT has also applied to extend its patent rights to certain
jurisdictions in Europe and in Singapore. Further, at Lau's request and
expense, the U.S. Patent and Trademark Office broadened claims for the MIT
patent.

We have registered the "Viisage" trademark with the U.S. Patent and
Trademark Office.

Customers and End Users

The following list categorizes our material customers and end users as of
December 31, 1999:

STATE DEPARTMENTS OTHER STATE AND LOCAL AGENCIES
OF MOTOR VEHICLES

- - Arizona Department of Social Services - Connecticut Department of Social
Services
- - Arkansas Office of Driver Services - Massachusetts Department of
Transitional Assistance
- - Florida Department of Highway Safety - New York Department of Social
and Motor Vehicles* Services*
- - Illinois Secretary of State - Ohio Department of Public Safety
- Wisconsin Department of Corrections
- - Maryland Department of Transportation
and

32
<PAGE>

Motor Vehicle Administration
- - Massachusetts Registry of Motor Vehicles
- - New Mexico Department of Taxation and
Revenue
- - North Carolina Department of Transportation
- - Ohio Bureau of Motor Vehicles
- - Wisconsin Department of Transportation
- - South Carolina Department of Public Safety

FEDERAL AGENCIES FOREIGN CONTRACTS

- - U.S. Immigration and Naturalization - Commission on Elections of the
Service* Republic of the Philippines*
- Electoral Office of Jamaica

(* By subcontract)

For the years ended December 31, 1999, 1998 and 1997, four customers, three
customers and one customer, respectively, each accounted for more than 10% of
the our revenues and an aggregate of 52%, 40%, and 46% of revenues for each of
the periods, respectively.

Backlog

We measure our backlog based on signed contracts, subcontracts and customer
commitments for which we have not yet recognized revenue. Backlog does not
include amounts for phase-outs or other extension opportunities included in such
contracts. Accordingly, backlog is not necessarily indicative of future
revenue. Our customers can cancel a substantial amount of our backlog at any
time without penalty, except for the recovery of our actual committed costs and
profit on work performed through the cancellation date. Our failure to meet an
agreed-upon schedule could also lead to the cancellation of the related order.
Several factors may create substantial fluctuations in backlog from time to
time, such as:

. the timing of contract awards
. the timing of contract performance
. size of the project, and
. modifications to contract awards.

Therefore, we do not consider backlog a meaningful indicator of future financial
performance.

As of December 31, 1999, our backlog was approximately $58 million,
compared to approximately $59 million as of December 31, 1998.

Government Contacts

33
<PAGE>

Government contracts are generally subject to termination for convenience
or lack of appropriation at the election of the subject agency. As of December
31, 1999, amounts subject to future negotiation were not material.

Competition

The market for Viisage's products and services is extremely competitive.
We expect this competition to intensify as the markets in which we sell our
products and services continue to develop. In some cases, we may have a
significant competitive disadvantage because we may be competing with an entity
that has a pre-existing relationship with a potential customer.

SI Division.
- -----------

The SI Division largely faces competition in the identification systems
market for both digital and conventional systems from Polaroid Corporation. In
1998, Polaroid acquired a former competitor, NBS Imaging Systems, Inc.

We believe that competition in the digital identification systems market is
based primarily upon the following factors:

. price
. service support
. systems and product performance, and
. flexibility in terms of accommodating customer needs, architectures,
platforms, systems and networks.

The relative importance of each factor depends upon the specific customer
and situation involved. Substantially all of the SI Division's sales to new
customers have been the result of competitive bidding pursuant to public sector
procurement rules. The bidding process generally increases the importance of
price as a competitive factor. We believe that our competitive advantage is
cost effectiveness, quality, reliable and consistent service, systems
integration and software design capabilities, and a responsive corporate
structure.

Biometrics Division.
- -------------------

In the field of biometric identification technology, we compete with other
facial recognition providers as well as other providers of biometric solutions.
For example, public agencies, and law enforcement agencies in particular, have
long used fingerprint recognition solutions. Other current suppliers of facial
recognition solutions are software development firms. We expect that as the
market for biometric solutions develops, companies with significant resources
and capabilities may enter the market and our competition will intensify.

Employees

34
<PAGE>

As of December 31, 1999, we employed 61 people and 6 independent
contractors. None of our employees are represented by labor unions, and we
believe that we have a good relationship with our employees.

Properties

We currently use approximately 15,000 square feet of space in Littleton,
Massachusetts and have access to common areas under the terms of a Use and
Occupancy Agreement with Lau through February 2002. See "Relationship and
Certain Transactions With Lau Technologies" on page 36. We believe that our
facilities are in good condition, are suitable and adequate for our present
operations, and that suitable space is available if Lau does not extend such
lease.

Legal Proceedings

We do not believe that any legal matters exist that would have a material
adverse effect on our business, financial condition or results of operations.

35
<PAGE>

RELATIONSHIP AND CERTAIN TRANSACTIONS WITH LAU TECHNOLOGIES

Prior to 1996, we operated as the Viisage Technology Division of Lau.
Viisage Technology, Inc. was incorporated in Delaware on May 23, 1996. On
November 6, 1996, Lau transferred substantially all of the assets and
liabilities of its Viisage Technology Division to us in exchange for shares of
our common stock. Immediately following that transfer, we completed an initial
public offering.

Asset Transfer Agreement

Viisage and Lau entered into an Asset Transfer Agreement, as amended and
restated as of August 20, 1996 (the ''Asset Transfer Agreement''). Pursuant to
the Asset Transfer Agreement, we issued to Lau 5,680,000 shares of common stock
(comprising all of our outstanding common stock other than the shares sold in
the initial public offering) in exchange for substantially all of the assets,
properties and business formerly constituting the Viisage Technology Division of
Lau. In connection with this transaction, we agreed to assume substantially all
of Lau's obligations and liabilities relating to the Viisage Technology
Division. Each party covenanted not to compete with the other for ten years.
Our obligation not to compete with Lau is limited to the field of federal access
control as defined in the Asset Transfer Agreement.

License Agreements

We have entered into the following licensing agreements with Lau:

. Amended and Restated License Agreement, dated August 20, 1996 which
became effective November 6, 1996. Under that license agreement, Lau
granted us an exclusive, perpetual, irrevocable, paid-up, royalty-free,
worldwide license (with sublicensing rights) for all of the technology
relating to the Viisage Technology Division at the time of transfer, and
for all improvements to such technology. This license does not permit us
to use the technology in the federal access control field as defined in
the Asset Transfer Agreement.

. License Agreement, dated February 23, 1998, pursuant to which we granted
Lau a nonexclusive, nontransferable right to utilize certain of our
proprietary technology to distribute Face-in-the-Crowd products in
Europe.

. License Agreement, dated as of March 31, 1999, pursuant to which we
granted Lau a nonexclusive, nontransferable right to utilize certain of
our proprietary technology to distribute Face-in-the-Crowd products for
United States airports and federal agencies.

. Supplemental License Agreement, dated as of June 15, 1999, between the
Company and Lau, pursuant to which the Company has granted Lau a limited
license to use any technology granted exclusively to Viisage under the
License Agreement to the extent reasonably required to enable Lau to
perform its obligations under: (i) an unconditional

36
<PAGE>

performance guaranty, dated October 8, 1998, with Fleet Business Credit
Corporation (as successor to Sanwa Business Credit Corporation) ("FBCC");
(ii) a contingent support agreement with FBCC, dated April 26, 1999; and
(iii) a contingent support agreement in favor of the Company's commercial
bank lender, State Street Corporation, dated May 7, 1999. Lau may also
use such technology to the extent reasonably required to enable Lau to
perform its obligations, if any, with respect to systems financed under
the Purchase Agreement between Lau and the Company described below.

. License Agreement, dated as of November 30, 1999, by and between the
Company and Lau, pursuant to which Lau has granted the Company an
exclusive (except for limited fields reserved by Lau), perpetual,
worldwide license to use the U.S. Patent No. 5,432,864 purchased by Lau
from Daozeng Lu and Simon Lu, and all improvements thereto, which relates
to a system for automatically verifying the identity of an individual
using identification parameters that are carried on an escort memory such
as an identification or credit card.

Administration and Services Agreement

In connection with the asset transfer described above, we entered into an
Administration and Services Agreement (the ''Services Agreement'') with Lau
dated November 1, 1996. Under the Services Agreement, Lau provides certain
general accounting, data processing, payroll, human resources, employee benefits
administration and other executive services to us. The Services Agreement
requires us to pay a monthly fee based on the estimated actual cost of such
services and permits us to terminate selected services upon 30 days' written
notice. The cost for these services was $418,000 and $636,000 for 1999 and
1998, respectively.

Use and Occupancy Agreement

We have also entered into a Use and Occupancy Agreement ("Use and Occupancy
Agreement") with Lau dated November 1, 1996, which contains the terms and
conditions relating to our continued use and occupancy of certain office space
for our corporate headquarters. The Use and Occupancy Agreement requires us to
pay our proportionate share of the cost of shared facilities and office services
including rent, insurance, property, taxes, utilities, and other operating
expenses, based on square footage or equipment we utilize. In February, 1997,
we moved to larger facilities and extended the Use and Occupancy Agreement
through February, 2002. The cost for facilities and services was $217,000 and
$550,000 for 1999 and 1998, respectively.

Additional Transactions

We issued subordinated debt and options to Lau, as set forth in the section
entitled "Security Ownership" on page 44. From time to time, we purchase
certain system components

37
<PAGE>

and the services of technical personnel from Lau. The amounts for such
components and services was approximately $500,000 and $1 million for 1999 and
1998, respectively. In addition, Lau has provided us with equipment lease
financing and has agreed, in certain circumstances, to guarantee certain of our
contract obligations in exchange for stock options and cash compensation.

Policy on Affiliate Transactions

We have adopted a policy, included in our bylaws, that all material
transactions between Viisage, and our officers, directors, and other affiliates
(including Lau and its affiliates) must:

. be disclosed by the officer, director or affiliate and approved by a
majority of the disinterested members of our board of directors;

. be disclosed by the officer, director or affiliate and approved by vote
of the stockholders; or

. be on terms no less favorable to us than could be obtained from
unaffiliated third parties, and determined as fair to us by our directors
or stockholders in accordance with the Delaware General Corporation Law.

38
<PAGE>

MANAGEMENT

Executive Officers, Directors and Significant Employees

Our executive officers and directors, and their ages as of May 5, 2000,
are as follows:
<TABLE>
<CAPTION>

Name Age Current Office Held
---- --- -------------------
<S> <C> <C>

Thomas J. Colatosti 52 President and Chief Executive Officer
Iftikhar A. Ahmad 48 Vice President Engineering
Stanley Duci 47 Vice President of Customer Service
Sean F. Mack 37 Vice President, Treasurer & Controller
Denis K. Berube 56 Chairman of the Board of Directors
Charles J. Johnson 44 Director
Charles E. Levine 47 Director
Harriet Mouchly-Weiss 57 Director
Peter Nessen 64 Director
Thomas J. Reilly 61 Director
</TABLE>

Thomas J. Colatosti, 52, became our President and Chief Executive Officer
on November 3, 1998. From July 8, 1998 until November 3, 1998, Mr. Colatosti
served as our Chief Operating Officer. Before that, he served as Vice
President, Operations of Viisage, which he joined on December 30, 1996. From
April 1995 through December 1996, Mr. Colatosti was President and Chief
Executive Officer of CIS, a software and systems integration company. Mr.
Colatosti held various finance, sales, and operations positions with Digital
Equipment Corporation from 1973 to March 1995, serving as Vice President of the
Northeast Region from 1993 through 1995, and Vice President of the Federal
Systems Division from 1991 to 1993.

Iftikhar A. Ahmad, 48, became our Vice President Engineering in March 1999.
From November 1996 until March 1999, Mr. Ahmad was a Director in our Software
Engineering Department. From January 1995 to November 1996, he was a senior
consultant in Lau's Systems Engineering Department and prior to that he held
various senior engineering positions at Digital Equipment Corporation.

Stanley Duci, 47, was elected as an officer in January of 2000 with the
title of Vice President of Customer Service of the Company. In February, 1999,
Mr. Duci was Vice President of Customer Service. From November, 1995 to
February, 1999, Mr. Duci served as Customer Service Manager. Prior to joining
Viisage, Mr. Duci was employed by Data General Corporation, where he was
responsible for directing worldwide customer service engineering, technology,
reliability and performance management systems.

Sean F. Mack, 37, was elected as an officer in January of 2000 with the
title of Vice President, Treasurer and Controller of the Company. From July,
1999, Mr. Mack served as the

39
<PAGE>

Corporate Controller. Previously, Mr. Mack served in various capacities at Lau.
From October, 1994 to July, 1999, Mr. Mack served as Controller and Treasurer of
Lau Defense Systems, and he served as Cost Manager of Lau Technology from May,
1989 to October, 1994. Prior to joining Lau, Mr. Mack worked as a senior cost
accountant at Benjamin Thompson & Associates in Cambridge, Massachusetts for two
years, and as a financial program analyst for Raytheon Company in Marlboro,
Massachusetts from 1985 to 1987.

Denis K. Berube, 57, has been the chairman of our board of directors since
our incorporation in 1996. He chaired the Advisory Board of the Viisage
Technology Division of Lau since its formation in October 1995. Mr. Berube is
Executive Vice President and Chief Operating Officer of Lau, which has employed
him since 1990.

Charles J. Johnson, 44, has served as a director of Viisage since its
incorporation in May 1996. He earlier served on the Advisory Board of the
Viisage Technology Division of Lau. Mr. Johnson is a principal of the law firm
of Finnegan, Hickey, Dinsmoor & Johnson, P.C. in Boston, Massachusetts, which
serves as counsel to us and Lau. Finnegan, Hickey, Dinsmoor & Johnson, P.C. will
continue to provide legal services to us during 1999.

Charles E. Levine, 47, has served as Chief Marketing and Sales Officer of
Sprint PCS since January 1997. Mr. Levine served as Senior Vice President of
Octel Services, a provider of voice systems services, from October 1994 through
September 1996, after which he enjoyed a few months off before joining Sprint
PCS. From October 1993 to October 1994, Mr. Levine was Chief Executive Officer
and Director of CFT Systems, a company focusing on developing software for
field-based utility workers. Mr. Levine was a Vice President at AT&T from
February 1987 to October 1993, with marketing, product management, and general
management responsibilities.

Harriet Mouchly-Weiss, 57, has served as a director of Viisage since its
incorporation in May 1996, and earlier served on the Advisory Board of the
Viisage Technology Division of Lau. Ms. Mouchly-Weiss founded Strategy XXI
Group, an international communications and consulting firm in January 1993. She
has served as the managing partner of Strategy XXI since that time. From 1986 to
December 1992, Ms. Mouchly-Weiss was President of GCI International, an
international public relations and marketing agency.

Peter Nessen, 64, has served as a director of Viisage since its
incorporation in May 1996, and earlier served on the Advisory Board of the
Viisage Technology Division of Lau. Mr. Nessen served as Chairman of the Board
of NCN Financial Corporation, a private banking firm, since January 1995. From
June 1993 through December 1994, Mr. Nessen was a Dean at Harvard Medical
School, responsible for special projects. Mr. Nessen was Secretary of
Administration and Finance for the Commonwealth of Massachusetts from January
1991 through May 1993. He also served as managing partner of a consulting
practice in the Boston office of BDO Seidman LLP, a public accounting firm, from
February 1990 through December 1990.

Thomas J. Reilly, 61, has served as a director of Viisage since its
incorporation in May

40
<PAGE>

1996, and earlier served on the Advisory Board of the Viisage Technology
Division of Lau. Mr. Reilly has been a self-employed financial consultant since
December 1994. From June 1966 through November 1994, Mr. Reilly worked at Arthur
Andersen LLP, a public accounting firm, and became a partner in 1975.

Pursuant to our restated certificate of incorporation, our board of
directors has set the number of directors at six. In addition, the restated
certificate of incorporation provides that there shall be three classes of
directors. Further, each director shall serve for a term of three years and
until his or her successor is elected and qualified or until his or her earlier
resignation, death, or removal. Our stockholders elect one class of directors
at each annual meeting for a three year term.

The Class I directors (whose terms expire in 2000) are Denis K. Berube and
Charles E. Levine. The Class II directors (whose terms expire in 2001) are
Charles J. Johnson and Harriet Mouchly-Weiss. The Class III directors (whose
terms expire in 2002) are Thomas J. Reilly and Peter Nessen. There are no family
relationships between any of our directors or executive officers.

Committees of the Board of Directors

The board has established a compensation committee, audit committee, and
marketing committee, all of which are comprised of outside directors.

The Compensation Committee. The compensation committee is comprised of Mr.
--------------------------
Reilly (chair), Ms. Mouchly-Weiss, and Mr. Nessen, none of whom are officers or
employees of Viisage. The compensation committee (1) reviews senior management
performance, (2) recommends executive compensation, and (3) administers our
Executive Incentive Compensation Plan, 1996 Management Stock Option Plan, as
amended, and the 1997 Employee Stock Purchase Plan. During 1999, the
compensation committee met three times.

The Audit Committee. The audit committee, comprised of Mr. Nessen (chair),
-------------------
Ms. Mouchly-Weiss and Mr. Reilly, (1) reviews the scope of our internal
controls, (2) recommends the selection of our independent public accountants,
(3) reviews the scope of the audit with the independent public accountants, and
(4) reviews the results of the audit. During 1999, the audit committee met five
times.

The Marketing Committee. The marketing committee, comprised of Ms.
-----------------------
Mouchly-Weiss (chair), Mr. Johnson, Mr. Nessen, and Mr. Levine, reviews and
makes recommendations regarding our marketing strategy and plans. During 1999,
the marketing committee met two times.

We do not have a nominating committee of the board of directors, and the
board of directors undertakes all nominating functions.

41
<PAGE>

Director Compensation

For their service as directors in 1999, each director received an aggregate
$30,000 worth of Common Stock, but no additional cash or fees for attending
Board or committee meetings. This amount of directors' stock compensation has
been increased to $36,000 for 2000 service. In addition, the Company reimburses
directors for their out-of-pocket expenses incurred in connection with any Board
or committee meetings.

Directors also receive grants of nonqualified options under the Company's
1996 Director Stock Option Plan, as amended (the "Director Plan"). As of April
21, 2000, options to purchase an aggregate 201,616 shares have been issued which
enable each director to purchase 35,496 shares of Common Stock (except for Mr.
Levine, who, having joined the Board more recently, has options to purchase
24,136 shares), subject to various vesting requirements. Vesting occurs only if
the option holder is serving on the Board on the vesting date.

Executive Compensation

The following table provides summary information concerning compensation of
our Chief Executive Officer and each of the four other most highly paid
executive officers during the last three fiscal years.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation(1) Long Term
Compensation Awards
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Year Salary Incentive (2) Securities All Other
Position (1) Ended Underlying Options (#) Compensation(3)
12/31
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Thomas J. Colatosti, President and 1999 $200,162 ----- 717,837 $14,200
Chief Executive Officer 1998 $179,000 $15,000 717,837 $14,400
1997 $172,600 $22,000 121,000 $14,000
- ------------------------------------------------------------------------------------------------------------------------------------
Iftikhar A. Ahmad, 1999 $141,606 ----- 77,100 $ 2,124
Vice President of Engineering
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Mr. Colatosti, who joined the Company on December 30, 1996 (and served as
Chief Operating Officer immediately prior to his promotion), became
President and Chief Executive Officer on November 3, 1998. Mr. Ahmad joined
the Company in November of 1996 (and served as the Director of Engineering
prior to his promotion), became Vice President of Engineering in March of
1999.

(2) The Company currently maintains an Executive Incentive Compensation Plan
for its executive officers and other key employees of the Company to
motivate members of the Company's executive team. Each participant in the
Executive Incentive Compensation Plan may receive a percentage of

42
<PAGE>

his or her base salary based upon the Company's and each participant's
individual performance, as determined by success in meeting established
goals approved by the Chief Executive Officer, for individual goals, or the
Board of Directors, for Company goals. The Compensation Committee
administers the Plan.

(3) Amounts include 1999 401(k) plan match of $4,800 and $2,124 for Mr.
Colatosti and Mr. Ahmad, respectively. Mr. Colatosti also receives $8,400
auto allowance, and various insurance benefit payments. The Company
participates in the Lau Technologies 401(k) plan and pays its proportionate
share of plan expenses based on the number of participants. The plan
permits pre-tax contributions by participants of up to 15% of base
compensation or the statutory limit. The Company may make discretionary
contributions to the plan, subject to certain limits. Participants are
fully vested in their contributions and vest 20% per year in employer
contributions.

Employment Agreement

We have an agreement with Mr. Colatosti that provides, among other terms,
that we will pay Mr. Colatosti six months of current salary if we terminate his
employment, except for cause or if an affiliate offers him commensurate
employment. Mr. Colatosti is also subject to non-competition and non-
solicitation provisions that, in general, survive one year beyond Mr.
Colatosti's termination.

401(k) Plan

We participate in Lau's 401(k) plan and pay our proportionate share of plan
expenses based on the number of participants. The plan permits participants'
pretax contributions of up to 15% of their base compensation. We may make
discretionary matching contributions of up to 3% of base compensation.
Participants are fully vested in their contributions and vest 20% per year in
employer contributions. Our costs for this plan amounted to approximately
$79,000, $67,000 and $95,000 for the years ended December 31, 1999, 1998 and
1997, respectively.

Stock Option Plans

Under the 1996 Management Stock Option Plan and the 1996 Director Stock
Option Plan (the "Plans"), the board of directors may grant incentive and
nonqualified stock options to employees and officers, and nonqualified stock
options to directors. Generally, the board grants incentive stock options at
fair value, and the options are subject to the requirements of Section 422 of
the Internal Revenue Code of 1986, as amended. The board grants nonqualified
options at exercise prices which it determines. Options granted to date to
directors vest over three years from the date of grant. Options granted to
management and employees vest at various rates over periods ranging from three
to seven years or, in some cases, earlier if certain performance measures are
met. The performance criteria are based on each $1 million increase in our value
up to approximately $500 million, as adjusted. All options granted under the
Plans expire ten years from the date of grant.

At April 21, 2000 we had reserved 2,057,100 shares of common stock for
issuance under

43
<PAGE>

the management plan, of which 217,945 shares are available for future grants. We
had also reserved 202,000 shares of common stock under the director plan, all of
which the board has granted. On January 26, 2000, the Board voted, subject to
shareholder approval, to increase the number of shares reserved under the
management and director plans by 750,000 and 125,000, respectively.

In connection with such options, we recognize compensation expense of
$420,000 over the vesting period. The amount of compensation is calculated as
the difference between the exercise price and the closing stock market price.
The amount of compensation expense has been adjusted to give effect to the
options canceled in 1998 and 1999. No stock compensation expense was recorded
in 1999, 1998 or 1997 and $238,000 was recorded in 1996. During 1998, we
adjusted the exercise price from $13.00 to $2.25 on 177,000 employee options,
and from $6.25 to $2.25 on 21,000 options granted to certain management
personnel.

Employee Stock Purchase Plan

In 1997, we adopted the 1997 Employee Stock Purchase Plan and have reserved
140,000 shares of common stock for issuance under such plan. The purchase price
is equal to the lesser of 85% of the closing price on the first or last day of
periods defined in the plan. As of December 31, 1999, we had issued 39,844
shares, and options to purchase 2,515 shares of common stock at $1.09 per share
were vested under the plan.

Security Ownership

The following table sets forth, as of April 21, 2000, the beneficial
ownership of common stock by all directors, named executive officers, all
directors and executive officers of Viisage as a group, and each person who is
known to us to own 5% or more of our common stock.

<TABLE>
<CAPTION>
====================================================================================================
Name and Address(1) Shares Beneficially Owned(2) Percentage
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Joanna T. Lau(3) 7,277,160 73.2%
- ----------------------------------------------------------------------------------------------------
Denis K. Berube(4)(6) 7,277,160 73.2%
- ----------------------------------------------------------------------------------------------------
Lau Technologies(5) 7,224,136 72.6%
- ----------------------------------------------------------------------------------------------------
Thomas J. Colatosti(6)(7) 246,311 2.5%
- ----------------------------------------------------------------------------------------------------
Iftikhar A. Ahmad (6)(8) 16,655 *
- ----------------------------------------------------------------------------------------------------
Charles J. Johnson(6)(9) 36,024 *
- ----------------------------------------------------------------------------------------------------
Harriet Mouchly-Weiss(6)(10) 43,939 *
- ----------------------------------------------------------------------------------------------------
Peter Nessen(6)(11) 52,024 *
- ----------------------------------------------------------------------------------------------------
Thomas J. Reilly(6)(12) 46,024 *
</TABLE>

44
<PAGE>

<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
Charles E. Levine(6)(13) 41,664 *
- ----------------------------------------------------------------------------------------------------
All directors and named 7,759,801 78.0%
executive officers as a group
(8 persons)(14)
- ----------------------------------------------------------------------------------------------------
</TABLE>

* Less than one percent of the 9,945,217 shares issued and outstanding as of
April 21, 2000.

(1) The address of all persons who are directors or executive officers of the
Company is in care of the Company at 30 Porter Road, Littleton, Massachusetts
01460. The address of Ms. Lau and Lau Technologies is in care of Lau
Technologies, 30 Porter Road, Littleton, Massachusetts 01460.

(2) Unless otherwise noted, each person identified possesses sole voting and
investment power over the shares owned.

(3) Consists of 7,224,136 shares held as described below by Lau Technologies, of
which Ms. Lau owns approximately 56% of the outstanding capital stock, 1,000
shares owned directly by Ms. Lau, 16,330 shares issuable to Denis K. Berube, the
spouse of Ms. Lau, pursuant to stock options, and 35,694 shares owned by Mr.
Berube. Ms. Lau disclaims beneficial ownership of the 16,330 issuable shares
and the 35,694 shares owned by Mr. Berube.

(4) Consists of 7,224,136 shares described below held by Lau Technologies, of
which Mr. Berube's spouse owns approximately 56% of the outstanding capital
stock, 1,000 shares owned directly by Ms. Lau, 16,330 shares issuable to Mr.
Berube pursuant to stock options, and 35,694 shares owned by Mr. Berube
directly. Mr. Berube disclaims beneficial ownership of the shares of Common
Stock held by Lau Technologies and the 1,000 shares owned by Ms. Lau.

(5) Consists of 809,524 shares issuable pursuant to a subordinated convertible
note, 569,091 shares issuable pursuant to two option agreements, and 5,845,521
shares owned by Lau Technologies directly.

(6) Includes shares of Common Stock issuable pursuant to vested stock options.
The total number of vested and non-vested shares issuable under options granted
to Messrs. Colatosti, Ahmad, each director (except Mr. Levine), Mr. Levine, and
all directors and executive officers as a group are 767,837, 127,100, 35,496,
24,136, and 1,096,553, respectively.

(7) Consists of 246,111 shares issuable to Mr. Colatosti pursuant to stock
options and 200 shares held by Mr. Colatosti's children. Mr. Colatosti
disclaims beneficial ownership of his children's shares.

(8) Consists of 11,666 shares issuable to Mr. Ahmad pursuant to stock options
and 4,989 shares owned by Mr. Ahmad directly.

(9) Consists of 16,330 shares issuable pursuant to stock options and 19,694
shares owned by Mr. Johnson directly.

(10) Consists of 16,330 shares issuable pursuant to stock options and 27,609
shares owned directly by Ms. Mouchly-Weiss.

(11) Consists of 16,330 shares issuable pursuant to stock options and 35,694
shares owned directly by Mr. Nessen.

(12) Consists of 16,330 shares issuable pursuant to stock options and 29,694
shares owned directly by Mr. Reilly.

(13) Consists of 4,970 shares issuable pursuant to stock options and 36,694
shares owned directly by Mr. Levine.

45
<PAGE>

(14) Represents shares described in Notes 4 and 7-13.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely on a review of reports provided to us for 1999 pursuant to
Section 16 of the Securities Exchange Act of 1934, and written representations
that no reports were required, we believe that all of the reports required to be
filed under Section 16 were timely filed.

Stock Options Granted During 1999

The following table sets forth information concerning individual grants of
stock options made during 1999 to the Company's executive officers. It has not
been the Company's policy in the past to grant stock appreciation rights, and no
such rights were granted in 1999.

<TABLE>
<CAPTION>
===============================================================================================================
Name Number of % of Total Exercise Expiration Date Potential Realizable Value at
Securities Options Price Assumed Annual Rates of
Underlying Granted to ($/share) Stock Price Appreciation for
Options Employees in Option Term(2)
Granted(1) Year 5% 10%
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Thomas J.
Colatosti ----- ------ ----- ----- ----- -----
- ----------------------------------------------------------------------------------------------------------------
Iftikhar
A. 35,000 24.5% $1.375 February 24, $30,266 $76,699
Ahmad 2009
- ----------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Options were granted under the 1996 Management Stock Option Plan, as
amended, the terms and conditions of which are described herein under the
section entitled "Proposal 2 - Amendment to 1999 Viisage Management Stock
Option Plan". Total of options granted does not include Employee Stock
Purchase Plan options. Mr. Ahmad's shares vest over 36 months.

(2) The assumed rates are compounded annually for the full term of the options.

Stock Options Exercised During 1999

The following table sets forth information concerning stock option exercises
during 1999 and outstanding stock options held at the end of 1999 by the
Company's executive officers. No stock appreciation rights were exercised or
outstanding during 1999.

46
<PAGE>

<TABLE>
<CAPTION>
================================================================================================================
Name Shares Acquired Value Number of Value of Unexercised
on Exercise Realized Securities In-the-Money Options at
Underlying 12/31/99 ($)
Unexercised Exercisable/
Options at 12/31/99 Unexercisable(1)
Exercisable/
Unexercisable
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas J. Colatosti ----- ----- 121,771/596,066 $849,243/4,106,533
- ----------------------------------------------------------------------------------------------------------------
Iftikhar A. Ahmad ----- ----- 1,465/75,635 $ 7,475/465,203
- ----------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Based on the $8.0625 closing price of the Company's Common Stock on
December 31, 1999 on The Nasdaq National Market System minus the respective
option exercise price.

DESCRIPTION OF CAPITAL STOCK

Viisage's authorized capital stock consists of 20,000,000 shares of common
stock, $.001 par value per share, 3,000 shares of series A convertible preferred
stock, par value $.001 per share, 3,000 shares of series B convertible preferred
stock, par value $.001 per share, and 1,994,000 shares of undesignated preferred
stock, par value $.001 per share.

As of April 21, 2000 there were 9,945,217 shares of common stock and a
total of 2,250 shares of series A and B convertible preferred stock issued and
outstanding. All outstanding securities have been duly authorized and validly
issued and are fully paid and nonassessable, and free of any preemptive or
similar rights contained in our certificate of incorporation, as amended, or our
bylaws, or in any other agreement to which we are a party.

Common Stock

As of April 21, 2000, there were approximately 47 record holders of our
issued and outstanding common stock. Holders of common stock are entitled to one
vote per share on all matters to be voted upon by the stockholders. Subject to
the rights of holders of outstanding preferred stock, if any, the holders of
common stock are entitled to receive such dividends, if any, as our board of
directors may declare. In the event that we liquidate, dissolve, or wind up our
affairs, holders of common stock have the right to a ratable portion of our
assets remaining after payment of liabilities. Holders of common stock do not
have cumulative voting, preemptive, redemption, or conversion rights. All
outstanding shares of common stock are fully paid and non-assessable.

Preferred Stock

Our board of directors is authorized to:

47
<PAGE>

. issue preferred stock in one or more series
. establish the number of shares to be included in each series
. fix the designations, powers, preferences and rights of the shares of
each series, and
. fix any qualifications, limitations or restrictions of each series.

Because the board of directors has the power to establish the preferences
and rights of the shares of any series of preferred stock, it may afford the
holders of any series of preferred stock preferences, powers and rights,
including voting rights, that are senior to the rights of the holders of common
stock.

On June 30, 1999, we issued 1,500 shares of series A convertible preferred
stock to a private equity fund for $1.5 million. These shares accrue dividends
at 7% per annum, payable in cash or stock at our option. One half of the shares
have been converted into 259,356 shares of common stock, and the remaining
shares are convertible after March 31, 2000. The private equity fund may
convert $1.5 million in series A convertible preferred stock, plus accrued
dividends, into our common stock at the lesser of:

. $3.00 per share
. 85% of the market price if the conversion occurs on or before April 30,
2000, and
. 77% of the market price if conversion occurs on or after May 1, 2000.

Subject to certain volume limitations, the preferred stock is required to be
converted into our common stock on June 30, 2002. We can redeem the series A
preferred stock at any time.

On December 30, 1999, we issued 1,500 shares of series B convertible
preferred stock to a private equity fund for $1.5 million. These shares accrue
dividends at 7% per annum, payable in cash or stock at our option. One half of
the shares are convertible after June 30, 2000, and the remaining shares are
convertible after September 30, 2000. The private equity fund may convert $1.5
million in series B convertible preferred stock, plus accrued dividends, into
our common stock at the lesser of:

. $7.00 per share
. 85% of the market price if the conversion occurs on or before October 30,
2000, and
. 77% of the market price if conversion occurs on or after November 1,
2000.

Limitation of Liability and Indemnification Matters

Our bylaws provide that, subject to limited exceptions, we will indemnify
our directors and officers and may indemnify our other employees and other
agents to the fullest extent permitted by Delaware law.

In addition, our certificate of incorporation provides that, to the fullest
extent permitted by Delaware law, our directors will not be liable for monetary
damages for breach of the

48
<PAGE>

directors' fiduciary duty of care to Viisage and its stockholders. This
provision does not eliminate the duty of care, and in appropriate circumstances
equitable remedies such as an injunction or other forms of non-monetary relief,
would remain available under Delaware law. Each director will continue to be
liable for:

. breach of the director's duty of loyalty to us

. for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law

. for acts or omissions that the director believes to be contrary to the
best interests of Viisage or its stockholders

. for any transaction from which the director derived an improper personal
benefit

. for acts or omissions involving a reckless disregard for the director's
duty to us or our stockholders when the director was aware or should have
been aware of a risk of serious injury to us or our stockholders

. for acts or omissions that constitute an unexcused pattern of inattention
amounting to abdication of the director's duty to us or our stockholders,
and

. for improper transactions between the director and us and for improper
distributions to stockholders and loans to directors and officers.

This provision also does not affect a director's responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.

Certain Provisions of our Charter and Bylaws

Our certificate of incorporation and bylaws contain several features that
could create difficulty for a third party attempting to acquire a controlling
interest in Viisage. The certificate of incorporation grants the board of
directors authority, without stockholder approval, to issue in one or more
series up to 2,000,000 shares of preferred stock. Each series will have the
number of shares, designations, preferences, voting powers, relative rights or
privileges that the board determines. The rights of holders of common stock will
be subject to the rights of holders of any preferred stock we issue. Our
issuance of preferred stock may provide us with flexibility in connection with
possible acquisitions and other purposes. However, a third party may face more
difficulty acquiring a controlling interest in Viisage.

The certificate of incorporation provides for the division of the board of
directors into three classes with staggered three-year terms. See ''Management"
on page 39. The affirmative vote of the holders of two-thirds of the shares of
our voting stock may remove directors only for cause. Only a majority of the
directors then in office may fill any vacancy on the board,

49
<PAGE>

including a vacancy resulting from an enlargement of the board. Third parties
attempting to acquire control of Viisage may also face difficulty due to the
classification of the board, and due to the bylaws' limitations regarding
removal of directors and filling of vacancies.

The certificate of incorporation also provides that our stockholders may
only take any required or permitted action if it is ''properly brought'' before
an annual or special stockholders' meeting. Stockholder also may not take such
action by written consent in lieu of a meeting unless the board has expressly
approved the action and taking of action by consent in advance. Our charter
further provides that only the board, the chairman of the board or the chief
executive officer may call special meetings of the stockholders. Under our
bylaws, in order for any matter to be considered ''properly brought'' before a
meeting, a stockholder must comply with rigorous requirements regarding advance
notice to us. These corporate governance provisions could delay consideration
of actions which stockholders may desire until the next stockholders meeting,
unless the board overrides the action-by-consent prohibition. These provisions
may also discourage tender offers for our common stock, including tender offers
at above market prices, because an offeror could only take stockholder action
(such as electing new directors or approving a merger) at a duly called
stockholders meeting, even if it acquired a majority of the voting securities.

Finally, our charter and bylaws require the affirmative vote of the holders
of at least two-thirds of the voting stock to amend or repeal any of the
protective governance provisions described above.

Section 203 of the Delaware General Corporation Law

We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. That section provides, with certain exceptions, that a
Delaware corporation may not engage in any of a broad range of business
combinations with a person or affiliate, or associate of such person, who is an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder, unless:

. the board of directors approves the transaction resulting in a person
becoming an interested stockholder, or the business combination, before
the person becomes an interested stockholder;

. the interested stockholder acquires 85% or more of the outstanding voting
stock of the corporation in the same transaction that makes it an
interested stockholder (excluding shares owned by persons who are both
officers and directors of the corporation, and shares held by certain
employee stock ownership plans); or

. the board of directors and the holders of at least 66 2/3% of the
corporation's outstanding voting stock on or after the date the person
becomes an interested stockholder, approve the business combination at an
annual or special meeting, excluding shares owned by the interested
stockholder.

50
<PAGE>

An "interested stockholder" is defined as any person that is:

. the owner of 15% or more of the outstanding voting stock of the
corporation, or

. an affiliate or associate of the corporation and owns 15% or more of the
outstanding voting stock of the corporation at any time within the three-
year period immediately prior to the date on which it is to be determined
whether such person is an interested stockholder.

SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION

Selling Stockholders

The selling stockholders whose shares of common stock are being registered
hereby are The Shaar Fund Ltd. ("Shaar"), Lau Technologies ("Lau"), J.P. Turner
& Company, L.L.C ("JP Turner"), Citizens Financial Group, Inc. ("CFG"), and
William A. Marshall. No selling stockholder has any affiliation with Viisage or
its officers, directors, promoters or principal shareholders, except for Lau,
which currently owns 59% of Viisage and is our technology partner. Shaar is an
investment fund that primarily invests in public companies and CFG is a bank
holding company. Neither Shaar nor CFG is affiliated with any broker-dealer.
J.P. Turner is a registered broker-dealer and is thus deemed an "underwriter" as
that term is defined in the Securities Act of 1933, as amended. Mr. Marshall is
our former Chief Financial Officer and Treasurer. See also "Relationship and
Certain Transactions with Lau Technologies" on page 36.

We have agreed to file a registration statement under the Securities Act of
1933 to cover the sale of shares of our common stock that may be issued to the
selling stockholders and to keep such registration statement effective for a
period of one year from the date of this prospectus. We have also agreed to pay
all expenses in connection therewith other than the brokerage commissions and
discounts in connection with the sale of the common stock and the expenses of
counsel.

The following table sets forth the name of the selling stockholders, the
number of shares of common stock owned beneficially by each of the selling
stockholders as of September 30, 1999 (prior to commencement of this offering),
the number of shares which may be offered for resale pursuant to this prospectus
and the amount and percentage of shares of common stock owned beneficially by
each of the selling stockholders after the offering.

The information included below is based upon information provided by the
selling stockholders. Because the selling stockholders may offer all, some or
none of their common stock, no definitive estimate as to the number of shares
thereof that will be held by the selling stockholder after such offering can be
provided. The following table has been prepared on the assumption that all
shares of common stock offered under this prospectus will be sold.

51
<PAGE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Name of Selling Shares of Shares of Number of Percentage of
Stockholder Common Stock Common Stock Shares of Shares of
Beneficially Being Offered Common Stock Common Stock
Owned Prior to Beneficially Beneficially
Offering (1)(3) Owned After Owned After
Offering(2) Offering(3)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

J.P. Turner & 75,000 75,000(4) 0 0%
Company,
L.L.C.
- -------------------------------------------------------------------------------------------
The Shaar Fund 1,185,390(5) 1,185,390 (5) 0 0%
Ltd.
- -------------------------------------------------------------------------------------------
Lau 7,380,550 526,582(6) 6,853,968 80%
Technologies
- -------------------------------------------------------------------------------------------
Citizens 30,000 30,000(7) 0 0%
Financial Group,
Inc.
- -------------------------------------------------------------------------------------------
William A. 113,983 10,000(8) 103,983(9) 1.2%
Marshall
- -------------------------------------------------------------------------------------------
</TABLE>

(1) Each of the parties listed has sole voting and investment power with
respect to all shares of common stock indicated.
(2) Assumes the sale of all the shares offered hereby.
(3) Based upon 8,585,745 shares of common stock issued and outstanding as of
September 30, 1999 (prior to commencement of the offering).
(4) Consists of shares of our common stock which may be acquired by JP Turner
upon the exercise of stock options at an exercise price of $1.79 per share.
(5) Consists of shares of common stock being registered on behalf of Shaar
which may be issued upon (a) the conversion of the series A convertible
preferred stock currently held by Shaar on September 30, 1999 assuming an
exercise price of $1.54 (77% of current market price) and (b) the exercise
of stock options at an exercise price of $1.58 per share. Subject to
certain volume limitations, the preferred stock is required to be converted
into our common stock on June 30, 2002.
(6) Consists of shares of our common stock acquired by Lau upon the conversion
of a promissory note and accrued interest in the amount of $832,000 at a
price of $1.58 per share.
(7) Consists of shares of our common stock underlying outstanding warrants
exerciseable at a price of $4.00 per share.
(8) Consists of shares of our common stock which may be acquired by Mr.
Marshall upon the exercise of stock options at an exercise price of $1.44
per share.
(9) Consists of 101,751 shares issuable pursuant to stock options which expire
after December 17, 1999.

52
<PAGE>

Plan of Distribution

The distribution of the shares of common stock by a selling stockholder may
be affected from time to time in one or more transactions on The Nasdaq National
Market System (or any exchange on which the common stock may then be listed) in
negotiated transactions, through private placements, or a combination of such
methods of sale, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. A selling
stockholder may affect such transactions by selling shares to or through broker-
dealers, and such broker-dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from a selling stockholder
and/or purchasers of shares for whom they may act as agent (which compensation
may be in excess of customary commissions). A selling stockholder may also
pledge shares as collateral for margin accounts and such shares could be resold
pursuant to the terms of such accounts.

In order to comply with certain state securities laws, if applicable, the
common stock will not be sold in a particular state unless such securities have
been registered or qualified for sale in such state or any exemption from
registration or qualification is available and complied with.

Viisage will not receive any of the proceeds from the sale of shares of
common stock by the selling stockholders.

TRANSFER AGENT AND REGISTRAR

We have appointed Boston EquiServe Limited Partnership, an affiliate of
BankBoston, as transfer agent and registrar of the Common Stock.

LEGAL MATTERS

Finnegan, Hickey, Dinsmoor & Johnson, P.C., Boston, Massachusetts will
opine on our behalf as to certain legal matters in connection with the shares
being registered hereby. Charles J. Johnson, one of our directors, is a member
of the firm of Finnegan, Hickey, Dinsmoor & Johnson, P.C. See ''Management" on
page 39.

EXPERTS

The financial statements of the Company as of December 31, 1998 and for
each of the two years in the period ended December 31, 1998, included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said report.

The financial statements of the Company for the year ended December 31,
1999, included in and incorporated herein by reference in the Company's Annual
Report on Form 10-K for the

53
<PAGE>

year ended December 31, 1999, have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent set forth in the report incorporated
herein by reference, and are incorporated herein in reliance upon such reports
given upon the authority of said firms as experts in auditing and accounting.

On November 3, 1999, the Company's audit committee approved the engagement
of BDO Seidman, LLP to replace Arthur Andersen LLP as the Company's independent
public accountants. The Company's change in independent public accountants was
made at the request of its majority shareholder, Lau Technologies. Lau
Technologies has engaged BDO Seidman, LLP to act as its independent public
accountants and desires that the same firm audits the financial statements of
its then 64%-owned subsidiary. There were neither disagreements with Arthur
Andersen LLP on any matter of accounting principles or practice, financial
statement disclosure, auditing scope or procedure nor any "reportable events" as
that term is used in Item 304(a) of Regulation S-K.

WHERE YOU CAN FIND MORE INFORMATION

We filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement under the Securities Act with respect to the
shares of our common stock (the ''Registration Statement''). This prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement and in the schedules and
exhibits thereto. For further information about us and the securities offered
hereby, reference is hereby made to the Registration Statement and to the
exhibits and schedules thereto, which may be inspected without charge at the
principal office of the Securities and Exchange Commission in Washington, D.C.
Copies of all or any part of the Registration Statement and exhibits and
schedules thereto may be obtained from the Securities and Exchange Commission
upon payment of the prescribed fees. Statements made in this prospectus as to
the contents of any contract or other document are not necessarily complete and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.

We are subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934, as amended, and we file
reports, proxy and information statements, and other information with the
Securities and Exchange Commission. You may inspect and copy such reports, proxy
and information statements and other information which we file at the Public
Reference Section of the Securities and Exchange Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. You may obtain copies of such material from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, we are
required to file electronic versions of these documents with the Securities and
Exchange Commission through the Commission's Electronic Data Gathering, Analysis
and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov

54
<PAGE>

that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission.

We intend to furnish our stockholders annual reports containing financial
statements audited by independent public accountants.

55
<PAGE>

Item 8. Financial Statements and Supplementary Data

INDEX

Page
----

<S> <C>
Reports of Independent Public Accountants F-2

Balance Sheets as of December 31, 1999 and 1998 F-4

Statements of Operations for the years ended December 31, 1999, 1998 and 1997 F-5

Statements of Changes in Shareholders' Equity for the years ended
December 31, 1999, 1998 and 1997 F-6

Statements of Cash Flows for years ended December 31, 1999, 1998 and 1997 F-7

Notes to Financial Statements F-8

</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Viisage Technology, Inc.:

We have audited the accompanying balance sheet of Viisage Technology, Inc. as of
December 31, 1999, and the related statements of operations, changes in
shareholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Viisage Technology, Inc. as of
December 31, 1999, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.

BDO SEIDMAN, LLP

Boston, Massachusetts
February 4, 2000 (except for note 6
for which the date is March
30, 2000)

F-2
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Viisage Technology, Inc.:

We have audited the accompanying balance sheet of Viisage Technology, Inc. as of
December 31, 1998, and the related statements of operations, changes in
shareholders' equity and cash flows for each of the two years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Viisage Technology, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
March 19, 1999 (except for note 6 for which
the date is April 26, 1999)

F-3
<PAGE>

VIISAGE TECHNOLOGY, INC.
Balance Sheets
(in thousands)

December 31,
1999 1998
-------- --------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 441 $ 166
Accounts receivable, net of allowance for
doubtful accounts of $100 3,264 4,285
Costs and estimated earnings in excess of billings 22,216 21,723
Other current assets 797 683
-------- --------
Total current assets 26,718 26,857
-------- --------
Property and equipment, net 17,237 18,513
Other assets 725 1,074
-------- --------
$ 44,680 $ 46,444
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 6,621 $ 9,090
Accrued and deferred income taxes -- 27
Convertible subordinated debt -- 800
Current portion of long-term debt 2,500 2,054
Obligations under capital leases 4,048 3,797
-------- --------
Total current liabilities 13,169 15,768

Long-term debt 4,000 6,500
Convertible subordinated debt 1,000 --
Obligations under capital leases 7,964 11,558
Obligations under related party capital leases 2,757 --
-------- --------

Total liabilities 28,890 33,826

Shareholders' equity
Preferred stock, $0.001 par value; 2,000,000
shares authorized; 3,000 shares issued and
outstanding at December 31, 1999 2,782 --
Common stock, $0.001 par value; 20,000,000
shares authorized; 9,275,940 and 8,382,700
shares issued and outstanding at December 31,
1999 and 1998, respectively
9 8
Additional paid-in capital 26,545 24,157
Accumulated deficit (13,546) (11,547)
-------- --------
Total shareholders' equity 15,790 12,618
-------- --------
$ 44,680 $ 46,444
======== ========

</TABLE>

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

F-4
<PAGE>

VIISAGE TECHNOLOGY, INC.
Statements of Operations
(in thousands, except per share data)

<TABLE>
<CAPTION>
December 31,
1999 1998 1997
-------- -------- --------

<S> <C> <C> <C>
Revenues $ 19,297 $ 16,259 $ 29,388
Project costs 15,131 15,957 26,122
-------- -------- --------
Project margin 4,166 302 3,266
-------- -------- --------

Operating Expenses:
Sales and marketing 739 2,195 4,930
Research and development 253 358 152
General and administrative 1,939 2,247 2,105
-------- -------- --------
Total operating expenses 2,931 4,800 7,187
-------- -------- --------
Operating income (loss) 1,235 (4,498) (3,921)

Interest expense 2,230 1,667 441
-------- -------- --------

Loss before income taxes and cumulative
effect of change in accounting principle (995) (6,165) (4,362)

Provision for income taxes -- -- --
-------- -------- --------

Loss before cumulative effect of change
in accounting principle (995) (6,165) (4,362)

Cumulative effect of change in accounting principle -- (1,038) --
-------- -------- --------

Net loss (995) (7,203) (4,362)

Preferred stock dividends 1,003 -- --
-------- -------- --------

Net loss applicable to common shareholders $ (1,998) $ (7,203) $ (4,362)
======== ======== ========

Basic and diluted loss per share applicable to
common shareholders before change in
accounting principle $ (0.23) $ (0.75) $ (0.54)
Basic and diluted net loss per share applicable
to common shareholders $ (0.23) $ (0.88) $ (0.54)
======== ======== ========

Weighted average basic and diluted common
shares outstanding 8,610 8,175 8,060
======== ======== ========

</TABLE>

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

F-5
<PAGE>

VIISAGE TECHNOLOGY, INC.
Statements of Changes in Shareholders' Equity
(in thousands)

Additional Retained
Common Preferred Paid-in Earnings
Stock Stock Capital (Deficit) Total
-------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 8 $ $ 22,994 $ 18 $ 23,020

Exercise of stock options -- -- 78 -- 78
Net loss -- -- -- (4,362) (4,362)
-------- -------- -------- -------- --------

Balance, December 31, 1997 8 -- 23,072 (4,344) 18,736
-------- -------- -------- -------- --------
Issuance of stock options -- -- 444 -- 444
Issuance of common stock -- -- 600 -- 600

Exercise of stock options -- -- 41 -- 41
Net loss -- -- -- (7,203) (7,203)
-------- -------- -------- -------- --------

Balance, December 31, 1998 8 -- 24,157 (11,547) 12,618
-------- -------- -------- -------- --------

Exercise of employee stock
options -- -- 301 -- 301

Common stock issued for
services -- -- 144 -- 144
Common stock issued under
employee stock purchase
plan -- -- 39 -- 39
Exercise of private placement
warrants -- -- 134 -- 134
Conversion of Lau debt 1 -- 832 -- 833
Issuance of preferred stock
with beneficial conversion
feature of $896 -- 2,104 896 -- 3,000

Issuance costs of preferred
stock -- -- (271) -- (271)
Amortization of beneficial
conversion feature of
preferred stock -- 678 -- (678) --

Accrued dividends on
preferred stock -- -- -- (49) (49)
Issuance of warrants to
preferred stock investors -- -- 277 (277) --

Issuance of options for
services -- -- 36 -- 36
Net loss -- -- -- (995) (995)
-------- -------- -------- -------- --------
Balance, December 31, 1999 $ 9 $ 2,782 $ 26,545 $(13,546) $ 15,790
======== ======== ======== ======== ========

</TABLE>

The accompanying notes are an integral part of these financial statements

F-6
<PAGE>

VIISAGE TECHNOLOGY, INC.
Statements of Cash Flows
(in thousands)

December 31,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (995) $ (7,203) $ (4,362)
Adjustments to reconcile net loss to net cash
Provided (used) by operating activities
Depreciation and amortization 4,422 3,022 1,964
Cumulative effect of change in accounting principle -- 1,038 --

Expenses paid in common stock 212 -- --
Change in operating assets and liabilities:
Accounts receivable 1,021 (1,114) (1,672)
Costs and estimated earnings in excess of (494) 2,722 (9,038)
billings
Other current assets (113) (260) (85)
Accounts payable and accrued expenses (2,516) (2,005) 5,259
Accrued and deferred taxes
(28) 11 (174)
-------- -------- --------
Net cash provided (used) by operating activities 1,509 (3,789) (8,108)
-------- -------- --------

Cash Flows from Investing Activities:
Purchase of equipment converted to capital leases (3,125) (5,244) (7,800)
Purchase of system assets -- (100) (3,900)
Additions to property and equipment (21) (145) (453)
Decrease in other assets 349 99 178
-------- -------- --------
Net cash provided (used) by investing activities (2,797) (5,390) (11,975)
-------- -------- --------

Cash Flows from Financing Activities:
Net revolving credit (repayments) borrowings (2,054) 8,554 --
Proceeds from long-term borrowings 1,000 -- 4,100
Proceeds from sale/leaseback of equipment 3,125 5,244 7,800
Principal payments on long-term borrowings -- (4,054) (46)
Principal payments on obligations under capital leases (3,711) (2,651) (1,311)
Net proceeds from issuance of common stock 474 641 78
Net proceeds from issuance of preferred stock 2,729 -- --
-------- -------- --------
Net cash provided (used) by financing activities 1,563 7,734 10,621
-------- -------- --------

Net increase (decrease) in cash and cash equivalents 275 (1,445) (9,462)
Cash and cash equivalents, beginning of year 166 1,611 11,073
-------- -------- --------
Cash and cash equivalents, end of year $ 441 $ 166 $ 1,611
======== ======== ========

Supplemental Cash Flow Information:
Cash paid during the year for interest $ 1,788 $ 1,416 $ 832
Cash paid during the year for income taxes $ -- $ 68 $ 122

Non-cash Transactions:
Conversion of subordinated debt to common stock $ 800 $ -- $ --

</TABLE>

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

F-7
<PAGE>

VIISAGE TECHNOLOGY, INC.
Notes To Condensed Financial Statements

1. DESCRIPTION OF BUSINESS

Viisage is a leader in the emerging field of biometrics technology and in
providing digital identification systems and solutions. The Company focuses on
identification solutions that improve personal convenience and security, deter
fraud, and reduce identification program costs. Viisage combines its systems
integration and software design capabilities with its proprietary software and
hardware products and other industry standard products to create complete
customized solutions. These turnkey solutions integrate image and data capture,
create relational databases, incorporate multiple biometrics and improve
customers' ability to move and manage information. Applications can include
driver's licenses, voter registration, national ID's, law enforcement, social
services, access control and PC network and internet access security. To date,
Viisage's primary customers have been government agencies with particular
emphasis on U.S. drivers licensing agencies.

The Company is engaged in one business, the development and implementation of
digital identification systems and solutions. Effective June 1, 1998, the
Company reorganized its operations to create a separate biometrics division to
respond to the growing market interest in biometric solutions. The biometrics
division is focused on product, market, and channel development activities in
three principal areas: facility access control, PC network and internet access
security, and real-time large database identification and verification of
individuals. The systems integration and identification card division (SI
division) focuses on Viisage's public sector markets and serves as a channel to
existing customers and the public sector for the Company's biometric
technologies. Since June 1, 1998, the Company has operated in two segments.
Amounts for the biometrics division prior to the reorganization are not
material.

As of December 31, 1999, the Company was a 64% owned subsidiary of Lau
Technologies (Lau).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles 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.
Actual results could differ from those estimates.

F-8
<PAGE>

Computation of Net Loss per Share

Basic and dilutive net loss per share is computed based on the weighted average
number of common shares outstanding during the period. The diluted per share
amounts do not reflect the impact of options outstanding for approximately
2,472,139 shares in 1999, 2,784,531 shares in 1998, and 1,770,550 shares in
1997, the conversion of convertible subordinated debt, the conversion of
convertible preferred stock, or stock warrants because their effect is
antidilutive. Except for the convertible subordinated debt, convertible
preferred stock, warrants and options referred to above, the Company does not
have any other potential common stock at December 31, 1999.

Contract Revenue and Cost Recognition

The Company provides services principally under contracts that provide for a
fixed price for each system and/or for each card produced. Revenue is recognized
using the percentage of completion method based on labor costs incurred and/or
cards produced. Contract losses, if any, are recognized in the period in which
they become determinable. Costs and estimated earnings in excess of billings are
recorded as a current asset. Billings in excess of costs and estimated earnings
and accrued contract costs are recorded as current liabilities. Generally,
contracts provide for billing when contract milestones are met and/or cards are
produced. Retainages and amounts subject to future negotiation are not material.
Costs and estimated earnings in excess of billings include approximately $7
million expected to be billed and collected after December 31, 2000.

Charges and Accounting Change

During the first quarter of 1998, the Company recorded charges of approximately
$230,000 related to a restructuring to reduce expenses in line with the
Company's revised plan for 1998. Approximately $50,000 of such charges are
included in project costs, $170,000 are included in sales and marketing expenses
and $10,000 are included in general and administrative expenses in the statement
of operations. During the third and fourth quarters of 1998, the Company
recorded charges of $472,000 and $1,850,000, respectively, to revise project
margins and contract cost-to-complete estimates. Approximately $2,222,000 of
such charges are included in project costs and $100,000 are included in general
and administrative expenses in the statement of operations.

During 1998, the Company elected early adoption of Statement of Position No.
98-5 (SOP 98-5), Reporting on the Costs of Start-Up Activities, which requires
start-up costs to be expensed as incurred rather than capitalized. The Company
previously capitalized certain start-up costs as pre-contract costs under SOP
81-1, Accounting for Performance of Construction-Type and Certain
Production-Type Contracts, and charged such costs to contracts upon award. As
required, the adoption of SOP 98-5 has been made effective as of the beginning
of 1998. The cumulative effect of the change in accounting principle of
$1,038,000 was recorded as a one-time charge in the Company's results for 1998.

F-9
<PAGE>

During the fourth quarter of 1997, the Company recorded non-recurring charges of
approximately $7.6 million related to investments in technology, services and
markets. These investments relate principally to upgrades and enhancements to
older systems, enhancements to central production and data management
capabilities and enhancements to certain systems to facilitate the future use of
facial recognition technologies. Approximately $5.3 million of such charges are
included in project costs and $2.3 million are included in sales and marketing
expenses in the statement of operations.

Cash and Cash Equivalents

The company considers all highly liquid instruments, with a maturity of three
months or less when acquired, to be cash equivalents.

Fair Value of Financial Instruments

The carrying amounts of the Company's financial instruments, including cash and
cash equivalents, accounts receivable and payable and short- and long-term
borrowings, approximate fair values.

Accounts Receivable

Accounts receivable are due principally from government agencies and contractors
to government agencies. Management periodically reviews accounts receivable for
possible uncollectible amounts. In the event management determines a specific
need for an allowance, a provision for doubtful accounts is provided. Based on
management's review, a $100,000 allowance for doubtful accounts has been
established at December 31, 1999 and 1998.

For 1999, 1998 and 1997, four customers, three customers, and one customer,
respectively, each accounted for more than 10% of revenues individually, and
approximately 52%, 40% and 46% in the aggregate of the Company's revenues,
respectively. At December 31, 1999, 75% of accounts receivable are due from five
customers.

Property and Equipment

Property and equipment are recorded at cost or the lesser of fair value or the
present value of minimum lease payments for items acquired under capital leases.
Depreciation and amortization are calculated using the straight-line or
usage-based methods over the estimated useful lives of the related assets or the
lease term, whichever is shorter.

Research and Development

Research and development costs are charged to expense as incurred.

F-10
<PAGE>

Software Development

The Company reviews software development costs incurred in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed, which requires that certain costs incurred in the development of
computer software to be sold or leased be capitalized once technological
feasibility is reached. The Company has not capitalized any software development
costs because development costs incurred subsequent to the establishment of
technological feasibility have not been material.

Costs related to software developed for internal use are expensed as incurred,
except for externally purchased software, which is capitalized and depreciated
over its estimated useful life not to exceed five years.

Income Taxes

The Company accounts for income taxes under SFAS No. 109, Accounting for Income
Taxes. Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred income tax assets and liabilities are measured
using currently enacted tax rates. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Due to the uncertainty surrounding the realization
of the Company's net deferred tax asset, the Company has provided a full
valuation allowance against this amount.

Stock-Based Compensation

The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. SFAS
No. 123, Accounting for Stock-Based Compensation, establishes a fair value based
method of accounting for stock-based compensation plans. The Company has adopted
the disclosure only alternative under SFAS No. 123, which requires disclosure of
the pro forma effects on earnings and earnings per share as if SFAS No. 123 had
been adopted as well as certain other information. See note 10 for required
disclosures.

Recent Accounting Pronouncements

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative
Instruments and Hedging Activities," which requires companies to recognize all
derivative contracts at their fair values as either assets or liabilities on the
balance sheet.

Historically, the Company has not entered into derivative contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect the adoption of the new standard to affect its financial statements.

F-11
<PAGE>

3. RELATED PARTY TRANSACTIONS

Debt

During the first quarter of 1999, the Company issued Lau options to purchase
60,000 shares of the Company's common stock in exchange for Lau's guarantee of
an indemnification obligation of the Company. The options are exercisable
through February 2002 at $1.90 per share. The fair value of the options,
amounting to $36,000, have been credited to shareholders' equity and included in
deferred financing cost, a component of other assets. The value of these options
will be amortized over the indemnification period and charged to interest
expense.

In May 1999, the Company received a commitment from Lau to lend to the Company
up to $2,000,000 in exchange for a 4% convertible subordinated note. Amounts
drawn under the note, with Lau's consent, and related accrued interest are
convertible at Lau's option into shares of the Company's common stock at any
time prior to January 1, 2001 at $1.26 per share. In May 1999, the Company
borrowed $1,000,000 under this commitment, which is outstanding as of December
31, 1999.

The Company has a project lease financing arrangement with Lau that provides for
up to $3.1 million of capital lease financing in 1999 with $3.1 million
outstanding at December 31, 1999

On October 14, 1999, Lau Technologies exercised an option to convert $800,000,
4%, subordinated convertible debt, borrowed prior to 1999, plus accrued interest
of $33,000, into 526,582 shares of the Company's common stock at the conversion
price of $1.58 per share.

Licenses

The Company has two non exclusive license agreements with Lau, whereby Lau acts
as a distributor of the Company's "Facial Recognition" Technology for certain
European Markets, U.S. Airports and other end users that are Federal Agencies.
Lau will pay the Company royalties, as defined, under these agreements. Through
December 31, 1999, no royalties have been earned.

The Company has also obtained from Lau an exclusive (except for limited fields
reserved by Lau), perpetual, worldwide license to use the U.S. patent 5,432,864
purchased by Lau from Daozeng Lu and Simon Lu, and all improvements thereto,
which relates to a system for automatically verifying the identity of an
individual using identification parameters that are carried on an escort memory
such as an identification or credit card. This license requires royalty payments
to Lau for each unit sold or licensed by Viisage. The agreement also requires
the issuance of 50,000 shares of Viisage common stock to Lau following the
royalty commencement date.

F-12
<PAGE>

Other

Under an Administration and Services Agreement, Lau provides general accounting,
data processing, payroll, certain human resources, employee benefits
administration and certain executive services to the Company. The agreement
requires the Company to pay a monthly fee based on the estimated actual cost of
such services and permits the Company to terminate selected services upon 30
days written notice. The annual fee for services is revised if the level of
services is changed. Amounts for 1999 and 1998 reflect a continued reduction in
services. The amounts for such services were approximately $418,000 in 1999,
$636,000 in 1998 and $864,000 in 1997.

A Use and Occupancy Agreement requires the Company to pay its proportionate
share of the cost of shared facilities and office services including rent,
insurance, property taxes, utilities and other operating expenses, based on
square footage or equipment utilized. The annual fee for facilities and services
is revised for changes in space utilized and in operating expenses. The amounts
for facilities and services were approximately $217,000 in 1999, $550,000 in
1998 and $512,000 in 1997, respectively. See note 7 for lease information.

Company employees participate in various Lau employee benefit plans. The Company
pays its proportionate share of the costs of such plans based on the number of
participating employees.

Management believes the methods for allocating expenses and those costs related
to shared facilities and equipment are reasonable and approximate what these
costs would be on a stand-alone basis.

The Company purchases certain system components and technical personnel services
from Lau. The amounts for such components and services were approximately $0.5
million in 1999, $1.0 million in 1998 and $1.9 million in 1997. During 1999 and
1998, the Company provided software development services as a subcontractor to
Lau amounting to $120,000 and $500,000, respectively.

At December 31, 1999 and 1998, the Company had approximately $35,000 and
$596,000 of accounts receivable due from Lau, respectively, and approximately
$119,000 and $906,000 of accounts payable due to Lau, respectively. The Company
also has a 9% note receivable from Lau Technologies due in monthly installments
of principal and interest of approximately $21,000 through February 28, 2002. At
December 31, 1999 and 1998, approximately $214,000 and $197,000 of the note was
included in other current assets, respectively, and the remaining balance of
approximately $258,000 and $472,000 was included in other assets, respectively,
in the accompanying balance sheet.

The Company has employment and noncompetition agreements with certain officers.
Such agreements provide for employment and related compensation, and restrict
the individuals from competing, as defined, with the Company during the terms of
their respective agreements and for up to two years thereafter. The agreements
also provide for stock options under the Company's stock option plan and for
severance payments upon termination under circumstances defined in such
agreements.

F-13
<PAGE>

4. PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows (in thousands):

December 31,
1999 1998

Assets held under capital lease $ 22,351 $ 19,225
System assets 4,000 4,000
Computer equipment 994 974
--------- --------
27,345 24,199
Less--Accumulated depreciation 10,108 5,686
--------- --------
$ 17,237 $ 18,513
========= ========

During 1999 and 1998, the Company sold and leased back under capital leases
approximately $3.1 million and $5.2 million, respectively, of system equipment
used to produce identification cards for certain contracts.

In October 1997, Viisage completed a System Sale, License and Subcontract
Agreement (the Agreement) with Unisys Corporation (Unisys). Under the Agreement,
Viisage purchased and licensed certain assets from Unisys and agreed to perform
certain services as Unisys' subcontractor relating to a digital imaging system
for the Florida Department of Highway Safety and Motor Vehicles. The purchase
price was $4 million, consisting of $3.8 million paid in 1997 and two payments
of $100,000 each, one made in December 1998 and the other to be made on October
1, 2000. In addition, Viisage agreed to additional contingent payments of up to
$754,000 depending largely on Unisys' support of Viisage's efforts to generate
incremental revenues from Florida state agencies. The purchase, including
approximately $100,000 of transaction costs, was recorded using the purchase
method of accounting and has been allocated to system assets which are being
amortized over the estimated remaining useful life of the system.

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following (in thousands):

December 31,
1999 1998

Accounts payable $ 2,139 $ 3,112
Accrued contract costs 3,912 5,235
Accrued payroll and related taxes 95 138
Accrued vacation 189 219
Other accrued expenses 286 386
---------- ----------
$ 6,621 $ 9,090
========== ==========

F-14
<PAGE>

6. LONG TERM DEBT AND PROJECT LEASE ARRANGEMENTS

In December 1998, the Company executed an amended and restated agreement with a
commercial bank to provide a new revolving credit facility to the Company
through June 2000. Outstanding term and revolving credit borrowings were repaid
with funds from the new agreement at closing. In connection with the bank's
commitment, the revolving credit facility was amended to provide for borrowings
of up to $9 million through December 31, 1999 and $6.5 million through June 30,
2000 at the prime rate plus 1%. The facility is secured by substantially all of
the Company's assets and requires the Company to maintain certain financial
ratios and minimum levels of earnings and tangible capital funds, as defined. At
December 31, 1999, the Company was in compliance with all loan covenants. The
revolving credit facility also requires the Company to raise funds, as needed,
from other sources to cover biometrics division expenses. These sources are
expected to include a combination of biometrics division revenues, subordinated
debt and equity capital.

The Company also has a system project lease financing arrangement with a
commercial leasing organization. Pursuant to this arrangement, the lessor
purchases certain of the Company's digital identification systems and leases
them back to Viisage for deployment with identified and contracted customers
approved by the lessor. The lessor retains title to systems and has an
assignment of Viisage's rights under the related customer contracts, including
rights to use the software and technology underlying the related systems. Under
this arrangement, the lessor bears the credit risk associated with payments by
Viisage's customers, but Viisage bears performance and appropriation risk and is
generally required to repurchase a system in the event of a termination by a
customer for any reason except credit default. The Company is also required to
maintain certain financial ratios and minimum levels of tangible capital funds,
as defined. At December 31, 1999, the Company was in compliance with all lease
covenants. These project lease arrangements are accounted for as capital leases.
The current arrangement provides for project financing of up to $15.0 million.
At December 31, 1999, the Company had approximately $11.6 million outstanding
under the lease financing arrangement. The Company has a similar project lease
financing arrangement with Lau that provides for up to $3.1 million of capital
lease financing in 1999 with $3.1 million outstanding at December 31, 1999.

The Company believes that it will continue to meet its debt covenants. However,
this expectation is dependent in part on achieving business forecasts and
raising funds to cover biometrics division expenses. If the Company does not
meet such covenants, the bank and the lessor could require immediate repayment
of amounts outstanding.

F-15
<PAGE>

7. COMMITMENTS AND CONTINGENCIES

Leases

The Company leases certain equipment and facilities used in its operations and
the shared facilities discussed in note 3. Rental expense for operating leases
was approximately $131,000 in 1999, $212,000 in 1998 and $212,000 in 1997.

At December 31, 1999, approximate future minimum rentals under the lease for
shared facilities and capital leases are as follows (in thousands):

Capital Operating
Leases Lease
Year Ending:
2000 $ 5,117 $ 131
2001 4,446 131
2002 3,110 12
2003 2,674 -
2004 1,541 -
Thereafter 670 -
-------- -------
Total minimum lease payments 17,558 $ 274
=======
Less--Interest portion 2,789
--------
Present value of net
minimum lease payments 14,769
Less--Current portion 4,048
--------
$ 10,721
========

Litigation

The Company does not believe that there are any legal matters that would have a
material adverse effect on its business, financial condition or results of
operations.

8. RETIREMENT BENEFITS

The Company participates in the Lau 401(k) plan and pays its proportionate share
of plan expenses based on the number of participants. The plan permits pretax
contributions by participants of up to 15% of base compensation. The Company may
make discretionary contributions to the plan, subject to certain limitations.
Participants are fully vested in their contributions and vest 20% per year in
employer contributions. The Company's costs for this plan amounted to
approximately $79,000, $67,000 and $95,000 for the years ended December 31,
1999, 1998 and 1997, respectively.

The Company does not offer any postretirement benefits.

F-16
<PAGE>

9. INCOME TAXES

There was no provision for income taxes for the years ended December 31, 1999,
1998 and 1997.

A reconciliation of the federal statutory rate to the Company's effective tax
rate for the years ended December 31, 1999, 1998 and 1997 is as follows:

1999 1998 1997
Federal statutory rate (34.0)% (34.0)% (34.0)%
State taxes, net of federal benefit (6.0) (6.0) (6.0)
Valuation allowance recorded 40.0 40.0 40.0
----- ----- -----
-% -% -%
===== ===== =====

The components and approximate tax effects of the Company's deferred tax assets
and liabilities as of December 31, 1999, and 1998 are as follows (in thousands):

1999 1998
Deferred tax assets (liabilities):
Net operating loss carryforwards for tax purposes $ 4,902 $ 4,363
Bases differences related to contract assets (620) (859)
Property, plant and equipment (14) (19)
Accruals and other reserves (72) 242
------- --------
Net deferred tax asset before valuation allowance 4,196 3,727
Valuation allowance (4,196) (3,727)
------- --------
Net deferred tax asset $ - $ -
======= ========

Due to the uncertainty surrounding the realization of the Company's net deferred
tax asset, the Company has provided a full valuation allowance against this
amount.

At December 31, 1999, the Company had available estimated net operating loss
carryforwards for federal tax purposes of approximately $11.6 million to reduce,
subject to certain limitations, future income taxes. These carryforwards expire
from 2011 to 2019 and are subject to review and possible adjustment by the
Internal Revenue Service.

10. SHAREHOLDERS' EQUITY

Stock Option Plans

Under the 1996 Management Stock Option Plan and the 1996 Director Stock Option
Plan (the Plans), the Board of Directors may grant incentive and nonqualified
stock options to employees and officers and nonqualified stock options to
directors. Generally, incentive stock options are granted at fair value and are
subject to the requirements of Section 422 of the Internal Revenue Code of 1986,
as amended. Nonqualified options are granted at exercise prices determined by
the Board of Directors. Options granted to date to directors vest over three
years from the date of grant. Options granted to management and employees vest
at various rates over periods ranging from three to seven

F-17
<PAGE>

years or, in some cases, earlier if certain performance measures are met. The
performance measures are based on each $1 million increase in Company value up
to approximately $500 million, as adjusted. All options granted under the Plans
expire ten years from the date of grant.

At December 31, 1999, the Company has reserved 2,057,100 shares of common stock
for issuance under the management plan of which 454,945 shares are available for
future grants, and 201,616 shares of common stock under the director plan which
have all been granted.

During 1998, the Company adjusted the exercise price from $13.00 to $2.25 on
177,000 employee options and from $6.25 to $2.25 on 21,000 options granted to
certain management personnel. These options were treated as cancelled and
reissued in the table that follows.

A summary of stock option activity under the Plans is as follows:

<TABLE>
<CAPTION>
Exercise Price Weighted Average
Shares Per Share Exercise Price
<S> <C> <C> <C>
Options outstanding, December 31, 1996 1,427,100 $ 2.96-$4.86 $ 3.20
Granted 362,000 6.25-13.00 12.50
Exercised (10,732) 2.96 2.96
Cancelled (7,818) 2.96 2.96
---------- -------------- --------
Options outstanding, December 31, 1997 1,770,550 2.96-13.00 5.07
Granted 1,109,077 0.625-4.4375 1.63
Exercised (1,465) 2.96 2.96
Cancelled (1,125,335) 2.96-13.00 5.68
---------- -------------- --------
Options outstanding, December 31, 1998 1,752,827 0.625-12.50 2.53
Granted 167,996 1.1875-1.51 1.36
Exercised (101,751) 2.96 2.96
Cancelled (129,249) 0.625-2.96 2.68
---------- -------------- --------
Options outstanding, December 31, 1999 1,689,823 $ 0.625-$12.50 $ 2.38
========== ============== ========

Options exercisable, December 31, 1999 692,003 $0.9375-$12.50 $ 2.43
========== ============== ========

Options available for grant 454,945
==========

</TABLE>

The following table summarizes information about outstanding options as of
December 31, 1999:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Range of Number Contractual Price per Number Price per
Exercise Prices Outstanding Life Share Exercisable Share
<S> <C> <C> <C> <C> <C>
$0.9375 - $1.51 806,833 8.6 years $1.02 187,771 $1.03
2.00 - 2.96 788,020 6.6 years 2.75 499,262 2.94
4.4375 19,970 8.4 years 4.44 4,970 4.44
12.50 75,000 7.4 years 12.50 - 12.50
--------- -------
1,689,823 692,003
========= =======

</TABLE>

F-18
<PAGE>

The Company has computed the pro forma disclosures required under SFAS No. 123
for options granted using the Black-Scholes option pricing model prescribed by
SFAS No. 123. The weighted average assumptions used are:

1999 1998 1997
Risk free interest rate 4.95 - 5.7 % 4.63-5.7% 6%
Expected dividend yield - - -
Expected lives 3 - 10 years 8-10 years 10 years
Expected volatility 71 - 78% 74 % 76 %

The total value of options granted under the Company's plans was computed as
approximately $0.2 million for 1999, $1.1 million for 1998, and $3.7 million for
1997, respectively. Of these amounts, approximately $0.7 million, $0.8 million,
and $0.4 million would have been charged to operations for the years ended
December 31, 1999, 1998 and 1997, respectively, for currently vested options.
The remaining amounts of $5.8 million, $6.4 million and $6.1 million for the
years ended December 31, 1999, 1998 and 1997, respectively, should be amortized
over the related vesting periods. The pro forma effect of SFAS No. 123 is as
follows:

<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net loss, as reported $ (1,998,000) $ (7,203,000) $ (4,362,000)
Pro forma net loss (2,714,000) (7,985,000) (4,796,000)
Basic and diluted net loss per share, as reported (0.23) (0.88) (0.54)
Pro forma basic and diluted net loss per share (0.32) (0.98) (0.60)
</TABLE>

Employee Stock Purchase Plan

In 1997, the Company adopted the 1997 Employee Stock Purchase Plan and reserved
70,000 shares of common stock for issuance under such plan. In January 2000, an
additional 70,000 were reserved for issuance under the plan. The purchase price
is determined by taking the lower of 85% of the closing price on the first or
last day of periods defined in the plan. As of December 31, 1999, 39,844 shares
have been issued and options to purchase 2,515 shares of common stock at $1.09
per share were vested under the plan.

Preferred Stock

In June 1999, the Company completed a $1.5 million private placement of Series A
Convertible Preferred Stock (the "preferred stock") and warrants with a private
equity fund. The preferred stock accrues dividends at 7% per annum, payable in
cash or stock at the Company's option upon conversion. Subject to certain limits
on the number of shares the holder can convert at any one time, the holder can
convert up to 50% of the preferred stock into shares of the Company's common
stock beginning six months after closing and the balance beginning nine months
after closing. Shares can be converted at the lesser of $3.00 per share or 85%
of the market price prior to conversion of the Company's common stock for
conversions within ten months from the closing date or 77% of the market price
prior to conversion for conversions after ten months from the closing date. The

F-19
<PAGE>

Company has the right at any time to redeem the preferred shares. Subject to
certain volume limitations, the preferred stock is required to be converted into
the Company's common stock on June 30, 2002. Within ten (10) business days after
that date, the Company may either (i) redeem the outstanding shares of Series A
Preferred Stock, together with all accrued and unpaid dividends thereon, in
cash, to the date of redemption or (ii) extend the mandatory conversion date for
a period of one year. The Company has agreed to register for resale the common
stock underlying the preferred shares, related dividends and warrants. This
transaction was an exempt transaction under Section 4(2) of the Securities Act
of 1933, as amended. In connection with this transaction, the Company paid an
investment banking fee of $112,500 and warrants to purchase 75,000 shares of the
Company's common stock, exercisable for three years, at an exercise price of
$1.79 per share which was 130% of the then current closing price of the
Company's common stock. The Company also issued warrants to purchase 75,000
shares of the Company's common stock, exercisable for three years, at an
exercise price of $1.58 per share to the investor.

In the event of liquidation of the company, the preferred shareholders would
have a liquidating preference equal to the issuance price of the stock plus all
accrued and unpaid dividends.

On December 9, 1999, warrants issued through the placement of the series A
preferred stock were exercised at $1.79 for the purchase of 75,000 shares of
common stock.

In January 2000, 750 shares of series A preferred stock were converted into
259,356 shares of common stock.

F-20
<PAGE>

Common Stock

On March 10, 2000, for an initial investment of $4,000,000 (of which $1,500,000
is to be funded following the registration of the offered securities with the
Commission), the Company agreed to issue to a private equity investor 391,917
shares of common stock, closing warrants to purchase 97,979 shares of the
Company's common stock, exercisable for five years at $11.77 per share, and
adjustable warrants, exercisable at nominal consideration during three 25
trading day periods beginning four months following closing (which may be
delayed to December 31, 2000). The adjustable warrants terminate if the market
value of the Company common stock exceeds $14.28 for any 20 consecutive trading
days prior to the adjustment periods. If not terminated, the number of shares
that may be acquired under the adjustable warrants is determined by a formula
that is dependent on the extent to which the market value of the Company's
common stock is less than $11.09 per share during the adjustment periods.
Subject to certain closing conditions, two additional investments of $3,000,000
each may be invested by the same investor between 150 and 170 days after the
initial investment and between 120 and 140 days thereafter on similar terms. The
purchase price of the common stock for each additional investment will equal
115% of the average per share market value for the ten trading days prior to the
applicable closing date and the closing warrants will equal to 25% of each
investment at an exercise price equal to 125% of the average per share market
price for the five trading days prior to such closing date. The termination
amount for the subsequent adjustable warrants will be 140% of the market value
of the common stock on the applicable closing date and the formula amount will
be set at 108% of such market value.

11. BUSINESS SEGMENTS, GEOGRAPHICAL INFORMATION, AND CONCENTRATIONS OF RISK

The Company is engaged in one business, the development and implementation of
digital identification systems and solutions. Effective June 1, 1998, the
Company reorganized its operations to create two separate divisions, a
biometrics division and a systems integration and identification card division
(SI). Since June 1, 1998, the Company has operated in two segments. Amounts for
the biometrics division prior to the reorganization are not material. The costs
of shared facilities and certain administrative services have been allocated to
each division based on actual usage or other methods that approximate actual
usage. All other costs and expenses have been allocated to each business based
on actual usage. The Company's accounting policies for its segments are the same
as disclosed in Note 2. Management evaluates segment performance based on
operating income.

F-21
<PAGE>

Substantially all of the Company's revenues are currently derived from the SI
division's public sector customers and contractors to such customers. The
Company believes that for the foreseeable future it will continue to derive a
significant portion of its revenues from a limited number of large contracts.
For the years ended December 31, 1999, 1998 and 1997, four customers, three
customers and one customer, respectively, each accounted for more than 10% of
the Company's revenues and an aggregate of 52%, 40% and 46% of revenues for each
of the years, respectively.

1999 1998 1997
BUSINESS SEGMENT INFORMATION
Revenues:
<S> <C> <C> <C>
Systems integration division $ 19,177 $15,759 $29,388
Biometrics division 120 500 --
-----------------------------
$ 19,297 $ 6,259 $29,388
=============================
Operating Income (Loss):
Systems integration division $ 2,860 $(3,141) $(3,921)
Biometrics division (1,625) (1,357) --
-----------------------------
$ 1,235 $(4,498) $(3,921)
=============================
Total Assets:
Systems integration division $ 44,587 $45,881 $47,463
Biometrics division 93 563 --
-----------------------------
$ 44,680 $46,444 $47,463
=============================
Depreciation and Amortization:
Systems integration division $ 4,422 $ 2,996 $ 1,964
Biometrics division -- 26 --
-----------------------------
$ 4,422 $ 3,022 $ 1,964
=============================
Capital Expenditures:
Systems integration division $ 3,146 $ 5,480 $12,153
Biometrics division -- 9 --
-----------------------------
$ 3,146 $ 5,489 $12,153
=============================
GEOGRAPHIC INFORMATION:
Revenues:
United States $ 19,297 $15,644 $28,149
International -- 615 1,239
-----------------------------
$ 19,297 $16,259 $29,388
=============================
</TABLE>

F-22
<PAGE>

12. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table sets forth selected quarterly financial data for 1999 and
1998 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
1999
<S> <C> <C> <C> <C>
Revenues $ 4,431 $ 4,714 $ 5,209 $ 4,943
Project margin (loss) (145) 120 407 853
Net income (loss) (665) (433) (68) 171
Loss applicable to common
shareholders (665) (433) (282) (618)
Basic net loss per share (0.08) (0.05) (0.03) (0.07)

Diluted net loss per share (0.08) (0.05) (0.03) (0.07)

1998
Revenues $ 4,629 $ 2,965 $ 4,242 $ 4,423
Project margin (loss) 633 343 185 (859)
Net loss (1,864) (1,568) (1,286) (2,485)
Loss applicable to common
shareholders (1,864) (1,568) (1,286) (2,485)
Basic and diluted net loss per share (0.23) (0.19) (0.16) (0.30)
</TABLE>

Net loss per share amounts for the first quarter of 1998 have been restated to
reflect the Company's early adoption of SOP 98-5.

The 1998 results reflect the impact of charges and the accounting change
discussed in note 2.

The 3rd and 4th quarter results for 1999 include preferred stock dividends of
$214 and $789, respectively, in arriving at the loss attributable to common
shareholders.

F-23
<PAGE>

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

On November 3, 1999, the Company's audit committee approved the engagement of
BDO Seidman, LLP to replace Arthur Andersen LLP as the Company's independent
public accountants. The Company's change in independent public accountants was
made at the request of its majority shareholder, Lau Technologies. Lau
Technologies has engaged BDO Seidman, LLP to act as its independent public
accountants and desires that the same firm audits the financial statements of
its 64%-owned subsidiary. There were neither disagreements with Arthur Andersen
LLP on any matter of accounting principles or practice, financial statement
disclosure, auditing scope or procedure nor any "reportable events" as that term
is used in Item 304(a) of Regulation S-K.

F-24
<PAGE>

PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth the various expenses in connection with the
securities being registered. All amounts shown are estimates, except the
Securities and Exchange Commission registration fee.

Item Amount

SEC Registration Fee ............................$ 1,015.80
Accounting Fees and Expenses ....................$ 25,000
Legal Fees and Expenses .........................$ 25,000
Miscellaneous ...................................$ 1,000

Total ......................................$ 52,015.80

Viisage will bear all expenses shown above, and the selling stockholders
will not bear any portion of these expenses.

Item 14. Indemnification of Directors and Officers.

Viisage's bylaws provide that the Company, subject to limited exceptions,
will indemnify its directors and officers, and may indemnify its other employees
and other agents to the fullest extent permitted by Delaware law.

In addition, the Company's certificate of incorporation provides that, to
the fullest extent permitted by Delaware law, the Company's directors will not
be liable for monetary damages for breach of the directors' fiduciary duty of
care to the Company and its shareholders. The certificate of incorporation does
not eliminate the directors' duty of care and, in appropriate circumstances,
equitable remedies such as an injunction or other forms of non-monetary relief
would remain available under Delaware law. Each director will continue to be
subject to liability for:

. breach of the director's duty of loyalty to the Company
. for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law
. for acts or omissions that the director believes to be contrary to the
best interests of the Company or its shareholders
. for any transaction from which the director derived an improper personal
benefit
. for acts or omissions involving a reckless disregard for the director's
duty to the Company or its shareholders when the director was aware or
should have been aware of a risk of serious injury to the Company or its
shareholders

56
<PAGE>

. for acts or omissions that constitute an unexcused pattern of inattention
that amounts to the abdication of the director's duty to the Company or
its shareholders
. for improper transactions between the director and the Company, and
. for improper distributions to shareholders and loans to directors and
officers.

This provision also does not affect a director's responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.

Item 15. Recent Sales of Unregistered Securities.

The following information is furnished with regard to all securities sold
by Viisage within the past three years which were not registered under the
Securities Act of 1933.

(a) Since the Company's adoption of the 1996 Management Stock Option Plan
and the 1996 Director Stock Option Plan in 1996 until September 30,
1999, the Company has issued options to purchase 2,838,173 shares of
its common stock, of which 630,286 options were vested at exercise
prices between $0.93 and $12.50 per share.

(b) From October 1, 1997 through June 30, 1999, the Company issued 54,797
shares of its common stock under the 1997 Employee Stock Purchase Plan
at purchase prices between $0.90 and $4.94 per share.

(c) On August 25, 1998, the Company granted to Lau Technologies ("Lau")
options to purchase 509,091 shares of the Company's common stock,
exercisable for three years, at an exercise price of $2.75 per share.

(d) On August 25, 1998, the Company issued to Lau 300,000 shares of its
common stock at a purchase price of $2.00 per share.

(e) On November 3, 1998, the Company granted to Robert C. Hughes, its
retiring Chief
Executive Officer, an option to purchase 50,000 shares of the
Company's common stock at an exercise price of $0.9375 per share.

(f) On December 7, 1998, the Company issued to SSB Investments, Inc., in
connection with a financing arrangement, an option to purchase 30,000
shares of the Company's common stock at an exercise price of $4.00 per
share.

(g) On December 7, 1998, the Company issued to FSC Corp., in connection
with a financing arrangement, an option to purchase 20,000 shares of
the Company's common stock at an exercise price of $4.00 per share.
On April 3, 2000, FSC Corp. exercised its right to effect payment for
the shares pursuant to a cashless transaction.

57
<PAGE>

(h) In February 1999, the Company granted to Lau, in connection with a
financing arrangement, options to purchase 60,000 shares of the
Company's common stock, exercisable for three years, at an exercise
price of $1.90 per share.

(i) On April 8, 1999 and October 1, 1999, the Company issued 150,066
shares of common stock to its directors in lieu of cash compensation
for 1999 Board service.

(j) On May 3, 1999, the Company issued to Lau, in consideration for Lau's
commitment to lend the Company up to $2,000,000, a convertible
subordinated promissory note. The outstanding principal and interest
under the note may be converted at Lau's option into shares of the
Company's common stock at any time prior to December 31, 2000 at an
exercise price of $1.26 per share. In May 1999, the Company borrowed
$1,000,000 under the note.

(k) On May 6, 1999, the Company issued to Lau, in consideration for Lau's
commitment to lend the Company up to $800,000, a convertible
subordinated promissory note. The $800,000 loan amount and accrued
interest was converted at Lau's option into 526,582 shares of the
Company's common stock on October 14, 1999 at an exercise price of
$1.58 per share.

(l) On June 30, 1999, the Company completed a $1.5 million private
placement of 1,500 series A convertible preferred stock with The Shaar
Fund Ltd. ("Shaar"), a private equity fund. The preferred stock
accrues dividends at 7% per annum, payable in cash or stock at the
Company's option. One half of the shares were converted into 259,356
shares of common stock, and the remaining shares are convertible after
March 31, 2000. Shaar may convert the preferred stock, plus
dividends, into the Company's common stock at the lesser of (i) $3.00
per share, (ii) 85% of the market price if conversion occurs on or
before April 30, 2000, and (iii) 77% of the market price if the
conversion occurs on or after May 1, 2000. Subject to certain volume
limitations, the preferred stock is generally required to be converted
into our common stock on June 30, 2002. The Company may redeem the
series A preferred stock at any time.

(m) On June 30, 1999, the Company issued a warrant to purchase 75,000
shares of the Company's common stock to Shaar, exercisable for three
years, at an exercise price of $1.58 per share.

(n) On June 30, 1999, the Company issued to J.P. Turner & Company, L.L.C.
a warrant to purchase 75,000 shares of the Company's common stock,
exercisable for three years, at an exercise price of $1.79 per share.

(o) On September 17, 1999, the Company issued to William A. Marshall, its
former Chief Financial Officer and Treasurer, a stock option to
purchase 10,000 shares of

58
<PAGE>

the Company's common stock, exerciseable for 3 years, at an exercise
price of $1.44 per share.

(p) On December 30, 1999, the Company completed a $1.5 million private
placement of 1,500 series B convertible preferred stock with The Shaar
Fund Ltd. ("Shaar"), a private equity fund. The preferred stock
accrues dividends at 7% per annum, payable in cash or stock at the
Company's option. The shares are convertible after September 30, 2000.
Shaar may convert the preferred stock, plus dividends, into the
Company's common stock at the lesser of (i) $7.00 per share, (ii) 85%
of the market price if conversion occurs on or before October 30,
2000, and (iii) 77% of the market price if the conversion occurs on or
after November 1, 2000. Subject to certain volume limitations, the
preferred stock is generally required to be converted into our common
stock on June 30, 2002. The Company may redeem the series A preferred
stock at any time.

(q) On December 30, 1999 the Company issued to J.P. Turner & Company, LLC
a warrant to purchase 25,000 shares of the Company's common stock,
exercisable for three years, at an exercise price of $9.02 per share.

(r) On December 30, 1999 the Company issued to Shaar a warrant to purchase
50,000 shares of the Company's common stock, exercisable for three
years, at an exercise price of $8.94 per share.

(s) On March 10, 2000, for an initial investment of $4,000,000 (of which
$1,500,000 is to be funded following the effectiveness of a
registration statement on Form S-3), we agreed to issue to Strong
River Investments, Inc. ("SRI") 391,917 shares of common stock, a
closing warrant to purchase 97,979 shares of the Company's common
stock, exercisable for five years at $11.77 per share, and an
adjustable warrant, exercisable at nominal consideration during three
25 trading day periods beginning four months following closing (which
may be delayed to December 31, 2000). On March 10, 2000, we issued
244,948 of these shares of common stock to SRI, and agreed to issue
the balance to SRI upon the funding of $1,500,000 following the
effectiveness of this registration statement. The adjustable warrant
terminates if the market value of the Company common stock exceeds
$14.28 for any 20 consecutive trading days prior to the adjustment
periods. If not terminated, the number of shares that may be acquired
under the adjustable warrant is determined by a formula that is
dependent on the extent to which the market value of the Company's
common stock is less than $11.09 per share during the adjustment
periods. Subject to certain closing conditions, two additional
investments of $3,000,000 each may be invested by SRI between 150 and
170 days after the initial investment and between 120 and 140 days
thereafter on similar terms. The purchase price of the common stock
for each additional investment will be equal to 115% of the average
per share market value for the ten trading days prior to the
applicable closing date and the number of shares of

59
<PAGE>

common stock underlying the closing warrant will be equal to 25% of
the common stock sold pursuant to each investment at an exercise price
equal to 125% of the average per share market price for the five
trading days prior to such closing date. The subsequent adjustable
warrant will terminate when the market value of the common stock on
the applicable closing date exceeds 140% for any 20 consecutive
trading days prior to the adjustment period. If not terminated, the
number of shares that may be acquired under the adjustable warrant
will be determined by a formula that is based on 108% of the market
value of the Company's common stock. In connection with this
transaction, the Viisage paid an investment banking fee of $160,000 to
Cardinal Securities, L.L.C. ("Cardinal").

(t) On March 10, 2000, the Company issued to Cardinal Securities, LLC, a
warrant to purchase 46,875 shares of the Company's common stock,
exercisable for five years, at an exercise price of $12.35 per share.

All of the above shares were issued in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended,
as transactions by an issuer not involving a public offering.

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits

The Exhibits required to be filed as part of this Registration Statement
are listed in the attached index to Exhibits.

(b) Financial Statement Schedules

Financial statement schedules have been omitted because the information
required to be set forth therein is not applicable or is shown in the Financial
Statements or notes thereto.

Item 17. Undertakings.

(a) The Company hereby undertakes:

(1) to file, during any period in which offers or sales are being
made, a post-effective amendment of this registration statement (i) to include
any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement; provided however, that paragraphs
(a)(1)(i) and

60
<PAGE>

(a)(1)(ii) of this section do not apply if the registration statement is on Form
S-3, Form S-8 or Form F-3, and the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to section
13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement;

(2) for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and

(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

(b) The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Company's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering thereof.

(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

<PAGE>

PART III

Item 10. Directors and Executive Officers of the Registrant

The information concerning directors required under this item is
incorporated herein by reference from the material contained under the caption
"Election of Directors" in the registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year. The information
concerning executive officers required under this item is contained herein under
the caption "Officers," Part I(c)(xiv).

Item 11. Executive Compensation

The information required under this item is incorporated herein by reference
from the material contained under the caption "Executive Compensation" in the
registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the close of the fiscal year.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required under this item is incorporated herein by reference
from the material contained under the caption "Security Ownership" in the
registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the close of the fiscal year.

Item 13. Certain Relationships and Related Transactions

The information required under this item is incorporated herein by reference
from the material contained under the caption "Certain Relationships and Related
Transactions" in the registrant's definitive proxy statement to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A, not later
than 120 days after the close of the fiscal year.

62
<PAGE>
PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a), (d) Financial Statements and Schedules

For a list of financial statements included herein see Index on page F-1.

All schedules are omitted because they are not applicable or not required, or
because the required information is shown either in the financial statements or
in the notes thereto.

(b) Reports on Form 8-K

Changes in Registrant's certifying accountants filed on November 3, 1999.

See Exhibit Index.

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this registration statement to be signed on its behalf by the
undersigned, hereunto duly authorized in Littleton in the Commonwealth of
Massachusetts on May 5, 2000.

VIISAGE TECHNOLOGY, INC.

By: /s/ Thomas J. Colatosti
-----------------------
Thomas J. Colatosti, President and
Chief Executive Officer

<PAGE>

EXHIBIT INDEX
Exhibit
- -------
No. Description
--- -----------

2* Amended and Restated Asset Transfer Agreement, dated as of August 20,
1996, between the Registrant and Lau Technologies.

3.1* Restated Certificate of Incorporation of the Registrant.

3.2* By-Laws of the Registrant.

3.3** Certificate of Designation of series A convertible preferred stock.

3.4******** Certificate of Designation of series B convertible preferred stock.

4* Specimen certificates for shares of the Registrant's Common Stock.

5********* Opinion of Finnegan, Hickey, Dinsmoor & Johnson, P.C. as to the
legality of the shares being registered.

10.1* Amended and Restated License Agreement, dated as of August 20, 1996,
between the Registrant and Lau Technologies.

10.2* Form of Administration and Services Agreement between the Registrant and
Lau Technologies.

10.3* Form of Use and Occupancy Agreement between the Registrant and Lau
Technologies.

10.4* License Agreement, dated as of August 20, 1996, between the Registrant
and Facia Reco Associates, Limited Partnership.

10.5******** 1996 Management Stock Option Plan, as amended.

10.6 Form of Option Agreement for the 1996 Management Stock Option Plan.

10.7******** 1996 Director Stock Option Plan, as amended.

10.8* Form of Option Agreement for the 1996 Director Stock Option Plan.

10.9* Contract between the Registrant and Transactive, Inc. (relating to the
New York Department of SocialServices), dated as of December 8, 1994, as
amended.
<PAGE>

10.10* Subcontract between the Registrant and Information Spectrum, Inc.
(relating to the U.S. Immigration & Naturalization Service), dated as of
October 19, 1995.

10.11* Contract between the Registrant and the North Carolina Department of
Transportation, dated as of April 26, 1996.

10.12*** Contract between the Registrant and the Illinois Secretary of State,
dated June 2, 1997, as amended.

10.13**** 1997 Employee Stock Purchase Plan.

10.14***** Employment Agreement, dated as of November 3, 1998, between the
Registrant and Thomas J. Colatosti.

10.15****** Purchase Agreement (Project Finance Facility) between the
Registrant and Sanwa Business Credit Corporation, dated as of
November 20, 1998, as amended.

10.16******* Amended and Restated Credit Agreement between the Registrant and
State Street Bank and Trust Company, dated December 7, 1998.

10.17******** $2,000,000 Convertible Subordinated Note between the Registrant
and Lau Acquisition Corporation, dated May 3, 1999.

10.18******** Securities Purchase Agreement, dated June 30, 1999 between the
Registrant and Shaar Fund Ltd.

10.19******** Registration Rights Agreement, dated June 30, 1999 between the
Registrant and Shaar Fund Ltd.

10.20******** Common Stock Purchase Warrants, dated June 30, 1999 between the
Registrant and Shaar Fund Ltd.

10.21******** Subcontract Agreement, dated December 6, 1999 between the
Registrant and Compaq Computer Corporation.

10.22******** Securities Purchase Agreement, dated December 30, 1999 between
the Registrant and Shaar Fund Ltd.

10.23******** Registration Rights Agreement, dated December 30, 1999 between
the Registrant and Shaar Fund Ltd.
<PAGE>

10.24******** Common Stock Purchase Warrants, dated December 30, 1999 between
the Registrant and Shaar Fund Ltd.

10.25******** Securities Purchase Agreement, dated March 10, 2000 between the
Registrant and Strong River Investments, Inc.

10.26******** Registration Rights Agreement, dated March 10, 2000 between the
Registrant and Strong River Investments, Inc.

10.27******** Common Stock Purchase Warrant, dated March 10, 2000 between the
Registrant and Strong River Investments, Inc.

10.28******** Adjustable Common Stock Purchase Warrant, dated March 10, 2000
between the Registrant and Strong River Investments, Inc.

10.29******** Letter Agreement, dated March 10, 2000 between the Registrant and
Strong River Investments, Inc.

23.1 Consent of BDO Seidman, LLP.

23.2 Consent of Arthur Andersen LLP.

24 Power of Attorney.

27 Financial Data Schedule.
<PAGE>

EXHIBIT INDEX
Exhibit
- -------
No. Description
--- -----------

* Filed as an exhibit to the Registrant's Form S-1 Registration Statement
dated November 4, 1996 (File No. 333-10649).

** Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 27, 1999 (File No. 000-21559).

*** Amendment filed as an exhibit to the Registrant's Report on Form 10-K for
the year ended December 31, 1997 (File No. 000-21559).

**** Filed as appendix to October 10, 1997 Schedule 14C Information Statement.

***** Amendment filed as an exhibit to the Registrant's Report on Form 10-K for
the year ended December 31, 1998 (File No. 000-21559).

****** Original agreement filed as an exhibit to the Registrant's Form S-1
Registration Statement dated November 4, 1996 (File No. 333-10649).
Amendment filed as an exhibit to the Registrant's Report on Form 10-K for
the year ended December 31, 1997 (File No. 000-21559).

******* Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 29, 1996 (File No. 000-21559).

******** Filed as an exhibit to the Registrant's Report on Form 10-K for the
year ended December 31, 1999 (File No. 000-21559).

********* Filed as an exhibit to the Registrant's Form S-1 Registration
Statement dated November 12, 2000.

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby consent to the inclusion in the Prospectus constituting a part of this
registration statement of our report dated February 4, 2000 relating to the
financial statements of Viisage Technology, Inc. (the "Company") appearing in
the Company's Annual Report on Form 10-K for the year ended December 31, 1999.

We also consent to the references to us under the caption "Experts" in the
Prospectus.

/s/ BDO Seidman, LLP

Boston, Massachusetts
May 5, 2000

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made part of this registration
statement.

/s/ Arthur Andersen LLP

Boston, Massachusetts
May 4, 2000

<PAGE>

EXHIBIT 24.1

POWER OF ATTORNEY

We, the undersigned officers and directors of Viisage Technology, Inc.,
hereby jointly and severally constitute and appoint Thomas J. Colatosti and
Charles J. Johnson, and each of them singly, our true and lawful attorneys with
full power to them, and each of them singly, to sign for us and in our names in
the capacities indicated below, the Post-Effective Amendment No. 1 to
Registration Statement on Form S-1 filed herewith and any and all amendments to
said Registration Statement and generally to do all such things in our names and
on our behalf in our capacities as officers and directors to enable Viisage
Technology, Inc. to comply with the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming all signatures as they may be signed by our said attorneys, or any of
them, to said Registration Statement and all amendments thereto.

Signature Title
- --------- -----

By: /s/ Denis K. Berube Chairman of the Board of Directors
-------------------
Denis K. Berube

By: /s/ Thomas J. Colatosti President and Chief Executive Officer
-----------------------
Thomas J. Colatosti (Principal Executive Officer)

By: /s/ Charles J. Johnson Secretary and Director
----------------------
Charles J. Johnson

By: /s/ Harriet Mouchly-Weiss Director
-------------------------
Harriet Mouchly-Weiss

By: /s/ Peter Nessen Director
----------------
Peter Nessen

By: /s/ Thomas J. Reilly Director
--------------------
Thomas J. Reilly

By: /s/ Charles E. Levine Director
---------------------
Charles E. Levine

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 441
<SECURITIES> 0
<RECEIVABLES> 3,364
<ALLOWANCES> 100
<INVENTORY> 0
<CURRENT-ASSETS> 26,718
<PP&E> 27,345
<DEPRECIATION> 10,108
<TOTAL-ASSETS> 44,680
<CURRENT-LIABILITIES> 13,169
<BONDS> 0
0
2,782
<COMMON> 9
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 44,680
<SALES> 19,297
<TOTAL-REVENUES> 19,297
<CGS> 15,131
<TOTAL-COSTS> 2,931
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,230
<INCOME-PRETAX> (995)
<INCOME-TAX> 0
<INCOME-CONTINUING> (995)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (995)
<EPS-BASIC> (.23)
<EPS-DILUTED> (.23)

</TABLE>