Bernard C. Bailey
President and CEO
Viisage Technology, Inc. (Nasdaq: VISG)

1. SecurityStockWatch.com: Viisage has a successful track record of over 2,000 installations worldwide, a big number in anyone's book. Please give our audience a breakdown as to the major markets that are served by these installations.

Bernard Bailey: Our installations span a number of markets that cover both the core and emerging areas of our identity solutions business. We maintain a strong presence in the civil identification market, which includes the 15 U.S. States for which we provide drivers’ licenses and secure identification cards, and the U.S. Passports for which we provide the high security production system. Likewise, our criminal ID and law enforcement customer base remains a core component of our business and at the front of the innovation curve. This is evidenced by our recent announcement that the Pinellas County, Florida Sheriffs Office added a mobile feature to its identity solution deployment, outfitting its squad cars with the ability to capture images of detainees and using face recognition technology, run the images against the County’s image database. On the “emerging” side of our business, we continue to explore opportunities for our identity solutions in the area of border control, where we have deployments such as at Dubai International Airport. Perhaps most exciting, however, is the explosive potential growth in the federal marketplace, where the advancement of our technologies coupled with the requirement to increase the security of our homeland has led to exciting opportunities with the Departments of State and Defense thus far.

2. SecurityStockWatch.com: Please give us an overview of the solution Viisage is providing to the Department of Defense Common Access Card Program? What about other business opportunities in the Federal Marketplace?

Bernard Bailey: The Common Access Card or CAC smart card program is easily the largest and most advanced use of advanced technology identity solutions currently deployed by the U.S. government. Our solution, which is part of a much more extensive DOD solution, includes the desktop production systems. These systems consist of an array of printers, consumables and services and the technology provides the DoD’s Defense Manpower Data Center with secure identification cards for use throughout its Real-time Automated Personnel Identification System, or RAPIDS. The cards themselves provide a variety of DOD employees and contractors with both physical and logical access to the Department’s computer networks and serve as the authentication token for the Department’s computerized public key infrastructure. As for the other business opportunities in the federal marketplace, I would describe them as vast. The recently published 9/11 Commission Report stated “For terrorists, travel documents are as important as weapons”. In this report, the Commission outlined a series of very strong recommendations designed to dramatically enhance the quality of identity credentials including birth certificates, drivers’ licenses, passports and visas. We are at a point in time where the federal marketplace is making the connections between the security challenges faced by agencies and departments today and the identity solutions that are available to them. The convergence of technologies in credentials as demonstrated by the CAC program allows agencies to protect the integrity of identity throughout the identity lifecycle and across their entire enterprise.

3. SecurityStockWatch.com: The percentage of VISG business from the drivers’ license market is declining as a percent of total business. Do you see growth in this market? Is it fair to say that the company has been successful in diversifying?

Bernard Bailey: From the inception of our company, the drivers’ license business has been the core of the Viisage solution and it will remain a core part of our business going forward. Today that business continues to grow at about 10% to 15% per year and we expect that it will continue to do so in the future. An important part of that growth is expected to come from the introduction of products in the Viisage Identity Solutions Suite in the future. The Viisage PROOF product, the first product in the Viisage Identity Solutions Suite, was announced on August 23, 2004. That said, during this past year we have worked hard to diversify our business into related adjacent markets. This has allowed us to extend our core identification capabilities into the federal marketplace as well as overseas. As a result, while the revenues from our drivers’ license business represented about 80% of our portfolio last year, this year that number will be down closer to 50% of our revenues, despite growing by double digits. The change in our revenue mix is coming from higher margin solutions such as biometrics and federal identity platforms, markets that are experiencing annual growth rates of between 40% and 80% per annum.

4. SecurityStockWatch.com: VISG has provided a building security solution for Microsoft in Germany and the Russian Central Bank. With the recent terror alerts in New York City, Boston, and many other cities, and the on-going war on terrorism, do you expect to see more opportunities for Viisage in the enterprise market for building security?

Bernard Bailey: In the near term we have focused our efforts on providing solutions for the identity credentialing marketplace. Longer term we feel that there is a tremendous opportunity to expand our solutions more aggressively in the access control and surveillance marketplaces. The building security solutions you mentioned are examples of several areas in which customers are looking to build a more robust solution using face recognition technology as a key component for access control. More and more organizations are recognizing the important role that biometrics can play in these solutions. Probably an even more exciting opportunity going forward is the convergence we are now starting to see between both physical and logical security and Viisage naturally fits into these overlapping domains. Certainly the Common Access Card is an important precursor to these solutions going forward.

5. SecurityStockWatch.com: Viisage recently announced an agreement with Siemens AG (NYSE: SI) to develop 3-D Face Recognition Technology. What can you tell us about the plans and goals with Siemens?

Bernard Bailey: We have entered into an exclusive licensing agreement with Siemens to further develop Siemens’ proprietary core technology for a 3-D image sensor, productize the technology, and jointly market the technology upon completion. Essentially, by combining our two technologies and our expertise, we believe we will produce a face recognition model that not only will address some of the issues of pose variation currently associated with capturing images, but also provide a method by which agencies currently possessing databases of 2-D images can easily, and accurately, transform those images into 3-D. This eliminates the need for those agencies to completely re-enroll their databases with new 3-D images, which is a benefit since most agencies have large databases of 2-D images only today. While we are just in the beginning stages of the technology integration, we see tremendous business value in these solutions and the Siemens relationship going forward.

6. SecurityStockWatch.com: VISG recently announced a public offering of approximately 7.5 million shares. What is the status of that offering? What will be the use of proceeds and does VISG have the funds it needs to execute its plan.

Bernard Bailey: On August 4th we announced the formal sale of the shares at a price of $5.50 per share and consummated the transaction on August 10th. Our net proceeds from the offering were approximately $37 million. We believe that the offering further solidifies what was already a stable financial position and provides us with even greater flexibility as we look to build on the progress we have achieved so far in 2004. I should point out that we have been and anticipate continuing to be cash flow positive from operations. The first use of proceeds we are examining is paying off some of our $28M debt. This could save us up to $2.3M in interest expense. We will continue to direct the remaining proceeds to the activities that help us create shareholder value by evolving our identity solutions products, enhancing our position in both the established and emerging markets we target, and seeking out new, untapped markets.

7. SecurityStockWatch.com: Please update us on the Company's Guidance for the year?

Bernard Bailey: Our performance to date and our evaluation of current market conditions gives us the confidence to confirm the increased guidance we stated in our Q1 earnings call. We expect revenue of between $60-63 million and EBITDA of $11-12 million.

8. SecurityStockWatch.com: What is the company's backlog at this time and how does the company define "backlog"?

Bernard Bailey: Our sales backlog is made up of contracts which are currently signed, committed and funded. It is a multi-year backlog that stretches over more than a 5 year period. We anticipate that about one third of the backlog will generate revenues over the next 12 months or so. This is an important element in allowing us to have a stable and predictable revenue stream going forward, allowing us good visibility into the future. Today our backlog is approximately $151M.

9. SecurityStockWatch.com: VISG gross margins are improving. What factors are accounting for better gross margins? Will margin improvement continue?

Bernard Bailey: We have focused very hard on improving our gross margins over the past six quarters. There are a number of different areas we have focused upon. First of all, we have gone to great pains since I joined the company in 2002 to make Viisage a leaner, more efficient company and we are seeing the benefits come to light. Secondly we have intentionally focused on increasing the content of our solutions with higher margin software products and services. Finally we have also looked to expand our business around opportunities that provide the potential for both revenue and profit growth. The markets we are in often result in long term multi-year contracts so it is very important to bid them at prices that provide a reasonable return for our shareholders, since we will be living with that pricing for the duration of the contract. Going forward, we expect our margins will continue to improve as we roll out more products and value added services and make them an integral part of our solutions.

10. SecurityStockWatch.com: Thank you very much for your time, Bernard. Are there any other points you would like to make?

Bernard Bailey: Thank you very much. It was my pleasure. If I could make one point in closing, it would be to say that we are in the midst of an exciting time at Viisage, one in which we are driving both the innovation and adoption rate of this emerging market known as identity solutions. At a time when global issues such as border security and civil issues such as identity theft and fraud are at the forefront of our collective consciousness, the message should be clear that the technology evolution has taken place and the solutions are at hand to protect both our borders and our identities.