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Leading analyst examines the technology sector in this special Outlook for Biometrics report from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info446.htm.

TWST: May we start with some definitions? What is biometrics and what are natural interface technologies?

Mr. Ruttenbur: Biometrics is the act of identifying an individual by their physical or behavioral characteristics. The physical could be anything from your finger, your face, your eye, and behavioral would be your voice or your signature. There are other behavioral and physical biometrics, but those are the ones that everybody is most familiar with.

TWST: What about natural interface technologies?

Mr. Ruttenbur: Natural interface technology allows users to interact with technology (be it computers, PDAs, cell phones) in a more natural way. For example, we could prepare documents using a word processor that captures the human voice and converts this to written text, instead of manually typing the document. Another example would be a voice recognition system for call centers instead of an IVR system, which is a touch-tone system (saying “press 1 for this, press 2 for that”). A voice rec system allows the user to simply speak requests instead of navigating through the menu by pressing buttons.

TWST: Since the disasters of September 11, there does appear to be an increased awareness of the need to authenticate identities, to make sure that people are who they say they are. Has this spurred an interest in these stocks?

Mr. Ruttenbur: Absolutely. The ones that are dealing with physical access and physical security are the ones that are getting the most attention, and that would be Identix (Nasdaq:IDNX) and Visionics (Nasdaq:VSNX). Identix was right at $4, and it has more than doubled to north of $8. Visionics was also a $4 stock on September 10, and it is now worth more than $15. The reason for Visionics’ explosive growth has been its facial biometric solution, as it is deployable in a surveillance application. We believe that this could play a major role in increased airport security. The Visionics software can pick out faces in a crowd and compare them to those in a known database, and alert law enforcement if, in fact, there is a match.

TWST: To what extent are biometric applications in use today?

Mr. Ruttenbur: We’ll start with Visionics. They have a couple of areas. First of all, they offer both finger and face biometrics. Identix, with its finger biometrics, serves as the company’s main competitor. On the finger side, one of the biggest current initiatives is the use of biometrics for employee background checks in airports. In compliance with the Airport Security Improvement Act (passed in 2000), all airport and airline employees have to go through background checks. Recent events have increased the urgency of compliance with this law and has increased the scope as well. Airports use what is called a live-scan machine, which allows for the electronic capture, printing, and transmission of high-quality forensic fingerprint images. Both Identix and Visionics are among the nine companies that are accredited by the FBI to meet the IAFIS (integrated automated fingerprint identification system). Also, both companies are included in the six that hold the Bureau’s highest level of image quality specification. The live scan unit looks like a small copy machine with a monitor on top. Prospective employees simply register their print by applying each finger to the screen. A digital image (like a photograph) is then captured. This image is analyzed by the system and the distances between ridges, valleys, and minutiae are used to create a template based on that set of data points. This template can then be matched to the FBI’s database of known criminals. The fact that the images can be transmitted electronically allows for much quicker processing time (one week range), whereas now, the correspondence from the FBI using the traditional ink and roll process takes around six weeks to complete. That’s one business line on the finger side. Also, both Identix and Visionics are providing their live scan technology to law enforcement agencies. Visionics is in 560 police departments where this technology is used to verify and identify criminals. In fact, Visionics recently released its newest fingerprint solution, IBIS (identification based information system). This system uses wireless technology that allows officers to get identification verification and criminal history reports in real time at the scene of the crime. On the face side, Visionics has several impressive customers that use facial biometrics. Some of these include the Mexican government (in its effort to eliminate duplicate voter registrations), the Tampa Police Department (in its effort to reduce crime in local nightlife districts), and the State of Minnesota (for an integrated criminal justice mug shot database system).

This special issue includes:

1) Outlook for Biometrics - In an in-depth (2,400 words) Analyst Interview, Brian Ruttenbur, Analyst that follows the biometrics industry and co-follows the eLearning industry at Morgan Keegan & Co., Inc., examines the outlook for the sector and shares specific stock recommendations.