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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003 or

For the transition period from              to            

Commission file number 0-20270

SAFLINK CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (425) 278-1100

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value per share

(Title of Class)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes  ¨  No  x

The aggregate market value of the registrant’s common stock held by non-affiliates was approximately $62,020,334, based upon the last sale price reported for the common stock of the registrant on the Nasdaq SmallCap Market on June 30, 2003, being the last trading day of the registrant’s most recently completed second fiscal quarter. Shares of common stock of the registrant held by each officer, director and holder of 5% or more of the outstanding common stock have been excluded from this calculation in that such persons may be deemed to be affiliates. Share ownership information of certain persons known by the registrant to own greater than 5% of the outstanding common stock for purposes of this calculation is based solely on information on Schedule 13D or 13G filed with the Securities and Exchange Commission and is as of June 30, 2003. The determination of affiliate status is not necessarily a conclusive determination for other purposes.

There were 31,332,453 shares of the registrant’s common stock outstanding as of March 19, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference from the registrant’s definitive proxy statement relating to the registrant’s 2004 annual meeting of stockholders.

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PART I

Certain statements in this Annual Report on Form 10-K constitute forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that are not historical facts but rather reflect our current expectations concerning future results and events. Words such as “believe,” “expect,” “intend,” “plan,” “anticipate,” “likely,” “will,” “may,” “shall” and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of our company (or entities in which we have interests), or industry results, to differ materially from historical results or future results, performance or achievements expressed or implied by such forward-looking statements.

Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s view only as of the date of this Annual Report on Form 10-K. These forward-looking statements include, without limitation, statements regarding our expectations and beliefs about the market and industry, our goals, plans, and expectations regarding our products and services and product development, our intentions and strategies regarding customers and customer relationships, our relationships with the software development community, our intent to continue to invest resources in research and development, our intent to develop relationships and strategic alliances, our beliefs regarding the future success of our products and services, our expectations and beliefs regarding competition, competitors, the basis of competition and our ability to compete, our beliefs regarding trademark and copyright protections, our beliefs and expectations regarding infringement claims, our beliefs regarding the development of industry standards, our expectations and beliefs regarding our ability to hire and retain personnel, our beliefs regarding period to period results of operations, our expectations regarding future growth and financial performance, our expectations regarding licensing arrangements and our revenue, our expectations and beliefs regarding revenue and revenue growth, our expectations regarding our strategies and long-term strategic relationships, our expectations regarding defects in products, our expectations regarding fluctuations in revenue and operating results, our beliefs and expectations regarding our existing facilities and the availability of additional space in the future, our intent to use all available funds for the development and the operation of our business and not to declare or pay any common stock cash dividends, our expectations regarding software development costs, our beliefs and expectations regarding our results of operations and financial position, our beliefs regarding estimates in valuing in-process research and development, our intentions and expectations regarding deferred tax assets, our beliefs and expectations regarding liquidity and capital resources and that cash flow from existing operations, existing cash, cash equivalents and short-term investments will be sufficient to meet our cash requirements for the foreseeable future, and our expectations regarding the impact of recent accounting pronouncements and revenue recognition matters. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those anticipated. These risks and uncertainties include without limitation those identified in the section of this Annual Report on Form 10-K entitled “Risk Factors That May Affect Future Results” below. In addition, these forward looking statements are subject to risks and uncertainties associated with the possibility that the merger we announced on March 23, 2004, with SSP Solutions, Inc. may not close, the failure of the combined company to retain key employees, the failure of the combined company to manage the cost of integrating the businesses of SAFLINK and SSP-Solutions, successful integration of the acquired business, technology and employees and the realization of anticipated benefits of the transaction, risks associated with the rapidly evolving market for biometric solutions and our products and services, general economic conditions, the pace of spending and timing of economic recovery in the biometric and smart card industries, the combined company’s inability to sufficiently anticipate market needs and develop products and product enhancements that achieve market acceptance, higher than anticipated expenses the combined company may incur in future quarters. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, conditions or circumstances.

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As used in this Annual Report on Form 10-K, unless the context otherwise requires, the terms “we,” “us,” “the Company,” and “SAFLINK” refer to SAFLINK Corporation, a Delaware corporation, and its subsidiaries.

Overview

SAFLINK Corporation offers software solutions that protect intellectual property, secure information assets, control access to physical facilities, and eliminate passwords. SAFLINK’s Secure Authentication Framework^™ (SAF^™) software provides Identity Assurance Management^™, allowing administrators to verify the identity of users and control their access to: computer networks; physical facilities; applications; event tracking systems; and time and attendance systems. We develop application software and resell hardware and device control software from leading manufacturers of biometric hardware devices. Our products may be used to protect business and personal assets and to replace passwords, keys, and personal identification numbers (PINs) in order to safeguard and simplify access to electronic systems, buildings, and secure areas. Biometric technologies automatically identify computer users by electronically capturing a specific biological or behavioral characteristic of that individual, such as a fingerprint, iris pattern, voiceprint or facial feature, creating a unique digital identifier from that characteristic and then comparing it against a previously created and stored digital identifier. Because this process relies on largely unalterable human characteristics, it is both highly secure and highly convenient for the individual seeking access.

The process of identity authentication typically requires that a person present for comparison one or more of the following factors:

Comparison of biological and behavioral characteristics has historically been the most reliable and accurate of the three factors, but has also been the most difficult and costly to implement given the complex nature of enterprise computer systems. However, recent advances in the development of integrated biometric software solutions, reduced cost of biometric devices, and the emergence of recognized industry standards to connect biometric components to applications have reduced the cost of implementing biometrics in commercial environments. We believe that government and private sector organizations will increasingly use this method of identity authentication because of the level of security and user convenience it provides and the reduced cost of password administration associated with such a security system.

Our software products are designed for large-scale and complex computer networks, facilities, and manufacturing automation systems, and allow users seeking access or performing transactions to be identified using various biometric technologies. Our products comply with recognized industry standards, which allow us to integrate a large variety of biometric technologies within a common application environment without costly development related to each technology. Our products also provide our customers with the flexibility to deploy a mixture of different biometric technologies within their network to meet specific user and environmental requirements while providing protection against technology obsolescence since new devices can be added to, or upgraded within, the system without replacing or modifying the underlying biometric network support infrastructure.

In December 1997, SAFLINK and the National Security Agency (NSA) jointly introduced and demonstrated the Human Authentication Application Programming Interface, or HA-API. HA-API was the first definition of a standard way to allow software developers and biometric technology suppliers to build their products using a uniform method for connecting many different biometric devices to computer systems. HA-API was developed by SAFLINK under a contract from the NSA and was subsequently released into the public

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domain as a proposed biometric interoperability standard. HA-API subsequently evolved into a standard called BioAPI. BioAPI was recognized by the American National Standards Institute (ANSI) in February 2002, and has been designated as ANSI/INCITS 358 BioAPI. This standard is now being considered for adoption by the International Organization for Standards (ISO) and ballot approval is expected to take place by the end of 2004 or early 2005. One of our employees serves as the elected Chair of the BioAPI Consortium that represents over 120 organizations that have collaborated to develop this new standard. We also support other related biometric standards efforts, including the Common Biometric Exchange File Format (CBEFF) specification and we intend to keep all of our products compliant with these standards as they continue to evolve.

We are positioning and promoting our Secure Authentication Facility, or SAF, brand in conjunction with selected biometric and other identification technologies currently available in the marketplace including those from:

Recent Developments

Merger Agreement with SSP-Litronic

On March 22, 2004, we entered into an agreement and plan of merger and reorganization with SSP Solutions, Inc., a Delaware corporation, dba SSP-Litronic (SSP-Litronic), and Spartan Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of SAFLINK, pursuant to which Spartan will merge with and into SSP-Litronic, with SSP-Litronic surviving as a wholly-owned subsidiary of SAFLINK. A copy of the merger agreement is attached to our current report on Form 8-K filed with the SEC on March 23, 2004, as Exhibit 2.1. In connection with the execution of the merger agreement, certain of our directors, executive officers and affiliates entered into stockholder agreements with SSP-Litronic in the form attached to our current report on Form 8-K filed with the SEC on March 23, 2004, as Exhibit 99.1, and certain of SSP-Litronic’s directors, executive officers and affiliates entered into stockholder agreements with us in the form attached to our current report on Form 8-K filed with the SEC on March 23, 2004, as Exhibit 99.2.

The merger is subject to the approval of each company’s stockholders, regulatory review, and other customary closing conditions. The transaction is intended to qualify as a tax-free transaction and is expected to close in the second or third quarter of 2004, depending on regulatory review.

Pursuant to the terms of the merger agreement, we will acquire all of the outstanding shares of SSP-Litronic in a stock-for-stock transaction where each share of SSP-Litronic common stock will be exchanged for 0.6 shares of our common stock. Given the current capital structures of both companies, it is anticipated that the security holders of SSP-Litronic would receive approximately 49% of the combined company’s outstanding fully-converted shares at closing and our security holders would continue to hold the remaining 51% of the combined company’s outstanding fully-converted shares at closing. The foregoing description of the merger does not purport to be complete and is qualified in its entirety by reference to the complete text of the merger agreement, which is filed as Exhibit 2.1 to our current report on Form 8-K filed with the SEC on March 23, 2004, and is

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incorporated herein by reference. Please refer to the exhibits referred to in Item 7 of that Form 8-K, and the joint press release issued by us and SSP-Litronic on March 22, 2004, attached as Exhibit 99.3 to our current report on Form 8-K filed with the SEC on March 23, 2004, announcing the signing of the merger agreement.

The new company will be led by a management team and board of directors selected from both companies. Richard P. Kiphart, formerly chairman of Memphis-based Concord EFS and a managing director of William Blair & Company, LLC investment banking firm will become chairman of the board of directors of the combined company. Glenn L. Argenbright, President and CEO of SAFLINK, will remain president and CEO of the combined company. Kris Shah, co-chairman and president of SSP-Litronic, will maintain his role as president of SSP-Litronic. Marvin Winkler, co-chairman and CEO of SSP-Litronic, will become the vice chairman of the board of directors and is expected to assist executive management with strategic initiatives. Other executive management positions and members of the board of directors will be designated prior to the closing of the transaction.

We intend to file a registration statement on Form S-4 in connection with the transaction, and we intend to mail a joint proxy statement/prospectus with SSP-Litronic to our respective stockholders in connection with the transaction. Our investors and security holders, as well as investors and security holders of SSP-Litronic, are urged to read the joint proxy statement/prospectus when it becomes available because it will contain important information about us, SSP-Litronic and the transaction. Investors and security holders may obtain a free copy of the joint proxy statement/prospectus (when it is available) at the SEC’s website at www.sec.gov. A free copy of the joint proxy statement/prospectus may also be obtained from us or from SSP-Litronic.

In addition to the registration statement on Form S-4 to be filed by us in connection with the transaction, and the joint proxy statement/prospectus to be mailed to our stockholders and to the stockholders of SSP-Litronic in connection with the transaction, SSP-Litronic files annual, quarterly and special reports, proxy and information statements, and other information with the SEC. We encourage you to read and copy any of these reports, statements and other information at the SEC’s web site at www.sec.gov., at SSP-Litronic’s website at www.sspsolutions.com.

Private Placement of Common Stock

On February 26, 2004, we raised approximately $9.2 million through a private placement of shares of our common stock. We sold a total of 3,080,000 shares of our common stock to a group of accredited institutional investors at a price of $3.00 per share. The placement agent for the financing was Burnham Hill Partners. The per share purchase price represented a discount of approximately 8.3% to the $3.27 per share closing sale price for shares of our common stock as reported on the Nasdaq SmallCap Market on February 25, 2004, the trading day prior to the closing of the financing. Investors also received warrants to purchase up to 1,232,000 additional shares of common stock. The warrants have a term of five years and an exercise price of $3.97 per share.

In connection with the financing, we have agreed to file a registration statement on Form S-3 with the Securities and Exchange Commission covering the resale of the shares of common stock issued in the financing and the shares of common stock underlying the warrants. We also granted a right of first refusal to investors to purchase their pro rata portion of securities issued by us to third parties for a period of 12 months following the closing of the financing, subject to certain excluded transactions.

Acquisition of Assets from Biometric Solutions Group

On December 29, 2003, we acquired certain assets and rights used in connection with the digital identity and biometric-enhanced physical access security business of Information Systems Support, Inc. (ISS) and Biometric Solutions Group, Inc. (BSG). We intend to integrate the acquired assets into our business operations and intend to continue the operation located in Charleston, South Carolina.

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We paid approximately $3.9 million for the acquired assets, which consisted of $500,000 in cash, 1,122,855 shares of our common stock, and $262,000 in direct acquisition fees. The value of the common stock we issued in connection with this transaction is based on the average closing price of our common stock as reported on the Nasdaq SmallCap Market for a period before and after the date of the acquisition. ISS and BSG have agreed not to sell the shares of common stock received in the transaction for a period of three years. We agreed to prepare and file with the Securities and Exchange Commission a registration statement covering the resale of the shares of common stock issued in connection with the transaction.

We determined the consideration for the acquisition through arms-length negotiation, and we paid the cash portion of the purchase price out of funds from our working capital. We had no material relationships with ISS or BSG, or any of their respective affiliates, directors or officers, or any associates of any such director or officer, prior to the acquisition transaction.

We acquired certain intellectual property, tangible assets and inventory in the transaction. In addition, we offered employment to certain employees of ISS in connection with the acquisition, including Robert L. Turbeville, Jr., a former senior vice president for ISS who now leads our physical access group. We did not acquire any known liabilities in the transaction.

At closing of the transaction, we placed approximately 46% of the purchase price, comprising 600,000 shares of our common stock, into an escrow for the purpose of securing the indemnification obligations of ISS and BSG under the purchase agreement. Subject to certain exceptions, 300,000 of the shares will remain in escrow for a period of one year from the closing date, and the balance of the shares will remain in escrow for a period of two years from the closing date, and in each case until all pending claims for indemnification, if any, have been resolved.

Available Information

We are headquartered at 777 108^th Ave NE Bellevue, WA 98004. We file reports with the Securities and Exchange Commission (SEC), including Annual Reports on Form 10-K, quarterly reports on Form 10-Q and other reports from time to time. The public may read and copy any materials we file with the SEC at the SEC’s public reference room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. We are an electronic filer and the SEC maintains an Internet site at http://www.sec.gov that contains the reports, proxy and information statements, and other information filed electronically.

Our Internet site is http://www.saflink.com. We make available free of charge, on or through our website, our annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the SEC. Information contained on our website is not part of this report.

Market Overview

As computer use migrates towards a networked environment, and our economy shifts towards information as a primary asset, individuals and organizations are becoming more concerned with protecting individual privacy and ensuring the security of information maintained on personal computers, the Internet, and corporate networks. Physical security for buildings and sensitive areas has also become a focal point in light of terrorism, workplace violence, and theft by employees of retail goods.

A number of technologies and strategies have been developed to address these concerns, including encryption methods, firewalls, intrusion detection tools, access permission systems, passwords, identification cards or tokens, magnetic stripe cards, digital certificates, and single sign-on applications. However, the

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effectiveness of each of these technologies and strategies is dependent upon the most critical and vulnerable component of the security process—positive personal identification and authentication of the individual seeking access. Since biometrics are based on the unique physical characteristic of each individual, they provide a superior means of identification.

With the growth of electronic commerce, access points to the Internet and corporate networks (which we sometimes refer to as enterprise networks) have increased significantly, and now include corporate desktops, home PCs, mobile laptops, and hand-held devices. Using passwords as the primary method of verifying the identity of remote users is subject to a number of security weaknesses. Passwords are frequently shared. Passwords are often written down and placed where others can see them. Common passwords like a user’s pet’s name or spouse’s name can be guessed. More complex passwords can be broken in minutes through sophisticated “dictionary” attacks based on tools that are easily available from Internet websites. Attempts to increase security by requiring complex passwords comprised of letters, numbers, and symbols are often met with significant resistance by employees. For large organizations, there is also a measurable cost of managing forgotten and expired passwords relating to administration overhead and lost employee productivity. Disgruntled or unethical employees also account for a large percentage of the increasing incidence of significant financial loss from unauthorized access to electronic data or files.

Traditional methods of controlling physical access to buildings and secure areas also have a number of disadvantages. PINs, magnetic stripe cards, and radio frequency badges, since they are based on something that is known or carried, can all be stolen, shared, and lost – each of which is a significant security vulnerability.

Time and attendance systems that utilize punch cards or time clocks are an additional concern for many organizations. The American Payroll Association estimates that between 7 and 12 percent of all time clock transactions are fraudulent, a result of “buddy punching” where an hourly employee is punched in (or out) by a coworker in order to increase his or her total number of hours worked. False overtime is often a significant expense for companies who pay a multiple of the standard hourly wage for overtime when employees deliberately extend their hours when not authorized to do so.

Organizations that perform computer-based electronic transactions, such as recording actions taken in a manufacturing process, the act of dispensing pharmaceuticals, or the process of approving electronic documents, need to have a simple and secure way of authenticating digital signatures. Biometrics can be a cost-effective means of providing positive proof of identity when auditing events or approving computer-based transactions. The resultant audit trail of events cannot be denied or repudiated by an individual if the events are inextricably linked to their unique biometric characteristics.

We believe that a sustainable market is developing for biometric technologies used in information security and data privacy applications. There are several factors that we believe will contribute to the growth of this industry:

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Quantifiable Business Benefits

In addition to replacing passwords with biometrics, our enterprise network security and physical access solutions provide a number of powerful benefits for customers regardless of the industry they occupy. At the highest level, our solutions are designed to ensure protection, security, and safety for a company’s computer network, facilities, and intellectual property. Specifically, these benefits include:

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Technical Features and Benefits

Our products also offer a number of technical features and benefits which help administrators, who are responsible for large-scale enterprise networks and facilities, easily deploy our products to their existing user bases and provide effective administration over the long term. Primary features include:

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Industry-Specific Value Proposition

While our products may not provide features or functionality that are different across industries, it is important that we position them differently to address the unique requirements and business drivers of vertical markets. There are a number of internal and external market drivers which are specific to individual industries. For this reason, we have focused our sales and marketing efforts on the following sectors:

Healthcare

One of the strongest market drivers in the healthcare industry is a broad series of government regulations, introduced by the Health Insurance Portability and Accountability Act of 1996 (HIPAA), designed to protect the privacy of patient data. These regulations specify that each healthcare organization must provide “irrefutable identification” of individuals accessing electronic patient information. Since biometric authentication is based on unique physical characteristics, it provides an effective solution to this problem—biometrics cannot be lost, borrowed or stolen. Multi-factor authentication is also a HIPAA requirement, which our products support through integration of unique user IDs, smart cards, tokens and RF badges.

Manufacturing

In the pharmaceutical manufacturing business, FDA regulations (21 CFR Part 11) dictate that individuals who are completing electronic forms relating to the various steps in researching, testing, or manufacturing an FDA regulated product must record their identity through a digital signature for any specific action. On the manufacturing floor, employees have to authenticate as many as 300 times a shift. Not only is this cumbersome, but it takes time. Time, in the pharmaceutical manufacturing business, can be very costly—every day that a company is delayed going to market with a new product can cost the company millions of dollars in lost revenue. Our system also helps to prevent loss of intellectual property, which is a severe problem in manufacturing environments. A recent study by the American Society for Industrial Security (ASIS) estimates that the average manufacturing company loses $50 million in intellectual property per year due to theft. Since the utilization of biometrics can save time and provide audit trails and proof of identity, our value proposition here is very compelling.

Financial Services

Title V of the Financial Services Modernization Act of 1999 highlights the obligation of financial services institutions to protect the security and confidentiality of customer nonpublic personal information. Our products provide a valuable tool to help these institutions fulfill their obligations to protect information in their databases against unauthorized access. The elimination of passwords can provide banks a higher level of access protection while also providing financial savings by eliminating the management of multiple passwords. In the case of one of our Fortune 100 financial services clients, brokers are accessing as many as 30 applications in a given day, each with a unique username and password. By using biometric authentication and a single sign-on solution, these brokers can now substitute one fingerprint for multiple passwords and improve their productivity while reducing password management costs.

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Government

Due in part to the increased recognition of the need for infrastructure security following 9/11, government agencies have been looking for a way to positively verify an individual’s identity. The use of biometric identification is being considered on a number of federal projects as a component of a broader identity management solution, often in conjunction with a smart card.

Interoperability is also a strong requirement in the government sector, since government agencies are often large and must accommodate a variety of individual and environmental requirements. We believe our standards-based approach to supporting multiple biometrics in a common software infrastructure addresses these concerns.

Education

In educational environments, IT administrators face several challenges, including students “borrowing” passwords from other students to surf undesirable Internet sites, delays in starting computer training classes due to password-related problems, and a constantly rotating end-user base. Since a biometric identifier is based on a physical characteristic and cannot be shared, lost, or stolen, it provides a reliable solution to these problems for students needing to access their work assignments and grades over the network.

Products

Our software products support a wide variety of biometric technologies and cards to improve security of workstations, computer networks, facilities and physical access points. Instead of being asked for a password, users are prompted for a unique biometric characteristic using any one of a number of biometric technologies. We design software that will work with a variety of biometric devices, including fingerprint readers, iris cameras, facial recognition cameras and microphones using speaker verification technology. Our products can be divided into two groups: computer access products and physical access products.

Computer Access Products:

Our enterprise products that are designed to operate in the computer network environment of large organizations include:

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Physical Access Products:

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Marketing and Distribution

We use both direct and indirect sales and marketing to market our products and services. Our sales staff focuses on selling our products to end-user customers primarily within the sectors of healthcare, manufacturing

education, government, and financial services in North America. Our channel management staff trains and supports our indirect distribution channel partners, who resell our products worldwide.

We market our products to potential customers across a wide range of general business sectors primarily through:

Our relationships with distributors, resellers, original equipment manufacturer resellers and sales agents are generally formalized in written contracts that address the specific products that can be sold, applicable pricing discounts and the geographic territory within which our products can be sold. Our strategic alliances are generally with companies that have formal “partner” programs. These companies generally publicize our status as an alliance partner on their web sites and in other publications and forums. Alliance partnerships can provide us with specific benefits such as:

Our marketing goals include identifying potential distributors and resellers of our products, creating awareness of our product offerings, generating leads for follow-on sales and achieving greater order volume by disseminating our products through multiple direct and indirect distribution channels worldwide.

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Some of our reseller partners combine our enterprise software with their own biometric technology and sell the combined product through their own sales channels. We also have relationships with international distributors that carry our products and make them available to a broader audience of secondary distributors and resellers within their markets. As a result, we face a number of risks inherent in doing business in international markets, including unexpected changes in regulatory requirements, potentially adverse tax consequences and export controls relating to encryption technology.

Our software products are typically priced on the basis of the number of users that have enrolled their biometric information into the central server database or directory. As the number of users increases, the software license price per user decreases. Resellers purchase our products at a favorable discount for resale at a price that provides an attractive gross margin for the reseller. We believe that this pricing model is competitive and cost-effective for the end-user customer and is attractive to our resellers.

Computer Access Products:

We intend to focus on promoting our enterprise network security products to take advantage of the growing awareness of the importance of protecting enterprise network infrastructures from unauthorized access. We have a team of business development and sales professionals who are located in various regions of the country. They focus their marketing efforts on high profile end-user customers. They also identify, recruit, train and support a network of distributors and resellers. Typically, these resellers are already selling enterprise network products that are based on Citrix, Computer Associates, Microsoft or Novell products, which our products are designed to complement. Our network of resellers often provides a range of additional services to their customers, including network component sales, network consulting, security consulting, systems installation, technical services and network management services.

We also sell our products alongside the sales organizations of our strategic alliance partners. We believe that our products complement theirs and fill a customer need that would not otherwise be met. We strive to leverage the existing sales organizations and reseller networks of these companies to achieve sales of our products at minimum expense. We work closely with each of these strategic alliance partners to support these joint sales efforts.

We intend to offer our SAFsolution Workstation product through biometric technology resellers, PC manufacturers and volume distributors that want to package this product with biometric technology to create a bundled product for their customers. We intend to market SAFsolution Workstation through the direct and traditional reseller channels as a basic offering. We believe this will provide a set of biometric authentication functions that can be utilized “out of the box” as a first step to deploy biometric authentication within an enterprise setting to create a bundled product for the customer. SAFsolution Workstation provides a straightforward upgrade path to the enterprise versions of our products.

Physical Access Products:

We intend to offer our physical access solutions primarily through our team of business development and sales professionals located in various regions of the country. We believe many of our current customers or prospects for network security could also be potential users of our physical access products, creating legitimate cross-selling opportunities for our sales force. We also intend to generate physical access leads through the use of tradeshows and other marketing events.

Technology Partnerships and Licensed Technology

Fifteen technology partners currently supply us with fingerprint-based hardware devices and algorithm software, which are used to capture a fingerprint image. The software that we develop allows our customers to use this fingerprint hardware and algorithm software to gain secure access to computer networks and workstations. Our technology partners’ products are packaged with ours into a single product for sale to our

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customers. Most of the business relationships with these companies can be characterized as manufacturer-to- reseller agreements. Most of the fingerprint device suppliers that we support have established no-cost software licensing arrangements with us. We are authorized to sell fingerprint readers or software provided by the following companies: