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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K/A

Amendment No. 1



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FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT
OF 1934



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2005

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission File Number 0-20270



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SAFLINK CORPORATION

(Exact Name of
Registrant as Specified in its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 95-4346070                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)

777 108th Avenue NE, Suite 2100, Bellevue, WA 98004

(Address of Principal Executive Offices) (Zip Code)

(425) 278-1100

(Registrants Telephone Number, Including Area Code)



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

None

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

Common Stock, $0.01 par value per
share



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Indicate by check mark if
the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes ̈No  x

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.    Yes ̈No  x

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 a large
accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act):

Large accelerated
filer ̈Accelerated filer  x    Non-accelerated filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x

The aggregate market value of the registrants common stock held by non-affiliates of the registrant as of June 30, 2005, was approximately $87,470,699. Shares of the registrants common stock held by
each officer and director and each person who owns more than 5% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemed to be affiliates of the registrant.

There were 88,908,229 shares of the registrants common stock outstanding as of April 14, 2006.



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EXPLANATORY NOTE

This Amendment to the registrants Annual Report on Form 10-K for the fiscal year ended December 31, 2005, is being filed in order to submit the information required to be included in Part III thereof within
the period required by General Instruction G(3) to Form 10-K.

Part III of the registrants Annual Report on Form 10-K is hereby
amended by deleting the text thereof in its entirety and substituting the following:

PART III

Item 10. Directors and Executive Officers of the Registrant.

Directors

The following sets forth our current directors and information concerning their ages and
background:



|                     |  |                                                                                  |  |     |  |               
|-------------------- |  | -------------------------------------------------------------------------------- |  | --- |  | --------------
|Name                 |  | Principal Occupation                                                             |  | Age |  | Director Since
|Glenn L. Argenbright |  | President and Chief Executive Officer, Saflink Corporation                       |  | 40  |  | 2001          
|Frank J. Cilluffo    |  | Associate Vice President for Homeland Security, The
George Washington University |  | 35  |  | 2004          
|Lincoln D. Faurer    |  | President, LDF, Inc.                                                             |  | 78  |  | 2004          
|Gordon E. Fornell    |  | United States Air Force Lieutenant General (Retired)                             |  | 69  |  | 2003          
|Asa Hutchinson       |  | Founder, Hutchinson Group                                                        |  | 55  |  | 2005          
|Richard P. Kiphart   |  | Principal, William Blair & Company, LLC                                          |  | 64  |  | 2004          
|Trevor Neilson       |  | Partner, Endeavor Group, LLC                                                     |  | 33  |  | 2005          
|Steven M. Oyer       |  | President and Principal, Capital Placement Holdings Group, Inc.                  |  | 50  |  | 2001          
|Kris Shah            |  | President, Litronic, Inc.                                                        |  | 66  |  | 2004          

Glenn L. Argenbright has served as a member of Saflinks board of directors since
December 2000 and as president and chief executive officer since December 2000. From November 1999 to December 2000, Mr. Argenbright served as president and chief executive officer of Jotter Technologies, a firm whose assets we purchased in
2000. From May 1998 to November 1999, Mr. Argenbright served as president and chairman of the board of Spotlight Interactive, Inc., a web-incubator and venture capital firm. From February 1999 to August 1999, while working for Spotlight,
Mr. Argenbright served as a director of and consultant to Todays Communications Inc., a provider and aggregator of web content. From May 1998 to February 1999, Mr. Argenbright was a director and executive vice president of
Intelligent Communications, Inc., a company providing high-speed Internet access over satellite. Mr. Argenbright has also served on the boards of directors of Internet Presence Providers, Internet Extra, Cardzoo!, ProCheer, and AIR, Inc.
Mr. Argenbright received a BA from the University of California at San Diego and a JD from the University of San Diego.

Frank J.
Cilluffo has served as a member of Saflinks board of directors since October 2004. Mr. Cilluffo is associate vice president for homeland security at The George Washington University, where he also directs the Homeland Security Policy
Institute. Shortly after September 11, 2001, Mr. Cilluffo was appointed as special assistant to the President of the United States for Homeland Security. During his White House tenure, Mr. Cilluffo was a principal advisor to U.S.
Secretary of Homeland Security Tom Ridge and directed the Presidents Homeland Security Advisory Council. Mr. Cilluffo was appointed by President George W. Bush to the Office of Homeland Security shortly after its creation. Prior to his
White House appointment, Mr. Cilluffo served for eight years in senior policy positions with the Center for Strategic & International Studies (CSIS), a Washington based think tank. At CSIS, he chaired or directed numerous committees
and task forces on homeland defense, counterterrorism, transnational crime, and information warfare and information assurance.



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Lincoln D. Faurer, United States Air Force Lieutenant General (Retired)has served as a member of
Saflinks board of directors since September 2004. General Faurer is president of LDF Inc., a firm that provides consulting services on matters concerning command, control, communications, computing and intelligence (C4I). From 1981 to 1985, he
was the director of the National Security Agency. From 1979 to 1981, he was the deputy chairman of NATOs Military Committee and the director of intelligence for Headquarters U.S. European Command from 1977 to 1979. From 1974 to 1977, General
Faurer was the vice director for production for the Defense Intelligence Agency. Between 1973 and 1974, he was the U.S. Air Forces deputy assistant chief of staff for intelligence and the director of intelligence for the Headquarters U.S.
Southern Command from 1971 to 1973. General Faurer received a BS from the United States Military Academy, an MA in Engineering Management from Rennsalaer Polytechnical Institute and an MA in International Affairs from George Washington University.
In his public service work, General Faurer has been President of the National Correlation Working Group, Chairman of the Association of Former Intelligence Officers (AFIO), President of the Joint Military Intelligence College Foundation (JMICF),
Vice Chairman of the National Military Intelligence Association (NMIA) and is currently a member of the USAF Scientific Advisory Board.

Gordon E. Fornell, United States Air Force Lieutenant General (Retired)has served as a member of Saflinks board of directors since August 2003. General Fornell served in senior acquisition leadership roles in the U.S. Air
Force Systems Command and Air Force Material Command for more than ten years, and worked in research, development, and acquisition positions for nearly 20 years prior. He was commander of the Electronic Systems Center at Hanscom Air Force base in
Massachusetts from 1988 to 1993, and senior military assistant to the Secretary of Defense from 1987 to 1988. He also commanded the Armament Division at Eglin Air Force Base, Florida from 1985 to 1987.

Asa Hutchinsonhas served as a member of Saflinks board of directors since March 2005. Mr. Hutchinson is the founder of the Hutchinson
Group, and was a founding member of the U.S. Department of Homeland Security and the nations first Under Secretary of Border and Transportation Security. Mr. Hutchinson was confirmed by the U.S. Senate as Under Secretary of Homeland
Security in January 2003, shortly after the department was created. As one of the nations top-ranking homeland security officials after Secretary Tom Ridge, Mr. Hutchinson was responsible for more than 110,000 federal employees in such
agencies as the Transportation Security Administration, Customs and Border Protection, Immigration and Customs Enforcement, and the Federal Law Enforcement Training Center. Mr. Hutchinson managed the overall security of U.S. borders and
transportation systems, which included oversight for security programs such as US-VISIT and the Transportation Security Administrations TWIC and Registered Traveler initiatives. From 2001 to 2003, Mr. Hutchinson served as the director of
the U.S. Drug Enforcement Administration, and from 1997 to 2001, he served as a member of the U.S. House of Representatives from Arkansas. Mr. Hutchinson received a BS from Bob Jones University and a JD from the University of Arkansas.

Richard P. Kiphart has served as a member of Saflinks board of directors and as chairman of the board since August 2004 and
as co-chairman of the board and lead independent director since November 2005. Since 1995, Mr. Kiphart has served as head of the corporate finance department and principal of William Blair & Company, L.L.C., an investment firm. He
currently sits on the board of directors of First Data Corporation, where he has been a director since First Datas acquisition of Concord EFS early in 2004. He served on the Concord EFS board of directors from 1997 until 2004 and was chairman
of the Concord board of directors from February 2003 until March 2004. Mr. Kiphart is a member of the board of directors of Photo Control Corp., Advanced Biotherapy, Inc. and Nature Vision, Inc. He is also chairman of the Merit Music School and
serves on the board of directors for the Lyric Opera of Chicago, the Erikson Institute and DATA (Debt AIDS Trade Africa). Mr. Kiphart graduated from Dartmouth College and holds an MBA from Harvard Business School.

Trevor Neilson has served as a member of Saflinks board of directors since August 2005 and as non-executive co-chairman of the board since
November 2005. Mr. Neilson is currently a partner in a private equity and consulting firm, Endeavor Group LLC. Mr. Neilson previously served as executive director of the Global Business Coalition on HIV/AIDS (GBC), a coalition of 200
international companies from over 50 countries that have interests related to global health, biotechnology, life sciences, and corporate social responsibility. Prior to working for the GBC, Mr. Neilson served in the press and travel offices of
the Clinton White House. Additionally, Mr. Neilson served as director of public affairs for the Bill & Melinda Gates Foundation. In this role, Mr. Neilson managed all government affairs, public policy and communications for the
foundation dealing extensively with members of Congress and the White House. He also worked directly for Bill and Melinda Gates on a variety of personal projects including corporate governance, investments, property acquisitions, and political
involvement.

Steven M. Oyer has served as a member of Saflinks board of directors since December 2001. Mr. Oyer is
president and principal of Capital Placement Holdings, Inc., a New York advisory firm. Mr. Oyer previously served as senior managing director for PlusFunds Group, Inc., a New York investment manager. From October 2001 to August 2005,
Mr. Oyer served as



3



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managing director of Standard & Poors Investment Services, responsible for global business development. He
served as our interim chief financial officer from June 2001 until December 2001. From October 1995 to November 2000, Mr. Oyer served as the vice president regional director for Murray Johnstone International Ltd., a Scottish investment firm.
Mr. Oyer is a member of the board of directors of Salton, Inc., has been active in industry associations such as Family Office Exchange and has served on the leadership council of the Institute for Private Investors.

Kris Shahhas served as a member of Saflinks board of directors and as president of Litronic, Inc., our wholly-owned subsidiary, since
August 2004. From 1970 to August 2004, Mr. Shah served in various capacities with SSP Solutions, Inc., a company he founded and with which we merged in August 2004. Positions in which he served with SSP included director, chairman of the board,
chief executive officer, president, chief operating officer and secretary. Mr. Shah served as assistant secretary of BIZ Interactive Zone, Inc. and held other officer and director positions at BIZ Interactive from time to time during the period
from July 2000 to June 2002. Mr. Shah holds BS and MS degrees in mechanical engineering from the University of Southern California.

The board of directors has determined that Messrs. Cilluffo, Faurer, Fornell, Hutchinson, Kiphart and Oyer are independent directors within the meaning of Rule 4200 of the National Association of Securities Dealers, Inc.

There are no family relationships among any of our officers and directors.

Audit Committee Financial Expert

The current members of our audit committee are Messrs. Oyer
(Chairman), Faurer and Fornell. Our board of directors has determined that each member of the audit committee meets the independence criteria set forth in the applicable rules of Nasdaq and the Securities and Exchange Commission for audit committee
membership. The board of directors has also determined that at least one member of the audit committee, Mr. Oyer, is qualified as an audit committee financial expert as defined by the SEC.

Executive Officers

Our executive officers are
generally elected annually at the meeting of our board of directors held in conjunction with the annual meeting of stockholders. The following sets forth our current executive officers and information concerning their age and background as of
April 14, 2006.



|                     |  |                                       |  |     |  |               
|-------------------- |  | ------------------------------------- |  | --- |  | --------------
|Name                 |  | Position                              |  | Age |  | Position Since
|Glenn L. Argenbright |  | President and Chief Executive Officer |  | 40  |  | 2001          
|Kris Shah            |  | President, Litronic Subsidiary        |  | 66  |  | 2004          
|Jon C. Engman        |  | Chief Financial Officer               |  | 42  |  | 2002          
|Gregory C. Jensen    |  | Chief Technology Officer              |  | 38  |  | 2000          
|Steven D. Rishel     |  | Senior Vice President of Operations   |  | 54  |  | 2004          
|Timothy A. Wudi      |  | Chief Marketing Officer               |  | 56  |  | 2004          

Glenn L. Argenbright for a biographical summary of Mr. Argenbright, see the
Directors section of this Item 10.

Kris Shah  for a biographical summary of Mr. Shah, see the
Directors section of this Item 10.

Jon C. Engmanhas served as Saflinks chief financial officer since April
2002. From August 2000 to November 2001, Mr. Engman served on an interim basis as chief financial officer for Reflex Communications and iAsiaworks, two companies in the respective portfolios of the Sprout Group and Enterprise Partners. From
September 1996 to August 2000, he held various executive and management positions with companies in Paul Allens Vulcan Inc. portfolio, including vice president of finance for Mercata.com, which pioneered demand aggregation on the web. From
April 1990 to August 1996, Mr. Engman served in several finance and management roles at Captaris Inc., a voice messaging and message management software company. Mr. Engman worked as an auditor for Arthur Andersen from June 1986 to March
1990, specializing in high-tech and communications industries. Mr. Engman received a BA in business administration, with a concentration in accounting, from the University of Washington.



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Gregory C. Jensenhas served as Saflinks chief technology officer since March 2000. Since
joining us in 1992, Mr. Jensen has served in various capacities, including as our chief systems engineer, director of technical services, and vice president of engineering. Prior to joining us, Mr. Jensen was a member of the technical
staff of TRW, Inc., involved in the research and development of image processing, signal processing, high volume data storage, and high bandwidth data communication technologies. Mr. Jensen received a BS in electrical engineering from
California Institute of Technology.

Steven D. Rishelhas served as Saflinks senior vice president of operations since October
2004. Since joining us in October 2003, Mr. Rishel has served in various capacities, including as our chief operating officer and vice president of customer services. As senior vice president of operations, Mr. Rishel leads our technical
support, implementation services, technical training, fulfillment and information technology departments. Prior to joining us, Mr. Rishel ran Paragon Operations Partnership, offering consulting services to technology companies in the areas of
support operations, supply chain management, order fulfillment, and cross-functional integration. Mr. Rishel has extensive experience in executive management, including roles of increasing responsibility at Captaris, Inc., a software company
specializing in voice and fax message management, finishing his over ten year tenure there as senior vice president of operations.

Timothy A. Wudihas served as Saflinks chief marketing officer since August 2004. Mr. Wudi has held diverse executive positions in general management, sales and marketing and operations in a number of industries over the
last thirty years. He has broad experience in the areas of communications, networking and storage management, messaging and telecommunications. From January 2003 to November 2003, Mr. Wudi was the chief executive officer of AttachStor, a
company developing innovative solutions for reductions in storage costs and complexity. In 2002, Mr. Wudi served as chief executive officer of Sound Advantage, LLC, a developer of speech recognition and communications software for enterprise
customers. Before joining Sound Advantage, Mr. Wudi served in various capacities at Captaris, Inc., (formerly AVT Corporation) from July 1991 to December 2001, including as president of its CTI software group, senior vice president of global
sales, senior vice president of North American sales and director of business development.

Section 16(a) Beneficial Ownership Reporting
Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors and persons who
beneficially own more than 10% of our common stock to file initial reports of ownership and reports of changes in ownership with the SEC. Such persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms they
file.

Based solely on our review of such forms furnished to us and written representations from certain reporting persons, we believe that
all filing requirements applicable to our executive officers, directors and greater-than-10% stockholders were complied with, except that Messrs. Cilluffo, Faurer, Fornell, Hutchison, Kiphart and Neilson each filed one late report with respect to
one transaction.

Code of Ethics

Our board of directors has adopted a code of business conduct that outlines the principles of legal and ethical business conduct under which Saflink does business. The code of business conduct is applicable to all of our
directors, employees and officers. Our board of directors has also adopted a code of ethics that applies to our senior financial officers. These materials are available free of charge by writing to our corporate secretary at 777 108th Avenue NE,
Suite 2100, Bellevue, Washington 98004. Any substantive amendment or waiver of these codes may be made only by the board of directors upon a recommendation of the audit committee, and we intend to disclose any such amendment or waiver on our website
at www.saflink.com.



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Item 11. Executive Compensation.

Executive Compensation

The following table sets forth information concerning the compensation earned
during the fiscal years ended December 31, 2005, 2004 and 2003, by our chief executive officer and our five other most highly compensated executive officers:

SUMMARY COMPENSATION TABLE



|                                                          |  |              |  |                     |                       |                               |   |                          |  |                           |  |             |                             |  |                       |  |   |         
|--------------------------------------------------------- |  | ------------ |  | ------------------- | --------------------- | ----------------------------- | - | ------------------------ |  | ------------------------- |  | ----------- | --------------------------- |  | --------------------- |  | - | --------
|                                                          |  |              |  | Annual Compensation |                       | Long Term Compensation Awards |   |                         
|Name and Principal Position                               |  | Year         |  | Salary              |                       | Bonus                         |   | Other AnnualCompensation |  | RestrictedStockAwards ($) |  |             | SharesUnderlyingOptions (#) |  | All OtherCompensation
|Glenn L. ArgenbrightPresident and Chief Executive Officer |  | 200520042003 |  | $                   | 239,231222,449216,539 |                               |   |   40,789               |  |                        |  |   757,839 | (1)                         |  |   436,120           |  | $ | 22,183
|                                                          |  |              |  |                     |                       |                               |  
|Jon C. EngmanChief Financial Officer and Secretary        |  | 200520042003 |  | $                   | 189,391167,118151,077 |                               |   |   34,0469,946           |  |                        |  |          |                             |  |   116,000           |  |   |      
|                                                          |  |              |  |                     |                       |                               |  
|Gregory C. JensenChief Technology Officer                 |  | 200520042003 |  | $                   | 184,407169,885155,000 |                               |   |   18,627               |  |                        |  |          |                             |  |                    |  |   |      
|                                                          |  |              |  |                     |                       |                               |  
|Timothy A. Wudi(2)Chief Marketing Officer                 |  | 200520042003 |  | $                   | 184,40771,053        |                               | $ | 55,50018,000            |  |                        |  |          |                             |  | 125,000250,000       |  |   |      
|                                                          |  |              |  |                     |                       |                               |  
|Kris Shah(3)President, Litronic Subsidiary                |  | 200520042003 |  | $                   | 232,00087,380        |                               |   |                       |  |                        |  |   500,000 | (4)                         |  |   500,000120,000     |  |   |      
|                                                          |  |              |  |                     |                       |                               |  
|Steven D. Rishel(5)Senior Vice President of Operations    |  | 200520042003 |  | $                   | 184,407149,47624,200  |                               |   |                       |  |                        |  |          |                             |  |   100,000125,000     |  |   |      

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|(1) | As of the end of fiscal 2005, Mr. Argenbright held an aggregate of 301,928 shares of restricted stock with an aggregate value of $238,523, based upon the last sale price
reported for our common stock on the Nasdaq Capital Market on December 30, 2005. We may reacquire Mr. Argenbrights shares of restricted common stock in the event that his service is terminated for cause, or if he voluntarily ceases
to provide services to us without good reason, before June 23, 2007. Mr. Argenbright will receive any dividends paid on his shares of restricted common stock.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Mr. Wudi joined us in August 2004 as our chief marketing officer.
|--- | -----------------------------------------------------------------

|(3) | Mr. Shah joined us in August 2004 as president of Litronic, Inc., our wholly-owned subsidiary, in connection with our acquisition of SSP Solutions, Inc.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | As of the end of fiscal 2005, Mr. Shah held an aggregate of 500,000 shares of restricted stock with an aggregate value of $395,000, based upon the last sale price reported for
our common stock on the Nasdaq Capital Market on December 30, 2005. We may reacquire Mr. Shahs shares of restricted common stock in the event that his service is terminated for cause, or if he voluntarily ceases to provide services
to us without good reason, before August 9, 2006. Mr. Shah will receive any dividends paid on his shares of restricted common stock.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Mr. Rishel joined us in October 2003, and has served as our senior vice president of operations since October 2004.
|--- | -------------------------------------------------------------------------------------------------------------------



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Stock Options Granted in Fiscal 2005

The following table provides the specified information concerning grants of options to purchase shares of our common stock made during the fiscal year ended December 31, 2005, to the persons named in the summary
compensation table.

OPTION GRANTS IN LAST FISCAL YEAR



|                     |  |                                             |  |                                                   |    |  |                             |      |                |            |                                                                                               |         |  |        
|-------------------- |  | ------------------------------------------- |  | ------------------------------------------------- | -- |  | --------------------------- | ---- | -------------- | ---------- | --------------------------------------------------------------------------------------------- | ------- |  | -------
|                     |  | Individual Grants                           |  |                                                  
|Name                 |  | Number ofSharesUnderlyingOptionsGranted (2) |  | % of TotalOptionsGranted toEmployeesin FiscalYear |    |  | ExercisePrice PerShares (3) |      | ExpirationDate |            | Potential Realized Value atAssumed Annual Rates ofStock Price Appreciation forOption Term (1)
|                     |  |                                             |  |                                                   | 5% |  | 10%                        
|                     |  |                                             |  |                                                   |    | 
|Repriced Grants:     |  |                                             |  |                                                   |    |  |                             |      |                |            |                                                                                               |         |  |        
|Glenn L. Argenbright |  | 8,572                                       |  | 0.1                                               | %  |  | $                           | 0.79 |                | 2/15/2011  |                                                                                               | 1,871   |  | 4,134  
|Glenn L. Argenbright |  | 35,715                                      |  | 0.4                                               | %  |  | $                           | 0.79 |                | 6/29/2011  |                                                                                               | 7,795   |  | 17,225 
|Glenn L. Argenbright |  | 217,665                                     |  | 2.7                                               | %  |  | $                           | 0.79 |                | 2/11/2012  |                                                                                               | 58,481  |  | 132,674
|Glenn L. Argenbright |  | 436,120                                     |  | 5.5                                               | %  |  | $                           | 0.79 |                | 2/25/2013  |                                                                                               | 140,260 |  | 326,866
|Jon C. Engman        |  | 182,000                                     |  | 2.3                                               | %  |  | $                           | 0.79 |                | 4/29/2012  |                                                                                               | 48,899  |  | 110,935
|Jon C. Engman        |  | 116,000                                     |  | 1.5                                               | %  |  | $                           | 0.79 |                | 6/23/2014  |                                                                                               | 43,754  |  | 104,798
|Timothy A. Wudi      |  | 75,000                                      |  | 0.9                                               | %  |  | $                           | 0.79 |                | 8/4/2014   |                                                                                               | 32,666  |  | 80,458 
|Timothy A. Wudi      |  | 175,000                                     |  | 2.2                                               | %  |  | $                           | 0.79 |                | 8/4/2014   |                                                                                               | 76,221  |  | 187,736
|Kris Shah            |  | 15,750                                      |  | 0.2                                               | %  |  | $                           | 0.79 |                | 8/1/2012   |                                                                                               | 5,065   |  | 11,804 
|Kris Shah            |  | 120,000                                     |  | 1.5                                               | %  |  | $                           | 0.79 |                | 7/31/2013  |                                                                                               | 45,263  |  | 108,412
|Kris Shah            |  | 500,000                                     |  | 6.3                                               | %  |  | $                           | 0.79 |                | 8/9/2014   |                                                                                               | 217,775 |  | 536,389
|Gregory C. Jensen    |  | 477                                         |  | 0.0                                               | %  |  | $                           | 0.79 |                | 11/18/2006 |                                                                                               | 19      |  | 38     
|Gregory C. Jensen    |  | 715                                         |  | 0.0                                               | %  |  | $                           | 0.79 |                | 3/11/2008  |                                                                                               | 58      |  | 119    
|Gregory C. Jensen    |  | 6,429                                       |  | 0.1                                               | %  |  | $                           | 0.79 |                | 9/8/2009   |                                                                                               | 1,095   |  | 2,357  
|Gregory C. Jensen    |  | 7,112                                       |  | 0.1                                               | %  |  | $                           | 0.79 |                | 1/17/2010  |                                                                                               | 1,211   |  | 2,608  
|Gregory C. Jensen    |  | 38,572                                      |  | 0.5                                               | %  |  | $                           | 0.79 |                | 6/29/2011  |                                                                                               | 8,419   |  | 18,603 
|Gregory C. Jensen    |  | 231,000                                     |  | 2.9                                               | %  |  | $                           | 0.79 |                | 2/11/2012  |                                                                                               | 62,064  |  | 140,802
|Steven D. Rishel     |  | 125,000                                     |  | 1.6                                               | %  |  | $                           | 0.79 |                | 10/24/2013 |                                                                                               | 47,149  |  | 112,929
|Steven D. Rishel     |  | 100,000                                     |  | 1.3                                               | %  |  | $                           | 0.79 |                | 6/23/2014  |                                                                                               | 37,719  |  | 90,344 
|                     |  |                                             |  |                                                   |    | 
|New Grants:          |  |                                             |  |                                                   |    |  |                             |      |                |            |                                                                                               |         |  |        
|Timothy A. Wudi      |  | 125,000                                     |  | 1.6                                               | %  |  | $                           | 0.78 |                | 11/22/2015 |                                                                                               | 65,389  |  | 161,874

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|(1) | Potential gains are net of exercise price, but before taxes associated with exercise. These amounts represent certain assumed rates of appreciation only, based on SEC rules, and
therefore are not intended to forecast possible future appreciation, if any, in our stock price. Actual gains, if any, on stock option exercises are dependent on the future performance of the common stock, overall market conditions and the option
holders continued employment through the vesting period. The amounts reflected in this table may not necessarily be achieved.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The options to purchase 125,000 shares of our common stock granted to Timothy A. Wudi was pursuant to our 2000 stock incentive plan and has a ten year term. Options granted under
our 2000 stock incentive plan generally become vested on a monthly basis over a 36-month period, but are not exercisable until optionee has been employed with us for nine months, and they remain exercisable subject to the optionees continuous
service to us. Under our 2000 stock incentive plan, our board of directors retains discretion to modify the terms, including the prices, of outstanding options. All other option grants listed were repricings of outstanding options to $0.79 per share
at December 31, 2005.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | All options were granted or repriced at market value on the date of grant or repricing.
|--- | ---------------------------------------------------------------------------------------



7



---

Stock Option Exercises and Fiscal 2005 Year-End Values

The following table provides the specified information concerning exercises of options to purchase shares of our common stock in the fiscal year ended
December 31, 2005, and unexercised options held as of December 31, 2005, by the persons named in the summary compensation table. There were no exercises of options by the persons named in the summary compensation table during the fiscal
year ended December 31, 2005.

AGGREGATED OPTION FISCAL YEAR-END VALUES



|                     |  |                                                                    |  |                                                                 |  |             |       |               |  
|-------------------- |  | ------------------------------------------------------------------ |  | --------------------------------------------------------------- |  | ----------- | ----- | ------------- | -
|                     |  | Number of Shares Underlying Unexercised Options at Fiscal Year
End |  | Value of Unexercised In-the-Money Options at Fiscal Year End(1)
|Name                 |  | Exercisable(2)                                                     |  | Unexercisable                                                   |  | Exercisable |       | Unexercisable
|Glenn L. Argenbright |  | 698,072                                                            |  |                                                                |  |             |      |               | 
|Jon C. Engman        |  | 298,000                                                            |  |                                                                |  |             |      |               | 
|Timothy A. Wudi      |  | 375,000                                                            |  |                                                                |  | $           | 1,250 |               | 
|Kris Shah            |  | 635,750                                                            |  |                                                                |  |             |      |               | 
|Gregory C. Jensen    |  | 284,305                                                            |  |                                                                |  |             |      |               | 
|Steven D. Rishel     |  | 225,000                                                            |  |                                                                |  |             |      |               | 

---

|(1) | Stock options are valued based upon the last reported sale price of a share of our common stock as reported on the Nasdaq Capital Market on December 30, 2005 ($0.79 per share).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | All options were granted pursuant to our 2000 stock incentive plan. Options granted under our 2000 stock incentive plan generally become vested on a monthly basis over a 36-month
period, but are not exercisable until optionee has been employed with us for nine months, and they remain exercisable subject to the optionees continuous service to us. Under our 2000 stock incentive plan, our board of directors retains
discretion to modify the terms, including the prices, of outstanding options.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Compensation of Directors

Our directors are reimbursed for reasonable out-of-pocket expenses incurred in attending meetings of the board of directors and committee meetings. Our
board of directors, after consultation with an independent compensation consulting firm and based on competitive data and the analysis of the consultation firm, determined the cash and equity compensation structure as set forth below to be paid to
members of the board of directors and committees of the board of directors who are not employees:



| |  |  | each non-employee director receives an annual retainer of $25,000; each member of the audit committee, the compensation committee, and the nominating and corporate governance
committee receives an additional annual retainer of $15,000; and the chairpersons of the audit committee, the compensation committee, and the nominating and corporate governance committee each receives an additional annual retainer of $20,000;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | each non-employee director receives an additional fee of $500 per board and committee meeting attended (whether in person or telephonically), except that no meeting fee will be paid
for the first four meetings (board meetings or committee meetings) attended by such director; and each such director shall be reimbursed for reasonable out-of-pocket expenses incurred in connection with attendance at board and committee meetings;
and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | each new non-employee director receives an initial stock option grant for 40,000 shares upon commencement of service on the board; and each continuing non-employee director receives
an annual stock option grant for 40,000 shares on the date of the annual stockholder meeting; with all such option grants becoming exercisable in twelve equal monthly installments following the date of grant if such person is still serving as a
director at such time.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On November 9, 2005, the board of directors appointed Mr. Neilson to serve as non-executive
co-chairman of the board. Mr. Neilson will receive an initial annual salary of $140,000 for his services as non-executive co-chairman of the board. In connection with his appointment, we granted a non-statutory option to purchase 300,000 shares
of our common stock under our 2000 stock incentive plan to Mr. Neilson at an exercise price of $0.92 per share, which equals the last sale price per share of our common stock as reported on the Nasdaq Capital Market on the day prior to the date
of grant. Effective December 31, 2005, the exercise price was reduced to $0.79 per share and the vesting was accelerated such that the options were immediately exercisable. The option is exercisable for a period of ten years.



8



---

The aggregate compensation paid to our non-employee directors during 2005 is detailed in
the following table:

NON-EMPLOYEE DIRECTOR COMPENSATION TABLE



|                      |  |                    |  |                         |  |                 |  |                 
|--------------------- |  | ------------------ |  | ----------------------- |  | --------------- |  | ----------------
|Director              |  | AnnualRetainer ($) |  | ChairpersonRetainer ($) |  | MeetingFees ($) |  | StockOptions (#)
|Frank J. Cilluffo (1) |  | 55,000             |  |                        |  |                |  | 50,000          
|Lincoln D. Faurer     |  | 40,000             |  |                        |  | 4,000           |  | 40,000          
|Gordon E. Fornell     |  | 70,000             |  | 20,000                  |  | 6,000           |  | 40,000          
|Asa Hutchinson        |  | 40,000             |  |                        |  |                |  | 80,000          
|Richard P. Kiphart    |  | 40,000             |  | 20,000                  |  | 2,500           |  | 40,000          
|Steven M. Oyer        |  | 70,000             |  | 20,000                  |  | 6,000           |  | 40,000          

---

|(1) | We paid $60,000 in consulting fees during 2005 to The Pennant Group, formerly known as Campbell, Cilluffo & Furlow, LLC, for consulting services that are focused on the
Homeland Security sector. Mr. Cilluffo is a principal of The Pennant Group. The term of the original agreement was from June 10, 2005, through December 10, 2005. We subsequently extended the term of the agreement through
March 31, 2006, and we paid an additional $40,000 in consulting fees during 2006. We also reimbursed the firm for its reasonable expenses incurred in providing services to us and to negotiate an appropriate success fee in the event that the
firm facilitates the successful teaming of us with another company to our benefit. In addition, we granted non-statutory options to purchase 10,000 shares of our common stock under our 2000 stock incentive plan to each of the three principals of the
firm, including to Mr. Cilluffo. The options have an exercise price of $1.79 per share, which equals the last sale price per share of our common stock as reported on the Nasdaq Capital Market on the day prior to the date of grant, and are
exercisable for a period of ten years.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Employment Contracts and Change-in-Control Arrangements

Employment Contracts

In June 2001, we entered
into an employment agreement with Mr. Argenbright, our president and chief executive officer. The agreement provides for the payment to Mr. Argenbright of an initial $100,000 minimum base annual salary, a $5,000 signing bonus, and a
$100,000 bonus based on the achievement of certain objectives. Pursuant to the agreement, Mr. Argenbright was granted an option under our 2000 stock incentive plan to purchase 35,715 shares of our common stock. Mr. Argenbright is also
entitled to receive the equivalent of twelve months base salary if his employment with us is terminated for any reason other than cause or if the board of directors appoints someone else to the position of chief executive officer. Upon the
recommendation of the compensation committee, our board of directors has approved various modifications to Mr. Argenbrights compensation since 2001, including an increase in his base salary to $240,000 effective as of June 22, 2004,
and certain potential cash bonuses tied to our performance and targeted revenue objectives. On June 23, 2004, our board of directors also granted Mr. Argenbright a stock purchase right with respect to 301,928 shares of restricted common
stock under our 2000 stock incentive plan, which he immediately exercised in full in exchange for his past service rendered to us.



9



---

On April 30, 2002, we entered into an employment agreement with Mr. Engman, our chief financial
officer. The agreement provides for the payment to Mr. Engman of an initial annual salary of $140,000. Pursuant to the agreement, Mr. Engman was also granted an option to purchase 182,000 shares of our common stock. In accordance with the
terms of the agreement, Mr. Engmans employment with us is at will and his employment may be terminated anytime with or without cause. Upon the recommendation of the compensation committee, our board of directors approved an
increase in Mr. Engmans annual salary to $190,000 effective as of June 22, 2004.

On April 14, 2000, we entered into
an employment agreement with Mr. Jensen, our chief technology officer. The agreement provides for the payment to Mr. Jensen of an initial annual salary of $138,000. In accordance with the terms of the agreement, Mr. Jensens
employment with us is at will and his employment may be terminated anytime with or without cause. Upon the recommendation of the compensation committee, our board of directors approved an increase in Mr. Jensens annual salary
to $185,000 effective as of June 22, 2004.

On October 23, 2003, we entered into an employment agreement with Mr. Rishel,
our senior vice president of operations. The agreement provides for the payment to Mr. Rishel of an initial annual salary of $142,000. In accordance with the terms of the agreement, Mr. Rishels employment with us is at
will and his employment may be terminated anytime with or without cause. Upon the recommendation of the compensation committee, our board of directors approved an increase in Mr. Rishels annual salary to $185,000 effective as of
June 22, 2004.

On July 30, 2004, we entered into an employment agreement with Mr. Wudi, our chief marketing officer. The agreement
provides for the payment to Mr. Wudi of an initial annual salary of $185,000. Mr. Wudi received an initial sign-on bonus of $18,000 and was granted an option to purchase 175,000 shares of our common stock. He also became eligible to receive an
annual bonus of 35% of his annual base salary and the right to earn an additional option grant of 75,000 shares of our common stock, if he achieved certain objectives or milestones as defined by our chief executive officer. In accordance with the
terms of the agreement, Mr. Wudis employment with us is at will and his employment may be terminated anytime with or without cause.

On August 5, 2004, we entered into an employment agreement with Mr. Shah, president of Litronic, Inc., our wholly-owned subsidiary. The agreement has a two-year term and provides for the payment to
Mr. Shah of an initial annual salary of $232,000. Pursuant to the agreement, Mr. Shah was granted an option to purchase 500,000 shares of our common stock and a stock purchase right with respect to 500,000 shares of restricted common stock
under our 2000 stock incentive plan, which he immediately exercised in full in exchange for his past service rendered to us. In the event of a change in control or if Mr. Shahs employment is terminated without cause, for good reason, or
as a result of his death or disability, his restricted stock will fully vest and our right to repurchase these shares will lapse. Mr. Shah is also entitled to receive a lump sum severance payment equal to the greater of twelve months base
salary or his final base salary for the remainder of the two-year period of the agreement if his employment with us is terminated for any reason other than for cause. During the period of time to which the severance payments pertain, we agreed to
pay the premiums to continue group medical and dental insurance coverage for Mr. Shah and his family.

Change-in-Control Arrangements

Retention Agreements. In addition to the employment arrangements described above, we have entered into retention agreements
with each of Messrs. Engman, Jensen, Wudi and Rishel. These retention agreements provide that if the employee is terminated as a result of an involuntary termination (as defined in the retention agreements), then he or she shall be entitled to
receive the compensation, accrued but unused vacation and benefits earned through the date of termination of employment, and severance payments equal to four or six months salary, depending on the executive, payable in accordance with our
standard payroll practices. However, if the employee is terminated as a result of an involuntary termination within two months prior to, upon or within twelve months following a change-of-control, then he or she will be entitled to receive the
following: (a) the compensation, accrued but unused vacation and benefits earned through the date of termination; (b) severance payments equal to four months salary, payable in a lump sum within thirty days of the date of termination;
(c) vesting of 100% of any unvested options as of the date of termination; (d) for a period of up to twelve months after the date of termination, reimbursement of any COBRA premiums paid by the employee for continued group health insurance
coverage of employee and his or her dependents; and (e) the laptop or other portable computer device used by the employee, if any, as of the date of termination.

On April 27, 2006, we amended Mr. Engmans retention agreement to provide that if Mr. Engmans employment is terminated as a result of an involuntary termination, death or disability within
one year from the date of the agreement, then he is entitled to receive a lump sum severance payment equal to twelve months salary. In addition, if Mr. Engman terminates his employment by voluntary resignation within one year from the
date of the agreement and he provides us at least 60-days notice prior to such termination, he is entitled to receive the severance payments and benefits listed above. All other terms of the retention agreement remain unchanged.



10



---

2000 Stock Incentive Plan. Pursuant to our 2000 stock incentive plan, in the event of a
change-in-control, if the acquiring company does not assume, or substitute new options for, all outstanding options, all shares subject to outstanding options will become fully vested and exercisable prior to the change-in-control.

Restricted Stock. On June 23, 2004, Mr. Argenbright acquired 301,928 restricted shares of our common stock. We may reacquire
Mr. Argenbrights shares of restricted common stock in the event that his service is terminated for cause, or if he voluntarily ceases to provide services to us without good reason, before June 23, 2007. In the event of a change in
control, these shares will become unrestricted and will no longer be subject to a right of repurchase. On August 9, 2004, Mr. Shah acquired 500,000 restricted shares of our common stock. We may reacquire Mr. Shahs shares of
restricted common stock in the event that his service is terminated for cause, or if he voluntarily ceases to provide services to us without good reason, before August 9, 2006. In the event of a change in control, these shares will become
unrestricted and will no longer be subject to a right of repurchase.



11



---

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Beneficial Ownership

The following
table sets forth, as of April 14, 2006, certain information with respect to the beneficial ownership of our common stock by (i) each stockholder known by us to be the beneficial owner of more than 5% of our common stock, (ii) each
member of our board of directors, (iii) each executive officer named in the summary compensation table, and (iv) all of our directors and executive officers as a group.



|                                                                              |  |                                        |  |                                                        |  |                                               |  |                            |  
|----------------------------------------------------------------------------- |  | -------------------------------------- |  | ------------------------------------------------------ |  | --------------------------------------------- |  | -------------------------- | -
|Name of Beneficial Owner (1)                                                  |  | Number of Shares of Common Stock Owned |  | Number of Shares Underlying Convertible Securities (2) |  | Total Number of Shares Beneficially Owned (3) |  | Percent ofCommon Stock (4) |  
|North Sound Capital LLC (5)20 Horseneck LaneGreenwich, CT 06830               |  | 9,440,922                              |  |                                                       |  | 9,440,922                                     |  | 10.62                      | %
|Richard P. Kiphart (6)                                                        |  | 7,392,394                              |  | 1,830,563                                              |  | 9,222,957                                     |  | 10.16                      | %
|SDS Capital Group SPC, Ltd. (7)53 Forest Avenue, Suite 202Greenwich, CT 06870 |  | 6,754,936                              |  |                                                       |  | 6,754,936                                     |  | 7.60                       | %
|Kris Shah (8)                                                                 |  | 3,961,725                              |  | 635,750                                                |  | 4,597,475                                     |  | 5.13                       | %
|Glenn L. Argenbright                                                          |  | 333,500                                |  | 703,536                                                |  | 1,037,036                                     |  | 1.16                       | %
|Frank J. Cilluffo                                                             |  |                                       |  | 76,666                                                 |  | 76,666                                        |  |                            | *
|Lincoln D. Faurer                                                             |  |                                       |  | 66,666                                                 |  | 66,666                                        |  |                            | *
|Gordon E. Fornell                                                             |  |                                       |  | 161,666                                                |  | 161,666                                       |  |                            | *
|Asa Hutchinson                                                                |  |                                       |  | 69,999                                                 |  | 69,999                                        |  |                            | *
|Steven M. Oyer                                                                |  | 10,000                                 |  | 288,857                                                |  | 298,857                                       |  |                            | *
|Jon C. Engman                                                                 |  |                                       |  | 319,111                                                |  | 319,111                                       |  |                            | *
|Gregory C. Jensen                                                             |  |                                       |  | 307,318                                                |  | 307,318                                       |  |                            | *
|Trevor Neilson                                                                |  |                                       |  | 373,054                                                |  | 373,054                                       |  |                            | *
|Steven D. Rishel                                                              |  | 15,000                                 |  | 256,249                                                |  | 271,249                                       |  |                            | *
|Timothy A. Wudi                                                               |  |                                       |  | 385,416                                                |  | 385,416                                       |  |                            | *
|Directors and executive officers as a group (13 persons)                      |  | 11,712,619                             |  | 5,474,851                                              |  | 17,187,470                                    |  | 18.21                      | %

---

|* | Less than 1%
|- | ------------

|(1) | Except as otherwise indicated, the persons named in this table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them,
subject to community property laws where applicable and to the information contained in the footnotes to this table.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Under the rules of the SEC, a person is deemed to be the beneficial owner of shares that can be acquired by such person within 60 days upon the exercise of options or warrants or
upon conversion of securities convertible into common stock.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Represents the aggregate number of shares beneficially owned by each stockholder.
|--- | ---------------------------------------------------------------------------------

|(4) | Calculated on the basis of 88,908,229 shares of common stock outstanding as of April 14, 2006, provided that any additional shares of common stock that a stockholder has the
right to acquire within 60 days after April 14, 2006, are deemed to be outstanding for the purpose of calculating that stockholders percentage beneficial ownership.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Based on a Schedule 13G/A filed by North Sound Capital LLC with the SEC on February 14, 2006. North Sound Capital LLC is the investment advisor to North Sound Legacy
International Ltd. and the managing member of North Sound Legacy Institutional Fund LLC, and has shared power to vote and shared dispositive power with respect to shares held by North Sound Legacy International Ltd. and North Sound Legacy
Institutional Fund LLC. Thomas McAuley is the manging member of North Sound Capital LLC.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



12



---

|(6) | Includes 1,760,564 shares of common stock underlying the principal balance of, and estimated interest on, a convertible promissory note. Mr. Kipharts mailing address is
c/o William Blair & Company, L.L.C., 222 West Adams Street, Chicago, IL 60606.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Based on a Schedule 13D/A filed by SDS Capital Group SPC, Ltd. with the SEC on April 10, 2006. SDS Management, LLC is the investment manager of SDS Capital Group SPC, Ltd.
Steven Derby is the sole managing member of SDS Management, LLC and has shared power to vote and dispositive power with respect to all of the shares reported by SDS Capital Group SPC, Ltd. SDS Management, LLC, an affiliate of SDS Merchant Fund,
L.P., has acted as an advisor to S.A.C. Capital Associates, LLC.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Includes 2,939,363 shares held by the Kris and Geraldine Shah Family Trust, of which Mr. Shah and his wife are the trustees and beneficiaries; and 261,181 shares held by the
Chandra L. Shah Trust, of which Mr. Shah is the trustee. Mr. Shahs mailing address is c/o Saflink Corporation, 777 108th Avenue NE, Suite 2100, Bellevue, WA 98004.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Equity Compensation Plan Information

We currently
maintain two compensation plans that provide for the issuance of our common stock to officers and other employees, directors and consultants. These are our 1992 stock incentive plan and our 2000 stock incentive plan, each of which has been approved
by our stockholders. The following table sets forth information regarding outstanding options and shares reserved for future issuance under the foregoing plans as of December 31, 2005:



|                                                       |  |                                                                                             |  |                                                                                 |      |                                                                                                                                        |           |    
|------------------------------------------------------ |  | ------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------- | ---- | -------------------------------------------------------------------------------------------------------------------------------------- | --------- | ---
|Plan Category(1)                                       |  | Number of shares to be issued upon exercise of outstanding options, warrants and rights (a) |  | Weighted- average exerciseprice of outstanding options, warrants and rights (b) |      | Number of shares remainingavailable for future issuance under equity compensation plans (excluding shares reflected in column (a)) (c) |          
|Equity compensation plans approved by stockholders     |  | 7,379,522                                                                                   |  | $                                                                               | 1.05 |                                                                                                                                        | 2,834,448 | (2)
|Equity compensation plans not approved by stockholders |  |                                                                                            |  |                                                                                 |     |                                                                                                                                        |          |    
|                                                       |  |                                                                                             |  |                                                                                 |      |                                                                                                                                        |           |    
|Total                                                  |  | 7,379,522                                                                                   |  | $                                                                               | 1.05 |                                                                                                                                        | 2,834,448 |    

---

|(1) | The information presented in this table excludes options we assumed in connection with acquisitions of other companies. As of December 31, 2005, 1,127,858 shares of our common
stock were issuable upon exercise of these assumed options, at a weighted average exercise price of $1.57 per share.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The number of shares that may be optioned and sold under our 2000 stock incentive plan is increased such that the maximum number of shares available to be optioned and sold under
the plan is equal to the lesser of (i) 15,000,000 shares of our common stock or (ii) 20% of the number of shares of our common stock (on an as converted basis) outstanding on the immediately preceding December 31. On December 31,
2005, there were 106,368,221 shares of common stock outstanding (on an as converted basis).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



13



---

Item 13. Certain Relationships and Related Transactions.

We paid $60,000 in consulting fees during 2005 to The Pennant Group, formerly known as Campbell, Cilluffo & Furlow, LLC, for consulting services
that are focused on the Homeland Security sector. Mr. Cilluffo is a principal of The Pennant Group. The term of the original agreement was from June 10, 2005, through December 10, 2005. We subsequently extended the term of the
agreement through March 31, 2006, and we paid an additional $40,000 in consulting fees during 2006. We also reimbursed the firm for its reasonable expenses incurred in providing services to us and to negotiate an appropriate success fee in the
event that the firm facilitates the successful teaming of us with another company to our benefit. In addition, we granted non-statutory options to purchase 10,000 shares of our common stock under our 2000 stock incentive plan to each of the three
principals of the firm, including to Mr. Cilluffo. The options have an exercise price of $1.79 per share, which equals the last sale price per share of our common stock as reported on the Nasdaq Capital Market on the day prior to the date of
grant, and are exercisable for a period of ten years.

On December 31, 2005, we amended the convertible promissory note, dated
November 19, 2003, held by Mr. Kiphart, the co-chairman and lead independent director of our board of directors. Under the terms of the promissory note, the unpaid principal and any unpaid and accrued interest were due and payable by us on
December 31, 2005. The amendment, which was approved by the audit committee of the board of directors, revised the maturity date of the promissory note such that the unpaid principal and any unpaid and accrued interest are due and payable by us
on the earlier of (i) December 31, 2006, and (ii) upon demand on or after the date of the closing of any strategic or financing transaction that generates at least $20,000,000 of additional working capital for us. The amendment also
revised the conversion rate at which, under certain circumstances, the unpaid principal and any unpaid and accrued interest under the promissory note convert into shares of our common stock from $1.67 to $0.71. The amendment did not otherwise change
any terms of the promissory note or the principal balance of the promissory note.

On December 31, 2005, our board of directors, upon the
recommendation of the compensation committee, approved the acceleration of vesting of all unvested options to purchase shares of our common stock that are held by employees. The acceleration was effective as of December 31, 2005. Options to purchase
approximately 2.0 million shares of our common stock were subject to this vesting acceleration. The number of shares subject to the accelerated options remained unchanged. The accelerated options included options held by our executive officers to
purchase 918,637 shares of our common stock. Options granted to our non-employee directors as compensation for their service as member of the board of directors were excluded from the acceleration.

On December 31, 2005, our board of directors, upon the recommendation of the compensation committee, approved the amendment of all outstanding
options to purchase shares of our common stock held by employees with an exercise price greater than $0.79 per share, which is equal to the last sale price per share of our common stock as reported on the Nasdaq Capital Market on December 30,
2005. As a result of the amendment, effective as of December 31, 2005, the exercise price of each such option was reduced to $0.79 per share. The repriced options included options held by our executive officers to purchase 2,691,127 shares of
our common stock with a weighted average exercise price of $2.30 per share. Options granted to our non-employee directors as compensation for their service as members of the board of directors were excluded from the repricing.

On November 22, 2005, we amended the notice of grant of stock purchase right, dated August 9, 2004, with Mr. Shah, a member of our board
of directors and president of Litronic, Inc., our wholly-owned subsidiary. Under the original agreement, a portion of the shares of common stock subject to the stock purchase right would become vested once Mr. Shah has provided 12 months of
continuous service to us from the date of grant, and the remaining shares of common stock would become vested after 24 months of continuous service. The amendment provides that all of the shares of common stock subject to the stock purchase right
will become vested once Mr. Shah has provided 24 months of continuous service to us from the date of grant. All other terms of the stock purchase right remain unchanged.



14



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Item 14. Principal Accountant Fees and Services.

The following table sets forth the aggregate fees billed to us for the fiscal years ended December 31, 2005, and 2004, by KPMG LLP, our independent
auditors:



|                   |  |            |         |            |   |        
|------------------ |  | ---------- | ------- | ---------- | - | -------
|                   |  | Fiscal2005 |         | Fiscal2004
|Audit Fees (1)     |  | $          | 529,200 |            | $ | 562,775
|Audit-Related Fees |  | $          |        |            | $ |       
|Tax Fees (2)       |  | $          | 20,900  |            | $ | 18,000 
|All Other Fees     |  | $          |        |            | $ |       

---

|(1) | Audit Fees consist of fees billed for professional services rendered for the audit of our consolidated annual financial statements and review of the interim consolidated financial
statements included in quarterly reports and services that are normally provided by KPMG LLP in connection with statutory and regulatory filings or engagements.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Tax Fees consist of fees billed for professional services rendered for tax compliance, tax advice and tax planning (domestic and international). These services include assistance
regarding federal, state and international tax compliance and international tax planning.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our audit committees policy
is to pre-approve all audit and permissible non-audit services provided by our independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one
year and any pre-approval is detailed as to the particular category of services. The independent auditor and management are required to periodically report to the audit committee regarding the extent of services provided by the independent auditor
in accordance with this pre-approval. The chairman of the audit committee is also authorized, pursuant to delegated authority, to pre-approve additional services and such approvals are communicated to the full audit committee at its next meeting.

The audit committee has considered the role of KPMG LLP in providing tax services to us and has concluded that such services are
compatible with KPMGs independence as our auditors.

For the fiscal years ended December 31, 2005, and 2004, the audit committee
pre-approved all services described above in the captions Audit Fees and Tax Fees. For fiscal 2005, no hours expended on KPMG LLPs engagement to audit our financial statements were attributed to work performed by persons other than full-time,
permanent employees of KPMG LLP.



15



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PART IV

Item 15. Exhibits and Financial Statement Schedules.



|            |  |                                                                                                    |  |                |  |          |  |                           |  |  |  | 
|----------- |  | -------------------------------------------------------------------------------------------------- |  | -------------- |  | -------- |  | ------------------------- |  |  |  | 
|Exhibit No. |  | Description                                                                                        |  | Filed Herewith |  | Form     |  | Incorporated by Reference
|            |  |                                                                                                    |  | Exhibit No.    |  | File No. |  | Filing Date              
|31.1        |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  | X              |  |          |  |                           |  |  |  | 
|            |  |                                                                                                    |  |                |  |         
|31.2        |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  | X              |  |          |  |                           |  |  |  | 



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Amendment No. 1 to its Annual Report on Form 10-K to be signed on
its behalf by the undersigned, thereunto duly authorized.



|                  |  |                     |  |                           
|----------------- |  | ------------------- |  | --------------------------
|                  |  | SAFLINK CORPORATION
|                  |  |                    
|Date: May 1, 2006 |  |                     |  |                           
|                  |  |                    
|                  |  | By:                 |  | /s/ Glenn L. Argenbright  
|                  |  |                     |  | Glenn L. Argenbright      
|                  |  |                     |  | President, Chief Executive
|                  |  |                     |  | Officer and Director      



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