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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K





ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d)

OF THE SECURITIES
EXCHANGE ACT OF 1934

(Mark One)

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

For the fiscal year ended December 31, 2007

or



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

For the transition period from            to             .

Commission File Number 0-20270

IdentiPHI, Inc.

(Exact name of Registrant as specified in its charter)







|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|DELAWARE                                                      |  | 95-4346070                         
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)

13809 Research Blvd., Suite 275

Austin, Texas 78750

(Address of principal executive offices)

(512) 492-6220

(Registrants
telephone number, including area code)

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

None

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

Common Stock, no par value

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 the 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. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ̈    Accelerated filer   ̈    Non-accelerated filer   ̈     Smaller
Reporting Company  x

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, 2007, was approximately
$4,701,963.

There were 54,889,826 shares of the registrants common stock outstanding as of March 27, 2008.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required by Item 5 of this report and 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 2008 annual meeting of stockholders.









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Table of Contents



|                              |  |                                                                                                              |  |     
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|                              |  |                                                                                                              |  | Page
|PART I                        |  |                                                                                                              |  |     
|                              |  |                                                                                                             
|Item 1.                       |  | Business                                                                                                     |  | 3   
|                              |  |                                                                                                             
|Item 1A.                      |  | Risk Factors                                                                                                 |  | 11  
|                              |  |                                                                                                             
|Item 1B.                      |  | Unresolved Staff Comments                                                                                    |  | 17  
|                              |  |                                                                                                             
|Item 2.                       |  | Properties                                                                                                   |  | 17  
|                              |  |                                                                                                             
|Item 3.                       |  | Legal Proceedings                                                                                            |  | 18  
|                              |  |                                                                                                             
|Item 4.                       |  | Submission of Matters to a Vote of Securities Holders                                                        |  | 18  
|                              | 
|PART II                       |  |                                                                                                             
|                              |  |                                                                                                             
|Item 5.                       |  | Market For Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 18  
|                              |  |                                                                                                             
|Item 6.                       |  | Selected Financial Data                                                                                      |  | 19  
|                              |  |                                                                                                             
|Item 7.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 19  
|                              |  |                                                                                                             
|Item 8.                       |  | Financial Statements and Supplementary Data                                                                  |  | 24  
|                              |  |                                                                                                             
|Item 9.                       |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 24  
|                              |  |                                                                                                             
|Item 9A.                      |  | Controls and Procedures                                                                                      |  | 24  
|                              |  |                                                                                                             
|Item 9B.                      |  | Other Information                                                                                            |  | 24  
|                              | 
|PART III                      |  |                                                                                                             
|                              |  |                                                                                                             
|Item 10.                      |  | Directors and Executive Officers of the Registrant                                                           |  | 24  
|                              |  |                                                                                                             
|Item 11.                      |  | Executive Compensation                                                                                       |  | 24  
|                              |  |                                                                                                             
|Item 12.                      |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 24  
|                              |  |                                                                                                             
|Item 13.                      |  | Certain Relationships and Related Transactions                                                               |  | 24  
|                              |  |                                                                                                             
|Item 14.                      |  | Principal Accountant Fees and Services                                                                       |  | 24  
|                              | 
|PART IV                       |  |                                                                                                             
|                              |  |                                                                                                             
|Item 15.                      |  | Exhibits and Financial Statement Schedules                                                                   |  | 25  
|                              | 
|SIGNATURES                    |  | 28                                                                                                          
|                              | 
|NOTES TO FINANCIAL STATEMENTS |  | F-7                                                                                                         



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|Item 1. | Business
|------- | --------

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. These forward-looking statements include, without limitation, statements regarding our expectations, beliefs, goals and plans. 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 those identified below and in Item 1A of this annual report. 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.

As used in this annual report, unless the context otherwise requires, the terms we, us, the Company, and
IdentiPHI refer to IdentiPHI, Inc., a Delaware corporation, and its subsidiaries.

Except as otherwise noted, references to
the number of shares of common stock, stock options and warrants, exercise prices of stock options and warrants, common stock prices, and other share and per share data or amounts have not been adjusted to reflect our 1-for-15 reverse stock split
effected on February 19, 2008.

Overview

We are a technology company offering a suite of enterprise security solutions and consulting services. We provide a comprehensive set of security products to strengthen identity management and authentication systems. Our combination of
products and services enables our clients to leverage their investments in information security in order to improve productivity, optimize business processes and focus on their core business. Each of our solutions can be purchased as a stand-alone
managed service or as part of a larger solution including business process consulting or application integration.

We were incorporated in
the State of Delaware on October 23, 1991, and were formerly known as Saflink Corporation headquartered in Kirkland, Washington. On February 8, 2008, we completed our merger with IdentiPHI, Inc. whereby we acquired all of the outstanding
shares of IdentiPHI in a stock-for-stock transaction. As a result of the merger, IdentiPHI became a wholly-owned subsidiary of Saflink. The two companies subsequently combined into a single entity and we changed our name to IdentiPHI,
Inc. with our principal offices in Austin, Texas.

From a historical perspective, Saflink Corporation has more than 17 years of
experience developing and delivering innovative biometric solutions to the enterprise customer market. Saflink made significant investment in developing strong biometric authentication solutions for both commercial and government organizations.
Numerous successes were achieved with the sale of its flagship biometric middleware products into key verticals and customers. These customers included well known names in the healthcare, pharmaceuticals and finance verticals. At the same time,
Saflink was an early pioneer in government identity programs. Saflink products have been used in the Department of Defenses Common Access Card (CAC) program, the Transportation Worker Identification Credential (TWIC) program and the emerging
Transportation Security Administrations Registered Traveler program. The product development effort at Saflink explored emerging markets for product



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opportunities. Advanced authentication solutions, now in the IdentiPHI intellectual property portfolio, were developed for the small- and mid-sized business
(SMB) market and the growing mobile device market. Patent applications were submitted for applicable and potentially unique technologies and processes, further augmenting the existing Saflink patent portfolio. The SAFsolution product and related
biometric solutions were sold to IdentiPHI in early 2007 as part of Saflinks corporate restructuring efforts.

The history of
IdentiPHI dates back to 2005 when it was spun out of 3-Factor Security, founded by Peter Gilbert. IdentiPHI traces its evolution to a defining principle of any successful sales and marketing effortbuilding trust through understanding the
customer needs and delivering the right solution. Through its involvement in the Department of Defenses CAC program, IdentiPHI was able to integrate an advanced authentication solution offering based on relationships with best-of-breed
partners, and position itself in the role of trusted expert and provider of identity solutions with a number of key distribution partners. Under this initial strategy, IdentiPHI met the growing demand for advanced authentication solutions through a
combination of strong products and services and the development of distribution relationships and reseller programs. These channels enabled IdentiPHI to market the third party product lines and IdentiPHI-branded solutions to large enterprise
accountsdelivering an added set of security functionality and enterprise-class capability. In order to meet the evolving needs of its customers, IdentiPHI decided it was necessary to create or acquire its own intellectual property and to add
additional features to expand its competitive advantages. This necessity lead to IdentiPHIs acquisition of SAFsolution and SAFmodule from Saflink in February 2007 and the ultimate merger of the two companies.

Our Business

As computer use has migrated towards a
networked environment, and our economy has shifted 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 by the information security industry 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 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.

With the growth of electronic commerce and the realities of todays business operations, access points to the Internet and enterprise networks have
increased significantly and now include desktops, home PCs, mobile laptops, hand-held devices and cellular phones. In recent years, industry leaders such as Microsofts Bill Gates have called for the end of passwords as a means to access
computers and networks. This is due to the simple fact that using passwords as the primary method of verifying the identity of users (remote and local) is subject to a number of well-known 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 any organization, especially larger enterprises, there is 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.



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Traditional methods of controlling physical access to buildings and secure areas also have a number of
risks. Personal Identification Numbers (PINs), magnetic stripe cards, and radio frequency badges, by themselves have security vulnerabilities. Risk at the physical access points can be reduced by deploying technology that utilizes multiple
authentication methods and device solutions.

Additionally, enterprises performing 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. The use of biometric
authentication represents a cost-effective means of providing positive proof of identity when auditing events or approving computer-based transactions. The resultant audit trail of events links certain events to an individuals unique biometric
characteristics.

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



| |  |  | Concern regarding critical infrastructure security continues to gain significant attention since the terrorist attacks of September 11, 2001. As a result,
federal and local government funding is being increased to help protect critical government network infrastructures. Large government security initiatives have been launched over the past several years and focus on employing biometric components in
credentialing to increase security of our nation by limiting and identifying access into and out of key checkpoints such as border crossings, airports and sea ports. The private sector is also recognizing the importance of securing networks and
facilities against attacks by terrorists and other threats and is seeking higher assurance methods of user authentication.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The adoption of legislation and regulationssuch as the landmark Health Insurance Portability and Accountability Act (HIPAA) healthcare regulations and the
Gramm-Leach-Bliley Financial Modernization Actrequire that customer information, data, and financial records be kept secured, and outline substantial penalties for failure to do so. Similarly, the FDAs regulation 21CFR Part 11 requires
positive authentication of digital signatures placed on electronic records created within regulated industries such as pharmaceutical manufacturing.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Federal directives, such as Homeland Security Presidential Directive (HSPD) 12, are defining the need for interoperable credentials for Federal employees. HSPD-12
has led to the creation of a new Federal Information Processing Standards (FIPS) standard for personal identity verification (PIV) that will impact Federal procurements for systems pertaining to physical and logical access control as well as
identity management.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Highly publicized security breaches in computer networks and Internet sites, which have been traced to the vulnerability of password-based authentication systems by
hackers and unauthorized access by disgruntled employees.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The growth of e-commerce as a medium for business and consumer transactions, which requires the implementation of technologies that facilitate the positive
identification of anonymous parties.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The cost and inconvenience of using multiple or complex passwords that are frequently changed. Businesses are realizing true cost and time savings by implementing
password alternatives for user authentication.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The information technology industry is beginning to utilize advanced solutions to protect computer information. The primary means of protecting computer information
is data encryption, which requires protection of the encryption keys used to lock up the data. Today, these keys are generally stored in computers or smart cards and are commonly protected by PINs or passwords. We believe biometrics will
play an increasingly important role in protecting these keys from unauthorized access.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | IT industry leaders such as Microsoft, Citrix, Computer Associates, Dell, Hewlett Packard, Novell, MPC Computers, IBM, and Intel are supporting the integration of
biometrics within their system platforms and have publicly announced that information security is a top corporate focus.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Falling prices for biometric collection devices, such as fingerprint sensors, digital cameras, microphones, etc., and improvements in accuracy, performance, and
acceptance of this technology have made integration of biometrics for physical access, desktop PCs, and portable computers a cost effective security alternative for the public sector and commercial market.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | New biometric devices, such as silicon chip-based fingerprint sensors and iris recognition cameras, are now widely available from name-brand commercial vendors.
These vendors are continuing to make significant investments in improving the technology.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The International Biometric Industry Association (IBIA), the industrys official trade association, has been effective in helping to shape public policy in
favor of the use of biometrics as a viable security mechanism.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The BioAPI Consortium, a group of more than 120 organizations from the biometrics industry, government and information technology vendors, was successful in having
the BioAPI Specification accepted as an official standard by the American National Standards Institute (ANSI). This specification defines a single industry-standard specification for connecting biometric devices to computer systems and is expected
to encourage implementation of biometrics by facilitating the interoperability of different biometric technologies. This standard is now before the International Organization for Standards (ISO) for balloting to become an international standard.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our Products

Our
software and hardware security solutions are designed to protect these critical business assets. Our solutions provide a robust framework designed to improve trust through strong authentication, verification and management of identities. Our
authentication products support a wide variety of biometrics and smart card technologies and are designed to improve the security of workstations, computer networks, facilities and physical access points. Instead of a user providing a password,
users provide either a unique biometric characteristic, using any one of a number of biometric technologies, or a PKI enabled smart card/credential.

Our software products are standards-compliant and developed with an open systems architecture, which means customers are not tied to one technology or device but can mix and match authentication technologies. For
example, customers can select their preferred biometric technologiessuch as fingerprint and iris recognitionto meet their unique security needs. This flexibility allows customers a migration and support path for cheaper or better devices
as they become available.

Our focus is on three primary lines of products and offerings: enterprise software solutions, security
consulting services and third party products.

Enterprise Software Solutions

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



| |  |  | SAFsolution® Enterprise Edition. SAFsolution is a
biometric, smart card and public key infrastructure (PKI) security solution that enables users to log on to their Windows® workstations and enterprise network domains based on
Microsofts Active Directory and Windows 2000/2003 Server. Designed and tested for enterprise-level deployments, SAFsolution tightly integrates with Microsoft Active Directory to allow administrators to secure network and workstation
access. SAFsolution works with a wide variety of biometric hardware devices, including fingerprint, voice, iris, and facial recognition devices to provide maximum flexibility for enterprise environments. SAFsolution also supports
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | PKI-based smart cards as a second factor of authentication for those environments requiring the highest levels of access security. SAFsolution fully
leverages the Active Directory management infrastructure to provide advanced features for centralized policy management and event auditing as well as flexible biometric enrollment options necessary for large-scale deployments. SAFsolution works
seamlessly with a number of market-leading Single Sign-On (SSO) products, which provide fast and convenient connection to applications on a network by supplying a users password automatically from an encrypted file. SAFsolution is able to
enhance the security of SSO applications by providing the initial user access to the SSO software product through a secure biometric verification of the user.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SAFsolution® Workstation Edition. SAFsolution
Workstation provides multi-biometric logon and unlocking of Windows workstations based on Microsoft NT/2000/XP operating systems. SAFsolution Workstation stores the users biometric information and Windows password in a hidden encrypted file on
the local workstation disk drive. When properly configured, SAFsolution Workstation also logs the user onto the enterprise network using the cached network profile stored in the local disk drive. It is intended to provide a simple and low-cost
method of deploying biometric authentication in an enterprise environment without requiring additions or modifications to the network server components. SAFsolution Workstation also provides a direct upgrade path to the enterprise version of
SAFsolution that is fully integrated with Microsofts Active Directory Service and Microsoft Management Console for central storage and management of biometric credentials.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SAFmodule for NMAS. SAFmodule is a companion product to Novell Corporations Novell Modular Authentication Service (NMAS) security product
and is fully certified and tested by Novell as an approved NMAS authentication method. SAFmodule implements multiple biometrics and Java-based smart cards to replace passwords for enterprise users that are accessing Novells e-Directory
central repository from a computer running Novell software components. SAFmodule extends Novells administrative tools to assist the administrator in managing the biometric and smart card properties of a user and includes the ability to share
account privileges between users under administrator control. SAFmodule also contains flexible enrollment options that are necessary for large scale deployments. Communication between the individual employees computer and the Novell server is
secure and encrypted, and all biometric data is stored and encrypted in Novells Secret Store. SAFmodule has also been qualified for use with SSO products provided by Novell, Healthcast and Passlogix.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SAFremote Authenticator. SAFremote Authenticator enables strong authentication over remote and terminal
sessions so that Citrix® Presentation Server®, Windows® Terminal
Services, and Windows® XP Remote Desktop users and enterprise administrators enjoy the same high degree of security and convenience previously available to only locally secured
authentication workstations.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SAFauthenticator SDK. Our SAFauthenticator SDK product enables programmers to integrate our biometric authentication framework with any enterprise
application for a more secure infrastructure. SAFauthenticator SDK is used in conjunction with our SAFsolution or SAFmodule enterprise domain security products.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Security Consulting Services

Todays state of the market for policy and security products and services is confusing at best for many organizations. Security is a complex process; a process which includes corporate policies and procedures that must be intertwined
with training and technology solutions. Without proper processes, training, business requirement definitions and solutions, security initiatives will fail. Many organizations believe that security is an IT function and leave decisions and security
management in the hands of individuals who may not know or understand the core business initiatives or how their decisions could affect those initiatives. Conversely, many IT professionals believe that business objectives and operations are
secondary to IT security initiatives. Our approach to solving this problem is to bring the business, operations and technology together into comprehensive security offerings that bring the business and technical decision makers into the process.



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Our strategy is to become a trusted advisor to our customers. To that end, we offer an additional layer
of consulting and integration services which enables us to build long term relationships with our customers. This approach is circular and ongoing, enabling us to deliver value to the customer at each step of their security evaluation and
implementation process.

Third Party Products

We promote and market our full enterprise network security product offering with customers to take advantage of the growing awareness of the importance of protecting enterprise network infrastructures from
unauthorized access. Our security offering is significantly enhanced by our relationship with key strategic technology partners. These critical partners enable us to sell our products alongside their technologies and package their products with ours
into a single offering. We look for strategic technology partners whose products complement our solutions and fill a customer need that would not otherwise be met.

Our third party products consist of the deployment of management services for secure authentication solutions and broader security products, including, but not limited to:



| |  |  | Single Sign-On (SSO) solution providers
| | - |  | ---------------------------------------



| |  |  | Cryptographic algorithm providers
| | - |  | ---------------------------------



| |  |  | Compliance and audit assessment providers
| | - |  | -----------------------------------------



| |  |  | Biometric peripheral device and sensor developers and providers
| | - |  | ---------------------------------------------------------------



| |  |  | Biometric service and algorithm technology providers
| | - |  | ----------------------------------------------------



| |  |  | Smart card technology providers
| | - |  | -------------------------------



| |  |  | Smart card peripheral device and keyboard providers
| | - |  | ---------------------------------------------------



| |  |  | Full disk encryption technology providers
| | - |  | -----------------------------------------



| |  |  | Identity and credential management technology providers
| | - |  | -------------------------------------------------------

Our third-party compliance assessment product, which assists in identification of the strengths and vulnerabilities of a business enterprise, is a unique capability that ties into our consulting services. By utilizing
self-guided customer assessments we are able to engage with organizations during their planning phases and provide a well-defined path to remediation and implementation support. Central to our offering is eComplisoft, which blends our unique
methodology with industry standards such as ISO 17799/27002. With eComplisoft we are able to provide our customers a comprehensive analysis showing current state and recommendations for remediation based on the existing threat levels within the
organization.

Customers

Our customer
acquisition strategy has been to assemble what we believed were the necessary technological components to address the major security programs that were developing in the federal government sector. Through a combination of internal development,
acquisitions, and strategic partnerships, we have created a credentialing product suite well-suited to address these governmental and other industry initiatives.

As a result of this strategy and developments in security and authentication technologies, we have been successful in acquiring customers across a number of key vertical markets. While our products are not designed to
provide functionality or features that are different across industries, we believe it is important that we position them differently when addressing the unique requirements and business drivers of the respective vertical markets. There are a number
of internal and external market drivers which are specific to individual industries. We have targeted our sales and marketing activities on the following sectors: healthcare, manufacturing, financial services, and government.



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Sales and Marketing

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,
and financial services, and government, primarily in North America. Our sales and marketing team also trains and supports our indirect distribution channel partners and resellers.

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



| |  |  | Direct sales representatives who contact potential end-user customers through leads generated by our various marketing initiatives;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | OEMs and distributors who provide our authentication software products offerings as part of bundled enterprise product solutions;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | Resellers and integrators who purchase our products directly from us and sell them to end-user customers in a specified geographic region; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Strategic alliance partners who introduce our products into their customer accounts that need biometric authentication features added to their respective product
platforms.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our relationships with resellers generally are formalized in written contracts addressing specific products
to be sold, applicable discounts and the geographic territory within which our products can be sold. Our strategic alliances generally are with companies that have formal partner programs. These companies typically 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:



| |  |  | Access to key alliance partner technical, marketing and sales personnel;
| | - |  | ------------------------------------------------------------------------



| |  |  | Early access to new versions of the alliance partners software so that we can modify our software and release it at the same time that our alliance partner
releases its new software version;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Ability to package our products with our alliance partners product; and
| | - |  | ------------------------------------------------------------------------



| |  |  | Participation in joint partner marketing programs such as seminars, trade shows, conferences, mass emails, and co-op advertising.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------

Our marketing goals include identifying potential 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 our multiple direct and indirect distribution channels worldwide.

Competition

We compete in the authentication market by approaching each project with comprehensive technology solutions as
opposed to the promotion of basic product features. Our strategy is to differentiate our products in the marketplace by offering products that:



| |  |  | Combine the integrated value of smart cards, biometrics and physical access control in one offering;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | Meet the requirements for large-scale enterprise network implementation;
| | - |  | ------------------------------------------------------------------------



| |  |  | Integrate with third party products via our SDK (Software Developers Kit);
| | - |  | --------------------------------------------------------------------------



| |  |  | Integration with existing Directory structures such as Active Directory or eDirectory
| | - |  | -------------------------------------------------------------------------------------



| |  |  | Use more than one biometric characteristic for identification;
| | - |  | --------------------------------------------------------------



| |  |  | Are open-systems-standards compliant; and
| | - |  | -----------------------------------------



| |  |  | Are scalable as new users are added.
| | - |  | ------------------------------------



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We believe our biometric and smart card middleware solutions offer a clear advantage as truly device
ecumenical enterprise-level technology. Generally, competitive solutions are built around specific hardware platforms and are designed to showcase and sell more proprietary hardware. Our approach allows for different hardware options to be
deployed as needed to different business units. This gives us the ability to sell on the strengths of all hardware vendors, and allows us to deploy the best that each has to offer.

We believe this same universal approach provides us an advantage in smart card opportunities. We provide customers with a great degree of
flexibility when selecting card technologies that meet all requirements for logical and physical access. Through our support of more than 50 smart card models, we are able to source the best technology at the best price and still guarantee a
future-proof solution. We believe both smart card and biometric markets are moving away from proprietary solutions and are more often looking to companies like IdentiPHI to ensure that projects adhere to available standards and reduce the risks
commonly found when vendors limit options to force a fit with their own proprietary solutions.

We also utilize our relationships with key
distribution partners to generate more awareness, leads, and customer base. We accomplish this awareness with our distribution channels through our security assessments, sales training, marketing, web site collaboration, joint sales calls, joint
proposals, and other means.

The markets for our products and solutions are characterized by rapid technological change and we face intense
and growing competition from larger, more established companies, as well as new entrants into our market. We expect competition to increase as other companies introduce products that are competitively priced, which may have increased performance or
functionality or that incorporate technological advances that we have yet developed or implemented. We expect to continue to face competition from non-biometric technologies such as traditional passwords, token cards, smart cards, and digital
certificates. Although we believe our products and services offer clear advantages over those of our competitors, we may not be able to compete effectively, which could reduce demand for our products and services.

Intellectual Property

In addition to our SAFsolution
and SAFmodule product lines, we also maintain a robust intellectual property portfolio primarily consisting of Saflinks historical core technology products and numerous issued and pending patents for biometric and authentication processes and
technologies. Our approach with capitalization and utilization of each group of intellectual property is similar.

With our core technology
products, our strategy is based on three alternatives: 1) utilize the existing investment and technology development for integration into our products where there is potential for complementary functionality and integration; 2) re-address the
marketability and investment alternatives for continued product development or inclusion as potential new offerings; or 3) continued exploration of licensing/ownership alternatives with key partners who can benefit from the existing technology
investment.

Our key core technology products include:



| |  |  | jFortéa FIPS 140-2, Level 3 token for high assurance applications;
| | - |  | -------------------------------------------------------------------



| |  |  | EntryPointa network authentication appliance for the SMB market that supports multiple authentication factors;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | SureAccessa family of physical access product utilizing biometric and card authentication;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | NetSign middlewaredesktop and mobile smart card middleware applications; and
| | - |  | -----------------------------------------------------------------------------



| |  |  | miValetan identity-centric computing solution for easy and secure access to data regardless of its location.
| | - |  | -------------------------------------------------------------------------------------------------------------

Our patent portfolio consists of issued software patents covering certain components of our enterprise product offering and a number of issued patents
covering fingerprint imaging technology which we believe can



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be utilized to enhance and create strategic relationships with fingerprint technology companies, television set-top companies, and computer and peripheral
companies that will promote or use our software products. We believe the significance and value of these patents will increase over time as more revenues are generated in the biometric space.

We plan to protect and enhance the value of our patent portfolio through a combination of legal, product, and licensing approaches with potential and
known infringers. In addition, we are endeavoring to create additional patent applications for our software systems that will hold significant value in future releases. However, we cannot be sure that we will be granted any pending patents, that any
patent previously granted will prove enforceable, or that any competitive advantage will exist for us because of these patents or patent applications.

Protection of our proprietary products and services is important to our business. Similarly, the competitive nature of our industry makes any patents and patent applications of our licensors important to us. As a
result, our failure or inability to maintain this type of protection could have a material adverse affect on our business, financial condition, results of operations and prospects.

Employees

As of March 27, 2008, we had 27 full-time employees. From time to time, we utilize
consultants or contractors for specific assignments. None of our employees are represented by a labor union and we have never experienced a work stoppage. We believe that our relationship with our employees is good.



|Item 1A. | Risk Factors
|-------- | ------------

Factors That May Affect Future
Results

This annual report on Form 10-K contains forward-looking statements that involve risks and uncertainties. Our business,
operating results, financial performance, and share price may be materially adversely affected by a number of factors, including but not limited to the following risk factors, any one of which could cause actual results to vary materially from
anticipated results or from those expressed in any forward-looking statements made by us in this annual report or in other reports, press releases or other statements issued from time to time. Additional factors that may cause such a difference are
set forth elsewhere in this annual report.

We have accumulated significant losses and we may not be able to generate significant revenue or any net
income in the future, which would negatively impact our ability to run our business.

We have accumulated net losses of $4.4 million
from our inception through December 31, 2007. We have continued to accumulate losses after December 31, 2007, to date, and we may be unable to generate significant revenue or any net income in the future. We have funded our operations
primarily through the issuance of equity and debt securities to investors and may not be able to generate a positive cash flow in the future. If we are unable to generate sufficient cash flow from operations, we will need to seek additional funds
through the issuance of additional equity or debt securities or other sources of financing. We may not be able to secure such additional financing on favorable terms, or at all. Any additional financings will likely cause substantial dilution to
existing stockholders. If we are unable to obtain necessary additional financing, we may be required to reduce the scope of, or cease, our operations.

A significant number of shares of our common stock are or will be eligible for sale in the open market, which could reduce the market price for our common stock and make it difficult for us to raise capital.

As of March 27, 2008, 54,889,826 shares of our common stock were outstanding and there were a total of 1,474,379 shares of our common stock issuable
upon exercise or conversion of outstanding options and warrants. Our existing stock incentive plan had 10,632,510 shares available for future issuance. The issuance of additional



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shares of our common stock upon the exercise or conversion of outstanding options or warrants or the issuance of restricted stock grants could cause
substantial dilution to existing stockholders and could decrease the market price of our common stock due to the sale of a large number of shares of common stock in the market, or the perception that these sales could occur. These sales, or the
perception of possible sales, could also impair our ability to raise capital in the future.

Because they own approximately 71% of our common stock,
five stockholders could significantly influence our affairs, which may preclude other stockholders from being able to influence stockholder votes or corporate actions.

Five of our stockholders (together with their affiliates), who were former members of IdentiPHI, LLC, beneficially own approximately 71% of our outstanding common stock as of March 27, 2008. Given this substantial
ownership, if they decided to act together, they would be able to significantly influence the vote on those corporate matters to be decided by our stockholders.

If we fail to protect, or incur significant costs in defending, our intellectual property and other proprietary rights, our business and results of operations could be materially harmed.

Our success depends, in large part, on our ability to protect our intellectual property and other proprietary rights. We rely primarily on trademarks,
copyrights, trade secrets and unfair competition laws, as well as license agreements and other contractual provisions, to protect our intellectual property and other proprietary rights. However, our technology is not patented, and we may be unable
or may not seek to obtain patent protection for our technology. Moreover, existing U.S. legal standards relating to the validity, enforceability and scope of protection of intellectual property rights offer only limited protection, may not provide
us with any competitive advantages, and may be challenged by third parties. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property or otherwise gaining access to
our technology. Unauthorized third parties may try to copy or reverse engineer our products or portions of our products or otherwise obtain and use our intellectual property. Moreover, many of our employees have access to our trade secrets and other
intellectual property. If one or more of these employees leave us to work for one of our competitors, then they may disseminate this proprietary information, which may as a result damage our competitive position. If we fail to protect our
intellectual property and other proprietary rights, then our business, results of operations or financial condition could be materially harmed.

We have
depended on a limited number of customers for a substantial percentage of our revenue, and due to the non-recurring nature of these sales, our revenue in any period may not be indicative of future revenue.

Two customers accounted for 73% and 14%, respectively, of our revenue for fiscal 2007, while the same customer who accounted for 73% of our revenue in
2007 accounted for 86% of our revenue for fiscal 2006. A substantial reduction in revenue from any of our significant customers would adversely affect our business unless we were able to replace the revenue received from those customers. As a result
of this concentration of revenue from a limited number of customers, our revenue has experienced wide fluctuations, and we may continue to experience wide fluctuations in the future. Many of our sales are not recurring sales, and quarterly and
annual sales levels could fluctuate and sales in any period may not be indicative of sales in future periods.

We depend heavily on our network
infrastructure and its failure could result in unanticipated expenses and prevent users from effectively utilizing our services, which could negatively impact our ability to attract and retain users.

Our success will depend upon the capacity, reliability and security of our network infrastructure. We must continue to expand and adapt our network
infrastructure as the number of users and the amount of information at risk increases, and to meet changing customer requirements. The expansion and adaptation of our network



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infrastructure will require substantial financial, operational and management resources. There can be no assurance that we will be able to expand or adapt
our infrastructure to meet additional demand or our customers changing requirements on a timely basis, at a commercially reasonable cost, or at all. If we fail to expand its network infrastructure on a timely basis or adapt it either to
changing customer requirements or to evolving industry standards, our business could be significantly impacted.

In addition, our
operations are dependent upon our ability to protect our network infrastructure against damage from fire, earthquakes, floods, mudslides, power loss, telecommunications failures and similar events. Despite precautions taken by us, the occurrence of
a natural disaster or other unanticipated problem at our network operations center, co-locations centers (sites at which we will locate routers, switches and other computer equipment which make up the backbone of our network infrastructure) could
cause, interruptions in the services we provide. The failure of our telecommunications providers to provide the data communications capacity required by us as a result of a natural disaster, operational disruption or for any other reason could also
cause interruptions in the services we provide. Any damage or failure that causes interruptions in our operations could have a material adverse effect on our business, financial condition and results of operations.

We rely on industry leading encryption and authentication technology to provide the security and authentication necessary to effect secure transmission
of confidential information. Despite the implementation of intense security measures, there can be no assurance that advances in computer capabilities, new discoveries in the field of cryptography or other events or developments will not result in a
compromise or breach of the algorithms used by us to protect customer data. If any such compromise of our security were to occur, it could have a material adverse effect on our business, results of operations and financial condition.

If third parties, on whom we partly depend for our product distribution, do not promote our products, our ability to generate revenue may be limited and our business
and financial condition could suffer.

We utilize third parties such as resellers, distributors and other technology manufacturers to
augment our full-time sales staff in promoting sales of our products. If these third parties do not actively promote our products, our ability to generate revenue may be limited. We cannot control the amount and timing of resources that these third
parties devote to marketing activities on our behalf. Some of these business relationships are formalized in agreements that can be terminated with little or no notice, which may further decrease the willingness of such third parties to act on our
behalf. We also may not be able to negotiate acceptable distribution relationships in the future and cannot predict whether current or future distribution relationships will be successful.

Our reliance on third party technologies for some specific technology elements of our products and our reliance on third parties for manufacturing may delay product
launch, impair our ability to develop and deliver products or hurt our ability to compete in the market.

Our ability to license new
technologies from third parties will be critical to our ability to offer a complete suite of products that meets customer needs and technological requirements. Some of our licenses do not run for the full duration of the third partys patent
for the licensed technology. We may not be able to renew our existing licenses on favorable terms, or at all. If we lose the rights to a patented technology, we may need to stop selling or may need to redesign our products that incorporate that
technology, and we may lose a competitive advantage. In addition, competitors could obtain licenses for technologies for which we are unable to obtain licenses, and third parties may develop or enable others to develop a similar solution to digital
communication security issues, either of which events could erode our market share. Also, dependence on the patent protection of third parties may not afford us any control over the protection of the technologies upon which we rely. If the patent
protection of any of these third parties were compromised, our ability to compete in the market also would be impaired.



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The anticipated benefits of our recently completed merger may not be realized fully or at all or may take longer to
realize than anticipated.

Our recently completed merger involved the integration of two companies that had previously operated
independently with principal offices in two distinct locations. We must now devote significant management attention and resources to integrating the two companies. Delays in this process could adversely affect our business, operations, financial
results, financial condition and stock price. Even if we are able to integrate the two companies there can be no assurance that this integration will result in the realization of the full benefits of synergies, cost savings, innovation and
operational efficiencies that we had anticipated from the merger or that these benefits will be achieved within a reasonable period of time.

The
lengthy and variable sales cycle of some of our products makes it difficult to predict operating results.

Certain of our products have
lengthy sales cycles while customers complete in-depth evaluations of the products and receive approvals for purchase. In addition, new product introduction often centers on key trade shows and failure to deliver a product prior to such an event can
seriously delay introduction of a product. As a result of the lengthy sales cycles, we may incur substantial expenses before we earn associated revenues because a significant portion of our operating expenses is relatively fixed and based on
expected revenues. The lengthy sales cycles make forecasting the volume and timing of orders difficult. In addition, the delays inherent in lengthy sales cycles raise additional risks that customers may cancel or change their minds. If customer
cancellations or product delays occur, we could lose anticipated sales.

We face intense competition and pricing pressures from a number of sources,
which may reduce our average selling prices and gross margins.

The markets where we offer our products and services are intensely
competitive. As a result, we face significant competition from a number of sources. We may be unable to compete successfully because many of our competitors are more established, benefit from greater name recognition and have substantially greater
financial, technical and marketing resources than we have. In addition, there are several smaller and start-up companies with which we compete from time to time. We expect competition to increase as a result of consolidation in the information
security technology industry.

The average selling prices for our products may decline as a result of competitive pricing pressures,
promotional programs and customers who negotiate price reductions in exchange for longer-term purchase commitments. The pricing of products depends on the specific features and functions of the products, purchase volumes and the level of sales and
service support required. As we experience pricing pressure, the average selling prices and gross margins for our products may decrease over product lifecycles. These same competitive pressures may require us to write down the carrying value of any
inventory on hand, which would adversely affect our operating results and adversely affect our earnings per share.

A security breach of our internal
systems or those of our customers due to computer hackers or cyber terrorists could harm our business by adversely affecting the markets perception of our products and services.

Since we provide security for Internet and other digital communication networks, we may become a target for attacks by computer hackers. The ripple
effects throughout the economy of terrorist threats and attacks and military activities may have a prolonged effect on our potential commercial customers, or on their ability to purchase our products and services. Additionally, because we provide
security products to the United States government, we may be targeted by cyber terrorist groups for activities threatened against United States-based targets.

We will not succeed unless the marketplace is confident that we provide effective security protection for Internet and other digital communication networks. Networks protected by our products may be vulnerable to
electronic break-ins. Because the techniques used by computer hackers to access or sabotage networks change



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frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques. Although we have never
experienced any act of sabotage or unauthorized access by a third party of our internal network to date, if an actual or perceived breach of security for Internet and other digital communication networks occurs in our internal systems or those of
our end-user customers, it could adversely affect the markets perception of our products and services. This could cause us to lose customers, resellers, alliance partners or other business partners.

Our financial and operating results often vary significantly from quarter to quarter and may be adversely affected by a number of factors.

Our financial and operating results have fluctuated in the past and our financial and operating results could fluctuate in the future from quarter to
quarter for the following reasons:



| |  |  | reduced demand for our products and services;
| | - |  | ---------------------------------------------



| |  |  | price reductions, new competitors, or the introduction of enhanced products or services from new or existing competitors;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in the mix of products and services we or our distributors sell;
| | - |  | ------------------------------------------------------------------------



| |  |  | contract cancellations, delays or amendments by customers;
| | - |  | ----------------------------------------------------------



| |  |  | unforeseen legal expenses, including litigation costs;
| | - |  | ------------------------------------------------------



| |  |  | expenses related to acquisitions;
| | - |  | ---------------------------------



| |  |  | impairments of goodwill and intangible assets;
| | - |  | ----------------------------------------------



| |  |  | other financial charges;
| | - |  | ------------------------



| |  |  | the lack of availability or increase in cost of key components and subassemblies; and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | the inability to successfully manufacture in volume, and reduce the price of, certain of our products that may contain complex designs and components.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

Particularly important is our need to invest in planned technical development programs to maintain and enhance our
competitiveness, and to develop and launch new products and services. Improving the manageability and likelihood of success of such programs requires the development of budgets, plans and schedules for the execution of these programs and the
adherence to such budgets, plans and schedules. The majority of such program costs are payroll and related staff expenses, and secondarily materials, subcontractors and promotional expenses. These costs will be very difficult to adjust in response
to short-term fluctuations in our revenue, compounding the difficulty of achieving profitability.

We may be unable to keep pace with rapid
technological change in network operating environments, which could lead to an increase in our costs, a loss of customers or a delay in market acceptance of our products.

Network operating environments are characterized by rapid development and technological improvements. Because of these changes, our success will depend in
part on our ability to keep pace with a changing marketplace, integrate new technology into our core software and hardware and introduce new products and product enhancements that build off of our existing technologies to address the changing needs
of the marketplace. Various technical problems and resource constraints may impede the development, production, distribution and marketing of our products and services. In addition, laws, rules, regulations or industry standards may be adopted in
response to these technological changes, which in turn, could materially and adversely affect how we will do business.



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Our future success will also depend upon our ability to develop and introduce a variety of new products
and services, and enhancements to these new products and services, to address the changing and sophisticated needs of the marketplace. Frequently, technical development programs in the biometric and smart card industry require assessments to be made
of the future directions of technology and technology markets generally, which are inherently risky and difficult to predict. Delays in introducing new products, services and enhancements, the failure to choose correctly among technical alternatives
or the failure to offer innovative products and services at competitive prices may cause customers to forego purchases of our products and services and purchase those of our competitors.

Our continued participation in the market for governmental agencies may require the investment of our resources in upgrading our products and technology
for us to compete and to meet regulatory and statutory standards. We may not have adequate resources available to us or may not adequately keep pace with appropriate requirements to compete effectively in the marketplace.

Our efforts to expand our international operations are subject to a number of risks, including our potential inability to obtain government authorization regarding
exports of our products, any of which could adversely affect our future international sales.

We must comply with U.S. laws regulating
the export of our products in order to ship internationally. In some cases, authorization from the U.S. government may be needed in order to export our products. The export regimes applicable to our business are subject to frequent changes, as are
the governing policies. Although we have obtained approvals to export certain of our products, we cannot assure you that such authorizations to export will be available to us or for our products in the future. If we cannot obtain the required
government approvals under these regulations, we may not be able to sell products abroad or make products available for sale internationally.

Additionally, our international operations could be subject to a number of risks, any of which could adversely affect our future international sales, including:



| |  |  | increased collection risks;
| | - |  | ---------------------------



| |  |  | trade restrictions;
| | - |  | -------------------



| |  |  | export duties and tariffs;
| | - |  | --------------------------



| |  |  | uncertain political, regulatory and economic developments; and
| | - |  | --------------------------------------------------------------



| |  |  | inability to protect our intellectual property rights.
| | - |  | ------------------------------------------------------

We may be exposed to significant liability for actual or perceived failure to provide required products or services.

Products as complex as those we offer may contain undetected errors or may fail when first introduced or when new versions are released. Despite our product testing efforts and testing by current and potential customers, it is possible that
errors will be found in new products or enhancements after commencement of commercial shipments. The occurrence of product defects or errors could result in adverse publicity, delay in product introduction, diversion of resources to remedy defects,
loss of or a delay in market acceptance, or claims by customers against us, or could cause us to incur additional costs, any of which could adversely affect our business. Because our customers rely on our products for critical security applications,
we may be exposed to claims for damages allegedly caused to an enterprise as a result of an actual or perceived failure of our products. An actual or perceived breach of enterprise network or information security systems of one of our customers,
regardless of whether the breach is attributable to our products or solutions, could adversely affect our business reputation. Furthermore, our failure or inability to meet a customers expectations in the performance of our services, or to do
so in the time frame required by the customer, regardless of our responsibility for the failure, could result in a claim for substantial damages against us by the customer, discourage customers from engaging us for these services, and damage our
business reputation.



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Government regulations affecting security of Internet and other digital communication networks could limit the market
for our products and services.

The United States government and foreign governments have imposed controls, export license requirements
and restrictions on the import or export of some technologies, including encryption technology. Any additional governmental regulation of imports or exports or failure to obtain required export approval of encryption technologies could delay or
prevent the acceptance and use of encryption products and public networks for secure communications and could limit the market for our products and services. In addition, some foreign competitors are subject to less rigorous controls on exporting
their encryption technologies. As a result, they may be able to compete more effectively than us in the United States and in international security markets for Internet and other digital communication networks. In addition, governmental agencies
such as the Federal Communications Commission periodically issue regulations governing the conduct of business in telecommunications markets that may adversely affect the telecommunications industry and us.

If we fail to attract and retain qualified senior executive and key technical personnel, our business will not be able to expand.

We will be dependent on the continued availability of the services of our employees, many of whom are individually keys to our future success, and the
availability of new employees to implement our business plans. Although our compensation program is intended to attract and retain the employees required for us to be successful, there can be no assurance that we will be able to retain the services
of all of our key employees or a sufficient number to execute our plans, nor can there be any assurance that we will be able to continue to attract new employees as required.

Our personnel may voluntarily terminate their relationship with us at any time, and competition for qualified personnel, especially engineers, is
intense. The process of locating additional personnel with the combination of skills and attributes required to carry out our strategy could be lengthy, costly and disruptive.

If we lose the services of key personnel, or fail to replace the services of key personnel who depart, we could experience a severe negative impact on
our financial results and stock price. In addition, there is intense competition for highly qualified engineering and marketing personnel in the locations where we will principally operate. The loss of the services of any key engineering, marketing
or other personnel or our failure to attract, integrate, motivate and retain additional key employees could adversely affect on our business and financial results and stock price.

Provisions in our certificate of incorporation may prevent or adversely affect the value of a takeover of our company even if a takeover would be beneficial to stockholders.

Our certificate of incorporation authorizes our board of directors to issue up to 66,667 shares of preferred stock, the issuance of which could adversely
affect our common stockholders. We can issue shares of preferred stock without stockholder approval and upon terms and conditions, and having those types of rights, privileges and preferences, as our board of directors determines. Specifically, the
potential issuance of preferred stock may make it more difficult for a third party to acquire, or may discourage a third party from acquiring, voting control of our company even if the acquisition would benefit stockholders.



|Item 1B. | Unresolved Staff Comments
|-------- | -------------------------

None.



|Item 2. | Properties
|------- | ----------

We lease our
current principal executive offices, consisting of approximately 4,224 square feet, in Austin, Texas, under a lease that expires in November 2008.



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We also lease offices for our product development staff, consisting of approximately 1,724 square feet,
in Edmonton, Alberta, Canada, under a lease that expires in November 2008.

In Reston, Virginia, we lease 6,083 square feet of office space
under a lease that expires in April 2009. In February 2007, we entered into a sublease agreement with another entity to sublease the entire Reston facility through our lease termination date. The differences in rental rates between the original
lease and the sublease are minimal and did not have a material effect on our financial statements.

We lease an additional 5,130 square
feet of office space in Reston, Virginia under a lease that expires in February 2009. In April 2006, we entered into a sublease agreement with another entity to sublease this entire Reston facility through our lease expiration date. The differences
in rental rates between the original lease and the sublease are minimal and did not have a material effect on our financial statements.



|Item 3. | Legal Proceedings
|------- | -----------------

None.



|Item 4. | Submission of Matters to a Vote of Securities Holders
|------- | -----------------------------------------------------

No matters were submitted to a vote of our stockholders during the fourth quarter of 2007.

PART II



|Item  5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|-------- | ------------------------------------------------------------------------------------------------------------

Market Prices of Common Stock

Our common stock was
traded on the OTC Bulletin Board under the symbol SFLK through February 15, 2008. Effective with the open of business on February 19, 2008, our common stock began trading under the symbol IDPI. On February 19,
2008, we effected a 1-for-15 reverse stock split. As a result of the reverse stock split, every 15 shares of our common stock outstanding prior to the reverse stock split was combined and reconstituted into one share of our common stock. The reverse
stock split decreased the number of shares of common stock outstanding from approximately 823 million shares to approximately 55 million shares. The following table sets forth the range of high and low close prices for our common stock as
reported on the OTC Bulletin Board for the periods indicated. Such quotations represent inter-dealer prices without retail markup, markdown or commission and may not necessarily represent actual transactions. Other than with respect to the first
quarter of 2008, the numbers below do not reflect the 1-for-15 reverse stock split effected on February 19, 2008.



|                                                                           |  |                         |      |     |   |     
|-------------------------------------------------------------------------- |  | ----------------------- | ---- | --- | - | ----
|                                                                           |  | Common StockClose Price
|                                                                           |  | High                    |      | Low
|2006                                                                       |  |                         |      |     |   |     
|First Quarter                                                              |  | $                       | 1.07 |     | $ | 0.75
|Second Quarter                                                             |  |                         | 0.82 |     |   | 0.37
|Third Quarter                                                              |  |                         | 0.45 |     |   | 0.23
|Fourth Quarter                                                             |  |                         | 0.36 |     |   | 0.07
|2007                                                                       |  |                         |      |     |   |     
|First Quarter                                                              |  |                         | 0.15 |     |   | 0.08
|Second Quarter                                                             |  |                         | 0.09 |     |   | 0.03
|Third Quarter                                                              |  |                         | 0.09 |     |   | 0.03
|Fourth Quarter                                                             |  |                         | 0.08 |     |   | 0.03
|2008                                                                       |  |                         |      |     |   |     
|First Quarter (through March 27, 2008 and 1-for-15 reverse split effected) |  |                         | 0.60 |     |   | 0.27



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Record Holders

As of March 27, 2008, there were 468 record holders of our common stock. This does not include the number of beneficial owners whose stock is in
nominee or street name accounts through brokers. The last sale price of our common stock as reported on the OTC Bulletin Board on March 27, 2008, was $0.42 per share.

Dividend Policy

We have never
paid or declared cash dividends on our common stock, and we do not intend to pay or declare cash dividends on our common stock in the foreseeable future

Equity Compensation Plan Information

Information relating to our equity compensation plan is
incorporated by reference to the definitive proxy statement for our 2008 annual meeting of stockholders. Additional information regarding our equity compensation plan can be found in Note 3 in our financial statements in this annual report.



|Item  6. | Selected Financial Data
|-------- | -----------------------

Not
applicable.



|Item  7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|-------- | -------------------------------------------------------------------------------------

This managements discussion and analysis of financial condition and results of operations contains forward-looking statements. All statements other
than statements of historical fact made in this annual report are forward-looking. Forward-looking statements reflect managements current expectations and are subject to risks and uncertainties discussed below and those identified in
Item 1A of this annual report that could cause actual results to differ materially from historical results or those anticipated.

Overview

In August 2007, the entity known as IdentiPHI, LLC renamed itself as IdentiPHI,
Inc. and changed its corporate form from a Delaware limited liability company to a Delaware corporation with authorized capital of 100,000,000 shares of $0.001 par value common stock. For purposes of this managements discussion and
analysis of financial condition and results of operations and when the context requires, we refer to this entity as Former IdentiPHI.

On August 30, 2007, Former IdentiPHI entered into a merger agreement with Saflink Corporation whereby Saflink agreed to acquire all of Former IdentiPHIs outstanding shares of capital stock in a stock-for-stock transaction. On
February 8, 2008, Saflink and Former IdentiPHI completed the merger which resulted in the former security holders of Former IdentiPHI holding approximately 75% of the combined companys common stock and the security holders of Saflink
holding the remaining 25% of the combined companys common stock. The merger was deemed a reverse merger with Former IdentiPHI being treated as the acquiring company for accounting and financial reporting purposes. As a
result of the merger, Former IdentiPHI became a wholly-owned subsidiary of Saflink. Saflink and Former IdentiPHI subsequently combined into a single entity and changed the combined companys name to IdentiPHI, Inc. with its
principal offices in Austin, Texas.

We are a technology company offering a suite of enterprise security solutions and consulting services
direct to end-users and through partners, distributers and resellers. During 2006, Former IdentiPHI primarily sold third party technology and solutions through these channels on a stand-alone basis and bundled and branded as IdentiPHI. During 2007,
Former IdentiPHI focused its capital and resources on acquiring its own intellectual property in order to have more control over product direction and functionality and to have the ability to increase its overall gross margin on sales. As a result
of these efforts, Former IdentiPHI acquired two biometric software



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products, SAFsolution and SAFmodule, from Saflink Corporation in February 2007, and immediately began to focus its product development efforts on updating
the software code to current standards and adding new functionality and capabilities to these offerings.

For financial reporting purposes,
Former IdentiPHI, and not Saflink Corporation, is considered the accounting acquirer. Accordingly, the historical financial statements presented in this annual report and the discussion of financial condition and results of operations herein are
those of Former IdentiPHI and do not include Saflink Corporations historical financial results.

Critical Accounting Policies
and Estimates

Our accounting and reporting policies conform to U.S. generally accepted accounting principles (GAAP) and to general
practices within the enterprise software industry.

Revenue Recognition

We derive revenue from license and maintenance fees for software products, from reselling third party hardware and software applications and from fees for
services for software installation, integration, implementation, maintenance and training. Revenue is recognized in accordance with the provisions of Statement of Position (SOP) 97-2, Software Revenue Recognition (SOP 97-2), as amended
by SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions, and related interpretations, including Technical Practice Aids, which provides specific guidance and stipulates that revenue
recognized from software arrangements is to be allocated to each element of the arrangement based on the relative fair values of the elements, such as software products, upgrades, enhancements, post-contract customer support, installation,
integration and/or training. Under this guidance, the determination of fair value is based on objective evidence that is specific to the vendor. In multiple element arrangements in which fair value exists for undelivered elements, the fair value of
the undelivered elements is deferred and the residual arrangement fee is assigned to the delivered elements. If evidence of fair value for any of the undelivered elements does not exist, all revenue from the arrangement is deferred until such time
that evidence of fair value does exist, or until all elements of the arrangement are delivered.

Revenue from biometric software and data
security license fees is generally recognized upon delivery, provided that persuasive evidence of an arrangement exists, collection is probable, the fee is fixed or determinable, and vendor-specific objective evidence exists so that the total fee
can be allocated to the elements of the arrangement. For pilot or test versions of products, the revenue is recognized upon customer acceptance of permanent license rights. Certain software delivered under a license requires a separate annual
maintenance contract that governs the conditions of post-contract customer support. Post-contract customer support services can be purchased under a separate contract on the same terms and at the same pricing, whether purchased at the time of sale
or at a later date. Revenue from these separate maintenance support contracts is recognized ratably over the contract term. The value of such deferred maintenance revenue is established by the price at which the customer may purchase a renewal
maintenance contract.

We generally recognize revenue upon delivery for hardware manufactured or enhanced internally and for third party
hardware and software items that are resold.

Revenue for services relates primarily to installation, integration, implementation and
training services performed on a time-and-materials or fixed-fee basis under separate service arrangements. Fees are generally recognized as the services are performed.

Software Development Costs

Our current process for developing software is essentially
completed concurrently with the establishment of technological feasibility and therefore costs associated with the development of software are expensed as incurred.



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Impairment of Long-Lived Assets

Long-lived assets (asset group) to be held and used are tested for recoverability whenever events or changes in circumstances indicate that an
assets carrying amount may not be recoverable. An impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset
(asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount of the asset (asset
group) at the date it is tested for recoverability, whether in use or under development. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. We periodically
evaluate whether we have incurred any impairment losses on long-lived assets. We have not made provisions for an impairment loss as of December 31, 2007 and 2006.

Inventories

Our inventory is comprised of raw materials, work-in-process and finished goods
related to smart card readers, biometric physical access readers and hardware appliances for its network authentication products which are either manufactured internally or by third parties, and may be purchased either separately or in connection
with the installation of our security products. Inventories are stated at the lower of cost or market, on a first-in, first-out basis.

Results of
Operations for fiscal 2007 and fiscal 2006

The following discussion and analysis are pertaining to the results of Former IdentiPHI for
fiscal 2007 and 2006, which was prior to the February 8, 2008, merger between Saflink Corporation and Former IdentiPHI. We believe that period-to-period comparisons of our operating results may not be a meaningful basis to predict our future
performance. You should consider our prospects in light of the risks, expenses and difficulties frequently encountered by companies in new and rapidly evolving markets, as well as our recent merger. We may not be able to successfully address these
risks and difficulties.

We incurred a net loss of $2.1 million for the year ended December 31, 2007. These results included interest
expense of $136,000 related to our unsecured loan from a related party, Key Ovation, LLC, and amortization expense of $130,000 related to software rights purchased from Saflink Corporation in February 2007. We incurred a net loss of $1.8 million for
the year ended December 31, 2006, which included interest expense of $115,000 related to our Key Ovation loan.

The following
discussion presents certain elements of our revenue and expenses that pertain to the years ended December 31, 2007 and 2006.

Revenue and Cost of Revenue

We recorded revenue primarily from three sources during the years ended
December 31, 2007 and 2006: enterprise software license sales; third party software and hardware sales; and service, maintenance and support revenue. From our statements of operations, product revenue consisted of license fees for our software
products and sales of third party software and hardware products and applications. Service revenue consisted of payments for maintenance and support contracts, technical support, installation, integration, implementation and training services.

Revenue of $3.6 million for fiscal 2007 decreased 35% compared to revenue of $5.5 million for fiscal 2006. Revenue of $3.2 million came
from product sales and $310,000 from services during 2007. Product revenue decreased 35%, or $1.8 million, in 2007, when compared to the $5.0 million recorded in 2006. Service revenue decreased 36%, or $176,000, compared to the $486,000 recorded in
2006. During fiscal 2007 and fiscal 2006, Synnex Corporation, a technology products distributor, accounted for 73% and 86% of our total revenue, respectively. During Fiscal 2007, Wells Fargo Bank accounted for 14% of our total revenue.



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##### Table of Contents

During fiscal 2007 enterprise software license sales were $221,000, product sales of third party software
and hardware were $3.0 million, while services revenue was $310,000. During fiscal 2006 enterprise software license sales were $262,000, product sales of third party software and hardware were $4.8 million, while services revenue was $486,000.

The 35% decrease in revenue in fiscal 2007 from fiscal 2006 was primarily related to the unpredictability of the timing of orders and
deployments in the authentication and biometric security markets. We also focused a large portion or our capital and resources during 2007 updating and enhancing our SAFsolution and SAFmodule software products purchased from Saflink Corporation in
February 2007.

Total cost of revenue included enterprise software license cost of revenue, third party product cost of revenue and
services cost of revenue. Enterprise software license cost of revenue includes purchased software that was integrated into our products. Product cost of revenue included the cost of software and hardware applications purchased from third parties and
resold to our customers, resellers and distributors. Services cost of revenue consisted of the cost of maintenance and technical support provided on our enterprise software, as well as labor costs for consulting, installation, implementation,
integration and training services.

During fiscal 2007 cost of revenue from enterprise software licenses was $26,000, the cost of product
sales of third party software and hardware was $2.4 million, the cost of services revenue was $143,000, and intangible asset amortization classified as cost of revenue was $130,000. During fiscal 2006 cost of revenue from enterprise software
licenses was $218,000, the cost of product sales of third party software and hardware was $4.3 million, while the cost of services revenue was $399,000.

Our gross profit for fiscal 2007 was $864,000, or 24%, while our gross profit for fiscal 2006 was $606,000, or 11%. Our gross profit percentage increase in fiscal 2007 was primarily attributable to increased sales of
our own software that replaced sales of third party software products that had lower margins.

Operating Expenses

Product DevelopmentProduct development expenses consisted primarily of salaries, benefits, supplies and materials for software
developers, hardware engineers, product architects and quality assurance personnel, fees paid for outsourced software development and hardware design. For fiscal 2007 product development expenses were $553,000, while for fiscal 2006 product
development expenses were $433,000. This increase was primarily related to additional outsourced product development spending in order to update and enhance our software products and solutions.

Sales and MarketingSales and marketing expenses consist primarily of salaries and commissions earned by sales and marketing
personnel, trade shows, advertising and promotional expenses, fees for consultants, and travel and entertainment costs. Sales and marketing expenses were $1.1 million for fiscal 2007, while sales and marketing expenses were $947,000 for fiscal 2006.
This increase during fiscal 2007 was primarily related to increased compensation expense for additional sales headcount during fiscal 2007.

General and AdministrativeGeneral and administrative expenses consist primarily of salaries, benefits and related costs for our executive, finance, legal, human resource, information technology and administrative
personnel, professional services fees and allowances for bad debts. General and administrative expenses were $1.1 million for fiscal 2007, while general and administrative expenses were $957,000 for fiscal 2006. This increase during 2007 was
primarily related to additional professional service expense, which included accounting, audit and legal fees.

Interest expense

Interest expense for fiscal 2007 was $149,000, while interest expense for fiscal 2006 was $117,000. Interest expense primarily
consisted of interest accrued on our unsecured borrowings from Key Ovation.



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Other income, net

Other income for fiscal 2007 was $4,000, while net other income for fiscal 2006 was $0. Other income primarily consisted of interest earned on cash and
money market balances.

Liquidity and Capital Resources

We financed our operations during 2007 and 2006 primarily from our existing working capital and through an unsecured loan from a related party and a
promissory note from Saflink Corporation that was issued in connection with the execution of the merger agreement with Saflink in August 2007. As of December 31, 2007, we had $53,000 of cash and cash equivalents and a working capital deficit
was negative $487,000.

Our net cash outflows for operating activities were $2.9 million for fiscal 2007. The net loss of $2.1 million for
fiscal 2007 included a $52,000 charge related to common stock issued for services performed and $130,000 in amortization of software rights purchased from Saflink. Other significant adjustments to the net loss included an increase in accounts
receivable of $395,000 and a decrease in accounts payable of $869,000.

Net cash used by investing activities was $785,000 during fiscal
2007, with $7,000 related to the acquisition of equipment and furnishings and $778,000 related to the Saflink software rights acquisition.

Net cash provided from financing activities was $2.5 million during fiscal 2007, with $1.3 million related to proceeds from borrowing under the related party loan, an investment for membership interest in IdentiPHI, LLC of $778,000 and
$400,000 in proceeds from the promissory note issued to Saflink.

Our net cash outflows for operating activities was $512,000 for fiscal
2006. The net loss of $1.8 million for fiscal 2006 included a $115,000 charge related to non-cash interest expense on the related party note payable. Other significant adjustments to the net loss included an increase in accounts receivable of
$451,000 and an increase in accounts payable of $1.8 million.

Net cash used by investing activities was $32,000 during fiscal 2006 related
to the acquisition of equipment and furnishings.

Net cash provided from financing activities was $1.8 million during fiscal 2006. These
funds were provided through our unsecured loan from a related party.

We also received non-cash support from Key Ovation, LLC, in the form
of warehouse and inventory management for inventories held for resale, processing of customer orders for goods held in inventory including receiving, storage, picking and shipping, and administrative support such as payroll processing, accounts
payable processing, accounts receivable processing and inventory count management.

We maintain our headquarters in a leased facility with
4,424 square feet in Austin, Texas under a lease that expires in November 2008. We also lease 1,724 square feet of office space in Edmonton, Alberta, Canada for our product development staff under a lease that expires in November 2008. Remaining
rent expense related to these leases for 2008 is approximately $94,000 and we do not have any other significant lease or purchase commitments beyond 2008.

As a result of the merger with Saflink on February 8, 2008, we now have two additional leases. In Reston, Virginia, we lease 6,083 square feet of office space under a lease that expires in April 2009. This entire
facility is sublet to another entity through our lease termination date. Also in Reston, we lease 5,130 square feet of office space under a lease that expires in February 2009. This entire facility is sublet to another entity through our lease
expiration date as well. The differences in rental rates between the original leases and the subleases are minimal and should not have a material effect on our financial statements in the future.



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|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------

See Index to Financial Statements.



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

None.



|Item 9A. | Controls and Procedures
|-------- | -----------------------

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an evaluation the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
as amended. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.



|Item 9B. | Other Information
|-------- | -----------------

None.

PART III



|Item 10. | Directors and Executive Officers of the Registrant
|-------- | --------------------------------------------------

Information concerning our directors, executive officers and corporate is incorporated by reference from our definitive proxy statement for our 2008 annual meeting of stockholders.



|Item 11. | Executive Compensation
|-------- | ----------------------

Information concerning our executives compensation is incorporated by reference from our definitive proxy statement for our 2008 annual meeting of stockholders.



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

Information required to be disclosed hereunder is incorporated by reference from our definitive proxy statement for our 2008 annual meeting of
stockholders.



|Item 13. | Certain Relationships and Related Transactions
|-------- | ----------------------------------------------

Information required to be disclosed hereunder is incorporated by reference from our definitive proxy statement for our 2008 annual meeting of stockholders.



|Item 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------

Information required to be disclosed hereunder is incorporated by reference from our definitive proxy statement for our 2008 annual meeting of stockholders.



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##### Table of Contents

PART IV



|Item 15. | Exhibits and Financial Statement Schedules
|-------- | ------------------------------------------



| | (a) | The following documents are filed as a part of this annual report on Form 10-K:
| | --- | -------------------------------------------------------------------------------



| | (1) | Consolidated Financial Statements
| | --- | ---------------------------------



| | The | financial statements filed as a part of this report are listed in the Index to Financial Statements.
| | --- | ------------------------------------------------------------------------------------------------------



| | (2) | Financial Statement Schedules
| | --- | -----------------------------

All
schedules have been omitted because they are either not applicable, not material or the required information has been given in the financial statements or related notes.



| | (b) | Exhibits
| | --- | --------



|           |  |                                                                                                                                                                     |  |               |  |                           |  |          |  |             |  |           
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------------------- |  | -------- |  | ----------- |  | ----------
|           |  | Exhibit Title                                                                                                                                                       |  | FiledHerewith |  | Incorporated by Reference
|Exhibit No |  |                                                                                                                                                                     |  | Form          |  | Exhibit No.               |  | File No. |  | Filing Date
|           |  |                                                                                                                                                                     |  |               |  |                          
|2.1        |  | Agreement and Plan of Merger and Reorganization, dated as of August 30, 2007, by and among Saflink Corporation, Ireland Acquisition Corporation and IdentiPHI, Inc. |  |               |  | 8-K                       |  | 2.1      |  | 000-20270   |  | 9/4/2007  
|           |  |                                                                                                                                                                     |  |               |  |                          
|3.1        |  | Restated Certificate of Incorporation by Saflink Corporation                                                                                                        |  |               |  | 10-K                      |  | 3.1      |  | 000-20270   |  | 3/30/2004 
|           |  |                                                                                                                                                                     |  |               |  |                          
|3.2        |  | Certificate of Amendment to Restated Certificate of Incorporation of Saflink Corporation                                                                            |  |               |  | 8-K                       |  | 3.2      |  | 000-20270   |  | 8/13/2004 
|           |  |                                                                                                                                                                     |  |               |  |                          
|3.3        |  | Second Amended and Restated Bylaws of Saflink Corporation                                                                                                           |  |               |  | 10-Q                      |  | 3.1      |  | 000-20270   |  | 8/14/2003 
|           |  |                                                                                                                                                                     |  |               |  |                          
|3.4        |  | Certificate of Amendment to Certificate of Incorporation                                                                                                            |  |               |  | 8-K                       |  | 3.1      |  | 000-20270   |  | 2/13/2008 
|           |  |                                                                                                                                                                     |  |               |  |                          
|3.5        |  | Certificate of Ownership and Merger                                                                                                                                 |  |               |  | 8-K                       |  | 3.2      |  | 000-20270   |  | 2/13/2008 
|           |  |                                                                                                                                                                     |  |               |  |                          
|3.6        |  | Amendment to Bylaws of Saflink Corporation                                                                                                                          |  |               |  | 10-Q                      |  | 3.2      |  | 000-20270   |  | 11/15/2004
|           |  |                                                                                                                                                                     |  |               |  |                          
|4.1        |  | Registration Rights Agreement dated as of November 19, 2003, among SSP Solutions, Inc. and each investor named in Exhibit A thereto                                 |  |               |  | 8-K                       |  | 10.4     |  | 000-26227   |  | 11/21/2003
|           |  |                                                                                                                                                                     |  |               |  |                          
|4.2        |  | Registration Rights Agreement dated as of June 8, 2005, among Saflink Corporation and the Purchasers listed therein                                                 |  |               |  | 8-K                       |  | 10.2     |  | 000-20270   |  | 6/13/2005 
|           |  |                                                                                                                                                                     |  |               |  |                          
|4.3        |  | Form of Warrant                                                                                                                                                     |  |               |  | 8-K                       |  | 4.1      |  | 000-20270   |  | 6/13/2005 
|           |  |                                                                                                                                                                     |  |               |  |                          
|4.4        |  | Amendment to Warrant of Saflink Corporation                                                                                                                         |  |               |  | 8-K                       |  | 99.1     |  | 000-20270   |  | 8/2/2004  
|           |  |                                                                                                                                                                     |  |               |  |                          
|4.5        |  | Form of Series A-1 Warrant issued by SSP Solutions, Inc.                                                                                                            |  |               |  | 8-K                       |  | 10.2     |  | 000-26227   |  | 11/21/2003



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|           |  |                                                                                                               |  |               |  |                           |  |          |  |             |  |           
|---------- |  | ------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------------------- |  | -------- |  | ----------- |  | ----------
|           |  | Exhibit Title                                                                                                 |  | FiledHerewith |  | Incorporated by Reference
|Exhibit No |  |                                                                                                               |  | Form          |  | Exhibit No.               |  | File No. |  | Filing Date
|           |  |                                                                                                               |  |               |  |                          
|4.6        |  | Form of Series A-2 Warrant issued by SSP Solutions, Inc.                                                      |  |               |  | 8-K                       |  | 10.3     |  | 000-26227   |  | 11/21/2003
|           |  |                                                                                                               |  |               |  |                          
|4.7        |  | Form of Warrant Issued June 12, 2006                                                                          |  |               |  | 8-K                       |  | 4.1      |  | 000-20270   |  | 6/15/2006 
|           |  |                                                                                                               |  |               |  |                          
|4.8        |  | Registration Rights Agreement, dated as of June 12, 2006, by and among Saflink Corporation and the Purchasers |  |               |  | 8-K                       |  | 10.2     |  | 000-20270   |  | 6/15/2006 
|           |  |                                                                                                               |  |               |  |                          
|10.1       |  | Saflink Corporation 2000 Stock Incentive Plan, as amended*                                                    |  |               |  | 10-K                      |  | 10.1     |  | 000-20270   |  | 3/30/2007 
|           |  |                                                                                                               |  |               |  |                          
|10.2       |  | Form of Stock Option Agreement*                                                                               |  |               |  | 8-K                       |  | 99.1     |  | 000-20270   |  | 9/7/2004  
|           |  |                                                                                                               |  |               |  |                          
|10.3       |  | Form of Stock Purchase Agreement*                                                                             |  |               |  | 10-K                      |  | 10.3     |  | 000-20270   |  | 3/31/2005 
|           |  |                                                                                                               |  |               |  |                          
|10.4       |  | Deed of Lease dated November 10, 2003, between VA Branches, LLC and Saflink Corporation                       |  |               |  | 10-K                      |  | 10.8     |  | 000-20270   |  | 3/30/2004 
|           |  |                                                                                                               |  |               |  |                          
|10.5       |  | Saflink Corporation 2005 Employee Stock Purchase Plan*                                                        |  |               |  | 10-K                      |  | 10.15    |  | 000-20270   |  | 3/17/2006 
|           |  |                                                                                                               |  |               |  |                          
|10.6       |  | Lease Agreement dated November 21, 2005, by and between Saflink Corporation and Mastro Willows II, LLC        |  |               |  | 10-K                      |  | 10.17    |  | 000-20270   |  | 3/17/2006 
|           |  |                                                                                                               |  |               |  |                          
|10.7       |  | Lease Agreement dated March 1, 2006, by and between Saflink Corporation and South Carolina Research Authority |  |               |  | 10-K                      |  | 10.19    |  | 000-20270   |  | 3/17/2006 
|           |  |                                                                                                               |  |               |  |                          
|10.8       |  | Agreement of Sublease dated April 21, 2006, by and between Saflink Corporation and Concept Solutions, LLC     |  |               |  | 8-K                       |  | 10.1     |  | 000-20270   |  | 4/27/2006 
|           |  |                                                                                                               |  |               |  |                          
|10.9       |  | Employment Agreement, dated February 12, 2008, between IdentiPHI, Inc. and John Atkinson*                     |  |               |  | 8-K                       |  | 10.1     |  | 000-20270   |  | 2/13/2008 
|           |  |                                                                                                               |  |               |  |                          
|10.10      |  | Employment Agreement, dated February 12, 2008, between IdentiPHI, Inc. and Jeffrey T. Dick*                   |  |               |  | 8-K                       |  | 10.2     |  | 000-20270   |  | 2/13/2008 
|           |  |                                                                                                               |  |               |  |                          
|10.11      |  | Employment Agreement, dated February 12, 2008, between IdentiPHI, Inc. and Peter A. Gilbert*                  |  |               |  | 8-K                       |  | 10.3     |  | 000-20270   |  | 2/13/2008 
|           |  |                                                                                                               |  |               |  |                          
|10.12      |  | Employment Agreement, dated February 12, 2008, between IdentiPHI, Inc. and Mark Norwalk*                      |  |               |  | 8-K                       |  | 10.4     |  | 000-20270   |  | 2/13/2008 
|           |  |                                                                                                               |  |               |  |                          
|10.13      |  | Employment Agreement, dated February 12, 2008, between IdentiPHI, Inc. and Steven M. Oyer*                    |  |               |  | 8-K                       |  | 10.5     |  | 000-20270   |  | 2/13/2008 
|           |  |                                                                                                               |  |               |  |                          
|10.14      |  | IdentiPHI 2007 Equity Incentive Plan*                                                                         |  |               |  | 8-K                       |  | 10.6     |  | 000-20270   |  | 2/13/2008 



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|           |  |                                                                                                                                                                 |      |               |             |                           |          |       |             |           |  |          
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ------------- | ----------- | ------------------------- | -------- | ----- | ----------- | --------- |  | ---------
|Exhibit No |  | Exhibit Title                                                                                                                                                   |      | FiledHerewith |             | Incorporated by Reference
|           |  |                                                                                                                                                                 | Form |               | Exhibit No. |                           | File No. |       | Filing Date
|           |  |                                                                                                                                                                 |      |               |             |                          
|10.15      |  | Form of Notice of Grant Under IdentiPHI 2007 Equity Incentive Plan*                                                                                             |      |               |             | 8-K                       |          | 10.7  |             | 000-20270 |  | 2/13/2008
|           |  |                                                                                                                                                                 |      |               |             |                          
|10.16      |  | Form of Stock Option Agreement under IdentiPHI 2007 Equity Incentive Plan*                                                                                      |      |               |             | 8-K                       |          | 10.8  |             | 000-20270 |  | 2/13/2008
|           |  |                                                                                                                                                                 |      |               |             |                          
|10.17      |  | Form of Restricted Stock Agreement under IdentiPHI 2007 Equity Incentive Plan*                                                                                  |      |               |             | 8-K                       |          | 10.9  |             | 000-20270 |  | 2/13/2008
|           |  |                                                                                                                                                                 |      |               |             |                          
|10.18      |  | Form of Restricted Stock Purchase Agreement*                                                                                                                    |      |               |             | 8-K                       |          | 10.10 |             | 000-20270 |  | 2/13/2008
|           |  |                                                                                                                                                                 |      |               |             |                          
|10.19      |  | Notes Conversion Agreement, dated November 1, 2008, between Richard P. Kiphart and Saflink Corporation                                                          |      |               |             | 8-K                       |          | 10.1  |             | 000-20270 |  | 11/2/2007
|           |  |                                                                                                                                                                 |      |               |             |                          
|10.20      |  | Saflink Corporation Severance Plan and Summary Plan Description dated January 9, 2007*                                                                          |      |               |             | 10-K                      |          | 10.16 |             | 000-20270 |  | 3/30/2007
|           |  |                                                                                                                                                                 |      |               |             |                          
|10.21      |  | Agreement of Sublease dated February 5, 2007, between Saflink Corporation and Abraxas Corporation                                                               |      |               |             | 10-K                      |          | 10.17 |             | 000-20270 |  | 3/30/2007
|           |  |                                                                                                                                                                 |      |               |             |                          
|10.22      |  | Agreement to enter into Assignment Agreement and Sublease Agreement, dated April 13, 2007, by and between Saflink Corporation and Mantis Technology Group, Inc. |      |               |             | 10-Q                      |          | 10.6  |             | 000-20270 |  | 8/14/2007
|           |  |                                                                                                                                                                 |      |               |             |                          
|21.1       |  | Subsidiaries of IdentiPHI, Inc.                                                                                                                                 |      | X             |             |                           |          |       |             |           |  |          
|           |  |                                                                                                                                                                 |      |               |             |                          
|23.1       |  | Consent of PMB Helin Donovan, LLP                                                                                                                               |      | X             |             |                           |          |       |             |           |  |          
|           |  |                                                                                                                                                                 |      |               |             |                          
|24.1       |  | Power of Attorney (included in the signature page of this report).                                                                                              |      | X             |             |                           |          |       |             |           |  |          
|           |  |                                                                                                                                                                 |      |               |             |                          
|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             |             |                           |          |       |             |           |  |          
|           |  |                                                                                                                                                                 |      |               |             |                          
|32.1       |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                              |      | X             |             |                           |          |       |             |           |  |          
|           |  |                                                                                                                                                                 |      |               |             |                          
|32.2       |  | Certification of Chief Financial Officer pursuant to Section 906 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, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March 31, 2008

IDENTIPHI, INC.By:

/s/    STEVEN M.
OYERSteven M. Oyer Chairman and Chief Executive Officer


KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints Steven M. Oyer and Jeffrey T. Dick, and each of them, with full power of substitution and resubstitution and full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and all documents in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of registrant and in the capacities and on the dates indicated.



|    |  |                                          |  |                                                                    |  |               
|--- |  | ---------------------------------------- |  | ------------------------------------------------------------------ |  | --------------
|    |  | Signature                                |  | Title                                                              |  | Date          
|    |  |                                          | 
|By: |  | /s/    STEVEN M.
OYER Steven M. Oyer     |  | Chairman and Chief Executive Officer (principal executive officer) |  | March 31, 2008
|    |  |                                          | 
|By: |  | /s/    JEFFREY T.
DICK Jeffrey T. Dick   |  | Chief Financial Officer(principal financial officer)               |  | March 31, 2008
|    |  |                                          | 
|By: |  | /s/    ASA
HUTCHINSON Asa Hutchinson     |  | Director                                                           |  | March 31, 2008
|    |  |                                          | 
|By: |  | /s/    JACQUES
BOUHET Jacques Bouhet     |  | Director                                                           |  | March 31, 2008
|    |  |                                          | 
|By: |  | /s/    CHRISTER
BERGMAN Christer Bergman |  | Director                                                           |  | March 31, 2008



28



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##### Table of Contents

INDEX TO FINANCIAL STATEMENTS



|                                                                                            |  |           
|------------------------------------------------------------------------------------------- |  | ----------
|                                                                                            |  | PageNumber
|                                                                                            | 
|Reports of Independent Registered Public Accounting Firm                                    |  | F-2       
|                                                                                            | 
|Balance Sheets as of December 31, 2007 and 2006                                             |  | F-3       
|                                                                                            | 
|Statements of Operations for the years ended December 31, 2007 and 2006                     |  | F-4       
|                                                                                            | 
|Statements of Stockholders Equity (Deficit) for the years ended December 31, 2007 and 2006 |  | F-5       
|                                                                                            | 
|Statements of Cash Flows for the years ended December 31, 2007 and 2006                     |  | F-6       
|                                                                                            | 
|Notes to Financial Statements                                                               |  | F-7       



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##### Table of Contents

IDENTIPHIS FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of

IdentiPHI, Inc.

We have audited the accompanying balance sheets of IdentiPHI, Inc. (the Company) as of December 31, 2007 and 2006, and the related
statements of operations, stockholders equity (deficit), and cash flows for the years ended December 31, 2007 and 2006. These financial statements are the responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the auditing standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to
above present fairly, in all material respects, the financial position of IdentiPHI, Inc. as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the years ended December 31, 2007 and 2006, in conformity
with generally accepted accounting principles in the United States of America.

The accompanying financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has experienced circumstances which raise substantial doubt about its ability to continue as a going concern. Managements
plans regarding these matters are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 4, on August 30, 2007, Saflink Corporation (Saflink) entered into an Agreement and Plan of Merger and Reorganization with the Company, and Ireland Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of Saflink, pursuant to which Saflink agreed to acquire all of the outstanding shares of IdentiPHI in a stock-for-stock transaction. The merger was completed on February 8, 2008.



|                            
|----------------------------
|/s/ PMB Helin Donovan, LLP  
|                            
|March 25, 2008 Austin, Texas



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##### Table of Contents

IDENTIPHI, INC.

BALANCE SHEETS

(In thousands)



|                                                                                                                               |  |              |        |   |      |   |        |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ------ | - | ---- | - | ------ | -
|                                                                                                                               |  | December 31, |       
|                                                                                                                               |  | 2007         |        |   | 2006 |  
|Assets                                                                                                                         |  |              |        |   |      |   |        |  
|Current assets:                                                                                                                |  |              |        |   |      |   |        |  
|Cash and cash equivalents                                                                                                      |  | $            | 53     |   |      | $ | 1,229  |  
|Trade accounts receivable, net of allowance for doubtful accounts of $16 and $0 as of December 31, 2007 and 2006,
respectively |  |              | 846    |   |      |   | 451    |  
|Inventory                                                                                                                      |  |              | 134    |   |      |   | 70     |  
|Other current assets                                                                                                           |  |              | 102    |   |      |   | 116    |  
|                                                                                                                               |  |              |        |   |      |   |        |  
|Total current assets                                                                                                           |  |              | 1,135  |   |      |   | 1,866  |  
|Other assets                                                                                                                   |  |              | 51     |   |      |   | 7      |  
|Property and equipment, net                                                                                                    |  |              | 33     |   |      |   | 37     |  
|Intangible assets, net                                                                                                         |  |              | 648    |   |      |   |       |  
|                                                                                                                               |  |              |        |   |      |   |        |  
|Total assets                                                                                                                   |  | $            | 1,867  |   |      | $ | 1,910  |  
|                                                                                                                               |  |              |        |   |      |   |        |  
|Liabilities and Stockholders Equity (Deficit)                                                                                 |  |              |        |   |      |   |        |  
|Current liabilities:                                                                                                           |  |              |        |   |      |   |        |  
|Accounts payable                                                                                                               |  | $            | 886    |   |      | $ | 1,755  |  
|Accrued expenses                                                                                                               |  |              | 225    |   |      |   | 87     |  
|Note Payable to Saflink Corporation                                                                                            |  |              | 400    |   |      |   |       |  
|Note payable to related party                                                                                                  |  |              |       |   |      |   | 2,389  |  
|Deferred revenue                                                                                                               |  |              | 111    |   |      |   | 22     |  
|                                                                                                                               |  |              |        |   |      |   |        |  
|Total current liabilities                                                                                                      |  |              | 1,622  |   |      |   | 4,253  |  
|Other liabilities                                                                                                              |  |              |       |   |      |   | 14     |  
|                                                                                                                               |  |              |        |   |      |   |        |  
|Total liabilities                                                                                                              |  |              | 1,622  |   |      |   | 4,267  |  
|                                                                                                                               |  |              |        |   |      |   |        |  
|Commitments and contingencies                                                                                                  |  |              |        |   |      |   |        |  
|Stockholders equity (deficit):                                                                                                |  |              |        |   |      |   |        |  
|Common stock, $.001 par value:                                                                                                 |  |              |        |   |      |   |        |  
|Authorized100,000 and 0 shares as of December 31, 2007 and 2006, respectively                                                 |  |              |        |   |      |   |        |  
|Issued100,000 and 0 shares as of December 31, 2007 and 2006, respectively                                                     |  |              | 100    |   |      |   |       |  
|Stock subscription receivable                                                                                                  |  |              | (176   | ) |      |   |       |  
|Additional paid-in capital                                                                                                     |  |              | 4,730  |   |      |   |       |  
|Accumulated deficit                                                                                                            |  |              | (4,409 | ) |      |   | (2,357 | )
|                                                                                                                               |  |              |        |   |      |   |        |  
|Total stockholders equity (deficit)                                                                                           |  |              | 245    |   |      |   | (2,357 | )
|                                                                                                                               |  |              |        |   |      |   |        |  
|Total liabilities and stockholders equity (deficit)                                                                           |  | $            | 1,867  |   |      | $ | 1,910  |  
|                                                                                                                               |  |              |        |   |      |   |        |  

See accompanying notes to financial statements.



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##### Table of Contents

IDENTIPHI, INC.

STATEMENTS OF OPERATIONS

(In thousands, except per share data)



|                                                                                          |  |                         |        |   |      |   |        |  
|----------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | -
|                                                                                          |  | Year Ended December 31, |       
|                                                                                          |  | 2007                    |        |   | 2006 |  
|Revenue:                                                                                  |  |                         |        |   |      |   |        |  
|Product                                                                                   |  | $                       | 3,242  |   |      | $ | 5,015  |  
|Service and other                                                                         |  |                         | 310    |   |      |   | 486    |  
|                                                                                          |  |                         |        |   |      |   |        |  
|Total revenue                                                                             |  |                         | 3,552  |   |      |   | 5,501  |  
|Cost of revenue:                                                                          |  |                         |        |   |      |   |        |  
|Product                                                                                   |  |                         | 2,415  |   |      |   | 4,496  |  
|Service and other                                                                         |  |                         | 143    |   |      |   | 399    |  
|Amortization of intangible assets                                                         |  |                         | 130    |   |      |   |       |  
|                                                                                          |  |                         |        |   |      |   |        |  
|Total cost of revenue                                                                     |  |                         | 2,688  |   |      |   | 4,895  |  
|                                                                                          |  |                         |        |   |      |   |        |  
|Gross profit                                                                              |  |                         | 864    |   |      |   | 606    |  
|Operating expenses:                                                                       |  |                         |        |   |      |   |        |  
|Product development                                                                       |  |                         | 553    |   |      |   | 433    |  
|Sales and marketing                                                                       |  |                         | 1,145  |   |      |   | 947    |  
|General and administrative                                                                |  |                         | 1,073  |   |      |   | 957    |  
|                                                                                          |  |                         |        |   |      |   |        |  
|Total operating expenses                                                                  |  |                         | 2,771  |   |      |   | 2,337  |  
|                                                                                          |  |                         |        |   |      |   |        |  
|Operating loss                                                                            |  |                         | (1,907 | ) |      |   | (1,731 | )
|Interest expense                                                                          |  |                         | (149   | ) |      |   | (117   | )
|Other income, net                                                                         |  |                         | 4      |   |      |   |       |  
|                                                                                          |  |                         |        |   |      |   |        |  
|Net loss                                                                                  |  | $                       | (2,052 | ) |      | $ | (1,848 | )
|                                                                                          |  |                         |        |   |      |   |        |  
|Pro forma basic and diluted net loss attributable to common stockholders per common share |  | $                       | (0.02  | ) |      | $ | (0.02  | )
|Pro forma weighted average number of common shares outstanding                            |  |                         | 88,624 |   |      |   | 80,928 |  



See accompanying notes to
financial statements.



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##### Table of Contents

IDENTIPHI, INC.

STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)

(In thousands)



|                                                                                                                   |  |              |  |                             |     |  |                          |      |   |                    |   |       |                                   |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------ |  | ------------ |  | --------------------------- | --- |  | ------------------------ | ---- | - | ------------------ | - | ----- | --------------------------------- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                   |  | Common stock |  | Stocksubscriptionreceivable |     |  | Additionalpaid-incapital |      |   | Accumulateddeficit |   |       | Totalstockholdersequity(deficit) | 
|                                                                                                                   |  | Shares       |  | Amount                      |     |  |                          |     
|Balance at December 31, 2005                                                                                       |  |             |  | $                           |    |  | $                        |     |   |                    | $ |      |                                   |  | $ | (509   | ) |  | $ | (509   | )
|                                                                                                                   |  |              |  |                             |     |  |                          |      |   |                    |   |       |                                   |  |   |        |   |  |   |        |  
|Net loss                                                                                                           |  |             |  |                             |    |  |                          |     |   |                    |   |      |                                   |  |   | (1,848 | ) |  |   | (1,848 | )
|                                                                                                                   |  |              |  |                             |     |  |                          |      |   |                    |   |       |                                   |  |   |        |   |  |   |        |  
|Balance at December 31, 2006                                                                                       |  |             |  | $                           |    |  | $                        |     |   |                    | $ |      |                                   |  | $ | (2,357 | ) |  | $ | (2,357 | )
|                                                                                                                   |  |              |  |                             |     |  |                          |      |   |                    |   |       |                                   |  |   |        |   |  |   |        |  
|Net loss                                                                                                           |  |             |  |                             |    |  |                          |     |   |                    |   |      |                                   |  |   | (2,052 | ) |  |   | (2,052 | )
|Contribution of cash for membership interest                                                                       |  |             |  |                             |    |  |                          |     |   |                    |   | 778   |                                   |  |   |       |   |  |   | 778    |  
|Conversion of membership interests for common stock                                                                |  | 83,458       |  |                             | 84  |  |                          |     |   |                    |   | (84   | )                                 |  |   |       |   |  |   |       |  
|Issuance of common stock for services                                                                              |  | 212          |  |                             |    |  |                          |     |   |                    |   | 52    |                                   |  |   |       |   |  |   | 52     |  
|Conversion of note payable and accrued interest to related party into common stock, net of subscription receivable |  | 16,330       |  |                             | 16  |  |                          | (176 | ) |                    |   | 3,984 |                                   |  |   |       |   |  |   | 3,824  |  
|                                                                                                                   |  |              |  |                             |     |  |                          |      |   |                    |   |       |                                   |  |   |        |   |  |   |        |  
|Balance at December 31, 2007                                                                                       |  | 100,000      |  | $                           | 100 |  | $                        | (176 | ) |                    | $ | 4,730 |                                   |  | $ | (4,409 | ) |  | $ | 245    |  
|                                                                                                                   |  |              |  |                             |     |  |                          |      |   |                    |   |       |                                   |  |   |        |   |  |   |        |  





See accompanying notes to financial statements.



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##### Table of Contents

IDENTIPHI, INC.

STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                                                           |  |                         |        |   |      |   |        |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                           |  | Year Ended December 31, |       
|                                                                                                                           |  | 2007                    |        |   | 2006 |  
|Cash flows from operating activities:                                                                                      |  |                         |        |   |      |   |        |  
|Net loss                                                                                                                   |  | $                       | (2,052 | ) |      | $ | (1,848 | )
|Adjustments to reconcile net loss to net cash used in operating activities:                                                |  |                         |        |   |      |   |        |  
|Issuance of common stock for services                                                                                      |  |                         | 52     |   |      |   |       |  
|Non-cash interest expense on note payable to related party                                                                 |  |                         | 136    |   |      |   | 115    |  
|Depreciation and amortization                                                                                              |  |                         | 141    |   |      |   | 14     |  
|Changes in operating assets and liabilities:                                                                               |  |                         |        |   |      |   |        |  
|Accounts receivable, net                                                                                                   |  |                         | (395   | ) |      |   | (451   | )
|Inventory                                                                                                                  |  |                         | (64    | ) |      |   | (70    | )
|Other assets                                                                                                               |  |                         | (30    | ) |      |   | (116   | )
|Accounts payable                                                                                                           |  |                         | (869   | ) |      |   | 1,814  |  
|Accrued expenses and other liabilities                                                                                     |  |                         | 124    |   |      |   | 12     |  
|Deferred revenue                                                                                                           |  |                         | 89     |   |      |   | 18     |  
|                                                                                                                           |  |                         |        |   |      |   |        |  
|Net cash used in operating activities                                                                                      |  |                         | (2,868 | ) |      |   | (512   | )
|Cash flows from investing activities:                                                                                      |  |                         |        |   |      |   |        |  
|Purchases of furniture and equipment                                                                                       |  |                         | (7     | ) |      |   | (32    | )
|Purchase of intangible asset                                                                                               |  |                         | (778   | ) |      |   |       |  
|                                                                                                                           |  |                         |        |   |      |   |        |  
|Net cash provided used in investing activities                                                                             |  |                         | (785   | ) |      |   | (32    | )
|Cash flows from financing activities:                                                                                      |  |                         |        |   |      |   |        |  
|Proceeds from note payable to related party                                                                                |  |                         | 1,299  |   |      |   | 1,773  |  
|Proceeds from note payable to Saflink Corporation                                                                          |  |                         | 400    |   |      |   |       |  
|Proceeds from issuance membership interest                                                                                 |  |                         | 778    |   |      |   |       |  
|                                                                                                                           |  |                         |        |   |      |   |        |  
|Net cash provided by financing activities                                                                                  |  |                         | 2,477  |   |      |   | 1,773  |  
|                                                                                                                           |  |                         |        |   |      |   |        |  
|Net increase (decrease) in cash and cash equivalents                                                                       |  |                         | (1,176 | ) |      |   | 1,229  |  
|Cash and cash equivalents at beginning of period                                                                           |  |                         | 1,229  |   |      |   |       |  
|                                                                                                                           |  |                         |        |   |      |   |        |  
|Cash and cash equivalents at end of period                                                                                 |  | $                       | 53     |   |      | $ | 1,229  |  
|                                                                                                                           |  |                         |        |   |      |   |        |  
|Supplemental disclosure of non-cash financing activity:                                                                    |  |                         |        |   |      |   |        |  
|Conversion of note payable and accrued interest to related party into common stock, net of subscription receivable of $176 |  |                         | 3,824  |   |      |   |       |  



See accompanying notes to
financial statements.



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##### Table of Contents

IDENTIPHI, INC.

NOTES TO FINANCIAL STATEMENTS



|1. | Description of Business
|-- | -----------------------

Organization

IdentiPHI, Inc., a Delaware corporation (IdentiPHI), was formed in October 2004 as a Delaware limited liability
company, and subsequently converted to a Delaware corporation in August 2007. IdentiPHI began operations in October 2005 in Austin, Texas.

On February 8, 2008, IdentiPHI completed its merger with Saflink Corporation, a Delaware corporation, whereby Saflink acquired all of the outstanding shares of IdentiPHI in a stock-for-stock transaction. The merger was deemed a
reverse merger and IdentiPHI is treated as the acquiring company for accounting and financial reporting purposes. As a result of the merger, IdentiPHI became a wholly-owned subsidiary of Saflink. The two companies
subsequently combined into a single entity and changed its name to IdentiPHI, Inc. with its principal offices in Austin, Texas.

Nature of Operations

IdentiPHI is a technology company offering a suite of enterprise security solutions and
consulting services. IdentiPHI provides flexible tools that meet or exceed current legislation requirements to strengthen identity management and authentication systems. The IdentiPHI suite of services enables clients to leverage their investments
in information security in order to improve productivity, optimize business processes and focus on their core business. Each IdentiPHI solution can be purchased as a stand-alone managed service or as part of a larger solution including business
process consulting or application integration.



|2. | Liquidity
|-- | ---------

These financial statements have been
prepared assuming that IdentiPHI will continue as a going concern. IdentiPHI has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. These
financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Since inception, IdentiPHI has
been unable to generate net income from operations. IdentiPHI has accumulated net losses of approximately $4.4 million from its inception date of October 1, 2005 through December 31, 2007, and has continued to accumulate net losses
since December 31, 2007. IdentiPHI has historically been financed through a note payable from Key Ovation, LLC and a note payable from Saflink Corporation that was issued in connection with the execution of the merger agreement with Saflink in
August 2007. As of December 31, 2007, IdentiPHIs principal source of liquidity consisted of $53,000 of cash and cash equivalents and working capital (deficit) was negative $487,000.

On February 8, 2008, IdentiPHI completed its merger with Saflink. At that date, the respective cash balances of the two companies were combined and
the $500,000 that was drawn down on the promissory note issued to Saflink was eliminated due to the combination of the two companies.

On
March 12, 2008, IdentiPHI issued a promissory note to Zaychan Pty Limited, an Australian corporation, for an aggregate principal amount of up to AUD$1.75 million which IdentiPHI may draw down in one or more installments. The loaned amounts
accrue interest at 8.0% per annum. IdentiPHI will be required to repay any principal it borrows under the promissory note, plus all accrued and unpaid interest, on the earlier of June 29, 2008, or upon the closing of an equity financing of
at least US$5.0 million. IdentiPHIs obligations under the promissory note are secured by all of its assets. Chris Linegar, a beneficial owner of more than 10% of IdentiPHIs common stock, is a principal of Zaychan Pty Limited. As of
March 31, 2008, IdentiPHI has borrowed AUD$1.0 million under this secured promissory note, which represented US$915,000 post-conversion.



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##### Table of Contents

IDENTIPHI, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



IdentiPHI has entered into a currency swap transaction whereby IdentiPHI has locked in the exchange rate at which it will repay the principal at the due
date. This hedging transaction is designed to fully protect IdentiPHI from any currency fluctuations between the Australian and US dollar.

IdentiPHI does not have a credit line or other borrowing facility to fund its operations other than the remaining AUD$750,000 under the promissory note to Zaychan Pty Limited. To continue its current level of operations beyond June 30,
2008, it is expected that IdentiPHI will need to seek additional funds through the issuance of additional equity or debt securities or other sources of financing. Additional financing sources may not be available when and if needed by IdentiPHI. If
IdentiPHI were unable to obtain the necessary additional financing, it would be required to reduce the scope of its operations, primarily through the reduction of discretionary expenses, which include personnel, benefits, marketing and other costs,
or discontinue operations.



|3. | Summary of Significant Accounting Policies
|-- | ------------------------------------------

The
accounting and reporting policies of IdentiPHI conform to U.S. generally accepted accounting principles (GAAP) and to general practices within the enterprise software industry. The following summarizes the more significant of these policies.

Cash Equivalents

For purposes of the statements of cash flows, IdentiPHI considers short-term investments, which may be withdrawn at any time without penalty, to be cash equivalents.

Use of estimates

The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates.

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets. The following table shows estimated useful lives of property and equipment:



|                       |  |             
|---------------------- |  | ------------
|Classification         |  | Useful Lives
|Computer equipment     |  | 3 years     
|Software               |  | 3 years     
|Office equipment       |  | 5 years     
|Furniture and fixtures |  | 5 years     
|Leasehold improvements |  | 2-3 years   

IdentiPHI periodically evaluates the estimated useful lives used to depreciate its assets and the
estimated amount of assets that will be abandoned or have minimal use in the future. While IdentiPHI believes its estimates of useful lives are reasonable, significant differences in actual experience or significant changes in assumptions may affect
future depreciation expense.



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##### Table of Contents

IDENTIPHI, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



Expenditures for maintenance and repairs are charged to expense as incurred. Major expenditures for
additions, replacements and betterments are capitalized. When assets are sold, retired or fully depreciated, the cost, reduced by the related amount of accumulated depreciation, is removed from the accounts and any resulting gain or loss is
recognized as income or expense.

Financial instruments and credit risk

Financial instruments that potentially subject IdentiPHI to credit risk include cash and cash equivalents and accounts receivable. Cash is deposited in
demand accounts in federally insured domestic institutions to minimize risk. Accounts receivable are generally unsecured. With respect to accounts receivable, IdentiPHI performs ongoing credit evaluations of customers and generally does not require
collateral.

Receivables are concentrated with a small number of customers (see Note 10  Concentrations). IdentiPHI maintains
reserves for potential credit losses on customer accounts when deemed necessary.

The amounts reported for cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses are considered to approximate their fair values based on comparable market information available at the respective balance sheet dates and their short-term nature. The note payable to Key
Ovation, LLC, reported amount also is considered to approximate its fair value based on the market interest rate and demand feature on the note.

Inventories

Inventory is comprised of raw materials, work-in-process and finished goods related to IdentiPHIs
smart card readers, biometric physical access readers and hardware appliances for its network authentication products. These products are either manufactured by IdentiPHI or manufactured by third parties. IdentiPHI also inventories third party
biometric and non-biometric hardware devices to be purchased by customers in connection with the installation of IdentiPHIs security products. Inventories are stated at the lower of cost, on a first-in, first-out basis, or market. If the cost
of the inventory exceeds its market value, provisions are made for the difference between the cost and the market value.

Software
Development Costs

IdentiPHI expenses costs associated with the development of software as incurred until technological feasibility
is established. IdentiPHI believes its current process for developing software is essentially completed concurrently with the establishment of technological feasibility; accordingly, software costs incurred after establishment of technological
feasibility have not been material and, therefore, have been expensed.

Income taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In
addition, a valuation allowance is established to reduce any deferred tax asset in which IdentiPHI is not able to determine on a more likely than not basis that the deferred tax asset will be realized.



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IDENTIPHI, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



Prior to the merger with Saflink Corporation, IdentiPHI elected to be taxed as an S-Corporation under
the provisions of the Internal Revenue Code. Under those provisions, IdentiPHI was not required to pay federal corporate income taxes on its taxable income. Instead, the entitys stockholders were liable for individual federal income taxes on
their respective shares of taxable net income. Accordingly, no Federal taxes were paid by IdentiPHI since the taxable income or loss is reported by the members on their individual income tax returns through August 29, 2007. Effective
August 30, 2007, IdentiPHI became a corporation and elected to be taxed as a C corporation under the provisions of the Internal Revenue Code.

A tax law change in Texas became effective for IdentiPHIs fiscal year ended December 31, 2007. Under the new regulation, the tax is based on taxable margin, as defined under the law, and is computed on total gross revenues
reduced by the greatest of three defined amounts, rather than being based on federal taxable income. The Texas margin tax is accounted for as an income tax. For fiscal 2007, Texas margin tax expense was not material.

Impairment of Long-Lived Assets

Long-lived assets (asset group) to be held and used are tested for recoverability whenever events or changes in circumstances indicate that an assets carrying amount may not be recoverable. An impairment loss is recognized only if the
carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result
from the use and eventual disposition of the asset (asset group). That assessment is based on the carrying amount of the asset (asset group) at the date it is tested for recoverability, whether in use or under development. An impairment loss is
measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. IdentiPHI periodically evaluates whether it has incurred any impairment loss. IdentiPHI had not made a provision for an impairment loss
as of December 31, 2007 and 2006.

Revenue Recognition

IdentiPHI derives revenue from license fees for software products, selling hardware manufactured by IdentiPHI, reselling third party hardware and software
applications, and fees for services related to these software and hardware products including maintenance services, installation and integration consulting services.

IdentiPHI recognizes revenue in accordance with the provisions of Statement of Position (SOP) 97-2, Software Revenue Recognition (SOP 97-2), as amended by SOP 98-9, Modification of SOP 97-2, Software
Revenue Recognition with Respect to Certain Transactions, and related interpretations, including Technical Practice Aids, which provides specific guidance and stipulates that revenue recognized from software arrangements is to be allocated to
each element of the arrangement based on the relative fair values of the elements, such as software products, upgrades, enhancements, post-contract customer support, installation, integration and/or training. Under this guidance, the determination
of fair value is based on objective evidence that is specific to the vendor. In multiple element arrangements in which fair value exists for undelivered elements, the fair value of the undelivered elements is deferred and the residual arrangement
fee is assigned to the delivered elements. If evidence of fair value for any of the undelivered elements does not exist, all revenue from the arrangement is deferred until such time that evidence of fair value does exist, or until all elements of
the arrangement are delivered.

Revenue from biometric software and data security license fees is recognized upon delivery, net of an
allowance for estimated returns, provided persuasive evidence of an arrangement exists, collection is probable, the fee is fixed or determinable, and vendor-specific objective evidence exists to allocate the total fee to elements



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IDENTIPHI, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



of the arrangement. If customers receive pilot or test versions of products, revenue from these arrangements is recognized upon customer acceptance of
permanent license rights. If IdentiPHIs software is sold through a reseller, revenue is recognized when the reseller delivers its product to the end-user. Certain software delivered under a license requires a separate annual maintenance
contract that governs the conditions of post-contract customer support. Post-contract customer support services can be purchased under a separate contract on the same terms and at the same pricing, whether purchased at the time of sale or at a later
date. Revenue from these separate maintenance support contracts is recognized ratably over the maintenance period. If software maintenance is included under the terms of the software license agreement, then the value of such maintenance is deferred
and recognized ratably over the initial license period. The value of such deferred maintenance revenue is established by the price at which the customer may purchase a renewal maintenance contract.

Revenue from hardware manufactured by IdentiPHI is generally recognized upon delivery, unless contract terms call for a later date, net of an allowance
for estimated returns provided persuasive evidence of an arrangement exists, collection is probable, the fee is fixed or determinable, and vendor-specific objective evidence exists to allocate the total fee to elements of the arrangement. Revenue
from some data security hardware products contains embedded software. However, the embedded software is considered incidental to the hardware product sale. IdentiPHI also acts as a reseller of third party hardware and software applications. Such
revenue is also generally recognized upon delivery of the hardware, unless contract terms call for a later date, provided that all other conditions above have been met.

Service revenue includes payments under support and upgrade contracts and consulting fees. Support and upgrade revenue is recognized ratably over the term of the contract, which typically is twelve months. Consulting
revenue primarily relates to installation, integration and training services performed on a time-and-materials or fixed-fee basis under separate service arrangements. Fees from consulting are recognized as services are performed. If a transaction
includes both license and service elements, license fees are recognized separately upon delivery of the licensed software, provided services do not include significant customization or modification of the software product, the licenses are not
subject to acceptance criteria, and vendor-specific objective evidence exists to allocate the total fee to elements of the arrangement.

Warranty Reserves

Reserves are provided for estimated warranty costs when revenue is recognized. The costs of
warranty obligations are estimated based on warranty policy or applicable contractual warranty, historical experience of known product failure rates and use of materials and service delivery charges incurred in correcting product failures. Specific
warranty accruals may be made if unforeseen technical problems arise. If actual experience, relative to these factors, adversely differs from these estimates, additional warranty expense may be required. To date IdentiPHI has not accrued for
warranty costs as the computer hardware and software that is resold is covered by original equipment manufacturer warranties and the remaining costs have not been considered material to the financial statements.

Advertising

IdentiPHI
recognizes advertising expenses as incurred. Advertising expense was $94,000 and $73,000 for the years ended December 31, 2007 and 2006, respectively.

Intangible Assets

Intangible assets represent purchased software costs. The value
recorded for intangibles is periodically reviewed to assess recoverability from future operations using undiscounted cash flows. Impairments are



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IDENTIPHI, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



recognized in operating results to the extent the carrying value exceeds fair value determined based on the net present value of estimated future cash flows.

Product Development Costs

Product development costs are expensed as incurred and include salaries and benefits, costs paid to third party contractors for research, development and manufacturing of materials and devices, and a portion of
facilities cost. Prototype development costs are a significant component of research and development expenses and include costs associated with third party contractors. Invoicing from third party contractors for services performed can lag several
months. IdentiPHI accrues the costs of services rendered in connection with third party contractor activities based on our estimate of management fees, site management and monitoring costs and data management costs. Actual costs may differ from
estimated costs in some cases and are adjusted for in the period in which they become known.

Share-Based Compensation

IdentiPHI adopted Financial Accounting Standards Board (FASB) issued SFAS No. 123 (Revised 2004) (SFAS
No. 123(R)), Share Based Payment, at inception. SFAS No. 123(R) requires IdentiPHI to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the
award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award  known as the requisite service period. No compensation cost is recognized for equity instruments for which
employees do not render the requisite service. The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments. As of
December 31, 2007, IdentiPHI had not provided any share-based compensation to its employees.

IdentiPHI may, from time to time, issue
common stock, stock options or common stock warrants to acquire services or goods from non-employees. Common stock, stock options and common stock warrants issued to persons other than employees or directors are recorded on the basis of their fair
value, as required by SFAS No. 123 (R), which is measured as of the date required by EITF Issue 96-18 (EITF 96-18), Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services. In accordance with EITF 96-18, the stock options or common stock warrants are valued using the Black-Scholes model on the basis of the market price of the underlying common stock on the
valuation date, which for options and warrants related to contracts that have substantial disincentives to non-performance, is the date of the contract, and for all other contracts is the vesting date. Expense related to the options and
warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the vesting period. Where expense must be recognized prior to a valuation date, the expense is computed under the Black-Scholes
model on the basis of the market price of the underlying common stock at the end of the period, and any subsequent changes in the market price of the underlying common stock through the valuation date is reflected in the expense recorded in the
subsequent period in which that change occurs.

Pro Forma Net Loss per Common Share

On August 20, 2007, IdentiPHI issued 100 million shares of its common stock to its members in connection with its conversion from a Delaware limited
liability company to a Delaware corporation. The pro forma net loss per common share data for fiscal 2007 and fiscal 2006 is computed assuming the 100 million shares of common stock were authorized on January 1, 2006. Pro forma calculations of
weighted average number of common shares outstanding have been made to reflect the equity and membership interest events that occurred during these periods and are described in Note 14  Stockholders Equity. The pro forma basic net loss
per common share is



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IDENTIPHI, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



computed on the basis of the calculated weighted average number of common shares outstanding for the period. Diluted net loss per common share is computed on
the basis of the weighted average number of common shares plus dilutive potential common shares outstanding. Dilutive potential common shares are calculated under the treasury stock method. IdentiPHI did not have any dilutive potential common shares
outstanding during the periods presented. In addition, as IdentiPHI had a net loss in all of the periods presented, basic and diluted net loss per common share are the same.

Deferred Revenue

Deferred
revenue represents amounts collected from customers for projects, products, or services expected to be provided at a future date. Deferred revenue is shown on the balance sheet as either a short-term or long-term liability, depending on when the
service or product is expected to be provided.

Recently Issued Accounting Pronouncements

IdentiPHI adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty
in Income Taxes  an interpretation of FASB No. 109 (FIN 48) on January 1, 2007. As a result of the implementation of FIN 48, IdentiPHI recognized no liability for uncertain income tax positions at December 31,
2007.

In May 2007, the FASB issued FSP FIN 48-1, Definition of a Settlement in FASB Interpretation No. 48 (FSP FIN 48-1).
FSP FIN 48-1 clarifies when a tax position is considered settled under FIN 48. Under FSP FIN 48-1, a tax position is considered effectively settled upon completion of the examination by the taxing authority without being legally
extinguished. For effectively settled tax positions, a company can recognize the full amount of the tax benefit. FSP FIN 48-1 is effective upon a companys adoption of FIN 48. FSP FIN 48-1 did not have a material impact on
IdentiPHIs financial position or results of operations.

IdentiPHIs continuing practice is to recognize interest and/or
penalties related to income tax matters in income tax expense. At December 31, 2007, IdentiPHI had no accrued interest related to uncertain tax positions and no accrued penalties.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS
159). SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that
choose different measurement attributes for similar types of assets and liabilities and to provide additional information that will help investors and other financial statement users to more easily understand the effect of the companys choice
to use fair value on its earnings. Finally, SFAS 159 requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. SFAS 159 is effective as of the
beginning of an entitys first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year
and also elects to apply the provisions of SFAS 157 (see below). IdentiPHI is currently assessing the impact of SFAS 159 which it will be required to adopt no later than the first quarter of its 2008 fiscal year.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, which establishes
accounting and reporting standards to improve the relevance, comparability, and transparency of financial information in its consolidated financial statements that include an outstanding noncontrolling interest in one or more subsidiaries. SFAS 160
is effective for fiscal years, and the interim periods within those fiscal years, beginning on or after December 15, 2008. Management of IdentiPHI does not expect the adoption of this pronouncement to have a material impact on its financial
statements.



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IDENTIPHI, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
157). SFAS 157 provides enhanced guidance for using fair value to measure assets and liabilities and also expands information about the extent to which companies measure assets and liabilities at fair value, the information used to measure
fair value, and the effect of fair value measurements on earnings. SFAS 157 applies whenever other accounting standards require or permit assets and liabilities to be measured at fair value and does not expand the use of fair value in any new
circumstances. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. IdentiPHI is currently assessing the impact of SFAS 157 which it will be
required to adopt no later than the first quarter of its 2008 fiscal year.

In December 2007, the FASB issued SFAS No. 141 (Revised
2007), Business Combinations  Revised 2007. SFAS 141R provides guidance on improving the relevance, representational faithfulness, and comparability of information that a reporting entity provides in its financial reports about a business
combination and its effects. SFAS 141R applies to business combinations where the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. IdentiPHI is in the process of
analyzing the effects SFAS 131R will have on IdentiPHIs financial statements.



|4. | Business Combination
|-- | --------------------

On August 30, 2007,
IdentiPHI entered into an Agreement and Plan of Merger and Reorganization (the Merger Agreement) with Saflink Corporation and on February 8, 2008, the merger was completed. Pursuant to the Merger Agreement, each outstanding share of
IdentiPHI common stock was exchanged for 6.1498 shares of Saflink common stock, resulting in an aggregate of 614,979,996 shares of Saflink common stock being issued to the former stockholders of IdentiPHI. Upon completion of the merger, the former
security holders of IdentiPHI held approximately 75% of the combined companys common stock (on a fully-converted basis) and the security holders of Saflink continued to hold the remaining 25% of the combined companys common stock (on a
fully-converted basis). As a result of the merger, IdentiPHI became a wholly-owned subsidiary of Saflink. Saflink and IdentiPHI subsequently combined into a single entity and changed the combined companys name to IdentiPHI, Inc.
with its principal offices in Austin, Texas.

The merger has been accounted for under the purchase method of accounting in accordance with
Statement of Financial Accounting Standard No. 141, Business Combinations. After considering all the relevant factors in determining the acquiring enterprise, including, but not limited to, relative voting rights, composition of the
board of directors and senior management, and the relative size of the companies, the merger is deemed a reverse merger and IdentiPHI is treated as the acquiring company for accounting and financial reporting purposes. Under
the purchase method of accounting, the assets and liabilities of Saflink, the acquired company, will be recorded at their respective fair values and added to those of IdentiPHI, the acquiring company, including any
identifiable intangible assets and an amount for goodwill representing the difference between the purchase price and the fair value of the identifiable net assets of Saflink.

A summary of the components of the estimated purchase price for the acquisition, in thousands, is as follows:



|                                                    |  |   |      
|--------------------------------------------------- |  | - | -----
|Fair value of Saflink common stock                  |  | $ | 6,521
|Fair value of Saflink common stock options assumed  |  |   | 50   
|Fair value of Saflink common stock warrants assumed |  |   | 200  
|Estimated merger related costs                      |  |   | 100  
|                                                    |  |   |      
|Total                                               |  | $ | 6,871
|                                                    |  |   |      



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IDENTIPHI, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



The fair value of Saflink common stock was determined by taking the average closing price of its
common stock on the OTC Bulletin Board from December 28, 2007 (the day that Saflink began trading ex-dividend related to its pro rata distribution of its ownership of FLO Corporation common stock) through February 7, 2008 (the day before the closing
of IdentiPHIs merger with Saflink). Using this methodology, the fair value of Saflink common stock was determined to be $0.0313 and was multiplied by the 208,323,504 shares of Saflink common stock outstanding immediately prior to the merger
with IdentiPHI, resulting in a fair value of Saflink common stock of $6,521,000.

The fair value of common stock options and warrants
assumed was determined using the fair value of Saflink common stock of $0.0313 per share and a Black-Scholes model with the following assumptions: Optionsan expected dividend yield of 0.0%, a risk free interest rate of 5%, volatility of 100%,
and an expected life of approximately 5 years. Warrantsan expected dividend yield of 0.0%, a risk free interest rate between 3%-5%, volatility of 100%, and an expected life between 0-5 years (the remaining contractual life of the warrants).

The following, in thousands, represents the preliminary allocation of the purchase price to the acquired assets of Saflink and is for
illustrative purposes only. This allocation is based on the estimated fair value of the assets and liabilities of Saflink as of December 31, 2007, and may not be indicative of the final allocation of purchase price consideration. IdentiPHI has
engaged independent valuation specialists to assist in the valuation of Saflinks intangible assets, but for the purposes of these pro forma financial statements, the excess of the purchase price over the fair value of Saflinks net
tangible assets acquired has been entirely allocated to goodwill:



|                    |  |   |       |  
|------------------- |  | - | ----- | -
|Net tangible assets |  | $ | 1,243 |  
|Liabilities assumed |  |   | (631  | )
|Goodwill            |  |   | 6,259 |  
|                    |  |   |       |  
|Total               |  | $ | 6,871 |  
|                    |  |   |       |  

The following unaudited pro forma condensed combined consolidated financial information is
designed to show how the merger of Saflink and IdentiPHI might have affected historical financial statements if the merger had been completed at an earlier time. The unaudited pro forma condensed combined statements of operations for the years ended
December 31, 2007 and 2006, give effect to the merger as if it had occurred on January 1, 2006.

The unaudited pro forma
condensed combined consolidated financial data is presented for illustrative purposes only and is not indicative of the financial condition or results of operations of future periods or the financial condition or results of operations that actually
would have been realized had the entities been a single company during these periods. The weighted average number of common shares outstanding and per share data have not been adjusted to reflect the 1-for-15 reverse stock split effected on
February 19, 2008.



|                                                    |  |                                           |         |   |      |   |          |  
|--------------------------------------------------- |  | ----------------------------------------- | ------- | - | ---- | - | -------- | -
|                                                    |  | Pro Forma CombinedYear Ended December 31, |        
|                                                    |  | 2007                                      |         |   | 2006 |  
|                                                    |  | (In thousands, except pershare data)      |        
|Summary Operating Data                              |  |                                           |         |   |      |   |          |  
|Net revenue                                         |  | $                                         | 4,493   |   |      | $ | 9,662    |  
|Operating loss                                      |  |                                           | (5,650  | ) |      |   | (119,519 | )
|Net loss from continuing operations                 |  |                                           | (9,979  | ) |      |   | (121,962 | )
|Basic and diluted net loss per common share         |  | $                                         | (0.01   | ) |      | $ | (0.16    | )
|Weighed average number of common shares outstanding |  |                                           | 796,478 |   |      |   | 749,636  |  



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IDENTIPHI, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



|                           |  |                                         |      
|-------------------------- |  | --------------------------------------- | -----
|                           |  | Pro FormaCombined as ofDecember 31,2007
|                           |  | (in thousands)                         
|Summary Balance Sheet Data |  |                                         |      
|Cash and cash equivalents  |  | $                                       | 778  
|Goodwill                   |  |                                         | 6,259
|Total assets               |  |                                         | 9,769
|Total liabilities          |  |                                         | 1,853
|Total stockholders equity |  |                                         | 7,916

Revenues attributable to Saflink were $941,000 and $4,647,000 for fiscal years 2007 and 2006,
respectively. Operating loss attributable to Saflink was $3,743,000 and $117,788,000 for fiscal years 2007 and 2006, respectively.



|5. | Trade Accounts Receivable
|-- | -------------------------

Trade Accounts
Receivable and Allowance for Doubtful Accounts at December 31, 2007 and 2006 consisted of the following:



|                                      |  |                |     |   |      |   |    
|------------------------------------- |  | -------------- | --- | - | ---- | - | ---
|                                      |  | December 31,  
|                                      |  | 2007           |     |   | 2006
|                                      |  | (In thousands)
|Gross trade accounts receivable       |  | $              | 862 |   |      | $ | 451
|Less: allowance for doubtful accounts |  |                | (16 | ) |      |   |   
|                                      |  |                |     |   |      |   |    
|                                      |  | $              | 846 |   |      | $ | 451
|                                      |  |                |     |   |      |   |    



|6. | Intangible Assets
|-- | -----------------

On February 27, 2007,
IdentiPHI entered into a Software Rights Agreement whereby IdentiPHI purchased Saflink Corporations SAFsolution and SAFmodule software programs for an initial payment of $778,000 plus deferred payments due quarterly over a period of three
years. The amount of the deferred payments were to be equal to a percentage of the providers gross margin on sales that include the software programs source code, including (i) 20% of gross margin on OEM sales that included
SAFsolution, (ii) 15% of gross margin on non-OEM sales that included SAFsolution, and (iii) 30% of gross margin on sales that included SAFmodule. As a result of the merger with Saflink on February 8, 2008, the deferred payments are no
longer applicable.

During the year ended December 31, 2007, intangible asset amortization was $130,000.



|7. | Property and Equipment
|-- | ----------------------

Property and equipment at
cost consists of the following:



|                                      |  |                |     |   |      |   |     |  
|------------------------------------- |  | -------------- | --- | - | ---- | - | --- | -
|                                      |  | December 31,   |    
|                                      |  | 2007           |     |   | 2006 |  
|                                      |  | (In thousands) |    
|Computer equipment and software       |  | $              | 13  |   |      | $ | 3   |  
|Leasehold improvements                |  |                | 44  |   |      |   | 47  |  
|Office furniture, equipment and other |  |                | 2   |   |      |   | 2   |  
|                                      |  |                |     |   |      |   |     |  
|                                      |  |                | 59  |   |      |   | 52  |  
|Less: Accumulated depreciation        |  |                | (26 | ) |      |   | (15 | )
|                                      |  |                |     |   |      |   |     |  
|                                      |  | $              | 33  |   |      | $ | 37  |  
|                                      |  |                |     |   |      |   |     |  



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IDENTIPHI, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



Depreciation expense was $11,000 and $15,000 for the years ended December 31, 2007 and 2006,
respectively.



|8. | Accrued Expenses
|-- | ----------------

Accrued expenses consist of the
following:



|                                  |  |                |     |      |   |   
|--------------------------------- |  | -------------- | --- | ---- | - | --
|                                  |  | December 31,  
|                                  |  | 2007           |     | 2006
|                                  |  | (In thousands)
|Compensation and related benefits |  | $              | 49  |      | $ | 5 
|Professional services             |  |                | 5   |      |   | 37
|Accrued cost of sales             |  |                | 121 |      |   |  
|Deferred rent                     |  |                | 8   |      |   |  
|Sales and use taxes               |  |                | 15  |      |   | 7 
|Other                             |  |                | 27  |      |   | 38
|                                  |  |                |     |      |   |   
|                                  |  | $              | 225 |      | $ | 87
|                                  |  |                |     |      |   |   



|9. | Commitments and Contingencies
|-- | -----------------------------

Leases

IdentiPHI maintains its headquarters in a leased facility in Austin, Texas under a lease that expires in November 2008 and is
classified as an operating lease. IdentiPHI has office space in Edmonton, Alberta, Canada for its product development staff under a lease that expires in November 2008. Remaining rent expense related to these leases for 2008 is approximately
$94,000. IdentiPHI does not have any lease commitments beyond 2008.

Rental expense for operating leases during the years ended
December 31, 2007 and 2006 was approximately $81,000 and $80,000, respectively.



|10. | Concentrations
|--- | --------------

Revenues are in products and
services in the biometrics and security industries, which are highly competitive and rapidly changing. Significant technological changes in the industry or customer requirements, or the emergence of competitive products with new capabilities or
technologies could adversely affect operating results. IdentiPHI is also dependent on a limited number of suppliers and resellers for its inventory of computer hardware and software held for resale.

During the years ended December 31, 2007 and 2006, revenue and net receivables (receivables billed, less deferred revenues) by customers with more
than 10% of revenue or the total of accounts and unbilled receivables balances were as follows (in thousands):



|           |  |          |       |  |             |   |  |   |     |  |    |  
|---------- |  | -------- | ----- |  | ----------- | - |  | - | --- |  | -- | -
|2007       |  |          |       |  |             |   |  |   |     |  |    |  
|           |  |         
|Customer   |  | Revenues |       |  | Receivables |  
|Customer A |  | $        | 2,579 |  | 73          | % |  | $ | 499 |  | 59 | %
|Customer B |  | $        | 483   |  | 14          | % |  | $ | 68  |  | 8  | %
|Customer C |  | $        | 172   |  | 5           | % |  | $ | 172 |  | 20 | %



|           |  |          |       |  |             |   |  |   |     |  |    |  
|---------- |  | -------- | ----- |  | ----------- | - |  | - | --- |  | -- | -
|2006       |  |          |       |  |             |   |  |   |     |  |    |  
|           |  |         
|Customer   |  | Revenues |       |  | Receivables |  
|Customer A |  | $        | 4,656 |  | 86          | % |  | $ | 255 |  | 57 | %
|Customer B |  | $        | 182   |  | 3           | % |  | $ | 103 |  | 23 | %



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IDENTIPHI, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



|11. | Related Party Transactions
|--- | --------------------------

IdentiPHI had unsecured
debt during 2007 and 2006 to Key Ovation, LLC, which had common investors, officers and directors with IdentiPHI during those periods. Outstanding balances owed to Key Ovation, LLC at December 31, 2007 and 2006 were as follows:



|                                                                                                                                                           |  |                |   |      |   |      
|---------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | - | ---- | - | -----
|                                                                                                                                                           |  | December 31,  
|                                                                                                                                                           |  | 2007           |   | 2006
|                                                                                                                                                           |  | (In thousands)
|Unsecured borrowing from Key Ovation, LLC, a related party having common ownership, accruing interest at 8% per annum (simple interest)
and due on demand. |  | $              |  |      | $ | 2,389

During 2007, IdentiPHI converted $4 million of the note payable to Key Ovation, LLC into its
common stock (see Note 14Stockholders Equity for more information). The $4 million conversion amount was greater than the total debt outstanding at December 31, 2007, and the excess amount of $176,000 has been recorded as stock
subscription receivable from a related party in stockholders equity (deficit) section of IdentiPHIs balance sheet at December 31, 2007.

Under the Merger Agreement, Saflink agreed to loan IdentiPHI up to an aggregate amount of $1,000,000, in one or more installments, pursuant to the terms of a secured promissory note. IdentiPHI agreed to repay any such
principal borrowed amounts, plus all accrued and unpaid interest, within 45 days following the earlier of the termination of the merger agreement for any reason, or IdentiPHIs closing of an equity financing of at least $2,000,000.
IdentiPHIs obligations under the secured promissory note were secured by all of IdentiPHIs assets. IdentiPHI borrowed $200,000 on October 11, 2007 and another $200,000 on November 20, 2007, under this secured promissory note.
Upon completion of the merger with Saflink on February 8, 2008, the note and accrued and unpaid interest were eliminated from IdentiPHIs balance sheet.

IdentiPHI has recorded interest expense of $136,000 and $115,000 for the years ended December 31, 2007 and 2006, respectively, related to the Key Ovation, LLC note payable.

Key Ovation, LLC, provided warehouse and inventory management for IdentiPHIs inventories held for resale, processing of IdentiPHIs customer
orders for goods held in inventory including receiving, storage, picking and shipping, and administrative support such as payroll processing, accounts payable, accounts receivable, and inventory count management during 2007 and 2006.

IdentiPHI and Key Ovation, LLC were under common control during the periods presented and the existence of that control may create operating
results and financial positions for IdentiPHI that are significantly different than if IdentiPHI were completely autonomous.



|12. | Income Taxes
|--- | ------------

For income tax purposes, IdentiPHI
utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in results of operations in the period that includes the enactment date. A valuation
allowance is recorded for deferred tax assets when it is more likely than not that such deferred tax assets will not be realized.



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IDENTIPHI, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



In July 2006, the FASB issued FIN No. 48 (FIN 48), Accounting for Uncertainty in Income
Taxes, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes.This pronouncement prescribes a recognition
threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in the our tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods and disclosure requirements for uncertain tax positions. The accounting provisions of FIN 48 were adopted on January 1, 2007. The adoption of FIN 48 did not have a material impact on our financial statements. As of
December 31, 2007, all of the federal income tax returns IdentiPHI has filed are still subject to adjustment upon audit.

For the
periods prior to August 30, 2007, IdentiPHI was organized as a limited liability company, treated as a partnership for federal income tax purposes. Accordingly, during those periods, the income and losses of IdentiPHI were allocated to the
members for inclusion in their respective federal income tax returns. As such, no income tax provision or benefit is reflected in the financial statements for those periods. On August 30, 2007, IdentiPHI, LLC converted to a corporation, subject
to federal income tax. The below discussion considers the tax impacts of the period from August 30, 2007 through December 31, 2007.

IdentiPHIs provision for income taxes differs from the expected tax expense (benefit) amount computed by applying the statutory federal income tax rate of 34% to income before income taxes as a result of the following (in thousands):



|                                  |  |                            |      |  
|--------------------------------- |  | -------------------------- | ---- | -
|                                  |  | Year EndedDecember 31,2007 |     
|Tax at U.S. statutory rate of 34% |  | $                          | (698 | )
|Nontaxable LLC losses             |  |                            | 386  |  
|Change in valuation allowance     |  |                            | 312  |  
|                                  |  |                            |      |  
|Income tax provision (benefit)    |  | $                          |     |  
|                                  |  |                            |      |  

The tax effects of temporary differences that give rise to significant portions of the deferred
tax assets and deferred tax liabilities are presented below (In thousands):



|                                 |  |                             |      |  
|-------------------------------- |  | --------------------------- | ---- | -
|                                 |  | Year endedDecember 31, 2006 |     
|Deferred tax assets:             |  |                             |      |  
|Net operating loss carryforwards |  | $                           | 256  |  
|Inventory reserve                |  |                             | 22   |  
|Intangible assets                |  |                             | 34   |  
|                                 |  |                             |      |  
|Total deferred tax assets        |  |                             | 312  |  
|Valuation allowance              |  |                             | (312 | )
|                                 |  |                             |      |  
|Deferred tax liability, net      |  | $                           |     |  
|                                 |  |                             |      |  

Due to the uncertainty of IdentiPHIs ability to generate taxable income to realize its net
deferred tax assets at December 31, 2007, a full valuation allowance has been recognized for financial reporting purposes. IdentiPHIs valuation allowance for deferred tax assets increased by $312,000 during the year ended
December 31, 2007. The increase in the deferred tax assets in 2007 was primarily the result of increasing net operating loss carryforwards during the year.

At December 31, 2007, IdentiPHI had federal net operating loss carryforwards of approximately $753,000 for income tax reporting purposes, which expire in 2027. IdentiPHIs ability to utilize the
carryforwards may be limited in the event of an ownership change as defined in current income tax regulations.



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IDENTIPHI, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



|13. | Employee Benefit Plan
|--- | ---------------------

IdentiPHI has a 401(k)
profit sharing plan (the Plan) and other employee health and benefit plans. The Plan allows all eligible employees to defer a portion of their income on a pretax basis through contributions to the Plan. IdentiPHIs 401(k) matching contributions
for the years ended December 31, 2007 and 2006, were $24,000 and $16,000, respectively.



|14. | Stockholders Equity
|--- | --------------------

In February 2007,
IdentiPHI issued additional membership interest in exchange for $778,000 in cash, which was to fund the acquisition of the SAFsolution and SAFmodule software product from Saflink Corporation.

IdentiPHI changed its form of entity from a Delaware limited liability company to a Delaware corporation on August 30, 2007 with authorized
100,000,000 shares of $0.001 par value common stock and renamed IdentiPHI, LLC as IdentiPHI, Inc.

During 2007, IdentiPHI converted its
note payable to Key Ovation, LLC in the amount of $4 million into 16,329,807 shares of common stock, which represented approximately 16% ownership of IdentiPHI. IdentiPHI also converted its membership positions into 83,458,193 shares of common
stock, which represented ownership of approximately 83% of IdentiPHI. Lastly, IdentiPHI issued 212,000 shares of the common stock to a consultant for services, which represented less than 1% ownership of IdentiPHI.



|15. | Subsequent Events
|--- | -----------------

Note Payable to Related Party

On March 12, 2008, IdentiPHI issued a promissory note to Zaychan Pty Limited, an Australian corporation, for an aggregate
principal amount of up to AUD$1.75 million which IdentiPHI may draw down in one or more installments. The loaned amounts accrue interest at 8.0% per annum. IdentiPHI will be required to repay any principal it borrows under the promissory note,
plus all accrued and unpaid interest, on the earlier of June 29, 2008, or upon the closing of an equity financing of at least US$5.0 million. IdentiPHIs obligations under the promissory note are secured by all of its assets. Chris
Linegar, a beneficial owner of more than 10% of IdentiPHIs common stock, is a principal of Zaychan Pty Limited.

In connection with
any draw down under the promissory note, IdentiPHI agreed to issue Zaychan Pty Limited warrants to purchase such number of shares of our common stock equal to 12.5% of the borrowed principal divided by US$0.80 with respect to the first AUD$1.0
million drawn down, and equal to 20% of the borrowed principal divided by US$0.80 with respect to the remaining AUD$750,000 drawn down. On March 12, 2008, IdentiPHI borrowed AUD$1.0 million, or US$915,000 post-conversion, under this secured
promissory note.In addition, on March 12, 2008, related to this draw down, IdentiPHI issued a warrant to purchase 144,497 shares of common stock at an exercise price of US$0.80 to Zaychan Pty Limited that expires on March 12, 2011.

Merger with Saflink Corporation

On February 8, 2008, Saflink and IdentiPHI completed the merger which resulted in the former security holders of IdentiPHI holding approximately 75% of the combined companys common stock and the security
holders of Saflink holding the remaining 25% of the combined companys common stock. The merger was deemed a reverse merger with IdentiPHI being treated as the acquiring company for accounting and financial reporting
purposes. As a result of the merger, IdentiPHI became a wholly-owned subsidiary of Saflink. Saflink and IdentiPHI subsequently combined into a single entity and changed the combined companys name to IdentiPHI, Inc. with its
principal offices in Austin, Texas. For more information, see Note 4Business Combination.



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##### Table of Contents

IDENTIPHI, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



Equity Incentive Awards

On March 5, 2008, IdentiPHIs board of directors approved equity incentive awards to its employees, officers and directors totaling 8,260,442 shares
of its common stock. These awards were granted under the IdentiPHI 2007 Equity Incentive Plan (the Plan), which was approved at the special meeting of shareholders in February 2008. These awards shall be effective as of the date
IdentiPHIs registration statement on Form S-8 covering the Plan becomes effective with the Securities and Exchange Commission, which is expected to be filed in April 2008.



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