SFLK Saflink

Saflink� Corporation (NASDAQ:SFLK), a leading provider of solutions that verify identity, secure access and increase productivity, today reported its financial results for its third quarter ended September 30, 2006. Revenue for the third quarter of 2006 was $1.7 million, compared to $944,000 for the second quarter of 2006 and $2.4 million for the third quarter of 2005. Saflink reported a net loss attributable to common stockholders of $21.5 million, or $0.24 per share, in the third quarter of 2006, which included a non-cash impairment charge of $14.6 million related to its intangible assets and other long-lived assets. This is compared to a net loss attributable to common stockholders of $37.7 million, or $0.43 per share, in the second quarter of 2006, and a net loss attributable to common stockholders of $26.1 million, or $0.30 per share, in the third quarter of 2005. Non-GAAP operating loss for the third quarter of 2006 was $4.9 million, which excludes certain non-cash charges such as amortization of intangible assets, impairments of goodwill and long-lived assets, and stock-based compensation expense. This is compared to a non-GAAP operating loss of $5.5 million for the third quarter of 2005. Saflink believes that supplementary non-GAAP measures for operating results enhance an investor�s overall understanding of the financial performance of Saflink by reconciling more closely the actual cash expenses of Saflink in its operations, as well as excluding expenses that, in management�s view, are unrelated to the core operations of Saflink. A reconciliation of non-GAAP operating loss and non-GAAP net loss attributable to common stockholders to reported GAAP operating loss and net loss attributable to common stockholders is provided below. Steve Oyer, Saflink�s Interim CEO commented, �We were pleased to see a strong increase in sales from our preceding quarter. This development, along with our recent expense reduction activities, will improve our operating cash burn results in the next couple quarters. We believe our continued focus on monetizing our core biometric logical and physical access technologies through strategic distribution partners for the public and private sector is beginning to bear fruit.� Oyer continued, �We are encouraged by the clarity coming out of the Transportation Security Administration (TSA) with respect to the Registered Traveler (RT) program. We believe the build-out of the RT infrastructure by the TSA is an important step in the market�s evolution and expect this to result in active RT programs at several major airports in the near term, which we will be aggressively competing for through the FLO Alliance." Saflink will hold a conference call to discuss financial results today at 5:00 PM EST. Saflink may provide forward-looking information on this call. To listen to the conference, please call 1-877-715-5282, domestically, or 973-582-2850, internationally. A recording of the call will be available on the Investors page of the Saflink web site for thirty days after the call. About Saflink Saflink Corporation offers biometric security and smart card solutions that protect intellectual property, secure information and eliminate passwords. Saflink identity assurance management solutions allow administrators to verify the identity of users and control their access to computer networks, facilities and applications. Winner of seven awards in 2005, Saflink and its solutions have been recognized by organizations such as Frost & Sullivan and Software Magazine�s Software 500. For more information, please visit www.saflink.com or call 800-762-9595 NOTE: �Saflink� is a registered trademark and �FLO� is a trademark of Saflink Corporation. This release contains information about management�s view of our future expectations, plans and prospects that constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. Actual results may differ materially from historical results or those indicated by these forward-looking statements as a result of a variety of factors including, but not limited to, risks and uncertainties associated with our financial condition, our ability to sell our products, our ability to compete with competitors and the growth of the security market. In addition, 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. Also, 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. We encourage you to review other factors that may affect our future results in our Annual Report on Form 10-K, as well as other documents we file periodically with the Securities and Exchange Commission. � � SAFLINK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) � � Three months ended September 30, Nine months ended September 30, 2006 2005 2006 2005 Revenue: Product $ 1,414� $ 2,032� $ 2,956� $ 4,309� Service 244� 326� 503� 2,039� Total revenue 1,658� 2,358� 3,459� 6,348� � Cost of revenue: Product 608� 966� 1,301� 1,842� Service 134� 221� 390� 1,242� Impairment loss on intangible assets 13,857� �� 13,857� �� Amortization of intangible assets 670� 670� 2,012� 2,012� Total cost of revenue 15,269� 1,857� 17,560� 5,096� � Gross profit (13,611) 501� (14,101) 1,252� � Operating expenses: Product development 2,067� 2,320� 6,909� 6,952� Sales and marketing 1,705� 2,417� 5,636� 7,128� General and administrative 2,471� 2,252� 6,484� 6,682� Impairment loss on intangible assets �� 600� �� 1,500� Impairment loss on goodwill �� 19,300� 60,400� 19,300� Impairment loss on furniture and equipment 716� �� 716� �� Total operating expenses 6,959� 26,889� 80,145� 41,562� � Operating loss (20,570) (26,388) (94,246) (40,310) � Interest expense (983) (37) (1,345) (103) Other income, net 79� 135� 250� 296� Change in fair value of outstanding warrants �� �� �� 172� � Loss before income taxes (21,474) (26,290) (95,341) (39,945) � Income tax provision 13� (203) 39� (501) � Net loss (21,487) (26,087) (95,380) (39,444) � Modification of outstanding warrants �� �� (585) (59) � Net loss attributable to common stockholders $ (21,487) $ (26,087) $ (95,965) $ (39,503) � Basic and diluted loss per common share $ (0.24) $ (0.30) $ (1.09) $ (0.48) Weighted average number of common shares outstanding 88,405� 88,057� 88,203� 82,792� � � � � SAFLINK CORPORATION Supplemental Non-GAAP Information (Unaudited) (In thousands, except per share data) � � Three months ended September 30, Nine months ended September 30, 2006 2005 2006 2005 Operating loss $ (20,570) $ (26,388) $ (94,246) $ (40,310) Adjustments to reconcile operating loss in the financial statements to non-GAAP operating loss: � Amortization of intangibles � cost of sales 670� 670� 2,012� 2,012� Amortization of intangibles � general and administrative 25� 38� 75� 116� Impairment loss on intangible assets 13,857� 600� 13,857� 1,500� Impairment loss on goodwill �� 19,300� 60,400� 19,300� Impairment loss on furniture and equipment 716� �� 716� �� Stock-based compensation 354� 295� 872� � 1,162� � Non-GAAP operating loss $ (4,948) $ (5,485) $ (16,314) $ (16,220) � � Net loss attributable to common stockholders $ (21,487) $ (26,087) $ (95,965) $ (39,503) Adjustments to reconcile net loss attributable to common stockholders in the financial statements to non-GAAP net loss attributable to common stockholders: � � � Amortization of intangibles � cost of sales 670� 670� 2,012� 2,012� Amortization of intangibles � general and administrative 25� 38� 75� 116� Impairment loss on intangible assets 13,857� 600� 13,857� 1,500� Impairment loss on goodwill �� 19,300� 60,400� 19,300� Impairment loss on furniture and equipment 716� �� 716� �� Stock-based compensation 354� 295� 872� 1,162� Non-cash interest expense 695� �� 923� �� Change in warrant valuation �� �� �� (172) Modification of outstanding warrants �� �� 585� 59� Tax benefit related to impairment loss on intangible assets �� (216) �� (540) Deferred income tax associated with acquisition 13� 13� 39� 39� Non-GAAP net loss attributable to common stockholders $ (5,157) $ (5,387) $ (16,486) $ (16,027) � Non-GAAP basic and diluted net loss per share $ (0.06) $ (0.06) $ (0.19) $ (0.19) Weighted average number of common shares outstanding 88,405� 88,057� 88,203� 82,792� � � Statement Regarding Non-GAAP Disclosures: To supplement the financial information that is presented in accordance U.S. generally accepted accounting principles (GAAP), we present certain financial measures that exclude certain non-cash charges, including charges related to acquisitions such as amortization of intangible assets, impairments of goodwill and long-lived assets and stock-based compensation expense which would otherwise be required by GAAP. We believe that these non-GAAP measures facilitate evaluation by management and investors of our ongoing operating business and enhance overall understanding of our financial performance by reconciling more closely our actual cash expenses in operations as well as excluding expenses that in management�s view are unrelated to our core operations, the inclusion of which may make it more difficult for investors to compare our results from period to period. Non-GAAP financial measures should not be considered in isolation from, as a substitute for, or superior to, financial information presented in compliance with GAAP, and non-GAAP financial measures we report may not be comparable to similarly titled items reported by other companies. � � SAFLINK CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) � � ASSETS September 30, 2006 December 31, 2005 � Current assets: Cash and cash equivalents $ 5,228� $ 15,217� Accounts receivable, net 1,148� 692� Inventory 514� 563� Other current assets 822� 841� Total current assets 7,712� 17,313� � Furniture and equipment, net 689� 1,018� Debt issuance costs 769� �� Intangible assets, net 3,903� 19,848� Goodwill 15,523� 75,923� Total assets $ 28,596� $ 114,102� � LIABILITIES AND STOCKHOLDERS� EQUITY � Current liabilities: Accounts payable $ 1,077� $ 1,204� Accrued expenses 3,023� 2,150� Current portion of convertible debt 4,419� 1,250� Other current obligation 372� 765� Deferred revenue 231� 174� Total current liabilities 9,122� 5,543� � Deferred tax liability 179� 140� Long term convertible debt 1,222� �� Total liabilities 10,523� 5,683� � Stockholders� equity: Common stock 889� 889� Deferred stock-based compensation �� (541) Additional paid-in capital 274,334� 269,256� Accumulated deficit (257,150) (161,185) Total stockholders� equity 18,073� 108,419� Total liabilities and stockholders� equity $ 28,596� $ 114,102� Saflink(R) Corporation (NASDAQ:SFLK), a leading provider of solutions that verify identity, secure access and increase productivity, today reported its financial results for its third quarter ended September 30, 2006. Revenue for the third quarter of 2006 was $1.7 million, compared to $944,000 for the second quarter of 2006 and $2.4 million for the third quarter of 2005. Saflink reported a net loss attributable to common stockholders of $21.5 million, or $0.24 per share, in the third quarter of 2006, which included a non-cash impairment charge of $14.6 million related to its intangible assets and other long-lived assets. This is compared to a net loss attributable to common stockholders of $37.7 million, or $0.43 per share, in the second quarter of 2006, and a net loss attributable to common stockholders of $26.1 million, or $0.30 per share, in the third quarter of 2005. Non-GAAP operating loss for the third quarter of 2006 was $4.9 million, which excludes certain non-cash charges such as amortization of intangible assets, impairments of goodwill and long-lived assets, and stock-based compensation expense. This is compared to a non-GAAP operating loss of $5.5 million for the third quarter of 2005. Saflink believes that supplementary non-GAAP measures for operating results enhance an investor's overall understanding of the financial performance of Saflink by reconciling more closely the actual cash expenses of Saflink in its operations, as well as excluding expenses that, in management's view, are unrelated to the core operations of Saflink. A reconciliation of non-GAAP operating loss and non-GAAP net loss attributable to common stockholders to reported GAAP operating loss and net loss attributable to common stockholders is provided below. Steve Oyer, Saflink's Interim CEO commented, "We were pleased to see a strong increase in sales from our preceding quarter. This development, along with our recent expense reduction activities, will improve our operating cash burn results in the next couple quarters. We believe our continued focus on monetizing our core biometric logical and physical access technologies through strategic distribution partners for the public and private sector is beginning to bear fruit." Oyer continued, "We are encouraged by the clarity coming out of the Transportation Security Administration (TSA) with respect to the Registered Traveler (RT) program. We believe the build-out of the RT infrastructure by the TSA is an important step in the market's evolution and expect this to result in active RT programs at several major airports in the near term, which we will be aggressively competing for through the FLO Alliance." Saflink will hold a conference call to discuss financial results today at 5:00 PM EST. Saflink may provide forward-looking information on this call. To listen to the conference, please call 1-877-715-5282, domestically, or 973-582-2850, internationally. A recording of the call will be available on the Investors page of the Saflink web site for thirty days after the call. About Saflink Saflink Corporation offers biometric security and smart card solutions that protect intellectual property, secure information and eliminate passwords. Saflink identity assurance management solutions allow administrators to verify the identity of users and control their access to computer networks, facilities and applications. Winner of seven awards in 2005, Saflink and its solutions have been recognized by organizations such as Frost & Sullivan and Software Magazine's Software 500. For more information, please visit www.saflink.com or call 800-762-9595 NOTE: "Saflink" is a registered trademark and "FLO" is a trademark of Saflink Corporation. This release contains information about management's view of our future expectations, plans and prospects that constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. Actual results may differ materially from historical results or those indicated by these forward-looking statements as a result of a variety of factors including, but not limited to, risks and uncertainties associated with our financial condition, our ability to sell our products, our ability to compete with competitors and the growth of the security market. In addition, 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. Also, 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. We encourage you to review other factors that may affect our future results in our Annual Report on Form 10-K, as well as other documents we file periodically with the Securities and Exchange Commission. -0- *T SAFLINK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) Three months ended Nine months ended September 30, September 30, ------------------- ------------------- 2006 2005 2006 2005 --------- --------- --------- --------- Revenue: Product $1,414 $2,032 $2,956 $4,309 Service 244 326 503 2,039 --------- --------- --------- --------- Total revenue 1,658 2,358 3,459 6,348 Cost of revenue: Product 608 966 1,301 1,842 Service 134 221 390 1,242 Impairment loss on intangible assets 13,857 -- 13,857 -- Amortization of intangible assets 670 670 2,012 2,012 --------- --------- --------- --------- Total cost of revenue 15,269 1,857 17,560 5,096 --------- --------- --------- --------- Gross profit (13,611) 501 (14,101) 1,252 Operating expenses: Product development 2,067 2,320 6,909 6,952 Sales and marketing 1,705 2,417 5,636 7,128 General and administrative 2,471 2,252 6,484 6,682 Impairment loss on intangible assets -- 600 -- 1,500 Impairment loss on goodwill -- 19,300 60,400 19,300 Impairment loss on furniture and equipment 716 -- 716 -- --------- --------- --------- --------- Total operating expenses 6,959 26,889 80,145 41,562 --------- --------- --------- --------- Operating loss (20,570) (26,388) (94,246) (40,310) Interest expense (983) (37) (1,345) (103) Other income, net 79 135 250 296 Change in fair value of outstanding warrants -- -- -- 172 --------- --------- --------- --------- Loss before income taxes (21,474) (26,290) (95,341) (39,945) Income tax provision 13 (203) 39 (501) --------- --------- --------- --------- Net loss (21,487) (26,087) (95,380) (39,444) Modification of outstanding warrants -- -- (585) (59) --------- --------- --------- --------- Net loss attributable to common stockholders $(21,487) $(26,087) $(95,965) $(39,503) ========= ========= ========= ========= Basic and diluted loss per common share $(0.24) $(0.30) $(1.09) $(0.48) Weighted average number of common shares outstanding 88,405 88,057 88,203 82,792 *T -0- *T SAFLINK CORPORATION Supplemental Non-GAAP Information (Unaudited) (In thousands, except per share data) Three months ended Nine months ended September 30, September 30, ------------------- ------------------- 2006 2005 2006 2005 --------- --------- --------- --------- Operating loss $(20,570) $(26,388) $(94,246) $(40,310) Adjustments to reconcile operating loss in the financial statements to non- GAAP operating loss: Amortization of intangibles - cost of sales 670 670 2,012 2,012 Amortization of intangibles - general and administrative 25 38 75 116 Impairment loss on intangible assets 13,857 600 13,857 1,500 Impairment loss on goodwill -- 19,300 60,400 19,300 Impairment loss on furniture and equipment 716 -- 716 -- Stock-based compensation 354 295 872 1,162 --------- --------- ------------------- Non-GAAP operating loss $(4,948) $(5,485) $(16,314) $(16,220) ========= ========= ========= ========= Net loss attributable to common stockholders $(21,487) $(26,087) $(95,965) $(39,503) Adjustments to reconcile net loss attributable to common stockholders in the financial statements to non-GAAP net loss attributable to common stockholders: Amortization of intangibles - cost of sales 670 670 2,012 2,012 Amortization of intangibles - general and administrative 25 38 75 116 Impairment loss on intangible assets 13,857 600 13,857 1,500 Impairment loss on goodwill -- 19,300 60,400 19,300 Impairment loss on furniture and equipment 716 -- 716 -- Stock-based compensation 354 295 872 1,162 Non-cash interest expense 695 -- 923 -- Change in warrant valuation -- -- -- (172) Modification of outstanding warrants -- -- 585 59 Tax benefit related to impairment loss on intangible assets -- (216) -- (540) Deferred income tax associated with acquisition 13 13 39 39 --------- --------- --------- --------- Non-GAAP net loss attributable to common stockholders $(5,157) $(5,387) $(16,486) $(16,027) ========= ========= ========= ========= Non-GAAP basic and diluted net loss per share $(0.06) $(0.06) $(0.19) $(0.19) Weighted average number of common shares outstanding 88,405 88,057 88,203 82,792 *T Statement Regarding Non-GAAP Disclosures: To supplement the financial information that is presented in accordance U.S. generally accepted accounting principles (GAAP), we present certain financial measures that exclude certain non-cash charges, including charges related to acquisitions such as amortization of intangible assets, impairments of goodwill and long-lived assets and stock-based compensation expense which would otherwise be required by GAAP. We believe that these non-GAAP measures facilitate evaluation by management and investors of our ongoing operating business and enhance overall understanding of our financial performance by reconciling more closely our actual cash expenses in operations as well as excluding expenses that in management's view are unrelated to our core operations, the inclusion of which may make it more difficult for investors to compare our results from period to period. Non-GAAP financial measures should not be considered in isolation from, as a substitute for, or superior to, financial information presented in compliance with GAAP, and non-GAAP financial measures we report may not be comparable to similarly titled items reported by other companies. -0- *T SAFLINK CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) September 30, December 31, ASSETS 2006 2005 Current assets: Cash and cash equivalents $5,228 $15,217 Accounts receivable, net 1,148 692 Inventory 514 563 Other current assets 822 841 ------------- ------------- Total current assets 7,712 17,313 Furniture and equipment, net 689 1,018 Debt issuance costs 769 -- Intangible assets, net 3,903 19,848 Goodwill 15,523 75,923 ------------- ------------- Total assets $28,596 $114,102 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $1,077 $1,204 Accrued expenses 3,023 2,150 Current portion of convertible debt 4,419 1,250 Other current obligation 372 765 Deferred revenue 231 174 ------------- ------------- Total current liabilities 9,122 5,543 Deferred tax liability 179 140 Long term convertible debt 1,222 -- ------------- ------------- Total liabilities 10,523 5,683 Stockholders' equity: Common stock 889 889 Deferred stock-based compensation -- (541) Additional paid-in capital 274,334 269,256 Accumulated deficit (257,150) (161,185) ------------- ------------- Total stockholders' equity 18,073 108,419 ------------- ------------- Total liabilities and stockholders' equity $28,596 $114,102 ============= ============= *T