Precise Biometrics AB (publ), corporate identity number Interim report January-June 2003

Transcription

1 Precise Biometrics AB (publ), corporate identity number Interim report January-June 2003 The Group s net sales for the interim period totaled SEK 8.8 million (7.3) and for the second quarter SEK 2.9 million (2.3). The bottom line for the interim period totaled SEK million (-36.3) and for the second quarter SEK 15.0 million ( 18.9). Losses per share for the interim period totaled SEK (-9.17) and for the second quarter SEK 1.27 ( 4.78). Liquid funds at the close of the interim period totaled SEK 38.0 million. During the second quarter, Precise Biometrics carried out a new share issue with preferential rights for shareholders. The new issue was oversubscribed and brought the company SEK 40.4 million before the costs of the issue. The company has implemented a cost-savings program aimed at reducing operating costs by a further 15% beyond previous cost savings programs. The program is expected to have full effect during the fourth quarter of Precise Biometrics extended its collaboration with Schlumberger, concerning the integration of Precise Match-on-Card, into Schlumberger s smart card. The agreement has been extended so it will also include licensing of Precise Biometrics software, Precise BioMatch. The company has entered an agreement with RSA Security, which entails that RSA will integrate Precise Biomatch in its software RSA SecurID Passage and in its hardware RSA SecurID USB Token. Events occurring since the end of the interim period: The Company received an order for fingerprint readers from Stockholm City schools. The readers will be part of a fixed installation at Tensta Gymnasium (Junior High) and at several elementary schools within the Spånga-Tensta municipality. The value of the order for Precise Biometrics totals about SEK 500,000. For more information, please contact: Christer Bergman, President & CEO, Precise Biometrics Telephone: christer.bergman@precisebiometrics.com Precise Biometrics AB, Scheelevägen 19 C, SE Lund, Sweden. Telephone: Precise Biometrics AB is an innovative security company that supplies world-leading systems for authentication using fingerprints. The solutions supplied by the company replace keys, PIN codes and passwords. The company's products are cost effective and provide security and comfort combined with top-class protection of personal integrity. The range of products includes systems for access control to buildings, computers and networks and for building into mobile and terminals, such as mobile phones and portable computers. The company headquarters are in Lund, Sweden. The company also has offices in Stockholm and a U.S. subsidiary in Washington, D.C. Precise Biometrics is listed on the O-list of the Stockholm Stock Exchange (symbol: PREC A). For more information about Precise Biometrics, visit

2 CEO s comments on the interim report As previously commented in conjunction with the new share issue carried out in June, the impact of the war in Iraq and the generally uncertain economic climate have continued to dampen our sales levels during the second quarter. This has entailed that projects, primarily those within the US Government segment and the US Department of Defense, have been delayed, said Christer Bergman, CEO of Precise Biometrics. It is encouraging, however, that we have concluded two important partnership agreements. The licensing agreement with Schlumberger and the technology and sales partnership with RSA represent concrete revenue potential both in the short and long term and prove yet again the strength of Precise BioMatch software and its ability to integrate with other leading technologies, said Christer Bergman. We have retained our existing sales target of an increase in annual sales equal to the annual growth rate of the biometrics market currently 50%. With the latest cost-savings measures we have implemented, operating costs will amount to SEK 4 million per month. We estimate that the anticipated market growth, the adaptations in operating cost levels and the capital brought to the company in the new share issue in June provide the company with solid prospects of achieving its goals, said Christer Bergman. Operations Precise Biometrics develops and markets products for fingerprint-based authentication. Operations are based on in-house-developed technology for fingerprint identification, Precise BioMatch. In concert with a number of select partners, the company offers customers convenient, secure and cost-effective solutions that can replace keys, PIN codes, and passwords. The company s technical development has been focused on fingerprint identification combined with smart cards. This technology, Precise Match-on-Card TM, further increases security by making it possible to store a fingerprint on a smart card and for the stored information to be compared (matched) with the cardholder s fingerprint without the fingerprint ever having to leave the card. Interest in user-friendly security solutions based on biometrics continues to grow. Precise Biometrics products are on the cutting edge of new technology and properly positioned to achieve sales growth in the market segments where the company is active US and European government agencies, transportation, telecom, banking and finance, and healthcare. The company has smoothly functioning and well-established partnerships and a strong patent portfolio, primarily within the strategic match-on-card field. The target is that Precise Match-on-Card TM will become a de facto global standard by encouraging smart card manufacturers to integrate the technology into their cards. This is particularly important for the company s future success within smart card projects, such as national ID cards. During 2003, Precise Biometrics will build upon its success in the US Government segment and increase its efforts in the American market to enter new customer segments. Patents With its patent strategy, the company aims to secure rights in proprietary technology, to build structural capital for future business or transactions and to preserve its ability to obstruct competitors. Patent applications are made primarily in Europe, the US and the larger countries in Asia. The company presently has eight patents, seven of which are registered in Sweden and one in the US. Patent applications have been submitted for nine further inventions. Page 2 of 11

3 New products At the CardTech/SecurTech security trade fair in Orlando, Fl, Cherry GmbH, one of the leading manufacturers of computer input devices, demonstrated its keyboard, Fingertip ID Board. The keyboard has biometric login, with support for Precise Match-on-Card. Precise BioMatch has the advantage of being able to function alongside most security software, smart cards and fingerprint readers. The new product constitutes a further channel for sales of Precise Match-on- Card licenses and thereby strengthens the company s position on the biometrics market. Precise Biometrics demonstrated its new IT security reader, Precise 100 AX at the CardTech/SecurTech fair. Precise 100 AX, like its predecessor the Precise 100 A, is small, userfriendly and stylishly designed. But the new version offers even higher performance at a lower price. Precise 100 AX is on the market now. Marketing and sales Interest in security remains strong, and biometrics is becoming an increasingly important component in security solutions. The company s IT security products constitute the lion s share of sales. Geographically, the US market is predominant, where Precise Biometrics has a strong position primarily within US federal agencies. The company s sales during the second quarter have been affected both by the slowdown in the economy and the war in Iraq. The declining dollar exchange rate has also burdened the sales. The company s retains its goal of an annual sales increase corresponding to the growth rate in the biometrics market, because Precise Biometrics leading position within the match-on-card segment remains strong and the number of customer projects where the Company plays a part, directly or via partners, continues to grow. During the interim period, the company has entered several important agreements: Licensing agreement with Datakey Inc. (Nasdaq: DKEY), a leading developer of smart card solutions that simplify access and identity management. The agreement entails that Datakey will license and integrate Precise Match-on-Card in its software and smart cards. Partnership agreement with RSA Security (NASDAQ: RSAS), the most trusted name in e-security, which entails that RSA will integrate Precise BioMatch in its software for smart cards, RSA SecurID Passage, and in the hardware RSA SecurID USB Token. Extended partnership with BNX Systems, a provider of identity management solutions for enterprise and Internet Security. The new agreement entails that Precise Biometrics will become a select supplier to BNX of fingerprint solutions and that Precise BioMatch will be integrated into the BNX software portfolio, Identity Management Suite. This product integration will be extended so that it also includes Precise Match-on-Card. Extended partnership with Schlumberger, one of the world's leading smart card providers. The partnership surrounding the integration of Precise Match-on-Card on Schlumberger s smart card, Cyberflex Access 64K, has now reached its commercial phase, and the agreement has been extended to include licensing of Precise Biometrics software Precise BioMatch and marketing and sales. Page 3 of 11

4 US Sales Business Area: The business area s sales for the interim period totaled SEK 4.6 million and the bottom line totaled SEK -0.3 million. Sales for the second quarter totaled SEK 1.5 million, and the bottom line for the second quarter totaled SEK -0.7 million. European Sales Business Area: The business area s sales for the interim period totaled SEK 1.9 million and the bottom line totaled SEK -1.0 million. Sales for the second quarter totaled SEK 0.8 million, and the bottom line for the second quarter totaled SEK 0 million. Global Partner Group/Rest of the World Sales: The business area s sales for the interim period totaled SEK 1.7 million and the bottom line totaled SEK -2.7 million. Sales for the second quarter totaled SEK 0.4 million, and the bottom line for the second quarter totaled SEK -1.2 million. Sales and profitability Sales for the interim period totaled SEK 8.8 million (7.3) and for the second quarter -2.9 million (-2.3). The Group s losses for the interim period totaled SEK million (-36.3) and for the second quarter million (-18.9). Operating costs for the interim period totaled SEK 29.8 million (38.3), including write-down of SEK 5.0 million (4.2) and capitalization of expenses for development work SEK 1.1 million (4.1). The cost-savings program which the company implemented during the interim period will have full effect during the fourth quarter of 2003 and is estimated to reduce operating costs by approximately 15 percent, corresponding to about SEK 7 million for the whole year. The program is expected to cost SEK 0.6 million. Operating costs are estimated to total an average of SEK 4 million per month starting October The company has hitherto reduced its operating costs by 32 percent compared with the first half of Losses per share (average number of shares) during the interim period amounted to SEK (- 9.17). Financing and liquidity Shareholders equity amounted, as of June 30, 2003, to SEK 75.7 million (77.2), adjusted after the new issue in June 2003, and the equity/share ratio totaled SEK 2.12 (19.51) before dilution by subscription through the exercise of options. Liquid funds at the close of the interim period totaled SEK 38.0 million (30.6). During the interim period, the company carried out a new share issue with preferential rights for shareholders. The new issue was oversubscribed and brought the company SEK 40.4 million before the costs of the issue, which totaled SEK 3.7 million. SEK 35.0 million of the emission capital was brought in during June 2003 and the remainder in July It is estimated that the new share issue will finance the company s operations until such time as positive operational cash flow is achieved. Investments During the interim period, the group made investments of SEK 0.0 million (0.4) in tangible fixed assets. Page 4 of 11

5 Capitalized expenditure for development During the interim period, expenses for development work have been capitalized in the order of SEK 1.1 million (4.1). Depreciation of capitalized development work is progressing according to plan and totaled, during the interim period, SEK 3.7 million (3.1). Depreciation of patents and capitalized computing fees totaled, during the interim period, SEK 436 thousand (363) and SEK 75 thousand (149) respectively. Shares The company stock has been listed on the Stockholm Stock Exchange O-list since October 3, The total number of registered shares at end of the interim period was 11,870,100. The number of outstanding subscription options at the same point in time was 110,000, which corresponds to a maximal potential dilution of 0.95% (adjusted after the new issue in June 2003). During the interim period, the average sales per day was SEK 130,474, and the listed share price has ranged between SEK 7.45 and SEK During the interim period, the company carried out a new issue with preferential rights for shareholders. The new issue entails that the number of series A shares increased by 23,740,200, and the number of shares after the new issue now totals 35,610,300. Trading with prepaid subscribed shares (BTAs) commenced starting June 16, BTAs were reregistered as shares July 30, The five largest shareholders as of July 31, 2003 (after the new share issue in June 2003) were the following: Name Proportion of capital and votes Odin fonder (Norway) 7.3 % Fjärde AP-fonden 6.3 % Christer Fåhraeus 4.5 % Nils Bernhard and company 4.3 % Pecunia fond 4.1 % Source: SIS Ägarservice Option program At the AGM 2001, it was decided to issue an IOU, of a nominal sum amounting to SEK 715,000, with 110,000 detachable options giving the right to subscribe the same number of shares in Precise Biometrics AB. The options are intended for employees in the Precise Biometrics Group. Subscription of new shares can take place during the period February 27 August 26, 2003 at a subscription price of SEK per share. On full redemption of all outstanding options, there will be a dilution of capital and votes corresponding to 0.95% (adjusted following the new issue in June 2003). Organization and staff Precise Biometrics consists organizationally of the parent company, Precise Biometrics AB, with headquarters in Lund and a sales office in Stockholm, and subsidiaries Precise Biometrics Inc. and Precise Biometrics Services AB. As of June 30, 2003, the Group had 46 (61) employees, 40 in Sweden and 6 in the USA. Of all employees, 35 (50) were men and 11 (11) were women. After the cost-savings program is implemented, there will be 35 employees. Page 5 of 11

6 Parent company The parent company s sales for the interim period totaled SEK 7.4 million (7.0) and for the second quarter SEK 2.6 million (2.1). The operating loss for the parent company for the interim period was SEK million (-33.6). At the end of the interim period year, 40 people were employed in the parent company. Liquid funds at the close of the interim period totaled SEK 36.4 million (30.6). The parent company had no debts to credit institutions at the end of the interim period. There were no investments in tangible fixed assets. During the interim period, expenses for development work have been capitalized in the order of SEK 1.1 million (4.1). Events occurring since the end of the interim period Precise Biometrics received an order for fingerprint readers from Stockholm City schools. The readers, Precise 100 PC-Card and Precise 100 A BioKeyboard, with software from SAFLINK, will be part of a fixed installation at Tensta Gymnasium (Junior High) and at several elementary schools within the Spånga-Tensta municipality. The new installation can be considered the consequence of the test installation at Kvarnbyskolan School in Rinkeby, Stockholm, which demonstrated significant savings in time and expense for password administration. The value of the order for Precise Biometrics totals about SEK 500,000. Future outlook The company anticipates that the annual sales will increase at a rate at least equal to the growth rate for the biometric security product market i.e. at least 50% annually (according to the International Biometric Group 2003). With this market growth, an adapted level of expenditure on operating costs, and the capital injection from the June 2003 new share issue, company management estimates that the company has sufficient financial reserves to meet operating costs until such time as it achieves positive operational cash flow. Upcoming financial reporting dates Interim report, January-September 2003 October 22, 2003 Financial statement February 4, 2004 Accounting principles This interim report has been drafted in accordance with the recommendations of the Swedish Financial Accounting Standards Council (RR20), Interim Reports. The accounting principles and calculation methods remain unchanged from the last annual report. Lund, Sweden, August 13, 2003 Christer Bergman, Chief Executive Officer, Precise Biometrics AB (publ) Page 6 of 11

7 Review report We have reviewed this interim report in a summary manner in accordance with the recommendation issued by the Swedish Institute of Authorized Public Accountants (FAR). A review is considerably more limited in scope compared with an audit. Nothing has come to light to indicate that the interim report does not fulfill the requirements of the Stock Exchange Act and the Annual Accounts Act. Lund, Sweden, August 13, 2003 Öhrlings PricewaterhouseCoopers AB Per Wardhammar Authorized public accountant, primarily responsible Dan Andersson Authorized public accountant Page 7 of 11

8 Income Statement, Group (Figures in thousands SEK) Apr-Jun Apr-Jun Jan-Jun Jan-Jun Full year Net sales Cost for goods sold* Gross profit/loss Sales costs Administration costs R&D costs Other operating income Other operating costs Operating profit/loss Income/expense from financial investments Other interest revenue and similar items Interest costs and similar items Total income from financial investments Profit/loss after financial income/expenses Deferred tax Profit/loss for the period Profit/loss per share, SEK Before dilution -1,27-4,78-2,42-9,17-18,60 After dilution -1,27-4,78-2,42-9,17-18,60 * During the second quarter 2003, write-downs for obsolescence have been made in the order of SEK 435 thousand, which is included in the figure for cost for goods sold. Balance Sheet, Group (Figures in thousands SEK) Jun 30, 2003 Jun 30, 2002 Dec 31, 2002 Assets Subscribed capital, unpaid Page 8 of 11

9 Intangible fixed assets Tangible fixed assets Inventories Accounts receivable Other current receivables Cash and bank and short-term investments Total assets Shareholders Equity and Liabilities Shareholders equity Reserves Long-term liabilities Current liabilities/accounts payable Total shareholders equity and liabilities Pledged assets Contingent liabilities Cash Flow Analysis, Group (Figures in thousands SEK) Jan-Jun Jan-Jun Full year Cash flow for current operations before changes in working capital Cash flow from changes in working capital Cash flow from current operations Cash flow from investments Cash flow from financing operations Cash flow for the period Liquid assets at the beginning of the period Liquid assets at the end of the period Business Ratios, Group Jun 30, 2003 Jun 30, 2002 Dec 31, 2002 Working capital (thousands SEK) Liquid ratio 420% 290% 230% Equity/assets ratio 85% 85% 77% Losses after net financial income/expenses per share, before dilution (SEK) Losses after net financial income/expenses per share, after dilution (SEK) Shareholders equity per share, before dilution (SEK) Shareholders equity per share, after dilution (SEK) Number of shares before dilution Number of shares after dilution Page 9 of 11

10 Number of employees at end of period Average number of employees during the period Definitions Business ratios Working capital: Current assets less current liabilities Liquid ratio: Current assets less inventories divided by current liabilities Equity/assets ratio: Shareholders equity as of the balance sheet date divided by the total assets as of the balance sheet date Profit/loss per share: Profit/loss after net financial income/expenses divided by the average number of outstanding shares. Recalculation after dilution may not produce a better profit/loss figure per share compared with that before dilution. Equity per share: Equity as of the balance sheet date divided by the number of shares as of the balance sheet date. As of , the calculations have taken into account the ongoing new issue. Number of shares: As of , the shares in the ongoing new issue have been included. Page 10 of 11

11 Changes in Shareholders Equity, Group (Figures in thousands SEK) Jan-Jun Jan-Jun Jan-Dec Initial shareholders equity Effect of change of accounting principles* Initial shareholders equity adjusted in accordance with new accounting principles New share issue** New share issue*** New share issue**** Option redemption Profit/loss for the period Sum at the close of the period * The effect of altered accounting principles has been entered against accumulated deficit. ** At a subscription price of SEK 87 per share. *** At a subscription price of SEK 4 per share. The sum for 2003 concerns remaining liquid capital from the new share issue Dec 2002 less associated issue costs **** At a subscription price of SEK 1.70 per share. As of June 30, ongoing new share issue. Sales and profitability by business area, April-June 2003 (Figures in thousands SEK) US European Global Partner Sales Sales Group Miscellaneous Net sales Expenses* Operating profit/loss Sales and profitability by business area, Jan-June 2003 (Figures in thousands SEK) US European Global Partner Sales Sales Group Miscellaneous Net sales Expenses* Operating profit/loss * The expenses figure set out above includes the cost for goods sold and direct costs for each business area. Page 11 of 11