RNS Number:2368Q
Secure Design KK
17 March 2008
FOR IMMEDIATE RELEASE
17 March 2008
SECURE DESIGN KK
("Secure Design" or "the Company")
(A leading biometrics company based in Tokyo, Japan specialising in fingerprint
authentication)
Unaudited Preliminary Results for the year ended 31 December 2007
Chairman's Statement
The past year has been a challenging year for our Company resulting in declining
revenues, increased losses and management change but despite those challenges
the Company has been able to both develop new products and forge alliances that
augur well for its continued development in 2008 and 2009 with the purpose of
being a leading provider of fingerprint sensor solutions.
Profit and Loss Account
Revenues have declined from JPY 522,214,000 (�2,291,420) to JPY 269,755,000
(�1,183,653) a decline of 48%. At least JPY 106,459,000 of the prior year sales
have subsequently been fully provided for as a bad debt thus perhaps putting the
apparent rapid decline into a wider context that ultimately led to the
resignation of the Chief Executive Officer.
Gross profits have declined from JPY 422,030,000 (�1,851,823) in 2006 to JPY
115,544,000 (�115,544) for 2007 a decline of 73% with gross margins falling from
81% to 43% due to product mix issues.
Sales and Marketing expenses in the current year amounted to JPY 357,652,000
(�1,569,341)(2006: JPY 121,850,000) (�534,665) reflecting a total provision for
Bad Debts of JPY 250,113,000 (�1,097470)
A consequence of the poor operating performance has resulted in General
Administrative Expenses declining from JPY 378,188,000 (�1,659,446) in 2006 to
JPY 215,619,000 (�946,110) as the Company sought to cut back on its overall
level of overheads in order that resources could be directed towards the future
growth of the business. This is reflected in our R&D Expenditure increasing from
JPY 135,665,000 (�595,287) to JPY 215,025,000 (�943,504) an increase of 58%.
The overall loss for the year has increased to JPY 648,959,000 (�2,847,558)
compared to the loss in 2006 of JPY 162,024,000 (�710,945).
Balance Sheet
There are a number of key balance sheet items that I wish to highlight for your
attention but firstly I would draw your attention to the accounting policies
accompanying this statement which highlight the fact that the Balance Sheet
values have been prepared on a going concern basis. Accordingly the financial
statements do not reflect any adjustments that would be necessary if the going
concern assumption was no longer valid. I and the rest of the Board are
confident that the Company will be able to secure further funding in order to
continue to trade and increase Shareholder value.
The Group has acquired a 40% stake in Beyond LSI and this has been equity
accounted for JPY 3,180,000(�13,954).
Intangible assets have increased from JPY 47,959,000 (�210,437) to JPY
77,518,000 (�340,143) primarily as a result of the acquisition of patents from
I-O Network of which Mr Kiyomoto, the Chief Technical Officer, is a director.
Other non-current assets have reduced from JPY 24,976,000 (�109,589) to JPY
4,858,000 (�21,316) primarily as a result of the termination of downsizing at
the Group's office premises.
Overall inventories have been reduced from JPY 193,535,000 (�849,208) to JPY
117,469,000 (�515,440) as a result of the reduced scope of the Group's
activities and the necessity to improve working capital.
Trade and other receivables have reduced from JPY 393,528,000 (�1,726,759) to
JPY 136,433,000 (�598,654) due in large part to;
a) the reduction in sales activity
b) the provision for bad and doubtful debts of JPY 250,000,000 (�1,096,491)
relative to amounts owed by four customers, two who have been provided for in
full amounting to JPY 185,000,000 (�811,403), and the other two only partially
provided for. The level of exposed debt not provided for amounts to JPY
134,000,000 (�587,719).
Cash and cash equivalents at the year end amounted to JPY 9,515,000 (�41,749)
and, as highlighted earlier, the Group requires to raise further funding in
order to continue and to execute its plans as set out in the Operating Review.
Management and Board
As a result of the poor performance, Mr Takahashi resigned as Chief Executive
and was replaced by Mr. Kiyomoto, our Chief Technical Officer, who has provided
excellent stewardship to ensure that the Group has made substantial technical
progress.
In March 2008, Mr Kiyomoto indicated that he would prefer to revert back to his
role as Chief Technical Officer. Consequently, for a brief interim period, I
will combine the responsibilities of both Chief Executive and Chairman until we
can identify an appropriate Chief Executive can be identified.
Additionally, David Evans, the independent non-executive director, will assume
the role of Deputy Chairman with specific additional responsibility for
Corporate governance and Investor Relations.
Outlook
The year ahead for the Company will be challenging and its survival is dependent
upon raising further funds, a process that I have supported personally in the
new financial year to the extent of 30,000,000 JPY and I am optimistic that we
will be able to raise additional funds to execute our plans.
The real benefit of the work currently being undertaken will show through in
2009 but some early evidence of success are beginning to be seen with the
placing of a JPY 4,000,000 (�17,544) order from Taiwan for prototype sensors.
Additionally I anticipate that we will be able to leverage off the investment
made in Beyond LSI Inc., where we currently own 40% (with arrangements in place
to acquire a further 13.9%)of the company, to expand into China where our smart
card solutions will meet an anticipated market need and, in the slightly longer
term, where our miniature semiconductor sensor will fulfil a requirement for a
mobile and flexible sensor with application not only in China but the Rest of
the World.
Finally I would like to thank you for your patience and forbearance as I have
sought to rectify certain issues in the Company and you can rest assured that my
interests both as Chairman and as the single largest shareholder are aligned
with yours in ensuring value is enhanced in this and future years.
Taketoshi Kashiwabara
Chairman
17 March 2008
Operating Review
In 2007 SDKK focused on the corporate development stage for future expansion:
the introduction of new products to the market, business/ technology alliances
with other companies and M&A.
In particular, 2007 provided a good opportunity to establish a global alliance
with other leading edge companies. We have established a new alliance with PCS
Securities Pte Ltd. ("PCS") in Singapore for e-Passport scanners and a wireless
authentication terminal. We have started a development project on design and
mass-production of a semiconductor capacitance fingerprint sensor in
collaboration with Oriental System Technologies, Inc. in Hsinchu, Taiwan and
Sanyo Semiconductor ("SANYO") in Gunma, Japan.
As pointed out in the Interim Report 2007, sales of the utility software SD-CHAP
, which enables the web log-in by using the one time password (OTP) and the
fingerprint authentication and fingerprint readers, including FP-STICK and
FP-PLUS, contributed significantly.
Three hundred units of ITubes(R), which have been one of our strategic products
since we established SDKK, were delivered to Tokyo Metropolitan Cancer and
Infectious Diseases Center Komagome Hospital in May 2007. Since June 2007, we
have also been introducing FLO-Tube, which used the main body of ITube and
Microsoft's ActiveDirectory(TM) In December 2007, the City Council of Yokosuka,
Japan adopted FLO-Tube Manager deploying the FLO-Tube for each of the council
members' PCs. These sales are establishing the reputation of SDKK in this field.
In April 2007, we reached a sales agreement with NEC Fielding Ltd., which has a
nationwide branch network in Japan, for SD-GATE which can use the fingerprint
authentication as well as smart cards such as Felica and Myfare cards. Since
then the sales of SD-Gate have doubled.
During the year, SDKK established a technology and business alliance with PCS
Securities Pte Ltd for developing new e-Passport control systems with
fingerprint authentication capability:
* Sentinel-Bio: a new e-Passport scanner platform with a fingerprint
authentication system
* e-Pass Kiosk: an automatic immigration service stand, and
* WAT: a mobile wireless e-Passport reader for border security
In fall 2007, SDKK and PCS officially announced the launch of Sentinel-Bio,
e-Pass Kiosk and WAT at Biometrics Consortium Conference & Exhibition 2007 in
Baltimore, USA and Biometrics Conference & Exhibition 2007 in London, UK. We
also found a civilian application for Sentinel-Bio, where it can be used for
checking employees passports. SDKK is establishing local sales representatives
in the US, UK and South East Asia to offer RFID chips and multi-functional
advisory service on e-Passport system.
SDKK also launched its new fingerprint reader LS-192 incorporating a new
fingerprint image sensor supplied by the Casio Computer Co., Ltd ("Casio"). The
fingerprint reader is unique because it contains the world's first built in
"liveness" detector, which is the best countermeasure against an artificial
fingerprint attack. Incorporating this technology will give Secure Design's
fingerprint reader an edge in terms of greater functionality and end-user
applications.
The new sensor has a larger image sensing area, which makes it particularly
suitable for the e-Passport applications. The sensor has the advantage of being
able to operate in direct sunlight, is water-resistant and can read wet as well
as dry fingerprints. The sensor was used in BlueFinn-II to offer a more powerful
bluetooth wireless fingerprint authentication system, and was exhibited at
Biometrics Conference & Exhibition 2007 in London, UK. Laurel Bank Machines Co.,
Ltd. has adopted BlueFinn-II and its mass-production mode was delivered in
December 2007.
One of the most important projects was the introduction of the design of another
new fingerprint image sensor and its authentication engine with Oriental System
Technologies, Inc. In addition, SANYO has agreed to manufacture the sensor. The
sensor is small, thin and particularly suitable for smart card and mobile
devices such as cell phones and pocket-PCs.
With this technology and business alliance, SDKK is also establishing a sales
channel for the new miniature fingerprint image sensor and biometrics smart card
in collaboration with Oriental System Technologies, Inc's existing sales
networks. The biometrics smart card, which has an embedded fingerprint reader
and matching capability, is called Authentication On Card ("AOC"). This type of
self-contained smart card is ideal for multi-applications because the AOC based
card brings the most secure solution to prevent ID fraud, in contrast to the
vulnerability of conventional cards. This project is on schedule and
successfully completed the design phase in February 2008.
We have taken a 40% stake inBeyond LSI, Inc. ("BLSI") in Tokyo, Japan since
November 2007 as part of our business strategy for biometrics smart card. BLSI
will be in charge of ASIC design for our Authentication On Card. BLSI is also
expected to play an important role in the Chinese market.
Our sales team selling the above product lines has performed well However, with
the focus still on sales within the Japanese market, we are looking to expand
our solution business into other territories and we are currently reviewing our
plans for increasing the level of exports.
Our sales department overestimated the demand for one of our products without
carrying out a full market analysis and committed a substantial amount from our
development budget to meet the anticipated demand. As a result, we found that we
lost a substantial amount of money and were faced with severalbad debts. As a
consequence, the CEO resigned and subsequently left the board of the Company.
The Market
In the biometric industry, fingerprint recognition remains the largest revenue
generator. Fingerprint recognition has 25 % of the market. (Source: Biometrics
Market & Industry Reports 2007-2012, published by International Biometrics
Group). Although the biometrics technology has somewhat declined in overall
revenue terms, the annual biometrics industry revenues are estimated to be
approximately US$3.8 billion in 2008.
The commercial application of fingerprint authentication is really emerging. For
instance, a recently released analysis of worldwide market data from 2007
reveals a greater than 10 times increase in the number of new models of mobile
phones launched that protect user data through fingerprint recognition. Just as
fingerprint sensors became a standard feature in notebook PCs starting in 2005,
a similar situation is being reached in the mobile phone market, with more than
20 new fingerprint models introduced this past year. (Source: "Fingerprint
Mobile Phone Market Surges In 2007," FindBiometrics, 11 February 2007)
Homeland Security Presidential Directive 12 (HSPD-12), published in the US,
requires the US government agencies to converge physical and logical access
control onto a single credential. The most significant new capability is that
smart cards can be used to secure access to government information systems and
networks. These cards also feature more secure physical access control
technology.
Outlook
Our current sales department has three divisions: the Information Security (IS)
division which domestically promotes data security products including SD-CHAP,
ITube(R), and FLO-Tube, the Physical Security (PS) division which sells SD-Gate
and other entry access control devices in Japan, and the Custom System (CS)
which handles division fingerprint authentication modules, readers including
FP-STICK, FP-PLUS, and BlueFinn, and standalone devices including Sentinel-Bio.
The semiconductor sensor business producing fingerprint sensor FPTS for smart
cards will be one of our strategic products for 2008, it is our plan to
establish the Semiconductor Sensor department to initiate marketing the
engineering sample (prototype) of FPTS which will be available in H1 2008.
The Semiconductor Sensor business expects to see first sales in 2008 with the
aim of establishing and expanding its sales channel, the product delivery and
the technical support.
As of March 4, 2008, SDKK has signed non-disclosure agreements with two major
Japanese smart card manufacturers, Dai Nippon Printing and Toppan, and we are
conducting feasibility study with each of them for finalising the Authentication
On Card design for their specific applications.
Beyond LSI, Inc., which is our allied company, is engaged in designing a new
Application Specific Integrated Circuit (ASIC) which will embed our fingerprint
authentication algorithm. Because BLSI has been successfully expanding the
Chinese market with products integrated with its ASIC technology, SDKK expect a
huge opportunity of selling the fingerprint sensor in the Chinese market. This
will be part of Secure Design's long-term goal of becoming a global provider of
fingerprint authentication products and services.
Furthermore, by utilising the worldwide networks of SANYO and Oriental System
Technologies, Inc, we plan to start a global sales promotion of the miniature
semiconductor sensor and the Authentication On Card system architecture to smart
card manufacturers. For example, the Authentication On Card based smart card in
the US has the potential to grow to one million cards annually.
After a difficult period for SDKK, we are confident that we have a product set
that should enable us to realise our potential. The areas of marketing and sales
still require a substantial investment and the board is in active discussion
with a view to raising further funding.
Shoichi Kiyomoto
Chief Executive
17 March 2008
For further information, please contact:
Secure Design KK
Taketoshi Kashiwabara Japan +81-3-5652 -0321
(Chairman)
David Evans United Kingdom +44 (0) 7740 084 452
(Deputy Chairman)
Masahiro Nishikawa Japan +81-3-5652 -0321
(Executive Vice President, Business Planning)
Toshiya Kurita' Japan +81-3-5652 -0321
(Chief Financial Controller)
Shinil Cho United Kingdom +44 (0) 7738 842 662
(Chief Information Officer) Japan +81-3-5652 -0321
United States +1-412-367-7063
Charles Stanley Securities +44 (0) 20 7149 6000
Nominated Adviser
Russell Cook / Freddy Crossley
Cubitt Consulting +44 (0) 20 7367 5100
Brian Coleman-Smith / James Verstringhe/ Nicola Krafft
Secure Design KK
CONSOLIDATED INCOME STATEMENTS FOR the years ended 31 December 2007 and 2006
NOTES Year Year Year Year
Ended Ended
31/12/07 Ended 31/12/06 31/12/07 Ended
31/12/06
JPY'000 JPY'000 STG STG
(�) (�)
Revenue 2 269,755 522,214 1,183,653 2,291,420
Cost of sales 4 (154,211) (100,184) (676,659) (439,597)
Gross profit 115,544 422,030 506,994 1,851,823
Other operating 27,337 5,910 119,953 25,932
income
Sales and marketing 4 (357,652) (121,850) (1,569,341) (534,665)
expenses
General and 4 (215,619) (378,188) (946,110) (1,659,446)
administrative
expenses
Research and 4 (215,025) (135,665) (943,504) (595,287)
development
expenses
Loss from 4 (645,415) (207,763) (2,832,008) (911,643)
operations
Finance income 6 1,041 45,792 4,568 200,932
Finance costs 5 (1,405) (53) (6,166) (234)
Net finance costs (364) 45,739 (1,598) 200,698
Share of loss of 13 (3,180) - (13,952) -
equity accounted
investee
Loss before tax (648,959) (162,024) (2,847,558) (710,945)
Income tax expense 18 - - -
Loss for the year (648,959) (162,024) (2,847,558) (710,945)
Loss per share 7
Basic (19.58) (6.15) (0.086) (0.027)
Diluted (18.35) (5.76) (0.081) (0.025)
Secure Design KK
CONSOLIDATED BALANCE SHEETS AS AT 31 DECEMBER 2007 AND 2006
NOTES 2007 2006 2007 2006
JPY'000 JPY'000 STG STG
(�) (�)
ASSETS
Non-current assets
Property, plant and 8 9,683 18,006 42,490 79,010
equipment
Investment securities 12 32,682 32,532 143,407 142,748
Investments in equity 13 57,071 - 250,418 -
accounted investee
Goodwill 10 12,500 14,400 54,848 63,186
Intangible assets 11 77,518 47,959 340,143 210,437
Other non-current assets 9 4,858 24,976 21,316 109,589
194,312 137,873 852,622 604,970
Current assets
Inventories 14 117,469 193,535 515,440 849,208
Trade and other 15/23 136,433 393,528 598,654 1,726,759
receivables
Cash and cash 15 9,515 94,488 41,749 414,603
equivalents
263,417 681,551 1,155,843 2,990,570
Total assets 457,729 819,424 2,008,465 3,595,540
LIABILITIES
Current liabilities
Trade and other payables 19/23 86,220 60,603 378,325 265,917
86,220 60,603 378,325 265,917
Net current assets 177,197 620,948 777,518 2,724,653
Total liabilities 86,220 60,603 378,325 265,917
Net assets 371,509 758,821 1,630,140 3,329,623
EQUITY
Share capital 16 713,614 587,369 3,131,260 2,577,310
Share premium 16 472,255 347,001 2,072,201 1,522,602
Fair value reserve 12 (425) (575) (1,863) (2,521)
Share option reserve 16 12,337 2,339 54,133 10,264
Deficit 17 (826,272) (177,313) (3,625,591) (778,032)
Total equity 371,509 758,821 1,630,140 3,329,623
Secure Design KK
COMPANY BALANCE SHEETS AS AT 31 DECEMBER 2007 AND 2006
NOTES 2007 2006 2007 2006
JPY'000 JPY'000 STG STG
(�) (�)
ASSETS
Non-current assets
Property, plant and 8 9,683 18,006 42,490 79,010
equipment
Investment securities 12 32,682 32,532 143,407 142,748
Investments in equity 13 60,250 - 264,370 -
accounted investee
Goodwill 10 12,500 14,400 54,848 63,186
Intangible assets 11 77,518 47,959 340,143 210,437
Other non-current 9 4,858 24,976 21,316 109,589
assets
197,491 137,873 866,574 604,970
Current assets
Inventories 14 117,469 193,535 515,440 849,208
Trade and other 15/23 136,433 393,528 598,654 1,726,759
receivables
Cash and cash 15 9,515 94,488 41,749 414,603
equivalents
263,417 681,551 1,155,843 2,990,570
Total assets 460,908 819,424 2,008,465 3,595,540
LIABILITIES
Current liabilities
Trade and other 19/23 86,220 60,603 378,325 265,917
payables
86,220 60,603 378,325 265,917
Net current assets 177,197 620,948 777,518 2,724,653
Total liabilities 86,220 60,603 378,325 265,917
Net assets 374,688 758,821 1,630,140 3,329,623
EQUITY
Share capital 16 713,614 587,369 3,131,260 2,577,310
Share premium 16 472,255 347,001 2,072,201 1,522,602
Fair value reserve 12 (425) (575) (1,863) (2,521)
Share option reserve 16 12,337 2,339 54,133 10,264
Deficit 17 (823,093) (177,313) (3,611,633) (778,032)
Total equity 374,688 758,821 1,644,098 3,329,623
Secure Design KK
CONSOLIDATED CASH FLOW STATEMENTS FOR the yearS ended 31 December 2007 and 2006
NOTES Year Year Year Year
Ended Ended
31/12/07 Ended 31/12/06 31/12/07 Ended 31/12/06
JPY'000 JPY'000 STG STG
(�) (�)
OPERATING
ACTIVITIES
Cash used in 20 (251,331) (701,679) (1,102,815) (3,078,890)
operations
Interest paid, net (623) (154) (2,732) (678)
NET CASH USED IN (251,954) (701,833) (1,105,547) (3,079,568)
OPERATING
ACTIVITIES
INVESTING
ACTIVITIES
Purchases of (1,101) (16,102) (4,831) (70,655)
property, plant and
equipment
Expenditure on (12,888) (2,972) (56,552) (13,041)
product development
Purchase of (40,500) - (177,710) -
intangible assets
Purchase of - (99,083) - (434,764)
investment
securities
Acquisition of (60,250) - (264,370) -
associate company
Proceeds from sales - 141,506 - 620,915
of investment
securities
Increase of (35,000) (30,000) (153,576) (131,637)
short-term lending
Decrease of 65,000 - 285,213 -
short-term lending
NET CASH USED IN (84,739) (6,651) (371,826) (29,182)
INVESTING
ACTIVITIES
FINANCING
ACTIVITIES
Proceeds from 24,135 - 105,903 -
short-term
borrowings
Repayments of (24,135) - (105,903) -
short-term
borrowings
Proceeds on issue 251,499 775,652 1,103,549 3,403,474
of new shares, net
of issuance cost
NET CASH FROM
FINANCING
ACTIVITIES 251,499 775,652 1,103,549 3,403,474
NET INCREASE
(DECREASE) IN CASH
AND CASH (85,194) 67,168 (373,824) 294,724
EQUIVALENTS
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF YEAR 94,488 27,320 414,604 119,879
EFFECT OF EXCHANGE
RATE FLUCTUATIONS
ON CASH HELD 221 - 969 -
CASH AND CASH
EQUIVALENTS
15 9,515 94,488 41,749 414,603
AT END OF YEAR
Secure Design KK
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR the yearS ended 31 DECEMBER 2007 and 2006
Attributable to equity holder of the company
JPY'000
Fair Share
Share Share value option Total STG
capital premium reserve reserve Deficit equity (�)
Balance as at 128,980 - - - (15,289) 113,691 498,863
1 January 2006
Share issued 457,369 387,369 - - - 844,738 3,706,617
Share issuance - (39,348) - - - (39,348) (172,655)
costs
Reclassification -
of share issuance
costs 1,020 (1,020) - - - -
Fair value - - (575) - - (575) (2,521)
adjustments of
available-for-sale
investments
Share option costs
charged to income
for the year - - - 2,339 - 2,339 10,264
Net loss for the - - - - (162,024) (162,024) (710,945)
year
Balance as at
1 January 2007 587,369 347,001 (575) 2,339 (177,313) 758,821 3,329,623
Share issued (Note 126,245 126,245 - - - 252,490 1,107,898
16)
Share issuance - (991) - - - (991) (4,350)
costs
Fair value
adjustments of
available-for-sale
investments
(Note 12) - - 150 - - 150 658
Share option costs
charged to income
for the year (Note - - - 9,998 - 9,998 43,869
16)
Net loss for the - - - - (648,959) (648,959) (2,847,558)
year
(Note 17)
Balance as at 713,614 472,255 (425) 12,337 (826,272) 371,509 1,630,140
31 December 2007
Secure Design KK Secure Design KK
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards ("IFRS")
from the first accounting period. The designation "IFRSs" also
includes all valid Internal Accounting Standards (IASs). All
interpretations of the International Financial Reporting
Interpretations Committee (IFRIC) mandatory for the financial year
2007 are also applied. Sterling pound amounts included herein are
given solely for convenience and are stated, as matter of
arithmetical computation only, at the rate of JPY227.90=�1, the
approximate exchange rate at 31 December 2007. The translation
should not be construed as representations that the Japanese yen
amounts have been, could have been, or could in the future be,
converted into Sterling pound.
The principal accounting policies adopted are set out below.
The Company was incorporated as of 22 November 2005 in Japan. The
Company's domicile as well as the registered office address has been
changed to ICST Blg 3 fl, 1-9-2 Horidome-cho Nihonbashi, Chuo-ku,
Tokyo 103-0012, Japan as at 17 December 2007. The legal form of the
Company is a limited liability corporation called
"Kabushiki-kaisha".
The Company designs and manufactures to offer a range of fingerprint
authentication technologies and products to companies and
individuals that wish to establish high levels of security in
various applications using biometrics. The business activity also
includes R&D and sales of fingerprint systems and components.
Going-concern
These consolidated financial statements have been prepared by
management on the basis of generally accepted accounting principles
applicable to a "going concern", which assumes the Company will
continue in operation for the foreseeable future and will be able to
realize its assets and discharge its liabilities in the normal
course of operations.
The Company posted net loss of JPY648 million in the year ended 31
December 2007, mainly due to poor sales results of JPY269 million
and losses from uncollectible receivables of JPY250 million.
These consolidated financial statements do not reflect adjustments
that would be necessary if the going concern assumption was not
appropriate because management believes that it can successfully
raise sufficient funds later this year to execute its business plan
to 31 December 2009.
If the going concern assumption were not appropriate for the
consolidated financial statements, then adjustments would be
necessary to the carrying values of the assets and liabilities, the
reported revenues and expenses, and the balance sheet
classifications used.
Basis of consolidation
Equity method
The Company acquired 40% of shares of Beyond LSI, Ltd. at December
2007 and categorised it as associate company. Associates are those
entities in which the Company has significant influence, but not
control, over the financial and operating policies. Associates are
accounted for using the equity method (equity accounted investees).
The consolidated financial statements include the Company's share of
the income and expenses of equity accounted investees, after
adjustments to align the accounting policies with those of the
Company, from the date that significant control commences until the
date that significant influence ceases. When the Company's share of
losses exceeds its interest in an equity accounted investee, the
carrying amount of that interest (including any long-term
investments) is reduced to nil and the recognition of further losses
is discontinued except to the extent that the Company has an
obligation or has made payments on behalf of the investee.
Goodwill
Goodwill arising on business transfer represents the excess of the
cost of acquisition over the fair value of the identifiable assets
and liabilities of a transferor at the date of acquisition. In
respect of equity method investee, the carrying amount of goodwill
is included in the carrying amount of the investment.
Goodwill is recognised as an asset and reviewed for impairment at
least annually. Any impairment is recognised immediately in the
income statement and is not subsequently reversed.
Company has only single cash generating unit for the purpose of
impairment testing.
Revenue recognition
Revenue arises from sales of goods.
Revenue is measured at the fair value of the consideration received
or receivable and represents amounts receivable for goods and
services provided in the normal course of business, net of discounts
and consumption taxes.
Sales of goods are recognised when goods are delivered and title has
passed.
Leasing
Leases are classified as finance leases whenever the terms of the
lease transfer substantially all the risks and rewards of ownership
to the lessee. All other leases are classified as operating leases.
There was no asset under finance lease as of the balance sheet date.
Rentals payable under operating leases are charged to income on a
straight-line basis over the term of the relevant lease.
Foreign currencies
The Company's functional and presentational currency is Japanese Yen
("JPY").
Transactions in currencies other than Japanese Yen are recorded at
the rates of exchange prevailing on the dates of the transactions.
At the balance sheet date, monetary assets and liabilities that are
denominated in foreign currencies are retranslated at the rates
prevailing on the balance sheet date. Non-monetary assets and
liabilities carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date when
the fair value was determined. Gains and losses arising on
retranslation are included in the income statement for the year.
Taxation
The tax expense represents the sum of the tax currently payable and
deferred tax.
The tax currently payable is based on taxable profit for the year.
Taxable profit differs from net profit as reported in the income
statement because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Company's liability for
current tax is calculated by using tax rates that have been enacted
or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amount of assets and liabilities in
the financial statements and the corresponding tax bases used in the
computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax liabilities are
recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that taxable
profits will be available against which deductible temporary
differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from goodwill.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the assets to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply to the period when the asset is realised or the liability is
settled. Deferred tax is charged or credited in the income
statement, except when it relates to items credited or charged
directly to equity, in which case the deferred tax is also dealt
with in equity.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the cost or valuation of
assets, other than land and properties under construction, over
their estimated useful lives, using the straight-line method, on the
following basis:
Leasehold improvement 5%-17%
Machinery 25%-50%
Fixtures and equipment 17%-50%
The gain or loss arising on the disposal or retirement of an asset
is determined as the difference between the sales proceeds and the
carrying amount of the asset and is included in the income statement
for the year.
Other non-current assets
Other non-current assets consist of lease deposit for office premise
and long-term prepaid expenses, which are stated at historical cost
minus unrefunded amounts.
Development costs
Development costs are capitalised and measured initially at purchase
cost and amortised on a straight-line basis over their estimated
useful lives. (3 years)
An internally-generated intangible asset arising from the Company's
biometric technology business development is recognised only if all
of the following conditions are met:
* an asset is created that can be identified (such as
software and new processes);
* it is probable that the asset created will generate
future economic benefits; and
* the development cost of the asset can be measured
reliably.
Internally-generated intangible assets are amortised on a
straight-line basis over their useful lives.
Expenditure on research activities is recognised as an expense in
the period in which it is incurred.
Patents, exclusive sales rights and trademarks
Patents and trademarks are measured initially at purchase cost and
amortised on a straight-line basis over their estimated useful
lives. (8 to10 years) Exclusive sales rights are not amortised since
there is substantially no period for termination in the agreement.
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Company reviews the carrying amounts
of its tangible and intangible assets to determine whether there is
any indication that those assets have suffered an impairment loss.
If any such indication exists, the recoverable amount of the asset
is estimated in order to determine the extent of the impairment loss
(if any). Where the asset does not generate cash flows that are
independent from other assets, the Company estimates the recoverable
amount of the cash-generating unit to which the asset belongs. An
intangible asset with an indefinite useful life is tested for
impairment annually and whenever there is an indication that the
asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell
and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the
estimates of future cash flows have been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is
estimated to be less than its carrying amount, the carrying amount
of the asset (cash-generating unit) is reduced to its recoverable
amount. An impairment loss is recognised as an expense immediately,
unless the relevant asset is carried at a revalued amount, in which
case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount
of the asset (cash-generating unit) is increased to the revised
estimate of its recoverable amount, but so that the increased
carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset
(cash-generating unit) in prior years. A reversal of an impairment
loss is recognised as income immediately, unless the relevant asset
is already carried at a revalued amount, in which case the reversal
of the impairment loss is treated as a revaluation increase.
Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost comprises direct materials, transportation and any other
incidental costs incurred for purchase. Cost is calculated using the
weighted average method. Net realisable value represents the
estimated selling price less all estimated costs to completion and
costs to be incurred in marketing, selling and distribution.
Financial instruments
Financial assets and financial liabilities are recognised on the
Company's balance sheet when the Company has become a party to the
contractual provisions of the instrument.
Trade receivables
Trade receivables are recognised at fair value and subsequently
measured at amortised cost using the effective interest method.
Investments securities
Investments are recognised and derecognised on a trade date where a
purchase or sale of an investment is under a contract whose terms
require delivery of the investment within the timeframe established
by the market concerned, and are initially measured at cost,
including transaction costs.
Investment securities classified as available-for-sale are
remeasured to fair value. Gains and losses arising from the changes
in the fair values of available-for-sale investments are recognised
directly in the fair value reserve in equity, until the investment
is sold or otherwise disposed of or until it is determined to be
impaired. The fair value of an available-for-sale investment is its
quoted bid price at the balance sheet date. Other investment
securities are remeasured also to fair value. When, in individual
cases, these values are not available or cannot be determined
reliably, other investment securities are measured at cost.
In accordance with IAS 39, assessments are made regularly as to
whether there is any objective evidence that investments securities
may be impaired. Impairment losses identified after carrying out an
impairment test are recognised as an expense.
Trade payables
Trade payables are recognised at fair value and subsequently
measured at amortised cost using the effective interest method.
Equity instruments
Ordinary shares are classified as equity instruments and are
recorded at the fair value, net of direct issue costs. Equity
instruments are not subsequently measured.
In accordance with IAS39 (Financial Instruments: Recognition and
Measurement), assessments are made regularly as to whether there is
any objective evidence that a financial asset or group of assets may
be impaired. Impairment losses identified after carrying out an
impairment test are recognised as an expense. Gains and losses on
available-for-sale investments are recognised directly in equity
until the financial asset is disposed of or is determined to be
impaired, at which time the cumulative loss previously recognised in
equity is included in loss for the year.
Share-based payments
The Company operates an equity-settled share-based payments scheme.
Equity-settled share-based payments are measured at fair value of the
share option granted at the date of grant. The fair value determined
at the grant date is expensed on a straight-line basis over the
vesting period with a corresponding increase in equity, based on the
Company's estimate of shares that will eventually vest.
Fair value is measured by use of a Black-Scholes model, taking into
account the terms and conditions upon which the options were granted.
Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances.
Critical accounting estimates and assumptions
The Company makes estimates and assumptions concerning the future.
The resulting accounting estimates and assumptions will, by
definition, seldom equal to the related actual results. The
estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed below.
The Company is subject to income taxes at city and national level
within Japan. Significant judgement is required in determining the
provision for income taxes. There are many transactions and
calculations for which the ultimate tax determination is uncertain
during the ordinary course of business. The Company recognises
liabilities for anticipated tax audit issues based on estimates of
whether additional taxes will be due. Where the final tax outcome of
these matters is different from the amounts that were initially
recorded, such differences will impact the income tax and deferred
tax provisions in the period in which such determination is made.
Secure Design KK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR the years ended 31 December 2007 and 2006
1 PRESENTATION OF FINANCIAL STATEMENTS
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards.
These consolidated financial statements are presented in Japanese
Yen since that is the currency in which the majority of the
Company's transactions are denominated.
2 REVENUE
An analysis of the Company's revenue JPY'000
is as follows:
Year ended 31/12/07 Year ended 31/12/06
Continuing operations - sale of goods: 269,755 522,214
Total revenue 269,755 522,214
3 BUSINESS AND GEOGRAPHICAL SEGMENTS
Business segments
For management reporting purposes, the Company is currently organised as a
single operating division, that is, biometric technology. This division is
the basis for segment information.
Principal activity is to be engaged in research and development and sales
of biometric technology products including biometric certification and
authentication services, physical access systems, fingerprint image sensors
and relating software.
Due to the single segment, the segment information is not reported here.
Geographical segments
The Company's operations are located only in Japan and there was no
exportation from Japan.
4 LOSS FROM OPERATIONS
Loss from operations has been arrived at after charging:
JPY'000
Year ended Year ended
31/12/07 31/12/06
Staff costs (see below
numbers of staff)
Salaries and wages 145,550 135,180
Share option expense 9,998 2,339
Social security costs 12,992 11,911
168,540 149,430
Depreciation 8,414 8,047
Amortisation 1,900 600
- impairment (note 1, 23,894 19,768
described below)
- regular
25,794 20,368
Auditors' remuneration
- audit for annual report 6,500 10,000
- due diligence audit for - 42,894
Admission
- 1,000
- other
6,500 53,894
Advisory fees (note 2, 40,702 185,102
described below)
Purchased goods 57,173 79,411
Subcontractors fees 120,930 47,786
Travel expenses 17,173 40,920
Operating lease expenses 41,671 27,857
(note 22)
Advertising and public 40,252 71,688
relation expenses
Allowance for doubtful 250,113 -
receivables
Others 165,245 51,984
Total 942,507 735,887
(note 1) Certain goodwill in the year ended 31/12/07 and 31/12/06 have been
impaired since they will not be valuable in the Company's operation.
(note 2) Fees for nominated advisor, lawyers, consultants and translators are
included.
NUMBER OF STAFF
The average monthly number of employees including executive directors
for the year for each of the Company's principal functions was as
follows:
Number
Year ended Year ended
31/12/07 31/12/06
Engineers 3 9
Head office and administration 5 8
8 17
5 FINANCE COSTS JPY'000
Year ended Year ended
31/12/07 31/12/06
Interest on borrowings, net of 623 53
interest earned
623 53
6 FINANCE INCOME
JPY'000
Year ended Year ended
31/12/07 31/12/06
Foreign exchange gain, net 259 -
Profit on disposal of - 45,792
available-for-sale investments
259 45,792
7 EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share is based
on the following data:
Earnings JPY'000
Year ended Year ended
31/12/07 31/12/06
Earnings for the purposes of basic (648,959) (162,024)
earnings per share (net loss for the
year attributable to equity holders)
Effect of dilutive potential ordinary - -
shares
Earnings for the purposes of diluted (648,959) (162,024)
earnings per share
Number of shares Year ended Year ended
31/12/07 31/12/06
Weighted average number of ordinary 33,147,161 26,344,726
shares for the purposes of basic
earnings per share
Effect of dilutive potential ordinary 2,218,124 1,808,333
shares:
- share option
Weighted average number of ordinary 35,365,285 28,153,059
shares for the purposes of diluted
earnings per share
The denominator for the purposes of calculating both basic and
diluted earnings per share has been adjusted to reflect the
capitalisation issue in June 2006 that the Company allocated 999
shares per share for no consideration to each of the shareholders.
8 PROPERTY, PLANT AND EQUIPMENT
JPY'000
Leasehold Plant & Fixtures & Total
Improvement Machinery Equipment
COST OR VALUATION
At 1 January 2006 - 171 7,234 7,405
Additions 9,362 - 10,086 19,448
Disposal (527) - - (527)
At 1 January 2007 8,835 171 17,320 26,326
Additions 1,487 - 614 2,101
Disposal (6,565) - - (6,565)
At 31 December 3,757 171 17,934 21,862
2007
ACCUMULATED DEPRECIATION
At 1 January 2006 - 4 289 293
Charge for the 3,161 45 4,841 8,047
year
Disposal (20) - - (20)
At 1 January 2007 3,141 49 5,130 8,320
Charge for the 1,722 44 6,647 8,413
year
Deductions (4,554) - - (4,554)
At 31 December 309 93 11,777 12,179
2007
NET BOOK VALUE
At 31 December 3,448 78 6,157 9,683
2007
At 31 December 5,694 122 12,190 18,006
2006
9 OTHER NON-CURRENT ASSETS
JPY'000
2007 2006
Lease deposit for office premises
Beginning balance 24,725 24,725
Addition 4,673 -
Disposal (24,725) -
Ending balance 4,673 24,725
Long-term prepaid expense
Beginning balance 250 1,195
Addition 246 -
Amortisation (311) (945)
Ending balance 185 250
Total 4,858 24,975
10 GOODWILL
JPY'000
COST
At 1 January 2006 15,000
Additions -
Deductions
- impairment (note, described below) (600)
At 1 January 2007 14,400
Additions -
Deductions (1,900)
- impairment (note, described below)
At 31 December 2007 12,500
(note) A part of goodwill representing a certain
customer relation has been impaired since the Company
has lost it.
11 INTANGIBLE ASSETS
JPY'000
Development Patents & Exclusive Total
costs trademarks sales
right
COST
At 1 January 2006 52,833 9,818 3,429 66,080
Additions 2,972 - - 2,972
At 1 January 2007 55,805 9,818 3,429 69,052
Additions 12,888 40,500 - 53,388
At 31 December 2007 68,693 50,318 3,429 122,440
AMORTISATION
At 1 January 2006 2,171 99 - 2,270
Charge for the year 17,638 1,185 - 18,823
At 1 January 2007 19,809 1,284 - 21,093
Charge for the year 20,113 3,716 - 23,829
At 31 December 2007 39,922 5,000 - 44,922
CARRYING AMOUNT
At 31 December 2007 28,771 45,318 3,429 77,518
At 31 December 2006 35,996 8,534 3,429 47,959
12 INVESTMENT SECURITIES
Available-for-sale investments
JPY'000
At 1 January 2006 -
Acquired 99,083
Disposed (95,714)
Decrease in fair value (575)
At 1 January 2007 2,794
Increase in fair value 150
At 31 December 2007 2,944
Other investment securities
JPY'000
At 1 January 2006 -
Acquired 29,738
At 1 January 2007 29,738
At 31 December 2007 29,738
Total investment securities at 31 32,682
December 2007
Available-for-sale investments represent shares in Fingerprint Cards
AB (Sweden), which is one of the related parties of the Company. (see
Note 23) The Company directly owns 0.07% of Fingerprint Cards AB as
of 31 December 2007 and 2006, respectively. Losses arising from the
revaluation to the fair values are recognised directly in the fair
value reserve in equity amounting to JPY425 thousand for the year
ended 31 December 2007 and JPY575 thousand for the year ended 31
December 2006, respectively.
Other investment securities represent shares in Secure Generation
Ltd. (Japan, non-listed), which the Company acquired through the
issue of 86,700 new ordinary shares. The Company owns 6.5% of Secure
Generation Ltd. at the balance sheet date.
13 EQUITY ACCOUNTED INVESTEE
The Company's share of loss in its equity accounted investee for
the year was JPY 3,180 thousand (2006: nil). During the year the
Company acquired 40 % shares in Beyond LSI Ltd. Based on an
evaluation of the extent of control on the investee, it is not
consolidated by the Company.
Summary financial information for equity accounted investees, not
adjusted for the percentage ownership held by the Company:
2007 Owner- Current Non- Total Current Non- Total
ship Assets current assets liabilities current liabilities
asset liabilities
(Unit:
JPY'000)
Beyond LSI 40% 19,885 30,971 50,856 72,319 167,901 240,220
Ltd.
Revenues Expenses Loss
13,297 46,038 32,741
14 INVENTORIES
JPY'000
2007 2006
Raw Materials (note 1, described below) 84,883 40,607
Finished goods (note 2, described below) 32,586 152,928
117,469 193,535
(note 1) As of 31/12/06, raw materials have been written down to their net
realisable value by JPY1,850.
(note 2) As of 31/12/06, finished goods have been written down to their net
realisable value by JPY3,045.
15 OTHER FINANCIAL ASSETS
Trade and other receivables comprise following JPY'000
items.
2007 2006
Trade accounts receivable 123,761 269,180
Prepaid expenses 1,414 13,955
Advances to employees 1,512 737
Advances to related party (Note 23) - 79,000
Short-term lending to related party (Note 23) - 30,000
Other receivables 5,112 14
Consumption tax recoverable 4,634 642
Total 136,433 393,528
The average credit period taken on sale of goods is 75 days. At 31 December
2007, trade receivables are shown as fair values after deduction of the likely
uncollectible value amounting to JPY250,113 thousand (2006: nil).
The directors consider that the carrying amount of trade and other receivables
approximates their fair value.
Cash and cash equivalents comprise cash and short-term deposits
held by the Company treasury function. The carrying amount of
these assets approximates to their fair value.
Credit risk - The Company's principal financial assets are bank
balances and cash, investment securities, and trade and other
receivables, which represent the Company's maximum exposure to
credit risk in relation to financial assets.
The Company's credit risk is primarily attributable to its trade
receivables. The amounts presented in the balance sheet are
measured at amortised cost using the effective interest method.
The credit risk on liquid funds is limited because the
counterparties are banks with high credit-ratings assigned by
international credit-rating agencies.
The Company has a concentration of credit risk, with exposure
spread over only several counterparties and customers.
Financial risk - The Company has no significant interest risk. The
Company is exposed to transactions in currencies other than
Japanese Yen.
The balances under foreign currencies as at 31 December 2007 and
2006 were bank deposits of JPY 236 thousand (SEK 13,420.19) and
JPY 16,567 thousand (SEK 990,129.98), and investment securities of
JPY 2,944 thousand (SEK 165,240) and JPY 2,794 thousand (SEK
165,240), and payables of JPY 2,598 thousand (STG 11,402.17) and
JPY 2,969 thousand (STG 12,817.70). There were no formal risk
management policies in place other than management monitoring the
level of transactions denominated in foreign currencies.
16 SHARE CAPITAL
2007 2007 2006 2006
Number JPY'000 Number JPY'000
Ordinary shares with
no nominal value
Authorised: 125,600,000 N/A 125,600,000 N/A
Issued and fully paid: 6,330,000 96,120 68,400 442,500
Issued for no
consideration
- - 31,368,600 -
Issued and acquired
investment securities
- - 86,700 14,869
Issued and acquired
equity accounted
investee
1,585,526 30,125
Balance at the year 39,452,226 713,614 31,536,700 587,369
end
On 23 March 2006, the Company issued and allocated to Taketoshi
Kashiwabara 7,000 shares by a resolution of the shareholders meeting.
After such issuance, the aggregate number of issued shares was
20,000. The total paid amount of JPY 70,000 thousand was allocated to
share capital.
On 24 April 2006, the Company issued 4,000 shares and allocated them
to the management of the Company and certain employees by a
resolution in writing of the shareholders meeting. After such
issuance, the aggregate number of issued shares was 24,000. 50% of
the total paid amount of JPY 80,000 thousand was allocated to share
capital and the rest was allocated to share premium.
On 9 May 2006, the Company issued 1,000 shares and allocated them to
Mr. Hirokichi Matsumura by a resolution in writing of the
shareholders meeting. After such issuance, the aggregate number of
issued shares was 25,000. 50% of the total paid amount of JPY 20,000
thousand was allocated to share capital and the rest was allocated to
share premium.
On 23 May 2006, the Company issued 950 shares and allocated them to
some individuals outside the Company by a resolution in writing of
the shareholders meeting. After such issuance, the aggregate number
of issued shares was 25,950. 50% of the total paid amount of JPY
95,000 thousand was allocated to share capital and the rest was
allocated to share premium.
On 5 June 2006, the Company issued 5,450 shares and allocated them to
some institutional investors ands individuals outside the Company by
a resolution in writing of the shareholders meeting. After such
issuance, the aggregate number of issued shares was 31,400. 50% of
the total paid amount of JPY 545,000 thousand was allocated to share
capital and the rest was allocated to share premium.
On 13 June 2006, the Company amended the articles of incorporation
and increased the number of authorised shares from 1,000,000 to
125,600,000 by a resolution in writing of the shareholders meeting.
On the same day, the Company allocated 999 shares per share for no
consideration to each of the shareholders as at 13 June 2006 by a
Board resolution. After such amendment and allocation, the aggregate
number of issued shares was 31,400,000 Shares.
On 14 July 2006 at the date of Admission to AIM, the Company issued
50,000 shares and allocated them to Charles Stanley & Co. Limited by
a resolution in writing of the shareholders meeting. After such
issuance, the aggregate number of issued shares was 31,450,000. 50%
of the total paid amount of JPY 5,000 thousand was allocated to share
capital and the rest was allocated to share premium.
On 15 December 2006, the Company issued 86,700 shares and allocated
to the shareholders of Secure Generation Ltd (Japan) by a Board
resolution. After such issuance, the aggregate number of issued
shares was 31,536,700. For consideration of such issuance of shares,
the Company acquired 510 shares in Secure Generation Ltd. (Japan).
50% of the total consideration value of JPY 29,738 thousand was
allocated to share capital and the rest was allocated to share
premium.
On 30 October 2007, the Company issued 5,080,000 shares and allocated
them to some institutional investors and individuals outside the
Company by a resolution in writing of the shareholders meeting. After
such issuance, the aggregate number of issued shares was 36,616,700.
50% of the total paid amount of JPY 142,240 thousand was allocated to
share capital and the rest was allocated to share premium.
On 26 November 2007, the Company issued 1,250,000 shares and
allocated them to some institutional investors and individuals
outside the Company by a resolution in writing of the shareholders
meeting. After such issuance, the aggregate number of issued shares
was 37,866,700. 50% of the total paid amount of JPY 50,000 thousand
was allocated to share capital and the rest was allocated to share
premium.
On 28 December 2007, the Company issued 1,585,526 shares and
allocated to the shareholders of Beyond LSI Ltd (Japan) by a Board
resolution. After such issuance, the aggregate number of issued
shares was 39,452,226. For consideration of such issuance of shares,
the Company acquired 40% of total shares of Beyond LSI Ltd (Japan).
50% of the total consideration value of JPY 60,250 thousand was
allocated to share capital and the rest was allocated to share
premium.
The Company has one class of ordinary shares, which carry no right to
fixed income.
The ordinary shares rank equally for voting and rights to dividends.
EQUITY-SETTLED SHARE-BASED COMPENSATION
The shareholder's meeting authorised the share option plan as at 31
January 2006. 2,000 options in total equivalent to the 1,000 shares
per option were granted to all directors, employees and Company's
consultants for no consideration. The options can be exercised
commencing from January 31, 2008 to January 30, 2016 at JPY 10 per
share. Of 2,000 options, 1,820 options were actually allotted to the
eligible persons. This plan was authorised by the shareholders'
meeting on the same date.
In addition, shareholder's meeting authorised the share option plan
as at 29 June 2007. 1,500 options in total equivalent to the 750
shares per option were granted to all directors, employees and
Company's consultants for no consideration. The options can be
exercised commencing from June 30, 2009 to June 29, 2010 at JPY 107
per share. Of 1,500 options, 1,460 options were actually allotted to
the eligible persons. This plan was authorised by the shareholders'
meeting on the same date.
Share-based compensation was measured at fair value of the share
option granted at the date of grant. The fair value determined at the
grant date was expensed on a straight-line basis over the vesting
period, based on the Company's estimate of shares that will
eventually vest. Fair value was measured by use of the Black-Scholes
model, taking into account the terms and conditions upon which the
options were granted.
Details of share options granted during
the year ended 31 December 2006, and the
assumptions used in the Black-Scholes
model are as follows:
Number of Number of
shares
Options
Number of share options granted as of 1
January 2006
0 0
Number of share options granted as of 31
January 2006
1,820 1,820,000
Forfeited during the year (460) (460,000)
Outstanding at the end of year 1,360 1,360,000
Fair value of share at measurement date 10 JPY/share
Equity-settled share-based payment fair 3.14 JPY/share
value
Exercise price 10 JPY/share
Weighted average exercise price 10 JPY/share
Expected volatility 23.26 % p.a.
Option life 120 Month
Expected dividends nil
Risk-free interest rate 0.8 %
The expected volatility is based on historical volatility of similar
listed entities since the Company was not listed when the options
were granted. The options are granted under a service condition.
There are no market conditions associated with the option granted.
Details of share options granted during the
year ended 31 December 2007 and the
assumptions used in the Black-Scholes model
are as follows:
Number of Number of
Options shares
Number of share options granted as of 29
June 2007
1,460 1,460,000
Forfeited during the year (300) (300,000)
Outstanding at the end of year 1,160 1,160,000
Fair value of share at measurement date 53.8 JPY/share
Equity-settled share-based payment fair 31.0313 JPY/share
value
Exercise price 107 JPY/share
Weighted average exercise price 107 JPY/share
Expected volatility 128.6 % p.a.
Option life 30 Month
Expected dividends nil
Risk-free interest rate 1.0 %
The options are granted under a service condition. There are no
market conditions associated with the option granted.
+--+------+------------------------------------------------------------------+
| |17 |DEFICIT |
+--+------+-----------------------------------------------+------------------+
| | | | JPY'000|
+--+------+-----------------------------------------------+------------------+
| | |Balance at 1 January 2006 | (15,289)|
+--+------+-----------------------------------------------+------------------+
| | |Net loss for the year | (162,024)|
+--+------+-----------------------------------------------+------------------+
| | |Balance at 1 January 2007 | (177,313)|
+--+------+-----------------------------------------------+------------------+
| | |Net loss for the year | (648,959)|
+--+------+-----------------------------------------------+------------------+
| | |Balance at 31 December 2007 | (826,272)|
+--+------+-----------------------------------------------+------------------+
| | | | |
+--+------+-----------------------------------------------+------------------+
+--+-----+-------------------------------------------------------------+
| |18 |DEFERRED TAX |
+--+-----+-------------------------------------------------------------+
At the balance sheet date, the Company has unused tax losses of
JPY523,924 thousand available to offset against future profits. No
deferred tax asset has been recognised in respect of such unused tax
losses due to the unpredictability of future profit streams. The
unrecognised tax losses of JPY8,742 thousand, JPY137,271 thousand and
JPY377,911 thousand will expire in 2013, 2014 and 2015, respectively.
Details of deferred tax assets and liabilities
are as follows:
JPY'000
2007 2006
Tax loss carry forward 183,444 58,027
Allowance for doubtful receivables 101,796 -
Liabilities for expenses disallowed until paid 8,855 8,176
Differences in depreciation and amortisation 5,814 4,403
for tax purposes
Equity-settled share-based transactions 5,021 951
Loss of share of equity method investee 1,294 -
Others 1,973 1,710
Deferred tax assets total 308,197 73,267
Share issuance costs 9,499 4,623
Deferred tax liabilities total 9,499 4,623
Net of deferred tax assets and liabilities 298,698 68,644
Valuation allowance (298,698) (68,644)
Deferred tax assets on balance sheet - -
Tax reconciliation:
Reported loss before taxation (648,959) (162,024)
Tax rate at 40.7% (264,126) (65,888)
Impact of non-deductible expenses 31,372 3,461
Impact of prior year's reported loss before (65,944) (6,217)
taxation
Valuation allowance 298,698 68,644
Tax charge for the period - -
19 OTHER FINANCIAL LIABILITIES
Trade and other payables comprise the following items.
JPY'000
2007 2006
Trade accounts payable 7,457 26,182
Accrued expenses 14,551 22,776
Withholding income tax for employees 3,440 2,730
Deferred revenue 3,150 6,548
Miscellaneous tax payable 3,011 2,366
Due to employees and directors (Note 23) 4890
Other payables (Note 23) 49,721 -
Total 86,220 60,602
The average credit period taken for trade purchases is 45 days.
The directors consider that the carrying amount of trade payables and other
payables approximates to their fair value.
+--+----+------------------------------------------------------------------+
| |20 |RECONCILIATION OF LOSS FROM OPERATIONS TO NET CASH USED IN |
| | |OPERATING ACTIVITIES |
+--+----+--------------------------------------------+---------------------+
| | | | JPY'000 |
| | | | |
+--+----+--------------------------------------------+----------+----------+
| | | | 2007| 2006|
| | | | | |
+--+----+--------------------------------------------+----------+----------+
| | |Loss from operations | (648,959)| (162,024)|
| | | | | |
+--+----+--------------------------------------------+----------+----------+
| | |Adjustments for: | | |
| | | | | |
+--+----+--------------------------------------------+----------+----------+
| | |Depreciation of property, plant & equipment | 8,414| 8,047|
| | | | | |
+--+----+--------------------------------------------+----------+----------+
| | |Amortisation of intangible assets and | 23,894| 19,768|
| | |long-term prepaid expense | | |
| | | | | |
+--+----+--------------------------------------------+----------+----------+
| | |Loss on impairment of goodwill | 1,900| 600|
| | | | | |
+--+----+--------------------------------------------+----------+----------+
| | |Loss on disposal of property, plant & | 2,010| 507|
| | |equipment | | |
| | | | | |
+--+----+--------------------------------------------+----------+----------+
| | |Finance costs, net | 677| 154|
| | | | | |
+--+----+--------------------------------------------+----------+----------+
| | |Share option expense | 9,998| 2,339|
| | | | | |
+--+----+--------------------------------------------+----------+----------+
| | |Foreign exchange gain on cash held | (221)| -|
| | | | | |
+--+----+--------------------------------------------+----------+----------+
| | |Share of loss on equity method investee | 3,180| -|
| | | | | |
+--+----+--------------------------------------------+----------+----------+
| | |Gain on sale of investment securities | -| (45,792)|
| | | | | |
+--+----+--------------------------------------------+----------+----------+
| | |Operating cash flows before movements in | (599,107)| (176,401)|
| | |working capital | | |
| | | | | |
+--+----+--------------------------------------------+----------+----------+
| | |Decrease/(increase) in inventories | 76,066| (177,594)|
| | | | | |
+--+----+--------------------------------------------+----------+----------+
| | |Decrease/(increase) in receivables | 247,147| (395,509)|
| | | | | |
+--+----+--------------------------------------------+----------+----------+
| | |Increase in payables | 24,617| 17,825|
| | | | | |
+--+----+--------------------------------------------+----------+----------+
| | |Cash used in operations | (251,277)| (731,679)|
| | | | | |
+--+----+--------------------------------------------+----------+----------+
21 CONTINGENT LIABILITIES
No major contingent liabilities are existent as of the date of
issuance of the auditor's report
22 OPERATING LEASE
The Company leases 1 office premise and 1 warehouse. The lease
contracts can be cancelled by 6 months' advance notice. And the
Company owns other operating lease contract with non-cancellable
term. The total lease expenses for the years ended 31 December 2007
and 2006 amounted to JPY 27,866 thousand and JPY 15,971 thousand,
respectively.
Future minimum lease payments including other operating lease
contract for the year ended 31 December 2007 and 2006 amounted to
JPY 13,805 thousand and JPY11,886 thousand, respectively.
23 RELATED PARTY TRANSACTIONS
Transactions between the Company and its related parties are disclosed below.
2007 Mr. Kashiwabara Mr. Kiyomoto Mr. Cho Mr. Evans
(Director) (Director) (Director) (Director)
(Unit:
JPY'000)
Sales of - - - -
goods in the
year
Purchase of - - - -
goods or
services
in the year
Consulting - - - -
fee charged
to income
Patent - - - -
acquired
License fee - - - -
Amounts owed - - - -
by related
parties
at year end
Amounts owed 2,500 6,506 1,600 380
to related
parties
at year end
2007 Mr. Fuji Digital Techno-imagia I-O Network Finger-
Takahashi Imaging Print Cards
(Ex- AB
director)
(Unit: JPY'000)
Sales of goods - - 2,124 - -
in the year
Purchase of - - - - 26,363
goods or
services
in the year
Consulting fee - 79,000 - - -
charged to
income
Patent acquired - - - 40,500 -
License fee - - - 3,000 -
Amounts owed by - - - - -
related parties
at year end
Amounts owed to 8,575 - - 20,400 -
related parties
at year end
2006 Mr. Kashiwabara Mr. Kiyomoto Mr. Mr.
(Director) (Director) Cho Evans
(Director) (Director)
(Unit:
JPY'000)
Sales of - - - -
goods in the
year
Purchase of - - - -
goods or
services
in the year
Short-term 48,500 - - -
borrowing
made from
related
parties in
the year
Short-term - - - -
lending made
to related
parties in
the year
Transfer of - - - -
shares
Advance - - - -
payments
made to
related
parties
in the year
Amounts owed - - - -
by related
parties
at year end
Amounts owed - - - -
to related
parties
at year end
2006 Mr. Fuji Techno-imagia I-O Network Finger-
Takahashi Digital
(Director) Imaging Print Cards
AB
(Unit: JPY'000)
Sales of goods - - 12,085 - -
in the year
Purchase of - - 808 6,000 54,083
goods or
services
in the year
Short-term - 12,000 - - -
borrowing made
from related
parties in the
year
Short-term - 30,000 - - -
lending made to
related parties
in the year
Transfer of - - 99,082 - -
shares
Advance - 79,000 - - -
payments made
to related
parties
in the year
Amounts owed by - 109,000 485 - -
related parties
at year end
Amounts owed to - - - - -
related parties
at year end
Technoimagia is one of the related parties of the Company because Mr. Taketoshi
Kashiwabara owns the Company at 66.6% (71.5% in 2006) and also owns Technoimagia
at 37.5% (37.5% in 2006) directly and indirectly through his controlling
company, Fuji Digital Imaging.
Other related parties include:
* Fuji Digital Imaging: Mr Taketoshi Kashiwabara owns 20.1% (20.1% in
2006) but substantially controls Fuji Digital Imaging
* Fingerprint Cards AB (Sweden): Technoimagia owns 23.3% (27.6% in 2006)
through Technoimagia Sweden AB
* I-O Network: The representative director is Mr. Shoichi Kiyomoto who is
a representative director of the Company and owns 66.6% of I-O Network
* Sales of goods to related parties were made at the Company's usual
list prices.
* Purchases were made at market price discounted to reflect the
quantity of goods purchased or service rendered.
* All short-term borrowings/lending bear interests, which are subject
to the loan rate offered by Japanese banks.
* Transfer of shares represents that the Company acquired shares of
Fingerprint Cards AB from Technoimagia at fair value in the market.
* The amounts outstanding as at 31 December 2006 were unsecured and
settled in cash except for advance payments made to Fuji Digital Imaging, which
was settled by the fees charged for provision of sales promotion services. No
guarantees have been given or received.
* No provisions have been made for doubtful debts in respect of the
amounts owed by related parties.
* Amounts owed to directors/ex-directors at 2007 year end mainly
consist of unpaid directors remuneration.
Remuneration of key management personnel
The remuneration of the directors, who are the key management
personnel of the Company, is set out below in aggregate for each of
the categories specified in IAS 24 Related Party Disclosures.
JPY'000
2007 2006
Short-term employee benefits 56,160 48,857
Share-based payment 5,987 1,285
Total remuneration to directors 62,147 50,142
There were no directors' transactions except for remuneration and
short-term borrowing by the Company (see above).
24 SUBSEQUENT EVENTS
Issuance of new shares through a third-party allotment:
Subsequent to 31 December 2007, it has resolved, at the meeting of
its board of directors held at 15 February 2008, to issue 4,000,000
shares through a third-party allotment. Mr. Kashiwabara, director
accepted 1,500,000 shares issued and funded at 5 March 2008. The
amount of fund raised through this issuance of shares was JPY
30,000,000.
If this issuance of new shares was made at 1 January 2007, the basic
loss per share would have been JPY 18.73 and the diluted loss per
share would have been JPY17.60.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EAEDXFLAPEFE
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