Embargoed Release: 07:00hrs Wednesday 02 July 2008
Block Shield Corporation plc
(`Block Shield' or the `Group')
Preliminary Results for the 12 Month Period Ended 29 February 2008
(Unaudited)
Block Shield Corporation Plc, the innovative provider of electronic components
and processes utilised in electromagnetic compatibility (`EMC') and Radio
Frequency Identification (`RFID') applications, is pleased to announce its
preliminary results for the twelve month period ended 29 February 2008, a
period during which the Group finalised its operational preparations for the
delivery of sustained high-volume orders, initiated product marketing and
deepened customer interaction.
Highlights
At Group Level:
* Sales revenue declined to US$6,438,000 versus US$10,569,000 for the
preceding year;
* Gross profit margins remained strong at 43% versus 45% in prior year;
* General costs (including sales, marketing and business development costs)
increased by US$269,000 to US$4,519,000 compared with US$4,249,000 in the
previous year;
* Research and Development costs decreased by US$534,000 to US$2,897,000
compared with US$3,431,000 in the prior year;
* Diluted loss per share was US$(0.14) compared with US$(0.09) for the
preceding year.
EMC Shielding Division:
* Contract wins with major US government contractors for military programmes,
* Contract wins with US manufacturers for EMC production in China,
* Sale of two EMC vacuum deposition machines for a final destination in Asia
that should also produce ongoing license revenues going forward.
RFID Antenna Division:
* Completion of the research, development and industrial testing of our high
volume RFID antenna manufacturing machine the `Dedivol'.
Gary Koos, chief financial officer and acting chief executive officer as at the
date of the year end, commented:
"The period for Block Shield was one of significant progress, especially given
the commercialisation of the `Dedivol', our high volume and cost effective RFID
antenna manufacturing machine. We were very pleased to receive in late February
2008 a Dedivol purchase order from our strategic partner, Hyundai RFmon. Due to
the acceptance conditions attached to this first order of our novel Dedivol
technology, however, we were unable to recognise for revenue recognition
purposes the sale at that time and instead expect to do so in the first half of
the financial year to February 2009. Following the post-financial year end
acquisition of Mu-Gahat Holdings, the team is now aggressively marketing our
complementary products in order to drive substantial sales growth in the year
ahead."
For further information contact:
Block Shield Corporation Plc +1 408 702-1809
Edwin Oh, Chief Executive Officer
Gary Koos, Chief Financial Officer
Hansard Group 020 7245 1100
Vikki Krause
Ambrian Partners Limited 020 7634 4711
Tim Goodman
Chairman's Statement
It gives me great pleasure to report on the results for the Group for the 12
month period ending 29 February 2008 (the `period').
Summary
During the period Block Shield successfully continued its progress from a
predominantly engineering-focussed organisation to a sales and marketing
orientated group, fully equipped to handle large production volume orders in
both the United States and Asia. In particular, the Group's accomplishments
included:
* the completion of the research, development and industrial testing of our
first high volume RFID antenna manufacturing machine, the 'Dedivol', which
is capable of producing in excess of 200 million antennas annually;
* the continuation of our increase in market penetration within Asia through
(a) the progression of establishing our own facility in China where we will
be able to directly manufacture product on behalf of our customers, (b) the
establishment of new sales channels with direct sales of our EMC and RFID
components, (c) the securing of sales of industrial turnkey solutions for
both EMC and RFID components that enable Asian manufacturers to manufacture
and sell our product with ongoing licence fees and royalties, (d) the
entering into of key distribution agreements with major distributors, for
supply of both EMC and RFID industrial turnkey solutions; and
* partnering with subcontractors of US government military programmes for
direct sales of our EMC products, which could lead to securing potentially
multimillion dollar contracts.
While it is evident that our achievements verify the appeal of our products and
solutions to third parties they must be viewed in the context of future revenue
potential, which they offer through our growing global penetration, because we
did not fully achieve our expectations for substantial growth in revenue in the
period. This we attribute to the following factors:
* customers with whom we were - and indeed still are - in negotiations for
the sale of our industrial turnkey solutions deferred signing sales
contracts due to the downturn in the global economy;
* a slower than anticipated growth in the development of the RFID market and
high volume segment in particular; and
* the impact of the slowdown in demand for medical devices in the US, which
has impacted our direct sales of EMC product.
For the reasons discussed in more detail below, we are confident the actions we
have taken should prevent any disappointment in our future expectations
provided the RFID market grows as now widely forecast by leading industry
analysts.
EMC division
During the period, our proprietary EMC solutions continued to attract customers
requiring product development and sales directly from the Group in the US as
well as those wishing to purchase turnkey industrial solutions for their own
product development and sales in Asia.
The success of our EMC direct sales efforts is heavily dependent on working
closely with our customers in the design of their products so that the EMC
element becomes a key component. This can often take many years of work,
particularly in the case of military and medical device companies, where
regulatory compliance is a key factor. In spite of the potentially lengthy
gestation period, the process can result in highly valued, loyal, long-term
contacts. This was the case when, towards the end of the period, we were
successful in winning contracts - primarily awarded due to our proprietary
solutions - with US government subcontractors, MicroSun Technologies LLC and EF
Johnson Technologies Inc., for military programmes. Block Shield's US
subsidiary has commenced initial production for these multiyear contracts,
which (upon ramp up) could eventually generate 1 to 3 million US dollars of
annual revenue for the Group going forward.
In addition, our strategy of locating a manufacturing facility in China has
enabled us to successfully secure initial contracts with major US manufacturers
such as Radiospire Networks Inc., which will commence in the forthcoming
financial year. A production capability in China will suit the supply chain
logistics of these customers and validates our investment in a dedicated plant
in this geographic region as a means of facilitating business from both the US
and Asia.
Over the period, the US medical device market displayed signs of decline amid
an economic slowdown. Customers in this industry represent a large portion of
our US product revenue and while contracts remain ongoing, demand on an
annualised basis was lower than expected. We are hopeful that the military
contracts outlined above, together with additional contracts maturing in our
order pipeline, will alleviate and compensate for any future unexpected
reduction in specific customer demand.
I am also pleased to report that the EMC industrial turnkey solutions achieved
considerable progress in extracting revenues from the growth Asian economies by
concluding the sale of two additional EMC vacuum deposition machines to Hyundai
RFmon Corporation (`RFmon'), a major component distribution company based in
South Korea. This will also generate ongoing licence and revenue annuities for
the Group.
RFID division
Unquestionably, the most consequential technical progression during the period
was the completion of the research, development and industrial testing of our
high volume RFID antenna manufacturing machine, the `Dedivol', in January 2008.
From a commercial perspective, this achievement was exceeded only by the
significance of its sale to our strategic partner, RFmon at the end of February
2008. Given that the sale has some performance obligations to meet, we have
deferred recognition of US$1.5 million income as at 29 February 2008, but have
every confidence that we will book this income in the first half of the
financial year to February 2009. We are confident in our belief that the
Dedivol is capable of producing the lowest cost passive antenna available, with
a production capacity in excess of 200 million antennas annually. These
antennas can be produced in environmentally friendly aluminium and have
superior performance specifications in comparison with alternative RFID
products available in the market today. We believe this proprietary solution in
RFID is essential to exploiting the rapidly growing market for RFID in Asia.
Sales and Marketing
Our business model is highly synergistic and bifurcated as we are able to sell
products in the US to our high value customers and provide industrial solutions
to our partners in Asia for high volume manufacture. During the period, we laid
the foundation for rapid revenue growth with our proven and proprietary
technology and performance, coupled with our ability to manufacture in the US
and in Asia, for both the EMC and RFID markets.
In anticipating the conclusion of the Dedivol's research and development
programmes the Group focused its energies on sales and marketing; specifically
committing our sales channels to include a direct sales presence in the US
targeting high margin business applications. In Asia, with a significant growth
in customer demand for our turnkey equipment solutions, we actively engaged a
combination of distribution and manufacturing partners. In line with this
strategy we signed an exclusive distribution contract in China with the Basch
Corporation, a leading distributor of manufacturing equipment to both the
printing and RFID industries. We also signed a memorandum of understanding
(MoU) with SinoStar Technologies Inc. in Taiwan for manufacturing solutions in
Asia and PolyPlas Sdn Bhd, a major plastics supplier in Malaysia.
Acquisition
As we near the completion of the Group's research and development efforts in
our major applications, and as companies engaged in the RFID market suffer from
both the consequences of the economic slowdown and the delay in the growth of
the RFID industry, to safeguard the commercial prospects of the Group, we have
actively sought appropriate acquisition targets. As a result of our endeavours,
I am pleased to announce that post year-end we completed our first strategic
acquisition - in June 2008 - by purchasing Mu-Gahat Holdings Inc. We believe
this acquisition combines and broadens the Group's technology portfolio and
will enable us to provide what our customers have been asking for: fast
end-to-end RFID manufacturing solutions which connect with the design and
prototyping stage and culminate in the delivery of cost effective high volume
products. In addition to the readily apparent benefits of acquiring a company
with patent pending technology ideally suited to RFID prototyping and
customised applications, the acquisition also avails Block Shield with a
synergistic management team enjoying explicit strengths in sales and marketing
and considerable business opportunities in the printed circuit and gaming
industries.
Asia
The Group's commitment to the Asia Pacific market is supported not only by the
significant customer prospects we are experiencing but it is also confirmed by
independent market reports. IDTechEx Inc. (`IDTechEx'), an international RFID
consulting company, expects the RFID market to increase from US$5 billion in
2007 to US$27.9 billion by 2017. IDTechEx also reveals that China has become
the world's largest market for RFID products with a 2007 US$1.9 billion market
value.
Our business model in Asia is geared to extract maximum revenue potential; from
direct sales of our products and equipment to establishing strategic alliances
and joint ventures that will supply a combination of license and royalty
payments in addition to securing long-term returns. We have made great strides
in this regard and while many deals are in progress, they take time to mature
and finalise and we can expect further progress in this regard to occur
throughout the current year.
Summary
In summary, whilst our revenues were below expectations, the period was one of
significant achievement for the Group as we laid the principal foundations for
our future growth. We completed our primary research and development
initiatives, effectively eliminating the technology risk of the products and
process equipment sales which form the core of our business and we created the
beachhead for the rapid expansion of revenues by establishing and securing
manufacturing and distribution arrangements in the US and in Asia for both our
EMC and RFID suite of products and services.
The Directors believe the industry continues to represent a significant growth
opportunity for the Group as a whole and that our prospects for expedited
growth and expansion in all our business areas have never been better.
I wish to take this opportunity to express my gratitude and thanks to the
employees of the Group for their commitment and achievements during this period
and to express the appreciation of the Board for the continued support of our
investors. Based on the solid achievements of this past year I look forward
with confidence to the future commercial success of the Group.
ME Fitzgerald
Chairman
2 July 2008
Consolidated Income Statement
For the year ended 29 February 2008
In thousands of US dollars
Note 2008 2007
Revenue 4 6,438 10,569
Cost of Sales (3,694) (5,795)
Gross Profit 2,744 4,774
Administrative expenses before
research and development expenses:
-Equity settled share-based payment (499) (795)
expenses
-Other administrative expenses (4,020) (3,454)
Administrative expenses before (4,519) (4,249)
research and development
Administrative expenses- research (2,897) (3,431)
and development expenses
Total administrative expenses (7,416) (7,680)
Operating loss before interest and (4,672) (2,906)
taxes
Finance income 5 68
Finance expenses (56) (174)
Net financing expense (51) (106)
Loss before tax (4,723) (3,012)
Income tax expense 2 (2) (2)
Loss for the period (4,725) (3,014)
Basic and fully diluted loss per 3 (0.14) (0.09)
share ($)
Consolidated Balance Sheet
For the year ended 29 February 2008
In thousands of US dollars
Note 2008 2007
Assets
Non-current assets
Intangible assets 5 1,164 1,187
Property, plant and equipment 1,222 1,488
Total non-current assets 2,386 2,675
Current assets
Inventories 6 955 437
Trade and other receivables 7 5,559 4,272
Assets held for sale - 38
Cash and cash equivalents 304 1,605
Total current assets 6,818 6,352
TOTAL ASSETS 9,204 9,027
Liabilities
Current liabilities
Trade and other payables 8 2,693 2,589
Deferred income 9 1,650 -
Total current liabilities 4,343 2,589
Non-current liabilities
Interest bearing loans and 10 2,923 500
borrowings
Total non-current liabilities 2,923 500
TOTAL LIABILITIES 7,266 3,089
NET ASSETS 1,938 5,938
Equity
Called up share capital 11 611 602
Share premium account 11 19,812 19,595
Merger reserve 7,227 7,227
Retained earnings (25,712) (21,486)
TOTAL EQUITY 1,938 5,938
Consolidated Statement of Changes in Equity
For the year ended 29 February 2008
In thousands of US dollars
Merger Called Share Retained Total
Reserve Up Share Premium Earnings Equity
Capital
Equity as at 1 March 7,227 602 19,595 (21,486) 5,938
2007
Retained loss for the - - - (4,725) (4,725)
twelve months
New share capital issue - 9 217 - 226
(net of related costs)
IFRS2 equity settled 499 499
options
Equity as at 29 7,227 611 19,812 (25,712) 1,938
February 2008
Consolidated Statementof Cash Flows
For the year ended 29 February 2008
In thousands of US dollars
Note 2008 2007
Cash flows from operating
activities
Operating loss before interest (4,672) (2,906)
and taxes
Depreciation charge 332 312
Amortization of intangible assets 101 87
Impairment losses on property, 76 -
plant & equipment
Equity settled share-based 499 795
payment expenses
Operating loss before changes in (3,664) (1,712)
working capital and provisions
Change in trade and other (1,287) (2,003)
receivables
Change in inventories (518) (266)
Change in trade and other 49 1,334
payables
Change in deferred revenue 1,650 -
Cash used in operations (3,770) (2,647)
Interest expense paid - (19)
Interest income received 5 68
Income tax expense (2) (2)
Net cash from operating (3,767) (2,600)
activities
Cash flows from investing
activities
Acquisition of property, plant (104) (813)
and equipment
Acquisition of patents (78) (136)
Net cash used in investing (182) (949)
activities
Cash flows from financing
activities
Proceeds from issue of shares 226 3,945
Payment of transaction costs - (190)
Cash receipt from increase in 2,423 500
loans and borrowings
Repayment of borrowings - (998)
Payment of finance lease (1) (1)
liabilities
Net cash from financing 2,648 3,256
activities
Net decrease in cash and cash (1,301) (293)
equivalents
Cash and cash equivalents at 1 1,605 1,898
March
Cash and cash equivalents at 29 304 1,605
February
Notes to the Results
1. Basis of preparation
The financial information set out above does not constitute the company's
statutory accounts for the years ended 29 February 2008 or 28 February 2007.
Statutory accounts for 2007, which were prepared under UK GAAP, have been
delivered to the registrar of companies. The auditors have reported on those
accounts; their reports were (i) unqualified, (ii) did not include references
to any matters to which the auditors drew attention by way of emphasis without
qualifying their reports and (iii) did not contain statements under section 237
(2) or (3) of the Companies Act 1985. The statutory accounts for 2008, which
are being prepared under IFRSs as adopted by the EU are expected to be
finalised on the basis of the financial information presented by the directors
in this preliminary announcement and will be delivered to the registrar of
companies in due course. The same accounting policies and methods of
computation are followed in these preliminary results as compared with the
recent IFRS transition document dated 15 October 2007.
This preliminary statement may contain forward-looking statements based on
current expectations of, and assumptions and forecasts made by, Block Shield
management. Various known and unknown risks, uncertainties and other factors
could lead to substantial differences between the actual future results,
financial situation development or performance of Block Shield and the
estimates and historical results given herein. Undue reliance should not be
placed on forward-looking statements which speak only as of the date of this
document. Block Shield accepts no obligation to publicly revise or update these
forward-looking statements or adjust them to future events or developments,
whether as a result of new information, future events or otherwise, except to
the extent legally required.
2. Taxation
The Group had tax losses at 29 February 2008, which have been carried forward.
The losses carried forward have a tax value of US$5,505,000 at 29 February 2008
(28 February 2007: US$4,246,000) and have not been recognised as a deferred tax
asset due to the uncertainty of their eventual crystallisation. This will be
reassessed at each period end.
3. Loss Per Share
Loss per share is based on the loss after tax of US$4,725,000 (28 February
2007: loss of US$3,014,000) divided by the weighted average number of Ordinary
shares in issue in each of the relevant periods; 29 February 2008: 33,388,861
shares (28 February 2007: 33,160,789 shares). The weighted average number of
Ordinary shares used for the diluted loss per share calculation is the same as
the ordinary loss per share calculation and does not include the conversion of
any options or warrants since the effect of these would be anti-dilutive
4. Revenue and segmental analysis
Revenue represents the amounts receivable in respect of equipment and product
sales and services to third party customers (excluding sales tax) in the normal
course of business.
Revenue from product sales and services are recognised when the risks and
rewards of ownership have been transferred to the customer.
The Group applies the criteria set out in IAS 18 in determining whether revenue
may be recognised on equipment sales (including those on bill and hold basis).
In summary, revenue is recognized by the Group when the following events have
occurred:
- the Group has transferred significant risks and rewards of ownership to the
customer;
- the Group has relinquished managerial involvement and effective control over
the equipment or product ;
- the costs incurred by the Group can be measured reliably;
- it is probable that any future economic benefit associated with the revenue
will flow to the customer; and
- the revenue has a value that can be measured reliably
Revenue from services (implementation and training) are recognised when the
services are performed.
On contracts involving a combination of equipment and services, revenue is
recognised on each deliverable in accordance with the above policy unless all
deliverables are considered to be interdependent when revenue is recognised on
final acceptance.
The directors considers that the group has two business segments which is the
provision of innovative solutions and products which control radio frequency
(`RF') emissions for the purpose of achieving electromagnetic compatibility
(`EMC') of electronic circuits and equipment as well as for implementing RF
identification (`RFID') Tags. The administrative expenses and research and
development expenses are centralized and have not been allocated to turnover
category or by geographical destination of sales.
The revenue, gross profit and net assets by business segments are as follows:
2008 2007 2008 2007 2008 2007
US$000 US$000 US$000 US$000 US$000 US$000
EMC EMC RFID RFID Total Total
Segmental 5,744 3,391 694 7,178 6,438 10,569
Sales
Segmental 2,838 807 (94) 3,967 2,744 4,774
Gross Margin
Unallocated (7,416) (7,680)
expenses
Total (4,672) (2,906)
Operating
loss
Segmental 4,865 1,353 694 2,768 5,559 4,121
trade
receivables
Segmental (552) (2,235) (2,400) (155) (2,952) (2,390)
trade
payables
and deferred
income
Segmental net 4,313 (882) (1,706) 2,613 2,607 1,731
assets/
(liabilities)
Unallocated (669) 4,207
net
assets
Total net 1,938 5,938
assets
Summary of the group turnover for the periods by geographical destination, all
of which originates from the US:
2008 2007
US$000 US$000
US 4,388 9,880
Asia 50 682
Europe 2,000 7
Total 6,438 10,569
5. Intangible assets
Concessions, Goodwill Total
patents,
licenses,
trade marks
and similar
rights and
assets
US$000 US$000 US$000
Carrying amount at 1 March 2007 784 403 1,187
Additions for the year 78 - 78
Amortisation for the year (101) - (101)
Carrying amount at 29 February 2008 761 403 1,164
6. Inventory
2008 2007
US$000 US$000
Finished goods 810 307
Work in progress 15 16
Raw materials 130 114
955 437
7. Trade and other receivables
2008 2007
US$000 US$000
Trade receivables 5,384 4,121
Other receivables 45 42
Prepayments and accrued 130 109
income
5,559 4,272
8. Current liabilities
2008 2007
US$000 US$000
Trade payables 2,408 2,390
Accruals 285 199
2,693 2,589
9. Deferred income
Deferred income of US$1.65 million relates to income that as of 29 February
2008, has been deferred due to outstanding performance obligations required
under the terms of the agreement with our customer.
10. Non current liabilities
2008 2007
US$000 US$000
Interest bearing loans and 2,923 500
borrowings
2,923 500
Cloverleaf Holdings Ltd., a company controlled by Mr. Fitzgerald, has made
available a facility of US$5,000,000 to the Company. The facility is unsecured,
carries interest at US LIBOR plus 1%, penalty interest at LIBOR plus 3% and is
repayable on 31st December 2009. The balance due at 29th February 2008 was
US$2,923,000 (28th February 2007: US$ 500,000). Interest charged during the
period to 29th February 2008 was US$55,926 (28th February 2007: US$ 5,765) No
penalty interest accrued during the period.
11. Reserves and movements in equity
During the period from 1 March 2007 to 29 February 2008, 101,471 shares were
issued to Directors of the Company in lieu of their annual fees and
remuneration for the periods up through 28th February 2007. The Directors
subscribed to the shares at a price of 100 pence per share. In addition, during
the period from 1 March 2007 to 29 February 2008, employees exercised options
and warrants which totalled 332,227 shares and total proceeds on the exercises
was US$217,000.
Following admission, the total issued share capital of the Company has
increased to 33,707,872 ordinary shares of 1p each.
12. Related party disclosures
Cloverleaf Holdings Ltd., a company controlled by Mr. Fitzgerald, has made
available a facility of US$5,000,000 to the Company. The facility is unsecured,
carries interest at US LIBOR plus 1%, penalty interest at LIBOR plus 3% and is
repayable on 31st December 2009. The balance due at 29th February 2008 was
US$2,923,000 (28th February 2007: US$ 500,000). Interest charged during the
period to 29th February 2008 was US$55,926 (28th February 2007: US$ 5,765). No
penalty interest accrued during the period. After the year end 29 February
2008, the Group acquired Mu-Gahat Holdings Inc., as discussed in Note 13 below,
in which Cloverleaf Ventures LLC, (an entity ultimately controlled by
Cloverleaf Holdings Ltd.), owned 5% of the issued share capital of Mu-Gahat
Holdings, Inc.
During the year ended 29th February 2008, the Group purchased equipment
previously sold to Mu-Gahat Enterprises LLC in the value of US$ 750,000 (12
month period ended 28th February 2007: US$nil purchases). In the year ended
29th February 2008 there were no sales of either equipment or services to
Mu-Gahat Enterprises LLC. In the year ended 28th February 2007 the Group had
sold equipment and services to Mu-Gahat Enterprises in the value of $7,178,000.
Mu-Gahat Enterprises LLC is an entity partly owned by Mr. Baxter Watkins, who
until February 2006 was a member of the senior management team and a founder of
Wavezero Inc., a subsidiary of Block Shield. Both purchases and sales of
equipment and services were deemed to be at the fair market value and are
separate transactions with no right of return for equipment sales/purchases. As
at 29th February 2008, US$ 750,000 was due from the Group to Mu-Gahat
Enterprises LLC (28th February 2007: US $2,768,000 was due from Mu-Gahat
Enterprises LLC to the Group).
13. Post balance sheet events
The Company acquired the entire issued share capital of Mu-Gahat Holdings Inc
("Mu-Gahat"), a developer and producer of custom RFID and gaming technology
solutions, for a total consideration of 29,605,263 ordinary shares of 33 pence
each in the Company. The acquisition of Mu-Gahat was finalized 13 June 2008.
In order to fund the working capital requirements of the Company after the
acquisition of Mu-Gahat, it raised US$8,302,000 (before expenses) through a
placing of 12,578,791 new ordinary shares of 33 pence each in the Company. The
financing will pay down existing loans due to Cloverleaf Holdings of
approximately US$3.0 million. Ambrian Partners Limited, the NOMAD for the
Company, acted as placing agent for the Company. The financing was finalised 13
June 2008.
END
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