RNS Number : 6118E
Secure Design KK
30 September 2008
FOR RELEASE 7.00 AM 30 SEPTEMBER 2008
SECURE DESIGN KK
("Secure Design" or "the Company")
(A leading biometrics company based in Tokyo, Japan specialising in fingerprint authentication)
Interim Results (unaudited) for six months ended 30 June 2008
2008 2007 2008 2007
JPY'000 JPY'000 STG STG
Continuing operations
Revenue 14,849 240,421 69,928 1,132,191
Gross profit / (loss) (73,158) 125,780 (344,518) 592,321
Loss from operations (313,220) (91,023) (1,475,017) (428,650)
Loss before tax (322,035) (90,260) (1,516,530) (425,055)
Basic loss per share (7.75) (2.87) (0.036) (0.014)
Diluted loss per share (7.37) (2.70) (0.035) (0.013)
* Exchange rate used throughout this announcement: �1*JPY212.35
* Further funding required to meet the working capital needs of Company
* Restructuring is now in progress based on Mobile phone and PC Network business
* Loss before tax increased by 256.8%
* Diluted loss per share increased by 173.0%
* Continued investment in research and development
* Confident of a much improved performance in 2009
For further information, please contact:
Secure Design KK
Taketoshi Kashiwabara Japan +81-3-5652-0321
(Chairman)
Toshiya Kurita Japan +81-3-5652-0321
(Chief Financial Controller)
Charles Stanley Securities
Nominated Adviser +44 (0) 20 7149 6000
Russell Cook / Freddy Crossley
Cubitt Consulting
Brian Coleman-Smith / James Verstringhe/ Nicola Krafft +44 (0) 20 7367 5100
Background Note on Secure Design
On 14 July 2006, Secure Design was the first Japanese company to be admitted to trading on AIM. It offers fingerprint authentication
products to companies and individuals that wish to establish high levels of security using biometrics. Biometrics uses a physical attribute
of the body, such as a fingerprint to identify and verify the individual with the aim of making individual authentication efficient and
secure.
The Company offers a range of fingerprint authentication products and systems, from an integrated system to a mobile device. The Company
designs and outsources the production of these products and can tailor them to individual client specific needs and applications.
Biometric applications provide convenient and reliable security which reduces the cost associated with the failure of conventional
authentication methods. The principal factor which distinguishes biometrics from conventional password based authentication is the enhanced
security level it provides while maintaining the privacy of individual users.
The worldwide demand for biometrics is estimated to increase from just over $3 billion in 2007 to over $5.6 billion by 2010.*
*Biometrics Market and Industry Report 2007-2012
SECURE DESIGN KK
("Secure Design" or "the Company")
(A leading biometrics company based in Tokyo, Japan specialising in fingerprint authentication)
Interim Results for six months ended 30 June 2008
Chairman's Statement
We have not achieved the management's expectations of turnover in the first half of the year due, primarily, to implementing a major
reorganisation, which we believe, will enable us to market our range of biometric solutions to a growing customer base in Japan and in a
number of overseas territories.
With our continuing investment in research and development, our ongoing programme of new product launches and the planned
reorganisation, together with a further reduction in the cost base, we are confident of a much improved performance in 2009 and beyond.
Results
Turnover in the period was JPY 14.85 million (�69,928), which was 93.8% lower compared to the results achieved in first half of 2007
when the Company reported sales of JPY240.42 (�1.13 million). The loss before tax increased by 256.8% to JPY 322.0 million (�1,516,530)
compared to JPY 90.26 million (�425,055). The diluted loss per share fell by 173.0% to JPY 7.37 (0.03p) compared to JPY 2.70 (0.013p) in
first half of 2007.
Operating review
In the first six months of the year we have focused on our home market and developing our range of products. We are, however, actively
looking at expanding into a number of overseas markets where we see opportunities to introduce our e- passport systems together with a
number of other products.
In the first half of the year, 56% of our sales came from SD-Gate which provides access security levels for each door and individual
employee.
Since the launch of the ITube memory stick, which consists of flash memory, a fingerprint image sensor, CPU and ASIC that contains a
fingerprint matching programme, which can be used by any Windows based PC via a standard USB interface, we have developed a number of
products around this technology.
Another of the ITube family of products, FLO-Tube, which facilitates the logon to Windows, the Web system and other Applications
securely.ITube products accounted for just under 10% of sales.
We are actively looking to increase the sales of our existing products whilst we develop a range of innovative products for the
international markets.
Operating expenses
Operating expenses in the period were JPY 240 million (�1,130,501), which were higher by JPY 23 million compared to those for the first
half of 2007 mainly due to bad debt reserve of JPY 111.6 million (�525,339).
Cash Balance
The cash balance at the end of the period was JPY 40 million (�191,210), reflecting a fund raising of JPY 136 million in the period. The
Company is currently seeking to raise further funds during the second half of the year for working capital and the continued development of
the Company. The details of which will be announced in due course.
Dividend
At this stage in the Company's development, the directors do not intend to declare a dividend.
Accounts Receivables
The accounts receivables balance at the end of the period was JPY 26.9 million (�126,691). After reviewing the accounts receivables
balance, we have written off JPY 111.6 million (�525,339) and taken action to collect the money from the client.
Employees
I would like to take this opportunity to thank all our employees for their contributions. Their hard work, dedication and commitment is
much appreciated. We depend upon them to take care of our customers, and they do so in a positive manner. The company now has 10 employees,
including directors.
Restructuring
During the first half of the year we started the process of reorganising the company by restructuring both the sales division and R&D
division.
We also took the decision to review our product mix with our 51.5% subsidiary Beyond LSI and we anticipate this major reorganisation of
the business taking place during the second half of the year with real benefits being seen in 2009 and beyond.
Beyond LSI has completed development of the fundamental fingerprint technology. The pilot products have shown the rapid growth of BLSI,
which include sales of 1 million mobile phones, 15,000 sets of network scanners, and 10,000 sets of physical locks.
Market
Despite the current difficult economic situation, market demand for fingerprint authentication products is increasing. Mobile phones
companies are starting to increase the use of fingerprint sensors to provide additional security for their customers and this form of
authentication is becoming accepted for NotePCs and is now becoming more widely used in desktop PCs. In addition, we believe that the
competitive cost of fingerprint modules will open a new market from USB keys to locks for various other applications.
Commercial Initiatives
In the second half of the year, we have announced the following initiatives:
* Mobile Phone
Beyond LSI, in partnership with Mitsumi Electric Co., LTD, offers security solutions to meet the expanding needs of the mobile industry.
BLSI is recognized as a leader in providing security software products that use fingerprint biometrics on mobile phones while Mitsumi, a
leading supplier of Mitsumi original optical swipe fingerprint sensors, is a long term partner of BLSI, which has succeeded in developing a
new type of optical swipe sensors suitable for mobile phones. BLSI has partnered Mitsumi to provide customers with security software for
their mobile phones. The optical sensor also works as a pointing device which movement is echoed on the screen by movements of the pointer
or cursor and other visual changes.
In 2009, Sharp will continue to implement our fingerprint sensor on the two million mobile phones it sells to NTT Docomo. In addition,
Sharp, as a leading mobile phone producer in Japan, manufactures 20 to 30 million mobile sets per year ,and is planning to bring our
technology to both Softbank and AU, two leading Japanese mobile phone operators.
A leading supplier of this kind of sensor is also considering moving away from using its current semiconductor sensor and replacing it
with an optical sensor. We therefore anticipate receiving an order from Sharp for 4 million sets in spring of 2009.
* PC & Network
BLSI offers fingerprint authentication solutions in the field of Logical Access to PC, VPN and Internet Systems by employing USB
authentication devices or image capturing devices such as Fkey and FkeyC
Hardware based authentication with dedicated original LSIs ( Large Scale Integrators) is leading the market for secure and convenient
personal identification. The development of LSIs is accelerating the trend towards integrating this type of technology into people's daily
lives.
* Semiconductor Image Sensor
The development of a new semiconductor fingerprint image sensor in collaboration with Oriental System Technology and Sanyo Semiconductor
that is suitable for smart card applications. The Directors believe that commercial applications of biometrics smart card will be largely
driven by progress of government projects. The Company has the fingerprint verification algorithm which complies with ISO Standard ISO/IEC
19794, Information Technology - Biometric Interchange Data Format. The basic design of the new sensor has been completed and the first
prototype will be produced in the first quarter of 2009.
* e-Passport
In 2006 approximately 15 million e-Passports were issued with a further 35 million to 40 million expected to be issued this year
(Source: Card Technology, March 2007). But few of the passports are being read electronically. This is due to the lack of installed or
activated readers, which, for the time being, makes the contactless chips on most passports little more than ornaments. We announced a
collaboration with PCS Security Pte Ltd, which will enable the Company to enter this exciting and growing market.
Outlook
The Board has undertaken a number of initiatives that will, it hopes, result in a Company that will provide the basis for future growth.
It is going to take time for such initiatives to bear fruit and in the meantime the Company continues to be loss making.
For those commercial initiatives highlighted above the Company needs to secure further funding, while I will continue to support the
Company's financing needs, further investment will be required from external investors. There is no certainty that further funding will be
obtained.
If such funding can be obtained then I and the rest of the Board are confident that the Company will be able to build upon the
commercial relationships that it has established through Beyond LSI and that it would have a sustainable future.
Taketoshi Kashiwabara
Chairman
30 September 2008
Note:
Exchange rate per Pound (�) for the above translation is JPY212.35, which has been derived from the TTM rate on June/End, 2008
Consolidated Income Statements
for the period from 01 Jan to
30 June
2008 2007 2008 2007
JPY'000 JPY'000 STG STG
Continuing operations
Revenue 14,849 240,421 69,928 1,132,191
Cost of sales 88,008 114,641 414,446 539,870
Gross profit/ (loss) (73,158) 125,780 (344,518) 592,321
Sales and marketing expenses 124,124 87,447 584,527 411,808
General and administrative 77,819 64,263 366,468 302,629
expenses
Research and development 38,119 65,092 179,508 306,534
expenses
Loss from operations (313,220) (91,023) (1,475,017) (428,650)
Net financial costs / (income) 1,218 (763) 5,734 (3,595)
Share of loss of equity (7,596) - (35,774) -
accounted investee
Loss before tax (322,035) (90,260) (1,516,530) (425,055)
Income tax expenses - - - -
Loss for the period (322,035) (90,260) (1,516,530) (425,055)
Basic loss per share (7.75) (2.87) (0.036) (0.014)
Diluted loss per share (7.37) (2.70) (0.035) (0.013)
Consolidated Balance Sheets
As at 30 June As at 31 December As at 30 June As at 31 December
2008 2007 2008 2007
JPY'000 JPY'000 STG STG
Assets
Non-current assets
Property, plant and equipment 7,681 9,683 36,172 45,601
Investment securities 29,738 32,682 140,043 153,908
Investment in equity accounted 64,474 57,071 303,620 268,756
investee
Goodwill 11,920 12,500 56,134 58,865
Intangible assets 45,966 77,518 216,464 365,051
Other non-current assets 4,428 4,858 20,851 22,877
164,207 194,312 773,283 915,058
Current assets
Inventories 49,108 117,469 231,260 553,185
Trade and other receivables 26,903 136,433 126,691 642,492
Cash and cash equivalents 40,604 9,515 191,210 44,806
116,614 263,417 549,162 1,240,483
Total assets 280,821 457,729 1,322,445 2,155,541
Liabilities
Current liabilities
Trade and other payables 96,280 86,220 453,402 406,029
96,280 86,220 453,402 406,029
Net current assets 20,334 177,197 95,757 834,454
Total liabilities 96,280 86,220 453,402 406,029
Net assets 184,541 371,509 869,042 1,749,512
Equity
Share capital 781,614 713,614 3,680,782 3,360,556
Share premium 539,772 472,255 2,541,897 2,223,945
Fair value reserve (425) (425) (1,999) (1,999)
Share option reserve 11,887 12,337 55,979 58,096
Deficit (1,148,307) (826,272) (5,407,614) (3,891,086)
Total equity 184,541 371,509 869,041 1,749,512
Consolidated Statements of Changes in Equity
for the period from 01 Jan to
30 June
JPY'000
STG
Share capital Share premium Fair value reserve Share option reserve Deficit Total equity Total
equity
Balance as at 1 January 2007 587,369 347,001 (575) 2,339 (177,313) 758,821
3,573,445
Share issued - - - - - -
-
Share issuance costs - - - - - -
-
Fair value adjustments of - - 1,305 - - 1,305
6,144
available-for sales
investments
Share option costs charged to - - - 3,124 - 3,124
14,709
income for the period
Net loss for the period - - - - (90,260) (90,260)
(425,055)
Balance as at 30 June 2007 587,369 347,001 730 5,463 (267,573) 672,990
3,169,243
Balance at 1 January 2008 713,614 472,255 (425) 12,337 (826,272) 371,509
1,749,512
Share issued 68,000 68,000 - - - 136,000
640,452
Share issuance costs - (483) - - - (483)
(2,274)
Fair value adjustments of - - - - - -
-
available-for sales
investments
Share option costs charged to - - - (450) - (450)
(2,117)
income for the period
Net loss for the period - - - - (322,035) (322,035)
(1,516,529)
Balance as at 30 June 2008 781,614 539,772 (425) 11,887 (1,148,307) 184,541
869,041
Consolidated Cash flow Statements
for the period from 01Jan to 30
June
2008 2007 2008 2007
JPY'000 JPY'000 STG STG
Operating Activities
Cash used in operations (86,212) (82,923) (405,991) (390,498)
Interest paid - - - -
Net cash used in operating (86,212) (82,923) (405,991) (390,498)
activities
Investing activities
Interest received 19 505 89 2,378
Purchase of property, plant and - (897) - (4,225)
equipment
Purchase of intangible assets (3,447) (7,284) (16,231) (34,303)
Acquisition of associate company (15,000) - (70,638) -
Disposal of investment securities 1,645 - 7,745 -
Increase of short-term lending (1,500) 30,000 (7,064) 141,276
Net cash from (used in) investing (18,283) 22,324 (86,099) 105,126
activities
Financing activities
Proceeds on issue of new shares, 135,517 - 638,178 -
net of issuance cost
Net cash from financing activities 135,517 - 638,178 -
Net increase (decrease) in cash 31,022 (60,599) 146,088 (285,372)
and cash equivalents
Effect of exchange rate 67 - 316 -
fluctuations on cash held
Cash and cash equivalents at 9,515 94,488 44,806 444,964
beginning of year
Cash and cash equivalents at end 40,604 33,889 191,210 159,592
of period
Notes to the Accounts
1. These consolidated financial statements have been prepared by management on the bases 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 realise
its assets and discharge its liabilities in the normal course of operations.
The Company posted a continuing net loss of JPY 322 million in the first half ended 30 June 2008 JPY 648 million in December 2007 and
JPY 162 million in December 2006. Net loss for this period was mainly due to poor sales results of JPY 15 million and losses for
uncollectable receivables of JPY111 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 in the years ended 31 December 2009 the Company will head for surplus of JPY 10 million and in
2010 JPY 360 million and the Company can successfully raise sufficient funds later this year to execute the business plan. If the going
concern assumption were not appropriate for the consolidated financial statements, then an adjustment would be necessary to the carrying
values of the assets and liabilities, the reported revenues and expenses and the balance sheet classification used.
2. This interim report was approved by the Directors on 29 September 2008. The results for the both of current and comparative half year
have not been audited, but were the subject of an independent review carried out by the Company's auditors, Kainan Audit Corporation. Their
review confirmed that the figures were prepared using accounting policies and practices consistent with those adopted in the 2007 annual
report and those that will be adopted for the 2008 annual report. The audited results for the year ended 31 December 2007 are an abridged
version of the company's financial statements which the predecessor auditor, Kainan Audit Corporation gave an unqualified report.
3. Loss per share
Basic and diluted loss per share is calculated on net loss for the period of JPY322,035 thousand (�1,516,530). The basic and diluted
loss per share is based on 41,556,393 and 43,692,218 weighted average ordinary shares, respectively.
4. A Dividend is not proposed at this stage.
5. Exchange rate used throughout this announcement: �1*JPY212.35
Related Party Transactions
for the period from 01 Jan to 30 June 2008
(Unit: JPY'000) Mr. Kashiwab-ara Fuji Digital Imaging Techno-imagia Nihon Byond
Sekiju LSI
n
Sales of goods in the period - - 1,270 702 -
Interest Income in the period - - - 12
Purchase of goods or services 330 4,000 - - -
in the period
Short-term lending made to - - - - 1,500
related parties in the period
Amounts owed by related - - - - 1,500
parties at end of the period
Amounts owed to related - - - - -
parties at end of the period
Copies of the statement are being sent to shareholders. Further copies are available on request from:
Toshiya Kurita
Chief Financial Controller
Secure Design KK
Headquarters and R&D Centre
ICST Building 3F
1-9-2 Nihonbashihoridomecho, Chuo-ku
Tokyo 103-0012 Japan
Tel: +81.3.5652.0321
Email:t_kurita@securedesign.jp
Brian Coleman-Smith
Cubitt Consulting Limited
30 Coleman Street
London EC2R 5AL.
Tel: + 44 (0)20 7367 5100
Email:brian.coleman-smith@cubitt.consulting.com
This information is provided by RNS
The company news service from the London Stock Exchange
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