GOTHENBURG, Sweden, Feb. 27, 2002 (PRIMEZONE) -- Fingerprint Cards AB (publ):
Operations in general
The Company has developed an electronic system that determines personal identity by analysing the unique fingertip patterns of individuals. The system comprises two microchips with algorithms that unaided by external processor power, scan, store and compare fingertip patterns. This technology replaces or supplements the use of PIN codes and passwords in all types of products and systems where user ID is an essential security requirement. Thanks to the small size of these devices, their low power consumption and the possibility of very low production costs, this technology can be implemented in very small volume products such as smart cards and mobile (cell) phones, where the standards for such features are extremely high. The Company licenses its technology to manufacturers of products in which finger pattern recognition technology is integrated and performs the function of verifying user identity. Small and medium-sized licensees are provided with components, i.e., sensors, processors and algorithms by the Company, while larger licensees are supplied directly by the chip manufacturers.
Fingerprint Cards has its head office in Gothenburg and is listed on the O-list of the Stockholm Stock Exchange (FING B).
Highlights of the fourth quarter
-- Fingerprint wins its largest single order so far, worth MSEK
1.8, from the USA
-- Biometrically secured pistol holster attracts attention at
Comdex Fall in Las Vegas
-- Operating income, primarily component sales, for the fourth
quarter totalled MSEK 1.7 (2.0), net financial items
MSEK 1.4 (1.5)
-- The loss for the fourth quarter was MSEK -8.5 (8.0)
Other key events of the financial year
-- Company technology in trials of new data security system by the
Swedish Defence Forces
-- The terror attacks on the USA on September 11 place the focus
on ID security and biometrics
-- Operating income, mainly components sold, totalled MSEK 2.1
(3.6), net financial items MSEK 6.3 (4.8)
-- The loss for the year was MSEK -36.3 (-20.7)
-- Available liquid funds at year-end amounted to MSEK 119.2 (154.4)
During the last quarter, the Company received its largest individual order so far, which relates to a delivery of components for MSEK 1.8 to the Fingerprint Cards American licensee, Biometric Associates Inc. (BAI). Part delivery equivalent to MSEK 1 was made before the end of the year, while the remainder of the order (MSEK 0.8) is to be filled in 2002. BAI manufactures and markets smart cards, on which the entire fingertip pattern verification system is embedded. These perform both complete registration and verification of cardholder identity, which ensures superior security, as data on individual fingertip patterns is never removed from the latter's card. Fingerprint Cards holds a patent in the USA for this solution and so far is the only company to have succeeded in devising an entire system that can be implemented in a standard smart card.
There is a wide range of uses for this smart card, which is manufactured by BAI and they comprise applications such as credit and payment cards, passports or general identity documents and also certificates for authorization and access to data and e-commerce systems. A further advantage of this advanced card is that it can be read by conventional smart-card readers, unlike other card-based biometric systems, where the card readers must be rebuilt, as the finger-scanning sensor is located on the reader and not in the card. The fewer the changes that need to be made to the existing system infrastructure in the introduction of new technology, the lower the costs and thus the resistance to change.
A recently developed application of Company technology attracted great attention at the Comdex Fall technology trade fair in Las Vegas last November. The background to this project has its origin in a concrete problem in the USA involving police officers being shot. In the majority of these cases, the perpetrator uses the officer's own weapon. The Company's partner, Accimetrix Inc., has developed a biometrically secured pistol holster on behalf of Uncle Mike's, the largest holster manufacturer on the market. One push of the correct finger by the authorized user locks a security catch, which means that unauthorized persons cannot gain access to the weapon.
At the end of the second quarter, FMV, Sweden's Defence Procurement Agency, announced its decision as to the choice of a supplier for a new biometrics-based data security system within the Defence Forces' organisation. A small number of prototype systems are first to be delivered for evaluation, after which a decision on series deliveries is expected in 2002. Comex Electronics, Stockholm, who are supplying the card readers, are also the principal supplier and systems manager. The smart cards are supplied by the French manufacturer Oberthur, while Fingerprint Cards is providing software and hardware for fingerprint pattern recognition technology. The system is what is termed "match-on- card", i.e., the Fingerprint Cards sensor and processor chips are placed in the card reader while the biometric data of the user is stored in the smart card, which also decides as to the correct user identity and authorization. The algorithm is thus implemented in the smart card processor chip, thereby complying with the high standards of security.
The terror attack on the World Trade Center on September 11, clearly demonstrated the vulnerability of the open society. The ensuing debate on this event devoted considerable attention to the issue of security at airports and other public places. An essential feature in dealing with security matters is a rational and secure means of identifying individuals and ensuring that only authorized persons are allowed access to a place or a service. Particular attention has been directed towards current identity documents, which rely completely on photographs and sometimes PIN codes as well. The risk of manipulation and abuse is self- evident.
Biometric technology has been held out as considerably more secure than that in current use as it links the identity document to individuals by being based on their unique, non-replicable biological features. The events in New York have given the biometrics industry a unique opportunity for a much faster introduction of its technology into concrete products where user identity verification is a security requirement. In the evaluation of the Company, this will considerably shorten the lead-time to the market.
R & D Operations
The Company has developed a complete finger pattern verification system, consisting of a capacitive sensor and a processor chip with associated algorithms for registration and verification of fingertip patterns, This system, which is currently being sold and supplied to the market, is based on what is termed an area sensor with an active surface area of around 150 mm2, which is line with competing capacitive sensors on the market. The manufacturing costs of such chips are directly dependent on the silicon surface area. In an attempt to reduce the component costs and thus achieve a further competitive benefit, the Company has developed a new capacitive sensor, termed a swipe sensor, with an active silicon surface area of only 25 mm2 , which will cut manufacturing costs by 80 %.
During the year, much of the development effort by the Company was directed towards the creation of a processor chip for this swipe sensor and an algorithm capable of handling the sensor's fingertip pattern scanning method. The latter is distinguished by the fact that in this case the fingertip is swiped across the sensor surface instead of the finger being placed on it, as is the case with the area sensor. Initial production of the processor component is scheduled for March 2002 and the Company will therefore be able to offer the market a new, complete and integrated fingertip pattern verification system at a very competitive price. As far as the Company is aware, none of its competitors has developed an equivalent system.
During the year the external technology development costs amounted to MSEK 19.5 (14.0), all of which has been written off.
Expectations of Further Developments
In the past two to three years, biometrics has gained considerable media attention and major interest has also been shown by the manufacturers of products, in which this technology can be used. However, few companies have been bold enough to go all the way and launch products incorporating biometric technology on the market and the process that precedes a decision on product incorporation and market launch has been a slow one. One of several reasons may be found in the downturn in the world economy this year, which has probably dampened the resolve to commit to new technology and products. This hesitance among product developers affected Fingerprint Cards whose revenues fell below the level of the previous year.
Towards the end of the year, the biometrics industry noticed a dramatic shift in market attitudes. The potential of biometrics to raise security in a host of applications has moved up the agenda of product and system developers and Fingerprint Cards has been able to notice that, compared with the situation one year ago, a much larger number of companies are now prepared to go forward in 2002 to the stage of prototype construction and productification. Consequently, the Company expects to gain a much greater number of active customers who will purchase components and sign license agreements. As a result, Company revenues in 2002 should be much higher, even if they are hard to predict, as biometrics as a technology is still waiting to gain a firm standing on the market. There are clear indications that the industry is heading for a breakthrough and in all probability, important progress will already be made during this year. Given this background and in the light of current market requirements, the benefits of Fingerprint Cards technology, in the form of fully integrated systems at lower cost and with low power consumption, will prove decisive.
Turnover and Earnings
Consolidated turnover during the fourth quarter totalled MSEK 1.7 (2.0) and for the year amounted to MSEK 2.1 (3.6) Consolidated earnings during the fourth quarter totalled MSEK-8.5 (8.0) and for the year amounted to MSEK -36.3 (-20.7). The drop in earnings over the previous year was a result of the considerably stronger commitment by the Company to both technology development and marketing.
Financial Position
Operations are essentially financed by new issues in 1998 and 2000, totalling MSEK 205. The consolidated equity/assets ratio was 95.7% (96.2). Consolidated available liquid assets including current investments as at December 31, 2001, totalled MSEK 119.2 (154.4). Other current receivables amounted to MSEK 5.4 (4.6). The consolidated working capital amounted as at December 31 to MSEK 119.0 (152.7). Net turnover by the parent company amounted to MSEK 2.1 (3.6), earnings to MSEK -37.5 (-19.9) and available liquid assets including investments, to MSEK 119.1 (154.4). The two equally large option programs directed towards Company personnel, with redemption rates of SEK 192 and SEK 67, respectively, for a total of 600,000 shares, can result in a maximum dilution of 9.4 %.
Fixed Assets, Capital Expenditure and Depreciation
During the year, MSEK 0.4 (1.3) was invested in equipment. Previous development costs of MSEK 9.2 set up us an asset and patent rights for MSEK 5.9 were depreciated according to plan by 15% annually, equivalent to the expected economic life. The intangible assets have been valued in accordance with Recommendation RR 15, issued by the Swedish Financial Accounting Standards Council. Equipment is depreciated by 20% annually and personnel computers by 33% annually.
Personnel
At year-end the number of employees totalled nineteen (thirteen), of whom four (one) were women and fifteen (twelve) were men.
Accounting principles
This press release on the figures has been prepared in accordance with Recommendation RR 20 on interim reporting, issued by the Swedish Financial Accounting Standards Council. The report has been prepared in accordance with the same principles of accounting and calculation as applied to the 2000 Annual Report.
Significant Events After the Expiry of the Financial Year
The "Comdex Nordic" trade fair was held for the first time in Scandinavia, and the Company demonstrated its technology there and hosted a seminar on smart cards and biometrics in a joint arrangement with Sharp and SSP Solutions/Litronic Inc.
An American corporation, ID Technologies Corp., sued Fingerprint Cards on September 12, 2001 at a court in North Carolina, demanding damages of MUSD 1.85. The basis of their claim for damages was founded on a statement that Fingerprint Cards had threatened legal action against ID Technologies Corp. for infringement of Fingerprint Cards' Lofberg patent and that this threat had in turn resulted in the loss of a deal worth MUSD 1.85, for which ID Technologies Corp. was claiming compensation. In its verdict on February 14, 2002, this claim for damages on the part of ID Technologies Corp was completely rejected. This verdict will come into legal force on March 16, unless ID Technologies Corp. appeals.
Dividend
The Board does not propose any dividend for the financial year.
Annual ZTeport and AGM
The 2001 Annual Report will by published in April and will be available at the Company offices, with effect from April 26, 2002. The AGM is planned for Tuesday, May 28, 2002 at 17:00, in Gothenburg.
Other Reporting Dates
Annual report for 2001, April 2002 First-quarter interim report January-March, May 28, 2002 Second-quarter interim report April-June, August 21, 2002 Third-quarter interim report July-September, October 23, 2002
This press statement on the unaudited figures has been summarily examined by the Company auditor.
EXAMINATION REPORT
I have summarily examined this press statement on the unaudited figures in accordance with the recommendations published by the Swedish Institute of Authorised Public Accountants (FAR). A summary examination is considerably restricted in comparison with an audit. No findings indicate that the interim report does not comply with the stipulations of the Annual Accounts Act or of the Stock Exchange.
Ernst & Young AB
Jonas Cullberg Authorized Public Accountant
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