Interim / Quarterly Report • Aug 27, 2015
Interim / Quarterly Report
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At the Option group (the "Group" or "Option") level, a number of significant events took place and were communicated via press releases on Option NV's – hereinafter referred to as the "Company" - website. Below you will find a summary of the most significant non-financial highlights during the first six months of the financial year 2015:
In the first half year Option faced postponed sales and as a consequence important orders shifted to the second half of the year. However the Company's sales partners maintained their outlook for 2015.
More importantly, in recent months progress has been made on several fronts: The main focus has been to increase the number of applications that run on the CloudGate platform. Several important application development projects for US Robotics for out of band management, smart housing applications for Asea Brown Boveri (ABB) have been finalized and a rail-certified WIFI access point for general deployment in trains, trams and busses has been developed.
To further lower the barriers to M2M application development for our customers and to decrease the time from concept to working M2M solution, Luvit-RED was developed. Luvit-RED is a visually configurable agent for the design and deployment of smart M2M solutions. By enabling rapid prototyping, development and deployment of M2M applications, Luvit-RED reduces cost, speeds time to market and mitigates risk.
Meanwhile, the number of partners developing applications autonomously on CloudGate is increasing with, amongst others, Skywave, GetWireless, Graphite and Proximus developing applications ranging from connected wireless sensors, surveillance & security solutions to general telematics solutions.
In the first half year we continued to increase our reach into the M2M markets by adding distributors such as TESSCO in the US, Graphite in UK and recently BLUDIS in Italy. Their job is to bring localized solutions and support to channel partners.
In the second half of the year the Company expects significant stock replenishment orders from its partners in North America. The Company expects to successfully continue to convert stock into cash by selling modules & personal routers.
We have continued working at extending Option's business model beyond the selling of CloudGate equipment. The business model remains centered on Internet of Things and is based on the following pillars:
For the second pillar, Option increased its sales efforts in the go-to-market of "solution development and engineering services" leading to multiple design wins for CloudGate application development and a design win in IoT for the Connected car.
On 26 May 2015 the Board co-opted Jurgen Ingels as director in replacement of Olivier Lefebvre as independent director. Jurgen Ingels (44) is founding and managing partner of Smartfin Capital, a European Private Equity fund investing in Smart Technology growth companies. Previously, he was the founder and CFO of Clear2Pay, a leading payments technology company.
On 29 May 2015 the Ordinary Shareholders' meeting resolved to confirm and approve the appointment as non-executive director of the company of Dimitri Duffeleer BVBA, with registered office at Fazantenlaan 17, 8790 Waregem, having as permanent representative Mr. Dimitri Duffeleer, as was decided by the board of directors dated 24 September 2014 provisionally by way of co-optation. The appointment of Dimitri Duffeleer BVBA entered into force on 1 November 2014 and shall expire after the general meeting that will be invited to approve the annual accounts relating to financial year 2016.
On 29 May 2015 the Ordinary Shareholders' meeting resolved to re-appoint FVDH Beheer BVBA, represented by Mr. Francis Vanderhoydonck, as non-executive director of the company. The appointment of FVDH Beheer BVBA shall expire after the general meeting that will be invited to approve the annual accounts relating to financial year 2017.
On 26 June 2015 the extraordinary Shareholder's meeting of the Company decided to renew the authorized capital of the Company for a total amount of four million seven hundred thirty eight thousand nine hundred sixty four euro and fifty cent (EUR 4,738,964.50), both by means of contribution in cash or in kind, within the limits imposed by the Belgian Code of Companies as well as by conversion of reserves and issue premiums, with or without the issue of new shares, with or without voting right, or trough the issue of convertible bonds, subordinated or not, or through the issue of warrants or of bonds to which warrants or other movables are linked, or of other securities, such as shares in the framework of a Stock Option Plan. Furthermore the extraordinary Shareholder's meeting of the Company decided to grant the board of directors special authority, in the event of a public takeover bid for securities issued by the Company during a period of three (3) years, running from the extraordinary general shareholders' meeting which will resolve on this authorization, to proceed with capital increases under the conditions foreseen by the Belgian Code of Companies.
On 15 July 2015 The Company decided to engage Mr Jan Luyckx as senior director finance in replacement of Christine Pollie who left the Company as published in a press release dated 16 June 2015.
With respect to the main risks and uncertainties which Option is likely to face during the remaining months of the financial year 2015, reference is made to the risk factors and uncertainties as described in detail in the Annual Report 2014 (made available on Option's website (www.option.com) on April 29th, 2015) which continue to be actual.
In addition hereto, the Board would like to specifically emphasize the following risks and uncertainties for the remaining months of the current financial year:
Following the continued review by the statutory auditor of the Company of the cash position of the Company and its continuity, the Option Board of Directors has further deliberated in this respect and informed the market accordingly in its press releases d.d. 21 April 2015 and 3 July 2015.
The Company has generated a negative cash flow from operations during the first six months of the year, reducing the group's liquidity and overall financial position. In the first half year The Company faced postponed sales and as a consequence important orders shifted to the second half of the year. However the Company's sales partners maintained their outlook for 2015.
The Board of Directors is of the opinion that the use of going concern valuation rules is justified taking into account the items listed below:
The number of applications that run on the CloudGate platform has been increased. The Company delivered several important applications for its partners and developed a railcertified WIFI access point for general deployment in trains, trams and busses.
To further lower the barriers to M2M application development and to decrease the time from concept to working M2M solution, The Company invested in extending the CloudGate platform with LuvitRed. As a result number of partners developing applications autonomously on CloudGate is continuously increasing.
Notwithstanding the progress in the various segments and the continued development of applications, the conversion to cash of these has been slower than anticipated.
In the second half of the year the Company expects significant stock replenishment orders from its partners in North-America. The Company expects to successfully continue to convert stock into cash by selling modules & personal routers.
In the first half year The Company continued to increase its reach into the M2M markets by adding distributors in US, UK and recently Italy. The aim is to accelerate deployment of localized solutions and to increase the support to channel partners.
The company extended its business model beyond the selling of CloudGate equipment. The business model remains centered on Internet of Things and is based on the following pillars:
In addition to the announced 2.7M EUR bridge financing provided by its existing bond- and other stakeholders in March of this year, the Company started up confidential discussions in order to engage with a number of financial and industrial partners. These discussions have been accelerated and are anticipated to be completed in the second half of 2015 to stabilize its current financial position to ensure its ability to successfully pursue and maximize its potential in the Internet of Things market.
During the first six months of the financial year 2015, the below transaction has taken place between the Company and members of the Board of Directors that triggered the application of the conflict of interests procedure prescribed by the Belgian Company Code (Article 523 of the Belgian Company Code).
The relevant related party transaction can be summarized as follows:
On 9 March 2015 the Board applied the procedure in accordance with Article 523 of the Belgian Code of Companies in relation to the decisions made in relation to the bridge loan for an aggregate amount of EUR 2,775,000.
Messrs. Jan Callewaert and Dimitri Duffeleer (as representative of Quaeroq) inform the Board in accordance with the provisions of Article 523 of the Code of Companies that as prospective lenders they may have a conflicting interest of a monetary nature with the Company in respect of the decisions that the Board may take in relation hereto. Therefore, in accordance with the provisions of the aforementioned Article 523 of the Code of Companies, Jan Callewaert and Dimitri Duffeleer leave the meeting and do not take part in the further discussion, deliberation and voting.
The Board discusses the terms and conditions of the draft loan agreements.
The Board considers these conditions to be very beneficial for the Company taking into account the current market conditions. Furthermore, the Board is of the opinion that entering into the loan agreements will provide the Company with a buffer that enables it to bridge the time required to successfully realize and close the envisaged sales.
Therefore, after discussion, the Board resolves to formally approve the entering into by the Company of the different loan agreements under the commercial conditions as described above and to mandate management to do what is necessary or useful for the execution and further implementation of the above mentioned loan agreement in accordance with the agreed upon terms and conditions.
Following related parties entered into the bridge financing:
Management states that, to the best of their knowledge:
Leuven, 27 August 2015
| For the half year period 30 June | Jun 30, 2015 | Jun 30, 2014 |
|---|---|---|
| Thousands Euro except number per share | ||
| Revenues | 2556 | 2846 |
| Product revenue | 2556 | 2 689 |
| Software and License revenue | 0 | 157 |
| Cost of products sold | (1480) | (1844) |
| Gross Margin | 1076 | 1 0 0 2 |
| Research and development expenses | (2 207) | (2551) |
| Sales, marketing and royalty expenses | (1499) | (1555) |
| General and administrative expenses | (2403) | (2836) |
| Total operating expenses | (6109) | (6 942) |
| Profit / (loss) from operations (EBIT) | (5033) | (5940) |
| Depreciation, amortization and impairment losses | 1485 | 1633 |
| EBITDA | (3548) | (4307) |
| Result from operations | (5033) | (5940) |
| Exchange gain / (loss) | (92) | 3 |
| Interest income / (expenses) and other financial income / expense) | (826) | (639) |
| Finance result - net | (918) | (636) |
| profit / (loss) before income taxes | (5951) | (6576) |
| Income tax benefits / (expenses) | (7) | (16) |
| Net result of the period attributable to the owners of the company | (5958) | (6592) |
| Earning per share | ||
| Basic weighted average number of ordinary shares | 96 896 054 | 91 270 519 |
| Diluted weighted average number of ordinary shares | 96 896 054 | 91 270 519 |
| Basic earnings / (loss) per share Diluted earnings / (loss) per share |
(0,06) (0,06) |
(0,07) (0,07) |
| Jun 30, 2015 | Jun 30, 2014 |
|---|---|
| (5958) | (6 592) |
| 105 | 25) |
| 105 | 25) |
| (5853) | (6,617) |
All items of the comprehensive income are recyclable to the income statement.
| Thousands Euro | Jun 30, 2015 | Dec 31, 2014 |
|---|---|---|
| Assets | ||
| Intangible assets | 2 3 9 9 | 3 0 5 1 |
| Property, plant and equipment | 181 | 255 |
| Other financial assets | 1 2 3 6 | 1 2 3 6 |
| Other non-current assts | 18 | 17 |
| Total non-current asstes | 3834 | 4559 |
| Inventories | 2557 | 3 1 3 9 |
| Trade and other receivables | 659 | 657 |
| Cash and cash equivalents | 927 | 1554 |
| Income tax receivable | 11 | 10 |
| Total current assets | 4 1 5 4 | 5 3 6 0 |
| Total assets | 7988 | 9 9 1 9 |
| Liabilities and shareholders' value | ||
| Issued capital | 4845 | 4739 |
| Share premium | 4 1 7 5 | 3763 |
| Reserves | 0 | |
| Retained earnings / (losses) | (29 571) | (23 769) |
| Total shareholders' equity attributable to | (20551) | (15267) |
| the owners of the company | ||
| Financial debt | 20 347 | 17574 |
| Total non-current liabilities | 20 347 | 17 574 |
| Trade and other payables | 7899 | 7353 |
| Deferred revenue | $\bf{0}$ | |
| Provisions | 281 | 258 |
| Income tax payable | 12 | 1 |
| Total current liabilities | 8 1 9 2 | 7612 |
| Total liabilities and shareholders' value | 7988 | 9919 |
| For the half year period 30 June | ||
|---|---|---|
| Thousands Euro | 30 Jun 2015 | 30 Jun 2014 |
| OPERATING ACTIVITIES | ||
| Net Result (A) | (5958) | (6592) |
| Amortization of intangible assets | 1411 | 1523 |
| Depreciation of property, plant and equipment | 74 | 110 |
| Loss / (gains) on sale of property, plant and equipment | $\bf{0}$ | 4 |
| Loss / (gains) on sale of financial assets | $\bf{0}$ | 0 |
| (Reversal of) write-offs on current and non current asstes | 139 | (83) |
| Impairment losses on intangible assets | $\bf{0}$ | 0 |
| Increase / (decrease) in provisions | 23 | 0 |
| Unrealized foreign exchange losses / (gains) | 79 | (18) |
| Interest (income) | $\bf{0}$ | (322) |
| Interest expense | 826 | 411 |
| Equity settled share based payment expense | 52 | 0 |
| Tax expense / (benefit) | $\bf{0}$ | 11 |
| Total (B) | 2 604 | 1636 |
| Cash flow from operating activities before changes in working capital $(C) = (A) + (B)$ |
(3354) | (4 956) |
| Decrease / (increase) in inventories | 442 | 777 |
| Decrease / (increase) in trade and other receivables | (27) | 458 |
| Decrease / (increase) in trade and other payables | 511 | (1543) |
| Decrease / (increase) in deferred revenue | $\bf{0}$ | $\Omega$ |
| Use of provisions | (84) | |
| Total changes in workig capital (D) | 926 | (392) |
| Cash generated from operation | (2428) | (5348) |
| $(E) = (C) + (D)$ | ||
| Interests and other finance costs (paid) (F) | (96) | (640) |
| Interests and other finance revenue received (G) | 0 | 4 |
| Income tax (paid) / received (H) | $\bf{0}$ | (5) |
| Cash flow from operating activities $(I) = (E) + (F) + (G) + (H)$ | (2524) | (5989) |
| INVESTING ACTIVITIES | ||
|---|---|---|
| Expenditure on product development, net of grants received | (758) | (1191) |
| Acquisition of property, plant and equipment | (2) | |
| Proceeds from the sales of property, plant and equipment | 3 | |
| CASH FLOW USED IN INVESTING ACTIVITIES (J) | (758) | (1 190) |
| FINANCING ACTIVITIES | ||
| Proceeds of borrowings | 2655 | 12 000 |
| Finance lease liabilities | (7) | |
| Repayment of borrowings | (500) | |
| CASH FLOW PROVIDED BY / (USED IN) FINANCING ACTIVITIES (K) | 2655 | 11 493 |
| Net increase / (decrease) of cash and cash equivalents = $(1) + (1) + (K)$ | ( 627) | 4314 |
| Cash and cash equivalents at beginning of year | 1554 | 1623 |
| Effect of foreign exchange difference | 1 | |
| Cash and cash equivalents at end of period | 927 | 5 9 3 9 |
| Difference | (627) | 4 3 1 5 |
| share-based | Currency | retained | |||||
|---|---|---|---|---|---|---|---|
| In Thousand EUR | Issued Capital |
Share premium |
payment | translation | Share issue | earnings/ | |
| reserve | reserve | costs | (losses) | Total | |||
| At 1 january 2014 | 4 1 2 5 | 1078 | (39) | (2617) | (8395) | (5848) | |
| Net result of the year | (12856) | (12856) | |||||
| Other comprehensive income for the year, net of income tax |
112 | 112 | |||||
| Total comprehensive loss for the year |
112 | (12856) | (12744) | ||||
| Equity component of the convertible loan |
(201) | (201) | |||||
| Transfer to/from | |||||||
| Capital increase | 614 | 2886 | 3500 | ||||
| Capital decrease | 0 | ||||||
| Share based payments | 26 | 26 | |||||
| At 31 December 2014 | 4739 | 3763 | 26 | 73 | (2617) | (21 251) | (15267) |
| Net result of the year | (5958) | (5958) | |||||
| Other comprehensive income for the year, net of income tax |
105 | 105 | |||||
| Total comprehensive loss for the year |
105 | (5958) | (5853) | ||||
| Equity component of the convertible loan Transfer to/from |
(90) | (90) | |||||
| Capital increase | 106 | 501 | 607 | ||||
| Capital decrease Share based payments |
52 | 52 | |||||
| At 30 June 2015 | 4845 | 4 1 7 4 | 78 | 178 | (2617) | (27209) | (20 551) |
IAS 34 was applied to the half year financial report. The accounting policies applied by the Group in the consolidated interim financial statement are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2014.
The company received a letter dated 27 March 2015 within the framework of Article 138 of the Belgian Company Code, in which the auditor set forth his concerns in relation to Option's current financial situation.
The Company has generated a negative cash flow from operations during the first six months of the year, reducing the group's liquidity and overall financial position. In the first half year The Company faced postponed sales and as a consequence important orders shifted to the second half of the year. However the Company's sales partners maintained their outlook for 2015.
The Board of Directors is of the opinion that the use of going concern valuation rules is justified taking into account the items listed below:
The number of applications that run on the CloudGate platform has been increased. The Company delivered several important applications for its partners and developed a railcertified WIFI access point for general deployment in trains, trams and busses.
To further lower the barriers to M2M application development and to decrease the time from concept to working M2M solution, The Company invested in extending the CloudGate platform with LuvitRed. As a result number of partners developing applications autonomously on CloudGate is continuously increasing.
Notwithstanding the progress in the various segments and the continued development of applications, the conversion to cash of these has been slower than anticipated.
In the second half of the year the Company expects significant stock replenishment orders from its partners in North-America. The Company expects to successfully continue to convert stock into cash by selling modules & personal routers.
In the first half year The Company continued to increase its reach into the M2M markets by adding distributors in US, UK and recently Italy. The aim is to accelerate deployment of localized solutions and to increase the support to channel partners.
The company extended its business model beyond the selling of CloudGate equipment. The business model is centered on Internet of Things and is currently based on the following pillars:
In addition, the Company is currently setting different strategic options in motion to further strengthen its current financial position and to ensure its ability to successfully pursue and maximize its potential in the Internet of Things market.
The accounting policies used for preparing the 2015 interim financials are consistent with the ones used at the end of 2014 with the exception that the company adopted changes in the IFRS standards which became applicable since January 1st 2015. These changes had no material impact on the financial statements.
The Group has adopted IFRS 8 "Operating Segments" with effect from 1 January 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the management of the Group in order to allocate resources to the segments and to assess their performance.
The primary segment reporting format is determined to be the business segment; each segment is a distinguishable component of the Group that is engaged in either providing products or services:
| Thousand Euros | customers | |||
|---|---|---|---|---|
| 30 Jun 2015 | 30 Jun 2014 | 30 Jun 2015 | 30 Jun 2014 | |
| Devices & Solutions | $12 \overline{ }$ | 1078 | (93) | (76) |
| Embedded & Solutions | 687 | 1045 | (337) | 38 |
| M2M | 1 3 4 9 | 298 | (474) | (1199) |
| Engineering Services | 508 | 268 | 508 | 268 |
| Other | 157 | 208 | ||
| Totals | 2556 | 2846 | 396) | ( 761) |
| Unallocated Operating Expenses | (4637) | (5180) | ||
| Finance (costs) / income | (918) | (636) | ||
| Income taxes / (expenses) | (7) | (16) | ||
| Nick and address | In aral | $I = F \cup V$ |
The segment result represents the result for each segment including the operating expenses which could be allocated to the operating segment. The operating expenses which can be allocated are mainly amortizations, royalty expenses and staff related expenses, dedicated to the operating segment. The remaining operating expenses, mainly including the general and administrative, depreciations and staff related expenses not dedicated to a specific segment, have been reported under the "unallocated operating expenses".
As a result of the further downsizing of the group, operating expenditure decreased by EUR 0.8 million during the first half of 2015. Of which:
Starting on 9 March 2015, the company received bridge loan for an aggregate amount of EUR 2,775,000 (See also related parties transactions). At the end of the half year, the company had called EUR 2,755,000 of the total amount.
Other than the events mentioned before, no other significant events have occurred during the first six months of the financial year that have a material financial impact on the consolidated interim financial statements.
The Company is since 2H, 2011 shareholder of Autonet Mobile, a California (US) based company active in the automotive sector. The valuation of the participation in Autonet Mobile which is measured at acquisition value, is reviewed at the by the management and the Board on a regular basis in function of the progress (both commercially and financially) made by Autonet Mobile and the general evolution witnessed in the automotive market. The stocks are not tradable in an open market and are therefore measured at cost. The management considers that no impairment is required. Option holds less than 10% in Autonet Mobile.
In August 2015 (after the current reporting period), Autonet Mobile entered into an asset deal. This deal allowed Autonet Mobile to repay their financials debt as also the key suppliers. Further, an amount will be kept in the business to support the current business and a small amount will be paid to the shareholders. At this point in time, it is not possible to assess the value of the financial asset and therefore the financial asset remains measured at cost.
This interim report contains forward-looking information that involves risks and uncertainties, including statements about the company's plans, objectives, expectations and intentions. Such statements include, without limitation, discussions concerning the company's strategic direction and new product introductions and developments. Readers are cautioned that such forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially than those set forth in the forward looking statements. The risks and uncertainties include, without limitation, the early stage of the market for connectivity and integrated wireless products and solutions for portable and handheld computers and mobile telephones, the management of growth, the ability of the company to develop and successfully market new products, rapid technological change and competition. Some of these risk factors were highlighted in the Consolidated and Statutory Report 2014 of the Board of Directors which can be found in the Annual Report 2014 page 25-26. The forward-looking statements contained herein speak only as of the date of this press release. The company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such statement to reflect any change in the company's expectations or any change in events, conditions or circumstance on which any such statement is based.
Frank Deschuytere - CEO Jan Luyckx – Senior Director Finance Gaston Geenslaan 14 B-3001 Leuven, Belgium TEL: +32 (0) 16 31 74 11 FAX: +32 (0) 16 31 74 90 E-mail: [email protected]
http://www.option.com/about\_sub\_pages/half-year-reports/
Option connects Things to the Cloud. With more than 20 years of experience and many industry's firsts in the wireless industry, the Company is ideally positioned to bring the most efficient, reliable and secure wireless solutions to business markets (B2B) and industrial markets (M2M). The Company partners with system integrators, value added resellers, application platform providers, value add distributors and network operators to bring tailor made solutions to end-customers. Option is headquartered in Belgium, has a production engineering and logistics facility and maintains offices in Europe, the US, Greater China, Japan and Australia. More information: www.option.com.
Copyright ©2015 OPTION. All rights reserved. All product and company names herein may be (registered) trademarks or trade names.
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