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Arribatec Group ASA — Annual Report 2017
May 24, 2017
3541_10-k_2017-05-24_e126556b-b91e-49e9-9c09-4696a307c7ca.pdf
Annual Report
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TABLE OF CONTENTS
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| Financial calendar |
|---|
| Timeline |
| This is Hiddn |
| Products |
| Report from the Board of Directors |
| Financial statements - Group |
| Notes to financial statements - Group |
| Financial statements - Parent |
| Notes to financial statements - Parent |
| Responsibility statement |
| Auditors report |
| Corporate governance report |
| Corporate social responsibility report |
| Articles of association |
FINANCIAL CALENDAR & TIMELINE
30.05.2017 Quarterly Report Q1
22.06.2017 Annual General Meeting Hiddn Solutions financial calendar provides an overview of the Company's interim reporting, general meetings, dividend payments and other events relevant for the company's shareholders.
Hiddn Solutions normally publishes its quarterly results around 08:00 AM (CET). The results will be available at the Company's website and at Oslo Stock Exchange's Newsweb. The Company will hold an open presentation of the quarterly results in Oslo the same day.
The dates, times and venues are subject to change. Changes will be communicated through stock exchange notifications.
31.08.2017 Half-yearly Report
30.11.2017 Quarterly Report Q3
THIS IS HIDDN
HIDDN IN BRIEF
Hiddn Solutions ASA (the "Company") is a public limited company incorporated and domiciled in Norway. Hiddn Solutions ASA is the parent company and is headquartered in Oslo, Norway. The Company's operating activities are reported through the subsidiaries Hiddn Security AS and Hiddn Solutions AS (together named "Hiddn" or the "Group").
The Company's shares are listed on the Oslo Stock Exchange under the ticker HIDDN.
The business of the Group consists of research and development, commercialisation and manufacturing of proprietary hardware-based authentication and encryption products, targeted toward military, governmental, institutional, and corporate clients, with further potential to scale into the retail market and a broader commercial setting within the internet of things.
*Hiddn Solutions ASA has on 3rd April 2017 entered into an agreement for the acquisition of Finn Clausen Sikkerhetssystemer AS. The completion of the transaction is conditional upon approval by Hiddn's extraordinary general meeting on 16 May 2017.
SECURITY MADE SIMPLE
what?
Hiddn offers the most secure hardware encryption for safeguarding data at rest, enabling users to transport and access data safely and effortlessly. The Company's patented encryption technology ensures high-level data protection and rights management, embedded in a secure memory stick, an encrypted laptop hard drive and an external USB drive.
why?
Cybersecurity is getting increasingly complicated, with attackers continuously finding new ways to achieve their goals. As a consequence, the market is turning to data encryption as a part of the solution.
Approximately 40% of all data leakages happen due to devices being lost or stolen. These leakages include both data stored directly on the devices, as well as network data
accessed through the devices. To prevent unauthorised access to information on devices like personal computers, USB sticks and portable hard drives, the devices and the data stored on them must be properly secured.
how?
The Company's proprietary technology offers unparalleled authentication and secure key handling features. Hiddn's products differ from other hardware encryption solutions in that the key is deleted when the storage device is without power. The encryption key is stored encrypted on the chip of a separate smart card and is only transferred to the device following
Currently, the Company's encryption technology is embedded in three devices.
Hiddn SafeDisk – an encrypted laptop hard drive Hiddn coCrypt – an encrypted USB flash drive
Hiddn SafeDisk is an advanced security solution for those wanting to safeguard data and applications on a laptop computer. The patented
solution consists of an encrypted hard drive that comes together with an encryption chip. The SafeDisk is easy to use, simple to administrate, and ensures the best data protection commercially available.
- Fully encrypted laptop hard drive (SSD)
- Pre-boot authentication PIN
- Two-factor authentication
- Encryption key deleted when laptop is turned off or in hibernation
- User friendly; the user only needs to insert a smart card and a pin code
Hiddn coCrypt is a secure USB storage device that balances military grade security, affordability and ease
of use. It comes with an intuitive menu on an OLEDdisplay, compatible with all operating systems and its user authentication is independent of the operating system of the computer it is utilised through.
- Fully encrypted USB flash drive (micro-SD)
- Display for ease of use
- Two-factor authentication
- Encryption key deleted when flash drive is removed from PC
- User friendly; the user only needs to insert a sim card and a pin code
Hiddn external USB drive
Based on market research and requests from key customers, the Company is close to completing the first version of a new USB-enabled external disk storage unit with built-in hardware encryption.
- Fully encrypted external USB drive (SSD)
- Display for ease of use
- Two-factor authentication
- Encryption key deleted when USB drive is removed from PC
- User friendly; the user only needs to insert a smart card and a pin code
- Fully bootable; it can be operated securely as an independent unit and operate independently of the operating system of the computer it is connected to
Hiddn's encryption technology has been thoroughly tested and verified, and is continuously being validated by demanding customers
Hiddn's customers benefit from being able to implement the strongest cryptographic algorithms commercially available, designed to meet security certification standards such as FIPS 140-2 Level 3. The Company's technology currently safeguards confidential and restricted data for demanding customers in Norway and the Netherlands, as well as the North Atlantic Treaty Organisation (NATO).
- The Norwegian National Security Authority (NSM) has tested and approved the coCrypt memory stick for information classified up to level Restricted (and higher if the user follows certain handling rules). This enables authorities such as the Norwegian Armed Forces and relevant government entities to safely store information classified as restricted on the coCrypt device.
- The Dutch National Security Authority (NBV) has tested and approved the SafeDisk.
- NATO has approved and applied the SafeDisk in the Global Hawk unmanned surveillance aircraft, produced by Northrop Grumman.
The Internet of Things (IoT) is providing a new dimension to the challenge of cybersecurity, providing a highly scalable expansion opportunity for Hiddn's intellectual property
According to McKinsey, a consultancy, the Internet of Things could have a \$6.2 trillion impact on the global economy by 2025. The implementation of internetconnected devices is already proliferating, both in private and professional settings. Currently, internetconnected devices provide data to track inventories, manage machinery, monitor health metrics, and much more.
The core of Hiddn's technology addresses the three main data security challenges, which are also faced by IoT devices:
- Confidentiality challenge Keeping data from people who shouldn't have access to it
- Integrity challenge Ensuring that data can pass through a network without being detected, modified, or infected
- Authentication challenge Ensuring that received data stems from a trusted source
Hiddn's management is committed to leading the Company and its technology to profitable growth in current and new markets. Steps on the way to achieving this goal include:
- Increasing sales and client reach
- Improving margins
- Complementing the Company's product offering
- Maintaining the Company's technological advantage
- Researching alternative uses of the Company's IP
- Ensuring strategic growth
REPORT FROM THE BOARD OF DIRECTORS
Hiddn Solutions ASA and its subsidiaries (the Group) develops, manufactures and sells electronic encryption components and systems, including software, for computers and portable communication units. The customers are mainly government agencies, such as military organisations, police, and other public agencies that handles sensitive information, and large corporations.
The Company's patented hardware encryption platform is currently utilised to secure data at rest on laptops, hard disks, USB flash sticks and other storage media. The Group will carry out R&D activities that can find further use of the Group's intellectual property.
The operations of the Group are carried out of the Group's operating subsidiaries. The Group has two subsidiaries; Hiddn Solutions AS and Hiddn Security AS.
Hiddn Solutions ASA, the parent company is a public limited company incorporated in Norway. The Company's office is located in Cort Adelers gate 17, 0254 Oslo.
In 2016, the Company made a substantial strategic shift in its business activities, as it entered a business combination agreement with Hiddn Security AS. Consequently, the Company's name was changed to Hiddn Solutions ASA. Going forward, the Company will adopt and expand on the business of Hiddn Security AS.
The previously announced de-listing and liquidation of the Company, was reversed by an extraordinary general meeting ("EGM") on November 14th, 2016. Following this decision, the Company entered into an agreement to acquire Hiddn Security AS by way of issuing consideration shares in the Company. On December 16th, 2016, another EGM approved this acquisition.
Following the reversal of the de-listing, a new board of directors was appointed and a management agreement with SLM Partners AS was entered into to handle the acquisition, and to ensure that the Company had access to the competencies needed to complete its strategic transition. An advisory board was established, consisting
of professionals with broad competency within digital espionage, white collar crime and industrial scaling and commercialisation of technology. The advisory board serves as an advisory function to the management and board of directors, but has no formal corporate function in the Company.
At the beginning of 2017, the Company successfully completed a rights issue which was oversubscribed by approximately 50%. A total of 24,116,564 new shares were issued, yielding gross proceeds of NOK 69.7 million. This provided the Company with sufficient funds to pursue an expansive business development plan focused on growing the Company's capabilities within sales and marketing, as well as to continue its research and development efforts.
Through the last year, Hiddn has continued its technology and product development process in close cooperation with the national security authorities of Norway (NSM) and the Netherlands (NBV). Both institutions
conducted extensive market research for data encryption technologies, before concluding on the currently unmatched level of security offered by Hiddn. NSM and NBV both possess the technical expertise required for advanced testing of cryptographic algorithms, allowing Hiddn to complete necessary upgrades to convert working prototypes into certifiable products.
The Company reached a major milestone in November 2016, as its SafeDisk product was approved by NBV, allowing relevant public authorities in the Netherlands to utilise the SafeDisk for secure storage of information classified as Confidential. Shortly after the approval was granted, Hiddn completed its first delivery to the Dutch Government. In the same period, NSM granted a renewed approval of the USB flash drive (coCrypt) at level Restricted, the Company continued to deliver the USB flash stick to the Norwegian Armed Forces.
These official approvals confirm that Hiddn's products
secure classified information according to the respective authorities' rules and regulations, and that these products can be deemed "not classified" when powered off, i.e. that the information stored on them is considered safe.
The core client segment for the Company's technology has been military and government bodies, and thus commercialisation efforts have historically been directed towards these markets. Going forward, Hiddn will further develop and expand its product range to penetrate the higher volume institutional and large corporate market segments.
As a part of this strategic initiative, Hiddn is currently prototyping an external USB hard drive with built-in hardware encryption and compatibility with any operating system. This USB drive will offer large storage capacity and fast transfer rates coupled with a high degree of data security, delivered in a small form factor cabinet. Hiddn will also allow the drive to be bootable, i.e., to have an independent operating system installed on the drive itself, allowing the unit to operate independently of the operating system in the computer it is connected to. The Company expects to complete delivery of the initial units during the second half of 2017.
Hiddn's strategy also entails further usage of the Company's IP, and the execution of strategic growth, including joint ventures, merger and acquisitions. The purpose is to obtain complementary technology, market share and distribution networks, and/or companies with a profitable revenue base in related industries.
The Company's acquisition of Finn Clausen Sikkerhetssystemer AS (FCS), announced on 3 April 2017, is the first step in a strategy through which the Company can build a strong marketing arm in its primary markets. The acquisition of FCS represents a significant expansion of Hiddn's direct sale capabilities and existing commercial relationships with relevant customers, especially within the Defence, Government, and public authority sectors. The completion of the transaction is conditional upon approval by Hiddn's general meeting to be held 16 May 2017
As a step towards the commercialisation of Hiddn and to drive corporate strategy, Carl Espen Wollebekk has been appointed as the new CEO of Hiddn Solutions ASA, effective from the end of Q2 2017. Mr. Wollebekk brings operating and leadership experience from the ICT industry, expertise in financial management and a global business perspective to the Group. As the Group pursues broader strategic opportunities going forward, the appointment is critical to future business development. Mr. Wollebekk will be replacing Tore Viana-Rønningen as CEO.
Financial Summary
Consolidated financial statements as at 31 December 2016.
The Group was established on 29 December 2016, when Hiddn Security AS arranged to be acquired by Hiddn Solutions ASA (formerly Agasti Holding ASA) in a reverse takeover. At the time of the merger, Hiddn Solutions ASA was a non-operating company without substantial net liabilities. Prior to the merger, Hiddn Security AS was a privately held company while Hiddn Solutions ASA remained listed on the Oslo Stock Exchange after
divesting its operations and net assets. The purpose of the transaction was for Hiddn Security AS to obtain a listing indirectly through the merger with Hiddn Solutions ASA.
The consolidated financial statements are based on Hiddn Security AS' historical financial statements until completion of the transaction on 29 December 2016.
The following financial discussion do not include alternative performance measures.
Profit and loss statement
Hiddn recorded operating revenues of NOK 3.8 million in 2016 compared to NOK 3.2 million in 2015.
Hiddn recorded other income of NOK 2.7 million in 2016 compared to NOK 1.7 million in 2015. Included in the figures for 2016, was a subsidy effect of NOK 0.5 million related to a loan from Innovation Norway and NOK 0.3 million as a government grant from Innovation Norway related to Hiddn's research and development.
Payroll expenses were NOK 9.2 million for the full year 2016 compared to NOK 5.2 million in 2015. The increase was primarily attributable to hiring new employees within R&D and sales.
Other operating expenses were NOK 33.5 million during the full year 2016 compared to NOK 15.6 million in 2015. Included in the figures for 2016 were merger and acquisition costs related to the reversed acquisition of NOK 6.4 million in share-based payment and 12.4 in listing cost.
Depreciation and amortisation expenses amounted to NOK 0.15 million in 2016, the same amount as in 2015. Net financial expenses were N OK 2 .0 million in 2016 compared to NOK 0.3 million in 2015. The increase is primarily related to raising new financing through loans from DNB Norge ASA, shareholder loans and loans from Innovation Norway.
Net loss for 2016 was NOK 42.0 million compared to NOK 18.5 million in 2015.
Cash Flow and Balance sheet
Net cash flow from operations was negative in 2016 with
NOK 19.1 million compared to a negative cash flow from operations in 2015 of NOK 21.5 million. Net cash flow from investment activities was NOK 1.4 million compared to NOK 0 million in 2015.
Cash flow provided by financing activities was NOK 19.1 million in 2016 compared to NOK 22.1 million in 2015. Equity raised was NOK 0 in 2016 compared to 22.1 million in 2015. The Company raised NOK 22.4 million in new debt and repaid NOK 3.4 million during 2016 compared to NOK 0 million in 2015.
In May 2016 Innovation Norway provided NOK 8 million in a new loan to Hiddn Security AS. The loan includes covenants related to equity and working capital as well as change in control clauses. Hidddn Security AS is in breach of the equity covenant, but has received a waiver of the change of control covenant in December 2016. Hiddn Security remains in breach of the equity covenant, but has received confirmation from Innovation Norway that they will not declare a breach in this respect.
Cash and cash equivalents amounted to NOK 3.2 million as per 31 December 2016 compared to NOK 1.9 million as per 31 December 2015.
As per 31 December 2016, the total assets were NOK 9.9 million compared to NOK 5.7 million at the end of 2015.
Total equity was negative and amounted to NOK 25.3 million at the end of 2016 compared to minus NOK 0.1 million by the end of 2015.
The negative equity as of 31 December 2016, has been addressed by a rights issue completed in February 2017 resulting in gross proceeds of NOK 69.7 million.
Accounting Principles
The financial s tatements for 2016 have been prepared and presented in accordance with International Financial Reporting Standards and the Norwegian Accounting Act. A summary of internal controls related to the accounting process can be found in the Corporate Governance section of this annual report.
Financial Risk
Hiddn is exposed to certain financial risks related to exchange rates and interest level. These are, however, insignificant compared to the business risk.
Hiddn has currently limited revenue compared to cost. The Group has reported accumulating financial losses and is likely to have losses in 2017 as part of developing the commercial phase.
Hiddn assumes revenue from its product portfolio, but has not yet traded commercially in large volumes.
The markets in which Hiddn operates are undergoing rapid technological changes, and the revenue going forward depends among other things on several market factors, which are not controlled by the company.
Hiddn does not have any significant trade receivables or other significant receivables with any credit risk and does not hold any financial instruments in the balance sheet or any such instruments outside the balance sheet.
Hiddn is exposed to foreign exchange risk in its ordinary business activities, which can impact profit margins. Hiddn does not use financial instruments to hedge this risk.
Shareholders and capital situation
The Company has one class of shares. The shares are listed on the Oslo Stock Exchange main list and may be traded without restrictions. The Company had 2 889 shareholders at the end of 2016.
On 14 November 2016, the extraordinary shareholder meeting resolved to reverse the liquidation and de-listing of the Company. On 25th November 2016, the Company entered an agreement to acquire Hiddn Security AS by way of issuing consideration shares in the Company. On 16 December 2016, another extraordinary shareholder meeting approved the acquisition and on 29 December 2016, the acquisition of 90.5% of Hiddn Security AS was completed.
Prior to the completion of the acquisition of Hiddn Security AS, the Company performed a reverse stock split reducing the number of outstanding shares to 2.9 million shares and par value was changed to NOK 0,34 per share. In December 2016, the Company issued 32.9 million shares to formally acquire Hiddn Security AS.
The issued share capital of the Company at the end of 2016 amounted to NOK 12.2 million consisting of 35.8 million ordinary shares each with a nominal value of NOK0.34.
In the consolidated financial statements for 2016, the historical number of shares have been restated to reflect the exchange ratio between the Hiddn Solutions ASA shares and Hiddn Security AS shares. The changes in historical number of shares are based on Hiddn Security's share issues, but stated based on the agreed exchange ratio.
On 13 January 2017, an extraordinary shareholder meeting resolved to carry out a rights issue of up to 20,761,245 shares. The subscription period commenced upon approval of the Company's Prospectus by the Norwegian Financial Authorities on 27 January 2017. The rights issue closed on 10 February 2017, oversubscribed by approximately 50%. Due to the high demand and based on an authorisation granted by the extraordinary shareholder meeting, the board decided to issue additional offer shares. In total 24,116,564 offer shares were issued yielding gross proceeds of NOK 69.7 million.
In January 2017, Hiddn Solutions ASA acquired additional 1.3 million of shares in Hiddn Security AS by issuing 2.4 million new Hiddn Solutions ASA shares.
In April 2017, Hiddn Solutions ASA issued additional 825 thousand shares to acquire 451 thousand Hiddn Security AS shares. The Group now owns more than 99% of the outstanding shares in Hiddn Security AS.
After the rights issue and the acquisition of additional shares in Hiddn Security AS, Hiddn Solutions ASA has 63,099,418 outstanding shares and share capital of NOK 21,453,802.
There are no authorisations to the board to purchase own shares.
Employees
At the end of 2016, the Group had 9 employees of which all are males. In addition, the Group has senior consultants and individual technical and scientific specialists on contract. The Group seeks to maintain a good working environment. The sick absence rate in 2016 was less than 0,5%, and no safety issues has been registered. There are currently four members of the board of which two are women.
Corporate Governane
Hiddn's guidelines for corporate governance are in accordance with the Norwegian Accounting Act §3- 3b and seek to comply with the Norwegian code of Practice for Corporate Governance, dated October 30th 2014. Considering account the size and maturity of the Company there may be deviations from the code, in these cases, Hiddn will explain the deviations. Please see Corporate Governance section of this annual report for further information.
Corporate Social Responsibility
Hiddn's guidelines for social responsibilities are in accordance with the Norwegian Accounting Act §3-3c. The Group's operations shall at all times be in accordance with applicable environmental legislation. Hiddn does not own or operate manufacturing facilities. For further information, please see separate section for Corporate Social Responsibility Report of this annual report.
Going Concern
The Group's operations shall at all times be in accordance with applicable environmental legislation. Hiddn does not own or operate manufacturing facilities.
Parent company financial result
The net profit f or t he parent c ompany H iddn Solutions ASA for 2016 was NOK 87.9 million compared to NOK 232 million in 2015.
In 2016, the Company decided to sell off all significant parts of the Company's business to Blackstone L.P. and recorded a net gain of NOK 103.2 million. Net financial income for 2016 was NOK 101.5 million compared to NOK 231.6 million in 2015.
In total NOK 156 million has been declared and paid out as dividend to the shareholders. As per 31 December 2016, the total equity for the parent company amounted to NOK 91 million compared to NOK 116 million in 2015.
Following the transaction with Blackstone L.P. the subsidiaries were liquidated. At the date of the reversed takeover with Hiddn Security AS, Hiddn Solutions ASA was a non-operating company with minimal net assets.
The Board of Directors proposes that the net profit of NOK 87.9 million, after payment of dividends, in Hiddn Solutions ASA to be transferred to other equity.
Outlook
Hiddn has recently changed its line of business from financial asset management to development, manufacturing and selling of hardware based encryption products. The underlying operations of its new business has completed a full overhaul of its core technology, developed products for which there is a confirmed market place and gained approval from customers with highly demanding certification processes. Hence this is an opportune timing for the Company to embark on a full commercial scaling as well as allowing the Company to take advantage of the current technology and cybersecurity trend in the marketplace where the complex cybersecurity
situation is pushing companies towards encrypted data exchange.
The focus going forward is to capitalise on the significant time and money invested to-date by further penetrating the governmental and military segments with its current product series, expand its customer base by targeting institutions and large corporates with the current product series based on the proof of concept developed through military and governmental clients, and to further develop and expand its product series for the purpose of targeting the more volume driven mass-markets as well as to complement the product offering to military and governmental clients.
Oslo, 28.04.2017 The Board of Hiddn Solutions ASA
Hege Anfindsen member of the board
Øystein Erling Tvenge chairman of the board
Cecilie Grue member of the board
Ola Røthe member of the board Tore Viana-Rønningen CEO
Hiddn CoCrypt approved by the Norwegian National Security Authority (NSM) and in use by the Norwegian Armed Forces.
| [hiddn]" caCrypt | GHL | ABC JKL TUV |
|
|---|---|---|---|
CONSOLIDATED STATEMENT OF PROFIT AND LOSS
| Amounts in NOK thousands | NOTE | 01.01-31.12 2016 |
01.01-31.12 2015 |
|---|---|---|---|
| Revenues | 20 | 3,801 | 3,244 |
| Other income | 4 | 2,679 | 1,682 |
| Total revenue and other income | 6,480 | 4,926 | |
| Cost of materials and services | (3,572) | (2,217) | |
| Payroll expenses | 5, 6 | (9,231) | (5,178) |
| Depreciation & amortisation | 11 | (144) | (145) |
| Other operating expenses | 6, 7 | (33,481) | (15,581) |
| Operating loss | (39,948) | (18,195) | |
| Interest income | 8 | 9 | 15 |
| Other financial income | 8 | 65 | 37 |
| Interest expense | 8 | (1,195) | (209) |
| Other financial expenses | 8 | (912) | (125) |
| Net financial items | (2,033) | (282) | |
| Loss before income tax | (41,981) | (18,477) | |
| Income tax | 9 | - | - |
| Loss for the period | (41,981) | (18,477) | |
| Profit/(loss) attributable to | |||
| Equity holders of parent company | (41,981) | (18,477) | |
| Non-controlling interest | - | - | |
| Basic and diluted earnings per share | 10 | (1.26) | (0.63) |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
| Amounts in NOK thousands | NOTE | 01.01-31.12 2016 |
01.01-31.12 2015 |
|---|---|---|---|
| Net profit/(loss) for the period | (41,981) | (18,477) | |
| Other comprehensive income: | |||
| Items that may be reclassified subsequently through profit or loss: | - | - | |
| Items that will not be reclassified subsequently to profit or loss: | - | - | |
| Other comprehensive income directly against equity | - | - | |
| Total comprehensive income for the period | (41,981) | (18,477) | |
| Total comprehensive income attributable to: | |||
| Equity holders of parent company | (41,981) | (18,477) | |
| Non-controlling interest | - | - |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| Amounts in NOK thousands | NOTE | 01.01-31.12 2016 |
01.01.-31.12 2015 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Property, plant, and equipment | 11 | 141 | 53 |
| Total non-current assets | 141 | 53 | |
| Current assets | |||
| Inventory | 12 | 1,465 | 1,234 |
| Accounts receivable | 19 | 1,008 | 252 |
| Other receivables | 13 | 4,102 | 2,265 |
| Cash and short-term deposits | 14 | 3,211 | 1,885 |
| Total current assets | 9,786 | 5,636 | |
| Total assets | 9,927 | 5,689 |
| Amounts in NOK thousands | NOTE | 01.01-31.12 2016 |
01.01.-31.12 2015 |
|---|---|---|---|
| EQUITY AND LIABILITIES | |||
| Equity | |||
| Share capital | 15 | 12,162 | 11,342 |
| Additional paid-in capital | 81,820 | 66,116 | |
| Other paid-in-capital | 12,904 | 12,780 | |
| Accumulated losses | (130,183) | (90,324) | |
| Non-controlling interest | (2,028) | - | |
| Total equity | (25,325) | (86) | |
| Non-current liabilities | |||
| Long-term debt | 16 | 1,286 | - |
| Total non-current liabilities | 1,286 | - | |
| Current liabilities | |||
| Current portion of long-term debt | 16 | 8,030 | 1,859 |
| Short-term loans | 16 | 11,095 | - |
| Trade payables | 8,053 | 1,849 | |
| Social security payable, etc. | 844 | 322 | |
| Other short-term debt | 17 | 5,944 | 1,745 |
| Total current liabilities | 33,966 | 5,775 | |
| Total liabilities | 35,252 | 5,775 | |
| Total equity and liabilities | 9,927 | 5,689 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
| Amounts in NOK thousands | Share capital |
Share premium |
Other paid-in capital |
Accu mulated losses |
Non controlling interest |
Total equity controlling interest |
|---|---|---|---|---|---|---|
| Equity 1 January 2015 | 8,774 | 46,611 | 12,750 | (71,847) | - | (3,712) |
| Loss for period | - | - | - | (18,477) | - | (18,477) |
| Other comprehensive income | - | - | - | - | - | - |
| Total comprehensive income for the period | - | - | - | (18,477) | - | (18,477) |
| Share based payment | - | - | 30 | - | - | 30 |
| Share issue | 2,568 | 19,655 | - | - | - | 22,223 |
| Transaction costs | (150) | - | - | - | (150) | |
| Equity 31 December 2015 | 11,342 | 66,116 | 12,780 | (90,324) | - | (86) |
| Equity 1 January 2016 | 11,342 | 66,116 | 12,780 | (90,324) | - | (86) |
| Loss for period | - | - | - | (41,981) | - | (41,981) |
| Other comprehensive income | - | - | - | - | - | - |
| Total comprehensive income for the period | - | - | - | (41,981) | - | (41,981) |
| Share-based payment | - | - | 124 | - | - | 124 |
| Issue of warrants | - | 1,684 | - | - | 1,684 | |
| Repurchase of warrants | - | - | (1,684) | 94 | - | (1,590) |
| Issue of shares | 820 | 7,196 | - | - | - | 8,016 |
| Fair value of reverse acquisition | - | 8,508 | - | - | - | 8,508 |
| Non-controlling interst | - | - | - | 2,028 | (2,028) | - |
| Equity 31 December 2016 | 12,162 | 81,820 | 12,904 | (130,183) | (2,028) | (25,325) |
Oslo, 28.04.2017 The Board of Hiddn Solutions ASA
Hege Anfindsen member of the board
Øystein Erling Tvenge chairman of the board
Cecilie Grue member of the board
Ola Røthe member of the board Tore Viana-Rønningen CEO
CONSOLIDATED STATEMENT OF CASH FLOWS
| Amounts in NOK thousands | NOTE | 01.01-31.12 2016 |
01.01.-31.12 2015 |
|---|---|---|---|
| Cash flow from operating activities | |||
| Loss before income tax | (41,981) | (18,477) | |
| Depreciation | 11 | 144 | 145 |
| Non-cash amortisation of interest | 8 | 1,420 | - |
| Other income | 4 | (480) | - |
| Share-based expenses | 6 | 6,549 | 30 |
| Listing cost | 3, 6 | 12,440 | |
| Changes in assets and liabilities | |||
| Inventory | 12 | (231) | (1,029) |
| Accounts receivable | (756) | (245) | |
| Other receivables | 13 | (1,201) | (1,993) |
| Trade payables | 3,089 | 740 | |
| Social security payable, etc. | (19) | 79 | |
| Other short-term debt | 17 | 1,878 | (759) |
| Net cash used in operating activites | (19,148) | (21,509) | |
| Cash flow from investing activities | |||
| Purchases of property, plant & equipment | 11 | (231) | - |
| Cash acquired in reverse acquisition | 3 | 1,642 | |
| Net cash from investing activities | 1,411 | - | |
| Cash flow from financing activities | |||
| Share issuance | 15 | - | 22,223 |
| Transaction cost related to share issue | 15 | - | (150) |
| Proceeds fom Government loan | 16 | 7,960 | - |
| Proceeds from short-term loans | 16 | 10,876 | - |
| Proceeds from issuing convertible debt | 16 | 1,727 | - |
| Proceeds from loans from shareholders | 21 | 1,860 | - |
| Repayment of loans from shareholders | 21 | (1,860) | |
| Repayment of loans | 16 | (1,500) | - |
| Net cash from financing activities | 19,063 | 22,073 | |
| Net change in cash and cash equivalents | 1,326 | 564 | |
| Cash, cash equivalents and overdraft at beginning of period | 1,885 | 1,321 | |
| Cash, cash equivalents and overdraft-end of period | 3,211 | 1,885 |
SECURITY MADE SIMPLE
SAFEGUARDING YOUR DATA ANYWHERE
NOTES TO FINANCIAL STATEMENTS
NOTE 1 Information about the group
Hiddn Solutions ASA and its subsidiaries (the Group) develops, manufactures and sells electronic encryption components and systems, including software, for computers and portable communication units. The customers are mainly government agencies, such as military organisations, police, and other public agencies that handles sensitive information, and large corporations.
Hiddn Solutions ASA, the parent company is a public limited company incorporated in Norway. The Company's office is located in Cort Adelers gate 17, 0254 Oslo.
The financial statements were approved by the Board of Directors on 28 April 2017.
NOTE 2 Significant accounting policies
BASIS OF PREPARATION
The financial statements for 2016 have been prepared and presented in accordance with the International Financial Reporting Standards (IFRS), as adopted by the EU. The valuation and recognition of the items in the financial statements have been carried out in accordance with current IFRS standards. The financial statements have been prepared on a historical cost basis.
Summary of significant accounting policies
BASIS OF CONSOLIDATION
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries at 31 December 2016. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:
- Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)
- Exposure, or rights, to variable returns from its involvement with the investee
- The ability to use its power over the investee to affect its returns
Profit or loss and each component of OCI are attributed to the equity holders of the parent of the Group and to the noncontrolling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
FOREIGN CURRENCY - TRANSACTIONS AND BALANCES
Transactions in foreign currencies are initially recorded by the Group at the NOK spot rate at the date the transaction first qualifies for recognition. The functional currency of the Group is NOK. Monetary items denominated in foreign currencies are translated at the exchange rate at the balance sheet date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised as finance income or finance expense in the income statement.
CURRENT VS NON-CURRENT CLASSIFICATION
The Group presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is current when it is:
- Expected to be realised or intended to be sold or consumed in the normal operating cycle
- Held primarily for the purpose of trading
- Expected to be realised within twelve months after the reporting period Or
- Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period
All other assets are classified as non-current.
A liability is current when:
- It is expected to be settled in the normal operating cycle
- It is held primarily for the purpose of trading
- It is due to be settled within twelve months after the reporting period
Or
• There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period
The Group classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
REVENUE
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods. Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. The Group provides normal warranty provisions for general repairs for one year on all its products sold, in line with industry practice
Maintenance agreements are recognised straight-line over the contract period.
GOVERNMENT GRANTS
Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset.
The benefit of a government loan at a below-market rate of interest is treated as a government grant. The benefit of the below-market rate of interest shall be measured as the difference between the initial carrying value of the loan discounted using the applicable market interest and the proceeds received.
INTANGIBLE ASSETS
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses. Separately acquired intangible assets are recognised at fair value at the time of acquisition.
RESEARCH AND DEVELOPMENT
Research costs are expensed as incurred. Costs associated with development are capitalised if the following criteria are met in full:
- the product or the process is clearly defined and the cost elements can be identified and measured reliably
- the technical feasibility is demonstrated;
- the product or the process will be sold or used in the business;
- the asset will generate future financial benefits.
- Sufficient technical, financial and other resources for project completion are in place.
PROPERTY, PLANT AND EQUIPMENT
The Group's property, plant and equipment, currently consisting of computers and equipment, are recorded at cost less accumulated depreciation. Acquisition costs include costs directly attributable to the acquisition of the asset. Depreciation is calculated on a straight-line basis over the useful life of the asset (land is not depreciated)
• Machinery and equipment: 3-5 years
Residual value and useful lives are reviewed annually.
IMPAIRMENT OF NON-FINANCIAL ASSETS
Assets that are subject to depreciation and amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cashgenerating units).
INVENTORY
Inventories are stated at the lower of cost, using the first-in, firstout method ("FIFO"), and net realisable value. Net realisable value is estimated sales price reduced by sales costs. The Group uses contract manufacturers to produce its components.
RECEIVABLES
Receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group may not be able to collect all amounts due according to the original terms of receivables.
CASH AND CASH EQUIVALENTS
Cash and short-term deposits in the statements of financial position comprise cash at banks and other short-term highly liquid investments with original maturities of three months or less.
INTEREST-BEARING BORROWINGS
Interest-bearing borrowings are recognised initially at fair value less direct transaction costs. Subsequent to initial recognition, interest-bearing borrowings are measured at amortised cost with any difference between cost and redemption being recognised in the statement of income over the period of the borrowings on an effective interest basis.
CONVERTIBLE DEBT
Convertible debt is separated into liability and equity components based on the terms of the contract. On issuance of the convertible debt, the fair value of the liability component is determined using a market rate for an equivalent nonconvertible bond. This amount is classified as a financial liability measured at amortised cost (net of transaction costs) until it is extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option that is recognised and included in equity.
TRADE PAYABLES
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
WARRANTY PROVISIONS
Provisions for warranty-related costs are recognised when the product is sold or service provided to the customer. Initial recognition is based on historical experience. The initial estimate of warranty-related costs is revised quarterly.
INCOME TAXES
Income tax expense represents the sum of the taxes currently payable and deferred tax. Taxes payable are provided based on taxable profits at the current tax rate. Deferred taxes are recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all 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.
The Group has a history of operating losses and is currently not able to demonstrate that it is probable that future tax profits will be available against which tax loss carry forwards can be utilised.
SHARE-BASED COMPENSATION
The Group uses share-based, equity settled options as part of the compensation for senior management. The fair value of the services received is recognised as an expense in the financial statements over the period the options vest. Share-based compensation to employees is measured by reference to the fair value of equity instruments issued. Fair value of warrants is estimated using the Black Scholes model.
DEFINED CONTRIBUTION PLANS
Obligations for contributions to defined contribution plans are recognised as an expense in the statement of income when employees have rendered services entitling them to the contributions. Prepaid contributions are recognised as an asset to the extent that a cash refund or deduction in future payments is available.
LEASES
A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease.
An operating lease is a lease other than a finance lease. Operating lease payments are recognised as an operating expense in the statement of profit or loss on a straight-line basis over the lease term.
FAIR VALUE
All assets and liabilities for which fair value is measured or
disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
- Level 1 Quoted (unadjusted) market prices in active markets for identical assets or liabilities
- Level 2 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
- Level 3 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
USE OF ESTIMATES AND JUDGEMENTS IN PREPARING THE FINANCIAL STATEMENTS
MEASUREMENT OF CONSIDERATION IN REVERSE ACQUISITION
Hiddn Security AS was acquired by Hiddn Solutions ASA in 2016. The transaction was accounted for as a reverse acquisition of the shell company Hiddn Solutions ASA in the group accounts. The difference in the fair value of the shares deemed to have been issued by Hiddn Security AS and the fair value of Hiddn Solutions ASA's identifiable net assets represents a share-based service received by the accounting acquirer. The transaction was complex and involved fair value estimates. The consideration in the transaction was measured at NOK 8.5 million. The fair value of Hiddn Solutions ASA was estimated by an independent valuation expert and approved by management. A change to the fair value estimate would have affected the IFRS 2 expense recognised on the transaction date. The valuations were dependent on estimates such as future cash flows and weighted average cost of capital. See Note 3 Formation of the Group for further information and calculation of the IFRS 2 expenses.
Share-based payment to the shareholders in Hiddn Security AS that guaranteed a minimum subscription amount in a share issue as described in Note 6, was measured using NOK 6 per share
of Hiddn Security AS (prior to the completion of the reverse acquisition of Hiddn Solutions ASA).
To determine the present value of low-interest loans from government entities, management had to estimate the market interest at the applicable recognition dates. The Group used an estimated market interest rate of 6.5 % when discounting the new government loan in 2016. See note 4 Other Income.
GOING CONCERN ASSUMPTION
The Group completed a rights (share) issue in February 2017 raising net proceeds of NOK 64.1 million. The proceeds are sufficient to fund operating losses, meet financial obligations and to fund development projects for a period of at least 12 months. See Note 22 Events after the Balance Sheet Date.
The Group has incurred significant tax loss carry forwards, but has not recognised a deferred tax asset related to these tax losses beyond offsetting deferred tax liabilities. The Group has a history of operating losses, and is unable to demonstrate that it is probable that it will generate sufficient income to utilise the tax loss carry forwards. The amount of deferred taxes that was not recognized was NOK 218 million. See note 9 Income taxes.
NEW ACCOUNTING STANDARDS
The Group has not yet adopted certain new standards, amendments and interpretations to existing standards, which have been published, but are only effective for the accounting periods beginning on or after 1 January 2017 or later periods. The relevant new pronouncements are listed below:
IFRS 9 Financial Instruments (as revised in 2014) will supersede IAS 39 upon its effective date for annual periods beginning on or after 1 January 2018. The number of categories of financial assets have been reduced to financial assets measured at amortised cost and financial assets measured at fair value. However, the standard introduces a "fair value through other comprehensive income" measurement category for certain simple debt instruments. IFRS 9 also presents a new impairment model which is based on expected credit losses, rather than on incurred credit losses. As a credit event is not necessary for recognising an impairment loss, the directors expect that there may be a change in timing of recog-nizing impairment losses as these may be recognised at an earlier stage but not necessarily a change in the amount of recognised losses. The Group has not completed its evaluation of the impact of the implementation of the standard yet.
IFRS 15 was issued in May 2014. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. The standard establishes a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction contracts and the related interpretations when it becomes effective. Under IFRS 15 an entity recognises revenue when a performance obligation is satisfied, i.e. when control over the goods or services underlying the particular performance obligation is transferred to the customer. The evaluation of the impact will be completed during the next year.
IFRS 16 leases was issued in January 2016 and applies to annual periods beginning after 1 January 2019. IFRS 16 specifies
how to recognise, measure and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. The evaluation of the impact has not been completed at this stage.
NOTE 3 Formation of the group
On 29 December, 2016, the reverse acquisition of Hiddn Solutions ASA (former Agasti Holding ASA) by Hiddn Security AS was completed. Hiddn Solutions ASA was a non-operating company with minimal net assets, that remained listed on Oslo Stock Exchange. Hiddn Security AS was a privately-owned company. In order to achieve a listing on Oslo Stock Exchange, Hiddn Security AS arranged to be acquired by Agasti Holding ASA (now Hiddn Solutions ASA). The transaction is scoped out of IFRS 3 "Business Combinations" since Hiddn Solutions ASA did not meet the definition of a business at the acquisition date.
The relative fair values in the transaction, valued Hiddn Security AS at NOK 105 million and Hiddn Solutions ASA at NOK 8.5 million. The fair values of each entity were appraised by an external valuation expert.
The transaction is regarded as a deemed equity settled sharebased transaction. Accordingly, the Group accounted for the transactions under IFRS 2 Share-based payment and recorded a listing expense of NOK 12.4 million. See note 6 Share-based payment below for further discussion.
The consolidated financial statements are based on Hiddn Security AS' historical financial statements until completion of the transaction on 29 December 2016. Even though Hiddn Solutions ASA was the formal acquirer in the reverse transaction, Hiddn Security AS is considered be the acquirer for accounting purposes. The profit and loss statement for 2016 represents Hiddn Security AS' loss for the year until the completion date and Hiddn Solutions' profit or loss is included in the consolidated financial statements from the acquisition date. All the comparative financial information and note disclosure in these consolidated financial statements for the period before 29 December 2016 are based on Hiddn Security AS.
MATERIAL PARTLY OWNED SUBSIDIARY
Hiddn Solutions ASA owns 90.5% of Hiddn Security AS at 31 December 2016. The non-controlling interest in Hiddn Security is NOK -2 028 thousand at 31 December 2016. The difference between the consolidated profit or loss statement and Hiddn Security's profit and loss statement relates to the recognition of a listing cost of NOK 12.4 million (see Note 6) classified as other operating expense. Hiddn Security AS' loss after tax in 2016 was NOK -29.5 million (total comprehensive loss is also – 29.5 million).
| Amount in NOK thousands | Hiddn Security |
|---|---|
| Current assets | 7,739 |
| Non-current assets | 141 |
| Current liabilities | (27,987) |
| Non-current liabilities | (1,286) |
| Total equity | (21,393) |
| Attributable to: | |
| Shareholders of the company | (19,365) |
| Non-controlling interest | (2,028) |
NOTE 4 Other income
The Group recognised Other Income of NOK 1.9 million in 2016 and NOK 1.7 million in 2015 related to government research grants paid through the program Skattefunn.
The Group received a low interest loan from the Norwegian government (Innovation Norway) and recorded a subsidy effect of NOK 480 thousand in 2016.
Additionally, the Group recorded other contribution from the government to its research and development of NOK 300 thousand in 2016.
NOTE 5 Employee compensation
| Amount in NOK thousands | 2016 | 2015 |
|---|---|---|
| Wages and salaries | 7,592 | 4,162 |
| Social security costs | 1,109 | 613 |
| Pension costs defined contribution plan | 306 | 165 |
| Board members, other governing bodies | - | 200 |
| Share-based payment | 124 | 31 |
| Other salary costs | 100 | 7 |
| Total | 9,231 | 5,178 |
| Average number of full time employees | 9 | 9 |
The Group uses management-for-hire for the positions of CEO and CFO starting in the 4th quarter of 2016. The CEO and CFO services are provided by SLM Partners AS (SLM). SLM charged a total NOK 886 thousand for CEO and CFO services (NOK 443 thousand per person). Total amount invoiced for management and other services from SLM Partners AS in 2016 was NOK 1.4 million. Øystein Tvenge, the Chairman of the Board in Hiddn Security AS (the subsidiary) owned 25% of SLM Partners AS at 31 December 2016. In January 2017, Øystein Tvenge was elected Chairman of the Board in Hiddn Solutions ASA.
Until November 2016, the CEO of Hiddn Security AS was Gudmundur Einarsson. The former CEO was not an employee but has been insourced through a consulting agreement with his private consulting company. The fee invoiced for his services was NOK 1 920 thousand in 2016 and 2 189 thousand in 2015. The agreement with Vilje Ve AS to provided CEO services was terminated November 2016. The termination agreement specifies payment including December 2016.
There are no termination agreements with senior management beyond a standard statutory notification period of three months.
The CTO has a bonus based on performance compared to budget and certain technical achievements. No bonuses have been awarded or expensed in 2015 or 2016. The sales and marketing director has a bonus plan based on achieved sales revenue. No other member of management has any bonus agreements. Shares held and share-based payments are disclosed in note 6.
| 2016: Amount in NOK thousands |
Salary | Board member fees |
Other com pensation |
Pension costs |
Total |
|---|---|---|---|---|---|
| Leif Sundstø, sales and marketing director | 1,139 | - | 6 | 42 | 1,187 |
| Atle Haga, chief technology officer | 1,151 | - | 15 | 43 | 1,209 |
| Hans W. Flisnes, chief operating officer | 825 | - | 7 | 47 | 879 |
| Total | 3,115 | - | 28 | 132 | 3,275 |
2015:
| Amount in NOK thousands | Salary | Board member fees |
Other com pensation |
Pension costs |
Total |
|---|---|---|---|---|---|
| Jan Engebretsen, former board chairman | - | 50 | - | - | 50 |
| Tore Schiøtz, board member | - | 30 | - | - | 30 |
| Jan Olaf Tønnevold, board member | - | 30 | - | - | 30 |
| Arnfinn Tveit, board member | - | 30 | - | - | 30 |
| Øystein Tvenge, board member | - | 30 | - | - | 30 |
| Torje Tvedt, board member | - | 30 | - | - | 30 |
| Atle Haga, chief technical officer | 985 | - | 38 | 44 | 1,067 |
| Hans W. Flisnes, chief sales officer | 490 | - | 48 | 43 | 581 |
| Total | 1,475 | 200 | 86 | 87 | 1,848 |
NOTE 6 Share-based payment
EMPLOYEE COMPENSATION:
2016:
All outstanding warrants in Hiddn Security AS were cancelled according to the the reversed takeover agreement between Hiddn Solutions ASA and Hiddn Security AS. The employee options (warrants) were cancelled prior to the completion of the transaction. Any unrecognised expense on share-based payments allocated over the vesting period was immediately recognised on cancellation.
The Group recognised NOK 123 thousand in share-based expense 2016. The share-based expense in the comparable period in 2015, was NOK 30 thousand. There were no new grants of share-based compensation in 2016.
A new share-based compensation program will be implemented in 2017.
2015:
In 2015, the Shareholders' approved a share-based compensation plan for its key employees and board members. The authorisation was for up to 1 755 thousand shares. Only 108 thousand warrants were granted to one employee in 2015. The warrants' vesting period was 1 year, starting 1 January 2016, and has a contractual life of at least 3 years. The exercise price was NOK 3.3 per share. The options were cancelled in 2016.
MOVEMENTS DURING THE YEAR
The following table illustrates the number and weighted average exercise prices of, and movements in share options during the year:
| 2016 | 2015 | |||
|---|---|---|---|---|
| Number of options |
Weighted average exercise price |
Number of options |
Weighted average exercise price |
|
| Outstanding 1 January | 136,722 | 5.85 | 30,956 | 15.51 |
| Granted during the year | - | - | 108,346 | 3.32 |
| Options from reverse acquisition | 11,783 | 16.34 | ||
| Cancelled during the year | (136,722) | 5.85 | (2,580) | 15.51 |
| Exercised during the year | - | - | - | - |
| Expired during the year | - | - | - | - |
| Outstanding 31 December | 11,783 | 16.34 | 136,722 | 5.85 |
| Exercisable 31 December | 11,783 | 16.34 | 20,636 | 15.51 |
The option activity in in 2016 and 2015 relate to options previously outstanding in Hiddn Security AS restated to the exchange ratio of shares in the transaction with Hiddn Solutions ASA, apart from 11 783 options which were outstanding in the accounting acquire Hiddn Solutions ASA at the time of the transaction. The options expired unexercised on 17 February 2017.
The average fair value of options granted in 2015 was NOK 1.15 per option.
The weighted-average assumptions used to estimate fair value under the Black Scholes model were as follows:
| Issued in | 2015 |
|---|---|
| Volatility | 60.00 % |
| Expected life | 3 |
| Risk free interest | 0.58 % |
| Share price | 3.05 |
| Exercise price | 3.32 |
Volatility was estimated by comparing to the volatility of similar entities.
SHARE-BASED PAYMENT FOR REVERSE TAKEOVER
Hiddn Security AS was considered the acquirer in the reversed aquisition of with Hiddn Solutions ASA. The fair value of the shares considered "issued" by Hiddn Security is NOK 8.5 million, which corresponds with the fair value estimate of Hiddn Solutions ASA (formerly Agasti Holding ASA) at the time of the merger.
| Amount in NOK thousands | 2016 |
|---|---|
| Fair value of share-based payment | 8,508 |
| Net liabilities assumed in the acquisition | 3,932 |
| Total listing expense | 12,440 |
The difference between the fair value of the share-based payment "issued" and the net liabilities assumed in the transaction is considered to be a cost of listing on the Oslo Stock Exchange.
As discussed above, the fair value of the consideration was estimated by external valuation appraisers as is required by Norwegian law for acquisitions involving exchange of shares.
SHARES ISSUED TO SHAREHOLDERS PROVIDING A GUARANTEE FOR PLANNED SHARE ISSUE:
In December 2016, the Shareholders' meeting approved the issuance of 1 071 thousand Hiddn Security AS shares (equivalent to 1.9 million Hiddn Solutions ASA shares) to shareholders that provided a guarantee in June/July 2016 of a minimum subscription amount of NOK 25 million in a planned share issue in Hiddn Security AS.
Under the original subscription terms of the planned share issue, for each share subscribed, the investor would also receive a warrant to purchase an additional share in Hiddn Security AS for NOK 6 per share (pre-merger price).
When Hiddn Security AS entered a reversed takeover agreement with Hiddn Solutions ASA, the planned share issue in Hiddn Security AS was cancelled. The minimum subscription guarantee was transferred to Hiddn Solutions ASA that completed a rights issue in February 2017. However, the rights issue did not include any additional warrants.
The extraordinary shareholders meeting in Hiddn Security AS in December 2016 decided to compensate the guarantors for the change in terms and for transferring the guarantee to the Hiddn Solutions ASA rights issue that would not include attached warrants.
Hiddn Security ASA (prior to completion of the merger) recognised an expense of NOK 6.4 million related to the issuance of the shares to shareholders. The expense was based on a valuation of NOK 6 per Hiddn Security AS share (pre-merger).
NOTE 7 Other operating expenses
| Amount in NOK thousands | 2016 | 2015 |
|---|---|---|
| Consultants, legal costs, etc | 6,683 | 9,680 |
| Management-for-hire | 3,329 | 2,189 |
| Development materials | 62 | 1,355 |
| Computer and software costs | 480 | 406 |
| Leasing | 568 | 448 |
| Travel expenses | 677 | 504 |
| Audit and accounting fees | 661 | 56 |
| Loss on receivables | - | 51 |
| Share-based payment - guarantee of cancelled share issue | 6,425 | - |
| Listing costs | 12,440 | - |
| Other | 2,156 | 892 |
| Total | 33,481 | 15,581 |
See note 6 Share-Based Payment for additional disclosure regarding the items "Share-based Payment – guarantee of cancelled share issue" and "Listing costs".
The following table shows audit fees for 2016 and 2015. The column in 2015 for NGAAP was the audit fees from the former auditor of Hiddn Security AS.
| Amount in NOK thousands | 2016 | 2015 | |
|---|---|---|---|
| IFRS | IFRS | NGAAP | |
| Stautory audit | 208 | 200 | 23 |
| Other services | 600 | - | 14 |
| Total | 808 | 200 | 37 |
Development costs are currently expensed as incurred until the necessary documentation and accounting system are in place to document how the requirements for capitalisation of development costs have been met. The Group had about NOK 8.7 million and 7.8 million in R&D expense in 2016 and 2015, respectively.
NOTE 8 Finance income and finance expense
| Amount in NOK thousands | 2016 | 2015 |
|---|---|---|
| Interest income on bank deposits | 9 | 15 |
| Foreign exchange gains | 54 | 33 |
| Other finance income | 11 | 4 |
| Finance income | 74 | 52 |
| Interest costs | (1,195) | (209) |
| Foreign exchange losses | (27) | (125) |
| Other finance costs | (885) | - |
| Finance costs | (2,107) | (334) |
| Net financial items | (2,033) | (282) |
NOTE 9 Income taxes
The Company has incurred significant losses and has an accumulated tax loss carryforward of NOK 218 million. Under Norwegian tax law, the tax loss carryforwards do not expire. The income tax expense for the period:
| Amount in NOK thousands | 2016 | 2015 |
|---|---|---|
| Taxes payable | - | - |
| Deferred tax | - | - |
| Income tax expense/(income) | - | - |
Tax effects of temporary differences and tax loss carryforwards at 31 December:
| Amount in NOK thousands | 2016 | 2015 |
|---|---|---|
| Inventory | - | 368 |
| Receivables | 12 | 29 |
| Accrued expenses | 27 | 24 |
| Property, plant, & equipment | 101 | 115 |
| Interest-bearing loans | (332) | |
| Tax loss carryforwards | 52,251 | 45,859 |
| Total deferred taxes | 52,059 | 46,395 |
As a result of significant operating losses in the previous years, the Company is unable to demonstrate that it is probable that there will be sufficient future taxable income to utilise the deferred tax assets. Net deferred tax assets have therefore not been recognised.
Recognised on Statement of Financial Position:
| Amounts in NOK thousands | 2016 | 2015 |
|---|---|---|
| Deferred tax asset | - | - |
| Deferred tax liability | - | - |
The following table shows the reconciliation of expected tax using the nominal tax rate to the actual tax expense/(income):
| Amount in NOK thousands | 2016 | 2015 |
|---|---|---|
| Loss before tax | (41,981) | (18,477) |
| Nominal tax rate | 25 % | 27 % |
| Expected income tax | 10,495 | 4,989 |
| Non-deductible costs - representation | (6) | (8) |
| Listing cost | (3,110) | |
| Amortisation of interest | (283) | - |
| Non-deductible share compensation costs | (1,637) | (62) |
| Non-deductible acquisition cost | (250) | |
| Non-taxable government grant | 475 | 455 |
| Effect of change in tax tax rate | (2,169) | (3,712) |
| Tax rate change on non-recognised tax assets | 2,169 | 3,712 |
| Non-recognised tax assets on current year result | (5,684) | (5,373) |
| Tax expense/(income) | - | - |
NOTE 10 Earnings per share
| Amounts in NOK thousands and number of shares in thousands | 2016 | 2015 |
|---|---|---|
| Earnings | ||
| Attributable to ordinary shareholders | (41,981) | (18,477) |
| Number of shares | ||
| Weighted average number of ordinary shares outstanding | 33,411 | 29,361 |
| Earnings per share attributable to ordinary shareholders | ||
| (amounts in NOK) | ||
| Basic and diluted earnings per share | (1.26) | (0.63) |
The weighted- average number of shares are calculated based on Hiddn Security AS number of shares outstanding in the period adjusted for the exchange ratio in the transaction with Hiddn Solutions ASA. See note 3 Formation of the Group. There are 12 thousand potentially dilutive instruments outstanding (see note 6) but they have not been included as the effect would be anti-dilutive.
NOTE 11 Property, plant & equipment
| Amount in NOK thousands | Machinery & equipment |
Fixtures | Total |
|---|---|---|---|
| Cost | |||
| 1 January 2015 | 1,760 | - | 1,760 |
| Additions | - | - | - |
| 31 December 2015 | 1,760 | - | 1,760 |
| Additions | 232 | 232 | |
| 31 December 2016 | 1,760 | 232 | 1,992 |
| Depreciation | |||
| 1 January 2015 | 1,562 | - | 1,562 |
| Depreciation for period | 145 | - | 145 |
| Impairment for the period | - | - | - |
| 31 December 2015 | 1,707 | - | 1,707 |
| Depreciation for period | 44 | 4 | 48 |
| Impairment for the period | - | 96 | 96 |
| 31 December 2016 | 1,751 | 100 | 1,851 |
| Net book value | |||
| 31 December 2016 | 9 | 132 | 141 |
| 31 December 2015 | 53 | - | 53 |
| 1 January 2015 | 198 | - | 198 |
The Group depreciates the computer equipment and office furnishing on a straight-line basis from 3-5 years.
The Group recognised an impairment loss of NOK 96 thousand in connection with fixtures that could not be moved to the new offices under the Group's new office lease. See note 18 Commitments.
Property, plant & equipment is tested for impairment when there are indicators that the cost is not recoverable. When testing for impairment, PP&E is included in the relevant Cash Generating Unit (which for Hiddn Security AS is the encryption segment, the only operating segment). Management estimates value-in use (VIU) by discounting estimated future cash flows for the CGU and records impairment if lower than cost.
NOTE 12 Inventory
| Amounts in NOK thousands | 2016 | 2015 |
|---|---|---|
| Finished inventory | 1,465 | 1,234 |
| Total inventory | 1,465 | 1,234 |
2016:
Inventory stated at net realisable value of NOK 392 thousand was included in cost of goods sold.
2015:
Inventory was written down to net realisable value in 2015 due to obsolescence and net realisable value lower than cost. The carrying amount of inventories stated at net realisable value was NOK 392 thousand.
Cost of Goods sold excluding inventory write-downs were NOK 1 122 thousand. Total Cost of Goods sold in the income statement was NOK 2 217 thousand including the inventory write-down of NOK 1 473 thousand.
NOTE 13 Other receivables
| Amounts in NOK thousands | 2016 | 2015 |
|---|---|---|
| VAT Receivable | 1,096 | 504 |
| Pre-payments | 396 | 80 |
| Government grant (Skattefunn) | 1,900 | 1,681 |
| Other receivables | 710 | - |
| Total other receivables | 4,102 | 2,265 |
NOTE 14 Cash and cash equivalents
| Amounts in NOK thousands | 2016 | 2015 |
|---|---|---|
| Bank deposits | 3,211 | 1,885 |
| Total cash and cash equivalents | 3,211 | 1,885 |
| Restricted cash: | ||
| Cash held in tax withholding account | 866 | 141 |
NOTE 15 Share capital
| Amounts in NOK thousands | Ordinary Shares |
|---|---|
| 2015: | |
| Opening balance | 25,806 |
| Share issuance | 7,553 |
| 31 December 2015 | 33,359 |
| 2016: | |
| Opening balance | 33,359 |
| Share issuance | 2,412 |
| 31 December 2016 | 35,771 |
The historical number of shares have been restated to reflect the exchange ratio between Hiddn Solutions ASA shares and Hiddn Security AS shares. The changes in historical number of shares are based on Hiddn Security AS' share issues but stated based on the abovementioned exchange ratio.
The par value is NOK 0.34 per share. The share capital for the comparative period has been restated to reflect the exchange ratio on the transaction and the par value at 31 December 2016.
2016:
EQUITY COMPONENT IN CONVERTIBLE DEBT
The convertible debt included equity components consisting of the conversion option to Hiddn Security AS shares and the warrants to purchase further shares in the Company at an exercise price of NOK 3.46 (NOK 6.25 pre-merger) per share. If the investors had converted the full amount to shares, they would have received 499 thousand (pre-merger: 276 thousand) shares and 499 thousand (pre-merger: 276 thousand) warrants to purchase additional shares.
The residual amount of NOK 566 thousand, after deducting the fair value of the debt from the proceeds, was recorded as additional equity recorded to other paid-in-capital.
In December 2016, the 499 thousand (pre-merger: 276 thousand outstanding warrants were repurchased by issuing 125 thousand shares (pre-merger 69 thousand shares) . The warrants were valued at NOK 0.83 (pre-merger: NOK 1.5) per warrant while the shares were valued at NOK 3.22 (pre-merger: NOK 6 per share).
The repurchase was accounted for an equity transaction. See Note 16 Interest-bearing debt for description of "Non-secured long-term loan".
WARRANTS ISSUED IN EXCHANGE FOR FINANCIAL GUARANTEE
Hiddn Security AS provided 1 414 thousand (783 thousand) warrants to a group shareholders in exchange for providing a financial guarantee as described in note 16 Interest- Bearing Debt.
In December 2016, Hiddn Security AS issued 354 thousand shares (pre-merger: 196 thousand) to repurchase outstanding warrants issued in connection with guarantee of DnB loan and convertible debt.
NOTE 16 Interest-bearing debt
| Amount in NOK thousands | Interest | Principal | Final Maturity |
December 2016 |
December 2015 |
|---|---|---|---|---|---|
| Non-secured long-term loan | NIBOR +3% | 1,728 | March 2019 | 1,286 | - |
| Low interest loan from the Government | 4.85% | 500 | April 2017 | 482 | 1,859 |
| Low interest loan from the Government | 4.95% | 8,000 | March 2024 | 7,548 | - |
| DnB - short-term loan | 6.00% | 4,700 | Dec 2016 | 4,700 | - |
| Non-secured short-term loan | 15% fee/ NIBOR +5% |
7,325 | May 2017 | 6,395 | |
| Total loans | 20,411 | 1,859 | |||
| Less current portion of debt | 8,030 | 1,859 | |||
| Les s short-term debt (original matury less than a year) | 11,095 | ||||
| Non-current liabilities | 1,286 | - |
2016:
NON-SECURED LONG TERM LOAN:
In March 2016, Hiddn Security AS issued convertible debt with a nominal amount of NOK 1.7 million. The convertible debt matures in March 2019 and pays an interest of 3 month NIBOR plus 3%.
The conversion right and the attached warrants exchanged for common shares in December 2016 according to the acquisition agreement with Hiddn Solutions ASA as described in Note 15 Share capital.
The debt in now non-secured and non-convertible.
SHORT-TERM LOAN FROM DNB
In September 2016, DnB provided a short-term loan of NOK 4.7 million that was originally due on 31 December 2016, but the loan agreement has been amended to extend the loan maturity until 31 March 2017. The debt has a nominal interest of 6%. The loan included a change in control covenant that was waived in December 2016.
The bank required guarantees in order to provide the loan, and a group of shareholders (that included 2 board members) provided a guarantee of the full amount in return for receiving 1 433 thousand (pre-merger: 783 thousand) warrants to purchase shares in Hiddn Security AS for an exercise price of NOK 3.22 (pre-merger: NOK 6) per share. The warrants had a contractual life of 1 year at the time of the grant. Additionally, the Group paid an interest of 4% pa. of the guaranteed amount.
The Group recognised a financial guarantee asset at the estimated fair value of the promised warrants. The fair value of NOK 1.1 million were estimated using the Black Scholes model.
The Group amortised NOK 885 thousand related to the financial guarantee in 2016. The amount in included in other financial costs.
The warrants were exchanged for shares in Hiddn Security AS in December 2016 as described in Note 15 Share capital. The short-term loan was repaid in March 2017.
LOAN FROM NORWEGIAN GOVERNMENT ENTITY:
In May 2016, Innovasjon Norge provided NOK 8 million in a new 8-year loan. The first year the Company only pays interest, then the principal is repaid evenly over the next 7 years. The interest on the loan is 4.95%. The loan includes covenants related to equity and working capital as well as change in control clauses. Hiddn Security AS is in breach of the equity covenant as well as the change in control clause, but received a waiver of the change of control covenant in December 2016. Hiddn Security remains in breach of the equity covenant.
A group of shareholders has provided Innovasjon Norge with guarantees on the loan however without compensation from the Company. The guarantors include the private companies of several former and current board members (Intelco Concept, Nettverk AS, Arnfinn Tveit, Immob Holding AS, Holteøy AS, Silje VP AS, Tvedt Equity AS and Tønnevold Venture & Invest AS.
Since Hiddn Security is in breach of the loan agreement at 31 December 2016, the loan is classified as current. In April 2017, the Group repaid the final installment of NOK 500 thousand of an Innovasjon Norge loan originating in 2007.
UNSECURED SHORT-TERM LOAN:
In December 2016, Hiddn Security AS issued an unsecured loan of NOK 7.3 million less an upfront fee of NOK 1.1 million (net proceeds of NOK 6.2 million) that is due on 31 May 2017. In addition to the 15% upfront fee, the interest on the loan is NIBOR plus 5%. The loan was provided by 13 shareholders in the Hiddn Security AS, including 2 board members.
The loan was repaid in March 2017.
PLEDGED ASSETS
The carrying amount of assets pledged as security for the Group's debt is as follows:
| Amounts in NOK thousands | 2016 | 2015 |
|---|---|---|
| Accounts receivable | 1,008 | 252 |
| Inventory | 1,465 | 1,234 |
| Property, plant, and equipment | 141 | 53 |
| Total | 2,614 | 1,539 |
NOTE 17 Other short-term debt
| Amounts in NOK thousands | 2016 | 2015 |
|---|---|---|
| Accrued interest | 161 | 15 |
| Accrued expenses | 4,103 | 786 |
| Accrued salary | 803 | 447 |
| Board member fee payable | 400 | 400 |
| Warranty accrual | 114 | 97 |
| Other short-term debt | 363 | - |
| Total | 5,944 | 1,745 |
The Board member fee of NOK 400 payable at 31 December 2016 consist of unpaid Board fees from 2014 and 2015.
NOTE 18 Commitments
The Group has operating leases on offices, office equipment, and computer systems. Future minimum rentals under non-cancellable operating leases:
| Amounts in NOK thousands | 2016 | 2015 |
|---|---|---|
| Within a year | 517 | 356 |
| From year 2-5 | 948 | - |
| Total | 1,465 | 356 |
The Group recognised lease expense of NOK 488 thousand in 2016 and NOK 352 thousand in 2015.
A new office lease was entered into in 2016, and the Group moved to the new location in November 2016. The agreement is with Jaco Invest AS, one of the shareholders in the Company.
NOTE 19 Risk management and financial instruments
MANAGEMENT OF FINANCIAL RISK
The Group principal financial liabilities are a low-interest loan from the Government, trade payables, and other short-term operating payables. The main financial assets are trade receivables and cash. The Group did not have any derivative financial instruments in 2016 or 2015,
The Group is exposed to some types of financial risks related to its financial instruments, such as variable interest rate risk from its low interest loan and foreign currency exposure on its trade receivables and purchases of goods in foreign currency. However, the risks are limited due since the balances in the Statement of Financial Position are not significant enough to expose to the Group to significant market risks.
The Group has primarily been focused on management of capital resources and liquidity risk. The Group has incurred significant operating losses and development costs since it was founded. As a result, the Group has been dependent on continuous external equity and debt funding. Management has not been focused on developing risk policies for managing market risks due to limited the limited exposure to such risks.
LIQUIDITY RISK
2016
Liquidity risk is the risk that the Group will not be able to pay financial obligations on their due date. The Group has incurred significant operating losses and high research and development costs. The Group has primarily financed these cash flows using equity financing.
At 31 December 2016, the Group did not have enough cash to meet its financial obligations. However, a rights issue raising net proceeds of NOK 64.1 was completed in February 2017. This amount is sufficient to meet the Group's financial obligations and to finance the expected operating losses for at least the next 12 months. The Group will also have sufficient capital for its planned research and development projects. See capital management below and note 22 "Events after balance sheet date" for further information about financing of operations and meeting financial liability commitments in 2017.
Maturity profile of financial liabilities (including estimated interest payments):
| Amount in NOK thousands | Convertible loan |
Government loans (1) |
Short-term loans |
Trade pay ables |
Other short term debt |
Total |
|---|---|---|---|---|---|---|
| 0-6 months | 35 | 8,537 | 12,313 | 8,053 | 3,144 | 32,082 |
| 6-12 months | 35 | - | - | - | - | 35 |
| 1-2 years | 69 | - | - | - | - | 69 |
| 2-5 years | 1,762 | - | - | - | - | 1,762 |
| Total | 1,901 | 8,537 | 12,313 | 8,053 | 3,144 | 33,948 |
(1) The new loan from Innovasjon Norge for NOK 8 million is in breach with the equity covenant and has been classified as short-term. The table above assumes immediate repayment, however, Innovasjon Norge has communicated that the debt will not be declared in default as a result of the breach.
2015
| Amount in NOK thousands | Loan from Innovasjon Norge |
Trade payables | Other short-term debt |
Total |
|---|---|---|---|---|
| 0-6 months | 1,036 | 1,849 | 1,745 | 4,630 |
| 6-12 months | 524 | - | - | 524 |
| 1-2 years | 512 | - | - | 512 |
| Total | 2,072 | 1,849 | 1,745 | 5,666 |
MARKET RISK
Market risk consists of the risk that real value or future cash flow related to financial instruments will vary as a consequence of market prices. Market risk includes, but is not limited to, currency risk, interest rate risk and price risk from sales. The Group has limited market risk from financial instruments such as cash and cash equivalents and trade payables in foreign currency. The Group is exposed to some exposure to changes in market interest from its loan from Innovasjon Norge, which resets interest from time to time.
Changes in foreign currency rates, and interest rates of +/-1% would lead to immaterial changes in profit or loss. A 1% increase/(decease) in interest would lead to an increase/(decrease) of NOK 170 thousand.
CREDIT RISK
Credit risk is the risk of financial losses if a customer or counterpart of a financial instrument is unable to meet contractual obligations. The Group's business had limited credit risk at 31 December 2016 and 2015.
Trade receivables were NOK 1 008 thousand and NOK 252 thousand at 31 December 2016 and 2015 respectively. The amounts do not represent significant credit risk for the Group.
The Group has not recognised significant losses on receivables in 2016 or 2015. The Group recognised loss on receivables of NOK 0 in 2016 NOK 51 thousand in 2015.
The Group has an agreement to sell its products through a distributor whose end customers are in general government entities, and the receivables are considered to have low credit risk. Evaluation of credit risk is done on a case-by-case basis. The Group is a development stage high-tech Group with low levels of sales revenue. Stricter credit evaluations and routines will be implemented when sales revenues and the diversity of the customer base increases.
Maximum exposure to credit risk is related to receivables which on the date of the accounts were NOK 1 008 thousand in 2016 and NOK 252 thousand in 2015.
CATEGORIES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts on the balance sheet of cash and cash equivalents, receivables, payables to suppliers, and other short term financial items are close to fair value due to the short time period until maturity.
| 2016 | 2015 | |||
|---|---|---|---|---|
| Amount in NOK thousands | Carrying amount |
Fair value | Carrying amount |
Fair value |
| Financial assets measured at amortised cost: | ||||
| Accounts receivable | 1,008 | 1,008 | 252 | 252 |
| Cash and cash equivalents | 3,211 | 3,211 | 1,885 | 1,885 |
| Total financial assets | 4,219 | 4,219 | 2,137 | 2,137 |
| Financial liabilities measured at amortised cost: | ||||
| Convertible debt | 1,286 | 1,286 | - | - |
| Low interest loan | 8,030 | 8,500 | 1,859 | 1,859 |
| Short-term loans | 11,095 | 11,095 | - | - |
| Trade payables | 8,053 | 8,053 | 1,849 | 1,849 |
| Other current financial liabilities | 5,467 | 5,467 | 1,745 | 1,745 |
| Total financial liabilities | 33,931 | 34,401 | 5,453 | 5,453 |
The government debt is discounted at an estimated market interest. The Group has no indication that the applicable market interest has changed for the periods presented. See note 2 "Use of Estimates".
CAPITAL MANAGEMENT:
For the purpose of the Group's capital management, capital includes issued capital, additional paid-in-capital and all other equity reserves attributable to the equity holders of the parent. The primary objective of the Group's capital management is to maximise the shareholder value.
The Group has negative equity at 31 December 2016. The immediate objective is to significantly increase equity to decrease the gearing ratio and to keep the equity ratio (equity/(debt+equity) above 20%.
| Amounts in NOK thousands | 2016 | 2015 |
|---|---|---|
| Total debt | 33,966 | 5,775 |
| - Cash & cash equivalents | 3,211 | 1,885 |
| Net debt | 30,755 | 3,890 |
| Equity | (25,325) | (86) |
| Total capital | (25,325) | (86) |
| Net debt | 30,755 | 3,890 |
| Capital and net debt | 5,430 | 3,804 |
| Ratio | 566% | 102% |
In 2016, the primary source of financing to cover the Group's operating losses and research & development projects was debt financing. The Group raised about NOK 19 million in net financing (new debt less repayments). Some are long-term, such as the financing from Innovasjon Norge (see Note 16), but a significant portion of the loans issued in 2016 were due in 2017. See note 16 and note 22 regarding repayment of short-term loans in 2017.
In 2015, the primary source of financing was NOK 22 million of new equity.
When incurring debt, the Group pays a high rate of interest, making financial liabilities an expensive financing option. For short-term unsecured loans, the effective borrowing rate has generally been in excess of 20%.
To enhance the Group's ability to raise capital, the Group arranged to be acquired by a non-operating Company with immaterial assets (Hiddn Solutions ASA) to obtain a listing on Oslo Stock Exchange. The transaction was completed in December 2016 (see note 3). In February 2017, the Group completed a share issue raising net proceeds of NOK 64.1 million.
See further disclosure regarding rights (share) issue in February 2017 in note 22 Events after the Balance Sheet Date.
NOTE 20 Segment information
The Group sells encryption devices to governmental organisations and large corporations to enable protection of sensitive data.
The Group remains a small organisation and there is only one operating segment reported to management. The Chief Operating Decision Maker in the Group is the CEO.
| Amounts in NOK thousands | 2016 | 2015 |
|---|---|---|
| Norway | 2,044 | 3,007 |
| Netherlands | 1,738 | 237 |
| Other | 19 | - |
| Total | 3,801 | 3,244 |
The revenue information is based on the location of the customer. In Norway, the Group sells its products through distributors.
In 2016, two customers represented more than 10% of total revenue, 49% and 46% , respectively. In 2015, two customers represented more than 10% of total revenue, 77% and 13% respectively.
All the Group's non-current operating assets are located in Norway.
NOTE 21 Largest shareholders, shares owned by management and related party information
Largest shareholders pr. 31 December 2016:
| Shareholder | Note | Number of shares |
% ownership |
|---|---|---|---|
| Intelco Concept AS | A | 2,699,993 | 14.62 % |
| Nettverk AS | B | 2,109,625 | 11.42 % |
| Contango Ventures II | C | 1,917,962 | 10.38 % |
| Chamar AS | 1,230,077 | 6.66 % | |
| Torstein Tvenge | 1,200,000 | 6.50 % | |
| Immob Holding AS | 1,124,426 | 6.09 % | |
| Pactum Lambda AS | 1,055,556 | 5.71 % | |
| Tønnevold Venture | D | 907,744 | 4.91 % |
| Holteøy AS | 900,000 | 4.87 % | |
| Eiliha AS | 788,027 | 4.27 % | |
| Viljeve AS | E | 753,542 | 4.08 % |
| Tvedt Equity AS | F | 583,044 | 3.16 % |
| Arnfinn Tveit | G | 440,603 | 2.39 % |
| Uglen Holding AS | 349,955 | 1.89 % | |
| Tønnevold HDD Invest | 258,560 | 1.40 % | |
| Jaco Invest AS | 250,000 | 1.35 % | |
| Ottar Andre Sandvik | 207,828 | 1.13 % | |
| Nils Kristian Gausla | 200,000 | 1.08 % | |
| Total | 16,976,942 | 91.90 % | |
| Other shareholders | 1,496,379 | 8.10 % | |
| Total number of shares outstanding | 18,473,321 | 100.00 % |
A. Øystein Erling Tvenge, Board chairman, Hiddn Security AS
B. Birgitte Engebretsen, Board member, Hiddn Security AS
C. Tore Schiøtz, Board member, Hiddn Security AS
D. Jan Olaf Tønnevold, Board member, Hiddn Security AS
E. Torje Tvedt, Board member, Hiddn Security AS
F. Anrfinn Tveit, Board member, Hiddn Security AS
Shares held by Board members and CEO:
| Name | Number of shares | % ownership |
|---|---|---|
| Jan Erik Engebretsen, former Board chairman | 2,109,625 | 11.42 % |
| Øystein Erling Tvenge, Board member | 2,699,993 | 14.62 % |
| Tore Schiøtz, Board member | 1,917,962 | 10.38 % |
| Jan Olaf Tønnevold, Board member | 907,744 | 4.91 % |
| Torje Tvedt, Board member | 583,044 | 3.16 % |
| Arnfinn Tveit, Board member | 440,603 | 2.39 % |
| Gudmundur Einarsson, Insourced CEO | 753,542 | 4.08 % |
| Total | 9,412,513 | 50.95 % |
(1) The persons listed are Board members in Hiddn Security AS. The reversed takeover of Hiddn Solutions ASA was completed on 29 December 2016. Øystein Tvenge was elected Chairman of the Board of Hiddn Solutions ASA on 13 January 2017.
Related party information:
| Amounts in NOK thousands | Purchases from related parties |
Amounts owed to related parties |
|---|---|---|
| Board members - share-based payment for minimum subscription guarantee | 2,850 | - |
| Board members - share-based payment for guarantee for short-term loan | 688 | - |
| Board members - interest on guarantee for short-term loan | 32 | 32 |
| Board members - interest and commisssion accrued and nominal amt of debt | 463 | 3,013 |
| Board members - interest accrued and nominal amt of debt | 23 | 700 |
| SLM Partners AS - provider of management services | 1,409 | 313 |
| Total | 5,465 | 4,058 |
The amounts are stated at the nominal amount of the loans (not amortised cost) and also the full amount of fees incurred and interest accrued (not the effective interest amount recognised in profit or loss).
NEW OFFICE LEASE AGREEMENT:
The Company has entered into a new office lease agreement with one of the shareholders, Jaco Invest AS. The lease period started in December 2016 and ends on 31 December 2019. There is no rent payment in December 2016, but in January 2017 the monthly rent starts at NOK 474 thousand that is subject to increases based on changes in the consumer price index.
NOTE 22 Events after the balance sheet date
RIGHTS ISSUE
On February 13th 2017, Hiddn Solutions ASA completed a rights issue that was oversubscribed by approximately 50%. Due to the high demand of offer shares in the rights issue, the board decided to issue additional offer shares based on the board authorisation granted by the Company's extraordinary shareholder meeting. In total 24,116,564 offer shares were issued securing net proceeds of NOK 64.1 million after deducting directly attributable transaction costs of NOK 5.6 million. Purchase of non-controlling interest
In January 2017, Hiddn Solutions ASA acquired additional 1.3 million of shares in Hiddn Security AS by issuing 2.4 million new Hiddn Solutions ASA shares.
In April 2017, Hiddn Solutions ASA issued additional 825 thousand shares to acquire 451 thousand Hiddn Security AS shares. The Group now owns more than 99% of the outstanding shares in Hiddn Security AS.
SHARE CAPITAL
After the rights issue and the acquisition of additional shares in Hiddn Security AS, Hiddn Solutions ASA has 63 099 thousand outstanding shares and share capital of NOK 21 454 thousand.
REPAYMENT OF INTEREST-BEARING DEBT
In March 2017, the Group repaid the outstanding nominal amount of the unsecured NOK 7.3 million loan that was incurred in December 2016 and the short-term debt of NOK 4.7 million to DnB.
The Group has also fully repaid the final installment of NOK 500 thousand on a government loan originally incurred in 2007.
BUSINESS ACQUISITION
On 3 April 2017, the Group entered into an agreement to acquire 100% of the outstanding shares of Finn Clausen Sikkerhetssystemer AS ("FCS") at a purchase price of NOK 11.8 million. The purchase price will be settled partly by issuance of 4 million Hiddn Solutions ASA shares at a subscription price of NOK 2.89 per share at the agreement date. The remaining part of the purchase price is to be settled by payment in cash.
FCS has since its origin in 1996 been a reputable supplier with archiving, storage and security products and has a significant share of the market for secure physical filling and storage systems in Norway. The acquisition is conditional on approval by the Shareholder meeting that will be held 16 May 2017.
FINANCIAL STATEMENTS HIDDN SOLUTIONS ASA 2016
HIDDN SOLUTIONS ASA PROFIT AND LOSS STATEMENT
| Amounts in NOK thousands | NOTE | 2016 | 2015 |
|---|---|---|---|
| OPERATING INCOME AND OPERATING EXPENSES | |||
| Other operating income | 0 | 53,022 | |
| Operating income | 2 | 0 | 53,022 |
| Payroll expenses | 3 | 2,928 | 25,055 |
| Depreciation and amortisation expenses | 0 | 311 | |
| Other operating expenses | 4 | 10,742 | 25,028 |
| Operating expenses | 13,669 | 50,394 | |
| Operating profit | -13,669 | 2,627 | |
| FINANCIAL INCOME AND EXPENSES | |||
| Income on investments in subsidiaries | 5 | 2,523 | 39,462 |
| Gain from sales of share in joint venture | 5 | 103,218 | 197,301 |
| Dividend from joint venture | 0 | 88,440 | |
| Other financial income | 4 | 1,101 | 7,706 |
| Impairment of investments in subsidiaries | 0 | 91,297 | |
| Other financial expenses | 4 | 5,369 | 10,042 |
| Net financial income and expenses | 4 | 101,473 | 231,571 |
| Operating result before tax | 87,803 | 234,198 | |
| Tax on ordinary result | 10 | -138 | 2,352 |
| Operating result after tax | 87,941 | 231,846 | |
| EXTRAORDINARY INCOME AND EXPENSE | |||
| Annual net profit | 7 | 87,941 | 231,846 |
| BROUGHT FORWARD | |||
| From other equity | -87,941 | -231,846 | |
| Net brought forward | 87,941 | 231,846 |
HIDDN SOLUTIONS ASA BALANCE STATEMENT
| Amounts in NOK thousands | NOTE | 2016 | 2015 |
|---|---|---|---|
| ASSETS | |||
| FIXED ASSETS | |||
| FINANCIAL FIXED ASSETS | |||
| Investments in subsidiaries | 5 | 95,899 | 28,401 |
| Investments in joint venture | 0 | 73,684 | |
| Loans to associated companies and joint ventures | 0 | 25,523 | |
| Total financial fixed assets | 95,899 | 127,607 | |
| Total fixed assets | 95,899 | 127,607 | |
| CURRENT ASSETS DEBTORS | |||
| Other receivables | 8, 9 | 404 | 130,309 |
| Total debtors | 404 | 130,309 | |
| INVESTMENTS | |||
| Cash and bank deposits | 11 | 1,613 | 25,475 |
| Total current assets | 2,017 | 155,784 | |
| Total assets | 97,916 | 283,391 |
HIDDN SOLUTIONS ASA BALANCE STATEMENT
| Amounts in NOK thousands | NOTE | 2016 | 2015 |
|---|---|---|---|
| EQUITY AND LIABILITIES RESTRICTED EQUITY | |||
| Share capital | 6 | 12,162 | 52,993 |
| Share premium reserve | 83,708 | 63,162 | |
| Total restricted equity | 95,870 | 116,155 | |
| RETAINED EARNINGS | |||
| Other equity | -3,240 | -1 | |
| Loss brought forward | -1,693 | 0 | |
| Total retained earnings | -4,933 | -1 | |
| Total equity | 7 | 90,938 | 116,154 |
| LIABILITIES | |||
| CURRENT LIABILITIES | |||
| Trade creditors | 3,115 | 550 | |
| Tax payable | 10 | 0 | 138 |
| Public duties payable | 541 | 972 | |
| Dividends | 0 | 111,874 | |
| Other short term liabilities | 8, 9 | 3,322 | 53,702 |
| Total short term liabilities | 6,979 | 167,236 | |
| Total liabilities | 6,979 | 167,236 | |
| Total equity and liabilities | 97,916 | 283,391 |
Oslo, 28.04.2017 The Board of Hiddn Solutions ASA
Hege Anfindsen member of the board
Øystein Erling Tvenge chairman of the board
Cecilie Grue member of the board
Ola Røthe member of the board Tore Viana-Rønningen CEO
HIDDN SOLUTIONS ASA CASH FLOW
| Amounts in NOK thousands | NOTE | 2016 | 2015 |
|---|---|---|---|
| CASH FLOWS FROM OPERATING ACTIVITIES | |||
| Profit/loss before tax | 87,803 | 234,198 | |
| Tax paid for the period | 404 | 0 | |
| Received group contribution | 0 | (88,440) | |
| Ordinary depreciation | 0 | 311 | |
| Impairment of shares in subsidiaries | 0 | 91,297 | |
| Gain on sale of shares in JV | (103,208) | (197,301) | |
| Currency gains on finacial investments | 0 | (3,440) | |
| Stock options scheme | 0 | (39) | |
| Change in accounts payable | 2,565 | (454) | |
| Change in accounts receivable | 0 | (9,352) | |
| Change in other accrual items | 16,067 | (27,882) | |
| Net cash flows from operating activities | 3,632 | (1,102) | |
| CASH FLOWS FROM INVESTMENT ACTIVITIES | |||
| Proceeds from the sale of fixed assets | 18,800 | 3,467 | |
| Payments for the purchase of fixed assets | 0 | (3,060) | |
| Loss on the sales of fixed assets | 2,144 | 0 | |
| Conversion of subordinated loan to shares in subsidiaries | 0 | (28,495) | |
| Proceeds from liquidation of shares in subsidiaries | 2,582 | ||
| Gain on liquidation of shares in subsidiaries | (2,158) | 0 | |
| Proceeds from the sale of shares in joint venture | 182,600 | 235,259 | |
| Net cash flows from investment activities | 203,968 | 207,171 | |
| CASH FLOWS FROM FINANCIAL ACTIVITIES | |||
| Payment of dividend | (319,901 | (223,520) | |
| Proceeds from shareholder contributions | 0 | (4,380) | |
| Proceeds from Group contributions | 88,440 | 39,462 | |
| Net cash flows from financing activities | (231,461) | (188,438) | |
| Net change in cash and cash equivalents | (23,861) | 17,631 | |
| Cash and cash equivalents at the start of the period | 25,475 | 7,844 | |
| Cash and cash equivalents at the end of the period | 1,613 | 25,475 |
SAFEGUARDING YOUR DATA ANYWHERE
HIDDN SOLUTIONS ASA NOTES TO THE COMPANY ACCOUNTS
NOTE 1 Accounting principles
1.1 BASIS FOR PREPARATION OF THE COMPANY ACCOUNTS
The annual accounts for 2016 are set up in accordance with the Accounting Act of 1998, Norwegian accounting principles (NGAAP) and generally accepted Norwegian accounting best practice (NGRS). The annual accounts consist of the income statement, balance sheet, cash flow statement and notes. The annual accounts constitute a whole. The most important accounting principles that are used in the preparation of the annual accounts are as follows:
1.2 CURRENCY
Monetary items in foreign currencies are valued at the year-end exchange rate. Other assets and liabilities in foreign currency are valued according to general valuation regulations.
1.3 REVENUE
Revenues mainly consist of sales of Group services to other companies in the former Agasti Group. Income is entered in the accounts when it is earned. Entry of income normally occurs at the time of delivery for the sale of services.
Dividends and Group contributions from subsidiaries are recorded in the same year in which they are earned in the underlying companies, and when such distributions are expected to be resolved, and are included in the underlying companies' annual accounts.
Interest income is entered as it is earned.
1.4 EXPENSES
Expenses are included with and expensed simultaneously with the income that the expenses are attributable to. Costs that cannot be directly attributed to income are expensed when incurred.
Interest and fees are entered as these are earned as income or incurred as costs.
1.5 DEFINED CONTRIBUTION PENSION SCHEMES
Obligations for contributions to defined contribution pension schemes are entered as expenses in the income statement when incurred.
1.6 MAIN RULE FOR VALUATION AND CLASSIFICATION OF ASSETS AND LIABILITIES
Assets intended for permanent ownership or use are classified as fixed assets. Other assets are classified as current assets. Receivables that shall be paid within a year are classed as current assets. Equivalent criteria are used as the basis for the classification of long-term and current liabilities.
Fixed assets are valued at historical cost, but written down to actual value when the reduction in value is not expected to be temporary. The write down is reversed when the basis for the write down no longer exists. Fixed assets with a limited economic lifetime are depreciated in accordance with a
depreciation plan. Long-term loans are recorded at the nominal received value at the time of establishment.
Current assets are valued at the lowest of the cost value and actual value. Long-term liabilities are recorded at the nominal received value at the time of establishment.
1.7 SHARES IN SUBSIDIARIES
In Hiddn Solutions ASA's company accounts, shares in subsidiaries are valued in accordance with the cost method. Group contributions are entered in the parent company's accounts as income in investment in subsidiaries under financial items, in the extent to which the distribution relates to the earnings accrued in the holding period. Other received Group contributions are entered as a reduction of cost price of the shares. Provided Group contributions net after tax are entered as increased investment in subsidiaries.
1.8 RECEIVABLES
Receivables are recorded at nominal value less provisions for expected losses. Provisions for losses are made on the basis of an individual analysis of the individual receivables.
1.9 TAXES
Tax expenses consist of tax payable and the change in deferred tax. Deferred tax/tax assets are calculated on all differences between accounting and tax values of assets and liabilities. Deferred tax is calculated at 24 % based on the temporary differences that exist between the accounting and tax values, and tax loss carried forward at the end of the financial year. Net deferred tax assets are recognised to the extent that it is likely that they could be utilised.
Tax expenses and deferred tax are entered in the accounts directly against equity insofar as the tax items relate to items recognised directly against equity.
1.10 LEASING AGREEMENTS
Leases where the most significant risks and returns associated with ownership of the asset are not acquired by the company are classified as operating lease agreements. Lease payments are classified as an operating expense, and are recognised linearly over the contract period.
1.11 USE OF ESTIMATES
Management has used estimates and assumptions that affect the income statement and the valuation of assets and liabilities, as well as contingent assets and liabilities on the balance sheet date during the preparation of the annual accounts in accordance with generally accepted accounting principles.
1.12 CONTINGENCIES AND EVENTS AFTER THE BALANCE SHEET DATE
Contingent losses that are probable and quantifiable are expensed.
1.13 CASH FLOW STATEMENT
The cash flow statement is prepared according to the indirect method. Cash and cash equivalents include cash, bank deposits and other short-term liquid investments.
NOTE 2 Operating income
| Amounts in NOK thousands | 2016 | 2015 |
|---|---|---|
| Group administration | 0 | 29,122 |
| IT | 0 | 18,571 |
| Accounting and finance | 0 | 5,311 |
| Human resources | 0 | 0 |
| Marketing and communications | 0 | 0 |
| Other | 0 | 18 |
| Total operating income | 0 | 53,022 |
Hiddn Solutions ASA (formerly Agasti Holding ASA) performed selected services for group companies until October 2015, in the former Agasti Group.
NOTE 3 Salary costs, total employees, remuneration, loans to employees, etc.
| Amounts in NOK thousands | 2016 | 2015 |
|---|---|---|
| Benefits to the board | 2,493 | 17,790 |
| Bonus/profit sharing | 0 | 2,694 |
| Pension costs, defined contribution plans | 0 | 537 |
| Estimated benefit options scheme | 0 | -39 |
| National insurance contributions | 351 | 3,365 |
| Other personnel costs and accrued personnel costs | 84 | 707 |
| Total | 2,928 | 25,054 |
| Average total full-time equivalent positions | 0 | 16.30 |
BENEFITS TO EMPLOYEES IN LEADING POSITIONS
During 2016, the Company has used management-for-hire for the positions of CEO and CFO. For the period up to 14th November 2016, Hiddn Solutions ASA purchased management and support services from Obligo Group. Jørgen Pleym Ulvness held the position as CEO. From 14th November 2016 and onwards, the CEO and CFO services are provided by SLM Partners AS where Tore Viana-Rønningen is holding the position as CEO.
Øystein Tvenge, who was elected as Chairman of the Board in Hiddn Solutions ASA in January 2017, owns 25% of SLM Partners AS.
The option scheme effective from 2014 was redeemed in 2016, and not carried forward with regards to the change of management 14. November 2016. There were no costs relating to the option scheme for employees in Hiddn Solutions ASA in 2016.
As at 31 December 2016, Hiddn Solutions ASA had not issued any other financial instruments that may result in a demand for issuing of new shares.
Paid benefits to the Board Board member fees*
| Member of the board | Position | Period | 2016 | 2015 |
|---|---|---|---|---|
| Erling Meinich-Bache | Board member, audit committee | 26.06.13 - 08.06.16 | 234 | 536 |
| Beatriz Malo de Molina | Board member | 29.11.13 - 09.12.15 | 477 | |
| Ellen Hanetho | Board member | 18.06.14 - 09.12.15 | 402 | |
| John Einar Høsteland | Chairman | 18.06.14 - 09.12.15 | 854 | |
| Paal Victor Minne | Board member | 19.11.14 - 12.09.15 | 264 | |
| Trond Vernegg | Board member | 18.06.14 - 09.12.15 | 402 | |
| Kristin Wilhemsen | Board member | 18.06.14 - 09.12.15 | 477 | |
| Tom Ruud | Chairman, chairman of remuneration committee |
10.12.15 - 20.05.16 | 334 | |
| Kathryn Moore Baker | Board member, remuneration committee, audit committee |
10.12.15 - 30.11.16 | 752 | |
| Live Haukvik Aker | Board member, audit committee |
10.12.15 - 30.11.16 | 358 | |
| Øystein Tenold | Board member , remuneration committee |
10.12.15 - 08.06.16 | 259 | |
| Olav Skjervheim | Board member | 28.08.16 - 30.11.16 | 43 | |
| Truls Foss | Nomination committee | 10.12.15 - 30.11.16 | 39 | |
| Erik Lund | Mandate in Obligo | 01.07.16 - 20.10.16 | 357 | |
| Ove Steinar Larsen | Chairman of nomination committee |
10.12.15 - 30.11.16 | 78 | |
| Line S Bakkevig | Nomination committee | 10.12.15 - 30.11.16 | 39 |
*Fees pertaining to the period in office
NOTE 4 Combined items in the income statement
| Amounts in NOK thousands | 2016 | 2015 |
|---|---|---|
| Cost relating to premises | 430 | 1,714 |
| IT costs | 150 | 13,661 |
| Fees for auditors, lawyers and consultants | 7,124 | 3,671 |
| Telephone and postage costs | 2 | 317 |
| Travel activities | -158 | 902 |
| Marketing activities | 603 | 1,278 |
| Other operating expenses | 2,591 | 3,486 |
| Total other operating expenses | 10,742 | 25,029 |
| Audit fee | 340 | 756 |
| Audit-related services | 700 | 15 |
| Tax assistance | 90 | 124 |
| Other fees | 0 | 0 |
| Total auditing fee | 1,130 | 895 |
| The fees are given excluding VAT | ||
| Group interest income | 644 | 2,911 |
| Interest, bank deposits | 67 | 726 |
| Income from investments in subsidiaries | 2,523 | 39,462 |
| Dividends from Obligo Holding AS | 0 | 88,440 |
| Other financial income | 826 | 4,069 |
| Gain from sale of shares in Obligo Holding AS | 103,218 | 197,301 |
| Exchange gains, currency | -436 | 0 |
| Total financial income | 106,841 | 332,909 |
| Group interest costs | 738 | 2,273 |
| Bank interest and fees | 256 | 1,756 |
| Write-down of investments in subsidiaries | 0 | 91,297 |
| Other financial expenses | 4,375 | 6,014 |
| Total financial expenses | 5 369 | 101,340 |
NOTE 5 Shares in subsidiaries
| Amounts in NOK thousands | Year of acquisition |
Registered office |
Ownership 31.12.16 (%) |
Booked value in balance |
Equity 31.12.16 |
Net in come 2016 |
|---|---|---|---|---|---|---|
| Hiddn Solutions AS | 2016 | Oslo | 100 % | 1,030 | 1,022 | -8 |
| Hiddn Security AS | 2016 | Oslo | 90,5 % | 94,869 | 8,145 | -31,056 |
| Acta Asset Management AS | 1998 | Stavanger | 0 % | 0 | N/A | N/A |
| Acta Kapitalforvaltning AS | 1998 | Stavanger | 0 % | 0 | N/A | N/A |
| Obligo Holding AS | 2015 | Oslo | 0 % | 0 | N/A | N/A |
| Total | 95,899 |
The General Meeting resolved on 22 August 2016 to sell Hiddn's share of the joint venture with Blackstone Real Estate Funds and certain financial assets for a total consideration of NOK 215 million. The transaction was closed in September 2016, and a total of NOK 103 million is recognised as profit in the 2016 financial statement. Up until October, Hiddn Solutions ASA owned 66% of the Obligo Group.
Effective from 14 November 2016 the service level agreements between Obligo and Hiddn and its subsidiaries have been terminated. This includes management services such as CEO and CFO.
The Hiddn Group has made settlements on all remaining claims against its subsidiary Acta Kapitalforvaltning AS and its Swedish branch. The general meetings of Hiddn's subsidiaries Acta Kapitalforvaltning AS and Acta Asset Management AS have on 8 November 2016 resolved to liquidate the companies. The liquidations have been duly executed in 2016. A total of NOK 2 285 thousand is recognised as income in the financial statement.
On the 29 December 2016, the company completed the acquisition of Hiddn Security AS, in accordance with the resolution from the Company's extraordinary general meeting. As a result of the transaction, Hiddn Solutions ASA owns approximately 90,5% of the shares in Hiddn Security AS.
NOTE 6 Share capital and shareholder information
Share capital in the company per 31 December 2016 consisted of 35 770 765 shares, each with a nominal value of NOK 0.34. Total share capital equals NOK 12 162 060
NOTE 7 Equity capital
| Amounts in NOK thousands | Share capital |
Share premium |
Other paid in equity capital |
Other equity capital |
Total equity capital |
|---|---|---|---|---|---|
| As at 31.12.2015 | 52 993 | 63 162 | 0 | -1 | 116 154 |
| Changes posted against equity | 0 | 0 | |||
| As at 01.01.2016 | 52 993 | 63 162 | 0 | -1 | 116 154 |
| Result for the year | 87 941 | 87 941 | |||
| Dividend | -63 162 | -92 873 | -156 035 | ||
| Reduction and repayment of share capital | -51 992 | -51 992 | |||
| Capital increase by acquisition of Hiddn Security AS | 11 161 | 83 708 | 94 869 | ||
| As at 31.12.2016 | 12 162 | 83 708 | 0 | -4 933 | 90 938 |
The General Meeting resolved on 22 August 2016 to sell Hiddn's share of the joint venture with Blackstone Real Estate Funds and certain financial assets for a total consideration of NOK 215 million. Hiddn subsequently paid a NOK 156 million dividend in September. The company has also resolved to reduce the share capital by NOK 52 million to NOK 1 million, and distribute NOK 52 million to the shareholders. The distribution took place on 21 October 2016.
NOTE 8 Outstanding accounts with Group companies
| Amounts in NOK thousands | 2016 | 2015 |
|---|---|---|
| Acta Kapitalforvaltning AS (discontinued)** | 11 | 27,032 |
| Obligo Business Services AS* | 0 | 0 |
| Navigea Securities AS* | 0 | 883 |
| Acta Asset Management AS (discontinued)** | 8 | 738 |
| Acta Kapitalforvaltning AB (discontinued)* | 0 | 1,782 |
| Navexa Securities AB (discontinued)* | 0 | 164 |
| Obligo Investment Management AS* | 0 | 10,462 |
| Group contribution from Obligo Business Services AS* | 0 | 17 |
| Total intercompany receivables | 19 | 41,077 |
| Amounts in NOK thousands | 2016 | 2015 |
|---|---|---|
| Hiddn Solutions AS | 1,000 | 0 |
| Obligo Business Services AS* | 0 | 1,722 |
| Acta Kapitalforvaltning AS (discontinued)** | 0 | 1,763 |
| Acta Asset Management AS (discontinued)** | 0 | 13,301 |
| Navigea Securities AS (discontinued)* | 0 | 15,897 |
| Obligo Holding AS* | 0 | 482 |
| Agasti Capital Markets AS (discontinued)* | 0 | 11,527 |
| Total intercompany liabilities | 1,000 | 44,691 |
*Included in the former Agasti and Obligo Group. The companies are not included in the Hiddn Group as of 31.12.2016. Please see note 5 for description.
**Acta Kapitalforvaltning AS and Acta Asset Management AS were discontinued in 2016. Assets were transferred to Hiddn Solutions ASA in the process of liquidation. Outstanding receivables of TNOK 11 and 8, respectively consists of bank balances to the discontinued companies which were not closed at year-end.
NOTE 9 Current receivables and other current liabilities
| Amounts in NOK thousands | 2016 | 2015 |
|---|---|---|
| Outstanding accounts with Group companies | 19 | 41,077 |
| Dividends from Joint venture | 0 | 88,440 |
| Accounts receivables | 0 | 28 |
| Pre-paid costs | 385 | 764 |
| Total current receivables | 404 | 130,309 |
| Amounts in NOK thousands | 2016 | 2015 |
|---|---|---|
| Outstanding accounts with Group companies | 1,000 | 44,691 |
| Accrued expenses, unpaid wages, holiday pay, etc. | 0 | 2,590 |
| Other current liabilities | 2,322 | 6,420 |
| Total other current liabilities | 3,322 | 53,702 |
NOTE 10 Tax
| Amounts in NOK thousands | 2016 | 2015 |
|---|---|---|
| This year's tax expense | ||
| Entered tax on ordinary profit/loss: Correction in payable tax from previous year | -138 | 138 |
| Changes in deferred tax advantage | 0 | 2,215 |
| Tax expense on ordinary profit/loss | -138 | 2,352 |
| Taxable income: | ||
| Ordinary profit/loss before tax | 87,803 | 234,198 |
| Permanent differences | -100,134 | -233,882 |
| Changes temporary differences | -6,448 | 283 |
| Taxable income | -18,779 | 599 |
| Payable tax in the balance: Payable tax on this year's result | 0 | 138 |
| Total payable tax in the balance | 0 | 138 |
The tax effect of temporary differences and loss for to be carried forward that has formed the basis for deferred tax and deferred tax advantages, specified on type of temporary differences:
| Amounts in NOK thousands | 2016 | 2015 | Difference |
|---|---|---|---|
| Tangible fixed assets | -90 | -118 | -28 |
| Allocations and more | 0 | -6,420 | -6,420 |
| Total | -90 | -6,538 | -6,448 |
| Entered allocated return | 0 | 2,653 | 2,653 |
| Accumulated loss to be brought forward | -17,294 | -351 | 16,942 |
| Not included in the deferred tax calculation | 17,383 | 4,236 | -13,147 |
| Basis for calculation of deferred tax | 0 | 0 | 0 |
EFFECT OF CHANGE IN TAX RATE
The company does not believe that sufficient future taxable income can be obtained to make use of the tax advantage. Hence, deferred tax is not booked to the balance sheet.
NOTE 11 Restricted bank deposits
| Amounts in NOK thousands | 2016 | 2015 |
|---|---|---|
| Tax withholdings | 543 | 795 |
| Total | 545 | 795 |
NOTE 12 Events after balance sheet date
Please refer to note 22 in the Group financial statements regarding events after the balance sheet date.
HIDDN SOLUTUIONS ASA RESPONSIBILITY STATEMENT
We confirm to the best of our knowledge that the consolidated financial statements for 2016 have been prepared in accordance with IFRS as adopted by the European Union, as well as additional information requirements in accordance with the Norwegian Accounting Act, that the financial statements for the parent company for 2016 have been prepared in accordance with the Norwegian Accounting Act and generally accepted accounting practice in Norway, and that the information presented in the financial statements gives a true and fair view of the assets, liabilities, financial position and result of Hiddn Solutions ASA and the Hiddn Solutions Group for the period. We also confirm to the best of our knowledge that the Board of Directors' Report includes a true and fair review of the development, performance and financial position of Hiddn Solutions ASA and the Hiddn Solutions Group, together with a description of the principal risks and uncertainties that they face.
Oslo, 28.04.2017 The Board of Hiddn Solutions ASA
Hege Anfindsen member of the board
Øystein Erling Tvenge chairman of the board
Cecilie Grue member of the board
Ola Røthe member of the board Tore Viana-Rønningen CEO
CORPORATE GOVERNANCE REPORT
This chapter describes Hiddn Solutions ASA's ("Hiddn" or "the Company") compliance with the Norwegian code of practice for corporate governance. The Company's Board of Directors embraces the principles for good corporate governance and is vigilant about the Company's adherence to these principles.
This report includes the information required to comply with §3-3b in the Norwegian Accounting Act.
Corporate governance
As a security provider, understanding and adhering to rules and regulations is of the utmost importance to Hiddn. Good corporate governance benefits the Company's reputation and thus value, and vice versa.
The Company adheres to the following set of principles with regards to corporate governance:
- • Transparency. The communication between the Company and its stakeholders shall be based on transparency about matters that are relevant to evaluate the operations of the Company.
- • Independence. The Board of Directors shall act independently of the Company's executive management, to secure that decisions are made on fair and neutral grounds.
- • Equality. All shareholders shall be treated equally.
- • Control and governance. Good internal control and governance principles shall contribute to predictability and risk mitigation for owners and other stakeholders.
1. Corporate Governance at Hiddn Solutions ASA
At all times, the Company seeks to comply with the most recent applicable legal framework for companies listed on the Norwegian stock exchange. The Company endorses the "Norwegian code of practice for Corporate Governance" in its most recent revision (30 October 2014), which is available on www.nues.no. The Company conducts annual corporate governance reviews to ensure continued compliance.
2. Core corporate values
The Company has formulated core values that underpin the business goals of the Company. These are as follows:
- Respect
- Integrity
- Innovation
3. Ethics and corporate social responsibility
The reverse takeover of Hiddn Solutions ASA by Hiddn Security was completed at the end of 2016 (29 December). The Group has immediately started the work to update the guidelines for:
Social corporate responsibility
Ethics
Internal guidelines to identify and managing conflicts of interest
Prevention of insider trading
When the updated policies building on the framework previously established by the former Board and management in Hiddn Solutions ASA (Agasti Holding ASA) have been completed, it will be communicated to all employees, consultants and interest groups related to the Group. The guidelines will, as previously include a description of the Groups' responsibility towards the people, society and environment affected by the Group's operations.
The guidelines formerly established need to be updated to reflect the changes in the size and operations of the Hiddn Solutions Group operations compared to prior years.
4. Operations
Hiddn's business consists of research and development and commercialisation of hardware-based encryption products designed to safeguard data at rest, as well as key management systems supporting these products. The Company's articles of associations maintain a somewhat wider scope to the Company's operations, stating that the business of the Company is "research, development and commercialisation of security products, participation and investments in companies with similar business, as well as any other business naturally related thereto".
The business goals and key strategies of the Company are stated in a prospectus approved by the Board of Directors.
Hiddn Solutions ASA was formerly listed as Agasti Holding ASA and AgaTech ASA on the Oslo Stock Exchange main list, but changed its name and ticker on 21 December 2016. Hiddn is subject to Norwegian securities legislation and stock exchange regulations.
5. Share capital and dividend
Equity
The company strives to maintain a healthy relation between the Company's equity and other forms of financing, given t e Company's strategy and risk profile. The Board of Directors shall take immediate and appropriate action should the equity or liquidity situation of the Company prove to be poorer than acceptable.
Per 31 December 2016, the Company's consolidated equity was minus NOK 35.2 million. In February 2017 the Company successfully completed a rights issue yielding gross proceeds of NOK 69.7 million
Dividend policy
The Company seeks to provide its shareholders with a capital appreciation and dividend at a level that is at least equal to alternative investment possibilities with an equal risk profile.
As the Company is still in a growth phase, it has not yet adopted a dividend policy. The Company will establish a dividend policy in alignment with the aforementioned objective in due course.
There has not been given, nor proposed to give, a mandate to the Board of Directors to approve a distribution of dividends.
Board authorisations
Authorisations to the Board of Directors to approve share capital increases shall be confined to defined purposes, and should not be given for longer periods of time than until the next Ordinary General Meeting. If an authorisation encompasses several purposes, each purpose should be treated as a separate issue at the General Meeting. This also applies to authorisations permitting the repurchase of shares.
The Board of Directors does not have any general authorisations to increase the Company's share capital. On 13 January 2017, the Company's extraordinary general meeting granted the Board of Directors with an authorisation to increase the share capital in connection with increasing the Company's ownership in its subsidiary Hiddn Security AS.
As of the date of this report, a total of 487,911 new shares may be issued pursuant to the authorisation. The authorisation expires at the Company's annual general meeting in 2017.
The Board of Directors has summoned for an extraordinary general meeting on 16 May 2017 in which it is proposed to grant the Board of Directors with an authorisation to increase the Company's share capital in connection with the Company's acquisition of Finn Clausen Sikkerhetssystemer AS and a private placement to the Company's new CEO.
6. Equal treatment of shareholders and transaction with related parties
Class of shares
The Company has one class of shares, without any form of voting restriction imposed. Each share represents one vote at the Company's General Meeting. The par value per share is NOK 0.34.
Pre-emption rights of existing shareholders
The Company's existing shareholders have pre-emption rights to subscribe for shares in the event of share capital increase, unless special circumstances necessitate a deviation from this principle. Any decision to deviate from the pre-emption rights of existing shareholders shall be justified and rooted in an authorisation given to the Board of Directors from the General Meeting. The justification shall be publicly disclosed in a stock exchange announcement issued in connection with the increase in share capital.
Transactions with related parties
The Company's board members, management and significant shareholders are considered related parties. Transactions with these should be carried out on an arm's length basis. If the value of such a transaction is significant, the Board of Directors is responsible for assigning an independent third party to perform a valuation. Alternatively, the transaction in question can be treated as an issue at the General Meeting, in accordance with the Norwegian Public Limited Liability Companies Act.
The Group's transactions with related parties in 2016 is stated in note 21 to the financial statements.
7. Freely negotiable shares
The shares in the Company are freely transferable, and there are no constraints in the articles of association preventing or contradicting this.
8. General meetings
The General Meeting is the main governing body of the Company, this provides all shareholders with an opportunity to attend and exercise their voting rights.
The Company takes measures to ensure that as many of the shareholders as possible are able to participate in the General Meeting.
Notification
No later than 21 days prior to the Ordinary General Meeting ("OGM"), an invitation will be made available on the Company's website, www.hiddnsolutions.com. This will include supporting information on resolutions to be considered, as well as the recommendations of the nomination committee. The Board of Directors seeks to ensure that all shareholders are provided with sufficient information to form qualified views on the matters discussed at the General Meeting.
The OGM will be held no later than 30 June each year. The OGM will be held in Oslo, unless otherwise is clearly specified.
Participation by shareholders in absentia
Shareholders that are unable to attend the General Meeting in person, are encouraged to vote by proxy. The Company will provide information on proxy voting, designate a person who will be available to vote on behalf of the shareholders in question, and prepare a form for the appointment of a proxy.
Attendance, agenda and execution
Board members, the nomination committee and the auditor are encouraged to attend the General Meeting in person.
The Company will make arrangements to ensure that an independent chairman for the General Meeting can be elected.
9. Nomination committee
Requirements for the Company's nomination committee are outlined in the articles of association, §6.
Composition
According to the Company's Articles of Association section 6, the Company shall have a nomination committee consisting of 3-5 members by the further decision of the General Meeting. Pursuant to the guidelines for the nomination committee, the nomination committee shall, inter alia, assess the need for change in the Board of Directors, propose candidates for election to the Board of Directors and propose remuneration to be paid to such members. The current members of the nomination committee were elected at the Company's ordinary general meeting in 2016 and are Ove Steinar Larsen, Line S. Bakkevig and Truls Foss. All members are independent of the Board of Directors and executive management.
Work
The nomination committee is responsible for assessing the need for change in the Board of Directors, proposing, in consultation with relevant shareholders, candidates for election to the Board of Directors, and proposing the remuneration to be paid to such members.
10. The Board of Directors – composition and independence
Corporate assembly
As mandated by the Norwegian Public Limited Liability Companies Act, §6-35, the Company is not required to establish a corporate assembly, and has thus chosen not to.
Composition of the Board of Directors
According to the articles of association, the Board of Directors should consist of three to seven members, chosen by the General Meeting.
It is of great importance to the Company that the board members have the relevant competencies to independently evaluate the cases presented to them by the executive management, as well as to monitor the daily operations of the Company. Per 31 December 2016, the Board consisted of the following individuals:
- Ola Røthe (Chair)
- Hege Anfindsen
- Cecilie Grue
In accordance with the Board of Directors approval and the nomination committee's recommendation, the General Meeting resolved on 13 January 2017 to elect Øystein Tvenge as Chairman of the Board of Directors. Ola Røthe continued as a board member. Biographies on the members can be found on the Company's website, www.hiddnsolutions.com.
Independence
The Company strives to apply NUES' criteria to evaluate whether a director is considered to be independent. The Board should have a composition that enables it to attend to the common interests of all shareholders and operate independently of special interests. Any eventual deviation from the independency principle will be properly explained by the Company.
Any director experiencing a change in his or her ability to act independently is obligated to notify the Chairman of the Board.
The Company's Board of Directors shall normally not include members of the executive management team. Per 31 December 2016 this principle was broken. Currently, Board member Hege Anfindsen fills the role as CFO through a management-for-hire contract with SLM Partners AS. The Company maintains that this is a temporary solution.
Directors are favorable to long-term shareholders on the Board. At least two of the shareholder-elected board members shall be independent of the Company's main shareholders.
Board members Ola Røthe and Cecilie Grue are independent of the Company's main shareholders.
11. The Board of Directors – work and instructions The formal responsibilities of the Board of Directors are mandated by Norwegian law.
The fundamental responsibility of the directors is to oversee day-to-day management and evaluate strategy, to exercise their business judgment acting in what they reasonably believe to be the best interests of the Company and its shareholders. The Board of Directors is also to oversee such matters as are required by statutory law, the Company's Articles of Association, policies,
instructions and procedures as well as resolutions or the resolutions of the General Meeting.
It is the duty of the Board of Directors to monitor management's performance to ensure that the Company operates in an effective and ethical manner, focused on creating value for the Company's shareholders. The Board of Directors also evaluates the Company's overall strategy and evaluates performance against the management's operating plan.
The Board of Directors is responsible for supervising strategic, financial and execution risks, as well as exposures associated with the Company's business strategy, product innovation and sales road map, policy matters, significant litigation and regulatory exposures, and other current matters that may present material risk to the Company's financial performance, operations, infrastructure, plans, prospects or reputation, acquisitions and divestitures. Furthermore, the Board of Directors shall control the ongoing activities of the Company in a satisfactory manner.
Instructions for the Board of Directors
The Board of director's instructions are subject to review every second year, and are revised as needed through a simple majority vote on a Board meeting. The current instruction was revised on, 4 May 2015.
The instructions cover the following items: Supervisory and governance responsibilities; Information concerning the nature of issues to be handled by the Board of Directors; Board meetings, and the preparations pertaining to these; The working procedures of the Board of Directors; Board committees; Quorum and majority requirements; Minutes; Independency and disqualification requirements.
Instructions for the CEO
Executive management and Board of Directors responsibilities are clearly segregated.
There is a clearly defined gap between the responsibilities of the Board of Directors and those of the executive management. The Board has defined a set of instructions for the CEO. The current instruction was revised on May 4th, 2015
The instructions cover the following items: Responsibilities and authority of the executive management, including the special responsibilities and authority of the CEO; Commitments to the instructions and decisions of the Board of Directors; Independence and disqualification requirements; Confidentiality requirements.
Financial reporting
The Board is responsible for ensuring the integrity of financial information. The Board evaluates the integrity of the Company's accounting and financial reporting systems, including the audit of the Company's annual financial statements by the independent auditor, and that there are appropriate systems of internal control in place.
The main purpose of risk management and internal control is to provide reasonable assurance that the group will achieve:
- Compliance with legislation and regulations, as well as internal guidelines
- Quality and efficiency within internal operations
- Reliable internal and external reporting
Quarterly and annual financial reports are reviewed and approved at Board meetings, and form the basis for external financial reporting. Upon the presentation of year-end financial statements, the CEO and the CFO declare that the accounts have been prepared in accordance with generally accepted accounting principles, and that to the best of their knowledge, all information is accurate and no material information has been omitted.
Hiddn Solutions ASA uses BDO AS as its external accountant and has also appointed BDO as the accountant for all its Group companies, including Hiddn Security AS (as of 1 January 2017.
Subsequent to the completion of the reverse takeover on 29 December 2016, the Board has started the process of establishing routines for internal control and reporting.
Disqualification
The CEO or a member of the Board may not participate in the discussion on Board issues that are of special
financial or personal interest to the individual in question.
Committees
The Board is the the process of evaluating the need for subcommittees, such as an audit committee and a renumeration committee.
Hiddn Solutions ASA ("Agasti Hold i n g ASA") had established an audit committee and renumeration committee as disclosed in the Annual Report in 2015. However, during 2016, Agasti Holding ASA sold its businesses and were in the process of delisting the Company from the Oslo Stock Exchange. After Hiddn Security AS arranged a reverse-takeover of the Company, Hiddn Solutions ASA was an non-operating shell company and the old Board of Directors was replaced along with the former audit committee and remuneration committee.
The completion of the reverse takeover occurred on 29 December 2016. Hiddn Security AS, the acquirer in the transaction, was previously a privately held company, and has started the process to implement corporate governance policies commensurate with being a listed company.
The Hiddn Solutions ASA Group is a small company with less than 10 employees. At this time, the Board considers it premature to establish audit and remuneration committees. However, the Board will evaluate the need for such committees as the complexity and size of the operations increase.
Self-evaluation of the Board of Directors
Once a year, the Board of Directors will conduct an evaluation of their performance for the past year against set objectives on both a collective and individual level. The results of this evaluation will be sent to the nomination committee, who in turn performs an assessment of the composition and remuneration of the Board of Directors.
12. Risk management and internal control
The Board of Directors performs an annual audit of the main risks and internal control routines of the Company. The audit shall encompass the issues that have been brought to the Board of Directors' attention throughout the year.
In accordance with the Norwegian Accounting Act, §3-3, the Board of Directors produces a summary of the main routines in place for internal control and risk management, related to the process of financial reporting. This summary should be sufficiently exhaustive to enable the shareholders to understand the Company's systems for internal control and risk management.
The routines for internal control shall encompass the Company's adherence to its values, and its guidelines on ethics and corporate social responsibility.
13. Remuneration of the Board of Directors
The Ordinary General Meeting approves the remuneration paid to the Board of Directors. The nomination committee is responsible for issuing a proposal on the remuneration terms to the OGM.
The Company has not granted share options to board members.
14. Remuneration of executive management
In accordance with the Norwegian Public Limited Liability Companies Act, the Board of Directors establishes separate guidelines for the remuneration of the executive management team. These guidelines are presented to the General Meeting for an advisory vote. The Company's general principle for management remuneration is to offer competitive terms, in order to attract and retain the competence it needs.
Share-based remuneration is approved by the General Meeting.
For details on the remuneration of the Company's executive management, see note 5 to the annual financial statements.
15. Information and communication
Regular information to the Company's shareholders, stakeholders and the market is provided through the Annual Report, quarterly reports and open presentations.
All reports and notices are issued and distributed according to the rules and regulations of the Oslo Stock Exchange. Insider information is treated in accordance with Norwegian law. Shareholder information, including the financial calendar, is available on www.hiddnsolutions.com/investor.
The Company's CEO is responsible for all investor relations.
The Company shall have procedures for discussions with shareholders other than ordinary general meetings. All information distributed to the Company's shareholders is published on the Company's website at the same time as it is sent to shareholders.
16. Takeovers
There are no defense mechanisms against takeover bids in the articles of association or in any underlying steering document. In corporate takeovers or restructuring situations, the Board shall "exercise" due and proper care so that all shareholder values and interests are preserved. The Board of Directors will ensure that the shareholders are given sufficient information and time to form a view of the offer in a bid situation.
The Board of Directors will handle takeover bids in accordance with Norwegian laws and regulations. Furthermore, the Board of Directors will seek to comply with the recommendations set out in the Norwegian Code of Practice for Corporate Governance, including arranging for a valuation from an independent expert and making a recommendation as to whether or not the shareholders should accept the bid.
Other than the guidelines described above, the Board of Directors has not found it appropriate to establish any other written explicit principles for how it will act in the event of a takeover bid.
17. Auditor
The external auditor is elected by the General Meeting. The auditor is fully independent of the Company. Ernst & Young is the Company's auditor. The Company represents a small share of the auditor's total business. The Board of Directors is of the opinion that it enjoys good communications with the auditor.
Each year the auditor presents the Board of Directors with a plan for the implementation of the audit, and a written confirmation that the auditor satisfies established requirements pertaining to independence and objectivity. Upon request, the auditor shall be present at board meetings. The auditor presents the Board with its perspectives on the annual statement, and informs of any disagreements between the auditor and the executive management. The Board of Directors also has contact with the auditor when required outside the situations mentioned above.
At least once a year, the auditor will attend a meeting with the Board of Directors in which no representatives from the Company's executive management will be present.
The auditor is present at the General Meeting, where the Board of Directors also informs about the compensation for the auditory work required by law and remuneration associated with other assignments. Information of the fees paid to the auditor in 2016, including breakdown between statutory auditing and other assistance/service is presented in note 7 to the consolidated financial statements.
In connection with the auditor's presentation to the Board of Directors of the annual work plan, the Board of Directors considers if the auditor to a satisfactory degree also carries out a control function.
CORPORATE SOCIAL RESPONSIBILITY REPORT
Pursuant to section 3-3c of the Norwegian Accounting Act, the Group has prepared this report of the Group's Corporate Social Responsibility principles and practice.
GUIDELINES
At the date of this report, Hiddn's business consists of research & development, commercialisation and manufacturing of hardware-based encryption solutions. Hiddn is committed to be a good corporate citizen and demonstrate integrity and high ethical standards in all its business dealings.
Hiddn's Board of Directors has implemented guidelines for Ethical and Corporate Social Responsibility. The purpose of these guidelines is to create a sound corporate culture and to preserve the integrity of Hiddn by helping employees to promote standards of good business practice. Hiddn's guidelines on Ethical and Social Responsibilities applies to all employees of the Group and to anyone who holds a position of trust in the Group, including members of the boards and consultants acting on behalf of the Group. The principles and standards provided therein aim to provide guidance to Hiddn's people for a common platform and to support Hiddn's vision, core values and principles. These guidelines are instrumental for Hiddn's approach to human rights, fair working environment and equal rights, health and safety, environment, business ethics and anticorruption.
The Group regularly reviews the guidelines and will continue its ongoing efforts to educate the organisation on the prevailing standards and principles. Hiddn's Ethical and Corporate Social Responsibility Guideline is publicly available on Hiddn's website.
HUMAN RIGHTS
Hiddn adheres to and conducts its business in line with fundamental international rules, including those described in international human rights conventions such as the UN Convention on Human Rights and the labour rights conventions of the International Labour Organisation (ILO). The Group respects the right to freedom of association and opposes any form of child labour, forced labour or discrimination. Hiddn practices equal opportunities and rights, and encourage all business relations to follow the same principles. Any violations of basic human rights are unacceptable to the Group.
FAIR WORKING ENVIRONMENT
The Group has business contacts of different nationalities and cultures, and has built an international mindset for years. Employees are encouraged to treat each other and business contacts with respect and act according to local laws and regulations, as well as to pay attention to local values and norms for social conduct. The Group does not tolerate derogatory treatment of any employee. The Board of Directors and Management seeks to create a working environment that is pleasant, stimulating, safe and beneficial to all employees.
The Group's working environment complies with applicable rules and regulations and the Board of Directors has not found reason to implement any special measures in this respect. No employee has suffered work-related injuries resulting in sick leave and no accidents or incidents involving the operations or assets of the Group have occurred in 2016.
Going forward, Hiddn commits to actively continue its work for a safe and nurturing working environment in accordance with applicable rules and regulations.
EQUAL RIGHTS
Hiddn has a personnel policy designed to prevent discrimination on the grounds of race, colour, gender, sexual orientation, age, disability, language, religion, legitimate political or other opinions, national or social origin, property, birth or other status.
All of the Group's facilities are equally well equipped for females and males. Traditionally, fewer women than men have graduated in Hiddn's fields of work, and the candidates available for recruiting have tended to predominantly consist of males.
Of the employees in 2016, 0 are women. At year-end 2016, the parent company has three Board members, of which two are women. The Company complies with Norwegian legal requirement with respect to gender representation in the Board of Directors.
The Board of Directors will continue its efforts to ensure
that the principle of equal treatment is carried out in accordance with the adopted policy. Both recruitment of new personnel and professional development for the Group's existing employees will be based on qualifications, achievements and equal opportunities.
HEALTH AND SAFETY
Health and safety is an indispensable component of all the Group's activities. All hazards and risks to health and safety must be avoided. Generally, Hiddn's business involves low safety risk in the day-to-day activities, without use of heavy machinery or equipment that can cause damage or injuries.
Production of Hiddn's products has been outsourced to specialised manufacturers. Hiddn is concerned for safety for employees in third-party factories, which is an integral part of the evaluation criteria that the Group apply ahead of being classified as a "Hiddn Certified vendor/partner". None of the processes in use by the Group's suppliers or manufacturers are known to be of particular hazard to staff. In accordance with Hiddn's current principles, the Group will take into consideration potential safety risks associated with production and/or manufacturing procedures when introducing new suppliers or manufacturers to the Group's operations.
ENVIRONMENT
The Group's operations shall at all times be in accordance with applicable environmental legislation. Hiddn's guidelines on Social and Corporate Responsibility provide that the Group shall at all times strive for improvements that may reduce its environmental impact.
Hiddn does not own or operate manufacturing facilities. Manufacturing is done through third parties that comply with, amongst others, the ISO 14001 environmental standard. Consequently, there is little pollution associated with the Group's operations. Hiddn seeks to limit its resource consumption, prevent unnecessary environmental pollution, including optimizing transportation of goods, and manage waste in an environment friendly and resource efficient manner.
BUSINESS ETHICS & ANTI-CORRUPTION
The Group's operations depend on the trust of contractual parties, authorities, shareholders, employees and the
society in general. In order to gain trust, the Group is dependent upon professionalism, expertise and high ethical standards in all aspects of the Group's work. This applies to the way the Group operates and the conduct of each individual associated with the Group. All employees are expected to behave with care, integrity and professionalism and abstain from actions that may weaken confidence in the Group.
The Group's Ethical and Corporate Social Responsibility Guidelines contain guidelines on ethical behaviour in business relations and are applicable to all employees in the Group. These guidelines clearly states that Hiddn has a zero-tolerance policy for any form of corruption or bribery, and encourages reporting of suspected misconduct.
The Group's guidelines explicitly govern conflict of interests, gifts and money laundering. No employee may receive benefits for themselves or for others from the Group's business contacts if such benefits are based on the employment relationship. Correspondingly, no one shall give such benefits to the Group's business contacts. Business courtesies of modest value, conforming to normal social customs and not intended for influence, are not considered bribes. All gifts with an estimated value of more than NOK 1,000 must be reported to the Group's CFO, who will assess whether the relevant gift can be received on a case-by-case basis. Hiddn has to-date not been accused of, or involved in, any cases pertaining to any form of corruption or bribery.
Hiddn encourages each employee to report on possible censurable incidents. Hiddn's employees have an obligation to report on criminal activity and on incidents that could endanger life or health.
Raising awareness of Hiddn's existing guidelines has been the Group's main action with regards to business ethics and anti-corruption, and the Group will continue such work going forward. Neither the Board of Directors nor management are aware of any breach of the Group's ethical code of conduct.
ARTICLES OF ASSOCIATION
Adopted at the annual general meeting of 31 March 2005, last amended by the board of directors pursuant to an authorisation on 7 April 2017.
§ 1 Company name and registered office
The Company is a public limited company. The company's name is Hiddn Solutions ASA.
The company's registered office is located in the city of Oslo.
§ 2 Objects
The business of the company is research, development and commercialisation of security products, participation and investments in companies with similar business, as well as any other business naturally related thereto.
§ 3 Share capital
The company's share capital totals NOK 21,453,802.12 divided among 63,099,418 shares, each with a nominal value of NOK 0.34. The shares shall be registered with the Norwegian Registry of Securities.
§ 4 Share transfer
Notification of any acquisition of shares in the company shall be sent immediately to the Norwegian Registry of Securities.
The purchaser of a share may only exercise the rights appropriated to a shareholder when the acquisition has been registered in the shareholder register, or when he or she has reported and paid for the acquisition.
§ 5 Structure of the Board
The company's Board of Directors consists of three to seven members according to the resolution adopted by the general meeting.
§ 6 Nomination committee
The company's nomination committee consists of three to five members according to the resolution adopted by the general meeting.
§ 7 Company signature
One board member together with either the Chairman of
the Board or the Chief Executive officer may sign for the company.
The Board of Directors may grant power of attorney and special authorisations.
§ 8 Ordinary general meeting
The ordinary general meeting shall be held annually by the end of June.
The Board of Directors shall call the general meeting by issuing written invitations with at least 21 days' notice to all shareholders with a known address, unless the Joint Stock Public Companies Act allows a shorter notice.
Shareholders who wish to attend must send notification of such to the company within the deadline specified on the notice of the general meeting. The deadline must
not be more than five days before the date of the general meeting. The right to participate and vote at the company´s general meeting only can be exercised for shares when the purchase of shares is listed in the shareholder register no later than five workdays prior to the general meeting.
At the general meeting, each share is allocated one vote.
§ 9 Publishing of general meeting documents on the company's website
If documents to be considered by the general meeting in accordance with the agenda for the meeting have been made available on the company's website, the company does not have to send these physically to the shareholders. Any such documents shall, however, be sent free of charge upon request from individual shareholders.
§ 10 Location of the general meeting
The general meeting shall be held in the city of Oslo where the company's registered office is. However, the Board of Directors may decide to hold the general meeting in the city of Stavanger or elsewhere when appropriate.
§ 11 Duties of the general meeting
The ordinary general meeting shall:
Approve the annual accounts consisting of the profit and loss account, the balance sheet and the annual report, including the consolidated accounts and dividends. Address other items to be dealt with by the general meeting according to legislation or the articles of association.
Nedre Vollgate 4 0158 Oslo, Norway +47 22 12 00 12 [email protected] hiddnsolutions.com