NEXT Biometrics Group ASA — Management Reports 2015

Jun 29, 2015

NEXT BIOMETRICS GROUP ASA – H1 2015

NEXT Biometrics has had an eventful first half 2015. The company has now earned a unique position in an industry that sees a massive "Apple-effect" now spreading beyond smartphones into tablets, notebooks, tokens, keyfobs, internet-of-things, payments and a long range of other new innovative applications.

During the previous six months, the company has focused on the following major tasks:

• Extending the product offering from one generic to six market adapted sensor modules
• Securing a top class distribution and direct/indirect management of 170 + leads
• Verifying the performance advantages of the NEXT technology
• Increasing production capacity and bringing down production cost
• Expansion of the NEXT organisation

Product offering Based on detailed market feedback in 2014, the first half of 2015 included release of six different modules to replace the first original 2014 module. This had the effect of postponing some sales, but will have a significant positive impact going forward. NEXT now has a product portfolio that cover the market needs in all targeted key market segments.

Sales and market NEXT experiences a steady growth in number of customer leads, now totalling more than 170 projects world-wide. During 18 months of sales work, the company has become a highly recognized player and is at a fast increasing rate being asked for quotes by leading customers in all key market segments.

In the Notebook and Tablet space Microsoft executives during the launch of Windows Hello highlighted NEXT Biometrics as a leading supplier of fingerprint sensors.

In the Smartphone space the NEXT value proposition combining quality and a low price is getting increased attention as the market is trending towards payments, enterprise and governmental applications.

In the "NEXT-enabled Markets", (markets in need of NEXT unique combination of quality and low cost) the number of high quality leads, several in 7 digits, is growing fast.

In order to handle the ever growing number of leads, NEXT has extended the network of best in class distributors. We are very pleased that these distributors find the NEXT offering the most attractive in the market.

Significant resources have also been allocated for the company first Tier 1-customer project. This in order to secure a perfect performance from NEXT as the customer launches various products from Q3 and onwards.

One major reason for NEXT attention from TIER-1 customers is the clean IP situation, with no patents close to the company patented Active Thermal principle. The NEXT Japanese distributor «Hakuto» recently highlighted this out when asked by stock market analysts.

Launch of black coated sensors

Multiple orders received in «NEXT-Enabled» segments

FEBRUARY

Launch of the «Oyster». High quality / low cost USB-reader

First TIER 1 customer increases volumes by a minimum of 200 000 sensors

MARCH

NXP promotes NEXT sensor solutions at MWC in Barcelona

NEXT expands organisation with 10 new high-level engineers

Launch of the NB-1011 sensor module

Foxconn, the world´s largest electronics manufacturer, and a NEXT Biometrics shareholder, is now proving their worth to NEXT by opening doors and gaining access to the descision makers in smartphones and other market segments.

In terms of competition there is an increasing number of suppliers in the market for small sized smartphone sensors. In high end smartphones and all other targeted market segments, larger sensors are required and there is little competition. This market condition is expected to continue in the foreseeable future.

Sensor size - The Madrid Report Sensor size is by far the most important factor determining the quality of any fingerprint sensor system. As sensor size diminishes, false rejections rates increases exponentially, and the system is no longer useable for a large portion of the population. Small sensors should never be offered in devices targeting enterprise, governmental, payments and other markets in need of both security and convenience for a high percentage of a population.

This is no longer a statement made by NEXT, but has been proven beyond all reasonable doubt in a comprehensive record sized study at the University Carlos III in Madrid, where more than 180 000 prints were collected. Same size sensors from three suppliers were blind tested, and proves alarmingly bad performance when size is reduced. The study furthermore confirms that when comparing sensors of same size, the Active Thermal principle patented by NEXT performs in line with capacitive sensors 3-5 times more expensive.

In applications where quality is paramount, like corporate access and payments, there will be a shift towards larger sensors. No other supplier than NEXT can deliver a sensor with a size large enough to secure high quality for an acceptable percentage of the users, at an acceptable price. Going forward this fundamental fact will pave the way for NEXT growth within the smartphone segment.

We encourage shareholders and other interested parties to download the complete Madrid Report at www.nextbiometrics.com.

Production NEXT is now one of only three suppliers world wide having secured a TIER-1 design-win and able to deliver product in high volumes. With the custom-built coating machine installed at INNOLUX/Taiwan in Q2, monthly sensor production capacity is now 1,2 million units. The coating machine also brought production cost dramatically down, and the company is presently on track to achieve its 2015 cost-down goals.

Organizational growth No company is better than its people. During H1-2015 the NEXT teams in Oslo, Seattle, Silicon Valley, Prague, Taipei and Shanghai have grown from 39 to 52 people. We are very encouraged and proud of the fact that NEXT has proven able to attract world class talent. In the past months highly experienced quality resources from wellknown brand names, like Microsoft, Qualcomm, Cypress, Acer and STM have joined the NEXT Team.

The NEXT organisation is set for high volume growth.

APRIL

Hire of Campbell Kan, former President of PC Global Operations ACER

Order for 100 000 sensors from SmartHome segment

Order for 34 000 sensors received

MAY

Microsoft Executives highlight NEXT Biometrics in major Windows event

The «Madrid Report» is published – proving NEXT competitive superiority

Receipt of order for 160 000 sensors.

JUNE

Entry in Indiasigning of AqTronics as NEXT distributor

Entry in Korea – signing of WPG as NEXT distributor

Throughout H1-2015, 10 000 sensor modules was delivered as part of the preparation for first TIER 1 launch in Q3-2015.