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Precise Biometrics Interim / Quarterly Report 2009

Apr 22, 2009

3189_10-q_2009-04-22_efed65bc-5655-4b77-a97c-74e8398fd332.pdf

Interim / Quarterly Report

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Page 1 of 14

STRONG GROWTH AND STABILIZING EARNINGS

Precise Biometrics AB (publ), Corporate Identity No. 556545-6596 Interim Report for the period January – March 2009

  • The group's net sales for the first quarter amounted to SEK 12.2 million (9.0).
  • Losses for the first quarter were SEK ‐2.6 million (‐10.7).
  • Losses per share for the first quarter amounted to SEK ‐0.03 (‐0.11).
  • Liquid assets at the end of the quarter amounted to SEK 4.4 million (25.5).
  • Precise Biometrics awarded 1st prize at the SIMagine competition ‐ a global competition focusing on new innovative solutions for mobile communication and Java cards. The awarded mobile aviation solution is based on Precise Match‐on‐ SIM™ and enables fast‐lane service using fingerprint recognition and mobile phones.

Significant events after the quarter

• Precise Biometrics and Gemalto released the innovative solution, Gemalto .NET Bio ‐ a Match‐on‐Card solution that integrates seamlessly into Microsoft Windows environments. The solution enables organizations to enhance network security and protect online identities by replacing weak, static passwords, with strong authentication.

For further information Thomas Marschall, President and CEO, Precise Biometrics AB Tel. +46 (0)46 31 11 10 or +46 (0)734 35 11 10 E-mail [email protected]

Patrik Norberg, CFO, Precise Biometrics AB Tel. +46 46 31 11 47 or +46 734 35 11 47 E-mail [email protected]

Precise Biometrics is a market-leading provider of products and solutions for fingerprint recognition. The technology proves people's identities in a fast and secure way, while it reduces costs related to password management, identity theft and fraud.

Precise Biometrics serves business and government organizations throughout the world and its technology is licensed to more than 80 million users.

For more information, please visit www.precisebiometrics.com or view the Company presentation. Precise Biometrics is listed on the NASDAQ OMX Stockholm small cap list (PREC).

Strong growth and stabilizing earnings

  • Interview with Thomas Marschall, President and CEO, Precise Biometrics

What were the profits in the first quarter?

In comparison with the first quarter of 2008, we have had a growth of 35% and 76% improvement in profits. This is a very strong development in the current economic climate.

How have sales developed in the first quarter?

We have had stable earnings from previously communicated orders. During this period our earnings have been at a more uniform level, which gives us a more stable platform. We have not received any major new orders this quarter, but the increased stability means that we can more quickly expect a positive result when we secure larger orders.

The news of cooperation with Gemalto resulted in large movements in the share price?

We never comment on the share price, but there is undeniably great potential in cooperation with the world's largest card manufacturer – Gemalto. This cooperation also means that we are the only player on the market that can offer such biometric functionality for smart cards and moreover full compatibility with Windows.

Is this a breakthrough?

This is definitely a breakthrough and I am expecting orders during the year. So far it is mainly the market for national ID cards that has generated large orders. We have been working hard to position the national ID market where we want it, and this has produced results. Match‐on‐ Card is specified as a requirement in the majority of tenders for national ID cards today. We have occasionally underestimated how long it takes to receive confirmation of orders from government agencies – on the other hand there are large volumes once a project is rolled out.

The partnership with Gemalto – which is a result of long‐term and determined efforts – means we also open up the use of Match‐on‐Card for the employee ID market. Employee ID has two advantages in comparison with national ID: the licenses pay more per user, and decisions concerning orders are taken more quickly. The global market consists of around 200 million employee ID cards, and the majority of these are in a Microsoft environment. More and more computers also have fingerprint readers as standard. The takeoff to get orders in this segment is also shorter in that Gemalto.NET Bio was developed based on a project for a specific customer – AXA Technology Services – and is therefore already tested on thousands of users.

Do you see any potential breakthroughs in 2009?

Even if things are moving more quickly on the market now and I believe in a snowball effect for the Match‐on‐Card technology, I remain respectful of the time it takes to achieve penetration in new application areas.

In the aviation industry there is great potential for cost‐savings in association with check‐in and boarding. Our solution for Scandinavian Airlines (SAS), the only biometric solution of its kind for the aviation industry used in the world, has already given us a head‐start in this growing market. The solution ensures a fast and secure flow of passengers, which improves efficiency and saves money for the airlines.

Page 3 of 14 Lund, April 22, 2009

We also see big opportunities in the not too distant future for Match‐on‐Card on the mobile market, which with SIM cards accounts for almost 80% of the entire smart card market. I believe that companies within the mobile market will be mature enough to generate orders in 2010‐2011.

Will the first prize in the SIMagine competition contribute to enhancing the opportunities on the mobile market?

Yes. The fact that we won the first prize in the SIMagine competition has attracted the attention of leading industry players to our technology. SIMagine is a global competition for innovative solutions in mobile communication. The competition is arranged by Gemalto, Sun Microsystems and Samsung and is held every year at the GSMA World Mobile Congress, the world's largest event for mobile telephony. Our winning solution focuses on the aviation industry and is based on Precise Match‐on‐SIM ‐ our concept of both storing and matching fingerprint information on a SIM card. The technology enables fast check‐in and boarding by means of fingerprints and mobile phones.

What about the need for capital?

At the present time we see no need to reinforce our capital.

On the other hand I would like to see one or more large and active owners assume positions in the company. During 2009 we will be working to identify larger long‐term owners, who can help us to achieve our long‐term growth targets.

What will 2009 be like?

It is still too early to talk about results because we are waiting for several decisions on tenders. I am expecting orders during the year for national ID cards and employee IDs, as well as orders from the aviation industry. The objective to achieve a break‐even result remains.

Page 4 of 14 Lund, April 22, 2009

Sales and result

First quarter 2009

Sales for the first quarter amounted to SEK 12.2 million (9.0). The gross margin amounted to 69%. During the corresponding period last year the gross margin amounted to 45%. The Group's net loss for the first quarter amounted to SEK ‐2.6 million (‐10.7). Operating costs excluding costs for products sold, and excluding participations in associated companies, amounted to SEK 10.8 million (14.2), including depreciation and write‐downs of SEK 0.7 million (0.7) and capitalization of costs for development work of SEK 0.3 million (0.7). Losses per share (average number of shares) for the first quarter amounted to SEK ‐0.03 (‐0.11).

Financing and liquidity

Equity amounted as of March 31, 2009 to SEK 12.8 million (61.2) and equity/share to SEK 0.13 (0.60).

Cash flow from current operations during the quarter amounted to SEK ‐6.5 million (‐6.3). Liquid assets as of March 31, 2009 amounted to SEK 4.4 million (25.5).

Geographical markets and sales – events during the first quarter

Regular invoicing related to licenses for two national ID Card programs has contributed to this quarter's improved revenue numbers and results compared to last year's first quarter. One of the countries is Portugal, where the deployment of ID cards and Match‐on‐Card licenses continues according to plan. The other country is the unnamed non‐European country that has been involved in a second batch of Precise Match‐on‐Card™ licenses. The first batch was invoiced in November 2008. The country in question and involved partners have still not been disclosed due to business reasons.

Sales during the quarter also include repeat orders to the Swedish fitness chain Fitness24seven, as well as new orders to government customers both in Eastern Europe and the Middle East.

Precise Biometrics won first place in the global SIMagine competition, held annually at the GSMA World Mobile Congress ‐ the worldʹs largest event for mobile communication. The awarded mobile aviation solution is based on Precise Match‐on‐SIM™ and enables fast‐lane services using fingerprint recognition and mobile phones. The concept is based on our experiences from the aviation industry and has also developed in consultation with Scandinavian Airlines.

During the quarter, Precise Biometrics has also initiated its participation in the EU‐related research project BioP@ss, which is a direct continuation of the European research initiative Onom@topic+. For its contribution to the project, Precise Biometrics receives SEK 4 million during a two‐year period. The project will benefit Precise Biometrics' research of the potential use of complete fingerprint images, and matching of these in full format on a smart card chip, with the objective of achieving full interoperability.

Page 5 of 14

Lund, April 22, 2009

Parent company

Parent company sales for the first quarter amounted to SEK 10.3 million (6.5). Operating profit before tax for the first quarter amounted to SEK 1.1 million (‐11.5).

At the end of the first quarter 26 persons were employed in the parent company. Liquid assets at the end of the first quarter amounted to SEK 4.2 million (20.3). The parent company had no debts to credit institutions at the end of the first quarter. Investments in tangible fixed assets have been made to an amount of SEK 0.01 million (0.06)

During the first quarter costs for development work were capitalized to an amount of SEK 0.2 million (0.7).

Organization and staff

The parent company of Precise Biometrics has its head office in Lund, Sweden. The organization also consists of the subsidiaries Precise Biometrics Inc. in Washington DC, USA, Precise Biometrics Solutions AB with office in Karlstad, Precise Biometrics Asia Ltd. with office in Hong Kong, as well as the dormant companies Precise Biometrics UK Ltd, Precise Biometrics Services AB and Loqware Sweden AB (in the process of liquidation).

As of March 31, 2009 the group had 41 (39) employees, 39 in Sweden, 1 in the US and 1 in Hong Kong. Of these employees, 32 (30) were men and 9 (9) were women.

Investments in tangible fixed assets

In the first quarter the group has invested SEK 0.01 million (0.06) in tangible fixed assets.

Capitalization and depreciation of development work

During the first quarter costs for development work have been capitalized to an amount of SEK 0.3 million (0.7). Depreciation and write‐downs of capitalized costs for development work amounted in the first quarter to SEK 0.3 million (0.3).

Patents

The group's long‐term patent strategy focuses on establishing a strong protection around Precise Match‐on‐Card™ as our core technology. The patents portfolio has been successively expanded since 2001 and at the end of the first quarter in 2009 included 74 registered patents and34 applications for patents in 22 different product families. Precise Biometrics has 13 different patent families just for the Match‐on‐Card technology.

Shares

The company's shares were listed on the O‐list of the Stockholm Stock Exchange since October 3, 2000, which after October 2, 2006 was replaced by the Nordic Stock Exchange where the Company is now listed on the Small Cap list.

The total number of registered shares at the end of the quarter was 101 220 600. During the quarter the average turnover per day was SEK 114 thousand and the list price ranged from SEK 0.89 to 0.57.

Page 6 of 14

Lund, April 22, 2009

The main shareholders as of March 31, 2009

Name Percentage of share capital No. of shares
Storebrand fonder 5.2% 5,252,666
Smart Unicorn Group Ltd. 3.9% 3,988,117
Banco fonder 3.3% 3,344,199
Swedbank Robur fonder 3.1% 3,145,000

Source: SIS Ägarservice

Risk factors

Technological development

The market on which the Company operates is subject to rapid change. New technology and new players are constantly emerging. The Company's technology must therefore to a large extent be accepted by the leading players on the market, both by suppliers and customers. The market must be mature enough to understand and accept the new technology supplied by the Company. This can mean that major investments in marketing and sales may be required to achieve the expected sales volumes.

Employees

There are a number of key persons in the Company who are important for operations, and who possess unique competence. If one or more of these key persons should leave the Company it could, in the short term, have a negative impact on operations. There is also the risk that the recruitment of new employees for these positions can take time and result is additional costs for the Company.

Partners

Today the Company cooperates with several different partners. They include systems integrators, smart card manufacturers, chip manufacturers and suppliers of applications. The Company relies on this cooperation in order to be able to offer end‐users complete security solutions. There is a risk that one or more of these partners could end their cooperation or fail to achieve the expected results, which would result in a loss of expected future earnings.

Patents and industrial and intellectual property rights

It is important for the Company to protect its technology through patents or other industrial and intellectual property rights, and thereby retain its technological lead and create the opportunity for license earnings in the future. The company therefore pursues an active patent strategy, which involves applying for patents for strategically important inventions in the countries where this is considered to be appropriate.

Competitors

The Company operates on the biometrics market where competition is intense. The competing companies can have substantially larger financial and industrial resources at their disposal than the Company, and it cannot be excluded that competition from this type of player can lead to diminished market shares and/or a reduction in profitability for Precise Biometrics.

Forecasting reliability

The Company operates on a market that is in an early stage of growth and is characterized by long sales promotion periods, which leads to a certain degree of inaccurate forecasts. Earlier or later submissions of orders can have a significant effect on annual sales and earnings.

Page 7 of 14 Lund, April 22, 2009

Cash flow

The Company endeavors to minimize the time capital is tied up, for example in stocks and accounts receivable. To reduce the risks of tied‐up capital the Company works actively to improve the internal process for forecasting and production planning. The Company also endeavors to ensure that the long ID card projects are not an excessive burden in terms of the cash flow.

During the current ongoing global financial crises focus has been on liquidity and current payment conditions. Due to this the Company has sharpened payment conditions for customers.

For a full account of identified risks, please refer to the Annual Report for 2008.

Future report dates
Interim Report Q2 July 21, 2009
Interim Report Q3 October 22, 2009
Year‐end Report February 5, 2010

Accounting principles

This interim report has been prepared in accordance with IAS 34, Interim reporting and the Swedish Company Accounts Act. The interim report also has been prepared in accordance with IFRS 8, Business Segments and IAS 1, Structure of financial reports that came into force as of January 1, 2009. Adaptation to IFRS 8 has so far not affected the presentation of the financial information compared to previous years.

For information on the applied accounting principles please refer to the Annual Report for 2008.

This quarterly report has not been subjected to review by the Company's auditors.

Lund, April 22, 2009

Thomas Marschall, President and CEO, Precise Biometrics AB (publ)

Page 8 of 14

Lund, April 22, 2009

Income statement, Group

(Figures in thousands SEK) Q1 Q1 Full year
2009 2008 2008
Net sales 12,196 9,015 45,868
Cost of goods sold -3,760 -4,952 -23,324
Gross profit/loss 8,436 4,063 22,544
Selling expenses -5,327 -5,632 -26,416
Administrative expenses -2,994 -3,446 -11,096
R&D costs -3,508 -2,764 -14,444
Other operating income and changes in value 990 -2,384 5,598
Result from participations in associated companies - -778 -30,738
-10,839 -15,004 -77,096
Operating profit/loss -2,403 -10,941 -54,552
Financial costs -178 245 403
Profit/loss after financial items -2,581 -10,696 -54,149
Tax - - -31
Profit/loss for the period -2,581 -10,696 -54,180
Profit/loss attributable to:
Owners of the parent -2,581 -10,696 -54,180
Results per share, SEK -0.03 -0.11 -0.54

Page 9 of 14

Lund, April 22, 2009

Other profit/loss, Group (according to IAS 1)

Other revenues and costs directly accounted for in equity

(Figures in thousands SEK) Q1
Q1
Full year
2009 2008 2008
Change in accumulated exchange rate differences -595
649
-1,471
Other profit/loss for the period, net of tax -595
649
-1,471
Profit/loss for the period -2,581 -10,696 -54,180
Total profit/loss for the period -3,176 -10,047 -55,651
Total profit/loss attributable to:
Owners of the parent
-3,176 -10,047 -55,651
Balance Sheet, Group
(Figures in thousands SEK) 3/31/2009 3/31/2008 12/31/2008
Assets
Intangible fixed assets 9,370 10,408 9,683
Tangible fixed assets 1,197 1,537 1,303
Participations in associated companies - 21,618 -
Receivables from associated companies - 6,170 -
Inventories 4,736 1,791 2,618
Accounts receivable - trade 7,237 8,614 6,859
Other current receivables 2,667 3,953 2,206
Cash and bank balances 4,448 25,531 11,343
Total assets 29,655 79,622 34,012
Equity and liabilities
Equity 12,751 61,154 16,004
Current liabilities 16,904 18,468 18,008
Total equity and liabilities 29,655 79,622 34,012
Pledged assets 17,400 4,115 12,400
Contingent liabilities - - -

Page 10 of 14

Lund, April 22, 2009

Cash Flow Statement, Group

(Figures in thousands SEK) Q1 Q1 Full year
2009 2008 2008
Cash flow from operating activities
before changes in working capital -2,700 -8,324 -24,778
Cash flow from changes in working capital -3,840 2,059 4,945
Cash flow from operating activities -6,540 -6,265 -19,833
Cash flow from investing activities -278 -720 -1,794
Cash flow from financing activities -77 - 454
Cash flow for the period -6,895 -6,985 -21,173
Liquid funds at the beginning of the period 11,343 32,516 32,516
Liquid funds at the end of the period 4,448 25,531 11,343

Key Figures, Group

3/31/2009 3/31/2008 12/31/2008
Working capital (thousands SEK) 2,184 21,421 5,018
Liquid ratio 85% 206% 113%
Equity/assets ratio 43% 77% 47%
Return on average equity - - neg
Capital employed (thousands SEK) 12,751 61,154 16,004
Return on capital employed - - neg
Profit/loss per share (SEK) -0.03 -0.11 -0.54
EBITDA (thousands SEK) -1,707 -10,248 -51,794
Equity per share (SEK) 0.13 0.60 0.16
Number of shares 101,220,600 101,220,600 101,220,600
Number of employees at the end of the period 41 39 44
Average number of employees during the period 43 38 41

Definitions - Key Figures

Working capital: Current assets less current liabilities

Liquid ratio: Current assets less inventories divided by current liabilities

Equity/assets ratio: Equity as of the balance sheet date divided by total assets as of the balance sheet date

Return on equity: Profit/loss for the period divided by average equity

Capital employed: Balance sheet total minus non-interest-bearing liabilities and provisions

Return on capital employed: Profit/loss after financial items plus financial expenses divided by the average capital employed

Profit/loss per share: Profit/loss after tax divided by the average number of shares. The options are

not included in the calculation since the subscription price is higher than the market rate at the 31st of March 2009 EBITDA: Profit/loss before net financial items, depreciations, write-downs and tax

Equity per share: Equity at the end of the period divided by the number of shares at the end of the period Quarterly earnings ratios are not disclosed

Page 11 of 14

Lund, April 22, 2009

Changes in equity, Group

(Figures in thousands SEK)

Capital Other paid in Reserves Balanced profit/ Total
stock capital year's profit equity
Opening balance of January 1, 2008 40,488 499,701 1,005 -469,993 71,201
Optionsprogram1) - 454 - - 454
Total Other profit/loss for the period - - -1,471 -54,180 -55,651
Closing balance as of December 31, 2008 40,488 500,155 -466 -524,173 16,004
Opening balance as of January 1, 2008 40,488 499,701 1,005 -469,993 71,201
Total Other profit/loss for the period - - 649 -10,696 -10,047
Closing balance as of March 31, 2008 40,488 499,701 1,654 -480,689 61,154
Opening balance as of January 1, 2009 40,488 500,155 -466 -524,173 16,004
Optionsprogram2) - -77 - - -77
Total Other profit/loss for the period - - -595 -2,581 -3,176
Closing balanceas of March 31, 2009 40,488 500,078 -1,061 -526,754 12,751

1) Relates to 2 300 000 share options to Management at a rate of SEK 0.19 and 210 000 share options to other employees at a rate of SEK 0,08.

2) Repurchase of 450 000 share options.

Turnover and profitability by Regions Q1 2009

(Figures in thousands SEK)

North America Europe Middle East
& Africa
Asia
2009 2008 2009 2008 2009 2008 2009 2008
Net sales 129 3,116 6,287 4,989 2,077 712 517 198
Expenses1) -579 -2,143 -4,234 -4,670 -1,161 -659 -796 -711
Operating profit/loss -450 973 2,053 319 916 53 -279 -513
Latin America Other
2009 2008 2009 2008
Net sales - - 3,186 -
Expenses1) - - - -25
Operating profit/loss - - 3,186 -25

1) The above expenses in Regions include Cost of goods sold as well as operation expenses for each region.

Income statement, Parent company

(Figures in thousands SEK) Q1 Q1 Full year
2009 2008 2008
Net sales 10,281 6,490 30,849
Cost of goods sold -1,770 -3,206 -14,681
Gross profit/loss 8,511 3,284 16,168
Selling expenses -4,035 -4,582 -24,010
Administrative expenses -2,851 -3,296 -11,747
R&D costs -3,992 -2,764 -16,872
Other operating income and changes in value 3,556 -4,464 10,726
Result from participation in associated companies - - -29,662
-7,322 -15,106 -71,565
Operating profit/loss 1,189 -11,822 -55,397
Financial costs -56 342 762
Profit/loss after financial items 1,133 -11,480 -54,635
Tax - - -
Profit/loss for the period 1,133 -11,480 -54,635

Page 13 of 14

Lund, April 22, 2009

Balance Sheet, Parent company

(Figures in thousands SEK) 3/31/2009 3/31/2008 12/31/2008
Assets
Intangible fixed assets 4,383 5,477 4,751
Tangible fixed assets 741 1,005 824
Participations in group companies 6 540 6,540 6,540
Participations in associated companies - 21,320 -
Receivables from associated companies - 6,170 -
Inventories 4,736 1,719 2,618
Accounts receivable - trade 6,040 6,573 4,196
Other current receivables 44,452 44,796 41,866
Cash and bank balances 4,161 20,256 9,329
Total assets 71,053 113,856 70,124
Equity and liabilities
Equity 58,861 100,883 57,728
Other provisions 638 330 594
Current liabilities 11,554 12,643 11,802
Total equity and liabilities 71,053 113,856 70,124
Pledged assets 15,000 1,715 10,000
Contingent liabilities 2,000 2,000 2,000

Page 14 of 14

Lund, April 22, 2009

On the occasion of today's Interim Report we have the pleasure to invite investors and journalists to the following informative meeting during the day

  • The conference starts at 14:00 (CET)
  • To participate, please call +46 (08) 506 269 30

An operator will note your name and connect you to the conference. She/he will also provide you with information about what to do if you have any questions. The presentation will be held in English but afterwards there will be an opportunity to ask questions in Swedish.

Participating on behalf of Precise Biometrics

  • Thomas Marschall, President and CEO
  • Patrik Norberg, CFO

A recording from the conference will be available for three days after the telephone meeting. To listen to the conference afterwards dial +46 (0)8 506 269 49. When asked to state a reference number please dial 231171 and finish with (#).

Please visit www.precisebiometrics.com/presentations where a presentation can be downloaded.

For further information

Thomas Marschall, President and CEO, Precise Biometrics Tel. +46 (0)46 31 11 10 or +46 (0)734 35 11 10 E-mail [email protected]

Patrik Norberg, CFO, Precise Biometrics AB Tel. +46 46 31 11 47 or +46 734 35 11 47 E-mail [email protected]

Precise Biometrics AB (Headquarters) Box 798 SE-220 07 Lund Tel.: +46 (0)46 31 11 00 Fax: +46 (0)46 31 11 01 E-mail: [email protected]

Precise Biometrics is a market-leading provider of products and solutions for fingerprint recognition. The technology proves people's identities in a fast and secure way, while it reduces costs related to password management, identity theft and fraud.

Precise Biometrics serves business and government organizations throughout the world and its technology is licensed to more than 80 million users.

For more information, please visit www.precisebiometrics.com or view the Company presentation. Precise Biometrics is listed on the NASDAQ OMX Stockholm small cap list (PREC).