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Techstep ASA — Interim / Quarterly Report 2010
Nov 10, 2010
3770_rns_2010-11-10_a14a6f0b-4a7b-4eee-b0bc-e172cab12b7f.pdf
Interim / Quarterly Report
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QUARTERLY REPORT FOR BIRDSTEP TECHNOLOGY ASA
Page
Management’s Discussion and Analysis ... 2
Financial Statements
Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009 ... 4
Consolidated Balance Sheet as of September 30, 2010 with comparative totals as of December 31, 2009 ... 5
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2010 ... 6
Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2010 ... 6
Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2010 and 2009 ... 7
Notes to Consolidated Financial Statements
Note 1 – Summary of Significant Accounting Policies ... 8
Note 2 – Segment Reporting ... 9
Note 3 – Discontinued Operation ... 10
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The accompanying consolidated financial statements are prepared under IFRS and our fiscal year runs from January 1 to December 31. The M,D&A is being presented by Birdstep in an effort to better inform shareholders of the Company's performance for the current interim period.
Results of Operations
Three Months Ended September 30, 2010 compared to Three Months Ended June 30, 2010
Revenues. Revenues were NOK 14.5 million for the three months ended September 30, 2010, which represents 11% growth over the three months ended June 30, 2010. New and additional license sales during Q3 included customers such as Cell C, Elisa, and a North American service provider.
Cost of revenues. Cost of revenues was NOK 1.3 million for the current quarter, which is a decrease of NOK 0.2 million from the previous quarter. Such decrease was primarily due to less professional services being provided to new customers. Accordingly, as a percentage of related revenues, cost of revenues was 11.4% for Q2 and 9.1% for Q3 2010.
Salaries and wages. Payroll related costs were NOK 8.0 million for Q3, which represents a decrease of NOK 5.3 million from Q2 2010. This significant decrease is primarily the result of a reversal of accrued pension costs of NOK 3.3 million in Q3 as the Company changed its pension plan in Norway from a defined benefit to a defined contribution plan. Employees being paid out their accrued vacation instead of normal salary also reduced payroll related costs during the third quarter by nearly NOK 1 million. In addition, during Q2 an additional payroll tax assessment of approximately NOK 1 million was incurred.
Share-based compensation. Share-based compensation decreased by NOK 0.1 million from Q2 to Q3 2010 as recent turnover of certain employees reduced the level of outstanding stock options as well as the underlying cost to be recognized by the Company over the remaining vesting period.
Depreciation and amortization. Depreciation and amortization incurred was NOK 2.2 million during the current quarter ended September 30, 2010. Such amount represents a slight increase from the previous quarter due to the effect of foreign exchange rate changes.
Other operating expenses. Other operating expenses were NOK 7.3 million for the third quarter, which increased by NOK 0.3 million from the second quarter of this year. During Q3, the Company's reserve for potential uncollected amounts due from customers increased by NOK 0.8 million and such reserve represents 6% of the Company's accounts receivable balance as of September 30, 2010. However, such amount was offset by NOK 0.5 million in reductions of certain marketing related initiatives between Q2 and Q3.
Other income(expense), net. Other expense, net was NOK 0.6 million in Q3 while other income, net was NOK 1.8 million in Q2 2010. Interest income was relatively flat between the current and previous quarters. However, the Company's share of gains(losses) in equity method investees decreased by NOK 0.8 million from a gain of NOK 0.6 million to a loss of NOK 0.2 million when comparing Q2 to Q3 2010. In addition, other financial items, net, which represent the net effect of exchange rate changes on operating assets and liabilities denominated in foreign currencies, changed negatively by NOK 1.6 million between the previous and current quarters.
Net loss from continuing operations. As a result of the above factors, a net loss of NOK 5.2 million was recorded for the three months ended September 30, 2010 compared to a net loss of NOK 9.5 million for the three months ended June 30, 2010.
Liquidity and Capital Resources
The Company’s operating cash flow was a negative NOK 1.8 million in Q3 compared to a negative NOK 8.0 million in Q2 2010. The improvement of NOK 6.2 million was primarily due to higher cash receipts from customers.
Purchase of fixed and intangible assets increased by NOK 0.4 million from NOK 2.0 million in Q2 to NOK 2.4 million in Q3 2010. Such amounts include the capitalization of software related to further developing EasyConnect™ and related solutions.
The Company’s cash balances are primarily denominated in Norwegian kroner (NOK) and Swedish kronor (SEK) as Birdstep’s operating cash costs are expected to be denominated primarily in such currencies for the foreseeable future. Upon translation of the non-Norwegian kroner denominated cash balances into NOK for the Company’s consolidated financial statements, the Company is exposed to currency fluctuations, however, such fluctuations are charged directly to equity. As NOK appreciated against the SEK during Q3 2010, a net negative currency impact of NOK 0.4 million was recorded on cash balances by September 30, 2010. Meanwhile, as NOK depreciated against SEK during Q2 2010, a net positive currency impact of NOK 0.4 million was recorded on cash balances by June 30, 2010.
We believe our current cash balances of NOK 33.5 million in addition to expected future cash flows from operations and divestitures of non-core investments and businesses will be sufficient to meet our anticipated cash requirements for working capital and capital expenditures for the foreseeable future.
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BIRDSTEP TECHNOLOGY ASA
Condensed Consolidated Statements of Operations
(In thousands of NOK, except share and per share data)
| For the three months ended | For the nine months ended | For the year ended | ||||
|---|---|---|---|---|---|---|
| 30-sep-10 (unaudited) | 30-jun-10 (unaudited) | 30-sep-09 (unaudited) | 30-sep-10 (unaudited) | 30-sep-09 (unaudited) | 31-dec-09 (unaudited) | |
| OPERATING REVENUES | 14 484 | 13 100 | 16 321 | 41 584 | 47 648 | 64 300 |
| OPERATING EXPENSES | ||||||
| Cost of revenues | (1 315) | (1 489) | (1 476) | (4 115) | (5 724) | (7 500) |
| Salaries and wages | (7 960) | (13 311) | (11 710) | (36 360) | (37 810) | (50 872) |
| Share-based compensation | (400) | (500) | (100) | (1 400) | (200) | (428) |
| Depreciation and amortization | (2 188) | (2 135) | (2 121) | (6 392) | (6 047) | (8 096) |
| Other operating expenses | (7 297) | (6 977) | (6 726) | (21 294) | (21 851) | (30 171) |
| TOTAL OPERATING EXPENSES | (19 160) | (24 412) | (22 133) | (69 561) | (71 632) | (97 067) |
| OPERATING INCOME (LOSS) | (4 676) | (11 312) | (5 812) | (27 977) | (23 984) | (32 767) |
| OTHER INCOME (EXPENSE) | ||||||
| Share of gains(losses) in affiliated company | (183) | 592 | 281 | 417 | (328) | (395) |
| Interest income, net | 115 | 135 | 170 | 344 | 596 | 596 |
| Other financial items, net | (473) | 1 107 | (1 258) | (629) | (2 266) | (1 140) |
| OTHER INCOME, NET | (541) | 1 834 | (807) | 132 | (1 998) | (939) |
| INCOME(LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES | (5 217) | (9 478) | (6 619) | (27 845) | (25 982) | (33 706) |
| Income taxes | - | - | - | - | - | - |
| NET INCOME(LOSS) FROM CONTINUING OPERATIONS | (5 217) | (9 478) | (6 619) | (27 845) | (25 982) | (33 706) |
| Gain on disposal of discontinued operation | 5 093 | - | - | 5 093 | - | - |
| Net income (loss) from discontinued operation: Orbyte | 1 208 | 963 | (89) | 2 859 | 645 | 819 |
| Net income (loss) from discontinued operation: Raima | (1 296) | (9 593) | (869) | (9 718) | (4 330) | (4 075) |
| NET INCOME(LOSS) | (212) | (18 108) | (7 577) | (29 611) | (29 667) | (36 962) |
| Earnings and diluted earnings per share (NOK) | 0,01 | (0,25) | (0,11) | (0,42) | (0,42) | (0,52) |
BIRDSTEP TECHNOLOGY ASA
Condensed Consolidated Balance Sheets
(In thousands of NOK)
| As of | ||||
|---|---|---|---|---|
| ASSETS | 30-sep-10 | |||
| (unaudited) | 30-jun-10 | |||
| (unaudited) | 30-sep-09 | |||
| (unaudited) | 31-dec-09 | |||
| (unaudited) | ||||
| Non-current assets: | ||||
| Intangible assets | 74 187 | 111 900 | 115 401 | 118 564 |
| Property and equipment | 588 | 700 | 1 864 | 1 649 |
| Investment in affiliated company | 5 952 | 6 174 | 5 930 | 5 535 |
| Other non-current assets | 1 839 | 626 | 1 124 | 936 |
| Total non-current assets | 82 566 | 119 400 | 124 319 | 126 684 |
| Current assets: | ||||
| Accounts receivable | 12 259 | 22 225 | 33 275 | 24 842 |
| Other current assets | 3 511 | 5 084 | 2 132 | 5 068 |
| Assets held for sale | 42 453 | 5 100 | - | - |
| Cash & cash equivalents | 33 503 | 34 600 | 56 695 | 55 655 |
| Total current assets | 91 726 | 67 009 | 92 102 | 85 565 |
| Total assets | 174 292 | 186 409 | 216 421 | 212 249 |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
| Shareholders' equity: | ||||
| Share capital | 71 058 | 71 058 | 71 058 | 71 058 |
| Share premium fund | 279 504 | 279 504 | 279 504 | 279 504 |
| Other reserves | 7 117 | 6 717 | 5 617 | 5 717 |
| Retained earnings, including translation reserves | (212 365) | (210 579) | (181 356) | (184 057) |
| Total shareholders' equity | 145 314 | 146 700 | 174 823 | 172 223 |
| Non-current liabilities: | ||||
| Accrued pension costs | - | 3 330 | 3 239 | 3 330 |
| Other liabilities | 4 420 | 4 472 | 4 647 | 4 521 |
| Total non-current liabilities | 4 420 | 7 802 | 7 886 | 7 851 |
| Current liabilities: | ||||
| Accounts payable | 2 115 | 3 313 | 7 709 | 4 141 |
| Deferred revenue | 5 960 | 6 695 | 15 013 | 13 359 |
| Liabilities held for sale | 4 063 | 4 500 | - | - |
| Accrued expenses and other liabilities | 12 420 | 17 399 | 10 990 | 14 675 |
| Total current liabilities | 24 558 | 31 907 | 33 712 | 32 175 |
| Total Liabilities and Shareholders' Equity | 174 292 | 186 409 | 216 421 | 212 249 |
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BIRDSTEP TECHNOLOGY ASA
Unaudited Condensed Consolidated Statements of Comprehensive Income
(In thousands of NOK)
| For the three months ended | For the nine months ended | For the year ended | ||||
|---|---|---|---|---|---|---|
| 30-sep-10 (unaudited) | 30-jun-10 (unaudited) | 30-sep-09 (unaudited) | 30-sep-10 (unaudited) | 30-sep-09 (unaudited) | 31-dec-09 (unaudited) | |
| Net income (loss) for the period | (212) | (18 108) | (7 577) | (29 611) | (29 667) | (36 962) |
| OTHER COMPREHENSIVE INCOME | ||||||
| Currency translation effect | (1 513) | 2 110 | (587) | 1 303 | (1 259) | (16 445) |
| TOTAL COMPREHENSIVE INCOME | (1 725) | (15 998) | (8 164) | (28 308) | (30 926) | (53 407) |
| Attributable to: | ||||||
| Equity holder of the parent company | (1 725) | (15 998) | (8 164) | (28 308) | (30 926) | (53 407) |
| Minority interests | ||||||
| TOTAL COMPREHENSIVE INCOME | (1 725) | (15 998) | (8 164) | (28 308) | (30 926) | (53 407) |
BIRDSTEP TECHNOLOGY ASA
Unaudited Condensed Consolidated Statement of Changes in Shareholders' Equity
(In thousands of NOK, except share and per share data)
| Shares outstanding | Total | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Shares* | Amount | Treasury Shares | Share premium | Other reserves | Translation reserve | Retained earnings | Total | Comprehensive Income | |
| Balance at December 31, 2008 | 69 808 323 | 69 808 | (300) | 265 740 | 5 567 | 26 100 | (160 328) | 206 587 | |
| Issuance of shares related to earn out | 1 249 654 | 1 250 | - | 13 764 | - | - | - | 15 014 | |
| Sale of treasury shares related to earn out | - | - | 300 | - | - | - | 3 300 | 3 600 | |
| Share-based compensation | - | - | - | - | 428 | - | - | 428 | |
| Comprehensive income: | |||||||||
| Net income(loss) | - | - | - | - | - | - | (36 962) | (36 962) | (36 962) |
| Cumulative translation adjustment | - | - | - | - | (278) | (16 167) | - | (16 445) | (16 445) |
| Total comprehensive income | (53 407) | ||||||||
| Balance at December 31, 2009 | 71 057 977 | 71 058 | - | 279 504 | 5 717 | 9 933 | (193 990) | 172 223 | |
| Share-based compensation | - | - | - | - | 1 400 | - | - | 1 400 | |
| Comprehensive income: | |||||||||
| Net income(loss) | - | - | - | - | - | - | (29 611) | (29 611) | (29 611) |
| Cumulative translation adjustment | - | - | - | - | - | 1 303 | - | 1 303 | 1 303 |
| Total comprehensive income | (28 308) | ||||||||
| Balance at September 30, 2010 | 71 057 977 | 71 058 | 279 504 | 7 117 | 11 236 | (223 601) | 145 314 |
- Numbers of shares includes 21 062 treasury shares
BIRDSTEP TECHNOLOGY ASA
Condensed Consolidated Statements of Cash Flows
(In thousands of NOK)
| For the three months ended | For the nine months ended | For the year ended | ||||
|---|---|---|---|---|---|---|
| 30-sep-10 (unaudited) | 30-jun-10 (unaudited) | 30-sep-09 (unaudited) | 30-sep-10 (unaudited) | 30-sep-09 (unaudited) | 31-dec-09 (unaudited) | |
| Cash flows from operating activities | ||||||
| Net income (loss) from continuing operation | (5 217) | (9 478) | (6 619) | (27 845) | (25 982) | (33 706) |
| Net income (loss) from discontinued operations | 5 005 | (8 630) | (958) | (1 766) | (3 685) | (3 256) |
| Net income(loss) | (212) | (18 108) | (7 577) | (29 611) | (29 667) | (36 962) |
| Depreciation and amortization | 3 359 | 3 239 | 3 223 | 9 798 | 9 277 | 12 415 |
| Write down of intangible assets | 5 761 | - | 5 761 | - | - | |
| Share-based compensation | 400 | 500 | 100 | 1 400 | 200 | 428 |
| Share of gains(losses) in affiliated company | 183 | (592) | (281) | (417) | 328 | 395 |
| Gain on disposal of discontinued operations | (5 093) | - | - | (5 093) | - | - |
| Changes in working capital items: | ||||||
| Accounts receivable | 5 467 | 2 054 | 5 911 | 7 288 | 9 746 | 18 172 |
| Accounts payable | (699) | (1 568) | (7 692) | (1 588) | (5 822) | (9 587) |
| Accrued expenses and other liabilities | (5 185) | 734 | 6 616 | (4 776) | (7 067) | (8 938) |
| Net cash provided (used) in operating activities | (1 780) | (7 980) | 300 | (17 238) | (23 005) | (24 077) |
| Cash flows from investing activities | ||||||
| Purchase of fixed and intangible assets | (2 368) | (1 989) | (1 707) | (5 489) | 100 | (986) |
| Sale of Raima Inc., net proceeds (costs) | 149 | (445) | - | (296) | - | - |
| Change in loan balance with affiliated company | 200 | 200 | 200 | 500 | (1 100) | (970) |
| Net cash provided by (used in) investing activities | (2 019) | (2 234) | (1 507) | (5 285) | (1 000) | (1 956) |
| Effect of foreign exchange rate changes | (398) | 414 | (1 145) | 300 | (4 346) | (3 357) |
| Net increase(decrease) in cash & cash equivalents | (4 197) | (9 800) | (2 352) | (22 223) | (28 351) | (29 390) |
| Cash & cash equivalents, beginning of period | 37 700 | 47 500 | 59 047 | 55 726 | 85 046 | 85 046 |
| Cash & cash equivalents, end of period | 33 503 | 37 700 | 56 695 | 33 503 | 56 695 | 55 655 |
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BIRDSTEP TECHNOLOGY ASA
Notes to Condensed Consolidated Interim Financial Statements
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements of Birdstep have been prepared in accordance with IAS 34 (“Interim Financial Reporting”.
The accompanying condensed consolidated statements of operations and cash flows for the three and nine months ended September 30, 2010 and 2009, and the related information of Birdstep included in these notes to the financial statements are unaudited. In the opinion of management, such interim statements include all adjustments, which consist only of normal recurring adjustments necessary for a fair presentation of the consolidated results of operations, financial position and cash flows for each period presented. The interim consolidated results are not necessarily indicative of results for the full year. The condensed consolidated balance sheet as of December 31, 2009 and statements of operations and cash flows for the year then ended were derived from the Group’s December 31, 2009 audited consolidated financial statements. These interim financial statements should be read in conjunction with the Group’s audited consolidated financial statements as of and for the year ended December 31, 2009, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The same accounting policies and methods of computation are followed in the interim financial statements as compared with the most recent annual financial statements.
These interim financial statements are presented in Norwegian kroner (NOK). The functional currency of Birdstep’s foreign operations is the currency of the country in which the operations are conducted. The accounts of Birdstep are translated into the reporting currency, NOK, using exchange rates in effect at period-end for assets and liabilities and at average exchange rates during the period for the results of operations. The related translation adjustments are reported as a separate component of shareholders’ equity. Gains and losses resulting from foreign currency transactions are included in other income and expense.
Discontinued Operations – Raima
On July 2, 2010, Birdstep announced that it had signed an agreement to sell Raima Inc., a wholly owned U.S. based subsidiary, to Raima holding Company LLC, a newly established company owned by a group representing the management team of Raima. Such agreement was consummated on August 31, 2010. Accordingly, Raima is considered discontinued operations for accounting and reporting purposes. The purchase price for the sale of shares is USD 610,739 of which USD 376,974 was received in Q3 2010 and USD 233,765 in a note to the seller. Such note will be paid down with equal installments, including accrued interest, over a period of 2.5 years at an annual interest rate of 7%.
Discontinued Operations – Orbyte
Management believes that it is highly probable that Orbyte will be sold within the next 12 months. Accordingly, Orbyte is considered discontinued operations for accounting and reporting purposes.
Income per Share
Income per share is calculated by dividing net income available to common shareholders for the period by the weighted average number of common shares outstanding during the period. As of September 30, 2010, the Company has 71,057,977 shares issued and 71,036,915 shares outstanding as 21,062 shares in Birdstep represent treasury shares.
Business Risks and Concentration of Credit Risk
Birdstep is subject to the risks and uncertainties common to growing technology-based companies, including rapid technological developments, reliance on continued development and acceptance of the Internet, intense competition and a limited operating history. Financial instruments that potentially subject Birdstep to concentrations of credit risk consist primarily of cash and accounts receivable. At September 30, 2010, Birdstep had cash balances at certain financial institutions in excess of federally insured limits. However, Birdstep does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. Birdstep performs ongoing evaluations of customers’ financial condition to determine if any reserve for potential uncollectible amounts is needed. As of September 30, 2010, NOK 0.8 million was reserved for potential uncollectible amounts.
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9
BIRDSTEP TECHNOLOGY ASA
Notes to Condensed Consolidated Interim Financial Statements (Continued)
Board Matters
André V. Demarest was elected to the Company’s Board of Directors at the annual general meeting on May 20, 2010. He subsequently resigned from his position as a board member on September 6, 2010, including waiving his rights to earning an accrued board fee up to such date, in order to assume the role of Chief Financial Officer on September 7, 2010.
Note 2 – Segment Reporting
The Company is currently divided into two separate operating segments (EasyConnect and SafeMove) as well as Orbyte, which is considered discontinued operations for accounting and reporting purposes.
On July 2, 2010, Birdstep announced that it had signed an agreement to sell Raima Inc., a wholly owned U.S. based subsidiary, to Raima holding Company LLC, a newly established company owned by a group representing the management team of Raima. Such agreement was consummated on August 31, 2010. Accordingly, Raima is considered discontinued operations for accounting and reporting purposes.
The segment related information being disclosed includes revenues and operating income(loss), excluding certain non-cash items, for both continuing operations and discontinued operations. The non-cash items being excluded from operating income(loss) are share-based compensation and depreciation and amortization.
| For the three months ended | For the nine months ended | For the year ended | ||||
|---|---|---|---|---|---|---|
| 30.sep.10 | 30.jun.10 | 30.sep.09 | 30.sep.10 | 30.sep.09 | 31.dec.09 | |
| EasyConnect | ||||||
| Operating revenues | 10 384 | 9 000 | 12 012 | 27 392 | 31 923 | 44 100 |
| Operating income(loss), excluding certain non-cash items | (1 106) | (4 444) | (473) | (11 529) | (5 472) | (6 432) |
| SafeMove | ||||||
| Operating revenues | 4 100 | 4 100 | 4 309 | 14 192 | 15 725 | 20 200 |
| Operating income(loss), excluding certain non-cash items | (1 226) | (4 283) | (2 579) | (8 853) | (10 662) | (15 488) |
| Orbyte | ||||||
| Revenues | 6 100 | 7 100 | 4 800 | 19 200 | 18 000 | 24 600 |
| Operating income(loss), excluding certain non-cash items | 2 223 | 1 951 | 911 | 5 835 | 3 568 | 4 664 |
| Raima | ||||||
| Revenues | 2 000 | 2 400 | 4 500 | 11 400 | 13 200 | 19 000 |
| Operating income(loss), excluding certain non-cash items | (1 139) | (9 476) | (767) | (9 288) | (4 024) | (3 339) |
BIRDSTEP TECHNOLOGY ASA
Notes to Condensed Consolidated Interim Financial Statements (Continued)
Note 3 – Discontinued Operation
Assets and liabilities held for sale are as follows:
| As of | |
|---|---|
| 30-sep-10 | |
| Intangible assets | 37 354 |
| Property and equipment | 40 |
| Account receivables | 3 977 |
| Other current assets | 1 082 |
| Total assets held for sale | 42 453 |
| Accounts payable | 287 |
| Accrued expenses and other liabilities | 3 776 |
| Total liabilities held for sale | 4 063 |
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