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Zwipe AS — Annual Report 2018
Mar 12, 2019
3797_10-k_2019-03-12_ab56220a-624f-4c0a-9c84-50f7bc58fe38.pdf
Annual Report
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Annual Report 2018
Table of content 03 - 10
- Board of Director's report
- Management overview 11 - 12
- Board of Director's overview 13 - 14
- About Zwipe 15 - 19
- Declaration from the Board of Director's and CEO 20 - 21
- Financial statements Group and Parent Company 22 - 26
- Notes to the financial statements 27 - 38
- Audit report 39 - 42
- Glossary 43 - 44
BOARD OF DIRECTOR'S REPORT
About Zwipe AS
Zwipe AS is a private limited liability company (Norwegian: "aksjeselskap") incorporated and existing under the laws of Norway. Zwipe AS has a wholly owned subsidiary, Zwipe America Inc., a corporation incorporated under the laws of the State of Delaware in the United States. The company has no other ownership positions. While administrative, finance, IP, product management and sales activities are conducted at the parent level, R&D and supply chain activities are conducted by its subsidiary. The parent company and its wholly owned subsidiary forms a group hereinafter referred to as "the Group", "Zwipe" and "the company".
Zwipe is a biometric technology company focused on the development and commercialisation of secure, fast and easy to use biometric authentication solutions with an opportunity for application across verticals such as payment, access control and government identification. Its core technology comprises i) energy harvesting and power management systems, ii) firmware, iii) biometric algorithms, all designed for ultra-thin and ultra-low power high performance embedded applications and iv) biometric and payment system integrations.
Zwipe's current focus is on biometric payment cards and wearables and together with an ecosystem of partners including global brands within financial services, security and ID applications, Zwipe is "Making Convenience Secure™" for banks, merchants and consumers. Using advanced fingerprint recognition while protecting personal information, Zwipe's solutions address the data theft pitfalls inherent in traditional authentication methods. The company's versatile technology functions in conjunction with existing infrastructure and systems without the need for external databases and without the need for batteries.
Zwipe's partners in the biometric payment card value chain include both suppliers and customers. Zwipe buys components from partners, which are integrated by Zwipe alongside its unique technology platform into a biometric inlay. This biometric inlay is sold to customers, the card manufacturers, who integrate the biometric inlay into dual-interface payment cards, which are subsequently sold to card issuers, such as banks, who issue them to their end customers, the card holders.
Purpose and strategic development
Zwipe's mission statement is "Making Convenience Secure". At the heart of the company's value proposition is a solution to the unnecessary trade-off between security and convenience.
Zwipe's vision is to be recognized as a global leader in ultra-low power, self-contained, biometric authentication solutions for physical and digital applications.
Increased use of biometrics in everyday life has normalized biometric technology solutions globally. Thanks to smartphones and other devices utilizing biometrics, consumers are familiar with biometric authentication, and have embraced the use of biometrics for secure and convenient user verification. Recent market surveys confirm that consumers have strong interest and confidence in biometric solutions and the outlook for biometric authentication technology is positive in both developed and developing markets1.
Today, contactless technology is the most convenient means by which to conduct payment transactions. The challenge lies in the lack of security inherent in the contactless solution, which has prompted the introduction of transaction limits. Zwipe's solution eliminates security concerns and avoids any need for transaction limits by integrating biometrics into contactless transactions. This is done without compromising the user's right to privacy, as the biometric authentication is performed by the card without the need for databases. In addition, the solution is compatible with existing legacy infrastructure at point of sales around the world.
While banks and other conventional financial service providers are exploring the possibilities within biometrics, e-commerce platforms and financial apps are using biometrics to authenticate and approve payment transactions. At present, growth in social payments and e-commerce platforms is accelerating the penetration of biometrics into financial systems.
A well thought out strategy for implementing biometrics needs to consider the concerns of industry bodies, regulators and consumer-interest groups. The use of biometric technology raises regulatory questions regarding 1 Research conducted by AYTM Market Research, September 12-19, 2017
data security and privacy, while financial institutions worry about sharing security aspects with technology companies or becoming dependent on device-specific solutions. Zwipe spent 2018 continuing its collaboration with different stakeholders to understand, qualify and address their needs, including regulatory questions such as data protection, with the objective to help all stakeholders find appropriate solutions to expedite the prevalence of biometrics in financial services while offering best-of-breed technology solutions.
Zwipe believes that the financial services industry is ripe for innovation across the entire biometric spectrum. The race to integrate biometrics in financial services is heating up across many different segments and the frontrunners will be those who can provide the best in class mix of convenience and security to ultimately optimise end-user experiences, all at a competitive cost.
Zwipe's strategy is to leverage its core technology across three mass markets, payment, access control and identification. Six strategic pillars form the foundation for longterm success:
● Focus initially on securing a leading position within Biometric Payment Cards
● Build on first mover position in biometric payment vertical for retail banking to become a trusted digital authentication partner for financial services, including a broadening of the offering to biometric wearables and other potential means of authentication – for use cases at both Point of Sale and digital banking
● Build a platform for growth through Zwipe Generation NxT project, which comprises initiatives related to supply chain readiness and scalability, performance improvements, technical differentiation and cost reduction
● Transition from selling biometric inlays to selling integrated circuits and embedded systems to solution providers in multiple industries
● Licensing of Intellectual Property (IP) essential for biometric authentication across multiple verticals, platforms and form factors
● Take advantage of previous investments, exploring opportunities within access control and government ID
During 2018, Zwipe focused on the commercial and technological development of its primary product offering, the biometric inlay for payment cards. Furthermore, in preparing for the planned commercialisation of Zwipe-enabled biometric payment cards in 2019, the company initiated an internal development program, Generation NxT, focused on scaling the company around three major commercialization initiatives; i) ssupply-chain readiness and scalability to take its inlays to commercial deployments, ii) performance improvements and technical differentiation and iii) cost competitiveness.
Generation NxT is also Zwipe's development vehicle for adopting its inlay to the next architecture of biometric payment cards, where fingerprint sensors are expected to be post-placed by the card manufacturer, which means that Zwipe will no longer embed the fingerprint sensor of the biometric payment card onto its inlays. For the industry as well as for Zwipe this approach brings many advantages including cost reductions, and Zwipe has secured a strong patent position for this approach.
With its first mover advantage and unique technology platform, Zwipe has built a strong position in the biometric payment card value chain. The market for biometric payment cards is typically split into groups of stakeholders, which provide different technologies and solutions to enable biometric payment cards. Zwipe provides several functions and offerings to card manufacturers, and therefore faces a variety of competitors in different product categories, such as inlays, energy harvesting and biometric algorithms.
To bring its technology to the market, Zwipe has a close cooperation with the world's largest card manufacturer, Gemalto, and will continue to pursue similar partnership with other card manufacturers. Together with Gemalto and Bank of Cyprus, Zwipe launched the world's first battery-less dual-interface (i.e. contact based and contactless) biometric payment card pilot in the first quarter of 2018. Several additional pilots were launched throughout the year and into 2019 together with both Visa and MasterCard. Zwipe believes that its offering to enable contactless battery-less biometric payments incorporating Zwipe's energy harvesting and power management system is a major reason why Zwipe's inlays have been used by these global industry leaders.
In addition to its strong product offering and ecosystem of partners, Zwipe's competitive strengths lie in its strong IP portfolio with several key patents being granted in key markets during 2018.
Zwipe's strong IP and technology, including its unique energy harvesting, power management and biometric technologies, together with its partners and market position, makes the company positioned to take a significant share of the biometric payment card market and, subsequently, to expand its business into the biometric access control and identification markets.
Biometric payment card market development
The biometric payment card industry is an emerging marketplace rooted in the technical advancement of payment cards, transitioning over the last twenty-five years from the magnetic stripe to the EMV chip and more recently to dual-interface.
Payment card volumes are expected to grow, driven especially by developing markets, where governments and issuers are pushing for financial inclusion and the migration from cash to electronic based payments. While alternative payment technologies are gaining traction, it may take a long time for them to gain critical mass, especially in places that will require substantial infrastructure investments. The total number of payment cards in circulation is estimated to reach 18 billion in 2027, up from 11 billion in 20182. The total number of EMV payment cards shipped is estimated by the company to reach approximately 4,400 million cards in 2025, representing a CAGR of 16% from 3,000 million cards in 20173.
Contactless technology continues to proliferate as a widely adopted form of electronic payment, and the total number of dual-interface payment cards is expected to reach approximately 15 billion in 20271. Already, European countries are shifting their consumer behaviour to embrace contactless technology with countries such as Poland and the Czech Republic, where contactless transactions now constitute over 75%, leading the way4.
2 Edgar, Dunn and Company: Biometric Payment Cards Market Research and Addressable Market Sizing Result, September 2018
3 http://www.eurosmart.com/facts-figures.html. Projections based on Company estimates
4 MULTOS Consortium Member Market Feed, September 2018
Highlights 2018
● In early 2018, Zwipe announced partnerships with Visa and the world's largest card manufacturer, Gemalto, and launched the world's first dual-interface biometric card pilot with the Bank of Cyprus
● Throughout 2018, Zwipe entered into business partnerships with major stakeholders covering the entire biometric payment card value chain, including global payment schemes, issuers, financial institutions and card manufacturers
● In March 2018, André Løvestam was appointed to the position of Chief Executive Officer (CEO). Kim Humborstad, the founder and former CEO, moved to the position of Chief Growth Officer (CGO) and was appointed deputy chairman of the board of directors
● In June, the Company completed a capital raise in the form of a preferential rights issue, raising gross proceeds of NOK 20 million
● In August, Zwipe announced a partnership with Silone CardTech, a card manufacturer based in Shenzhen, China. The aim is to launch battery-less dual-interface biometric payment cards with banks and loyalty programs in China
● In September, Zwipe successfully raised NOK 8.4 million in funds through the issuance of a convertible loan
● In October, Zwipe announced a partnership with wearables technology company Tappy Technologies to jointly develop and launch biometric enabled wearable payment, access and digital authentication devices
● In November, Zwipe announced the launch of a pilot with Banca Intesa Sanpaolo (Italy), MasterCard and Gemalto with over 150 bank employees testing the technology over a period of 16 weeks, as well as a pilot program with its partners Gemalto, Areeba and Visa, piloting biometric payment cards with 10 different banks across the Middle East
● In November, Zwipe announced an achievement of 70% reduction in power consumption while simultaneously reducing cost. Zwipe has collaborated with Cypress Semiconductor Corp., an embedded solutions provider, to support the launch of Zwipe's next generation card inlay solution by developing a micro controller unit that is specifically designed for Zwipe's use in ultra-low power biometric applications in ultra-thin solutions
● In November, Zwipe announced an innovative fingerprint enrolment solution developed by the company for the planned mass-market deployment of biometric payment cards
● In December, Zwipe was awarded a NOK 23 million grant from Horizon 2020, the largest European Union research and innovation program, promoting European innovation and competitiveness on a global scale. Payment of the grant is subject to project milestones completion and project costs being approved.
● At the end of 2018, Zwipe had pending patent applications across 31 patent families of which 8 patents families had been granted in at least one jurisdiction. Some of the patents, granted or applied for, are essential to Zwipe's biometric payment card platform and some are related to inventions relevant to the production process. Some of these inventions are relevant to the technology roadmap or valuable in a broader context for Zwipe through the potential licensing of its intellectual property
● In 2018 Zwipe retained financial advisers and made substantial preparations for its capital raise and listing on Merkur Market at the Oslo Stock Exchange, which were completed in January 2019
Group financial review
This review is based on Zwipe's consolidated financial accounts for 2018 and 2017 prepared in accordance with Norwegian Generally Accepted Accounting Principles (NGAAP). Zwipe AS previously reported according to NGAAP for smaller enterprises, NRS 8. The transition from NRS to NGAAP only impacts the accounting procedures related to the share-based remuneration program, which must be recognized as an expense. As a result, the company has assessed the fair value of its share-based incentive program and recognized the expense in the income statement. This resulted in increased payroll cost of NOK 1.1 million in 2017 and NOK 5.8 million in 2018.
All figures are presented on a consolidated basis for the Group. The main impact of the transition from unconsolidated to consolidated financial statements for Zwipe AS and Zwipe America, Inc. is the reclassification of other operating expenses in Zwipe AS to payroll expense and depreciation of tangible and intangible fixed assets in the consolidated financial statements. In addition, tax paid by Zwipe America, Inc. affects the consolidated statements, as Zwipe AS has not yet paid taxes. Balance sheet effects include adjustments to financial fixed assets, total cash balance, equity and accounts payable. The consolidation effect in 2017 of NOK 1.1 million is the profit from 2017 from Zwipe America, Inc. The equivalent figure for 2018 is NOK 1.4 million.
Revenue
Historically, Zwipe's revenues have been negligible. The company has sold some cards within the access control vertical to system integrators and distributors and, from 2018, a few biometric inlays and demo cards within the payment vertical. Other operating income is related to the sublease of office space not used by Zwipe.
In 2018, Zwipe reported total revenue of NOK 2.3 million, generated from the sale of access control cards and biometric inlays for payment cards for battery-less dual-interface biometric payment card pilots. Excluding revenue from the subleasing of office space in 2017, revenue increased by NOK 1.2 million compared to 2017.
Operating expenses
Total operating expenses in 2018 were NOK 70.6 million, up from NOK 51.7 million in 2017. This was largely driven by increased payroll expenses as a result of new hires and increased cost from the share-based remuneration program. In addition, R&D expenses increased compared to the previous year combined with a write down of intangible assets of NOK 5.3 million.
Total payroll expense in 2018 was NOK 26.7 million, up from NOK 17.7 million in 2017, driven by new hires, increased cost of the share-based remuneration program and change in payroll payment routines. Payroll expense largely reflects the number of employees in each period, but the stock option compensation is more volatile as it will vary over time due to grants, cancellations and vesting periods of each grant. The calculated employer's tax debt also varies with share price development.
Cost of goods sold (COGS) comprises component cost, manufacturing fee and shipping expenditures. In 2018, COGS was NOK 5.1 million, up from NOK 2.5 million in 2017, mainly due to inventory write down for access control cards and obsolete biometric inlays. COGS reflects the production cost from manufacturing at low volumes, as opposed to mass volume manufacturing. The gross margin to date is therefore not representative for the expected and planned gross margin for the business in full operational mode.
Other operating expenses in 2018 were NOK 30.8 million compared with NOK 27.4 million in 2017. Other operating expenses comprise expenditures related to R&D, office equipment, leasing of office space, IT infrastructure, consultants, travel, marketing and more. IP expenses are also recognized as part of other operating expenses and comprise external costs of obtaining and maintaining patents as well as incurred license fees. The increase in other operating expenses in 2018 reflects new hires and increased use of external advisors and consultants.
Zwipe made changes to its management team and completed a reorganization during the year following the strategic decision to focus on the payment card vertical. Zwipe had a net increase in staff of 3 employees throughout 2018. Zwipe plans to further grow its organization in preparation for the commercialisation of Zwipe-enabled biometric payment cards.
Results
EBITDA amounted to negative NOK 60.3 million in 2018. The result for the year reflects the company's operational expansion and R&D efforts towards commercialisation of the technology platform and resulted in a net loss of NOK 72.7 million. This is up from negative NOK 53.7 million in 2017, driven primarily by operational expansion, higher cost of the share-based remuneration program and change in accounting methodology for IP expenses.
Financial position
By year-end 2018, cash and cash equivalents were NOK 10.8 million, down from NOK 49.3 million in 2017. Total equity was negative NOK 8.1 million, corresponding to a negative equity ratio of 27%. Total liabilities were NOK 37.6 million, of which NOK 24.3 million were short-term interest-bearing debt. Total assets were NOK 29.5 million, of which NOK 6.0 million were intangible assets related to research and development activities.
During 2018 Zwipe strengthened its balance sheet through a preferential rights issue, raising NOK 20 million at a price of NOK 10 per share. In September 2018 Zwipe also raised NOK 8.4 million through the issuance of a convertible loan.
Parent company financial review
Revenue in the parent company, Zwipe AS, was NOK 2.3 million in 2018, compared with NOK 1.2 million in 2017. Operating expenses were NOK 72.6 million, up from NOK 53.3 million in 2017. The increase was mainly due to higher payroll expense as a result of new hires and increased cost of the share-based remuneration program. The parent company had 8 employees on average throughout 2018, which was at the same level as in 2017.
COGS amounted to NOK 5.1 million, up from NOK 2.5 million in 2017. Other operating expenses were NOK 43.4 million compared with NOK 39.6 million in 2017. The increase was driven mainly by new hires and increased use of external advisors and consultants and a write down of intangible assets of NOK 5.3 million
The net result for Zwipe AS was a loss of NOK 74.1 million, compared to a loss of NOK 54.9 million in 2017.
Total assets were NOK 28.3 million, of which NOK 6.0 million were intangible assets related to research and development activities. Cash and cash equivalents were NOK 9.3 million, down from NOK 47.6 million in 2017. Total equity was negative NOK 11.8 million, corresponding to a negative equity ratio of 42%. Total liabilities were NOK 40.1 million, of which NOK 24.3 million were short-term interest-bearing debt.
Share capital and shareholders
The issued and fully paid share capital of the company at the end of 2018 amounted to NOK 942,566.20, consisting of 9,425,662 shares. At the end of 2018 there were a total of 173 registered shareholder accounts.
Subsequent events
On 21 January 2019, Zwipe announced the successful completion of a NOK 120 million capital raise from an offering of new shares. The offering was substantially over-subscribed, attracting strong interest from institutional and professional investors as well as retail investors in Norway and Sweden.
The capital raise was conducted to strengthen the company's financial position and fund the further development and commercialization of the company's technology.
On 28 January 2019, Zwipe was admitted to trading on Oslo Stock Exchange's Merkur Market under the ticker symbol ZWIPE-ME.
A total of 6,000,000 new ordinary shares were issued in the share offering at a price of NOK 20 per share. In addition, a convertible loan of NOK 9.4 million (including approximately NOK 0.7 million in accrued interest) was converted to 520,543 new ordinary shares in the company, resulting in a total of 6,520,543 new shares.
Late February 2019, VP Program and Supply Chain Management, Eric Mercer, was appointed CEO of Zwipe America Inc and part of Zwipe's management team.
Risks and uncertainty factors
Zwipe is exposed to various types of market-, operational- and financial risks. Zwipe continuously monitors risk factors at a corporate and subsidiary level and take appropriate action when needed to eliminate or mitigate any potential negative impact on operational and financial performance. Please refer to the prospectus dated 9 January 2019 for a more detailed description of risk factors, this is available at www.zwipe.com.
Zwipe's activities are subject to economic, business and social conditions and a deteriorating macroeconomic situation may lead to a decrease in activity across the company's business areas.
Zwipe is operating within the unpredictable and rapidly evolving contactless payment and biometric authentication market and value chain together with market leading manufacturers and payment networks. As such, it is difficult to predict important market trends, including how large this market will be or when and which products will be adopted, as well as timing of significant market events such as commercial launch of biometric payment cards to consumers. Zwipe's operational and financial performance will depend on the timely and successful certification and commercialisation of existing and new technologies and enhancements to such technologies. Certification, customer roll-out and/or market adoption might take longer, or the market penetration may not be as strong as Zwipe plans for.
The markets in which the company operates are highly competitive, fragmented and rapidly changing and the Group expects to continue to experience competition from new- and incumbent market players. The introduction of new technologies could cause existing products to be less attractive and Zwipe must therefore be able to successfully anticipate or adapt to changing technologies or customer requirements on a timely basis.
Despite efforts to protect Zwipe's proprietary technology and trade secrets, unauthorized parties may attempt to misappropriate, reverse engineer or otherwise infringe the proprietary technology. Zwipe may be unable to determine the extent of any unauthorized use or infringement of their products, technologies or intellectual property rights.
Going concern
Zwipe had negative equity per 31.12.2018, but as it was completed a NOK 120 million capital raise in January 2019, the Board of Directors confirms that the going concern assumption is present, and that the financial statements for 2018 is prepared under this assumption. Costs are expected to continue to exceed revenue in several more quarters, however, the board considers that the company has access to capital. The company's financial position and financing is in accordance to the Board's expectations and the necessary activities for future financing of the company's growth strategy are progressing according to plan.
External environment
Zwipe's operations has limited impact on the environment. The company emphasizes compliance with all government environmental requirements, and that control routines are established and function in accordance with regulations.
Working environment, employees and equality
During 2018, Zwipe completed a reorganization, including the appointment of a new CEO in March. A total of six new employees and consultants were engaged in the Group, and the company is currently organised to comprise the following departments: Commercial team (Payment Sales & Business Development), Administration, R&D, New Business and IP and Supply Chain. At the end of 2018 the Zwipe had a total staff of 31, including engaged consultants.
Excluding consultants, the average number of employees in the Norwegian parent company in 2018 was 8. The workforce comprised two women and six men.
The Board believes Zwipe's ability to attract experienced employees is a validation of its position and potential.
Zwipe aims to be an equal opportunity workplace and the working environment is regarded as good. The total sick leave in the parent company was 0.9% in 2018. This level is considered satisfactory and no special measures are implemented in this area. There have been no material injuries or work-related accidents in 2018.
The Board of Directors consisted of eight members, one woman and seven men.
Other
The Board of Directors is not aware of any matters of importance for the assessment of the company's position and performance, which is not reflected by the financial statement and balance sheet with notes. Post 31.12.2018, there has not, in the Board of Directors' view, occurred any matters which will affect the annual accounts.
Outlook
Zwipe is at the forefront of a global shift towards more secure and convenient contactless payments and the market is primed for growth. The company's ambition is that Zwipe's industry leading technology and partnerships will secure a strong market position both in the short and long-term.
The capital raise and subsequent admission to trading at Oslo Stock Exchange's Merkur Market in January 2019 were important milestones for Zwipe, as the company seeks to capitalise on its strong position in the biometric payment marketplace and as the payment industry moves towards bringing biometric payment cards to consumers.
Zwipe's revenue growth going forward is dependent on the market development of biometric payment cards, as well as Zwipe's ability to capture a sufficient share of the market. The key determinants of the timing and speed of adoption of biometric payment card are i) timing and completion of certification processes and systems for enrolment; ii) the successful execution of pilot programs and consumer acceptance and adoption of the new technology; iii) inlay production capacity; iv) the competitive intensity at every step in the value chain (from technology solution providers to issuers); and v) manufacturing cost development for biometric payment cards.
In addition to revenues from the payment vertical, Zwipe sees additional upside potential from additional product offering within the wearables and digital authentication verticals as well as through the licensing of IP.
ANDRÉ LØVESTAM
CEO
FRANCIS VAN DEN BOSCH BOARD MEMBER
ESPEN TØNDEL BOARD MEMBER
OSLO, 11 MARCH 2019
JÖRGEN LANTTO CHAIRMAN OF THE BOARD
DENNIS JONES BOARD MEMBER
LARS WINDFELDT BOARD MEMBER
KIM KR. HUMBORSTAD DEPUTY CHAIRMAN OF THE BOARD
JOHAN BIEHL BOARD MEMBER
WEIZI HUANG BOARD MEMBER
MANAGEMENT OVERVIEW
Executive Management
André Løvestam CEO
● Extensive previous experience at the C-level, incl. CEO of Tomra Europe, Telecomputing, Umoe IKT and Kjedehuset
● Proven track record of commercial success from a variety of industries and markets
Lisbeth Breum CFO
● Broad experience in Finance & M&A transactions
● Previously manager of Investor Relations and Investment Associate at private equity fund Herkules Capital & Senior Analyst with Danske Bank's Acquisition and Leveraged Finance team
Kim Humborstad CGO
● Founded Zwipe (then OrigoID) in 2009
● Winner of several awards, including the FERD-award for highest international potential and FinTech Award for innovation in payments
Eric Mercer CEO Zwipe America *
● Highly experienced former program manager with an extensive background in supply chain management working for tech companies both large and small with the longest tenure prior to Zwipe being with Intel Corporation
Marcio Stervid CCO
● Over 28 years of experience successfully working in senior positions at companies such as 3M, Bank of America, Gemalto, Verifone and AltaPay
● Has a broad and established skillset in the payments ecosystem
Ado Fazlic VP Marketing
● Over 10 years of diverse experience working in a wide range of senior business development and marketing functions in organizations in the United States and across Europe
BOARD OF DIRECTOR'S OVERVIEW
Board of Director's
Jörgen Lantto Chairman of the Board
- Former CEO of Fingerprint Cards
- 20+ year experience from various positions in Ericsson Group
● Chairman of myFC Holding AB, Board member of Dirac Reserach AB and Wirepas Oy, Advisory board of a handful of companies in the US, UK and Scandinavia
Kim Humborstad
Deputy Chairman
- Founded Zwipe (then OrigoID) in 2009
- Winner of several awards, including the FERD-award for highest international potential and FinTech Award for innovation in payments
Lars F. Windfeldt Board Member
● Founder and CEO of Winta Eiendom AS
● More than 30 years of experience in real estate development, technology investments and asset management
● Funded Song Networks, a data and telecommunications operator in 1997
Espen Tøndel Board Member
● Partner at Simonsen Vogt Wiig law firm
● Extensive experience within IT / Telecom / IP and M&A transactions
● Several awards including "Leading Individual" in Chambers Europe and Legal500
Francis van den Bosch Board Member
● Advisory and board roles in several start-up companies within retail banking and payments markets
- Held a number management roles in the consumer banking sector of Citibank
- Former general manager for the European business in MasterCard
Dennis Jones Board Member
● Recently retired as the COO of TSYS Issuer Solutions with extensive experience in the fintech, payments and processing sectors
● Former Chairman of Pay safe (a UK based global payments company), Former Chairman of MasterCard UK, Various executive roles within RBS and NatWest
Johan Biehl Board Member
● Private investor
● Board member and Investment manager at Feat Invest AB since 2016
● Extensive experience with financial markets
Weizi Huang Board Member
● Co-founder of Kuang-Chi, a privately owned diversified technology group based in China
● COO of KuangChi Science Ltd., a Hong Kong Exchange publicly listed affiliate of Kuang-Chi
ABOUT ZWIPE
Zwipe's Mission and Vision
Zwipe's mission statement is "Making Convenience Secure". At the heart of our value proposition is a solution to the unnecessary trade-off between security and convenience.
Zwipe's vision is to be recognized as a global leader in ultra-low power, self-contained, biometric authentication solutions for physical and digital applications.
Colorado Springs - USA
LEGAL STRUCTURE
Zwipe AS owns Zwipe America Inc 100%.
8 of the 31 employees were based at the Group's head office in located Oslo, Norway, whilst 19 employees were based in the United States. 2 consultants were based in the UK, 1 in Italy and 1 in France.
Zwipe IP
As per 31 December 2018 Zwipe had 32 patent families in its IP portfolio, with 8 patent families that include a granted patent in at least one jurisdiction. The company has pending patent applications spread across 31 patent families.
A patent family refers to a group of patents and/or patent applications for the same invention in various different jurisdictions. Zwipe has chosen to group its patent families in order to provide an indication of the areas of expertise within which the company has secured its IP protection: Production, Security, Biometric, Energy and Application.
The chart shows the percentage of patent families within each category:
Zwipe's Products
During 2018, Zwipe focused on the commercial and technological development of its primary product offering, the biometric inlay for payment cards. A biometric inlay is the electronic circuit board inside of the payment card, notably containing the combination of Zwipe's biometric algorithms, card firmware and biometric processor, performing power harvesting and power management functionality.
The image is an illustration of a "dummy" biometric inlay with explanations of some of the components:
1: Energy harvesting inlay design and IP
- 2: Biometric interface integration into EMV chip
- 3: Fingerprint Sensor and protective bezel
4: Ultra-low power biometric MCU with proprietary firmware and algorithm
Enrollment Solutions
Zwipe's intuitive at-home enrolment kit has the card neatly fixed to a power source in a design much like a "powered greeting card", which fits inside a traditional envelope, effectively turning the card on and off by opening and closing the enrolment kit. In this way, cardholders can securely register their unique fingerprint in the privacy of their own homes.
Zwipe Generation NxT – Platform for growth
In preparing for the planned commercialisation of Zwipeenabled biometric payment cards in 2019, Zwipe has initiated an internal development program, Generation NxT, focused on scaling the company around three major commercialization initiatives;
i) Supply-chain readiness and scalability
ii) Performance improvements and technical differentiation
iii) Cost competitiveness
DECLARATION FROM THE BOARD OF DIRECTOR'S AND CEO
We confirm that the annual financial statements for the period 1 January to 31 December 2018, to the best of our knowledge, have been prepared in accordance with applicable accounting standards and provide a true and fair view of the Group and of the Group's assets, liabilities, financial position and overall results. We also confirm that the Board of Directors' Report provides a true and fair view of the development and performance of the business and the position of the Company and the Group, as well as a description of the principal risks and uncertainties facing the Company and the Group.
OSLO, 11 MARCH 2019
ANDRÉ LØVESTAM
CEO
FRANCIS VAN DEN BOSCH
BOARD MEMBER ESPEN TØNDEL BOARD MEMBER
JÖRGEN LANTTO CHAIRMAN OF THE BOARD
DENNIS JONES
BOARD MEMBER
LARS WINDFELDT BOARD MEMBER
KIM KR. HUMBORSTAD DEPUTY CHAIRMAN OF THE BOARD
JOHAN BIEHL BOARD MEMBER
WEIZI HUANG BOARD MEMBER
FINANCIAL STATEMENTS GROUP AND PARENT COMPANY
Income Statement
| Zwipe AS Zwipe AS |
Zwipe AS Group Consolidated Zwipe Group Consolidated |
||||
|---|---|---|---|---|---|
| 2018 | 2017 | (Amounts in 1000 NOK) | Note | 2018 | 2017 |
| Operating Income | |||||
| 2 276 | 1 073 | Sales revenue | 1 | 2 276 | 1 073 |
| 0 | 152 | Other operating income | 0 | 152 | |
| 2 276 | 1 224 | Operating income | 2 276 | 1 224 | |
| Operating expenses | |||||
| 5 088 | 2 454 | COGS | 6 | 5 088 | 2 454 |
| 16 063 | 7 334 | Payroll expenses | 2, 13, 15, 16 | 26 650 | 17 654 |
| Depreciation and amortization of tangible and | |||||
| 8 027 | 3 900 | intangible fixed assets | 3,4 | 8 033 | 4 166 |
| 43 443 | 39 643 | Other operating expenses | 13, 15 | 30 793 | 27 420 |
| 72 622 | 53 331 | Operating expenses | 70 564 | 51 694 | |
| -70 346 | -52 107 | Operating profit/loss | -68 289 | -50 469 | |
| Financial income and expenses | |||||
| 43 | 46 | Other interest income | 43 | 47 | |
| 405 | 706 | Other financial income | 405 | 706 | |
| 2 223 | 2 509 | Other interest expenses | 2 225 | 2 509 | |
| 1 980 | 1 013 | Other financial expenses | 1 977 | 1 013 | |
| -3 754 | -2 770 | Net financial income and expenses | -3 754 | -2 769 | |
| -74 100 | -54 877 | Results before tax | -72 042 | -53 239 | |
| 0 | Tax expense | 10 | 657 | 506 | |
| -74 100 | -54 877 | Results after tax | -72 700 | -53 745 | |
| -74 100 | -54 877 | Results for the year | -72 700 | -53 745 | |
| Profit(+)/Loss(-) for the year attributable from: | |||||
| -55 561 | -54 877 | Share premium reserve | -57 855 | -53 745 | |
| -18 539 | 0 | Uncovered loss | -14 844 | 0 | |
| -74 100 | -54 877 | TOTAL | 9 | -72 700 | -53 745 |
Balance Sheet
| Zwipe AS Zwipe AS |
Zwipe AS Group Consolidated Zwipe Group Consolidated |
||||
|---|---|---|---|---|---|
| 2018 | 2017 | (Amounts in 1000 NOK) Assets |
Note | 2018 | 2017 |
| Fixed Assets | |||||
| Intangible Fixed Assets | |||||
| 6 018 | 2 157 | Research and Development | 4, 13,15 | 6 018 | 2 157 |
| 0 | 5 333 | Licenses and patents | 4, 11 | 0 | 5 333 |
| 0 | 0 | Deferred tax asset | 10 | ||
| 6 018 | 7 490 | Total Intangible Fixed Assets | 6 018 | 7 490 | |
| Tangible Fixed Assets | |||||
| 2 335 | 2 507 | Equipment, fixtures and fittings | 3, 13 | 2 335 | 2 542 |
| 2 335 | 2 507 | Total Tangible Assets | 2 335 | 2 542 | |
| Financial Fixed Assets | |||||
| 386 | 386 | Investment in subsidiaries | 5 | 0 | 0 |
| 1 166 | 1 136 | Other receivables (long term) | 7 | 1 166 | 1 136 |
| 1 552 | 1 522 | Total Financial Fixed Assets | 1 166 | 1 136 | |
| 9 905 | 11 519 | Total Fixed Assets | 9 519 | 11 168 | |
| Current Assets | |||||
| Inventories | |||||
| 2 307 | 5 141 | Inventories | 6,11 | 2 307 | 5 141 |
| 2 307 | 5 141 | Total Inventories | 2 307 | 5 141 | |
| Receivables | |||||
| 639 | 107 | Accounts receivables | 7, 11, 14 | 639 | 107 |
| 6 143 | 5 515 | Other receivables | 7,13 | 6 209 | 5 586 |
| 6 782 | 5 622 | Total debtors | 6 848 | 5 693 | |
| Cash | |||||
| 9 302 | 47 635 | Bank deposits, cash | 8 | 10 797 | 49 263 |
| 9 302 | 47 635 | Total cash | 10 797 | 49 263 | |
| 18 390 | 58 398 | Total Current Assets | 19 951 | 60 097 | |
| 28 296 | 69 917 | Total Assets | 29 470 | 71 265 |
Balance Sheet
| Zwipe AS Zwipe AS |
Zwipe AS Group Consolidated Zwipe Group Consolidated |
|||||
|---|---|---|---|---|---|---|
| 2018 | 2017 | (Amounts in 1000 NOK) Equity and liabilities |
Note | 2018 | 2017 | |
| Equity | ||||||
| Paid-up Equity | ||||||
| 943 | 743 | Share capital | 9,12,16 | 943 | 743 | |
| 0 | 35 762 | Share premium reserve | 9,16 | 0 | 37 855 | |
| -12 737 | 0 | Uncovered losses | 5,9, 18 | -9 042 | 0 | |
| -11 795 | 36 504 | Total restricted equity | -8 100 | 38 597 | ||
| -11 795 | 36 504 | Total equity | -8 100 | 38 597 | ||
| Liabilities | ||||||
| Long-term liabilities | ||||||
| 475 | 888 | Other long term liabilities | 11 | 475 | 888 | |
| 475 | 888 | Total of other long term liabilities | 475 | 888 | ||
| Short-term Liabilities | ||||||
| 9 471 | 5 153 | Accounts Payables | 14 | 6 902 | 4 065 | |
| 1 914 | 541 | Public duties payable | 16 | 1 914 | 541 | |
| 0 | 0 | Tax payable | 10 | 0 | 291 | |
| 28 230 | 26 831 | Other short term liabilities | 11 | 28 278 | 26 884 | |
| 39 615 | 32 524 | Total short-term liabilities | 37 094 | 31 780 | ||
| 40 090 | 33 412 | Total liabilities | 37 569 | 32 668 | ||
OSLO, 11 MARCH 2019
ANDRÉ LØVESTAM CEO Oslo, 11.03.2019
André Løvestam Jörgen Lantto CEO Chairman of the Board
FRANCIS VAN DEN BOSCH BOARD MEMBER
ESPEN TØNDEL BOARD MEMBER Francis van den Bosch Kim Kr. Humborstad Board Member Board Member
JÖRGEN LANTTO CHAIRMAN OF THE BOARD
DENNIS JONES BOARD MEMBER
LARS WINDFELDT BOARD MEMBER
KIM KR. HUMBORSTAD DEPUTY CHAIRMAN OF THE BOARD
JOHAN BIEHL BOARD MEMBER
WEIZI HUANG BOARD MEMBER
Cash Flow Statement
| Zwipe AS Zwipe AS |
Zwipe AS Group Consolidated Zwipe Group Consolidated |
||||
|---|---|---|---|---|---|
| 2018 | 2017 | (Amounts in 1000 NOK) | Note | 2018 | 2017 |
| -74 100 | -54 877 | Net Income / (Loss) before tax | -72 042 | -53 239 | |
| Taxes paid | 10 | -657 | -391 | ||
| 5 802 | 1 078 | (+) Options no cash effect | 9 | 5 802 | 1 078 |
| - | - | (-/+) Gains/Losses fixed assets | 30 | - | |
| 8 027 | 3 900 | (+) Depreciation & amortisation | 3,4 | 8 033 | 4 166 |
| 2 835 | -1 033 | (-) Change in Inventory | 6 | 2 834 | -1 033 |
| -532 | 2 | (-) Change in Accounts Receivable | 7 | -1 833 | 2 |
| -658 | -1 997 | (-) Change in Other Current Assets | -650 | -2 025 | |
| 4 318 | 2 520 | (+) Change in Accounts Payables | 4 276 | 2 330 | |
| 3 843 | 100 | (+) Change in Short Term Liabilities | 3 837 | 100 | |
| -50 465 | -50 307 | Net Cash use in Operating Activities | -50 370 | -49 012 | |
| Cash Flows from Investing Activities | |||||
| -6 384 | -5 093 | Intangible Assets and Capital Expenditures | 3,4 | -6 355 | -5 336 |
| -6 384 | -5 093 | Net Cash Provided by (used in) Investing Activities | -6 355 | -5 336 | |
| -56 849 | -55 400 | Operational Cash Flow | -56 725 | -54 348 | |
| Cash Flows from Financing Activities | |||||
| Interest | |||||
| 2 148 | 1 758 | Loan Adjustment (PIK interest no cash effect) | 12 | 2 148 | 1 789 |
| 20 000 | 81 987 | Share issue | 9 | 20 000 | 81 988 |
| 8 846 | New short term loan | 12 | 8 846 | ||
| -413 | Repayment of Inovation Norway loan | -413 | |||
| -12 065 | Repayment of shareholder loan | -12 065 | |||
| 18 516 | 83 745 | Net Cash Provided by Financing Activities Effect of Foreign Currency Translation |
18 517 -257 |
83 776 10 |
|
| -38 333 | 28 345 | Net Increase / (Decrease) in Cash and Cash Equivalents | -38 466 | 29 438 | |
| 47 635 | 19 289 | Cash and Cash Equivalents at Beginning of Period | 49 263 | 19 825 | |
| 9 302 | 47 635 | Cash and Cash Equivalents at End of Period | 8 | 10 797 | 49 263 |
| -38 333 | 28 345 | Net cash flow | -38 466 | 29 438 |
NOTES TO THE FINANCIAL STATEMENTS
Accounting policies
Consolidated Zwipe Group and Zwipe AS
The financial statements have been prepared in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted i Norway.
Consolidation
The Group's accounts include the parent company Zwipe AS and its 100% owned US subsidiary Zwipe America Inc (hereafter referred to as the Group). The parent company has controlling influence as it owns more than 50% of the shares in the subsidiary and the Group is in a position to exercise actual control over the company. Transactions and receivables between companies in the group have been eliminated. The Group accounts have been prepared applying uniform principles, in that the subsidiary follows the same accounting principles as the parent company.
The consolidated financial statements are presented in NOK. Zwipe AS is reporting in NOK and Zwipe America Inc is reporting in USD. The balance sheet has been translated from USD at the exhange rate on 31 December 2018, USD = NOK 8,6855. The profit and loss statement has been translated at the average exchange rate for the year in 2018 of USD = NOK 8,1338. Translation differences are presented as part of the equity.
Use of estimates
The preparation of financial statements in compliance with the Norwegian Accounting Act requires the use of estimates. It also requires Group management to exercise judgment in applying the Group's accounting policies.
Revenue
Income from sale of goods and services are recognised at fair value, net after deduction of VAT, returns, discounts and reductions.
Income from sale of goods is recognised in the income statement when both risk and control have passed on to the buyer, the risk being the asset's profit and loss potential, whilst control is defined as having both the decision-making rights as well as the jurisdiction. Historical data are applied to estimate and make provisions for quantity discount and returns at the date of sales.
Classification and assessment of balance sheet items
Assets intended for long-term (3 years or more) ownership or use have been classified as fixed assets. Assets relating to the operating cycle have been classified as current assets. Other receivables are classified as current assets if they are to be repaid within one year of the transaction date. Similar criteria apply to liabilities. First year's instalment on long term liabilities and long term receivables are, however, not classified as short term liabilities and current assets.
Intangible assets
An intangible asset is capitalized only when the Group can reliably measure the expenditure and a future financial benefit relating to the asset can be identified. Otherwise, such expenditure is expensed as and when incurred. Capitalised costs are amortised linearly over the asset's expected useful life.
Fixed assets
Tangible fixed assets are capitalised and depreciated linearly down to the residual value over the expected useful economic life of the assets. When the depreciation plan is changed, the effect is distributed over the remaining depreciation period. Maintenance of operating equipment is expensed on an ongoing basis. Upgrades or improvements are added to the acquisition cost of the asset and depreciated in line with the asset. The difference between maintenance and upgrade / improvement is assessed based on the condition of the asset when purchased. Plots and land are not depreciated.
Impairment of fixed assets
Impairment tests are carried out if there is indication that the carrying amount of an asset exceeds the estimated recoverable amount. The test is performed on the lowest level of fixed assets at which independent ingoing cashflows can be identified. If the carrying amount is higher than both the fair value less cost to sell and the value in use (net present value of future use/ownership), the asset is written down to the highest of fair value less cost to sell and the value in use.
Investments in other companies
The cost method is applied to investments in Zwipe America Inc. Investments are written down to fair value if the fair value is lower than the carrying amount.
Inventory
The inventory of purchased goods is valued at the lower of cost according to the FIFO principle and net realisable value. Finished goods of own production and work in progress inventories are valued at variable cost of production.
Receivables
Accounts receivable and other receivables are recorded in the balance sheet at nominal value after deduction of provisions for expected loss. Provisions for losses are made on the basis of individual assessments of the individual receivables.
Pensions
For the Norwegian parent company a defined contribution plan is implemented where the company pays contributions to an insurance company. The contribution is recognised as payroll expenses in the period to which the contribution relates. No pension contribution is covered for employees in the US.
Tax
The tax charge in the income statement consists of tax payable and changes in deferred tax. Deferred tax is calculated at 22% on the basis of the temporary differences that exist between accounting and tax values, as well as any possible taxable loss carried forwards at the end of the accounting year. Tax enhancing or tax reducing temporary differences which are reversed, or may be reversed in the same period, have been offset and netted.
The net deferred tax receivable is entered on the balance sheet to the extent that it is likely that it can be utilised. As a precaution, net deferred tax is not booked in the balance sheet.
Currencies
The consolidated financial statements and Zwipe AS are presented in NOK. Receivables and liabilities in foreign currency are valued at the exchange rate at the end of the financial year. Exchange gains and losses associated with sales of goods and goods purchases in foreign currency are recorded as other financial income and cost.
Comparison with previous accounts
The equity is presented in net figures where uncovered losses are deducted from the share premium reserve.
Cash flow statement
The cash flow statement has been prepared using the indirect method. Cash and cash equivalents consist of cash, bank deposits and other short-term, liquid investments.
Changes in accounting policies
Zwipe AS reported according to NGAAP for smaller enterprises, NRS 8, up until the company had to prepare a prospectus and comply with the requirements of admission to trading on Merkur Market, in 2018. Zwipe AS restated its financial accounts for 2017 and presented consolidated accounts according to NGAAP for the first time. The transition from NRS 8 to NGAAP only impacted the accounting procedures related to the share-based remuneration program, with NOK 1 084 000 being expensed, as the effect in the accounts for 2017.
Besides the change to NGAAP, there has not been any accounting policy change in 2018.
NOTES
All amounts are presented in TNOK
Note 1 Revenues
Zwipe AS / Group
| Activity distribution | 2018 | 2017 |
|---|---|---|
| Revenues from sale of goods | 2 276 | 1 073 |
| Revenues from sub lease of offices | - | 152 |
| Total | 2 276 | 1 224 |
| Geographical distribution | 2018 | 2017 |
|---|---|---|
| Norway | 25 | 285 |
| Other countries | 2 251 | 939 |
| Total | 2 276 | 1224 |
Note 2 Personnel expenses, number of employees, remuneration, loan to employees
| Zwipe AS | Group | |||
|---|---|---|---|---|
| Payroll expenses | 2018 | 2017 | 2018 | 2017 |
| Salaries/wages | 7 609 | 5 244 | 18 196 | 15 043 |
| Social security fees | 1 276 | 826 | 1 276 | 826 |
| Pension expenses | 161 | 91 | 161 | 91 |
| Other remuneration | 35 | 95 | 35 | 615 |
| Share based remuneration (salary part) | 5 802 | 1 079 | 5 802 | 1 079 |
| Share based remuneration (employer's tax ) | 1 180 | - | 1 180 | |
| Total | 16 063 | 7 334 | 26 650 | 17 654 |
Payroll expenses in 2018 for Zwipe AS includes 13 payrolls compared to 12 in 2017, as the company in 2018 changed payment routines from arrears pay to payment in advance.
| Average number of employees | 8 | 8 | 29 | 24 |
|---|---|---|---|---|
| 2018 | 2017 | |||
| Remuneration | CEO | Board | CEO | Board |
| Salaries/wages | 2 050 | - | 1 010 | - |
| Pension expenses | 21 | - | 18 | - |
| Other remuneration | 9 | 288 | ||
| Share based remuneration | 3 683 | 733 | 194 | 595 |
| Sum | 5 763 | 1 021 | 1 222 | 595 |
New CEO in the Group from 1 March 2018. The January and February 2018 salary for the former CEO is included in the table.
In the table above, only the new CEO's stock options are included under share-based remuneration for the CEO.
Guidelines for determining the remuneration of senior executives
The Compensation Committee, appointed by the Board of Directors, proposes remuneration for the CEO to the Board of Directors. The CEO proposes and discusses senior executive remuneration with the Compensation Committee. The Compensation Committee develops the share-based incentive program in collaboration with the CEO and CFO.
OTP (Statuatory occupational pension)
The company is required to have a pension scheme in accordance with the Norwegian law on mandatory occupational pension ("lov om obligatorisk tjenestepensjon").
The company's pension scheme meets the requirement of this law with a contribution of 2% of salary.
Share based remuneration (number of options and value)
| Value of options |
||||
|---|---|---|---|---|
| granted | ||||
| Management/employees | Granted | Vested | Unvested | (1000 NOK) |
| André Løvestam | 440 000 | 250 000 | 190 000 | 3 683 |
| Kim Humborstad | 92 000 | 42 000 | 50 000 | 544 |
| Lisbeth Breum | 60 000 | 8 000 | 52 000 | 117 |
| Orlando Martinez | 60 000 | 7 083 | 52 917 | 142 |
| Adnan Fazlic | 20 000 | 2 833 | 17 167 | 54 |
| Marcio Stervid | 60 000 | 0 | 60 000 | 44 |
| Total value of options granted to other employees | 105 000 | 20 426 | 124 574 | 470 |
| Total share based remuneration (Management/employees) | ||||
| 837 000 | 330 343 | 546 657 | 5 053 | |
| Members of the Board | ||||
| Francis van den Bosch | 42 500 | 2 500 | 40 000 | 95 |
| Espen Tøndel | 50 000 | 10 000 | 40 000 | 157 |
| Lars Windfeldt | 10 000 | 10 000 | 0 | 81 |
| Jörgen Lantto | 90 000 | 10 000 | 80 000 | 242 |
| Dennis Jones | 40 000 | 0 | 40 000 | 80 |
| Johan Biehl | 40 000 | 0 | 40 000 | 80 |
| Total share based remuneration (Board) | 272 500 | 32 500 | 240 000 | 733 |
| Nomination Committee | ||||
| Magnus Berner | 20 000 | 0 | 8 | |
| Paal Raaholt Total share based remuneration (Nomination committee) |
20 000 | 0 | 8 | |
| 40 000 | 0 | 0 | 16 | |
| Total share based remuneration | 1 149 500 | 362 843 | 786 657 | 5 802 |
Expensed audit fee
| Zwipe AS | Group | ||||
|---|---|---|---|---|---|
| 2018 | 2017 | 2018 | 2017 | ||
| Statutory audit fee | 185 | 183 | 185 | 183 | |
| Other audit assistance | 49 | 49 | |||
| Other services | 632 | 52 | 632 | 52 | |
| Total audit fees | 866 | 235 | 866 | 235 |
Note 3 Fixed assets
| Zwipe AS Group |
||||||
|---|---|---|---|---|---|---|
| Office | ||||||
| Office machinery | Tools | Total | machinery | Tools | Total | |
| Acquisition cost 01.01.2018 | 256 | 3 602 | 3 858 | 796 | 3 602 | 4 398 |
| Additions | 0 | 1 012 | 1 012 | 0 | 1 012 | 1 012 |
| Skattefunn | 0 | -130 | -130 | 0 | -130 | -130 |
| Disposals | 0 | 0 | 0 | -540 | 0 | -540 |
| Acquisition cost 31.12.2018 | 256 | 4 484 | 4 740 | 256 | 4 484 | 4 740 |
| 0 | ||||||
| Acc. depreciation/ impairment 31.12.2018 | 163 | 2 242 | 2 405 | 163 | 2 242 | 2 405 |
| Book value 31.12.2018 | 93 | 2 242 | 2 335 | 93 | 2 242 | 2 335 |
| Depreciation in the year | 73 | 980 | 1 054 | 79 | 980 | 1 059 |
| Depreciation plan | Linear | Linear | Linear | Linear | ||
| Economic useful life | 3 year | 5 year | 3 year | 5 year |
Note 4 Intangible assets
| Zwipe AS | Group | |||||
|---|---|---|---|---|---|---|
| Research | ||||||
| Research and | Concessions, | and | Concessions, | |||
| development | patents etc. | Total | development | patents etc. | Total | |
| Acquisition cost 01.01.2018 | 9 224 | 7 581 | 16 804 | 9 224 | 7 581 | 16 804 |
| Additions | 6 126 | 0 | 6 126 | 6 126 | 0 | 6 126 |
| Skattefunn | -624 | 0 | -624 | -624 | 0 | -624 |
| Disposals | 0 | 0 | 0 | 0 | 0 | 0 |
| Acquisition cost 31.12.2018 | 14 726 | 7 581 | 22 306 | 14 726 | 7 581 | 22 306 |
| Accumulated depreciation/ impairment 31.12.2018 | 8 708 | 7 581 | 16 288 | 8 708 | 7 581 | 16 288 |
| Book value 31.12.2018 | 6 018 | 0 | 6 018 | 6 018 | 0 | 6 018 |
| Depreciation in the year | 1 641 | 0 | 1 641 | 1 641 | 0 | 1 641 |
| Amortization in the year | 0 | 5 333 | 5 333 | 0 | 5 333 | 5 333 |
| Total Depreciation and amortization in the year | 1 641 | 5 333 | 6 974 | 1 641 | 5 333 | 6 974 |
| Depreciation plan | Linear | Linear | ||||
| Economic useful life | 5 year | 5 year |
At the end of 2018, Zwipe wrote down the value of its patents by NOK 5,3 million. The charge reflects the uncertainty in estimating the future revenues. Due to uncertainty in estimating future revenues, Zwipe will only capitalize patent costs incurred after a patent has been licensed and will amortize the patents over the potential lifetime of the license. As per 31 December 2018 Zwipe had 32 patent families in its IP portfolio, with 8 patent families that include a granted patent in at least one jurisdiction. The company has pending patent applications spread across 31 patent families. Some of the patents, granted or applied for, are fundamental to Zwipe's technology platform and some are relating to inventions relevant to the production process of the biometric inlay, of certain functionalities of a payment card, the embedding of components to a payment card, etc.
Note 5 Investment in subsidiaries and associates and joint ventures
The US subsidiary provide various services to the parent company, mainly within technical development and supply-chain activities.
| Ownership/ | |||||
|---|---|---|---|---|---|
| Zwipe AS | Location | voting rights | Investment | ||
| Colorado Springs, | |||||
| Zwipe America Inc. | USA | 100 % | 386 101 |
Note 6 Inventories
| Zwipe AS / Group | 2018 | 2017 | |
|---|---|---|---|
| Raw materials | 3 017 | 3 413 | |
| Goods in production | 643 | 1 125 | |
| Finished goods | 967 | 603 | |
| Write-off | - | 2 320 | - |
| Total net inventory | 2 307 | 5 141 |
Following the decision to focus on the payment vertical and discontinue access control sales efforts, inventory related to the access control vertical was written off 31.12.2018. Obsolete versions of the payment inlay were also written off.
Note 7 Receivables
| Receivables due later than one year | Zwipe AS | Group | ||||
|---|---|---|---|---|---|---|
| 2018 | 2017 | 2018 | 2017 | |||
| Loan to employees | 731 | 716 | 731 | 716 | ||
| Receivables due later than one year | 434 | 420 | 434 | 420 | ||
| Total receivables due later than one year | 1 166 | 1 136 | 1 166 | 1 136 |
No loans/sureties have been granted to the CEO, Chairman of the Board or other related parties. Zwipe has issued loans in favour of two key employees. The purpose of the loans was to finance purchase of shares in Zwipe. The total outstanding amount to employees is TNOK 731 (including accumulated interests) . The loans carry an interest equal to the prescribed interest rate (Norwegian: "normrente") for loans to employees as applicable from time to time (currently 2.1%).
Other receivables
A grant of NOK 5 million for 2018 to fund R&D projects approved by the Research Council of Norway (Governmental grant SkatteFunn), is expected to be received second half of 2019. The grant is subject to final approval by the tax authorities. The corresponding received amount for 2017 was NOK 5 million.
| Accounts receivables | Zwipe AS | Group | ||
|---|---|---|---|---|
| 2018 | 2017 | 2018 | 2017 | |
| Accounts receivables | 639 | 107 | 639 | 107 |
| Provision for losses | 0 | 0 | 0 | 0 |
| Book value of accounts receivables 31.12 | 639 | 107 | 639 | 107 |
| Realised losses | 0 | 0 | 0 | 0 |
Note 8 Restricted bank deposits
| Zwipe AS | Group | ||||
|---|---|---|---|---|---|
| 2018 | 2017 | 2018 | 2017 | ||
| Restricted funds deposited in the tax deduction account | 847 | 329 | 847 | 329 |
Note 9 Equity
Zwipe AS
| Share premium | ||||
|---|---|---|---|---|
| Zwipe AS | Share capital | reserve | Uncovered loss | Total equity |
| Equity 01.01.2017 | 457 | 82 248 | -74 389 | 8 316 |
| Implementation option program expensed | -642 | -642 | ||
| Share based compensation | 642 | 642 | ||
| Restated equity 01.01.2017 | 457 | 82 248 | -74 389 | 8 316 |
| Share issues | 62 | 37 215 | 37 277 | |
| Share issues | 0 | 107 | 108 | |
| Share issues | 223 | 44 373 | 44 596 | |
| Share based compensation | 1 084 | 1 084 | ||
| Annual net profit/loss | -128 182 | 73 305 | -54 877 | |
| Equity 31.12.2017 | 743 | 35 761 | 0 | 36 504 |
| Proceeds from issue of shares | 200 | 19 800 | 0 | 20 000 |
| Annual net profit/loss | 0 | -55 561 | -18 539 | -74 100 |
| Share based compensation | 5 802 | 5 802 | ||
| Currency effect | 0 | 0 | 0 | |
| Equity 31.12.2018 | 943 | 0 | -12 737 | -11 795 |
| Share premium | ||||
|---|---|---|---|---|
| Group | Share capital | reserve | Uncovered loss | Total equity |
| Equity 01.01.2018 | 743 | 37 854 | 0 | 38 597 |
| Share issues | 200 | 19 800 | 20 000 | |
| Annual net profit/loss | -57 654 | -15 046 | -72 700 | |
| Share based compensation | 5 802 | 5 802 | ||
| Currency effect | 201 | 201 | ||
| Equity 31.12.2018 | 943 | 0 | -9 042 | -8 100 |
Note 10 Tax
The tax charge in the income statement consists of tax payable and changes in deferred tax. Deferred tax is calculated at 22% on the basis of the temporary differences that exist between accounting and tax values, as well as any possible taxable loss carried forwards at the end of the accounting year. Tax enhancing or tax reducing temporary differences, which are reversed or may be reversed in the same period, have been offset and netted.
| Group | ||
|---|---|---|
| This year's tax expense | 2018 | 2017 |
| Entered tax on ordinary profit/loss: | ||
| Payable tax | 0 | 0 |
| Changes in deferred tax advantage | 0 | 0 |
| Tax expense on ordinary profit/loss | 0 | 0 |
| Taxable income: | ||
| Ordinary profit/loss before tax | -74 100 | -53 798 |
| Permanent differences | -4 875 | -4 095 |
| Changes temporary differences | 5 370 | 1 984 |
| Taxable income | -73 605 | -55 909 |
| Total payable tax in the balance | 0 | 0 |
The tax effect of temporary differences and losses carried forward that has formed the basis for deferred tax and deferred tax advantages, specified on type of temporary differences:
Tax payable 0 291
| Zwipe AS | ||||
|---|---|---|---|---|
| 2 018 | 2 017Temporary Difference | |||
| Tangible fixed assets | -6 275 | -3 241 | 3 034 | |
| Inventories | -2 320 | 2 320 | ||
| Accounts receivable | 16 | 16 | ||
| Total | -8 595 | -3 225 | 5 370 | |
| Accumulated loss to be brought forward | -209 075 | -135 469 | 73 605 | |
| Not included in the deferred tax calculation | 2 384 | 1 537 | -847 | |
| Basis for calculation of deferred tax | -215 286 | -137 158 | 78 128 | |
| Deferred tax (22 % / 23 %) | -47 363 | -31 546 | 15 817 | |
| As a precaution, deferred tax is not booked to the balance sheet. | ||||
| Zwipe America Inc Tax | 2 018 | 2 017 | ||
| Income Tax | 657 | 506 |
Note 11 Debtors, liabilities, pledged assets and guarantees etc.
| Zwipe AS | ||||
|---|---|---|---|---|
| Liabilities secured by mortgage | 2018 | 2017 | 2018 | 2017 |
| Liabilities to credit institution | 475 | 888 | 475 | 888 |
| Short term liabilities | 14 901 | 24 538 | 14 901 | 24 538 |
| Total | 15 376 | 25 426 | 15 376 | 25 426 |
| Balance sheet value of assets placed as security | 2018 | 2017 | 2018 | 2017 |
| Inventory, Accounts Receivable and IP | 2 946 | 10 582 | 2 946 | 10 582 |
A convertible loan of USD 3.5 million was granted by main shareholder Kuang-Chi in 2015. The loan was secured by patent pledge and pledge in chattels. The loan was subscribed in 2016 for USD 2.8 million (NOK 22.3 million). The loan agreement was amended both in 2017 and in 2018, related to both structure and terms, and is no longer a convertible loan. The loan matures early 2019.
Zwipe has been granted 2 loans by Innovation Norway with a total of NOK 2.5 million. The outstanding payment due is NOK 475 000. Innovation Norway has the first priority pledge in chattels.
Note 12 Share capital and shareholder information
2018
| Group / Zwipe AS | |||
|---|---|---|---|
| Share capital | Number Nominal value | Book value | |
| Ordinary Shares | 9 425 662 | 0,1 | 942 566 |
The share capital is owned by the following shareholders as per 31.12.2018:
| Number of | ||
|---|---|---|
| Shareholders: | shares | Ownership |
| Lars Windfeldt (Board Member)* | 950 195 | 10,1 % |
| Photon Future Limited | 915 869 | 9,7 % |
| Launch AS (Founder, CGO) | 849 298 | 9,0 % |
| Concito AS | 535 610 | 5,7 % |
| Telecom AS | 290 000 | 3,1 % |
| Feat Invest AB | 251 500 | 2,7 % |
| Altitude Capital AS | 250 000 | 2,7 % |
| Prog Seed AS | 241 338 | 2,6 % |
| MP Pensjon PK | 208 000 | 2,2 % |
| Advisum AS | 190 876 | 2,0 % |
| Jörgen Lantto (Chairman of the Board) | 180 000 | 1,9 % |
| Johan Biehl (Board Member) | 170 000 | 1,8 % |
| John Bäck | 164 361 | 1,7 % |
| Patri invest & Trading AS | 151 000 | 1,6 % |
| Prinvest AS | 150 579 | 1,6 % |
| Edale Capital Ltd | 150 000 | 1,6 % |
| Energetic AS (CEO) | 140 000 | 1,5 % |
| LJM AS | 128 666 | 1,4 % |
| Patrick Bergström | 115 000 | 1,2 % |
| Langebru AS | 111 696 | 1,2 % |
| Other | 3 281 674 | 34,8 % |
| Total | 9 425 662 | 100,0 % |
*Mr. Windfeldt owns shares through various companies and is also represented by family members. The company has one class of shares and all shares come with full voting rights.
| Shares owned by members of the board and the CEO | 2018 |
|---|---|
| André Løvestam (CEO)** | 140 000 |
| Lars Windfeldt* (Board Member) | 950 195 |
| Kim Humborstad*** | 849 298 |
| Johan Biehl | 170 000 |
| Jörgen Lantto | 180 000 |
| Espen Tøndel | 26 352 |
*Mr. Windfeldt owns shares through various companies and is also represented by family members.
** Mr. Løvestam's shares are held through the company Energetic AS where he owns 50% of the shares
*** Mr. Humborstad's shares are held through his wholly-owned company Launch AS
Convertible Loan
On the company's extraordinary General Meeting held on 19 September 2018, the company as the borrower entered into a convertible loan agreement with a Swedish private investor, with a principal loan amount of SEK 9.1 million and interest rate of 2% per month. The interest is added to the outstanding amount each calendar month. The entire convertible loan of SEK 9.9 million was converted to 520 542 shares in January 2019.
Equity Issue
In order to strengthen the Group's equity and financial position, enabling repayment of debt and secure working capital for the Group's business, the Group completed an equity issue in January 2019 and raised NOK 120 million in capital by issuing 6 000 000 new shares.
The share capital is owned by the following shareholders as per 25.02.2019:
| Number of | ||
|---|---|---|
| Shareholders: | shares | Ownership |
| Avanza Bank AB | 2 389 695 | 15,0 % |
| Nordnet Bank AB | 1 193 369 | 7,5 % |
| ARCANUM EIENDOM AS | 954 667 | 6,0 % |
| PHOTON FUTURE LIMITED | 915 869 | 5,7 % |
| LAUNCH AS | 849 298 | 5,3 % |
| SUNDT AS | 800 000 | 5,0 % |
| Skandinaviska Enskilda Banken AB | 792 400 | 5,0 % |
| CONCITO AS | 535 610 | 3,4 % |
| ALTITUDE CAPITAL AS | 350 000 | 2,2 % |
| TELECOM AS | 340 000 | 2,1 % |
| SVENSKA HANDELSBANKEN AB | 270 000 | 1,7 % |
| ADVISUM AS | 264 276 | 1,7 % |
| DNB BANK ASA | 262 551 | 1,6 % |
| LANGEBRU AS | 251 696 | 1,6 % |
| PROG SEED AS | 241 338 | 1,5 % |
| PRINVEST AS | 226 501 | 1,4 % |
| PATRI INVEST & TRADING AS | 226 500 | 1,4 % |
| ARCANUM AS | 225 676 | 1,4 % |
| MP PENSJON PK | 208 000 | 1,3 % |
| LJM AS | 198 666 | 1,2 % |
| Other shareholders | 4 450 093 | 27,9 % |
| Total | 15 946 205 |
Note 13 Grants
| Zwipe AS and Group | |||
|---|---|---|---|
| Grants during the year | 2018 | 2017 | |
| SkatteFunn (recognised as cost reduction) | 4 246 | 3 907 | |
| SkatteFunn (capitalized as reduction of acquisition cost) | 754 | 1 093 | |
| Total SkatteFunn | 5 000 | 5 000 |
and approved. The cost basis has been audited in the tax return filing process. The support for 2018 will be paid out in the second half of 2019. The company also received NOK 5 million in Governmental Grant in 2017. completion reports to the Research Council of Norway, as well as auditor's confirmation of costs. The recognised amount in SkatteFunn grants for research and development projects are contingent on pre-approved project applications and approved 2018 represents Zwipe's claim based on the cost of the approved project applications. The 2018 reports have been submitted
Late in 2018, Zwipe was awarded a EUR 2.3 million grant from Horizon 2020, the European Union Research and Innovation program. The grant does not have any effect on the 2018 accounts.
Note 14 Intercompany balances
| Receivables | 2018 | 2017 |
|---|---|---|
| Loans to companies in the same group | 0 | 0 |
| Customer receivables within the group | 2 632 | 1 191 |
| Other short-term receivables within the group | 0 | 0 |
| Total | 2 632 | 1 191 |
| Liabilities | ||
| Loans from companies in the same group | 0 | 0 |
| Debt to suppliers within the group | 2 632 | 1 191 |
| Other short-term liabilities within the group | 0 | 0 |
| Total | 2 632 | 1 191 |
There is a Service Agreement between Zwipe AS and Zwipe America Inc in place. Under this agreement, Zwipe AS retains Zwipe America Inc. to provide development services and supply chain services to Zwipe AS. In return for receiving the services, Zwipe AS pays Zwipe America Inc. an amount equal to Zwipe America Inc's total operating costs connected to such services plus a mark-up, corresponding to NOK 15.2 million in 2018.
Note 15 R&D Expenses
Research costs are expensed when incurred. If the costs satisfy the criteria for capitalisation, the costs are capitalized in the balance sheet. The value of the Governmental Grant Skattefunn is deducted from the asset's acqusition cost, resulting in the net value being recognised in the balance sheet.
R&D expenses amount to NOK 32 million in 2018, whereby NOK 6.9 million are capitalized. R&D expenses include purchased materials and components as well as external project costs for design, manufacturing (production trials and pilot production runs), testing and other work conducted by various companies and institutions. The major part of the R&D expenses in 2018 has been related to the development of the biometric inlay and continued optimization of Zwipe's technology platform.
Note 16 Share based payments
The company has a share-based option programme covering certain employees in senior positions, members of the board and nomination committee members. Each option gives the holder the right to acquire one share from the company at a strike price defined in the individual share option agreement. All options are conditional that the grantee remains employed. All vested options may be exercised in any period prior to the expiry date. As at 31.12.2018, 23 persons were included in the option programme. The options vest every 6 months from grant date. The options may be exercised at vesting.
The fair value of the options is set on the grant date and expensed over the vesting period. The fair value of options awarded is estimated using the Black-Scholes option pricing model. NOK 5 802,2 thousand have been expensed in 2018.
The option program was modified and expanded in 2018 with the issue of 549 074 new options and modification of 600 426 existing options. The modification is related to changes in the option terms. The fair value of new options and modified (net) is shown below.
| Number of options Average strike | ||
|---|---|---|
| Vested | 362 841 | 11,34 |
| Sum outstanding options Sum outstanding options Unvested |
1 149 500 1 149 500 786 659 |
14,08 14,08 15,34 |
| Sum outstanding options Sum outstanding options |
1 149 500 1 149 500 |
14,08 14,08 |
| Overview of outstanding options Overview of outstanding options |
Options Average strike Options Average strike |
at Estimated fair value at Estimated fair value modification/issue at modification/issue at modification/issue date date modification/issue |
|
|---|---|---|---|
| Overview of outstanding options IB IB Overview of outstanding options |
145 708 145 708 |
Options Average strike 59,80 59,80 Options Average strike |
date date |
| New options issued 1 | 472 500 | 25,00 | |
| IB | 145 708 | 59,80 | |
| New options issued 1 | 472 500 | 25,00 | |
| IB | 145 708 | 59,80 | |
| New options issued 1 | -277 917 | 25,00 | |
| Modfication 1 | 472 500 | 60,00 | |
| Modfication 1 | -277 917 | 60,00 | |
| New options issued 1 | 472 500 | 25,00 | |
| Modification 1 | 277 | 25,00 | |
| Modfication 1 | -277 917 | 60,00 | |
| Modification 1 | 277 917 | 25,00 | |
| Modfication 1 | -277 917 | 60,00 | |
| Expired Modification 1 Expired Modification 1 |
-2 000 277 917 -2 000 277 917 |
25,00 25,00 25,00 |
|
| Expired | 616 208 | 25,00 | |
| 30/06/2018 | -2 000 | 25,30 | |
| 30/06/2018 | 616 208 | 25,30 | |
| Expired | -2 000 | 25,00 | |
| 30/06/2018 | -616 208 | 25,30 | NOK 0.2 - 1.4 |
| Modification | 616 208 | 25,30 | |
| Modification | -616 208 | 25,30 | |
| 30/06/2018 | 616 208 | 25,30 | |
| Modification board | 272 500 | 25,00 | |
| Modification Modification board Modification rest |
-616 208 272 500 -616 208 327 926 |
25,30 25,00 25,30 10,00 |
NOK 0.2 - 1.4 NOK 6.1 - 12.1 |
| Modification board | 272 500 | 25,00 | NOK 0.2 - 1.4 |
| Modification rest | 327 926 | 10,00 | NOK 6.1 - 12.1 |
| Modification board | 272 500 | 25,00 | NOK 0.2 - 1.4 |
| Modification rest | 327 926 | 10,00 | NOK 6.1 - 12.1 |
| New options issued 2 | 509 074 | 10,00 | NOK 11.1-12.2 |
| New options issued 2 | 509 074 | 10,00 | NOK 11.1-12.2 |
| Modification rest | 327 926 | 10,00 | NOK 6.1 - 12.1 |
| New options issued 2 New options issued 2 New options issued 2 |
40 000 509 074 40 000 509 074 |
25,00 10,00 25,00 10,00 |
NOK 4.4-5.9 NOK 11.1-12.2 NOK 4.4-5.9 NOK 11.1-12.2 |
| Outstanding options 31.12.2018 New options issued 2 Outstanding options 31.12.2018 New options issued 2 |
1 149 500 40 000 1 149 500 40 000 |
14,08 25,00 14,08 25,00 |
NOK 4.4-5.9 NOK 4.4-5.9 |
| Outstanding options 31.12.2018 | 1 149 500 | 14,08 | |
| Off which excercisable | 362 841 | 11,34 | |
| Off which excercisable | 362 841 | 11,34 | |
| Outstanding options 31.12.2018 | 1 149 500 | 14,08 | |
| Off which excercisable Off which excercisable The outstanding options are subject to the following conditions: |
362 841 362 841 |
11,34 11,34 |
The outstanding options are subject to the following conditions: Vesting periods Expiry date Average strike Number of share options Vested
| Vesting periods 31.12.2018 31.12.2018 Vesting periods |
01.07.2022 01.07.2022 |
Expiry date Average strike Number of share options 11,34 11,34 Expiry date Average strike Number of share options |
362 841 362 841 |
362 841 Vested 362 841 Vested |
|
|---|---|---|---|---|---|
| 30.06.2019 | 01.07.2022 | 14,73 | 221 941 | 584 782 | |
| 31.12.2018 | 01.07.2022 | 11,34 | 362 841 | 362 841 | |
| 30.06.2019 | 01.07.2022 | 14,73 | 221 941 | 584 782 | |
| 31.12.2018 | 01.07.2022 | 11,34 | 362 841 | 362 841 | |
| 30.06.2019 | 01.07.2022 | 14,73 | 221 941 | 584 782 | |
| 31.12.2019 | 01.07.2022 | 14,73 | 221 941 | 806 723 | |
| 31.12.2019 | 01.07.2022 | 14,73 | 221 941 | 806 723 | |
| 30.06.2019 | 01.07.2022 | 14,73 | 221 941 | 584 782 | |
| 31.12.2019 30.06.2020 30.06.2020 31.12.2019 |
01.07.2022 01.07.2022 01.07.2022 |
14,73 18,27 18,27 14,73 |
221 941 126 126 941 221 941 |
806 723 933 664 933 664 806 723 |
|
| 31.12.2020 | 01.07.2022 | 18,27 | 126 941 | 1 060 605 | |
| 30.06.2020 | 01.07.2022 | 18,27 | 126 941 | 933 664 | |
| 31.12.2020 | 01.07.2022 | 18,27 | 126 941 | 1 060 605 | |
| 30.06.2020 | 01.07.2022 | 18,27 | 126 941 | 933 664 | |
| 31.12.2020 30.06.2021 30.06.2021 31.12.2020 |
01.07.2022 01.07.2022 01.07.2022 |
18,27 10,00 10,00 18,27 |
126 941 44 441 44 441 126 941 |
1 060 605 105 046 1 105 046 1 060 605 |
|
| 30.06.2021 | 01.07.2022 | 10,00 | 44 441 | 1 105 046 | |
| 31.12.2021 | 01.07.2022 | 10,00 | 44 454 | 1 149 500 | |
| 31.12.2021 | 01.07.2022 | 10,00 | 44 454 | 1 149 500 | |
| 30.06.2021 | 01.07.2022 | 10,00 | 44 441 | 1 105 046 | |
| 31.12.2021 | 01.07.2022 | 10,00 | 44 454 | 1 149 500 | |
| 31.12.2021 | 01.07.2022 | 10,00 | 44 454 | 1 149 500 | |
| The calculations are based on the following assumptions: |
The calculations are based on the following assumptions: The calculations are based on the following assumptions: Share price on the grant date
Share price on the grant date Share price on the grant date The share price is set to the last equity issue. The share price is set to the last equity issue. The strike price per option
The share price is set to the last equity issue. The share price is set to the last equity issue. The strike price per option The strike price per option The strike price is set to NOK 25 or NOK 10 depending on the contract.
The strike price per option The strike price is set to NOK 25 or NOK 10 depending on the contract.
The strike price is set to NOK 25 or NOK 10 depending on the contract. The strike price is set to NOK 25 or NOK 10 depending on the contract.
Volatility It is assumed that historic volatility is an indication of future volatility. The expected volatility is therefore stipulated to be the same as the
Volatility It is assumed that historic volatility is an indication of future volatility. The expected volatility is therefore stipulated to be the same as the historic volatility, which equals a volatility of 50,7% - 55,7 % depending on the allocation date It is assumed that historic volatility is an indication of future volatility. The expected volatility is therefore stipulated to be the same as the historic volatility, which equals a volatility of 50,7% - 55,7 % depending on the allocation date It is assumed that historic volatility is an indication of future volatility. The expected volatility is therefore stipulated to be the same as the historic volatility, which equals a volatility of 50,7% - 55,7 % depending on the allocation date historic volatility, which equals a volatility of 50,7% - 55,7 % depending on the allocation date
The term of the option The term of the option
The term of the option It is assumed that 50 % of the employees will exercise the options once they are exercisable. The options are expected to have an The term of the option It is assumed that 50 % of the employees will exercise the options once they are exercisable. The options are expected to have an It is assumed that 50 % of the employees will exercise the options once they are exercisable. The options are expected to have an average weighted lifetime of 3,7 years It is assumed that 50 % of the employees will exercise the options once they are exercisable. The options are expected to have an average weighted lifetime of 3,7 years
Risk-free interest rate Risk-free interest rate
Risk-free interest rate Risk-free interest rate The risk-free interest rate is set equal to the interest rate on government bonds during the term of the option, i.e. 0,4 %-1,2 % depending The risk-free interest rate is set equal to the interest rate on government bonds during the term of the option, i.e. 0,4 %-1,2 % depending on the allocation date and maturity of the option. The risk-free interest rate is set equal to the interest rate on government bonds during the term of the option, i.e. 0,4 %-1,2 % depending on the allocation date and maturity of the option.
Note 17 Outstanding warrants
Mastercard International Inc. had a right to acquire up to 1,250,000 shares in the Company, following an agreement signed in July 2015. The freestanding subscription rights were only exercisable upon the occurrence of an equity issue and the exercise price would be the same price as the equity issue price. As such the Company does not deem the subscription rights value to fulfill the criteria for recognition as a separate liability and has therefore not capitalized the subscription rights. According to the agreement Mastercard's subscription rights will terminate upon an initial public offering. The equity issue completed in January 2019 constituted an initial public offering in accordance with the agreement, and as such Mastercard International does no longer have the right to demand that Zwipe issues any new shares thereunder.
Note 18 Subsequent Events
A capital increase of NOK 120 million was completed in Janaury 2019, improving the Group's financial position. The going concern assumption is present although the Group had negative equity per 31.12.2018, as the Group completed a NOK 120 million capital raise in January 2019.
AUDIT REPORT
GLOSSARY
Access card
A clamshell plastic card used as a credential in access control systems to authenticate a person's identity, determine the appropriate level of access, and provide access to the physical resource
Algorithm
A systematic procedure for how to conduct a calculation or solve a problem in a given number of steps
Authentication
Control process for a particular entity; in conjunction with logging on, for example. The word is synonymous with verification
Biometric algorithm
Extraction and matching algorithms that when combined enable a biometric system to recognize an individual by his or her anatomical/behavioral traits
Biometric Inlay
The electronic flexible circuit board inside the payment card, notably containing Zwipe's biometric engine, power harvesting and power management functionality
Biometric payment card
Payment card with a fully embedded fingerprint sensor and on-card extraction and matching system enabling fingerprint authentication as an alternative to PIN or signature
Dual Interface payment cards
Payment card with an embedded chip and antenna enabling both contact transactions (inserted or swiped at payment terminals) and contactless transactions (waved at payment terminals)
Enrolment solution
Solution allowing the initial fingerprint data to be registered on the payment card
Form Factor
Type of device that serves as a delivery channel for payments, e.g. plastic cards, key fobs etc.
Payment Card
Plastic payment cards which are issued by issuers/ banks to customers enabling the cardholder to access funds and make payments
Payment ecosystem
A system enabling payment transactions, comprising payment schemes, component suppliers, card manufactures, issuers, merchants, payment transaction acquirers, regulators and governments and consumers
Zwipe biometric engine
The combination of Zwipe's biometric algorithms, card firmware and biometric processor
Zwipe core technology
Differentiating technologies specifically fit for constrained environments like ultra-thin and ultra-low power environments. Zwipe core technology comprise i) energy harvesting and power management systems, ii) firmware, iii) biometric algorithms, all designed for ultra-thin and ultra-low power high performance embedded applications and iv) Biometric and payment system integrations