Opticom ASA is a Norwegian research and development company. Opticom shares have been listed on Oslo Børs (Oslo Stock Exchange) since 1997, on the main list since the first trading day of 2000. Opticom ASA conducts its activities through its 87% subsidiary Thin Film Electronics ASA (TFE) and 34% associate company Fast Search & Transfer ASA (FAST).
TFE has developed polymers for use in memory devices. Polymers combine high storage capacity and low power consumption at a very low cost compared to silicon-based memories. The company offers non-exclusive licenses of its technology to manufacturers. TFE has signed license agreements with Eidopt (1998) and Intel Corp (1999, expanded 2001 and renewed 2002). Eidopt is owned 50:50 by TFE and Eidos plc. Intel Atlantic Inc owns 13% of the shares in TFE. The parent company in the TFE group is located in Oslo, Norway, and it has research and development facilities in wholly owned subsidiaries in Linköping, Sweden, and Albuquerque, New Mexico, USA.
Internet search engines. FAST has been listed at Oslo Børs since June 2001, and its operational and financial results are published by FAST.
Since signing the first development and licensing agreement with Intel in November 1999, most of TFE's resources have been devoted to the joint development work with Intel. The first phase was a technology-feasibility phase, and aimed at demonstrating a polymer memory cell array and examining some of its basic properties. This phase was successfully completed on schedule in June 2001. At that time, Intel and TFE entered into a second license agreement, covering additional fields of use. The new license agreement was in the form of an addendum agreement to the original development and licensing agreement.
During second half of 2001, Intel and TFE negotiated and planned details for the productization phase of the joint development program. During this period, collaboration on the imminent technical deliverables continued at full force. On 22 January 2002 Intel and TFE entered into a new agreement replacing the first agreement and the addendum. The work under the agreement includes process and product development. The goal is to arrive at a production process that can be employed in industrial scale volume production. An eventual production start and product launch is Intel's decision and will depend on Intel's technical, commercial and other considerations.
When the first agreement was signed, Intel Atlantic Inc (Intel Capital) invested NOK 47.2 million in TFE, acquiring 6% of the shares. Upon signing the second agreement, Intel Capital made a second investment of NOK 70.7 million by exercising all of its subscription rights that were granted as part of the first investment. Thus, Intel Capital increased its shareholding to 13%.
The scale of the development project as specified in the latest agreement is larger than Opticom/TFE envisioned in mid-2001 when it entered into negotiations with Intel. For this reason Opticom undertook a private placement of 946,527 shares in January 2002 to raise NOK 312 million to fund its financial obligations.
TFE's staff at Linköping, Sweden moved into the new office and lab facility during the second quarter of 2001. The facility contains three lab units; clean rooms, a chemistry lab and a measurement lab. Certain pieces of equipment have extended fabrication, delivery and installation periods. All equipment included in the initial stage is now in place and fully commissioned.
27 new inventions were filed for patent protection in the year, while 3 were withdrawn. At the end of the year, the portfolio contained a total of 77 inventions, up from 53 at the end of 2000. Patent review and grant is a lengthy process. By the end of 2001, 26 patents were granted, up from 20 one year before. Patent protection is sought in all relevant countries. TFE's technology is not dependent upon one single patent. It is protected by a portfolio of patents that is undergoing constant renewal and improvement reflecting the technological progress. The active research and development and patenting program ensures that the patent portfolio retains a low age profile. TFE places great emphasis on protecting its intellectual property rights to its technology (IPR). TFE has a comprehensive IPR practice and considers its patent situation strong, and is continuously being improved as new knowledge is created.
Eidopt AS is a joint venture owned 50:50 between TFE and Eidos plc. The company owns the rights to use TFE's present and future technology in the field of computer games. It is Eidopt's intention to license its technology to memory chip manufacturers. Intel has the right to license the Eidopt hardware technology. The development of auxiliary elements to Eidopt's technology is included in the Intel project. There has not been any operating activity in Eidopt in 2001. TFE has recently initiated that Eidopt resume work on its project in order to exploit the opportunities provided by the productization and licensing agreement between Intel and TFE.
Opticom/TFE's activities are not polluting the environment. Adequate collection and cleaning equipment for potentially hazardous material in solid, liquid or gaseous state is installed at TFE's laboratory at Linköping.
Opticom group financial statements
TFE earned NOK 5.4 million operating revenue in 2001. Most of this revenue originated from Intel. Year on year operating cost grew from NOK 60.8 million to NOK 80.7 million, causing an operating loss for 2001 amounting to NOK 68.4 million, compared to NOK 51.1 million the year before. The numbers reflect the growth in the operations and depreciation/write-down of a growing portfolio of fixed assets. The net loss of 2001 was NOK 97.2 million, compared to a loss of NOK 446.9 million in year 2000. The net profit (loss) is disturbed by non-cash accounting effects from share issues in FAST. Majority share of net result per share improved from NOK 36.42 loss in 2000 to NOK 5.93 loss in 2001.
Depreciation and write-down for the year amounted to NOK 41.4 million, up 74% from the year before, because TFE's fixed assets grew from NOK 145.7 million at the beginning of 2001 to NOK 254.6 million at the end of the year. NOK 83.1 million, which is about half of the investment in 2001 was tangible fixed assets at the Linköping facility, and the other half was capitalized research & development (R&D). The R&D portfolio has been written down by 20% in 2001, same as in prior years. Depreciation of tangible assets commences when an asset is put into use. The depreciation period is 3-7 years dependent on equipment type.
The company capitalizes external and internal R&D expense directly related to work on the R&D and patent portfolio, while expense related to sold R&D service is expensed. The R&D organization has grown by more than 50% over the year. TFE's own staff currently performs most of the R&D. The external contracting will vary over time, because external contracting is used to obtain flexible capacity and as a resource for exploration of new ground.
FAST achieved a year on year growth in revenue of 634% from 2000 to 2001, to USD 36.1 million. Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) improved, and turned positive USD 2.1 million in the last quarter of 2001, which has been recognized as one of the most difficult years for the IT industry. The result in FAST has no cash effect for Opticom. FAST completed one private placement of new shares and three acquisitions in 2001, and issued shares under its stock option programme. This resulted in Opticom being diluted from 37.1% ownership at the start of 2001 to 33.8% at the end of the year. Because the new shares are issued at a price exceeding Opticom's book value, the dilution leads to an accounting gain for Opticom. At listed share price Opticom's shareholding in FAST was valued at NOK 876.2 million at the end of 2001. Opticom sees this as a long-term investment and expects a significant rise in value over the coming year.
The net income to Opticom from the investment in FAST was NOK 5.5 million income for 2001 and a loss of NOK 428.7 million the year before. The net income (loss) to Opticom is made up by its share of FAST's net result, gain on dilution from the share issues and acquisitions by FAST, and Opticom's share of FAST's net currency effects and other charges to equity. The share of net result was a loss of NOK 107.2 million for the year, and the other elements amounted to NOK 112.7 million gain. Opticom's share of FAST's net result for 2000 was disturbed by a non-recurring non-cash accounting effect amounting to more than NOK 475 million caused by FAST's share issue to Terra Lycos and DELL, and a related total gain on dilution of more than NOK 560 million in that year.
Net other financial items amounted to a loss of NOK 0.3 million for the year. This is the net effect from interest income on liquidity and accrued currency losses on financial loans to the foreign subsidiaries. In 2000, the net financial income amounted to NOK 97.6 million, mainly from Opticom's sale of one lot of shares in FAST.
Virtually all of Opticom's tax cost in 2001, NOK 33.9 million, and NOK 64.6 million in 2000, was deferred tax on the gain on dilution.
Cash outflow in the year was NOK 90.8 million. NOK 161.0 million was spent on operations and investments in fixed assets, while Intel's equity investment contributed net NOK 68.9 million. In the year before, net cash flow was positive NOK 36.5 million, after spending NOK 110.3 million on operations and investments and receipt of NOK 54.0 million in equity and NOK 92.7 million from financial assets, mainly sale of shares in FAST.
At the end of 2001, Opticom's cash position was NOK 29.4 million. After the private placement of shares in January 2002, the cash position is again very healthy, and secures funding for all planned activities beyond those paid by contributions or revenue from joint venture partners, until royalty revenue accrue. The group has no financial debt, and does not intend to raise such debt.
The Board of Directors confirms that the conditions for the going concern assumption are met for the Opticom group as well as the parent company.
Year-end allocations
The net result for 2001 for the parent company Opticom ASA was a loss amounting to NOK 840,837, which the board of directors proposes charged to other equity.
The unrestricted retained earnings of Opticom ASA were NOK 101.2 million after the above allocations. The board of directors does not propose any dividend for 2001, because the available funds are needed for investments and operations in the years to come.
Organisation
TFE's targeted hiring program was successfully completed in 2001. At the end of the year, the group had 75 employees - up from 43 at the end of 2000. In addition, three persons are engaged on consultancy or similar contracts. TFE also subcontracts certain tasks to universities; public and private research institutes and private corporations.
The work place environment at Opticom and TFE is pleasant, stimulating and safe, and works for the benefit of all employees. The work place environment complies in all respects with the relevant laws and regulations. No specific actions have been considered necessary. There have been no injuries on the company's employees or assets at the work place. The sick leave is less than 2%.
Shareholders
At the end of the year, Opticom share price was NOK 368, which was 34% down from the price at the end of 2000. The Information technology index of Oslo Børs fell by 26% in the year. Opticom ranked number 19 in market value and number 5 in share turnover value in 2001, and had more than three times the number of transactions of any other share. The number of shareholders increased during the year from 6,176 to 8,359. This interest is a source of inspiration and also constitutes a challenge to the company.
The board will make every effort to ensure that the full technical and commercial potential of Opticom is achieved, to the benefit of the shareholders.
There were no issues of new shares in 2001. At the end of the year, there were 11,986,212 shares issued to 8,359 shareholder accounts in Opticom. At the same time, there were subscription rights for additional 871,000 shares outstanding. A private placement of 946,527 shares was completed in January 2002, at NOK 330 per share.
Outlook
TFE's position is a world leader in the field of polymer electronics. The company has pioneered polymer memory technology and can license its technology to other companies in various application areas. Into 2002 TFE continues working with a number of key industry partners who would enable bringing TFEs technology to market in various product segments. While additional agreements are highly desirable, TFE also benefits from the fact that time works to the company's favour insofar as the value of its technology increases steadily by the progress with Intel and the continuous creation of new knowledge and well-protected intellectual property.
In 2001, the company almost doubled its organisation, and has now reached an optimal level to maintain the company's leadership in polymer memory technology. The initial investment program for the Linköping facility is now completed. The lab and office space satisfies the foreseeable needs. The company will add and replace machinery and equipment as needed to maintain a state of the art facility and enable groundbreaking R&D. It is vital that TFE continuously maintains its lead in polymer memory technology.
The board of directors firmly believes that both TFE and FAST will continue to make progress in 2002. Both organizations are well equipped to operate and develop their respective businesses, and after the recent private placement Opticom has adequate financial resources to complete the planned undertakings of the group.
The board of directors firmly believes that both TFE and FAST will continue to make progress in 2002. Both organizations are well equipped to operate and develop their respective businesses, and after the recent private placement Opticom has adequate financial resources to complete the planned undertakings of the group.
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