Activities
In the second quarter, Opticom and its operating subsidiary Thin Film Electronics (TFE), continued the work on the deliverables specified in the Productization and Licensing Agreement for process and product development with Intel. Only minor deliveries, amounting to NOK 0.6 million, were completed in the quarter. Further deliveries, amounting to NOK 3.6 million, have been made to date in the third quarter, but the majority of the deliverables under the agreement are still outstanding and are overdue by at least nine months.
Opticom/TFE and Intel are in close contact about the challenges and probable solutions for the joint process and product development. The Company acknowledges that the deliveries have not been made as originally scheduled, but our cooperation with Intel continues in good faith and our attitude is optimistic. Various paths for solving the outstanding issues are currently being pursued. TFE is in discussions with Intel regarding possible amendments to the Productisation and Licensing Agreement. The discussions are ongoing, and the board cannot now predict the likely outcome or its timing. Further announcements will be made in due course.
Opticom Group financial statements
The group reported revenue for deliveries to Intel of NOK 0.6 million in the second quarter. This is also the only revenue of the first half. The revenue is sharply down from NOK 7.6 million in the first half of 2002. Revenue is recorded only upon delivery to Intel.
The second quarter operating costs of NOK 23.3 million are equal to the previous
quarter and in line with the first half 2002. Manning at the end of the quarter was 64, down from 76 at the end of the first quarter and 78 at the end of 2002. Incurred and future expenses relating to the 15 persons who were given notice in April, were expensed in the second quarter. The persons in question left TFE in the second quarter. Operating costs will be reduced during the second half of 2003. The annual cash spending level is budgeted to be reduced by 22 percent from 2002 to 2003.
Depreciation and write-down amounted to NOK 17.8 million for the quarter, on par with the preceding quarter. Depreciation of fixed assets has levelled since completion of the Linköping facility in the first quarter of 2002. Write-down of reseach and development assets will continue to increase as long as new investment exceeds write-down.
The company capitalises direct external and internal research and development expenses that are directed at creating new knowledge to become part of the company's intellectual property. The cost of the deliverables for which revenue is recognised, is expensed. Capitalisation of the internal research and development effort is shown as a cost reduction. A sizeable share of the research and development staff is now working on the deliverables being paid for by Intel. This has resulted in smaller share of total costs being capitalised. Research and development purchased externally is added directly to the balance sheet and does not flow through the profit and loss statement.
The results from Opticom's associate Fast Search & Transfer (FAST) are published by FAST. In addition to its net income from continuing operations, FAST reported a net gain on the sale of its Internet search business amounting to USD 61.4 million in the second quarter. Opticom's income from the investment in FAST amounted to NOK 137.3 million in the second quarter, and NOK 140.5 million for the first half. The result in FAST does not have any cash effect for Opticom. Opticom continues to regard its ownership in FAST as a longterm investment and expects a significant increase in its value over the coming year. There is no prospect of Opticom selling any shares in FAST in the foreseeable future.
Net other financial items were positive NOK 5.4 million for the quarter, down from
NOK 6.1 million in the first quarter, but up from NOK 0.4 million loss in first half 2002. Opticom has enjoyed interest income on its net cash position since the share issue in January 2002, but the interest income has been overshadowed by non-cash exchange gains/losses on loans within the TFE group denominated in foreign currency the TFE group. Such accounting loss or gain occurs when the NOK appreciates or depreciates. In 2002, the appreciation of the NOK caused a NOK 7.3 million loss, while the depreciation of the NOK during first half of 2003 has caused a gain of NOK 8.7 million.
At the end of the second quarter, the parent company Opticom ASA had extended an intercompany loan to TFE amounting to NOK 322.4 million. At that time, the loan became repayable on demand and Opticom has requested that TFE resolve the matter. TFE is in discussion with its shareholders about the best route forward to secure ongoing funding and to strengthen the balance sheet.
As stated in the annual report, Opticom is subject to a tax audit initiated in 2001. A preliminary report has been completed and the company has been notified that a substantial tax claim may be issued. No tax claim has been made at this time and the board's advice and opinion is that any claim is without merit and no provision is required at this stage.
The group's cash balance was reduced by NOK 21.0 million in the quarter (first half: NOK 30.3 million). In the quarter, NOK 26.8 million was spent on operations or invested in fixed assets, and NOK 5.8 million was net positive cash flow form working capital and financial items. Most of the deviation to the first quarter relates to working capital and financial items. Comparing to first half 2002, the underlying cash spending on operations and investments is about equal, at NOK 55 million, but the share placement and working capital effects in 2002 as well as the revenue shortfall in 2003 accounts for more sizeable changes. The cash position amounted to NOK 144.7 million at the end of the quarter. The group has no financial debt and does not need or intend to raise such debt.
6 August 2003
Thomas Fussell
Chairman
The interim financial statements and this report have been prepared in accordance with Norwegian Accounting
Standard NRS 11. The statements and this report have not been subject to audit.
The full interim report including key figures can be downloaded from the following link:
