Annual Report 2011
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Management Report

The Board of Directors and CEO of Anoto Group AB (publ.), Corporate Identity No. 556532-3929, hereby submit the annual accounts and consolidated accounts for the January 1 – December 31, 2015 financial year.

 

Group Structure
Anoto Group AB is the parent company in the corporate business group, performing group-wide functions only to its subsidiaries. The operational activities including sales are performed by the subsidiaries Anoto AB, C Technologies AB, Anoto Inc, We-Inspire Inc, Anoto-Maxell K.K., Anoto Ltd, Destiny Wireless Ltd., XMS Penvision AB and LiveScribe  Inc. From here on we refer to the entire business group as “Anoto”, unless otherwise follows from the context.

 

Enterprise
Anoto is a high-tech company that has developed a unique technology for digital writing, enabling rapid, reliable conversion of handwritten text and illustrations to digital form. The organization is divided into three business areas: ”Enterprise Solutions”, “Technology Licensing” and “C Technologies”. The entire business is based on digital camera technology and image processing in real time.

 

Anoto Business Areas

Anoto Enterprise Solutions (former Business Solutions)
Anoto Enterprise Solutions focuses on systems, products and services that target businesses, primarily in the field of forms processing, document management and signature capture. The offering is Pen Solutions which includes solutions for creating a form in digital format, digital processing of handwritten forms and automatic generation of a digital version of a document with handwritten signatures and notes. Anoto has an indirect business model and markets its products through partners, such as system integrators, software developers and IT consulting firms, all of which offer customized solutions with Anoto technology to their customers.
 
Anoto Enterprise Solutions had a positive development during the year despite lower sales compared to the previous year. The Net sales decreased by MSEK 8 compared to the previous year and ended up at MSEK 98 in 2015. The decrease was primarily due to the due to the delay of the 37 MSEK order to a large financial services customer in Japan. 

Technology Licensing
Customers within Technology Licensing develop and sell products based on our intellectual property, software, and digital pen products. For many years, the company has licensed its technologies to providers of interactive classroom solutions as well as learning aids for children. Productivity tools, such as for note-taking and meeting productivity, are also long-established products in our Technology Licensing segment. Recently, the company has established two new application areas through partners: voting solutions and digital design automation. Voting solutions are based on our traditional digital paper technology, while digital design automation solutions help animators and designers unleash the creative power of digital writing with interactive touch displays.

 

Net sales during the quarter were MSEK 35, which is MSEK 20 above the same period last year.

 

C Technologies
The C Technologies business has been phased out over the last 12 months and The Company sold the net assets in Q3. The last deliveries associated with sales by the Company occurred in Q4.

Net sales during the period were MSEK 7 which is MSEK 3 lower than the same period last year.

 

Shares and Shareholders
There were as per end of 2015 1,053,193,827 issued Anoto shares. According to Euroclear Sweden AB’s statistics, there were 18,894 shareholders on December 31, 2015, representing an increase of approximately 51 per cent over the past 12 months.

The largest shareholder as per 31st of December 2015 was Insurance Company Avanza Pension owning 7.9 per cent of the votes and capital.

 

Corporate Governance Report
The Corporate Governance Report is located in a separate section after the financial reports in the annual report.

 

Employees
The average number of employees within the Group increased from 106 to 117 in 2015. The Group had 156 employees (95) at the year-end.

 

Remarks on the Statement of Comprehensive Income
Net sales for the year increased by thirty-six percent from MSEK 141 to MSEK 193.

Anoto’s gross profit for the year decreased to MSEK 86 (93), and the gross margin was 44 percent (67).
Operating expenses, excluding amortization, depreciation, and foreign exchange gains(losses) increased during 2015 by MSEK 41 compared to the previous year. The major reason for the increase related to product development with HP, research and testing of new micro dot thin film solutions for large displays, increased travel costs and components related to large display activities and the development of Anoto Live™ Services.

Anoto capitalizes non-customer financed development- and patent expenses meeting the IAS 38 criteria. A total of MSEK 38 (5) was capitalized in 2015.

The profit before depreciations and amortizations (EBITDA) in the period was MSEK -99 (-67).

As a part of the annual closing process Anoto tested the value of the Group goodwill and found that there is no evidence of impairment regarding group goodwill. Anoto Group has during the year made write-downs of MSEK 0.5 (4) in connection with the continuous review of the company's patent portfolio.

The operating result for the year was MSEK -106 (-56).

 

Remarks on the Statement of Financial Position and the Statement of Cash Flows
The total assets increased by MSEK 282. Short term and long term liabilities have increased by MSEK 76 to MSEK 181.

The liabilities per end of 2015 include loans of MSEK 23 which stems from the two British company, Destiny Wireless Ltd acquired during 2011.

Group Equity at the end of the year amounted to MSEK 278 compared to MSEK 78 in previous year. The equity/debt ratio at year-end is 9 percent (47).

The cash flow from operating activities was MSEK -85 (-93). Working capital increased by MSEK 12 (-37). Cash flow from investment activities during the year was MSEK -176 (-6). The cash flow from financing activities was 268 (95), including net proceeds from share issues of 267 MSEK. The cash flow for the year was MSEK 7 (-3). Closing cash at end of year was MSEK 11 (4).

 

Cash flow from net capital expenditures

The net investments for the year totaled MSEK 176 (6).

 

Research and Development
Anoto’s R&D efforts are focused on upgrading and integration of hardware and software for solutions within digital data capture using digital pens. The R&D expenses during the year were MSEK 70 (83) equivalent to 44 percent (45) of the total operating expenses. The number includes amortization of capitalized development of MSEK 1 (1). Pursuant to its compliance with IAS 38, the Group capitalized MSEK 38 (5) during 2015. Including capitalization, the Group´s R&D expenses totaled MSEK 75 (84) for the year. Anoto has an extensive patent portfolio. At the end of 2015, the Group had 27 active patent applications and owned 289 registered patents within the area of digital pen and paper technology.

 

Disputes
The Company has filed patent infringement suits in Japan against NeoLAB Corporation (“NeoLAB), a subsidiary of NeoLAB Convergence, and Uchida Yoko Co. Ltd. Anoto is seeking all available remedies, including but not limited to injunctive relief against importation of NeoLAB’s pen products and notebooks.

The lawsuits, filed with the Civil Division of the Tokyo District Court, are based on Anoto’s Japanese patents 4245474, 4928696, and 4613251. The suits are focused on Anoto’s patented methods for digital pen design and optical pattern processing.

The lawsuit is ongoing.

 

Environment
Anoto does not pursue any activities that require environmental permits. None of its units are environmentally certified.


Risk Management
Liquidity and financing risk
Anoto´s liquid assets, as cash and bank deposits, amounted at the end of 2015 to MSEK 12 (4).

 

The Group has, through the 2011 acquisitions of Destiny Wireless Ltd borrowings of MSEK 23. These loans are secured against the current assets of the acquired entity.

In March the company carried out a directed share issue of 79.6 million shares at SEK 0,427, in June the company carried out a rights issue of 20 million shares at SEK 0.765, in July the company carried out a rights issue of 30 million shares at SEK 1.35, in November the company carried out a rights issue of 56.5 million shares at SEK 1.31, and in November the company carried out another rights issue of 101.5 million shares at SEK 1.13. The share issues provided the company with a total of MSEK 265 after issue expenses. As sales was weak also during the second half of 2015 and customer receipts was insufficient to generate a positive cash flow Anoto was faced with further challenges related to liquidity. Unless sales increase significantly in the first half of 2016 the company may need to consider options for financing. Based on experience from the share issues during the past twelve months Anoto's Board of Directors and management believe that there are good opportunities to bring in more capital should it prove necessary.

 

Currency exposure
Anoto conducts the main part of its sales internationally, and a majority of the invoicing is in EUR, GBP, USD and JPY. A significant part of the costs are in SEK, USD and GBP. Margins and earnings are sensitive to currency fluctuations, mainly against the Euro where the company has predominantly income. The Board believes that the distribution between the Group's operating currencies provides a sufficient balance in the foreign currency exposure and that the company therefore should not work with hedging of currency net flows. In 2015, 8 percent of the total income was in EUR, 57 per cent in USD and 26 per cent in GBP. Refer to Note 4 for a detailed description of the company’s risk management policies.

 

Credit risk
The management of credit risks can be broken down into commercial risks and financial risks. The provisions set aside for bad debt losses as of the balance sheet date have not identified any commercial credit risks. For additional information about credit risks in accounts receivable, refer to Note 27. The financial credit risk is managed as part of the Anoto’s finance policy.

 

Insurance risk
Anoto’s insurance coverage is reviewed annually with respect to traditional business insurance policies for property, liability, travel, etc. Anoto’s insurance policy for patent disputes expired in 2005 and has not been renewable on reasonable terms. However, claims filed before the policy expired are still covered. The company plans to take out an insurance policy for patent disputes as soon as it can do so on reasonable commercial terms.

 

Patent risks, etc.
Anoto continually expands its patent portfolio by applying for patents on innovations linked to Anoto’s technology in order to supplement previous patent applications and patents granted. Anoto cannot guarantee that all patent applications will be approved or that our intellectual property rights will not be called into question, declared null and void, or circumvented.

Third parties have claimed that Anoto infringes their intellectual property rights, and may do so also in the future. Defending Anoto against such assertions can be costly in terms of time, money and other resources. Legal disputes can compel Anoto to pay damages or other compensation, to modify its products and technology, and/or to enter into license agreements with licensors. Anoto cannot guarantee that such licenses will be available at all or be possible to obtain on reasonable terms. Anoto cannot guarantee that such licenses will be available at all or be possible to obtain on reasonable terms.

 

Employee Policies
To realize Anoto’s business concepts, we depend on a multitude of skilled employees who are wholeheartedly engaged in their work and who have a good understanding of the communication between people from different cultures and backgrounds. We strive to make use of all of our employees’ competences in best possible ways. No employee should under any circumstance be discriminated against. We apply a clear policy on gender equality, equal opportunities and anti-discrimination. We strongly encourage an environment of respect and honesty, with open and clear communication by and between all parties involved in Anoto’s business.

In a knowledge based company like Anoto, employee competences are our most important assets. Without constantly adding knowledge to the workforce and allowing the transfer of knowledge between colleagues, the company cannot develop. Competence development is therefore a priority at Anoto. Development plans are determined individually to ensure that the goals and ambitions of both the employees and the company are aligned.

 

The Board and Its Rules of Procedure
The Anoto Group AB Board of Directors consists of five regular members. Refer to the section entitled “Corporate Governance Report” in this annual report for a detailed account of the Board’s composition and working methods.

 

Guidelines on Remuneration for Senior Executives
Remuneration for the CEO and senior executives in 2015 appears in Note 9, “Salaries and other remunerations”. The Board has proposed to the Annual General Meeting that the guidelines on remuneration for senior executives remain unchanged in 2016.

 

Significant Events after Year-End
On February 8 2016, Anoto announced that it has entered agreements to acquire the remaining stakes of Pen Generations Inc. (85%), We-Inspire GmbH (75%) and Destiny Wireless Ltd (49%).

On February 19 2016 the company announced that it has completed a private placement of 13,000,000 new shares to Swedish and international investors at a price of SEK 0.83 per share, providing the Company with around SEK 10.8 million before transaction related costs.

 

The Extra General Meeting on March 2nd 2016 authorized the Board of Directors to resolve, on one or several occasions during the period until the next Annual General Meeting, for payment in kind, to issue new shares in connection with any or all of the acquisitions of Pen Generation Inc., We-inspire Inc. and Destiny Wireless Ltd.


Furthermore, the same Extra General Meeting on March 2nd 2016 authorized the Board of Directors to resolve, on one or several occasions during the period until the next Annual General Meeting, against cash payment, for payment in kind or by way of set-off, to issue shares and/or convertible bonds that involve the issue of or conversion into a maximum of 105,000,000 shares, corresponding to a dilution of approximately 10.0 percent of the share capital and votes, based on the current number of shares in the Company.

 

On March 24 20 16 the company made the following announcements:

  • To improve the company’s strategic focus and to be able to fully deliver on the current business plan, the Board of Directors has decided to change leadership and to appoint Joonhee Won as an interim CEO and that Stein Revelsby will leave office with immediate effect. 
  • The company’s intent to undertake a rights issue of approximately SEK 160 million, before issue costs, with preferential rights for shareholders in the company.  The rights issue is fully underwritten by a combination of large shareholders in the company, Carnegie Investment Bank AB (publ) (“Carnegie”) and external investors.  The proceeds will be used to pay short term liabilities as well as to strengthen the company’s financial position to be able to deliver on the current business plan.  The rights issue is subject to approval by the Extraordinary General Meeting on April 27, 2016.
  • Until the proceeds from the rights issue is available, the company has entered into a short term loan agreement with a Swedish bank to be able to draw on a credit facility of up to SEK 20 million. -- The rights issue is subject to approval by the Extraordinary General Meeting on April 27, 2016

Outlook
As the company enters 2016 with a significant increase in scale and scope of business, the company will undergo a structural reorganization in how it manages and tracks its business. Having completed the acquisitions of XMS Penvision and Livescribe as well as the upcoming completion of the announced acquisitions of Destiny Wireless, We-Inspire and Pen Generations, the company is now poised to move forward in 2016 with direct control over an unprecedented degree of the company’s value chain and ecosystem. This will allow the company to deliver products and offerings, directly and through partnerships, across 5 key business areas in which the company’s technology delivers significant value to end-customers while also providing considerable advantage over competing offerings.


Proposed Appropriation of Accumulated Result

…………………..

Proposed appropriation of accumulated result in the parent company (SEK): SEK
Share premium reserve 364 502 300
Profit/loss brought forward -36 205 912
Loss for the year -88 952 410
Total 239 343 978

The Board of Directors and CEO propose that the retained earnings of SEK 239 343 978 is carried forward.
With regard to the financial position of the Group and parent company, refer to the following accounts.