A N N U A L R E P O R T 2 0 0 6
New strategy
– greater focus on
Forms Solutions
C O N T E N T S
A N OTO G RO U P AT A G L A N C E 3 T H E Y E A R I N B R I E F 4 A C H AT W I T H T H E C E O 6
T H E S H A R E 8
F I V E - Y E A R S U M M A RY 1 0 M A N AG E M E N T R E P O RT 1 2 I N C O M E S TAT E M E N T 1 5
B A L A N C E S H E E T 1 6
C H A N G E S I N S H A R E H O L D E R S ’
E Q U I T Y 1 8
C A S H F L OW S TAT E M E N T 2 0
N OT E S 2 1
AU D I TO R ’ S R E P O RT 4 3 B OA R D A N D I T S RU L E S
O F P RO C E D U R E 4 4
B OA R D O F D I R E C TO R S 4 5 G RO U P M A N AG E M E N T 4 6 A N N UA L G E N E R A L M E E T I N G 4 7
Anoto has a global partner network that focuses on user-friendly forms solutions for promoting efficient capture, transmission and storage of data in industries such as health care, banking & finance, transport & logistics, and education. The Anoto Group AB share is quoted on the Nordic Mid Cap list of the Stockholm Stock Exchange under the ANOT ticker symbol.
O R G A N I S AT I O N
The Group consists of the Anoto and the Content and Applications business units. The Oakland, California business that was phased out in early 2007 has constituted the Content and Applications business unit up to this point.
The Anoto business unit includes five application areas.
Forms Solutions
This application area concentrates on systems, prod- ucts and services for companies and organisations that require efficient forms processing. Among Anoto partners are system integrators, software developers and IT consulting firms. The companies provide their customers with customised solutions based on Anoto technology for digital pen and paper.
Personal Productivity
This application area develops and markets products that make it easier for people to communicate and be efficient in their daily lives. The products, which include digital pens and various types of notepads, are offered through Anoto partners and intended for end-users.
ANOTO GROUP AT A GLANCE
Anoto Group AB has developed the world-leading technology for digital pen and paper. By enabling rapid, reliable transmission of handwritten text to digital media, the technology makes paper-based processes more effi cient.
Interactive Media
This application area uses Anoto technology in prod- ucts that combine digital material with a digital pen.
The approach enables an immediate response by means of speech, audio and the like. The concept supports learning and teaching products that are simple, intuitive and entertaining for the user. The best illustration of the concept is the LeapFrog FLY Pentop Computer, which makes learning to read, write and do arithmetic more fun for children and teens.
Anoto Technology
This application area develops and markets basic Anoto technology as ASICs and IP blocks. The segment supplies or licences Anoto modules, components and function blocks for integration into the customer’s products or components, including pen-like units, mobile phones and mobile phone accessories or components.
C Technologies
This application area’s products, of which the C-Pen scanning pen is the best known, are based on inte- gration of digital camera technology and leading-edge image processing.
A N OTO PA RT N E R S
Anoto Group uses a partner-driven business model.
Cooperating with a global partner network and
proceeding from the Anoto technology platform,
we design commercial solutions for a number of
different customer segments. Our partners add value
and features to our offering based on their own
expertise and knowledge of the market. As a result,
applications for multiple markets can evolve side by
side. Anoto’s income increases as its partners generate
greater sales. Because we incur no additional costs in
the process, our business model is highly scalable.
Net sales decreased by 4% to SEK 109 million.
The operating loss was SEK –132 million, and the loss for the year was SEK –133 million.
The composition of the company’s Board of Directors changed somewhat. Hans Otterling is the new Chairman, while Bernard Gander and Håkan Eriksson joined the Board.
Anders Norling took over as CEO in the third quarter.
Sales for the Forms Solutions application area were up 137% from 2005. Users totalled 52,000.
The company adopted a new strategy in 2006 that spotlights Forms Solutions. To support that strategy, Anoto restructured to focus more on sales and marketing.
As part of the new strategy, Anoto decided in the fourth quarter to phase out its consumer- oriented business in Oakland, California. The company signed an agreement with a new U.S.
partner, staffed by former Anoto employees and headed up by Jim Marggraff.
In an additional move to promote the revised strategy, a new subsidiary is responsible for the Anoto video technology (ASIC) business.
THE YEAR IN BRIEF
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60,000 50,000 40,000 30,000 20,000 10,000 0
Number of forms users growing rapidly
Q1 2005
Q2 2005
Q3 2005
Q4 2005
Q1 2006
Q2 2006
Q3 2006
Q4 2006
KEY RATIOS FOR THE GROUP
(SEK thousand) 02 03 04 05 06
Net sales 220,972 192,368 147,392 113,230 108,725 Gross profit/loss 62,064 44,695 89,936 79,395 78,404 Operating profit/loss -430,239 -323,185 -80,011 -79,775 -131,823 Profit/loss after tax -412,847 -310,219 -75,218 -13,884 -133,006 Cash flow for the year -197,163 -44,949 -74,293 169,554 -31,649 Earnings per share (SEK) -5.08 -2.81 -0.64 -0.11 -1.03 Shareholders’ equity per share (SEK) 7.54 4.09 3.27 4.39 3.56
Equity/assets ratio, % 78 79 80 79 80
Average no. of employees 310 182 132 110 121
NET SALES (SEK thousand)
PROFIT/LOSS AFTER TAX (SEK thousand) CASH FLOW FOR THE YEAR (SEK thousand)
EQUITY/ASSETS RATIO %
-200,000 -150,000 -100,000 -50,000 0 50,000 100,000 150,000 200,000
2006 2005
2004 2003
2002 0 50,000 100,000 150,000 200,000 250,000
2006 2005
2004 2003
2002
-500,000 -400,000 -300,000 -200,000 -100,000 0
2006 2005
2004 2003
2002 0
20 40 60 80 100
2002 2003 2004 2005 2006
T H E Y E A R I N B R I E F | A N OTO A N N U A L R E P O RT 2 0 0 6 | 5
Before we go any further, could you tell us a little about Anoto technology?
We focus primarily on digital pens and paper based on Anoto technology. Our unique solutions, which proceed from digital cameral technology and image processing in real time, combine the intuitive benefi ts of pen and paper with the oppor tunities created by digital communication. Anything a user writes on a piece of paper can be easily transmitted to a computer.
Before taking over as CEO of Anoto Group in August 2006, you held the same position at another technology- intensive company that is listed on the Stockholm Stock Exchange. You were able to reverse their unprofi table trends. What about now?
We are currently generating growth of 25-30% per quar ter in Forms Solutions when it comes to the number of pens sold around the world that use Anoto technology and applications developed by our par tners (“service providers”). Plus we’ve got sales of the C-Pen scanning pen and IP blocks, the technology for video sequences in cameras and mobile phones. A new subsidiary, in which Anoto holds an 80% stake, took over our video technology business in 2006. Assuming that our marketing effor ts succeed, the prospects for profi tability are bright.
Many Swedes think immediately of the C-Pen when they hear the phrase digital pen, but they aren’t always aware of Anoto’s involvement. Could you try and straighten that out a little?
While both the C-Pen and C Technologies were around before Anoto Group arrived on the scene, both are now par t of the
Capitalising on Anoto technology for digital pen and paper is the biggest
challenge that CEO Anders Norling faces.
"Patented Anoto technology is worth its weight in gold," he says. "Now that we are more marketing oriented, the bottom line should fully refl ect that asset. Our restructuring in the autumn set the stage for a vigourous marketing effort, which will concentrate on the healthcare industry in 2007."
A CHAT WITH THE CEO
WORLD-LEADING ANOTO TECHNOLOGY LOOKING AHEAD TO PROFITABILITY
6 | A N OTO A N N U A L R E P O RT 2 0 0 6 | A C H AT W I T H T H E C E O
Group. C Technologies is today one of our application areas. The C-Pen, which is based on a proprietary application for scanning printed text, should not be confused with the technologies that we offer our customers. The C-Pen is a successful product. We obtained our fi rst Chinese order, wor th approximately SEK 13 million, in the autumn. Among major C-Pen users are Swiss banks that want to facilitate Internet payments. Otherwise, Anoto is the name that commands the most recognition outside of Sweden.
Thus, the C-Pen is only one of several products that we offer today.
Anoto Group has four application areas in addition to C Technologies. You’re devoting a lot of attention to Forms Solutions right now, aren’t you?
Yes, we believe that we have considerable additional earning capacity. Forms Solutions uses Anoto Technology, our digital solu- tion for pen and paper, to make it easier and more effi cient for businesses and other organisations to process their forms. By the same token, we are now focusing more on the business-to- business and less on the consumer sector. We won Japanese or- ders totalling 9,000 forms pens in December alone, which represented both a breakthrough in that country and our largest total sale yet in the segment.
What is Anoto technology for Forms Solutions all about in the real world?
We work with par tners that develop applications for a wide range of sectors, including health care, transpor t, sales and services. In terms of health care, our digital pen and paper technology simpli- fi es administrative routines, as well as the documentation and quality assurance of interventions during home visits. When it comes to transpor t, the driver can save time on receipts and more readily avoid misdeliveries. Similarly, the technology facilitates order processing in the sales and service sectors.
For Anoto to be more profi table, you probably have to fi nd more and larger partners around the world.
That’s exactly right. Given that we neither manufacture nor sell the end product, we need capable par tners. In offering technologies to our par tners, we profi t above all in terms of license revenue.
Some of our 250 par tners worldwide are large enough to com- mand the resources required to market their products. There’s still work to be done when it comes to helping our smaller par t- ners boost their sales. For instance, Anoto’s Forms Solutions could be par t of an enterprise system.
You’ve said before that Anoto has to get better at pack- aging its technology in order to attract new partners.
We provide each par tner with a toolbox, which needs to be
refi ned and supplemented so as to shor ten their development effor t. That challenge has top priority among our engineers.
What are you doing to protect the company’s patents?
I believe that our core technology, including paper with a dot pattern, enjoys good patent protection. We have approximately 100 additional patents, not to mention a large number of appli- cations in the works. Patent disputes are relatively unusual for us.
We had one in the U.S. a few years back and won.
The Anoto Board decided last autumn to phase out the Oakland, California business. That was an expensive move. Do you have anything to say about that?
The decision to close the Anoto Inc. offi ce in Oakland was based on our new strategy of focusing on Forms Solutions. Every strategic choice requires prioritisation. As a pure consumer business, Oakland operations did not fi t into our new organisation. I want to stress that we decided to phase out the operations at the same time that we entered into a par tnership with a new company owned by former Oakland employees of Anoto, as well as U.S.
venture capitalists. As a result, the cost of phasing out the opera- tions remained fairly low and Anoto had the oppor tunity of gaining future revenue from both licensing and sales. Speaking of the U.S., we’re proud that the the LeapFrog FLY Pentop Computer, which uses Anoto technology, was again among the year’s Christmas presents for children on amazon.com. The prod- uct makes learning more fun for students 12 and younger. It won the Canadian Toy Testing Council’s Energizer Toy of the Year Award.
What could endanger the company’s growth and develop- ment?
We face relatively few threats. Our biggest challenge is to inspire the entire organisation to par ticipate in our new marketing effor t.
While some of our competitors make digital pens, we alone can handle written text with the same intuitive fl exibility as traditional pen and paper.
Could you sum up Anoto’s future prospects?
Our focus on Forms Solutions will spur our growth and improve our chances of achieving profi tability within a few years. Above all, we will help our Forms Solutions partners scale up their applications and generate new business. We will also do everything we can to make end-customers more aware of the business value offered by digital pen and paper. What’s more, our packaging of a complete Forms Solutions offering will shorten time-to-market for our partners.
And the new, simplifi ed Anoto business model will reinvigorate our sales and marketing process. Our opportunities are many and our optimism is contagious.
A C H AT W I T H T H E C E O | A N OTO A N N U A L R E P O RT 2 0 0 6 | 7
THE SHARE
The Anoto Group AB share was listed on the New Market as of 15 March 2000. Since 16 June 2000, it has been listed on the Stockholm Stock Exchange under the ANOT ticker symbol.
The share has been trading on the Nordic MidCap list since 10 October 2006.
Anoto Group’s share capital of SEK 2,530,704 is allocated among 128,583,867 shares. Each share entitles the holder to one vote at general meetings, and all shares provide equal rights to par ticipation in the company’s assets and profi ts.
Share price performance and trading
The price of the Anoto Group share declined by 59.20% from SEK 26.4 to 10.9 during the year. Meanwhile the SIX General Index rose by 24.25% and SX45 Information Technology rose by 1.36%. Anoto Group’s market capitalization was SEK 1,402 million on 31 December 2006. On 13 March 2007, the share price was SEK 11.20 and the market capitalization was SEK 1,440 million.
A total of 127,982,365 Anoto shares traded on the Stockholm Stock Exchange in 2006, for a turnover rate of 100%.
Shareholders
At the end of 2006, Anoto Group had 9,275 shareholders.
Foreign shareholders controlled 56% of the shares, the ten largest shareholders 62% and institutional and industrial shareholders 81%.
Dividend policy
No dividend will be considered over the next few years. The company’s future dividend policy will refl ect its earnings, fi nancial position and fi nancing needs. Dividend proposals will be examined in the light of shareholder demands for a reasonable yield and the company’s internal fi nancing requirements.
Option programmes
The parent company currently has four outstanding option programmes (two of which involve employee stock options with underlying warrants and two of which are traditional warrant programmes) for employees. The 7,415,002 options that have been subscribed for expire on various dates between 30 November 2007 and 30 November 2009.
Full utilisation of the options that have been subscribed for would result in subscription for no more than 7,415,002 new shares, increasing the company’s share capital by SEK 148,300 and diluting existing shares by approximately 5%. The issue prices for options in these three programmes range from SEK 17.50 to SEK 31.35.
Analysts
Anoto Group is covered by analysts at a number of banks and securities brokers, including Carnegie, Hagström & Qviberg and Kaupthing.
Largest shareholders, 31 December 2006
Name % Total
Norden Technology AS 17.6 22,638,065
Robur Fonder 10.4 13,356,872
DNB 6.4 8,194,050
SEB Enskilda ASA 5.9 7,650,250
Logitech 5.4 7,000,000
SOFA 5.0 6,435,500
Staffan Rasjö 3.7 4,695,000
Christer Fåhreaus 2.7 3,500,000
Skandia Fonder 2.6 3,319,003
Banco Fonder 2.5 3,187,800
Other 37.8 48,607,327
Total 100.0 128,583,867
Per-share data 2006
No. of shares 128,583,867
Number of outstanding options1) 0 Average no. of shares 127,912,871 Average no. of outstanding options 939,950 Earnings per share (SEK) -1.03 Shareholders’ equity per share including options (SEK) -1.03 Cash fl ow per share for the year (SEK) -0.25 Shareholders’ equity per share including options (SEK) -0.25 Shareholders’ equity per share (SEK) 3.56 Shareholders’ equity per share including options (SEK) 3.56
1) Pursuant to IAS 33
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Shareholder structure by size, 31 December 2006
Holdings Total no. of % of total Hold collectively % of share shareholders shareholders no. of shares capital
1–1,000 7,177 77.38 2,134,492 1.66
1,001–10,000 1,733 18.68 5,696,265 4.43
10,001–100,000 273 2.94 7,882,191 6.13
100,001– 92 0.99 112,870,918 87.78
9,275 100.00 128,583,867 100.00
The share
5,000 10,000 15,000 20,000 25,000 30,000
10 20 30 40 50 60
02 03 04 05 06 07
Anoto share SIX Generalindex
SX45 Information Technology No. of shares traded Thousands
(including after-hours trading) 5
(c) FINDATA
T H E S H A R E | A N OTO A N N U A L R E P O RT 2 0 0 6 | 9
FIVE-YEAR SUMMARY
1)Summary of income statements
(SEK thousand) 2002 2003 2004 2005 2006
Net sales 220,972 192,368 147,392 113,230 108,725
Gross profi t/loss 62,064 44,695 89,936 79,395 78,404
Amor tisation, intangible fi xed assets -54,236 -60,901 -20,661 -22,680 -25,809 Depreciation – proper ty, plant and equipment -22,278 -13,803 -7,825 -3,644 -1,709 Operating profi t/loss -430,239 -323,185 -80,011 -79,775 -131,823 Profi t/loss on shares in subsidiaries – 25,121 – 70,457 -769 Profi t/loss on shares in associated companies – -8,876 3,059 – – Profi t/loss on other receivables that are non-current assets – -10,912 – – –
Other fi nancial items 4,554 2,504 1,861 -4,446 794
Profi t/loss after fi nancial items -425,685 -315,348 -75,091 -13,764 -131,798
Tax -278 -360 -127 -120 -1,208
Minority share in profi ts 13,116 5,489 – – 41
Profi t/loss after tax -412,847 -310,219 -75,218 -13,884 -132,965
Summary of balance sheets
(SEK thousand) 31-12-2002 31-12-2003 31-12-2004 31-12-2005 31-12-2006 Assets
Intangible fi xed assets 455,751 380,041 368,031 357,536 343,324
Tangible fi xed assets 30,862 11,298 5,589 3,568 3,512
Financial fi xed assets 1,721 4,924 5,155 5,346 5,080
Total non-current assets 488,334 396,263 378,775 366,450 351,916
Inventory 29,621 3,006 1,671 1,517 1,936
Accounts receivable 55,941 31,175 20,337 36,780 27,615
Other current assets 38,766 22,041 29,384 15,667 15,669
Cash and bank balances, including current investments 171,150 116,033 41,740 211,490 179,841
Non-current assets for divestment 74,235 0
Total current assets 295,478 172,255 93,132 339,689 225,061
Total assets 783,812 568,518 471,907 706,139 576,977
Liabilities and shareholders’ equity
Shareholders’ equity 612,889 451,248 385,629 555,690 458,237
Minority interests — — — — 1,959
Provisions
Non-interest-bearing 38,177 54,550 — — —
Long-term liabilities
Non-interest-bearing 30 — 13,692 4,231 4,728
Current liabilities
Non-interest-bearing 119,192 62,623 72,586 146,218 112,053
Interest-bearing 13,524 97 — — —
Total liabilities 170,923 117,270 86,278 150,449 118,740
Total liabilities and shareholders’ equity 783,812 568,518 471,907 706,139 576,977
Summary of cash fl ow statements
(SEK thousand) 2002 2003 2004 2005 2006
Profi t/loss after fi nancial items -425,685 -315,348 -75,091 -13,764 -131,798 Items that do not affect liquidity 106,932 155,038 8,787 -39,559 8,913 Change in working capital -25,914 -19,858 -4,949 60,251 73,642 Cash fl ow from operating activities -344,667 -180,168 -71,253 6,928 -49,243 Cash fl ow from investing activities -82,043 -12,556 -7,633 -14,933 -14,190 Total cash fl ow before fi nancing activities -426,710 -192,724 -78,886 -8,005 -63,433 Cash fl ow from fi nancing activities 229,547 147,775 4,593 177,669 31,784 Cash fl ow for the year -197,163 -44,949 -74,293 169,554 -31,649
1) The disclosures for 2004 and 2005 are in compliance with IFRS. The fi gures for other years have not been recalculated, but are repor ted in accordance with the accounting policies in effect at the time.
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Key ratios
2002 2003 2004 2005 2006
Sales growth, % 41 neg neg neg neg
Gross margin, % 28 23 61 70 72
Operating margin, % neg neg neg neg neg
Profi t margin, % neg neg neg neg neg
Capital employed (SEK thousand) 626,413 451,345 385,629 555,690 460,196
Return on capital employed, % neg neg neg neg neg
Return on shareholders’ equity, % neg neg neg neg neg
Propor tion shareholders’ funds, % 78 79 82 79 80
Equity/assets ratio, % 78 79 82 79 80
Net debt/equity ratio, multiple -0.26 -0.26 -0.11 -0.38 -0.39
Interest coverage ratio, multiple -336 -168 -1,597 -1 -29
Net debt (SEK thousand) -157,626 -115,936 -41,740 -211,490 -179,841
Earnings per share (SEK) -5.08 -2.81 -0.64 -0.11 -1.03
Shareholders’ equity per share after dilution (SEK) -5.08 -2.81 -0.64 -0.11 -1.03 Cash fl ow per share for the year (SEK) -2.43 -0.41 -0.63 1.42 -0.25 Shareholders’ equity per share after dilution (SEK) -2.43 -0.41 -0.63 1.40 -0.25 Shareholders’ equity per share (SEK) 7.54 4.09 3.27 4.39 3.56 Shareholders’ equity per share after dilution (SEK) 7.48 4.04 3.15 4.32 3.56
Average no. of employees 310 182 132 110 121
Sales per employee (SEK thousand) 713 1 057 1 117 1 029 899 Payroll expenses, incl. social security contributions (SEK thou.) 233,700 152,845 112,906 95,829 121,822 (of which, pension premiums) 27,259 14,915 14,006 11,030 10,925
Proportion shareholders’ funds
Shareholders’ equity, minority shareholdings and deferred tax at the end of the year as a percentage of the balance sheet total
Return on equity
Profi t/loss for the year as a percentage of average shareholders’ equity Return on capital employed
Profi t/loss after net fi nancial income/expense plus interest expenses, as a percentage of average capital employed
Gross margin
Gross profi t/loss as a percentage of net sales. Gross profi t is defi ned as net sales less cost of goods sold
Shareholders’ equity per share
Shareholders’ equity divided by the weighted average no. of shares during the year
Average no. of employees
Average no. of employees during the year Net debt
Interest-bearing liabilities less liquid assets and current investments Net debt/equity ratio
Net debt divided by shareholders’ equity, including minority shareholdings
DEFINITIONS
Sales per employee
Net sales divided by the average no. of employees Sales growth
Increase in net sales as a percentage of net sales for the previous year Earnings per share
Profi t/loss after tax divided by weighted aver. no. of shares for the year Interest coverage ratio
Profi t/loss after net fi nancial income/expense plus interest expenses as a percentage of interest expenses
Operating margin
Oper. profi t/loss after depreciation & amor tisation as a % of net sales Capital employed
Balance sheet total less non-interest-bearing provisions and liabilities, including deferred tax liabilities
Equity/assets ratio
Shareholders’ equity including minority shareholdings as a percentage of the balance sheet total
Profi t margin
Profi t after net fi nancial income/expense as a percentage of net sales Cash fl ow per share for the year
Cash fl ow divided by the weighted average no. of shares for the year
D E F I N I T I O N S | A N OTO A N N U A L R E P O RT 2 0 0 6 | 1 1
MANAGEMENT REPORT
The Board of Directors and CEO of Anoto Group AB (publ), company registration no. 556532-3929, hereby submit the annual accounts and consolidated accounts for the 1 January – 31 December 2006 fi nancial year.
Group structure
Anoto Group AB is a holding company in the Group and is responsible for Group-wide functions. The Anoto AB and Anoto Inc. subsidiaries are responsible for most operating activities.
The business and organisation
Anoto Group is a Swedish high-tech company that has developed a unique technology for digital pen and paper enabling rapid, reli- able transmission of handwritten text to digital media. The Anoto organisation is broken down into the Anoto business unit, which is active in several different application areas, and the Content and Applications business unit. The entire business is based on digital camera technology and image processing in real time.
Anoto business unit
Forms Solutions application area
Anoto has a global par tner network that focuses on user-friendly forms solutions for promoting effi cient capture, transmission and storage of data in industries such as health care, banking & fi nance, transpor t & logistics, and education. The year showed
another rapid increase in the number of Forms Solutions users – up 137% from 2005. Anoto obtained a number of major new orders in the Japanese market, including 4,300 pens for the public sector, 5,500 for the retail trade and 3,500 for the healthcare sector.
The company also made several strategic decisions to focus more heavily on forms solutions in 2007.
Personal Productivity
This application area develops and sells consumer notepad prod- ucts based on digital pen and paper.
Interactive Media
The pillar of this application area is Anoto’s par tnership with LeapFrog, a U.S. company that markets and sells its FLY Pentop Computer based on Anoto technology. The learning product is an interactive digital pen that targets 8-12 year-olds, primarily in the United States.
Within this application area Anoto and Dai Nippon Printing (DNP) began working together in 2005 star ting with a license order wor th approximately SEK 32 million (EUR 3.5 million).
Anoto expects to obtain an additional SEK 32 million (EUR 3.5 million) once the fi nal par t of the agreement has been signed.
Anoto Technology
This application area develops and markets video technology as ASICs and IP blocks. Late in 2006, a new subsidiary took over Anoto’s development division for video technology. Anoto holds an 80% stake in the subsidiary, while a number of key employees hold the remaining 20%.
C Technologies
The products of the C Technologies business unit, of which the C-Pen scanning pen is the best known, are based on the integration of digital camera technology with leading-edge image processing in products characterised by energy effi ciency and high perform- ance. Ever since late 1998, C Technologies has been establishing its technology platform in the global market by means of license and OEM par tnerships, along with sales of proprietary products.
The application area obtained two major orders in late 2006 – 30,000 C-Pen 20s from an existing customer and an additional 100,000 modules of Anoto C-Pen Scan technology from a new Chinese customer. The total order value of SEK 20 million was taken up as revenue in 2006 and the fi rst half of 2007.
Content and Applications business unit
Anoto’s offi ce in Oakland, California had been in charge of devel- oping interactive digital pens (Pentops) for the consumer market.
Anoto’s decision in December to focus more heavily on Forms Solutions led to a phase-out of the business unit and offi ce. The company’s current costs will be considerably lower as a result.
Shares and shareholders
The company had 128,583,867 shares as of the repor ting date.
According to VPC AB statistics, there were 9,275 shareholders on 31 December 2006, representing a decrease of approximately 10% over the past 12 months. The largest shareholders were Norden Technology AS (17.6% of the votes and capital) and Robur Fonder (10.4% of the votes and capital).
Organisation
The average no. of employees of the Group increased from 110 to 121 in 2006. The Group had 99 employees at the end of the year.
The December announcement that the Content and Applications business unit and Oakland offi ce would be phased out led to the layoff of 17 employees.
Remarks on the income statement
Net sales for the year decreased by 4% from SEK 113 million to SEK 109 million. The Group’s gross margin was SEK 72% (70).
The composition of net sales was substantially different than 2005. As a result of growth (primarily at Forms Solutions and
1 2 | A N OTO A N N U A L R E P O RT 2 0 0 6 | M A N AG E M E N T R E P O RT
C Technologies), along with lower non-recurring engineering (NRE) revenue at Interactive Media, current revenue (royalties, ASICs, C Technologies and Other) rose from 54% till 71% of net sales.
Thir ty eight percent of the Group’s income was in U.S. dollars and 31% in euros. During the year, the Group hedged 100% of its currency fl ows in U.S. dollars and approximately 100% of its currency fl ows in euros (refer to the section on risk management).
The Group’s gross profi t decreased to SEK 78 million (79), while its gross margin rose to 72% (70) due to the greater percentage of royalties.
Overhead rose signifi cantly during the year. The entire increase was due to costs of SEK 50 million for the initiative at the Content & Applications business unit. The Group capitalizes non-customer fi nanced development expenditures that meet IAS 38 criteria, a total of SEK 6 million (8) in 2006.
The operating loss for the year was SEK –132 million (–80).
Remarks on the balance sheet and cash fl ow statement
The balance sheet total decreased by SEK 129 million as a result of the SEK –102 million cash fl ow, excluding cash fl ow related to the of SEK 70 million divestment of minority shareholdings in an inactive previous subsidiary. The negative cash fl ow reduced the Group’s liquid assets by SEK 32 million. Chiefl y because prepaid NRE revenue was repor ted against sales, current liabilities de- creased from SEK 118 million to SEK 110 million. Provisions for restructuring and other purposes amounted to SEK 6 million (32).
The Group’s liquid assets, including current investments, decreased from SEK 211 million at the end of 2005 to SEK 180 million at the end of 2006.
Shareholders’ equity of SEK 458 million on 31 December, as opposed to SEK 556 million a year before, represented an equity/
assets ratio of 80% (79).
Cash fl ow from operating activities was SEK –49 million. Due to prepaid royalties and the divestment of minority shareholdings in an inactive former subsidiary, working capital rose by SEK 75 million during the year. Investing activities consumed SEK 13 million, of which SEK 5 million was for capitalized development expenditures, during the year. Financing activities contributed SEK 30 million. All in all, cash fl ow for the year was SEK –32 million (170).
Investments
Net investments in 2006 for non-current assets totalled SEK 13 million (15).
Research and development
The Group’s R&D effor t is oriented toward upgrading and inte- grating electronic hardware and software for the development of digital pen and paper solutions. The Group spent SEK 147 million
(125), or 70% (68) of its total operating expenses, on R&D in 2006. The fi gure included SEK 25 million (18) for amor tisation of capitalized development expenditures. Pursuant to its compliance with IAS 38, the Group capitalized SEK 6 million (8) in new devel- opment expenditures during the year. Including capitalization, the Group’s total 2006 R&D expenditures thereby totalled SEK 153 million (132).
Anoto has an extensive patent por tfolio. At the end of 2006, the Group had 351 active patent applications and 111 patent approvals.
Disputes
Anoto is not currently engaged in any disputes that are deemed to signifi cantly affect its fi nancial position.
Environment
Anoto does not pursue any activities that require environmental permits. None of its units are environmentally cer tifi ed.
Risk management
The Group sells primarily outside of Sweden, and most of its agreements are in euros or U.S. dollars. Because most costs are in Swedish kronor and U.S. dollars, margins and earnings are sensitive to fl uctuations in the exchange rate of the U.S. dollar and euro.
The Anoto Group AB parent company handles all trading in fi nancial instruments. In 2006, approximately 37% of total income was related to the U.S. dollar and 32% to the euro. The Group also had infl ows of approximately USD 2.5 million related to prepaid royalties.
Refer to Note 4 for a detailed description of the company’s risk management policies.
Board and its rules of procedure
The Anoto Group Board of Directors consists of seven members and no deputies. Refer to page 44 of this annual repor t under the section entitled Board and its rules of procedure for a detailed account of the Board’s composition and working methods. The 2006 annual general meeting authorised the Board to decide on one or more private placements totalling no more than 12,000,000 shares prior to the next annual general meeting – as well as to bypass the preferential rights of shareholders in order to enable the acquisitions of businesses or operations by paying wholly or par tially with shares.
Events after the balance sheet date
In January 2007, Anoto signed an agreement with a new U.S. pen par tner headed up by Jim Marggraff, former CEO of Anoto Inc.
in Oakland, California. The agreement covers development and
M A N AG E M E N T R E P O RT | A N OTO A N N U A L R E P O RT 2 0 0 6 | 1 3
marketing of the next-generation digital pen and paper solution for the consumer market. Anoto is receiving USD 3.5 million plus royalties based on its sales. As a result of the agreement, SEK 24 million will be taken up as revenue in the fi rst quar ter of 2007.
Meanwhile, SEK 5 million in previously capitalized development expenditures will be resolved, generating a total impact on earn- ings of SEK 19 million
Outlook
The phase-out of the Content and Applications business unit, as well as the restructuring of video technology (ASICs) activities, enables a greater focus on Forms Solutions. Thus, Anoto anticipates substantial new growth in the number of active Forms Solutions users during 2007. The 2006 increase was 137%.
Proposed treatment of accumulated defi cit
Proposed treatment of accumulated defi cit in parent company (SEK):
Accumulated defi cit 0
Loss for the year – 112,146,785
Total – 112,146,785
The Board of Directors and CEO propose that the accumulated defi cit of SEK –112,146,785 reduce the statutory reserve by the same amount.
With regard to the fi nancial position of the Group and parent company, refer to the following accounts.
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INCOME STATEMENT
Group Parent company
(SEK thousand) Note 2006 2005 2006 2005
Income/net sales 5, 6 108,725 113,230 41,513 34,591
Cost of goods and services sold -30,321 -33,835 - -
Gross profi t/loss 6 78,404 79,395 41,513 34,591
Selling expenses 10 -32,083 -35,433 - -
Administrative expenses 10, 35 -28,163 -24,521 -32,747 -42,018 Research and development costs 10, 35 -149,134 -125,460 - -
Other operating income 13 1,495 28,590 4 8,245
Other operating expenses 14 -2,338 -2,338 - -
Share of earnings in associated companies 17 -4 -8 - -
Operating profi t/loss -131,823 -79,775 8,770 818
Profi t/loss on shares in group companies 16 -769 70,457 -116,669 -418,115
Interest income 18 5,197 1,368 4,879 682
Interest and similar expense 19 -4,403 -5,814 -9,116 -3,950 Profi t/loss after fi nancial items -131,798 -13,764 -112,136 -420,565
Tax on profi t/loss for the year 20 -1,208 -120 -11
Loss for the year -133,006 -13,884 -112,147 -420,565
Allocation of profi t/loss for the year Profi t/loss attributable
to shareholders of Anoto Group AB -132,965 -13,884 -112,147 -420,565
Profi t/loss attributable to minority interests -41 - - -
Earnings per share (SEK) 1) -1.03 -0.11 -0.87 -3.52
Earnings per share after dilution (SEK) 2) -1.03 -0.11 -0.87 -3.52 No. of shares, weighted average for the year 127,912,871 119,422,701 127,912,871 119,422,701 No. of shares, weighted average for the year,
including outstanding warrants 3) 128,852,821 121,546,385 128,852,821 121,546,385
1) Loss for the year divided by average no. of shares during the year
2) Loss for the year divided by sum of the weighted average no. of shares during the year and the weighted average no. of outstanding warrants whose exercise price was less than the closing share price for the year. Warrants give rise to a dilutive effect only when their conversion to shares generates poorer earnings per share (IAS 33, Earnings per Share).
3) Only warrants whose exercise price is less than the closing share price for the year are included.
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BALANCE SHEET
Group Parent company
(SEK thousand) Note 31-12-2006 31-12-2005 31-12-2006 31-12-2005
ASSETS
Non-current assets Intangible fi xed assets
Capitalized development expenditures 21 14,966 29,663 - -
Patents 22 29,328 28,873 792 752
Goodwill 24 298,674 298,674 - -
Brands 23 356 326 22 -
Computer programs 26 - - - -
Total intangible fi xed assets 343,324 357,536 814 752
Property, plant and equipment
Equipment and tools 25 3,512 3,568 168 89
Total property, plant and equipment 3,512 3,568 168 89
Financial fi xed assets
Shares in group companies 27 - - 267,194 267,194
Shares in associated companies 28 215 219 - -
Other long-term securities 3,743 3,802 - -
Other long-term receivables 1,122 1,325 - -
Receivables – group companies - - 77 505 77 505
Total fi nancial fi xed assets 5,080 5,346 344,699 344,699
Total non-current assets 351,916 366,450 345,681 345,540
Current assets Inventory
Finished goods and goods for resale 1,936 1,517 - -
Current receivables
Accounts receivable 27,615 36,780 - 25
Receivables from subsidiaries - - 30 669 -
Other receivables 7,539 4,601 1,645 1,477
Prepaid expenses and accrued income 29 8,130 11,066 1,970 1,555
Total current receivables 43,284 52,447 34,284 3,057
Current investments
Shor t-term securities - - - 66,069
Other current investments 126,626 175,941 125,681 176,031
Cash and bank balances 53,215 35,549 17,889 17,780
Non-current assets for divestment - 74,235 - -
Total current assets 225,061 339,689 177,854 262,937
TOTAL ASSETS 576,977 706,139 523,535 608,477
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Group Parent company (SEK thousand) Note 31-12-2006 31-12-2005 31-12-2006 31-12-2005
LIABILITIES AND SHAREHOLDERS’ EQUITY Shareholders’ equity (of which parent company’s restricted equity of SEK 535 million and accumulated defi cit of SEK –84 million)
Share capital 2,572 2,531 2,572 2,531
Other capital contributed 560,655 952,665 - -
Statutory reserve - - 532,100 952,665
Reserves -1 418 -438 - -
Share premium reserve - - 28,555 -
Accumulated loss including loss for the year -103,572 -399,068 - -
Profi t/loss for the year - - -112 147 -420 565
Equity attributable to shareholders
of Anoto Group AB 458,237 555,690 451,080 534,631
Equity attributable to minority interests 1,959 0 0 0
Long-term liabilities/Provisions
Provision for taxes - 81 - -
Other provisions 33 4,151 4,150 - 1,790
Other liabilities 578 - - -
Total long-term liabilities/provisions 4,729 4,231 0 1,790
Current liabilities
Provisions for restructuring 31 1,476 20,101 - -
Provisions for product warranties 32 1,529 1,440 - -
Other provisions 33 - 6 480 - -
Accounts payable 7,965 12,498 1,272 1,920
Liabilities to subsidiaries - - 64,932 63,435
Tax liabilities 852 28 - -
Advance payments from customers 68,792 81,250 - -
Other liabilities 8,536 9,884 1,875 2,621
Accrued expenses and prepaid income 34 22,902 14,537 4,376 4,080
Total current liabilities 112,052 146,218 72,455 72,056
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 576,977 706,139 523,535 608,477
Pledged assets 37 6,968 2,188 - -
Contingent liabilities 38 - 14,298 - 14,298
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CHANGES IN SHAREHOLDERS’ EQUITY
Losses brought
Other capital Reserves1) Minority forward, incl. profi t/
(SEK thousand) Share capital contributed2) shareholdings loss for the yr Total Group equity
Shareholders’ equity, 1 January 2005 2,357 830,863 -794 0 -446,432 385,994
Exchange rate differences1) 356 356
Recovered VAT for issue expenses 175 175
Total changes in shareholders’ equity
not reported in the income statement 175 356 531
Reduction of share premium reserve -60,058 60,058 0
Adjustment, costs for options 1,190 1,190
New share issue 174 187,461 187,635
New issue expenses -5,776 -5,776
Loss for the year -13,884 -13,884
Shareholders’ equity, 31 December 2005 2,531 952,665 -438 0 -399,068 555,690
Exchange rate differences1) -980 -980
Recovered VAT for issue expenses 0
Total changes in shareholders’ equity
not reported in the income statement 0 -980 0 0 -980
0
Reduction of statutory reserve -420,565 420,565 0
Adjustment, costs for options 7,896 7,896
New share issue 41 29,303 29,344
New issue expenses -748 -748
Change, minority shareholdings 1,959 1,959
Loss for the year -132,965 -132,965
Shareholders’ equity, 31 December 2006 2,572 560,655 -1,418 1,959 -103,572 460,196
1) From translation of fi nancial repor ting for foreign operations
2006 2005
Accumulated exchange rate differences at beginning of the year -438 -794
Exchange rate differences for the year -980 356
Accumulated exchange rate differences at year-end -1,418 -438
2) For provisions to parent company’s statutory reserve and premiums from new share issues. For changes in these items, refer to discussion of changes in parent company’s equity below.
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Statutory Share premium Accumulated
(SEK thousand) Share capital reserve reserve defi cit Total Parent company’s equity
Shareholders’ equity, 1 January 2005 2,357 2,057 828,806 -60,058 773,162
Recovered VAT for issue expenses 175 175
Total changes in shareholders’ equity
not reported in the income statement 0 175 0 175
Reduction of share premium reserve -60,058 60,058 0
New share issue 174 187,461 187,635
New issue expenses -5,776 -5,776
Loss for the year -420,565 -420,565
Reclassifi cation pursuant to Annual Accounts Act 5:14 950,608 -950,608 0 Shareholders’ equity, 31 December 2005 2,531 952,665 0 -420,565 534,631
New share issue 41 29,303 29,344
New issue expenses -748 -748
Appropriation of previous year’s loss -420,565 420,565 0
Loss for the year -112,147 -112,147
Shareholders’ equity, 31 December 2006 2,572 532,100 28,555 -112,147 451,080
The number of shares and their par value have changed as shown below.
All shares are wholly paid for and entitle the holder to an equal percentage of the dividend.
Increase in Par
no. of shares No. of shares value/share
Registered opening balance, 1 January 2005 117,869,201 SEK 0.02 New share issue registered 14 June 2005 1,646,000 119,515,201 SEK 0.02 New share issue registered 4 July 2005 20,000 119,535,201 SEK 0.02 New share issue registered 15 December 2005 7,000,000 126,535,201 SEK 0.02 Registered closing balance, 31 December 2005 126,535,201 SEK 0.02
Increase in Par
no. of shares No. of shares value/share
Registered opening balance, 1 January 2006 126,535,201 SEK 0.02 New share issue registered 11 April 2006 1,081,955 127,617,156 SEK 0.02 New share issue registered 4 May 2006 27,467 127,644,623 SEK 0.02 New share issue registered 21 June 2006 939,244 128,583,867 SEK 0.02 Registered closing balance, 31 December 2006 128,583,867 SEK 0.02
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CASH FLOW STATEMENT
Group Parent company
(SEK thousand) Note 2006 2005 2006 2005
Operating activities
Profi t/loss after fi nancial items -131,798 -13,764 -112,136 -420,566 Adjustment for items not included in cash fl ow:
Change in provisions -26,215 -931 -1,790 1,256
Depreciation and amor tisation
of tangible assets 15, 21-26 27,544 26,299 235 177
Disposal of tangible assets 15, 21-26 773 - - -
Costs for options 7,896 1,190 - -
Share of earnings in associated companies 17 4 8 - -
Profi t/loss on shares in subsidiaries - -70,457 115,900 418,115
Interest income 19 -5,197 -1,368 -4,879 -682
Interest expenses 18 4,403 5,814 9,116 3,950
Tax paid 20 -295 -114 -11 -
Cash fl ow from operating activities before
changes in working capital -122,885 -53,323 6,435 2,250
Cash fl ow from changes in working capital
Change in operating receivables 83,398 -10,620 -31,227 84,604
Change in inventory -419 154 - -
Change in operating liabilities -9,337 70,717 399 6,369
Total change in working capital 73,642 60,251 -30,828 90,973 Cash fl ow from operating activities -49,243 6,928 -24,393 93,223 Investing activities
Capitalized development expenditures 21 -5,953 -7,772 - -
Patents 22 -5,563 -4,325 -145 -277
Brands 23 -81 -62 -24 -
Divestment of subsidiaries1) 40 - -1,307 66,069 -
Acquisition of subsidiaries 41 - 81 - -1 185
Equipment and tools 25 -2,593 -1,548 -207 -
Shares in group companies2) 27 - - -115 900 -104 004
Cash fl ow from investing activities -14,190 -14,933 -50,207 -105,466 Total cash fl ow before fi nancing activities -63,433 -8,005 -74,600 -12,243
Financing activities
Interest income 19 5,197 1,368 4,879 682
Interest expenses 18 -4,403 -5,814 -9,116 -3,950
Change in other long-term liabilities 578 - - -
New share issues 28,596 181,859 28,596 181,859
Capital contributed by minority shareholdings 2,000 - - -
Recovered VAT for issue expenses - 175 175
Translation differences -184 81 - -
Cash fl ow from fi nancing activities 31,784 177,669 24,359 178,766
Cash fl ow for the year -31,649 169,664 -50,241 166,523
Liquid assets at beginning of the year 211,490 41,826 193,811 27,288
Liquid assets at year-end 179,841 211,490 143,570 193,811
1) For 2005, consists of divestment of 8% of Älvsbyhus AB shares
2) Consists of unconditional shareholders’ contributions to Anoto AB.
For 2005, consists of unconditional shareholders’ contributions to Älvsbyhus AB (–59,059) and C Technologies AB (–38,825)
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NOTES
(SEK thousand unless otherwise indicated)The consolidated accounts of Anoto Group AB (Anoto) have been pre- pared in compliance with the Swedish Annual Accounts Act, International Financial Accounting Standards (IFRS) and Recommendation RR 30, Supplementary Rules for Consolidated Financial Statements, of the Swedish Financial Accounting Standards Council. The parent company’s annual accounts have been prepared in compliance with the Swedish Annual
Accounts Act and Recommendation RR 32, Accounting for Legal Entities, of the Swedish Financial Accounting Standards Council.
The consolidated and annual accounts, which are specifi ed in thousands of Swedish kronor, refer to 1 January – 31 December for income statement items and 31 December for balance sheet items.
Note 1 | General accounting policies
THE GROUP
Other than the revaluation of cer tain fi nancial instruments, the consolidated accounts are based on historical cost. The accounting policies applied by the Group are described below.
Consolidated accounts
The consolidated accounts cover Anoto Group AB (publ), the parent company, and the companies in which direct or indirect holdings at year- end represented more than 50% of the votes, i.e., the parent company had a controlling interest in the company. The consolidated accounts have been prepared in accordance with the purchase method. The historical cost is the sum of the fair values of assets paid, accrued or over taken liabilities, as well as for the equity instruments that Anoto has issued in exchange for the controlling interest in the acquired unit, along with all costs directly attributable to the acquisition.
The historical cost is allocated among the unit’s identifi able assets, con- tingent and other liabilities that meet the criteria for accounting in accord- ance with IFRS 3, Business Combinations, repor ted at fair value. If the historical cost exceeds net acquired assets and liabilities in accordance with the above, the difference is repor ted as goodwill.
Deferred tax is calculated as 28% of the difference between the fair values of assets and liabilities repor ted and tax residual values insofar as the
difference is not par t of untaxed reserves. Group equity includes the Group’s par ticipation in shareholders’ equity earned by group companies after acquisition, as well as minority shareholdings in the equity of group companies.
All intra-Group transactions are eliminated in the consolidated accounts.
Intra-Group transactions include internal sales, profi ts and balances, as well as shareholders’ contributions to group companies and impairment losses on par ticipations in group companies.
A functional currency is assigned to each foreign subsidiary.
The foreign subsidiaries that have a different presentation currency than Anoto’s functional currency (the Swedish krona) are recalculated at the exchange rate on the balance sheet date for all balance sheet items and at the average exchange rate for all income statement items.
The translation differences that arise stem from the difference between the average exchange rates in the income statement and the exchange rates on the balance sheet date, as well as the translation of net assets at a different exchange rate as of year-end than as of the beginning of the year.
Translation differences are not repor ted in the income statement, but as a provision within shareholders’ equity.
Exchange rates
Consolidation of foreign subsidiaries uses these exchange rates.
Note 2 | Anoto’s accounting policies
Average exchange rate On balance sheet date
Country Currency 2006 2005 2006 2005
United States USD 6.8725 7.4775 7.3766 7.9525
Hong Kong HKD 0.8850 0.9615 0.9495 1.0250
Japan JPY (100) 5.7800 6.7833 6.3457 6.7800
Associated companies
Associated companies are those in which the Group controls 20-50% of the votes or otherwise exer ts signifi cant infl uence over operating and fi nancial management. Associated companies are repor ted based on equity accounting. In accordance with equity accounting, investments in associated companies are repor ted in the balance sheet at historical cost, adjusted for changes in the Group’s par ticipation in the associated company’s net assets.
The Group’s share of the associated company’s profi t/loss is repor ted in the consolidated income statement. The Group’s share of the associated company’s profi t/loss after fi nancial income/expense is included in the profi t/loss on par ticipations in associated companies item, whereas the Group’s share of the associated company’s tax expense is included in the tax on profi t/loss for the year item.
Revenue recognition
Revenue is received from product sales, licenses, royalties and development projects. Revenue from product sales is recognised when essentially all risks and rights associated with ownership have been transferred to the purchaser, normally at the time of delivery. Revenue from non fi xed-term licenses is directly repor ted as of the invoice date.
For instance, license revenue may involve a cer tain degree of exclusivity or contributions for, or access to, a platform.
Royalties are repor ted during the same month as the par tner makes the actual sale.
Revenue attributable to development projects, Non Refundable Engi- neering (NRE), is recognised in the same period as the service is rendered.
The extent to which each development project has been completed is normally based on a quar terly analysis. The project’s estimates are updated with the costs until the current date in order to determine the percentage of the total estimated costs that have accrued. An anticipated loss on a project is reported immediately as a cost.
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Goodwill
Goodwill, which is reported in connection with the acquisition of subsidiaries in accordance with the above, is initially repor ted as an asset at historical cost. Goodwill is not amor tised but subject to an impairment test annually or whenever needed by calculating the recoverable amount of the corre- sponding cash-generating unit. The recoverable amount is defi ned as the asset’s net realisable value or value in use, whichever is higher. The impair- ment test allocates goodwill among the cash-generating units that are expected to benefi t from acquisition synergies. An impairment loss is recognised if the the value of the unit repor ted by the Group exceeds the recoverable amount. The impairment loss is charged to earnings for the year.
Research and development expenditures
Research expenditures are charged to operating earnings on a running basis. The Group capitalizes the development expenditures for new plat- forms that meet the criteria set by IAS 38, Intangible Assets. Expenditures for the development of platforms are deemed to improve the Group’s earning capacity and shall thereby be repor ted as intangible fi xed assets in accordance with the standard.
Intangible fi xed assets
The Group complies with IAS 38, Intangible Assets. In accordance with IAS 38, expenditures for the development of new products are repor ted as assets only if the assets are highly likely to generate future fi nancial gains for the company.
Product development must have reached the commercialisation stage before the expenditures are repor ted as assets. All expenditures are carried as expenses on a current basis up until that point. Amor tisation schedules begin as of the market launch of each product. The amor tisation schedule is based on the product’s useful life of 3-5 years.
External expenditures for patents and brands are capitalized in the balance sheet with ten-year amor tisation schedules.
Property, plant and equipment
Proper ty, plant and equipment – consisting of equipment, computer equipment and computer programs – is repor ted at historical cost, less accumulated depreciation according to plan and any impairment losses.
Depreciation and amortisation according to plan
Depreciation and amor tisation according to plan are based on the historical costs and estimated economic useful lives of the assets in view of the following depreciation and amor tisation periods:
– Patents 10 years
– Development expenditures 3–5 years
– Equipment 5 years
– Computer equipment and programs 3 years1)
1) Capitalized computer programs refer to CAD programs that are essential to the ongoing product development effor t.
Impairment losses
If there is an indication that a Group asset has decreased in value, its recoverable amount is determined. The recoverable amount is defi ned as the asset’s net realisable value or value in use, whichever is higher. When determining the value in use, the present value of the future
cash fl ows that the asset is expected to give rise to during its useful life is estimated. An impairment loss is recognised if the Group’s repor ted value exceeds the recoverable amount, and the impairment loss is charged to earnings for the year.
Leases
Lease contracts are classifi ed as either fi nancial or operational leases. In a fi nancial lease, the fi nancial risks and benefi ts related to ownership are essentially transferred to the lessee. If that is not the case, it is an operational lease. The Anoto Group has no signifi cant fi nancial lease contracts.
Receivables and liabilities in foreign currencies
Receivables and liabilities in foreign currencies are repor ted at the exchange rate on the balance sheet date, and unrealised exchange gains and losses are included in earnings. Exchange gains/losses on operating receivables and liabilities are repor ted as other operating income/expenses.
Exchange rate differences on fi nancial receivables and liabilities are repor t- ed as fi nancial items.
Financial instruments
The Group’s fi nancial instruments consist mostly of accounts receivable, liquid assets, accounts payable and fi nancial derivative instruments in the form of currency forward contracts.
Accounts receivable
Accounts receivable are repor ted net after deducting doubtful accounts receivable. Provisions for doubtful accounts receivable are based on an individual assessment in view of expected bad debt losses.
Liquid assets
Liquid assets consist of cash and bank balances, as well as current invest- ments. A current investment is classifi ed as a liquid asset if it can easily be conver ted to cash at a known amount and it is exposed to only a negligible risk of value fl uctuations.
Accounts payable
Accounts payable are repor ted at the amount the company plans to pay the supplier in order to liquidate the debt.
Currency forward contracts and hedge accounting
The Group uses currency forward contracts to hedge the net fl ow of euros for six months at a time. The size of each contract is based on roll- ing liquidity forecasts for upcoming periods. The Group continually orders contracts in line with the actual infl ow of euros. The primary purpose of hedging is to shield the Group from large, sudden declines in the value of the euro. Hedging does not meet the criteria of IAS 39, Financial Instruments:
Disclosure and Presentation, for hedge accounting. Thus, changes in the value of all currency forward contracts are repor ted in the income state- ment as fi nancial income/expense.
Inventory
Inventory, consisting of fi nished products and critical components, is repor ted at historical cost (in accordance with FIFO) or net realisable value, whichever is lower.
Pensions
All pension commitments have been taken over by insurance companies and classifi ed as defi ned contribution pension plans. Pension premiums are carried as expenses in the period that employees rendered the associated services.
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Non-current assets for divestment
Non-current assets are classifi ed as holdings for divestment if their repor ted value will be recovered primarily through divestment and not through on- going use. To meet that criterion, the asset must be available for immediate divestment as is, and it must be very likely as of the balance sheet date that the asset will be divested. Non-current assets for divestment are assigned repor ted value or fair value less selling expenses, whichever is lower.
Taxes
All tax deemed payable on repor ted earnings is repor ted in the income statement. The tax has been calculated in accordance with each country’s tax regulations and included in the tax on profi t/loss for the year item.
The Group’s total tax in the income statement consists of current tax on taxable earnings for the period and deferred tax. The Group’s tax consists primarily of current tax on taxable earnings of foreign subsidiaries for the period.
The Group uses the balance sheet method to calculate deferred tax assets and liabilities. In accordance with the balance sheet method, the calculation is based on tax rates as of the balance sheet date as applied to temporary differences between the repor ted and tax value of an asset or liability, as well as tax loss carry-forwards. Deferred tax assets are repor ted in the balance sheet only in amounts that can presumably be utilised within the foreseeable future.
Share-based payments to employees
As par t of incentive programmes, the Group has issued stock options and warrants to employees. The fair value of employee stock options on the distribution date are repor ted as a cost in the income statement. The fair value is calculated in accordance with the Black-Scholes Model. The total costs are allocated during the period in which the options are earned.
The cost is repor ted under administrative expenses. The counter-item is repor ted as shareholders’ equity under profi t/loss brought forward.
Policy for reporting cash fl ow
The cash fl ow statements are prepared in accordance with the indirect method, i.e., profi t/loss after fi nancial items is adjusted for transactions that have not given rise to payments or disbursements during the period, as well as for any income and expenses attributable to the cash fl ow of investing activities.
Provisions
A provision is repor ted when there is a commitment as the result of an event, it is probable that an outfl ow of resources will be required to settle the commitment and an amount can be reliably estimated. The following provisions are repor ted in the balance sheet: restructuring, product warranties, taxes and other.
Contingent liabilities
Contingent liabilities are repor ted if there is a possible commitment that is confi rmed only by multiple uncer tain future events and it is unlikely that an outfl ow of resources will be required or that the size of the commitment will not be calculable with suffi cient precision.
Disclosures about related parties
For disclosures about the company’s transactions with related par ties, refer to Note 12, remuneration for senior executives. There were no other transactions with related par ties. Sales also include royalties of SEK 2.6 million on the selling of Logitech’s digital pens. Logitech holds 5.4% of Anoto shares and has one seat on the Board of Directors.
Segment reporting
Anoto’s primary segments are based on the Group’s business units. In segment repor ting, the various business units, regardless of legal entity or geographic location, are repor ted separately. The Anoto business unit includes income and expenses related to digital pens and paper, as well as sales of Anoto technology for use in intelligent image processing systems.
The Content and Applications business unit focuses on the design of development tools and the construction of a network for third-par ty developers, as well as the marketing of proprietary and third-par ty applications for the next-generation interactive pen (Pentop).
Anoto’s activities may also be allocated among market areas, the Group’s secondary segments. Anoto repor ts assets, liabilities and invest- ments in non-current assets for secondary segments even when the segment accounts for less than 10% of the Group’s value. The secondary segments are based on geographic location.
PARENT COMPANY
For details of the parent company’s accounting policies, refer to the Group’s accounting policies above. The discussion below is limited to the parent company’s deviations from the Group’s policies.
Leases
In accordance with RR 32, the parent company’s fi nancial lease contracts are repor ted as operational lease contracts.
Financial instruments
The parent company does not apply the presentation rules of IAS 39.
The parent company repor ts fi nancial fi xed assets at historical cost less any impairment losses and fi nancial current assets at the lower of cost or net realisable value. Currency forward contracts are not assigned any value.
Holdings in subsidiaries and associated companies
Holdings in group and associated companies are repor ted at historical cost.
If the repor ted value of the investment exceeds the recoverable amount (refer to section above on impairment losses), an impairment loss is recog- nised.
Shareholders’ contributions
Shareholders’ contributions are reported as an increase in the participations in group companies item, after which an impairment test is performed on the value of the shares.
Share premium reserve
As of 31 December 2005, contributions to the share premium reserve before that date are assigned to the statutory reserve.
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