2 General information Directors M. Opstad (Chairman) J. A. Heap (Chief Executive Officer) R. Keith T. Fussell Registered Office Martin Linges vei 25 Snarøya Norway Solicitors Advokatfirma Ræder, Wisløff, Aasland & Co. ANS Vika Atrium, Oslo Norway Bankers DnBNOR, Oslo Narvik Sparebank, Narvik Auditors Ernst & Young AS Oslo Atrium, Oslo Norway Content Innhold Business concept 3 Forretningskonsept 21 Corporate governance 4 Eierstyring og selskapsledelse 22 Annual Report 25 6 Årsberetning Profit and loss account Resultatregnskap 35 Balance sheet Balanse 36 Cash flow statement Kontantstrømoppstilling 39 Notes to the financial statements Noter til regnskapet 4 Auditor s report Revisjonsberetning 57
3 Idex is a research company specializing in the development of fingerprint recognition technology, navigation and on-screen pointer. Fingerprint recognition is the leading field in the fast expanding biometrics industry. Idex believes that its technology is inherently suited in all forms of hand-held devices, especially mobile phones. Idex offers a high tech solution combining biometric identification with navigation capabilities; Navigation and pointing for simple menu handling Micro-joystick functionality for advanced gaming applications Fingerprint authentication and verification for security Our goal is to be a leading developer and licensor of intellectual property in the aforementioned fields. One of the strengths of any technology company lies in its intellectual property rights (IPRs). Idex has filed a number of biometric related patent applications since the beginning in The patent portfolio today consists of 11 patent families. In addition there are five patents that have been granted in Norway, but have not been continued internationally. The 11 patent families comprise applications and patents in the United States, Japan and Europe. Idex has worked closely with SINTEF 1 since 1997 and has an exclusive worldwide license to use, develop and commercially exploit the Idex/SINTEF main patent family relating to fingerprint recognition devices. Idex continues to develop further patentable inventions. 1) Norway s SINTEF Group is the largest independent research organization in Scandinavia.
4 Idex 25
5 Idex s business model is to invest in biometric research and development and engage in partnerships with leading producers of semi-conductors who have the organization and facilities to mass-produce and market the technology worldwide. Production and distribution rights are to be licensed to partners on a non-exclusive basis. In addition, Idex may choose to have the sensor manufactured to its own specification and sell units directly to a device producer. Revenues will be generated from license fees on IPR and sale of individual module shipments.
6 The Board of Directors firmly believes that the increasing attention to corporate governance is beneficial for public companies and investors, and welcomes the publications by Oslo Børs et al of a Norwegian code of practice for corporate governance ( the Code ). In this annual report the Company will set forth its compliance with the Code, dated 7 December 24, as well as explain the areas where the Company does not fully comply with the recommendations of the Code and the underlying reasons. The Company will integrate the revised Code, dated 8. December 25, from the 26 financial year. Basic values Idex seeks to create sustained shareholder value. The Company pays due respect to the norms of the various stakeholders in the business. In addition to the shareholders, Idex considers its employees, the Company s business partners, society at large and the authorities as stakeholders. Idex is committed to maintain a high standard of corporate governance, be a good corporate citizen and demonstrate integrity and high ethical standards in all its business dealings. The Board believes that the Company has adequate monitoring and control systems in place to ensure insight and control over the activities. Relations with shareholders, equity and dividends The Board has proposed to the General Meeting only modest authorizations for share issues and incentive schemes. Such Board authorizations have explicitly stated the type of transactions in which the authorizations may be applied. In line with the recommendations of the Code, board authorizations are limited to a period ending at the next annual meeting of shareholders or 3. June of the calendar year following the respective annual meeting of shareholders, whichever comes first. Idex has never paid any dividends on its shares. The Company does not anticipate paying any cash dividends on its shares in the near future. Idex intends to retain future earnings to finance operations and the expansion of its business. Any future determination to pay dividends will depend on the Company s financial condition, results of operations and capital requirements. The Company places great emphasis on ensuring equal treatment of its shareholders. The Company has one class of shares and all shares have the same voting rights. All shares are freely assignable. There are no restrictions on negotiability included in the Articles of Association. Idex 25 The General Meeting of shareholders provides a forum for shareholders to raise issues with the directors. Non-Norwegian residents will receive the Notice in the English language. The Board endeavours to provide comprehensive information in relation to each agenda item in order to facilitate productive discussions and informed resolutions at the meeting. Board of Directors The Company is on a running basis evaluating to seek a public listing of its shares and, in this regard, the Board will propose that measures are taken so as to ensure that the applicable independence criteria relative to its Board of Directors are met. Even though all directors are required to make decisions objectively in the best interest of the Company, the presence of independent directors is intended to ensure that additional independent advice and judgment is brought to bear. Idex believes that at this stage of its corporate life, it is beneficial for the Company and its shareholders that members of the Board of Directors and the executive management team are also shareholders in the Company. At the start-up and development stage, a company frequently faces critical crossroads, which require the intuition and decisiveness typical of active and focused investors. The Company and its directors ensure strongly that active ownership does not in any way affect or interfere with proper performance of the fiduciary duties which the directors and management owe the Company and all of its owners. With a compact Board, there has not been any need for subcommittees to date. The future need for any subcommittee(s) is considered continuously.
7 The Board of Directors believes that it is essential, at this juncture of the Company s operations, that the Board has insight into the technical, operational and commercial aspects of the Company s work. This arrangement has served the Company well to date. The division of work and responsibility between the Managing Director and the Board is based on applicable laws and written instructions. Remuneration During the period 21 to 25, the annual board remuneration to each Board member has been a cash payment of NOK 2. Certain of the executive Board members have also received remuneration for work in capacities other than as Board members. Such remuneration consists of a package of cash and incentive stock options and/or subscription rights granted in 2 and 21. Such incentive plans are approved by the shareholders of the Company. All executive Board members shall ensure that such incentive arrangements in regard to their executive functions do not in any way affect or interfere with proper performance of the fiduciary duties, which the executive directors owe the Company and all of its owners. For the senior managers and all other employees Idex offers market-based compensation packages consisting of cash and incentive subscription rights in order to attract and retain the competence, which the Company needs. No golden parachutes are in effect, and postemployment pay will only apply in case the Company invokes contractual non-competition clauses. Information/reporting The Board places great emphasis on the relationship and communication with shareholders. The primary channels of communication are the Quarterly Interim Reports, the Annual Report and the associated Financial Statements. Idex also issues other notices to the shareholders when appropriate. Since being admitted to the A List on the Norwegian Over The Counter ( NOTC ) market, all reports have been issued in the NOTC system. The reports and other pertinent information are also available on the Company s website, The financial reporting of Idex is fully compliant with applicable laws and regulations. As of 1st January 25, Idex adopted the International Financial Reporting Standards (IFRS). Auditors Idex auditor is fully independent of the Company. Idex represents a minimal share of the auditor s business. Idex does not obtain business consulting or tax planning advice from its auditor, but has received technical assistance related to the Annual Tax Returns.
8 Main activities in 25 A very encouraging trend that we have observed throughout 25 has been the increased interest towards, and introduction of, fingerprint technology and biometrics. The market has proven slow in embracing this new technology, but is now beginning to realize the benefits it can provide for devices that are given still more and valuable features (e.g. mobile banking and m-commerce). In line with this trend we have strengthen our staff significantly both on the commercial side as well as the technical side to facilitate the transition from a pure research and development stage into a commercial stage. Idex s marketing efforts are focused primarily towards the wireless market and the Company is also increasing its focus towards the networks segment. The technology development has primarily been focused on finalizing the integration of the SmartFinger technology onto the Idex 25 OMAP mobile platform from Texas Instruments (TI) and the industrialization of Smartfinger. In March 26 the Smartfinger was successfully ported to the 161 platform in the OMAP family. The industrialization activities with ST Microelectronics have proven to be significantly slower than anticipated. Hence, the Company has explored and engaged second source alternatives.
9 Market segments and trends Idex target market segments The Company s primary focus is the wireless market. Additional market segments, which the Company addresses, are network and multimedia applications. Wireless Network Mobile phones PC s & laptops The mobile phone market, which is one of the Company s main focus areas, has during 25 registered a continuation of the positive trends that have dominated the industry over the previous years. The worldwide shipments reached 81.5m handsets up 19 per cent from 24. A combination of new and emerging markets, a continued high pace of innovation and the change in utility from a communication tool to a fashion object indicates that this growth will continue also in the coming years. Because of the characteristics of the mobile phone market and the features and functions offered by Idex s SmartFinger techn ology, the Company focuses strongly towards mobile phones. According to Gartner the worldwide personal computer (PC) sales increased by 15.3 percent in 25 to 218.5m units, from 189.5m in 24. The growth industry saw the greatest increase in Asia Pacific and Latin America further more the demand for portable computers was key to the overall market growth. The Idex technology is capable of managing all the functions of today s touchpads and, given its limited size will free considerable real estate on the device. In addition it offers the user security, something that is not provided for in today s touchpads. In the course of 25, fifteen different PC manufacturers, among them IBM/Lenovo and Toshiba, introduced one or several products containing a fingerprint swipe sensor for password replacement.2 PDAs/smart phones Worldwide personal digital assistant (PDA) shipments totalled a record 14.9 million units in 25, a 19 percent increase from 24, according to Gartner, Inc. The 25 results topped the previous record of 13.2 million PDAs shipped worldwide in 21. RIM (Blackberry) remains the market leader, but is followed closely by Palm and Hewlett Packard. HP launched their first PDA with a fingerprint swipe sensor for user authentication in 22 and has followed on with new similar product releases in their ipaq series in 24 and 25. USB flash drives USB flash drives are compact and easy-to-use devices that are similar in use to your computer hard drive; it is a small portable storage unit. In a recent study, Gartner projects that by 29 worldwide shipments of USB Flash Drives will reach million units. The research organization further states that by 28, global USB flash drive shipments will reach more than $2.8 billion compared to $1.4 billion in 24. As the usage of such devices becomes more widespread, security concerns grow. In the current format these devices, once lost are easily accessible. If protected by a fingerprint authentication solution, data can be protected from unauthorized users and thereby be safely stored on the device. 2) 14/3/6
10 Multimedia MP3 players A MP3 player is a data storage device with an embedded software application that allows users to transfer MP3 files to the player. MP3 players also include utilities for copying music from CDs or Web sites and the ability to organize and create custom lists of songs in the order you want to hear them. The global shipment of flash MP3 players, meanwhile, is expected to increase to million units in 26 from million units in 25 and 24.8 million units in 24. Led by devices such as the Apple ipod, predictions show shipments of MP3 flash memory music players surging to nearly 124 million units in 29. That is a 37 percent increase from the 26.4 million units shipped worldwide in 24.3 SmartFinger user-authentification and navigation is inherently suited for MP3 players. Set top boxes A set-top box is a device that connects to a television and some external source of signal, and turns the signal into content then displayed on the screen. Worldwide unit shipments reached 12.2 million in 25, up from 1.8 million in 24. For the first time in the history of the market, shipments of advanced digital set top boxes exceeded basic digital box unit shipments in 25. Motorola and Scientific-Atlanta continue to be the leading manufacturers, accounting for 9 per cent 3) 8/3/6 4) 8/3/6 Idex 25 of all worldwide unit shipments through the first half of 25. Demand for all types of digital cable set top boxes, especially in North America and China, is going to remain quite strong in 26 and 27. Idex considers the set-top box market interesting, and is experiencing increased interest for SmartFinger s user authentification functionality also from this sector.4 Game consoles A game console is a device specially made for game play, where the player interacts with the game through a controller, a hand-held device with buttons and joysticks or pads. The added features that were introduced with the latest generation of game consoles have proven to be popular with many users, as they utilize DVD, CD, and online capabilities. As broadband connectivity is increasing and giving more people access to online gaming, these factors lead to expectations of an increase in demand for game consoles. Idex technology is envisaged integrated into the game console by placing two SmartFinger sensors on the console to navigate thereby eliminating the need for the buttons you find on today s devices.
11 Main focus and activities In 25 Idex participated and presented its technology at a number of recognized trade shows and conferences worldwide, including CommunicAsia in Singapore; Biometrics in London, England; The GSM World Conference in Cannes, France and CEBIT in Hanover, Germany. Idex s marketing efforts are focused primarily towards the wireless market; however the Company is increasing its focus towards the networks segment. This is due to the increased interest in biometrics that has developed from PC manufacturers with regards to the safety aspect of fingerprint technology. Marketing and sales efforts have been considerably increased in 25 and have been targeted at gaining market acceptance and demand from device manufacturers and semi-conductor manufacturers with a strong position as suppliers in the main target markets. Several commercial trips have been conducted to Asia and the US and feedback from the industry is optimistic and promising. It is evident that the market readiness is improving, which subsequently leads to a growing interest in the dual featured technology (biometrics and navigation) that Idex can offer. Partnerships/distributors Idex has assigned Teleca Korea as the Company s sales representation and distributor in Korea. Korea is currently considered one of the most important markets in the world for mobile phones and Idex will through this cooperation significantly improve the Company s presence in one of its main target markets. Teleca Korea will market and sell Idex s technology in Korea, as well as offer technical support and assistance to those companies that wish to implement the SmartFinger solution. Teleca Korea s cutting edge skills are wireless and mobile technology for mobile devices manufacturers, operators and enterprises. Idex will continue the work to establish similar partner ships in other key target markets such as Japan, China, Europe and the US. Integrated Solutions Although potential device manufacturers will be responsible for implementing the SmartFinger technology into their products, there is a need to be able to show how to use the SmartFinger technology to its best advantage. Idex is selectively addressing the most important hardware and software platforms, for which integration is demonstrated and blueprint solutions are developed. Idex is a member of Texas Instruments OMAP Developers Network. Members of the OMAP Developer Network deliver the software applications designed to drive next generation mobile entertainment and productivity. Idex has made SmartFinger available on TI s OMAP 161 platform. Having our technology available on a recognized and widely used technology platform will be an important step for Idex in gaining market acceptance and achieving market penetration for its technology.
12 An important development area for 25 has been to improve the integration of SmartFinger technology on the OMAP mobile platform from Texas Instruments Incorporated (TI). Idex has in March 26 completed the integration of the SmartFinger technology on the OMAP mobile platform from Texas Instruments Incorporated (TI). The fingerprint and navigation capabilities are now available for OMAP 161 processors and can be migrated to other platforms in the OMAP family as needed. Idex s technology allows fingerprint authentication and micro-joystick functionality in the same component. The implementation demonstrates how the SmartFinger technology increases personal and enterprise security on a mobile device, enabling protection of the device itself or protecting access to a corporate network, online transactions or internet banking. In addition, the application demonstrates the user s ability to use SmartFinger to navigate the phone menus and play games. Idex will concentrate on the development of further end-to-end solutions and has strengthened its internal resources through the recruitment of Electronic Systems Designers with experience from the field of embedded solutions. The Company intends to further enhance its capacity in this area both through additional internal and external resources 1 Idex 25 The industrialization activity with ST Micro electronics has proven to be slower than expected a year ago. Therefore alternatives for second sourcing have been investigated and industry expertise has been engaged to assist in defining the qualification program for the component. An alternative manufacturer of the sensorsubstrate has been chosen and the first prototype batch of the sensor-substrate delivered from this manufacturer is promising. Various manufactures of the ASIC are presently being evaluated in terms of quality, price and time-to-market. Depending on the internal processes of the manufacturer(s), SmartFinger is expected to be mass-produced in the first half of 27. In parallel to the industrialization of the sensor substrate and ASIC, component packaging variants are being developed and qualified for the complete sensor module. Printed Circuit Board assembly solutions and mechanical integration solutions are developed and qualified to fit the applications in the different product segments addressed by Idex.
13 Idex is a Norwegian public company, its activities are based at IT-Fornebu in Bærum and its shares are traded on the A-List of the Norwegian Stockbrokers Association OTC system. Idex is an independent entity with no subsidiaries. In line with Idex s full focus on industrialization and market penetration, the Company has continued to recruit key employees to facilitate the transition from a pure research and development stage into a commercial stage. The organization is divided into three main functions, namely Research & Development, Sales & Marketing and Operations. The latter function has the responsibility to establish and lead the Company s global production based on a fables foundry strategy and was introduced to the organization in Q1-26. The Finance & Administration function supports the aforementioned main functions. The Company practices equal opportunities in all aspects. Traditionally, fewer women than men have graduated or obtained a PhD degree in sciences relevant to Idex s activities: physics, chemistry and electronic components design. Because of the highly specialized field of work, the candidates available for recruiting have often been all male. The management structure reflects the composition of the technical staff. All facilities are equally well equipped for both women and men. There are no instruments, machinery or tools that require particular strength or other physical ability. All assignments and training/development activities are offered equally. The Company offers flexible working hours to all employees and all staff members have been equipped with home/portable office equipment, if practicable. The Board considers the equality as good as can be and have not found reason to initiate any particular program. The working environment at Idex is pleasant, stimulating and safe and beneficial for all employees. The working environment complies in all respects with the relevant laws and regulations. No specific actions have been considered necessary. There have not been any injuries to the company s employees at the place of work causing absence from work. No significant incidents involving the company s assets have occurred. The sick leave remains less than 2%. Idex activities do not pollute the environment. No hazardous materials are used in the operations in Bærum. 11
14 12 Idex 25
15 Financial review Year ended December 31st, 25 versus year ended December 31st, 24. (In the financial review all values are rounded to the nearest Norwegian krone, unless otherwise stated.) Revenues: Idex had zero operating revenues in 25. Payroll expenses: Manning was increased from eight to fourteen during the year. This increased the payroll expense to NOK compared to NOK in 24. Expenses related to share-based compensation was NOK in 25 compared to NOK in 24. Research and development expenses: External re- search and development expenses increased from NOK in 24 to NOK in 25. The increase in external research and development expenses is primarily attributable to industrialization of the SmartFinger and porting of SmartFinger to OMAP 161 processors. In 24 and 25 Idex received research and development grants from SkatteFunn. In 25 and 24 Idex received NOK 81 respectively NOK 879 which was set off against research and developments expenses. Net research and development expenses were NOK in 25 versus NOK in 24. Other operating expenses: Other operating expenses in 25 increased to NOK against NOK in 24. This reflects an increased level of activities and that the company is working towards a stock exchange listing. Costs related to the postponed IPO amounts to NOK in 25. EBITDA: The decrease in EBITDA is primarily a result of higher manning levels, industrialization activities, integration of SmartFinger on OMAP 161 processor and fees related to the postponed IPO-process. Depreciation on fixed assets remained relatively steady at NOK against NOK in 24. EBIT: EBIT was minus NOK in 25 against minus NOK in 24. The decrease in EBIT is primarily a result of higher manning levels, industrialization activities, integration of SmartFinger to OMAP 161 processors and fees related to the postponed IPO-process. Net financial profit: Net financial profit decreased to NOK from NOK in 24. The decrease in net financial profit is primarily driven by the interest income which was down significantly to NOK from NOK in 24 reflecting a smaller cash balance. Taxes: Idex paid zero income taxes in 25. Net loss: Net loss for the year was NOK against NOK in 24, reflecting a higher activity level. The Board proposes to charge the loss, in full, to the Share Premium Reserve. Total cash and bank deposits were NOK at year-end compared to NOK at year-end 24. Furthermore, the Company has warrants outstanding which, if fully exercised in the period up to the 1st of April 26, would raise a further NOK for the Company. During the year, the Company conducted share capital increases totalling NOK by way of issuing new ordinary shares in connection with conversion of warrants into shares and by exercising of options by employees. The Share Capital increased to NOK at year-end 25. The Share Premium Reserve increased by NOK as a result of the share issues, but, after allowing for costs and year-end allocation of losses the year-end Share Premium Reserve, including capital increase not registered, stood at NOK verses NOK in 24. The total equity of NOK of 31st December 25 is restricted. 13
16 Financial risk Subsequent events: An increase of Share Capital of NOK 43 corresponding to 86 new shares related to the exercise of subscription rights was registered in the Company Register January 1th 26. The total number of shares registered in the shareholders register after this transaction is shares which again corresponds to the share capital of NOK On February 7th 26 Idex ASA completed a private placing of ordinary shares at NOK 12 per share to raise a total of NOK net of charges. Following registration of the private placement in the Company Register ( Brønnøysundsregisteret ) on March 2nd 26, the Share Capital of Idex ASA increased from NOK to NOK and the number of shares increased from to Liquidity and capital resources: The cash flow statement illustrates that there was a decrease in cash and cash equivalents in the year ended 31st December 25 of NOK (24: NOK ). The decrease in cash flows from the prior year is primarily attributable to a higher activity level. The increases of share capital in January and March 26 contribute to the sound financial condition of the Company. The Board of Directors confirms that the financial statements of Idex ASA give a true and fair view of the assets, liabilities, financial position and net profit of the Company. Going concern The annual report is submitted under the premise that the Company is a going concern. The Board confirms that the conditions for the going concern assumption are met for Idex. The Company is in a sound financial situation. The Board anticipates that the Company s future earnings and available funds will be sufficient to meet the Company s anticipated needs for working capital and capital expenditures through at least the next 12 month period. Nevertheless, the Board may seek to raise additional funds during such period in order to strengthen its equity and secure sufficient funding for the future growth of the Company. 14 Idex 25 Risks relating to the Company s financial condition and business model includes the following: (i) Idex has a history of losses, the Company expects its expenditures to increase and expects future losses; (ii) Idex business plan depends on revenues from products, commercial acceptance of which so far remains unproven; (iii) revenues from the Company s products depend among other things on market factors, which are beyond Idex control; (iv) Idex may have difficulty developing relationship with key customers, many of which have already established relationships with the Company s competitors; and (v) Idex markets are highly competitive and are undergoing rapid technological change. In its business model and financial planning, the Board seeks to factor in all the foregoing and other risks that may be present regarding its activities. Shareholders The issued share capital of the Company at year-end 25 was NOK consisting of ordinary shares, each share having a par value of NOK.5. As of 31st December 25, there are warrants for shareholders over shares in issue. At 31st December 25 the largest twenty shareholders held 64.51% of the shares in issue compared to 67.1% in 24. The Board of Directors held a combined 16.25% of the shares in issue against 15.36% in 24. There were a total of 616 shareholders in the Company at year-end 25 compared to 638 in 24. Corporate governance The Board of Directors firmly believes that the increasing attention to corporate governance is beneficial for com panies and investors, and welcomes the recent publication of a Norwegian code of practice for corporate governance. The code of practice contains several stated recommendations for corporate governance. The Company places great emphasis on complying with the code of practice on all material aspects, while taking into account the size and type of the Company s operations. In a separate statement in the Annual Report, the Board issues a more comprehensive outline as to how the Company complies with the recommendations and, if the Company in some areas is not in full compliance, the grounds for such non-compliance.
17 Outlook Idex target markets are divided into wireless electronics, such as mobile phones and smart phones/pdas, and network and multimedia devices such as laptop computers, set-top boxes and game controls. In 25 the global mobile phone market continued to increase and reached 81 million handsets shipped. Estimates for 26 show sales continuing to increase to 93 million units, before reaching the 1bn mark in 27. Innovation and growth in the industry continues to be concentrated in Asia, particularly Korea and Japan. This is therefore a natural focus area for Idex also in the coming year. Other target markets including network and multimedia appliances are also experiencing large annual growth rates. A very encouraging trend that we have observed throughout 25 has been the increased interest towards, and introduction of, fingerprint technology and biometrics. The market has proven slow in embracing this new technology, but is now beginning to realize the benefits it can provide for devices that are given still more and valuable features (e.g. mobile banking and m-commerce). Idex will increase sales and marketing activities in 26 to address a growing interest in fingerprint technology in the expectation that SmartFinger will be commer cialized in 26. Considering that it takes a certain amount of time from the point where Idex enters into a commercial contract with a customer, until that customer launches a product which uses an Idex sensor, the Company believes that the first device featuring SmartFinger will be available for the end user at the beginning of 27 at the earliest. We will look to update shareholders with any develop ments at the General Meeting. Finally, we would like to thank the staff and our partners for helping to achieve a solid platform for commercialisation of SmartFinger and we look forward to a renewed period of growth and success. Fornebu, Morten Opstad Chairman of the board Robert Keith Board member John Andrew Heap CEO/Board member Thomas Fussell Board member 15
18 16 Idex 25
20 Content Innhold Business concept 3 Forretningskonsept 21 Corporate governance 4 Eierstyring og selskapsledelse 22 Annual Report 25 6 Årsberetning Profit and loss account Resultatregnskap 35 Balance sheet Balanse 36 Cash flow statement Kontantstrømoppstilling 39 Notes to the financial statements Noter til regnskapet 4 Auditor s report Revisjonsberetning Idex 25