Final Results

RNS Number : 6236B

Spectra Systems Corporation

19 April 2012

 



For Immediate Release                                                                                                     19 April 2012

Spectra Systems Corporation

Preliminary results for the twelve months ended 31 December 2011

Spectra Systems Corporation, a leading provider of advanced technology solutions for banknote and product authentication, is pleased to announce its preliminary results for the twelve months ended 31 of December 2011.

Financial highlights - all figures in (000's):

- Revenue exceeded expectations at USD 7,416 (2010: USD 7,278)

- Adjusted profit (before stock compensation expense) before taxation of USD 271 (2010: USD 584)

- Adjusted earnings per share (before stock compensation expense); in cents, of USD 0.01 (2010: USD 0.02)

- Basic earnings / (loss) per share; in cents, of USD (0.00) (2010: USD 0.01)

- Strong ungeared balance sheet, with net cash and investments of USD 23,767 (2010: USD 3,370) at December

  31.

- USD 20,514 (net) raised on admission to AIM on 25 July 2011

Operational highlights:

- Received and delivered orders for a significantly increased volume of covert consumable materials in 2011.

- Revenues from our phosphor business for 2011 were ahead of plan and significantly outperforming 2010.

- Technology evaluation process continues positively in Reserve Bank of India tender.  Final specification and 
  selection of vendors however is stalled due to well publicised issues with all paper suppliers to the RBI.

Commenting on the results, Nabil Lawandy, Chief Executive Officer, said:

"I am pleased to report that the Company's results exceeded expectations with regards to revenue as well as cash flow.  Our earnings are in line with forecasts which did not include annual stock exchange expenditures in the calculations.  As stated in the interim report, our results for the full year were weighted towards the second half of the year due to both ongoing contracts as well as the delivery in the second half of the year of back up inventory to a major central bank.

The Company has made steady progress in 2011 with the on time delivery of key milestones associated with the development of upgraded sensors for a G8 central bank. All milestones have been met and payments received as part of the acceptance process of the sensor design. Although we expect delays in the delivery of sensors in 2012, our total pipeline of future business continues to grow and we have not suffered any losses of expected business.

The Company has committed much time pursuing appropriate acquisition opportunities and expects to announce at least one acquisition before the end of the third quarter of 2012."

The Board therefore believes that the Company continues to have excellent long term prospects and has the potential to perform strongly in 2012.

Enquiries:

Spectra Systems Corporation
Dr. Nabil Lawandy, Chief Executive Officer	Tel: [phone]
WH Ireland Limited	Tel: [phone]
Chris Fielding (Head of Corporate Finance)

Chief Executive Officer's statement

The Company has exceeded its revenue and cash flow from operations projections for 2011.  Our earnings are also in line with expectations when first time annual stock exchange expenses for legal, nomad and accounting are factored in.  The revenue was driven by higher than expected demand for our covert consumables, the recovery of the phosphor business to its expected levels, and the on time delivery of key development milestones relating to the downstream delivery of upgraded sensors to an existing central bank customer.

The Company has maintained its entire key staff and has effectively utilized the versatility of its employees along with consultants to develop the plans for the new manufacturing facility expected to be online in 2012.  Our employees are the underpinning asset responsible for the success of the Company. Most of our employees have been with us for at least a decade, contributing in as many ways as possible to the growth of our business and supporting our customers at the highest levels of service.

Financial overview (000's)

Revenue exceeded expectations for the year with USD 7,416 (2010: USD 7,278). Orders placed in the second half of the year were above expectations. The adjusted profit before and after taxation for the year amounted to USD 271 (2010: USD 584) - before stock compensation expense and recurring listed stock exchange company expenditures.

Cash and investments at the period end amounted to USD 23,767 (2010: USD 3,370).  The company has no debt and is poised to execute on its acquisition and manufacturing plans with its cash reserves.

Strategy

The use of public security products as vehicles for the sale of our current and future machine-readable products into new central banks continues to be an important part of the Company's strategy.  This approach is currently being implemented through strategic partnerships with companies which are already selling products to the European Central Bank and Asian central banks.  These specific partnerships provide preparedness for the possible dissolution of the Euro currency and the opportunities which may arise from this.  This strategy is further supported by partnering efforts and contracts which will ensure that our key technologies, current and new, will have full compatibility with polymer banknotes.  In this way, we will be able to both maintain our existing users as well as be competitive in tenders where central banks have chosen polymer substrates for their banknotes.

We are planning on developing products for the banknote processing industry which will help central banks be more efficient in their operations and on expanding our in-house manufacturing capabilities to increase our gross margins on consumables. 

Management continues to commit considerable time to pursuing acquisition targets within the physical security industry as well as in related areas of security.  Specifically, we are targeting companies which provide security to banknotes, tax stamps and other government documents as well as suppliers of software systems to the gaming industry.  Both the tax stamp and gaming areas play a key role in harvesting revenues for municipalities and governments and hence we believe that they will exhibit sustainable growth.  We are primarily evaluating companies in the US and the UK which can be seamlessly integrated with our operations, and which are profitable.  Management is currently in the process of negotiations with several companies which squarely fit into our strategic plans and anticipates concluding at least one acquisition before the end of the third quarter of 2012.

Prospects

We continue to be on schedule with the delivery of engineering development and prototype milestones for the upgraded and new generation sensors. Execution of the materials contract component of the new technology continues to be delayed in spite of the completion of the definitive work scope document with the central bank. Our current estimate is that this development contract will begin in July of this year.  However, with regards to the sensor contract, the combination of an unspecified customer prototype evaluation phase which is out of our control and our inability to accelerate the development phase schedule, are likely to shift the contracted delivery schedule by six to nine months.  Delays not being at all desirable, the program is contracted and intact and we expect it to be fully implemented.

All of the equipment ordering as well as key staffing for the new in-house manufacturing of consumables is underway and the facility is on schedule to be operational during the fourth quarter of 2012.  This facility is expected to produce cost savings on our materials manufacturing and expected to increase net income from the sale of our consumables.

We have executed the second phase of a contract with a supplier of polymer substrates to qualify our machine-readable technology for polymer banknotes.  This is a significant large volume note test which will allow our products to be selected by any central bank choosing to use these longer lasting substrates which are expected to be incorporated increasingly in the higher denominations where our technologies are typically implemented.

We have recently received an unexpectedly large order from a current G8 central bank customer as part of an inventory build-up plan they have in place.  The order is 70% higher than the standing order and supports the importance of our products and the long view that our customers have towards their continued use.

We also expect to receive orders for three large quality control systems which are part of an upgrade driven by both service protocols as well as environmental compliance requirements which the central bank printing operation needs to implement.

Our submission for a covert security feature, in partnership with an existing supplier to the Reserve Bank of India (RBI) is continuing to progress at a slow pace.  The tender has been stalled by the RBI's discovery that all of its paper suppliers have at one point or another supplied out of specification paper.  Until this issue is resolved, the evaluation of security features and other banknote parameters will be delayed.

In parallel with the developments in the banknote authentication area, we have had a highly successful large scale test of our material-sensor combinations with one of the largest suppliers of heat sealable plastic films and machines.  We expect to have higher level negotiations during the second quarter to explore possible business structures to supply both materials as well as sensors.

Finally, we expect to close on at least one acquisition before the end of the third quarter of 2012 which support the strategic directions of the company.

The Board therefore believes that the Company continues to have excellent long term prospects and has the potential to perform strongly in 2012.

Nabil M. Lawandy

Chief Executive Officer

April 18, 2012

Statement of Income

for the year ended 31 December 2011

		2011	2010
		Audited	Audited
	Note	USD'000	USD'000
Revenue		7,416	7,278
	--------	------------------	------------------
Cost of sales		(2,897)	(2,929)
Gross profit		4,519	4,349
Adjusted operating expenses*		(4,376)	(3,771)
	--------	------------------	------------------
Adjusted operating profit		143	578
Other income		128	6
Adjusted profit before taxation	--------	------------------ 271	------------------ 584
--------------------------------------	--------	------------------	------------------
Taxation		-	-
Adjusted profit for the period		271	584
--------------------------------------	--------	------------------	------------------
Stock compensation expense		(411)	(219)
Basic profit / (loss) for the period		(140)	365
Adjusted earnings per share, in cents	2	0.01	0.02
Basic earnings per share, in cents	2	(0.00)	0.01
--------------------------------------	--------	------------------	------------------
Diluted earnings per share, in cents	2	(0.00)	0.01
--------------------------------------	--------	------------------	------------------

All of the Group's operations are continuing.

*Adjusted for stock compensation expense of USD 411 and USD 219 for 31 December 2011 and 2010, respectively.

Balance Sheet

as at 31 December 2011

		As at	As at
		31/12/11	31/12/10
		Audited	Audited
		USD'000	USD'000
Current assets
Inventories		812	839
Trade and other receivables		586	158
Cash and cash equivalents	3	17,861	3,370
Investments	3	5,906	-
Deferred tax asset		344	344
Other current assets		146	74
Prepaid expenses		80	53
--------------------------------------	--------	------------------	------------------
		25,735	4,838
--------------------------------------	--------	------------------	------------------
Non-current assets
Intangible assets		174	138
Property, plant and equipment		241	298
Restricted cash		1,050	1,000
Other assets		17	17
Deferred tax asset		902	902
--------------------------------------	--------	------------------	------------------
		2,384	2,355
--------------------------------------	--------	------------------	------------------
Total assets		28,119	7,193
--------------------------------------	--------	------------------	------------------
Current liabilities
Trade and other payables		1,145	400
Accrued expenses and other liabilities		658	650
Deferred revenue		1,780	1,471
--------------------------------------	--------	------------------	------------------
Total liabilities		3,583	2,521
--------------------------------------	--------	------------------	------------------
Contingent liability		- ------------------	- ------------------
Shareholders' equity
Convertible preferred stock		-	122
Additional paid in capital -
convertible preferred stock		-	26,041
Common stock		453	95
Additional paid in capital -
common stock		54,613	7,882
Accumulated other comprehensive (loss)		(922)	-
Accumulated deficit	--------	(29,608) ------------------	(29,468) ------------------
Shareholders' equity		24,536	4,672
--------------------------------------	--------	------------------	------------------
Total liabilities & shareholders' equity		28,119	7,193
--------------------------------------	--------	------------------	------------------

Statement of Cash Flows

for the year ended 31 December 2011

		Year to	Year to
		to 31/12/11	31/12/10
		Audited	Audited
		USD'000	USD'000
Operating activities
Profit / (loss) before taxation		(140)	365
Depreciation and amortisation		210	194
Stock compensation expense		411	219
Trade and other receivables		(428)	343
Inventories		26	(11)
Other assets		(64)	28
Prepaid expenses		(32)	2
Trade and other payables		744	(251)
Accrued expenses and other		8	(112)
Deferred revenue		309	(665)
Net cash provided by / (used in) operating  activities	-------	------------------ 1,044	------------------ 107
--------------------------------------	--------	------------------	------------------
Investing activities
Purchases of property, plant
and equipment		(84)	(92)
Payment of patent costs		(105)	-
Purchases of investments		(5,906)	-
Increase in restricted cash		(50)	-
	--------	------------------	------------------
Net cash used in investing activities		(6,145)	(92)
--------------------------------------	--------	------------------	------------------
Financing activities
Proceeds from initial public offering - net		20,514	-
	--------	------------------	------------------
Net cash provided by financing activities		20,514	-
	--------	------------------	------------------
Effect of exchange rate changes on cash
and cash equivalents		(922) ------------------	- ------------------
Net increase in cash
and cash equivalents		14,491	15
Cash and cash equivalents at
start of period		3,370	3,355
Cash and cash equivalents at	--------	------------------	------------------
end of period		17,861	3,370
--------------------------------------	--------	------------------	------------------

Notes to financial information

1. Basis of preparation

This report was approved by the Directors on 18 April 2012.

The results for the year ended 31 December 2011 have been prepared in accordance with the AIM Rules for Companies. This financial information has been prepared using the recognition and measurement principles of US Generally Accepted Accounting Principles.

The principal accounting policies used in preparing its financial statements for the year ending 31 December 2011 and are unchanged from those disclosed in the Company's Annual Report for the year ended 31 December 2010.

2. Earnings per share

The calculation of basic earnings per share figures for the year ended 31 December 2011 is based on the profit / (loss) attributable to ordinary shareholders of USD (140) (2010: USD 365) divided by the basic and diluted weighted average number of shares in issue, shown in the table below, which assumes that all preferred shares had converted to common shares prior to 1 January 2010.

	Year to 31/12/11		Year to 31/12/10
	Number of shares	Weighted average	Number of shares	Weighted average
Basic-
shares in issue	45,251,370	34,763,130	26,659,050	26,659,050
Share options	6,908,317	6,376,665	5,733,703	5,716,396
Diluted no. of shares		41,139,795		32,375,446

3. Cash and investments

Cash and investments; which include a certificate of deposit at Investec Bank expiring in May 2012, at the period end amounted to USD 23,767 (2010: USD 3,370). 

4. Copies of this statement will be sent to shareholders and are available to the public from the Registered Office at: 321 South Main Street, Suite 102, Providence, RI  02903 USA.

5. Nature of financial information

The Preliminary Announcement set out above is an extract from the forthcoming Annual Report and Accounts and does not represent statutory accounts for Spectra Systems Corporation.  The statutory accounts of Spectra Systems Corporation in respect of the period ending 31 December 2011 will be delivered to the Registrars of Companies before the Company's Annual General Meeting.

It is anticipated that the Annual Report and Accounts will be circulated to shareholders of Spectra Systems Corporation in May.

 

END

 

 

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