NEXT BIOMETRICS GROUP ASA Q November 25 th 2014 <<<<<

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1 NEXT BIOMETRICS GROUP ASA Q November 25 th 2014

2 Agenda 1 Highlights 2 The NEXT Fundamentals a) The Market b) The NEXT Positioning c) The nature of Fingerprinting 3 «In Depth» a) Mass production ramp-up b) Cost-down c) Sales d) Financials 4 Outlook 2

3 Highlights Leads pipeline (Q2) Traditional markets - 75 leads (50) Smartphones, Tablets & Notebooks - 27 leads (20) NEXT-enabled markets - 19 leads ( 7) Length of sales processes Traditional market - Size change (add 3-6 months) Smartphones, Tablets & Notebooks month (add 3-6 months) NEXT-Enabled markets months processes Sales Status Number of units shipped per September 30 th = Orders received to date for delivery in 2014 = Products NEXT 12*12 mm sized sensors Launched September 25 th 2014 Organisation Staff expanded from 28 to 36 employees 3

4 The Fundamentals.. 4

5 Recent key market developments Product launches significantly influencing the market HUAWEI Ascend Mate 7 Launched September 4 th 2014 Competing silicon area sensor Apple ipad Air Launched October 17th 2014 Apples own silicon area sensor

6 Size of addressable markets Total size of relevant part of key market segments in million units Traditional markets Smartphones & Tablets Notebooks & Accessories New NEXT-enabled markets n.a. n.a. n.a. n.a. n.a. n.a. Higher level security segments n.a. n.a. n.a. n.a. 6 n.a. NEXT aims to be a leading provider in all stronghold & segments Source: Company market view and intelligence n.a. 5 n.a. Total potential addressable market 2 billion units + annually in 2016 Competitiveness: = very good = good = medium = poor

7 Attractive technology enabling cost advantages.. NEXT modules meet the pricing requirements of all major present and targeted applications 1 The sensing principle The Active Thermal Principle is based on transfer of heat from sensor into finger ridges and valleys The production process The advantage of polysilicon Module level competitiveness The unique simplicity of the NEXT pixel designs allows for mass production using standard display fab processes Manufacturing in such LTPSfabs is done at very high yields and at a fraction of comparable competitors costs The sensor level competitiveness together with the NEXT ASIC allow for manufacturing of complete modules at very low cost levels 840 sensors per sheet manufactured NEXT s production cost is 70 80% LESS than alternatives of the same quality 7

8 at lower sales prices in all segments.. Competitive landscape Convenience focused small formats Formats offering both convenience & security Traditional markets USD USD 5-8 USD Smartphones, Tablets, Notebooks USD % BELOW COMPETITION 20-35% BELOW COMPETITION 8 Source: Company market view and intelligence

9 targeting a wide range of applications 25 + applications Traditional markets Smartphones & Tablets Notebooks & Accessories New NEXT-enabled markets 9 NEXT Sensor module variations

10 with significant competitive advantages.. Significantly lower pricing 70%-80 cheaper than same size silicon area sensors 20-35% lower cost than tiny competitive area sensors Uncompromised security & convenience Polysilicon technology allows robust sizes at low cost Company not forced to reduce size to stay price competitive Clean IP NEXT owns and controls the Active Thermal Principle No close competitors No overlap with others.. Flexibility of integration The NEXT module design allows low cost and fast adoptions to customer integration needs at module level 10

11 The Nature of fingerprinting.. sensor size.. No substitute for sensor size... Fingerprinting is about uniform capture and comparison of a statistically robust number of unique features in the human finger Minimum feature match requirement in a court of law = overlap of 8-12 minutia points The active area of the next sensors are 144 sqmm & 201 sqmm These sizes offers a high level of security and convenience for a very high %-age of a population Security and convenience are by nature opposite forces With tolerances for real life occurances of worn, wet, dry, dirty and damaged fingers reduced sensor size = reduced security and/or convenience Laws of nature apply: 11 Minimum sensor size used by quality dependent system integrators world wide = 148 mm2 (with a frame for finger placement guidance) Not realistic to compensate for small sizes by «fixes» in algorithms, etc.

12 ..uncompromised security and convenience.. Competitive landscape Convenience focused small formats Formats offering both convenience & security 30 mm 2 Format offering medium level of convenience at low level of security mm 2 New low cost formats targeted for launch in 2014 and mm 2 Smallest sensor area ever sold in volumes to mass market system integrators 201 mm 2 Size defined in collaboration with major world players in payments and public ID 230 mm 2 No.1 in silicon area sensor markets 10 mill+ sold (and used) FIPS approved 12 Source: Company market view and intelligence

13 In Depth Mass Production / Cost Down / Sales / Financials 13

14 expansion of capacity mass production Sensor Sensor coating ASIC Module & Assembly Component. Status mill unit lot completed and delivered in October Capacity 2015 Unlimited capacity One of the 3 rd party coating partners did not meet volume expectations in Q mill units per month Fast access to increase 2 million ASIC lot completed and delivered in H2-14 Unlimited capacity Capacity of 600 k + from Sept to Dec. ISO-9000 approved Dual sourcing offering TIER 1 customers Sharp ramp-up of capacity for NEXT Quarterly production capacity from Q = 5 million sensor modules

15 expansion of capacity mass production Sensor Sensor coating ASIC Module & Assembly Component. Status mill unit lot completed and delivered in October Capacity 2015 Unlimited capacity One of the 3 rd party coating partners did not meet volume expectations in Q mill units per month Fast access to increase 2 million ASIC lot completed and delivered in H2-14 Unlimited capacity Capacity of 600 k + from Sept to Dec. ISO-9000 approved Dual sourcing offering TIER 1 customers Sharp ramp-up of capacity for

16 expansions sensor coating NEXT NEWS : AFTER A 12 MONTH PROJECT --> ACCEPTANCE TEST COMPLETED Acceptance test of custom built machine completed To be moved to Innolux facilities. Fully operational from February Manufacturing capacity increase from 100 k per month to 1.8 mill per month cost of coating reduced from $ 1 + to less than 10 cents per sensor. 16

17 2015 capacity mass production Sensor Sensor coating ASIC Module & Assembly Component. Status mill unit lot completed and delivered in October 100 k per month at high cost 3 rd parties 2 million ASIC lot completed and delivered in H2-14 Capacity of 100 k pr month Q Capacity 2015 Unlimited capacity 1.8 mill units per month Fast access to further increase Unlimited capacity 3 ISO-9000 approved partners Capacity per month from Q in millions

18 expansion of capacity mass production Sensor Sensor coating ASIC Module & Assembly EXPANSION TO 3 ISO-9000 APPROVED PARTNERS Component. Status mill unit lot completed and delivered in October 100 k per month at high cost 3 rd parties 2 million ASIC lot completed and delivered in H2-14 Capacity of 100 k pr month Q4-14 Capacity 2015 Unlimited capacity 1.8 mill units per month Unlimited capacity 2 mill + capacity from Q Fast access to further increase 3 ISO-9000 approved partners

19 Continuously working towards reduced module cost 0% -10% -20% -30% -40% -50% -60% 3 COST DOWN Q4-2015: - ASIC process change - Volume related reductions Target Q production cost -70% -80% -90% 1 COST DOWN Q1-2015: - ASIC size reduction - Delivery of coating tool 2 COST DOWN Q2-2015: - Sensor volume milestone price down (contracted) -100%

20 sales / distribution.. VP Sales US in Ca FAE s in Seattle Partners : Fulcrum BIO-key VP Sales EMEA System level support VP Sales Asia Sales Manager China Sales Manager Taiwan 2 FAE s NEXT NEWS LAST DAYS WEEK - MONTH Distributor DuoDigit 20 TOTAL LEADS / PROJECTS Americas Asia EMEA TOTAL Traditional segments Phones/Tablets/Noteb «NEXT Enabled»

21 12*12 mm format smart phones, tablets and notebooks.. NEXT 12*12 sensor series launched Sepetember 25 th *12 mm sensor for notebook, tablet and phone integration (customizable fpc-module) (illustration) (photo) (photo) 22

22 The NEXT Generation Smartphones Sensor size, positioning and exterior design APPLE Sept 2013 & 2014 Tiny area sensor under home button SAMSUNG Feb 24th Swipe sensor Front side HUAWEI Sept 4th Medium area sensor 92 mm2 sensing area Back side 144 mm2 sensing area Camera and sensor in matching size and color Significantly better performance (144/92=1.52) Significantly lower cost

23 Sales and life cycle Tier 1 Projects... Lead time and dynamics of sales processes per segment «JUPITER» START months sales process DW 6 months ramp-up DELIVERIES months EOL No 2.. START months sales process --- DW 4-6 months ramp-up DELIVERIES months..eol H H H H H H

24 P&L statement Condensed consolidated interim P&L statement Comments Amounts in NOK figures are unaudited 2014 Q Q YTD Q YTD Q YEAR Operating revenue Other operating revenue Total revenue Payroll expense Other operating expenses Total operating expenses EBITDA Depreciations and amortizations Operating revenue NOK 1 243K in Q3 from delivering sensors. Operating expenses of NOK 16.4 million in Q3 compared to NOK 17.8 mill in Q2. Costs of goods sold and ramp-up expenses in Q3 are included in operating expenses. Options expenses reduced to NOK 0.3 million in Q3 compared to NOK 1.3 million in Q2 du to reduced accruals for employer contribution EBIT Net financial items Net profit (loss) for the period

25 Balance sheet Consolidated balance sheet Comments Amounts in NOK figures are unaudited Patents Machinery and office equipment Financial assets Total non-current assets Inventory Cash and cash equivalents of NOK million by end of Q3 compared to NOK million by the end of Q2. Inventory of NOK 29.4 in Q3, compared to NOK 16.3 in Q2. 26 Accounts receivables Other receivables Total receivables Cash and cash equivalents Total current assets Total assets Share capital Share premium-reserve Other paid-in capital Retained earnings Total equity Other non-current provisions Other non-current debt Total non-current liabilities Accounts payable Public duties payable Other current liabilities Total current liabilities Total liabilities Total equity and liabilities

26 Cash Flow Statement Condensed interim Cash Flow Comments Amounts in NOK Q Q figures are unaudited Profit (loss) before taxes Share based remuneration Depr. and Amort Change in working capital Net Cash from op. act Purchase of tangible assets Net cash from inv. act Proceeds non-current debt Share issue net of expenses Net cash financing NEXT consumed NOK 25.7 million in Q3 from operations. Same levels as previous quarters Negative cash from operations of 76.1 million in the first nine months of 2014 compared to negative cash flow from operations of NOK 10.7 million in the first nine months of In the first nine months of 2014, NOK 33.1 million was increase in working capital compared to a reduction in working capital of NOK 5.7 million in the first none months of Translation differences Net change in cash flow Opening cash balance Closing cash balance

27 Highlights & Outlook As of November 2014 Highlights 2014 Sold for delivery in 2014 = sensors Leads base grown to 125+ Organisation grown to 36 employees Outlook 2015 TIER 1 Design Wins in Smartphone / Tablet / Notebook segment Strong position in Traditional markets by end of 2015 Development of NEXT-Enabled Markets Cost level reduced by 50% by end of

28 The NEXT Biometrics opportunity. 1. Fingerprint market boom driven by Apple, Samsung & Microsoft 2. Structural mismatch between supply and demand 3. NEXT first to offer high level of security and convenience at mass market required cost 4. Shipping volumes to the mass market - World No 3 in Q on-going customer processes 6. Positioned to obtain a leading market position 29

29 Highlights 2014 Year of Ramp-Up Sales.. Organisational.. Financial.. Sales November Completed acceptance test of strategic coating equipment project Sales November sensor order from major Chinese solution provider Product September New 12*12 mm series launched Sales September sensor order from US based BIO-key International Organisation September NEXT hires 6 new high level engineers in Seattle Sales August NEXT Biometrics Sensors certified by Microsoft Sales August Signing of Distributor Agreement in Brazil DuoDigit Organisation August Hire of VP Sales EMEA Sales July First Notebook Design Win TIER 2 Sales July first sensors shipped in June Sales June Signing of Distributor Agreement in the US Fulcrum Biometrics Financial June Successful completion of the IPO NOK 192 mill raised Financial June FOXCONN invests in NEXT Biometrics and supports upcoming IPO Sales June FOXCONN and NEXT to explore multiple opportunities of co-operation Sales May sensor unit order from China Organisation May Svenn-Tore Larsen, Brita Eilertsen and Inger B. Ørstavik to join NEXT Board Sales April sensor unit order from India Sales April Strategic Partner Agreement Update 3 years contract Organisation March NEXT hires Charles Ng as VP Sales Americas- Opens office in Silicon Valley Sales March NEXT receives first order from India Other February NEXT joins the FIDO Alliance Sales January Leading Chinese System Integrator places purchase order Organisation January NEXT names Knut Stålen as new CFO Sales January Integration unit order for new mass market segment Other January Launch of Web site in English and Chinese 30