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Business Report
To Shareholders and Investors —
Message from President
Results for this period
I greatly appreciate shareholders' warm support.
On the announcement of the 37th business results, I deeply apologize on behalf of the management team that the 37th period ended in net losses and we could not reach your expectations.
We have implemented many activities in recent years to grow out of a bad revenue structure, depending on the print server business of which products' lifecycle started getting into a decline period. On the premise that we rather accelerate the activities, especially since 2008 we have asked for shareholders' understanding by presenting a medium-term plan, explaining that a certain level of stagnation of revenues is unavoidable. We fostered to center our resources on launch of new products and business to replace the print server, and its outcomes were gradually surfacing. In these unsettled business conditions, big changes of the world's economy significantly affected us since fall 2008, and the situation is still deteriorating domestically and internationally after 2009. A decline of the office machinery market made the range of drop in sales of the print server expanded than we calculated, and sales of new product lines, which were on a growth track, were compelled to fall as well.
Given these situations, we cut down on the personnel and various costs and succeeded in reducing 3.22 million yen of 14.2% of the sales and administrative costs quarter-on-quarter while costs of goodwill amortization were adding up in consequence of changes of the accounting standard. However, it could not compensate for a fall of sales, and we posted a deficit for the first time since the listing.
And yet, there are some encouraging topics in the business fields other than the print server. Sales of some products augmented under the severe business condition.
New fields on the rise
Regarding a wireless module line, some are decided to be adopted to a handy terminal and an American medical equipment manufacturer, and its sales rose by 53% year-over-year.
Our detailed development support to device manufacturers started being evaluated, and we also have the impression that demand for wireless LAN in the industrial device market is actualizing.
In the arena of "the display networking", we are in the process of consistently raising case studies. Our transmission technology of audio and video was introduced for some cases in fields we initially did not anticipate, such as signage at stores and TV conference system at offices, chair-side monitors in the medical field, and displaying an operation manual at factories. We are expecting that the market of the display networking will be sufficiently mature.
We focus on "the device server" the most and position it as the primary product to replace the print server. However, unfortunately its sales declined since OEM business for consumers in the U.S. could not advance well under the impact of the world's recession. On the other hand, influential router makers started selecting our "USB over TCP/IP" technology, which is core software of the USB device server, and we are steadily reinforcing our customer base and are about acquiring advantage in the market.
Revision of assets appraisal due to a sales fall of Print Server
In performing the business reform, we reevaluated our assets which we had when the print server business were developing, and significantly compressed its value. Besides, we depreciated "goodwill" of 4.03 million yen of our US subsidiary as of the end of this period in view of earnings condition of the subsidiary and the economic environment in the U.S.
Furthermore, we closed a production site of the U.S. subsidiary by integrating it into Japan, downsized its personnel and relocated the U.S. subsidiary to a smaller office. We cut down on our assets by 17.95 million yen, including depreciation of regular assets, and all deferred tax assets. Afterwards, the equity capital ratio dropped to 44%, however we will actualize to enforce our financial strength at a stroke, and greatly reduced the depreciation costs arisen after 2010.
Status of cash flow and dividends
The period resulted in large net losses of 1,202 million yen, however it included many expenses items without outflow of cash, following assets depreciation we strengthened. Therefore the operating cash flow turned to plus of 88 million yen.
In addition, we spent 254 million yen for buying software for new products development and a molding as the investment cash flow. The financial cash flow dropped by 255 million yen due to repayment for debt loan, purchases of treasury stock and expenditure of dividends. The remaining cash and cash equivalents at the end of the period came to 1,860 million yen and are maintaining a sufficient level for running business.
We decide the amount of dividends as linking with our business results, considering our future necessary funds. We set the amount of dividends of this period 1,000 yen in light of the net losses and conditions of cash flow of the year.
We kindly ask for your understanding that the dividends went down compared to the past years.
We are planning to settle the dividends for 2010 on 1,000 yen same as this year on the assumption that we will reach our sales plan.
New corporate officers assumed as of March 26th 2010
We introduced the system of business units from last September as we already announced, and have established customer-based system, considering the economic situation slow to turnaround. It was determined at the board meeting after the shareholders' meeting on March 26th that we would demolish a title of the chairman, and Mr. Takeshi Kono assumed office as President and CEO, and Mr. David Smith as COO in charge of international business, in order to reinforce the customer-based strategy, to clarify our message to internal and external people and to make overseas business of mainly the U.S. sales office, which leads business transformation of our whole group, return to a growth path. We took this opportunity to further unite our top management team to perform operations. Besides, our system of governance was slightly changed as an outside director, Mr. Kazuhiko Kakegawa serves as chairman of the board meeting.
A plan, we said at the beginning, to get rid of the structure, excessively relying on the print server, which is a primary part of the medium-term plan, has been consistently moving forward. In 2010, we will strive for restoring growth with our new business and products of "the USB device server", "wireless modules" and "display networking" we have concentrated, and realizing to improve our revenues as the whole domestic and international staff of the company works together. We appreciate your continuing support for our activities.
Thank you,
Takeshi Kono
