Interim Report and Financial Statements - thinfilmnfc.com · The first quarter of Q1 2014 was a...

USA - San Jose

NFC Innovation Center

2865 Zanker Rd.

San Jose, CA 95134

Phone +1 510 438 6850

Norway - Oslo

Corporate Headquarters

Henrik Ibsens gate 100

PO Box 2911 Solli

0230 Oslo

Phone +47 23 27 51 59

Sweden - Linköping

Product Development Center

Westmansgatan 27B

582 16 Linköping

Phone +46 13 460 2400

Japan - Tokyo

Sales Office

15/F The Imperial Hotel Tower

1-1-1 Uchisaiwaicho, Chiyoda-ku

Tokyo 100-0011

Phone: +81 3 3507 5645

First Quarter 2014

Interim Reportand Financial Statements

Locations:

Interim Report and Financial Statements | First Quarter 2014

Contents

Highlights 2

Business Review 3

Shows and Events 5

Financial Report 6

Principal Risks 7

Outlook 7

Consolidated Statements 8

Notes 12

Contact

John Afzelius-JenevallChief Financial Offi cerMob.+47 95 87 96 80jaj@thinfi lm.no

• Thinfi lm customer delivered luxury goods containing Thinfi lm Memory™ to retail

• First orders for temperature-sensing labels; commercial agreements with Temptime and PakSense Inc., leaders in pharmaceutical and food monitoring

• Accelerated radio frequency (RF) roadmap with acquisition of industry’s only printed near fi eld communications (NFC) technology

• Continued ramp-up of production capacity for both Thinfi lm Memory™ and integrated printed electronic systems

Highlights

- 2 -


The first quarter of Q1 2014 was a transformational period for Thinfilm. Products containing

Thinfilm Memory™ were released in retail for the first time. Thinfilm received its first orders

for temperature-monitoring labels, and entered commercial agreements with Temptime and

PakSense, Inc., industry leaders in the monitoring of sensitive goods. The Company announced

its on-going collaboration with Brady Corporation, an international manufacturer of high-value

labels.

Thinfilm acquired the world´s only printed NFC technology from Kovio, Inc., adding an important

functionality to Thinfilm´s smart label system products. The acquisition accelerated Thinfilm´s

RF roadmap and generated significant buzz within industry circles and among leading business

publications.

First Products with Thinfilm

Memory™ Released in Retail

The first products containing Thinfilm Memory were released for retail distribution in Q1 2014. Thinfilm’s client, a luxury goods manufacturer, has launched retail field trials in the US across eight product lines, and has requested delivery of additional memory orders for launches globally.

Thinfilm Received First

Orders for Temperature-

Sensing Labels; Commercial

Agreements with Temptime

and PakSense

Thinfilm received the first orders for its temperature-sensing system products, in conjunction with commercial agreements with industry leaders in the monitoring of sensitive goods.

Thinfilm and Temptime, a leading provider of time-temperature indicators to the health care industry, announced a joint investment to bring Thinfilm´s technology to the pharmaceutical market. The labels will be designed to sense temperature excursions and communicate the data via a digital display.

Business Review

Thinfilm also completed a commercial distribution agreement with PakSense, Inc., a market leader in the development of products that monitor perishable foods. PakSense will sell Thinfilm´s temperature-sensing smart labels to food suppliers and retailers of produce, meat, and seafood throughout North America, South America, and Central America. Both agreements include pre-orders for commercial samples.

In addition, early in the first quarter Thinfilm announced its pre-existing collaboration with Brady Corporation, an international manufacturer of high-value labels.

Thinfilm Ramps Up

State-of-the-Art, Roll-to-Roll

Production

Thinfilm completed installation of a new Kroenert high-precision printer at its facility in Linköping, Sweden. Thinfilm´s proprietary processes for printing memory are showing some of the highest registration accuracy and line definition levels in commercial production. Installation was completed in January, all acceptance tests were successful, and the printer is now being readied for Thinfilm´s anticipated manufacturing and development requirements. The new system has an annual capacity of 200 million printed memory labels or 50 million integrated systems, and provides a platform for process development and pilot printing.

A Melzer pick-and place machine was installed in Linköping, and will be used to precisely mount integrated system components on backplanes for Thinfilm smart labels. Upon completion of all test-runs, Thinfilm anticipates acquiring additional pick-and-place capacity.

- 3 -


Thinfilm Accelerated

Roadmap to Wireless

Printed Systems

On 21 January, Thinfi lm completed its acquisition of the industry-leading printed-dopant polysilicon technology originally developed by MIT and Kovio, Inc. As part of the transaction, Thinfi lm acquired the industry´s only printed NFC technology, over 200 patents, and manufacturing equipment. The Kovio NFC communication protocol has been validated by the industry and is supported in major mobile platforms such as Google Android and the next releases of most major NFC controllers.

NFC Innovation Center

Established in

Silicon Valley

Thinfi lm established the Thinfi lm NFC Innovation Center in San Jose, California. The Company retained an experienced team of more than 20 Kovio employees who will build out the Center´s competence in design, process development, and manufacturing. During 2014, Thinfi lm expects to integrate printed NFC with its smart labels, making them wireless and readable with NFC-enabled smart devices.

”Predictions for the number of sensor systems needed range from 10s of billions to trillions. Those numbers just cannot be achieved in conventional electronics. A paradigm shift is required, and we believe that is printed electronics.” - Jennifer Ernst, EVP, Sales & Business Development, “Thinfi lm´s Printable Circuits” / EEWeb

“Thinfi lm´s approach uses smart labels and tags to make the Internet of Things possible.”- “A New Perspective on the Internet of Things” / Forbes

Thinfilm Catches the

Attention of Forbes and

The Economist

Thinfi lm caught the eye of two major business publications during the fi rst quarter. Forbes ran an article in mid February titled “A New Perspective on the Internet of Things.” Thinfi lm CEO Davor Sutija was interviewed and delivered his perspective on Thinfi lm´s plans to add intelligence to everyday objects. The second article was published in The Economist in early March and positioned Thinfi lm´s Kovio NFC Barcode™ product as a “new, more intelligent” alternative to its 40-year-old predecessor. Both pieces created signifi cant exposure for Thinfi lm´s printed memory and smart label systems, and generated several leads.

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About ThinfilmThin Film Electronics ASA (“Thinfi lm”) is a publicly listed Norwegian company with its headquarters in Oslo, Norway, product development and production in Linköping, Sweden, product development, production, and business development in San Jose, California, USA, and sales offi ce in Tokyo, Japan. In addition, manufacturing is provided through a production partner, InkTec, in Pyongtaek, South Korea.

Thinfi lm is a leader in the development of Printed Electronics. The fi rst to commercialize printed, rewritable memory, the Company is creating printed systems that include memory, sensing, display, and wireless communication, all at a low cost unmatched by any other electronic technology.

Thinfi lm’s roadmap integrates technology from a strong and growing ecosystem of partners. Our goal is to enable the Internet of Everything by bringing intelligence to disposable goods. Printing electronics uses far fewer process steps than traditional semiconductor fabrication. This reduces manufacturing costs and lessens the environmental impact of manufacturing electronic memory and logic.

Thinfi lm’s printed memory and logic are bringing low-cost electronics to the trillions of disposable products and items that we use every day. Low-cost, ubiquitous smart labels will store and communicate information, a vital part of the Internet of Everything. This is our Memory Everywhere™ vision.

Shows and Events• Thinfilm attended ODDO

Midcap Forum in Lyon, France, January 9-10

• Thinfilm exhibited and presented at the Anti-Counterfeiting and Brand Protection West Coast Summit in San Francisco, USA, January 27-29

• Thinfilm exhibited and presented at the European Packaging Summit in Berlin, Germany, January 28-29

• Thinfilm presented and exhibited at the FlexTech Conference in Phoenix, USA, February 3-6

• Thinfilm attended the Post Davos Nordic Summit in Stockholm, Sweden, February 17

• Thinfilm exhibited at the IP Protect Expo in London, England, March 11-12

• Thinfilm presented at Pacsem in Karlstad, Sweden, March 12-13

Thinfilm Product FamiliesMemory Labels: Thinfi lm Memory™ stores digital data on a label thinner than a human hair, for just a few cents. It is rewritable and permanent, storing data without the need for external power.

Brand Protection Solution: The Thinfi lm Brand Protection Solution™ is a two-part system that can help manufacturers protect their brands from counterfeiting and grey-market activity, as well as provide an effective means of refi ll authentication. It consists of adhesive labels that generate a distinct forensic electrical signature. A Thinfi lm Authentication Unit reads the label.

Sensor Labels: Thinfi lm is developing a line of intelligent labels that will sense information and store data for 80% to 90% less than the cost of conventional electronics. This is part of Thinfi lm’s vision to bring the Internet of Everything to even the lowest-cost items.

Display Labels: Thinfi lm Display Labels™ use ultra-low-cost display media to communicate information stored in the Thinfi lm Memory™. Data may be written to the memory through a contact-based interface, stored wirelessly or, as on our Sensor Labels, generated by other functions on the label.

NFC Smart Labels: Following the acquisition of Kovio´s NFC technology, Thinfi lm has accelerated its plans for the launch of NFC-enabled sensor and display labels. Thinfi lm’s Smart Labels™ will initially use the Kovio NFC Barcode™ protocol to enable seamless data exchange from a sensor label to a smart phone. The protocol is currently supported by Google Android and most major NFC controller manufacturers.

- 5 -


Condensed Consolidated Financial Report as of 31 March 2014Thinfilm has developed operations considerably, both in the last quarter, and compared to a year ago. Increased customer activities have led to increased revenues, and also increased manning and resource spend in order to meet current and future needs. The technical team in Linköping, Sweden, has more than doubled in size and Thinfilm established an NFC Innovation Center in San Jose, California, USA, after the acquisition of Kovio assets. This acquisition led to a spike in investment level in the quarter.

Thinfilm’s revenue and other income in the first quarter of 2014 amounted to NOK 7.0 million. Excluding the other income recognized in the quarter, total revenue was NOK 3.9 million, an increase of NOK 2.3 million, or 148%, compared to total revenue in the same period in 2013 (2013: NOK 1.6 million). Sales revenue amounted to NOK 2.1 million in the first quarter of 2014 (compared to NOK 0.9 million for the same period in 2013), and was largely related to technology access fees, product development projects, and delivery of prototypes and product to strategic customers and partners. Revenue related to government grants and other funded projects amounted to NOK 1.8 million in Q1 2014 (2013: NOK 0.6 million). Moreover, in the first quarter of 2014, Thinfilm acquired certain assets from Kovio, Inc., for USD 3.7 million. As described in IFRS3, this transaction has been classified as a “Business Combination”; this is detailed in Note 10. Management initiated a process to identify and determine the fair value of the assets required. Management engaged independent experts to assist in this process. The fair value estimate values the acquired assets at USD 4.2 million. Consequently, other income of NOK 3.1 million was booked in the first quarter. In addition, the Company sold excess equipment for NOK 0.2 million, bringing total other income to NOK 3.1 million in the quarter.

Operating costs (excluding depreciation and impairment charge) amounted to

NOK 35.7 million in Q1 2014, including the cost of share-based compensation of a negative NOK 4.8 million. The corresponding figures for the first quarter of 2013 were NOK 13.4 million and NOK 2.5 million, respectively.

The negative cost of share-based compensation in the first quarter of 2014 is explained by the decrease in the THIN share price during the quarter and the resulting decrease in value of the outstanding Employee Subscription Rights, thereby decreasing the payroll tax liability by NOK 7.2 million. Outstanding subscription rights and subscription rights granted during the quarter counterbalanced this to some extent by adding NOK 2.4 million to the share-based remuneration cost. The cash payroll tax expensed in Q1 2014 due to exercise of Employee Subscription Rights in the quarter amounted to NOK 4.7 million.

Excluding share-based compensation and depreciation, the underlying cost increase in the quarter was NOK 30 million compared to the same period in 2013. This increase is caused by 1) NOK 16 million higher payroll costs, as the number of employees at the end of the quarter trebled from 24 at the end of Q1 2013 to 73 on 31 March 2014. This increase is primarily a result of the establishment of the Thinfilm NFC Innovation Center after purchase of assets from Kovio, Inc. and increased manning in Linköping, Sweden. Payroll taxes payable on exercise of Subscription Rights in the quarter inflated payroll costs by NOK 5 million. Excluding this effect, the underlying payroll cost per FTE remained stable, 2) a NOK 5 million increase in external development costs due to the higher activity level with external development partners, and 3) NOK 4 million higher office and laboratory costs driven by the acquisition of manufacturing assets from Kovio, Inc. in California, as well as the ramp up of activities in the Linköping facility.

Investments in the quarter amounted to NOK 22.0 million in Q1 2014, an increase of NOK 20.9 million, compared to the same quarter 2013 (Q1 2013: NOK 1.1 million), dominated by the acquisition of assets from Kovio, Inc.

Depreciation in Q1 2014 amounted to NOK 1.3 million (Q1 2013: NOK 0.2 million).

Net financial items in the first quarter of 2014 amounted to a gain of NOK 1.1 million (Q1 2013: NOK 0.3 million), mainly related to interest income on cash deposits and variations in SEK and USD.

The company operates at a loss and there is a tax loss carry forward position also in the Swedish subsidiary, such that the group has not incurred any tax costs in 2014 or the prior year. The company has not recognized these deferred tax assets in its balance sheet, because this potential asset does not yet qualify for inclusion.

The net result in the first three months of 2014 was a loss of NOK 29.0 million, corresponding to a loss of NOK 0.06 per basic share. In Q1 2013, the loss amounted to NOK 11.8 million, corresponding to a loss of NOK 0.03 per basic share.

The group’s cash balance decreased by NOK 58.0 million in the first three months of 2014 (compared to a decrease of NOK 11.3 million in Q1 2013). The decrease in cash balance is explained by three principal elements: 1) an outflow of NOK 42.0 million from operating activities, 2) a NOK 20.7 million outflow from investing activities, primarily a result of the Kovio asset acquisition, and 3) a NOK 4.8 million inflow from financing activities, as a consequence of subscription right excercises during the quarter.

The cash balance on 31 March 2014 amounted to NOK 208.5 million, while cash net of receivables and payables amounted to NOK 193.6 million (including share-based liability of NOK 8.4 million, i.e., provisions for payroll tax expense associated with exercise of subscription rights). The cash balance on 31 March 2013 amounted to NOK 21.6 million, while cash net of receivables and payables amounted to NOK 20.1 million (including share-based liability of NOK 3.9 million).

The Company’s balance sheet comprises essentially cash, receivables, payables and accruals, and net equity.

- 6 -


Principal RisksIt is the duty of the Board to present the principal risks of Thinfilm and its business. Thinfilm is exposed to certain, however limited, financial risks related to exchange rates and interest level.

The Company’s predominant risks are market and business risks, summarized in the following points: 1) Many of Thinfilm’s intended markets are still immature, and there is a potential risk of delays in the timing of sales, 2) to some extent, Thinfilm is dependent on continued collaboration with existing technology, material, and manufacturing partners, and 3) product development risks related to eventual cost vs. functionality competitiveness of the products Thinfilm is developing.

Besides intellectual property, Thinfilm does not have any significant assets or liabilities with risk. Intellectual property is amortized on a systematic basis over the useful life of the individual asset and periodically assessed for impairment in accordance with IAS 36.

Going forward, Thinfilm foresees two important revenue sources: 1) sales of its own manufactured products and 2) licensing/royalty revenue, where partners and customers pay for the right to use the Company’s intellectual property rights (IPR). Thinfilm’s ability to earn revenue partly depends on continued successful technology and product development, as well as the Company’s ability to legally protect its IPR. This is, in turn, dependent on the Company’s ability to attract and retain competent staff and the adequacy of Thinfilm’s patenting and other IPR-protection activities.

The going concern assumption has been applied when preparing this preliminary financial report. The Board has formed a judgment that, as of the date of approving the financial statements, the Company

has adequate resources to fund operations for the foreseeable future.

On 31 March 2014, the equity amounted to NOK 242.1 million, representing 90% of the gross balance sheet and 462% of the share capital.

OutlookThinfilm concentrates its efforts around three main areas: 1) commercializing memory products, including brand protection, 2) developing and commercializing wireless, integrated systems and smart labels, and 3) building an ecosystem of partners and alliances to complement the Company’s own technology, and to license this technology to customers.

Thinfilm has a unique and cost-competitive stand-alone memory product and Brand Protection Solution™, and will continue to work toward large-scale com-mercialization of these products. The investment level may increase from current levels, as the Company may enter into joint venture structures with scale-up partners. In addition, Thinfilm will work toward commercialization of integrated systems such as the Thinfilm Display Label™ and Thinfilm Sensor Label™ for disposable goods, health care, packaging, and more. Thinfilm has established partnerships for display, sensor, and battery technology, and demonstrated the first prototype of a printed temperature-sensor label with battery in early October 2013. Commercialization of first-generation integrated systems is expected in 2014.

The integration of near field communication (NFC) into Thinfilm’s printed integrated systems is expected to offer additional growth opportunities. Applications for consumer mass markets will likely include brand protection, logistics, health care, and smart packaging. Successful demonstrations of prototypes and products are expected to attract significant

interest from prospective customers and partners, as well as from established companies offering competing products based on conventional technologies.

In January 2014, Thinfilm acquired technology, intellectual property, and manufacturing assets from Kovio, Inc. The acquisition provides Thinfilm with in-house NFC technology. Thinfilm expects to accelerate its wireless roadmap with demonstrations of NFC-enabled systems in 2014.

Thinfilm continues to see significant interest in the Company and its technology, and is in ongoing discussions with both existing and new parties. Both the Board of Directors and management are very optimistic that Thinfilm will be able to enter new commercial and strategic relationships in the near future for the development and commercializa-tion of printed integrated systems and Smart Labels™.

Oslo, Norway, 7 May 2014

The Board of Directors of Thin Film Electronics ASA

- 7 -


Thin Film Electronics ASA GroupCondensed consolidated interim fi nancial statements as of 31 March 2014 (Unaudited)

Consolidated statements of comprehensive income

Amounts in NOK 1000 Note

1 January - 31 March

2014


2013

1 January - 31 December

2013

Sales revenue 2 125 937 5 334

Other operating revenue 1 753 628 6 206

Other income 10 3 118 0 0

Total revenue & other income 6 995 1 565 11 540

Operating costs 8 (35 698) (13 377) (93 176)

Depreciation and impairment charge 3 (1 342) (231) (1 630)

Operating profi t (loss) (30 045) (12 042) (83 266)

Net fi nancial items 1 050 261 1 665

Profi t (loss) before income tax (28 994) (11 781) (81 601)

Income tax expense 0 0 0

Profi t (loss) for the period (28 994) (11 781) (81 601)

Profi t (loss) per share basic and diluted 5 (NOK 0.06) (NOK 0.03) (NOK 0.21)

Profi t (loss) for the period (28 994) (11 781) (81 601)

Currency translation 37 126 244

Total comprehensive incomefor the period, net of tax (28 957) (11 655)

(81 357)

- 8 -


Consolidated statements of fi nancial position

Amounts in NOK 1000 Note 31 March 2014 31 March 2013 31 December 2013

ASSETS 6

Non-current assets

Property, plant, and equipment 3 28 841 3 714 18 927

Inventory 1 339 0 0

Intangible assets 11 18 379 0 0

Total non-current assets 48 559 3 714 18 927

Current assets

Trade and other receivables 7 11 388 8 438 8 018

Cash and cash equivalents 208 479 21 585 266 435

Total current assets 219 867 30 023 274 453

TOTAL ASSETS 268 426 33 737 293 379

EQUITY AND LIABILITIES

Equity

Ordinary shares 4 52 456 38 918 51 879

Equity not registered 0 4 015 0

Other paid-in equity 426 263 118 783 413 413

Currency translation 348 193 311

Retained earnings (236 934) (138 120) (207 940)

Total equity 242 132 23 788 257 663

Liabilities 6

Trade and other payables 26 294 9 948 35 717

Total liabilities 26 294 9 948 35 717

TOTAL EQUITY AND LIABILITIES 268 426 33 737 293 379

- 9 -


Consolidated statements of changes in equity

Amounts in NOK 1000 NoteShare

capitalEquity not registered

Other paid-in equity

Currency translation

Retained earnings Total

Balance on 1 January 2014 51 879 413 453 311 (207 940) 257 703

Share issue to employees 462 4 402 4 864

Share-based compensation 2 395 2 395

Costs related to issuance of shares (21) (21)

Share issue as part of Kovio transaction 115 6 034 6 148

Comprehensive income 37 (28 994) (28 957)

Balance on 31 March 2014 52 456 426 263 348 (236 934) 242 132


Warrants exercise 11-22 March 4 015 4 015



Balance on 31 March 2013 38 918 4 015 118 783 193 (138 120) 23 789


Warrants exercise 11-22 March 1 339 25 431 26 770

Share issue 8 May, board remuneration 4 9 9


Share issue to employees 150 1 253 1 403

Share issue 02 October Invesco 6 160 126 645 132 805

Share issue 29 October PARC 48 2 349 2 398

Share issue 30 October Invesco 5 133 129 059 134 192

Share issue 20 December PARC 121 6 019 6 141


Balance on 31 December 2013 51 879 413 413 311 (207 940) 257 663

- 10 -


Consolidated cash fl ow statements

Amounts in NOK 1000

Note


2014


2013

1 January - 31 December

2013

CASH FLOW FROM OPERATING ACTIVITIES

Operating profi t (loss) (30 045) (12 042) (83 266)

Share-based payment 4 2 395 1 280 5 154

Depreciation and impairment 3 1 342 231 1 630

Changes in working capital and non-cash items (15 656) (3 869) 28 401

Net cash from (used) on operating activities (41 963) (14 400) (48 082)

CASH FLOW FROM INVESTING ACTIVITIES

Purchase of property, plant, and equipment 3 (5 243) (1 058) (15 147)

Acquisition of business activity (16 711)

Interest received 1 218 88 1 446

Net cash from (used) on investing activities (20 736) (970) (13 701)

CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from issuance of shares 4 4 822 4 015 295 170

Net cash from (used) on fi nancing activities 4 822 4 015 295 170

Currency translation effects on cash and bank deposits (78) 90 198

Net increase (decrease) in cash and bank deposits (57 956) (11 265) 233 585

Cash and bank deposits at the beginning of the period 266 435 32 850 32 850

CASH AND BANK DEPOSITS AT THE END OF THE PERIOD 208 479 21 585 266 435

The notes on the following pages are an integral part of this condensed interim fi nancial report.

- 11 -


Notes to the Consolidated Financial Statements

Thin Film Electronics ASA (“Thinfilm” or “the Company”) was founded on 22 December 2005. Thin Film Electronics ASA Group (“Thinfilm”) consists of the parent company Thinfilm ASA and the subsidiaries Thin Film Electronics AB (“Thinfilm AB”), Thin Film Electronics Inc. (“Thinfilm Inc.”) and Thin Film Electronics KK (“Thinfilm KK”). The group was formed on 15 February 2006, when Thinfilm ASA purchased the business and assets, including the subsidiary Thinfilm AB, from Thin Film OldCo AS (“OldCo”). Thinfilm Inc. was incorporated in the US during April 2011, and similarly, Thinfilm KK was incorporated in Japan during January 2013. The accounting year corresponds to the calendar

year. Thinfilm AB is held 100% and has been consolidated since 15 February 2006. Thinfilm Inc. is held 100% and has been consolidated since 1 May 2011. Thinfilm KK is held 100% and has been consolidated since 1 February 2013. The purpose of Thinfilm ASA is research, development, production, and commercialization of technology and products of physical storage of information, as well as related activities including participation in other companies. The Company is a public limited-liability company incorporated and domiciled in Norway. The address of its registered office is Henrik Ibsens gate 100, Oslo, Norway. The Company’s shares were admitted to listing at the Oslo Axess on 30 January 2008.

This condensed interim financial report for the first quarter of 2014 has been prepared in accordance with IAS 34 interim financial reporting. The condensed consolidated interim financial report should be read in conjunction with the consolidated annual financial statements for 2013. The IFRS accounting policies applied in this condensed consolidated preliminary financial report are consistent with those applied and described in the consolidated annual financial statements for 2013.

The going concern assumption has been applied when preparing this preliminary financial report. The Board has formed a judgment that, as of the date of approving the financial statements, the Company has adequate resources to fund operations for the foreseeable future.

On 6 September 2013 it was announced that funds managed by Invesco Asset Management Limited had agreed to acquire 56,000,000 shares in the Company at a subscription price of NOK 2.50 per share totalling NOK 140,000,000 (USD 23 million) equal to 13% of the shares in Thinfilm. At the 2 October 2013 Extraordinary General Meeting of Thinfilm, it was resolved to issue said shares, and upon subscription in the offering, Invesco also received 46,666,666 warrants, each with an exercise price of NOK 3.00. On 30 October 2013, the Board of Directors of Thinfilm resolved to accept Invesco’s exercise of said warrants implying another NOK 140,000,000 (USD 24 million) of capital for the Company.

This consolidated interim financial report has not been subject to audit. The report was resolved by the Board of Directors on 7 May 2014.

Amounts in NOK 1000 Tangible assets

Three months ended 31 March 2014

Net book value on 1 January 2014 18 927

Additions 12 027

Disposals 0

Depreciation, impairment, and other movements (2 113)

Net book value on 31 March 2014 28 841


Net book value on 1 January 2013

Additions

Disposals

Depreciation, impairment, and other movements

2 732

1 058

0

(76)


Year ended 31 December 2013

Net book value on 1 January 2013 2 732

Additions 17 825

Disposals 0

Depreciation, impairment, and other movements (1 630)

Net book value on 31 December 2013 18 927

Note 2 - Basis of preparation, accounting policies, and resolutions

Note 1 - Information about the group

Note 3 - Property, plant, and equipment

- 12 -


Number of shares Number of shares

Shares on 1 January 2014

Share issue as part of Kovio transaction

Share issue to employees 27 February

471 625 812

1 041 584

4 200 000

Shares on 31 March 2014 476 867 396

Shares on 1 January 2013 353 801 392

Shares on 31 March 2013 353 801 392

Shares on 1 January 2013 353 801 392

Warrants exercise 11-22 March 12 172 500

Share issue 8 May board remuneration 84 000

Share issue 15 August employees 62 500

Share issue 27 August employees 250 000

Share issue 23 September employees 750 000

Share issue 2 October Invesco 56 000 000

Share issue 29 October PARC 437 911

Share issue 29 October employees 175 000

Warrants exercise 30 October Invesco 46 666 666

Share issue 7 November employees 125 000

Share issue 20 December PARC 1 100 843

Shares at 31 December 2013 471 625 812

Number of warrants and subscription rights1 January -

31 March 20141 January -

31 March 20141 January -

31 December 2013

Warrants and subscription rights opening balance 25 325 000 35 100 000 35 100 000

Grant of incentive subscription rights 3 060 000 300 000 6 950 000

Terminated, forfeited, and expired subscription rights (120 000) - (2 862 500)

Exercise of subscription rights (4 200 000) - (1 362 500)

Allotment of warrants - - 46 666 666

Exercise and expiry of warrants - (12 500 000) (59 166 666)

Warrants and subscription rights closing balance 24 065 000 22 900 000 25 325 000

Note 4 - Shares, warrants and subscription rights

- 13 -


1 January - 31 March 2014

1 January - 31 March 2013

1 January - 31 December 2013

Profit (loss) attributable to shareholders (NOK 1000) (28 994) (11 781) (81 601)

Weighted average basic number of shares in issue 474 746 868 353 801 392 383 795 352

Weighted average diluted number of shares 487 881 116 362 817 546 395 647 389

Profit (loss) per share, basic and diluted (NOK 0.06) (NOK 0.03) (NOK 0.21)

When the period result is a loss, the loss per diluted number of shares shall not be reduced by the higher diluted number of shares, but the diluted result per share equals the result per basic number of shares.

The diluted number of shares has been calculated by the treasury stock method. If the adjusted exercise price of subscription rights exceeds the average share price in the period, the subscription rights are not counted as being dilutive.

Thinfilm does not have any contingent assets or liabilities. Thinfilm has not issued any guarantees. However, as a part of assuming manufacturing assets of Kovio, Inc., as mentioned in Note 9 below, Thinfilm in January 2014 issued a USD 600,000 Letter of Credit to the landlord of the Thinfilm NFC Innovation Center.

On 31 March 2014, trade and other receivables amounted to NOK 11.4 million. The main components of this balance are accounts receivables (NOK 5.1 million), VAT-related receivables (NOK 1.6 million), and pre-payments to suppliers (NOK 3.9 million).

In the period 1 January - 31 March 2014, Thinfilm has recorded NOK 750 thousand (net of VAT) for legal services provided by law firm Ræder, in which Thinfilm’s Chairman is a partner.

In the same period the Company has recorded NOK 475 thousand (net of VAT) for services provided by Robert N. Keith, a shareholder of Thinfilm, related to a service agreement under which he assists Thinfilm in strategic analysis and in dealing with larger, international, prospective partners.

Also, in the first three months of 2014, PARC, a shareholder of Thinfilm, supplied the Company with services, licenses, and materials for a value of NOK 2.2 million (net of VAT).

Note 5 - Profit (loss) per share

Note 6 - Contingent assets and liabilities

Note 7 - Trade and other receivables

Note 8 - Related party transactions

Since 31 March 2014 and until the date of these financial statements, the Board has granted a total of 930,000 subscription rights at an exercise price of NOK 5.00 per share under the subscription rights-based incentive program resolved by the annual general meeting 2014.

Note 9 - Events occurring after the balance sheet date

On 21 January 2014, Thinfilm acquired certain assets, contracts, and processes from Kovio, Inc. for a total of USD 2.7 million in cash and USD 1.0 million in shares, both of which have been settled in full. Kovio, Inc. was a company active in the field of radio frequency-enabled products based on printed-dopant polysilicon technology. The acquired assets include Kovio’s technology, intellectual-property, and manufacturing assets located in San Jose, California, USA. Kovio has also assigned certain contractual rights to Thinfilm, e.g., the property lease in San Jose. Further, more than 20 former Kovio employees resigned from Kovio and became employed by Thinfilm.

The transaction constitutes a business combination by applying the definition in IFRS 3 Appendix A, as the assets are capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors.

The transaction is accounted for as a business combination in accordance with IFRS 3. The following table summarizes the consideration transferred on 21 January 2014, and the fair value of assets acquired.

Note 10 - Acquisition of assets from Kovio, Inc.

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Consideration on 21 January 2014

Amounts in NOK thousands1 January -

31 March 2014

Cash 16 712

Equity instruments (1,041,584 of ordinary shares) 6 169

Total consideration transferred 22 881

Identifi able assets acquired

Amounts in NOK thousands1 January -

31 March 2014

Property, plant, and equipment 6 809

Inventory 619

Intellectual property 18 379

Total identifi able net assets 25 802

The difference between total consideration transferred and fair value of assets presented in the tables above amount to NOK 2.9 million. This transaction constitutes a bargain purchase and the gain of NOK 2.9 million is recognized as other income.

Procedures used to measure the amounts

Management initiated a process to identify and determine the fair value of the assets acquired. The Company engaged independent experts to assist in this process. In particular, identifi cation and valuation of intellectual property rights required signifi cant management judgment and estimates.

Amounts in NOK 1000 Intangible assets


Net book value on 1 January 2014 0

Additions 18 379


Note 11 - Intangible Assets

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