Thin Film Electronics ASA Annual Report 2017...regarding augmented reality (AR) experiences, and has...

Annual Report 2017Thin Film Electronics ASA

Contents

USA - San JoseNFC Innovation Center

2581 Junction AvenueSan Jose, CA 95134Phone: +1 408 503 7300

Follow Thinfilmwww.ThinfilmNFC.com

Norway - OsloCorporate Headquarters

Henrik Ibsens Gate 100PO Box 2911 Solli0255 OsloPhone: +47 22 42 45 00Email: [email protected]

United Kingdom - LondonSales Office

2 Eastbourne TerracePaddingtonLondonW2 6LGPhone: +44 203 865 6346

China - ShanghaiSupply Chain and Sales Office 柏摩电子（上海）有限公司

Room 1802, 18 FloorBao An Building800 Dong Fang RoadShanghai, China 200122Phone: +86 21 5116 7107Fax: +86 21 5116 7116

SingaporeSales Office

71 Robinson Road#14-01Singapore 068895

Sweden - LinköpingDevelopment Office

Westmansgatan 27B582 16 LinköpingPhone: +46 13 460 2400

GermanySales Office

WeWorkAxel-Springer-Platz 3, 20355 Hamburg, Germany

USA - San FranciscoSales and Software Office

WeWork655 Montgomery Street7th FloorSan Francisco, CA 94111Phone: +1 408 503 7300

Table of Contents

Message from the CEO

2017 Highlights

About Thinfilm and Printed Electronics

Report from the Board of Directors

Consolidated Statements of Comprehensive Income

Consolidated Statements of Financial Position

Consolidated Statements of Changes in Equity

Consolidated Cash Flow Statements

Notes to the Consolidated Financial Statements

Profit and Loss Statements Thinfilm ASA

Balance Sheet Thinfilm ASA

Cash Flow Statements Thinfilm ASA

Notes to the Annual Financial Statements Thinfilm ASA

Corporate Social Responsibility (CSR) Statement

Responsibility Statement

Auditor’s Report

Corporate Governance

Articles of Association

Board of Directors

Executive Management

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Message from the CEO

Thinfilm is changing the face of mobile marketing.

In 2017, we began to fulfill our vision of enabling

the Internet of Everything by pioneering the use of

roll-based manufacturing to create printed integrated

circuits. These flexible, ultra-thin devices offer unique

advantages, and the manufacturing process enables

the scaled production of electronic components –

such as Near Field Communication (NFC) tags – into

the billions of units annually. While our leadership in

novel manufacturing is a key to making smart products

ubiquitous, Thinfilm is also the only company in the

industry offering a complete end-to-end solution for

NFC mobile marketing. Our CNECT™ cloud-based

software platform allows brands and marketers to

manage the NFC tags, deliver unique digital content

and experiences, and track consumer interactions

in real-time. In order to foster the widest possible

application of NFC, Thinfilm customers have the

choice to use our proprietary PDPS (printed dopant

polysilicon) NFC tags, or Thinfilm-programmed

traditional silicon NFC tags.

The elegance of NFC mobile marketing is that it

derives value from consumer behavior that is already

happening. Research shows that 80% of consumers

are already using their smartphones at the time of

purchase while shopping in-store, and Thinfilm is

leveraging the NFC technology that is already built

into every new smartphone. Between Android and

iOS-based platforms, there are an estimated two

billion NFC-compatible phones around the globe.

This number will continue to grow as older phones

are replaced with newer models.

The ongoing mass adoption of contactless payment

systems continues to drive consumer “tapping”

behavior. This behavior initially started with credit

cards but quickly spread to smartphones as Apple

Pay and Google Pay gained in popularity. As mobile

payment platforms become more mainstream,

NFC mobile marketing will gain traction, especially

after Apple’s announcement of inclusion of NFC

compatibility beyond just payments with the latest

version of iOS. The release of iOS 11 in 2017 spiked

interest in iPhone-dominated markets, including

North America, Western Europe, Japan, and Australia.

This is in addition to the Android-centric markets

throughout the rest of the world that have enjoyed

broader NFC functionality for years. Now, regardless

of the mobile operating system (OS), Thinfilm’s

solutions allow brands to establish direct connections

with consumers and control the dialogue without

being subject to influence from search engines and

online marketplaces.

Brands are always looking for better ways to engage

customers and build relationships. NFC mobile

marketing provides this opportunity by giving brands

a way to reach customers at privileged moments

that other marketing channels cannot provide, both

in the aisle while shopping and at-home during a

Dear Shareholders,

5Message from the CEO

product’s consumption phase. Always with an eye on

brand image, agencies and brand managers value

Thinfilm’s customizable, discreet packaging that

cannot be matched by other vehicles as it improves

the overall user experience and brand impression.

CNECT™ version 2.0 is expected to launch in April. It

offers pre-packaged NFC applications that empower

brands to “surprise and delight” customers with

relevant experiences that enhance loyalty and drive

repeat purchases. Smart marketers know that a pull

strategy, through which customers and prospects

opt-in, is always more trusted and effective than

push-based marketing efforts. In sum, NFC mobile

marketing is a compelling complement to awareness

advertising and helps brands close the sale by

delivering the right message to customers at the

right time. Leading brands do business with Thinfilm

to pursue exciting new marketing opportunities and

gain valuable insights into customer behavior that,

until recently, were simply not accessible.

During the past year, Thinfilm gained a reputation

as a leader in NFC mobile marketing among brands

as well as industry organizations. Thinfilm won the

large majority of the publicly announced NFC mobile

marketing projects in 2017 and had over 27 in-market

deployments. Thinfilm also won two awards from

the Mobile Marketing Association (MMA). One was

an MMA Smarties™ award in the “Internet of Things

– Products in the Market” category for our work

with Coronado Brewing Co. as they launched a new

product. The other, an “MMA Impact Award”, was

given to Thinfilm’s Matt Bright, Sr. Director Product &

Technical Marketing, in recognition of his leadership

in advancing the MMA’s IoT (Internet of Things)

initiatives. Matt is also the co-author of NFC Mobile

Marketing for Dummies, part of the well-known Wiley

“dummies” series of instruction manuals. Thinfilm was

awarded these prestigious accolades in competition

with large digital agencies, media companies, and

many household brands.

The CNECT software platform is helping to fuel

adoption for marketing purposes and interest by

brands. First-party data from user-initiated interactions

gathered by CNECT provides insights not available

through other channels and helps fill the gap between

online marketing and offline behavior. Our customers

include wineries, craft beer producers, tobacco

companies, and major brands within OTC pharma,

cosmetics, nutrition products, and the broader

consumer packaged goods (CPG) industry. They have

discovered useful, unexpected insights, including usage

frequency logged by time-of-day and day-of-week. The

data also revealed the viral nature of these campaigns as

well as the longevity of a campaign beyond the

initial target audience or flight. Insights also include

information on distribution, including confirmation

that a product has reached store shelves and

how long it takes for direct mail campaigns to be

Version 2.0 of the CNECT platform is expected to launch in April and will feature expanded functionality and enhanced UI/UX.

Marge Ang (left), Sr. Director Marketing, accepts the MMA Smarties™ “Internet of Things – Products in the Market” Award on behalf of Thinfilm; Matt Bright (right), Sr. Director Product & Technical Marketing, receives an “MMA Impact Award” for his leadership in advancing the MMA’s IoT initiatives.

6

canvassed. Campaigns can also serve as a monitoring

mechanism to determine if field representatives are

doing their jobs and deploying material as instructed.

These actionable insights can help brands modify

existing campaigns and optimize other marketing

initiatives.

Thinfilm takes privacy and data very seriously and

our processes are compliant with General Data

Protection Regulation (GDPR) guidelines. CNECT™ is

a powerful tool on its own, and we also realize that

larger clients need flexibility in how they access this

data. Accordingly, we make data exports available for

other platforms in the ecosystem that our clients are

already using. For example, Thinfilm is partnering with

Adobe to integrate CNECT with the Adobe Analytics

Cloud. The Adobe Analytics Cloud is the “intelligence

engine” within Adobe Experience Cloud and

empowers businesses to act on data-related insights

in real-time. Seamless integration with Thinfilm’s

CNECT platform will enable Adobe customers to

gain access to real-time consumer tapping activity on

physical products and break down the data silos for

digital and offline customer interactions.

It is a combination of Thinfilm’s NFC tag portfolio

(including both Apple-readable conventional tags as

well as our printed NFC tags for Android and Windows

Mobile OS), our relationships with converter partners

offering an array of form-factors and delivery formats,

our CNECT software, and the discovery of new

insights, that is resonating with brands and agencies.

Large agencies such as Arc Worldwide, a division of

Leo Burnett, and Wunderman, part of the WPP family,

as well as independent agencies such as Sand Box,

use Thinfilm’s NFC mobile marketing technology and

are bringing these solutions to their clients.

Campaigns and in-market deployments in Q2 and

Q3 2017 predated the launch of iOS11, and thus used

Thinfilm’s PDPS NFC tags. The physical tags used

in the process are extremely flexible and durable,

being able to conform to every shape. They provide

advantages conventional silicon chips cannot as our

printed electronic tags have a larger range for heat

and impact resistance. They also have a read rate

that is five-times faster than conventional NFC tags,

making them a great option for high speed, high

volume assembly lines which include verification of

performance after label and tag application. Thinfilm’s

solutions also offer brands the ability to be creative in

their on-package calls-to-action (CTA). Our tags can

be integrated with a wide variety of form factors, and it

is the choice of CTA – which motivates the consumer

to interact with a product and indicates where to tap

or scan – that helps determine which form factor

is implemented, whether on primary packaging,

secondary packaging, or loosely coupled. This has

provided brands such as Campari America, Dunhill,

and Iovate Health Sciences International with several

options to explore with regard to the best way to

interact with customers as well as options that allow

brands to quickly put campaigns in market. Thinfilm

is continuing to extend its offering to new, unique

applications and is currently in discussions with

partners in the blockchain arena and retail prospects

regarding augmented reality (AR) experiences, and

has conducted hackathons exploring how to improve

customer service and returns in the ecommerce

space.

Thinfilm is uniquely positioned as we are creating the

right tools for the application with both our printed

NFC tags and printed Electronic Article Surveillance

(EAS) tags. All our printed tags were designed with

mass commercial adoption in mind as the Internet

of Things (IoT) blossoms with billions of products as

potential sources for consumer engagement. Thinfilm

is filling the void left by traditional silicon chips with

printed electronic tags that are purpose-built to be

lightweight and not overly complex. Our tags have just

enough intelligence to deliver an online experience

on any product packaging while remaining discreet

and, in the case of anti-theft tags, negating the need

to remove the tags at the time of purchase and also

ensuring the tags are permanently disabled.

During 2017, Thinfilm delivered over 26 million labels

to customers. Our EAS volume was driven by a

relationship with a leading retail solutions vendor as

our go-to-market partner, and their main fast-fashion

retail customer. Deployment in 2017 was focused

7Message from the CEO

on the shoe category. Recently, as a result of high

product quality and zero in-market reported failures

attributed to Thinfilm tags, our EAS labels were

qualified to be used in their denim lines, which we

expect may lead to significant volume and revenue

growth in 2018.

In April 2017, we moved our sheet-based operations

in San Jose, California, from our Zanker Road

production fab into a new space on Junction

Avenue, and hosted a grand opening event in June

attended by over 200 participants and featuring

a ribbon-cutting ceremony with the mayor of San

Jose. Our first roll-to-roll (R2R) manufacturing

equipment began arriving in Q4 2017 and specially

designed machinery continues to arrive and will be

installed through Q2. As of the date of this report, we

have installed R2R EAS production equipment and

produced partially R2R processed lots that achieved

higher than expected engineering yield. We are also

on target for beginning R2R manufacturing of NFC

tags in late Q3 2018. Throughout the changes taking

place, our commitment to excellence remains strong

and Thinfilm was recertified under the ISO 9001:2015

standards.

With the increasing interest and financial opportunities

in NFC mobile marketing, Thinfilm has made a

strategic decision to focus its product development

on NFC PDPS tags and EAS tags. Based on these

considerations, the Company sold certain Intellectual

Property (IP) rights related to Thinfilm Memory™

products to Xerox, which had originally licensed the

technology in January 2015. The sale was completed

in December 2017. Additionally, Thinfilm licensed

portions of its IP portfolio for printed displays and

sensors to Consensum Production AB (Consensum).

Thinfilm received an up-front licensing fee as part

of this agreement and simultaneously sold the

redundant R2R manufacturing equipment in our

Linköping, Sweden facility to Sankt Kors Fastighets AB

(Sankt Kors). Consensum has entered an agreement

with Sankt Kors for use of the R2R equipment and

facility.

Thinfilm continues to build a world-class team

around the globe with strategic hires in the Executive

Management team and key technology areas. Our

overall headcount remains constant as we redirect

resources toward go-to-market activities, with an

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increased focus in Sales and Marketing. Morale in

the Company is strong, as indicated by our latest

employee Net Promoter Score (eNPS) survey which

shows that Thinfilm employees have a strong belief in

both our future and vision, and their personal role in

making that vision happen.

There is often a synergetic relationship between

changing human behavior and advancing technology.

This evolving pattern has been true in digital marketing

over the last 20 years. Major developments have

occurred every four to five years that have shaped

how brands and consumers interact. Fifteen years

ago, paid search was new and continues to be a key

ingredient to a successful marketing mix. Ten years

ago, social media advertising gained traction to take

advantage of the substantial amount of time people

were spending on social platforms, and this channel

has continued to grow. As global adoption of

smartphones continued to rise, five years ago

companies started recognizing the need to have a

“mobile first” strategy as people began accessing

digital content primarily from their phones rather than

desktop or laptop computers. Now, we are on the

cusp of a new era with the mainstream adoption of

NFC mobile marketing. We expect that 2019 will be

the year that NFC mobile marketing scales rapidly,

and Thinfilm is laying the groundwork in 2018 to be

fully prepared for this giant leap.

Davor Sutija

CEO

5 April 2018

Ed Holland, Sr. Roll-to-Roll Process Engineer, works with a new lithography tool at Thinfilm’s Junction Avenue fab in San Jose, California.

9Message from the CEOBackend manufacturing engineers work with conversion tools to produce labels for small-batch prototypes.

10

2017 Highlights

Campari America’s “smart” refrigerator magnets drive ecommerceCampari America and Thinfilm created NFC magnets

that enable instant re-ordering of Campari spirits

brands. Once tapped with a smartphone, the magnets

take consumers to a product page on Drizly, the

popular liquor delivery platform. Consumers are then

able to add the item to their cart and immediately

check out, all in one cohesive mobile experience.

Mundipharma leverages NFC to promote new OTC cold medicationMundipharma used Thinfilm’s NFC solution to deploy

and manage a consumer-focused mobile marketing

campaign promoting its BETADINE® Cold Defence

nasal spray product. Shoppers were able to tap

interactive packs of the product with a smartphone

for a chance to win prizes, including an all-expenses

paid trip for two to a Manchester City soccer game in

Manchester, England.

Iovate delivers engaging content for active nutrition brands with NFCIovate is integrating Thinfilm’s NFC technology in

its nationally recognized Six Star Pro Nutrition®,

Hydroxycut™, MuscleTech®, and Purely Inspired®

brands to engage with consumers, deliver custom

mobile content, and drive ecommerce. The “smart”

products are available in Walmart stores and other

major retailers throughout the United States.

Davos Brands introduces US’s first “smart” spirits bottle featuring NFC Davos Brands introduced “smart” bottles of its

award-winning Astral Tequila to engage with

consumers in-store and deliver customized video

content featuring “The most interesting man in the

world” with the tap of a smartphone. The interactive

spirits bottles featuring Thinfilm’s NFC technology

were the first of their kind in the US market.

112017 Highlights

Apple extends NFC functionality beyond Apple Pay with release of iOS 11With the release of iOS 11 in September, Apple

effectively extended the iPhone’s NFC capabilities

beyond Apple Pay so that the devices – specifically

iPhone 7 and later – are now able to launch digital

experiences from supported NFC tags. In conjunction,

Thinfilm launched its NFC Scanner app for iPhone

users.

Thinfilm hosts successful grand opening of new Junction Avenue facilityIn June, Thinfilm hosted the grand opening of its

Junction Avenue facility in San Jose, California. The

event was attended by the Mayor of San Jose and

over 200 guests from around the globe. The first

product lot manufactured at the facility was shipped

for backend integration and assembly just prior to

the celebration, marking the production re-start of

both EAS (electronic article surveillance) and NFC

(near field communication) front-end die. The site,

previously owned by Qualcomm, will be home to a

unique roll-based manufacturing line that will allow

Thinfilm to produce ultra-scale quantities of EAS and

NFC products.

Barbadillo launches largest global deployment of NFC in wine & spirits industryBarbadillo launched a consumer-focused marketing

campaign using Thinfilm’s NFC solution. The national

campaign included 126,000 NFC-enabled “smart”

bottles of Castillo de San Diego and is believed to

be the first six-figure deployment of NFC within the

wine and spirits industry. The connected bottles

were sold through 15 major supermarket chains

and superstores in Spain. A related case study

showed that NFC outperformed paid and organic

search, banner/display ads, and social platforms

combined, in generating new prospective customers

for Barbadillo, and doubled the effectiveness of the

overall campaign compared to year-prior data.

Thinfilm enhances CNECT™ cloud offering as customer platform registrations climb Thinfilm continued with the development of

CNECT™, the versatile insights-centric software

platform and foundation of its NFC mobile marketing

solutions offering. Customer registrations on CNECT

accelerated throughout 2017, climbing from 68 in

March to 450 in January of 2018 – an increase of

well over 500%. The release of version 2.0, which

will feature significant UI/UX enhancements, is

scheduled to occur in Q2 of 2018.

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Buildout of roll-to-roll manufacturing line progresses at NFC Innovation Center Thinfilm continued the buildout of its state-of-the-

art roll-to-roll manufacturing line in the Company’s

Junction Avenue facility in San Jose, California. The

delivery of equipment required for the production of

EAS was completed in Q1 2018, and all NFC-related

equipment is expected to be installed in Q3 2018.

Once fully operational and debottlenecking initiatives

have been completed, the line is expected to have an

installed annual capacity of over seven billion units.

British American Tobacco Global Travel Retail launches “connected” edition of Dunhill brand productsBAT GTR launched a “connected” edition of its Dunhill

brand products using Thinfilm’s NFC SpeedTap™

tags. The “on-carton” tags enabled BAT to engage

with adult consumers and deliver unique content

and digital experiences through the tap of a

smartphone. The initial Dunhill campaign launched

in February at the world’s largest travel retail hub at

Dubai International Airport, with follow-on campaigns

expected at other major airports thereafter.

GlaxoSmithKline brings NFC technology to leading OTC brand Flonase® GlaxoSmithKline (GSK) used Thinfilm’s NFC solution to

create “smart” shelves for enhanced communication

with consumers at time of purchase decision-making.

GSK introduced the interactive Flonase® shelves in

retail stores across Canada in an effort to educate

consumers about the new product and guide them in

their purchasing decision.

Korean Red Cross uses NFC to verify delivery and receipt of relief itemsThe Korean Red Cross used NFC technology to

replace the paper-based confirmation process

previously used in its Windmill of Hope program to

verify delivery and receipt of relief items and services

such as food, clothing, and medication. Thinfilm’s

technology drove program efficiency and eased

administrative burdens for program directors, while

providing full transparency regarding the exchange

of goods between volunteers and support recipients.

2017 Highlights

132017 Highlights

Northern Lights Spirits taps NFC technology to enhance consumer engagement Northern Lights Spirits – a Finland-based distiller

of handcrafted gin and vodka – began distributing

“smart” bottles of its premium Kalevala Gin to

fuel consumer engagement. The bottles feature

Thinfilm’s SpeedTap tags, which integrate with the

CNECT platform to enable remote tag management,

custom content delivery, and detailed analytics and

reporting.

Kilchoman Distillery Co. enables one-to-one connections with consumers through NFCKilchoman is an award-winning producer of

single-malt whisky and the first distillery to be

established on the Scottish island of Islay in more

than 124 years. The company is using Thinfilm’s NFC

solution to engage with and educate consumers,

communicate its distinct brand story, and accelerate

business growth.

Thinfilm sees steep increase in NFC-based in-market deployments as customer base grows During 2017, Thinfilm launched 27 NFC-based

in-market deployments, most of which were

implemented in Q4. In total, 21 new clients throughout

North America, EMEA, and APAC signed contracts

with the Company in Q4 across a range of categories

and form factors. Most of the new Q4 customers

expected to launch their campaigns in Q1 2018.

Valmont uses NFC to transform cosmetics products into mobile marketing channelsValmont Cosmetics partnered with Thinfilm to

activate its anti-aging product line for the mobile-first

audience and connect with customers across the

globe. The solution enabled Valmont to deliver expert,

customer-specific beauty advice to consumers

through the simple tap of a smartphone.

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New-format EAS labels fully qualified for use in fast-fashion denims Thinfilm’s EAS (electronic article surveillance) tags

were fully qualified for use in fast-fashion denims by

Nedap Retail. First shipments of the denim-format

tags were completed, and ramp-up of EAS tag orders

is expected to commence in Q2 2018.

Thinfilm raises USD 110 million in private placementIn October, Thinfilm announced the successful

completion of a private placement through which

the Company raised approximately USD 110 million.

Those participating in the placement included

existing shareholders and several new, high-quality

institutional investors. The proceeds fund Thinfilm’s

ongoing operational needs as well as critical CAPEX

investments – particularly as they relate to the new

roll-to-roll manufacturing line.

2017 Highlights

152017 Highlights

Barinder Kaur, Manufacturing Technician, monitors the roll-to-roll lithography development process.

16

About Thinfilm and Printed Electronics

Thin Film Electronics ASA is a publicly listed company in

Norway with global headquarters in Oslo, Norway; US headquarters

in San Jose, California; and offices in San Francisco; London; Linköping; Hamburg; Singapore;

and Shanghai.

Thin Film Electronics ASA (“Thinfilm”) is a global leader

in NFC mobile marketing and smart-packaging

solutions using printed electronics technology.

Thinfilm creates printed tags, labels, and systems

that include sensors and wireless communication —

all at a cost-per-function unmatched by conventional

silicon-based electronic technologies.

Thinfilm offers end-to-end mobile marketing

solutions that feature hardware (NFC tags),

powerful cloud-based software, and valuable

label conversion/packaging integration services.

Collectively, these components deliver a powerful

1-to-1 digital marketing solution through which brands

of all sizes can connect directly with consumers and

derive actionable insights, all with the simple tap

of a smartphone. The resulting disintermediation

of search engines, online marketplaces, and social

platforms empowers brands to control messaging,

enhance consumer dialogue, build loyalty, increase

engagement, and drive sales.

Thinfilm’s roadmap integrates technology from a

strong and growing ecosystem of partners to bring

intelligence to everyday, disposable items. Its mission

is to effectively extend the traditional boundaries of

the Internet of Things to fuel the Internet of Everything.

17About Thinfilm and Printed Electronics

Thinfilm’s product families include the following:

NFC Solutions

NFC SpeedTapTM Tags NFC SpeedTap tags are wireless tags that enable

smartphones to communicate with everyday objects

in support of B2B and B2C use cases.

NFC OpenSenseTM Tags Thinfilm’s proprietary and patent-pending NFC

OpenSense technology provides smartphone-centric

NFC readability before and after product opening.

Unique identifiers within each OpenSense tag

support applications for fighting product diversion,

counterfeiting, unauthorized refills, and the use of

forged containers. On the consumer side, brand

marketers can benefit from enhanced consumer

engagement capabilities.

CNECTTM Software Platform CNECT is a multi-tenant cloud-based platform that

allows brands to connect with consumers by enabling

engagement through a direct tap or touch of an NFC

label, such as Thinfilm’s SpeedTap and OpenSense

tags. The platform provides a turnkey solution for

managing and tracking the tags and deploying

campaigns for consumer engagement, instant

re-ordering, and product authentication, as part of

a brand’s omnichannel mobile marketing strategy.

Marketers are able to analyze valuable tapping and

consumer behavior data to derive actionable insights

that drive campaign performance. CNECT will soon

be extended to manage the launch of augmented

reality experiences, and has potential for use when

NFC labels act as a trigger mechanism in creating

blockchain ledgers.

Electronic Article Surveillance (EAS) Tags

Thinfilm EAS tags represent a new category of

thin, flexible anti-shoplifting labels. The tags are

produced using a proprietary process that improves

traditional electronic article surveillance through a

permanent deactivation technology. These next-

generation labels are easily integrated at the point of

manufacture into fast-fashion items such as shoes,

denims, jackets, and other apparel. EAS tags are also

compatible with the global base of installed 8.2 MHz

RF EAS infrastructure.

18

Report from the Board of Directors

Laura OliphantBoard Member

Preeti MardiaBoard Member

Rolf ÅbergBoard Member

Morten OpstadChairman

Tor MesøyBoard Member

Growing customer base, record NFC tag shipments, increased in-market NFC deployments,

and rising market interest all contribute to momentum shift for Thinfilm in 2017

19Report from the Board of Directors

The 2017 business year for Thinfilm was marked

by a significant momentum shift, which began to

build early in the year and quickly accelerated at

year-end 2017 and into Q1 2018. Thinfilm launched 27

NFC-based in-market deployments in 2017, with most

launched in Q4 – a compelling increase given that

2016 featured just two deployments. The Company

also signed 21 new customers spanning North

America, EMEA, and APAC for field deployments.

Thinfilm shipped a significant volume of EAS tags

during the year, and completed record shipments

of NFC tags in the fourth quarter. In total, between

EAS and NFC tags, Thinfilm shipped over 26 million

units for the year. In the NFC category, tag shipments

reached seven figures in 2017, with 45% of those

shipped in Q4, including Apple-compatible tag types.

This represents a 500% year-over-year increase for

the same quarter in 2016.

Several different factors contributed to the building

momentum and Thinfilm’s success.

The Global Sales team expanded substantially,

with key hires completed in both groups to provide

leadership and more comprehensive frontline

coverage in the Americas, EMEA, and APAC. Thinfilm

also established a sales office in Hamburg to better

serve growing market demands in Central Europe.

Thinfilm published four case studies, each of which

successfully demonstrated the value of NFC as a

marketing channel to digital marketers and agencies.

The case studies, which were shared with prospective

customers and shared via social channels, focused on

Barbadillo, Coronado Brewing Company, the Korean

Red Cross, and Oskar Blues.

The Software team expanded as well, while continuing

to improve its CNECT™ cloud-based software – the

foundation of Thinfilm’s NFC mobile marketing solutions.

The combination of Thinfilm’s NFC hardware and

With interest in NFC mobile marketing on the rise among major consumer brands, Thinfilm solidifies its position as a global leader through leading-edge solutions, powerful software, and scaled manufacturing

The release of version 2.0 of Thinfilm’s CNECT cloud-based software will offer enhanced features for brands to boost consumer loyalty.

John Williams, Staff Roll-to-Roll Equipment Engineer, loads a new roll of stainless steel substrate into a wet-etch tool.

Thinfilm’s four new customer case studies provide compelling NFC mobile marketing data on campaigns with Barbadillo, Oskar Blues, the Korean Red Cross, and Coronado Brewing Company.

20

the CNECT partner portal provides brands with an

end-to-end mobile marketing solution that is unique

in the marketplace.

In September, with the release of iOS 11, Apple

announced that it had extended the iPhone’s NFC

capabilities beyond Apple Pay so that the devices are

able to launch digital experiences from supported

NFC tags. The announcement ignited interest in NFC

mobile marketing among many global brands and

led to increased sales-related activities for Thinfilm.

Thinfilm made significant progress on its roll-based

manufacturing initiative. The roll-to-roll (R2R) line,

located at the Company’s Junction Road facility

in Silicon Valley, will enable Thinfilm to meet the

growing demand for NFC solutions among consumer

brands. As of the date of this report, we have installed

R2R EAS production equipment and produced

partially R2R processed lots that achieved higher

than expected engineering yield. We also anticipate

that R2R manufacturing of NFC tags will commence

in late Q3 2018.

Product/solution information and updates

SpeedTapTM™ TagsOfficially launched in Q2 2016, SpeedTap tags are thin,

flexible NFC tags that empower brands to establish

direct one-to-one connections with consumers.

The tags enable consumer-initiated interactions

with objects through the tap of a smartphone. Each

SpeedTap tag fully integrates with the CNECT

software platform and has a unique ID encoded

during the manufacturing process. The tags are

virtually impossible to clone or hack. Ultra-fast read

speeds make them ideal for volume deployments

during which tags are automatically applied on

high-speed production lines.

During 2017 and early 2018, Thinfilm shipped

SpeedTap tags to customers and partners across a

range of industry verticals, including over-the-counter

pharma (GlaxoSmithKline, Mundipharma), wine &

spirits (Campari America, Davos Brands, Barbadillo,

Northern Lights Spirits, Kichoman Distillery Co.,

and PengWine), craft beer (Coronado, Oskar Blue),

active sports nutrition (Iovate), cosmetics (Valmont

Cosmetics), tobacco (British American Tobacco), and

humanitarian (Korean Red Cross).

OpenSenseTM™ TagsOpenSense tags are similar to SpeedTap tags, but

have a dual-state ID along with dynamic sensing

functionality. In combination with a smartphone or

reader, the wireless tags can detect a product’s

factory-sealed and opened states. As such, they

are ideal for battling against refill fraud and package

tampering in addition to addressing consumer

engagement and product authentication needs.

Thinfilm shipped OpenSense tags to 12 customers

during 2017. In total, the dual-state tags have now

been delivered to nearly 20 customers across a range

of vertical markets representing publishing, printing,

specialty foods, wine, spirits, tobacco, OTC pharma,

and medical devices.

CNECT™ Software Platform and appsThinfilm’s CNECT platform launched in February of

2017. The customer/partner portal is a multi-tenant,

cloud-based platform that fully integrates with

Thinfilm’s PDPS (printed dopant polysilicon) NFC tags

(SpeedTap, OpenSense) as well as conventional NFC

tags. The turnkey solution empowers marketers to

connect directly with consumers – through the tap

of a smartphone – to deliver custom content and

unique digital experiences. It also provides brands

with a simple and secure way to store, manage

and track the tags while addressing key business

needs such as consumer engagement and product

authentication.


Since the launch of CNECT™, more than 450

customers around the globe – including in mainland

China – have registered on the platform. Version 2.0

of the software is scheduled for release in Q2 2018

and will feature improved functionality as well as

enhanced UI/UX (user interface/user experience).

Thinfilm has also developed a suite of apps that

integrate with CNECT, include the Thinfilm NFC

Scanner App, the CNECT App, and the Thinfilm

Authenticator App.

NFC Mobile Marketing SolutionsThinfilm’s NFC mobile marketing solutions allow

brands to establish direct connections with

consumers through an NFC-enabled smartphone.

The end-to-end offering consists of hardware

(NFC tags), software (CNECT), and conversion/

integrations services that help brands integrate the

NFC technology with their product packaging. The

tags are available in a range of form factors, including

converted labels, hang tags, ElastiTags®, drink

coasters, bottle neck-collars, folded cartons, direct

mailers, magnets, gift cards, and coupons.

Once the tags are deployed on-product, marketers

can use the CNECT platform to store/manage tag

IDs, execute marketing campaigns, monitor tapping

activity, and conduct reporting and analytics.

EAS (Electronic Article Surveillance) TagsEAS tags were introduced to the market

commercially by Thinfilm in 2014 as the Company’s

first wireless/RF (radio frequency) product. The

anti-theft tags, delivered as wet inlays to be applied

directly during manufacture (source tagging), are

easily integrated with merchandise such as shoes,

denim and other apparel. These labels do not

reactivate, which eliminates the risk of tag pollution

and helps to safeguard the retailer from theft.

Thinfilm’s go-to-market partner for EAS makes the

tags available to its base of global retail clients. EAS

tags have been broadly integrated in shoes through

an end-customer’s global supply chain and are

currently on retail shelves. Thinfilm’s EAS tags are

now fully qualified for use in fast-fashion denims,

which expands the addressable market ten-fold, and

first shipments of a new rectangular form factor have

been completed.

Thinfilm shipped nearly 26 million individual EAS

units in 2017, and volume deliveries for denims

and children’s shoes – both new categories – are

expected to start in Q2 2018.

Temperature Sensor Smart LabelActivities related to Thinfilm’s temperature sensor

smart label were suspended in late 2017, allowing the

Company to focus its efforts and resources on wireless

products (NFC and EAS). Although Thinfilm delivered

the first commercial shipments of temperature sensor

smart labels in Q2 2017, and completed a limited field

trial in Q3, demand for the hybrid smart-label product

was far less significant than for NFC mobile marketing

22

solutions. This prompted Thinfilm leadership to

develop a prioritization strategy, which subsequently

led to a suspension of the smart label initiative and a

reduction of activities at Thinfilm’s Linköping, Sweden

site during Q4 2017.

Thinfilm MemoryTM

In January of 2015, Thinfilm announced its scale-up

partnership through which Xerox licensed Thinfilm’s

technology for the mass production of Thinfilm

Memory. Xerox refurbished a manufacturing facility in

upstate New York and installed an annual production

capacity of 1.3 billion labels. The technology transfer

was completed in Q2 2016, at which time Xerox began

actively marketing two products featuring Thinfilm

Memory – Xerox® Printed Memory and Xerox® Printed

Memory with Cryptographic Security. The solutions

are geared toward supply-chain security applications

and provide anti-counterfeiting capabilities for

governmental tax stamps, and refill authentication.

In December 2017, Thinfilm announced that Xerox

Corp. had agreed to acquire certain Thinfilm Memory

intellectual property (IP). In return, Thinfilm received

an up-front payment plus an earn-out based on the

existing agreed-to royalty schedule.

New customers

Thinfilm had nearly 30 in-market customers at

year-end 2017, 21 of which signed contracts in the

fourth quarter. These new customers are located

throughout North America, EMEA and APAC, and

their NFC deployments represented a range of use

cases and form factors. The deals spanned a number

of distinct vertical markets, several of which were new,

including biotech, cosmetics, OTC pharma, industrial

construction, and active nutrition. The 2017 activity

related to new customers and in-market activity is

encouraging considering Thinfilm had only two NFC

deployments in all of 2016. Most of the new Q4 2017

customers anticipated launching their campaigns in

Q1 and Q2 2018.

Key new customers that signed contracts in 2017 and

early 2018 include:

Iovate (active nutrition) Iovate is a leading nutritional company that offers

high quality active nutrition products in more

than 130 countries worldwide. Key brands include

MuscleTech®, Six Star Pro Nutrition®, Purely Inspired®,

and Hydroxycut™, and the company’s products are

available at GNC, The Vitamin Shoppe, Bodybuilding.

com, Walmart, Target, Walgreen’s, Sam’s Club,

Amazon.com, and a number of other retailers. Iovate

submitted a 7-figure unit order for SpeedTap tags,

and is using Thinfilm’s NFC solution to engage with

its customer base, fuel reorders, and strengthen its

brands.

Campari America (spirits) Headquartered in San Francisco, Campari America

manages Campari Group’s portfolio in the US with

leading brands like SKYY® Vodka, Wild Turkey®

Bourbon, Espolón® Tequila, and Appleton® Estate

Rum. Thinfilm and Campari collaborated to launch

an NFC-enabled refrigerator magnet, through which

consumers can instantly re-order Campari America

spirits with the tap of a smartphone. Campari America

is the first spirits company to work with Thinfilm

to develop a branded magnet NFC solution that

immediately takes consumers to a product page on

Drizly, the leading beer, wine, and spirits on-demand

online marketplace.

British American Tobacco Global Travel Retail (tobacco) British American Tobacco Global Travel Retail (BAT

GTR) launched a “connected” edition of its Dunhill

brand products using Thinfilm’s NFC SpeedTap™

tags and CNECT™ platform. The “on-carton” tags

were used to convert each physical Dunhill product

into a digital channel that enabled direct brand-

to-consumer connections. BAT GTR leveraged

Thinfilm’s full NFC solution to engage with adult

consumers, delivering unique content and digital

experiences via the smartphone. The initial Dunhill

campaign launched in February 2018 at the world’s

largest travel retail hub at Dubai International Airport.

Follow-on campaigns are expected at other major

airports thereafter.


GlaxoSmithKline (OTC pharma)GlaxoSmithKline (GSK) is one of the world’s leading

research-based pharmaceutical and healthcare firms.

The company commercially deployed Thinfilm’s NFC

SpeedTap™ tags to create interactive “smart” shelves

for enhanced consumer communication regarding its

leading over-the-counter (OTC) nasal spray, Flonase®.

GSK introduced interactive “smart” Flonase® shelves

in retail stores across Canada in an effort to educate

consumers in-store about the new product and guide

them in their purchasing decision.

Mundipharma (OTC pharma)Mundipharma is a consortium of independent

associated companies serving pharmaceutical

markets in Asia-Pacific, Latin America, the Middle

East, and Africa. Headquartered in Singapore, the

company helps deliver novel treatment options

in fields such as pain management, oncology,

ophthalmology, respiratory disease, and consumer

healthcare. Mundipharma deployed a consumer-

focused NFC mobile marketing campaign promoting

a new nasal spray product. Consumers were able to

tap interactive packs of the product with a smartphone

for a chance to win prizes. The campaign launched

in December 2017 at Singapore’s new Changi Airport

T4 – known worldwide as a flagship terminal for

innovation and new technology.

Davos Brands (spirits)Davos Brands is a premium spirits company whose

portfolio includes Astral Tequila, TYKU Sake, Aviation

American Gin, and Sombra Mezcal. Using Thinfilm’s

SpeedTap tags integrated in a unique bottle

neck-collar form factor, Davos introduced “smart”

bottles of its award-winning Astral Tequila to engage

with consumers in-store and deliver customized

digital experiences with the tap of a smartphone. The

interactive spirits bottles – which delivered unique

video content to consumers – were the first of their

kind in the US market.

Korean Red Cross (humanitarian)The Korean Red Cross (KRC) was established in 1905

and is a major humanitarian partner to the Korean

government. The organization carries out various

volunteer programs and projects that deliver disaster/

emergency relief, medical aid, and family support

services. Thinfilm and the KRC collaborated to replace

a paper-based confirmation process used to verify

delivery and receipt of relief items and services such

as food, clothing, and medication. The new solution

leveraged Thinfilm’s NFC SpeedTap tags to drive

program efficiency and ease administrative burdens

for program directors. The NFC technology also

ensured full transparency regarding the exchange of

goods between volunteers and those who received

support.

Thinfilm employees at the Company’s NFC Innovation Center in San Jose, California, collaborate on a project.

24

Valmont Cosmetics (cosmetics / beauty)Valmont Cosmetics is based in Switzerland and

manufactures innovative, high-quality cosmetics

products. The company integrated Thinfilm’s

SpeedTap™ tags into Valmont Cosmetics packaging,

enabling Valmont to establish direct mobile

connections with consumers. By tapping products

with a smartphone, consumers were instantly

directed to a customized landing page where they

could read more about the brand, learn about

ingredients, receive application instructions, preview

complimentary products, and execute online

purchases.

NEXGEN Biotechnologies (biotech)NEXGEN Biotechnologies, Inc., was founded

nearly two decades ago and is based in Korea. The

company specializes in research and development

and produces biological materials for use in the

medical, cosmetics, and skincare industry. NEXGEN

integrated Thinfilm’s NFC OpenSense™ technology

into containers and other packaging in order to

monitor shipments throughout the supply chain and

address product authentication needs.

Premium Swiss cosmetics manufacturer, Valmont, fully integrated Thinfilm’s SpeedTap tags into secondary packaging for its anti-aging cream.

Oskar Blues Brewery (craft beer)Oskar Blues is one of the fastest growing craft beer

producers in the US and operates breweries in

Colorado, North Carolina and Texas. The company

produced more than 200,000 barrels in 2016 and one

of its brands was the nation’s top-selling craft can

six-pack at US supermarkets. Oskar Blues integrated

Thinfilm’s NFC technology into beer coasters

distributed nationwide, enabling a direct mobile

connection with consumers via smartphone. The

campaign promoted Oskar Blues’ 15-year anniversary

of launching the original craft beer-in-a-can.

SFS Group (industrial construction)SFS is a leading global provider of mechanical

fastening systems and precision components, and

is headquartered in Switzerland. The company

integrated Thinfilm’s NFC tags into product

packaging, enabling customers to instantly view

technical specifications, operating instructions, and

other key product information onsite through the tap

of a smartphone.

Barbadillo (wine) It’s also important to note that a previously existing

in-market customer, Barbadillo, submitted a

substantial reorder in 2017 for SpeedTap tags and

launched a successful NFC mobile marketing

campaign in Spain. Barbadillo’s “Tap & Win” initiative

featured 126,000 “smart” bottles of white wine – the

largest in-market deployment of on-bottle NFC to

date in the wine and spirits market. The campaign was

successful, and demonstrated that NFC drove a 33%

purchase conversion rate and outperformed Google

search, banner display ads, and social platforms

combined.


Key partners and go-to-market activities

On the partner front, Thinfilm established many

relationships throughout 2017 across several segments

and categories, including fashion/apparel, NFC

readers, self-adhesive labels, and industrial IoT

sensors. These partnerships strengthen Thinfilm’s

offering, provide customers with key services and

resources, and often create sales/distribution

channels through which Thinfilm can grow its business.

Charming TrimCharming Trim is a leading global provider of

high-quality garment/apparel accessories such as

hang tags, woven labels, self-adhesive labels, and

custom packaging. The company is collaborating

with Thinfilm to incorporate NFC tags in Charming

Trim’s hang tags, empowering apparel brands to

engage directly with shoppers and customers via

smartphone.

SkanemSkanem is one of Europe’s largest producers of

self-adhesive labels, with 13 production sites in

nine countries throughout Europe, Asia, and Africa.

The company serves brands of all sizes across

a range of industries, including food, beverage,

personal care, homecare, automotive, industrial,

and pharmaceuticals. Thinfilm named Skanem

as a qualified label conversion partner for its NFC

SpeedTap™ and OpenSense™ tags following a

comprehensive evaluation program.

Charming Trim incorporates Thinfilm NFC technology into its hang tags for retail apparel brands.

Socket Mobile, Famoco, Spring CardSocket Mobile, Famoco, and Spring Card are leading

provider of NFC-reader hardware. Each company

is collaborating with Thinfilm to bring Thinfilm-

validated, enterprise-ready readers to the market

and help position NFC as an enabling technology

for a range of applications within the Industrial

Internet of Things (IIoT) space. These partnerships

allow enterprises to easily integrate Thinfilm NFC

technology with installed desktop, embedded, and

mobile infrastructure, including iOS (iPhone, iPad)

and Android devices.

Cratus Technology, Inc.Cratus develops sensor-centric products and

systems that support IoT applications. The company

is integrating Thinfilm’s technology into mobile sensor

platforms, enabling location sensing and tamper

evidence monitoring of high-value goods through

the tap of a smartphone or commercial reader.

Expanding and enhancing operations

As market interest and sales activities increased

throughout 2017, Thinfilm pursued a number of

initiatives in an effort to address interest in the

marketplace, enhance the productivity and efficiency

of operations around the globe, and improve overall

quality of the products and solutions it delivers.

26

Grand opening of new US headquartersThinfilm officially opened its new Junction Avenue

facility in June with a grand opening event attended

by the Mayor of San Jose and more than 200

guests from around the globe. As Thinfilm’s new

US headquarters, the former Qualcomm-owned

location features a state-of-the art cleanroom and

is home to the Company’s one-of-a-kind roll-to-roll

manufacturing line. NFC manufacturing is expected

to commence by the end of Q3 2018. The line is

projected to have a capacity of up to 3 billion units

run-rate yielded production by the end of 2019 and

a fully utilized maximum design capacity after two

planned die shrinks of up to 7 billion units in H1 2021.

Continued buildout of global sales teamThe Global Sales teams expanded in the Americas,

EMEA, and APAC regions, with key hires in Germany,

China, North America, and Singapore during the

fourth quarter. Tauseef Bashir was promoted to Chief

Sales Officer in January 2018, and Q1 additions in

Sales Operations and Channel Sales strengthened

go-to-market activities for 2018 and beyond.

Expansion of software teamLed by Christian Delay, who was promoted to EVP

Software in January of 2018, the software team

added key new staff members in San Jose and

also expanded its offshore development team. The

additions were in response to the CNECT™ platform’s

critical role in Thinfilm’s NFC solutions offering and a

substantial increase in customer registrations on the

cloud platform.

Leadership and staff membersThinfilm hired John McNulty as EVP Marketing in early

February 2018 to lead Thinfilm’s global marketing

efforts, including branding and go-to-market

strategies. Prior to joining Thinfilm, Mr. McNulty was

Vice President Global Marketing for Marin Software,

a leading SaaS ad management platform used by

digital marketers to manage search, social, and

display advertising. He also held senior marketing

positions with Beanstock Media, VerticalResponse,

and Hub Strategy.

Thinfilm ended 2017 with 167 full-time employees

globally, up from 134 at the end of 2016 – an increase

of 25%.

Quality management Thinfilm achieved several Quality related milestones

in 2017:

• Successfully passed certification standards for

the new ISO 9001:2015 standard

• Strengthened supplier quality through the

implementation of statistical process control,

ongoing reliability testing, and risk management

practices

• Improved problem-solving cycle time by 50%

through a focused CAPA forum and additional

certification of employees to 8D; issue

management is now centralized and is accessible

by the entire Company

Raj Apte, a Rapid Evaluator for Google X and member of Thinfilm’s Technical Advisory Committee, presents to attendees at Thinfilm’s grand opening event in June 2017.

Thinfilm CEO, Dr. Davor Sutija, and San Jose Mayor, Sam Liccardo, take the stage at the grand opening of Thinfilm’s NFC Innovation Center in San Jose, California.


• Extended use of its Knowledge Management

System (KMS) with 14 business processes to

increase efficiency for Supply Chain, Product

Management, and Manufacturing

• Increased Net Promoter Score to 50%

Roll-to-roll manufacturing lineThe buildout of Thinfilm’s roll-to-roll (R2R)

manufacturing line continues on schedule with

regards to equipment delivery, setup, and testing. As

of the date of this report, we have installed R2R EAS

production equipment and produced partially R2R

processed lots that achieved higher than expected

engineering yield. We are also on target for beginning

R2R manufacturing of NFC tags in late Q3 2018 with

full qualification of PDPS (printed dopant polysilicon)

front-end die for use in NFC labels to be completed

in Q4.

External investments in ThinfilmIn October Thinfilm announced that it successfully

raised more than $110 million through a private

placement with existing shareholders and new

high-quality institutional investors. The proceeds

will fund the Company’s CAPEX requirements

and operations leading up to an anticipated cash

break-even point in early Q2 2019. The capital infusion

also strongly positions Thinfilm to realize its vision

of making everyday items “smart” while leveraging

smartphones to bridge the gap between physical

objects and the digital world.

Proceeds from the private placement will be used

to fund a range of strategic needs, including the

purchase and installation of roll-to-roll manufacturing

equipment, ongoing backend development, and

expansion of the sales, marketing, and software

teams.

Events and media coverage

Throughout 2017 and the beginning of 2018, Thinfim

participated in a number of industry, academic, and

thought leadership events across the globe. The

events are often a key source of sales and business

development leads, and many of them included

sponsorship roles and speaking engagements for

Thinfilm staff. These events included Mobile World

Congress 2017 and 2018, CES, Luxe Pack (New York,

Monaco, Shanghai), eBev, Tax Free World Expo,

Spirits Strategies Conference, K Shop, Chemicals

America, California Craft Brew Summit, MMA Mobile

Marketing Leadership Forum, eTail West, ProWein,

AIPIA Congress and Exhibition, LOPEC, and Printed

Electronics USA.

Thinfilm also received consistent coverage from

industry and mainstream press – particularly as it

related to NFC mobile marketing, the Internet of

Things, intelligent packaging, and the role Thinfilm

plays as a global printed electronics leader.

Publications covering Thinfilm over the course of

Thinfilm and Coronado Brewing Co. “Smart Coaster” Campaign Earns 2017 “Smarties” Award

from MMA

28

2017 and early 2018 include Advertising Age, Adweek,

Forbes, Fortune, eMarketer, Mobile Marketer, MarTech

Today, Marketing Land, NFC World, Evertiq, Silicon

Valley Business Journal, San Francisco Chronicle,

Craft Beverage Insights, the Mercury News, Digital

Trends, and Fox KTVU Channel 2 news.

Intellectual property (IP)

As of year-end 2017, Thinfilm held 214 registered

patents and had 103 patent applications pending.

Most of the patents and submitted applications

relate to printed dopant poly-silicon technology,

materials used and processes related to the sheet-

and roll-based manufacturing of Thinfilm products.

Several applications relate to tag management and

uses of passive NFC labels.

The group financial statements

Thinfilm’s revenues and other income in 2017

amounted to USD 5,907 thousand, an increase of

USD 2,062 thousand compared to 2016 (USD 3,845

thousand). Excluding the other income recognized

in the period, total revenue amounted to USD 5,020

thousand (2016: USD 3,424 thousand), an increase of

USD 1,596 thousand compared to the corresponding

revenues in 2016. Sales revenue amounted to USD

2,980 thousand in 2017 (2016: USD 1,460 thousand),

while revenue related to government grants and

other funded projects amounted to USD 2,040

thousand over the same period (2016: USD 1,964

thousand). Sales revenue in 2017 was largely related

to EAS product deliveries, product development

projects, delivery of prototypes and products to

strategic customers and partners and technology

transfer revenue. Other income amounted to USD 887

thousand in 2017 (2016: USD 421 thousand) and was

in all material respect related to sale of equipment

from the San Jose and Linköping sites and sublease

income from the San Jose site.

Salaries and other payroll costs amounted to USD

30,096 thousand in 2017, compared to USD 21,854

thousand in 2016. The increase is mainly related to an

overall increase in the number of full-time equivalents

(FTE) in the group to 167 as of 31 December 2017,

compared to 134 one year earlier. The increase in FTEs

has been most significant in the US subsidiary as a

result of a strengthening of the organization as focus

has shifted from development to production and

the development of a software solutions platform,

CNECT™, for NFC mobile marketing. Developing the

new roll-based production line also requires additional

FTEs. Increasing sales has led to FTE increase in the

HK and China entities providing backend and logistic

services. Also, Thinfilm has established a UK-based

sales team. This development reflects the shift in

focus from development to the production of NFC

products and the delivery of NFC solutions to partners

and customers. Developing the new roll-based

production line also requires additional FTEs.

The costs of external services amounted to USD

5,937 thousand in 2017, up from USD 5,046 thousand

in the preceding year. The increase is mainly related

to the CNECT software platform, and legal services

regarding transfer pricing. External services costs

were incurred in connection with development

projects with external technology and material

partners as well as contracted specialists in various

professions such as in business development, legal,

accounting, marketing, and design.

Costs of premises and supplies amounted to

USD 15,654 thousand in 2017, up from USD 11,970

thousand in the preceding year. The USD 3,684

thousand increase is due to significantly higher

production activity at the NFC Innovation Center, in

San Jose, which is a front-end production facility.

While the production is currently only partly revenue

generating, the cost impact (engineering lots used for

yield, design, and product development work) is that

of a fully ramped facility.

Sales and marketing costs amounted to USD 3,791

thousand in 2017. The corresponding figure for 2016

was USD 3,000 thousand. The cost increase was

largely caused by a continued increase in the activity

level in 2017 in the sales and marketing organization


towards existing and prospective customers. Activities

expanded to several new countries in the EMEA and

APAC territories. Other expenses were up from USD

281 thousand in 2016 to USD 3,516 thousand in 2017.

This increase was largely caused by significantly

higher product sales in 2017 compared to 2016.

Depreciation, amortization and impairment charges

amounted to USD 6,991 thousand in 2017 (2016: USD

3,176 thousand). Of the total, USD 3,025 thousand

were impairments primarily related to equipment

and licenses for the memory and sensor programs

that were discontinued. Impairment charges in 2016

amounted to USD 1,152 thousand. Further, USD 1,073

thousand (2016: USD 268 thousand) was attributable

to the amortization of the financial lease contract on

premises in the US entered into in November 2016.

Remaining increase is explained by a larger asset

base in 2017 compared to 2016.

The Company invested USD 16,457 thousand in

fixed assets in 2017 (2016: USD 4,464 thousand). The

investments were mainly related to equipment and

tools for the roll-based production line at the San

Jose site and required upgrades on the Junction

Avenue Site. As per 31 December 2017, Thinfilm had

also made prepayments amounting to USD 11,484

thousand relating to investments in equipment and

tools. The Company invested USD 765 thousand

(2016: 892 thousand) in intangible assets out of which

USD 702 thousand (2016: USD 342 thousand) were

related to the capitalization of EAS and NFC costs.

The net financial items in 2017 amounted to an

income of USD 374 thousand compared to an

expense of USD 2,731 thousand in 2016. This income

is mainly related to interest income on bank deposits.

The financial expense in 2016 was largely related to

currency variations.

The Company operates at a loss and there is a tax

loss carry forward position in the Parent Company

and in the American and Swedish subsidiaries. While

local taxes are paid in some of the subsidiaries, the

Parent Company in Norway has not paid any tax costs

in 2017 or the prior year. The Group has not recognized

any deferred tax assets in its balance sheet because

these potential assets do not yet qualify for inclusion.

The net result for 2017 was a loss of USD 59,581

thousand, representing a loss of USD 0.07 per basic

share. In 2016, the loss amounted to USD 44,495

corresponding to a similar loss of USD 0.07 per basic

share.

At the end of 2017, cash and bank deposits amounted

to USD 98,120 thousand, which represented 66 per

cent of the total assets of USD 149,319 thousand.

On 31 December 2016, the cash position amounted

to USD 74,205 thousand, or 71 per cent of total

assets. Non-current assets amounted to USD 34,246

thousand (2016: USD 24,904 thousand). The increase

in non-current assets from 2016 to 2017 was mainly

due to aforementioned investment in roll-based

production line at the San Jose site. Trade and other

receivables amounted to USD 16,245 thousand at the

end of 2017 (2016: USD 3,940 thousand). The increase

relates mainly to the increase in prepayments to

suppliers and equipment vendors. Non-current

liabilities amounted to USD 12,125 thousand (2016:

12,850) and is related to future lease payments of

the lease agreement of the US headquarters. The

Company does not have any interest-bearing debt

and the equity ratio was 87 per cent at the end of

2017, versus 80 per cent at the end of 2016.

The group’s cash balance increased by USD 23,915

thousand in 2017 (2016: USD 58,265 thousand). The

increase in cash balance is explained by three principal

elements: 1) an outflow of USD 52,319 thousand

from operating activities, 2) a USD 26,764 thousand

outflow from investing activities and 3) a USD 102,829

thousand inflow from financing activities, primarily as

a result of the private placement in Q4 2017.

Parent Company financial statements

Revenue and other income in the Parent Company

amounted to NOK 30,146 thousand in 2017 (2016:

NOK 16,496 thousand), where NOK 24,808 thousand

30

was recorded as sales revenue (2016: NOK 12,237

thousand), NOK 4,271 thousand related to government

grants being recognized as other revenue over the

period (2016: NOK 3,477 thousand) and NOK 1,068

thousand relating to other income (2016: NOK 782

thousand). The difference between Group and Parent

Company other revenue is explained by some of the

grant revenue being recognized in the subsidiaries

as well as the contribution from SkatteFUNN.

SkatteFUNN amounted to NOK 10 million in 2017

(2016: NOK 8 million) and has been credited against

cost, while it has been booked as other revenue

in the Consolidated Financial Statements. Other

income in the Parent Company is mainly explained

by inter-company sales of services to the Swedish

subsidiary, eliminated at group level. Personnel and

payroll costs were NOK 25,975 thousand in 2017,

up from NOK 23,969 thousand in the preceding

year. The Parent Company employed, on average,

nine full-time employees in 2017, compared to an

average of nine full-time employees during 2016.

External purchases of services amounted to NOK

21,426 thousand in 2017, an increase from NOK 20,891

thousand in the preceding year. Of the total amount

for 2017, (i) NOK 11,039 thousand related to legal, audit

and accounting services, (ii) NOK 4,540 thousand were

tied to advisory services, technology support services

and recruitment services, (iii) NOK 1,401 thousand

related to remuneration of the Board of Directors and

(iiii) NOK 4,446 thousand relating to the purchase of

external development work services. The increase is

mainly explained by higher legal and patent related

costs in 2017 compared to 2016. Purchase of services

from subsidiaries increased to NOK 484,567 thousand

in 2017 from NOK 315,443 thousand in 2016, largely

explained by the increased activity at the site in San

Jose, USA. Other operating expenses decreased

from NOK 11,279 thousand in 2016 to NOK 9,343

thousand in 2017. The decrease is mainly explained

by a reduction in advertising costs. The Company

had a project qualified for the SkatteFUNN (tax credit)

scheme in 2017, The net contribution of NOK 10,000

thousand has been credited to costs (2016: NOK

8,000 thousand). Amortization of intangible assets &

negative goodwill amounted to NOK 11,650 thousand

in 2017 compared to NOK 2,222 thousand in 2016. This

increase results mainly from impairment of licenses

for the memory and sensor programs that were

discontinued.

Net financial items amounted to an expense of NOK

14,719 thousand in 2017, compared to an expense

of NOK 4,475 thousand in 2016. The expense is

explained by a write down of investment in Thinfilm

CN and weakening of the USD towards the NOK.

The expense in 2016 was mostly explained by the

weakening of the USD towards the NOK, as the

Company held a significant share of its cash in USD.

The net result for 2017 for Thinfilm ASA was a loss of

NOK 527,533 thousand (2016: NOK 353,782 loss). The

Board of Directors proposes that the loss is carried

forward as uncovered loss. The Board does not

propose a dividend for 2017.

Share capital

Thinfilm shares were listed on Oslo Axess from 30

January 2008 until 26 February 2015. On 27 February

2015 Thinfilm shares were transferred to Oslo Børs

(OSE Main List). On 24 March 2015 Thinfilm’s American

Depository Receipts (ADRs) commenced trading in

the United States on OTCQX International.

At the end of 2017, there were 1,171,871,617 (2016:

816,759,117) shares in the Company which were held

by 5,542 shareholders (2016: 4,781 shareholders). Par

value is NOK 0.11 per share.

The closing price of Thinfilm shares was NOK 2.48 on

the last trading day in 2017, a decrease of 32 per cent

compared to the closing price at the end of 2016 (NOK

3.66). The total share turnover during 2017 amounted

to NOK 1,845 million compared to NOK 3,684 million

in 2016, a decrease of 50 per cent.

On October 19, 2017, it was announced that the

Company had raised NOK 881 million in gross

proceeds through a private placement consisting of

352,500,000 new shares (the “Private Placement”)

equal to 43 per cent of the shares in Thinfilm. The

subscription price in the Private Placement was set

to NOK 2.50 per share , equivalent to a 7.8 per cent

premium to the closing price on the Oslo Stock


Exchange 19 October 2017. The new shares allocated

in the Private Placement were issued in two separate

tranches. Tranche 1 consisted of 81,500,000 new

shares and was issued based on an authorization

to the Board of Directors granted by the Company’s

Annual General Meeting on 5 May 2017 (the “Tranche

1 Shares”). Tranche 2 consisted of 271,000,000 new

shares (the “Tranche 2 Shares”), and was approved

by the Extraordinary General Meeting held on 13

November 2017 (the “EGM”). Both Tranche 1 and

Tranche 2 shares were subscribed for by several new

and existing investors.

Several employees exercised vested incentive

subscription rights on several occasions in 2017, in a

combined total of 2,612,500 shares at average price

NOK 1.98 per share.

On December 2, 2016, it was announced that the

Company had raised NOK 529 million in gross

proceeds through a private placement consisting

of 135,200,000 new shares (the “Private Placement”)

equal to 16.6 per cent of the shares in Thinfilm. The

subscription price in the Private Placement was set

to NOK 3.91 per share. The new shares allocated in

the Private Placement were issued in two separate

tranches. Tranche 1 consisted of 63,700,000 new

shares and was issued based on an authorization



1 Shares”). Tranche 2 consisted of 71,500,000 new

shares (the “Tranche 2 Shares”), and was approved

by the Extraordinary General Meeting held on 23

December 2016 (the “EGM”). The Tranche 1 Shares

were subscribed by several existing shareholders

as well as new institutional investors. The Tranche

2 Shares were subscribed for by funds managed

by Woodford Investment Management Ltd with

51,500,000 shares and funds managed by Invesco

Asset Management Ltd with 20,000,000 shares.

On 19 February 2016, it was announced that

Woodford Investment Management had agreed

to acquire 120,000,000 shares in the Company at

a subscription price of NOK 3.00 per share totaling

NOK 360,000,000 (USD 42 million) equal to 14.7 per

cent of the shares in Thinfilm. At the 16 February 2016,

extraordinary general meeting of Thinfilm, it was

resolved to issue said shares, and upon subscription

in the offering, Woodford Investment Management

Thinfilm’s Board of Directors (l to r): Rolf Åberg, Laura Oliphant, Morten Opstad (Chairman), Tor Mesøy, Preeti Mardia.

32

also received 40,000,000 warrants, each with an

exercise price of NOK 4.50.

Several employees exercised vested incentive

subscription rights on several occasions in 2016, in a

combined total of 6,125,000 shares at average price

NOK 1.73 per share.

The annual general meeting in 2017 resolved an

authorization to the Board to grant up to 81,686,412

independent subscription rights to employees and

to individual consultants performing similar work

in Thinfilm, but limited so that the total number of

outstanding subscription rights under all subscription

rights programs shall not exceed 10 per cent of the

share capital. By the end of 2017, the Board had

granted 33,550,000 subscription rights under this

authorization and the total number of outstanding

subscription rights was 65,405,000.

The annual general meeting in 2017 authorized the

Board to complete one or more placements by

issuing up to 81,686,412 shares, which at the time

corresponded to 10 per cent of the Company’s

registered share capital. Following Tranche 1 of the

Private placement announced on October 20, 2017,

in which 81,500,000 shares were issued to several

investors, the remaining authorization amounted to

186,412 shares at the end of 2017.

Further 3,980,000 subscription rights have been

granted, and 2,351,250 forfeited and expired to date in

2018. Consequently, the total number of subscription

rights on 5 April 2018 is 67,033,750. The authorization

expires at the annual general meeting 2018.

Principal risks

Thinfilm is exposed to various risks of a financial

and operational nature. It is the duty of the Board to

present the principal risks of Thinfilm and its business.

The Company’s predominant risks are market and

business risks, summarized in the following points:

I. Many of the emerging markets that Thinfilm

targets, as well as the markets it intends

to pursue, are still immature for in-market

deployments and there is a potential risk of

delays in the timing of sales.

II. To a certain extent, Thinfilm is dependent

on continued collaboration with technology,

material, and manufacturing partners.

III. There may be product-development risks

that arise related to cost-functionality

competitiveness of the products Thinfilm is

developing.

IV. The Company is not yet cash generative

and operates at a loss, and there is

uncertainty tied to the generation of future

cash flow. The Company is however well

capitalized based on the private placement

in October 2017. At the date of this report,

the Company’s cash position is adequate

to cover all liquidity needs for 2018 and into

2019.

Going forward, Thinfilm foresees four important

revenue sources:

1. Sales of its own designed and manufactured

products, and;

2. Sales of conventional NFC labels

manufactured for Thinfilm and suitably

encoded for use by its platforms, and;

3. Monetization of Thinfilm’s CNECT™ software

platform, and;

4. Licensing/royalty revenue, where partners

and customers pay for using 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, in turn, depends on the

Company’s ability to attract and retain competent

staff and the adequacy of Thinfilm’s patenting and

other IP-protection activities.

Thinfilm is exposed to certain financial risks related

to fluctuation of exchange rates and interest level.


Reference is made to Note 4 to the consolidated

financial statements.

Going concern

The Board confirms that the financial statements

of the Group as well as the Parent Company have

been prepared under the going concern assumption.

The Board has a reasonable expectation that the

Company has adequate resources to continue in

operational existence for the foreseeable future.

Moreover, after having taken the October 2017 Private

Placement into consideration, 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 rest of 2018 and

into 2019.

Events in 2018

Since 31 December 2017 and until the date of these

financial statements, the Board has granted a total of

3,980,000 subscription rights under the subscription

rights-based incentive program resolved by the

annual general meeting 2017. The weighted average

exercise price of the granted subscription rights is

NOK 2.24 per share. Between 31 December 2017 and

the presentation of this report, no events with any

substantial impact on the result for 2017 or the value

of Thinfilm’s assets and liabilities at the end of 2017

have occurred.

Corporate governance

The Board considers that the attention to corporate

governance is beneficial for companies and investors.

Thinfilm seeks to comply with the Norwegian code

of practice for corporate governance to the degree

possible. The Board’s review of corporate governance

has been included in the annual report.

Outlook

Thin Film Electronics ASA (“Thinfilm”) is developing

technology that is expected to be critical to the

extension of the Internet of Things to ordinary

objects. Thinfilm’s NFC OpenSense™ and SpeedTap™

labels communicate wirelessly with appropriately

configured NFC-enabled smartphones, and can be

applied to consumables and other disposable objects.

The inclusion of NFC in smartphones increased

dramatically over the past several years. According

to the NFC Forum, the number of smartphones with

NFC reached 1.7 billion in 2016. Annual shipments

of NFC devices are expected to exceed 2 billion by

2018. In addition, applications beyond payments are

now being introduced. Most major OEM smartphone

manufacturers are now members of the NFC Forum,

including Samsung and Apple, where Thinfilm

continues to chair the Retail Working Group.

Thinfilm’s PDPS NFC labels are distinguished by their

exceptional speed (less than 10 milliseconds for full

read), their ability to identify whether a product’s

packaging is factory sealed or has been opened, its

shock and impact resistance, and its ability to be flexed

repeatedly over curved surfaces less than 15 cm in

diameter. Thinfilm also expects significant shipments

of conventional silicon NFC Forum Type 2 tags which

supplement Thinfilm’s own manufacturing and

provide an Apple iOS readable platform. Each label is

encoded by Thinfilm with a unique identifier or URL,

which prevents hacking and spoofing. Thinfilm has

also built a significant partner ecosystem, including

digital activation agencies such as Leo Burnett/ARC,

and packaging partners such as Jones Packaging,

Bedford Industries, Beneli AB, Constantia Flexibles,

Skanem and Spear Europe Ltd.

Thinfilm grew shipments to customers in 2017 to over

26 million units, and expects unit volumes to continue

increasing in 2018. The Company anticipates further

growth in key verticals such as spirits, wines, craft

beer, cosmetics, tobacco, nutritional supplements,

secure delivery, and OTC pharmaceuticals.

34

Thinfilm plans to continue to increase production

capacity, which is currently based on sheet based

manufacturing. Thinfilm leased a manufacturing

facility, at 2581 Junction Avenue, San Jose, CA, for 12

years, and has made tenant improvements. The new

facility features a significantly larger manufacturing

clean room, and enables Thinfilm to support the

Company’s plans to scale current production and

implement a high-volume roll-to-roll, manufacturing

line for lower cost EAS labels, and for transistor-based

products by Q3 2018 – including NFC OpenSense and

NFC SpeedTap labels. By accelerating the transition

to roll-to-roll printed electronics manufacturing

through CAPEX investments, Thinfilm expects to

be prepared to support up to a billion-unit annual

production volume in 2019. In parallel, the Company

will look to partner with scaleup qualified, industrial

companies to maintain its low CAPEX business model.

Thinfilm’s CNECT™ portal is a multi-tenant platform

that integrates with Thinfilm’s NFC SpeedTap™ and

OpenSense™ tags and provides users the ability to

manage tags and run precisely targeted marketing

campaigns, attracted significant prospective

customer interest and the Company expects further

growth in the 450 companies registered on the

CNECT Software platform as of end 2017.

Organization, personnel, and the environment

The Board of Directors would like to thank Thinfilm

management team members, general staff,

contractors, and ecosystem partners for their

dedicated efforts throughout 2017 and early 2018, and

for the results achieved during the period.

OrganizationThinfilm made significant investments in 2017 to

professionalize and improve daily operations across

the organization, develop its teams, and expanded use

of its quality management systems, and its enterprise

resource planning, knowledge management, and

supply chain management platforms.

One major initiative was the continued development

and enhancement of Thinfilm’s global Quality

Management System (QMS). The quality team

continued to grow and evolve during the year with

increased effectiveness and performance in areas

varying from supplier quality management to issue

of management cycle time. Significant progress has

also been made with the knowledge management

system providing increased support for many of

the main processes in the QMS system. In addition,

Thinfilm passed an audit to the new ISO 9001:2015

standard with excellent results, a reflection of the

major improvements made to the QMS throughout

the year and the Company’s drive for continuous

improvement.

Thinfilm continued to develop and invest in its

enterprise resource planning (ERP), which has

formalized and significantly improved processes

and procedures related to supply chain, accounting,

purchasing, order fulfillment, and inventory control.

The Company will continue to further optimize and

develop the system.

Personnel At the end of 2017, Thinfilm employed 167 full-time

employees, compared to 134 at the end of 2016.

As a technology- and solutions-focused company

with global scope of operations and international

reach, driving successful recruitment practices

and appropriate development of staff is central to

Thinfilm’s success.

The frontline teams added staff members in the

US, EMEA, and Asia, and structured their respective


organizations to optimize go-to-market activities

and customer acquisition efforts. Additional key

staff members were added in Software, Operations,

Quality Management, and Product Management.

During 2017, Thinfilm was able to hire a significant

number of highly qualified employees with valuable

industry experience and unique skill sets. The Board

is pleased that the Company possesses the ability

to attract, recruit, and retain staff members with

worldclass competence and expertise across a range

of disciplines. This ability is, in large part, a reflection

of Thinfilm’s industry reputation, technology and IP

portfolio, thought leadership position, commercial

success, and corporate culture. The Board also

recognizes that this ability to create a satisfied and

stable employee base has the potential to contribute

substantially to Thinfilm’s future growth, performance,

and success.

Environment The Board believes that the working environment

at Thinfilm is safe, stimulating, challenging, and

collaborative for all employees, and complies fully

with relevant laws and regulations in the regions

within which Thinfilm operates.

Thinfilm employees are covered by benefit programs

that are in line with practices in their respective

countries. Throughout 2017, there were no workplace

injuries to any of the Company’s employees that

resulted in an absence from work, and no significant

incidents or accidents involving equipment or other

assets occurred during the year. Instances of sick

leave during 2017 were relatively low, and were

consistent with previous years.

In addition to employees of the Parent Company and

its subsidiaries, Thinfilm has contracted specialists

in business development, technology, design,

accounting, and other services. Patenting and other

intellectual property rights (IPR) services are procured

from AWA Patent, from an IPR consultant and from

external legal counsel as needed.

Thinfilm creates and supports equal opportunity for

all employees in all aspects of the workplace. As of

December 31, 2017, the share of female employees

in the Company was approximately 25%, a level

which aligns with 2016. The management team was

all male as of December 2017, the same as in 2016.

Equality is one important aspect considered when

recruiting new employees. The Board considers

the firm’s equality standards and measures to be

adequate, and has not found reason to initiate any

corrective measures. The Company has updated its

ethical guidelines, which include an emphasis on the

Company’s personnel policies.

Thinfilm appreciates its corporate responsibility

to protect the environment. Thinfilm operates its

business to comply with the Environmental, Health,

and Safety regulations required for the materials

and processes needed to manufacture its products.

Thinfilm’s Board of Directors consists of two women

and three men, the composition of which satisfies

the gender requirements of the Norwegian Public

Limited Companies Act. The Board includes Mr.

Morten Opstad (Chairman), Ms. Preeti Mardia, Mr. Tor

Mesøy, Ms. Laura Ann Oliphant, and Mr. Rolf Åberg.

Mr. Opstad and Mr. Mesøy were re-elected for two

years at the annual general meeting on May 5, 2017.

Ms. Mardia and Mr. Åberg were re-elected for one

year in the same meeting. Ms. Oliphant was elected

for two years in the same meeting.

Thinfilm follows all relevant environmental rules

and regulations, as discussed in the Corporate

Responsibility Statement in this report.



Davor SutijaCEO

Laura Ann Oliphant Board Member



The Board of Directors of Thin Film Electronics ASA, Oslo, Norway, 5 April 2018

36

Thin Film Electronics ASA GroupConsolidated financial statements

Consolidated Statements of Comprehensive Income

Amounts in USD 1,000 Note 2017 2016

Sales revenue 14 2 980 1 460

Other revenue 15, 16 2 040 1 964

Other income 17 887 421

Total revenue and other income 5 907 3 845

Salaries and other payroll costs 18 (30 096) (21 854)Other operating expenses 19, 23 (28 898) (20 297)Depreciation, amortization and impairment loss

6, 7, 8 (6 991) (3 176)

Operating profit (loss) (60 078) (41 482)

Interest income 343 88Other financial income 1 384 118Interest expense (737) (3)Other financial costs (616) (2 934)

Net financial items 374 (2 731)

Profit (loss) before income tax (59 704) (44 213)

Income tax expense 20 122 (282)

Profit (loss) for the year (59 581) (44 495)

Profit (loss) per share for profit attributable to the equity holders of the Company during the year

Basic ad diluted, USD per share 22 (USD 0.07) (USD 0.07)


Other Comprehensive incomeItems that may be reclassified subsequently to profit or lossCurrency translation 456 785

Total comprehensive income for the year (59 126) (43 710)

37Thin Film Electronics ASA Group

Consolidated Statements of Financial Position

Amounts in USD 1,000 Note31 December

201731 December

2016

ASSETS

Non-current assetsProperty, plant and equipment 6 20 522 9 155Financial lease 8 11 534 12 607Intangible assets 7 2 190 3 142

Total non-current assets 34 246 24 904

Current assetsInventory 9 709 1 086Trade and other receivables 10 16 245 3 940Cash and bank deposits 11 98 120 74 205

Total current assets 115 073 79 230

Total assets 149 319 104 134

EQUITY 12Ordinary shares 18 660 13 877Other paid-in capital 319 817 219 097Currency translation (13 520) (13 976)Retained earnings (195 083) (135 503)

Total equity 25 129 874 83 495

LIABILITIES

Non-current liabilitiesDeferred tax liabilities 21 0 269Long-term financial lease liabilities 8 12 125 12 581

Total non-current liabilities 12 125 12 850

Current liabilities

Trade and other payables 13, 8 7 320 7 789

Total current liabilities 24 7 320 7 789

Total equity and liabilities 149 319 104 134



Davor SutijaCEO





38

Consolidated Statements of Changes in Equity

Amounts in USD 1,000 NoteShare

capital

Other paid-in equity

Currency Translation

Retained earnings Total

Balance at 1 January 2017

13 876 219 097 (13 976) (135 503) 83 495

Share issue employees

34 574 608

Share based compensation

2 220 2 220

Share issue board remuneration

-

Private placement Tranche 1 & 2, October 19 & November 13

4 749 97 928 102 677

Comprehensive income

456 (59 581) (59 126)

Balance at 31 December 2017

12 18 659 319 819 (13 520) (195 084) 129 874

Balance at 1 January 2016

10 466 119 949 (14 761) (91 008) 24 646

Private placement Woodford Investment Management, February 19

1 592 39 133 40 725

Share issue employees

82 1 197 1 278

Share based compensation

1 433 1 433

Share issue board remuneration, May 11

1 1

Private placement Tranche 1 & 2, December 2 & December 30

1 736 57 384 59 120

Comprehensive income

785 (44,495) (43,710)

Balance at 31 December 2016

12 13 876 219 097 (13 976) (135 503) 83 495

39Thin Film Electronics ASA Group

Consolidated Cash Flow Statements

Amounts in USD 1,000 Note 2017 2016

Cash flows from operating activities


- Share-based remuneration 6 2 220 1 433

- Depreciation and amortization 3 966 3 070

- Write down inventory, machinery and intangible assets

3 175 412

- Loss / (Gain) on sale of fixed assets (350) 1

- Taxes paid for the period (38) (118)

- Changes in working capital and non-cash items (1 588) 1 885

Net cash from operating activities (52 319) (37 530)

Cash flows from investing activities

Purchases of property, plant and equipment 3 (15 910) (4 464)

Prepayments relating to purchase of property, plant and equipment

(11 484) -

Purchases of intangible assets (63) (550)

Capitalized development expenses 4 (702) (342)

Proceeds from sale of fixed assets 1 052 6

Interest received 343 88

Net cash from investing activities (26 764) (5 262)

Cash flows from financing activities

Proceeds from issuance of shares 6 103 285 101 124

Financial lease payments 8 (456) -

Net cash from financing activities 102 829 101 124

Currency translation effects on cash and bank deposits

170 (67)

Net increase (decrease) in cashand bank deposits

23 915 58 265

Cash and bank deposits at the beginning of the year

74 205 15 940

Cash and bank deposits at the end of the year

98 120 74 205

40

Notes to the consolidated financial statements

1. Information about the group

Thin Film Electronics ASA (“Thinfilm ASA” or “the

Company”) was founded on 22 December 2005.

Reference is made to Note 28 for a description of the

subsidiaries consolidated into the parent company

Thin Film Electronics ASA.

The objectives of the Company shall be the

commercialization, research, development and

production of technology and products related to

printed electronics components and smart systems.

These objectives may be carried out in full internally,

or in whole or in part externally through collaborative

efforts with one or more of the Company’s ecosystem

partners.

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 and

to the Oslo Børs on 27 February 2015. On 24 March

2015 Thinfilm’s American Depository Receipts (ADRs)

commenced trading in the United States on OTQX

International.

These group consolidated financial statements were

resolved by the Board of directors on 5 April 2018.

2. Accounting policies

The principal accounting policies applied in

the preparation of these consolidated financial

statements are set out below. These policies have

been consistently applied. For the purpose of

ease of reading, the terms ”balance sheet” and

”accounting” and variations of these have been used

interchangeably with the IFRS terms ”statement of

financial position” and ”recognition”.

2.1 Basis of preparationThe annual financial statements have been prepared

on a historical cost basis. The financial statements of

the group have been prepared in accordance with

International Financial Reporting Standards (IFRS)

as adopted by the EU. The accounting policies

adopted are consistent with those of the previous

financial year, except for the below descriptions. IFRS

is continuously developed and recently published

standards, amendments and interpretations have

been reviewed and considered. None of the new

standards, amendments and interpretations that

apply as of 1 January 2017 had any impact on the

result or equity of Thinfilm in 2017. Reference is made

to note 2.20 for a description of changes in IFRS.

From January 1, 2015, the Group changed the

presentation currency from NOK to USD. The change

in presentation currency was treated as a change in

accounting principles which in accordance with IAS 8

was done retrospectively by translating comparative

figures to USD as if this had always been the

presentation currency. Translation to the presentation

currency for all transactions prior to the change in

presentation currency is done by using the following

procedure;

1) Assets and liabilities for each balance

sheet presented are translated on the rate

of exchange at the respective balance sheet

date.

2) Revenues and expenses for each Income

statement presented are translated at average

41Notes to the consolidated financial statements

exchange rate for the period. However, if this

average is not a reasonable approximation of

the cumulative effect on the rates prevailing

on the actual transaction dates, revenues and

expenses are translated using the foreign

exchange rates on the specific transaction

dates.

As a result of the above, a foreign currency translation

reserve in equity arises, representing the change in

equity calculated at period end-rates versus average

rates.

The reason for the change of presentation currency

is to provide financial information about Thinfilm that

is more useful to investors and other users of the

financial statements.

Following the continued scaling up of activities at

our US site, the Company performed an assessment

of the requirements in IAS 21 regarding functional

currency and concluded that the functional currency

of the parent company has changed from NOK to

USD with effect from 1 April 2016. This change is a

consequence of the fact that revenue and cost for the

parent company is increasingly USD denominated,

a trend that is expected to continue going forward.

The effect of the change in functional currency is

that all non-monetary items are translated to USD at

the rate as of 1 April 2016, which was NOK/USD 8,27,

establishing a new historical cost base. Monetary

items are revalued at the rate on each balance sheet

date.

2.2 ConsolidationSubsidiaries are all entities over which the group

has the power to govern the financial and operating

policies generally accompanying a shareholding of

more than one half of the voting rights. Subsidiaries

are fully consolidated from the date on which

control is transferred to the group. Inter-company

transactions, balances and unrealized gains

on transactions between group companies are

eliminated. Unrealized losses are also eliminated

but considered an impairment indicator of the asset

transferred.

Determining whether an acquisition meets the

definition of a business combination requires

judgement to be applied on a case by case basis.

Acquisitions are assessed under the relevant IFRS

criteria to establish whether the transaction represents

a business combination or an asset purchase. Business

acquisitions, except for transactions between entities

under common control, are accounted for using

the acquisition method of accounting. The acquired

identifiable tangible and intangible assets, liabilities

and contingent liabilities are measured at their fair

values at the date of acquisition. Acquisition costs

incurred are expensed. The excess of the cost of

acquisition over the fair value of the group’s share

of the identifiable net assets acquired is recorded

as goodwill. If, after reassessment, the net of the

acquisition-date amounts of the identifiable assets

acquired and liabilities assumed exceeds the sum

of the consideration transferred, the amount of any

non-controlling interests in the acquiree and the

fair value of the acquirer’s previously held interest

in the acquiree (if any), the excess is recognised

immediately in the statement of income as a gain on

bargain purchase.

2.3 Foreign currency translationa) Functional and presentation currency

The consolidated financial statements are

presented in US dollar (USD). As of April 1,

2016 the functional currency of Thin Film

Electronics ASA was assessed to be US

dollar (USD) and was hence changed from

Norwegian Kroner (NOK) by applying the

requirements in IAS 21 (see section 2.1 for

further description).

b) Transactions and balances

Foreign currency transactions are translated

into the functional currency using the

exchange rates prevailing at the dates of

the transactions. Foreign exchange gains

and losses resulting from the settlement of

such transactions and from the translation

42

at year-end exchange rates of monetary

assets and liabilities denominated in foreign

currencies are recognized in the income

statement.

c) Group companies

On consolidation, exchange differences

arising from the translation of the net

investment in foreign operations are included

in other comprehensive income. When a

foreign operation is partially disposed of or

sold, such exchange differences are reversed

and recognized in the income statement as

part of the gain or loss on the sale.

2.4 Property, plant and equipmentThese are mainly laboratory test equipment, printing

machines and office equipment. Property, plant

and equipment are stated at historical cost less

depreciation and impairment losses. Historical cost

includes expenditure that is directly attributable to

the acquisition of the items.

Subsequent costs are included in the asset’s

carrying amount or recognized as a separate asset,

as appropriate, only when it is probable that future

economic benefits associated with the item will flow

to the group and the cost of the item can be measured

reliably. The carrying amount of the replaced part is

derecognized. All other repairs and maintenance are

charged to the income statement during the financial

period in which they are incurred.

Depreciation is calculated using the straight-line

method as follows:

– Laboratory equipment 5 years

The assets’ residual values and useful lives are

reviewed, and adjusted if appropriate, at each balance

sheet date.

Gains and losses on disposals are determined by

comparing the proceeds with the carrying amount

and are recognized in the income statement.

2.5 InventoryInventory, components and components under

production are valued at the lower of cost and net

realizable value after deduction of obsolescence. Net

realizable value is estimated as the selling price less

cost of completion and the cost necessary to make

the sale. Costs are determined using the standard

cost method. The FIFO principle is applied. Work in

progress includes variable cost and non-variable

cost which can be allocated to items based on

normal capacity. Obsolete inventory is written down

completely.

2.6 Intangible assetsa) Patents and licenses

Acquired patents and licenses are stated at

historical cost. Patents and licenses have a

finite useful life and are carried at cost less

accumulated amortization. Amortization is

calculated using the straight-line method to

allocate the cost of patents and licenses over

their estimated useful lives. An asset’s carrying

amount is written down to its recoverable

amount if the asset’s carrying amount is

greater than its estimated recoverable

amount. In January 2014, Thinfilm acquired

an IP portfolio consisting of patents. These

assets are initially recognized at fair value

and subsequently measured at cost, less

accumulated amortisation and impairment

losses.

b) Research and development

Research costs are expensed as they are

incurred. An intangible asset arising from

development expenditure on an individual

project is capitalized only when the Group

reliably can measure the expenditure and can

demonstrate;

• the technical feasibility of completing

the intangible asset so that it will be

available for use or sale


• how the asset will generate future

economic benefits

• the group’s ability to obtain resources to

complete the project

Development costs are amortized over the period of

expected use of the asset. In the fourth quarter of 2014

and the third quarter of 2015 the Company started

to capitalize development expenses of Thinfilm

MemoryTM and EAS (Electronic article surveillance)

respectively.

An asset’s carrying amount is written down to its

recoverable amount if the asset’s carrying amount is

greater than its estimated recoverable amount.

2.7 Impairment of assetsAssets that have an indefinite useful life, for example

goodwill, are not subject to amortization and are tested

annually for impairment. Assets that are subject to

amortization are reviewed for impairment whenever

events or changes in circumstances indicate that

the carrying amount may not be recoverable. An

impairment loss is recognized for the amount by

which the asset’s carrying amount exceeds its

recoverable amount. The recoverable amount is the

higher of an asset’s fair value less costs of disposal

and value in use. For the purposes of assessing

impairment, assets are grouped at the lowest levels

for which there are separately identifiable cash flows

(cash-generating units). Non-financial assets other

than goodwill are reviewed for possible reversal of

any previous impairment at each reporting date.

2.8 Trade receivables and other receivablesTrade receivables and other short-term receivables

are measured at initial recognition at fair value

and subsequently measured at amortized cost.

Short-term receivables, which are due within three

months, are normally not discounted.

2.9 Cash and bank depositsCash and bank deposits include cash in hand,

deposits held at call with banks, other short-term

highly liquid investments with original maturities of

three months or less and any bank overdrafts. Bank

overdrafts are shown within borrowings in current

liabilities on the balance sheet.

2.10 Share capitalOrdinary shares are classified as equity. Incremental

costs directly attributable to raising new equity are

shown as a deduction to the equity, net of tax.

2.11 Trade payablesTrade payables are recognized initially at fair value

and subsequently measured at carrying value.

2.12 Deferred income taxDeferred income tax is recognized on temporary

differences arising between the tax bases of assets

and liabilities and their carrying amounts in the

consolidated financial statements. However, the

deferred income tax is not accounted for if it arises

from initial recognition of an asset or a liability in a

transaction other than a business combination that at

the time of the transaction affects neither accounting,

nor taxable profit or loss. Deferred income tax is

determined using tax rates (and laws) that have been

enacted or substantially enacted on the balance

sheet date and are expected to apply when the

related deferred income tax asset is realized or the

deferred income tax liability is settled.

Deferred tax assets are recognized to the extent

that it is probable that future taxable profit will be

available against which the temporary differences

can be utilized. Deferred tax liabilities are recognized

for taxable temporary differences.

2.13 Employee remunerationTermination benefits are payable when employment

is terminated by the group before the normal

retirement date, or whenever an employee accepts

voluntary redundancy in exchange for these benefits.

The group recognizes termination benefits when it is

demonstrably committed to either: terminating the

employment of current employees according to a

detailed formal plan without possibility of withdrawal;

or providing termination benefits as a result of an offer

made to encourage voluntary redundancy. Benefits

44

falling due more than 12 months after the balance

sheet date are discounted to present value.

The company has only defined contribution pension

plans. Contributions are expensed and paid when

earned.

2.14 Revenue recognitionRevenue comprises the fair value of the consideration

received or receivable for the sale of goods and

services in the ordinary course of the group’s

activities. Revenue is shown net of value-added tax,

returns, rebates and discounts and after eliminating

sales within the group.

The Group recognizes revenue when the amount of

revenue can be reliably measured, it is probable that

future economic benefits will flow to the entity and

when the specific criteria have been met for each of

the group’s activities, as described below.

a) Sales of goods

The Group manufactures and sells NFC tags,

Electronic Article Surveillance (EAS) anti-theft

tags, and printed integrated systems in the

form of products delivered to customers,

prototype development projects, engineering

samples and technology demonstration kits

to strategic customers and partners. Sales

of goods are recognized when the risks

and rewards of ownership are transferred

to the customer, the costs incurred or to be

incurred in respect of the transaction can be

measured reliably and Thinfilm retains neither

continuing managerial involvement to the

degree usually associated with ownership nor

effective control over the goods sold.

b) Rendering of services

The Group provides engineering and support

services to strategic customers and partners.

Revenue from services provided at an hourly

rate is recognized when, or in the same period

as, the group has provided the services.

Revenue from services related to achieving

certain milestones are recognized when the

milestone is met, given that the stage of

completion as well as the the costs incurred

at the balance sheet date can be measured

reliably. The revenue is recognized when the

costs incurred in respect of the transaction

can be measured reliably.

c) Technology access revenue

The Group grants technology access rights

to strategic customers and partners, i.e., the

right to work with Thinfilm and its technology

to develop bespoke printed products and

systems. Revenue from granting technology

access rights is generally recognized on

a straight-line basis over the period or

contract term the technology access is

granted. However, revenue from technology

access agreements that involve an upfront

lump-sum payment that is not tied to any

future deliveries from Thinfilm is recognized

at the time the agreement is entered into.

2.15 Government grantsGovernment grants are recognised when there is

reasonable assurance that the grant will be received

and the conditions will be complied with. Grants

are recognised as other operating revenue over the

period necessary to match them with the related

costs, for which they are intended to compensate, on

a systematic basis.

2.16 Leases2.16.1 Finance lease Leases of property, plant and equipment where the

group, as lessee, has substantially all the risks and

rewards of ownership are classified as finance leases.

Finance leases are capitalised at the lease’s inception

at the fair value of the leased property or, if lower,

the present value of the minimum lease payments.

The corresponding rental obligations, net of finance

charges, are included in other short-term and

long-term payables. Each lease payment is allocated

between the liability and finance cost. The finance


cost is charged to the profit or loss over the lease

period so as to produce a constant periodic rate of

interest on the remaining balance of the liability for

each period. The property, plant and equipment

acquired under finance leases is depreciated over

the asset’s useful life or over the shorter of the asset’s

useful life and the lease term if there is no reasonable

certainty that the group will obtain ownership at the

end of the lease term.

2.16.2 Operating lease Leases in which a significant portion of the risks and

rewards of ownership are retained by the lessor are

classified as operating leases and the leasing fee is

charged to the profit and loss statement.

2.17 Share based remunerationEquity-settled share-based payments to employees

are measured at the fair value of the equity

instruments at grant date. The fair value of the

instruments is determined using a Black & Scholes

option pricing model.

The fair value determined at the grant date of the

equity-settled share-based payments is expensed

on a straight-line basis over the vesting period, based

on the Group’s estimate of equity instruments that

will eventually vest, with a corresponding increase

in equity. At the end of each reporting period, the

Group revises its estimate of the number of equity

instruments expected to vest.

For social security contribution related to

equity-settled share-based payment transactions

with employees, a liability is recognized. The liability

is initially measured at the fair value of the liability. At

the end of each reporting period until the liability is

settled, and the date of settlement, the fair value of

the liability is remeasured, with any changes in fair

value recognized in profit or loss for the year.

2.18 Cash flow statementThe cash flow statement is prepared in accordance

with the indirect method.

2.19 Segment informationOperating segments, according to IFRS 8, are reported

in a manner consistent with the internal reporting

provided to the chief operating decision-maker. The

chief operating decision-maker, who is responsible

for allocating resources, assessing performance

and making strategic decisions, has been identified

as the Chief Executive Officer (CEO). Based on

Thinfilm’s deliveries, performance obligations,

customer characteristics and other information, it has

been assessed that Thinfilm has only one operating

segment. Hence, primarily information according to

IFRS 8 paragraphs 32 - 34 is provided.

2.20 Changes in accounting principlesThe following amendments to IFRSs are effective for

an accounting period beginning after 1 January 2017.

• Disclosure Initiative (Amendments to IAS

7). Adoption 1 January 2017

• IAS 12 (amendments) – recognition of

deferred tax assets for unrealized losses.

Adoption 1 January 2017

• Annual improvements to IFRS standards

2014-2016 cycle: Amendments to IFRS 12

Adoption 1 January 2017

This amendment had no material impact on the

disclosures or amounts recognized in the Group’s

consolidated financial statements.

2.21 Approved standards and interpretations not yet in effectIFRS 15 was issued May 2014 and establishes a

new five step model that will apply to revenue

arising from contract with customers. Under IFRS 15

revenue is recognized at the amount that reflects the

consideration to which an entity expects to be entitled

to in exchange for goods or services to a customer.

This revenue standard supersedes all current revenue

recognition requirements under IFRS. Either a full

or modified retrospective application is required for

annual periods beginning on or after 1 January 2018.

The group is currently assessing the impact of IFRS

46

15 and will adopt the new standard on the required

effective date.

IFRS 16 leases will apply for annual periods

beginning after 1 January 2019. IFRS 16 specifies

how to recognize, measure and disclose leases. The

standard provides a single lessee accounting model,

requiring lessees to recognize assets and liabilities for

all leases unless the lease term is 12 months or less

or the underlying asset has a low value. The group is

currently assessing the impact of IFRS 16 and plans

to adopt the new standard on the required effective

date.

IFRS 9 Financial Instruments was issued in July 2014

and introduces new classification and measurement

requirements, a new hedge accounting model and a

new impairment model. IFRS 9 is effective for annual

periods beginning on or after 1 January 2018. The

group is currently assessing the impact of IFRS 9

and plans to adopt the new standard on the required

effective date.

In addition to these standards, the following new

and revised IFRSs have been issued, but are not

yet effective, and in some cases have note yet been

adopted by the EU:

• Annual improvements to IFRS Standards

2014-2016 Cycle: Amendments to IFRS 1

and IAS 28

• Annual improvements to IFRS Standards

2015-2017 Cycle

• IFRS 9 Financial Instruments and

subsequent amendments

• IFRS 14 Regulatory Deferral Accounts

• IFRS 17 Insurance Contracts

• Amendments to IFRS 2 Classification and

Measurement of Share-based Payment

Transactions

• Amendments to IFRS 4 Applying IFRS

9 Financial Instruments with IFRS 4

Insurance Contracts

• Amendments to IFRS 9 Prepayment

Features with Negative Compensation

• IFRIC 22 Foreign Currency Transactions

and Advance Consideration

• IFRIC 23 Uncertainty over Income Tax

Treatments

3. Segment information

Thinfilm’s business consists of sale of products,

services and development of printed systems that

include sensing and wireless communication. The

CEO has determined that the Group has only one

operating segment. Consequently, no additional

segment information is disclosed. Reference is made

to note 6 and 14 for entity-wide disclosures.

4. Capital management and financial risk

4.1 Capital ManagementThe Group manages its capital to ensure that entities

in the Group will be able to continue as a going

concern. The capital structure of the Group consists

of equity and current and non-current non-interest

bearing liabilities. The Group is not subject to any

externally imposed capital requirements apart from

the requirements according to national laws and

regulations for limited liability companies. The Group

has no interest-bearing long-term debt and is not

subject to loan covenants.

4.2 Financial risk factorsThinfilm is exposed to certain financial risks related

to exchange rates and interest level. These are,

however, insignificant compared to the business risk.

a. Market risk factors

(i) Currency risk

The Group has the major part of its operations

in USA while the majority of the cash is held

in NOK. Increased value of USD relative to

NOK therefore constitutes a currency risk.

The management monitors this risk and will

take the appropriate actions to address it as

the situation requires.


The currency risk related to the balance

sheet is mostly related to the net investment

in the Swedish subsidiary. The management

monitors this risk but has not initiated

particular actions to reduce it.

(ii) Interest risk

Thinfilm does not have any material interest-

bearing debt.

b. Credit risk

The company has some credit risks relating

to receivables. The loss on receivables has

historically been low.

As a part of the relocation of Thinfilm’s US

headquarters in the first two quarters of 2017 a

USD 1,600 thousand Letter of Credit has been

issued to the new landlord. The Company has

in addition entered into a Tenancy Guarantee

with the new landlord. The guarantee is given

to secure payment of the lease rent. The

guarantee liability amounts to USD 5,000

thousand and shall reduce on an annual basis

of USD 500 thousand per year commencing

with the second lease year until the liability

reaches zero dollars. Apart from that, Thinfilm

has not issued guarantees or mortgages.

c. Liquidity risk

Thinfilm does not have any material interest-

bearing debt and has hitherto been able to

raise adequate equity. As described in the

section Share Capital in the Report from the

Board of Directors, the Company raised NOK

881 million in gross proceeds from several

new and existing investors in Q4 2017. As

described in the section Principal Risk in the

Report from the Board of Directors, Thinfilm

believes that the cash held at year-end as a

consequence of the capital raising activities

in 2017 is sufficient to fund the operations of

the Company for the rest of 2018 and into

2019.

4.3 Fair value estimationThe carrying value less impairment provision of

trade receivables and payables are assumed to

approximate the fair values of such items. Accounts

payable and accrued liabilities with due date within 12

months have been recognized at carrying value. The

fair value of financial liabilities has been estimated by

discounting the future contractual cash flows at the

current market interest rate that is available to the

group for similar financial instruments.

4.4 Financial instrumentsThinfilm is not party to any transactions or financial

instruments which are not recorded in the balance

sheet or otherwise disclosed.

5. Critical accounting estimates and judgments

The financial statements of the group have been

prepared based on the going concern assumption.

Estimates and judgments are continually evaluated

and are based on historical experience and other

factors, including expectations of future events

that are believed to be reasonable under the

circumstances. The Group makes estimates and

assumptions concerning the future. The resulting

accounting estimates will, by definition, rarely equal

the related actual results. Please also refer to sections

Going concern and Principal Risk in the Report from

the Board of Directors.

The estimates and assumptions in the financial

statements of the group mainly relate to share based

compensation, deferred tax assets, accounting for

research and development financial lease, intangible

assets, and property, plant and equipment.

Share based compensation:Thinfilm estimates the fair value of options at the

grant date. Thinfilm has applied a Black & Scholes

option pricing model when valuing the options. The

option valuation is based on assumptions about

share price, volatility, interest rates and duration of

the options. The cost of share based remuneration

48

is expensed over the vesting period. Such estimates

are updated at the balance sheet date. Changes in

this estimate will impact the expensed cost of share

based remuneration in the period.

Deferred tax assets:Deferred tax assets related to losses carried forward

is recognized when it is probable that the loss carried

forward may be utilized. Evaluation of probability

is based on historical earnings, expected future

margins and the size of the order back-log. Future

events may lead to these estimates being changed.

Such changes will be recognized when reliable new

estimates can be made. No deferred tax assets have

been recognized in the balance sheet as of December

31, 2017.

Research and development:Research costs are expenses as incurred.

Development expenditure on an individual project

is recognised as an intangible asset only when

Thinfilm can demonstrate the technical feasibility

of completing the intangible assets so that it will be

available for use or sale, the Company’s intention and

capability of completing the development and realize

the asset, and the net future financial benefits of use

or sale. Determining whether an expense meets the

definition of a development cost requires judgment

to be applied. Capitalized development costs as of

December 31, 2017, amounted to USD 847 thousand.

See note 7.

Intangible assets:In connection with the purchase of certain certain

assets from Kovio, Inc., in January 2014, Thinfilm

acquired an IP portfolio of ninety patent families. In

addition, Thinfilm has acquired certain licenses and

capitalized certain development costs relating to

printed batteries. These assets are recognized in

the balance sheet as intangible assets and valued

at fair value less accumulated amortization and

impairment losses. The book value is dependent on

the successful development of the technology in

the Parent Company and in the subsidiaries. As of

December 31, 2017 intangible assets of USD 2,190

thousand are recognized in the balance sheet. See

note 7.

Property, plan and equipment (PPE):In connection to establishing US headquarters in

San Jose, Thinfilm has invested in PPE, including

a roll-based production line. Determining whether

equipment/a tool a) is under construction b) is ready

for use in production c) will generate sufficient net

future benefits on a stand-alone basis or as part of a

production line, requires judgment to be applied. As

of December 31, 2017 PPE amounted to USD 20,522

thousand, of which USD 6,360 thousand comprised

equipment under construction. In addition, Thinfilm

has contractual liabilities primarily related to the new

roll-based production line. See notes 6 and 29.

Financial lease:The Company entered into a lease agreement in

November 2016 relating to the property building of

its new US headquarter in San Jose, California. The

building element of the lease agreement is classified

as a financial lease, where the present value of the

minimum lease payments amounts to substantially

all of the fair value of the leased asset. Determining

whether the lease should be classified as a financial

or operating lease requires judgment as the present

value calculation for future lease payments is very

sensitive to interest rates assumptions. If different

interest rate assumptions had been made it could

be argued that the present value of the minimum

lease payments does not amount to substantially all

of the fair value of the leased asset, hence resulting

in the lease being accounted for as an operating

lease. Thinfilm assesses whether the lease has

been impaired by applying the requirements in IAS

36 - Impairment of assets. As of December 31, 2017,

the book value of the leased building is USD 11,534

thousand. See Note 8.

49Notes to the consolidated financial statementsMichael Estrella, Sr. Backend Manufacturing Technician, and James Hua, Backend Manufacturing Technician, work with the SpeedTap™ tag-testing system.

50

6. Property, plant and equipment (PPE)Amounts in USD 1,000

Laboratory and production equipment

Useful life, years 5

2017

Accumulated cost on 1 January 2017 14 398

Additions 16 344 Impairment at cost (484)Reclassifications 113Sale/disposal of assets (4 032)Exchange differences 572

Accumulated cost 31 December 2017 26 910

Accumulated depreciationAccumulated depreciation on 1 January 2017 (5 242)Depreciation expenses (2 696)Impairment (1 322)Sale/disposal of assets 3 129 Exchange differences (257)

Accumulated depreciation 31 December 2017 (6 388)

Net book value 31 December 2017 20 522

Other receivables include USD 11,484 thousand prepayments related to investment in equipment and machinery that had not been received from the suppliers as of 31 December 2017.

2016Accumulated cost on 1 January 2016 10 972 Additions 4 464 Sale/disposal of assets (611)Exchange differences (427)

Accumulated cost 31 December 2016 14 398

Accumulated depreciationAccumulated depreciation on 1 January 2016 (3 184)Depreciation expenses (2 588)Sale/disposal of assets 319 Exchange differences 210

Accumulated depreciation 31 December 2016 (5 242)

Net book value 31 December 2016 9 155

The total of Property, plant and equipment located in Sweden is USD 490 thousand (2016: 2,750 thousand) and in the US is USD 20,032 thousand (2016: 6,405 thousand). Property, plant and equipment is not held in any other countries.

2017 impairments are primarily related to equipment for the MemoryTM and sensor programs that were discontinued.

As per December 31, 2017 PPE included construction in progress amounting to USD 6,360 thousand and relating to roll-based production line.


7. Intangible assets

Amounts in USD 1,000

Purchased intellectual

propertyCapitalized

development costs Total

Amortization period, years (linear) 13-16

2017

Acquisition costAccumulated cost on 1 January 2017 3 250 444 3 695Additions 63 702 765Impairment at cost (1 344) - (1 344)Sale/disposal of assets - (300) (300)Exchange differences - - -

Accumulated costs 31 December 2017 1 969 847 2 816

Accumulated amortization and impairment on 1 January 2017

(553) - (553)

Amortization (199) - (199)Accumulated amortization impaired assets

126 - 126

Exchange differences - - -

Amortization and Impairment at 31 December 2017

(626) - (626)

Net book value 31 December 2017 1 343 847 2 190

2016

Acquisition costAccumulated cost on 1 January 2016 2 835 134 2 969Additions 550 342 892 Impairment at cost (134)Disposals (at cost) - - -Exchange difference - (32) (32)

Accumulated costs 31 December 2016 3 250 444 3 695

Accumulated amortization and impairment on 1 January 2016

(368) - (368)

Amortization (214) - (214)Accumulated amortization impaired assets

29 29

Disposals (at accumulated amortization) - - -Exchange differences - - -

Amortization and Impairment 31 December 2016

(553) - (553)

Net book value 31 December 2016 2 698 444 3 142

Impairments comprise patents related to the MemoryTM and sensor programs that were discontinued.

The amount of research and development expenditure recognized as an expense in 2017 amounts to USD 16,549 thousand (2016: USD 15,410 thousand). This was mainly related to cost incurred in connection with research & development relating to roll-to-roll printing processes, printed batteries and displays.

52

8. Financial leaseThe Company entered into a lease agreement in November 2016 relating to the property building of its new US headquarters in San Jose, CA. The lease in San Jose expires in September 2028. The building element of the lease agreement is classified as a financial lease as the present value of the minimum lease payments amounts to substantially all of the fair value of the leased asset. The land element of the lease has been accounted for separately as an operating lease.

Amounts in USD 1000 Building

Depreciation period, years (linear) 12

2017

Net value on 1 January 2017 12 607

Additions -

Exchange differences -

Depreciation (1 073)

Net book value on 31 December 2017 11 534

2016

Net value on 1 January 2016 -

Additions 12 875

Exchange differences -

Depreciation (268)

Net book value on 31 December 2016 12 607

Amounts in USD 1000Minimum lease

paymentsPresent value of minimum

lease payments

Finance liabilities are payable as follows at

Year ended 31 December 2017

Finance lease liabilities are payable as follows:

Less than one year 1 505 1 418

Between one and five years 6 577 5 345

More than five years 10 992 6 681

Total 19 074 13 444

Less future finance charges -5 630

Present value of minimum lease payments 13 444 13 444

9. InventoryAmounts in USD 1,000 2017 2016

Finished goods 167 423

Raw materials 131 243

Work in progress 411 419

Net book value on 31 December 2017 709 1 086

Amount written down 1,736 765


10. Trade and other receivablesAmounts in USD 1,000 31 December 2017 31 December 2016

Customer receivables 1 776 751

Accrued revenue not yet invoiced 153 60

Other receivables, prepayments 14 269 3 129

Income tax prepayments 47 -

Less: provision for impairment of receivables - -

Receivables – net 16 245 3 940

Of this, receivables from related parties (note 23) - -

Of other receivables, prepayments, USD 11,484 thousand relate to equipment for San Jose site. All receivables are due within one year and book value approximates fair value.

Total receivables are denominated in currencies as shown below

Amounts in USD 1,000 31 December 2017 31 December 2016

Denominated in NOK 1 738 1 319

Denominated in SEK 342 290

Denominated in USD 8 496 2 032

Denominated in HKD 42 16

Denominated in GBP 5 131 282

Denominated in other currencies, including EUR, CNY and CHF

496 1

Total 16 245 3 940

Of net receivables USD 15,849 thousand were not past due as per December 31. USD 13 thousand were past due by less than 30 days. USD 301 thousand were past due between 31 and 90 days, and USD 82 thousand were past due by more than 90 days.

The Group assesses impairment risk on an individual basis.

11. Cash and bank depositsAmounts in USD 1,000 31 December 2017 31 December 2016

Cash in bank excluding restricted cash 96 420 71 832

Deposit for Letter of Credit 1 604 2 200

Deposit for withheld tax 96 173

Total 98 120 74 205

Payable withheld tax amounts in Norway and Sweden at 31 December 2017 were USD 82 thousand and USD 14 thousand (2016: USD 139 thousand and USD 34 thousand).

54

12. Share capital & warrantsNumber of shares Number of warrants

Shares at 1 January 2017 816 759 117 88 267 326Share issue to employees, 24 February 105 000 -Share issue to employees, 5 May 2 057 500 -Share issue to employees, 11 August 450 000 -Private Placement Tranche 1, 19 October 81 500 000 -Private Placement Tranche 2, 13 November 271 000 000 -Expiry of warrants, 14 November - (31 250 000)

Shares at 31 December 2017 1 171 871 617 57 017 326

Shares at 1 January 2016 555 374 857 48 267 326Private placement Woodford Investment Management, February 19

120 000 000 40 000 000

Share issue to employees, February 25 837 500 -Share issue to employees, May 11 3 675 000 -Share issue Board remuneration, May 11 59 260 -Share issue to employees, August 15 452 500 -Share issue to employees, November 4 1 160 000 -Private placement December Tranche 1, December 1

63 700 000 -

Private placement December Tranche 2, December 23

71 500 000 -

Shares at 31 December 2016 816 759 117 88 267 326

2017: 19 October 2017, it was announced that the Company raised NOK 881 million (approx. USD 110 million) in gross proceeds through a private placement consisting of 352,500,000 new shares (the “”Private Placement””). The subscription price in the Private Placement was NOK 2.50 per share, equivalent to a 7.8% premium to the closing price on the Oslo Stock Exchange 18 October 2017. The Private Placement was divided into two tranches; Tranche 1 consisting of 81,500,000 million shares and a Tranche 2 consisting of 271,000,000 shares. The Tranche 1 shares were issued based on an authorization to the Board of Directors granted by the Company’s Annual General Meeting on 5 May 2017. The completion of the Tranche 2 of the Private Placement was approved by an Extraordinary General Meeting held on 13 November 2017. Both Tranche 1 and Tranche 2 shares were subscribed for by several new and existing investors.

Several employees exercised vested incentive subscription rights on several occasions in 2017, in a combined total of 2,612,500 shares at average price NOK 1.98 per share. 2016:On 19 February 2016, it was announced that Woodford Investment Management had agreed to acquire 120,000,000 shares in the Company at a subscription price of NOK 3.00 per share totaling NOK 360,000,000. At the 16 February 2016 extraordinary general meeting of Thinfilm, it was resolved to issue said shares, and upon subscription in the offering, Woodford Investment Management also received 40,000,000 warrants, each with an exercise price of NOK 4.50.

On December 2, 2016, Thinfilm announced that it had raised NOK 529 million in gross proceeds through a private placement consisting of 135,200,000 new shares (the “”Private Placement””). The subscription price in the Private Placement was set to NOK 3.91 per share, equivalent to the closing price on the Oslo Stock Exchange December 1, 2016. The new shares allocated in the Private Placement were issued in two separate tranches. Tranche 1, consisted of 63,700,000 new shares and was issued based on an authorisation to the Board of Directors granted by the Company’s Annual General Meeting on 10 May 2016 (the “”Tranche 1 Shares””). The Tranche 2, consisted of 71,500,000 new shares (the “”Tranche 2 Shares””), were approved by the Extraordinary General Meeting held on 23 December 2016 (the “”EGM””). The Tranche 1 Shares were subscribed by several existing shareholders as well as


13. Trade and other payablesAmounts in USD 1,000 31 December 2017 31 December 2016

Trade payables 1 410 3 439

Public duties, withheld taxes and social security taxes due

831 444

Share-based liability (subscription rights), employer´s tax

86 300

Accrued holiday pay and other accrued salary 2 555 1 958

Current lease liabilities 562 386

Other accrued expenses 1 875 1 262

Total 7 320 7 789

Of this, payables to related parties (note 23) 178 403

Total payables and accruals are denominated in currencies as shown below

Amounts in USD 1,000 31 December 2017 31 December 2016

Denominated in NOK 1 463 3 111

Denominated in SEK 1 639 1 268

Denominated in USD 3 973 3 326

Denominated in HKD 60 85

Denominated in other currencies, including GBP, EUR, CNY and CHF

184 -

Total 7 320 7 789

new institutional investors. The Tranche 2 Shares were subscribed for by funds managed by Woodford Investment Management Ltd with 51,500,000 shares and funds managed by Invesco Asset Management Ltd with 20,000,000 shares.

Several employees exercised vested incentive subscription rights on several occasions in 2016, in a combined total of 6,125,000 shares at average price NOK 1.73 per share.

56

14. Sales revenueThe breakdown of the sales revenue is as follows:

Amounts in USD 1,000 2017 2016

Sales of goods 1 664 284

Rendering of services, technology access revenue 1 316 1 176

Total 2 980 1 460

The Group is domiciled in Norway. The sales revenue from external customers in Norway amounts to USD 1 thousand (2016: 0).

The total sales revenue from external customers from other countries is USD 2,979 thousand, of which USD 235 thousand related to sales to customers in the United States. In 2016 USD 369 thousand related to sales to customers in the United States out of the total sales revenue of USD 1,460 thousand.

The breakdown of the major components of the total of revenue from external customers from other countries is diclosed above.

Sales revenue of approximately USD 1,184 thousand (2016: USD 736 thousand) and USD 1,429 thousand (2016: 245 thousand) respectively are derived from single customers.

No warranty costs, penalties or other losses were related to sales revenue in 2017. See note 10 for information on provision for impairment of receivables.

Members of the roll-to-roll team gather for an informal discussion (l to r): John Williams, Staff Roll-to-Roll Engineer; Ed Holland, Sr. Roll-to-Roll Process Engineer; Jie Li, Sr. Lithography/Print Process Engineer; and Dan Cameron, Sr. Staff Roll-to-Roll Equipment Engineer.


15. Other revenueAmounts in USD 1,000 2017 2016

Government grants, funded development projects 2 040 1 964

Total 2 040 1 964

16. Government grantsIn February 2014, Thinfilm ASA received a government grant of NOK 5.9 million from The Research Council of Norway relating to development of production methods for printed electronics. The project ran until February 1, 2017. In February 2015 Thinfilm ASA received an additional grant from The Research Council of Norway of NOK 12 million relating to enhancing durability and liftetime of Thinfilm smart tags. The project ran until April 1, 2018. In 2017 Thinfilm ASA had a project qualified for the SkatteFUNN scheme (tax credit scheme), which relates to the development of integration and assembly methods for printed smart labels. In 2017, net contribution from the Skattefunn scheme was NOK 10 million (2016: NOK 8 million). The project ran until December 2017.

In February 2015 Thinfilm AB received a EUR 440 thousand grant from the European Commission through the Horizon 2020 programme. The grant relates to development of printing methods for organic transistors and runs until December 31, 2018. In February 2016, Thinfilm AB received a grant of EUR 472 thousand relating to the development of a platform for the integration of mass-market products within the digital world. The grant runs until December 2018.

Furthermore, in December 2015 Thinfilm AB received SEK 1 million grant from Vinnova, Sweden, through the Eureka programme. The grant relates to development of manufacturing processes for integrating Thinfilm’s NFC OpensSense technology into paperboard pharma packaging and ran until December 2016.

In August 2015 Thinfilm Inc. received a grant of USD 350 thousand relating to development of smart labels featuring Near Field Communications (NFC) capabilities. The grant ran until February 2017.

The accounting policy adopted for these grants is to recognize it as other operating revenue over the periods in which the Company recognizes as expenses the related costs for which the grant is intended to compensate. Recognized revenue from government grants in 2017 was approximately USD 2 million (2016: USD 2 million).

To receive grants from SkatteFUNN, the company has to engage in research and development activities that qualify for the SkatteFUNN programme. The costs incurred have to be reported annually to the Norwegian tax authorities. It is also required that the company reports progress and achievements to the Research Council of Norway. Similar

progress reports are required in all the grants.

58

17. Other income


Sublease income from the site in San Jose, California (CA)

247 421

Gain on sale of fixed assets, related to sale of equipment from Linköping and San Jose sites.

587 -

Other 52 -

Total 887 421

18. Salaries and other payroll costs


Salaries 23 128 16 535

Social security costs 2 256 1 988

Share-based compensation (subscription rights), notional salary cost

2 200 1 420

Share-based compensation (subscription rights), accrued employer´s tax*

(229) (239)

Pension contribution 1 220 1 085

Other personnel related expenses, including recruiting costs

1 520 1 067

Total 30 096 21 854

Average number of employees for the year (full-time equivalent)

161 119

At the end of the year the Group had 167 employees (full-time equivalents), up from 134 at the end of 2016.The company has only defined contribution pension plans. Contributions are expensed and paid when earned.

*Relates to remeasurement of social security costs. See note 2.17.


Compensation to senior management

Amounts in USD 1,000 SalaryPension

contribution BonusShare-based

remuneration

2017

Davor Sutija, CEO 390 15 266 367

Christer Karlsson, CTO 177 45 29 126

Henrik Sjöberg, SVP Product Management 157 23 26 122

Peter Fischer, COO 441 11 121 121

Tauseef Bashir, EVP Global Sales 238 11 149 121

Christian Delay, SVP Software Platforms 251 11 78 99

Bill Cummings, SVP Corporate Communications

215 9 35 92

Ole Ronny Thorsnes, CFO 219 13 96 146

Erwan Le Roy, EVP Business Development (until 3 November, 2017)

330 10 84 -

2016

Davor Sutija, CEO 314 12 286 274


Henrik Sjöberg, SVP Product Management 150 22 30 94

Peter Fischer, COO 428 7 29 89

Erwan Le Roy, EVP Business Development 258 10 87 65

Tauseef Bashir, EVP Global Sales (from July 25, 2016)

87 7 95 31

Christian Delay, SVP Software Platforms (from April 1, 2016)

180 - 41 33


203 8 37 49

Ole Ronny Thorsnes, CFO (from August 1, 2016)

84 5 37 42

John Afzelius-Jenevall, CFO (until August 31, 2016)

179 8 54 -

Kai Leppänen, CCO (until June 30, 2016) 212 11 50 -

The salary amount is the salary declared for tax purposes. Bonus is the amount earned in 2017 and accrued at year-end. This amount is adjusted for any difference between the bonus earned in 2016 and accrued for at year-end 2016 and the actual bonus paid in 2017. The value of share-based remuneration is the expensed amount excluding employer’s tax in the period for incentive subscription rights.

60

Subscription rights excercised by senior management

2017 2016

Davor Sutija, CEO 750 000 2 000 000


Henrik Sjöberg, SVP Product Management 400 000 -

Peter Fischer, COO 450 000 -

Total 2 100 000 2 700 000

The company has not made any advance payments or issued loans to, or guarantees in favour of, any members of management.

Remuneration to the Board of DirectorsThe company has no other obligation to remunerate the Board than the Board remuneration as resolved by the annual general meeting. The annual general meeting on 5 May 2017 resolved remuneration to the chairman of NOK 300 thousand and NOK 225 thousand for each Board member for the period from the annual general meeting in 2016 to the annual general meeting in 2017. The Board Members had the option to receive part or all of the remuneration in the form of shares. No Board Members chose this option. The Company refunds relevant out-of-pocket expenses incurred by the Board Members. The Company has not issued any advance payments or loans to, or guarantees in favor of, any Board Member.

Thinfilm has accrued NOK 840 thousand for the probable cost of Board remuneration from the annual general meeting 2017 and up to the end of 2017. Such remuneration, if any, shall be resolved by the annual general meeting 2018.

Members of Thinfilm’s global sales team during a meeting at the Company’s San Francisco office.


19. Other operating expensesAmounts in USD 1,000 2017 2016

Services 5 937 5 046Premises, supplies 15 654 11 970Sales and marketing 3 791 3 000Other expenses 3 516 281

Total 28 898 20 297

Thinfilm has lease agreements for premises in Oslo (Norway), Linköping (Sweden), San Jose (California, US), San Francisco (California, US), Hong Kong (China), Shanghai (China) and London (England). The lease amount in Oslo is NOK 540 thousand per year, with a termination clause of 3 months. The total lease amount in Linköping is SEK 5,166 thousand per year, and comprises three subleases. All three subleases were under termination as per 31 December, 2017. The termination period for one sublease expires on 31 January, 2018. The termination period for the remaining two subleases expire on 30 September 2018. The Zanker Road, San Jose lease expired in June 2017. The 2017 gross lease amount was USD 530 thousand. A part of the Zanker Road site was sublet until the lease expired. The sublease generated a sublease income of USD 247 in 2017. The Company entered into a lease agreement in November 2016 relating to the property building of its new US headquarter in San Jose, CA. The lease in San Jose expires in September 2028. The average annual lease amount in the period is USD 2,028 thousand. See note 8 for further description. The lease amount in Hong Kong is HKD 18 thousand per year, with a termination clause of 3 months. In November the Thinfilm INC sales team moved from a private office with six work stations to a private office in a shared office space with eleven work stations at Montgomery Street, San Francisco. The Montgomery Street lease amount is USD 112 thousand per year. Thinfilm China rents an office in Dong Fang Road, Shanghai. The lease amount is CNY 507 thousand per year. Thinfilm UK rents an office with six work stations in Eastbourne Terrace, London. The lease amount is GBP 58 thousand per year. Only the lease agreement for CN premises has duration longer than twelve months. Minimum lease payments for premises, other than the San Jose site, and due within one year amount to USD 595 thousand. Payments between one and five years amount to USD 71 thousand (present value: USD 69 thousand).

20. Income tax expenseThe tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:


Profit (loss) before tax (59 704) (44 213)Tax (tax income) calculated at domestic tax rate 24 % (25%)

(14 329) (11 053)

Effect of other tax rate in other countries

395 (10)

Share based compensation 146 99 Other permanent differences (2 000) 48 Effect of change in tax rates 1 809 1 356 Carry forward tax loss used - - Change in deferred tax asset not recognised in the balance sheet

14 101 9 278

Tax charge 122 (282)

62

21. Deferred income taxDeferred income tax assets and liabilities are offset when the company has a right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same legal entity and fiscal authority. The offset amounts are as follows:

Amounts in USD 1,000

31 December

2016Charged to profit/loss Equity

31 December

2017

Deferred income tax asset

Fixed and intangible assets (817) (104) 2 (920)

Inventory 268 67 - 335

Other accruals 269 1 589 - 1 858

Tax loss carried forward outside Norway

359 199 - 558

Tax loss carried forward Norway 31 700 13 495 2 959 48 154

Calculated deferred tax asset 23% (2016: 24 %).

31 778 15 246 2 961 49 985

Impairment of deferred tax asset (32 047) (14 977) (2 961) (49 985)

Deferred tax in the balance sheet (269) 269 - -

The Equity column includes effects of currency translation and share issue costs.

The company has not recognised the tax asset as there is uncertainty relating to future taxable income for utilization of the tax loss carried forward, and the taxable loss on intangible assets. There is no expiration date on the tax loss carried forward. No tax item has been recorded directly to equity.

The unrecognized deferred tax asset is calculated by applying the local tax rates in Norway, Sweden and the US. These tax rates are 23, 22 and 21 per cent respectively (2016: 24, 22 and 34).

22. Profit (loss) per shareAmounts in USD 2017 2016

Profit (loss) attributable to equity holders of the Company (USD 1,000)

(59 581) (44 495)

Average number of shares in issue 862 739 254 659 147 553

Average diluted number of shares 863 185 627 667 346 890

Profit (loss) per share, basic (USD 0.07) (USD 0.07)

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 exercise price of subscription rights exceeds the average share price in the period, the subscription rights are not counted as being dilutive.


23. Related party transactions

a) Transactions with related parties:


Purchases of services from law firm Ræder

478 366

Purchase of services from Robert N. Keith

232 204

Purchase of services from Translarity

34 -

Purchases of services from Charles Street International Ltd.

- 869

Purchases of services, licences and materials from PARC

- 40

Purchase of services from Agnus Consulting Ltd.

- 5

In the period 1 January - 31 December 2017, Thinfilm has recorded USD 478 thousand (net of VAT) for legal services provided by law firm Ræder, in which Thinfilm’s Chairman is a partner.

In the same period, Thinfilm has recorded USD 232 thousand (net of VAT) for services provided by Robert N. Keith, a shareholder of Thinfilm, relating to a service agreement under which he assists Thinfilm in strategic analysis and in dealing with larger, international, prospective partners.

Aslo, in the same period, Thinfilm has recorded USD 34 thousand (net of VAT) for R2R probe card equipment delivered by Translarity, a company in which Thinfilm Board member Laura Ann Oliphant is a shareholder and CEO.

In 2016 Thinfilm recorded USD 869 thousand (net of VAT) for services provided by Charles Street International Ltd., a shareholder of Thinfilm, who assisted the Company with the implementation of the private placement to Woodford Investment Management on February 19, 2016.

“In the same period, PARC, a shareholder of Thinfilm, supplied the Company with services, licenses, and materials for a value of USD 40 thousand (net of VAT).

Also, in the same period, Thinfilm recorded USD 5 thousand (net of VAT) for services provided by Agnus Consulting Ltd., a Company controlled by Board member Tor Mesøy, for services relating to management consulting. Transaction prices are based on what would be the prices for sale to third parties and are net of VAT. b) Year-end balances arising from sales/purchases of goods/services with related parties

64


Payable to law firm Ræder 142 199

Payable to Translarity 36 -

Payable to Robert N. Keith - 204

d) Remuneration to the auditor


Audit 102 87

Other assurance services 7 9

Tax services 29 4

Other services 2 -

Total 140 100

Thin Film Electronics UK Ltd., in which company Thin Film Electronics ASA holds all the shares, has taken advantage of section 479a of the UK Companies Act 2006 to be exempt from audit of its financial statements for the period from establishment through 31 December 2017.

24. Contingent liabilitiesAs part of the relocation of Thinfilm’s US headquarters in San Jose, California, USA, in the first two quarters of 2017 a USD 1,600 thousand Letter of Credit was issued to the landlord. The Company has in addition entered into a Tenancy Guarantee with the new landlord. The guarantee is given to secure payment of the lease rent. The guarantee liability amounts to USD 5,000 thousand and shall reduce on an annual basis of USD 500 thousand per year commencing with the second lease year until the liability reaches zero dollars. Apart from this, Thinfilm has not issued guarantees or mortgages.

Christian Delay, EVP Software, demonstrates the CNECT™ cloud-based platform to prospects at Mobile World Congress 2018.


25. Shares, warrants and subscription rightsAt the end of 2017 there were 1,171,871,617 shares in the company, versus 816,759,117 at the end of 2016. There were 5542 registered shareholders (2016: 4,781).

Thinfilm is not aware of any shareholding agreements between shareholders.

Top 20 registered shareholders at 31 December 2017 Shares Percent

The Northern Trust Comp, London BR 234 225 378 19.99%

Invesco Perpetual High Income Fund 103 550 137 8.84%

Ferd AS 82 443 026 7.04%

Invesco Perpetual Income Fund 72 116 529 6.15%

The Northern Trust Comp, London BR 49 799 833 4.25%

Nordnet Bank AB 40 860 777 3.49%

Citibank, N.A. 31 668 759 2.70%

First Generator 27 493 587 2.35%

Bnp Paribas Securities Services 25 896 790 2.21%

Mp Pensjon PK 20 154 321 1.72%

Statoil Pensjon 18 766 020 1.60%

Danske Bank A/S 16 860 852 1.44%

Sundvall Holding AS 15 817 165 1.35%

Melin Holding AS 13 545 981 1.16%

Euroclear Bank S.A./N.V. 12 981 085 1.11%

Alden AS 12 446 184 1.06%

Nordea Bank AB 11 748 154 1.00%

Verdipapirfondet First Globalt 11 268,314 0.96%

Skandinaviska Enskilda Banken AB 8 926 845 0.76%

Forsland 7 280 758 0.62%

66

Shares, ADRs and subscription rights held by primary insiders and close relations at 31 December 2017

No insiders held warrants at 31 December 2017.

Shares ADRsIncentive

subscription rights

Morten Opstad, Chairman 1 686 708 - -

Preeti Mardia, Board Member 193 552 - -

Laura Ann Oliphant, Board Member 375 000 43 000 -

Rolf Åberg, Board Member 406 501 - -

Tor Mesøy, Board Member 463 926 - -

Davor Sutija, CEO 3 100 000 - 9 250 000

Ole Ronny Thorsnes, CFO 50 000 - 3 100 000

Christer Karlsson, CTO 365 000 - 3 350 000

Henrik Sjöberg, SVP Product Management

55 000 - 3 600 000

Peter Fischer, COO 70 000 - 3 350 000

Tauseef Bashir, EVP Global Sales 50 000 - 2 850 000

Christian Delay, SVP Software Platforms

50 000 - 2 850 000


10 000 - 2 500 000

Anders Harnes, VP Finance & Accounting

- - 650 000

Total 6 875 687 43 000 31 500 000

The annual general meeting on 5 May 2017 resolved a subscription rights incentive programme for the years 2017-2022. The 2016 programme was closed. Under the 2017 programme, the Board may grant up to 81,686,411 independent subscription rights to employees and to individual consultants performing similar work in Thinfilm. The number of outstanding subscription rights under all subscription rights incentive programs shall not exceed 10 per cent of the number of shares in the company at the time of the annual general meeting 2017. The exercise price shall be equal to the higher of (i) average closing share price on the ten trading days preceding the grant date, and (ii) the last closing share price. The subscription rights vest in four tranches of 25 per cent on each year beginning one year from the Vesting Commencement date. The Vesting Commencement date is the last of the following dates preceding the date of grant of subscription rights; (i) 15 January, (ii) 15 April, (iii) 15 July or (iv) 15 October. In case of change of control, the subscription rights vest immediately. The subscription rights expire on 5 May 2022.

By 31 December 2017, the Board had granted 31,605,000 subscription rights under the 2017 programme.

The fair value of the subscription rights awarded, calculated according to Black & Scholes option pricing model, was NOK 140.9 million as of December 31, 2017. USD 2,220 thousand was expensed in 2017. At December 31, 2017, the estimated amount of share-based remuneration cost yet to be expensed throughout the vesting period is NOK 47.9 million.


Subscription rights 2017 2016

Weighted average

exercise price, NOK

Number of subscription

rights

Weighted average

exercise price, NOK

Number of subscription

rights

Total at 1 January 4.47 39 317 500 4.09 35 710 000

Granted 2.57 33 550 000 4.37 16 430 000

Forfeited 4.50 (4 035 000) 4.56 (5 370 000)

Exercised 1.98 (2 612 500) 1.73 (6 125 000)

Expired 5.17 (815 000) 5.43 (1 327 500)

Total at 31 December 3.58 65 405 000 4.47 39 317 500

Number of exercisable subscription rights at 31 December (included in total)

16 417 500 11 330 000

Subscription rights outstanding at 31 December 2017

HolderNumber of

subscription rightsWeighted average

exercise price, NOK

Davor Sutija, CEO 9 250 000 3.83

Ole Ronny Thorsnes, CFO 3 100 000 3.44

Christer Karlsson, CTO 3 350 000 3.91

Henrik Sjöberg, SVP Product Management

3 600 000 3.55

Peter Fischer, COO 3 350 000 3.35

Tauseef Bashir, EVP Global Sales 2 850 000 3.30

Christian Delay, SVP Software Platforms

2 850 000 3.13


2 500 000 3.45

Anders Harnes, VP Finance & Accounting

650 000 4.93

Employees and contractors 33 905 000 3.56

Total 65 405 000 3.58

2,612,500 subscription rights were exercised in 2017 (2016: 6,125,000).

68

Value of subscription rights and assumptions upon grant

Grants in 2013

Grants in 2014

Grants in 2015

Grants in 2016

Grants in 2017

Value of subscription right at grant date, NOK per subscription right

0.99-3.01 1.23-3.19 0.85-3.51 1.23-2.52 0.72-1.75

Share price, NOK per share

2.27-6.08 4.70-6.10 3.44-7.58 3.56-5.05 2.45-3.79

Exercise price, NOK per share

2.28-6.19 4.70-6.10 3.95-7.58 3.56-5.05 2.45-3.79

Expected annual volatility

60-80% 46%-65% 47%-66% 57 %-70 % 53 %-68 %

Duration, years 2.0-5.0 2.0-5.0 2.0-5.0 2.0-5.0 1.9-5.0

Expected dividend - - - - -

Risk-free interest rate, government bonds

1.3-2.2 % 1.24-2.01% 0.65-1.24% 0.53-0.94 % 0.56 - 1.09 %

Value of subscription rights and assumptions on 31 December 2017

Grants in 2013

Grants in 2014

Grants in 2015

Grants in 2016

Grants in 2017

Value of subscription right at 31 December 2017, NOK per subscription right

1.86-4.19 0.55-2.63 0.43-1.74 0.84-1.62 0.14-1.15

Share price, NOK per share

2.48 2.48 2.48 2.48 2.48

Exercise price, NOK per share

2.28-6.19 4.70-6.10 3.95-7.58 3.56-5.05 2.45-3.79

Expected annual volatility 58% 58% 58% 58% 58%

Duration, years 1.2-4.4 1.10-4.62 1.16-4.35 1.15 - 4.36 0.84-4.35

Expected dividend - - - - -

Risk-free interest rate, government bonds

1.2-2.2% 1.4-1.7% 0,65-1.2% 0.53-0.94 % 0.56 - 1.09 %

Number of outstanding subscription rights at 31 December 2017

3 250 000 6 965 000 7 425 000 14 630 000 33 135 000


26. Statement on management remuneration policy

In 2017 Thinfilm’s executive management comprised

of Davor Sutija (CEO), Ole Ronny Thorsnes (CFO),

Christer Karlsson (CTO), Peter Fischer (COO), Henrik

Sjöberg, SVP of Product Management, Erwan Le Roy

(EVP Business Development & GM NFC Solutions

and Smart Sensors until 3 November 2017), Tauseef

Bashir (EVP Global Sales), Christian Delay (SVP

Strategic Marketing & GM Software Plattfoms) and Bill

Cummings (SVP Corporate Communications).

Several of the executive management team members

serve as officers and directors in the subsidiaries

without additional remuneration.

The general meeting 2017 resolved guiding and

binding executive remuneration policies. Thinfilm’s

executive remuneration policy in 2017 was a

continuation of the prior year’s policy, including

share-based remuneration in the form of a

subscription rights incentive program as resolved at

the annual general meeting, latest on 5 May 2017.

Guiding executive remuneration policy and effect of the policies Thinfilm offers a competitive remuneration

consisting of a reasonable base salary with a

pension contribution. Salary may be supplemented

by performance based cash bonus and incentive

subscription rights. Cash bonus plans are limited

to fixed percentage of base pay. Management

team members working directly with sales may

receive commission on certain sales and product

deployments. In addition, the management

team, apart from the CEO, may receive additional

discretionary bonus payments tied to specific

projects.

There is no post-employment remuneration beyond

notice periods of 3-6 months. In case the Company

gives notice, Davor Sutija may be eligible for salary for

3 months after the end of the notice period.

The policy described above has been applied

consistently throughout 2017. The principles described

above apply also in 2018, however individual bonus

targets and salary levels will be revisited during the

Company’s ordinary salary process during April. The

executive remuneration policy will be reviewed at the

Annual General Meeting in May 2018.

The actual remuneration to the management in

2017 is reported in notes 18 and 25. For 2017, the

Board has decided to grant subscription rights to

the management team as a form of performance

based compensation. The options were granted on

November 9, 2017 at the exercise price of NOK 2.45

per share.

The options vest in tranches of 25 per cent each year

if the employee has not resigned his position at the

vesting date, and expire after five years.

70

The Company has in 2017 granted the management team the following subscription rights:

Employee name Number of SRWeighted average

Exercise Price, NOK

Davor Sutija, CEO 3 500 000 2.45

Ole Ronny Thorsnes, CFO 1 750 000 2.45

Christer Karlsson, CTO 1 250 000 2.45

Henrik Sjöberg, SVP Product Management 1 750 000 2.45

Peter Fischer, COO 1 750 000 2.45

Tauseef Bashir, EVP Global Sales 1 750 000 2.45

Christian Delay, SVP Software Platforms 1 750 000 2.45


1 250 000 2.45

Total 14 750 000 2.45

Salary, pension and any bonuses that triggers employer’s tax which will be expensed simultaneously with the remuneration.

27. Events after the balance sheet dateIn the Board meeting on 27 February 2018, the Board resolved to grant a total of 2,900,000 Employee Subscription Rights to new and existing employees of the Company, each with an exercise price of NOK 2.27.

In the Board meeting on 5 April 2018, the Board resolved to grant a total of 1,080,000 Employee Subscription Rights to new and existing employees of the Company, each with an exercise price of NOK 2.15.

In 2018 Thinfilm has disposed of used equipment, primarily stemming from Linköping and San Jose sites, with net book value of USD 0.5 million. The sales resulted in a total accounting gain of USD 0.4 million.

Between 31 December 2017 and the presentation of this report, no events with any substantial impact on the result for 2017 or the value of Thinfilm’s assets and liabilities at the end of 2017 have occurred.


28. SubsidiariesDetails of the Group’s subsidiaries at the end of the reporting period are as follows.

Name of subsidiary Principal activity

Place of incorporation

and operation

Proportion of ownership interest

and voting power held by the group

31 December 2017

31 December

2016

Thin Film Electronics Inc.

Research & Development,

Manufacturing and Marketing services

USA 100% 100%

Thin Film Electronics AB

Research & Development,

Manufacturing and Marketing services

Sweden 100% 100%

Thin Film Electronics KK Marketing services Japan 100% 100%

Thin Film Electronics HK Ltd. Supply chain services Hong Kong 100% 100%

Thin Film HoldingOwning shares in Thin

Film Electronics Inc.USA 100% 100%

Thin Film Electronics UK Ltd. Marketing services England, Wales 100% -

Thin Film Electronics Co. Ltd.Supply chain and

Marketing ServicesChina 100% -

Thin Film Electronics Singapore Pte. Ltd.

Marketing services Singapore 100% -

29. Contractual liabilitiesThinfilm has contractual liabilities related primarily to equipment for the new roll-based production line at the San Jose Site.

The gross liabilities from entered contracts amount to USD 32.1 million. As per 31 December, 2017, Thinfilm had made USD 11.5 million in prepayments.

Further, equipment amounting to USD 6.4 million was received at the San Jose Site, and recognized in the balance sheet as fixed assets. Net contractual liabilities as per 31 December 2017, amounted to USD 14.2 million.

72

Thin Film Electronics ASA (separate financial statement of the Parent Company)

Annual Financial Statements 2017

Profit and loss statements

Amounts in NOK 1,000 Note 2017 2016

Sales revenue 11 24 808 12 237

Other revenue 12, 13 4 271 3 477

Other income 14 1 068 782

Total revenue 30 146 16 496

Employee salaries and other benefits 15 (25 975) (23 969)

Services (external) (21 426) (20 891)

Services (from subsidiaries) 18, 19 (484 567) (315 443)

Other operating expenses 19 (9 343) (11 279)

Contribution from Skattefunn scheme 13 10 000 8 000

Amortization of intangible assets & negative goodwill

7 (11 650) (2 222)

Operating profit (loss) (512 814) (349 307)

Write down investment in subsidiary (7 527) (387)

Interest income 4 334 1 580

Other financial income - 38

Other financial costs (11 526) (5 706)

Net financial items (14 719) (4 475)


Income tax expense 16 - -


Allocation/coverage of net result for the year

Uncovered losses carried forward (527 533) (353 782)

Total allocated 4 (527 533) (353 782)

The notes on pages 75 to 90 are an integral part of these annual financial statements.

73Annual Financial Statements 2017

Balance sheet

Amounts in NOK 1,000 Note31 December

201731 December

2016

ASSETS

Non-current assets

Intangible assets 7 18 314 26 155

Investment in subsidiaries 6 336 260 99 165

Total non-current assets 354 573 125 320

Current assets

Trade and other receivables 8 75 026 63 344

Cash and bank deposits 9 760 635 593 516

Total current assets 835 661 656 860

Total assets 1 190 234 782 180

EQUITY

Ordinary shares 10, 21 128 906 89 843

Other paid-in capital 2 410 944 1 588 439

Total paid-in equity 2 539 850 1 678 282

Retained profit/uncovered losses (1 496 234) (968 702)

Total equity 4 1 043 616 709 581

LIABILITIES

Current liabilities

Accounts payable 3 262 16 717

Withheld tax and public duties payable

1 517 2 763

Debt to group companies 6, 18 133 025 46 014

Other payables and accruals 8 814 7 103

Total liabilities 20 146 618 72 599

Total equity and liabilities 1 190 234 782 180




Davor SutijaCEO





74

Cash flow statements

Amounts in NOK 1,000 Note 2017 2016

Cash flows from operating activities


Share-based compensation (equity part)

15, 21 5 547 3 910

Amortization and impairment (reversal) 7 11 650 1 117

Write down investment in subsidiary 7 527 387

Change in working capital and other items

(150 065) (10 494)

Net cash from operating activities (652 874) (358 863)

Cash flows from investing activities

Purchased intangible assets 7 (522) (4 619)

Capitalized development expenses 7 (5 765) (2 879)

Investment in subsidiaries 6 (11 785)

Net cash from investing activities (18 071) (7 498)

Cash flows from financing activities

Proceeds from issuance of shares 10 838 065 854 047

Net cash from financing activities 838 065 854 047

Net change in cash and bank deposits

167 119 487 686

Cash and bank deposits at the beginning of the year

593 516 105 830

Cash and bank deposits at the end of the year

9 760 635 593 516

The Company had no bank draft facilities at the end of 2017 or 2016.


75Notes to the Annual Financial Statements

Notes to the Annual Financial Statements

1. Information about the Company

Thin Film Electronics ASA (“Thinfilm ASA”) is the

Parent Company in the Thin Film Electronics

group (“Thinfilm”). The group consists of the Parent

Company Thinfilm ASA and the subsidiaries Thin Film

Electronics AB (“Thinfilm AB”), Thin Film Electronics

Inc. (“Thinfilm Inc.”), Thin Film Holding (“Thinfilm Ho”),

Thin Film Electronics KK (“Thinfilm KK”), Thin Film

Electronics HK (“Thinfilm HK”), Thin Film Electronics

Co. (“Thinfilm CN”)Thin Film Electronics UK (“Thinfilm

UK”) and Thin Film Electronics Singapore pte.

(“Thinfilm SIN”). 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”).

The objectives of the Company shall be the

commercialization, research, development and

production of technology and products related to

printed electronics components and smart systems.

These objectives may be carried out in full internally,

or in whole or in part externally through collaborative

efforts with one or more of the Company’s ecosystem

partners.

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 and

to the Oslo Børs on 27 February 2015. On 24 March

2015 Thinfilm’s American Depository Receipts (ADRs)

commenced trading in the United States on OTCQX

International.

These annual financial statements for the Parent

Company were resolved by the Company’s Board of

Directors on 5 April 2018.

2. Accounting policies

These annual financial statements have been prepared

in accordance with the Norwegian accounting act

1998 and generally accepted accounting principles in

Norway. The principal accounting policies applied in

the preparation of these annual financial statements

are set out below. These policies have been applied

consistently. The currency of Thin Film Electronics

ASA is NOK. The financial statements have been

prepared using the historical cost convention.

Principal criteria for valuation and classification of assets and liabilitiesAssets for lasting ownership or use have been

classified as fixed assets. Other assets have been

classified as current assets. Receivables which are

due within twelve months have been classified as

current assets. Corresponding criteria have been

applied when classifying short-term and long-term

debt.

Current assets have been valued at the lower of cost

and fair value. Other long-term debt and short-term

debt have been valued at face value.”

Assets and liabilities denominated in foreign currencyMonetary items in foreign currency have been

converted at the exchange rate on the balance sheet

date.

76

Shares in subsidiariesInvestment in subsidiaries has been valued at cost in

the Parent Company. In case of impairment which is

not temporary, the investment has been written down

to fair value if mandated according to GAAP.

RevenueRevenue comprises the fair value of the consideration

received or receivable for the sale of goods and

services in the ordinary course of the group’s

activities. Revenue is shown net of value-added tax,

returns, rebates and discounts and after eliminating

sales within the group.

Thinfilm ASA recognizes revenue when the amount of

revenue can be reliably measured, it is probable that

future economic benefits will flow to the entity and

when the specific criteria have been met for each of

the group’s activities, as described below.

a) Sales of goods

The Group manufactures and sells NFC tags,

Electronic Article Surveillance (EAS) anti-theft

tags, and printed integrated systems in the

form of products delivered to customers,

prototype development projects, engineering

samples and technology demonstration kits

to strategic customers and partners. Sales

of goods are recognized when the risks

and rewards of ownership are transferred

to the customer, the costs incurred or to be

incurred in respect of the transaction can be

measured reliably and Thinfilm retains neither

continuing managerial involvement to the

degree usually associated with ownership nor

effective control over the goods sold.

b) Rendering of services

The Group provides engineering and support

services to strategic customers and partners.

Revenue from services provided at an hourly

rate is recognized when, or in the same period

as, the group has provided the services.

Revenue from services related to achieving

certain milestones are recognized when the

milestone is met, given that the stage of

completion as well as the the costs incurred

at the balance sheet date can be measured

reliably. The revenue is recognized when the

costs incurred in respect of the transaction

can be measured reliably.

c) Technology access revenue

The Group grants technology access rights

to strategic customers and partners, i.e., the

right to work with Thinfilm and its technology

to develop bespoke printed products and

systems. Revenue from granting technology

access rights is generally recognized on

a straight-line basis over the period or

contract term the technology access is

granted. However, revenue from technology

access agreements that involve an upfront

lump-sum payment that is not tied to any

future deliveries from Thinfilm is recognized

at the time the agreement is entered into.

Government grantsGovernment grants are recognised when there is

reasonable assurance that the grant will be received

and the conditions will be complied with. Grants

which are related to specific development programs

with commercial end-objectives are recognised as

other operating revenue over the period necessary

to match them with the related costs, for which they

are intended to compensate, on a systematic basis.

Grants or other contributions in the form of tax credit

are credited against costs.

Intangible assetsReference is made to Note 2.6 in the Consolidated

Financial Statements.

ReceivablesAccounts receivable and other receivables have been

recorded at face value after accruals for expected

losses have been deducted. Accruals for losses have

been made based on an individual assessment of

each receivable.


Cash and bank depositsCash and bank deposits include cash, bank deposits

and cash equivalents with a due date less than three

months from acquisition.

Cash flow statementThe cash flow statement is prepared in accordance

with the indirect method.

CostsIn principle, cost of sales and other expenses are

recognized in the same period as the revenue to

which they relate. In instances where there is no clear

connection between the expense and revenue, the

apportionment is estimated.

Share based remunerationThe Company may issue independent subscription

rights to employees and individual consultants

performing similar work and accounts for these

transactions under the provisions of NRS 15A and

generally accepted accounting principles in Norway.

Two types of expenses are recognized related to grant

of subscription rights: (i) Notional cost of subscription

rights is recognized at time of grant and calculated

based on the Black-Scholes model (share price at

time of grant, exercise price, expected volatility,

duration and risk-free interest rate). The subscription

rights vest in four tranches of 25 per cent on each

anniversary of the grant, i.e., each tranche has different

duration. The notional cost of subscription rights as

share based remuneration is expensed but the equity

effect is nil because the contra item is a notional

equity injection of equal amount. (ii) Employer’s tax

expense is accrued based on the net present value

of the subscription right as an option on the balance

sheet date. The value varies with the share price and

may entail a net reversal of costs.

When the parent has an obligation to settle

the share-based payment transaction with the

subsidiaries’ employees by providing the parent’s

own equity instruments, this is accounted for as an

increase in equity and a corresponding increase in

investment in subsidiaries.

Tax on profitTax cost has been matched to the reported result

before tax. Tax related to equity transactions has been

charged to equity. The tax cost consists of payable tax

(tax on the directly taxable income for the year) and

change in net deferred tax. The tax cost is split into tax

on ordinary result and result from extraordinary items

according to the tax base. Net deferred tax benefit is

held in the balance sheet only if future benefit can be

justified.

Consolidated itemsInsignificant items have been combined or included

in similar items in order to simplify the statements.

Lines which are zero or about zero have been omitted

except where it has been deemed necessary to

emphasize that the item is zero.

Estimates and judgmental assessmentsThe preparation of the annual accounts in accordance

with the generally accepted accounting principles

requires that the management make estimates

and assumptions that affect the income statement

and the valuation of assets and liabilities. Estimates

and related assumptions have been based on the

management’s best knowledge of past and recent

events, experience and other factors which are

considered reasonable under the circumstances.

Estimates and underlying assumptions are subject to

continuous evaluation.

3. Significant events last two years, going concern, events after the balance sheet date, financial risk

201720 October 2017, it was announced that the Company

raised NOK 881 million (approx. USD 110 million)

in gross proceeds through a private placement

consisting of 352,500,000 new shares (the “Private

Placement”). The subscription price in the Private

78

Placement was NOK 2.50 per share, equivalent to a

7.8% premium to the closing price on the Oslo Stock

Exchange 19 October 2017. The Private Placement

was divided into two tranches; Tranche 1 consisting of

81,500,000 million shares and a Tranche 2 consisting of

271,000,000 shares. The Tranche 1 shares were issued

based on an authorization to the Board of Directors

granted by the Company’s Annual General Meeting

on 5 May 2017. The completion of the Tranche 2 of the

Private Placement was approved by an Extraordinary

General Meeting held on 13 November 2017. Both

Tranche 1 and Tranche 2 shares were subscribed for

by several new and existing investors.

2016On December 2, 2016, Thinfilm announced that it had

raised NOK 529 million in gross proceeds through

a private placement consisting of 135,200,000 new

shares (the “Private Placement”). The subscription

price in the Private Placement was set to NOK 3.91

per share, equivalent to the closing price on the Oslo

Stock Exchange December 1, 2016. The new shares

allocated in the Private Placement were issued in two

separate tranches. Tranche 1, consisted of 63,700,000

new shares and was issued based on an authorisation



1 Shares”). The Tranche 2, consisted of 71,500,000 new

shares (the “Tranche 2 Shares”), were approved by the

Extraordinary General Meeting held on 23 December

2016 (the “EGM”). The Tranche 1 Shares were

subscribed by several existing shareholders as well

as new institutional investors. The Tranche 2 Shares

were subscribed for by funds managed by Woodford

Investment Management Ltd with 51,500,000 shares

and funds managed by Invesco Asset Management

Ltd with 20,000,000 shares.

On 19 February 2016, it was announced that

Woodford Investment Management had agreed

to acquire 120,000,000 shares in the Company at a

subscription price of NOK 3.00 per share totaling NOK

360,000,000. At the 16 February 2016 extraordinary

general meeting of Thinfilm, it was resolved to issue

said shares, and upon subscription in the offering,

Woodford Investment Management also received

40,000,000 warrants, each with an exercise price of

NOK 4.50.

Going concernIn accordance with section 3-3a of the Norwegian

Accounting Act, the Board confirms that the

prerequisites for the going concern assumption exist

and that the financial statements have been prepared

based on the going concern principle. Please also

refer to sections “Going concern” and “Principal Risk“

in the Report from the Board of Directors.

Events after balance sheet dateSince 31 December 2017 and until the date of these

financial statements, the Board has granted a total of

3,980,000 subscription rights under the subscription

rights-based incentive program resolved by the

annual general meeting 2017. The weighted average

exercise price of the granted subscription rights is

NOK 2.24 per share.

Between 31 December 2017 and the presentation of

this report, no events with any substantial impact on

the result for 2017 or the value of Thinfilm’s assets and

liabilities at the end of 2017 have occurred.

Financial risk factorsReference is made to Note 4.2 in the Consolidated

Financial Statements.


4. EquityAmounts in NOK 1,000 Share capital

Other paid-in equity Uncovered loss Total

Balance at 1 January 2017 89 843 1 588 439 (968 702) 709 581

Share issue employees 287 4 863 5 150

Share based compensation 18 351 18 351

Private placement Tranche 1 & 2, October 19 & November 13

38 775 799 290 838 065

Net profit (loss) for the year (527 533) (527 533)

Balance at 31 December 2017 100 154 2 410 943 (1 496 234) 1 043 616

Balance at 1 January 2016 61 091 751 178 (614 919) 197 351

Private placement Woodford Investment Management, February 19

13 200 324 107 337 306

Share issue employees 674 9 884 10 557

Share based compensation 11 967 11 967

Share issue Board remuneration, May 11

7 7

Private placement Tranche 1 & 2, December 2 & December 30

14 872 491 305 506 177

Net profit (loss) for the year (353 782) (353 782)

Balance at 31 December 2016 89 843 1 588 439 (968 702) 709 581

5. Property, plant and equipmentCurrent facilities are rented with furniture included. Minor computing and communications equipment has been expensed.

80

6. Investment in subsidiariesThe shares are held at the lower of cost and fair value in the balance sheet.

Amounts in NOK 1,000Per cent holding

Per cent of votes Book value

Thin Film Electronics AB, Linköping, Sweden

At 31 December 2017 100% 100%

Accumulated cost 58 489

Accumulated impairment charge (21 944)

Net book value at 31 December 2017 36 545

At 31 December 2016 100% 100%




The local currency of Thin Film Electronics AB is SEK. The net income in SEK in 2017 was SEK 1,458 thousand, while the total equity 31 December 2017 was SEK 38,225 thousand.



Thin Film Electronics Inc., CA, USA

At 31 December 2017 100% 100%




At 31 December 2016 100% 100%




The local currency of Thin Film Electronics Inc. is USD. The net income in USD in 2017 was USD 2,332 thousand, while the total equity 31 December 2017 was USD 38,675 thousand.



Thin Film Holding - NV, USA

At 31 December 2017 100% 100%

Accumulated cost -

Accumulated impairment charge -

Net book value at 31 December 2017 -

At 31 December 2016 100% 100%


Accumulated cost -



The local currency of Thin Film Holding is USD. Thin Film Holdings only activity is holding shares in Thin Film Electronics Inc.For further information, see Thin Film Electronics Inc.



Thin Film Electronics KK - Tokyo, Japan

At 31 December 2017 100% 100%

Accumulated cost -



At 31 December 2016 100% 100%

Accumulated cost 387

Accumulated impairment charge (387)


The The investment was written down in full in 2016, as all activity in the Japanese legal entity had ceased.



Thin Film Electronics HK Ltd. - Hong Kong

At 31 December 2017 100% 100%

Accumulated cost 36


Net book value at 31 December 2017 36

At 31 December 2016 100% 100%

Accumulated cost 11



The local currency of Thin Film Electronics HK is HKD. The net income in HKD in 2017 was HKD 115 thousand while the total equity 31 December 2017 was HKD 476 thousand.

82



Thin Film Electronics Co. Ltd. - Shanghai, China

At 31 December 2017 100% 100%




The local currency of Thin Film Electronics Co. Ltd. is CNY. The entity was established in February 2017. The net income in CNY in 2017 was a loss of CNY 5,838 thousand while the total equity 31 December 2017 was CNY 9,439 thousand.



Thin Film Electronics UK Ltd. - London, England

At 31 December 2017 100% 100%

Accumulated cost 375



The local currency of Thin Film Electronics UK Ltd. is GBP. The entity was established in March 2017. The net income in GBP in 2017 was GBP 3 thousand while the total equity 31 December 2017 was GBP 20 thousand. Thin Film Electronics UK Ltd. has taken advantage of section 479a of the UK Companies Act 2006 to be exempt from audit of its financial statements for the period from establishment through 31 December 2017.



Thin Film Electronics Singapore Pte Ltd. - Singapore

At 31 December 2017 100% 100%

Accumulated cost 61



The local currency of Thin Film Electronics Singapore Pte Ltd. is SGD. The entity was established in November 2017. Total equity 31 December 2017 was SGD 10 thousand. The entity was dormant as per 31 December 2017.

As a part of the relocation of Thinfilm INC.’s US headquarter in the first two quarters of 2017 a USD 1,600 thousand Letter of Credit has been issued to the new landlord. Thinfilm ASA has in addition entered into a Tenancy Guarantee with the new landlord. The guarantee is given to secure payment of the lease rent. The guarantee liability amounts to USD 5,000 thousand and shall reduce on an annual basis of USD 500 thousand per year commencing with the second lease year until the liability reaches zero dollars.


7. Intangible assets

Amounts in NOK 1,000

Purchased intellectual

propertyNegative goodwill

Capitalized development

costs Total

Amortization period, years (linear) 13-16 5

Acquisition cost

Accumulated cost on 1 January 2017 28 260 (2 925) 3 781 29 115

Additions 522 5 765 6 286

Impairment (at costs) (11 583) (11 583)

Disposals (at cost) (2 478) -2 478

Accumulated costs 31 December 2017 17 198 (2 925) 7 067 21 341

Accumulated amortization on 1 January 2017 (4 715) 1 755 (2 960)

Amortization (1 742) 585 (1 157)

Disposals (at accumulated amortization) -

Accumulated amortization impaired assets 1 090 1 090

Impairment -

Amortization at 31 December 2017 (5 367) 2 340 - (3 027)

Net book value 31 December 2017 11 831 (585) 7 067 18 314

Acquisition cost

Accumulated cost on 1 January 2016 24 745 (2 925) 902 22 722

Additions 4 619 2 879 7 498

Impairment (at costs) (1 105) (1 105)

Accumulated costs 31 December 2016 28 260 (2 925) 3 781 29 115

Accumulated amortization on 1 January 2016 (3 013) 1170 (1 843)

Amortization (1 877) 585 (1 292)

Disposals (at accumulated amortization) -

Accumulated amortization impaired assets 254 254

Impairment (79) (79)

Amortization at 31 December 2016 (4 715) 1 755 - (2 960)

Net book value 31 December 2016 23 545 (1 170) 3 781 26 155

The purchased intellectual property recorded in 2016 and 2017 relate to licensing of certain patents. Impairments comprised patents related to the MemoryTM and sensor programmes that were discontinued. Capitalized development expenses in 2016 and 2017 relate to Thinfilm MemoryTM, EAS (Electronic article surveillance) and SpeedtapTM. Capitalized costs regarding MemoryTM were disposed of as part of an asset transfer agreement with Xerox.

84

On 21 January 2014, Thinfilm acquired certain assets, contracts and processes from Kovio Inc., a company active in the field of radio frequency enabled products based on printed silicon technology. The difference between total consideration transferred and estimated fair value of assets amounted to NOK 2,925 thousand. This constituted a bargain purchase and the negative goodwill of NOK 2,925 is amortized on a systematic basis over five years as a credit against cost. In 2017, NOK 585 thousand is credited against cost and the remaining balance of NOK 585 thousand is classified as Negative Goodwill in the balance sheet. Reference is made to Note 25 in Consolidated Financial Statements in the 2014 Annual Report for further description.

Thin Film Electronics ASA estimates that the present value of future cash flows will exceed the amount of capitalized development expenses.

Members of the Backend and Front End Engineering teams at the Company’s Shanghai office (l to r): Matt Kaufmann, VP Backend Manufacturing and Engineering; Daxiong Chen, Manager Asia Backend Engineering; Irene Quek, Manager Asia Backend Engineering; Calvin Li, Sr. Director, Process Engineering.


8. Trade and other receivablesAmounts in NOK 1,000 31 December 2017 31 December 2016

Customer receivables 9 840 4 113

Accrued revenue not yet invoiced 11 211 7 668

Other receivables, prepayments 53 975 51 563

Less: provision for impairment of receivables - -

Receivables – net 75 026 63 344

Of this, receivables from Thinfilm AB 834 782

Of this, receivables from Thinfilm Inc. 46 127 46 845

Of this, receivables from Thinfilm HK 1 563 893

Of this, receivables from Thinfilm UK Ltd. 1 785 -

All receivables are due within one year and book value approximates fair value. The total amount denominated in NOK is 13,368 thousand (2016: NOK 8,911 thousand), NOK 1,785 thousand is denominated in GBP (2016: NOK 2,510 thousand), NOK 57,351 thousand is denominated in USD (2016: 50,111 thousand), NOK 1,563 thousand is denominated in HKD (2016: NOK 893 thousand), NOK 834 thousand is denominated in SEK (2016: NOK 782 thousand), while NOK 47 thousand is denominated in other currencies (2016: NOK 138 thousand).

Of net receivables NOK 71,783 thousand were not past due as per 31 December. NOK 106 thousand were past due by less than 30 days. NOK 2,465 thousand were past due between 31 and 90 days, and NOK 672 thousand were past due by more than 90 days.

The Company assesses impairment risk on an individual basis.

9. Cash and bank depositsAmounts in NOK 1,000 31 December 2017 31 December 2016

Bank deposits excluding restricted cash 746 797 573 375

Deposit for Letter of Credit 13 164 18 941

Deposit for withheld tax 673 1 200

Total 760 635 593 516

As a part of the relocation of Thinfilm INC.’s US headquarter in the second quarter of 2017 a USD 1,600 thousand Letter of Credit was issued to the new landlord.

Payable withheld tax amounts at 31 December 2017 were NOK 673 thousand (2016: NOK 1,200 thousand).

10. Share capitalReference is made to Note 12 in the Consolidated Financial Statements.

86

11. Sales revenueAmounts in NOK 1,000 2017 2016

Sales of goods 13 836 2 384

Rendering of services, delivery of samples, technology access revenue

10 972 9 853

Total 24 808 12 237

No warranty costs, penalties or other losses were related to sales revenue in 2017.

12. Other revenueAmounts in NOK 1,000 2017 2016

Government grants, funded development projects

4 271 3 477

Total 4 271 3 477

13. Government grantsIn February 2014, Thinfilm ASA received a government grant of NOK 5.9 million from The Research Council of Norway relating to development of production methods for printed electronics. The project ran until February 1, 2017. In February 2015 Thinfilm ASA received an additional grant from The Research Council of Norway of NOK 12 million relating to enhancing durability and liftetime of Thinfilm smart tags. The project runs until April 1, 2018. In 2017 Thinfilm ASA had a project qualified for the SkatteFUNN scheme (tax credit scheme), which relates to the development of integration and assembly methods for printed smart labels. In 2017, net contribution from the SkatteFUNN scheme was NOK 10 million (2016: NOK 8 million). The project ran until December 2017.

The accounting policy adopted for these grants is to recognize it as other operating revenue over the periods in which the Company recognizes as expenses the related costs for which the grant is intended to compensate. Apart from the SkatteFUNN grant which has been credit against cost on a systematic basis over 2017.

To receive grants from SkatteFUNN, the Company has to engage in research and development activities that qualify for the SkatteFUNN programme. The costs incurred have to be reported annually to the Norwegian tax authorities. It is also required that the Company reports progress and achievements to the Research Council of Norway. Similar progress reports are required in all the grants.

14. Other incomeOther income relates to sale of services to Thin Film Electronics AB (NOK 834 thousand), and the sale of IPR and capitalized development costs to Xerox (NOK 234 thousand) regarding MemoryTM product.


15. Employee Salaries and Other BenefitsAmounts in NOK 1,000 2017 2016

Salaries 16 182 16 159

Social security costs 2 955 3 128

Share-based compensation (subscription rights), notional salary cost

5 547 3 910

Share-based compensation (subscription rights), accrued employer´s tax*

-509 -886

Pension contribution 855 891

Other personnel related expenses, including recruiting costs

943 767

Total 25 975 23 969

Average number of employees for the year 9 9

Number of employees 31 December 10 9

At the end of 2017 there were ten fulltime employees in the Company (2016: nine fulltime employees). The Company has only defined contribution pension plans. Contributions are expensed and paid when earned.

Compensation to senior management

2017 SalaryPension

contribution BonusShare-based

remuneration

Davor Sutija, CEO 3 222 123 2 177 3 033

Ole Ronny Thorsnes, CFO 1 810 108 787 1 209

2016

Davor Sutija, CEO 2 637 101 2 406 2 304

Ole Ronny Thorsnes, CFO (from August 1, 2016)

708 42 309 350

John Afzelius-Jenevall, CFO (until August 31, 2016)

1 503 67 455 -

Kai Leppänen, CCO (until June 30, 2016)

1 778 92 422 -

The salary amount is the salary declared for tax purposes. Bonus is the amount earned in 2017 and accrued at year-end. This amount is adjusted for any difference between the bonus earned in 2016 and accrued for at year-end 2016 and the actual bonus paid in 2017. The value of share-based remuneration is the expensed amount excluding employer’s tax in the period for incentive subscription rights. Davor Sutija exercised 750,000 subscription rights in 2017. Davor Sutija exercised 2,000,000 subscription rights in 2016. See also note 21.

The Company has not made any advance payments or issued loans to, or guarantees in favour of, any members of management.

Remuneration to the Board of DirectorsReference is made to Note 18 in the Consolidated Financial Statements.

88

16. Income tax expenseAmounts in NOK 1,000 2017 2016

Profit (loss) before tax (527 533) (353 782)

Tax (tax income) calculated at corporate tax rate (126 608) (88 446)

Permanent differences 626 (12 158)

Effect of change in tax rates (24% to 23%) (25% to 24%) 17 071 11 389

Change in deferred tax asset not recognised on the balance sheet 108 911 89 214

Tax charge - -

Corporate tax rate 24% 25%

17. Deferred income taxDeferred income tax assets and liabilities are offset when the Company has a right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority.

The offset amounts are as follows:

Amounts in NOK 1,000 31 December 2017 31 December 2016

Deferred income tax asset Intangible asset (2 109) (87)

Tax loss carried forward (390 519) (273 256)

Calculated deferred tax asset (392 628) (273 343)

Impairment of deferred tax asset 392 628 273 343

Deferred tax asset in the balance sheet - -

The Company has not recognised the tax asset as there is uncertainty relating to future taxable income for utilization of the tax loss carried forward, and the taxable loss on intangible assets. There is no expiration date on the tax loss carried forward. No tax item has been recorded directly to equity. The unrecognized deferred tax asset is calculated by applying the local tax rates in Norway with tax rate 23 % (24%: 2016).


18. Related party transactions

a) Transactions with related parties:

Amounts in NOK 1,000 2017 2016

Sale of services to Thinfilm AB (834) (782)

Technical development services from Thinfilm AB

67 804 54 059

Sales, marketing, R&D and manufacturing services from Thinfilm Inc.

380 084 253 683

Sales and marketing services from Thinfilm HK 8 994 7 620

Sales and marketing services from Thinfilm UK 8 487 -

Internal purchase of goods for resale from Thinfilm Inc.

24 962 2 960

Purchases of services from law firm Ræder 3 925 3 115

Purchases of services, licences and materials from PARC

- 340

Purchase of services from Robert N. Keith 1 920 1 760

Purchase of services from Charles Street International Ltd.

- 7 200

Purchase of services from Agnus Consulting - 42

Thinfilm’s chairman, Morten Opstad, is a partner of Advokatfirma Ræder DA, who is also Thinfilm’s legal counsel. The amounts do not include Mr. Opstad’s service as chairman. Mr. Opstad and close associates hold shares in Thinfilm.

Robert N. Keith, a shareholder of Thinfilm, entered into a consulting service agreement with effect from 1 January 2013. Mr. Keith assists Thinfilm in strategic analysis and in dealing with larger, international, prospective partners.

Charles Street International Ltd., a shareholder of Thinfilm, assisted Thinfilm with the implementation of the private placement to Woodford Investment Management on February 19, 2016.

PARC, a shareholder of Thinfilm, entered into a development agreement with Thinfilm with effect from 28 October 2010 that has later been followed by several amendments and additional agreements. The 2016 amount related to the license of certain PARC patents, purchase of materials and consulting services.

Agnus Consulting, a company controlled by Board member Tor Mesøy, provided services for Thinfilm in 2016.

Transaction prices are based on what would be the prices for sale to third parties and are net of VAT.

90

b) Year-end balances arising from sales/purchases of goods/services with related parties


Payable to Thinfilm Inc. 90 479 38 785 Payable to Thinfilm AB 38 910 6 190 Receivable from Thinfilm AB (834) (782)Payable to Thinfilm HK 1 398 1 039 Payable to Thinfilm UK 2 239 - Payable to law firm Ræder 1 173 1 716 Payable to Robert Keith - 1 760

19. Other operating expenseAmounts in NOK 1,000 2017 2016

Premises, supplies 3 180 2 764 Sales and marketing 1 319 4 142 Other expenses 4 845 4 373

Sum 9 343 11 279

Services provided by subsidiaries and capitalized in the balances sheet as development costs amount to NOK 5,765 thousand (2016: 2,879 thousand). Last year, the 2016 amount was credited against Other expenses. Reclassification to credit against Services (from subsidiaries) has been made.

Thinfilm has a lease agreement for premises in Oslo (Norway). The lease amount in Oslo is NOK 540 thousand per year, with a termination clause of 3 months. Apart from that, Thinfilm ASA has not entered into any other lease agreements.

Remuneration to the auditor


Audit 802 692 Other assurance services 58 76 Tax services 224 31 Other services 18 -

Total 1102 798

20. Contingent liabilitiesReference is made to Note 24 in the Consolidated Financial Statements.

21. Shareholders, warrants and subscription rightsReference is made to Note 25 in the Consolidated Financial Statements.

22. Statement on management remuneration policyReference is made to note 26 in the onsolidated Financial Statements.


Campari America uses Thinfilm’s NFC mobile marketing solution to enable consumers to purchase its spirits brands by tapping a smartphone to a “connected” refrigerator magnet.

92

Corporate Social Responsibility (CSR) Statement

The Thin Film Electronics ASA Group recognizes

that it has important obligations regarding 1) the

treatment of its employees, 2) the conditions within

its facilities, 3) its impact on the environment, and 4)

the relationships it maintains with the communities

in which it operates. As such, it adheres to policies

related to these obligations and strives to achieve

goals that engender safety, health, fairness, diversity,

integrity, compliance, and sustainability.

Human rights and workplace practices

Policy: Thinfilm promotes equality and non-discrimination,

fairness, and ethical behavior. The Company aims

to offer a pleasant, well-equipped, and risk-free

work environment. It maintains fair and balanced

employment practices and complies with all

applicable labor laws applicable to the countries,

regions, cities and towns in which it operates. Thinfilm

encourages and expects similar commitments from

its customers, partners, suppliers, and other vendors

with whom the Company works.

Objective: Maintain a secure, safe, and healthy work environment

for all employees of the Company. Continue to be a

globally diverse company that strongly distances itself

from any form of discrimination. Thinfilm makes every

reasonable effort to secure a healthy, safe, and lawful

work environment, and the Company complies with

all applicable laws, rules, and regulations concerning

occupational health, safety, and environmental

protection. The Company’s policies prohibit

discrimination against employees, shareholders,

directors, customers, partners, suppliers, and other

vendors on account of gender, race, sexual orientation,

religion, disability, nationality, political opinion, and

social or ethnic origin. Employees are provided with

an Employee Handbook outlining corporate policy.

Workplace diversity at all levels is highly encouraged

and monitored. All persons shall be treated with

dignity and respect and are encouraged to assist in

creating a work environment free from any form of

discrimination. The necessary conditions for a safe

and healthy work environment shall be provided for

all employees of the Company.

To ensure a safe and healthy work environment, Thin

Film Electronics ASA (Norway) maintains an Injury

and Illness Prevention Program. The Company has

also established a Work Environment Committee

that periodically addresses work environment issues

in a comprehensive way as a cooperative body. The

group meets at least once every quarter. At Thinfilm

Electronics, Inc., (US) all employees are required to

complete a safety training course within their first

month of employment. In compliance with Proposition

65, Thinfilm Electronics, Inc., also informs employees

of the onsite presence of any known chemical known

to cause cancer or reproductive toxicity.

Thinfilm is committed to fully complying with all

applicable laws regarding equal employment

opportunities. Employees who believe they have

been subjected to any form of unlawful discrimination

may submit a complaint to their manager, any

member of the management team, and/or Human

Resources. The Company encourages all employees

to immediately report incidents of harassment or

other conduct prohibited by its anti-harassment

policy so that complaints can be resolved in a fair and

timely manner.

93Corporate Social Responsibility (CSR) Statement

Ethics and anti-corruption

Policy: It is important that Thinfilm staff members do not place

themselves in situations whereby their fidelity can be

undermined or in which they may be vulnerable to

external pressures contrary to Thinfilm’s or their own

integrity. It is communicated and expected that all

employees do not accept, either for themselves or on

behalf of others, gifts, fees, services or other benefits

which could influence the way they discharge their

duties, or are intended to exert such influence by the

giver.

Objective: Systematize and further improve internal training and

education as it relates to ethics and anti-corruption

compliance. Thinfilm’s Ethical Guidelines are based

on respect and fairness in all aspects of our business

dealings. We demand and expect that our employees

– at every level of the organization – adhere to

applicable laws and regulations in the countries

where we do business. Thinfilm has a clear stance

on corruption. Employees must always comply with

applicable anti-bribery laws; and each manager and

employee is responsible for compliance within his or

her area of authority, and must report any suspected

violations to HR, corporate management, and in

certain case, the local authorities.

Environment

Policy: Thinfilm requires that all subsidiaries of the Thinfilm

Group follow all current environmental laws and

regulations for the jurisdictions in which they

reside and operate. Thinfilm routinely evaluates

the environmental impact of its production- and

manufacturing-related activities, with particular

emphasis on the potential risks regarding present

and future operations. Thinfilm operates its NFC

Innovation Center (with backend pilot production

facility, laboratories, and a fab) in San Jose, CA.

Objective: Thinfilm strives to monitor waste production, such

as chemicals and electronics materials, to evaluate

where and how the Company can improve – such

as using fewer chemicals, leveraging alternative

materials, and/or maximize the usage of current

materials. Thinfilm recognizes the impact that

hazardous waste can have on the environment

and takes every reasonable precaution to discard

and recycle waste according to federal, state, and

regional laws and regulations.

In the Linköping, Sweden, production facility (which

has scaled down significantly in recent months

and no longer serves as a pilot production facility),

paper, steel/iron, aluminum, copper, tree waste,

glass, batteries, electronic waste, and various forms

of packaging were sent to the appropriate recycling

facilities. Chemicals (except silver, which is destroyed

separately) were kept in containers and sent to

Tekniska Verken in Sweden for proper handling and

disposal. Other laboratory waste was sent to the

recycling center, IL Recycling.

In the San Jose, CA facility, Thinfilm partners with a

licensed Environmental Services provider and strict

guidelines are followed for the storage and disposal

of hazardous material. The state of California tracks

any Thinfilm hazardous material shipments to the

final disposal/incineration site to ensure overall

compliance.

94

Responsibility statement

The Board and the CEO have today reviewed and

approved this report of the Board of Directors as well

as the annual financial statements for the Thin Film

Electronics ASA Group and Parent Company as at 31

December 2017. The consolidated annual financial

statements have been prepared in accordance

with IFRS as adopted by the EU and the additional

requirements in the Norwegian accounting act. The

annual financial statements for the Parent Company

have been prepared in accordance with the

Norwegian accounting act and generally accepted

accounting principles in Norway. The notes are an

integral part of the respective financial statements. The

report of the Board of Directors has been prepared in

accordance with the Norwegian accounting act and

generally accepted accounting principles in Norway.

We confirm that, to the best of our knowledge, the

information presented in the financial statements

gives a true and fair view of the group’s and the

Parent Company’s assets, liabilities, financial position

and result for the period viewed in their entirety, and

that the report from the Board of Directors gives a

true and fair view of the development, performance

and financial position of the group and the Parent

Company, and includes a description of the principal

risks and uncertainties which the group and the

Parent Company are facing.



Davor SutijaCEO





95Responsibility statement

Alonzo Collins, Staff Roll-to-Roll Equipment Engineer, works with the resist coater roll-to-roll tool.

96

Auditor’s Report

97Auditor’s Report

100

Thinfilm CEO, Dr. Davor Sutija, and COO, Dr. Peter Fischer, lead a tour of the Company’s new fab with San Jose Mayor, Sam Liccardo, and other city officials.

102

Corporate Governance

Resolved (updated) by the Board of Directors of Thin

Film Electronics ASA (the “Company”) on 5 April 2018.

The Statement outlines the position of the Company

in relation to the recommendations contained in

the Norwegian Code of Practice for Corporate

Governance dated 30 October 2014 (“the Code”). The

Code is available at www.nues.no and from Oslo Børs.

In the following, the Board of Directors will address

each section of the Code and explain the areas, if any,

where the Company does not fully comply with the

recommendations and the underlying reasons.

1. Implementation And Reporting On Corporate GovernanceThe Company seeks to create sustained shareholder

value. The Company makes every reasonable effort

to comply with the word and intent of the laws, rules

and regulations in the countries and markets in which

it operates. Thinfilm is not aware of being or having

been in breach of any such statutory laws, rules or

regulations. The Company pays due respect to the

norms of the various stakeholders in the business. In

addition to the shareholders, the Company considers

its employees, Thinfilm’s business partners, the

society in general and the authorities as stakeholders.

Thinfilm 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 in the present organization

– the Thinfilm group presently has approximately 167

ordinary employees and a few consultants on site

– the Board of Directors and the management have

adequate monitoring and control systems in place

to ensure insight into and control over the activities.

(Note: In this review, the noun “the management”

includes all persons conducting managerial functions,

whether employed or otherwise contracted.)

The Board has resolved ethical guidelines that apply

to all employees, consultants and contractors as well

as the elected Board Members. The ethical guidelines

also incorporate the Company’s guidelines on

corporate social responsibility.

2. Thinfilm’s Business In Section 2 of the Company’s Articles of Association,

the Company’s business is defined as “The objectives

of the Company shall be the commercialization,

research, development and production of technology

and products related to printed electronics

components and smart systems. These objectives

may be carried out in full internally, or in whole or in

part externally through collaborative efforts with one

or more of the Company’s ecosystem partners.

The Company’s business goals and principal

strategies are defined in the business plans adopted

by the Board of Directors. The plans are reviewed and

revised periodically, and when needed.

Thinfilm satisfies the recommendations under this

section of the Code by publishing the material at

www.thinfilm.no instead of in the annual report.

3. Equity And DividendsThe Board is aware of and acknowledges the equity

requirements and duty of action in connection with

loss of equity, as set out in the Norwegian Public

Limited Companies Act (the “PLCA”). In the past,

the Company has been in need of raising equity on

several occasions to fund its operations and working

capital requirements. The Board has proposed to

the general meeting only reasonable authorizations

103Corporate Governance

for share issues and incentive schemes. Such Board

authorizations have explicitly stated the type and

purposes of transactions in which the authorizations

may be applied. As of the general meeting(s) to be

held in 2018, any proposed authorizations to issue

shares shall be considered and voted separately

by each type and purpose of such share issues.

The Board authorizations to issue shares have

been valid until the next annual general meeting,

as recommended by the Code. The proposals have

been approved by the shareholders.

The Company has in place an authorization to the

Board to acquire up to 10 per cent of the Company’s

own shares for a maximum price of NOK 1,000 per

share. The Board was authorized to decide upon the

manner and terms of the acquisition, disposition,

transfer and sale of own shares. The length of the

authorization is limited to the earlier of (i) the next

annual general meeting of shareholders (scheduled

for 4 May 2018) or (ii) 30 June 2018.

Thinfilm has not as yet declared or paid any dividends

on its shares. The Company does not anticipate

paying any cash dividends on its shares in the next

few years. Thinfilm intends to retain future earnings,

if any, 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 operation and capital requirements.

4. Equal Treatment Of Shareholders And Transactions With Close Associates The Company places great emphasis on ensuring

equal treatment of its shareholders. The Company has

one class of shares. There are no trading restrictions

or limitations relating only to non-residents of Norway

under the Articles of Association of the Company.

Each share carries one vote. There are no restrictions

on voting rights of the shares.

In the authorizations to issue shares to raise

additional capital for the Company, where the existing

shareholders have resolved to waive the pre-emptive

right to subscribe for shares, the rationale for doing

so shall be presented as part of the decision material

presented to the general meeting. If and when such

transactions are conducted, the justification will also

be included in the announcements to the market.

All related party transactions in effect are entered into

on arm’s length basis. Any material future related party

transactions shall be subject to an independent third

party valuation unless the transaction by law requires

shareholder approval. The Company takes legal and

financial advice on these matters when relevant.

Members of the Board and the management are

obliged to notify the Board if they have any material

direct or indirect interest in any transaction entered

into by the Company.

5. Freely Negotiable Shares All shares are freely assignable. The Articles of

Association do not contain any restrictions on

negotiability on the shares.

6. General Meetings The annual general meeting of shareholders, the

Company’s highest decision-making body, provides a

forum for shareholders to raise issues with the Board

as such and with the individual Board Members. To

the maximum degree possible, all members of the

Board shall be present at the general meeting. The

Company’s auditors shall also be present at the

general meeting. The shareholders elect a person

to chair the general meeting. The Board will arrange

104

for an independent candidate if so requested by

shareholders. Notice of a meeting of the shareholders

shall be sent in a timely manner and the Company

shall issue the notice and documents for a general

meeting, including the proxy form, no later than 21

days before the date of the general meeting. Foreign

residents will receive the notice and documents in

English. When appropriate, the documents will be

made available at the Company’s web site and not

sent to the shareholders.

The Board of Directors endeavors to provide

comprehensive information in relation to each agenda

item in order to facilitate productive discussions and

informed resolutions at the meeting. The notice

will also provide information on the procedures

shareholders must observe in order to participate

in and vote at the general meeting. Shareholders

who are unable to attend in person will be provided

the option to vote by proxy in favor or against each

of the Board’s proposals. The notice shall contain a

proxy form as well as information of the procedure

for proxy representation. At the meeting, votes shall

be cast separately on each subject and for each

office/ candidate in the elections. Consequently,

the proxy form shall to the extent possible, facilitate

separate voting instructions on each subject and on

each office/ candidate in the elections. The notice, as

well as the Company’s website, will set out that the

shareholders have the right to propose resolutions

in respect of matters to be dealt with at the general

meeting.

The general meeting has included in Section 7 of the

Company’s Articles of Association that documents

which have been made available in a timely manner

on the web site of the Company and which deal with

matters that are to be handled at the general meeting,

need not be sent to the Company’s shareholders.

All reports will be issued on the Oslo Børs marketplace

(www.oslobors.no and www.newsweb.no) within the

Oslo Stock Exchange, and on the OTCQX International

Marketplace (www.otcmarkets.com/marketplaces/

otcqx). The reports and other pertinent information

are also available at www.thinfilm.no.

7. Nomination Committee Under the Articles of Association, Thinfilm has

a nomination committee that is elected by the

annual general meeting for a term of two years. The

nomination committee shall have three members,

including a Chairman. The nomination committee

shall prepare and present proposals to the annual

general meeting in respect of the following matters:

• Propose candidates for election to the

Board of Directors

• Propose the remuneration to be paid to

the Board Members

• Propose candidates for election to the

nomination committee

• Propose the remuneration to be paid to

the nomination committee members

The mandate of the nomination committee shall be

resolved by the annual general meeting.

The Company provides information on its website

about the composition of the nomination committee

and any deadlines for submitting proposals to the

committee.

8. Corporate Assembly And Board Of Directors; Composition And Independence Thinfilm does not have a corporate assembly.

The Board acknowledges the Code’s

recommendation that the majority of the members

of the Board of Directors shall be independent of

the Company’s management and material business

contacts. All Board Members are required to make

decisions objectively in the best interest of the

Company, and the presence of independent directors

is intended to ensure that additional independent

advice and judgement is brought to bear. The current

Board meets the independence criteria of the Code.

The Board meets the statutory gender requirements

for the Board. The Board’s attendance statistics are

included in the presentation of the Board Members in

the annual report.


Board Members stand for election every two

years. The Board believes that it is beneficial for

the Company and its shareholders that the Board

Members also are shareholders in the Company and

encourages the members of the Board of Directors to

hold shares in the Company.

The Board pays attention to ensure that ownership

shall not in any way affect or interfere with proper

performance of the fiduciary duties, which the Board

and the management owe the Company and all

shareholders.

As and when appropriate, the Board takes

independent advice in respect of its procedures,

corporate governance and other compliance matters.

9. The Work Of The Board Of Directors The division of duties and responsibility between

the CEO and the Board of Directors is based on

applicable laws and well-established practices, which

have been formalized in writing through a Board

instruction in accordance with the Norwegian Public

Limited Companies Act. The Board instruction also

sets out the number of scheduled Board meetings

per year and the various routines in connection with

the Board’s work and meetings.

The Board instructions state that in situations when

the Chairman is not impartial or not operative, the

most senior Board Member shall chair the Board until

a deputy Chairman has been elected by and among

the Board Members present.

The Board of Directors shall evaluate its performance

and expertise annually. Moreover, the Board will

produce an annual plan for its work, with particular

emphasis on objectives, strategy and implementation.

With a compact Board of only five members, there

has not been any need for subcommittees to date.

The future need for any sub-committees will be

considered minimum annually in connection with

the annual review of the Company’s corporate

governance.

Thinfilm is not obliged to have a separate audit

committee and in view of the small number of Board

Members, the Company’s Audit Committee consists

of all Board Members who are not also executives

or have similar roles in the Company. The Board

instruction includes an instruction for the audit

committee.

10. Risk Management And Internal Control The Board of Directors has adopted internal rules

and guidelines regarding, amongst other things, risk

management and internal control, which rules and

guidelines take into account the extent and nature

of the Company’s activities as well as the Company’s

corporate values and ethical guidelines, including the

corporate social responsibility. The Board of Directors

shall carry out an annual review of the Company’s

most important areas of exposure to risk and its

internal control arrangements.

In view of the size of the Company and the number

of Board Members, the Board has chosen to elect

the full Board (except any Board Members who

hold executive positions) to constitute the audit

committee. The audit committee policies and

activities are compliant with the Norwegian public

limited companies act.

The Board of Directors has adopted an insider manual

with ancillary documents intended to ensure that,

among other things, trading in the Company’s shares

by Board Members, executives and/or employees,

including close relations to the aforementioned, are

conducted in accordance with applicable laws and

regulations.

Internal control and risk management of financial

reporting;

Thinfilm publishes four interim financial statements in

addition to the ordinary annual financial statements.

The financial statements shall satisfy legal and

regulatory requirements and be prepared in

accordance with the adopted accounting policies,

and be published according to the schedule adopted

106

by the Board. Closing of accounts, financial reporting

and key risks analysis are provided monthly to the

Board of Directors. These monthly reports also include

financials per legal entity (Thinfilm ASA, Thinfilm AB,

Thinfilm Inc., Thinfilm HK and Thinfilm China) which

are analyzed and addressed against set budgets.

Thinfilm has established a series of risk assessment

and control measures in connection with the

preparation of financial statements. Specific reporting

instructions are drawn up on a regular basis and

communicated to the subsidiaries. In connection

with subsidiaries’ closing of accounts, internal

review meetings are held to ensure compliance

with the governing reporting instructions. In addition,

separate meetings are held to identify risk factors and

measures linked to important accounting items or

other factors. The Board also has separate meetings

with the external auditor to review such risk factors

and measures, and conducts preparatory reviews

of interim financial statements and annual financial

statements that particularly focus on reporting of

operational costs and investments.

A financial manual, which sets out policies and

procedures for financial management and reporting in

the group, was prepared and resolved by the Board of

Directors. This manual provides detailed instructions

for financial planning, treasury, accounting and

reporting, and is reviewed and updated annually by

the Board.

11. Remuneration To The Board Of Directors A reasonable cash remuneration to the Board

Members for their services from the annual general

meeting in 2016 until the annual general meeting in

2017 was proposed to and resolved at the 2017 annual

general meeting. To lessen the cash outflow, the

annual general meeting granted an option to the Board

Members to receive all or part of the remuneration in

kind in the form of shares in the Company. No Board

Members took up this option in 2017. The nomination

committee will propose Board remuneration for the

period between the annual general meetings of 2017

and 2018.

Advokatfirma Ræder DA, in which the Chairman,

Morten Opstad, is a partner, renders legal services

to the Company. A Board Member performing work

for the Company beyond the Board duty shall ensure

that such arrangements do not in any way affect or

interfere with proper performance of the fiduciary

duties as a Board Member. Moreover, the Board

(without the participation of the interested member)

shall approve the terms and conditions of such

arrangements. Adequate details shall be disclosed in

Thinfilm’s annual financial statements.

12. Remuneration Of The Management Thinfilm offers market-based compensation packages

for the executives and employees in order to attract

and retain the competence that the Company needs.

The exercise price for any subscription right is equal

to, or higher than, the market share price at the time

of the grant. The subscription rights vest in tranches

over four years. No golden parachutes are in effect,

and post employment pay will only apply in case

the Company invokes contractual non-competition

clauses.

The Board shall determine the compensation of

the CEO. There is a maximum amount of incentive

remuneration per calendar year. It follows from the

nature of the incentive subscription rights program

resolved by the annual general meeting that the limit

does not apply to the possible gain on subscription

rights. The Board has adopted a policy for the CEO’s

remuneration of the employees.

At the annual general meeting, the Board will present

to the shareholders for their approval a statement of

remuneration to the management. The resolution by

the annual general meeting is binding to the extent it

relates to share-based compensation and advisory in

other aspects.

13. Information And Communication The Board of Directors places great emphasis on the

relationship and communication with the shareholders.

The primary channels for communication are the

interim reports, the annual report and the associated

financial statements. Thinfilm also issues other


notices to the shareholders when appropriate. The

general meeting of shareholders provides a forum

for the shareholders to raise issues with the Board as

such and the individual Board Members. All reports

are issued and distributed according to the rules and

practices at the market place(s) where the Thinfilm

shares are listed. The Company shall in due course

publish an annual financial calendar for the following

year; setting forth the dates for major events such

as its annual general meeting, publication of interim

reports, any scheduled public presentations, any

dividend payment date, etc. The reports and other

pertinent information are also available on the

Company’s website, www. thinfilm.no.

The Board of Directors has adopted the following

policies:

• Policy for reporting of financial and other

information and investor relations;

• Policy for contact with shareholders

outside general meetings; and

• Policy for information management in

unusual situations attracting or likely to

attract media or other external interest.

The financial reporting of Thinfilm is fully compliant

with applicable laws and regulations. As of the interim

financial information for third quarter 2007, Thinfilm

has prepared its consolidated financial reports in

accordance with IFRS. The current information

practices are adequate under current rules.

14. Take-Overs There are no take-over defense mechanisms in

place. The Board will endeavor that shareholder

value is maximized and that all shareholders are

treated equally. The Board shall otherwise ensure full

compliance with Section 14 of the Code.

15. Auditors The Company’s auditor is fully independent of the

Company. Thinfilm represents a minimal share of the

auditor’s business. Thinfilm does not obtain business

or tax planning advice from its auditor. The auditor

may provide certain technical and clerical services

in connection with the preparation of the annual tax

return and other secondary reports, for which Thinfilm

assumes full responsibility.

The Board of Directors has established written

guidelines to the CEO in respect of assignments to

the auditor other than the statutory audit.

The Board of Directors shall otherwise ensure full

compliance with Section 15 of the Code.

108

Articles of Association

§1 THE NAME OF THE COMPANYThe name of the Company is Thin Film Electronics ASA. The Company is a public limited company.

§2 THE COMPANY’S BUSINESSThe objectives of the Company shall be the commercialization, research, development and production of technology and products related to printed electronics components and smart systems. These objectives may be carried out in full internally, or in whole or in part externally through collaborative efforts with one or more of the Company’s ecosystem partners.

§3 REGISTERED OFFICEThe registered office of the Company is situated in Oslo.

§4 THE COMPANY’S SHARE CAPITALThe Company’s share capital is NOK 128,905,877.87 divided into 1,171,871,617 shares each having a par value of NOK 0.11.

§5 THE COMPANY’S GOVERNANCE The Company’s Board of Directors shall consist of from three to nine members, as decided by the general meeting. The Board may grant powers of procuration.

§6 THE GENERAL MEETING The ordinary general meeting shall consider and decide:

1. Adoption of the annual financial statement and report of the Board of Directors, including the declaration of a dividend.

2. Election of chairman and members of the nomination committee, and determination of remuneration to the members of the nomination committee.

3. Any other business required by the laws or the articles of association to be transacted by the general meeting.

The general meetings of the Company shall as a general rule be conducted in the Norwegian language. However, the Board of Directors may decide that the English language shall be used.

§7 EXEMPTION FROM REQUIREMENTS TO SUBMIT DOCUMENTS WITH NOTICE OF GENERAL MEETING Documents which timely have been made available on the Internet site of the Company, and which deal with matters that are to be handled at the general meeting, do not need to be sent to the Company’s shareholders.

§8 REGISTRATION FOR GENERAL MEETING A shareholder who wishes to attend the general meeting, in person or by proxy, shall notify its attendance to the Company no later than two days prior to the general meeting. If the shareholder does not notify the Company of its attendance in a timely manner, the Company may deny the shareholder access to the general meeting.

§9 NOMINATION COMMITTEEa. Thin Film Electronics ASA shall have a

nomination committee. The nomination committee shall have three members, including a chairman. Members of the nomination committee shall be elected by the Annual General Meeting for a term of two years.

b. The nomination committee shall:• Propose candidates for election to

the Board of Directors• Propose the remuneration to be

paid to the Board Members• Propose candidates for election to

the nomination committee• Propose the remuneration to be

paid to the nomination committee members

c. The mandate of the nomination committee shall be resolved by the Annual General Meeting.

§10 RELATION TO THE NORWEGIAN PUBLIC LIMITIED COMPANIES ACTReference is also made to the legislation concerning public limited companies in force at the relevant time.

109Articles of Association

Thinfilm NFC tags have been integrated into a variety of products including craft beer, spirits, and olive oil.

Mr. Opstad has served as Chairman of the Board of the Company since 2 October 2006. He is a partner of Advokatfirma Ræder DA in Oslo.

He has rendered legal assistance with respect to establishing and organizing several technology and innovation companies within this line of business. His directorships over the last five years include current board positions in Idex ASA (Chairman), Total Sports Online AS, Glommen Eiendom AS, Chaos AS, K-Konsult AS, and former directorships in Cxense ASA, Fileflow Technologies AS and A. Sundvall AS. Mr. Opstad was born in 1953 and is a Norwegian citizen.

110

Board of Directors

Mr. Mesøy has served as a management consultant for more than 25 years and today heads his own consulting company. He was formerly a partner with McKinsey & Company and Accenture. He has extensive consulting and counseling experience from a range of industry sectors, including high-tech, telecommunications, healthcare, pharmaceuticals, public sector, energy, utilities, banking, insurance and oil & gas.

Mr. Mesøy is currently the CEO of Agnus Consulting, a company focusing on leadership development and management consulting. He is a member of the Board at the not-for-profit organization Impuls, a Norwegian youth movement. In addition, he is a guest lecturer at Carnegie Mellon University and the University of Hong Kong, where he lectures on topics related to leadership. He is also an Associate Fellow of Oxford University. Mr. Mesøy received a Bachelor’s degree from the University of Oslo (Computer Science, Mathematics), a Master’s degree from the University of Minnesota (Mathematics, Philosophy), and has attended the Advanced Business Management Program at Kellogg Graduate School of Business at Northwestern University. Mr. Mesøy was born in 1962 and is a Norwegian citizen.



111Board of Directors

Ms. Mardia has diverse general management and operations expertise across Electronics, Semi-conductors, Telecoms, Aerospace, and Food Industry sectors. Preeti is a board director for two technology Plc companies.

She previously worked within IDEX ASA and Filtronic Plc as Operations Director and established commercial and supply relationships with Tier One OEMs for mobile telecoms infrastructure. She was responsible for implementing a world class highly automated electronics manufacturing plant and establishing global partnerships. She managed and scaled a semiconductor foundry from technology phase to high volume manufacturing semiconductor devices for the mobile handset, aerospace, and base-station markets. Preeti has extensive FMCG experience in manufacturing, product development and quality assurance with Cadbury Schweppes Plc and supplied into major international retailers. Preeti has a degree in Food Science & Technology and a Masters degree in Executive Management at Ashridge, UK. Mrs Mardia was born in 1967 and is a British citizen.



Mr. Åberg has been a Board member of the Company since 2 October 2006. Prior to this, he served as the Managing Director between 2000 and 2006.

He studied computer science at Linköping University and strategic sales and management at the Haas School of Business, University of California, Berkeley. Mr. Åberg held various positions at Saab in Linköping (1973-1981) and different leading positions within sales and marketing at Computervision Northern Europe (1981-1987). He was Managing Director of Mentor Graphics Scandinavia (1987-1991) and Vice President and General Manager Europe of Synopsys, Inc. (1991-2000). Mr. Åberg was born in 1951 and is a Swedish citizen.

112

Laura OliphantBoard Member

Laura Oliphant is the CEO of Translarity, a

semiconductor test startup. Prior to joining Translarity,

she was an Investment Director in Intel Capital, where

she invested in semiconductor capital equipment,

manufacturing robotics, new device, and software as

a service (SaaS) companies. As a Corporate Venture

Capital investor, Laura brought over $1B in strategic

and financial value to Intel through her investments

and was awarded Intel’s highest award, the Intel

Achievement Award, for her contributions.

Prior to Intel Capital, Laura served as a Supply

Chain Program Manager in Intel’s Technology and

Manufacturing Group (TMG). She was one of the key

coordinators for Intel’s transition to the 300 mm wafer

size in their factories, a project which delivered to cost

targets, and added over 10 points of gross margin to

Intel. Laura was the co-chairperson of the SEMATECH

Metrology and Yield Management Advisory Group,

and was part of the International Technology

Roadmap for Semiconductors (ITRS) committee for

yield management technology. Laura is also currently

a member of the board of advisors for the UC

Berkeley Skydeck Accelerator and has served on the

Lawrence Berkeley Lab Innovation Grant Committee.

Laura holds a PhD in Chemical Engineering from the

University of California, Berkeley.

113Board of Directors

Thinfilm’s NFC mobile solution enables brands to stay connected with consumers during the post-purchase consumption phase.

114

Executive Management

Dr. Davor Sutija is CEO of Thin Film Electronics ASA. Prior to joining Thinfilm in January 2010, he was Senior Vice President, Product Marketing, at FAST, a Microsoft subsidiary, and founding CEO at SiNOR AS, a producer of electronic and PV-grade silicon ingots.

He was a board member for the Organic Electronics Association (OE-A) f rom 2012 th rough

2015, and has also served on the BoD of technology firms SensoNor, Birdstep, and Owera. He is currently a member of the Orbotech Advisory Board. Dr. Sutija graduated from the Jerome Fisher Management and Technology program at the Wharton School, and has a Ph .D. f rom the University of California, Berkeley, in Chemical Engineering. He was a Hertz Fellow at Lawrence Berkeley Labs.

Ole Ronny Thorsnes joined Thinfilm in August of 2016 as Chief Financial Officer. In his role he oversees several functions within the Company, including Finance, Accounting, Analyst Relations, IT, and HR.

Prior to Thinfilm, Mr. Thorsnes was most recently Vice President, Mergers & Acquisit ions, for Orkla ASA, a leading supplier of branded consumer goods and concept solutions operating

primari ly in the Nordic and Baltic regions. He previously served as a senior associate at McKinsey & Company, which he joined in 2008, working with a broad range of industries and focusing mainly on strategy, finance and operational initiatives. Mr. Thorsnes holds a Master of Science degree from the Norwegian University of Science and Technology’s (NTNU) and the University of Edinburgh.

Dr. Fischer joined Thinfilm in January 2014 as Chief Product Officer. He was named Chief Operating Officer in November of 2015 and oversees manufacturing, supply chain, and technology transfer for the Company.

Prior to Thinfilm he was Chief Technology Officer at Plastic Logic, a printed electronics startup and producer of flexible displays. Earlier in his career he served as Director, Backend Products at

Qimonda, and Senior Manager, Front-end Process Integration at Infineon Technologies. He was elected to the board of the Organic Electronics Association (OE-A) in 2011 and maintains that role in representing Thinfilm. In 2012, Dr. Fischer was named one of the top “Forty Innovators Building the Foundation of the Next-gen Electronics Industry” by EETimes. He holds a diploma and Ph.D. in Physics from University of Magdeburg.

Dr. Davor SutijaChief Executive Officer

Ole Ronny ThorsnesChief Financial Officer

Dr. Peter FischerChief Operating Officer

115Executive Management

Tauseef Bashir joined Thinfilm in July of 2016 as the Company’s EVP Global Sales and was promoted to Chief Sales Officer in January 2018. He has over 20 years of experience in SaaS, Internet of Things (IoT), enterprise collaboration, enterprise search and knowledge discovery. As Chief Sales Officer he is responsible for the Company’s sales strategy as well as all initiatives related to sales of Thinfilm products, i n c l u d i n g N F C S o l u t i o n s (OpenSense™, SpeedTap™), EAS (Electronic Article Surveillance), and Software.

Before joining Thinf i lm, Mr. Bashir was Chief Sales Officer for Amazon.com, where he led the global go-to-market strategy for commercialization of the Amazon Speech Cloud Platform and Alexa Software. Prior to Amazon.com, he held senior roles with a number of leading firms, including FAST (acquired by Microsoft), Autonomy, Inc. (acquired by HP), and Ramp, Inc. (acquired by Cxense). Mr. Bashir holds a Bachelor of Science in Computer Information Systems (BSIS) from the University of Redlands in Redlands, California.

Christian Delay joined Thinfilm in May 2016 as SVP, Strategic Marketing and GM, Software Platforms. He is responsible for Thinfilm’s software and IT strategy and solutions, the CNECT™ cloud-based platform, and the Company’s growing ecosystem of software partners.

Mr. Delay was previously with the Ask Partner Network (an IAC company) where he was responsible for the strategy and growth of APN’s Mobile business.

His efforts focused on building search and advertising solutions that were integrated wi th , and distributed to, application developers and OEMs, which led to significant user, query and revenue growth. Prior to joining APN, Mr. Delay held senior positions at Opera Software, Obopay, Yahoo and Infospace. He earned his MBA from Duke University after working for Arthur Andersen and JPMorgan in Switzerland.

Dr. Karlsson has a Ph.D. in surface and semiconductor physics from Linköping University in 1994. He served as a Researcher, Project Manager and Deputy Research Director at the National Defense Research Establishment, Linköping, Sweden for six years in the field of laser systems including technology areas such as semiconductor lasers, optics, signal processing and system design.

He joined Thin Film Electronics AB in 2000 where he has served as project manager, group manager and Technology Director leading developments of Si CMOS designs, printed memory, transistors and other devices as well as integrated products for a variety of applications. Mr. Karlsson is situated in the Linköping office.

Tauseef BashirChief Sales Officer

Christian DelayExecutive Vice President Software

Dr. Christer KarlssonChief Technology Officer

116

John McNulty joined Thinfilm in February of 2018 as the Company’s EVP Marketing. He is responsible for overseeing and executing Thinfilm’s global marketing efforts, including branding and go-to-market strategies.

Mr. McNulty brings over 25 years o f m a r ket i n g ex p e r i e n ce to Thinfilm with extensive experience in SaaS-based marketing and advert is ing technologies . His experience includes in-house marketing positions at startup and es tab l i shed technology companies as well as at large and small advertising agencies where

he worked with clients in various industries, including technology, retail, automotive, pharmaceutical, telecommunications and finance. Prior to joining Thinfilm, Mr. McNulty was Vice President Global Marketing for Marin Software, a leading SaaS ad management platform used by digital marketers to manage search, social, and display advertising. He also held senior marketing positions with Beanstock Media, VerticalResponse, and Hub Strategy. Mr. McNulty graduated summa cum laude and Phi Beta Kappa from the University of Kansas with a Bachelor of Science degree in Journalism.

Dr. Sjöberg joined Thinfilm in March 2013 as Vice President, System Products. He became a member of Thinfilm’s management team in November 2013, at which time he was promoted to Senior Vice President of Product Management. In his current role, Dr. Sjöberg leads all initiatives related to product design, feature definition, development, testing, and qualif ication, and oversees the management of cross-functional teams in taking products from conception through launch.

Prior to joining Thinfilm, he held several senior R&D and product management positions over 13 years with Micronic Mydata and Micronic Laser Systems, a manufacturer of worldclass production equipment for electronics and displays. Dr. Sjöberg also served five years as a research engineer with Acreo, a prominent Swedish research institute, leading initiatives in electronics, optics and related communications. Dr. Sjöberg holds a Ph.D. in Physics from the KTH Royal Institute of Technology in Stockholm.

Bill Cummings joined Thinfilm in March of 2014 as VP Marketing & Communicat ions and was promoted to SVP Corporate Communications in May 2016. He leads the Company’s external/internal communications strategy and related initiatives and supports marketing communications, demand generation, sales enablement, public relations, IR/AR, and web/branding.

Pr ior to jo in ing Thinf i lm, Mr. Cummings held senior strategic marketing and communications positions with a number of leading

firms. These roles included Senior C o m m u n i c a t i o n s C o n s u l t a n t w i th De lo i t te & Touche , VP Marketing with Prologis, and VP Communications Consulting with Fidelity Investments. Mr. Cummings has won several awards for strategic communications accomplishments, including a Gold Quill Award from the International Association of Business Communicators (IABC). He is a member of the Mobile Marketing Association’s (MMA) Mobile Shopper Marketing Committee and earned a bachelor’s degree in English from Dartmouth College.

Dr. Henrik SjöbergSenior Vice President Product Management

Bill CummingsSenior Vice President

Corporate Communications

John McNultyExecutive Vice President Marketing

117Executive Management

Employees at the NFC Innovation Center in San Jose, California, celebrate the new facility’s grand opening in June of 2017.

Thin Film Electronics ASA Group

Condensed consolidated interim financial statements as of 31 March 2017 (Unaudited)

Thin Film Electronics ASA

Annual Report 2017

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