Ole Ronny Thorsnes Corporate Headquarters. USA - San Jose. Chief Financial Officer Henrik Ibsens Gate 100. Mob PO Box 2911 Solli

Transcription

1 Interim Report and Financial Statements Third Quarter 2017

2 Contents 2 Highlights 3 Business Review Highlights 7 Shows and Events 9 Thinfilm Products 10 Financial Report 12 Principal Risks 13 Outlook 14 Consolidated Statements 18 Notes Thinfilm Launches NFC Scanner App for iphones as Apple Extends NFC Functionality in ios 11; First Deployment in Asia with Apple-Readable Tags in Market Thinfilm and GlaxoSmithKline Bring NFC Technology to Leading Over-the-Counter Brand Flonase Barbadillo NFC SpeedTap Labels Increase Wine Sales Through Tap & Win Campaign and More than Double Marketing Qualified Leads Compared to Other Mobile Channels Household Brand Names to Deploy SpeedTap Tags in New Formats Such as In-store Displays, Magnets, Mailers, Hang Tags and Primary/Secondary Packaging; New Verticals Include Beauty & Wellness, Nutritional Products Charming Trim and Thinfilm Launch NFC Solution for Apparel Industry, Creating a Platform for Augmented Reality-driven Retail Consumer Experiences NEXGEN Biotechnologies and SFS Choose Thinfilm s NFC Solutions for Supply Chain integrity and Industrial Product Data-Management Thinfilm wins MMA Smarties Award for Coronado Earth Day Campaign; Matt Bright receives MMA Impact Award for Leadership in IoT Thinfilm Raises $110 Million via Private Placement to Fund NFC Additive Manufacturing Scaleup and Growth Locations Contact Norway - Oslo Sweden - Linköping USA - San Jose Ole Ronny Thorsnes Corporate Headquarters Product Development Center NFC Innovation Center Chief Financial Officer Henrik Ibsens Gate 100 Westmansgatan 27B 2581 Junction Avenue Mob PO Box 2911 Solli Linköping San Jose, CA ole.thorsnes@thinfilm.no 0255 Oslo Phone Phone Phone USA - San Francisco United Kingdom - London Asia - Shanghai Software and Sales Office Sales Office Supply Chain and Sales Office RocketSpace 2 Eastbourne Terrace 限有) 海上 (子电摩柏公柏摩电子 ( 上海 ) 有限公司 180 Sansome St. Paddington 21st Floor Bank of Shanghai San Francisco, CA London Tower Phone: W2 6LG 168 Yincheng Zhong Rd. Phone: Pudong, Shanghai Phone: Fax:

3 Business Review Thinfilm achieved record shipments of over 10 million wireless units in Q3 2017, including record volumes shipped for EAS (electronic article surveillance) anti-theft labels. The Company also executed new in-market deployments of its NFC (near field communication) Solutions in various formats and in new verticals with leading brands worldwide. First shipments of Apple-compatible NFC labels have now been deployed in-market as a key component in Thinfilm s end-to-end mobile marketing solution. One of the deployments was done by a leading North American wine producer and features smart on-bottle hang tags (from Bedford Industries and integrated with NFC SpeedTap technology) that enable consumers to tap and personalize their wine labels. Apple released ios11 in September, which extends the NFC functionality of iphones (models 7 and later) beyond Apple Pay to support the reading of conventional NFC passive tag types. On the same day, Thinfilm launched its NFC Scanner App in the Apple App Store. The app enables iphones to now read Thinfilm-encoded NFC labels as well as any supported NFC tag types. By the end of October, over 400 companies had registered for user accounts on Thinfilm s CNECT mobile marketing platform and gained access to Thinfilm s SDK (software development kit). Companies with existing ios11 applications can now embed the Thinfilm Scanner App, allowing for branded applications. In other news, Thinfilm announced a commercial deployment of its NFC solution with GlaxoSmithKline ( GSK ), a global pharmaceutical and healthcare leader. The initiative centered on GSK s leading over-the-counter brand, Flonase, and featured interactive smart shelves powered by Thinfilm s NFC SpeedTap tags. Market deployment of Personalized Bottle Experience with NFC SpeedTap by leading North American wine maker. Furthermore, Thinfilm published a key new case study of how Barbadillo, the leading Spanish winery, boosted sales in Spain by collaborating on a summertime Tap & Win marketing campaign that engaged wine consumers with the tap of a smartphone. The campaign demonstrated that Thinfilm s NFC solution outperformed other paid media channels, including organic search and social. Consumer interaction with SpeedTap tags produced 10x more traffic and 2.8x more time on the campaign site compared to social media and display/banner ads. In addition, 30% of consumers who interacted with a smart bottle ended up buying the product and tapping again after consumption, indicating time and location of use. Interim Report and Financial Statements / Third Quarter

4 A number of new agreements were signed with major brands, leading to several market deployments and a variety of new use cases. A leading consumer electronics brand launched in-store promotional displays using NFC SpeedTap tags. Thinfilm shipped smart mailer inserts for a North American tobacco firm promoting its main smokeless and cigarette products. A top-7 global drinks firm expects to launch Apple-supported NFC magnets integrated with Thinfilm SpeedTap tags in Q4. And a leading nutrition-focused multi-tier marketer is adding SpeedTap tags to its primary packaging for new-member welcome packs. All of these deployments and the related campaigns regardless of use case or NFC tag format fully integrate with and are supported by Thinfilm s cloud-based CNECT platform. In-store display of Consumer Electronics for product branding and consumer engagement Thinfilm also announced a number of additional new NFC Solutions customers across a range of vertical industries, including NEXGEN (biotech), Valmont Cosmetics (health/beauty), SFS Group (industrial roofing), Charming Trim (apparel hang tags), and NFCSwag (film/publishing). The CNECT platform accelerated recruitment of new prospective clients, fueled by an announcement in June that ios11 would most likely support broader NFC tapping. During the quarter, the number of companies registered on the CNECT platform increased from 68 to 349, and continued to rise after the end of the quarter. Thinfilm believes that its pivot from being primarily a hardware system provider to a full NFC mobile marketing solutions provider will fully mature by EAS sales continue to grow in new and existing markets. Thinfilm s leading partner for EAS is currently considering the expansion of EAS label integration to the denim market, which could significantly increase tag demand moving forward. On October 19th, Thinfilm announced the successful completion of a private placement through which the Company raised approximately $110 million. Those participating in the placement include existing shareholders and several new, high-quality institutional investors. The proceeds will support Thinfilm up to an anticipated cash break-even point in Q2 2019, fully funding the firm s continuing operational needs as well as critical CAPEX investments particularly as they relate to the new roll-to-roll manufacturing line. The ongoing CAPEX program to expand production by installing a high-volume, roll-based manufacturing line continue to progress within 5 % of budget, and with only limited delays. Thinfilm expects the new roll-based manufacturing line to be operational by Q for manufacturing of EAS anti-theft labels, and for full NFC die fabrication in late Q Interim Report and Financial Statements / Third Quarter

5 Thinfilm Launches NFC Scanner App for iphones as Apple Extends NFC Functionality Beyond Payments with Release of ios 11 Thinfilm announced the availability of its new NFC scanner app for iphone users. Thinfilm s NFC scanner app can be downloaded to iphone 7 and later models directly from Apple s App Store. After installation, users tap on NFC-enabled products and packages to view mobile web content, which can be targeted and delivered with item-level precision. The app enables users to view their scan history and locations, select favorites, and apply filters. Brands that have an existing ios app can simply integrate the Thinfilm SDK (software developer kit) to create compelling user experiences initiated through NFC technology. Brands can also leverage Thinfilm s cloud-based CNECT platform to configure NFC tags, create and manage mobile marketing campaigns, and derive insights from consumer behavior across multiple mobile platforms. As a result of the Apple announcement and Thinfilm s launch of its NFC scanner app for iphone users, the company now provides a range of NFC solutions to meet the needs of all customers. For app-free tap-and-launch functionality (currently limited to Android and Windows), Thinfilm s printed-dopant polysilicon (PDPS) tags provide the fastest read speed, flexibility, and shock tolerance. When customers require in-app iphone support, Thinfilm also provides conventional tags that are fully integrated with Thinfilm s powerful CNECT platform. Thinfilm and GlaxoSmith- Kline Bring NFC Technology to Leading Over-the- Counter Brand Flonase Thinfilm announced that GlaxoSmithKline ( GSK ), one of the world s leading research-based pharmaceutical and healthcare companies, commercially deployed Thinfilm s NFC Solution to create interactive smart shelves for enhanced communication with consumers at time of purchase. GSK introduced interactive smart Flonase shelves featuring Thinfilm s SpeedTap tags in retail stores across Canada in an effort to educate consumers about the new product and guide them at point-of-sale in their decision-making process. The smart shelves allow consumers to obtain product details and other key information through the tap of an NFC-enabled smartphone. In addition to SpeedTap tags, GSK also used Thinfilm s cloud-based CNECT Platform as part of the end-to-end solution to help dynamically manage the experience of Flonase consumers. Case Study: Barbadillo Uses Thinfilm s Technology to Increase Wine Sales and Engage Consumers in Popular Tap & Win Campaign Thinfilm helped Barbadillo boost sales in Spain by collaborating on a summertime Tap & Win marketing campaign that engaged wine consumers with the tap of a smartphone. The two companies published a case study highlighting the campaign and its results. The campaign showed that Thinfilm s NFC solution, as a media channel and consumer engagement engine, outperformed other paid media channels, including organic search and social platforms. Key findings in the case study show that: 54% of brand engagement generated during the multi-channel campaign was attributed to Barbadillo s smart wine bottles featuring Thinfilm s NFC SpeedTap tags, substantially more than any other mobile marketing channel. Smart bottle interactions drove over 30% consumer purchase conversion, with 1-in-3 consumers interacting with the same bottle at multiple locations in-store and post-purchase Compared to social platforms, consumer interaction with SpeedTap tags produced 10x higher traffic with 2.8x greater average time spent The smart bottles achieved 4x higher engagement rate than display and banner ads The campaign generated 2x the rate of growth in subscribers in Barbadillo s database vs. previous online promotions supported by TV and other media Charming Trim and Thinfilm Launch Industry s First Complete Solution for Smart NFC Hang Tags, Enabling Direct Brand-to-Consumer Mobile Connections for Apparel Thinfilm announced a partnership with Charming Trim & Packaging, Inc., a leading provider of trim and packaging solutions to the garment industry. Through the collaboration, Thinfilm s NFC SpeedTap and OpenSense technologies are being incorporated in Charming Trim s apparel hang tags, empowering brands to engage directly with shoppers and customers through the tap of a smartphone. As a result, the physical hang tag becomes a digital portal, allowing brands to instantly communicate relevant content, including sustainability and traceability information, current fashion tips, cross-sell/up-sell offers, and endless aisle functionality. Full integration with Thinfilm s CNECT platform enables streamlined tag configuration, campaign creation and management, data analytics, and reporting. Interim Report and Financial Statements / Third Quarter

6 NEXGEN Biotechnologies Chooses Thinfilm s NFC Solutions to Enhance Supply-Chain Integrity and Build Trust with End Customers Thinfilm announced a partnership with NEXGEN Biotechnologies, Inc., a leading biotech firm based in Seoul, South Korea that develops and produces new, proteinbased biological materials for the medical and cosmetics industries. Thinfilm s OpenSense technology will play a critical role in helping NEXGEN to combat fraudulent practices involving their products. Trusted partners and end customers will be able to tap on packaging with a smartphone or NFC reader to determine via Thinfilm s Authenticator App and its cloud-based CNECT platform whether the product is factory sealed or has been tampered with. Taps along the distribution route will also create a supply-chain audit trail that provides critical information such as date, time, and location of the spot inspections. Thinfilm wins MMA Smarties Award for Coronado Earth Day Campaign; Matt Bright receives MMA Impact Award for Leadership in IoT Thinfilm, along with customer Coronado Brewing Company, earned a prestigious Smarties Award from the Mobile Marketing Association (MMA). The award recognized Coronado s smart coaster campaign and honored Thinfilm and Coronado for technology innovations in the Internet of Things Products in the Market category. The initiative, which leveraged Thinfilm s SpeedTap tags and CNECT platform generated a X increase in web conversions for Coronado, as measured by website visits resulting from consumers who tapped the coaster with their smartphone. In addition to the Smarties Award, Thinfilm s Matt Bright, Senior Director, Product and Technical Marketing, received an MMA Impact Award for his leadership in the MMA s Internet of Things initiatives. Interim Report and Financial Statements / Third Quarter

7 Shows and Events Australian Craft Brew Conference July 25-27, 2017, Adelaide, Australia The Australian Craft Brewers Conference (ACBC 2017) is a premier event for craft beer industry professionals to gain industry insights and grow profitable business relationships. The Trade Expo that accompanies the ACBC 2017 introduces brewers to new products, technologies and services. Thinfilm was a sponsor of this event and demonstrated how Thinfilm s NFC solutions are able to differentiate craft beer brands. CHEMEDGE August 15-18, 2017, Nashville, TN ChemEdge is produced by the National Association of Chemical Distributors (NACD). The NACD is an international community of distributors and supply-chain partners who warehouse, transport, and market chemical products for over 750,000 customers. Thinfilm exhibited its NFC business-to-business use cases and Smart Label Sensor during this conference and trade show. SEA Brew 2017 August 17-18, 2017, Ho Chi Minh City, Vietnam Thinfilm was an exhibiting sponsor and utilized a print advertisement to highlight the benefits of NFC for craft beer brands at SEA Brew. SEA Brew brings together 300+ brewery owners, brewers, distributors and industry suppliers from across Asia for the latest innovations in ingredients, processes and equipment. Chemicals America September 6-8, 2017, Charleston, SC Thinfilm showcased its NFC solutions for logistics, supply chain, and infrastructure management during the exhibition portion of Chemicals America. The conference features suppliers and buyers involved with the technologies, innovations, and process solutions that have applications specifically for the agrochemical and specialty chemical markets. California Craft Brew Summit September 7-9, 2017, Sacramento, CA The California Craft Brew Summit consisted of two days of education, networking and tradeshows for brewers, retailers, and distributors. Thinfilm sponsored the session titled Marketing & Branding: Differentiation in a Competitive Market presented by the California Craft Brewers Association. K Shop September 14-16, 2017, Gyeonggi-do, South Korea K Shop is a B2B-specialized event for retailers in South Korea and East Asia. Over 10,000 visitors attended the exhibition where Thinfilm demonstrated how its NFC solutions and CNECT Software Portal can be used as a mobilemarketing tool to drive consumer engagement from retail to repurchase. CSCMP Edge September 24-26, 2017, Atlanta, GA The Council of Supply Chain Management Professionals annual conference, EDGE, provides education on the latest supply chain technology trends, data analytics, and economic analysis to improve processes and maximize profits. During the exhibition portion of this conference, Thinfilm showcased its NFC solutions and CNECT Software Portal for logistics, supply chain, and infrastructure management. Interim Report and Financial Statements / Third Quarter

8 Cool Logistics Global September 25-27, 2017, Algeciras, Spain Thinfilm exhibited its Smart Label Sensors at the annual Cool Logistics Global conference in Europe. This show connects perishable cargo owners with cold chain logistics and transport professionals from around the world to assess key market trends and operational best practice for the international movement of chilled and frozen cargoes by air, land and sea. Alcohol Strategies APAC September 27-28, 2017, Singapore Michel Sher, Thinfilm s VP Sales, APAC, delivered a 30-minute case study based presentation titled Connecting Products to Digital Experiences at the Alcohol Strategies in Asia Conference. The event brings together the beer, spirits, and wine and cider industry from across Asia to build the foundations for sustainable growth and to maximize profitability. MMA SM2 Innovation Summit September 25-26, 2017, New York, New York The Mobile Marketing Association s SM2 Innovation Summit provides a forum to redefine what s possible in the world of mobile and marketing and to learn about creating new brand experiences. Thinfilm exhibited at the summit s Internet of Things pavilion and received two awards at the Celebration of Talent ceremony. Path to Purchase Expo (P2PX) September 26-28, 2017, Chicago, IL P2PX is where solution providers showcase the latest tools to reach shoppers and demonstrate the breadth of what s available in the industry. Thinfilm highlighted its mobile marketing solutions at the exhibition with several demonstrators from its sizable portfolio of consumer oriented use cases. Luxe Pack Monaco October 2-4, 2017, Monaco Thinfilm exhibited in the Connect to Luxury (C2L) digital village at Luxe Pack Monaco. Cosmetic packages from Knoll Packaging and Valmont cosmetics integrated with SpeedTap tags were demonstrated and provided as samples to visitors. In the digital village, a workshop titled Add Digital Experiences to Physical Products was conducted by Thinfilm. In the primary conference hall, Thinfilm and CMSmartconnect presented the joint seminar NFC Technology & Packaging: The Next Marketing Milestone. Interim Report and Financial Statements / Third Quarter

9 Thinfilm Product Families Smart Label Sensors NFC Solutions NFC SpeedTap Tags: NFC SpeedTap tags are wireless tags that combine the instant interactivity of Near Field Communication (NFC) with the advantages of printed electronics technology. NFC SpeedTap tags enable smartphones to communicate with everyday objects in support of B2B and B2C use cases. NFC OpenSense 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. CNECT Partner Portal: CNECT is a multi-tenant cloud-based platform that allows brands to connect with consumers by enabling engagement through a direct tap or swipe 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. CNECT will soon be extended to manage launch of augmented reality experiences, and has potential for use when NFC labels act as a trigger mechanism in creating blockchains. Thinfilm has developed a smart label platform and a line of intelligent labels featuring memory, displays, logic, sensing capabilities, and wireless communication. The labels can sense distinct phenomena and store data for 80% to 90% less than the cost of conventional electronics. This is part of Thinfilm s vision to bring the Internet of Everything to even the lowest-cost items. Electronic Article Surveillance (EAS) Tags Thinfilm EAS tags use a proprietary process to improve traditional electronic article surveillance technology by introducing a new category of thin, flexible anti- shoplifting tags. These next-generation labels are compatible with the global base of installed 8.2MHz RF EAS infrastructure. Thinfilm Memory Smart Consumables Solution: Thinfilm Memory labels for Smart Consumables is a cost-effective read/write memory solution for interactive consumable refills and other plug-and-play product offerings. The non-volatile, rewritable memory printed on a thin, flexible label facilitates an electronic handshake between base units and refills while making consumables interactive and enabling usage tracking. This product is also sold by Xerox as Xerox Printed Memory. Brand Protection Solution: Thinfilm Memory labels for Brand Protection is a two-part system that can help manufacturers protect their brands from counterfeiting and grey-market activity. It consists of adhesive labels that generate a distinct forensic electrical signature. A Thinfilm authentication unit reads the label. This product is also sold by Xerox as Xerox Printed Memory and Xerox Printed Memory with Cryptographic Security. About Thinfilm 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 memory, sensors, displays, and wireless communication all at a cost-per-function unmatched by conventional electronic technologies. Thinfilm offers end-to-end mobile marketing solutions that feature hardware, label/packaging integration services, and comprehensive cloud-based reporting and analytics. Collectively, these components deliver a powerful 1-to-1 digital marketing platform through which brands of all sizes can connect directly with consumers, 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. Thin Film Electronics ASA ( Thinfilm ) is a publicly listed Norwegian company with global headquarters in Oslo, Norway; US headquarters in San Jose, California; and offices in Linköping, Sweden; San Francisco; London; and Shanghai. Interim Report and Financial Statements / Third Quarter

10 Condensed Consolidated Financial Report as of 30 September 2017 Thinfilm has maintained a high activity level through the first nine months of Shipments of wireless products exceeded 10 million units in the quarter for the first time. Operating costs went down slightly in the period compared to Q2, mainly because of lower sales from Joint Development Activities in Q3 and increased capitalization of development costs. Further, the second quarter included costs related to the move to the new facility and rebranding of the Company. Profit and Loss Thinfilm s revenue and other income in the first nine months of 2017 amounted to USD 4,725 thousand, 67% higher than the same period in 2016 (9M 2016: USD 2,826 thousand). Excluding the other income recognized in the period, total revenue was USD 3,929 thousand, an increase of USD 1,419 thousand, or 57%, compared to the preceding year (9M 2016: USD 2,511 thousand). Sales revenue amounted to USD 2,705 thousand in the first nine months of 2017, compared to USD 995 thousand in the same period in 2016, an increase of 172%, and were related to product development projects, delivery of prototypes and products to strategic customers and partners, technology transfer revenue as well as product deliveries. The increase in sales revenue, year on year, is primarily due to shipment of more than 23.7 million EAS (electronic article surveillance) tags to our go-to-market partner, revenues from the Joint Development Agreement (JDA) with a global pharmaceutical company, as well as several new customers launching campaigns and field trials with NFC. Revenue related to government grants and other funded projects amounted to USD 1,225 thousand in the period (9M 2016: USD 1,516 thousand). The 19% decrease is largely explained by funded projects being finalized. Other income amounted to USD 796 thousand in the first nine months of 2017 (9M 2016: 315 thousand). The increase in other income is primarily because of a gain on disposal of fixed assets in Q2 and Q3 that was acquired when the Company secured the Junction Avenue facility. The Company has no longer sublease income from the previous production facility at Zanker Road. Operating costs (excluding depreciation and amortization charges) amounted to USD 43,296 thousand in the first nine months of 2017, including the cost of share-based compensation of USD 1,336 thousand. The corresponding figure for 9M 2016 was USD 29,590 thousand and USD 872 thousand respectively. The increase in operating costs in the first nine months of 2017, compared to the same period in 2016, was USD 13,706 thousand, primarily attributable to: 1) USD 5,648 thousand higher payroll costs, mainly related to an overall increase in the number of global FTEs (full-time equivalents) to 171 as of 30 September 2017, compared to 128 one year earlier. The increase in FTEs has been most significant in the US subsidiary as a result of a shift in number of employees located in US versus Sweden and a generally higher activity level in the US. This development is a result of a strengthening of the organization, primarily in the US, as the focus has shifted from development to production and providing solutions to partners and customers. Developing the new roll-to-roll production line also requires additional FTEs. 2) USD 3,395 thousand higher costs for premises and supplies, as production activities increased significantly from the end of 2015, particularly at the site in San Jose, which is a front-end production facility, currently in operation 24 hours per day, 7 days per week. While the bulk of the production currently remains non-revenue generating (engineering lots used for yield, design, and product development work), the cost impact is close to that of a fully ramped facility. While resources allocated to production related activities are increasing markedly, Thinfilm still uses a significant share of its resources on R&D activities. In the first nine months of 2017 USD 12,032 thousand were spent developing roll-to-roll printing processes, printed batteries and displays. The corresponding amount for 2016 was USD 11,865 thousand. Investments in fixed and intangible assets amounted to USD 12,620 thousand in the first nine months of 2017, compared to USD 3,621 thousand in the same period in The investments in first nine months of 2017 are mostly related to equipment for the new roll-based production line at the San Jose site and required upgrades on the Junction Avenue site. The investments in 9M 2016 were mainly related to equipment and tools for the EAS and PDPS (printed-dopant polysilicon) line as well as improvements to the Zanker Road site. In the first nine months of 2017 Thinfilm also made prepayments amounting to USD 12,314 thousand relating to investments in equipment and machinery. These prepayments are recognized as other receivables since only parts of the equipment and machinery had not been received from the supplier as of 30 September Interim Report and Financial Statements / Third Quarter

11 Depreciation, amortization and impairment charges in the first nine months of 2017 amounted to USD 2,562 thousand (9M 2016: USD 2,050 thousand). Net financial items in the nine first months of 2017 amounted to a gain of USD 1,532 thousand (9M 2016: USD 1,310 thousand loss), and were mainly 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 Swedish subsidiary. While local taxes are incurred in some of the subsidiaries, the parent company in Norway has not incurred any tax costs in 2017 or the prior year. The Company has not recognized any deferred tax assets in its balance sheet relating to these tax loss carry forward positions, because this potential asset does not yet qualify for inclusion. The net result in the first nine months of 2017 was a loss of USD 39,640 thousand, corresponding to a basic loss per share of USD In 9M 2016, the loss amounted to USD 30,424 thousand, corresponding to a basic loss per share of USD Cash Flow The group s cash balance decreased by USD 61,349 thousand in the first nine months of 2017 (compared to an increase of USD 11,182 thousand in 9M 2016). The decrease in cash balance is explained by three principal elements: 1) an outflow of USD 37,801 thousand from operating activities, 2) a USD 24,295 thousand outflow from investing activities and 3) a USD 569 thousand inflow from financing activities. The USD 37,801 thousand outflow from operating activities is primarily explained by an operating loss excluding depreciation, amortization and impairment charges of USD 38,571 thousand. The cash balance on 30 September 2017 amounted to USD 12,856 thousand, while cash net of receivables and payables amounted to USD 22,860 thousand. The cash balance on 30 September 2016 amounted to USD 27,122 thousand, while cash net of receivables and payables amounted to USD 25,664 thousand. Balance Sheet The Company s balance sheet is comprised of fixed & intangible assets, financial lease, inventory, cash, receivables, deferred tax liabilities, long-term financial lease liabilities, payables & accruals, and equity. Fixed assets on 30 September 2017 amounted to USD 19,836 thousand and stem from machinery and equipment in San Jose, California, and Linköping, Sweden. The Company has a Financial lease booked in the balance sheet which amounts to USD 11,802 thousand and relates to the new US headquarter. In addition, USD 3,462 thousand in intangible assets are on the balance sheet, mainly as a result of the acquisition of assets from Kovio, Inc. in 2014, and licensing of technology. Interim Report and Financial Statements / Third Quarter

12 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 and there is a potential risk of delays in the timing of sales. II. To some 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 there is uncertainty tied to the generation of future cash flow. The Company is however well capitalized based on the private placement 19 October Going forward, Thinfilm foresees three important revenue sources: 1. Sales of its own designed and manufactured products, and; 2. Licensing/royalty revenue, where partners and customers pay for using the Company s intellectual property rights (IPR), and; 3. Monetization of Thinfilm s CNECT software platform. 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. The going concern assumption has been applied when preparing this interim financial report. After the balance sheet date of the Q3 report, the Company successfully completed a private placement securing approximately USD 110 million in gross proceeds. On 30 September 2017, the equity amounted to USD 46,478 thousand, representing 70% of the gross balance sheet and 334% of the share capital. Interim Report and Financial Statements / Third Quarter

13 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 smart phones with NFC reached 1.7 billion in Annual shipments of NFC devices are expected to exceed 2 billion by In addition, applications beyond payments are now being introduced, and 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 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, and by the fact that each label is encoded during production 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 and Spear Europe Ltd. Thinfilm plans to continue to increase production capacity, which currently allows seven-figure monthly production of NFC labels and multi-million monthly production of EAS tags, corresponding to an overall 40-million annual unit production capacity, based on NFC label equivalents. This volume is expected to support further market introduction of NFC label products during 2017 in consumer categories such as wines, specialty foods, and liquors, while also providing capacity for expected demand in industrial markets as well as from new EAS orders. Thinfilm has leased a new 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 EAS by yearend 2017 and for transistor-based products in 2018 including NFC OpenSense and NFC SpeedTap labels. Re-installation and qualification of Thinfilm s current sheet-based NFC and EAS manufacturing lines is now completed on schedule. 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 In parallel, the Company will look to partner with scaleup qualified, industrial companies to maintain its low CAPEX business model, as exemplified by its Thinfilm Memory partnership with Xerox. Thinfilm announced the global launch of its CNECT cloudbased software portal in Q Thinfilm 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. Thinfilm has over 400 companies registered on the platform as of end-october These customers receive access to CNECT through a license-and-use agreement. Activities related to other product lines, such as temperature sensors, are currently under evaluation. While the company completed first commercial shipments of temperature sensor smart labels in Q2 2017, and completed a limited field trial in Q3, the demand for the hybrid product is less significant than the opportunity in NFC and mobile marketing, prompting a prioritization by the company. Pending consultation with employee representatives and trade unions, the company is considering a reduction in activities in its Linköping site, and will also consider end-of-life, sale, and/or disposal of its noncore product families. This is not expected to impact revenues materially, but has the potential to reduce operating costs for the group and improve operational efficiency. Interim Report and Financial Statements / Third Quarter

14 Thin Film Electronics ASA Group Condensed consolidated interim financial statements as of 30 September 2017 (Unaudited) CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Amounts in USD 1,000 Note 1 July - 30 September July - 30 September January - 30 September January - 30 September January- 31 December 2016 Sales revenue Other operating revenue Other income Total revenue & other income Operating costs 10, 11 (14 638) (9 802) (43 296) (29 590) (42 151) Depreciation, amortization and impairment loss 3, 4, 5 (832) (814) (2 562) (2 050) (3 176) Operating profit (loss) (14 160) (9 787) (41 133) (28 813) (41 482) Net financial items 405 (111) (1 310) (2 731) Profit (loss) before income tax (13 755) (9 676) (39 601) (30 123) (44 213) Income tax expense (6) (1) (39) (301) (282) Profit (loss) for the period (13 761) (9 677) (39 640) (30 424) (44 495) Profit (loss) attributable to owners of the parent (13 761) (9 677) (39 640) (30 424) (44 495) Profit (loss) per share basic and diluted 6 (USD 0.02) (USD 0.02) (USD 0.05) (USD 0.05) (USD 0.07) Profit (loss) for the period (13 761) (9 677) (39 640) (30 424) (44 495) Other Comprehensive Income Currency translation 189 (227) Total comprehensive income for the period, net of tax (13 572) (9 904) (39 158) (29 485) (43 710) Interim Report and Financial Statements / Third Quarter

15 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Amounts in USD 1000 Note 30 September September December 2016 ASSETS 8 Non-current assets Property, plant and equipment Financial lease Intangible assets Total non-current assets Current assets Trade and other receivables Inventory Cash and cash equivalents Total current assets TOTAL ASSETS EQUITY AND LIABILITIES Equity Ordinary shares Other paid-in equity Currency translation (13 494) (13 821) (13 976) Retained earnings ( ) ( ) ( ) Total equity Non-current liabilities Deferred tax liabilities Long-term financial lease liabilities Total non-current liabilities Current liabilities Trade and other payables Total current liabilities TOTAL EQUITY AND LIABILITIES Interim Report and Financial Statements / Third Quarter

16 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Amounts in USD 1000 Share capital Other paid-in equity Currency translation Retained earnings (uncovered loss) Total Balance at 1 January (13 976) ( ) Share issues Share based compensation Comprehensive income 482 (39 640) (39 158) Balance at 30 September (13 494) ( ) Balance at 1 January (14 761) (91 008) Share issues Share based compensation Comprehensive income 940 (30 424) (29 484) Balance at 30 September (13 821) ( ) Balance at 1 January (14 761) (91 008) Share issues Share based compensation Comprehensive income 785 (44 495) (43 710) Balance at 31 December (13 976) ( ) Interim Report and Financial Statements / Third Quarter

17 CONSOLIDATED CASH FLOW STATEMENTS Amounts in USD 1000 Note 1 July - 30 September July - 30 September January - 30 September January - 30 September January - 31 December 2016 CASH FLOW FROM OPERATING ACTIVITIES Profit (loss) before tax (13 755) (9 676) (39 601) (30 123) (44 213) Share-based payment (equity part) Depreciation and amortization Write down inventory, machinery & tangible assets Gain on sale of fixed assets (107) - (546) (1) 1 Taxes paid for the period (110) - (110) (110) (118) Changes in working capital and other changes 948 (812) (1 679) (256) Net cash from operating activities (11 602) (9 325) (37 801) (27 095) (37 530) CASH FLOW FROM INVESTING ACTIVITIES Purchase of property, plant and equipment 3 (2 887) (275) (12 144) (2 920) (4 464) Prepayments relating to purchase of property, plant and equipment (1 032) - (12 314) - - Financial lease payments (132) - (320) - - Purchases of intangible assets (63) (63) (63) (488) (550) Capitalized development expenses 4 (193) (198) (413) (214) (342) Proceeds from sale of fixed assets Interest received Net cash from investing activities (3 879) (532) (24 295) (3 614) (5 262) CASH FLOW FROM FINANCING ACTIVITIES Proceeds from issuance of shares Net cash from financing activities Currency translation effects on cash and (67) Net increase (decrease) in cash and bank (15 323) (9 687) (61 349) Cash and bank deposits at the beginning of CASH AND BANK DEPOSITS AT THE END OF PERIOD The notes on the following pages are an integral part of this condensed interim financial report. Interim Report and Financial Statements / Third Quarter

18 Notes to the Consolidated Financial Statements NOTE 1 - INFORMATION ABOUT THE GROUP Thin Film Electronics ASA ( Thinfilm or the Company ) was founded on 22 December Thin Film Electronics ASA Group ( Thinfilm ) consists of the parent company Thinfilm ASA and the subsidiaries Thin Film Electronics AB ( Thinfilm AB ), Thin Film Electronics Inc. ( Thinfilm Inc. ), Thin Film Electronics KK ( Thinfilm KK ), Thin Film Electronics HK Limited ( Thinfilm HK ), Thin Film Electronics UK Ltd. ( Thinfilm UK ), Thin Film Electronics Co. Ltd. ( Thinfilm China ). 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 On 24 March 2015 Thinfilm s American Depository Receipts (ADRs) commenced trading in the United States on OTQX International. NOTE 2 - BASIS OF PREPARATION, ACCOUNTING POLICIES, AND RESOLUTIONS This condensed interim financial report for the first nine months of 2017 has been prepared in accordance with IAS 34 interim financial reporting. The condensed consolidated interim financial report should be read in conjunction with the consolidated annual financial statements for The IFRS accounting policies applied in this condensed consolidated interim financial report are in all materiality consistent with those applied and described in the consolidated annual financial statements for The going concern assumption has been applied when preparing this interim financial report. This consolidated interim financial report has not been subject to audit. The report was resolved by the Board of Directors on 9 November Interim Report and Financial Statements / Third Quarter

19 NOTE 3 - PROPERTY, PLANT, AND EQUIPMENT Amounts in USD 1000 Tangible assets Nine months ended 30 September 2017 Net value on 1 January Additions Disposals (193) Exchange differences 67 Depreciation (1 338) Net book value on 30 September Nine months ended 30 September 2016 Net value on 1 January Additions Disposals (277) Exchange differences (66) Depreciation (1 891) Net book value on 30 September Year ended 31 December 2016 Net value on 1 January Additions Disposals (292) Exchange differences (216) Depreciation (2 588) Net book value on 31 December Interim Report and Financial Statements / Third Quarter

20 NOTE 4 - INTANGIBLE ASSETS Amounts in USD 1000 Intangible assets Nine months ended 30 September 2017 Net value on 1 January Additions 476 Exchange differences - Impairment - Amortization (156) Net book value on 30 September Nine months ended 30 September 2016 Net value on 1 January Additions 701 Exchange differences (32) Impairment - Amortization (157) Net book value on 30 September Year ended 31 December 2016 Net value on 1 January Additions 892 Exchange differences (32) Impairment (106) Amortization (214) Net book value on 31 December Interim Report and Financial Statements / Third Quarter

21 NOTE 5 - FINANCIAL LEASE The 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 The building element of the lease agreement is classified as a financial leases 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 Six months ended 30 September 2017 Net value on 1 January Amortization (805) Net book value on 30 September Finance liabilities are payable as follows: Amounts in USD 1000 Present value of minimum lease payments Nine months ended 30 September 2017 Less than one year Between one and five years More than five years Sum Interim Report and Financial Statements / Third Quarter

22 NOTE 6 - SHARES, WARRANTS AND SUBSCRIPTION RIGHTS Number of shares Shares at 1 January Share issue to employees, 24 February Share issue to employees, 5 May Share issue to employees, 11 August Shares at 30 September Shares at 1 January Private Placement Woodford Investment Management, February Share issue to employees, 25 February Share issue to employees, 11 May Share issue to board members, 11 May Share issue to employees, August Share issue to employees, November Private Placement December Tranche 1, December Private Placement December Tranche 1, December Shares at 31 December Number of warrants and subscription rights 1 January - 30 September January - 30 September January - 31 December 2016 Warrants and subscription rights opening balance Grant of incentive subscription rights Terminated, forfeited and expired subscription rights ( ) ( ) ( ) Exercise of subscription rights ( ) ( ) ( ) Allotment of warrants Exercise and expiry of warrants Warrants and subscription rights closing balance Interim Report and Financial Statements / Third Quarter

23 NOTE 7 - PROFIT (LOSS) PER SHARE 1 January - 30 September January - 30 September January - 31 December 2016 Profit (loss) attributable to shareholders (USD 1000) (39 640) (30 424) (44 495) Weighted average basic number of shares in issue Weighted average diluted number of shares Profit (loss) per share, basic and diluted (USD 0.05) (USD 0.05) (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 adjusted exercise price of subscription rights exceeds the average share price in the period, the subscription rights are not counted as being dilutive. NOTE 8 - CONTINGENT ASSETS AND LIABILITIES As a part of the relocation of Thinfilm s US headquarters in the second quarter 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. NOTE 9 - TRADE AND OTHER RECEIVABLES On 30 September 2017, trade and other receivables amounted to USD 17,001 thousand. The components of this balance are accounts receivable USD 1,420 thousand, receivables from grants USD 1,568 thousand, VAT-related receivables USD 202 thousand, and pre-payments to suppliers USD 13,554 thousand which primary relates to investments in equipment and machinery at the site in San Jose. Other receivables amounted to USD 257 thousand. NOTE 10 - RELATED PARTY TRANSACTIONS In the period 1 January - 30 September 2017, Thinfilm has recorded USD 205 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 176 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. Interim Report and Financial Statements / Third Quarter