vizrt BOD Report 2016 Vizrt Group AS

Transcription

1 Annual Report vizrt BOD Report 2016 Vizrt Group AS Copyright 2017 Vizrt. All rights reserved. \vizrt 1

2 Management Report General Vizrt Group AS (formerly Aksjeselskapet av 17. Oktober 2014 AS ) ( Vizrt or the Company ) is the parent company of a group of companies which develop and sell software products for the media and entertainment industry. Our solutions deliver faster live productions, from video and graphics production to multiplatform distribution, while utilizing fewer resources in the process. Our innovative edge is a result of continued investment in R&D. In % of group revenues were used on R&D. Vizrt s main R&D centers are located in Norway, Sweden, Austria and Switzerland. The Company focuses on expanding its presence and strengthening its regional expertise, in order to market, sell, deliver and support Vizrt s products. The activity of the Company takes the outset in 1997 as a spin-off from TV 2 in Norway. The technology was around a real-time high performance graphics engine and a template based control application enabling journalists and producers to create graphics for their live productions without the need for graphic designers. Since the spin-off other technologies have been acquired in form of companies or activities, and the product portfolio has expanded and diversified into other market adjacencies, such as media asset management, sports analysis and studio automation. The head quarter of the Company is in Bergen, Norway, and the Company operates a global network of over 40 offices through its subsidiaries. Vizrt generates sales in more than 100 countries and counts over 3,500 TV channels as its customers. Vizrt is a privately owned company with bonds traded on the Oslo Bors, Ticker: VIZGO1, 1L ISIN: Business Activity and Financing Structure On March 19, 2015, the Company through its wholly owned subsidiary, Vizrt AG (formerly 24 October Holding AG ) signed a Share Purchase Agreement (the SPA ) with Vizrt Ltd. (Israel) and its shareholders to purchase all issued and outstanding share capital of Vizrt Ltd. for a consideration of MNOK 2,538.5 (MUSD 313.9). Up until the acquisition the Company had no activity. Vizrt Ltd. was liquidated in December 2015 as part of a post-acquisition restructuring. On March 13, 2015 the Company issued bonds in an aggregate amount of MUSD ( the Bonds ). The Bonds are securities which give the bondholders right to interest during the tenor of the Bonds and repayment of principal on the dates set forth in the bond agreement. The Bonds are the senior liabilities of the issuer and only subordinated to claims preferred by law. The summary below describes the principal terms of the Bonds. Certain terms and conditions described below are subject to important limitations and exceptions. The bond agreement contains the complete terms and conditions of the Bonds. The nominal interest rate is three months LIBOR plus a margin of 7.125% which is equal to the yield for the bondholders. Interest accrues as of the issue date of the Bonds (13 March, 2015) and is payable quarterly in arrears on 30 March, 30 June, 30 September and 30 December each year (subject to adjustment of business days if the interest payment date falls on a date which is not a business day). The maturity date of the Bonds is 13 March The representative of the bondholders is Nordic Trustee ASA. \vizrt 2

3 In order to further finance the acquisition of Vizrt Ltd. MUSD were contributed to the shareholders equity by the Company s parent company Vizrt Group Holding AS (formerly Aksjeselskapet av 16. Oktober 2014 AS ). The necessary additional funds were provided by unsecured related party loans. For further information on the Company s financial obligations, please refer to note 11 Debentures, net and note 12 Loans from related party and revolving credit facility in the Company s consolidated financial statements. The current Vizrt group structure has been set up with a view to optimize operations, while operating in multiple jurisdictions. The Board of Directors periodically reviews the organization to assess the optimal structure, taking into consideration all aspects that are in the best interest of the Company and its stakeholders. Going concern In accordance with the requirements of the Norwegian Securities Trading Act, cf. the Norwegian Accounting Act, we confirm that the financial statements have been prepared under the assumption of going concern. The assumption is based on forecasts for 2017 and long-term strategic plans and the Company s sound economic and financial position. Review of the consolidated financial statements The consolidated financial statements for the year ended December 31, 2016 are prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB). The results for the two years, 2016 and 2015, shown in the consolidated financial statements are not comparable as 2015 only includes the activities of the acquired Vizrt Ltd. group from the time of acquisition. The following review of the result and cash flow is based on Non-GAAP pro-forma numbers for The pro-forma numbers have been added the result of the activity of Vizrt Ltd. net of amortizations of intangibles (arising from the acquisition) for the period from January 1, 2015 to the time of acquisition. These pro-forma numbers have been reported to the Oslo Bors on a quarterly basis since the acquisition and further information can be found in the quarterly press releases. Highlights for 2016: Non-GAAP revenue of MUSD 119.5, down 7% compared to the same period OPEX includes MUSD 3.2 of one-off expenses related to change of CEO, organizational and other restructuring costs and legal costs related to the bond issue includes MUSD 5.4 of one-off expenses related to transactional costs arising from the acquisition. These oneoff expenses are excluded from the following recurring measurements. From Q the Group started capitalizing certain development costs and MUSD 4.4 have been capitalized for the year numbers have not been restated. Non-GAAP recurring EBITA of MUSD 27.5 (MUSD 27.5 in 2015) corresponding to a margin of 23% (21% margin in 2015). Adjusted cash flow from operating activities of MUSD 25.6 compared to minus MUSD 10.1 for the same period last year cash flow from operating activities is adjusted for MUSD 9.2 (2015 MUSD 6.9) bond interest. Excluding capitalization of development cost of MUSD 4.4, the EBITA and cash flow are as follows: VlZ1t 3

4 o Non-GAAP recurring EBITA of MUSD 23.1, corresponding to a 19% margin, down 16% compared to MUSD 27.5 (21% margin) for the same period last year. o Adjusted cash flow from operating activities of MUSD 21.2, compared to negative MUSD 10.1 for the same period last year. All three sales regions had a negative revenue development against last year and the revenue for the group was down by 7% or MUSD 8.8 against was the year without any larger individual deals and this especially shows out in the development in Americas where 2015 included an individual deal with a revenue of MUSD 4.1. Non-GAAP gross margin was maintained at the same level as last year even though revenue was down by 7%. Efficiency improvements were the main driver for keeping the margin. Non-GAAP operating expenses excluding one-off expenses and before capitalization of development costs were 1% down from On a GAAP basis operating income was MUSD 1.7 against a loss of MUSD 1.9 in Financial expenses were MUSD 20.3 or MUSD 12.3 more than last year. Last year included a currency gain of MUSD 5.9 arising from the related party loan, which at that point was nominated in NOK. The loan was converted to USD in the beginning of Furthermore, the increase in financial expenses was due to a full your of debt service while 2015 only had debt to service from the time of the acquisition. Net loss, GAAP basis, for the year was MUSD 15.7 against MUSD 9.7 the year before. Cash generation was strong in 2016 and the adjusted cash flow from operating activities increased by MUSD 35.7, compared to 2015, to MUSD The previous year included a tax payment of MUSD 27.2 (Q3) as a settlement with the Israeli tax authorities. As a result of the strong cash generation the Company has a strong liquidity. The cash position increased by MUSD 9.9 to MUSD 47.8 as of December 31, 2016 (including MUSD 0.2 restricted cash). Other current assets reduced by MUSD 2.4 as a result of working capital optimization. Goodwill and Intangible assets net reduced by MUSD 18.0 as a result of amortizations for the year (MUSD 22.6) and capitalization of certain R&D costs (MUSD 4.4). Total assets reduced by MUSD 10.2 compared to the year before. The debt structure is unchanged from last year and long term interest bearing debt increased by MUSD 10.5 to MUSD mainly due to accrued interest on the related party loan. For 2016, the Company posted a net loss of MUSD 15.7, which increased the Company s accumulated deficit. Shareholders equity was MUSD by the end of 2016 compared to MUSD the year before. For a further management discussion and analysis including reconciliations between GAAP and Non GAAP numbers, please refer to the management report for Q4 and for the year ended December 31, 2016, released on February 25, 2017 and posted on Vizrt s website and on the Oslo Bors. The Board of Directors and Executive Management are of the opinion that the financial statements provide a true and fair view of Vizrt s assets, liabilities, financial position and results. vazrt 4

5 Outlook for 2017 For 2017 we expect a positive development, compared to 2016, of revenue as well as result of operations. A healthy backlog at the end of 2016 will help us achieve the target for Risk factors The company is subject to several risk factors. Financial risks include, but are not limited to: Currency exchange rate fluctuations. Some 50 and 25% of revenues are nominated in USD and Euro respectively. The majority of the cost base is in NOK, SEK and Euro. The Company does not hedge the currency exposure. The Company is highly leveraged and has significant debt service obligations. The Bond Issue, the related party loan and the Company s revolving credit facility have floating interest rates based on LIBOR, adjusted periodically, plus a margin. The Company does not hedge the interest exposure. Other risk factors include: Products may experience severe quality issues which could result in loss of customers or revenues, delays in revenue recognition, increased product returns, damage to the Company s reputation and significant warranty or other expense. Products incorporate different types of sublicensed software which may contain encryption or cryptanalytic features which may make the software and, by extension, the products offered by the Company subject to export control restrictions. The Company uses a considerable number of third party software components, some of which are licensed under open source licenses. There is a risk that the Company does not comply with all relevant open source license terms. Any failure to comply with such open source license terms may lead to legal action, loss of access to important software and damage to the Company s reputation. The occurrence of any of these risks could have a material adverse effect on the Company s business, financial position and results of operations. Working environment Working conditions and the working environment at Vizrt are considered to be good. No accidents or injuries occurred during the year as a result of performing the tasks and assignments by the employees. Sick leave in Vizrt amounted to 2% in By the end of 2016 the Company had 598 employees compared to 596 employees at year-end Equal opportunities By the end of 2016, 19% of employees were women, as compared to 18% at the end of The Company has no woman serving as director on the Board of Directors and one women in its corporate management team. The Company seeks to increase the proportion of women through recruitment. Company and management focus among others, on a personnel policy based on equal pay for equal work, which means that women and men have equal pay when in the same position, provided that other conditions are equal. Discrimination The Company s aim is to be a non-discriminatory workplace. Within the workforce, over 40 different nationalities are represented as well as over 10 different religions. The Company ensures equal vlzrt 5

6 opportunities and rights in recruitment, remuneration and working conditions, as well as promotion, personal development and protection against harassment. Furthermore, the Company aims at being an all-inclusive organization with regards to people with reduced functional ability. Corporate Social Responsibility (CSR) The Company is committed to doing ethical and legal business, show environmental consideration, support human rights and secure good labor practices on a global basis. Environment The products are generally software based and as such the company is minimally polluting the outer environment. Vizrt is committed to recycling the materials it uses and to minimizing non-hazardous waste. Annual Report on Corporate Governance Code of Practice The organization is structured and managed in accordance with the Norwegian Code of Practice for Corporate Governance, which can be found on The Board of Directors states that Vizrt Group has been in compliance with the code throughout Trading policy As an issuer of listed securities from August 14, 2015, the board of directors implemented a trading and disclosure manual to ensure compliance with the Oslo Bors continuing obligations (the Bond Rules), the Norwegian Securities Trading Act, and the Norwegian Securities Trading Regulation. The Manual also includes information and certain other positive covenants included in the Agreement relating to the Bonds. Senior management and directors of the Company are responsible for the overall implementation and compliance of this Manual. Breach of the obligations in this manual may result in disciplinary action, termination of employment and/or other sanctions. Reporting on Corporate Governance The Company complies with this recommendation through regular Board of Directors meetings, regular operational monitoring, information provided in annual reports, and other materials. In addition to the Code of Practice, the Board of Directors has adopted the Employee Conduct Code. These policies form a comprehensive set of ethical guidelines and guidelines for the corporate social responsibility of the Group. The Employee Conduct Code defines the Group s standards for conduct of all business, legal, and ethical matters; carried out and arising in daily business. This is meant as a tool and a guide for dealings with customers, partners, interaction with competitors, and fellow employees as well as in financial areas. Among others, the Employee Conduct Code addresses conflict of interest, prohibitions on third party gifts, issues regarding mutual respect, and harassment. Risk Management and Internal Control It is the responsibility of the Board of Directors to ensure that the Company has sound internal controls in place and systems for risk management that are appropriate in relation to the extent and nature of the Company s and the Group s activities. Board meetings are held frequently, and 4 vizrt 6

7 management reports for the Group are distributed to the Board on a monthly basis. Financial perlormance is reported via the Oslo Bors on a quarterly basis. In addition, as above detailed, the Company and the Group has adopted a Trade Compliance Policy, Employee Conduct Code, Anti-Fraud and Whistle Blower Policy and an Insider Trader Policy and IT policy. Appointment and Replacement of Members of the Board of Directors The Company s articles of association do not contain any provisions regarding appointment or replacement of members of the board of directors. Purchase of Own Shares and Equity Certificates There are no provisions regarding purchase of own shares or equity certificates in the Company s articles of association. The Board does not have any mandate to purchase own shares or equity certificates. Confirmation from the Board of Directors and CEO We confirm that, to the best of our knowledge, the financial statements for the period from January 1 to December 31, 2016 have been prepared in accordance with applicable accounting standards and give a true and fair view of the Group and the Company s consolidated assets, liabilities, financial position and results of operations, and that the Management Report provides a true and fair view of the development and performance of the business and the position of the Group and the Company together with a description of the key risks and uncertainty factors that the company is facing. Bergen, April 26, 2017 IVr. Mi ael Hallen Mr. Lars Einar Hansen hairman of the Board and CEO Board Member and CEO VIZrt 7

8 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2016 U.S. DOLLARS IN THOUSANDS INDEX Report of Independent Auditors F-2 - F-3 Page Consolidated Statements of Financial Position F-4 - F-S Consolidated Statements of Loss F-6 Consolidated Statements of Comprehensive Loss F-7 Consolidated Statements of Changes in Equity F-8 Consolidated Statements of Cash Flows F-9 - F40 Notes to Consolidated Financial Statements F-li - F-52 F-I

9 E yr Statsautoriserte revisorer Foretaksregisteret NO VA Ernst & Young AS TIf Fax: BuHding better Thormehiens gate 53 D, NO-5006 Bergen workinq world Postboks NO-5892 Bergen Medlemmer av den norske revisorforening INDEPENDENT AUDITOR S REPORT To the Annual Shareholders Meeting of Vizrt Group AS Report on the audit of the financial statements Opinion We have audited the financial statements of Vizrt Group AS comprising the financial statements of the parent company and the Group. The financial statements of the parent company comprise the balance sheet as at 31 December 2016, the income statement and statements of cash flows for the year then ended and notes to the financial statements, including a summary of significant accounting policies. The consolidated financial statements comprise the balance sheet as at 31 December 2016, profit and loss account, statements of comprehensive income, cash flows and changes in equity for the year then ended and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the financial statements are prepared in accordance with the law and regulations; the financial statements present fairly, in all material respects, the financial position of the parent company as at 31 December 2016, and of its financial performance and its cash flows for the year ended in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway; the consolidated financial statements present fairly, in all material respects the financial position of the Group as at 31 December 2016 and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU. Basis for opinion We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Norway, and we have fulfilled our ethical responsibilities as required by law and regulations. We have also complied with our other ethical obligations in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that. in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditors responsibilities for the audit of the financial statements section of our report, including in relation to these matters Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the financial statements. f,r. j,, f,f,,.-,;.:,.,,,c;li5*rn

10 EY Buikhng a better workinq world Impairment evaluation of Goodwill At 31 December 2016, goodwill related to the cash-generating unit (CGU) Vizrt amounted to MUSD The uncertainty in future cash flows for the entity has increased due to challenging market conditions. The amounts involved and the use of estimates make the impairment evaluation of the goodwill a key audit matter. We obtained an understanding of the process related to impairment testing for the CGU Vizrt. We assessed data used in the impairment model, including the forecasted future cash flows and weighted average cost of capital based on available market information, historical results and management s forecast. We tested the mathematical accuracy of the model. Further, we involved internal valuation specialists in evaluating the model and assessing of the weighted average cost of capital. In addition, we analyzed the sensitivity of the key assumptions used in the valuation model, and assessed the historical accuracy of management s budget against actual cash flow. We refer to the disclosures included in Note 9 Goodwill, Note 2p Significant accounting policies and note 2b Estimate uncertainty in the consolidated financial statements about impairment test for goodwill assumptions, principles for accounting intangible assets and estimate uncertainty. Other information Other information consists of the information included in the Company s annual report other than the financial statements and our auditor s report thereon. The Board of Directors and Chief Executive Director (management) is responsible for the other information. Our opinion on the financial statements does not cover the other information, and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information, and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of management for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway for the financial statements of the parent company and International Financial Reporting Standards as adopted by the EU for the financial statements of the Group, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Auditor s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISA5 will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Independent auditors report Vizrt Group AS

11 - I!: EY BuBding a better working world As part of an audit in accordance with law, regulations and generally accepted auditing principles in Norway, including ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Company to cease to continue as a going concern.. evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on other legal and regulatory requirements Opinion on the Board of Directors report and in the statements on corporate governance and corporate social responsibility Based on our audit of the financial statements as described above, it is our opinion that the information presented in the Board of Directors report concerning the financial statements and in the statements on corporate governance and corporate social responsibility, the going concern assumption, and proposal for the allocation of the result is consistent with the financial statements and complies with the law and regulations. Independent auditor s report Vizrt Group AS cit, 0.,..i:., h L, - - I

12 EY Building a better working worid Opinion on registration and documentation Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial lnformationx, it is our opinion that management has fulfilled its duty to ensure that the Company s accounting information is properly recorded and documented as required by law and bookkeeping standards and practices accepted in Norway. Bergen, April 27 th 2017 ERNST & YOUNG AS t( lna K. Rosenberg State Authorised Public Accountant (Norway) Independent auditors report Vzrt Group AS fi,ec.,ç a. Ii.

13 4 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION U.S. dollars in thousands ASSETS December 31, Note CURRENT ASSETS: Cash and cash equivalents V $ 47,566 $ 35,924 Short-term bank deposits 4 1,503 Restricted cash Trade receivables, net 5 25,184 27,405 Other accounts receivable and prepaid expenses 5,704 4,660 Inventories 6 3,977 5,235 Totalcurrentassets 82,670 75,186 NON-CURRENT ASSETS: Non-current assets 1,730 1,322 Deferredtaxes 14 6,013 6,009 Property and equipment, net 7 3,845 3,929 Other intangible assets, net 8 88, ,249 Goodwill 9 160, ,489 Total non-current assets 260, ,998 Total assets $ 343,018 $ 353,184 The accompanying notes are an integral part of the consolidated financial statements. F-4

14 April 26, 2017 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION U.S. dollars in thousands LIABILITIES AND EQUITY December 31, Note CURRENT LIABILITIES: Trade payables S 3,001 $ 2,487 Deferredrevenues 9,415 8,841 Employees and payroll accruals 5,622 4,793 Income tax accruals 5,594 6,458 Other accounts payable and accrued expenses 10 4,652 4,864 Total current liabilities 28,284 27,443 NON-CURRENT LIABILITIES: Debentures,net II 109, ,542 Loan from related party 12 87,519 77,994 Deferredtaxes 14 9,519 14,999 Employee benefits liability, net 18 3,542 3,503 Other non-current liabilities 1,907 1,035 Total non-current liabilities 211, ,073 EQUITY: Share capital Additional paid-in capital 4,922 4,922 Parent contribution 173, ,959 Accumulated other comprehensive loss 17 (1,878) (813) Accumulated deficit (74,062) (58,409) Tiequity 102, ,668 Total liabilities and equity $ 343,018 $ 353,184 The accompanying notes are an integral part of the consolidated financial statements. Date of approval of the Michael Hallen Lars Einar Hansen financial statements airman of the Board of Directors Director and CFO and CEO F-S

15 CONSOLIDATED STATEMENTS OF INCOME U.S. dollars in thousands (except per share data) Year ended December 31, Note Revenues: 20a Software licenses $ 69,965 $ 60,055 Contract revenues 11,780 12,279 Maintenance and services 37,612 31, , ,243 Cost of revenues: 21a Software licenses 15,740 16,431 Contract costs 5,892 6,801 Maintenance and services 29,761 21,480 51,393 44,712 Gross profit 67,964 59,531 Operating expenses: Research and development 21b 17,782 15,837 Sellingandmarketing 21c 33,685 34,995 General and administrative 2ld 11,533 8,957 Other expenses 3,250 1,684 Total operating expenses 66,249 61,473 Operating loss (income) (1,715) 1,942 Financial income 21e (1,974) (7,669) Financial expenses 21e 22,308 15,675 Loss before taxes on income 18,619 9,948 Taxes on income 14 (2,966) (216) Net loss $ 15,653 $ 9,732 Net Loss per share: 16 Basic and diluted net Loss: $ 0.26 $ 0.16 The accompanying notes are an integral part of the consolidated financial statements. F-6

16 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME U.S. dollars in thousands Year ended December 31, Netloss $ 15,653 $ 9,732 Other comprehensive income (net of tax effect): Amounts that will be reclassified subsequently to profit or loss: Foreign currency translation adjustments Total components that will be reclassified or that are reclassified to profit or loss Amounts that will not be reclassified subsequently to profit or loss: Remeasurement loss related to employee benefit plan Total amounts that will not be reclassified to profit or loss Total other comprehensive loss 1, Total comprehensive loss attributable to equity holders of the Parent $ 16,71 8 $ 10,545 The accompanying notes are an integral part of the consolidated financial statements. F-7

17 S (9,732) (261) (15,653) (124) S S 5 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY U.S. dollars in thousands (except share data) Employee Foreign currency Number of Share Addilianol Parent benefit plan traoslahioo Accumulated Total Ordinary shares capital paid-in capital contribution reserve reserve deficit Equity Balanccosofianuaryt ,000 S S S - Loss for the year - Other comprehensive lots (552) - (3) S 2 (9,732) (913) Total comprehensive lots (261) (552) (9,732) (10,545) 0) Itsuostre of shores Parent cootrihotioo 30, , , ,926 73, (40,674) (40,674) Dividend to parent Company - Balance as ofdeeembcr 31, , , ,959 (261) (552) (58,409) 119,665 (124) Lossfortheyear - Other comprehensive loss Total eompreheosive loss - (941) - (15,653) (1,065) (941) (15,653) (16,718) Balooceasofoecember3t,20l6 $ 60,000 $ 9 $ 4,922 $ 173,959 $ (385) 5 (1,493) 5 (74,062) $ 102,950 C) A non-cash dividend provided by the Company to parrot Company see also Note 12. The accompanying notes are an integral part of the consolidated financial statements, F-8

18 CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands Cash flows from operating activities: Year ended December 31, Net loss $ (15,653) $ (9,732) Adjustments required to reconcile net loss to net cash used in operating activities: Depreciation 1,929 1,474 Loss (Gain) from disposal of property and equipment (41) 160 Amortization of intangible assets 22,427 24,375 Amortization of Debentures discount and issuance cost Financial expense, net 18,691 11,657 Income tax expense 3,480 4,647 Deferred taxes (6,446) (4,863) Decrease (Increase) in trade receivables, net 1,091 (8,949) Decrease (Increase) in other accounts receivable and prepaid expenses (1,753) 1,029 Decrease in inventories 1,102 3,058 Increase in long-term lease deposit (428) (95) Increase (Decrease) in trade payables 610 (5,773) Increase in deferred revenues 771 4,296 Increase in employees and payroll accruals Increase (Decrease)in other accounts payable and accrued expenses 51 (1,613) Increase (Decrease)in other non-current liabilities 220 (2,523) Non-current employee benefits liability, net 600 (90) 28,323 18,197 Cash paid and received during the year for: Interest received - 75 Interest paid (9,165) (6,948) Income tax paid (2,675) (28,846) Net cash used in operating activities 16,483 (17,522) Cash flows from investing activities: Acquisition of subsidiary, net of cash provided (Note 3) - (259,713) Investment R&D expenditures (4,449) - Investment in short-term bank deposits - (1,500) Proceeds from short-term bank deposits 1,500 1,554 Purchase of property and equipment (2,116) (1,332) Proceeds from sale of property and equipment Loan to Parent (note 12) - (48,640) Restricted cash, net 212 (365) Net cash used in investing activities $ (4,581) $ (309,802) The accompanying notes are an integral part of the consolidated financial statements. F-9

19 CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands Cash flows from financing activities: Year ended December 31, Issuance of shares $ - $ 4,926 Parent contribution (note 12) - 173,959 Proceeds from loan from related party (note 12) - 76,000 Payment of loan from related party - (108) Issuance of Debentures, net (notel 1) 107,973 Net cash provided by financing activities - 362,750 Effect of exchange rate changes on cash and cash equivalents, net (260) 393 Increase in cash and cash equivalents 11,642 35,819 Cash and cash equivalents at the beginning of the year 35, Cash and cash equivalents at the end of the year $ 47,566 $ 35,924 Supplemental disclosure of cash flow information: (a) Non-cash activity: Non- cash dividend (note 12) S - (b) Acquisition of Vizrt Ltd. (Note 3 ): $ 48,674 Fair value of assets acquired (excluding cash) and liabilities assumed at the acquisition date: Short term deposits $ - $ 1,564 Restricted cash Trade and other receivables - 23,852 Inventory 8,441 Other non-current assets 1,211 Deferred taxes 1,646 Property and equipment, net 4,535 Other intangible assets 130,624 Goodwill 160,489 Trade and other payables - (49,176) Deferred revenues - (4,578) Employee benefits liability, net - (2,572) Other non-current liabilities - (1,175) Deferred tax liability (15,286) Amount paid in cash, net of cash acquired $ - $ 259,713 The accompanying notes are an integral part of the consolidated financial statements. F-I 0

20 NOTE 1:- GENERAL a. Vizrt Group AS., is a private company, wholly owned by Vizrt Group Holding AS. and is incorporated and domiciled in Norway and its official address is Nordre Nøstekaien 1, 5011 Bergen, Norway. Vizrt Group AS. and its subsidiaries (collectively the Company, Vizrt or the Group ). (see Note 1 5e for list of subsidiaries) provide real-time 3D graphics, studio automation, sports analysis and media asset management tools for the broadcast industry - interactive and virtual solutions, animations, maps, weather, video editing and compositing tools. The company has 578 employees. b. The consolidated financial statements were approved by the Company s board of directors on April 26, c. On March 19, 2015 the Company through its wholly owned subsidiary Vizrt AG acquired the shares of Vizrt LTD. by way of a reverse triangular merger (by forming a new subsidiary, Merger Sub, which merged with and into the Company) for a cash consideration of $ 313,858 (NOK 2,538,456). Tn October 2015, Vizrt LTD. was voluntarily liquidated (see also Note 3). d. On March 13, 2015 the Company issued Debentures ( the Debentures ) amounted to S million, which are traded on the Oslo stock exchange. The Debentures are securities, which give the Debentures holders right to interest during the tenor of the Debentures and repayment of principal on the dates set forth in the Debentures Agreement. The Debentures are the senior liabilities of the Issuer and only subordinated to claims preferred by law (see also Note 11). NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwise stated. a. Basis of presentation of financial statements: The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ( JERS ), as adopted by the EU. The consolidated financial statements have been prepared on a historical cost basis, except for derivative instruments, that have been measured at fair value. The consolidated financial statements are presented in U.S. dollars ( USD ) and all values are rounded to the nearest thousand ($ 000) except when otherwise indicated. b. Judgments: In the process of applying the Company s accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the financial statements: F-li

21 NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) Reven tie The Company assesses the criteria for recognition of revenue related to multiple components as outlined by las 18, Revenue. Judgment is necessary to determine when components can be recognized separately and the allocation of the related consideration to each component. Purchase price allocation. Fair value of the tangible and intangible assets and liabilities of an acquired subsidiary is determined according to valuation techniques, which include mostly discounting of cash flows. The rate used for discounting the net cash flows expected from the assets has a material impact on the fair value. The process of estimating fair value includes judgments as to the use of the relevant observable and unobservable inputs from the perspective of a market participant. The Company strives to reflect those inputs in the estimated fair value including a risk premium for the uncertainties inherent in determining the fair value of an item that has significant unobservable inputs. In light of the above, the determination of fair value calls for implementing judgment. c. Estimates and assumptions: The preparation of consolidated financial statements in conformity with ]FRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. Management determines estimates based upon past experience, various factors, external sources and reasonable assumptions according to the circumstances appropriate to each estimate. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. The key assumptions made in the financial statements concerning uncertainties at the reporting date and the critical estimates computed by the Company that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: F- 12

22 NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) - Deferred tax assets: Deferred tax assets are recognized for unused carryforward tax losses and deductible temporary differences to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies. For further information, see Note Impairment of goodwill: The Company reviews goodwill for impairment at least annually and when circumstances indicate that the carrying value may be impaired. This requires management to make an estimate of the projected future cash flows from continuing use of the cash-generating unit and also to choose a suitable discount rate and long term growth rate for those cash flows. The key assumptions used to determine the recoverable amount for the different cash generating units, including a sensitivity analysis, are further explained in Note 9. - Pension and other post-employment benefits: The liability in respect of post-employment defined benefit plans is determined using actuarial valuations. The actuarial valuation involves making assumptions about, among others, the discount rate, future salary increases and employee turnover rate. The carrying amount of the liability may be significantly affected by changes in these estimates. For further information, see Note 18. d. Basis of consolidation: The consolidated financial statements comprise the financial statements of the Company and its wholly-owned subsidiaries. The consolidated financial statements comprise the financial statements of companies that are controlled by the Company. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Potential voting rights are considered when assessing whether an entity has control. The consolidation of the financial statements commences on the date on which control is obtained and ends when such control ceases. The financial statements of the Company and of the subsidiaries are prepared as of the same dates and periods. The consolidated financial statements are prepared using uniform accounting policies by all companies in the Group. Significant intragroup balances and transactions and gains or losses resulting from intragroup transactions are eliminated in full in the consolidated financial statements. F- 13

23 NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) e. Foreign currency translation: The consolidated financial statements are presented in USD, which is also the Company s functional currency (and is the currency that best reflects the economic environment in which the Company operates and conducts most of its transactions). Each entity in the Group determines its own functional currency and items included in the consolidated financial statements of each entity are measured using that functional currency. I. Transactions and balances: Transactions in foreign currencies are initially recorded by the Company at their respective functional currency exchange rates prevailing at the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange ruling at the reporting date. All differences are taken to the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. 2. Companies in the Group for which their functional currency was determined as other than the USD: a) Assets and liabilities are translated into USD at the exchange rate prevailing at the reporting date. Goodwill and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and are translated at the closing rate. b) Income and expenses for each of the periods presented are translated at average exchange rates for the presented periods; however, if exchange rates fluctuate significantly, income and expenses are translated at the exchange rates at the date of the transactions. c) Share capital, additional paid-in capital and other changes in capital are translated at the exchange rate prevailing at the date of incurrence. d) Retained earnings are translated based on the opening balance translated at the exchange rate at that date. e) All resulting translation differences are recognized as a separate component of other comprehensive income (loss) in equity. F- 14

24 NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) f. Cash equivalents: Cash equivalents are short-term, highly liquid investments that are readily convertible into cash with original maturities of three months or less at acquisition. g. Short-term bank deposits: Bank deposits with original maturities of more than three months but less than one year are classified as short-term bank deposits. The majority of the deposits is in U.S. dollars at December 31, 2016 and bears interest at rates ranging from 0.46% to 0.85%. The deposits are presented at cost, including accrued interest. Ii. Allowance for doubtful accounts: The allowance for doubtful accounts is determined in respect of specific debts whose collection, in the opinion of the Company s management, is doubtful. The Company also recognizes a provision for groups of customers that are collectively assessed for impairment based on their credit risk characteristics. Impaired debts are derecognized when they are assessed as uiicollectible. Restricted cash: As of December 31, 2016 and 2015, the amounts represent security for rent facilities and performance guarantees for customers in Asia Pacific. j. Inventories: Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average cost method. The Company evaluates periodically the quantities on hand, relative to current and historical selling prices and forecasted sales volume, technological obsolescence and the market conditions. Based on these evaluations, provisions are recorded in each period to write inventory down to its net realizable value if required. k. Investment in associate: Investment in a company in which Vizrt is able to exercise significant influence, but that is not a subsidiary is accounted for using the equity method. When Vizrt s share of losses exceeds its interest in an associate accounted under the equity method, the carrying amount of that investment is reduced to zero and the recognition of further losses is discontinued except to the extent that the Company has an obligation to support the investee or has granted it loans or provided guarantees on its behalf. F- 15

25 NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) Financial instruments: Financial assets: The Company s financial assets include cash and cash equivalents, short-term deposits, trade and other receivables, restricted cash and other financial assets. Financial assets within the scope of las 39 are initially recognized at fair value plus directly attributable transaction costs, except for investments at fair value through profit or loss in respect of which transaction costs are carried to the statement of income. Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Impairment offinancial assets carried at amortized cost: Financial assets are assessed for indicators of impairment at each reporting date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. Such objective evidence of impairment could include significant financial difficulty of the issuer or counterparty. For certain financial assets, such as trade receivables, the Company evaluates impairment on a specific basis, in reliance on past experience and changes in the level of delinquency in payments, as well as economic changes related to the sector. The amount of the loss carried to the statement of income is measured as the difference between the assets carrying amount and the present value of estimated future cash flows. In a subsequent period, the amount of the impairment loss is reversed if the recovery of the asset can be related objectively to an event occurring after the impairment was recognized. The amount of the reversal, as above, is credited to the statement of income up to the amount of any previous impairment. Financial liabilities: Financial liabilities measured at amortized cost: Short-term credit (such as trade and other payables) are measured based on their terms, normally at nominal value. Gains and losses are recognized in the statement of income when the financial liability is derecognized as well as through the systematic amortization process. F- 16

26 - Derivatives NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) A financial liability is derecognized when it is extinguished, i.e. when the obligation is discharged or cancelled or expires. A financial liability is extinguished when the debtor discharges the liability by paying in cash, other financial assets, goods or services; or is legally released from the liability. Interest-bearing loans and borrowings are initially recognized at fair value less directly attributable transaction costs (such as loan raising costs). After initial recognition, loans, including debentures, are measured based on their terms at amortized cost using the effective interest method taking into account directly attributed transaction costs. and hedging: The Company recognizes all derivatives at fair value. If the derivatives meet the definition of a hedge and are so designated the effective portion of the gain or loss is recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of a derivatives change in fair value is recognized in earnings. At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument s effectiveness in offsetting the exposure to changes in the hedged item s fair value or cash flows attributable to the hedged risk. The hedge effectiveness is assessed at each reporting date. The Company enters into forward exchange contracts in order to hedge the variability of anticipated payroll and other expenses denominated in Norwegian Krones, Swedish Krones and New Israeli Shekel, due to changes of the U.S. dollar against the respective currencies. As of December 31, 2016 and 2015, there are no Derivatives and hedging transaction. m. Property and equipment: Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets at the following annual rates: Computers and other equipment (mainly 33) Office furniture, equipment and other 7-17 (mainly 10) Leasehold improvements (*) % F-I 7

27 NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) (*) Leasehold improvements are depreciated on a straight-line basis over the shorter of the lease term and the expected useful life of the improvement. The useful life, depreciation method and the residual value of an asset are reviewed at least each year-end and the changes, if any, are accounted for prospectively as a change in accounting estimate. n. Intangible assets, net: Intangible assets acquired in a business combination are identified and recognized separately from goodwill when they meet the definition of intangible asset and their fair value can be measured reliably. The cost of these intangible assets is their fair value on the date of the business combination. In subsequent periods, intangible assets are presented at cost less any accumulated amortization and accumulated impairment loss. Intangible assets are amortized over their useful lives using a method of amortization that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used. Intangible assets are amortized using the straight-line method over the estimated useful life, except for customer relationship, which is based on accelerated method according to the following weighted average number of years: Years Core technology 4.9 Customer relationship 9.8 Backlog 0.9 Trade name 9.8 Research and development expenditures: Research expenditures are recognized in profit or loss when incurred. An intangible asset arising from a development project or from the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale; the Company s intention to complete the intangible asset and use or sell it; the ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability of adequate technical, financial and other resources to complete the intangible asset; and the ability to measure reliably the respective expenditure asset during its development. The asset is measured at cost less any accumulated amortization and any accumulated impairment losses. Amortization of the asset begins when development is complete and the asset is available for use. The asset is amortized over its useful life. Testing of impairment is performed annually over the period of the development project. F-I 8

28 NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) The useful life of mtangible assets is as follows: Development expenditures Useful life Amortization method 5 years Straight-line over the expected period of sales from the project o. Impairment of non-financial assets: At each reporting date, the Company evaluates the carrying amount of its tangible and intangible assets for the purpose of determining whether there are any indications that the carrying amount of such assets is not recoverable. Should there be any such indications; the recoverable amount of the asset is estimated for the purpose of determining the amount of the impairment loss. If the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable amount of an asset that does not generate independent cash flows is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized in the statement of income. For the purpose of impairment testing, goodwill acquired in a business combination is allocated, at the acquisition date, to each of the Company s cash-generating units that is expected to benefit from the synergies of the combination. The Company reviews goodwill for impairment once a year on December 31 for each of its cash generating units, or more frequently if events or changes in circumstances indicate that there is impairment. Impairment is recognized for goodwill by assessing the recoverable amount of the cash generating unit (or group of cash-generating units) to which the goodwill relates. An impairment loss is recognized if the recoverable amount of the cash-generating unit (or group of cash-generating units) to which goodwill has been allocated, is less than the carrying amount of the cash-generating unit (or group of cash-generating units). Any impairment loss is allocated first to goodwill. Impairment losses recognized for goodwill cannot be reversed in subsequent periods. F- 19

29 NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) p. Business combination and goodwill: Business combinations are accounted for by applying the acquisition method. Under the acquisition method, the assets and liabilities of the acquired business are measured at fair value on the acquisition date. The cost of an acquisition is the aggregate fair value of the assets transferred, liabilities assumed and equity rights issued by the acquirer on the date of acquisition. Direct costs relating to the acquisition are carried immediately as an expense in the income statement. On the acquisition date, the existing assets and liabilities are reclassified and redesignated in accordance with the contractual terms, economic circumstances and other pertinent conditions that exist at the acquisition date, except for lease contracts that have not been modified on the acquisition date and whose classification as finance or operating leases is therefore not reexamined. In a business combination achieved in stages, equity interests in the acquiree that had been held by the acquirer prior to obtaining control are measured at the acquisition date at fair value and included in the acquisition consideration while recognizing gain or loss resulting from the fair value measurement. Goodwill acquired in a business combination is initially measured as the difference between the cost of the acquisition and the net fair value of the acquired business identifiable assets, liabilities and contingent liabilities. After initial recognition, goodwill is measured at cost less, if appropriate, any accumulated impairment losses. Goodwill is not systematically amortized. q. Revenue recognition: The Company s revenues are derived from sales of products to end-customers and resellers, who are also considered end-customers. The Company also generates revenues from professional services, including graphic services, training, maintenance and support. Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenues can be reliably measured and when specific criteria have been met for each of the Company s activities as described below. Revenue is measured at the fair value of the consideration received. Revenues from sale agreements that do not contain a general right of return and that are composed of multiple components such as products, and maintenance and support services are split into separate accounting units and recognized for each accounting unit separately. A component constitutes a separate accounting unit if and only if it holds a separate value to the customer. F-20

30 NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) The consideration received is allocated between the products and services, if there is evidence as to the fair value of the last undelivered element (mostly maintenance and support) with a consideration allocated to the services equal to their fair value. Fair value is generally determined based on their sale price when sold separately. Revenue from the various accounting units is recognized when the criteria for revenue recognition regarding the components of that accounting unit have been met according to their type and only to the extent of the consideration that is not contingent upon completion or performance of the remaining components in the contract. The Company considers all arrangements with payment terms extending beyond the Company s customary payment terms not to be fixed or determinable. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer provided that all other revenue recognition criteria have been met. The Company recognizes revenues from professional services and training as performed. Such services when combined with sales of products are not essential to the functionality of the delivered product. Maintenance and support revenues included in multiple element arrangements are deferred and recognized on a straight-line basis over the term of the maintenance and support agreement. Deferred revenues represent mainly the unrecognized fees billed for maintenance and support services. Deferred revenue also includes advances and payments received from customers, for which revenue has not yet been recognized. Revenue from software arrangements that require significant customization, integration and installation, are recognized in accordance with las 11, using contract accounting and the percentage of completion method, based on the relationship of actual labor hours incurred to total labor hours estimated to be incurred over the duration of the contract. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are first identified, in the amount of the estimated loss on the entire contract. r. Research and development costs: Research expenditures are recognized in profit or loss when incurred. An intangible asset arising from a development project or from the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale; the Company s intention to complete the intangible asset and use or sell it; the ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability of adequate technical, financial and other resources to complete the intangible asset; and the ability to measure reliably the respective expenditure asset during its development. F-2 I

31 NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) The asset is measured at cost less any accumulated amortization and any accumulated impairment losses. Amortization of the asset begins when development is complete and the asset is available for use. The asset is amortized over its useful life, generally five years. Testing of impairment is performed annually over the period of the development project. s. Income taxes: Income tax expense is comprised of current and deferred tax. Income tax expense is recognized in profit and loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred taxes are recognized using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is not probable that the related tax benefit will be realized. Similarly, temporary differences (such as carry-forward tax losses) for which deferred tax assets have not been recognized are reviewed, and deferred tax assets are recognized to the extent that their utilization has become probable. Any resulting reduction or reversal is recognized in profit or loss. A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Deferred taxes are not recognized on investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. F-22

32 NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) t. Employee benefits liability: The Company has several employee benefit plans: Short-term employee benefits: Short-term employee benefits are benefits that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation and social security contributions and are recognized as expenses as the services are rendered. A liability in respect of a cash bonus or a profit-sharing plan is recognized when the Group has a legal or constructive obligation to make such payment as a result of past service rendered by an employee and a reliable estimate of the amount can be made. 2. Post-employment benefits: The Company has a number of post-employment benefit plans. The plans are usually financed by deposits with insurance companies or with funds managed by a trustee, and they are classified as defined contribution plans and defined benefit plans. The Company operates a defined benefit plan in respect of severance pay pursuant to the Israeli, Swiss, Thai and Austrian severance pay laws (the Laws ). According to these Laws, employees are entitled to severance pay upon dismissal or retirement. The liability for termination of employee-employer relationship is measured using the projected unit credit method. The actuarial assumptions include future salary increases and rates of employee turnover based on the estimated timing of payment. The amounts are presented based on discounted expected future cash flows using a discount rate on high quality corporate Debentures with maturity that matches the estimated term of the benefit payments. The Company makes current deposits in respect of its liabilities to pay compensation to certain of its employees in pension funds and insurance companies ( the plan assets ). Plan assets comprise assets held by a long-term employee benefit fund or qualifying insurance policies. Plan assets are not available to the Company s own creditors and cannot be returned directly to the Company. The liability for employee benefits in the statement of financial position presents the present value of the defined benefit obligation less the fair value of the plan assets. Remeasurement gains and losses are recognized directly in other comprehensive income in the period in which they occur. F-23

33 NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) u. Lease payments: Lease agreements where the Company does not actually accept substantially all the risks and benefits incidental to ownership of the leased asset are classified as operating leases. Payments made under operating leases are recognized in the statement of income on a straight-line basis over the term of the lease. v. Financial income and expenses: Financial income includes interest on deposits and exchange differences. Interest income is recognized as it accrues in profit or loss, using the effective interest method. Financial expenses include bank charges. Gains and losses deriving from changes in currency exchange rates are reported on a net basis. w. Provisions: A provision in accordance with las 37 is recognized when the Company has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation If the effect is material, provisions are measured according to the estimated future cash flows discounted using a pre-tax interest rate that reflects the market assessments of the time value of money and, where appropriate, those risks specific to the liability. x. Fair value measurement: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement is based on the assumption that the transaction will take place in the asset s or the liability s principal market, or in the absence of a principal market, in the most advantageous market. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. Fair value measurement of a non-financial asset takes into account a market participant s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. F-24

34 NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchy based on the lowest level input that is significant to the entire fair value measurement: Level I - Level 2 - Level 3 Quoted Inputs - Inputs prices (unadjusted) in active markets for identical assets or liabilities. other than quoted prices included within Level 1 that are observable either directly or indirectly. that are not based on observable market data (valuation techniques which use inputs that are not based on observable market data). y. New standards in the period prior to their adoption: IFRS 15, Revenue from Contracts with Customers : In May 2014, the IASB issued IFRS 15 ( IFRS 15 ). IFRS 15 replaces las 18, Revenue, las 11, Construction Contracts, IFRIC 13, Customer Loyalty Programs, IFRIC 15, Agreements for the Construction of Real Estate, IFRIC 18, Transfers of Assets from Customers and SIC-31, Revenue - Barter Transactions Involving Advertising Services. The IFRS 15 introduces a five-step model that will apply to revenue earned from contracts with customers: Step 1: Identjj5 the contract with a customer, including reference to contract combination and accounting for contract modifications. Step 2: Identj5 the separate performance obligations in the contract Step 3: Determine the transaction price, including reference to variable consideration, financing components that are significant to the contract, non-cash consideration and any consideration payable to the customer. Step 4: Allocate the transaction price to the separate performance obligations on a relative stand-alone selling price basis using observable information, if it is available, or using estimates and assessments. Step 5: Recognize revenue when the entity satisfies a performance obligation over time or at a point in time. The new Standard is to be applied retrospectively for annual periods beginning on January 1, Early adoption is permitted. At this stage, the Company does not intend to adopt IFRS 15 early. F-25

35 U.s. dollars in thousands (except share and per share data) NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) The new Standard allows the option of modified retrospective adoption with certain reliefs according to which the new Standard will be applied to existing contracts from the initial period of adoption and thereafter with no restatement of comparative data. Under this option, the Company will recognize the cumulative effect of the initial adoption of the new Standard as an adjustment to the opening balance of retained earnings (or another component of equity, as applicable) as of the date of initial application. Alternatively, the new Standard permits full retrospective adoption with certain reliefs. At this stage, the Company is evaluating the different options for adoption of the new Standard. Based on information currently available, the main impact of the new standard (if any) relates to whether revenue from the Group s projects should be recognized at a point in time or over time. General principles for determining timing of revenue (refer to 2q for currnt accounting under las 11) may not be applied under JFRS 15, as the timing of revenue maybe subject to assessments of individual contracts. Amendments to las 16 and las 38 regarding acceptable methods of depreciation and amortization: In May 2014, the IASB issued amendments to las 16 and las 38 ( the amendments ) regarding the use of a depreciation and amortization method based on revenue. According to the amendments, a revenue-based method to calculate the depreciation of an asset is not appropriate because revenue generally reflects factors other than the consumption of the economic benefits embodied in the asset. As for intangible assets, the revenue-based amortization method can only be applied in certain circumstances such as when it can be demonstrated that revenue and the consumption of economic benefits of the intangible asset are highly correlated. The amendments are to be applied prospectively for annual periods beginning on or after January 1, Early adoption is permitted. The Company believes that adopting this amendment will have no material effect of its financial statement. TFRS 9, Financial Instruments : In July 2014, the IASB issued the final and complete version of 1FRS 9, Financial Instruments ( IFRS 9 ), which replaces las 39, Financial Instruments: Recognition and Measurement. IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies to all assets in the scope of las 39. According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments are measured at amortized cost only if both of the following conditions are met: the asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows. F-26

36 NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) - the contractual tenns of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction between debt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value through other comprehensive income. Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit or loss or in other comprehensive income (loss), in accordance with the election by the Company on an instrument-by-instrument basis. If equity instruments are held for trading, they should be measured at fair value through profit or loss. According to IFRS 9, the provisions of LAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value option has not been elected. According to IFRS 9, changes in fair value of fmancial liabilities which are attributable to the change in credit risk should be presented in other comprehensive income. All other changes in fair value should be presented in profit or loss. IFRS 9 also prescribes new hedge accounting requirements. IFRS 9 is to be applied for annual periods beginning on January 1, Early adoption is permitted. The Company is evaluating the possible impact of IFRS 9 but is presently unable to assess its effect, if any, on the financial statements. Amendments to las 7, Statement of Cash Flows, regarding additional disclosures of financial liabilities: In January 2016, the IASB issued amendments to las 7, Statement of Cash Flows, ( the amendments ) which require additional disclosures regarding fmancial liabilities. The amendments require disclosure of the changes between the opening balance and the closing balance of financial liabilities, including changes from cash flows, changes arising from obtaining or losing control of subsidiaries, the effect of changes in foreign exchange rates and changes in fair value. The amendments are effective for annual periods beginning on or after January 1, Comparative information for periods prior to the effective date of the amendments is not required. Early application is permitted. The Company will include the necessary disclosures in the financial statements when applicable. F-27

37 NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) IFRS 16 Leases In January 2016, the IASB issued IFRS 16, Leases (the new Standard ). According to the new Standard, a lease is a contract, or part of a contract, that conveys the right to use an asset for a period of time in exchange for consideration. According to the new Standard: Lessees are required to recognize an asset and a corresponding liability in the statement of financial position in respect of all leases (except in certain cases) similar to the accounting treatment of finance leases according to the existing las 17, Leases. Lessees are required to initially recognize a lease liability for the obligation to make lease payments and a corresponding right-of-use asset. Lessees will also recognize interest and depreciation expense separately. Variable lease payments that are not dependent on changes in the Consumer Price Index ( CPI ) or interest rates, but are based on performance or use (such as a percentage of revenues) are recognized as an expense by the lessees as incurred and recognized as income by the lessors as earned. In the event of change in variable lease payments that are CPI-linked, lessees are required to remeasure the lease Liability and the effect of the remeasurement is an adjustment to the carrying amount of the right-of-use asset. The new Standard includes two exceptions according to which lessees are permitted to elect to apply a method similar to the current accounting treatment for operating leases. These exceptions are leases for which the underlying asset is of low value and leases with a term of up to one year. The accounting treatment by lessors remains substantially unchanged, namely classification of a lease as a finance lease or an operating lease. The new Standard is effective for annual periods beginning on or after January 1, Early adoption is permitted provided that IFRS 15, Revenue from Contracts with Customers, is applied concurrently. For leases existing at the date of transition, the new Standard permits lessees to use either a full retrospective approach, or a modified retrospective approach, with certain transition relief whereby restatement of comparative data is not required. The Company is evaluating the possible effects of the new Standard. Since the Company s lease contracts are significant, the Company estimates that the adoption of the new Standard will have a material impact on the Company s assets and liabilities. However, at this stage, the Company is unable to quantify the impact on the financial statements. F-28

38 NOTE 3:- BUSINESS COMBINATIONS On March 19, 2015, the Company through its wholly owned subsidiary Vizrt AG acquired the shares of Vizrt LTD. by way of a reverse triangular merger for a cash consideration of $ 313,858. Purchase price allocation: The total purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values, as set forth below as of the acquisition date. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill. The fair value of the intangible assets was based on a third party valuation. The fair values of the assets acquired and liabilities assumed at the date of acquisition (March 19, 2016) are as follows: Fair value USD in thousands Cash and cash equivalents $ 54,145 Short term deposits 1,564 Restricted cash 138 Trade and other receivables 23,852 Inventory 8,441 Other non-current assets I,2 11 Deferred taxes 1,646 Property and equipment, net 4,535 Other intangible assets 130,624 Goodwill 160,489 Trade and other payables (49,176) Deferred revenues (4,578) Employee benefits liability, net (2,572) Other non-current liabilities (1,175) Deferred tax liability (15,286) Total S 313,858 A deferred tax liability of S 15,286 was recorded for the difference between the assigned value and the tax base of the intangible assets (except for goodwill) acquired in the acquisition. Goodwill of $ 160,489 represents the excess of the purchase price over the fair market value of the net tangible and intangible assets acquired. The goodwill is attributed to kiiowhow, workforce etc. that do not meet the criteria for recognition as intangibles under las 38 The goodwill is not deductible for tax purposes. The results of operations of Vizrt LTD. were included in the consolidated statement of loss from the date of acquisition. The following 2015 proforma fmancial results represent the results of operations of giving effect to the acquisition of Vizrt LTD. as if the acquisition had been consummated at January 1, 2015 and excluding amortization of intangibles. F-29

39 NOTE 3:- BUSINESS COMBINATIONS (Cont.) The 2014 proforma financial results represent results of operations of consolidated Vizrt Ltd. excluding amortization of intangibles. Year ended December 31, Revenues $ 128,261 $ 141,534 Cost of revenues 38,040 40,928 Gross profit 90, ,606 Operating expenses: Research and development 20,428 22,466 Sellingandmarketing 30,818 34,416 General and administrative 11,448 13,384 Other expenses 5,338 - Total operating expenses 68,032 70,266 Operating income 22,189 30,340 Financial expenses, net 8, Income before taxes on income 13,713 29,442 Taxes on income ,610 Net income (loss) from continuing operations (10,577) 17,832 Net loss from discontinued operations Net income (loss) $ (10,577) $ 17,423 NOTE 4:- CASH AND CASH EQUiVALENTS December 31, Cashatbanksandonhand $ 44,332 $ 33,921 Bank deposits 3,234 2,003 $ 47,566 $ 35,924 Cash at banks earn interest at floating rates based on daily bank deposit rates. Bank deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Company, and earn interest at the respective short-term deposit rates. F-30

40 NOTE 5:- TRADE RECEWABLES, NET December 31, Trade receivables *) $ 20,397 $ 24,730 Unbilled revenues 4,787 2,675 $ 25,184 $ 27,405 *) Net of allowance for doubtful accounts $ 1,272 $ 1,579 Trade receivables are non-interest bearing and generally have up to 90 days payment terms. During the years ended December 31, 2016 and 2015, the Company recognized $ 576 and $ 324, respectively, as doubtful debts in the statements of income, and wrote off bad debts of $ 797 and $ 531, respectively. An analysis of past due but not impaired trade receivables, net, with reference to reporting date: Past due but not impaired Neither past due nor < impaired days days days days > 120 days Total December31, 2016 S S S $ $ $25,184 December31, 2015 $ 15,916 S $ 1,324 $ $ $ 1,209 $ NOTE 6:- INVENTORIES December 31, Contracts in progress $ 363 $ 508 Finished products 3,614 4,727 $ 3,977 $ 5,235 An inventory write-down in the amount of $ 136 and $ 113 was recorded in 2016 and 2015, respectively. F-31

41 NOTE 7:- PROPERTY AND EQUIPMENT, NET Computers and other equipment Office furniture, equipment and other Leasehold improvements Total Cost: As of December 31, 2015 S 3,074 $ 760 $ 919 $ 4,753 Additions Disposals Exchange rate adjustments 1,618 (2,276) (225) (34) (290) (54) (24) 2,117 (2,600) (303) As ofdecember3l, , ,967 Accumulated depreciation: As of December 31, 2015 Depreciation charge for the year Disposals Exchange rate adjustments As ofdecember 31, 2016 Net book value: As of December 31, 2016 As of December 31, , (2,079) - (290) (143) (101) (18) $ S 802 S 866 $ S ,929 (2,369) (262) 122 S S NOTE 8:- INTANGIBLE ASSETS, NET Cost: Research and development capitalized As of December 31, 2015 Capitalized S 4,449 As of December 31, 2016 S 4,449 Accumulated amortization: As of December 31, 2015 Amortization S 33 As of December 31, 2016 S 33 Net book value: As ofdecember 31, 2016 As of December 31, 2015 $ 4,416 $ F-32

42 $ $ $ $ $ NOTE 8:- INTANGIBLE ASSETS, NET (Cont.) Cost: Core Customer technology relationship Trade name Backlog Total - As of January 1, 2015 $ - $ $ S - Acquisition of a subsidiary 82,435 6,971 32,565 8, ,624 As ofdecember 31, , ,565 8, ,624 As of December 31, ,435 6,971 32, ,624 Accumulated amortization: - $ As of January 1, 2015 $ Amortization - 13, ,612 7,558 24,375 As of December 31, , ,612 7,558 24,375 Amortization , , As of December 31, ,048 2,133 5, ,769 Net book value: As of December 31, 2016 $ 52,387 $ 4,838 $ 26,630 $ As ofdecember 31, 2015 $ 69,210 $ 5, ,953 $ 1,095 $ NOTE 9:- GOODWILL a. Composition and movement: December 31, Balance at the beginning of the year $ 160,489 $ - Goodwill acquisition during the year - 160,489 Balance at the end of the year $ 160,489 $ 160,489 Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired. The goodwill is attributed to the expected benefits arising from the synergies of the combination of the activities of the Company and acquired companies. b. Impairment testing of goodwill: one cash- Goodwill acquired through business combinations has been allocated to generating units ( CGUs ) for impairment testing as follows: The calculation of value-in-use for CGU is most sensitive to the following assumptions: - Operating margin; - Discount rates; - Growth rate used to extrapolate cash flows beyond the budget period. Operating margins - Operating margins are based on average values achieved in previous years preceding the start of the budget period and as reflected by industrial trends. F-33

43 VIZRT GROIW AS. NOTE 9:- GOODWILL (Cont.) Discount rates - Discount rates reflect the current market assessment of the risks specific to each CGU. The discount rate was estimated based on the average percentage of a weighted average cost of capital for the industry. This rate was further adjusted to reflect the market assessment of any risk specific to the cash-generating unit for which future estimates of cash flows have not been adjusted. Growth rate estimates - Rates are based on published industry research. The recoverable amount of the CGU has been determined based on a value in use calculation using cash flow projections from financial budgets approved by senior management covering a five-year period. The pre-tax discount rate applied to cash flow projections in 2016 was 13.4% and 13% in 2015 and cash flows beyond the five-year period were extrapolated using a 3% growth rate in As a result of the analysis, management did not identify impairment for this CGU during c. Sensitivity to changes in assumptions: With regard to the assessment of value-in-use of the CGU, management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of the units to materially exceed its recoverable amount. Sensitivity to changes in wacc: Impact value-in-use Change arising from an increase of I % $ (24) Change arising from an increase of 2% $ (44) Change arising from a decrease of 1% $ 29 Change arising from a decrease of 2% $ 65 Sensitivity to changes in residual growth rate: Change arising from an increase of 1% S 21 Change arising from an increase of 2% $ 47 Change arising from a decrease of 1% $ (17) Change arising from a decrease of 2% $ (32) NOTE 10:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES December 31, Accrued expenses $ 3,265 $ 3,460 Government authorities 798 1,038 Other Total $ 4,652 $ 4,864 F-34

44 NOTE 11:- DEBENTURES, NET On March 13, 2015 the Company issued Debentures amounted to $113,300 which are traded in the Oslo stock exchange. The Company recorded a recruiting cost associated with the Debentures in the amount of $ 5,327, which was capitalized. The Debentures are presented net of recruitment costs which are amortized on based on IRR. The Debentures are securities which give the Debentures holders right for interest during the tenor of the Debentures and repayment of principal on the dates set forth in the Debentures Agreement. The Debentures are the senior liabilities of the Issuer and only subordinated to claims preferred by law. The nominal interest rate is three months LIBOR plus a margin of 7.125% which is equal to the yield for the Debentures holders. Interest accrues as of the issue date of the Debentures and is payable on a quarterly basis on March 30, June 30, September 30 and December 30, in each respective year. The maturity date of the Debentures is March 13, The representative of the Debentures holders is Nordic Trustee ASA. a. Debentures related expenses (income): Amortization of recruitment cost Interest expenses Finance Income - embedded derivative Year ended December 31, $ 754 $ 569 $ $ 6,816 $ 676 $ 123 b. Balances: December 31, Debentures embedded Derivative in Non-current asset Debentures, net $ 799 $ 109,297 $ 123 $ 108,542 F-35

45 cash NOTE 12: LOANS FROM RELATED PARTY ANS REVOLVING CREDIT FACILITY a. In order to finance the merger consideration in connection with the acquisition of Vizrt LTD. the following financing model was established: The net proceeds from the Debentures (note 11) were provided by the Company as follows: 1. S 56,984 to Vizrt AG (subsidiary) as a shareholders loan denominated in NOKs. In December 2015, Vizrt AG repaid $ 12,781 out of the principal amounting addition to the accrued interest of$ 730 through that date. 2. $ 48,640 to its parent company Vizrt Group Holding (the Parent company ) as an intercompany loan denominated in NOKs. In December 2015, the Company have distributed a non dividend of$ 48,674 to set off the entire loan and accrued. b. $ 76,000 from the Parent company to Vizrt AG through the Company as a shareholders loan denominated in NOKs. On January 1, 2016, the loan currency was converted from NOK to USD. The accrued interest as of December 31, 2015 was capitalized to the loan. Principal Accrued amount interest as of December 31, Iominal Effective as of Carrying amount 2016 Interest interest December 31, December31 Denomination amount rate % rate % LoanB NOK 77, % 12.18% 9,525 87,519 77,994 c. $ 173,959 shareholders contribution from the Parent company to Vizrt AG through the Company (including the $48,640 intercompany loan, see also note 12a(2)) denominated in NOKs- presented in Additional paid in capital. d. In October 2014 the parent company have provided a loan to the company of$ 103 which was repaid in October Revolving Credit Facility: The Company has a Revolving Credit Facility ( RCF ) in the amount of $ 20,000, available through March 18, As of December 31, 2016, the Company did not have any open RCF liability. Interest Nominal accrued Carrying amount Principal Interest During 2016 Amount paid December31 amount As of utilized December 31, Denomination during2ol6 rate% % RCF USD - Libor+3% F-3 6

46 NOTE 12: LOANS FROM RELATED PARTY ANS REVOLVING CREDIT FACILITY (Cont.) In connection with the RCF, the Company committed towards the lenders under the RCF, among other things, to meet certain financial covenants if the company utilizes 30% or more of the RCF. According to such financial covenants, the ratio of RCF utilization to consolidated EBITDA shall not exceed As of December 31, 2016, the Company meets the abovementioned financial covenants. NOTE 13:- COMMITMENTS AND GUARANTEES Lease commitments: The Company s facilities are leased under operating lease agreements for periods ending in Future minimum lease commitments under non-cancelable operating leases as of December 31, 2016, are as follows: 2017 $ 3, , , , and thereafter 10,480 $ 23,234 Rent expenses for the years ended December 31, 2016 and 2015 amounted to $ 4,580 and $ 3,414, respectively. The Company provided a bank guarantee in the amount of $ 136, in respect of its offices leases in Asia. The Company provided bank guarantees in the amount of $ 500 related to several of its customers in Asia, as required by the local law in these locations. Both guarantees expired in, NOTE 14:- INCOME TAXES a. Norway taxation: The Norwegian corporate tax rate was 25% in 2016 and 27% in In 2017 the corporate tax rate reduced to 24% b. Income taxes applicable to non-norwegian subsidiaries: Non- Norwegian subsidiaries are taxed according to the tax laws in their respective country of residence. The tax rate of the subsidiaries ranges between 0% and 41%. F-3 7

47 NOTE 14:- INCOME TAXES (Cont.) c. Carryforward losses: As of December 31, 2016, the U.S. subsidiary had a federal net operating tax loss carryforward of approximately $13,371. The federal operating loss carry-forward can be offset against taxable income for 20 years and expires from The U.S. subsidiary may not be able to utilize the total carry-forward and other tax attributes to offset future taxable income due to certain limitations defmed under the IRS rule and the limited time frame in which the carry forward losses may be utilized. As of December 31, 2016, the Company and its Norwegian subsidiaries had a net operating tax loss carryforward (related to currency effects) of approximately S 16,282 with no expiration date. As of December 31, 2016 and 2015, deferred tax assets of $5,018 and $7,248 respectively, relating to these carryforward losses were recognized in the financial statements. Deferred tax assets relating to carryforward operating losses of $ 11,778 recognized because their utilization in the foreseeable future is not probable. were not d. Deferred taxes: Significant components of the Company s deferred tax liabilities and assets are as follows: Consolidated statement of Consolidated statement of financial position income December 31, Carryforward tax losses S 5,018 $ 7,248 1,269 (7,116) Allowances, provisions and other temporary differences 1,292 1,036 (256) 72 Deferred tax asset 6,310 8,284 Intangible assets (9,476) (12,027) (2,551) (3,259) Allowances, provisions and other temporary differences (340) (5,248) (4,908) 5,440 Deferred tax liability (9,816) (17,275) Deferred tax liability, net $ (3,506) $ (8,990) Change in deferred taxes (6,446) $ (4,863) F-3 8

48 NOTE 14:- INCOME TAXES (Cont.) Deferred tax liability, net as of January 1,20 16 $ 8,990 Recognized in the statement of income: $ - In discontinued operations - In continuing operations (6,446) (4,863) New acquired subsidiary - 13,640 Recognized against tax accrual Recognized in other comprehensive income 1 82 (80) Exchange rate adjustment (28) (434) Deferred tax liability, net as of December 3 1,2016 $ 3,506 $ 8,990 e. Taxes on income are comprised as follows: Year ended December 31, Currenttax expense $ 4,161 $ 4,344 Adjustments in respect of prior years, net (681) 303 Deferred taxes (6,548) (4,871) Adjustment of deferred taxes due to change in tax rates f. Reconciliation of the theoretical tax expense: $ (2,966) $ (216) Reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company and the actual tax expense as reported in the statement of income is as follows: Year ended December 31, Loss before taxes, as reported in the consolidated statements of income $ 18,619 $ 9,948 Statutory tax rate 25% 27% Theoretical tax income at the Norwegian statutory tax rate $ (4,655) $ (2,686) Increase (decrease) in respect of: Losses, reserves and allowances for which deferred tax assets were not initially recognized (758) (249) Difference in tax rates of subsidiaries (1,313) 2,507 Adjustments in respect of prior years (681) 303 Non-deductible expenses 4, Other 306 (439) Actual tax expense $ (2,966) $ (216) F-3 9

49 $ NOTE 14:- INCOME TAXES (Cont.) g. Following the acquisition of Vizrt LTD., the Company adopted restricting plan in which Vizrt LTD. was liquidated in December As result of the liquidation, the Company paid an amount of $ 26,200 to the Israeli Tax Authorities ( ITA ) for the sale of all outstanding shares to Vizrt AG and for open year In August 2015, the Company utilized the provision recorded in the books for such tax payable and did not record additional expense. h. In December 2015, the Company reached a settlement with the Austrian tax authorities for the years according to which the Company has to pay additional $ 420 for these years, amount was paid in January The Company believes that it has recorded a sufficient accrual with respect to its tax positions mentioned by the Austrian tax authorities also for all open years, based on information available at this time. i. The Company operates in multiple jurisdictions throughout the world, and its tax returns are periodically audited or subject to review by both domestic and foreign authorities. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. NOTE 15:- RELATED PARTIES a. Transactions with related parties: Year ended December 31, General and administrative expenses (*) $ 163 $ - (*) Directors fees and related expenses. b. Balances with related parties: December 31, Other accounts payable and accrued expenses (*) $ - - (*) Directors fees and related accruals. F-40

50 Bernt NOTE 15:- RELATED PARTIES (Cont.) c. The following table summarizes remuneration and benefits related to executive employees of the Company and their holdings of the Company s shares as of December 31, 2016: Employee s Contribution Benefits position Remuneration pension plan and other CEO 1) ,712(refertod)) CFO2) CAO3) COO 4) CCO5) CTO6) CDO7) , ,022 Total expense related to key managements recognized in the statement of income in 2016 was $ 2,895. 1) Chief Executive Officer - Michael Hallen from August 2016, Martin Burkhalter until May 31, ) Chief Financial Officer - Lars Einar Hansen From August 31, Tomer Wald until August, ) Corporate Affairs Officer - Ofra Brown. 4) Chief Operating Officer - Francois Laborie 5) Chief Commercial officer -Stephan Wurmlin Stadler from April ) Chief Technology Officer - Petter Ole Jakobsen. 7) Chief Development Officer - Kre Johannessen. d. In June 30, 2016 The CEO of the Company,Martin Burkhalter, has left his position and was entitiled to a a pension and post-employment benefits in the amount of $ 1,645 which is included in the one-off expensed in the statement of income. F-4 I

51 cash NOTE 15:- RELATED PARTIES (Cont.) e. List of subsidiaries and associates as of December 31, 2016: Percentage Country of Company s name owned registration Vizrt AG. 100% Switzerland Vizrt technologies 2015 Ltd. 100% Israel Vizrt Inc. 100% US Peak Broadcast Systems AS 100% Norway Vizrt Austria GMBH 100% Austria Vizrt UK 100% UK Vizrt Sweden AB 100% Sweden Vizrt Spain & Portugal S.L. 100% Spain Vizrt (Thailand) Limited 100% Thailand Vizrt Switzerland Sarl 100% Switzerland Vizrt India Private Limited 100% India Vizrt CIS, LLC (Russia) 100% Russia Vizrt Australia Pty Ltd 100% Australia Vizrt Sweden Holdings AB 100% Sweden Vizrt Norway Holdings AS 100% Norway Vizrt Bangladesh 100% Bangladesh Vizrt Argentina SA 100% Argentina Vizrt (Beijing) Technology Ltd. 100% China Mosart MediaLab AS 100% Norway Mosart PTY Ltd 100% Australia Stergen Hi-Tech Ltd. 24% Israel NOTE 16:- SHARE CAPITAL a. Composition of share capital: December 31, Issued and Issued and Authorized outstanding Authorized outstanding Ordinary shares of NOK 1 par value each 60,000 60,000 60,000 60,000 b. Rights attached to the Ordinary shares: Voting rights at the general meeting, right to dividend, rights upon liquidation of the Company and right to nominate the directors in the Company. c. No dividend was distributed in 2016, in December 2015 the Company have distributed non dividend of$ 48,674. See also Note 12. F-42

52 NOTE 17:- ACCUMULATED OTHER COMPREHENSWE LOSS Currency translation adjustment Remeasurement loss Total January 1,2016 Foreign currency translation adjustments Net remeasurement loss related to employee benefit plan $ 552 $ $ December31, 2016 $ 1,493 $ 385 $ 1,878 NOTE 18:- EMPLOYEE BENEFITS The Company provides retirement and other post-employment benefits to its employees in certain locations and to the CEO of the Company (as described in Note I Sd). Employee benefits consist of long-term benefits and post-employment benefits. a. Post-employment benefits: Israel - According to the labor laws and Severance Pay Law in Israel, the Company is required to pay compensation to an employee upon dismissal or retirement as specified below. The Company s liability is accounted for as a post-employment benefit. The computation of the Company s employee benefit liability is made in accordance with a valid employment contract based on the employee s salary and employment term which establish the entitlement to receive the compensation. The post-employment employee benefits are normally financed by contributions classified as defined benefit plans as detailed below. Switzerland - According to the Law in Switzerland, the company is committed to have a retirement pension plan with pension funds for all its employees. The plan defines retirement payments depending on the employee insured salary, age of the employee and interest rate determined yearly by the pension funds. The retirement benefits are financed by saving contributions equally shared by the employer and employees. Austria - Employees hired before January 1, 2003, are entitled to receive termination benefit payments in case of termination by the employer or termination by the employee for valid reasons. The severance pay amount depends on the employee s salary and period of service on date of termination. F-43

53 NOTE 18:- EMPLOYEE BENEFITS (Cont.) Thailand - According to the Labor Protection Act (A.D. 1988) in Thailand, the company is required to pay compensation to an employee upon retirement, involuntary separation or termination without a cause as specified hereunder. The Company s liability is accounted for as a post-employment benefit. The computation of the employee benefit liability is made based on salary and duration of employment as stipulated by the law. United Arab Emirates ( UAE 9 - According to UAE Labor law (Federal law no.8 of 1980), an employee who has completed one year or more in the continuous service, is entitled to remuneration at the end of his service at his own option or at tennination without a cause as specified in the law. The Company s liability is accounted for as a post-employment benefit. The computation of the employee benefit liability is made based on salary and duration of employment as stipulated by the law. b. Defined benefit plans: The Company accounts for payment of compensation as a defined benefit plan for which an employee benefits liability is recognized and for which the Company contributes amounts in central severance pay funds and in qualifying insurance policies. 1. Expenses charged to the statement of income: Year ended December 31, Current service cost $ 499 $ 739 Past service cost Interest cost, net Employee return on plan assets (40) 40 Total expenses in respect of employee benefits S 564 $ 819 Expenses presented in the statements of income are as follows: Year ended December 31, Cost of sales $ 55 $ 95 Research and development expenses Sales and marketing expenses General and administrative expenses S 564 $ 819 F-44

54 NOTE 18:- EMPLOYEE BENEFITS (Cont.) 2. Plan liabilities, net: December 31, Defined benefit obligation S 6,106 S 6,188 Fair value of plan assets 2,564 2,685 Plan liabilities, net $ 3,542 $ 3, Defined benefit obligation: a) Changes in present value defined benefit obligation: Plan assets: BalanceasofJanuaryl S 6,188 $ - Acquisition of DBO 5,198 Interest expense, net Current service cost Past service cost (8) 40 Benefits paid (619) (164) Actuarial gain for changes in financial assumptions Exchange rate differences (34) 86 Balance as of December31 $ 6,106 $ 6,188 a) Plan assets: Plan assets include assets held by a long-term employee benefit fund and by qualifying insurance policies. b) Movement in fair value of plan assets: Balance as of January 1 $ 2,685 $ Acquisition of plan assets 2,626 Employer contributions to the plan Employee contributions to the plan (436) (200) Benefits paid (130) (69) Return on plan assets (in excess of interest income) Exchange rate differences (26) (13) Balance as of December31 $ 2,564 $ 2,685 F-45

55 NOTE 18:- EMPLOYEE BENEFITS (Cont.) c) The Company s actual plan asset allocations as of December 31, 2016 and 2015 are as follows: Asset category: Linked to the inflation (principally Israeli CPI): Debt instruments $ 1,091 $ 1,034 Not linked: Debt instruments Equity Other Balance as of December31 $ 2,564 $ 2, Weighted average of principal assumptions used in determining the defmed benefit obligation: Discount rate of the plan liability 1.1% 1.4% Expected annual salary increase rate 2.2% 2.1% 6. Uncertainties of future cash flows: Sensitivity to changes in the rate of expected salary increase (*): Impact on the net defined benefit obligation Change arising from a salary increase of 3% 217 Sensitivity to changes in the discount rate of plan assets and liabilities(*): Change arising from an increase of 0.5% in the discount rate (372) Change arising from a decrease of 0.5% in the discount rate 490 (*) Analysis is conducted only for Israel and Switzerland, which comprise 93% of the Company s defined benefit obligations. NOTE 19:- FINANCIAL INSTRUMENTS Financial risk management objectives: The Company is exposed to credit and market risks as part of its ordinary course of business. The Company s risk management objective is to monitor risks and minimize the possible influence that may result from this exposure, according to its evaluations and expectations of the parameters that affect the risks. The Company uses derivative instruments in order to partially hedge its exposure to foreign currency exchange rate fluctuations. The Company s senior management oversees the management of these risks. F-46

56 NOTE 19:- FINANCIAL INSTRUMENTS (Cont.) All derivative activities for risk management purposes are carried out by senior management that has the appropriate skills and experience. It is the Company s policy that no trading in derivatives for speculative purposes shall be undertaken. The financial risks are summarized herein: Market risk: Market risk is the risk that changes in market prices, such as foreign exchange rates will affect the Company s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return on risk. Financial instruments affected by market risk include derivative financial instruments. Foreign currency risk: Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company s exposure to the risk of changes in foreign exchange rates relates primarily to the Company s operating activities (when revenue or expense are denominated in a different currency from the Company s functional currency) and the Company s net investments in foreign subsidiaries. 2. Credit risk: Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily for trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term deposits and trade receivables. Cash and cash equivalents and short-term deposits amounting to $ 47,570 at December 31, 2016 are deposited with major banks in Israel, Europe and the United States, and invested mostly in U.S. dollars and Euros. Such deposits may be in excess of insured limits and are not insured in other jurisdictions. Generally, these deposits may be redeemed upon demand and, therefore, bear low risk. The Company s trade receivables are derived from sales to customers in various locations. The Company performs ongoing credit evaluations of its customers fmancial condition and requires collateral as deemed necessary. Management periodically evaluates the collectability of these receivables and adjusts the allowance for doubtful accounts to reflect the amounts estimated to be uncollectible. F-47

57 NOTE 19:- FINANCIAL INSTRUMENTS (Cont.) In certain regions with similar economic environmental characteristics that increase the credit risk, it is the Company s policy to request a letter of credit from a primary bank to ensure collectability. 3. Foreign currency sensitivity: The Company believes that no reasonable change in foreign currency exchange rates would have a material impact on the profit and loss or equity. 4. Financial assets and financial liabilities: The financial assets and fmancial liabilities in the balance sheet are classified by groups of financial instruments pursuant to las 39: Financial assets: December 31, Loans and receivables: Trade and other receivables $ 30,888 $ 32,065 Financial liabilities: Trade payables and other liabilities $ 13,275 $ 12,144 Loan from related party $ 87,519 $ 77,994 Debentures, net $ 109,297 $ 108, Fair value of financial instruments: The carrying amounts of cash and cash equivalents, short-term bank deposits, trade receivables, trade payables, employees and payroll accruals, and other liabilities approximate their fair values due to the short-term maturity of these instruments. Interest-bearing loans and borrowings are initially recognized at fair value less directly attributable transaction costs (such as loan raising costs). After initial recognition, loans, including debentures, are measured based on their terms at amortized cost using the effective interest method taking into account directly attributed transaction costs. The fair value of foreign currency contracts (used for hedging purposes) is estimated by obtaining current quotes from investment bankers. F-48

58 NOTE 19:- FINANCIAL INSTRUMENTS (Cont.) 6. The financial instruments presented in the balance sheet at fair value are grouped into classes with similar characteristics using the following fair value hierarchy which is determined based on the source of input used in measuring fair value: Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 - Inputs other than quoted prices included within Level I that are observable either directly or indirectly. Level 3 - Inputs that are not based on observable market data (valuation techniques which use inputs that are not based on observable market data). 7. Financial assets and financial liabilities: December 31, 2016: Level 1 Level 2 Level 3 Assets: Embedded derivative $ 799 Liabilities: Debentures, Net $ 109,297 Loan from related party $ 87,519 Foreign currency sensitivity analysis: As December 31, 2016, the Company does not have any foreign currency exposure related to its financial assets or liabilities. The movement in the post-tax effect is a result of a change in the fair value of derivative financial instruments not designated as a hedge and monetary assets and liabilities denominated in US dollars (where the functional currency of the Company is a currency other than US dollars). Although the derivatives have not been designated as a hedge, they act as an economic hedge and will offset the underlying transactions when they occur. The movement in equity arises from changes in US dollar loans (net of cash and cash equivalents) in the hedge of net investments in US foreign operation. These movements will offset the effect of the translation of the US foreign operation. Maturity for fmancial liabilities As to debentures, net and loans from related part maturity dates refer to Note 11 and Note 12, respectively. F-49

59 NOTE 20:- GEOGRAPHIC INFORMATION a. General: The operating segments are identified on the basis of information that is reviewed by the chief operating decision maker ( CODM ) to make decisions about resources to be allocated and assess its performance (the Company s CEOGeographic information Revenues are attributed to geographic areas based on the location of the customers. The following tables present total revenues for the years ended December 31, 2016 and 2015: Revenues from sales to unaffiliated customers: Year ended December 31, United States $ 34,460 $ 33,900 Europe (excluding Germany, UK) 30,182 20,230 Germany 6,603 6,051 United Kingdom 6,316 5,610 United Arab Emirates 4,658 3,494 Thailand 5,430 5,274 Asia (excluding Thailand) 18,722 18,857 Other 12,982 10,827 $ 119,357 $ 104,243 Non-current assets (excluding long-term lease deposits and deferred taxes) are located in the following countries: December 31, Switzerland $ 249,334 $ 267,376 Norway Austria Sweden Thailand Israel Other 981 1,036 $ 252,605 $ 270,667 F-50

60 VTZRT GROUP AS. NOTE 21:- SUPPLEMENTARY INFORMATION TO STATEMENTS OF INCOME ITEMS a. Cost of revenues: Year ended December 31, Employee related costs $ 13,146 $ 9,727 Materials 17,253 18,724 Amortization of intangible assets 16,824 13,225 Sub-contracted work 1,989 1,753 Depreciation Other 2,099 1,189 b. Research and development expenses: S 51,393 $ 44,712 Employee related costs $ 15,168 $ 12,903 Office related expenses 1,465 2,172 Depreciation Other c. Sales and marketing expenses: $ 17,782 $ 15,837 Employeerelatedcosts $ 18,778 $ 12,895 Office related expenses 3,312 3,801 Amortization of intangible assets 5,570 11,150 Subcontractors Marketing 2,753 2,986 Depreciation Other 1,719 2,731 d.general and administrative expenses: $ 33,685 $ 34,995 Employee related costs $ 7,442 $ 5,083 Office related expenses 990 1,099 Professional services 2,199 1,820 Depreciation Other $ 11,533 $ 8,957 F-SI

61 NOTE 21:- SUPPLEMENTARY INFORMATION TO STATEMENTS OF INCOME ITEMS (Cont.) e. Financial income and financial expenses: Year ended December 31, Financial income: Interest on deposits S 78 $ 113 Foreign currency exchange differences and other, net 1,896 7,556 (1,974) (7,669) Financial expenses: Interest on debentures (9,031) (6,816) Amortization of bond discount (754) (569) Interest on loan (9,525) (4,470) Bank charges and other interest (328) (306) Foreign currency exchange differences and other, net (2,670) (3,514) 22,308 15,675 $ 20,334 S 8,006 f. During 2016, the Company paid or incurred $ 1,040 for accounting and related services, consisting of $ 717 for audit services, $ 83 for audit related services and $ 240 for tax related services. F-52

62 Related Related Statement of financial position (NOK 1000) Vizrt Group AS Financial statement for the year 2016 Note ASSETS Non-current aasets Financial assets 6,910 1,084 Loans to subsidiaries 1,066,469 1,076,713 Investment in subsidiaries 7,8 1,328,282 1,444,930 Deferred tas assets 6 36,759 31,678 Total non-current assets 2,438,420 2,554,405 Current assets Accounts receivable - party 9 32,285 4,236 Other current assets Cash and cash equivalents 11 81,279 54,892 Total current assets 113,820 59,128 TOTAL ASSETS 2,552,240 2,613,533 EQUITY AND LIABILITIES Equity Paid in capital Issued capital 12, Share premium 12,13 1,482,927 1,482,927 Other paid in capital 12,13-424, ,355 Total paid in capital 1,058,632 1,058,632 Other equity Other equity 12,13-231,389-93,369 Total other equity -231,389-93,369 Total equity 827, ,263 Non-current liabilities Interest-bearing loans and borrowings , ,278 Secured bond , ,692 Other Long term lisbilities Total non-current liabilities 1,702,099 1,639,160 Current liabilities Other current liabilities 6,484 1,022 Other current liabilities - party 9 16,414 8,087 Total current liabilities 22,898 9,109 Total liabilities 1,724,997 1,648,269 TOTAL EQUITY AND LIABILITIES 2,552,240 2,613,533 of the Board and CEO Director & Interim CFO

63 - Diluted Income statement (by nature of expense) 1 January - (NOK 1000) 31 December Vizrt Group AS Financial statement for the year 2016 Note Rendering of services 15,506 2,976 Total revenue 15,506 2,976 Salary and personell costs 2,3 17,650 2,689 Other operating expenses 4,5 7,763 2,711 Operating profit -9,907-2,424 Finance income -158, ,839 Finance costs 201, ,172 Profit before tax from continuing operations -52, ,757 Income tax expense (benefit) 6-11,667-31,678 Profit after tax from continuing operations -41,130-95,079 Equity in earnings -87,681 8,961 Profit for the year from total operations -128,811-86,118 Attributable to Equity holders of the parent company -128,811-86,118 Earnings per share: Continued operation - Basic

64 - Vizrt Group AS Financial statement for the year 2016 Cash Flow from Operating activities Profit/(loss) before tax -52, ,757 Finance costs -30,089 80,258 Change in account receivables -7,532-5,320 Change in account payables 13,789 9,109 Changes in other current balance sheet items Net Cash Flow from Operating activities -76,675-42,520 Cash Flow from Investing activities Group contribution from subsidiary - Investment in subsidaries - -1,442,449 Repayment of Loan from subsidaries 103,062 - Loan to subsidiaries ,500 Net Cash Flow from Investing activities 103,062-2,434,949 Cash Flow from financing activities Loans from related parties - Repayment of Loan from related parties - Dividend - Issue of bond, net - Issue of share capital - Net Cash Flow from financing activities - 625, , ,669 1,482,957 2,532,331 Net change in Cash and cash equivalents 26,387 54,862 Cash and cash equivalents pr , Cash and cash equivalents pr ,279 54,892 3

65 Vizrt Group AS Financial statement for the year 2016 Note 1 Summary of significant accounting policies The finencial statements of Vizrt Group AS for the year ended 31 December 2016 were authorized for issue in accordance with a resolution of the directors on April 27, Vizrt Group AS is a limited company, whoilt owned by Vizrt Group Holding AS and incorporated in Norway, headquartered in Bergen. Address headquarters: Nordre Ngstekaien 1, 5011 Bergen, Norway. 1.1 Basis for preparation of the annual accounts The financial statements have been prepared in accordance with the Norwegian Accounting Act 3-9 and Regulations on simplified IFRS issued by the Ministry of Finance on 21 January 20DB. This means that recognition and measurement complies with International Financial Reporting Standards (IFRS) and the presentation and disclosures are in accordance with the Norwegian Accounting Act and generally accepted accounting principles. The financial statements are based on historical cost, with the exception of financial instruments which are available for sale and recognized at fair value. The financial statements have been prepared on the basis of uniform accounting principles for similar transactions and events under otherwise similar circumstances. The financial statements are presented in NON and all values are rounded to the nearest thousand (NOK000), except when otherwise indicated. 1.2 Functional currency and presentation currency The companys presentation and functional currency is NOK. 1.3 The use of estimates and assessment of accounting policies when preparing the annual accounts Estimates and assumptions The management has used estimates end assumptions that have affected assets, liabilities, incomes, expenses and information on potential liabilities. 1.4 Revenue recognition Revenue is recognised when it is probable that transactions will generate future economic benefits that will flow to the company end the amount can be reliably estimated. Revenues are presented net of value added tax and discounts. 1.S Subsidiaries and investment in associates The Group s investment in its subsidiaries is accounted for under the equity method of accounting. A subsidiary is an entity in which is controlled by the Group. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The reporting dates of the associates and the Group are the same and the same accounting policies are applied upon recognition of the subsidiaries. Investments in subsidiaries are recognized initially at cost. The Group s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group s share of the income and expenses and equity movements of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence or ceases. When the Group s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term investments, is reduced to nil, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. Profits and losses resulting transaction with subsidiary company are recognized in the Group accounts only to the extent of unrelated investors interests in the subsidiary. The Group share in the subsidiary s profits and losses resulting from these transactions are eliminated. When the Group s investment in a subsidiary is reduced by other than an actual disposal, commonly referred to as deemed disposal, a resulting gain or loss is recognized when the Group continues to apply the equity method. 4

66 1.6 Income tax The tax expense consists of the tax payable and changes to deferred tax. Deferred tax liabilities/tax assets are calculated on all differences between the book value and tax value of assets and liabilities, with the exception of temporary differences related to investments in subsidiaries, associates or joint ventures when the Group controls when the temporary differences are to be reversed and this is not expected to take place in the foreseeable future. Deferred tax assets are recognised when it is probable that the company will have a sufficient profit for tax purposes in subsequent periods to utilise the tax asset. The companies recognise previously unrecognised deferred tax assets to the extent it has become probable that the company can utilise the deferred tax asset. Similarly, the company will reduce a deferred tax asset to the extent that the company no longer regards it as probable that it can utilise the deferred tax asset. Deferred tax and deferred tax assets are measured on the basis of the expected future tax rates applicable to the company. Deferred tax and deferred tax assets are recognised at their nominal value and classified as non-current asset investments (long-term liabilities( in the balance sheet. Taxes payable and deferred taxes are recognised directly in equity to the extent that they relate to equity transactions. 1.7 Cash and cash equivalents Cash includes cash in hand and at bank. Cash equivalents are short-term liquid investments that can be immediately converted into a known amount of cash and have a maximum term to maturity of three months. In the statement of cash flows, the overdraft facility is stated minus the balance of cash 1.8 Equity Equity and liabilities Financial instruments are classified as liabilities or equity in accordance with the underlying economical realities. Interest, dividend, gains and losses relating to a financial instrument classified as a liability will be presented as an expense or income. Amounts distributed to holders of financial instruments that are classified as equity will be recorded directly in equity. Convertible bonds and similar instruments which contain both a liability and equity element are divided into two components when issued, and these are recognised separately as a liability or equity. Costs of equity transactions Transaction costs directly related to an equity transaction are recognised directly in equity after deducting tax expenses. 5

67 1.9 Provisions A provision is recognised when the Group has an obligation (legal or self-imposed) as a result of a previous event, it is probable (more likely than not) that a financial settlement will take place as a result of this obligation and the size of the amount can be measured reliably. If the effect is considerable, the provision is calculated by discounting estimated future cash flows using a discount rate before tax that reflects the market s pricing of the time value of money and, if relevant, risks specifically linked to the obligation Contingent liabilities and assets Contingent liabilities are not recognised in the annual accounts. Significant contingent liabilities are disclosed, unless the possibility of an outflow of resources is remote. Contingent assets are not recognised in the annual accounts but are disclosed if it is probable that a benefit will be added to the Group Events after the reporting period New information on the company s financial position on the end of the reporting period which becomes known after the reporting period is recorded in the annual accounts. Events after the reporting period that do not affect the company s financial position on the end of the reporting period but which will affect the company s financial position in the future are disclosed if significant Pension The company s pension plan is a defined contribution scheme. The annual premium is expensed as the year s pension expense. 6

68 Viert Group AS Financial statement fur the pear 2010 Note 2-5alery and personnel eupense uud management remuneration Salaries urd hulidap pay Natianul insurance rustribtiun Pensiun rnsts Other Suns , , ,050 2,009 There are flu luans ur pledges tu eueeutise officers, directors or uharehulders, Note 3-Remuneration The cumpany hans empluyees starting Octuher 2015 The cumpany s pensius plan fulluws the reqairements uf the Act an Mandatary rumpany pennian. CCO 1) OW 2) femuneration Cuntributius persiun plan COOS) ) Chief Commercial Offirer Francuis Laburie 2) Chief Technulugy Officer Petter ole tabuhsen 3) Chief Oenrlapment Officer Beret KSre iuhannesseo Cast fur memhers af the ROD is 2010 including salary, benefit, pension or uther remareratian rust was 1,397 and Sin 2016 and 2015, respectiselp. Noted- Specifiaatian auditor s fee Statatury audit 757 Tax cunsaltant terflicns 44 5am 000 VAT is not included in the fees specified abuse.

69 NoteS-Other operating expenses Travel Other Sum 7, , ,714 2,179 2,711 Note 6- Income fax Income fax nopecse: Too payable Changes in deferred tax -12,652-31,676 Sum Tar erpenre -11,667-31,678 Colcofafion of taxable income: Profit before tar from continuing operations -52, ,757 Permanent differences Tanable income -52, ,712 Sperificafion of temporary differeexes: Tar Ions carried forward -52, ,712 Som -12, ,712 Deferred tar liabilities (Anset) -12,6S2-31,676 Deferred tar liabilities (Asnet) in balance -12,612-31,678 As of the too rote in Norwoy won reduoed to 24%. Deferred tao liability ond deferred too onset an of hon been colooloted with a ton rote of 24%. Reronxiliotion of too enpeone Income deferred fares calculated of 25%,27%. -12,652-31,678 Inrome deferred fares calculated of 25%,27%. -11,667-31,678

70 Note 7- leoestmevts iv subsidiaries Country of Acquired iecorporatioe Oweership leterest Book value Equity Net Profit (Less) March 19, Visrt AG 2015 Norway 100% 1, ,390,047-87,680 Viart AG ito wholly owned subsidiary of the comyany. Oo March 10, 2015 the Company throagh its wholly owned vobsidiory Viort AG acquired the tharet of Visrt LTD ted its nobsidinien. for a total cash coesideratioo oft 353,018 (NOK 2,138,455) lv October 2Bt5 Visct LTD was oo)actanily liquidated Country of Cvmpsny Acquired incerperetien Ownership Interest Visrt AS. 10/03/2055 Switzerland tto% Vizrt technologies 2015 Ltd. 19/03/2015 Israel 100% Visrt Inc 19/03/2015 US 100% Peah Broadcast Systems AS 19/53/2011 Norway 100% Visrt Aastria GMBA 19/03/2015 Austria 100% Visct UK 19/03/201S UK 100% Visit Sweden AB 19/03/2015 Sweden 100% Visrt France SarI 1H/03/201N Prance 100% Visit Spain & Portugal t.l 19/03/2USS Spain 100% Visit )Tbailaed) LimAed 19/03/2015 Thailand 100% Visit Swisserlard Sari S9/03/201N Switserland 100% Visrt India Pdoate Limited 10/03/2011 India 100% Visrt CIS, LLC (Russia) SH/03/2OSS Rassia Visit Australia Pry Ltd 19/03/2OSN Auoralia 100% Visrt Sweden Holdings AB 19/03/201N Swedee 100% Visit Norway Holdings AS 10/03/2011 Norway 500% Visit Bangladssh 19/03/2015 Bangladesh 100% Visit Argeesiva SA 19/03/2015 Argentisa 100% Visit (Beijing) Technology Ltd. 19/03/2015 China 100% Mosart MediaLab AS 59/03/2511 Norway 100% Mosart P37 Ltd 19/03/2011 Australia 100% Stergee Hi-Tech Ltd. 19/03/2011 Israel 24% The voting power of the shores are the name as the ownerohip interest. Note B - Intercompaey balances 2011 ZOSS Other current assess 32,201 4,236 Other current liabilities 16,414 8,007

71 Note t: Short and Lent-term debt The Company hat a Revolving Credit Facility ) RCF ) in the amount of 6USD 20,000, available through March it, 2020 and carrying a nominal interent rate of LIBORv3%. At of December 31, 2015, the Cempaey did not have any open RCF liahility an all 2015 utilited amount and accrued interest mere paid by December31, 2011 In connection with the revolnieg credit facility, the Company committed tnmardn the bank, among ethers, to meet certain financial covenants if the company utilites nver3l% of the creditfacility. According to the hnancial covenants, the ratio of the Company s Net debt (Interest bearing obligations, lets cath in hand or at a bank and short term, highly liquid investments) to consolidated EBITDA shall not enceed As of December 31, 20t5, the Company meets the abuvementinned financial covenants. Unsenared Effentioe Maturity date 20th 21St interest rate Loan from shareholders 12.10% N/A 755, ,270 terured Bond Libnrv7.125% March 13, 2021 e44,t94 tlu,bnz Total long-term debt 1,7t1,htt t,n3t,97t On August 14, 2515, Vizrt Group Al issued a bond of 6USD 113,300 with 6 yearn maturity. The bond is listed on Oslo Stock Eochange )tickerylzool), effective from 13 of March Total interest bearing debt per December 2016 is only the issued Bond of 6USD 113,300 less remaining facilitation fees of 6USD 4,750 to be amortized until March 13, 2021 by using the effective interest rate method. Note 10- eestdced funds There are no restrictions on the use of csmpaey s funds Note it - Equity Share napital share premium Other paid ie napital Other eamprehensioe Retained eamirtgs Traesantian nests Equity nl.nl.2t ,402, ,015-7,142 -Rb, ,263 Other comprehensive income -9,203-9,205 Proft for she period -120, ,011 Equity t,4r2, ,311-16, , ,243 it

72 Nate 12- share capital, shareholders ittarmation and dividend 2tlh 2015 Common shares, nominal amount NOK ,000 Total number of shares 60,000 60,000 All issued shores have equal voting rights. The main shareholders at are: Namborof common Owerrship sharos: interest: Viart Group Holding AS 60, % TOTAL 60, % Note 13- Financial macbet risb The Company does not use financial instruments to manage financial riabs. The company has limited interest rate rish as H has hoed interest rate in its loan from shareholders and floating LINUS based interest rates, in its HCF and bond liabilities. Eochooge cane dab The company has eachange rate eupasare too secured bond denominated in