20 22

KYOTO GROUP Annual report

About Kyoto Group AS 03
Key events H1 2022 05
Shareholder information 05
Letter from our CEO 07
Board of Directors' report 08
Financial statements (consolidated) 14
Notes to annual financial statements (consolidated) 22
Financial statements (Kyoto Group AS) 59
Notes to annual financial statements (Kyoto Group AS) 66

About Kyoto Group

Kyoto Group was founded on the idea that heat is the most commonly used form of energy in industrial applications. By storing energy as heat, we can decouple the time from when energy is produced to when it is applied in industry.

Kyoto Group disconnects the time power is made from when it is used by leveraging increasing energy market fluctuations and excess power from wind and solar. We can offer reliable and efficient storage of energy and seamless delivery of heat to industrial customers when it is needed.

Two-thirds of industrial energy demand is tied to heat, not electricity, and only 9% of current heat generation comes from renewable sources. This is not sustainable. Our thermal battery, Heatcube, will make solar and wind more stable and reliable by adding storage to the system and has the potential to increase carbon-free renewable energy use. By reducing power generation carbon emissions, we are playing an important role in the ongoing global energy transition. The Heatcube technology is standarized and modular from 8MWh to 96MWh, offering the potential to rapidly scale, reduce carbon footprint and save cost.

Kyoto Group aims to capture and manage the abundant energy from variable renewable sources such as solar and wind power and apply it to reduce the CO2 footprint for industrial thermal loads. The Group plans to sell and lease & operate Heatcube thermal batteries, enabling industrial consumption of lowcost heat sourced from excess solar and wind energy.

Our product: the Kyoto Heatcube

With a heart of molten salt, our thermal battery can be customized to meet the customer energy needs.

The Kyoto Heatcube can be configured with storage capacities from 16 MWh to over 96 MWh, with a discharge effect for each Heatcube of up to 5 MW. It is an innovative, low-cost, and modular storage solution for thermal energy that can use multiple renewable energy sources to heat molten salt to over 450 degrees Celsius. The high-temperature salt is then used to produce steam for industrial production processes.

The Kyoto Heatcube is modularized and can be delivered on-site, ready to be easily integrated into your production system. Since we only use abundant, non-toxic components in our battery, Kyoto Heatcube can be recycled without leaving any harmful chemicals in the environment.

Key events 2022

First commercial Heatcube installation at Nordjyllandsværket (NJV) erected and reaching key milestones; foundation casted, filling & melting of tanks completed, and steam generation system (SGS) completed

NJV on track for initiation of cold commissioning in January 2023

Commercial pipeline of more than 2100 MWh storage was developed, representing 41 projects

Signed 7 LoIs with "Go to market" partners and with industrial players; Kyoto won Hungarian tender

Strong European supply chain established, securing high-quality and competitive suppliers capable of scaling together with us

Launched the Heatcube 2.0 – cost-leading energy storage solution based on insight from clients

Established business unit based on world-class molten salt engineering expertise in Spain by acquiring Mercury Energy

Strengthened management team to support growth, incl appointment of Camilla Nilsson as permanent CEO and appointment of Håvard Haukdal as CFO

Shareholder information

Share capital

Kyoto Group's registered share capital on 31 December 2022 amounted to NOK 252 617 divided between 8 420 560 shares with a nominal value of NOK 0.03 each.

Total equity for the group on 31 December 2022 was EUR 6 977 091, corresponding to an equity ratio of 62 per cent.

Euronext Growth listing

The Group's shares have been listed on Euronext Growth Oslo (ticker code: KYOTO) since 24 March 2021. During 2022, the share price moved from NOK 17.8 to NOK 18.2. At the end of December 2022, the Group's market capitalization was NOK 152 833 164.

Shareholder structure

At the end of December 2022, Kyoto Group had 709 shareholders, and the foreign shareholding amounted to 4.9 percent.

KB Management AS was the largest shareholder, holding 10.7 percent of the Kyoto shares, followed by Hydro Energi Invest AS with 9.0 percent and Valinor

AS with 8.6 percent. 100 per cent of the shares are free float. The 20 largest shareholders held a total of 67.6 percent of the Group's shares at the end of December 2022.

Mandates

There is only one class of shares, and all shares have equal voting rights. The nominal amount per share is NOK 0.03. The articles of association place no restriction on voting rights. Each share carries one vote at the Group's general meeting. The shares are freely transferable pursuant to the company's articles of association.

Authorization to the board of directors to increase the Company's share capital

At the annual general meeting on 29 June 2022, the board of directors were authorized pursuant to the Norwegian Private Limited Liability Companies Act section 10-14 (1) to increase the company's share capital by up to NOK 9 000. Subject to this aggregate amount limitation, the authorization may be used on more than one occasion. The authorization can only be used to issue shares to employees and board members as part of the Group's share program. The authorization shall be valid for a period of 24 months from the date of this general meeting, i.e. until 29 June 2024. The pre-emptive rights of the shareholders under section 10-4 of the Norwegian Private Limited Liability Companies Act may be set aside. The authorization covers share capital increases against contributions in cash and contributions in kind. With effect from the time of registration of this authority with the Norwegian Register of Business Enterprises, all previous authorities to the board of directors to increase the share capital are revoked.

Authorization to the board to acquire own shares

The annual general meeting on 29 June 2022 authorized the board of directors of Kyoto Group to acquire Kyoto Group's own shares. In accordance with the proposal by the board of directors, the board of directors is authorized pursuant to the Norwegian Private Limited Liability Companies Act section 9-4 to acquire shares in the Group ("own shares") with an aggregate nominal value of up to NOK 15 000 000. When acquiring own shares, the consideration per share may not be less than NOK 10.00 and may not exceed NOK 50.00. The board of directors determines the methods by which own shares can be acquired or disposed of. The authorization shall be valid for a period of 24 months from the date of this general meeting, i.e. until 29 June 2024. With effect from the time of registration of this authority with the Norwegian Register of Business Enterprises, all previous authorities to the board of directors to acquire own shares are revoked.

Dividend policy

Kyoto Group is in a growth phase and does not expect to pay any dividends in the near future. Any future decision to pay a dividend will depend on the Group's financial position, operating profit and capital requirements.

Information and investor relations

Kyoto Group wishes to maintain open communications with its shareholders and other stakeholders. Shareholders and stakeholders are kept informed by announcements to Euronext Oslo Børs and press releases. Kyoto's website www.kyotogroup.no provides information on the company's business and financial situation. Interim financial statements are presented at meetings open to the general public and are available as webcasts at www.kyotogroup.no

Letter from our CEO

In 2022 we proudly installed our first full-scale Heatcube at the Nordjylland Power Station in Denmark, with a thermal energy storage capacity of 18 MWh and a discharge capacity of 4 MW. The Heatcube will operate under a lease agreement and will be handed over to Aalborg Forsyning, the owner of the power station, upon completion of commissioning in 2023.

Fueled by the geopolitical situation in Europe and the urge by industrial clients to reduce the dependency on natural gas, our pipeline grew beyond 40 industrial clients throughout Europe in less than one year, currently totaling 2 600 MWh of thermal energy storage capacity. We won a tender process in Hungary in competition with a handful of other thermal energy storage technologies and we signed seven Letter of Intents (LoIs) concerning Heatcube installations. We are currently progressing those prospects towards signing and are targeting to sign at least 10 contracts in 2023.

As important as clients are utility providers, securing renewable energy to charge the Heatcube at competitive terms and in some cases also to deploy, we are in close collaboration with a handful of utility companies throughout Europe to secure a strong position for the Heatcube in the market. In April we signed an agreement with one of the largest electricity companies in the world to jointly introduce the Heatcube to industrial customers and have already submitted co-developed offers to several specific customers in pulp & paper, food and construction materias industries.

Maturing industrial clients for infrastructure projects is a lengthy process, typically 9-12 months, with internal decision making, grid connection and funding being the most significant obstacles. We have developed a pipeline process that gives priority to near-term prospects.

A strong organization capable of scaling the company was established during 2022. An engineering team of molten salt experts, a strong commercial team with track-record from both industry, CSP and the energy sectors as well as a senior project execution team and an experienced sourcing team are now in full operation, in addition to the administration, all representing 13 nationalities, 30% females and a leadership team (43% females) with significant industrial experience and track record from both large corporation and start-up experience. The tech team is supported by a post-doc collaboration with one the best tech universities in the world, The Royal Institute of Technology in Stockholm.

In addition, a solid European eco-system of technology providers and collaboration partners was established, securing serial-production of the key equipment for the Heatcube and forming a strong alliance to decarbonize process heat for the industry.

We acquired Mercury Energy in 2022, which became the seed of our new legal entity in Spain, Kyoto Technology Spain S.L., now hosting most of our tech team as well as the sales team and sourcing team responsible for Iberia. The acquisition also brough two IPRs of relevance for the Heatcube.

Let me take this opportunity to express a warm and heartfelt thank you to the diverse and talented Kyoto team for securing the foundation for growth in 2022 , as well as to appreciated partners such as Aalborg CSP, Contratos Y Diseños Industriales SA, RPOW, Vulcanic, Thermon and The Royal Institute of Technology in Stockholm.

Camilla Nilsson Chief Executive Officer Kyoto Group AS

Board of Directors' Report

Business and location

Headquartered at Lysaker outside Oslo, Norway, Kyoto Group is a Norwegian company founded in 2016 with the aim to capture and manage the abundant energy from variable renewable sources such as solar and wind power and apply it to reduce the CO2 footprint for industrial thermal loads.

The company operates and sells Heatcube thermal batteries, enabling industrial consumption of low-cost heat sourced from excess solar and wind energy.

The Heatcube is based on molten salt and may be customized to meet the industry's energy needs and offer multiple services such as the delivery of heat and electric power as well as being used for balancing the electricity grid.

Kyoto Group continues to progress its existing commercial pipeline. Strengthening the commercial organisation is a priority in the coming months to accelerate commercialization of the Heatcube and meet the expected growing demand for electrification and thermal energy solutions.

The current commercial pipeline reflects heatcubes delivered based on two commercial offerings; the Heat as a Product (HaaP) and the Heat as a Service (HaaS).

Kyoto Group expects to deliver traditional product sales, Heat as a Product (HaaP) to certain clients, with additional support, maintenance, and service agreements. In addition, we expect potential Heat as a Service (HaaS) customers, with Kyoto Group and/or its partners owning and operating the Heatcube modules and selling heat to the end users. The offering is an attractive funding opportunities when the installed assets are returning recurring, stable and long-term revenue streams.

The first commercial installation of the Heatcube at NJV and cold commissioning is now finalized and ready for hand-over to Aalborg Forsyning upon completion if commission in 2023.

Significant events in 2022

In February Kyoto Group announced that it has received the necessary building permits for constructing the Kyoto Heatcube at Aalborg Forsyning and their green energy test centre at Nordjyllandsværket. In August the foundation work started, and by year-end 2022 foundation was casted, tanks were installed, filled and melted. The steam generation system was installed and completed. NJV was progressing well towards initiation of cold commissioning planned for January 2023.

During the year Kyoto has matured a commercial pipeline of more than 2100 MWh storage, representing a portfolio of 41 projects. The company is at the door-step of market breakthrough, accompanied by 7 signed Letter of Intents by the year-end and one tender in Hungary won, in competition with other thermal energy storage technologies..

In August Kyoto Group signed a LoI wih Glomma Papp for Thermal Energy Storage Solution. Glomma Papp, a Norwegian corrugated cardboard manufacturer, and Kyoto will jointly complete a detailed technical and commercial evaluation of the feasibility of Kyoto's Heatcube™.

In October Kyoto Group signed a LoI with one of the largest owners of cogeneration facilities in Spain to deliver and install a thermal storage battery, the Heatcube, in the second half of 2023. A cogeneration facility generates both heat and power, enabling more efficient energy use. The Heatcube will provide a renewable solution for heat generation at the client's facilities in Spain, giving a competitive advantage for the client's operation.

The parties will jointly finalize the technical evaluation and commercial negotiations for the installation of Kyoto's Heatcube, which will provide the necessary

heat for stable operation of the cogeneration process.

In November Kyoto Group announced that it had won a competitive tender in Hungary to install its Heatcube thermal energy storage solution at a major power plant. The customer is Reliable Energy Group, a Hungarian service provider for solar plants and developer of battery and heat storage facilities. The Heatcube is to be installed at the CCGT power plant of a major European energy company in Budapest.

Kyoto has also established a Strong European supply chain, securing high-quality and competitive suppliers for upcoming commercial installations.

In October and on Kyoto's Capital Markets Day the company launched the Heatcube 2.0 – cost-leading energy storage solution based on feedback from clients. The second generation of the Heatcube thermal energy storage solution, offering up to five times higher energy density, lower cost and construction optimization. The clients are expected to benefit from higher storage capacities, a thermal storage solution that can charge/discharge simultaneously and ensure stable delivery of steam to the clients.

In March, Kyoto Group signed a contract to acquire Mercury Energy S.L. from Andrés Barros Borrero and established a new business unit named Kyoto Technology Spain S.L. The acquisition has significantly strengthened Kyoto's molten salt capabilities and development capacity and expanded the company's geographic footprint close to its key markets in Europe, to be able to serve the increasing demand for thermal energy storage in Europe.

During the year the company has strengthened the management team to support growth. In April, Camilla Nilsson was appointed as Kyoto Group's permanent CEO. Håvard Haukdal started as CFO of Kyoto Group in September.

Financial statements

The Board of Directors believes that the year-end financial statements provide a true and fair view of the net assets, financial position and results of Kyoto Group for the period. The group's consolidated financial statements are presented in accordance with the International Financial Reporting Standards (IFRS).

The parent company, Kyoto Group AS, accounts have been prepared in conformity with the Norwegian Accounting Act and generally accepted accounting principles (NGAAP).

Profit and loss

The Group had EUR 0.03 million of operating income in 2022, compared to 0 for the same period of 2021.

Total operating expenses for the Group in 2022 were EUR 7.2 million compared to EUR 4.1 million in 2021.

As part of the Group's planned scale-up, personnel costs increased from EUR 1.7 million to EUR 3.2 million in 2022, sales & marketing expenses increased from EUR 0.16 million to EUR 0.33 million and other professional services from EUR 1.7 million to EUR 2.4 million.

During 2022 Kyoto Group AS expanded with daughter companies in Denmark and Spain, forming the Group.

Kyoto Technology Denmark ApS was established in June 2022 and is located nearby the Group's first commercial operation.

Kyoto Technology Spain S.L. was formally established in August 2022 after the purchase of Mercury Energy. The office in Spain is mainly a technology office with majority of engineers with substantial knowledge and experience. The group has also a sales manager located in Spain, based on the attractive market and that it's a good match for the Group's product.

The expenses of expanding amounted to EUR 1.2 million in increased office cost, legal advice during start up, accounting and auditor services and higher personnel cost.

EBITDA was negative EUR 7.2 million in 2022, compared to negative EUR 4.1 million for the same

period in 2021.

The net financial income was EUR 30.4 thousand, mainly reflecting interest and other financial income, compared to EUR 1 thousand as of 31 December 2021.

Net loss was EUR 7.2 million, with no tax expenses.

Financial situation

As of 31 December 2022, the Group had total assets of EUR 11.3 million, compared to total assets of EUR 15.6 million as of 31 December 2021.

Total non-current assets increased from EUR 3.4 million in 2021 to EUR 9.2 million in 2022. This increase is driven by construction in progress increasing with EUR 3.8 million and research and development, with EUR 1.5 million.

Total current assets decreased from EUR 12.3 million by 31 December 2021 to EUR 2.0 million on 31 December 2022. This is mainly attributed to a net decrease in cash and bank deposits of EUR 10.7 million. The cash position was EUR 1.1 million by year-end 2022.

The increase in non-current assets and the decrease in cash and bank deposits are as expected according to the strategy and planning of the Group.

Total equity amounted to EUR 7.0 million on 31 December 2022, down from EUR 13.9 million on 31 December 2021.

Total liabilities increased to EUR 4.3 million by the end of December 2022 compared to EUR 1.7 million in 2021. The increase is driven by higher lease liabilities related to conversion to IFRS of EUR 0.5 million and accounts payable and accrued cost of EUR 1.7 million.

Cash flow

Net cash flow from operating activities was negative EUR 4.8 million by 31 December 2022 compared to negative EUR 3.1 million on 31 December 2021.

Net cash flow from investing activities was negative

EUR 5.5 million by year end 2022 compared to negative EUR 2.7 million by year end 2021.

Cash consumption is increasing as the Group scales up the organization and business activity, including projects, in anticipation of future revenues.

Risk factors

The Group is in a scale-up stage. While the Heatcube technology is proven through the successful operation of the pilot installation, the Group has yet to install and operate the technology at a commercial scale.

The first Heatcube thermal battery installation and operation is expected to start in Q1 2023. There are inherent technical risks connected to the installation and start-up of any such installation that may affect timing and costs, as well as operations and cash flow generation under a battery leasing revenue model. The Group is also subject to various risks, including long lead times, related to securing potential additional commercial contracts which are required to build a profitable business over time.

The Group is in a growth phace and will likely require additional equity capital in the future to finance the execution of its long-term growth strategy.

Please visit the Investor presentation from the private placement successfully executed in January 2023, which is available on the Kyoto Group website, for more detailed information about risk factors.

Research and development

Investment in research and development (R&D) is a key part of the Group's strategy. During 2022, R&D expenses of EUR 1.8 million were capitalized.

Moving forward, the Group expects R&D expenses to remain substantial.

Environment, health and safety

Kyoto Group believes in Health, Safety, Security and Environment (HSE) excellence. Our ambition is to set health, safety, security and environment as core

elements of the Group's identity and business success. The Group will be recognized for its outstanding performance, demonstrating a strong sense of responsibility for people and the environment, and through innovation and efficient production, contributing to the creation of a sustainable society.

The Group supports a precautionary approach to environmental challenges, undertakes initiatives to promote greater environmental responsibility, and encourages the development of environmentally friendly technologies.

Transparency Act

The BoD is responsible for the Groups's implementation of applicable laws and regulations, including the Transparency Act. All employees have a responsibility to protect human rights and decent working conditions. If Kyoto Group causes, contributes to or is linked to adverse impacts on human rights, the Group will take necessary steps to cease, prevent and/or mitigate the adverse impacts.

The Group will publish an account of the due diligence assessment on its webpage kyotogroup.no

Working environment

At the end of 2022, Kyoto Group had a total staff of 33, of which 22 was employed in Kyoto Group AS, 1 employee in Kyoto Technology Denmark ApS and 10 employees in Kyoto Technology Spain S.L.

There were no serious work-related accidents in 2022 and absence due to illness was 3,2 percent.

All employees shall have signed and undertaken training in the code of conduct and relevant policies as part of their onboarding training. Kyoto Group aims to become a Great Place to Work (GPTW) by 2025 and achieve an employee Net Promoter Score (eNPS) of above 50 by the end of 2022. The eNPS was measured in January 2023 and scored 82%.

Equal opportunity

Kyoto Group is dedicated to offering everyone equal opportunities irrespective of background, including ethnicity, gender, religion, sexual orientation or age.

At the end of 2022, 70 percent of the staff was male, while 30 percent was female. The corporate management team has five male and three female members. The Board of Directors has six male and no female members.

Kyoto Group scaled up the organization during 2022 and will continue to scale up during the upcoming year. Diversity will be a key priority in the recruitment processes. At the end of December 2022, eleven nationalities are currently represented in Kyoto Group.

External environment

The Group's business purpose is to make renewable energy available for everyone, thus contributing to reducing climate emissions from industry.

Our business operations directly impact UN Sustainable Development Goals nr 7: Affordable and clean energy; and nr 9: Industry, innovation and infrastructure.

Target 7.1 By 2030, ensure universal access to affordable, reliable and modern energy services

Target 7.2 By 2030, increase substantially the share of renewable energy in the global energy mix

Target 9.4 By 2030, upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies and industrial processes, with all countries taking action in accordance with their respective capabilities

Through this, we also aim to contribute to goal nr 13 Climate action.

Kyoto recognizes its role in contributing to a sustainable society and is committed to minimizing its environmental footprint at all stages of the thermal battery value chain. Kyoto will work systematically to improve resource efficiency, reduce emissions and implement the waste mitigation hierarchy, working towards the concept of a circular economy. Kyoto

will also work systematically to prevent pollution and address our impacts where necessary, protecting and/ or restoring both the environment and the value of our assets.

The Group's work with sustainability is governed by our Code of Conduct which covers the company's responsibility and approach to human rights, worker's rights, working conditions, equal opportunities and anti-corruption as well as HSE and environmental responsibility. Health, safety and environmental responsibilities are further described in the Kyoto Group HSE Policy.

At this stage, the Group's activities have a limited effect on the external environment. As the company enters a commercial production phase, it is committed to minimizing its environmental footprint at all stages of the thermal battery value chain. Since the batteries only use abundant, non-toxic components, they can be recycled without leaving any harmful chemicals in the environment.

Corporate governance

The Group's parent company, Kyoto Group AS is a private limited company organized under Norwegian law, with a governance structure based on Norwegian corporate law and other regulatory requirements.

The company has only one class of shares. All shares carry equal rights in all respects, including voting rights and rights to dividends. All shares are freely transferable, meaning that a transfer of shares is not subject to the consent of the Board of Directors or rights of first refusal.

Kyoto Group AS has six Board members, none of whom are members of the company's management. The majority of Board members are independent of company management and significant business partners.

The board members and the Chief Executive Officer are covered by liability insurance (D&O). The insurance policy is based on market standard terms and conditions and comprises the directors' and officers' personal legal liabilities, including defense and legal costs.

Kyoto Group AS ambition is to follow the Norwegian Code of Practice for Corporate Governance and explain any deviations from the code.

For further details, please see the Corporate Governance Report, which can be found on the Kyoto Group website.

Going concern

The Group pursues funding efforts to secure the growth ambitions of the company. This implies to secure a cash runway of at least 2 years through a combination of raising additional equity from strategic industrial partners as well as entering into agreements with 1-2 financial providers to secure debt funding to the company. Failing to secure funding will create uncertainty about the Group's ability to secure going concern as well as restricting the growth ambitions of Kyoto.

We are in process of detailed discussions with selected strategic industrial investors, contributing to new equity through a directed share issue. This will be followed by entering into new corporate debt funding depending on the need. A full-fledged execution of this plan will secure necessary funding for at least two years and take Kyoto a major step towards EBITDA break-even in 2025.

Kyoto Group needs to be securing additional funding early in Q3 2023.

The financial statements for 2022 have been prepared on the basis that the conditions for the going concern assumption have been satisfied, and the Kyoto Leadership team and Kyoto Board is optimistic about the possibilities of successfully delivering on the funding plan described above.

Significant events after closing

The Group announced 10 January 2023 a planned private placement of new shares in the company to increase capital. The private placement was

successfully placed the same day, and the Board of Directors allocated subscriptions for 3,428,571 offer shares at a subscription price of NOK 17.50, raising NOK 60 million in gross proceeds.

Allocations

The Group had a net loss of EUR 7.2 million in first half of 2022. The Board of Directors proposes the following allocations:

Loss brought forward: EUR 7.2 million.

Outlook

The first commercial installation of the Heatcube at NJV is expected to be completed during Q2 2023. The company also expects to sign more than 10 commercial orders for Heatcubes during 2023, to be installed at large industrial companies. In order to handle the increased activity, the organisation is expected to still increase during the rest of the year.

The Group pursues funding efforts to secure the growth ambitions of the company as we now are at the door-step of market breakthrough.

Oslo, 23. april 2023 The Board of Kyoto Group AS

(Electronically signed)

Eivind Reiten Chairman

(Electronically signed)

Thorleif Enger Board member

(Electronically signed)

Arne Erik Kristiansen Board member

(Electronically signed)

Pål Selboe Valseth Board member

(Electronically signed) (Electronically signed)

Hans Olav Kvalvaag Board member

Camilla Nilsson CEO

KYOTO GROUP | ANNUAL REPORT 2022 13

Financial statements

CONSOLIDATED

KYOTO GROUP | ANNUAL REPORT 2022 14

Consolidated statement of profit and loss

1 January - 31 December (EURO)

	Note	2022	2021

Continuing operations
Revenue	3	26 860	0
Total revenue		26 860	0
Operating expenses
Personell expenses	4, 9, 17	3 194 591	1 693 678
Depreciation, amortizations and write downs	10, 11, 12	603 003	154 245
Other operating expenses	5	3 446 736	2 257 218
Total expenses		7 244 331	4 105 141
Operating profit		-7 217 471	-4 105 141

Financial items
Finance income	6	67 423	26 698
Finance costs	6	37 006	25 629
Profit before tax		-7 187 053	-4 104 072
Tax expense	7	0	0
Profit after tax from continuing operations		-7 187 053	-4 104 072

Other comprehensive income
Items which may be reclassified to profit and loss in subsequent periods
Exchange differences	20	-231 121	116 949
Total comprehensive income for the year		-7 418 174	-3 987 123

Consolidated statement of profit and loss (continued)

1 January - 31 December (EURO)

	Note	2022	2021
Profit for the year attributable to:
Equity holders of the parent company		-7 187 053	-4 104 072
Non-controlling interests		0	0
Total		-7 187 053	-4 104 072

Total comprehensive income attributable to:
Equity holders of the parent company		-7 418 174	-3 987 123
Non-controlling interests		0	0
Total		-7 418 174	-3 987 123

Earnings per share:
Continued operation
- Basic	8	-0,85	-0,49
- Diluted	8	-0,84	-0,49

Consolidated statement of financial position

(EURO)

	Note	31.12.2022	31.12.2021	01.01.2021

ASSETS
Non-current assets
Patents	9, 10	26 598	0	0
Intangible assets	10	2 501 797	1 038 859	489 388
Right-of-use asset	11	572 053	111 972	142 916
Equipment	12	0	8 139	8 139
Construction in progress	12	5 925 290	2 141 984	0
Other non-current assets	13, 17	192 857	76 490	0
Total non-current assets		9 218 595	3 377 444	640 443

Current assets
Accounts receivable	13	26 860	0	0
Other current assets	13, 14	891 805	487 356	130 173
Cash and cash equivalents	15	1 113 766	11 772 792	4 092 174
Total current assets		2 032 431	12 260 148	4 222 347

TOTAL ASSETS		11 251 025	15 637 593	4 862 790

Consolidated statement of financial position (continued)

(EURO)

	Note	31.12.2022	31.12.2021	01.01.2021
EQUITY AND LIABILITIES
Equity
Paid in capital
Issued capital	16	25 290	25 290	10 851
Share premium	17	5 747 979	13 166 153	-62 170
Other paid in capital	17	1 203 822	712 774	526 172
Total paid in capital		6 977 091	13 904 217	474 853
Non-controlling interests			0	0
Total equity		6 977 091	13 904 217	474 853

Non-current liabilities
Non-current lease liabilities	11	298 383	85 930	11 327
Other non-current financial liabilities	18	477 938	240 269	229 220
Total non-current liabilities		776 320	326 199	240 547

Current liabilities
Convertible debt		0	0	23 877
Current lease liabilities	11	290 104	31 060	130 569
Accounts payable		1 909 334	731 831	70 196
Public duties payable		245 883	88 517	54 005
Other current liabilites		1 052 292	555 769	3 868 743
Total current liabilities	19	3 497 614	1 407 177	4 147 390

Total liabilities		4 273 934	1 733 376	4 387 937
TOTAL EQUITY AND LIABILITIES		11 251 025	15 637 593	4 862 790

Oslo, 23. april 2023 The Board of Kyoto Group AS

(Electronically signed)

Eivind Reiten Chairman

(Electronically signed)

Thorleif Enger Board member

(Electronically signed)

Arne Erik Kristiansen Board member

(Electronically signed)

Pål Selboe Valseth Board member

(Electronically signed) (Electronically signed)

Hans Olav Kvalvaag Board member

Camilla Nilsson CEO

Consolidated statement of cash flows

(EURO)

	Note	2022	2021

Cash flow from operating activities
Profit before tax		-7 187 053	-4 104 072
Depreciation, amortizations and write downs	10, 11, 12	603 003	154 245
Share based payment expense	9, 17	334 966	0
Exchange differences	20	-231 121	116 949
Change in accounts payable	19	1 177 503	661 635
Change in accounts receivables	13	-26 860	0
Other changes	13, 19	537 123	52 879
Net cash flow from operating activities		-4 792 438	-3 118 365

Cash flows from investing activities
Change in construction in progress	12	-3 783 306	-2 141 984
Purchase of intangible assets	10	-1 773 460	-549 472
Net cash flow used in investing activities		-5 556 765	-2 691 456

Cash flows from financing activities
Proceeds from equity		0	13 627 596
Payment of lease installment	11	-199 319	-141 105
Interests on lease liabilites	11	-19 892	-3 618
Net cash flow from financing activities		-219 210	13 482 873

Net currency translation effect		-90 613	7 566
Net increase/(decrease) in cash and cash equvivalents		-10 568 414	7 673 052
Cash and cash equivalents at beginning of period		11 772 792	4 092 174
Cash and cash equivalents at end of period	15	1 113 765	11 772 792

Statement of changes in equity

(EURO)

	Attributable to equity holders of the parent company					Non controlling interests	Total equity
	Paid in capital			Other Equity		Total Equity holders of the parent company
	Share capital	Share premium reserve	Treasury shares	Other paid-in capital	Retained earnings	Total other equity
Equity as at 01.01 2021:	10 851	570 457		526 172		0	1 107 480		1 107 480
Effect of implementing IFRS		-632 628				0	-632 628		-632 628
Equity adjusted as at 01.01 2021	10 851	-62 170	0	526 172	0	0	474 853	0	474 853

Capital increase 21.01.2021	822	482 597		-483 419		0	0		0
Capital increase 19.02.2021	5 769	4 801 369				0	4 807 138		4 807 138
Capital increase 16.03.2021	1 050	390 626				0	391 676		391 676
Capital increase 22.03.2021	6 003	12 499 625				0	12 505 628		12 505 628
Share issue expenses		-984 111				0	-984 111		-984 111
Gain from stabilization agreement				660 576		0	660 576		660 576
Profit of the year					-4 104 072	-4 104 072	-4 104 072		-4 104 072
Other comprehensive income	795	95 618		9 445	11 091	11 091	116 949		116 949
Coverage of uncovered loss		-4 092 981			4 092 981	4 092 981	0		0
Equity as at 31.12 2021	25 290	13 130 572	0	712 773	0	0	13 868 636	0	13 868 636

Equity as at 01.01 2022:	25 290	13 130 572	0	712 773	0	0	13 868 636	0	13 868 636
Effect of implementing IFRS		35 581					35 581		35 581
Adjusted equity as at 01.01 2022	25 290	13 166 153	0	712 773	0	0	13 904 217	0	13 904 217

Profit of the year					-7 187 053	-7 187 053	-7 187 053		-7 187 053
Other comprehensive income		39 740			-270 861	-270 861	-231 121		-231 121
Coverage of uncovered loss		-7 457 914			7 457 914	7 457 914	0		0
Purchase of own shares			-27 613			0	-27 613		-27 613
Sale of own shares			27 613	-57		0	27 556		27 556
Share subscription programme				156 139		0	156 139		156 139
Share based payment expense				334 966		0	334 966		334 966
Total	0	-7 418 174	0	491 049	0	0	-6 927 125	0	-6 927 125

Equity as at 31.12 2022	25 290	5 747 979	0	1 203 822	0	0	6 977 091	0	6 977 091

Note Summary of significant accounting policy's

Kyoto Group AS is a private limited company, incorporated in Norway, headquartered in Bærum and listed on the Euronext Growth, Address headquarters: Fornebuveien 1, 1366 Lysaker.

The consolidated financial statements of Kyoto Group for the fiscal year 2022 were approved in the board meeting at 23.04.2023.

The Group's activities are described in the Board of Directors Report.

Basis for preparation of the annual accounts

The Kyoto Group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) which have been adopted by the EU and are mandatory for financial years beginning on or after 1 January 2022, and Norwegian disclose requirements listed in the Norwegian Accounting Act as of 31.12.2022.

The consolidated financial statements are solely based on historical cost.

Changes in accounting policies and disclosures

The accounting policies adopted are consistent with those of the previous financial year, except for the amendments to IFRS 16, IAS 20 and IAS 12 which have been implemented by the Group during the current financial year. See note 23 for more information.

Functional currency and presentation currency

Functional currency

The functional currency is determined in each entity in the Group based on the currency within the entity's primary economic environment. Transactions in foreign currency are translated to functional currency using the exchange rate at the date of the transaction. At the end of each reporting period foreign currency monetary items are translated using the closing rate, non-monetary items that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction and non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. Changes in the exchange rate are recognized continuously in the accounting period.

Presentation currency

The Group's presentation currency is EUR since a large proportion of users of the consolidated financial statements relate to this currency.

The statement of financial position figures of entities with a different functional currency are translated at the exchange rate prevailing at the end of the reporting period for balance sheet items, and the exchange rate at the date of the transaction for profit and loss items. The monthly average exchange rates are used as an approximation of the transaction exchange rate. Exchange differences are recognized in other comprehensive income ("OCI").

Consolidation principles

The Group's consolidated financial statements comprise the parent company and its subsidiaries as of December 31, 2022. An entity has been assessed as being controlled by the Group when the Group is exposed for or have the rights to variable returns from its involvement with the entity and has the ability to use its power over the entity to affect the amount of the Group's returns.

Thus, the Group controls an entity if and only if the Group has all the following:

power over the entity.
exposure, or rights, to variable returns from its involvement with the entity; and
the ability to use its power over the entity to affect the amount of the Group's returns.

The assessments are done for each individual investment.

The Group re-assesses whether it controls an entity if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when

the Group loses control of the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

The use of estimates and assessment of accounting policies when preparing the annual accounts

Estimates and assumptions

The management has used estimates and assumptions that have affected assets, liabilities, income, expenses and information on potential liabilities. This particularly applies to the depreciation of fixed assets, impairment of intangible assets and evaluations related to acquisitions. Future events may lead to these estimates being changed. Estimates and their underlying assumptions are reviewed on a regular basis and are based on best estimates and historical experience.

Current versus non-current classification

The Group presents assets and liabilities in the consolidated statement of financial position as either current or non-current.

The Group classifies an asset as current when it:

Expects to realize the asset, or intends to sell or consume it, in its normal operating cycle
Holds the asset primarily for the purpose of trading
Expects to realize the asset within twelve months after the reporting period

All other assets are classified as non-current.

The Group classifies a liability as current when it:

Expects to settle the liability in its normal operating cycle
Holds the liability primarily for the purpose of trading
Is due to be settled within twelve months after the reporting period

All other liabilities are classified as non-current.

Revenue from contracts with customers

Revenue from contracts with customers is recognized when control of the services is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those services. The Group has generally concluded that it is the principal in its revenue arrangements, because it typically controls the services before transferring them to the customer.

Revenue from sale of services

The Group recognizes revenue from rendering of services over time, because the customer simultaneously receives and consumes the benefits provided by the Group. The Group recognizes revenue over time by measuring the progress towards complete satisfaction of the services, using either an input or output method. The method applied is the one that most faithfully depicts our progress towards complete satisfaction of the performance obligation.

Trade receivables: A receivable represents the Group's right to an amount of consideration that is unconditional.

Income tax

The tax expense consists of the tax payable and changes to deferred tax. Deferred tax/tax assets are calculated on all differences between the book value and tax value of assets and liabilities, except for:

• temporary differences linked to goodwill that are

not tax deductible

• 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 recognized when it is probable that the company will have a sufficient profit for tax purposes in subsequent periods to utilize the tax asset. The companies recognize previously unrecognized deferred tax assets to the extent it has become probable that the company can utilize 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 utilize the deferred tax asset.

Deferred tax and deferred tax assets are measured based on the expected future tax rates applicable to the companies in the Group where temporary differences have arisen.

Deferred tax and deferred tax assets are recognized at their nominal value and classified as non-current asset investments (long-term liabilities) in the balance sheet.

Taxes payable and deferred taxes are recognized directly in equity to the extent that they relate to equity transactions.

Development expenses

Expenses relating to development activities are capitalized to the extent that the product or process is technically and commercially viable and the Group has sufficient resources to complete the development work. Expenses that are capitalized include the costs of materials, direct wage costs and a share of the directly attributable common expenses. Capitalized development costs are recognized at their cost less accumulated amortization and impairment losses.

Amortization of the asset begins when development is complete, and the asset is available for use.

The development expenses are assessed annually for impairment or for a reversal of previous impairments.

Tangible assets

Tangible assets, except for investment property and buildings, are valued at their cost less accumulated depreciation and impairment losses. When assets are sold or disposed of, the carrying amount is derecognized and any gain or loss is recognized in the statement of comprehensive income.

The depreciation period and method are assessed each year. A residual value is estimated at each yearend, and changes to the estimated residual value are recognized as a change in an estimate.

The tangible assets are assessed annually for impairment or for a reversal of previous impairments.

Construction in progress

Assets under construction are classified as noncurrent assets and recognized at cost until the production or development process is completed. Assets under construction are not depreciated until the asset is taken into use.

The assets are assessed annually for impairment or for a reversal of previous impairments.

Leases

Identifying a lease

At the inception of a contract, The Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration.

The Group as a lessee

Recognition of leases and exemptions

At the lease commencement date, the Group recognizes a lease liability and corresponding right-of-use asset for all lease agreements in which it is the lessee, except for the following exemptions applied:

Short-term leases (defined as 12 months or less)
Low value assets

For these leases, the Group recognizes the lease payments as other operating expenses in the statement of profit or loss when they incur.

Lease liabilities

The lease liability is recognized at the commencement date of the lease. The Group measures the lease liability at the present value of the lease payments for the right to use the underlying asset during the lease term that are not paid at the commencement date. The lease term represents the non-cancellable period of the lease, together with periods covered by an option either to extend or to terminate the lease when the Group is reasonably certain to exercise this option.

The lease payments included in the measurement comprise of:

Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable
Variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date
Amount expected to be payable by the Group under residual value guarantees
Payments of penalties for terminating the lease, if the lease term reflects the Group exercising an option to terminate the lease.

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payments made and remeasuring the carrying amount to reflect any reassessment or lease modifications, or to reflect adjustments in lease payments due to an adjustment in an index or rate.

The Group does not include variable lease payments in the lease liability. Instead, the Group recognizes these variable lease expenses in profit or loss. The Group presents its lease liabilities as separate line items in the statement of financial position.

Right-of-use assets

The Group measures the right-of use asset at cost, less any accumulated depreciation and impairment losses, adjusted for any remeasurement of lease liabilities. The cost of the right-of-use asset comprise:

The amount of the initial measurement of the lease liability recognized
Any lease payments made at or before the commencement date, less any incentives received
Any initial direct costs incurred by the Group. An estimate of the costs to be incurred by the Group in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories.

The Group applies the depreciation requirements in IAS 16 Property, Plant and Equipment in depreciating the right-of-use asset, except that the right-of-use asset is depreciated from the commencement date to the earlier of the lease term and the remaining useful life of the right-of-use asset.

Intangible assets

Intangible assets that have been acquired separately are carried at cost. The costs of intangible assets acquired through an acquisition are recognized at their fair value in the Group's opening balance sheet. Capitalized intangible assets are recognized at cost less any amortization and impairment losses.

Internally generated intangible assets, excluding capitalized development costs, are not capitalized but are expensed as occurred.

The economic life is either definite or indefinite. Intangible assets with a definite economic life are amortized over their economic life and tested for impairment if there are any indications. The amortization method and period are assessed at least once a year. Changes to the amortization method and/ or period are accounted for as a change in estimate. Intangible assets with an indefinite economic life are

tested for impairment at least once a year, either individually or as a part of a cash-generating unit. Intangible assets with an indefinite economic life are not amortized. The economic life is assessed annually about whether the assumption of an indefinite economic life can be justified. If it cannot, the change to a definite economic life is made prospectively.

Patents

Amounts paid for patents are capitalized and amortized in a straight line over the expected useful life.

Business combinations and goodwill

Business combinations are accounted for using the acquisition method. Acquisition-related costs are expensed in the periods in which the costs are incurred, and the services are received.

The consideration paid in a business combination is measured at fair value at the acquisition date and consist of cash, stocks issued in and contingent consideration.

When acquiring a business are all financial assets and liabilities assumed for appropriate classification and designation in accordance with contractual terms, economic circumstances, and pertinent conditions at the acquisition date. The acquired assets and liabilities are accounted for by using fair value in the opening group balance (unless other measurement principles should be applied in accordance with IFRS 3).

The initial accounting for a business combination can be changed if new information about the fair value at the acquisition date is present. The allocation can be amended within 12 months of the acquisition date [provided that the initial accounting at the acquisition date was determined provisionally]. The measurement principle is done for each business combination separately.

Goodwill is recognized as the aggregate of the consideration transferred and the amount of any noncontrolling interest and deducted by the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill is not depreciated but is tested at least annually for impairment. In connection with this, goodwill is allocated to cash-generating units or groups of cashgenerating units that are expected to benefit from synergies from the business combination.

If the fair value of the net assets acquired is more than the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognized in profit or loss.

Government grants

Government grants are recognized when it is reasonably certain that the company will meet the conditions stipulated for the grants and that the grants will be received.

Operating grants are recognized systematically during the grant period. The grants are recognized when the conditions from the grantor are met and accrued in step with the implementation of the grant-eligible activities.

Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Financial assets

The Group´s financial assets are cash and cash equivalents.

The Group classified its financial assets in one category, financial assets at amortized cost.

Financial assets at amortized cost

The Group measures financial assets at amortized cost if both of the following conditions are met:

• The financial asset is held within a business model

with the objective to hold financial assets to collect contractual cash flows and,

• The contractual terms 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

The Groups financial assets at amortized cost other short-term deposit.

Financial liabilities

Financial liabilities are classified, at initial recognition, as loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. Derivatives are recognized initially at fair value. Loans, borrowings and payables are recognized at fair value net of directly attributable transaction costs.

Derivatives are financial liabilities when the fair value is negative, accounted for similarly as derivatives as assets.

Loans, borrowings and payables

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process.

Amortized cost is calculated by considering any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit or loss.

Payables are measured at their nominal amount when the effect of discounting is not material.

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 and cash equivalents.

Equity

Equity and liabilities

Financial instruments are classified as liabilities or equity in accordance with the underlying economic realities.

Costs of equity transactions

Transaction costs directly related to an equity transaction are recognized directly in equity after deducting tax expenses.

Employee benefits

Defined contribution plans

The Group's companies have made contributions to local pension plans. These contributions have been made to the pension plan for full-time employees. The pension premiums are charged to expenses as they are incurred.

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.

Note 1 - Estimation uncertainty

In the process of applying the Group's accounting policies in according to IFRS, management has made several judgements and estimates. All estimates are assessed to the most probable outcome based on the managements best knowledge. Changes in key assumptions may have significant effect and may cause material adjustments to the carrying amounts of assets and liabilities, equity and the profit for the year.

The Group's most important accounting estimates are the following items:

Depreciation of tangible and intangible fixed assets.
The fair value of assets and liabilities in business acquisitions.
Leases determining the lease term of contracts with renewal options
Deferred conditional payments best estimate of the expenditure required to settle the obligation at the reporting date, reflecting the current market assessments of the time value of money and risks specific to the liability.

Depreciation of Right-of-use assets

The depreciation period and method are assessed each year. A residual value is estimated at each year-end, and changes to the estimated residual value are recognized as a change in an estimate.

Intangible assets

The intangible assets are assessed annually for impairment or for a reversal of previous impairments.

Leases

Significant judgement in determining the lease term of contracts with renewal options

The group has several offices and other facilities leases with options to extend the lease.

The renewal options has been included in the calculation of the lease liability if management is reasonable certain to exercise the option to renew the contract.

Management has used judgment when considering all relevant factors that create an economic incentive to extend the lease. In this assessment Management has considered the original lease term and the significance of the underlying assets, i.e. the offices and other facilities.