Otello Corporation ASA

OTELLOCORPORATION - 2021 391200EWTTF186UWWH072021-01-012021-12-31391200EWTTF186UWWH072020-01-012020-12-31391200EWTTF186UWWH072020-12-31391200EWTTF186UWWH072021-12-31391200EWTTF186UWWH072020-12-31391200EWTTF186UWWH072019-12-31391200EWTTF186UWWH072020-12-31ifrs-full:IssuedCapitalMember391200EWTTF186UWWH072020-12-31ifrs-full:SharePremiumMember391200EWTTF186UWWH072020-12-31ifrs-full:TreasurySharesMember391200EWTTF186UWWH072020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember391200EWTTF186UWWH072020-12-31ifrs-full:OtherEquityInterestMember391200EWTTF186UWWH072020-12-31ifrs-full:NoncontrollingInterestsMember391200EWTTF186UWWH072021-01-012021-12-31ifrs-full:OtherEquityInterestMember391200EWTTF186UWWH072021-01-012021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember391200EWTTF186UWWH072021-01-012021-12-31ifrs-full:NoncontrollingInterestsMember391200EWTTF186UWWH072021-01-012021-12-31ifrs-full:IssuedCapitalMember391200EWTTF186UWWH072021-01-012021-12-31ifrs-full:SharePremiumMember391200EWTTF186UWWH072021-01-012021-12-31ifrs-full:TreasurySharesMember391200EWTTF186UWWH072021-12-31ifrs-full:IssuedCapitalMember391200EWTTF186UWWH072021-12-31ifrs-full:SharePremiumMember391200EWTTF186UWWH072021-12-31ifrs-full:TreasurySharesMember391200EWTTF186UWWH072021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember391200EWTTF186UWWH072021-12-31ifrs-full:OtherEquityInterestMember391200EWTTF186UWWH072021-12-31ifrs-full:NoncontrollingInterestsMember391200EWTTF186UWWH072019-12-31ifrs-full:IssuedCapitalMember391200EWTTF186UWWH072019-12-31ifrs-full:SharePremiumMember391200EWTTF186UWWH072019-12-31ifrs-full:TreasurySharesMember391200EWTTF186UWWH072019-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember391200EWTTF186UWWH072019-12-31ifrs-full:OtherEquityInterestMember391200EWTTF186UWWH072019-12-31ifrs-full:NoncontrollingInterestsMember391200EWTTF186UWWH072019-12-31391200EWTTF186UWWH072020-01-012020-12-31ifrs-full:OtherEquityInterestMember391200EWTTF186UWWH072020-01-012020-12-31ifrs-full:NoncontrollingInterestsMember391200EWTTF186UWWH072020-01-012020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember391200EWTTF186UWWH072020-01-012020-12-31ifrs-full:IssuedCapitalMember391200EWTTF186UWWH072020-01-012020-12-31ifrs-full:TreasurySharesMemberiso4217:USDiso4217:USDxbrli:shares Realizing the underlying value 2021 Annual Report Otello Corporation ASA - Annual Report 2021 Table of contents 04 Realizing the underlying value 06 CEO Letter 08 Shareholder information 12 Representation of Board of Directors 14 Report from the Board of Directors 34 Otello Group financial statements 90 Parent company financial statements 118 Auditor’s report 124 Declaration of executive compensation policies 130 Principles of corporate governance Time for a new journey 10 FEB Bemobi IPO successfully completed Bemobi Mobile Tech S.A. (“Bemobi Brasil”), the parent company of Otello’s activities in Brazil and internationally was successfully listed on the Bovespa stock exchange in Brazil, February 9, 2021, and had its first day of trading on Febru- ary 10, 2021, on the São Paulo stock exchange (“Secondary Greenshoe”) under the ticker symbol “BMOB3”. The price was set of R$22.00 per common share for its Initial Public Offering (IPO), determined after completion of the bookbuilding process. Following the successful IPO of Bemobi on Bovespa in Brazil, Otello Corporation ASA is now a major shareholder in Bemobi Brazil with an ownership below 50%. Consequently, Bemobi financials will not be consolidated into Otel- lo’s accounts going forward but will be booked according to the equity method. Before the IPO, the Company was directly controlled by Bemobi Holding AS, whose shares are totally owned by Otello Corporation ASA, a holding company listed on the Oslo Stock Exchange. 29 APR AdColony sold to Digital Turbine AdColony was sold to Digital Turbine for a total estimated consideration of $400 million and the acquisition went through on the 29th April 2021. The acquisition of AdColony, a leading mobile advertising platform servicing advertisers and publishers with a reach of more than 1.5 billion monthly global users, was integral to Digital Turbine's expressed strategy to provide a com- prehensive media and advertising solution for Digital Turbine's operator and OEM partners, while enriching the mobile experience for end users by delivering highly relevant content. AdColony's proprietary video technologies and rich media formats are widely viewed as best -in-class technology delivering industry-leading third-party verified viewability rates for well- known global brands. We are big believers in AdColony, its people and its products, but also see the need to participate in a consolidating market where bigger is better and we believe that Digital Turbine, with its massive user base, extensive global relationships and distribution, will be uniquely positioned to benefit via the seamless integration of AdColony’s mobile video advertising expertise and global brand advertiser awareness. The combination will yield a high- ly-differentiated and more vertically-integrated solution for the mobile advertising industry. We look forward to joining Digital Turbine to help navigate this innovation. Realizing the underlying value Realizing the underlying value is not only this year’s con- and mobile gaming. It is all about the digital and mobile cept for the Annual Report, but It also reflects Otello’s life we are living. Emerging markets are getting better financial year of 2021. The financial year was marked by availability and connectivity to the world due to our two major events in the beginning of the year with the technology. We believe that our long-term strategy has listing of Bemobi on the Bovespa stock exchange in Brazil been working well and that we can now start to climb (in February) and the sale of AdColony to Digital Turbine new mountains. This past year, we are more than happy (in April). Just like 2020, we were hit hard by Covid-19 in to have climbed the mountain after periods in the val- 2021 as emerging markets were struggling, but we man- ley. Otello as a brand and a company ended 2021 with a aged to realize the underlying value of our company. turnaround complete and with growth, and to make sure we are ready for the future, we are eager to continue the Over the past years, we have been on a journey where journey we are on. Otello has been taking a lead within mobile advertising 4 Otello Corporation ASA - Annual Report 2021 CEO Letter In 2021, Otello competed two very significant transac- two companies have been able to offer a highly differ- tions, and is now positioned to return cash to its share- entiated and more vertically integrated solution for the holders and maximize the value of its remaining asset. mobile advertising industry. FINANCIAL OVERVIEW Successful listing of Bemobi in Brazil Due to the sale of AdColony, Otello is treating that busi- In February 2021, Bemobi went public on an oversubscribed ness as discontinued operations for 2021. The separate listing on the Bovespa in Brazil. As part of the listing, Otel- listing of Bemobi resulted in Otello’s ownership falling lo received a net share proceeds payment of $37 million, below 50%. Thus, Otello is no longer consolidating Be- dividend of $28 million and $6 million as part of utilization mobi into the Otello P&L and is rather using the equity the green shoe offering. Otello remains Bemobi’s largest method. As a result of these transactions Otello has also shareholder with 36% and is a firm believer in its pros- been reducing its overall headcount and expenses which pects. The proceeds from the IPO will enable Bemobi to was down 39% in 2021 vs 2020. capitalize on its unique position in the market both or- ganically and through strategic activities. In 2021 Bemobi The listing of Bemobi and the sale of AdColony both con- completed two acquisitions: the payment platform M4U tributed to very strong cashflow in 2021 as well as en- and Tiaxa which provides microfinance solutions. abling the company to repay all its interest-bearing debt. During 2021, Otello purchased 36,500,470 treasury shares FUTURE for $132.6 million which was subsequently cancelled to Otello has, as a result of the transactions above and return cash to shareholders. As of the end of January proceeds received, repaid all its debt, and launched and 2022, Otello got paid the final earn-out payment from completed three share buyback programs accessible to Digital Turbine relating to the sale of AdColony, which all shareholders. Going forward, Otello’s goal is to max- bolstered the cash position to over $270m and a balance imize the value of its remaining asset, Bemobi, and ag- sheet without any meaningful liabilities or debts. gressively return the cash to shareholders, most likely through a combination of share buybacks and dividends. Sale of AdColony to Digital Turbine In 2021, Otello entered and closed an agreement with Digital Turbine to sell AdColony, and after settling the earnout the total consideration was $404.5 million, in- cluding a normalized amount of working capital and $19 million in cash. Digital Turbine will be a great home for AdColony due to its massive user base, extensive glob- al relationships, and distribution. We have seen that the Lars Boilesen Otello Corporation ASA - Annual Report 2021 7 INVESTOR RELATIONS POLICY Communication with shareholders, investors and ana- lysts, both in Norway and abroad, is a high priority for Otello. The company’s objective is to ensure that the financial markets have sufficient information about the company in order to be able to make informed decisions about the company’s underlying value. Otello arranges regular presentations in a range of jurisdictions and holds frequent meetings with investors and analysts. Investor Relations KPI [2017-2021] 2017 2018 2019 2020 2021 Revenue ($ million) 419.0 13.5 6.7 275.4 9.4 240.7 19.4 259.0 23.4 19.1 0.1 (6.3) 4.8 Adjusted EBITDA ($ million) Operating cash flow ($ million) (0.2) (0.2) Excluding the consumer, TV and SurfEasy businesses 32.5% U.K.-based accounts 33.9% Norway-based accounts 8.5% Sweden-based accounts 7.5% U.S.-based accounts 7.4% Belgium-based accounts 10.4% Accounts based elsewhere 2020 Country breakdown shareholders: Norway-based accounts U.K.-based accounts 2021 34.9 % 45.0 % 4.9 % 4.6 % 4.6 % 6.0 % 33.9 % 32.5 % 8.5 % 7.5 % Sweden-based account U.S.-based accounts Belgium-based accounts Accounts based elsewhere 7.4 % 10.4 % Adjusted EBITDA represents EBITDA excluding stock-based compensation expenses, impairment and expenses LARGEST SHAREHOLDERS at December 31, 2021 Shares GOLDMAN SACHS INTERNATIONAL OTELLO CORPORATION ASA BANK OF AMERICA N.A. 19.0 % 10.0 % 7.3 % CITIGROUP GLOBAL MARKETS LTD VERDIPAPIRFONDET DNB TEKNOLOGI CITIGROUP GLOBAL MARKETS LTD AREPO AS THE BANK OF NEW YORK MELLON SA/NV SKANDINAVISKA ENSKILDA BANKEN AB SKANDINAVISKA ENSKILDA BANKEN AB 5.8 % 5.5 % 5.0 % 4.6 % 4.5 % 3.3 % 3.2 % Company Analyst Telephone Arctic Securities ASA Henriette Trondsen DnB NOR Markets ABG Sundal Collier +47 21 01 32 84 +47 24 16 91 43 Christoffer Wang Bjørnsen Aksel Øverland Engebakken +47 22 01 61 11 VERDIPAPIRFONDET NORDEA NORGE VERD 3.1 % Executive Team Otello Corporation ASA Lars Boilesen Chief Executive Officer Lars Boilesen is the Chief Executive Officer at Otello Cor- poration ASA, a position he has held since 2010. Lars has extensive experience in the software and tech industry and has held executive positions in various corporations prior to joining Otello. He was Executive Vice President of Sales & Distribution at Opera Software ASA from 2000 to 2005 and served on the Board of Directors of Opera Software ASA from 2007 to 2009. Petter Lade Chief Financial Officer From 2005-2008 he was Chief Executive Officer for the Nordic and Baltic Region at Alcatel-Lucent. Lars start- ed his career in the LEGO Group as Sales and Marketing Manager for Eastern Europe. After that, he headed the Northern Europe and Asia Pacific markets for Tandberg Data. He currently serves as the Chairman of the Board of Directors of Bemobi Mobile Tech S.A and as a Director for Norwegian Air Shuttle ASA and Airthings ASA. Petter Lade was appointed Chief Financial Officer in Jan- uary 2017. He is responsible for the financial management of the Group and oversees financial planning and analy- sis, treasury, M&A and investor relations. Petter comes from the position as Director, IR & Corporate Develop- ment and has held several key roles within controlling, M&A and IR since joining Otello in 2006. Lars holds a Bachelor’s Degree in Business Economics from Aarhus Business School, and postgraduate diploma from Kolding Business School. Before joining Otello, Petter was Finance & Commercial Consultant at Dell EMEA and responsible for the finan- cial and commercial element for pan-EMEA or Global Dell Managed Services (DMS) deals. Prior to that, Petter worked as Business Controller/Bid Analyst for Dell Nor- way. He began his career with Verdens Gang (Schibsted) as a controller. Petter obtained a Siviløkonom degree (four year program in economics and business administration consisting of three years at bachelor level and one year at master lev- el) from BI Norwegian Business School. 10 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 11 ANDRÉ CHRISTENSEN CHAIRMAN The Board of Directors Otello Corporation ASA André Christensen Chairman ership structures. She has substantial experience with transactions and works regularly for reputable financial and industrial clients in Norway and abroad. Birgit holds André Christensen has extensive strategic and opera- a Master in law from the University of Bergen, Norway. tional experience from the Media, Internet, and High Tech industries across Europe, North America and Asia Maria Borge Andreassen from the last 25 years. He is currently the CEO and Board Member Founder of the IPTV/OTT entertainment platform pro- BIRGIT MIDTBUST BOARD MEMBER MARIA BORGE ANDREASSEN BOARD MEMBER LIN SONG BOARD MEMBER vider Firstlight Media based in Toronto/Los Angeles/ Maria Borge Andreassen is Commercial Director in Jernia Chennai. Prior to this he headed product development AS, a specialist retailer chain in Norway with approximately for AT&T Entertainment Group following the acquisi- 130 stores. She is leading the departments responsible for tion of Quickplay Media where he was the COO and space, category strategy and sourcing. Before that, Maria co-owner. He has also been the SVP Business Operations was part of the Executive Team in Europris, the largest dis- and Strategy at Yahoo globally after 12 years with McK- count variety retailer in Norway and listed on the Oslo Stock insey & Company as a partner establishing and leading Exchange. In her position as the Director of Strategy and the Business Technology practice in Canada as well as Business Development, Maria was responsible for the over- the Global Operating Model service line worldwide. Mr. all strategy, including project portfolio, new growth initia- Christensen currently holds a board position with Inter- tives, OMNI channel strategy, digital roadmap and sustain- media in Sunnyvale. He has a MSc/DiplKfm degree from ability. Prior to joining Europris, Maria served as Marketing Anooj Unarket Lin Song Board Member Board Member Anooj Unarket is a Senior Member at Sand Grove Capital Lin Song is the Co-CEO at Opera Limited, a NASDAQ Management. Prior to Sand Grove’s inception in 2014, from listed company, and a former employee of Otello from 2010-2014, he was a Partner and Analyst in the Event Driv- its’ former days as Opera Software ASA, beginning at en division at Cheyne Capital investing in event driven sit- the company in 2002. Lin Song has been responsible for uations across the capital structure. Prior to Cheyne Cap- various high-profile projects at Opera, including hold- ital, from 2007-2010, he was a member of the European ing the position of Director of Delivery and Engineering Mezzanine team at GSC Group sourcing and analysing in- in APAC. Prior to Opera’s browser and consumer busi- vestments in subordinated private debt in sub-investment ness being privatized and later listed on the NASDAQ, gradecompaniesthroughoutEurope.Hebeganhiscareerin Lin Song served as its COO responsible for business 2005 at Merrill Lynch as an Analyst in the TMT investment operations, and since the listing has become the Co- banking team based in London. He graduated in 2005 with CEO of the company. He graduated in 2004 from the an MA (Hons) in Economics from Trinity College, University University of International Business and Economics in University of Mannheim, Germany. and Innovation Director in the central unit and as Corporate Business Advisor to the President and CEO of Orkla ASA, the leading Nordic based branded consumer goods company. She held internal board positions and started many new growth initiatives. Maria started her career as a consultant Birgit Midtbust Board Member Birgit Midtbust is a senior lawyer in Advokatfirmaet in McKinsey & Company, Inc., where she worked with strat- Schjødt AS, the largest law firm in Norway, and a member egy and organizational topics, and served clients in many of their M&A and Capital Markets department. She joined industries in Scandinavia, UK and South Africa. Maria holds the firm in 2007, and specializes in acquisitions and sales an MBA from INSEAD and a Bachelor in Business Adminis- of companies, mergers, investment structures and own- tration from the University of Strathclyde. of Cambridge. Beijing, China. 12 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 13 RBepoortafrormdthe of Directors 2021 was a transformational year for Otello, where we Corporate Costs successfully completed a separate listing of Bemobi in Corporate costs comprise primarily i) costs related to Brazil and sold our AdColony business to Digital Turbine. personnel working in functions that serve the Group Bemobi has seen several years of profitable growth and as a whole, including CEO, Board of Directors, corporate by raising additional proceeds Bemobi can further ac- finance and accounting, legal, HR and IT, and ii) certain celerate this growth through M&A. In Bemobi, Otello re- costs related to business combinations mains the biggest shareholder and is positive about the and restructuring processes. prospects of the business. Bemobi has recently signed two acquisitions which are expected to nearly double FINANCIAL SUMMARY the revenue for the company. Otello will have an op- portunistic view on its financial investment in the com- Income statement (Continuing operations) pany. The turnaround in AdColony continued to bear Due to the sale of AdColony, Otello is treating that busi- fruit and we delivered revenue well above our guidance ness as discontinued operations for 2021. The separate for 2020 despite the negative impact from Covid-19. listing of Bemobi resulted in Otello’s ownership falling be- The turnaround and return to growth was noted in the low 50%. Thus, Otello is no longer consolidating Bemobi mobile advertising space and Otello elected to sell Ad- into the Otello P&L and is rather using the equity method. Colony to Digital Turbine in an all-cash deal of around $400 million. Otello’s operating revenues were $0.1 million in 2021 (2020: $0.1 million), as both Bemobi and AdColony were treated Otello has, as a result of the transactions above and pro- as discontinued operations. Operating expenses, excluding ceeds received, already repaid all our debt, and launched impairment and restructuring expenses, decreased by 39% and completed several rounds of share buybacks accessi- to $9.3 million (2020: $15.2 million), with a slight increase in ble to all shareholders. Going forward, the goal is to max- payroll expenses more than offset by significantly lower imize the value of our remaining assets and aggressively stock-based compensation expenses. Otello delivered Adj return cash to shareholders, most likely through a combi- EBITDA (excluding impairment and restructuring expens- nation of share buybacks and dividends. es) of -$6.3 million (2020: -$5.1 million). COMPANY OVERVIEW A loss before income taxes (including impairment and re- Otello Corporation ASA, the parent company of the structuring expenses) of -$58.7 million was recognized in Group, is domiciled in Norway. The Company’s principal 2021 (2020: -$20.4 million). Taxes resulted in an expense of offices are located at Gjerdrums vei 19, Oslo, Norway. The -$7.5 million in 2021 (2020: $3.5 million) The result after tax company is a public limited company that is listed on the was for 2021 was -$51.2 million (2020: -$23.9 million). Basic Oslo Stock Exchange under the ticker OTEC. and diluted earnings per share were both $1.35 (2020: -$0.17). Otello Corporation ASA - Annual Report 2021 15 Cash flow and award-winning campaigns globally, AdColony has Net cash flow from operating activities in 2021 totaled been at the top of the conversation about mobile games $4.8 million, (2020: $19.1 million). Cash flow from invest- and how they factor into the global consumer mindset ing activities amounted to $207.1 million in 2021, vs -$12.4 both in general and in this specific moment in time. million in 2020, positively impacted by net proceeds from the initial and second installment from Digital Turbine’s Transaction acquisition of AdColony and the disposal of Bemobi of Otello announced in 1H21 that it had entered into a de- a net total of $179.3 million, partly offset by $2.8 million finitive agreement to sell AdColony to Digital Turbine, related to CAPEX. Cash flow from financing activities was Inc. (Nasdaq: APPS) for a total estimated consideration -$169.7 million in 2021, compared to $10.5 million in 2020. of $400 million. Digital Turbine is a global mobile tech- Use of cash for financing activities was mainly related to nology company, passionate about delivering the right share buybacks of -$132.6 million and repayment of all content to the right person at the right time across all interest-bearing debt of -$35.5 million. Android devices. The company's on-demand media plat- form powers frictionless app and content discovery, user As of December 31, 2021, the Group had a cash balance of acquisition and engagement, operational efficiency, and $79.0 million (2020: $41.9 million), and no interest-bear- monetization opportunities. Digital Turbine's technolo- ing debt (2020: -$35.0 million). gy platform has been adopted by more than 40 mobile operators and OEMs worldwide and has delivered more than three billion app preloads for tens of thousands of Balance sheet As of 31 December 2021, the Group had total assets of advertising campaigns. The Company is headquartered in $365.0 million (2020: $425.3 million). Non-current assets Austin, Texas, with global offices in Arlington, Durham, represented $92.2 million of this total and primarily con- Mumbai, San Francisco, Singapore, and Tel Aviv. sisted of other investments (mainly our 36% ownership in Bemobi) of $90.3 million. Current assets such as cash The total estimated consideration for the acquisition was and receivables represented $272.8 million of total assets, $400 million, including a normalized amount of working of which $79.0 million was Cash and cash equivalents and capital and $19 million in cash. Some or all of the cash $193.7 million was Other receivables (the final payment would be returned to Otello subject to the achievement from Digital Turbine for the sale of AdColony). of certain future net revenue targets: (1) $100 million in cash to be paid at closing (2) $100 million in cash to be The Group had total liabilities of $13.7 million as of paid six months following the closing, and (3) on-target 31.12.2021 (2020: $118.9 million), of which $2.7 million were earn-out of $200 million, to be paid fully in cash, based current liabilities. Shareholders’ equity was $351.3 million on AdColony achieving certain future target net revenue at the end of 2021, compared with $306.4 million at the objectives in 2021. The earn-out portion was not capped end of the previous year. Otello’s equity ratio at year-end and was subject to change based on actual results. Ac- consideration for the acquisition would be $404.5 million, sales channels and digital payments solutions, directly including a normalized amount of working capital and $19 contributing to the growth of these companies. million in cash. As the amount of the Earnout Payment Amount was then fixed, it was no longer considered a con- More recently, Bemobi started to offer data analysis tingent asset as had previously been the case. Accordingly, solutions for credit and fraud risk detection, using the the Earnout Payment Amount has now been booked as a information captured through our partnerships with receivable in the balance sheet and included in the calcu- telecommunications operators, financial institutions, was 96.2% (2020: 72.0%). tual, unaudited 1Q21 performance for AdColony on net revenue was at 106.35% vs. the plan agreed with Digital Turbine, which was tied to our annual guidance of $250- 290 million in Gross Revenue. Actual, unaudited 2Q21 per- formance for AdColony on net revenue was at 96.7% vs. BUSINESS OVERVIEW AdColony (discontinued operations) Due to the sale of AdColony to Digital Turbine, which was the plan agreed with Digital Turbine, which was tied to executed effectively 29. April 2021, the business is treat- our annual guidance of $250-290 million in Gross Reve- lation of the net profit on disposal of AdColony. and retail companies, promoting the financial inclusion of millions of people. ed as discontinued operations for the period. nue. Combined, the actual, unaudited 1H21 performance for AdColony on net revenue was at 101.03%. AdColony's Bemobi (discontinued operations) AdColony is a leading mobile advertising platform ded- 1H21 performance extrapolated for the full FY 2021 would icated to delivering authentic advertising experiences yield a payout of around 105.5% of plan or around $211 across today’s top apps. Originally founded in 2008, Ad- million for the earn-out portion of the payment. Colony has been an innovation leader in mobile adver- Bemobi is a pioneering technology company in the devel- Founded in 2009 in Brazil as an independent company, Be- opment of solutions for the distribution of digital services mobi has its services integrated with 88 mobile phone car- to mobile phone users. Bemobi offers an innovative broad riers around the world and Bemobi started to expand our portfolio that encompasses the sale of services of (i) sub- partnerships to other segments such as fintech, marketplac- scription to apps and games in an “All You Can Eat” model, es and wallets. Bemobi is already present in 42 countries, (ii) voice messages services through apps and/or integrat- addressing a market of more than 2.5 billion potential users. ed with SMS/WhatsApp systems, (iii) call anti-spam solu- tising and monetization since Apple first introduced the Settlement of earn-out App Store. Founded by game developers, for game devel- As discussed above, a portion of the sale proceeds was opers, AdColony is committed to delivering an experience originally based on AdColony achieving certain future that makes monetizing a win for advertisers, developers, target net revenue objectives in 2021. and users alike. AdColony’s mission is to drive business outcomes that matter for advertisers and publishers us- Otello announced on August 30, 2021, that it had agreed to ing its best-in-class mobile technology, the highest-qual- settle the earn-out with Digital Turbine at a fixed amount ity mobile ad experiences and leveraging curated reach. of $204.5 million and that the payment date was moved Thanks to industry-leading research, consumer insights, forward to January 15, 2022. With this agreement, the total tions and a series of microcredit service modalities such Bemobi works on a B2B2C (Business-To-Business-To-Con- as (iv) balance advance for prepaid mobile users, (v) data sumer) white-label model, as Bemobi offers our services packages advance and (vi) and call advance. to a company that in turn offers them to end custom- ers maintaining the visual identity of its brands, which Bemobi also offers to large corporations automated plat- guarantees our accelerated and sustainable growth as forms for managing sales campaigns and offers, digital observed in recent years. 16 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 17 Bemobi IPO CORPORATE OVERVIEW On February 9, 2021, Otello announced that Bemobi Mo- bile Tech S.A. ("Bemobi Brazil"), had set a price of 22.00 Organization Brazilian real (“R$ ”) per common share for its IPO. Based At the close of 2021, the Otello group had 6 full-time em- on this price, the gross proceeds of the primary compo- ployees and equivalents, compared to 607 full-time em- nent of the IPO, reached R$ $1,094,117,684 ($203,943,536), ployees and equivalents at the end of 2020. resulting in an equity value, post-money, of Bemobi Bra- zil at IPO of R$ $2,000,000,024 ($372,800,004). Board of Directors composition At the Annual General Meeting on June 2, 2021, André On February 10, 2021, Bemobi Brazil had its first day of Christensen was re-elected as the chairman of the Board trading on the Bovespa stock exchange in Sao Paolo, of Directors, and Maria Borge Andreassen, Birgit Midt- Brazil, under the ticker “BMOB3”. Otello’s ownership in bust, Song Lin and Anooj Unarket were re-elected to the Bemobi post the IPO is 32,719,588 shares, equivalent to Board of Directors. 35.99% of the company. Corporate governance Following the successful IPO of Bemobi on Bovespa in The Company’s guidelines for corporate governance Brazil, Otello Corporation ASA ("Otello") is now a major are in accordance with the Norwegian Code of Practice shareholder in Bemobi Brazil with ownership below 50%. for Corporate Governance, dated October 14, 2021, as Consequently, Bemobi financials are no longer consoli- required by all listed companies on the Oslo Stock Ex- dated into Otello's accounts but are booked according to change. Furthermore, the guidelines meet the disclosure the equity method. Please see note 15 of the consolidat- requirements of the Norwegian Accounting Act and the ed financial statements for more information about the Securities Trading Act. The guidelines are included sep- equity method accounting. arately in the annual report. Please see the section en- titled “Principles of corporate governance” for further information. Bemobi ownership It is expected that any future sale of shares in Bemobi Brazil will be subject to capital gains tax in Brazil. Such Shareholders and equity-related issues gains are subject to progressive rates, based on the tax- As of December 31, 2021, Otello Corporation ASA had able profit. 112,299,727 outstanding shares. As of December 31, 2021, the Group’s equity was $351.3 million (parent company: $258.0 million). Under existing tax laws, tax is payable as follows: 1. 15.0% on capital gains up to R$ $5 million 2. 17.5% on the portion of capital gains between R$ $5 million and R$ $10 million Share Buyback Program During 2021, Otello purchased 36,500,470 (2020: 388,372) treasury shares for $132.6 million (2020: $0.4 million) and 3. 20.0% on the portion of capital gains between R$ $10 sold 3,272 (2020: 38,555) treasury shares. million and R$ $30 million 4. 22.5% on the portion of capital gains over R$ $30 million Shareholders The Company had 3,316 (2020: 4,756) shareholders at year- end. At that time, 33.9% (2020: 34.9%) of the shares were As of reporting date, the tax cost base of Otello's re- held in Norway-based accounts, 32.5% (2020: 45.0%) of maining 35.99% shareholding in Bemobi Brazil is R$ the shares were held in U.K.-based accounts, 8.5% (2020: $242,396,152.87. 4.9%) in Sweden-based accounts, 7.5% (2020: 4.6%) in US-based accounts, 7.4% (2020: 4.6%) in Belgium-based The fair value of the investment in Bemobi Brazil has accounts, and 10.4% (2020: 6.0% in accounts based else- been reassessed based on the share price of that busi- where. ness as of December 31, 2021. With a price per share of R$ $15.23 as of that date, the carrying value of the invest- Allocation of the annual profit / coverage of loss ment has been written down by $41.4 million vs 1H21. The total comprehensive result for the period for the parent company, Otello Corporation ASA, was a loss of Based on the Bemobi share price of 31.12.2021, Otello’s $27.2 million (2020: profit of $4.5 million). The Board will ownership mark-to-market (fair value) was calculated to propose at the Annual General Meeting on June 2 that be $89.4 million. Based on the fair value of the shares the Annual General Meeting grant the Board the autho- and this tax cost base, a deferred tax liability of $10.2 rization to pay dividends based on the approved 2021 million has been accrued. Thus, the net value for Otello annual accounts. was $79.2 million as of 31 December 2021. Otello Corporation ASA - Annual Report 2021 19 Going concern company activities. When recruiting, we use assessment In accordance with section 3-3a of the Norwegian Ac- methods such as programming tests and test cases to counting Act, the Board confirms that the prerequisites give equal opportunities to all qualified applicants. Sim- for the going concern assumption exist and that the fi- ilar approaches are exercised when promoting, offering nancial statements have been prepared based on the go- training opportunities, etc. ing concern principle. Labor rights at Otello Events after the reporting period Otello respects and observes the fundamental labor For further information on subsequent events, see note rights set out in the international conventions, such as 22 of the “Consolidated financial statements”. the conventions of the International Labor Organization and the United Nations. For further information, please see the announcements published on the Oslo Stock Exchange website (www.os- Health and safety lobors.no). At Otello, we strive to offer our staff members a safe, healthy and inspiring workplace. We have a highly inter- national workforce, where we combine the responsive- CORPORATE SOCIAL RESPONSIBILITY Creating a responsible and sustainable business is ness of a flat structure with an extreme focus on results an integral part of everything we do at Otello. We and innovation. All employees are expected to comply are committed to the highest standard of social re- with safety and health regulations that apply to our sponsibility and believe that transparency and open- business activities. ness are key elements in obtaining a sustainable and responsible operation. Discrimination on the bases of sickness or disability shall not occur at Otello. We work hard to meet all our em- In this part of the Board of Directors report, we describe ployees’ needs. We offer shorter working hours and oth- Otello’s effort and results related to corporate social re- er services to accommodate our employees with disabil- sponsibility (CSR). Our CSR work is focused on the fol- ities or other particular needs. lowing areas: Our employees, anti-corruption and the environment. Otello had an average rate of absence due to sick leave of 0.3% in the parent company in 2021 (2020: 1.2%), and an es- timated rate of 1.4% for the Group as a whole (2020: 1.4%). Our employees Otello’s success and innovation springs from the minds and teamwork of its employees. Our employees are our Anti-corruption most valuable resource, and we are committed to inter- Otello abstains from and works actively to combat cor- acting with our employees in the same way as we strive ruption and bribery. Corruption distorts economic deci- to interact with our customers, following the highest sion-making, deters investment, undermines competitive- ethical standards and respect for individuality. ness and, ultimately, weakens economic growth. There is no single, comprehensive, universally accepted definition Otello strongly condemns discrimination. We believe of corruption. Therefore, each Otello employee must ad- that people should be treated with respect and insist on here to the existing laws and regulations in their country fair, non-discriminative treatment, regardless of irrele- of operation. As a minimum, Otello’s internal regulations vant factors such as nationality, political views, religion, apply to all employees. Controls are made to ensure that sexual orientation and gender. the rules are followed. Otello has put in place internal guidelines to help employees in their day-to-day opera- We promote cultural diversity and we are proud to have tions. The following is an extract of these guidelines. 4 nationalities represented within the Group. We pride ourselves on being an international organization, where Bribery innovation and teamwork take place across borders and No person acting on behalf of Otello shall attempt to time zones. influence someone in the conduct of their post, office or commission by offering an improper advantage. Nor We continually work to improve the gender balance in shall improper advantage be offered to anyone for the the company. At the end of 2021, 17% of the Group’s staff purpose of influencing third parties in the conduct of members were women. In addition, 2 of the 5 Board of their post, office, or commission. This includes all forms Directors of the Group are female. of facilitation payments. The principles of equal opportunities and non-discrimi- Correspondingly, no person acting on behalf of Otello nation are present throughout the organization and in all shall request, accept or receive an improper advantage 20 Otello Corporation ASA - Annual Report 2021 in connection with his/ her position or assignment or for whistle on malpractice, fraud, illegality, or breaches of the purpose of influencing a third party. Improper ad- rules, regulations, and procedures or raising health and vantage can take different forms, including but not lim- safety issues. Any Otello staff member making a whis- ited to money, objects, credits, discounts, travel, accom- tleblowing report is protected from any repercussions, Otello is committed to using environmentally safe prod- RISK FACTORS ucts in the workplace, to evaluating the consumption of Otello has operations across multiple markets and is energy and other resources to ensure efficient use, and therefore exposed to a range of risks that may affect to ensuring the development of environmentally protec- its business. Some key risks areas are discussed and de- modation and other services. such as dismissal and other forms of reprisal. To secure an effective procedure, staff members may blow the whistle either in person or anonymously to the Work tive procedures. scribed below. Gifts Otello has implemented the following guidelines and Financial risk It is a normal part of business life to exchange business Environment Committee. reporting schemes to ensure a high ethical standard Otello will have very limited financial risk going forward throughout the organization. The Ethical Code of Con- as we have no operations which are consolidated into duct is created to help employees, clients and business our P&L, nor do we have any interest-bearing debt. partners understand Otello’s values and standards. Otel- courtesies, such as meals, transportation, recreation, fa- cilities or small gifts. Such an exchange of business cour- To improve communication and ensure that issues do not tesies must always follow local laws and regulations and escalate to the point where they become a whistleblow- not put any Otello employee in the position of a sense of ing case, Otello focuses on the following practices: obligation to return the favor, compromise profession- lo’s reputation is created by the conduct of each indi- Currency risk vidual staff member. Therefore, all staff members are Both revenue and operating expenses are exposed to obliged to familiarize themselves with the Ethical Code foreign exchange rate fluctuations. With the recent al judgment or create the appearance of compromise or • Communicate the Company’s norms, values, and rules corruption. Otello employees should always check with and regulations regarding ethical conduct. of Conduct when joining the company. transactions, the vast majority of Otello’s expenses are in NOK, while we are indirectly exposed to Brazilian real their manager or the HR department, if in doubt, and • Create an open atmosphere by making sure that staff consider whether the exchange of business courtesy would be acceptable if it should become publicly known. members have the opportunity and possibility to meet and discuss issues in formal and informal settings. • Discuss and put questions regarding freedom of speech and whistleblowing on the agenda in internal commu- nications. The Ethical Code of Conduct focuses on the following through our ownership in Bemobi. Further, the majority key areas: the rights and obligations of our employees; a of Otello’s cash position is held in USD so fluctuations in healthy and safe working environment; anti-corruption; the USD v NOK exchange rate will impact our cash hold- No person acting on behalf of Otello is allowed to accept any amount of cash or cash equivalents (such as gift cer- tificates or market securities and similar), regardless of and the external environment. ing in NOK. See the tables below for a breakdown of rev- enues and operating expenses by currency. A violation of the Ethical Code of Conduct may result in the sum. Correspondingly, cash or cash equivalents may The Environment disciplinary action, up to and including termination of Credit risk never be offered by Otello employees as a business cour- Otello understands the importance of supporting the employment. Several of the guidelines concern actions Otello will have very limited direct credit risk going for- that are also punishable offenses. The Human Resources ward as we have no operations which are consolidated department is responsible for following up on any pos- into our P&L. sible breaches. tesy, regardless of the sum. environment and seeks to prevent any negative envi- ronmental impact our activities might have. Otello has incorporated its environmental policy as a part of the Whistleblowing Otello encourages freedom of speech and blowing the Ethical Code of Conduct. 22 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 23 2021 2020 Revenues per currency (continuing operations): [USD million] Revenues % Revenues % EUR USD NOK 0.1 0.0 0.0 94.3% 5.7% 0.0% 0.2 (0.1) 0.0 188.3% - 89.2% 0.8% Total 0.1 0.1 2021 2020 Operating expenses (OPEX) per currency (continuing operations): [USD million] OPEX % OPEX % NOK USD BRL EUR GBP Other (4.9) (2.3) (1.9) (0.2) (0.0) (0.0) 52.3% 24.8% 20.8% 2.0% 0.0% 0.0% (13.7) (1.3) - (0.2) (0.0) (0.0) 90.1% 8.2% 0.0% 1.6% 0.1% 0.0% Total (9.3) (15.2) Liquidity risk Otello considers its liquidity risk to be limited. have limited operating experience and may not benefit from any first-to-market advantages. Our international operations expose us to risks, arising from changes in lo- Cash and cash equivalents at the end of 2021 were $79.0 cal political, economic, regulatory, social and labor condi- million. In 2021, Otello repaid all its interest-bearing debt tions, which may adversely harm our operations. Some and subsequently canceled the Revolving Credit Facility of the markets in which Otello operates are emerging (RCF) agreement with DNB Bank ASA. As of December 31, economies with potentially complex and sensitive po- 2021, Otello has no outstanding loans payable. litical and social contexts. Further, any restrictions on foreign ownership and investments, as well as stringent The company’s equity was $351.3 million at the end of foreign-exchange controls might prevent us from repatri- 2021, corresponding to an equity ratio of 96.2%. ating cash earned in certain foreign countries. In certain countries where Otello operates, longer payment cycles Although Otello does invest its money conservatively, all than experienced in our principal markets are the norm. our investments are subject to risk. For example, Otello’s cash and other investments placed in Norwegian finan- Otello’s competitors include some of the largest technolo- cial institutions are not guaranteed by the government gy,advertising,internetandtelecommunicationcompanies above NOK 2 million per institution. If the financial insti- in the world, with significantly larger financial resources, tution were to go bankrupt, a portion of Otello’s cash or headcount and broader distribution channels than Otello. investment could be lost. These large companies, therefore, have a greater financial capacity than Otello to make strategic acquisitions, invest in new technology and research and development, market Operational risk Otello will have limited operational risk going forward their products, and compete for customers. as we have no operations which are consolidated into our P&L. The operational risk is limited to corporate func- Otello’s revenue is dependent on expanding our user tions as well the management of our partly owned as- base and customer base by developing and marketing sets and in particular Bemobi. products that are more attractive than our competitors’ products. If the attractiveness of our products does not continuously improve and evolve to keep pace with the External risk factors Our international operations expose us to additional industry, we will have challenges retaining our current risks that could harm our business, operating results and user base and gaining new customers. Our competitors financial condition. In certain international markets, we are constantly improving their products and associated 24 Otello Corporation ASA - Annual Report 2021 services. In order to stay competitive, Otello has to in- any contingent liabilities in the interim financial state- vest significant resources in research and development. ments related to this matter. Investing significantly in R&D is, however, no guaran- tee that consumers and customers will, in fact, find our Regulatory and litigation risk products to be attractive enough to begin or continue Otello’s operations are subject to requirements through using them, as it is impossible to accurately predict the sector-specific laws, regulations and national licenses. behavior of our consumer and business customers. Regulatory developments and regulatory uncertainty could affect the Group’s results and business prospects. In several of the countries where Otello operates, the gov- Data risk Many of our products and services are dependent on ernment has imposed sector-specific taxes and levies, as the continuous operation of data centers and computer a measure to improve state finances. The introduction of, hosting and telecommunications equipment. If Otello’s or increase in, sector-specific taxes and levies may impact internal or our service provider IT systems fail or are dam- Otello’s business. Further, it is a challenge for a company aged, or if a third party gains unauthorized access to such the size of Otello to remain updated on all the regulatory systems and data is lost or compromised, it could have a regimes that may apply to Otello at any one time. material impact on Otello’s operations. Downtime can, for example, hurt our reputation with our customers, as Otello has many customers, partners and end-users around well as increase the risk of damage claims and monetary the world, and, as a result, we can be exposed to lawsuits, penalties from our customers. If our centers or systems government investigations and other claims or proceed- are subject to a security breach, customers’ confidential ings on a global basis. Such lawsuits, investigations and or personal information could be obtained and used by proceedings could be related to, for example, intellectual third parties, which could have a negative impact on our property (issues including trademark and patent suits), la- brand and the market perception that we are a reliable bor law issues, commercial lawsuits, data protection and company, as well as subjecting us to significant regulato- privacy matters, consumer law, marketing law, tax issues ry fines or claims or damages from our customers. and so forth. All such proceedings can have a significant impact on Otello, whether or not we are ultimately suc- For certain business models, we depend on internal sys- cessful, due to the legal cost and the internal resources we tems to collect and produce accurate statistics regarding would have to employ to defend ourselves. In the event of the use of our products and services, especially for prod- an adverse result against Otello in such a proceeding, Otel- ucts that rely on an active user royalty model. Failures or lo could be required to pay significant monetary damages malfunctioning of these systems can have a significant or fines and/or re-design our products or services, causing impact on our financial results. Failure to adequately a material impact on Otello’s business, financial results, back up our internal systems can also have a material operations and cash flow. impact on the running of our business. Intellectual property lawsuits are very common in the Otello handles substantial volumes of personal data. market within which Otello operates. Regardless of the Loss, alteration or unauthorized disclosure of such infor- merits of such lawsuits, they are extremely expensive to mation may adversely affect the Group’s business and defend and litigate, and the damages awarded in such reputation. The European Data Protection Regulation suits can be high. In addition, Otello has contractually (GDPR), which entered into force in May 2018 introduces undertaken to indemnify certain of our customers and significant fines for breaches of data protection regula- partners, so, in the event they are sued for alleged intel- tions in Europe. lectual property infringement, Otello would be required to defend them and pay their damages. Furthermore, an As reported in the media, on January 14, 2020, the Nor- adverse judgment could require Otello to cease using cer- wegian Consumer Council (NCC) filed a complaint to the tain technologies in our products or names for our prod- Norwegian Data Protection Authority (DPA) against Grin- ucts, requiring Otello to re-engineer or re-name our prod- dr and five other companies, including AdColony, who ucts. Compared to Otello, many of our competitors own is a supplier to Grindr. The NCC requests that the DPA large numbers of patents and other intellectual property investigate certain alleged breaches of the General Data rights. Although we do seek patent protection for cer- Protection Regulation (GDPR) relating to the processing tain innovations, we may not have sufficient protection of personal data about Grindr users received from Grindr for important innovations. Furthermore, because many through the Grindr app. As of the date of this notifica- large companies are able to settle intellectual property tion, AdColony has not received any formal notification lawsuits by cross-licensing each other’s technology, the or complaint from the DPA. AdColony is currently looking fact that our patent portfolio is not as extensive as our into the NCC’s complaint and will provide further infor- competitors’ portfolios could have a negative impact in a mation if and when necessary. Otello has not recognized cross-licensing situation. Otello Corporation ASA - Annual Report 2021 27 Directors and Officers Liability Insurance terial Indemnification-Related Post-Earnout Obligations Otello Corporation ASA and subsidiaries are covered by related to the transaction. None of the Indemnification Directors and Officers liability insurance. The insurance Obligations of Otello has been recognized as liabilities indemnifies directors and officers for defense costs and in the financial statement as it has yet to be confirmed potential legal liability arising out of claims made against whether Otello has a present obligation that could lead them while serving on a board of directors and or as an to an outflow of economic benefits, nor does the Indem- officer. The insurance renews annually and the sum in- nification Obligations of Otello meet the recognition cri- sured was USD 25 million as per December 31, 2021. teria in IAS 37 as it is not probable that an outflow of economic benefits will happen at this stage. See Note 21 for additional details. OUTLOOK Otello’s strategic focus has been to build and grow com- panies with the ambition to create the highest possible The investment in shares in Last Lion Holdings Ltd (total- value for our shareholders. We saw the culmination of ing $10.1 million) was written off as of December 31, 2021, this effort in 2021 where we were able to both IPO Be- following the commencement of bankruptcy proceed- mobi on the Bovespa in Brazil at a significant premium ings against the Vewd Group. The loan, interests, and the to our initial purchase price, as well as sign and close a accrued expenses related to the loan agreement with transaction selling AdColony to Digital Turbine. Vewd Software AS (totaling $8.3 million) were written off as of June 30, 2021, due to the uncertainties of col- In Bemobi, Otello remains the biggest shareholder and lectability. Otello continues, however, to pursue all of its is positive about the prospects of the business. Bemobi entitlements. See notes 9 and 15 for more information. has recently signed two acquisitions which are expected to nearly double the revenue for the company. Otello will Otello has, as a result of the transactions above and pro- have an opportunistic view on its financial investment in ceeds received, already repaid all our debt, and launched the company. and completed a share buyback program accessible to all shareholders. Going forward, the goal is to maximize AdColony, which was sold to Digital Turbine in April 2021, the value of our remaining assets and aggressively return has as of this date been fully paid and consummated by cash to shareholders, most likely through a combination Digital Turbine. As part of the transaction, Otello has Ma- of share buybacks and dividends. 28 Otello Corporation ASA - Annual Report 2021 Report from the Board of Directors — Parent company information only Below, please find financial information and commen- ing expenses (including a $48.1 million impairment for the tary on Otello Corporation ASA, the parent company investment in Otello Technology Investment AS (primarily (“Company”) of the Otello Group (“Group”). Please note resulting from the decrease in the share price in Bemobi that the numbers and comments below are only applica- Mobile Tech S.A) and writedowns of $10.1 million for the ble to the Company and not for the Group. However, the shares in Last Lion Holdings Ltd and $8.2 million for the information described above for the Group is also appli- loan and receivables with View Software AS given the cable for the Company. bankruptcy proceeding for the Vewd Group and uncertain- ty in the recovery of the loan and receivables). Partly off- setting those impairments, the Company realized a profit FINANCIAL SUMMARY The Company’s main activities are to serve the Group as of $52.1 million on disposing of the AdColony business to a whole, through the following functions and services: Digital Turbine in addition to favorable FX movements. CEO, Board of Directors, corporate finance and account- ing, legal, HR and IT. The Company charges some of the Net cash flow from operating activities in 2021 totaled costs related to these functions to subsidiaries. There -$6.3 million (2020: $-7.5 million). The Company’s cash bal- was limited operational activity in both 2021 and 2020. ance was positively impacted in 2021 by the cash received The Company had 11 full-time employees and equiva- from the sale of the AdColony business of $185.5 million lents in 2021 (2020:16). and net loans received from subsidiaries of $71.4 million. Some of the cash inflow was used to buy back shares from Operating expenses increased by 14% in 2021. This is investors of $132.6 million and to repay all external debt of primarily due to an increase in legal/audit fees from $35.5 million. The cash balance increased by $75.4 million increased corporate activity and employment-related in 2021. As of December 31, 2021, the Company had a cash costs. The Company’s operating loss excluding impair- balance of $78.1 million (2020: 2.7 million). ment losses and restructuring expenses of $7.9 million (2020: loss $7.0 million) is in line with operating expenses The Company has $90.6 million in interest-bearing debt due to the limited amount of revenues. at year-end (all owed to subsidiaries) and the Company’s equity ratio was 73% (2020: 92%). The Company reported a loss before income taxes of $15.2 million (2020: loss $5.7 million). The current year loss in- It is the Board’s opinion that the annual accounts provide cluded $66.4 million in impairment losses and restructur- a true and fair view of the Company’s activities in 2021. Oslo, April 27, 2022 Andre Christensen Birgit Midtbust Anooj Unarket Song Lin Chairman of the Board Maria Borge Andreassen Lars Boilesen CEO Otello Corporation ASA - Annual Report 2021 31 Statement by the Board of Directors and the Chief Executive Officer The Board of Directors and the Chief Executive Officer To the best of our knowledge: (CEO) have reviewed and approved the Board of Di- rectors’ report and the financial statements for Otello • The consolidated financial statements and the finan- Group and Otello Corporation ASA as of December 31, 2021, (Annual Report for 2021). cial statements for the parent company for 2021 have been prepared in accordance with applicable account- ing standards. The consolidated financial statements and the financial statements for the parent company have been prepared • The consolidated financial statements and the finan- in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU and accompanying interpretations. The consolidated financial statements and the financial statements for the parent company also include certain disclosures in order to comply with cial statements for the parent company give a true and fair view of the assets, liabilities, financial position and profits as a whole as of December 31, 2021, for the Group and the parent company. certain regulations and paragraphs in the Norwegian Ac- • The Board of Directors’ report for the group and the counting Act and the Securities Trading Act. parent company includes a true and fair review of: • The development and performance of the business and the position of the Group and the parent company • The principal risks and uncertainties the Group and the parent company face Oslo, April 27, 2022 Andre Christensen Birgit Midtbust Anooj Unarket Song Lin Chairman of the Board Maria Borge Andreassen Lars Boilesen CEO Otello Corporation ASA - Annual Report 2021 33 CONSOLIDATED STATEMENT Consolidated statement of Comprehensive Income USD million, except per share amounts Note 2021 2020 Continuing operations Revenue 4, 5 0.1 0.1 0.1 Total operating revenue 0.1 Publisher and revenue share cost Employee benefits expense Depreciation and amortization expenses Other operating expenses 5 6, 16 11, 12, 13, 14 5, 7 0.0 (6.7) (0.8) (1.9) 0.3 (12.8) (1.0) (1.7) Total operating expenses (9.3) (9.2) (15.2) (15.1) (0.5) Operating profit (loss), excluding impairment and restructuring expenses Impairment losses and restructuring expenses Operating profit (loss) 9, 11, 12, 13 (59.9) (69.1) 10.4 (15.6) (4.7) Net financial items Profit (loss) before income tax (58.7) (20.4) Tax expense 8 7.5 (3.5) Profit (loss) from continuing operations (51.2) (23.9) Consolidated Group Discontinued operations Profit (loss) from discontinued operations, net of tax 21 220.1 0.6 0.6 Financial Statements 2021 Profit (loss) from discontinued operations Profit (loss) 220.1 Otello Corporation ASA 168.9 (23.3) Other comprehensive income: Items that may or will be transferred to profit (loss) Foreign currency translation differences Discontinued operations - reclassified to profit (loss) Reclassification of foreign currency translation reserve (7.4) 0.0 30.2 9.4 (28.0) 0.0 Total comprehensive income (loss) 191.7 (41.9) Profit (loss) attributable to: Owners of Otello Corporation ASA Non-controlling interests 168.9 0.0 (23.3) (0.0) Total comprehensive income (loss) attributable to: Owners of Otello Corporation ASA Non-controlling interests 191.7 0.0 (39.5) (2.4) Earnings (loss) per share: Basic earnings per share (USD) Diluted earnings per share (USD) 10 10 1.35 1.35 (0.17) (0.17) Earnings (loss) per share (continuing operations): Basic earnings per share (USD) Diluted earnings per share (USD) 10 10 (0.41) (0.41) (0.17) (0.17) Otello Corporation ASA - Annual Report 2021 35 CONSOLIDATED STATEMENT Consolidated statement of Consolidated statement of Financial Position Financial Position USD million Note 12/31/2021 12/31/2020 USD million Note 12/31/2021 12/31/2020 Assets Deferred tax assets Goodwill Intangible assets Property, plant and equipment Right of use assets Lease receivable Other investments Other non-current assets Shareholders’ equity and liabilities Equity attributable to owners of the company Non-controlling interests 8 11 - - - 26.1 219.7 12.8 6.0 3.0 0.0 18 18 351.3 - 306.8 (0.4) 11, 12 13 14 14 15 Total equity 351.3 306.4 1.0 0.3 - 90.3 0.6 Liabilities Deferred tax liabilities Lease liabilities 8 14 5 10.2 0.2 0.6 0.0 1.2 1.6 18.7 0.3 Other non-current liabilities Total non-current liabilities 11.0 2.8 Total non-current assets 92.2 286.6 Loans and borrowings Lease liabilities Accounts payable 5 14 5 - 0.1 0.2 - 35.0 2.8 25.7 2.0 Accounts receivable Lease receivable Other receivables 5 14 5 0.1 - 193.7 79.0 89.5 0.9 6.4 Taxes payable 8 Cash and cash equivalents 5 41.9 Contract liabilities Other current liabilities Contingent consideration, current 5 17 16 - 2.4 - 1.8 48.6 0.2 Total current assets Total assets 272.8 365.0 138.7 425.3 Total current liabilities Total liabilities 2.7 13.7 116.1 118.9 425.3 Total equity and liabilities 365.0 Oslo, April 27, 2022 Andre Christensen Chairman of the Board Birgit Midtbust Song Lin Maria Borge Andreassen Anooj Unarket Lars Boilesen CEO 36 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 37 CONSOLIDATED STATEMENT Consolidated statement of Cash Flows USD million 1/1 - 12/31 2021 1/1 - 12/31 2020 Note Reconciliation of profit (loss) before taxes Profit (loss) before income taxes Profit (loss) from discontinued operations, net of tax Tax expense, discontinued operations (58.7) 220.1 3.8 (20.4) 0.6 1.5 Profit (loss) before taxes, as presented in the statement of cash flows below 165.2 (18.3) Cash flow from operating activities Profit (loss) before taxes 165.2 (18.3) Income taxes paid 8 (0.0) 7.0 59.8 17.6 (9.0) (215.7) (5.7) (3.0) (14.1) 2.7 5.3 23.4 - (11.5) 12.6 0.2 (5.4) 0.0 9.5 Depreciation and amortization expense Impairment of intangible assets and goodwill Changes in accounts receivable 12, 13, 14 9, 11 5 5 21 Changes in accounts payable Other adjustments for which cash effects are investing or financing cash flow Other adjustments for non-cash items Share of net income (loss) from associated companies Share-based remuneration 15 6 FX differences related to changes in balance sheet items 3.5 Net cash flow from operating activities 4.8 19.1 Cash flow from investment activities Purchases of property, plant and equipment (PP&E) and intangible assets Capitalized development costs Cash flows from losing control of subsidiaries 12, 13 12 21 21 16 (0.1) (2.8) 179.3 30.8 - (1.8) (10.3) - 0.0 (0.2) (0.1) Dividends received Cash flows used in obtaining control of subsidiaries or other businesses Other cash payments to acquire equity or debt instruments of other entities 16 (0.1) Net cash flow from investment activities 207.1 (12.4) Cash flow from financing activities Payments of other equity instruments Payments to acquire entity's shares Proceeds from loans and borrowings Repayments of loans and borrowings Payment of finance lease liabilities, net 18 18 5 5 14 (0.1) (132.6) 0.0 (35.5) (1.5) 0.0 (0.4) 15.0 (1.3) (2.8) Net cash flow from financing activities Net change in cash and cash equivalents (169.7) 42.2 10.5 17.2 Cash and cash equivalents (beginning of period) Effects of exchange rate changes on cash and cash equivalents 41.9 (5.1) 28.3 (3.6) Cash and cash equivalents1) 79.0 41.9 1) Of which $0.1 million (2020: $0.8 million) is restricted cash as of December 31, 2021. 38 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 39 CONSOLIDATED STATEMENT Consolidated statement of Consolidated statement of Changes in Equity Changes in Equity Number of shares out- standing Number of shares out- standing Non-con- trolling Non-con- trolling Issued Share TreasuryTranslation Other Total equity Issued Share TreasuryTranslation Other Total equity USD million (except number of shares) (million) capital premium shares reserve equity interests USD million (except number of shares) (million) capital premium shares reserve equity interests Balance as of 12/31/2020 137.6 0.3 347.8 (69.3) (30.2) 58.3 (0.4) 306.4 Balance as of 12/31/2019 137.9 0.3 347.8 (69.0) (14.1) 72.1 1.9 339.1 Comprehensive income for the period Comprehensive income for the period Profit (loss) 168.9 168.9 Profit (loss) (23.3) (0.0) (23.3) Other comprehensive income Other comprehensive income Recycling of foreign currency translation difference to profit (loss) Foreign currency translation differences Recycling of foreign currency translation difference to profit (loss) Foreign currency translation differences 30.2 (2.8) 30.2 (7.4) 0.0 (18.6) (4.6) (16.2) (2.4) Total comprehensive income for the period - - - 27.5 164.3 0.0 191.7 Total comprehensive income for the period - - - (16.2) (23.3) (2.4) (41.9) Issue of share capital Capital decrease Treasury shares purchased Treasury shares sold 0.0 0.0 (132.6) 0.0 Issue of share capital Capital decrease Treasury shares purchased Treasury shares sold (0.0) (0.0) 0.0 (0.4) 0.1 (0.1) (201.9) 201.9 (132.6) 0.0 (36.5) 0.0 (0.4) 0.0 (0.4) 0.1 Share-based payment transactions Divestment of a subsidiary (14.1) (0.4) (14.1) 0.0 Share-based payment transactions Divestment of a subsidiary 9.5 9.5 0.0 0.4 Balance as of 12/31/2021 101.1 0.3 145.9 (0.0) (2.8) 207.9 0.0 351.3 Balance as of 12/31/2020 137.6 0.3 347.8 (69.3) (30.2) 58.3 (0.4) 306.4 Non-controlling interests During 2021, Otello Corporation ASA’s ownership in Bemobi was been reduced to 36%. Please see Note 21 for further information. Share capital decrease Reference is made to the resolution by the annual general meeting on June 2, 2021, where a resolution was passed to reduce the share capital of the parent company, Otello Corporation ASA, by the cancellation of 13,727,702 treasury shares. The share capital reduction has been registered with the Norwegian Register of Business Enterprises, and the new registered share capital of the parent company was NOK 2,494,994.54, and the total share count was 124,749,727. Reference is made to the resolution by the extraordinary general meeting on September 30, 2021, where a resolution was passed to reduce the share capital of the parent company, Otello Corporation ASA, by the cancellation of 12,450,000 treasury shares. The share capital reduction has been registered with the Norwegian Register of Business Enterprises, and the new registered share capital of the parent company is NOK 2,245,994.54, and the total share count is 112,299,727. Treasury shares and ordinary share During 2021, Otello purchased 36,500,470 treasury shares for $132.6 million, and sold 3,272 treasury shares for $0.0 million. During 2021, Otello issued 0 ordinary shares related to the incentive program, 0 ordinary shares related to business combinations, and 0 ordinary shares related to an equity increase. As of December 31, 2021, Otello owned 11,199,998 treasury shares. Face value of the shares The face value of the shares is NOK 0.02. Reserve for treasury shares The reserve for the Company’s own shares comprises the face value cost and excess value of own shares held by the Company. Translation reserve The translation reserve consists of all foreign currency differences arising from the translation of the financial statements of group companies with a functional currency that is not USD. Other equity Other equity consists of option and RSU costs recognized according to the equity settled method and all other transactions, including but not limited to, total recognized income and expenses for the current period. 40 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 41 CONSOLIDATED STATEMENT statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. Non-monetary assets and liabilities that are measured in terms of Note 1 historical cost in a foreign currency are translated using the exchange rate prevailing on the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are recognized at fair value are translated to USD at foreign exchange rates prevailing on the date the fair value was determined. General information Investments in associates – associates: Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity. Investments in associates are accounted for using the equity method (equity-accounted investees) and are recognized initially at cost (ex- cept for investments in associates arising from the loss of control of a subsidiary – refer to the “Loss of control” section below for further information). The cost of the investment includes transaction costs. General information At the beginning of 2021, the Otello Group’s (“Otello”) main business activities comprised mobile advertising via its AdColony business and mobile-app subscription services via its Bemobi business. Following the successful IPO of the Bemobi business in February 2021 and the sale of the AdColony business in April 2021, those businesses no longer form part of the consolidated Group and are considered discontinued operations. Otello is now comprised of a single Corporate segment. The principal activities for Otello’s various business areas are de- scribed in more detail in Note 4 – Operating and geographic segment information. Otello Corporation ASA (the “Company”) is a public limited company domiciled in Norway. The Company’s principal offices are located at Gjerdrums vei 19, Oslo, Norway. The Company is listed on the Oslo Stock Exchange under the ticker OTELLO. The functional currency for the majority of the group is USD, including the AdColony segment (for the period of the year that it formed part of the group), whilst for the majority of the Bemobi segment (for the period of the year that is formed part of the group), BRL is the functional currency. The consolidated financial statements of the Group for the year ended December 31, 2021, comprise the Company and its subsidiaries. Foreign operations: The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising from consolidation, are translated to USD at foreign exchange rates prevailing on the balance sheet date. These consolidated financial statements have been approved and issued by the Board of Directors on April 27, 2022 for approval by the Annual General Meeting on June 2, 2022. The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income, after fair value adjustments, and to align the accounting policies of the associate with Revenues and expenses of foreign operations are translated to USD those of the Group. using the approximate foreign exchange rates prevailing on the trans- action date. Foreign exchange differences arising from re-translation are recognized directly in a separate component of equity. When the Group’s share of losses exceeds its interest in an equity-ac- counted investee, the carrying amount of that interest is reduced to zero, 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. Other long-term investments in the associate are measured at amortized cost with allowances for credit losses as appropriate. Note 2 Property, plant and equipment Summary of significant accounting policies Owned assets: Property, plant and equipment are recognized at cost, less accumu- lated depreciation (see below) and impairment losses (see accounting policy regarding impairment). Loss of control: Upon the loss of control, the Group derecognizes the assets and liabilities of the subsidiary, any non-controlling interests, and the other components of equity related to the subsidiary. Any surplus or deficit arising from the loss of control is recognized in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Sub- sequently, it is accounted for as an equity-accounted investee or as an equity investment depending on the level of influence retained. Statement of compliance and basis of the consolidated financial statements (acquisition date) and until the date the Group ceases to control the Where parts of property, plant and equipment have different useful lives, the components are depreciated separately. subsidiary. Control is the power to govern the financial and operating policies of an entity to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. The consolidated financial statements have been prepared in ac- cordance with International Financial Reporting Standards (IFRS) as adopted by the EU and accompanying interpretations. The consoli- dated financial statements also include certain disclosures in order to comply with certain regulations and paragraphs in the Norwegian Accounting Act and the Securities Trading Act. Right of use assets: At inception of a contract, the Group assesses whether a 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 of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group assesses whether: The Group measures goodwill at the acquisition date as: • • The fair value of the consideration transferred; plus Intercompany balances and transactions eliminated on consolidation: Intercompany balances and transactions, any unrealized gains and losses, or income and expenses arising from intercompany transactions are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with equi- ty-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealized losses are New and amended International Financial Reporting Standards (IFRS) adopted by the Group The group has not applied any new standards or amendments for the first time for the reporting period commencing January 1, 2021. The recognized amount of any non-controlling interests in the acquiree, plus if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less The net recognized amount (generally, fair value) of the identifiable assets acquired and liabilities assumed. - the contract involves the use of an identified asset, this may be specified explicitly or implicitly and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substitution right, then the asset is not • Basis of preparation The consolidated financial statements have been prepared on a historical cost basis, and are presented in US dollars (USD), rounded to the nearest hundred thousand, unless otherwise stated. As a result of rounding differences, amounts and percentages may not add up to the total. Costs related to the acquisition, other than those associated with the issue of debt or equity securities that the Group incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is recognized at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured, and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognized in the profit or loss. eliminated in the same way as unrealized gains, but only to the extent identified that there is no evidence of impairment. - the Group has the right to obtain substantially all of the economic Segment reporting benefits from use the use of the asset through the period of use, and An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. Furthermore, the Group’s component’s operating results are regularly reviewed by the entity’s chief operating decision-maker to make decisions about resources to be allocated to the segment and to assess its performance, and thus separate financial information is available. The company has determined that the Group’s executive management group is the chief operating decision-maker. See note 4 for further information. - the Group has the right to direct the use of the asset. Except for cash-settled, share-based payment arrangements and contingent considerations recognized in business combinations, no other assets or liabilities are subsequently measured at fair value. As- sets and liabilities recognized in business combinations are measured at fair value at the acquisition date according to IFRS 3. Receivables and debts are assumed to have a market value equal to the carrying amount. As a lessee The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability ad- justed for any lease payments made at or before the commencement date, plus any initial direct costs incurred. When share-based payment awards (replacement awards) are re- quired to be exchanged for awards held by the acquiree’s employees (acquirer’s awards) and relate to past services, then all or a portion of the amount of the acquiree’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based value of the replace- ment awards compared with the market-based value of the acquiree’s awards and the extent to which the replacement awards relate to past and/or future service. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. The accounting policies have been applied consistently by Group entities. The right-of-use asset is subsequently depreciated using the straight- line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. In addition, the right-of-use asset is periodically reduced by impairment losses, if any. Foreign currency Foreign currency transactions: Transactions in foreign currencies are translated at the foreign ex- change rate prevailing on the date of the transaction. Monetary assets The lease liability is initially measured at the present value of the Consolidation principles Subsidiaries – consolidated financial statements: Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the finan- cial and operating policies of an entity to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial Business combinations: and liabilities denominated in foreign currencies at the balance sheet date are translated to the functional currency at the foreign exchange rate prevailing on that date. Foreign exchange differences arising from translation are recognized in the statement of comprehensive income. lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease, or if that rate cannot be readily determined, the Groups incremental borrowing rate. Business combinations are accounted for using the acquisition meth- od. Subsidiaries are included in the consolidated financial statements from the date the Group effectively obtains control of the subsidiary 42 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 43 CONSOLIDATED STATEMENT Short term leases and leases of low-value assets: Subsequent expenditure: Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocat- ed to cash-generating units (or group of units) and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro-rata basis. that the Group will renew any contracts for more than 3 years. The Group has elected not to recognize the right-of-use assets and liabilities for short-term leases of equipment and low-value assets with an underlying value of USD 10,000 or less when they are new. Payments on such leases are recognized as expenses as they occur. Subsequent expenditure on capitalized intangible assets is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditures are expensed as incurred. Discount rates: Otello chose to use the modified approach for the implementation of IFRS 16, and therefore use the IBR as a discount rate on the opening balance. Going forward, the IBR will be used for subsequent mea- surement for new contracts, as long as the implicit interest rate is not readily determined. Subsequent costs: Amortization: Calculation of recoverable amount: The recoverable amount of the Group’s assets is the greater of their fair value less the cost of disposal and value in use. In assessing value The Group recognizes, in the carrying amount of an item of property, plant and equipment, the cost of replacing part of such an item when that cost is incurred, if it is probable that the future economic benefits Amortization is calculated on a straight-line basis over the estimated useful lives of intangible assets, unless such lives are indefinite. Good- will and intangible assets with indefinite useful lives are systematical- in use, the estimated future cash flows are discounted to their present As a basis for the discount rate calculation, Otello has used its credit embodied with the item will flow to the Group, and the cost of the item ly tested for impairment at each balance sheet date. can be measured reliably. All other costs are expensed as incurred. value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generat- ing unit to which the asset belongs. facility agreement. This bore an interest rate of LIBOR, 3 months plus a margin of 2.50 % p.a. The margin has been adjusted according to the value of a lease. Specific country-based discount rates are used. Financial instruments Depreciation: Depreciation is calculated on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows: Non-derivative financial instruments: Interest rates are, therefore, adjusted to take into account the eco- nomic environment in the country where the lease is entered into. Rates are modified with a country risk premium, and with an inflation difference compared to Norway, where the credit facility agreement is held. The range of IBRs used is 2.8 % to 16.5 %. Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equiv- alents, loans and borrowings, and trade and other payables. Reversals of impairment: An impairment loss in respect of goodwill is not reversed. • • • • Leasehold improvements Over the term of the contract Machinery and equipment Up to 10 years Non-derivative financial instruments are initially measured at fair value plus transaction costs, except for those non-derivative financial instruments classified as at fair value through profit or loss, which are initially measured at fair value without transaction costs. Subsequent to initial recognition, non-derivative financial instruments are mea- sured as described below. With respect to other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recover- able amount. An impairment loss is reversed only to the extent that the assets carrying amount do not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Fixtures and fittings Right of use assets Up to 5 years Over the term of the contract Dividends Dividends on shares are recognized as a liability in the period in which they are declared. The residual value, if not insignificant, is reassessed annually. Employee benefits — Defined contribution plans Intangible assets A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in the profit or loss in the periods during which services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that are due more than 12 months after the end of the period in which the employees render the service are discounted to their present value. Trade and other receivables: Leasing Goodwill: Trade and other receivables are recognized at the invoiced amount less allowance for expected credit losses (see accounting policy regarding impairment). IFRS 16 requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding assets for all leases with a lease term of more than 12 months, unless the underlying asset is of low value. Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. For the measurement of goodwill at initial recogni- tion, see above. Cash and cash equivalents: Cash and cash equivalents comprise cash balances and call deposits. Goodwill is recognized at cost, less any accumulated impairment losses. Goodwill is allocated to cash-generating units (CGU) or groups of CGUs and tested at least annually for impairment (see accounting policy regarding impairment). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of cash inflows from other assets or groups of assets. In order to identify whether cash flows from an asset (or a group of assets) are independent of cash flows from other assets (or groups of assets), management assesses various factors, including how operations are monitored. Each CGU or group of CGUs to which goodwill has been allocated represent the lowest level in the entity where goodwill is monitored for internal management purposes. The group of CGUs may not be larger than an operating segment. Further, a lessee recognizes depreciation of the right-of-use asset (ROU asset) and interest expense on the lease liability, instead of recognizing the expenses in Other operating expenses. Impairment Financial assets: For subsequent measurement, the Group remeasures the lease liability in the case of certain events taking place (e.g., a change in the lease term). Generally, the amount of the remeasurement of the lease liabil- ity is recognized as an adjustment to the right-of-use asset. Restructuring Trade receivables A provision for restructuring costs is recognized when the Group has approved a detailed and formal restructuring plan, and the restruc- turing either has commenced or has been publicly announced. Further, operating losses are not provided for. The group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due. The contract assets relate to unbilled work in progress and have substan- tially the same risk characteristics as the trade receivables for the same types of contracts. The group has therefore concluded that the expected loss rates for trade receivables are a reasonable approxima- tion of the loss rates for the contract assets. Individual assessments per customer are also carried out by financial management. Otello is using the modified approach and, therefore, only recognizes leases in the statement of financial position as of January 1, 2019. Prior periods have not been restated. Termination benefits Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits or when the Group recognizes costs for restructuring. If benefits are not expected to be settled within 12 months of the end of the reporting period, then they are discounted. Leases classified as operating leases under IAS 17: Research and development: At the date of the initial application of IFRS 16, January 1, 2019, the Group recognized a lease liability for leases classified as operating leases according to IAS 17, in compliance with transition requirements. The Group measures the lease liabilities at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate at January 1, 2019. Expenses related to research activities, which are expected to lead to scientific or technological knowledge and understanding, are recognized as costs in the statement of comprehensive income in the period they are incurred. Share-based payment transactions Loans and lease receivables The share option program allows Group employees to acquire shares of the Company. The fair value of options granted is recognized as an employee expense with a corresponding increase in equity. The fair value is measured at the grant date and spread over the period during which the employees become unconditionally entitled to the options, with the offsetting amount against equity. The fair value of the options granted is measured using the Black & Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognized as an expense is adjusted to reflect the actual number of share options that vest, except where forfeiture is only due to share prices not achieving the threshold for vesting. The cost of building new features, together with significant and per- vasive improvements of core platforms, provided that the significant and pervasive improvements of parts or main components of core platforms will generate probable future economic benefits, are capi- talized as development costs and amortized on a straight-line basis of up to 5 years. All of the entity’s debt investments at amortized cost are considered to have low credit risk, and the loss allowance recognized during the period was therefore limited to 12 months’ expected losses At the inception of a contract, the Group assesses whether a 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 of time in exchange for consideration. Non-financial assets: The carrying amounts of the Group’s assets are reviewed annually to determine whether there is any indication of impairment. If any such in- dication exists, the asset’s recoverable amount is estimated (see below). Sublease contracts, where the Group is the lessor: A significant portion of the work that engineering performs is related to the implementation of the ongoing updates that are required to maintain the platforms’ functionality. Examples of updates include “bug fixes”, updates made to comply with changes in laws and regu- lations, and updates made to keep pace with the latest trends. These costs are expensed as maintenance costs. For subleasing contracts, the group recognizes a lease receivable in the statement of financial position, with a corresponding reduction in the ROU asset. Short-term and low-value sublease contracts are not capitalized. For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is nevertheless tested annually. Restricted Stock Unit Plans are measured at the grant date using the current market value reduced by expected dividends paid before the vesting date, which is then further discounted. Contracts with renewal options: An impairment loss is recognized whenever the carrying amount of an asset, its cash-generating unit or a group of units exceeds its recover- able amount. The cash-generating unit is considered to be the acquired companies. Please see note 11 for further information. Impairment losses are recognized in the statement of comprehensive income. Some office leases contain renewal options exercisable by the Group. The renewal options held are exercisable only by the Group, and not by the lessors. The Group includes a renewal of the contracts in the lease valuation if it is considered reasonably certain that the Group will renew the contracts. It is not considered as reasonably certain Other intangible assets: Other intangible assets that are acquired by the Group, are recognized at cost less accumulated amortization (see below) and impairment losses (see accounting policy regarding impairment). Provisions A provision is recognized in the statement of financial position when the Group has a currently existing legal or constructive obligation 44 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 45 CONSOLIDATED STATEMENT as a result of a past event, and it is probable that a future outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the ex- pected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. the analysis of whether Otello is the primary obligor in the arrange- ment. For agreements where Otello has a contractual relationship with both the publisher and the associated advertisement supplier, Otello is responsible for identifying and contracting with third-party advertisers, establishing the selling prices of the advertisements sold and performing all billing and collection activities, including retaining credit risk, as well as bearing sole responsibility for fulfillment of the advertising. Accordingly, Otello acts as the principal in these arrange- ments and, therefore, reports revenue earned, and costs incurred related to these transactions on a gross basis. For agreements where the publisher has a direct contractual relationship with the advertis- er, revenue is recognized on a net basis, as Otello is not the primary obligor and does not assume the fulfillment and credit risk. Deferred tax is provided 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. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substan- tively enacted at the balance sheet date. Contingent consideration Contingent consideration is measured at fair value using the expected payment amounts and their associated probabilities (i.e., probabil- ity-weighted). Since a part of the contingent consideration is long- term in nature, it is discounted to present value. Please see note 3 for further information regarding accounting estimates and judgments related to contingent considerations. A deferred tax asset is only recognized to the extent that it is proba- ble that future taxable profits will be available against which the as- set can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Application and content Please see note 8 for further information regarding accounting esti- mates and judgments related to deferred tax assets. Trade and other payables Trade and other payables are recognized at amortized cost. Application and Content revenue comprises i) Subscription revenue when a user purchases a subscription from a "co-branded" mobile store, or a white-label operator-controlled version of the mobile store, which is also known as Apps Club, and ii) the Bemobi Mobile Store (formerly OMS), when a user purchases a premium app. Additional income taxes that arise from the distribution of dividends are recognized at the same time as the liability to pay the related dividend. Revenue recognition The Group has the following primary sources of revenue: • • Advertising When a transaction occurs in Bemobi Mobile Store, Otello collects the payment and shares a percentage of the revenue with the developer. When a transaction occurs in a “co-branded” or an operator-con- trolled version of the mobile store, two payment methods will exist. The user may pay using the Otello Payment Exchange, in which case Otello would collect and share a percentage of the revenue with both the operator and the developer, or the user may use a form of carrier billing, where the operator would collect the payment and share a portion of the revenue with Otello, who would, in turn, share a percentage of revenue with the developer. The revenue occurs on a transaction basis and is recognized in the period in which the transac- tion occurs. Earnings per share Application and content The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss at- tributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which include share options granted to employees. Revenue comprises the fair value of the consideration for the sale of goods and services, net of value-added tax, rebates and discounts. Intercompany sales are eliminated. Revenue is recognized when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service Advertising Advertising revenue is recognized each time a user views, or clicks a mobile ad, and/or installs a game. The performance obligations are satisfied on a point in time basis. Publisher and revenue share costs Advertising revenue is recognized based on certain different events and parameters; Cost of goods sold comprises publisher costs and the cost of licenses purchased from third-party suppliers. Publisher costs consist of the agreed-upon payments Otello makes to publishers for their adver- tising space, in which we deliver mobile ads. These payments are typically determined in advance as either a fixed percentage of the advertising revenue we earn from mobile ads placed on the publish- er’s application or website or as a fixed fee for that ad space. Otello recognizes publisher cost at the same time we recognize the associ- ated revenue. License costs are the costs of licenses purchased from third-party suppliers. i. when a user installs a game (i.e. a user plays a game, sees advertis- ing, clicks on it and installs a game) based on CPI (cost per install); ii. when a mobile ad is delivered to a user, based on CPM (cost per thousand) i.e. every 1,000 impressions of a mobile ad inside the publisher's inventory (which can be a mobile app or website); iii.when a user plays a mobile video ad all the way to completion, based on CPCV (cost per completed video view); iv. when a user clicks on a mobile ad, based on CPC (cost per click); i.e. after each instance when an ad is clicked inside the publisher's inventory, Other income (costs) Material income and costs, which are not related to the normal course of business, are classified as other operating income (cost). For the revenue generated through Otello-owned properties, revenue is reported on a gross basis, as Otello is the principal in our trans- actions with advertisers. Otello is responsible for identifying and contracting with third-party advertisers, establishing the selling prices of the advertisements sold, and performing all billing and collection activities, including retaining credit risk, as well as bearing sole re- sponsibility for fulfillment of the advertising. Accordingly, Otello acts as the principal in these arrangements and, therefore, reports revenue earned and costs incurred related to these transactions on a gross basis. Net financing costs Other finance income and costs comprise primarily foreign exchange gains and losses and changes in the estimate of contingent consideration. Interest income is recognized using the effective interest method. Dividend income is recognized on the date upon which the entity’s right to receive payments is established. Income tax In the normal course of business, Otello acts as an intermediary in executing transactions with third parties. The determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether Otello is acting as the principal or an agent in our transactions with advertisers. The determination of whether Otello is acting as a principal or an agent in a transaction involves judgment and is based on an evaluation of the terms of each arrangement. While none of the factors individually are considered presumptive or determinative, in reaching our conclusions on gross versus net revenue recognition, Otello places the most weight on Income tax on the profit or loss for the year comprises current and deferred taxes. Income tax is recognized in profit or loss or other comprehensive income, 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 substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. 46 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 47 CONSOLIDATED STATEMENT ment of comprehensive income excluding depreciation and amorti- zation, stock-based compensation, and impairment and restructuring expenses. before financial items including impairment and restructuring expens- es, and corresponds to Operating profit (loss), (EBIT) in the Consolidated statement of comprehensive income. Note 3 Critical accounting estimates and significant judgments EBIT: See below for reconciliations from Operating profit to EBITDA and Adjusted EBITDA for all periods presented. This is short for Earnings before financial items. This is presented both including and excluding impairment and restructuring expenses in the Consolidated statement of comprehensive income. In the KPIs section of this report and the reconciliation below, EBIT represents earnings The table below presents a reconciliation of profit (loss) to Adjusted EBITDA. The preparation of consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosures of contingent liabilities, at the end of the reporting period. 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 within the next financial year. Contingent considerations, see Note 16 The Group has previously entered into earnout agreements in connec- tion with acquisitions. An analysis is given in Note 16 of how the provisions related to contingent considerations have been calculated. Reconciliation of gross profit [USD million] 2021 2020 Total operating revenue Publisher and revenue share cost 0.1 0.0 0.1 0.3 Discontinued operations As a result of the successful IPO of Bemobi in Brazil as well as the signing and closing of the AdColony sale to Digital Turbine in 2021, both Bemobi and AdColony have been treated as discontinued opera- tions as per IFRS 5 Non-current Assets Held for Sale and Discontinued Operations as at December 31, 2021 and for the year ended December 31, 2021. Gross profit 0.1 0.4 Estimates and judgments are evaluated on an ongoing basis, based upon historical results and experience, consultations with experts, trends and other methods which management considers reasonable under the circumstances, as well as forecasts as to how these might change in the future. Reconciliation of operating profit (loss) to EBITDA and adjusted EBITDA [USD million] 2021 2020 Operating profit (loss), (EBIT) Depreciation and amortization expenses Impairment expenses (69.1) 0.8 59.8 (15.6) 1.0 0.0 Please see Note 21 for further information regarding discontinued operations. Significant judgments Significant judgements in applying the entity’s accounting policies are specified below. EBITDA (8.6) 0.1 2.2 (14.6) 0.5 9.0 Restructuring expenses Stock-based compensation expenses Adjusted EBITDA (6.3) (5.1) Assets Note 4 Non-current assets by location [USD million] 2021 2020 Operating and segment information Non-current assets located in Brazil 89.4 1.9 0.3 - 42.4 22.6 188.0 7.6 Non-current assets located in Norway Non-current assets located in United States Non-current assets located in other countries At the beginning of 2021, the Group’s business activities comprised mobile advertising via its AdColony business, mobile-app subscription services via its Bemobi business, and licensing of Rocket Optimizer™ technology via its Skyfire business. Skyfire, due to materiality, was previously reported as part of Otello’s Corporate segment. business operations and to improve comparability between periods. Total 91.6 260.5 EBITDA and EBIT terms are presented as they are commonly used by investors and financial analysts. Certain items are excluded in the alternative performance measures Adjusted EBITDA and Normal- ized EBIT to provide enhanced insight into the underlying financial performance of the business operations and to improve comparability between different periods. The breakdown of non-current assets above does not include financial instruments, deferred tax assets and other non-current assets. Following the successful IPO of the Bemobi business in February 2021 and the sale of the AdColony business in April 2021, those businesses no longer form part of the consolidated Group and are considered discontinued operations. For investments in shares in equity-accounted associates and unrelated parties, the location is based on where those companies are based, without any tracing of the underlying location of their assets. Alternative performance measures: Gross profit: The vast majority of the value of non-current assets is related to acquisitions. See Note 15 for further information. See Note 21 for further information regarding discontinued operations. This comprises revenues minus publisher and revenue share cost. The Group is now comprised of a single Corporate segment as at December 31, 2021. EBITDA: This is short for Earnings before financial items, taxes, depreciation and amortization. EBITDA corresponds to Operating profit (loss), (EBIT) in the Consolidated statement of comprehensive income excluding depreciation and amortization expenses. Alternative performance measures Otello discloses alternative performance measures as part of its finan- cial reporting as a supplement to the financial statements prepared in accordance with IFRS. Otello believes that the alternative performance Adjusted EBITDA: measures provide useful supplemental information to management, investors, financial analysts and other stakeholders, and are meant to This represents EBITDA excluding stock-based compensation, impair- ment and restructuring expenses. Adjusted EBITDA corresponds, provide an enhanced insight into the financial development of Otello’s therefore, to Operating profit (loss), (EBIT) in the Consolidated state- 48 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 49 CONSOLIDATED STATEMENT Revenues and expenses for the current year recalculated on a constant currency basis, are presented below: Note 5 Financial risk, accounts and other receivables, and financial instruments Recalculated with pri- or year average rates FX effect using [USD million] prior year rates Effect in % Revenue Expenses 0.1 (6.5) (0.0) 2.8 −6.6 % −30.4 % Financial risk Risk management in the Group is carried out by management and approved by the Board of Directors. Potential risks are evaluated on a regular basis and management determines appropriate strategies related to how these risks are to be handled within the Group under the approved policies. The Group is exposed to market (currency) risk, credit risk and liquidity risk. Loans and receivables The Group has limited exposure in terms of credit risk related to loans and receivables. Currency risk Foreign exchange contracts The majority of the financial risk that the Group is exposed to relates to currency risk due to exchange rate fluctuations. Both revenue and operating expenses are exposed to foreign exchange rate fluctuations. Please note that some revenue numbers are impacted by changes in local currencies which are the basis for invoicing of customers. These effects are not specified in the table below. During 2021 and 2020, the Group did not use forward exchange contracts to hedge its currency risk, and Otello had not entered into any foreign exchange contracts as of December 31, 2021. FX gain (loss) and other financial income (expense) The table below shows the breakdown of FX gains and losses, and other financial income and expense. Revenues per currency: [USD million] Revenues % Revenues % EUR USD NOK 0.1 0.0 0.0 94.3 % 5.7 % 0.0 % 0.2 (0.1) 0.0 188.3 % −89.2 % 0.8 % [USD million] 2021 2020 FX gain FX loss 13.5 (5.8) 2.6 1.9 (7.3) 0.7 Total 0.1 0.1 Other finance income (expense) Total 10.4 (4.7) Operating expenses (OPEX) per currency: [USD million] OPEX % OPEX % Other finance income (expense) includes $0.4 million (2020: 0.8) in legal costs related to the sale of the TV business and Otello’s ongoing case regarding the potential sale of its minority stake (see Note 15 for further information). NOK USD BRL EUR GBP Other (4.9) (2.3) (1.9) (0.2) (0.0) (0.0) 52.3 % 24.8 % 20.8 % 2.0 % 0.0 % 0.0 % (13.7) (1.3) - (0.2) (0.0) (0.0) 90.1 % 8.2 % 0.0 % 1.6 % 0.1 % Credit risk Credit risk is the risk of losses that the Group would suffer if a counterparty fails to perform its financial obligations. The Group’s exposure to credit risk is mainly related to external receivables. Credit risk is assessed for each specific customer. The Group’s revenue from continuing operations is immaterial and the large majority of outstanding receivables relates to the final payment due from Digital Turbine, Inc. related to the sale of the AdColony business. That receivable was received in early 2022. Further, the Group has conducted much of its business with large global companies and has not experienced significant credit-related losses during this or previous financial years. 0.0 % The group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due. The contract assets relate to unbilled work in progress and have substantially the same risk characteristics as the trade receivables for the same types of contracts. Total (9.3) (15.2) The group has therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets. Conversion of the Group's revenues from foreign currencies into USD yields the following average exchange rates: Individual assessments per customer are also carried out by financial management. 2021 2020 Accounts receivable EUR NOK 1.1984 N/A 1.1419 0.1065 Gross accounts receivable per currency: The numbers below are presented in local currencies (million) 2021 % of gross AR 2020 % of gross AR USD NOK DKK BRL 0.0 0.2 0.0 0.0 n/a 58.7 % 41.3 % 0.0 % 0.0 % 0.0 % 38.1 63.6 56.3 18.1 60.0 % 13.4 % 8.3 % 11.6 % 6.7 % Other n/a 50 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 51 CONSOLIDATED STATEMENT The accounts receivables are converted, as of December 31, at the following exchange rates: Accounts receivable represent the part of receivables that is invoiced to customers but not yet paid. Accrued income represents revenue recog- nized in the year which was not invoiced to the customers at year end and which will be invoiced to customers subsequent to the balance sheet date. 2021 2020 Other receivables NOK DKK BRL 0.1134 0.1525 0.1795 0.1172 0.1648 0.1925 Other receivables consists of non-trade receivables and prepayments. Of this balance at December 31, 2021, USD 191.7 million represents the locked-in earnoutamount recognized from the sale of AdColony to Digital Turbine, Inc. The cash for the earnout amount was received in early 2022. Contract liabilities Contract liabilities consist of and prepaid advertising campaigns, and prepaid license/royalty payments. Gross accounts receivable per region: [USD million] 2021 2020 EMEA Americas Asia Pacific 0.0 0.0 0.0 27.2 24.1 10.4 Liquidity risk Total 0.0 61.8 Liquidity reserve [USD million] 2021 2020 Loss allowance as at December 31, 2021 and December 31, 2020 was determined as follows for both trade receivables and accrued income: Cash and cash equivalents Cash in hand and on deposit Less restricted funds 79.0 0.1 41.9 0.8 2021 Unrestricted cash 78.9 41.1 Gross carrying amount - accounts receivable Gross carrying amount - accrued income Expected loss rate Loss allowance Unutilized credit facilities Short-term overdraft facility 0.0 - 15.0 - [USD million] Current 0.0 0.0 0.0 0.0 0.0 0.0 0.9 % NA NA NA NA (0.0) 0.0 0.0 0.0 0.0 Liquidity reserve 0.0 15.0 Past due 0-30 days Past due 31-60 days Past due 61-90 days More than 90 days Breakdown of cash deposits by currency [USD million] 2021 2020 NOK USD EUR BRL TRY Other 50.3 28.6 0.1 0.0 0.0 0.0 0.9 10.1 0.8 18.0 1.3 Total 0.0 0.0 (0.0) 2020 10.8 Gross carrying amount - accounts receivable Gross carrying amount - accrued income Expected loss rate Loss allowance Total 79.0 41.9 [USD million] Current 36.5 11.1 2.7 2.4 9.1 29.6 0.5 % 0.9 % 0.0 % 15.7 % 13.8 % (0.2) (0.1) (0.0) (0.4) (1.3) Past due 0-30 days Past due 31-60 days Past due 61-90 days More than 90 days Credit Facility [USD million] 2021 2020 Long-term cash credit Utilized 0.0 0.0 50.0 35.0 Total 61.8 29.6 (1.9) Credit facility In January 2021, Otello signed an amendment to the 3 year Revolving Credit Facility (RCF) agreement of 2018 with DNB Bank ASA, increasing the facility from $50 million to $68.6 million. The payment guarantee that was signed in March 2020 of an amount equal to USD 18,561,118 in favor of Pedro Ripper, CEO of Bemobi, (on behalf of the former owners of Bemobi) was converted to be part of the RCF agreement. This conversion was carried out in February 2021 following the public listing of Otello’s Bemobi business in Brazil. In addition, the termination date of the RCF was extended to June 30, 2021. Accounts receivables and other receivables: [USD million] 2021 2020 Accounts receivable (including provision for bad debt) Contract assets Other receivables 0.0 0.0 193.7 59.9 29.6 6.4 During April 2021, Otello utilized some of the proceeds received from the Bemobi IPO to fully pay back all of the $35 million of the RCF that had previously been drawn up and terminated the RCF agreement. As at December 31, 2021, Otello has no outstanding loans payable. Total 193.8 95.9 Financial liabilities All financial liabilities, with the exception of the non-current portion of lease liability and options liability, are expected to be paid within 1 year of the balance sheet date. 52 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 53 CONSOLIDATED STATEMENT Net debt reconciliation Financial instruments The tables below sets out an analysis of net debt and the movements in net debt for each of the periods. Financial instruments, and contracts accounted for as such, are included in several line items in the statement of financial position and classified in categories for accounting treatment. A classification of financial instruments in Otello is presented below: [USD million] 2021 2020 Cash and cash equivalents Borrowings Lease liabilities 79.0 0.0 (0.3) 41.9 (35.0) (4.0) [USD million] Amortized cost 2021 Fair value Assets - non-current Financial derivatives Net cash 78.7 2.9 0.6 Cash and cash equivalents Gross debt - fixed interest rate Gross debt - variable interest rate 79.0 - (0.3) 41.9 - (39.0) Assets - current Accounts receivable Cash and cash equivalents Financial derivatives 0.1 79.0 Net cash 78.7 2.9 0.6 0.6 Liabilities - non-current Financial derivatives Liabilities from financing activities Cash and cash Liabilities - current Accounts payable Loans and borrowings Financial derivatives Contingent consideration, current 0.2 0.0 [USD million] Borrowings Leases equivalents Net debt as of 1/1/2021 Additions - leases (35.0) (4.0) (1.8) 5.4 41.9 - 42.2 (5.1) 0.6 0.0 - 35.0 - Cash flow Effects of exchange rate changes 2020 0.1 Assets - non-current Financial derivatives Net debt as of 31/12/2021 - (0.3) 79.0 0.0 Assets - current Accounts receivable Cash and cash equivalents Financial derivatives 89.5 41.9 Liabilities from financing activities Cash and cash 0.0 0.0 [USD million] Borrowings Leases equivalents Liabilities - non-current Financial derivatives Net debt as of 1/1/2020 Additions - leases Cash flow (20.0) (7.1) (1.2) 4.0 28.3 - 17.2 (3.6) - (15.0) - Liabilities - current Accounts payable Loans and borrowings Financial derivatives Contingent consideration, current 25.7 35.0 Effects of exchange rate changes 0.3 Net debt as of 31/12/2020 (35.0) (4.0) 41.9 0.0 0.2 Capital management The Group’s policy has been to maintain a high equity-to-asset ratio and to maintain a solid capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. 54 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 55 CONSOLIDATED STATEMENT Note 6 Options Weighted average exercise price Payroll expenses and remuneration to management The number and weighted average exercise price of share options in Otello Corporation ASA are as follows: 2021 2020 Weighted average exercise price (NOK) Weighted average exercise price (NOK) Number of options (in thousands) Number of options Payroll expenses [USD million] 2021 2020 (in thousands) Salaries and bonuses Social security cost Pension cost Stock-based compensation expense, including social security cost Insurance and other employee benefits Payments to long-term contractual staff (2.8) (1.2) (0.2) (2.2) (0.1) (0.1) (2.9) (0.6) (0.2) (9.0) (0.1) (0.1) Outstanding at the beginning of the period Terminated (employee terminations) Forfeited during the period Expired during the period Cancelled during the period Exercised during the period Granted during the period Outstanding at the end of the period 20.99 3 728 - (75) 41.26 - 2 316 - - 38.50 47.36 - 33.02 - - - (203) 36.91 42.16 - 18.99 20.99 (590) (1 448) - 3 450 3 728 - (3 450) - - Total (6.7) (12.8) 11 - Average number of full time equivalents 10 Exercisable at the end of the period 0.00 - 46.21 241 The Norwegian companies in the Group are obligated to follow the Mandatory Occupational Pensions Act and these companies’ pension schemes follow the requirements as set in the Act. The fair value of services received in return for stock options granted is measured by using the Black & Scholes option pricing model. Compensation to the CEO and Chairman of the Board The CEO has waived his rights under Section 15-16 of the Norwegian Working Environment Act of 2005 relating to employees’ protection, termi- nation of employment contracts, etc. The expected volatility is based on historic volatility (calculated using the weighted average remaining life of the share options), adjusted for any expected changes to future volatility based on publicly available information. Share options are granted under service conditions, not market-based conditions. Such conditions are not taken into account in the grant date fair-value measurement. There are no market conditions associated with the share option grants. An annual average attrition rate of 0% is used. This average attrition rate, and the employees responsibility for paying the Company's contributions related to the options, are taken into con- sideration when estimating the cost of the options in accordance with IFRS 2. Given that employees have the right to exercise their options one or three years after the vesting date (depending on when the options were granted), the estimate is based on an assumption that the employ- ees, on average, are exercising their options 18 months after the vesting date. As compensation, the CEO is entitled to receive a termination amount of two years’ base salary if the employment contract is terminated by the Company. As of December 31, 2021, there was no existing severance agreement between Otello and the Chairman of the Board. The Group has not given any loans or security deposits to the CEO, the Chairman of the Board or their related parties. In 2021, there were no new options granted (2020: 3 450 000 options granted). A bonus program exists for the senior executive team at Otello. For each individual executive, a limit is set for the amount of bonus that can be achieved. The size of the bonus payment is dependent on actual company performance compared to a set of predefined targets. Weighted average exercise price The number and weighted average exercise price of share options in Otello Technology Investment AS (formerly Bemobi Holding AS) in the original Bemobi option plan are as follows: The bonus program and predefined targets are approved by the Remuneration Committee and the Board of Directors. An accrual for all 2021 bonuses for senior executives has been recognized in the consolidated financial statements. Bonuses will be paid in 2022. 2021 Weighted average exercise price (NOK) 2020 Weighted average exercise price (NOK) Refer to the remuneration report for further information, available on Otello's website: https://otellocorp.com/ Number of options (in thousands) Number of options (in thousands) Share compensation program Otello used to have two equity-based incentives: ordinary stock options and Restricted Stock Units (“RSU”). Outstanding at the beginning of the period Terminated (employee terminations) Forfeited during the period 9 988 4.090 9 988 3.934 There are no unvested RSUs left for AdColony and Otello employees as of December 31, 2021. The RSUs granted in 2020 were granted to Pedro Ripper and were recognized, in accordance with IFRS 2, in the statement of comprehensive income. However, that RSU Award has been termi- nated and replaced in 2021. Please see Note 16 for more information. - - - - - - - - Expired during the period Cancelled during the period Exercised during the period - - - - - - - - - - - - Options granted to Otello Corporation employees vest over four years with ¼ each year. As of December 31, 2021, all options in Otello Corpora- tion have been forfeited, expired or exercised, and there are no options outstanding at the end of the period. Granted during the period Transfer of responsibility for the plan Outstanding at the end of the period - 9 988 - - (4.090) - 9 988 - 9 988 0.156 - 4.090 Following the successful IPO of the Bemobi business, responsibility for the original Bemobi option plan transferred to Bemobi Mobile Tech S.A, and accordingly Otello Corporation was released from all obligations related to this option plan. This transfer of responsibility is recognised in the financial statements through a reversing of the previous cost that had been recognised. As of December 31, 2021, the only outstanding options within the Group relate to the RSU Award replacement for Pedro Ripper for shares in Bemobi Mobile Tech S.A. Exercisable at the end of the period - - 9 988 2.002 56 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 57 CONSOLIDATED STATEMENT The table below shows the number of options issued by Otello Corporation ASA to employees at various strike prices and exercise dates. 2021 2020 Number of shares (in thousands) Number of shares 2021: There were no options issued in 2021, and there are none outstanding as of 31 December 2021. Value in NOK Value in NOK (in thousands) Weighted Average Fair Value of RSUs granted during the period Intrinsic value outstanding RSUs at the end of the period Intrinsic value vested RSUs at the end of the period 2020 TOTAL OUTSTANDING OPTIONS VESTED OPTIONS - - - - - - 10 686.50 269 299 820 - 24 24 - Outstanding options Weighted average remaining lifetime (years) Weighted average exercise price (NOK) Vested options Weighted average exercise price (NOK) per 12/31/2020 (in thousands) 12/31/2020 Exercise price (in thousands) 0.00 - 10.00 10.00 - 12.30 12.30 - 15.00 15.00 - 20.00 20.00 - 25.00 25.00 - 30.00 30.00 - 35.00 35.00 - 40.00 40.00 - 45.00 45.00- - - - - - - - - - - - - - 176 65 - - - - - - - - - No RSUs were granted in 2021. - - 3.67 - 3 450 18.99 - - - - - - The table below shows the number of options issued by Otello Technology Investment AS (formerly Bemobi Holding AS) to employees at various strike prices and exercise dates. - - - - - - 2021: There were no options issued in 2021, and there are none outstanding as of 31 December 2021. 213 65 0.87 0.72 41.27 60.75 40.84 60.75 2020 TOTAL OUTSTANDING OPTIONS VESTED OPTIONS Total 3 728 3.46 20.99 241 46.21 Outstanding options Weighted average remaining lifetime (years) Weighted average exercise price (BRL) Vested options Weighted average exercise price (BRL) per 12/31/2020 (in thousands) 12/31/2020 Exercise price = strike price Exercise price (in thousands) The table below shows the date, number and achieved selling price of options exercised. 2021: 0.00 - 9000 9500-- - - - - - 4.090 2.78 9 988.00 2.002 9 988.00 Total 4.090 2.78 9 988.00 2.002 9 988.00 Date of exercise Number of exercised options (in thousands) Achieved selling price (NOK) Exercise price = strike price 4/29/21 3 450 33.02 Total 3 450 The table below shows the date, number and achieved selling price of options exercised. 2021: 2020: No options exercised in 2021. No options exercised in 2020. 2020: No options exercised in 2020. Restricted stock units RSUs granted by Otello Technology Investment AS (formerly Bemobi Holding AS) to management and employees in 2021 or 2020. 2021 2020 Weighted average Number of shares Weighted average Number of shares Restricted Stock Units exercise price (NOK) (in thousands) exercise price (NOK) (in thousands) Outstanding at the beginning of period Replaced during the period Granted during the period - - - - 24 (24) - - - - - - - 24 24 Outstanding at the end of period - Vested RSUs at the end of the period - - - - 58 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 59 CONSOLIDATED STATEMENT Compensation to executive management in 2021 Compensation to executive management in 2020 Benefit Benefit Other Pension exercised Total Other Pension exercised Total [USD thousands] Remuneration Salary Bonus compensation compensation options/RSUs compensation [USD thousands] Remuneration Salary Bonus compensation compensation options/RSUs compensation Executive Manangement Lars Boilesen, CEO Petter Lade, CFO Executive Manangement Lars Boilesen, CEO Petter Lade, CFO - - 615.09 233.21 639.66 159.91 34.28 2.25 79.87 22.40 3 670.35 652.51 5 039.26 1 070.27 - - 476.18 220.79 468.52 117.13 32.00 3.66 69.11 12.84 - - 1 045.80 354.41 The Board of Directors The Board of Directors Andre Christensen, Chairman Anooj Unarket, Board Member Birgit Midtbust, Board Member Maria Borge Andreassen, Board Member Andre Christensen, Chairman Anooj Unarket, Board Member Birgit Midtbust, Board Member Maria Borge Andreassen, Board Member Song Lin, Board Member from June 4 Frode Jacobsen, Board Member untill June 4 70.28 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 70.28 - 76.76 - - - - - - - - - - - - - - - - 76.76 - 32.48 30.88 14.64 17.84 32.48 30.88 14.64 17.84 35.47 35.47 35.47 31.98 - - - - - - - - - - 35.47 31.98 Song Lin, Board Member The Nomination Committee Simon Davies, Chairman from 15 January 2021 Nils Foldal, Chairman to 15 January 2021 Jakob Iqbal, Member Kari Stautland, Member - - The Nomination Committee Nils Foldal, Chairman Jakob Iqbal, Member 6.39 3.19 3.19 - - - - - - - - - - - - - - - 6.39 3.19 3.19 0.29 3.49 3.49 - - - - - - - - - - - - - - - 0.29 3.49 3.49 Kari Stautland, Member Total 178.89 696.96 585.65 35.66 81.94 - 1 579.10 Total 186.95 848.30 799.57 36.53 102.27 4 322.86 6 296.48 Presented above are the bonuses earned in 2020 and paid in 2021, which are based on the 2020 results. Members of Executive Management are included in the Company's employee pension scheme, which is a defined contribution plan. Presented above are the bonuses earned in 2019 and paid in both 2019 and 2020, which are based on the 2019 results. There has been no compensation or other economic benefit provided in 2020 or 2021 to any member of the Executive Team or Board of Directors from the Company or any business owned by the Company, except that mentioned above. In 2020 and 2021, there has been no significant addi- tional compensation given to directors with regard to special services performed outside of their normal function. 60 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 61 CONSOLIDATED STATEMENT Options to executive management 2021 There are no existing agreements regarding the dispensation of loans or security deposits to key personnel, members of the board or their related parties. Options to executive management 2020 There are no existing agreements regarding the dispensation of loans or security deposits to key personnel, members of the board or their related parties. [In thousands of options] [In thousands of options] Executive Manangement Executive Manangement Lars Boilesen, CEO Petter Lade, CFO 2 250 400 - - - - - - - - (2 250) (400) 33.02 33.02 - - - - - - - - - - - - Lars Boilesen, CEO Petter Lade, CFO 1 200 285 2 250 400 (900) (205) - - (300) (80) - - - - 2 250 400 18.99 18.99 3.67 3.67 1.67 1.67 2.14 0.38 0.40 0.07 Total 2 650 - - - - (2 650) - - Total 1 485 2 650 (1 105) - (380) - 2.52 0.48 A — average exercise price for options executed in the financial year A — average exercise price for options executed in the financial year B — average exercise price for the number of options held by the end of the financial year B — average exercise price for the number of options held by the end of the financial year The table below shows option and RSU grants in 2021 and option and RSU costs in 2021 (in thousands of options and RSUs, cost in USD million) The table below shows option and RSU grants in 2020 and option and RSU costs in 2020 (in thousands of options and RSUs, cost in USD million) Granted Options 2021 Cost RSUs Granted 2021 Cost Granted Options 2020 Cost RSUs Granted 2020 Cost Executive Manangement Lars Boilesen, CEO Petter Lade, CFO Executive Manangement Lars Boilesen, CEO Petter Lade, CFO - - - - - - - - 2 250 400 0.40 0.07 - - - - Total - - - - Total 2 650 0.48 - - 62 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 63 CONSOLIDATED STATEMENT Shares, options, RSUs owned by members of the Board and the Chief Executive Officer as of December 31, 2021 [In thousands of shares, options and RSUs] Note 7 Other operating expenses Weighted average Weighted average strike price - strike price - Name Commission Shares Options RSUs Total options (NOK) RSUs (NOK) Other operating expenses [USD million] 2021 2020 Andre Christensen Birgit Midtbust Maria Borge Andreassen Board Member Anooj Unarket Song Lin Lars Boilesen Chairman Board Member 42 - 11 - 0 - - - - - - - - - - - - 42 - 11 - 0 - - - - - - - - - - - - Audit, legal and other advisory services Purchase of equipment, not capitalized Hosting expenses, excl. depreciation cost Rent and other office expenses Other expenses (1.2) (0.2) (0.1) (0.0) (0.4) (0.9) (0.3) (0.1) (0.1) (0.3) Board Member Board Member CEO 261 261 314 - - 314 Total (1.9) (1.7) Auditor remuneration Shares, options and RSUs owned by other members of Executive Management as of December 31, 2021 [In thousands of shares, options and RSUs] The following table shows audit fees for the current and prior year. For all categories the reported fee is the recognized expense in other operat- ing expenses for the year to the external auditor, PwC. Weighted average Audit fees 2021 2020 strike price - Statutory audit (0.3) (0.0) - (0.6) (0.0) - Name Title Shares Options RSUs Total options (NOK) Assurance services Tax advisory services Other services Petter Lade CFO 67 - - 67 - (0.1) (0.2) 67 - - 67 - Total (0.3) (0.8) Shares, options, RSUs owned by members of the Board and the Chief Executive Officer as of December 31, 2020 [In thousands of shares, options and RSUs] Weighted average Weighted average strike price - strike price - Name Commission Shares Options RSUs Total options (NOK) RSUs (NOK) Andre Christensen Frode Jacobsen Birgit Midtbust Maria Borge Andreassen Board Member Anooj Unarket Lars Boilesen Chairman Board Member Board Member 51 - 23 - 0 260 - - - - - - - - - - 51 - 23 - - - - - - - - - - - - - Board Member CEO 2 250 0 2 510 18.99 334 2 250 0 2 584 Shares, options and RSUs owned by other members of Executive Management as of December 31, 2020 [In thousands of shares, options and RSUs] Weighted average strike price - Total options (NOK) Name Title Shares Options RSUs Petter Lade CFO 66 400 - 466 18.99 66 400 - 466 - 64 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 65 CONSOLIDATED STATEMENT Between the original IPO and booking of the original deferred tax liability and December 31, 2021, the net value of the investment in Bemobi has decreased. Accordingly, the impact of the associated reduced deferred tax liability is seen as a negative tax cost within continuing operations. Note 8 Please see Note 15 for further details on the calculation of the deferred tax liability and Note 21 regarding the subsequent settlement of the deferred tax liability with the Brazilian tax authorities. Taxes As of December 31, 2020, all US entities were included in a US consolidated tax group. As a result of the sale of the AdColony business in April 2021, the sole remaining US entity in the Group, Skyfire Labs, Inc left that US consolidated tax group. [USD million] 2021 2020 As of December 31, 2020, deferred tax liabilities related to amortizable excess value from business combinations outside the US of $1.2 million were netted against deferred tax assets in the same tax jurisdiction. Income tax expense recognized in the statement of comprehensive income: Current tax Changes in deferred taxes Changes in deferred taxes related to non-recognition of certain tax assets Changes in deferred tax related to amortization of excess values from business combinations Write down of deferred tax related to write down of intangibles from business combinations Changes in deferred tax related to changes in tax rates 1) Withholding tax expense (0.1) 7.6 (0.8) 2.2 (4.9) 0.0 0.0 0.0 Otello recognizes deferred tax assets related to tax losses in the statement of financial position when it is considered probable that taxable profit will be generated in future periods against which these tax loss carry forwards can be utilized. The tax loss carry forwards are in the US, Norway and Ireland. Regarding tax loss carry forwards in the US, management had assessed forecast taxable profit for the coming years, and concluded that the amount of $7.3 million in tax loss carry forwards that were not recognized in the prior year, should also not be recognized in 2020. However, management considered that sufficient future taxable profits will be generated against which the majority of US tax loss carry forwards could be utilized. The majority of tax loss carry forwards in the US were therefore been recognized as at December 31, 2020. Following the sale of the AdColony business in 2021, tax losses from the AdColony US tax consolidated group were retained by AdColony. Accordingly, there are no remaining US tax loss carry forwards for the Group as at December 31, 2021. 0.0 0.0 0.0 0.0 0.0 0.0 Income tax expense 7.5 (3.5) Regarding Norway, management does not consider that sufficient future taxable profits will be generated in future periods against which these tax loss carry forwards can be utilized. Therefore tax loss carry forwards for Norway are not recognised in the statement of financial position as at December 31, 2021. See below for a breakdown of tax loss carry forwards and relevant expirations dates of these. Recognized deferred tax assets and liabilities: Deferred tax balances presented in the statement of financial position comprise the following: Regarding Ireland, management does not consider that sufficient future taxable profits will be generated in future periods against which these tax loss carry forwards can be utilized. Therefore tax loss carry forwards for Ireland are not recognised in the statement of financial position as at December 31, 2021. See below for a breakdown of tax loss carry forwards and relevant expirations dates of these. [USD million] 2021 2020 In the tables below, the set off tax (or valuation allowance) is the amount recognized that reduces the tax loss carryforwards in the US for the portion that it is more likely than not to not be utilized in future periods. These amounts relate to the acquired losses from certain business combinations that will most likely not be able to be utilized due to rules limiting the amount of acquired losses a parent company can utilize. Deferred tax assets related to tax loss carryforwards Deferred tax asset related to merger of entities in Brazil Deferred tax assets related to other temporary differences - - - 20.7 1.4 5.2 Deferred tax liabilities related to temporary differences Deferred tax liabilities related to amortizable excess value from business combinations in the US 1) Deferred tax liabilities related to amortizable excess value from business combinations outside the US 1) (10.2) (0.0) 0.0 (1.2) Deferred tax assets (liabilities) and changes during the year - - Net deferred assets (liabilities) (10.2) 26.1 Posted to statement of Posted directly to the Disposals to discontinued operations Balance comprehensive Balance 12/31/21 2021 [USD million] 1/1/21 income equity 1) In the statement of financial position, deferred tax liabilities related to amortizable excess value from business combinations in the US and Brazil are netted against deferred tax assets in the same US and Brazil tax jurisdictions, respectively. Property, plant and equipment Intangible assets Accounts receivable Payroll tax on share options Provisions and accruals Other 0.6 2.5 0.1 (0.6) 0.3 3.7 - - - - - - - - - - - - (0.6) (2.5) (0.1) 0.6 0.0 0.0 0.0 With the significant corporate transactions that were undertaken during 2021, there are several items that have affected both the calculation and the presentation of the tax assets, liabilities and expense. 0.0 For the period while Bemobi and AdColony businesses formed part of the consolidated group in 2021, their associated tax expense from their operations was calculated in the same manner as previously. However, with those businesses being deconsolidated due to a loss of control (Be- mobi through moving to a less-than-controlling level of ownership as part of the IPO and AdColony through the full sale of the business), their associated tax expense has been included as part of the separate disclosure for discontinued operations (along with the comparative figure for those businesses from 2020). Please refer to Note 21. (0.3) (3.7) (17.7) 0.0 0.0 (10.2) - 7.5 Accrual of tax on capital gain in Brazil 0.0 Total related to temporary differences 6.6 7.5 - - (24.3) (10.2) 0.0 Any tax effects associated with the initial deconsolidation of those businesses are also included as part of the discontinued operations disclo- sure, and included as part of the Net gain (loss) from sale of discontinued operations figure. Deferred tax liabilities related to amortizable excess value from business combinations (1.2) - 1.2 As part of the original recognition of the remaining investment in Bemobi under the equity method, a deferred tax expense and liability of USD 19.67 million was recognized, based on the capital gains tax that would be payable in Brazil if the entire shareholding was disposed at the initial listing price of BRL 22.00. This USD 19.67 million tax expense forms part of the Net gain (loss) from sale of discontinued operations. The loss of the controlling interest of the Bemobi business was not otherwise subject to corporate income tax for the holding company, Otello Technology Investment AS. Tax loss carryforwards Set off of tax (valuation allowance) Tax loss carryforwards not recognized in the statement of financial position 38.2 (5.4) - - - - (38.2) 5.4 0.0 0.0 (12.1) 20.7 26.1 - - - - - 12.1 - 0.0 0.0 Tax loss carryforwards recognized in the statement of financial position The sale of the AdColony business was executed as a sale of shares of the business' holding company, AdColony Holding AS. Under Norwegian tax law, such a sale of shares is not subject to corporate income tax. Net deferred tax assets (liabilities) recognized in the statement of financial position Since the loss of control of the Bemobi business, the group has continued to update the carrying value of the remaining investment based on the prevailing share market price and foreign currency rates. These subsequent movements in the carrying value of the investment are consid- ered part of the continuing operations of the group. Based on the prevailing market value, the group also updates the associated deferred tax liability original recorded as part of the deconsolidation. However, consistent with the movements in the market value now forming part of continuing operations, the associated movements in the deferred tax liability are also continued part of continuing operations. 7.5 - (10.2) 66 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 67 CONSOLIDATED STATEMENT Posted to statement of Note 9 Posted directly to the equity Disposals to discontinued operations Balance comprehensive Balance 12/31/20 2020 [USD million] 1/1/20 income Impairment and restructuring expenses Property, plant and equipment Intangible assets Accounts receivable Payroll tax on share options Provisions and accruals Other 0.6 3.2 0.2 (2.1) 0.4 7.1 (0.0) (0.7) (0.1) - (0.1) (3.4) - - - 1.5 - - - - - - - - 0.6 2.5 0.1 (0.6) 0.3 3.7 During 2021, Otello recognized impairment expenses in connection with its loan and investment in the Vewd Group, based on the uncertainty of recovery and the commencement of a Chapter 11 bankruptcy proceeding. The value of both the loan and the investment has been written down to zero. See Note 15 for further information regarding the Vewd loan and investment. Following the successful IPO of the Bemobi business on Bovespa in Brazil, the Group is now a major shareholder in Bemobi Mobile Tech S.A with an ownership of 36.0%. The investment in Bemobi Mobile Tech S.A is recognized using the equity method, and the fair value of the investment has been reassessed based on the share price of that business as of December 31, 2021. Total related to temporary differences 9.4 (4.3) 1.5 - - 6.6 Deferred tax liabilities related to amortizable excess value from business combinations See Note 15 for further information regarding the Bemobi Mobile Tech S.A investment. (2.4) 1.1 - (1.2) During 2021, Otello recognized restructuring expenses in connection with a strategic cost reduction that will better align costs with revenues. Tax loss carryforwards Set off of tax (valuation allowance) Tax loss carryforwards not recognized in the statement of financial position 37.9 (5.4) 0.3 - - - - - 38.2 (5.4) The restructuring expenses recognized this year relate mainly to the reduction in corporate staffing levels following the IPO of the Bemobi businesses and the sale of the AdColony business. (7.3) 25.2 32.2 (4.8) (4.5) (7.6) - - - - - (12.1) 20.7 26.1 Tax loss carryforwards recognized in the statement of financial position Impairment and restructuring expenses [USD million] 2021 2020 Impairment expense Salary restructuring expense Legal and other costs related to business combinations and disposals Office restructuring cost Other restructuring expenses (59.8) (0.1) - (0.1) (0.4) - Net deferred tax assets (liabilities) recognized in the statement of financial position 1.5 - - - - Change in deferred tax asset directly posted against the equity capital [USD million] 2021 2020 Total (59.9) (0.5) Other changes 0.0 1.5 1.5 Total deferred taxes posted directly against the equity 0.0 Impairment expense [USD million] Note 2021 2020 Vewd Software AS loan Last Lion Holdings Ltd shares Bemobi Mobile Tech S.A shares 15 15 15 (8.3) (10.1) (41.4) - - - The Group's gross tax loss carryforwards expire as follows: [USD million] United States Norway Ireland Total No expiration deadline 0.0 26.6 4.5 31.1 Total (59.8) 0.0 Total 0.0 26.6 4.5 31.1 Reconciliation of effective tax rate [USD million] 2021 2020 Profit (loss) before tax Income tax using the corporate income tax rate in Norway (22% in 2021 / 22% in 2020) (58.7) 12.9 (20.4) 4.5 Effect of changes in tax rates 1) 0.0 0.5 (5.7) 0.0 (0.1) (0.2) 0.0 (0.0) (3.1) 0.0 (4.9) 0.0 Effect of tax rates outside Norway different from 22% / 22% Effect of non-taxable and non-deductible items Deferred tax assets from previously unrecognized tax losses Effect of non-recognition of certain deferred tax assets Other effects Total tax expense for the year Effective tax rate 7.5 (3.5) 12.8 % −17.4 % Permanent differences Permanent differences comprise changes in the fair value of contingent considerations, amortization of acquired intangibles assets, impairment losses, share-based remuneration costs and other non-deductible costs. 68 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 69 CONSOLIDATED STATEMENT Note 10 Note 11 Earnings per share Goodwill and impairment testing 2021 Bemobi Earnings per share 2021 2020 [USD million] AdColony Total Acquisition cost Acquisition cost as of 1/1/21 Acquisitions through business combinations Translation differences Derecognized upon loss of control of business Earnings (loss) per share: Basic earnings (loss) per share (USD) Diluted earnings (loss) per share (USD) Shares used in earnings per share calculation Shares used in earnings per share calculation, fully diluted 273.1 - 37.6 - 310.7 0.0 1.35 1.35 124 603 099 124 603 099 (0.17) (0.17) 137 731 882 137 731 882 (0.4) (272.8) (2.7) (34.8) (3.1) (307.6) Acquisition cost as of 12/31/21 (0.0) (0.0) (0.0) Earnings (loss) per share (continuing operations): Basic earnings (loss) per share (USD) Diluted earnings (loss) per share (USD) Shares used in earnings per share calculation Shares used in earnings per share calculation, fully diluted Accumulated impairment losses Accumulated impairment losses as of 1/1/21 Impairment losses (0.41) (0.41) 124 603 099 124 603 099 (0.17) (0.17) 137 731 882 137 731 882 (91.0) - 0.4 0.0 - - (91.0) 0.0 0.4 Translation differences Derecognized upon loss of control of business 90.6 0.0 90.6 Earnings (loss) per share (discontinued operations): Basic earnings (loss) per share (USD) Diluted earnings (loss) per share (USD) Accumulated impairment losses as of 12/31/21 0.0 - 0.0 1.77 1.77 0.00 0.00 Carrying amount Shares used in earnings per share calculation Shares used in earnings per share calculation, fully diluted 124 603 099 124 603 099 137 731 882 137 731 882 As of December 31, 2021 (0.0) (0.0) (0.0) Earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted ordinary shares on issue during the period. 2020 [USD million] AdColony Bemobi Total In periods with negative net income, the dilutive instruments will have an anti-dilutive effect when calculating diluted earnings per share. For this reason, there is no difference between earnings per share and diluted earnings per share for these periods. Acquisition cost Acquisition cost as of 1/1/20 Acquisitions through business combinations Translation differences 273.1 48.5 - (11.0) 321.7 0.0 (11.0) - - Acquisition cost as of 12/31/20 273.1 37.6 310.7 Accumulated impairment losses Accumulated impairment losses as of 1/1/20 Impairment losses (91.0) - - - (91.0) 0.0 0.0 - - Translation differences Accumulated impairment losses as of 12/31/20 (91.0) - (91.0) Carrying amount As of December 31, 2020 182.2 37.6 219.7 Impairment testing Otello has carried out impairment testing as of December 31, 2021, according to IAS 36. As of December 31, 2021, all previously recognized goodwill and intangible assets have been derecognized following the loss of control of both the AdColony and Bemobi businesses. As a result of the testing, Otello has recorded impairments of three assets. Investment in Bemobi Mobile Tech S.A The fair value of the investment in Bemobi Brazil has been reassessed based on the share price of that business as of December 31, 2021. With a price per share of 15.23 Brazilian real as of that date, the carrying value of the investment has been written down by USD 41.4 million. 70 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 71 CONSOLIDATED STATEMENT 2020 Other See Note 15 for further information regarding Otello's investment in Bemobi Mobile Tech S.A intangible assets Investment in Last Lion Holdings Ltd [USD million] Development Total Following commencement of Chapter 11 bankruptcy proceedings by the lenders to the Vewd Group on December 15, 2021, Otello has assessed that it does not expect to get any value for its shares in Last Lion Holding Ltd, and has accordingly written down the value of its investment by $10.1 million to zero as of December 31, 2021. Acquisition cost Acquisition cost as of 1/1/20 Additions Reclassification Disposal 63.7 10.3 - 156.7 0.1 220.3 10.4 - See Note 15 for further information regarding Otello's investment in Last Lion Holdings Ltd - - Loans to associated companies - - The Group entered into a loan agreement in 2017 of $5 million with Vewd Software AS (formerly Opera TV AS). This loan is outstanding, with an accrued interest of $1.0 million to June 30, 2021. In addition, Otello had accrued £1.66 million to reflect the part of Otello's cost that MFC has been ordered to pay as part of the ongoing legal proceedings between the parties. Both the loan, interests, and the accrued expenses totalling $8.3 million were written off as of June 30, 2021 due to uncertainties of collectability and those uncertainties remain as at December 31, 2021. Translation differences Acquisition cost as of 12/31/20 (1.4) 72.5 (8.7) 148.1 (10.1) 220.6 Accumulated amortization and impairment losses Amortization and impairment losses as of 1/1/20 Amortization Impairment losses (51.0) (14.7) - (147.0) (2.8) (197.9) (17.5) - See Note 15 for further information regarding Otello's loan and receivable to Vewd Software AS. There is otherwise no indication of impairment of other assets that would require impairment tests to be conducted upon those. - Reclassification Disposal (0.0) - - - (0.0) - Translation differences Accumulated amortization and impairment losses as of 12/31/20 0.9 (64.8) 6.7 (143.1) 7.6 (207.9) Note 12 Net book value as of 12/31/20 7.7 5.0 12.8 Intangible assets Amortization for the year Impairment losses for the year (14.2) - (6.3) - (20.6) - 2021 Other Useful life Amortization plan Up to 3 years Up to 7 years Linear Linear intangible [USD million] Development assets Total Acquisition cost Other intangible assets Acquisition cost as of 1/1/21 Additions Reclassification 72.5 3.0 - 148.1 0.0 220.6 3.0 Other intangible assets relates to prior acquisitions within the AdColony and Bemobi businesses, and comprise customer relationships, customer contracts, proprietary technology and trademarks. - - Disposal - - - Development Development is an internally developed intangible asset. Engineering salaries are the primary expense incurred in terms of costs related to research, development, and maintenance of platforms and applications. In 2021, $4.4 million (2020: 14.4) in engineering salaries were expensed in the financial statements. $3.0 million (2020: 10.3) in research and development costs were capitalized in 2021. These are all included within the expenses disclosed as part of discontinued operations. Translation differences Derecognized upon loss of control of business (0.6) (74.9) (3.2) (144.9) (3.8) (219.8) Acquisition cost as of 12/31/21 0.0 (0.0) (0.0) Accumulated amortization and impairment losses Amortization and impairment losses as of 1/1/21 Reclassification (64.8) - (143.1) - (207.9) - Amortization Impairment losses (4.4) - (0.2) - (4.6) - Disposal - - - Translation differences Derecognized upon loss of control of business Accumulated amortization and impairment losses as of 12/31/21 0.3 68.9 (0.0) 2.2 141.1 (0.0) 2.5 210.0 (0.0) Net book value as of 12/31/21 (0.0) (0.0) (0.0) Amortization for the year Impairment losses for the year (4.4) - (0.2) - (4.6) - Useful life Amortization plan Up to 3 years Up to 7 years Linear Linear 72 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 73 CONSOLIDATED STATEMENT Note 13 Property, plant and equipment 2020 Machinery and equipment improvements 2021 Machinery and equipment improvements Fixtures and fittings Leasehold Fixtures and fittings Leasehold [USD million] Total [USD million] Total Acquisition cost Acquisition cost as of 1/1/20 Additions Reclassification Disposal Acquisition cost Acquisition cost as of 1/1/21 Additions Reclassification Disposal 2.5 0.3 - 0.0 (0.2) 23.3 0.3 - 2.6 1.1 - 0.0 (0.2) 28.5 1.7 2.7 0.0 (0.0) 0.0 (0.1) (2.5) 23.1 (0.1) (0.0) (0.0) (0.4) (15.6) 3.6 0.0 (0.0) (0.0) (0.1) (3.4) 29.3 (0.1) (0.0) (0.0) (0.6) (21.6) - - 0.0 (0.9) Translation differences (0.6) Translation differences Derecognized upon loss of control of business Acquisition cost as of 12/31/20 2.7 23.1 3.6 29.3 Acquisition cost as of 12/31/21 0.1 7.0 0.1 7.1 Accumulated depreciation and impairment losses Depreciation and impairment losses as of 1/1/20 Reclassification Depreciation Impairment losses (1.6) - (17.8) - (1.0) - (20.5) - Accumulated depreciation and impairment losses Depreciation and impairment losses as of 1/1/21 Reclassification Depreciation Impairment losses Disposal Translation differences Derecognized upon loss of control of business (1.9) 0.0 (0.1) - 0.0 0.1 (20.1) 0.0 (0.8) - 0.0 0.3 (1.3) 0.0 (0.1) - 0.0 0.0 1.3 (23.3) - (1.0) - 0.0 0.3 17.9 (0.4) - (2.3) - (0.3) - (3.1) - Disposal Translation differences (0.0) 0.1 (0.0) 0.1 - 0.0 (0.0) 0.2 Accumulated depreciation and impairment losses as of 12/31/20 (1.9) (20.1) (1.3) (23.3) 1.9 14.6 Net book value as of 12/31/20 0.7 3.0 2.2 6.0 Accumulated depreciation and impairment losses as of 12/31/21 (0.1) (6.0) (0.1) (6.1) Depreciation for the year Impairment losses for the year (0.4) - (2.3) - (0.3) - (3.1) - Net book value as of 12/31/21 0.0 1.0 0.0 1.0 Depreciation for the year Impairment losses for the year (0.1) - (0.8) - (0.1) - (1.0) - Useful life Depreciation plan Up to 6 years Up to 10 years Up to 5 years Linear Linear Linear Useful life Depreciation plan Up to 6 years Up to 10 years Up to 5 years Linear Linear Linear 74 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 75 CONSOLIDATED STATEMENT Note 14 Right-of-use assets and lease liabilities As a result of the IPO of Bemobi and the sale of AdColony (see Note 21 for further information on each), the majority of the Group's lease liabil- ities and right of use assets, along with all of the lease receivables, have been derecognized. The lease liabilities, right of use assets and lease receivables relating to Bemobi and AdColony have been derecognized with effect from when those businesses no longer formed part of the controlled Group. The remaining lease liability and right of use asset relate to the Group's office in Oslo, Norway. The movements of the Group’s right of use assets, lease receivables and lease liabilities are presented below: Lease liabilities (USD million) 2021 2020 Lease receivables (USD million) 2021 2020 Balance as of 1/1 Additions Translation differences Lease payments Interest expense on lease liabilities Derecognized upon loss of control of business 4.0 1.8 (0.1) (2.0) 0.1 7.1 1.2 (0.3) (4.2) 0.0 Balance as of 1/1 Additions Income from sublease Interest income Translation differences Derecognized on loss of control of business 0.9 - (0.5) 0.0 - 2.4 0.0 (1.5) 0.1 0.0 0.0 (3.5) 0.2 (0.5) Lease liabilities as of 12/31 0.3 4.0 Lease receivables as of 12/31 0.0 0.9 Of which: Of which: Current lease liabilities (less than 1 year) Non-current lease liabilities (more than 1 year) Balance as of 12/31 0.1 0.2 0.3 2.8 1.2 4.0 Current contract assets (less than 1 year) Non-current contract assets (more than 1 year) Balance as of 12/31 - - 0.0 0.9 0.0 0.9 Translation differences arise due to translation of lease contracts in local currencies to USD. Right of use assets (USD million) 2021 2020 IFRS 16 effects on the consolidated statement of comprehensive income for the year (USD million) 2021 2020 Balance as of 1/1 Additions Depreciation Adjustment for depreciation related to Lease receivables Translation differences Derecognized upon loss of control of business 3.0 1.8 (1.9) 0.5 - 4.6 1.2 (4.2) 1.4 0.0 - Operating lease expenses recognized under operating expenses decreased Depreciation expense increased as a result of depreciation of ROU assets Net interest expense increased as a result of recognition of the lease liability Translation differences (0.1) 0.1 0.0 0.0 0.0 (2.8) 2.8 0.2 (0.3) (0.1) Other (3.0) Net effect (0.1) 0.1 Right of use assets as of 12/31 0.3 3.0 Future lease payments The future minimum lease payments under non-cancellable lease contracts are as follows: Depreciation is charged to the statement of comprehensive income on a straight-line basis over the estimated useful life of each leased asset. The estimated useful life is considered to be the term of the contract for each leased asset. 2021 2020 Payments for leases: Less than one year Between one to five years More than five years 0.1 0.2 - 2.8 1.2 0.1 Total 0.3 4.2 Further information about the impact of IFRS 16, ‘Leases’, is provided in Note 1. 76 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 77 CONSOLIDATED STATEMENT Equity method accounting [USD million] The investment in Bemobi Mobile Tech S.A is recognized using the equity method. Remaining lifetime Additional Full value excess value Note 15 Trademark Technology Customer Goodwill 2.6 5.4 16.0 61.9 47.3 2.6 2.9 15.0 44.3 68.5 Other investments 5 years 10 years The table below gives a breakdown of the total amount of other investments recognized. Other net assets / Other net assets (including locally booked PPA values) [USD million] 2021 2020 Total fair value balance on initial recognition under the equity method 133.2 133.2 Investments in associated companies Loans to associated companies Investments in other shares 89.4 0.0 0.9 10.1 7.7 0.8 Investment during the fiscal year FX adjustment Share of the profit (loss) Amortization of excess values Impairment 0.0 (5.4) 4.8 (1.8) (41.4) 0.0 Total 90.3 18.7 Investments in associated companies Elimination [USD million] 2021 2020 Balance as of 12/31/2021 89.4 Investments in Bemobi Mobile Tech S.A Investments in Last Lion Holdings Ltd 89.4 0.0 0.0 10.1 89.4 10.1 On February 9, 2021, Otello announced that Bemobi Mobile Tech S.A. ("Bemobi Brazil"), had set a price of 22.00 Brazilian real ("R$") per common share for its IPO. Based on this price, Otello engaged Deloitte to performed a PPA valuation as outlined above. The additional excess value is amortized based on the remaining lifetime. Investments in Bemobi Mobile Tech S.A Following the successful IPO of Bemobi on Bovespa in Brazil, the Group is now a major shareholder in Bemobi Mobile Tech S.A with an ownership of 36.0%. For more information regarding the IPO, please see Note 21. The fair value of the investment in Bemobi Brazil has been reassessed based on the share price of that business as of December 31, 2021. With a price per share of 15.23 Brazilian real as of that date, the carrying value of the investment has been written down by USD 41.4 million. It is expected that any future sale of shares in Bemobi Mobile Tech S.A will be subject to capital gains tax in Brazil. Such gains are subject to progressive rates, based on the taxable profit. Share of profit (loss) from associated companies 2021 Under existing tax laws, tax is payable as follows: 15.0% on capital gains up to R$ 5 million Share of the profit (loss) Amortization of excess values Elimination 4.9 (1.8) 0.0 + 17.5% on the portion of capital gains between R$ 5 million and R$ 10 million + 20.0% on the portion of capital gains between R$ 10 million and R$ 30 million + 22.5% on the portion of capital gains over R$ 30 million As of reporting date, the tax cost base of Otello's remaining 36.0% shareholding in Bemobi Brazil is R$ 242,396,152.87. Based on the fair value of the shares and this tax cost base, a deferred tax liability of USD 10.2 million has been accrued. Share of profit (loss) from associated companies 3.1 Key financial information regarding Bemobi Mobile Tech S.A The summary below provides key financial information for the full year 2021 as well as for the period of 2021 where Bemobi Mobile Tech S.A was accounted for as an associated company. Investments in Last Lion Holdings Ltd Otello finalized an agreement on December 19, 2016 to sell its TV business ("Opera TV") for $80 million. As part of this agreement, Otello retained an approximately 27% equity interest in Last Lion Holdings Ltd, through preferred shares, which indirectly owns Opera TV through Last Lion Holdco AS. In 2017, Opera TV AS changed its name to Vewd Software AS. 2021 from Otello's case regarding the potential sale of Vewd minority stake [BRL million] 2021 2/10/21 As previously reported, Otello was successful in its claim in the High Court of Justice of England and Wales against Moore Frères & Co LLC ("MFC") and Last Lion Holdings Limited (“Last Lion”), arising from the refusal of the Board of Last Lion, which was controlled by appointees of MFC, to approve the sale of Otello’s remaining ownership stake in Last Lion, being approximately 27% in the Vewd Software business. The judge granted Otello the injunction it sought requiring the board of Last Lion to approve the buyer. Revenue EBIT Net profit (loss) 488.8 87.7 75.4 467.8 103.6 73.4 The buyer did not purchase the shares on the terms of the expired Share Purchase Agreement and the High Court determined that MFC should be required to purchase Otello’s shares in Last Lion from Otello for the sum of $48 million and that MFC should be required to purchase the Loan Note issued in Otello’s favor by a subsidiary of MFC for $5 million plus accrued interest at the time of purchase (currently approximately $1.4 million). Assets 1 445.5 66.3 349.4 1 029.7 370.6 66.5 Non-current liabilities Current liabilities Equity Otello's share of equity in BRL Otello's share of equity in USD In default of compliance by MFC with the order for the purchase of Otello’s shares in Last Lion and the Loan Note, the High Court ordered that all of the shares in the company shall be sold to a third party with a receiver appointed with all necessary powers to conduct the sale with the net proceeds of a sale being applied in satisfaction of MFC’s obligation to purchase the shares and the Loan Note. On March 17, 2021, MFC and Otello together with the Vewd Group's secured lenders (the “Lenders”) under a Credit Agreement dated December 19, 2016 between Last Lion HoldCo AS (“LLH”), Vewd Software AS, the Lenders and Wilmington Trust National Association ("Wilmington Trust") reached agreement that as an interim alternative to the appointment of a receiver, a special committee (the "Special Committee") of the board 78 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 79 CONSOLIDATED STATEMENT of Last Lion shall be appointed. The Special Committee was tasked with selling the company or raising finance. The Special Committee was appointed on 26 April 2021 but resigned on 12 July 2021 having failed to achieve a sale. Loans to associated companies The Group entered into a loan agreement in 2017 of $5 million with Vewd Software AS (formerly Opera TV AS). This loan is outstanding, with an accrued interest of $1.0 million to June 30, 2021. In addition, Otello had accrued £1.66 million to reflect the part of Otello's cost that MFC has been ordered to pay as part of the ongoing legal proceedings between the parties. Both the loan, interests, and the accrued expenses were written off as of June 30, 2021 due to uncertainties of collectability and those uncertainties remain as at December 31, 2021. On 15 December 2021, Vewd Software AS, and Vewd Software USA (together with LLH and Vewd, the “Vewd Debtors”) commenced a Chapter 11 bankruptcy proceeding with the United States Bankruptcy Court for the Southern District of New York. Otello filed a notice of appearance and a proof of claim in the bankruptcy. Investments in other shares On 2 February 2022, the United States Bankruptcy Court for the Southern District of New York approved the bankruptcy plan, which included a settlement (the “Settlement”) between Otello and the Vewd Debtors. Otello owns 1.42% of the shares in Alliance Venture Spring AS and approximately 0.075% of the shares in Life360, Inc, which merged with Zen Labs, Inc during 2019. Otello owned shares in Zen Labs Inc prior to this merger. The recognized value of the shares is $0.9 million. The Settlement settles claims between Otello, on the one hand, and the Vewd Debtors, on the other. Pursuant to the Settlement, Otello will provide advisory services to the entity that will become the reorganized Vewd (“Reorganized Vewd”) under the Vewd Debtors’ Chapter 11 plan of reorganization, pursuant to an Advisory Services Agreement, for a limited term. As compensation for its services under the Advisory Services Agreement, Otello will receive an advisory fee in the total amount of $250,000 paid out over 12 months and be entitled to 2% of any net proceeds arising from a change of control or ownership, liquidation, dissolution, or wind up of Reorganized Vewd, provided such net proceeds are over $140 million. Additionally, pursuant to the Settlement, Otello has an option to participate in the issuance of up to $9 million Preferred Stock of Reorganized Vewd subject to certain conditions. Management has not determined the fair value of these investments, as they are not material for the Group. Alliance Venture Spring is a Norwe- gian venture capital firm investing in early stage technology companies. Life360 provides location-based services, sharing and notifications application to consumers globally, including integrated driving safety features and tools like Crash Detection and Roadside Assistance. Invest- ments in other shares are recognized at cost. Note 16 As indicated previously, Otello does not expect to get any value for its shares in Last Lion after the Chapter 11 proceeding, and the value of its shares in Last Lion has accordingly been written down to zero. Contingent liabilities Accounting treatment of Security Holders agreements with Bemobi Mobile Tech S.A in the consolidated financial statements The RSU award agreement with Bemobi Brazil's CEO was terminated in January 2021, and contained vesting conditions tied to Pedro Ripper remaining as Bemobi CEO as of the applicable vesting date, to avoid forfeiture. A contingent consideration arrangement in which the payments are automatically forfeited if employment terminates, is according to IFRS 2 Share-based payments, to be recognized as remuneration for post combination services. The costs associated with the RSU award were therefore recognized, in accordance with IFRS 2, in the statement of comprehensive income in the 2020 consolidated financial statements. The investment in Last Lion Holdings Ltd is recognized using the equity method, and booked value was $10.1 million as of December 31, 2021. Otello had not adjusted the investment in Last Lion Holdings Ltd in 2020 or 2021 due to the fact that we have received limited information about Last Lion Holdings Ltd financials. The provided information below is therefore only uncertain estimates. Following commencement of Chapter 11 bankruptcy proceedings by the lenders to the Vewd Group on December 15, 2021, Otello has assessed that it does not expect to get any value for its shares in Last Lion Holding Ltd, and has accordingly written down the value of its investment to zero as of December 31, 2021. An amendment to the Security Holders agreement made in January 2021, in which an additional portion of 4.88% of shares were granted to Bemobi Brazil CEO, Pedro Ripper, is considered to be a replacement of the terminated RSU award. This amendment should therefore be recognized as a modification of the RSU Award, and as such the costs associated with the grant are recognized, in accordance with IFRS 2, in the statement of comprehensive income in the 2021 consolidated financial statements. The impact of this amendment is recognized within the operating costs of discontinued operations. Information regarding Last Lion Holdings Ltd [USD million] 2021 2020 Revenue EBIT Net profit (loss) N/A N/A N/A 35.3 11.0 (0.0) GDPR complaint filed with the Norwegian Data Protection Authority (DPA) As reported in the media, on January 14, 2020, the Norwegian Consumer Council (NCC) filed a complaint to the Norwegian Data Protection Authority (DPA) against Grindr and five other companies, including AdColony, who is a supplier to Grindr. As of the date of this report, AdColony has not received any formal notification or complaint from the DPA. AdColony is currently looking into the NCC’s complaint and will provide further information if and when necessary. The Company has not recognized any contingent liabilities in the financial statements related to this matter. Assets N/A N/A N/A N/A N/A 164.4 117.5 9.3 37.5 10.1 Non-current liabilities Current liabilities Equity Refer to Note 21 for further information on this matter, and associated and other obligations of Otello under the Share Purchase Agreement with Digital Turbine, inc. Related to the sale of AdColony Otello's share of equity The investment in Last Lion Holdings Ltd is recognized using the equity method. Carrying value [USD million] 2021 2020 Note 17 10.1 10.1 At January 1 Investment during the financial year FX adjustment Adjustment from prior year Share of the profit (loss) Impairment - - - - - - - - - Other current liabilities [USD million] Note 2021 2020 - (10.1) - Public duties payable 0.2 0.6 1.2 1.3 0.0 5.6 Elimination Stock-based compensation liability Accrued bonuses, commission and other employee benefits Accrued operating expenses 6 Total at December 31 0.0 10.1 0.3 0.0 0.0 0.0 8.4 Accruals for publisher invoices not yet received Accrued restructuring costs Other current liabilities 32.9 0.0 0.4 Total 2.4 48.6 80 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 81 CONSOLIDATED STATEMENT 2021 2021 2020 Note 18 Owner's and voting share % Owner's and voting share % Shares and shareholder information As of December 31, 2021, Otello had a share capital of NOK 2 245 994.54 (USD 254 787) divided into 112 299 727 ordinary shares with a nominal value of NOK 0.02 each (USD 0.002). All ordinary shares have equal voting rights and the right to receive dividends. [In thousands of shares] Shares GOLDMAN SACHS INTERNATIONAL OTELLO CORPORATION ASA BANK OF AMERICA N.A. CITIGROUP GLOBAL MARKETS LTD VERDIPAPIRFONDET DNB TEKNOLOGI CITIGROUP GLOBAL MARKETS LTD AREPO AS THE BANK OF NEW YORK MELLON SA/NV SKANDINAVISKA ENSKILDA BANKEN AB SKANDINAVISKA ENSKILDA BANKEN AB VERDIPAPIRFONDET NORDEA NORGE VERD UBS EUROPE SE SOCIETE GENERALE THE BANK OF NEW YORK MELLON SA/NV CACEIS BANK BNP PARIBAS ARBITRAGE SNC SKANDINAVISKA ENSKILDA BANKEN AB UBS AG LONDON BRANCH 21 362 11 200 8 171 19.0 % 10.0 % 7.3 % 5.8 % 5.5 % 5.0 % 4.6 % 4.5 % 3.3 % 3.2 % 3.1 % 2.7 % 2.5 % 2.0 % 1.7 % 1.6 % 1.6 % 1.4 % 1.1 % 4.9 % 0.6 % 0.0 % 0.0 % 5.3 % 0.0 % 5.4 % 1.4 % 0.2 % 2.6 % 3.0 % 0.0 % 0.0 % 0.9 % 1.9 % 0.0 % 1.7 % An Extraordinary General Meeting of the Company on January 27, 2022, authorized the Board of Directors of Otello Corporation ASA (the "Com- pany") to acquire shares in the Company. The maximum value of the shares which the Company may acquire pursuant to the authorization is a total face value of NOK 200 000. The minimum amount which may be paid for each share acquired pursuant to this power of attorney is NOK 5, and the maximum amount is NOK 200. The shares purchased through the share buyback program may be disposed of to meet obligations under employee incentive schemes, as part of consideration payable for acquisitions made by the Company, as part of consideration for any mergers, demergers or acquisitions involving the Company, to raise funds for specific investments, for the purpose of paying down loans, or in order to strengthen the Company's capital base. 6 533 6 200 5 614 5 199 5 031 3 754 3 630 3 524 3 040 2 831 2 246 1 893 1 849 1 840 1 566 1 217 The above authorization is valid up to and including December 31, 2022. Share capital decrease Reference is made to the resolution by the annual general meeting on June 2, 2021, where a resolution was passed to reduce the share capital of the parent company, Otello Corporation ASA, by the cancellation of 13,727,702 treasury shares. The share capital reduction has been registered with the Norwegian Register of Business Enterprises, and the new registered share capital of the parent company was NOK 2,494,994.54, and the total share count was 124,749,727. Reference is made to the resolution by the extraordinary general meeting on September 30, 2021, where a resolution was passed to reduce the share capital of the parent company, Otello Corporation ASA, by the cancellation of 12,450,000 treasury shares. The share capital reduction has been registered with the Norwegian Register of Business Enterprises, and the new registered share capital of the parent company is NOK 2,245,994.54, and the total share count is 112,299,727. 0.0 % 0.9 % 0.0 % BONHEUR ASA EUROCLEAR BANK S.A./N.V. 981 0.9 % Treasury shares and ordinary shares During 2021, Otello purchased 36,500,470 (2020: 388,372) treasury shares for $132.6 million (2020: $0.4 million), and sold 3,272 (2020: 38,555) trea- sury shares for $0.0 (2020: $0.1 million). Sum 97 681 14 619 87.0 % 13.0 % 28.7 % 71.3 % Other shareholders Total numbers of shares As of December 31, 2021, Otello owned 11,199,998 treasury shares (December 31; 2020: 894,817). 112 300 100.0 % 100.0 % Dividends Otello did not pay a dividend in 2020 or 2021. The Board will propose at the Annual General Meeting on June 2 that the Annual General Meeting grant the Board the authorization to pay dividends based on the approved 2021 annual accounts. Ownership structure The 20 largest shareholders of Otello Corporation ASA shares as of December 31, 2021, were as follows: 82 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 83 CONSOLIDATED STATEMENT Note 19 Note 21 Related parties Discontinued operations Agreement with Bemobi earnout participants Please see Note 16 for details of the transaction with the Bemobi earnout participants. Definitive agreement to sell AdColony to Digital Turbine Otello announced on February 26, 2021, that it had entered into a definitive agreement to sell AdColony to Digital Turbine, Inc. (Nasdaq: APPS) for a total estimated consideration of $400 million. Bemobi The Group holds a 36% equity interest in Bemobi Mobile Tech S.A through common shares. Please see Note 15 for further details on the status of this equity interest. The Group also continues to provide accounting and legal support to Bemobi on a transitional basis, which is priced on an arm's-length basis and all outstanding balances are settled within normal commercial terms. Digital Turbine is a global mobile technology company, passionate about delivering the right content to the right person at the right time across all Android devices. The company's on-demand media platform powers frictionless app and content discovery, user acquisition and engagement, operational efficiency, and monetization opportunities. Digital Turbine's technology platform has been adopted by more than 40 mobile opera- tors and OEMs worldwide, and has delivered more than three billion app preloads for tens of thousands of advertising campaigns. The Company is headquartered in Austin, Texas, with global offices in Arlington, Durham, Mumbai, San Francisco, Singapore and Tel Aviv. Vewd (Opera TV) The Group, as the creditor, entered into a loan agreement in 2017 of $5 million with Vewd Software AS (formerly Opera TV AS), the debtor. This loan is outstanding as at December 31, 2021. The Group holds a 27% equity interest in Last Lion Holdings Ltd, through preferred shares, which indirectly owns Vewd Software AS through Last Lion Holdco AS. Please see Note 15 for further details on the status of this loan and equity interest. The transaction is supported by the Board of Directors of Otello (the "Board") as well as the management of Otello and AdColony. The Board submitted the transaction to the Otello shareholders for approval at an extraordinary general meeting which took place on March 26, 2021 (the "EGM"). The vast majority of votes represented at the EGM voted in favor of the sale. The transaction closed on April 28, 2021. The completion of the transaction was subject to customary closing conditions. LUMA Securities LLC acted as exclusive financial advisor and Hogan Lovells LLP served as legal advisor to Otello in conjunction with the transaction. Members of the Board of Directors and Executive Management The Group has not engaged in any related party transactions with any members of the Board of Directors of Otello Corporation ASA or Otello Group executive management. Consideration and contingent assets Members of the Board of Directors and Executive Management of the Group and their immediate relatives controlled 0.3% (2020: 0.3%) of the Group's voting share as per December 31, 2021. Initially, the total estimated consideration for the acquisition of AdColony by Digital Turbine was $400 million, including a normalized amount of working capital and $19 million in cash. Some or all of the cash would be returned to Otello subject to the achievement of certain future net rev- enue targets. Consideration for the acquisition would be as follows: (1) $100 million in cash paid at the Closing (the "Closing Cash Consideration Amount”); (2) $100 million to be paid on or before the 180th day following the Closing Date (the "Second Cash Consideration Amount”), less the aggregate amount of all Transaction-Related Bonuses payable on or promptly following the time of payment of the Second Cash Consideration Amount; and an amount in cash calculated based on the net revenues earned by AdColony during the earnout period (the “Earnout Payment Amount”). Information regarding compensation for the Board of Directors and executive management can be found in Note 6. Executive Management also participate in the Group's stock option and RSU program (see Note 6). Otello announced on August 30, 2021, that it had agreed to settle the earnout with Digital Turbine to a fixed amount of $204.5 million and that the payment date was moved forward to January 15, 2022. With this agreement, the total consideration for the acquisition will be $404.5 million, including a normalized amount of working capital and $19 million in cash. Note 20 As the amount of the Earnout Payment Amount has now been fixed, it is no longer considered a contingent asset as had previously been the case. Accordingly, the Earnout Payment Amount has now been booked as a receivable in the balance sheet and included in the calculation of the net profit on disposal of AdColony. Corporate Structure of Otello Group Below is a list of group companies in the Otello group as at December 31, 2021: The cash for the earnout payable amount was received by Otello in early 2022. Owner and voting share Working Entity name Location Country Segment April 28, 2021 Capital Closing Cash Consideration Amount (USD million) Adjustment Otello Corporation ASA Oslo Norway Corporate Listed Closing Cash Consideration Amount minus: Indebtedness Payoff Amount minus: Transaction Expenses Amount minus: Closing Bonus Amount minus: Closing Bonus Employer Taxes Estimated Working Capital Surplus / (Shortfall) Estimated Net Cash Surplus / (Shortfall) 100.0 0.0 Directly owned subsidiaries (2.4) (4.0) (0.1) (3.3) 1.9 Otello Technology Investment AS (formerly Bemobi Holding AS) Privacy & Performance Ireland Ltd Skyfire Labs, Inc. Oslo Dublin San Mateo Norway Ireland United States Corporate Corporate Corporate 100 % 100 % 100 % (5.8) 3.9 Indirectly owned subsidiaries None Closing Payment 92.1 (1.8) 84 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 85 CONSOLIDATED STATEMENT Bemobi IPO successfully completed On February 9, 2021, Otello announced that Bemobi Mobile Tech S.A. ("Bemobi Brazil"), had set a price of 22.00 Brazilian real (“R$”) per common share for its IPO. Based on this price, the gross proceeds of the primary component of the IPO reached R$ 1,094,117,684 ($203,943,536), resulting in an equity value, post-money, of Bemobi Brazil at IPO of R$ 2,000,000,024 ($372.800.004). Second Cash Consideration Amount (USD million) October 26, 2021 Cash Consideration Amount minus: Transaction Expenses Amount minus: Bonus Amount 100.0 (1.9) (2.7) (0.1) On February 10, 2021, Bemobi Brazil had its first day of trading on the Bovespa stock exchange in Sao Paolo, Brazil, under the ticker “BMOB3”. Otello’s ownership pre-IPO was 34,553,860 shares in Bemobi, equal to 83.92% ownership, with other shareholders holding 6,622,610 shares (16.08% ownership) and hence a full share count of 41,176,470. The base offering for the IPO was 49,732,622 shares, hence giving a total share count post-IPO of 90,909,092 shares, with Otello’s ownership reduced to 38.01%. The managers in the IPO had a greenshoe option where Otello could sell up to 6,388,478 additional shares at the IPO price (R$22) by reducing its ownership to 30.98% and resulting in a gross payment to Otello of up to R $140,546,516 (approximately $26 million). The managers in the IPO sold an additional 1,834,272 of the potential 6,388,478 shares under the greenshoe option, reducing Otello's ownership in Bemobi Brazil to 35.99%. After fees and taxes, Otello Technology Investment AS (formerly Bemobi Holding AS) received net proceeds from the greenshoe option of R$ 33,583,598.60 (approximately $6 million). minus: Bonus Employer Taxes Second Payment 95.3 Future Payment Amount (USD million) Earnout Payment Amount As part of the use of proceeds in connection with the IPO, a dividend and share proceed payment of R$ 431,637,688.80 (approxi- mately USD 78 million), less R$ 543,334.35 in Brazilian tax, has been paid from Bemobi Brazil to Otello Technology Investment AS, of which R$ 362,215,321.83 (approximately USD 65 million), less the relevant share of the Brazilian tax, was paid to Otello Corpora- tion ASA. Cash Consideration Amount minus: Transaction Expenses Amount minus: Bonus Amount 204.5 (4.1) (8.3) (0.4) minus: Bonus Employer Taxes Information regarding the IPO of Bemobi Brazil, including the Brazilian Final Prospectus, is available in Portuguese on the websites of Bemobi Brazil (https://www.bemobi.com.br), the Brazilian underwriters, the CVM and the São Paulo stock exchange. Earnout Payment 191.7 Following the successful IPO of Bemobi on Bovespa in Brazil, Otello Corporation ASA ("Otello") is now a major shareholder in Be- mobi Brazil with an ownership below 50%. Consequently, Bemobi financials are no longer consolidated into Otello's accounts but are booked according to the equity method. Please see Note 15 for more information about the equity method accounting. Earn-out agreement and Security Holders agreements with Bemobi Mobile Tech S.A The Group acquired the Brazilian subsidiary Bemobi Mobile Tech S.A (formerly Bemobi Midia e Entretenimento Ltda) (“Bemobi Bra- zil”) in 2015. As part of the acquisition agreement, an earn-out agreement was entered into with the former owners. In 2018, this earn-out agreement was renegotiated in a Security Holders agreement, with a partial cash settlement of USD 20 million and 11.2 % shares in the intermediate holding company Otello Technology Investment AS (formerly Bemobi Holding AS). The shares were to be held in escrow until a major transaction in relation to Bemobi Brazil should take place (a qualified sale or an Initial Public Offering "IPO"). If such a major transaction did not take place within certain deadlines, the former owners of Bemobi Brazil could require Otello to acquire the shares at a fixed amount. To assist AdColony in paying bonus obligations tied to the sale of the business, Otello provided a short-term loan of $850,000 to AdColony, which was settled in full at the same time as the earnout payment. Material Indemnification-Related Post-Earnout Obligations Below is a summary of material indemnification-related obligations of Otello Corporation ASA (“Otello”) under that certain Share Purchase Agreement, dated February 26, 2021 (the “SPA”), between Otello, Digital Turbine, Inc., Digital Turbine Media, Inc. (“DT”) and AdColony Hold- ing AS (“AdColony”), following the settlement of DT’s earnout obligations under the SPA. The summary below does not purport to be a complete and accurate summary of Otello’s obligations under the SPA. For a complete understanding of all of Otello’s obligations under the SPA, reference should be made to the full text of the SPA, which can be found at: https://ir.digitalturbine.com/all-sec-filings/con- tent/0001104659-21-060531/0001104659-21-060531.pdf In January 2020, an amendment to the Security Holders agreement was agreed, regarding the deadline and fixed amount. The deadline for a major transaction was set at December 31, 2020, and the fixed amount was set at USD 18.6 million. At the same time, an RSU Award agreement was reached between Otello Technology Investment AS, the holding company of Otello’s Bemobi business and Bemobi Brazil’s CEO, Pedro Ripper regarding a share-based incentive program. None of the Indemnification Obligations of Otello, as presented below, has been recognized as liabilities in the financial statement as it has yet to be confirmed whether Otello has a present obligation that could lead to an outflow of economic benefits, nor does the Indemnification. Obligations of Otello meet the recognition criteria in IAS 37 as it is not probable that an outflow of economic benefits will happen at this stage. In January 2021, the parties again renegotiated the deadline for when an IPO could occur (at the same time removing a qualified sale as an option for a major transaction), and the conditions regarding transferring the shares in Otello Technology Investment AS. The deadline was set at February 15, 2021. The fixed amount was unchanged at USD 18.6 million. With the announcement of Bemobi Brazil's IPO on February 9, 2021, the clauses relating to the occurrence of a major transaction are no longer relevant. For more information regarding the IPO, please see above. Indemnification Obligations of Otello Otello is obligated to indemnify (subject to certain limitations) DT and its affiliates for losses related to the following matters: (i) breaches or inaccuracies of certain representations and warranties; (ii) breaches of certain covenants by Otello and AdColony; (iii) pre-closing and certain other taxes; At the same time, the parties renegotiated the Security Holders agreement concerning the number of shares that the former owners of BemobiBrazil were to receive. This was increased from 11.2 % to 16.083% of the shares in Otello Technology Investment AS, and shares in Bemobi Brazil also equaling 16.083%. The increase from 11.2% to 16.083% represents an additional portion agreed with Bemobi Brazil’s CEO, Pedro Ripper, as acknowledgement for his part in negotiations of the transaction and subsequent agreements with Otello. (iv) the operations and subsequent sale of Skyfire Labs, Inc.; and (v) certain specified matters, consisting of (A) an action for a claim under the Children’s Online Privacy Protection Act; (B) fines levied by the Norwegian Data Protection Authority pursuant to certain data privacy matters; (C) fines arising from a civil investigation by the Federal Trade Commission in connection with certain data privacy matters; (D) a claim for breaches of certain non-solicitation obligations of AdColony and its subsidiaries; and (E) a harassment claim against a former executive of AdColony. Further, in January 2021, the above-mentioned RSU Award agreement with Bemobi Brazil’s CEO, Pedro Ripper was agreed to be terminated. Pedro Ripper and the intermediate holding company of Otello’s Bemobi business, Otello Technology Investment AS, entered into a Share Call Option agreement. This agreement ensures that shares will be granted to Pedro Ripper upon an IPO of Bemobi Brazil. The shares are not automatically forfeited if his employment terminates. However, Otello Technology Investment AS might choose to exercise the call option. In addition, Pedro Ripper and Otello Technology Investment AS entered into a Voting agreement. This agreement put in place a “lock-up” of Ripper’s shares and gives him voting instructions issued by Otello Technolo- gy Investment AS. GDPR complaint filed with the Norwegian Data Protection Authority (DPA) Please refer to Note 16 for information on this matter. 86 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 87 CONSOLIDATED STATEMENT Results of discontinued operations (USD million) Note 2021 2020 Note 22 Revenue 80.6 258.9 Events after the reporting period Operating expenses (71.2) (253.4) Operating profit (loss), excluding impairment and restructuring expenses Impairment and restructuring expenses 9.4 (1.3) 8.1 5.4 0.2 5.7 Armed conflict between Ukraine and Russia On 24 February 2022, armed conflict broke out between Ukraine and Russia. This armed conflict does not provide evidence of conditions existing at the end of the reporting period, thus classifying the break out of armed conflict as a non-adjusting event according to IAS 10. The Company has neither customers nor suppliers in either Ukraine or Russia, and has concluded that there is no need to make any adjustments to the financial statements. However, should the situation continue or escalate, the Company, like everyone else, could be affected. It is too early to calculate any likely effect of these events on the Company. Operating profit (loss) Net financial items (loss) Net (gain) loss from sale of discontinued operations, net of tax (1.0) 216.8 (3.6) 0.0 The Company may be indirectly affected by the armed conflict through its investment in Bemobi Mobile Tech S.A ("Bemobi"). Bemobi has reported that approximately 5% of its revenues outside Brazil are generated in Ukraine and Russia. In addition, Bemobi has a team of 35 people based in Ukraine. It is also to early too calculate any likely effect that this will have on Bemobi's position, and accordingly on Otello. Profit (loss) before income tax Tax expense 223.9 (3.8) 2.1 (1.5) 0.6 Cancellation of shares bought back After the end of the year, Otello registered the cancellation of the 11,200,000 shares purchased in the buyback in December. After that cancella- tion, Otello has 101,099,727 shares on issue. Profit (loss) from discontinued operations 220.1 Settlement of tax for Bemobi Earnings (loss) per share (continuing operations): Basic earnings per share (USD) Diluted earnings per share (USD) On 20 April 2022, the Company announced that it had elected to change the investment regime for its holding of Bemobi shares from the 4131 regime to the 4373 regime. Under the 4373 regime, capital gains are subject to 0% withholding tax. In order to proceed with the change, the Company has settled the tax on the capital gain based on the difference between the share market price on 31 March 2022 and the tax cost basis. Based on a share price of BRL 16.43, the Company has paid a total of BRL 67,334,818 (approximately $14.4 million) in withholding tax and the Brazilian tax on financial operations (IOF). 10 10 1.77 1.77 0.00 0.00 Cash flow information (discontinued operations): 2021 2020 At the time of the Bemobi IPO, the Company had recognized a deferred tax liability under the 4131 regime of approximately $19.67 million, based on the initial IPO share price of BRL 22.00. The settlement and change of investment regime means that any appreciation of the shares after the change will not be subject to further taxes on capital gains or withholding taxes. Cash flow from operating activities Cash flow from investment activities Cash flow from financing activities 15.3 176.5 29.4 27.7 (10.0) (2.7) No events have occurred after the reporting date that would require the interim financial statements to be adjusted. Please see stock exchange announcements for further information on any subsequent events. Effect of disposal on the financial position of the Group: (USD million) AdColony Bemobi 2021 Net asset and liabilities (230.0) (35.6) (265.6) Banker fees and other fees Consideration to earnout participants Estimated consideration, to be satisfied in cash (incl NWC adjustment) FV assessment recognized using the equity method Estimated deferred tax liabilities on sale of shares Acquisition cost (24.0) 0.0 401.2 0.0 0.0 0.0 (0.3) (13.3) 41.6 133.2 (19.7) (6.0) (24.3) (13.3) 442.9 133.2 (19.7) (6.0) Net profit 147.2 100.0 247.2 Consideration received, satisfied in cash Cash and cash equivalents disposed of 185.5 (24.8) 41.3 (22.8) 226.9 (47.6) Net cash inflows ) 160.8 18.5 179.3 ) Proceeds from disposal of subsidiaries and associated companies, net of cash disposed Proceeds from non-controlling interests Net cash inflows ) 0.0 0.0 30.8 30.8 30.8 30.8 ) Proceeds from disposal of subsidiaries and associated companies, net of cash disposed 88 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 89 PARENT COMPANY Statement of Comprehensive Income USD million Note 2021 2020 Revenue 2, 8 0.0 0.0 0.0 Total operating revenue 0.0 Cost of goods sold 0.0 (4.3) (0.6) (2.9) (0.0) (4.7) (0.7) (1.5) Employee benefits expense Depreciation and amortization expenses Other operating expenses 4 9 5 Total operating expenses (7.9) (7.9) (7.0) (7.0) (0.1) (7.1) Operating profit (loss), excluding impairment and restructuring expenses Impairment losses and restructuring expenses Operating profit (loss) 7 (66.4) (74.3) Interest income Interest expenses Net financial income (expense) Dividends received Profit sale of shares 3, 8 3, 8 3 8 13 7 0.3 (1.7) 8.8 0.0 51.7 0.0 2.9 (1.4) (5.2) 5.8 (0.8) 0.0 Parent Company Share of profit (loss) from associated companies Financial Statements 2021 Net financial items 59.1 (15.2) 0.0 1.3 (5.7) (3.2) (8.9) Otello Corporation ASA Profit (loss) before income taxes Income taxes 6 Profit (loss) (15.2) Other comprehensive income: Items that may or will be transferred to profit (loss) Foreign currency translation differences (12.0) 13.4 4.5 Total comprehensive income (loss) (27.2) Profit (loss) attributable to: Owners of Otello Corporation ASA Non-controlling interests (15.2) - (8.9) - Total comprehensive income (loss) attributable to: Owners of Otello Corporation ASA Non-controlling interests (27.2) - 4.5 - Otello Corporation ASA - Annual Report 2021 91 PARENT COMPANY Statement of Statement of Financial Position Financial Position USD million Note 12/31/2021 12/31/2020 USD million Note 12/31/2021 12/31/2020 Assets Shareholders' equity and liabilities Property, plant and equipment Investments in subsidiaries Right of use assets Other investments Receivables from group companies 9 7 10 7 0.9 80.0 0.3 0.9 - 1.6 306.2 0.2 18.7 132.8 Equity attributable to owners of the company 258.0 423.6 423.6 Total equity 258.0 Liabilities 8 Non-current liabilities to group companies Financial lease liabilities 8 10 90.6 0.2 2.5 0.1 Total non-current assets 82.2 459.5 Total non-current liabilities 90.8 2.6 Accounts receivable Accounts receivable from group companies Other receivables Other receivables from group companies Cash and cash equivalents 3 0.1 0.0 193.1 0.0 0.0 0.2 0.3 0.1 8 13 8 3 Loans and borrowings Financial lease liabilities Accounts payable Accounts payable to group companies Other current liabilities to group companies Other current liabilities 0.0 0.1 0.2 0.0 2.6 1.7 35.0 0.1 0.1 0.0 0.0 1.3 10 78.1 2.7 8 3, 8 Total current assets Total assets 271.2 353.4 3.4 462.9 Total current liabilities Total liabilities 4.6 95.4 36.6 39.2 Total equity and liabilities 353.4 462.9 Oslo, April 27, 2022 Andre Christensen Chairman of the Board Birgit Midtbust Song Lin Maria Borge Andreassen Anooj Unarket Lars Boilesen CEO 92 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 93 PARENT COMPANY Statement of Cash Flows USD million Note 2021 2020 Cash flow from operating activities Profit (loss) before taxes (15.2) (5.7) Depreciation and amortization expense Impairment of assets Net (gain) loss from disposals of subsidiaries and other share investments Dividends received Other adjustments for which cash effects are investing or financing cash flow Changes in accounts receivable 1) Changes in accounts payable 1) Other adjustments for non-cash items Share-based remuneration FX differences related to changes in balance sheet items 9 7 13 8 0.6 66.4 (51.7) 0.0 0.4 (0.1 ) 0.1 1.3 (5.8) (2.4) 0.7 0.0 (1.5) (5.8) (1.2) 5.8 5.6 (2.6) 1.1 8 4 (3.9) Net cash flow from operating activities (6.3) (7.5) Cash flow from investment activities Proceeds from sale of shares 13 7 8 8 8 185.5 (0.1) 73.4 (2.0) 0.0 - (0.1) 2.5 (0.7) (5.8) - Other cash payments to acquire equity or debt instruments of other entities Proceeds from loans received from group companies Repayment of loans to group companies Loans given to group companies Loans given to other companies 13 (0.9) Net cash flow from investment activities 256.0 (4.0) Cash flow from financing activities Payments of other equity instruments Payments to acquire entity's shares Proceeds from loans and borrowings Repayments of loans and borrowings Payment of finance lease liabilities, net (0.1) (132.6) 0.0 (35.5) (0.1) 0.0 (0.4) 15.0 (1.3) (0.1) 3 3 10 Net cash flow from financing activities Net change in cash and cash equivalents (168.3) 81.4 13.1 1.6 Cash and cash equivalents (beginning of period) 2.7 1.2 Effects of exchange rate changes on cash and cash equivalents (6.0) (0.1) Cash and cash equivalents 2) 78.1 2.7 1) This includes changes in intercompany balances. See Note 8 for further information. 2) Of which $0.0 million (2020: 0.0 million) is restricted cash as of December 31, 2021. 94 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 95 PARENT COMPANY Statement of Statement of Changes in equity Changes in equity Number Number of shares of shares outstanding (million) Issued capital Share premium Treasury shares Translation reserve Other equity Total equity outstanding (million) Issued capital Share premium Treasury shares Translation reserve Other equity Total equity USD million USD million Balance as of 12/31/2020 137.6 0.3 357.9 (74.9) (156.8) 297.1 423.7 Balance as of 12/31/2019 137.9 0.3 357.9 (74.5) (170.2) 304.9 418.4 Comprehensive income for the period Profit for the period Comprehensive income for the period Profit for the period (15.2) (15.2) (8.9) (8.9) Other comprehensive income Foreign currency translation differences Other comprehensive income Foreign currency translation differences (12.0) (12.0) 13.4 13.4 Total comprehensive income for the period Total comprehensive income for the period - - - (12.0) (15.2) (27.2) - - 13.4 (8.9) 4.5 Issue of share capital Capital decrease Treasury shares acquired Treasury shares sold Share-based payment transactions 0.0 0.0 (132.6) 0.0 Issue of share capital Capital decrease Treasury shares acquired Treasury shares sold Share-based payment transactions (0.0) (0.0) 0.0 (0.4) 0.1 (0.1) (201.9) 201.9 (132.6) 0.0 (36.5) 0.0 (0.4) 0.0 (0.4) 0.1 (5.8) (5.8) 1.1 1.1 Balance as of 12/31/2021 101.1 0.3 156.0 (5.6) (168.8) 276.1 258.0 Balance as of 12/31/2020 137.6 0.3 357.9 (74.9) (156.8) 297.1 423.7 Face value of the shares The face value of the shares is NOK 0.02. Reserve for own shares The reserve for the Company’s own shares comprises the face value cost and excess value of own shares held by the Company. Translation reserve The translation reserve consists of all foreign currency differences arising from the translation of the account balances that are not in USD. Other equity Other equity consists of option and RSU costs recognized according to the equity settled method and all other transactions, including but not limited to, total recognized income and expenses for the current period. 96 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 97 PARENT COMPANY Note 1 Note 3 General information and significant accounting principles Financial risk and financial instruments FX gain (loss) and other financial income (expense) The table below shows the breakdown of FX gains and losses, and other financial income and expense. General information These are the financial statements of Otello Corporation ASA, which is the holding company for the Otello Group and includes the Group Executive Management (chief operating decision-makers) and associated staff functions. See also Note 1 in the Group’s consolidated financial statements. [USD million] 2021 2020 FX gain (loss) Other finance income (expense) 8.8 0.0 (4.9) (0.2) Statement of compliance The parent company financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and accompanying interpretations. The parent company financial statements also include certain disclosures in order to comply with certain regulations and paragraphs in the Norwegian Accounting Act and the Securities Trading Act. Total 8.8 (5.2) These parent company financial statements have been approved and issued by the Board of Directors on April 27, 2022 for approval by the Annual General Meeting on June 2, 2022. Currency risk The majority of the financial risk that the Company is exposed to relates to currency risk due to exchange rate fluctuations. The majority of the Company's operating expenses are in NOK. The explanation of the accounting policies in the consolidated financial statements also applies to the parent company, and the notes to the consolidated financial statements will cover the parent company, except for the below. The lending and borrowing activities of the Company are primarily in USD. Investments in subsidiaries – parent company Breakdown of cash deposits by currency [USD million] 2021 2020 For investments in subsidiaries, associates and jointly controlled entities, the cost method is applied. The cost price is increased when funds are added through capital increases or when group contributions are made to subsidiaries. Dividends received are initially taken as income. Divi- dends exceeding the portion of retained profit after the acquisition are reflected as a reduction in cost price. Dividend/group contributions from subsidiaries are reflected in the same year that the dividend is approved by the general meeting. NOK USD EUR 50.3 27.8 0.0 0.2 2.5 0.0 0.0 Investments in subsidiaries, associates and jointly controlled entities are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may exceed the fair value of the investment. An impairment loss is reversed if the impairment situation is deemed to no longer exist. Other 0.0 Total 78.1 2.7 Foreign exchange contracts During 2021 and 2020, the Company did not use forward exchange contracts to hedge its currency risk, and the Company had not entered any foreign exchange contracts as of December 31, 2021. Liquidity risk The Company had the following liquidity reserve and credit facility as of December 31. Note 2 Company activities Liquidity reserve [USD million] 12/31/2021 12/31/2020 The Company's main activities are to serve the Group as a whole, through the following functions and services: CEO/Board of Directors, corpo- rate finance and accounting, legal, HR and IT. The Company charges some of the costs related to these functions to subsidiaries. Cash and cash equivalents Cash and cash equivalents -of which restricted funds 78.1 0.0 2.7 0.0 The principal activities of the Group’s business areas are described in more detail in Note 4 Operating and segment information in the Group's consolidated financial statements. Unrestricted cash 78.1 2.7 98 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 99 PARENT COMPANY Credit Facility 12/31/2021 12/31/2020 Note 4 Long-term cash credit -of which utilized 0.0 0.0 50.0 35.0 Payroll expense and remuneration to management Credit facility In January 2021, Otello signed an amendment to the 3 year Revolving Credit Facility (RCF) agreement of 2018 with DNB Bank ASA, increasing the facility from $50 million to $68.6 million. The payment guarantee that was signed in March 2020 of an amount equal to USD 18,561,118 in favor of Pedro Ripper, CEO of Bemobi, (on behalf of the former owners of Bemobi) was converted to be part of the RCF agreement. This conversion was carried out in February 2021 following the public listing of Otello's Bemobi business in Brazil. In addition, the termination date of the RCF was extended to June 30, 2021. Payroll expenses [USD million] 2021 2020 Salaries and bonuses Social security cost (2.8) (1.2) (0.2) (0.0) (0.1) (2.7) (0.6) (0.2) (1.2) (0.1) During April 2021, Otello utilized some of the proceeds received from the Bemobi IPO to fully pay back all of the $35 million of the RCF that had previously been drawn up and terminated the RCF agreement. Pension cost Share-based remuneration including social security cost Insurance and other employee benefits Payments to long-term contractual staff As at December 31, 2021, Otello has no outstanding loans payable. (0.0) (0.0) Capital management The Group's policy has been to maintain a high equity-to-asset ratio and to maintain a solid capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Total (4.3) (4.7) 16 Average number of employees 11 In 2021 and 2020, the Board of Directors has used its authorization to purchase treasury shares. Please see Note 18 in the consolidated financial statements for more information. The Company has incorporated the requirements set out by the Mandatory Occupational Pensions Act ("Obligatorisk Tjeneste Pensjon"). Financial instruments Financial instruments, and contracts accounted for as such, are included in several line items in the statement of financial position and classified in categories for accounting treatment. A classification of financial instruments in Otello is presented below: Remuneration to key management personnel Information about remuneration to key management personnel is given in the accompanying Note 6 in the consolidated financial statements. Share-based compensation For details of share-based compensation, see Note 6 in the consolidated financial statements. [USD million] Amortised cost 2021 Fair value Options The number and weighted average exercise price of share options are as follows: Assets - current Accounts receivable Receivables from group companies Cash and cash equivalents 0.1 0.0 78.1 2021 Weighted av- erage exercise price (NOK) 2020 Weighted av- erage exercise price (NOK) Liabilities - current Accounts payable Accounts payable to group companies Other current liabilities to group companies Number of options (in thousands) Number of options (in thousands) 0.2 0.0 2.6 Outstanding at the beginning of the period Terminated (employee terminations) Forfeited during the period Expired during the period Cancelled during the year Exercised during the period Granted during the period Outstanding at the end of the period 19.47 3 525 - (75) 40.74 - 2 050 - 2020 - 38.50 - - Assets - current Accounts receivable Receivables from group companies Cash and cash equivalents - - - - 36.72 42.16 - 18.99 19.47 (528) (1 448) - 3 450 3 525 0.0 0.2 2.7 33.02 (3 450) - - - - Liabilities - current Accounts payable Accounts payable to group companies Other current liabilities to group companies Exercisable at the end of the period 0.00 - 40.84 50 0.1 0.0 0.0 In 2021, there were no new options granted (2020: 3 450 000 options granted). 100 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 101 PARENT COMPANY The table below shows the number of options issued to employees at various strike prices and exercise dates. Note 5 2021: There were no options issued in 2021, and there are none outstanding as of 31 December 2021. Other operating expenses TOTAL OUTSTANDING OPTIONS VESTED OPTIONS Other expenses [USD million] 2021 2020 Outstanding options Weighted average remaining lifetime (years) Weighted average exercise price (NOK) Vested options 12/31/2021 Weighted average exercise price (NOK) Audit, legal and other advisory services Purchase of equipment, not capitalized Travel expenses Rent and other office expenses Hosting expenses, excl. depreciation cost Other expenses (2.0) (0.2) (0.0) (0.2) (0.1) (0.8) (0.3) (0.0) (0.1) (0.1) (0.3) 2020 per 12/31/2021 (in thousands) Exercise price (in thousands) 0.00 - 10.00 10.00 - 12.30 12.30 - 15.00 15.00 - 20.00 20.00 - 25.00 25.00 - 30.00 30.00 - 35.00 35.00 - 40.00 40.00 - 45.00 45.00- - - - - - - - - - - - - - - - - - 50 - - - - - - - - (0.4) 3 450 3.67 - - - - 18.99 Total (2.9) (1.5) - - - - 75 - - - - Remuneration to the statutory auditors The following table shows audit fees for the current and prior year. For all categories the reported fee is the recognized expense in other operat- ing expenses for the year to the external auditor, PwC. - 41.66 - - 40.84 - 1.20 - Audit fees [USD million] 2021 2020 Total 3 525 3.61 19.47 50 40.84 Statutory audit (0.2) (0.0) 0.0 (0.3) Assurance services Tax advisory services Other services - - - Exercise price = strike price (0.1) Total (0.3) (0.3) The table below shows the date, number and achieved selling price of options exercised. 2021: Number of exercised options (in thousands) Achieved selling price (NOK) Date of exercise 4/29/21 3 450 3 450 33.02 Total 2020: No options exercised in 2020. 102 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 103 PARENT COMPANY Note 6 Taxes Posted to statement of Posted directly to the equity Disposals to discontinued operations Balance comprehensive Balance 31/12/21 2020 [USD million] 1/1/21 income [USD million] 2021 2020 Accounts receivable Provisions and accruals Total Temporary differences not recognized in the statement of financial position 0.0 0.2 0.2 0.0 (0.1) (0.1) - - 0.0 - - 0.0 0.0 0.1 0.1 Income tax expense recognized in the statement of comprehensive income: Current tax Changes in deferred taxes - 0.0 - - (3.2) - Tax expense related to change in tax rate 0.0 0.2 (0.1) 0.0 0.0 0.0 0.0 (0.1) 0.0 Total 0.0 (3.2) Temporary differences recognized in the statement of financial position (0.2) Recognized deferred tax assets and liabilities: Deferred tax balances presented in the statement of financial position comprise the following: Tax loss carryforwards Tax loss carryforwards not recognized in the statement of financial position Tax loss carryforwards recognized in the statement of financial position 2.3 - 1.4 (3.7) (2.3) (2.5) - - - - 3.7 (3.7) 0.0 [USD million] 2021 2020 Deferred tax assets related to tax loss carryforwards Deferred tax assets related to temporary differences 0.0 0.0 0.0 0.0 2.3 2.5 0.0 0.0 0.0 0.0 Net deferred tax assets (liabilities) recognized in the statement of financial position Net deferred assets (liabilities) 0.0 0.0 0.0 The Company recognizes deferred tax assets related to tax losses in the statement of financial position when it is considered probable that taxable profit will be generated in future periods against which these tax losses carries forwards can be utilized. At December 31, 2020, the tax loss carry forwards in the Company have been derecognized, since it is deemed not probable that sufficient future taxable profits will be generated against which these can be utilized. Reconciliation of effective tax rate [USD million] 2021 2020 Profit (loss) before tax Income tax using the corporate income tax rate in Norway 1) (15.2) 3.3 (5.7) 1.3 Deferred tax assets (liabilities) and changes during the year 22.0 % 22.0 % Effect of changes in tax rates Effect of deferred tax assets not recognized Effect of non-taxable and non-deductible items 0.0 (0.1) (3.2) 0.0 0.0 (4.4) Posted to statement of Posted directly to the equity Disposals to discontinued operations Balance comprehensive Balance 31/12/21 2021 [USD million] 1/1/21 income Total tax expense for the year 0.0 (3.2) Accounts receivable Provisions and accruals Total Temporary differences not recognized in the statement of financial position 0.0 0.1 0.1 (0.0) (0.1) (0.1) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (0.0) 0.5 Effective tax rate 0.0 % −54.8 % 1) The income tax rate in Norway was 22 % in 2021, and 22 % in 2020. The tax rate will remain unchanged in 2022. (0.1) 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 Permanent differences Temporary differences recognized in the statement of financial position Permanent differences include impairment losses, dividends received, share-based remuneration, and non-deductible costs. 0.0 Tax loss carryforwards Tax loss carryforwards not recognized in the statement of financial position Tax loss carryforwards recognized in the statement of financial position 3.7 (3.7) 0.0 0.2 (0.2) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.9 (3.9) 0.0 Net deferred tax assets (liabilities) recognized in the statement of financial position 0.0 0.0 0.0 104 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 105 PARENT COMPANY Acquisition of Skyfire Labs, inc Note 7 As part of a restructuring in conjunction with the sale of the AdColony business, the Company acquired direct ownership of Skyfire Labs, Inc. from AdColony Holdings US, Inc. Skyfire Labs, Inc. was acquired at net asset value. Investments in subsidiaries, and other investments Divestment of AdColony The Company disposed of all of the shares in AdColony Holding AS (and, accordingly, all of its subsidiaries, with the exception of Skyfire Labs, Inc. As referred above) to a subsidiary of Digital Turbine, Inc. Please see Note 16 of the consolidated financial statements for more information. Reacquisition of shares in Otello Technology Investment AS (formerly Bemobi Holding AS) As part of the transactions related to the Bemobi IPO, the Company reacquired full ownership of Otello Technology Investment AS. Please see Notes 16 and 21 of the consolidated financial statements for further information. Investments in subsidiaries Below is an overview of the investements in subsidiaries directly held by Otello Corporation ASA as of December 31, 2021. Divestment of Bemobi Bemobi Mobile Tech S.A was listed on the Bovespa stock exchange in Brazil through an IPO. As part of the IPO, new shares were issued in Bemobi Mobile Tech S.A, after which the Company no longer held a controlling interest. Accordingly, Bemobi Mobile Tech S.A and its subsidiaries are no longer considered subsidiaries of the Company. Otello Technology Investment AS (formerly Bemobi Holding AS) Privacy & Performance Ireland Ltd [USD million] Skyfire Labs, Inc. Impairment related to the Bemobi investment The Company has carried out impairment testing as of December 31, 2021. The main asset owned by Otello Technology Investment AS are the shares in thelisted Bemobi Mobile Tech S.A. Based on the share price of Bemobi Mobile Tech S.A at that date and the prevailing exchange rate, the Company recognized an impairment loss. Please see Note 15 of the consolidated financial statements for more information. Segment (Group) Acquisition/establishment date Registered office Corporate 8/8/2016 Oslo, Norway 100 % Corporate 9/14/2016 Dublin, Ireland 100 % Corporate 5/4/06 San Mateo, USA 100 % Shares in subsidiaries Ownership and voting share There were no shares in subsidiaries owned by other group companies, and indirectly owned by the Company, as at December 31, 2021. Equity at year end Profit for the year 172.7 51.9 0.3 (36.4) 0.0 (0.3) Other investments The table below gives a breakdown of the total amount of other investments recognized. Privacy & Performance Ireland Ltd [USD million] 2021 2020 Otello Technology Skyfire Information related to carrying value: Investment AS Labs, Inc. Total Investments in associated companies Loans to associated companies Investments in other shares Total 0.0 0.0 0.9 0.9 10.1 7.7 0.8 18.7 Acquisition cost 63.0 64.6 - 0.2 0.0 - 0.3 0.0 - 63.6 64.6 - Equity increase prior to current year Equity increase in the current year Divestment of 11.2% of the shares, prior year Reacquisition of 11.2% of the shares, current year Impairment loss prior to current year Impairment loss in the current year Group contribution prior to current year Group contribution in the current year Translation differences (10.5) 10.5 0.0 (48.1) 0.0 0.0 0.0 0.0 0.0 0.0 - 0.0 0.0 0.0 0.0 0.0 - (10.5) 10.5 0.0 (48.1) 0.0 Please see Note 15 in the Consolidated financial statements for further information regarding other investements. Impairment and restructuring expense [USD million] 2021 2020 Vewd Software AS loan impairment Last Lion Holdings Ltd shares impairment Otello Technology Investment AS shares impairment Legal and other costs related to business combinations and disposals (8.2) (10.1) (48.1) - - - - - 0.0 (0.1) (0.1) (0.0) (0.0) Carrying value 79.5 0.2 0.3 80.0 (0.1) Total (66.4) (0.1) 106 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 107 PARENT COMPANY Breakdown of intercompany receivables by currency: [USD million] 2021 2020 Note 8 NOK USD GBP 0.0 0.0 0.0 0.1 133.1 0.0 Receivables, payables and transactions with group companies Total 0.0 133.2 For the largest intercompany receivables described in detail above, an interest rate of 3 month LIBOR + 130 basis points is charged. Receivables and payables The table below presents a breakdown of receivables and payables with group companies. [USD million] Breakdown of intercompany payables by currency: [USD million] 2021 2020 USD SGD 93.2 - 2.5 0.0 Other receivables (non-current) Accounts receivables 2021 Other receivables (current) 2021 2020 2020 2021 2020 0.1 Total 93.2 2.5 0.0 132.8 0.0 0.2 0.0 Transactions with group companies [USD million] Liabilities (non-current) 2021 Accounts payable 2021 Other liabilities (current) Transactions 2021 2020 2020 2020 2021 2020 Intercompany revenue 0.0 0.0 0.3 0.0 (0.0) 2.7 90.6 2.5 0.0 0.0 2.6 0.0 Intercompany costs of goods sold Interest income from related parties Interest expense to related parties (1.3) (0.1) All outstanding balances with the related parties are priced on an arm’s-length basis and are to be settled in cash within five years of the reporting date. None of the balances are secured. The balances outstanding are specified as follows: Settlement of loan receivable from AdColony, Inc As part of a restructuring in conjunction with the sale of the AdColony business, the non-current receivable of USD 132.8 million which was- boustanding from AdColony, Inc as of December 31, 2020 was settled by way of a in-kind capital contribution to the parent company of the AdColony business, AdColony Holding AS. 2021 Receivables from group companies [USD million] Payables to group companies [USD million] Loan agreements with Otello Technology Investment AS As part of the transactions involved with the IPO of the Bemobi business, the Company's subsidiary, Otello Technology Investment AS took over the earnout liability of the company to the earnout participants in the Bemobi business. The value of this liability was initially calculated to be BRL 101.4 million, and subsequently agreed with Otello Technology Investment AS to be denominated as a loan of USD 18.0 million. Otello Technology Investment AS Performance and Privacy Ireland Limited 0.0 0.0 Otello Technology Investment AS 93.2 Total receivables 0.0 Total payables 93.2 Following the IPO of the Bemobi business, Otello Technology Investment AS has loaned surplus funds to the Company for use in general busi- ness activities and to have available for potential return to investors. These funds total USD 71.4 million, comprising 5 separate loans. 2020 All of these additional loans from Otello Technology Investment AS are subject to written loan agreements, with an interest rate of 3 month LIBOR + 250 basis points being charged. Receivables from group companies [USD million] Payables to group companies [USD million] As of December 31, 2021, the amount of USD 2.5 million that was a non-current liability to Otello Technology Investment AS as of the previous balance date was reclassified as a current liability and repaid under the terms of that loan agreement in January 2022. AdColony Inc (USA) AdColony ApS (Denmark) Other entities 133.1 0.1 0.0 Otello Technology Investment AS Other entities 2.5 0.0 Loan agreement with AdColony ApS During 2021, the Company borrowed USD 2 million on a short-term basis from AdColony ApS and repaid it during the same month without interest. Total receivables 133.2 Total payables 2.5 Loan agreement and dividend payment The Company received dividends totalling USD 5.8 million from Performance and Privacy Ireland Ltd in 2020, which was set-off against the loan note of the same amount that Performance and Privacy Ireland Ltd held against the Company. 108 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 109 PARENT COMPANY Note 9 Note 10 Property, plant & equipment Right-of-use assets and lease liabilities 2021 During 2019, the Company signed a new lease agreement for the rental of its Oslo offices which will run from December 2019 through November 2024. The lease has a break clause after 3 years, which, prior to 2021, had been assumed to be exercised. In November 2021, the Company chose not to exercise the break clause, and accordingly it is now assumed that the lease will run its full term through November 2024. This lease has been capitalized, and details of this are presented below. Machinery and [USD million] equipment Total Acquisition cost Acquisition cost as of 1/1/21 Acquisitions The movements of the Company’s right of use assets, contract assets and lease liabilities are presented below: 5.7 - 5.7 0.0 Currency differences (0.2) (0.2) Lease liabilities (USD million) 2021 2020 Acquisition cost as of 12/31/21 5.5 5.5 Balance as of 1/1 Additions Translation differences Lease payments Interest expense on lease liabilities Lease liabilities as of 12/31 0.2 0.2 0.0 (0.1) 0.0 0.3 0.3 - (0.0) (0.1) 0.0 0.2 Depreciation and impairment losses Acquisition cost as of 1/1/21 Depreciation for the year Currency differences (4.0) (0.6) 0.1 (4.0) (0.6) 0.1 Accumulated depreciation as of 12/31/21 (4.5) (4.5) Of which: Net book value as of 12/31/21 0.9 0.9 Current lease liabilities (less than 1 year) Non-current lease liabilities (more than 1 year) Balance as of 12/31 0.1 0.2 0.3 0.1 0.1 0.2 2020 Right of use assets (USD million) 2021 2020 Machinery and equipment [USD million] Total Balance as of 1/1 Additions Depreciation 0.2 0.2 (0.1) 0.0 0.3 - (0.1) - Acquisition cost Acquisition cost as of 1/1/20 Acquisitions 5.5 - 0.1 5.6 0.0 0.1 Translation differences Right of use assets as of 12/31 0.3 0.2 Currency differences Acquisition cost as of 12/31/20 5.7 5.7 Depreciation is calculated on a straight-line basis over the estimated useful life of each lease asset. The estimated useful life is considered to be the term of the contract for each leased asset. Depreciation and impairment losses Acquisition cost as of 1/1/20 Depreciation for the year (3.3) (0.6) (0.1) (2.7) (0.6) (0.1) Translation differences arise due to translation of lease contracts in local currencies to USD. Currency differences IFRS 16 effects on the consolidated statement of comprehensive income for the year Accumulated depreciation as of 12/31/20 (4.0) (4.0) Net book value as of 12/31/20 1.6 1.6 (USD million) 2021 2020 Useful life Depreciation plan Up to 10 years Linear Interest expense Depreciations (0.0) (0.1) (0.0) (0.1) 110 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 111 PARENT COMPANY Future lease payments The future minimum lease payments under non-cancellable lease contracts are as follows: Note 12 Related parties Agreement with Bemobi earnout participants Please see Note 11 for details of the transaction with the Bemobi earnout participants. (USD million) 2021 2020 Payments for leased premises: Less than one year Between one to five years More than five years 0.1 0.2 - 0.1 0.1 - Bemobi Total 0.3 0.2 Through its wholly owned subsidiary, Otello Technology Investment AS (formerly Bemobi Holding AS), the Company holds a 36% equity interest in Bemobi Mobile Tech S.A through common shares. Please see Note 15 in the Consolidated financial statements for further details on the status of this equity interest. The Company also continues to provide accounting and legal support to Bemobi on a transitional basis, which is priced on an arm's-length basis and all outstanding balances are settled within normal commercial terms. Further information about the impact of IFRS 16, ‘Leases’, is provided in Note 1. Vewd (Opera TV) The Company, as the creditor, entered into a loan agreement in 2017 of $5 million with Vewd Software AS (formerly Opera TV AS), the debtor. This loan is outstanding as at December 31, 2021. The Company holds a 27% equity interest in Last Lion Holdings Ltd, through preferred shares, which indirectly owns Vewd Software AS through Last Lion Holdco AS. Please see Note 15 in the consolidated financial statements for further details on the status of this loan and equity interest. Note 11 Apart from the above transactions, and for transactions with group companies in the normal course of business, the Company did not engage in any related party transactions, including with any members of the Board of Directors or Executive Management. Contingent liabilities See Note 8 for information regarding transactions with group companies. Earn-out agreement and Security Holders agreements with Bemobi Mobile Tech S.A The Group acquired the Brazilian subsidiary Bemobi Mobile Tech S.A (formerly Bemobi Midia e Entretenimento Ltda) (“Bemobi Brazil”) in 2015. As part of the acquisition agreement, an earn-out agreement was entered into with the former owners. In 2018, this earn-out agreement was renegotiated in a Security Holders agreement, with a partial cash settlement of USD 20 million and 11.2 % shares in the intermediate holding company Otello Technology Investment AS (formerly Bemobi Holding AS). The shares were to be held in escrow until a major transaction in rela- tion to Bemobi Brazil should take place (a qualified sale or an Initial Public Offering "IPO"). If such a major transaction did not take place within certain deadlines, the former owners of Bemobi Brazil could require Otello to acquire the shares at a fixed amount. Members of the Board of Directors and Executive Management The Group has not engaged in any related party transactions with any members of the Board of Directors of Otello Corporation ASA or Otello Group executive management. Members of the Board of Directors and Executive Management of the Group and their immediate relatives controlled 0.3% (2020: 0.3%) of the Group's voting share as per December 31, 2021. In January 2020, an amendment to the Security Holders agreement was agreed, regarding the deadline and fixed amount. The deadline for a major transaction was set at December 31, 2020, and the fixed amount was set at USD 18.6 million. At the same time, an RSU Award agreement was reached between Otello Technology Investment AS, the holding company of Otello’s Bemobi business and Bemobi Brazil’s CEO, Pedro Ripper regarding a share-based incentive program. Information regarding compensation for the Board of Directors and executive management can be found in Note 6 of the consolidated financial statements. Executive Management also participate in the Group's stock option and RSU program (see Note 6 of the consolidated financial statements). In January 2021, the parties again renegotiated the deadline for when an IPO could occur (at the same time removing a qualified sale as an op- tion for a major transaction), and the conditions regarding transferring the shares in Otello Technology Investment AS. The deadline was set at February 15, 2021. The fixed amount was unchanged at USD 18.6 million. With the announcement of Bemobi Brazil's IPO on February 9, 2021, the clauses relating to the occurrence of a major transaction are no longer relevant. For more information regarding the IPO, please see Note 21. At the same time, the parties renegotiated the Security Holders agreement concerning the number of shares that the former owners of Bemobi Brazil were to receive. This was increased from 11.2 % to 16.083% of the shares in Otello Technology Investment AS, and shares in Bemobi Brazil also equaling 16.083%. The increase from 11.2% to 16.083% represents an additional portion agreed with Bemobi Brazil’s CEO, Pedro Ripper as acknowledgement for his part in negotiations of the transaction and subsequent agreements with Otello. Further, in January 2021, the above-mentioned RSU Award agreement with Bemobi Brazil’s CEO, Pedro Ripper was agreed to be terminated. Pedro Ripper and the intermediate holding company of Otello’s Bemobi business, Otello Technology Investment AS, entered into a Share Call Op- tion agreement. This agreement ensures that shares will be granted to Pedro Ripper upon an IPO of Bemobi Brazil. The shares are not automat- ically forfeited if his employment terminates. However, Otello Technology Investment AS might choose to exercise the call option. In addition, Pedro Ripper and Otello Technology Investment AS entered into a Voting agreement. This agreement put in place a "lock up" of Ripper’s shares and gives him voting instructions issued by Otello Technology Investment AS. Please see Note 16 in the Consolidated financial statements for further information regarding contingent liabilities. 112 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 113 PARENT COMPANY Future Payment Amount (USD million) Earnout Payment Amount Note 13 Cash Consideration Amount minus: Transaction Expenses Amount minus: Bonus Amount 204.5 (4.1) (8.3) (0.4) Sale of AdColony minus: Bonus Employer Taxes Definitive agreement to sell AdColony to Digital Turbine Otello announced on February 26, 2021, that it had entered into a definitive agreement to sell AdColony to Digital Turbine, Inc. (Nasdaq: APPS) for a total estimated consideration of $400 million. Earnout Payment 191.7 Digital Turbine is a global mobile technology company, passionate about delivering the right content to the right person at the right time across all Android devices. The company's on-demand media platform powers frictionless app and content discovery, user acquisition and engagement, operational efficiency, and monetization opportunities. Digital Turbine's technology platform has been adopted by more than 40 mobile opera- tors and OEMs worldwide, and has delivered more than three billion app preloads for tens of thousands of advertising campaigns. The Company is headquartered in Austin, Texas, with global offices in Arlington, Durham, Mumbai, San Francisco, Singapore and Tel Aviv. To assist AdColony in paying bonus obligations tied to the sale of the business, Otello provided a short-term loan of $850,000 to AdColony, which was settled in full at the same time as the earnout payment. Effect of disposal on the financial position of the Company: (USD million) AdColony (325.1) The transaction is supported by the Board of Directors of Otello (the "Board") as well as the management of Otello and AdColony. The Board submitted the transaction to the Otello shareholders for approval at an extraordinary general meeting which took place on March 26, 2021 (the "EGM"). The vast majority of votes represented at the EGM voted in favor of the sale. The transaction closed on April 28, 2021. The completion of the transaction was subject to customary closing conditions. LUMA Securities LLC acted as exclusive financial advisor and Hogan Lovells LLP served as legal advisor to Otello in conjunction with the transaction. Shares in subsidiaries Banker fees and other fees Estimated consideration, to be satisfied in cash (incl NWC adjustment) (24.0) 401.2 Consideration and contingent assets Initially, the total estimated consideration for the acquisition of AdColony by Digital Turbine was $400 million, including a normalized amount of working capital and $19 million in cash. Some or all of the cash would be returned to Otello subject to the achievement of certain future net rev- enue targets. Consideration for the acquisition would be as follows: (1) $100 million in cash paid at the Closing (the "Closing Cash Consideration Amount”); (2) $100 million to be paid on or before the 180th day following the Closing Date (the "Second Cash Consideration Amount”), less the aggregate amount of all Transaction-Related Bonuses payable on or promptly following the time of payment of the Second Cash Consideration Amount; and an amount in cash calculated based on the net revenues earned by AdColony during the earnout period (the “Earnout Payment Amount”). Net profit 52.1 Consideration received, satisfied in cash 185.5 Net cash inflows 185.5 Otello announced on August 30, 2021, that it had agreed to settle the earnout with Digital Turbine to a fixed amount of $204.5 million and that the payment date was moved forward to January 15, 2022. With this agreement, the total consideration for the acquisition will be $404.5 million, including a normalized amount of working capital and $19 million in cash. As the amount of the Earnout Payment Amount has now been fixed, it is no longer considered a contingent asset as had previously been the case. Accordingly, the Earnout Payment Amount has now been booked as a receivable in the balance sheet and included in the calculation of the net profit on disposal of AdColony. The cash for the earnout payable amount was received by Otello in early 2022. Working April 28, 2021 Capital Closing Cash Consideration Amount (USD million) Adjustment Closing Cash Consideration Amount minus: Indebtedness Payoff Amount minus: Transaction Expenses Amount minus: Closing Bonus Amount minus: Closing Bonus Employer Taxes Estimated Working Capital Surplus / (Shortfall) Estimated Net Cash Surplus / (Shortfall) 100.0 0.0 (2.4) (4.0) (0.1) (3.3) 1.9 (5.8) 3.9 Closing Payment 92.1 (1.8) Second Cash Consideration Amount (USD million) October 26, 2021 Cash Consideration Amount minus: Transaction Expenses Amount minus: Bonus Amount 100.0 (1.9) (2.7) (0.1) minus: Bonus Employer Taxes Second Payment 95.3 114 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 115 PARENT COMPANY Note 13 Note 14 Potential sale of Vewd minority stake Events after the reporting period Armed conflict between Ukraine and Russia Otello's case regarding the potential sale of Vewd minority stake On 24 February 2022, armed conflict broke out between Ukraine and Russia. This armed conflict does not provide evidence of conditions existing at the end of the reporting period, thus classifying the break out of armed conflict as a non-adjusting event according to IAS 10. The Company has neither customers nor suppliers in either Ukraine or Russia, and has concluded that there is no need to make any adjustments to the financial statements. However, should the situation continue or escalate, the Company, like everyone else, could be affected. It is too early to calculate any likely effect of these events on the Company. As previously reported, Otello was successful in its claim in the High Court of Justice of England and Wales against Moore Frères & Co LLC ("MFC") and Last Lion Holdings Limited (“Last Lion”), arising from the refusal of the Board of Last Lion, which was controlled by appointees of MFC, to approve the sale of Otello’s remaining ownership stake in Last Lion, being approximately 27% in the Vewd Software business. The judge granted Otello the injunction it sought requiring the board of Last Lion to approve the buyer. The buyer did not purchase the shares on the terms of the expired Share Purchase Agreement and the High Court determined that MFC should be required to purchase Otello’s shares in Last Lion from Otello for the sum of $48 million and that MFC should be required to purchase the Loan Note issued in Otello’s favor by a subsidiary of MFC for $5 million plus accrued interest at the time of purchase (currently approximately $1.4 million). The Company may be indirectly affected by the armed conflict through its investment in Bemobi Mobile Tech S.A ("Bemobi"). Bemobi has reported that approximately 5% of its revenues outside Brazil are generated in Ukraine and Russia. In addition, Bemobi has a team of 35 people based in Ukraine. It is also to early too calculate any likely effect that this will have on Bemobi's position, and accordingly on Otello. In default of compliance by MFC with the order for the purchase of Otello’s shares in Last Lion and the Loan Note, the High Court ordered that all of the shares in the company shall be sold to a third party with a receiver appointed with all necessary powers to conduct the sale with the net proceeds of a sale being applied in satisfaction of MFC’s obligation to purchase the shares and the Loan Note. Cancellation of shares bought back After the end of the year, Otello registered the cancellation of the 11,200,000 shares purchased in the buyback in December. After that cancellation, Otello has 101,099,727 shares on issue. On March 17, 2021, MFC and Otello together with the Vewd Group's secured lenders (the “Lenders”) under a Credit Agreement dated December 19, 2016 between Last Lion HoldCo AS (“LLH”), Vewd Software AS, the Lenders and Wilmington Trust National Association ("Wilmington Trust") reached agreement that as an interim alternative to the appointment of a receiver, a special committee (the "Special Committee") of the board of Last Lion shall be appointed. The Special Committee was tasked with selling the company or raising finance. The Special Committee was appointed on 26 April 2021 but resigned on 12 July 2021 having failed to achieve a sale. Settlement of tax for Bemobi On 20 April 2022, the Company announced that it had elected to change the investment regime for its holding of Bemobi shares from the 4131 regime to the 4373 regime. Under the 4373 regime, capital gains are subject to 0% withholding tax. In order to proceed with the change, the Company has settled the tax on the capital gain based on the difference between the share market price on 31 March 2022 and the tax cost basis. Based on a share price of BRL 16.43, the Company has paid a total of BRL 67,334,818 (approximately $14.4 million) in withholding tax and the Brazilian tax on financial operations (IOF). On 15 December 2021, Vewd Software AS, and Vewd Software USA (together with LLH and Vewd, the “Vewd Debtors”) commenced a Chapter 11 bankruptcy proceeding with the United States Bankruptcy Court for the Southern District of New York. Otello filed a notice of appearance and a proof of claim in the bankruptcy. At the time of the Bemobi IPO, the Company had recognized a deferred tax liability under the 4131 regime of approximately $19.67 million, based on the initial IPO share price of BRL 22.00. The settlement and change of investment regime means that any appreciation of the shares after the change will not be subject to further taxes on capital gains or withholding taxes. On 2 February 2022, the United States Bankruptcy Court for the Southern District of New York approved the bankruptcy plan, which included a settlement (the “Settlement”) between Otello and the Vewd Debtors. No events have occurred after the reporting date that would require the interim financial statements to be adjusted. Please see stock exchange announcements for further information on any subsequent events. The Settlement settles claims between Otello, on the one hand, and the Vewd Debtors, on the other. Pursuant to the Settlement, Otello will provide advisory services to the entity that will become the reorganized Vewd (“Reorganized Vewd”) under the Vewd Debtors’ Chapter 11 plan of reorganization, pursuant to an Advisory Services Agreement, for a limited term. As compensation for its services under the Advisory Services Agreement, Otello will receive an advisory fee in the total amount of $250,000 paid out over 12 months and be entitled to 2% of any net proceeds arising from a change of control or ownership, liquidation, dissolution, or wind up of Reorganized Vewd, provided such net proceeds are over $140 million. Additionally, pursuant to the Settlement, Otello has an option to participate in the issuance of up to $9 million Preferred Stock of Reorganized Vewd subject to certain conditions. As indicated previously, Otello does not expect to get any value for its shares in Last Lion after the Chapter 11 proceeding, and the value of its shares in Last Lion has accordingly been written down to zero. 116 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 117 To the General Meeting of Otello Corporation ASA Independent Auditor’s Report Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Otello Corporation ASA, which comprise: • the financial statements of the parent company Otello Corporation ASA (the Company), which comprise the balance sheet as at 31 December 2021, the income statement, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and • the consolidated financial statements of Otello Corporation ASA and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at 31 December 2021, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. Auditor´s report In our opinion • • the financial statements comply with applicable statutory requirements, the financial statements give a true and fair view of the financial position of the Company as at 31 December 2021, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU, and the financial statements give a true and fair view of the financial position of the Group as at 31 December 2021, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU. • Our opinion is consistent with our additional report to the Audit Committee. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company and the Group as required by laws and regulations and the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code), and we have fulfilled our other ethical responsibilities 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. To the best of our knowledge and belief, no prohibited non-audit services referred to in the Audit Regulation (537/2014) Article 5.1 have been provided. We have been the auditor of the Company for 5 years from the election by the general meeting of the shareholders on 2 June 2017 for the accounting year 2017. PricewaterhouseCoopers AS, Dronning Eufemias gate 71, Postboks 748 Sentrum, NO-0106 Oslo T: 02316, org. no.: 987 009 713 MVA, www.pwc.no Statsautoriserte revisorer, medlemmer av Den norske Revisorforening og autorisert regnskapsførerselskap Otello Corporation ASA - Annual Report 2021 119 Key Audit Matters Other Information 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. The Board of Directors and the Managing Director (management) are responsible for the information in the Board of Directors’ report and the other information accompanying the financial statements. The other information comprises information in the annual report, but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the information in the Board of Directors’ report nor the other information accompanying the financial statements. The Group’s business activities have changed significantly due to the divestments of Bemobi and AdColony. Valuation of goodwill and intangible assets is, as they have been derecognized, no longer considered to be Key Audit Matters. However, Accounting for divestments contains enough inherent complexities for us to include it as a key audit matter. In connection with our audit of the financial statements, our responsibility is to read the Board of Directors’ report and the other information accompanying the financial statements. The purpose is to consider if there is material inconsistency between the Board of Directors’ report and the other information accompanying the financial statements and the financial statements or our knowledge obtained in the audit, or whether the Board of Directors’ report and the other information accompanying the financial statements otherwise appear to be materially misstated. We are required to report if there is a material misstatement in the Board of Directors’ report or the other information accompanying the financial statements. We have nothing to report in this regard. Key Audit Matters How our audit addressed the Key Audit Matter Accounting for divestments During 2021 Otello Corporation ASA made We obtained the documents supporting the two two major divestments. In February 2021 Bemobi Brazil was listed on the Bovespa divestments, which we studied carefully to understand the transactions. To further deepen our understanding, Based on our knowledge obtained in the audit, it is our opinion that the Board of Directors’ report stock exchange in Sao Paulo, Brazil. Otello’swe held discussions with management about the details ownership pre-IPO was over 80% which wasand terms in the agreements. Our discussions included reduced to approximately 36% through the an understanding of managements procedures to ensure IPO and subsequent sales of shares. Also, appropriate cut off in preparing the balance sheet at the in February 2021, Otello announced that it disposal date for the calculation of the profit on disposal, had entered into a definitive agreement to and managements use of judgement and whether • • is consistent with the financial statements and contains the information required by applicable legal requirements. Our opinion on the Board of Director’s report applies correspondingly to the statements on Corporate Governance and Corporate Social Responsibility. sell AdColony to Digital Turbine, Inc. The disposal was completed in April 2021. management had considered the various aspects of the accounting requirements, particularly the requirements in IFRS 5. Responsibilities of Management for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU, 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. The financial statements report the “profit (loss) from discontinued operations, net of We tested and recalculated management’s calculation of tax” in the income statement which the profit on disposal based on our understanding of the comprises the trading results from Bemobi supporting documentation and considered whether and AdColony up to the date of disposal, together with the profit on disposal. Management used judgement to evaluate consideration and claims from the purchaser. Our the accounting treatment. The agreement forprocedures included using data from trading in the the disposal of AdColony also included a deferred consideration which also was calculated using judgement. managements calculations appropriately reflected the terms of the sale and purchase agreement in respect of In preparing the financial statements, management is responsible for assessing the Company’s and the Group’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 Group or to cease operations, or has no realistic alternative but to do so. Bemobi share on Bovespa. We assessed the deferred consideration amount recognized in the 31 December 2021 results by comparing it to our understanding of the agreements and the underlying facts. We also considered and reviewed the appropriateness of the disclosures included in the Group financial statements and found them to appropriately reflect the facts of the divestments. 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 ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. We considered profit from discontinued operations to be a key area of focus due to the detailed calculations involved and judgements necessary to arrive at what accounting treatment to use. Our procedures did not identify material errors. See further information in note 21 where management explain the two divestments and how they have accounted for them in the financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: 2 / 5 3 / 5 120 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 121 • • identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error. We 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. Report on Other Legal and Regulatory Requirements Report on compliance with Regulation on European Single Electronic Format (ESEF) 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 or the Group's internal control. Opinion We have performed an assurance engagement to obtain reasonable assurance that the financial statements with file name “Otello Corporation ASA Annual Report 2021.zip” have been prepared in accordance with Section 5-5 of the Norwegian Securities Trading Act (Verdipapirhandelloven) and the accompanying Regulation on European Single Electronic Format (ESEF). • • evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. In our opinion, the financial statements have been prepared, in all material respects, in accordance with the requirements of ESEF. 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 and the Group'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 and the Group to cease to continue as a going concern. Management’s Responsibilities Management is responsible for preparing, tagging and publishing the financial statements in the single electronic reporting format required in ESEF. This responsibility comprises an adequate process and the internal control procedures which management determines is necessary for the preparation, tagging and publication of the financial statements. Auditor’s Responsibilities Our responsibility is to express an opinion on whether the financial statements have been prepared in accordance with ESEF. We have conducted our work in accordance with the International Standard for Assurance Engagements (ISAE) 3000 – “Assurance engagements other than audits or reviews of historical financial information”. The standard requires us to plan and perform procedures to obtain reasonable assurance that the financial statements have been prepared in accordance with the European Single Electronic Format. • • 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 a true and fair view. 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. As part of our work, we have performed procedures to obtain an understanding of the Company’s processes for preparing its financial statements in the European Single Electronic Format. We evaluated the completeness and accuracy of the iXBRL tagging and assessed management’s use of judgement. Our work comprised reconciliation of the financial statements tagged under the European Single Electronic Format with the audited financial statements in human-readable format. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We communicate with the Board of Directors 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. Oslo, 27 April 2022 PricewaterhouseCoopers AS We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to 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 the Board of Directors, 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. Eivind Nilsen State Authorised Public Accountant (This document is signed electronically) 4 / 5 5 / 5 122 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 123 Declaration of executive compensation policies PART 1: POLICIES AND EXECUTIVE COMPENSATION EXCEPT SHARE-BASED INCENTIVES 1. Base salary Base salary is typically the primary component of Exec- The Board of Directors has, in accordance with the Public utive Team compensation and reflects the overall contri- Limited Liability Companies Act § 6-16a, developed poli- bution of the executive to the Company. The determina- cies regarding compensation for the Executive Team. tion of base salaries for the executives considers a range of factors, including (i) job scope and responsibilities, (ii) The objectives of the Executive Team compensation pro- competitive pay practices, (iii) background, training and gram are, in particular, to (i) attract, motivate, retain and experience of the executive, and (iv) past performance reward the individuals on the Executive Team and (ii) en- of the executive at the Company. Adjustments to base sure alignment of the Executive Team with the long-term salary are ordinarily reviewed every 12 months or longer interests of the shareholders. The Company’s Executive by the Board. Team compensation program is intended to be perfor- mance driven and is designed to reward the Executive 2. Cash incentive bonus Team for both reaching key financial goals and strategic The Company uses a cash-incentive bonus to focus the business objectives and enhancing shareholder value. Executive Team members on, and reward the Executive Team members for, achieving key corporate objectives, The most important components of Executive Team com- which typically involve corporate, financial and opera- pensation are as follows: (i) base salary, (ii) cash-incen- tional performance. Cash-incentive bonuses tied to stra- tive bonus and (iii) long-term, equity-based incentives. tegic business objectives, which may be individual to or Only the statement in Part 2 “Share-based incentives”, shared among the Executive Team members, may also below, will be binding for the Board of Directors. be considered as part of the cash-incentive bonus. The Otello Corporation ASA - Annual Report 2021 125 determination of the total bonus that can be potential- no provisions with respect to severance payments if a ly earned by an executive in a given year is based on, member of the Executive Team should leave his or her among other factors, the executive’s current and expect- position, whether voluntarily or involuntarily. Severance ed contributions to the Company’s performance, his or payment arrangements, if any, will thus be based on ne- her position within the Executive Team, and competitive gotiations between the Company and the relevant mem- compensation practices. ber of the Executive Team on a case-by-case basis. In October 2020, members of the Executive Team agreed 4. Pension new cash bonus structures where annual, cash bonus in Members of Executive Team participate in regular pen- based on 100-200% achievement of targets. The Board sion programs available for all employees of Company. may deviate from the 200% cap. As a starting point, the For members of the Executive Team based in Norway, an cash-incentive bonus for FY 2021 for Executive Team additional pension agreement is in place. This agreement members was, and for FY 2022 will be, based on busi- is based on a defined-contribution scheme and contrib- ness-/operational targets and achievements of these utes 20% of salary over 12G. targets. PART 2: Further, as a condition for accepting to terminate all then SHARE-BASED INCENTIVES existing options and replacing them with new options (as approved by the general meeting on 15 January 2021), 1. Existing programs it was also agreed that the CEO would be paid NOK 6 For members of the Executive Team, the Company cur- million and the CFO would be paid NOK 500,000 in cash rently has no ordinary stock option program or RSU pro- bonus for 2019 and 2020, where half of the bonus would gram in place. The previous stock options held by the Ex- be considered part of the 2020 bonus and be taken into ecutive Team were mandatorily exercised following the account when the Executive's total 2020 bonus was de- Bemobi IPO and AdColony sale. termined in early 2021, while half of the bonus would be considered as an extraordinary bonus. 2. Vesting criteria for existing options N/A. After considering the above, the CEO was paid NOK 1.4 million and the CFO was paid NOK 850,000 in cash bonus PART 3: in 2021 related to the 2020 year. 2021 COMPLIANCE In 2021, the Executive Team received base salaries and cash-incentive bonuses in line with the Executive Com- 3. Severance-payment arrangements Pursuant to Section 15-16 second subsection of the Nor- pensation Policy as presented to the 2020 Annual Gener- wegian 2005 Act relating to Employees’ Protection, CEO al Meeting and as set out in Part I, item 2 "Cash incentive Lars Boilesen has waived his rights under Chapter 15 of bonus" as described above. the Act. As compensation, he is entitled to a severance payment of two years’ base salary if his employment is Total compensation earned for the Executive Team in FY terminated by the Company. If the CEO has committed 2021 is summarized in note 6 of the consolidated finan- a gross breach of his duty or other serious breach of the cial statements. contract of employment, the employment can be termi- nated with immediate effect without any right for the During 2021, no deviations from the existing share-based CEO to the mentioned severance payment. compensation programs as previously approved were made with respect to the Executive Team. No new op- Except for the CEO as described above, the employment tions have been approved since the extraordinary gener- agreements for the members of the Executive Team have al meeting held 15 January 2021. 126 Otello Corporation ASA - Annual Report 2021 To the General Meeting of Otello Corporation ASA not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. Further we performed procedures to ensure completeness and accuracy of the information provided in the remuneration report, including whether it contains the information required by the law and accompanying regulation. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independent auditor’s assurance report on report on salary and other remuneration to directors Oslo, 27 April 2022 PricewaterhouseCoopers AS Opinion We have performed an assurance engagement to obtain reasonable assurance that Otello Corporation ASA report on salary and other remuneration to directors (the remuneration report) for the financial year ended 31 December 2021 has been prepared in accordance with section 6-16 b of the Norwegian Public Limited Liability Companies Act and the accompanying regulation. Eivind Nilsen State Authorised Public Accountant In our opinion, the remuneration report has been prepared, in all material respects, in accordance with section 6-16 b of the Norwegian Public Limited Liability Companies Act and the accompanying regulation. Board of directors’ responsibilities The board of directors is responsible for the preparation of the remuneration report and that it contains the information required in section 6-16 b of the Norwegian Public Limited Liability Companies Act and the accompanying regulation and for such internal control as the board of directors determines is necessary for the preparation of a remuneration report that is free from material misstatements, whether due to fraud or error. Our independence and quality control We are independent of the company as required by laws and regulations and the International Ethics Standards Board for Accountants’ Code of International Ethics for Professional Accountants (including International Independence Standards) (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements. Our firm applies International Standard on Quality Control 1 (ISQC 1) and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. Auditor’s responsibilities Our responsibility is to express an opinion on whether the remuneration report contains the information required in section 6-16 b of the Norwegian Public Limited Liability Companies Act and the accompanying regulation and that the information in the remuneration report is free from material misstatements. We conducted our work in accordance with the International Standard for Assurance Engagements (ISAE) 3000 – “Assurance engagements other than audits or reviews of historical financial information”. We obtained an understanding of the remuneration policy approved by the general meeting. Our procedures included obtaining an understanding of the internal control relevant to the preparation of the remuneration report in order to design procedures that are appropriate in the circumstances, but (2) PricewaterhouseCoopers AS, Dronning Eufemias gate 71, Postboks 748 Sentrum, NO-0106 Oslo T: 02316, org. no.: 987 009 713 MVA, www.pwc.no Statsautoriserte revisorer, medlemmer av Den norske Revisorforening og autorisert regnskapsførerselskap 128 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 129 Principles of Corporate Governance at Otello Corporation ASA General principles, implementation and reporting on corporate governance The Board of Directors further will annually evaluate Otello's objectives, strategies and risk profiles. Otello Corporation ASA (“Otello” or the “Company”) strongly believes that strong corporate governance Otello’s activities creates higher shareholder value. As a result, Otello is Otello holds shares in several different businesses, includ- committed to maintaining high standards of corporate ing (i) Bemobi, a Mobile Media and Entertainment com- governance. Otello’s principles of corporate governance pany that integrates people and mobile content through have been developed in light of the Norwegian Code of technology and offers a leading subscription-based dis- Practice for corporate governance (the “Code”), dated covery service for mobile apps in Latin America and be- October 14, 2021, as required for all listed companies on yond; (ii) Skyfire which offers cloud-based network solu- the Oslo Stock Exchange. The Code is available at www. tions for mobile operators; and (iii) Vewd which offers nues.no. The principles are further developed and are in OTT services in the Connected TV space. accordance with section 3-3b and section 3-3c of the Nor- wegian Accounting Act, which can be found at https://lo- Our business is based on close relationships with cus- vdata.no/dokument/NL/lov/1998-07-17-56. Otello views tomers, partners, investors, employees, friends, and the development of high standards of corporate gover- communities all over the world — relationships we are nance as a continuous process and will continue to focus committed to developing by conducting our business on improving the level of corporate governance. openly and responsibly. Our corporate policies are devel- oped in order to be true to this commitment. The Board of Directors has the overall responsibility for corporate governance at Otello and ensures that the Corporate Social Responsibility guidelines Company implements sound corporate governance. The The Board of Directors has adopted corporate social re- Board of Directors has defined Otello’s basic corporate sponsibility (“CSR”) guidelines. These guidelines cover a values, and the Company’s ethical guidelines and guide- range of topics and are focused around the following lines on corporate social responsibility are in accordance areas: our employees, human rights, anti-corruption and with these values. the environment. These general principles and guidelines apply to all employees and officers of the Group. See the The Board of Directors has defined clear objectives, Board of Directors report for further information. strategies and risk profiles for Otello's business activ- ities such that Otello creates value for shareholders in Equity, capital structure and dividends a sustainable manner. The Board of Directors considered The Company’s capital structure and financing is consid- financial, social and environmental considerations when ered to be appropriate in terms of Otello’s objectives, they carried out this work. strategy and risk profile. Otello Corporation ASA - Annual Report 2021 131 Otello’s policy is to maintain a high equity ratio. Otello Transactions with related parties believes its needs for growth can be met while also al- Any transactions, agreements or arrangements between lowing for a dividend distribution as long as the Company the Company and its shareholders, members of the is reaching its targeted growth and cash generation lev- Board, members of the executive management team or els. Dividend payments will be subject to approval by the close associates of any such parties will only be entered shareholders at the Company’s Annual General Meetings. into as part of the ordinary course of business and on This dividend policy is considered clear and predictable. arm's length market terms. All such transactions shall, where relevant, comply with the procedures set out in Authorizations granted to the Board of Directors to in- the Norwegian Public Limited Liability Companies Act crease the Company’s share capital will be restricted to (the "NPLCA"). The Board of Directors will arrange for defined purposes and will in general be limited in time a valuation to be obtained from an independent third to no later than the date of the next Annual General party unless the transaction, agreement or arrangement Meeting. To the extent that authorization to increase in question is considered to be immaterial or covered by the share capital shall cover issuance of shares under the provisions of section 3-16 of the NPLCA. employee share option schemes and other purposes, the Company will consider presenting the authorizations to If the Company should enter into a not immaterial trans- the shareholders as separate items. action with related parties within Otello or with compa- nies in which a director or leading employee of Otello or The Board of Directors may also be granted the author- close associates of these have a material direct or indirect ity to acquire own shares. Authorizations granted to the vested interest, those concerned shall immediately noti- Board of Directors to acquire own shares will also be re- fy the Board of Directors. Any such transaction must be stricted to defined purposes. To the extent that authori- approved by the Board of Directors, and where required zation to acquire own shares shall cover several purposes, also as soon as possible publicly disclosed to the market. the Company will consider presenting the authorization to the shareholders as separate items. Such authority Insider trading may by law apply for a maximum period of two years, The Company has an established and closely monitored and will state the maximum and minimum amount pay- insider trading policy. Otello employees are prohibited able for the shares. Normally, the proposed authority from trading in Otello securities based on information will be for one year or to the next annual general meet- that is material, nonpublic information; that is, the pub- ing. In addition, an authorization to acquire own shares lic does not yet have access to this information, and this will state the highest nominal value of the shares which information may be deemed interesting for an investor Otello may acquire, and the mode of acquiring and dis- to use when deciding whether to buy or sell securities. posing of own shares. Otello may not at any time hold This rule also applies to other companies, where Otello more than 10% of the total issued shares as own shares. employees may have access to such nonpublic informa- tion. Please note that even a tip to family and friends Equal treatment of shareholders is considered illegal, if this should be used as a basis for A key concept in Otello’s approach to corporate gover- buying or selling securities. nance is the equal treatment of shareholders. Otello has one class of shares and all shares are freely transferable Any transaction the Company carries out in its own (with possible exceptions due to foreign law restrictions shares will be carried out either through the stock ex- on sale and offering of securities). All shares in the Com- change or at prevailing stock exchange prices if carried pany carry equal voting rights. The shareholders exer- out in any other way. cise the highest authority in the Company through the General Meeting. All shareholders are entitled to submit Freely negotiable shares items to the agenda, and to meet, speak, and vote at the Otello has no limitations on the transferability of shares General Meeting. and has one class of shares. Each share entitles the hold- er to one vote. Any decision to waive the pre-emption rights of exist- ing shareholders to subscribe for shares in the event of General Meetings an increase in share capital will be explained. Where the Through the General Meeting, the shareholders exercise Board of Directors resolves to carry out an increase in the the highest authority in the Company. General Meetings share capital and waive the pre-emption rights of the are held in accordance with the Code. All shareholders are existing shareholders on the basis of a mandate granted entitled to submit items to the agenda, meet, speak and to the board, an explanation will be publicly disclosed vote at General Meetings. The Annual General Meeting is in a stock exchange announcement issued in connection held each year before the end of June. Extraordinary Gen- with the increase of the capital. eral Meetings may be called by the Board of Directors at 132 Otello Corporation ASA - Annual Report 2021 any time. The Company’s auditor or shareholders repre- attend the meeting or vote by proxy will be set in the senting at least five percent of the total share capital may notice for the meeting. Such deadline will be set as close demand that an Extraordinary General Meeting be called. as possible to the date of the General Meeting and under every circumstance, in accordance with the principles of General Meetings are convened by written notice to section 5-3 of the Public Limited Companies Act. all shareholders with known addresses no later than 21 days prior to the date of the meeting. Proposed resolu- The members of the Board of Directors, Chairman of the tions and supporting information, including information Nomination Committee, CEO, CFO and the auditor are all on how to be represented at the meeting, vote by proxy required to be present at the meeting in person, unless and the right to propose items for the General Meeting, they have valid reasons to be absent. The Board of Direc- is generally made available to the shareholders no later tors normally proposes that the General Meeting elects an than the date of the notice. According to the Company’s independent chairman for the meeting. Notice, enclosures Articles of Association, attachments to the calling notice and protocol of meetings are available on Otello’s website. may be posted on the Company’s website and not sent to shareholders by ordinary mail. Shareholders who wish The General Meeting elects the members of the Board to receive the attachments may request the Company to of Directors (excluding employee representatives), deter- mail such attachments free of charge. Resolutions and the mines the remuneration of the members of the Board supporting information are sufficiently detailed, compre- of Directors, approves the annual accounts and decides hensive and specific to allow shareholders to form a view such other matters which by law, by separate proposal participation in General Meetings and will consider this tion Committee can also simultaneously be a member of before each General Meeting. the Board of Directors. The minutes from General Meetings will be posted on The tasks of the Nomination Committee are to propose the Company’s website within 15 days after the Gener- candidates for election as shareholder-elected mem- al Meeting has been held. Information that a General bers of the Board of Directors and members of the Meeting has been held will be made public as soon as Nomination Committee. The Nomination Committee possible after the end of the meeting. is encouraged to have contact with shareholders, the Board of Directors and the Company’s Chief Executive Officer as part of its work on proposing candidates Nomination Committee The Nomination Committee is a body established pur- for election to the Board of Directors. The Committee suant to the Articles of Association and shall consist of cannot propose its own Committee members as candi- three to five members. The members and the chairperson dates for the Company’s Board of Directors. Further, the are elected by the General Meeting. The members of the Committee shall make recommendations regarding the Nomination Committee should be selected to take into remuneration of the members of the Board of Direc- account the interests of shareholders in general. Mem- tors. Its recommendations will normally be explained, bers of the Nomination Committee serve for a two-year and information about proposed candidates will nor- period but may be re-elected. Following the extraordi- mally be given, no later than 21 days before the General nary general meeting held 15 January 2021, the current Meeting. The tasks of the Nomination Committee are members of the Nomination Committee are Simon Da- further described in the Company’s Nomination Com- vies (Chairperson), Kari Stautland and Jakob Iqbal. The mittee guidelines, as adopted by the Annual General members of the Nomination Committee are independent Meeting held on June 14, 2011. Remuneration of the of the Board of Directors and executive management, members of the Nomination Committee will be deter- however it is noted that the chairperson of the Nomina- mined by the General Meeting. Information regarding tion Committee is a representative of a shareholder who deadlines for proposals for members to the Board of also is represented at the Board of Directors. Pursuant to Directors and the Nomination Committee will be posted the Articles of Association, no member of the Nomina- on Otello’s website. on all matters to be considered in the meeting. or according to the Company’s Articles of Association, are to be decided by the General Meeting. Shareholders will Shareholders who are unable to be present, are encour- normally be able to vote on each individual candidate aged to participate by proxy and a person who will be nominated for election to the Board of Directors, the available to vote on behalf of shareholders as their proxy Nomination Committee and any other corporate bodies will be nominated. Proxy forms will allow the proxy-hold- to which members are elected by the General Meeting. er to cast votes for each item separately. A final dead- line for shareholders to give notice of their intention to The Board of Directors may decide to allow electronic 134 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 135 Corporate assembly The principal tasks of the Board of Directors are outlined Otello does not have a corporate assembly as the employ- below: ees have voted, and the General Meeting in 2010 approved, that the Company should not have a corporate assembly. • Ensuring compliance with applicable laws • Considering the interests of Otello’s different stake- holders The Board of Directors Appointed by Shareholders at the General Meeting, the • Reviewing and guiding corporate strategy, major plans Board of Directors is the central governing mechanism between shareholders and executive management. The members of the Board of Directors are selected in light of an evaluation of the Company’s need for expertise, of action, annual budget and business plans; setting performance objectives; monitoring implementation and corporate performance; and overseeing major capital expenditures. capacity and balanced decision making, and with the • Selecting, monitoring, and, when necessary, replacing aim of ensuring that the Board of Directors can operate key executives and overseeing succession planning independently of any special interests and function ef- • Reviewing key executive and Board remuneration fectively as a collegial body. Members of the Board of Di- • Monitoring and managing potential conflicts of rectors are encouraged to own shares in the Company. At least half of the members of the Board of Directors shall be independent of the Company’s management and its interest of management, Directors and shareholders, including misuse of corporate assets and abuse in related party transactions. main business connections. Members of the Board of Di- • Ensuring the integrity of Otello’s accounting and rectors serve for a two-year period, or such shorter peri- od as decided by the General Meeting, but directors may financial reporting systems, and that appropriate systems of control are in place. be re-elected. At least two of the shareholder-elected • Monitoring the effectiveness of the governance prac- members of the Board of Directors shall be independent of the Company’s main shareholder(s). The Board of Di- tices under which it operates and making changes as needed rectors does not include executive personnel. The current • Overseeing the process of disclosure and communica- Otello Board of Directors meets these criteria. tions • A more in-depth description of the Board’s duties can be found in the Rules of Procedure section on the Otello website: https://www.otellocorp.com/ir/ board-of-directors/rules-of-procedure-for-the-board- of-directors-of-otello. The annual report will provide information to illustrate the expertise of the members of the Board of Directors, information on their record for attendance at board meetings and it will identify which members are consid- ered to be independent. The Board of Directors is entrusted with and responsi- Otello’s Board of Directors diligently performs its over- ble for the oversight of the assets and business affairs of sight function and closely monitors major developments. Otello in an honest, fair, diligent and ethical manner. The Otello Corporation ASA - Annual Report 2021 137 Board of Directors has adopted a Code of Conduct and Risk management and internal control the directors are expected to adhere to the standards of The Board of Directors has overall responsibility for the loyalty, good faith, and the avoidance of conflict of in- management of the Company. This includes a responsibil- terest that follow. The Code of Conduct should be read ity to supervise and exercise control of the Company’s ac- and applied in conjunction with the Rules of Procedure tivities. The Board has drawn up the rules of procedure for as applicable at any time, and other rules and guidelines the Board of Directors of Otello. The purpose of these rules relevant to and adopted by the Board of Directors and / of procedure is to set out rules on the work and adminis- or the shareholders of Otello. trative procedures of the Board of Directors of Otello. The Board of Directors shall, among other things, ensure that The Board of Directors has further established a Remu- the Company’s business activities are soundly organized, neration Committee and an Audit Committee. Currently, supervise the Company’s day-to-day management, draw the Remuneration Committee and the Audit Committee up plans and budgets for the Company’s activities, keep each consists of two members. According to the Code, a itself informed on the financial position of the Company, majority of the members of each Committee should be in- and be responsible for ensuring that the Company’s activ- dependent from the Company. If the requirements for in- ities, accounts, and asset management are subject to ad- dependence are not met, Otello will explain the reasons in equate control. In its supervision of the business activities our Annual Report. Currently, Anooj Unarket (Chairperson) of Otello, the Board of Directors will ensure that: and Maria Borge Andersen are members of the Audit Com- mittee, and Andre Christensen (Chairperson), and Birgit • The Chief Executive Officer uses proper and effective Midtbust are members of the Remuneration Committee. The requirements for independence are thus met. Further, according to the Public Limited Liability Companies Act, management and control systems, including systems for risk management, which continuously provide a satisfactory overview of Otello’s risk exposure. at least one member of the Audit Committee shall have • The control functions work as intended and that nec- qualifications within audit or accounting, and in the Com- pany's view both members fulfill this requirement. essary measures are taken to reduce extraordinary risk exposure. • There exist satisfactory routines to ensure follow-up of principles and guidelines adopted by the Board of Directors in relation to ethical behavior, conformity to law, health, safety and working environment, and so- cial responsibility. The Audit Committee’s main responsibilities include fol- lowing up on the financial reporting process, monitoring the systems for internal control and risk management, having continuous contact with the appointed auditor, and reviewing and monitoring the independence of the • Otello has a competent finance department and ac- auditor. The Board of Directors maintains responsibility and decision making in all such matters. Please see be- counting systems, capable of producing reliable and on-time financial reports low under the section “Remuneration of the Executive • Directives from the external auditor are obeyed and Personnel” for information regarding the tasks to be per- formed by the Remuneration Committee. that the external auditor’s recommendations are given proper attention. The Board of Directors will consider carrying out The Board of Directors carries out an annual review of self-evaluation processes, evaluating its work, perfor- the Company's most important areas of exposure to risk mance and expertise annually. To the extent that such and its internal control arrangements. a process is carried out, it would normally also include an evaluation of the composition of the Board and the Executive Team manner in which its members function, both individu- Otello’s Board of Directors has drawn up instructions ally and as a group, in relation to the objectives set out for the Executive Team of the Company. The purpose of for its work. Any report will be more comprehensive if it these instructions is to clarify the powers and responsi- is not intended for publication. However, any reports or bilities of the members of the Executive Team and their relevant extracts from there should normally be made duty of confidentiality. available to the nomination committee. The Board of Directors will also consider whether to use an external The Executive Team conducts an annual strategy meet- person to facilitate the evaluation of its own work. ing with the Board of Directors. The strategy meeting focuses on products, sales, marketing, financial and or- In order to ensure a more independent consideration of ganizational matters, and the corporate development matters of a material character in which the Chairman strategy for the Group. of the Board of Directors is, or has been, personally in- volved, such matters will be chaired by some other mem- The Board of Directors has ensured that the Company has ber of the Board of Directors. sound internal control and systems for risk management 138 Otello Corporation ASA - Annual Report 2021 that are appropriate in relation to the extent and nature sufficient procedures to prevent errors in the financial of the Company’s activities. The Company has performed reporting, (ii) identifying, assessing and monitoring the a scoping of the financial risks in the Company and has risk of significant errors in the Group’s financial report- established written control descriptions and process ing, and (iii) implementing appropriate and effective descriptions. The controls are executed on a monthly, internal controls in accordance with specified group re- quarterly or yearly basis, depending on the specific con- quirements and for ensuring compliance with local laws trol. The internal controls and systems also encompass and requirements. All interim financial statementsare the Company’s corporate values, ethical guidelines and analyzed and assessed relative to budgets, forecasts and guidelines for corporate social responsibility. The Board historical trends. Remuneration of the Board of Directors able, and they contribute to the Company's commercial Remuneration for members of the Board of Directors is a strategy, long-term interests and financial viability. The fixed annual sum proposed by the Nomination Commit- General Meeting is informed about incentive programs tee and approved at the Annual General Meeting. The for employees, and, pursuant to section 6-16 a) of the remuneration reflects the responsibility, qualifications, Public Limited Companies Act, a statement regarding re- time commitment and the complexity of the tasks in muneration policies for the Executive Team will be pre- general. No members of the Board of Directors (or any sented to the General Meeting. The Board of Directors' company associated with such member) elected by the statement on the remuneration of the Executive Team shareholders have assumed special tasks for the Com- will be a separate appendix to the agenda for the Gen- pany beyond what is described in this document, and eral Meeting. The Company will also normally make clear no such member (or any company associated with such which aspects of the guidelines are advisory and which, member) has received any compensation from Otello if any, are binding. The General Meeting will normally be other than ordinary Board of Directors remuneration. able to vote separately on each of these aspects of the The remuneration of the Board of Directors is not linked guidelines. In addition, the Board of Directors’ declara- to the Company's performance. The Company current- tion on the compensation policies of the Executive Team ly does not grant share options to the members of the is included in a separate section of the Annual Report. Board of Directors. All remuneration to the Board of Di- of Directors carries out an annual review of the Compa- ny’s most important areas of exposure to risk and its in- Critical issues and events that affect the future devel- ternal control arrangements. In 2021, all Board members opment of the business and optimal utilization of re- confirmed that they had read and complied with the sources are identified, and action plans are put in place, Code of Conduct during the term of their directorship. if necessary. The Group’s CFO is responsible for the Group’s control The Audit Committee oversees the process of financial functions for risk management and internal control. Otel- reporting and ensures that the Group’s internal controls lo publishes two interim financial statements in addition and the risk management systems are operating effec- to the annual report. The financials are published on the tively. The Audit Committee performs a review of the Oslo Stock Exchange. Given the importance of providing half-yearly and annual financial statements, which ulti- accurate financial information, a centralized corporate mately are approved by the Board of Directors. control function and risk management function has been rectors is disclosed in Note 6 to the Annual Report. Information and communications Communication with shareholders, investors and analysts Members of the Board of Directors and/or companies is a high priority for Otello. The Company believes that with which they are associated will normally not take on objective and timely information to the market is a pre- specific assignments for the Company in addition to their requisite for a fair valuation of the Company’s shares and, appointment as a member of the Board of Directors. If in turn, the generation of shareholder value. The Compa- they nonetheless do take on such assignments, this must ny continually seeks ways to enhance our communication be disclosed to the full Board of Directors. The remuner- with the investment community. The Company's report- ation for such additional duties shall be approved by the ing of financial and other information is based on open- established consisting of the head of accounting and a Other guidelines and policies business controller. The corporate and business controller As an extension of the general principles and guidelines, tasks are, among other things, to perform management’s Otello has drawn up additional guidelines. risk assessment and risk monitoring across the group’s activities, to administer the Company’s value-based Information security guidelines management system and to coordinate planning and Otello has guidelines and information policies covering budgeting processes and internal controls reporting to information security roles, responsibilities, training, con- the Board of Directors and Executive Team. The head of tingency plans, etc. Board of Directors. ness and taking into account the requirement for equal treatment of all participants in the securities market. Remuneration of executive personnel A Remuneration Committee has been established by the Otello’s company website (https://www.otellocorp.com/ Board of Directors. The Committee shall act as a prepa- ir) provides the investment community with information ratory body for the Board of Directors with respect to (i) about the Company, including a comprehensive investor the compensation of the CEO and other members of the relations section. This section includes the Company’s Executive Team and (ii) Otello’s corporate governance investor relations policy, annual and quarterly reports, policies and procedures, which, in each case, are matters press releases and stock exchange announcements, share for which the Board of Directors maintains responsibility price and shareholder information, a financial calendar, accounting report into the CFO. Investor relations policy The finance department prepares financial reporting for Otello is committed to reporting financial results and the Group and ensures that reporting is in accordance with other relevant information based on openness and tak- applicable laws, accounting standards, established ac- ing into account the requirement for equal treatment of counting principles and the Board’s guidelines. The finance all participants in the securities market. To ensure that department provides a set of procedures and processes correct information is made public, as well as ensuring detailing the requirements with which local reporting equal treatment and flow of information, the Company’s units must comply. The Group has established processes Board of Directors has approved an Investor Relations and a variety of control measures that will ensure quality policy. A primary goal of Otello’s investor relations activ- assurance of financial reporting. A series of risk assessment ities is to provide investors, capital-market players and and control measures have been established in connection shareholders with reliable, timely and balanced informa- and decision making. an overview of upcoming investor events, and other rel- evant information. Details concerning remuneration of the executive per- sonnel, including all details regarding the CEO’s remuner- During the announcement of half-yearly and annual ation, are given in Note 6 to the Annual Report. The per- financial results, there is a forum for shareholders and formance-related remuneration to executive personnel the investment community to ask questions of the Com- is subject to an absolute limit. The Board of Directors as- pany’s management team. Otello also arranges regular sesses the CEO and his terms and conditions once a year. presentations in a range of jurisdictions, in addition to The guidelines on the salary and other remuneration for holding meetings with investors and analysts. Important executive personnel are clear and easily understand- events affecting the Company are reported immediately with the preparation of financial statements. tion for investors, lenders and other interested parties in the securities market, to enhance their understanding of The CFO, the head of accounting are responsible for (i) our operations. the ongoing financial reporting and for implementing 140 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA - Annual Report 2021 141 to the Oslo Stock Exchange in accordance with applicable Auditor legislation and posted on https://www.otellocorp.com/ir. The auditor participates in meetings of the Board of Di- All material information is disclosed to recipients equally rectors that deal with the annual accounts, as well as in terms of content and timing. upon special request. Every year, the auditor presents to the Audit Committee a report outlining the audit ac- The Board of Directors has further established an inves- tivities in the previous fiscal year and highlighting the tor relations policy for contact with shareholders and areas that caused the most attention or discussions with others beyond the scope of the General Meeting. management, as well as a plan for the work related to the Company’s audit. The Board of Directors will make sure that the auditor submits the main features of the Takeovers The Board of Directors endorses the recommendations of plan for the audit of the Company to the Audit Commit- the Code. Otello’s Articles of Association do not contain tee annually. The auditor also reports at least annually any restrictions, limitations or defense mechanisms on on internal control observations during the conduct of acquiring the Company’s shares. In accordance with the the audit, including identified weaknesses and proposals Securities Trading Act and the Code, the Board has ad- for improvement. opted guidelines for possible takeovers. The auditor will make himself available upon request In the event of an offer, the Board of Directors will not for meetings with the Board of Directors during which seek to hinder or obstruct takeover bids for Otello’s activ- no member of the executive management is present at ities or shares. In such situations, the Board of Directors least once each year, as will the Board of Directors upon and the Company's executive management have an in- the auditor’s request. At meetings where the annual ac- dependent responsibility to help ensure that sharehold- counts are dealt with, the auditor shall report on any ers are treated equally, and that the Company's business material changes in the Company’s accounting principles activities are not disrupted unnecessarily. The Board of and key aspects of the audit, comment on any materi- Directors has a particular responsibility to ensure that al estimated accounting figures and report all material shareholders are given sufficient information and time matters on which there has been disagreement between to form a view of the offer. Any agreement with the bid- the auditor and the executive management of the Com- der that acts to limit the Company’s ability to arrange pany. The General Meeting is informed about the Com- other bids for the Company’s shares will only be entered pany’s engagement and remuneration of the auditor into where the Board believes it is in the common in- and for fees paid to the auditor for services other than terest of the Company and its shareholders. This shall the annual audit, and details are given in Note 7 to the also apply to any agreement on the payment of financial Annual Report. compensation to the bidder if the bid does not proceed. Any financial compensation should normally be limited The Board of Directors has established guidelines in re- to the costs the bidder has incurred in making the bid. spect of the use of the auditor by the Company’s execu- tive management for services other than the audit. Information about agreements entered into between the Company and the bidder that are material to the market’s evaluation of the bid will be publicly disclosed no later than at the same time as the announcement of an impending bid is published. If an offer is made for the shares of Otello, the Board of Directors will make a recommendation as to whether the shareholders should or should not accept the offer. The Board of Director's statement on the offer will make it clear whether the views expressed are unanimous, and if this is not the case it will explain the basis on which specific members of the board have excluded themselves from the board’s statement. The Board of Directors will normally arrange for a valuation from an independent expert. The valuation should include an explanation, and will normally be made public no later than at the time of the public disclosure of the Board of Director's statement. Any transaction that is in effect a full disposal of the Com- pany’s activities should be decided by a General Meeting. 142 Otello Corporation ASA - Annual Report 2021 Otello Corporation ASA Gjerdrums vei 19 NO-0484 OSLO Tel: +47 9190 9145 www.otellocorp.com

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