Asetek A/S

ASETEK - 2023

As of December 31, 2023, the Board of Directors

consists of 5 individuals, of which 60% are men and

40% are women, which is considered equal gender

diversity according to Section 99b of the Danish

Financial Statements Act. Thus, Asetek continued

to maintain a distribution of women and men on

the Board in accordance with Section 99b of the

Danish Financial Statements Act. Asetek’s goal is to

continue to maintain, at minimum, a 60/40 balance

of gender into the future.

Status of achievement of target figure of underrepresented gender [Board of Directors]

Asetek A/SAssensvej29220Aalborg Eastinfo@asetek.comwww.asetek.com34880522213800ATZVDWWKJ8NI472023-01-012023-12-312022-01-012022-12-31134Regnskabsklasse DAarhus2024-03-08Aalborg2024-03-08https://ir.asetek.com/ESG-Report-2023https://ir.asetek.com/Diversity-Policyhttps://ir.asetek.com/Corporate-Governance-Statement-2023

Statement of target figures and policies for the underrepresented gender

Information on equal distribution of women and men [Board of Directors]

Primary actions for fulfillment of target figure of underrepresented gender [Board of Directors]

Reason for not fulfilling the target figure of underrepresented gender [Board of Directors]

Information on equal distribution of women and men [Other management levels]

Information on exempt from providing information on target figures of underrepresented gender for other management levels due to the number of employees

Statement of the policy to increase the percentage of underrepresented gender [Other management levels]

Årsrapport34880522Asetek A/SAssensvej 29220 Aalborg EastxWizard version 1.1.1253.3, by EasyX Aps. www.easyx.euRevisionspåtegningGrundlag for konklusionKonklusionAndré S. EriksenCEOPeter Dam MadsenCFORené Svendsen-TuneChairmanErik DamsgaardVice chairmanMaria HjorthMemberJukka PertolaMemberMaja Frølunde Sand-GrimnitzMemberhttps://ir.asetek.com/ESG-Report-202350.40.490.110.252030PricewaterhouseCoopers Statsautoriseret RevisionspartnerselskabPricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab33771231Mads MelgaardState Authorised Public Accountantmne34354Line BorregaardState Authorised Public Accountantmne3435333771231PricewaterhouseCoopers Statsautoriseret RevisionspartnerselskabPricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab213800ATZVDWWKJ8NI472023-01-012023-12-31213800ATZVDWWKJ8NI472023-01-012023-12-31cmn:ConsolidatedMember213800ATZVDWWKJ8NI472022-01-012022-12-31213800ATZVDWWKJ8NI472023-12-31213800ATZVDWWKJ8NI472022-12-31213800ATZVDWWKJ8NI472021-12-31ifrs-full:IssuedCapitalMember213800ATZVDWWKJ8NI472021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800ATZVDWWKJ8NI472021-12-31ifrs-full:TreasurySharesMember213800ATZVDWWKJ8NI472021-12-31ifrs-full:RetainedEarningsMember213800ATZVDWWKJ8NI472021-12-31213800ATZVDWWKJ8NI472022-01-012022-12-31ifrs-full:RetainedEarningsMember213800ATZVDWWKJ8NI472022-01-012022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800ATZVDWWKJ8NI472022-01-012022-12-31ifrs-full:IssuedCapitalMember213800ATZVDWWKJ8NI472022-12-31ifrs-full:IssuedCapitalMember213800ATZVDWWKJ8NI472022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800ATZVDWWKJ8NI472022-12-31ifrs-full:TreasurySharesMember213800ATZVDWWKJ8NI472022-12-31ifrs-full:RetainedEarningsMember213800ATZVDWWKJ8NI472023-01-012023-12-31ifrs-full:RetainedEarningsMember213800ATZVDWWKJ8NI472023-01-012023-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800ATZVDWWKJ8NI472023-01-012023-12-31ifrs-full:IssuedCapitalMember213800ATZVDWWKJ8NI472023-01-012023-12-31ifrs-full:SharePremiumMember213800ATZVDWWKJ8NI472023-12-31ifrs-full:IssuedCapitalMember213800ATZVDWWKJ8NI472023-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800ATZVDWWKJ8NI472023-12-31ifrs-full:TreasurySharesMember213800ATZVDWWKJ8NI472023-12-31ifrs-full:RetainedEarningsMember213800ATZVDWWKJ8NI472023-01-01213800ATZVDWWKJ8NI472022-01-01213800ATZVDWWKJ8NI472023-01-012023-12-31cmn:ConsolidatedMember0213800ATZVDWWKJ8NI472023-01-012023-12-31cmn:ConsolidatedMember1213800ATZVDWWKJ8NI472023-01-012023-12-31cmn:ConsolidatedMember0213800ATZVDWWKJ8NI472023-01-012023-12-31cmn:ConsolidatedMember1213800ATZVDWWKJ8NI472023-01-012023-12-31cmn:ConsolidatedMember2213800ATZVDWWKJ8NI472023-01-012023-12-31cmn:ConsolidatedMember3213800ATZVDWWKJ8NI472023-01-012023-12-31cmn:ConsolidatedMember4213800ATZVDWWKJ8NI472023-12-31cmn:ConsolidatedMember213800ATZVDWWKJ8NI472023-01-012023-12-31cmn:ConsolidatedMember0213800ATZVDWWKJ8NI472023-01-012023-12-31cmn:ConsolidatedMember1iso4217:USDiso4217:USDxbrli:sharesxbrli:pure XXXXX ANNUAL REPORT 2023 / Page 1 ANNUAL REPORT 2023 XXXXX ANNUAL REPORT 2023 / Page 2 Asetek, a global leader in mechatronic innovaꢀon, is a Danish garage-to-stock-exchange success story. Founded in 2000, Asetek established its innovaꢀve posiꢀon as the leading OEM developer and producer of the all-in-one liquid cooler for all major PC & Enthusiast gaming brands. In 2021, Asetek introduced its line of products for next level immersive SimSports gaming experiences. Asetek is headquartered in Denmark and has operaꢀons in China, Taiwan and the United States with a total of 134 employees. In 2023 Asetek recorded revenue of $76.3 million. Asetek A/S Visiꢀng address: Assensvej 2 DK-9220 Aalborg East Denmark Phone: +45 9645 0047 Email: investor.relaꢀ[email protected] www.asetek.com CVR number: 3488 0522 Annual report for the ﬁnancial year 1 January to 31 December 2023. This annual report is approved by the Board of Directors as of March 8, 2024. The Board will submit this report for approval at the Annual General Meeꢀng on April 30, 2024. This annual report contains prospecꢀve informaꢀon based on Asetek’s current expectaꢀons. This informaꢀon is by nature uncertain and associated with risk. Even if company management considers expectaꢀons based on such prospecꢀve informaꢀon to be reasonable, no guarantee can be given that these expectaꢀons will prove to be cor- rect. Consequently, actual future results may vary signiﬁcantly compared with what is set out in the prospecꢀve informaꢀon, for reasons including changed condiꢀons in respect of the economy, market and compeꢀꢀon, changes in legal requirements and other poliꢀcal measures, exchange rate variaꢀons and other factors. Read more about the risks in the chapter on ‘Risk management’ on pages 32–34 and in note 3 on page 48 ‘Risk management and debt’ in the ﬁnancial statements. XXXXX ANNUAL REPORT 2023 / Page 3 CONTENT Asetek in brief 4 6 Corporate social responsibility Five year summary 33 34 36 37 38 39 4 0 63 64 65 66 67 71 72 77 2023 in brief Comments from CEO Asetek as an investment Strategic framework Business model 7 Consolidated statement of comprehensive income Consolidated balance sheet 9 10 11 13 14 15 16 18 20 21 23 25 30 Consolidated statement of changes in equity Consolidated cash ﬂow statement Notes Logisꢀcs Business segments Liquid cooling Comprehensive income statement, parent company Balance sheet, parent company Statement of changes in equity, parent company Statement of cash ﬂows, parent company Notes, parent company SimSports Share and shareholders Lisꢀng at Nasdaq Copenhagen New headquarters and R&D center Management report Corporate governance Risk management Management statement Independent auditor’s reports Deﬁniꢀons of raꢀos and metrics ASETEK IN BRIEF ANNUAL REPORT 2023 / Page 4 FOUNDED ON INNOVATION. DRIVEN BY EXCELLENCE Asetek has been an innovaꢀve force in the global liquid cooling manufacturing industry for more than 25 years. In 2021 we introduced products for SimSports gaming. Asetek is headquartered in Denmark and has operaꢀons in China, Taiwan and the United States with a total of 134 employees. The Asetek share is listed on Oslo Stock Exchange and Nasdaq Copenhagen. In 2023 the company recorded revenue of 76.3 million USD. Why we do it With our market-leading and high-quality product oﬀering our goal is to meet our clients´ requirements for performance, design and longer product lifecycles. Our product development centers around our customers’ needs and reﬂect an innovaꢀve engineering approach combined with superior performance. The Asetek brand name has become synonymous with high product quality in all categories, which is conﬁrmed by great reviews and feedback from gamers and hardware enthusiasts around the world. We are in business to push limits and redeﬁning what’s possible. Who we are We are a high-tech company with a long history in mechatronic innovaꢀon, focusing on gaming hardware. Since our foundaꢀon we have disrupted the PC cooling market, seꢁng new standards for performance and eﬃciency. In 2021, we conꢀnued to leverage our extensive capabiliꢀes with soꢂware, hardware and mechanics and entered into the world of sim racing as Asetek SimSports®. We are a diverse and agile organizaꢀon located close to some key electronic manufacturing hubs in South-East Asia. Asetek is a high-tech company with a long history in mechatronic innovaꢀon, focusing on gaming hardware “ What we do Asetek is a developer and manufacturer of high-quality gaming hardware. Since 2000, we design, manufac- ture, and sell high-quality liquid cooling soluꢀons to most major PC and Enthusiast gaming brands. In 2021, we introduced our line of products for next-level immersive SimSports gaming experiences, oﬀering every sim racer in the world the possibility to push limits and redeﬁning what’s possible. Revenue per year, $ million REVENUE 2023 GROSS PROFIT 2023 79.8 76.3 72.7 9.7% 50.6 of revenue invested in research and development in 2023 $76.3 $34.7 million million 2020 2021 2022 2023 ASETEK IN BRIEF ANNUAL REPORT 2023 / Page 5 KEY CONCEPTS FOR UNDERSTANDING ASETEK CUSTOMERS – a global customer base We design, manufacture, and sell gaming hardware for next-level immersive gaming experiences. We serve some of the world’s leading PC & Enthusiast gaming brands. In 2021 we introduced our line of products for next-level immersive SimSports gaming experiences, oﬀering every sim racer in the world the possibility to push limits and redeﬁning what’s possible. INNOVATION – we are a high-tech company Asetek is a global leader in mechatronic innovaꢀon. Our journey began almost 25 years ago when we disrupted the PC cooling market with our ground- breaking all-in-one liquid cooler, seꢁng new stand- ards for performance and eﬃciency. In 2021, we conꢀnued to leverage our extensive capabiliꢀes with soꢂware, hardware and mechanics and entered into the world of sim racing as Asetek SimSports®. Our goal is to transform the sim racing scene, pushing limits and redeﬁning what’s possible. REACH – well-balanced and global We have a longstanding local presence in some key electronic manufacturing hubs in South-East Asia. Our headquarter is in Aalborg, north Jutland, Denmark with presence of senior execuꢀves in North America. We have a global plaꢃorm with a solid supply chain creaꢀng long-term value for all stakeholders. HISTORY – founded on innovaꢀon Our history is rooted in innovaꢀon that solved a key challenge of performance limitaꢀons caused by computer processors running hot. This innovaꢀon, sꢀll leading today, is the foundaꢀon that took Asetek to a world-leading market posiꢀon within liquid cooling. Since 2021 we are on a mission to become market-leader in the rapidly growing market for sim hardware. PEOPLE – an internaꢀonal organizaꢀon We believe that a diverse workforce and an inclusive workplace is a prerequisite for staying compeꢀꢀve, now and in the future. Our highly skilled employ- ees are based in three conꢀnents, all sharing the common purpose of challenging industry standards driven by innovaꢀon and operaꢀonal excellence. 2023 IN BRIEF ANNUAL REPORT 2023 / Page 6 KEY MILESTONES AND EVENTS 2023 In May, the Asetek share commenced trading on the Nasdaq Copenhagen in Denmark. In 2023, Asetek exceeded the communicated ﬁnancial guidance from the start of the year and reported the second best ﬁnancial results in the company´s history. Notable milestones during the year included several product launches within the SimSports segment to broaden the product oﬀering as well as a number of product launches within Liquid Cooling. During the year, Asetek also carried out a successful lisꢀng of its shares on Nasdaq Copenhagen. 54 New Liquid Cooling products launched during 2023 37 New SimSports products launched during 2023 In May, a General Meeꢀng resolved on the elecꢀon of ﬁve Board members. Erik Damsgaard, Jukka Pertola, Maria Hjorth and Maja Frølunde Sand- Grimnitz were re-elected with René Svendsen-Tune elected as new Board member. The Board subse- quently comprised three regular Board members, one vice-chairman and one chairman. Revenue per quarter, $ million 24.5 20.5 16.5 14.8 Q1 Q2 Q3 Q4 2023 In May, Asetek raised net proceeds of $16.1 million a fully underwriꢄen rights issue of 71,166,667 new shares at a subscripꢀon price of NOK 3 per share. Asetek passed a milestone when a total of 11 million products were sold and shipped since the foundation of the company in 2000 In June, Asetek announced that Micro Center will start selling a broad oﬀering of Asetek SimSports sim racing products in its physical stores across the USA as well as through its online store. Adjusted EBITDA per quarter, $ million 6.2 4.8 2.8 In December, Oslo Børs approved Asetek’s applicaꢀon to delist its shares. Following the approval the last day of trading of the shares on Oslo Børs is 26 March, 2024. 2.1 Q1 Q2 Q3 Q4 COMMENTS FROM CEO ANNUAL REPORT 2023 / Page 7 WELL POSITIONED FOR THE FUTURE We are leaving 2023, a year of contrasts behind us. For Asetek, this manifested in a material rebound for our Liquid Cooling business and expansion of the SimSports product program to wide acclaim from the sim racing community. I’m proud of delivering our second-best year ever measured by revenue and proﬁt, reꢂecꢀng strong demand for our products. The proﬁtable Liquid Cooling business provides a ro- bust foundaꢀon for our SimSports growth strategy. Remember, that in just over two years we have es- tablished a porꢃolio of market-leading products fus- ing mechatronics with real racing experience. Just as with Liquid Cooling, our core tenets of Passion, Precision and Performance guide us as we develop soluꢀons that enable beꢄer gaming experiences. In the ﬁrst half of 2023 we secured ﬁnancing of our new domicile, which required a capital injecꢀon by our shareholders. We remain conﬁdent of the long-term potenꢀal in our markets, but at the same “Our realisꢀc life-like approach to racing gear is paying oﬀ, and we are humbled by the many good reviews and posiꢀve feedback of our products and customer service.” ꢀme we conꢀnue to experience low near-term rev- enue visibility. However, we are adapꢀng and have aligned our strategic prioriꢀes accordingly, and our focus in 2024 is to execute on these. nues of USD 76.3 million for the full year was second highest in the history of the company. However, the strong demand from OEM custom- ers in 2023 was partly due to an inventory build-up, which is now causing soꢂer demand going into 2024. Early indicaꢀons point to inventories normalizing in the second half of 2024 with demand gradually improving during the year. These factors are included in our Group revenue development expectaꢀon for the year of -5% to +5% compared with 2023. We conꢀnuously seek to opꢀmize Liquid Cooling performance and features at the opꢀmal pricing, for instance, via a constant quest to modularize the use of speciﬁc components across many products. Lately, we have experienced increased demand from Strong posiꢀon amid shiꢁing demand Entering 2023, we came from a period with reduced revenue due to chip-shortages, record-high inﬂaꢀon, geopoliꢀcal issues and inventory adjustments. We adapted to the new market condiꢀons, appropriate- ly trimming the organizaꢀon. Therefore, we were well posiꢀoned when customers, early in the year, launched several new products triggering a strong rebound in demand for Liquid Cooling products. With support from supply chain partners, we leveraged the increased acꢀvity and lowered cost base to deliver increased proﬁtability and strong cash ﬂow. Our reve- some of our larger customers for products with a lower price point for the Chinese market as well as other value-oriented markets. In response to this demand, we plan to deploy products tailored for the lower end of the premium segment within Liquid Cooling complemenꢀng our tradiꢀonal focus on the higher end of the market. This means we broaden the addressable market without compromising the quality that the Asetek brand represents. The value oﬀering tailored for the lower end of the premium market is aꢄached with robust EBITDA margins but gross margins that are somewhat lower than the historical average. It is important to note that this is a natural development and does not consꢀtute a general price or gross margin pressure on high-end liquid coolers. Rather, it is simply a reﬂecꢀon of demand for Asetek products suited for a new and larger market segment. In this way, we are matching the demand from our customers of price compet- iꢀve high-quality soluꢀons, retaining customers as well as adding addiꢀonal revenue. We will see the full eﬀect of this materialize in 2025. COMMENTS FROM CEO ANNUAL REPORT 2023 / Page 8 product line, which will act as a driver for long-term growth. I am strongly convinced that the winning strategy is to ﬁrst anchor our brand name in the pre- mium segment before conquering the mass market. Our realisꢀc life-like approach to racing gear is paying oﬀ, and we are humbled by the many good reviews and posiꢀve feedback of our products and customer service. I believe it is important to note that 2023 revenue in the SimSports segment was almost the same as our best year ever, during the ten years we invested in the now closed-down Data Center venture. I strongly believe we have a great future ahead of us in SimSports. we will re-evaluate. Going forward, we maintain fo- cus on business acꢀviꢀes that have more immediate prospects for proﬁtability. of de-lisꢀng our shares from Oslo Stock Exchange, a process that will be ﬁnalized on March 26. We can already now see the beneﬁts through increased liquidity in the Asetek share in Copenhagen com- pared to recent years in Oslo. I extend my graꢀtude to the enꢀre Asetek team for their hard work and dedicaꢀon during the past year. I also wish to thank all our shareholders for their support. I want to ensure you that we work hard every day to earn your trust, and we are thankful that you share our vision for the company. We are on to an interesꢀng journey, and I am happy that you are a part of this. Exciꢀng opportunity in a fast-paced market We had our second year of SimSports revenue in 2023, and I am pleased that we managed to deliver almost 400% growth from 2022, although coming from low levels. The growth was driven by mulꢀple new products and customers globally. Our ambiꢀon is to oﬀer a full porꢃolio of products rather than being a niche supplier, a posiꢀon I believe we will aꢄain by the end of 2024. I expect that we can take pole posiꢀon within sim racing and build market share by providing a full range of high-quality sim racing products based on an open ecosystem. In 2021, unbeknown to us, at least two Chinese companies entered the sim racing market with a low-cost oﬀering just ahead of us. This has increased compeꢀꢀon, with our entry level product series La Prima now being considered a high-end product line in terms of price, quality and features. The last two years, we have been focused on the high-end market segment, something we will conꢀnue to do. That said, we also have a plan to leverage our strong brand name to launch a compeꢀꢀve mass-market Next steps Later in 2024, as summer turns to fall, we will move to our new domicile and development center. The construcꢀon is on plan, and the team is obviously excited about the move, which will provide a much beꢄer working environment. Asetek is a diﬀerent company than when the construcꢀon was decided back in pre-crisis 2020. We have adapted to this new business environment and market condiꢀons, partly through a leaner, more eﬃcient organizaꢀon. As a consequence, we are looking forward to greet- ing a tenant who will uꢀlize our excessive space. In 2023, we raised net USD 16 million as part of ﬁnancing the new domicile and once completed, we will ﬁnalize the mortgage ﬁnancing. We also took the decision to move our lisꢀng venue to Nasdaq Copenhagen to be closer to our biggest sharehold- ers. Because of this we are now in the ﬁnal phase When comparing our 2023-revenue of $76 million with 2022-revenue of $51 million, it is important to remember that 2023 did not include any Datacenter revenue. The segment was laid dormant in late 2022 but we retain our knowhow and IP, knowing that we have a very good soluꢀon to a global problem. But for now, the world is simply moving too slow despite a lot of talk. Should we one day be presented with a persuading business case, Thank you for your interest in Asetek! André S. Eriksen, Founder and CEO ASETEK AS AN INVESTMENT ANNUAL REPORT 2023 / Page 9 FIVE REASONS TO INVEST IN ASETEK Asetek is well posiꢀoned to capitalize on the its compeꢀꢀve strengths through innovaꢀon, operaꢀonal excellence and a leading posiꢀon as a premium supplier of high-quality gaming hardware. 1. 2. 3. 4. 5. Large and growing addressable market Leveraging a leading premium segment posiꢀon Strong innovaꢀon capability supporꢀng future growth Proﬁtable Liquid Cooling business pro- vides a robust foundaꢀon for SimSports growth strategy Strong SimSports growth potenꢀal Revenue in the gaming hardware market is projected to reach almost EUR 150 bil- lion in 2024 and is expected to expand at an annual growth rate (CAGR) of almost 9% the coming ﬁve yearsꢅ1. Growth is mainly driven by consumer demand for high-performing gaming hardware which enhance gaming experiences. The rise of eSports a a global phenomenon, aꢄract- ing millions of viewers and generaꢀng substanꢀal revenue, in just a few years is another growth driver. Upgrade cycles for high-spend PC builders are about 3–4 yearsꢅ2, supported by product launch cycles from major graphic card manufac- turers, also contribuꢀng to demand. Asetek has a leading posiꢀon in the premium segment of the gaming hard- ware market. Since 2000, we design, manufacture, and sell high-quality liquid cooling soluꢀons to most major PC and Enthusiast gaming brands. In 2021, Asetek expanded its business into the rapidly growing SimSports market for racing simulator gear. Asetek has earned a leading posiꢀon in the premium seg- ment of both the Liquid Cooling as well as SimSports market. The leading market posiꢀon combined with our strong brand name and high-quality products can be leveraged into increasing the address- able market. This is accomplished by targeꢀng the low-end of the premium Liquid Cooling market segment and launching a new SimSports product line with strong value oﬀering towards entry-level end-users. Conꢀnuous product development is crucial for maintaining and strengthening compeꢀꢀveness in an industry that is characterized by compeꢀꢀon and tech- nological progress. Asetek is renowned for being an innovaꢀve, high-tech and entrepreneurial company that provides products with a very high quality. At Asetek, product development centers around customers’ needs and reﬂects an innovaꢀve engineering approach combined with superior performance. The company has two R&D centers – one in Denmark and one in China. In 2023, Asetek spent 9.7% of total revenue, or USD 7.4 million on R&D, securing conꢀnued compeꢀꢀveness trough future launches of world-class products. Asetek invented the all-in-one liquid cooler and has been solving thermal challenges for almost 25 years. Our business segment Liquid Cooling has over the last 10 years generated total revenues of about $519 million with an average adjusted EBITDA margin of 29%. The proﬁtable Liquid Cooling operaꢀon provides a robust ﬁnancial foundaꢀon for the growth strategy of the SimSports business. The strategic ﬁt and synergies between the two segments are visible and will act as a driver for future value creaꢀon. In 2023, the SimSports segment revenue increased by almost 400% compared to 2022. This was due to mulꢀple new products as well as new end-users and re-sellers globally. Growth in 2023 was mainly driven by a combinaꢀon of mulꢀ- ple new products and a strong increase in new end-users and resellers globally. Gaming simulaꢀon is a rapidly expand- ing segment of the gaming hardware market, with a projected annual growth rate (CAGR) exceeding 15% the coming 6 yearsꢅ1. Asetek has a clear ambiꢀon to grow faster than the market by oﬀering a full porꢃolio of high-quality products based on an open ecosystem. 1 hꢄps://es.staꢀsta.com/outlook/amo/media/ games/gaming-hardware/worldwide 1 hꢄps://www.alliedmarketresearch.com/ gaming-simulators-market-A06821 2 hꢄps://www.dfcint.com/dfc-issues-2024-game- industry-outlook/ OUR STRATEGIC FRAMEWORK ANNUAL REPORT 2023 / Page 10 ASETEK´S APPROACH TO VALUE CREATION Asetek’s strategy is based on operaꢀonal excellence, innovaꢀve product development, superior customer service and expansion of the addressable market. In that way we will secure long-term sustainable organic growth. The goal is to be the leading brand in the markets in which we operate. The strategic framework at Asetek consists of core values, goals, strategic focus areas and operaꢀonal prioriꢀes. By adhering to our strategic framework, Asetek secures a strong plaꢃorm for long-term sustainable growth. Strategic focus areas Asetek will conꢀnue to do what we are best at – launching high-quality gaming hardware products and conꢀnue to develop our customer service. At the same ꢀme, we plan to expand our addressable market and increasing our markeꢀng and brand building eﬀorts. Addiꢀonally, we will also expand the number of SimSports resellers and compete for new OEM Liquid Cooling customers. All these acꢀons will drive organic growth going forward. STRATEGIC FRAMEWORK AT ASETEK CORE VALUES Innovaꢀon GOALS STRATEGIC FOCUS AREAS OPERATIONAL PRIORITIES Core values The core values at Asetek – innovaꢀon and excel- lence – are rooted in our DNA and have been our guidelines from the start. Asetek was founded almost 25 years ago with the intenꢀon of solving problems for our customers. Since then, we believe staying close to our customers’ problems also means being closer to the soluꢀon. Liquid Cooling Broadening addressable market Long-term growth ambiꢀon Strengthen Asetek’s market posiꢀon Operaꢀonal prioriꢀes SimSports Introducing new produt line Operaꢀonal excellence Customer centricity Short-term ﬁnancial goals Sustainability goals Establish new sales channels Asetek is a well-established brand name in the pre- mium market segment. We are guided by a strong belief that there are very good opportuniꢀes for growth by leveraging our current market posiꢀon and strong brand name. Strengthening our brand name Goals Looking ahead, Asetek has set both a long-term growth ambiꢀon and short term ﬁnancial goals. Asetek has also commiꢄed to set sustainability goals, which provides a pathway to reduce emis- sions in the future. On a group level, we are aiming for a long-term average annual revenue growth of 15 percent. Our market is characterized by low visi- bility and volaꢀle market dynamics meaning that the growth between diﬀerent years can vary substanꢀal- ly. That is why we also publish short-term ﬁnancial goals expressed as our guidance. In the short to medium term, our operaꢀonal prioriꢀes are to focus on expanding our potenꢀal market and revenues both within our Liquid cooling business unit as well as within SimSports. This will be accomplished by new product launches and by updaꢀng the exisꢀng product range, targeꢀng the low-end of the premium market. Doing this, we will strengthen Asetek’s market posiꢀon in all product categories and market segments. OUR BUSINESS MODEL EXPLAINED ANNUAL REPORT 2023 / Page 11 A GLOBAL PLATFORM SUPPORTING GROWTH Asetek’s leading posiꢀon is based mainly on the compeꢀꢀve strength that originates from the company’s operaꢀonal excellence in oﬀering high-quality gaming hardware products. During 20 years, Asetek has built up a wealth of experience that is unique among companies in our industry and is recognized for premium quality. A quality team is divided in two groups: one in Denmark and one in Xiamen. Their main focus is to conduct ongoing inspecꢀons to ensure control over all aspects of quality and compliance with a growing number of regulated parameters. Innovaꢀon and product development Product development is and always has been the main focus for Asetek. Since its incepꢀon, the com- pany has successfully launched innovaꢀve products with high quality. Asetek’s R&D team and technolo- gy lab are based in Aalborg, Denmark. These teams are responsible for innovaꢀon, concept and design of our products and also manage collaboraꢀon with Asetek’s global customer base to deﬁne require- ments and develop cuꢁng edge technology. We conꢀnuously try to keep our R&D teams close to the customers, which encourages faster, more respon- sive and eﬀecꢀve feedback for improvements to our exisꢀng product range as well as new developments. The Aalborg team works closely with the R&D team in Xiamen, China, to idenꢀfy the opꢀmal sources for the necessary components to fulﬁll speciﬁc custom- er requirements. Logisꢀcs and sales Finished products are primarily delivered directly to customer hubs in China, with smaller quanꢀꢀes shipped directly to Europe and USA. Logisꢀcs are oꢂen outsourced, and except our own webshop for SimSports products, our partners handle deliveries to end-users themselves. Liquid coolers are sold through two channels. The main sales channel is a white-label approach, meaning products are sold as a standalone product to partners who are in turn selling it under their la- bel. Asetek’s liquid coolers are also sold to partners using it as a component to build a complete PC, which is then sold to end-users. Regarding sale of SimSports products this is done either through our webshop directly to end-users or to resellers, selling both online and via physical stores to end-users. Sourcing and producꢀon Asetek’s manufacturing and logisꢀcs team in Xiamen, China, evaluates and sources components and suppliers for the ﬁnished product to be assembled, allowing us greater control over product quality. Our cooling soluꢀons are assembled by the company’s principal contract manufacturer based in Xiamen and from 2023, a likewise contract manufacturer produces many of our SimSports products. Asetek’s business model concentrates primarily on having contractual relaꢀonship with ꢀer-1 contract manufacturers. OUR BUSINESS MODEL EXPLAINED ANNUAL REPORT 2023 / Page 12 high-quality liquid cooling soluꢀons. As a conse- quence, our markeꢀng eﬀorts mainly focus on leveraging this posiꢀon and building the Asetek SimSports brand name. The overall markeꢀng strat- egy will beneﬁt both SimSports sales channels – cur- rently done through online reviews using inﬂuencers and strategic partnerships as well as presence on tradeshows and other key events. Delighted customers are our best ambassadors, and we know that they happily share their experience and trust in us. Our dedicated markeꢀng and sales teams are responsible for providing customer ser- vice and support, making it easier to establish closer relaꢀons to them. In the end it is our customers that can tell us how we can provide a premium customer- centric experience. Markeꢀng and customer service The sales, markeꢀng and product management teams, based principally in Denmark, USA and Taiwan, oversee customer relaꢀonships to facilitate communicaꢀon and development, ensuring that the developed product meets or exceeds customer demands. Considering our history and DNA, Asetek is in many ways synonymous to innovaꢀve and Xiamen • Product management • R&D • Sourcing • Outsourced manufacturing • Quality Aalborg Calgary • E-commerce • Sales • Product management • R&D and prototyping • Sourcing • Order management • Management • In-house manufacturing • Quality • Order management Taipei Silicon Valley • Branding and outbound • Sales • Product management markeꢀng • Sales • Finance • Management • Product management • Management Ausꢀn • Operaꢀons • Management Malaysia • Outsourced manufacturing • Quality Asetek oﬃces Asetek representaꢀon OEM HQ SimSports resellers LOGISTICS ANNUAL REPORT 2023 / Page 13 GLOBAL DEVELOPMENT CHALLENGES ASETEK’S LOGISTICS Establishing producꢀon in Malaysia and adding webshop hubs in Europe and the USA – ensures an agile supply chain. The world has not become a more peaceful place, and local and regional conﬂicts challenge global- ly-oriented tech companies like Asetek. Asetek pro- duces many components in the Far East, especially China, while selling its ﬁnished products worldwide, including high volumes sold in the USA. the Trans-Siberian freight train opꢀon is no longer available due to the Ukraine crisis. Then there is the issue of the USA’s tariﬀs on goods produced in China. Like most other tech companies, Asetek has a signiﬁcant porꢀon of its components manufactured in China. “Speciﬁcally, we have seen the freight cost for a container from the East ꢂuctuate wildly between $2,000 and $15,000 within a relaꢀvely short period. Likewise, the delivery ꢀme for components can now reach up to 400 days, where previously it was very stable at around 100 days. This makes it diﬃcult to price, to enter contracts, and to deliver when the customer needs it,” explains Janice Cheng, Asetek’s Logisꢀcs Supervisor in the company’s logisꢀcs de- partment in Xiamen, China. “Recently, Asetek has established addiꢀonal produc- ꢀon in Malaysia, where we manufacture, test and package our components principally for the USA. We also maintain an extra producꢀon line open for risk management purposes. It’s more expensive than producing everything in China but collecꢀvely much cheaper for the American market, when we factor in the saved American tariﬀ,” she explains. Finally, the company has opened two webshop hubs for its growing SimSports business: one primarily for the EU currently in Odense, Denmark, and one in Miami, Florida, for the American market. These geographical locaꢀons can be moved relaꢀvely quickly depending on where the highest volume customers are located. Packing and shipping to the Asian and Australian markets can now be done from the new producꢀon and packaging facility in Johor Bahru, Malaysia. The instability began in earnest with COVID-19. Suddenly there were no people to support docking and transport around the world’s ports, leading to signiﬁcant boꢄlenecks. These boꢄlenecks are sꢀll being addressed, as the war in Ukraine and the USA’s skepꢀcal approach to China complicate maꢄers. And then of course, the recent conﬂict in the Middle East has restricted transport through the Suez Canal, which is the most direct transport from the Far East to Europe. “Logisꢀcs are challenged but not impossible. Good thing we have such skilled and creaꢀve people on the task,” concludes Janice Cheng. “If the freight instead has to go all the way around Africa, it requires two addiꢀonal weeks of delivery ꢀme and consequently higher costs from extra wages, extra fuel,” explains Janice Cheng. Besides a very costly air freight alternaꢀve, she notes that A LEADING GAMING HARDWARE OFFERING ANNUAL REPORT 2023 / Page 14 LIQUID COOLING AND SIMSPORTS – AN ATTRACTIVE COMBINATION Our Liquid Cooling business has over the last 10 years generated total revenues of USD 519 million with an average annual adjusted EBITDA margin of 29%. This proﬁtable enterprise provides a robust ﬁnancial foundaꢀon for the growth strategy of our other key business, SimSports. Liquid cooling and SimSports sales channels The proﬁtable Liquid Cooling busniss enables us to execute on the growth opportuniꢀes in SimSports. It also also oﬀers a strong strategic ﬁt, enabling synergies between the two business segments and driving future value creaꢀon. Synergies include the potenꢀal to increase sales in the liquid cooler segment through new sales channels opened by SimSports, as well as bundle SimSports products with liquid coolers in sales to resellers. LIQUID COOLING AVERAGE ANNUAL ADJUSTED EBITDA MARGIN, LAST 10 YEARS ASETEK SIMSPORTS LIQUID COOLING White-label and own webshop main sales channels 29% Liquid coolers are sold through two channels. The main sales channel is a white-label approach, where OEM partners purchase and resell as standalone products under their own label. We also sell liquid coolers to partners who incorporate them as a key component to build a complete PC, which is then sold to end-users. White-label OEM partners Own webshop Resellers approach to partners Our main SimSports sales channel is our own webshop, where products are sold either directly to end-users or to resellers. Resellers is the other SimSports sales channel, oﬀering our products to end-users through both online and physical stores. End-users End-users LIQUID COOLING ANNUAL REPORT 2023 / Page 15 MARKET LEADER WITHIN PREMIUM LIQUID COOLING SOLUTIONS Asetek invented the all-in-one liquid cooler and has been solving thermal challenges ever since. Since the beginning, liquid coolers from Asetek have delivered high performance while providing superior reliability. Esꢀmated PC gamer hardware market in 2024, by region (billion USD) 12.5 NORTH AMERICA LATIN AMERICA Today, Asetek is a global leader in liquid cooling soluꢀons for computer hardware enthusiasts and gamers. Asetek’s Gaming and Enthusiast products are all-in-one coolers that provide reliable, mainte- nance-free liquid cooling to gaming and high-perfor- mance PC customers as well as eSports athletes to enjoy top-ꢀer performance from their equipment. Through the use of circulaꢀng liquid, which by nature is a much stronger heat capacitator than air, Asetek’s products provide signiﬁcantly higher cool- ing per consumed waꢄage than compeꢀng products based on air cooling. The gaming market is expanding and changing, making the deﬁniꢀon of a “gamer” more nuanced. While mobile dominates the gaming market, the revenue split across diﬀerent plaꢃorms does not always match the preferences of the core global gaming community. Most core gamers sꢀll prefer playing on PC and console as games are more im- mersive and complex, mainly explained by the fact that only PC/console games enable high-engage- ment and demanding more focus and dedicaꢀon from the gamer. However mobile games aꢄract more casual players who enjoy “ꢀme killer” games, not idenꢀfying themselves as “gamers”1. Huge market with stable growth 2,8 According to forecasts there are an esꢀmated 1.86 billion PC gamers worldwide, up from 1.55 billion PC gaming users ﬁve years ago2. Total revenue in the Gaming Hardware market (including PC, console and accessories) is projected to reach almost €150bn in 2024 and is expected to expand at an annual growth rate (CAGR) of almost 9% the coming ﬁve years3. Growth is mainly driven by consumer demand for high-performing gaming hardware which enhance gaming experiences. An addiꢀonal growth driver is the strong rise of eSports – which has emerged as a global phenomenon in just a few years, aꢄracꢀng mil- lions of viewers and generaꢀng substanꢀal revenue. 16,7 WESTERN EUROPE EASTERN EUROPE / MENA CHINA 14,3 15 16,4 ASIA / RoW 10,9 0 5 10 20 Source: DFC Intelligence, hꢄps://www.dfcint.com/pc-gamer-hardware-spending-2024-by-region/ Why is liquid cooling beꢃer than air cooling? LIQUID COOLING REVENUE 2023 Air cooling systems use a fan and heat sink to move heat away from the CPU. A liquid cool- ing system uses a water pump and radiator to move heat away from the CPU. The main advantages of liquid cooling compared to air cooling are: What is liquid cooling? Liquid cooling is a system used to lower the temperature of a computer or other elec- tronic device by circulaꢀng a coolant through its internal components. The coolant, which is usually water or a water-based soluꢀon, absorbs heat from the PC and carries it away, keeping the PC cooler than if it were relying on air cooling alone. $69.0 million 1. Liquid cooling is more eﬃcient at removing heat from components than air cooling 2. Liquid cooling is not aﬀected by dust build- up or other air ﬂow obstrucꢀons 3. Liquid cooling is typically quieter than the fans used for air cooling 1 hꢄps://www.bcg.com/publicaꢀons/2023/drivers-of-global-gaming-industry-growth 2 hꢄps://www.staꢀsta.com/staꢀsꢀcs/420621/number-of-pc-gamers/ 3 hꢄps://es.staꢀsta.com/outlook/amo/media/games/gaming-hardware/worldwide SIMSPORTS ANNUAL REPORT 2023 / Page 16 ASETEK SIMSPORTS – A LEADING OFFERING IN A FAST GROWING MARKET In 2021, Asetek introduced its ﬁrst line of sim racing products. In 2023, revenue in the SimSports business segment rose by almost 400% compared to 2022. Growth was mainly driven by a combinaꢀon of mulꢀple new products and a strong increase in new end-users and resellers globally. Products for every type of Sim racer The La Prima Product line is our entry-level soluꢀon, which is possible to upgrade and adjust to ﬁt all needs. The Forte Product Line is the mid-ꢀer oﬀer- ing, for end-users that want to maintain high quality in build and design combined with sublime perfor- mance and user experience. Invicta is our premium product line, oﬀering an immersive and authenꢀc sim racing experience. From the start in 2021, Asetek has posiꢀoned the SimSports product oﬀering in the high-end of the market, targeꢀng compeꢀꢀve and commiꢄed gam- ers as well as racing and automobile enthusiasts. Asetek’s mission is to make high-quality sim racing products available for everyone, which is why we have three diﬀerent product lines ranging from en- try-level to high-end, giving end-users the opportu- nity to assemble the preferred sim racing setup. What is sim racing? Simulator games enable players to experi- ence situaꢀons and scenarios in great details and recreate real-world situaꢀons. Sim racing (simulaꢀon racing) is basically motorsport in a virtual environment. This means that sim racers are driving virtual cars on comput- er-generated tracks. The sim racing games are designed to mimic the feeling of driving a real car as closely as possible, and the racing is done using specialized soꢂware and hardware. The hardware sim racers use plays a crucial role to enhance the realism and overall driving experience. Strong growth opportunity Gaming simulaꢀon is a very fast growing segment in the gaming hardware market, with a projected annual growth rate (CAGR) exceeding 15% the coming 6 yearst. Asetek has a clear ambiꢀon to grow considerably faster than the market by oﬀering a full porꢃolio of high-quality products based on an open ecosystem. SIMSPORTS REVENUE 2023 Learn all sim racing terms $7.2 There are a lot of technical terms in sim rac- ing, and motorsports in general. At Asetek’s webpage, you will ﬁnd a glossary where you are introduced to the most important racing terms, in order to beꢄer understand both sim racing and motorsports. million hꢄps://www.asetek.com/blogs/glossa- ry-sim-racing-and-motorsports-terms/ 1 hꢄps://www.alliedmarketresearch.com/gaming-simulators-market-A06821 SIMSPORTS ANNUAL REPORT 2023 / Page 17 NEW SIMSPORTS DIVISION SHOWS STRONG PROGRESS With almost 40 product launches in 2023, Asetek moved much closer to delivering an enꢀre suite of products for the simracing universe. Asetek SimSports has progressed nicely as a result of product manager Niels Mortensen’s leadership. One and a half years ago, Niels was enꢀced to join Asetek aꢂer winding down his co-ownership of a small toy development company that had achieved success with online sales. the best wheelbase in 2023 by one of the most important reviewers of simulator equipment. By starꢀng with high-end products, Asetek has created a brand value based on high quality and impressive features. Asetek expects to apply these values to other customer and product segments in the future. “Asetek saw an idea in hiring me as a kind of coordinator with my unique background as a former owner-manager who had experience with design, producꢀon and online sales, and was also a car and motorsports enthusiast,” explains Niels. Within the Asetek organizaꢀon he serves as a strategic link between diﬀerent departments. He oversees the product strategy, development pace, and market development. The goals are ambiꢀous, and the pace is fast. “Our products give consumers a unique feeling of driving a real race car, and it feeds the dream of being a real racer. For a fracꢀon of the price of parꢀcipaꢀng in just a single training day on a real track, or for the cost of just a single set of ꢀres, they can now train the enꢀre season, and even several subsequent sea- sons, at home with our equipment,” explains Niels Mortensen. In 2023, Niels contributed to execuꢀng and generaꢀng sales with close to 40 product launches under Asetek’s three product lines for discerning customers worldwide: Invicta, Forte, and La Prima. Asetek’s Simsports products make a bold state- ment by oﬀering users the most realisꢀc simulaꢀon of driving a real race car with steering wheels and pedals born out of hands-on (and feet-on...) experiences from motorsport. While not necessar- ily oﬀering the most cushy gaming experience for those who just want to comfortably game at home on the couch, Asetek’s real racecar feel has truly been a success in the market, and several of the world’s real racing sports pracꢀꢀoners have increas- ingly embraced it with enthusiasm. Simultaneously, the products have taken reviewers by storm, as the Invicta wheelbase (the system’s heart) was named The products are so realisꢀc that racecar drivers use them as training tools. This market approach has created a series of genuine and fantasꢀc racing sports ambassadors for Asetek. Professional racers uꢀlizing Asetek gear can inspire their thousands of fans and motorsports enthusiasts. “Steering wheels are so personal for each racer that it would be impossible to create only a few steering wheels for universal use by everyone. Instead, the company is taking a diﬀerent, less compromising route: Asetek is the ﬁrst and only supplier to deliver a simple quick release adapter that makes it possible, with integrated electronics and interface, to mount most of the exisꢀng steering wheels from other man- ufacturers on our wheelbase and thus integrate them into our ecosystem.” A meaningful steering wheel soluꢀon Today, Asetek oﬀers nearly all necessary compo- nents required for gamers to build a complete racer simulator, tailored to the user’s own desires down to the very small details. Asetek oﬀers pedal sets in six variants, four diﬀerent wheelbases, ﬁve steering wheels and accessories for all categories. “Our iniꢀal collaboraꢀon with Formula 1 driver Kevin Magnussen provided both excellent racer input and jumpstarted public awareness of Asetek SimSports. Our engineers obtain excellent feedback from our own racer, Valdemar Eriksen, and we receive priceless word-of-mouth markeꢀng that is spreading through the racing environment,” tells Niels Mortensen. Of these products, the steering wheel is the most specialized, and Asetek has so far produced 2 popular models in several variants and has a 3rd wheel with an integrated display on the way. However, the company anꢀcipates that it won’t be able to meet all of the many individual needs for steering wheels – interest- ingly, this may actually be one of Asetek’s virtues. Niels Mortensen outlines the steering wheel strategy: This approach of opening up to diﬀerent products helps Asetek ensure a central market posiꢀon across other products. SHARE PRICE DEVELOPMENT AND TURNOVER ANNUAL REPORT 2023 / Page 18 ASETEK SHARES TO BE LISTED ONLY ON NASDAQ COPENHAGEN FROM MARCH 2024 In 2023, the Asetek share was successfully listed on the Nasdaq Copenhagen. As a consequence of this, Oslo Stock Exchange (Oslo Børs) approved the de-lisꢀng of Asetek in December 2023. Last day of trading of Asetek shares on Oslo Stock Exchange will be 26 March, 2024. price quoted during the ﬁnancial year of 2023 on Oslo Stock Exchange was NOK 11.20 (August 11) and the lowest price was NOK 2.48 (March 30). In 2023, the total turnover of Asetek shares traded on all marketplaces amounted to 146.4 million shares, corresponding to 149 percent of the total number of shares at December 31, 2023. meeꢀngs and during visits to Asetek oﬃces. Inter- ested parꢀes can download presentaꢀon materials and listen to audio recordings from presentaꢀons of quarterly reports on Asetek’s website. Financial informaꢀon regarding Asetek is avail- able to download from hꢄps://ir.asetek.com/over- view/default.aspx. This includes ﬁnancial reports, press releases and other presentaꢀons. The compa- ny’s press releases are distributed via Cision and are also available on the company’s website. Rights issue and move to Nasdaq Copenhagen In May 2023, Asetek raised net proceeds of 16.1 million USD in a fully underwriꢄen rights issue of 71,166,667 new shares at a subscripꢀon price of NOK 3 per share. Since the company’s IPO on February 11, 2013, the Asetek share had been listed on the Oslo Stock Exchange. On May 17, 2023, the share was dual-list- ed on NASDAQ and Asetek announced the intenꢀon to delist its shares from Oslo Stock Exchange. In December 2023, an extraordinarily general meeꢀng approved the de-lisꢀng of Asetek’s shares, followed by an approval from Oslo Stock Exchange in the same month. As an eﬀect of both approvals, Asetek shares will be de-listed from Oslo Stock Exchange with eﬀect from March 26, 2024. Capital Concentraꢀon Shares 32,208,033 40,154,145 44,058,657 and votes The 10 largest owners 32.76% 41.68% 46.48% The 20 largest owners The 30 largest owners Share capital On December 31, 2023, the share capital in Asetek amounted to DKK 9,831,389.20 divided into 98,313,892 shares with a nominal value of DKK 0.10. All shares are of the same class and the same share of capital and earnings. Each share enꢀtles the holder to one vote at the General Meeꢀng and each shareholder is enꢀtled to vote for all shares held by the shareholder. Share repurschases In 2023, no shares were repurchased. As of December 31, 2023, Asetek holds a total of 1,256,115 treasury shares. Financial calendar 2024 April 30, 2024 Q1 2024 ﬁnancial report Annual General Meeꢀng Q2 2024 ﬁnancial report Q3 2024 ﬁnancial report April 30, 2024 Investor Relaꢀons (IR) at Asetek August 13, 2024 November 7, 2024 March 7, 2025 Aseteks’ goal is that the company should be valued on the basis of relevant, correct and current informaꢀon. This involves a clear ﬁnancial commu- nicaꢀon strategy, reliable informaꢀon and regular contact with various stakeholders in the ﬁnancial markets. The management and Board of Directors of Asetek have a clear ambiꢀon to keep an ongoing dialog with the media and the capital market. This takes place through presentaꢀons of quarterly reports and meeꢀngs with analysts, investors and the media at various events, seminars, one-on-one Share price development and turnover Q4 and annual 2024 ﬁnancial report Ownership structure The Asetek share trades under the symbol ASTK on both Nasdaq Copenhagen and the Oslo Stock Exchange. The share’s ISIN code is DK0060477263 (Technology: Computer Hardware), segment Small Cap. At the close of 2023, Asetek’s share price was NOK 5.80 in Oslo and DKK 3.90 in Nasdaq Copenha- gen. This is equivalent to a market capitalizaꢀon of NOK 570.2 million (DKK 383.4 million). The highest At the end of 2023, the ten largest shareholders con- trolled 32.76 percent of the capital and votes. Board members and execuꢀve management held a total of 4.2 percent of the capital and votes. Other members of management held an addiꢀonal 1.09 percent of the capital and votes. The total number of share- holders in Asetek was 5,362 at December 31, 2023. Shareholder contact Per Anders Nyman, Head of Investor Relaꢀons Mobile: +45 2566 6869 investor.relaꢀ[email protected] ASETEK SHARE AND OUR SHAREHOLDERS ANNUAL REPORT 2023 / Page 19 Shareholding distribuꢀon Holding size Owner type distribuꢀon Shares 1,011,962 3,270,488 2,768,421 11,425,012 9,011,494 5,506,149 16,523,186 7,028,893 11,844,051 29,924,236 98,313,892 Capital and votes 1.03% Private Individuals 20.7% Fund company 15.5% Other 13.5% Pension & Insurance 13.2% Investment & PE 1.6% Treasury Shares 1.3% Unknown owner type 34.3% 1 –1,000 1,001–5,000 3.33% 5,001–10,000 2.82% 10,001–100,000 100,001–500,000 500,001–1,000,000 1,000,001–5,000,000 5,000,001–10,000,000 10,000,001– 11.75% 11.10% 5.60% Source: Monitor by Modular Finance AB. 16.81% 7.15% 12.05% 28.37% 100.00% Foreign ownership Unknown holding size Total Source: Monitor by Modular Finance AB. Foreign ownership 42.5% Danish ownership 54.5% Norwegian ownership 3.0% Source: Monitor by Modular Finance AB. Share price development 2023 NOK 12 Volume per market 10 8 Aquis 0.7% Cboe Global Markets 11.6% Euronext 43.6% ITG 0.2% 6 LSE Group 1.8% Nasdaq 42.1% Sigma-X 0.04% 4 2 Source: Monitor by Modular Finance AB. 0 Jan 23 Feb23 Mar23 Apr23 May23 Jun23 Jul23 Aug23 Sep23 Oct23 Nov23 Dec23 Source: Monitor by Modular Finance AB. LISTING AT NASDAQ COPENHAGEN ANNUAL REPORT 2023 / Page 20 MOVING ASETEK’S SHARE TO NASDAQ COPENHAGEN WAS A SUCCESS The lisꢀng in Copenhagen provided both the expected proceeds from the simultaneous capital increase and created more trading in the share. “Moving the share lisꢀng to Copenhagen speciﬁcally aimed to bring us closer to Danish insꢀtuꢀonal and private investors and strengthen our posiꢀon in terms of delivering on our long-term ambiꢀons for growth and value creaꢀon. Although Asetek is globally ori- ented, its principal shareholder base is Danish. Thus, it makes most sense today that the share is listed in Copenhagen. This change also eliminates the foreign currency risk for Danish shareholders.” On May 17th last year, a signiﬁcant ﬁnancial event occurred for Asetek when the share was listed on NASDAQ Copenhagen. Since the company’s IPO in 2013, Asetek share had been listed on the Oslo Stock Exchange. “Asetek was iniꢀally listed in Norway, where it made sense in the ﬁnancial environment at the ꢀme. Since then, both Asetek and the condiꢀons at the stock exchange in Copenhagen have changed, making a lisꢀng in Copenhagen increasingly relevant. And since we conducted a capital increase, noꢀng that we are a Danish company, we found the ꢀming appropriate to make the change,” says Asetek’s CEO, André Sloth Eriksen. From Garage to Headquarters André Sloth Eriksen founded Asetek over 20 years ago with the invenꢀon of VapoChill, the precursor to the all-in-one water cooler. It happened in his parents’ garage in Brønderslev, 40 km north of Aal- borg. The company has since grown and expanded its physical presence in Denmark, while evolving into a global leader in mechatronic innovaꢀon, delivering products based on passion, precision, and performance. And now, further expansion to a new global headquarters will take place later in 2024. The capital increase in 2023 generated the expected net proceeds of 16.1 million US dollars, helping to ﬁnance the new facility. As expected, the move turned out to be complex, though well-prepared. The legal systems of two countries and two stock exchanges – four sets of rules had to be considered. The switch required a lot of documentaꢀon work and also an extended transiꢀon period to March 2024 – during when the company have a temporary dual lisꢀng in both Oslo and Copenhagen. Today, Asetek technology cools the CPUs and GPUs in advanced gaming PCs from global brands like Dell Alienware and is incorporated into the oﬀerings from enthusiast PC equipment providers such as ASUS and NZXT. The sim racing product line reﬂects the merging of mechatronic competencies and the company’s deep knowledge of the gaming market. The products have received enthusiasꢀc feedback from the global sim racing audience. “Today, we can happily state that the decision has been a success. Many shareholders have transferred their shares, and at the same ꢀme, we can see that trading volumes and interest in the share, as expect- ed, has increased,” explains Asetek CFO, Peter Dam Madsen, who has been overall responsible for the successful process at Asetek. He conꢀnues: NEW HEADQUARTERS AND R&D CENTER ANNUAL REPORT 2023 / Page 21 NEW DOMICILE SUPPORTS CREATIVITY The construcꢀon is nearly complete, and Asetek’s team in Aalborg is eagerly anꢀcipaꢀng their move into the architectural and engineering gem that, beginning this fall, will become Asetek’s new prom- inent headquarters on the southern outskirts of Aalborg. It is conveniently located close to the E45 motorway and the rest of the world. Center will provide an experience that can both in- spire our team and hopefully also help aꢃract future top-ꢀer employees,” explains Asetek CEO André Sloth Eriksen. There’s an increasingly pressing need for more square footage at the current headquarters in Aalborg. Asetek’s home since 2013, it requires ever greater agility to navigate among the many desks and workstaꢀons that have gradually been squeezed together. The new headquarters, which was put on the drawing board in 2020, is designed and built to accommodate the planned future growth of Asetek. With extra room to spare for a larger organizaꢀon, the current employees will enjoy plenty of space on the 14,000 square meters, 20 percent of which have been leased to other businesses unꢀl Asetek grows into it. The building is designed by the internaꢀonally renowned Danish architectural ﬁrm Arkitema, which has expressively drawn inspiraꢀon from Asetek’s DNA. “The facade’s many verꢀcal lines resemble cooling grilles, which characterize some of Asetek’s core products,” the architectural ﬁrm notes. The domicile is being constructed by TL Byg with addi- ꢀonal engineering assistance from Cowi. Asetek’s management is excited about the signiﬁ- cant and soon-to-be-ready headquarters: “We are convinced that an opꢀmal environment for our employees leads to the best and most crea- ꢀve work process and, ulꢀmately, the best results. Our product engineers will have ample space for technology development, including fully equipped laboratories and photo studios. The basement of the new domicile will be ideal for an acꢀve state-of- the-art Asetek Simsports academy, uꢀlizing our own products. Our new headquarters and Development The move is expected in the third quarter of 2024. XXXXX ANNUAL REPORT 2023 / Page 22 MANAGEMENT REPORT Management report Corporate Governance Risk management 23 25 30 33 34 Corporate Social Responsibility Five year summary MANAGEMENT REPORT ASETEK Annual Report 2023 / Page 23 MANAGEMENT REPORT mix, reduced costs and favorable exchange rates. 2023 ($3.4 million in 2022). Share-based compen- saꢀon cost associated with warrants and opꢀons issued to employees was $0.5 million in 2023 ($0.4 million in 2022). Adjusted EBITDA was $15.9 million in 2023, compared with $0.8 million loss in 2022. Adjusted EBITDA in 2023 represents operaꢀng income of $9.4 million, plus depreciaꢀon of $5.1 million, plus share-based compensaꢀon of $0.5 million, plus one-ꢀme cost of $0.8 million associated with dual lisꢀng on Nasdaq Copenhagen. As a result of the operaꢀng income, income tax expense was $2.5 million in 2023, compared with $1.6 million beneﬁt in 2022. Income tax expense in 2023 includes $0.8 million associated with the U.S. Global Intangible Low-Taxed Income (GILTI) inclusion, which requires U.S. companies to report foreign corporaꢀon intangible income that exceeds 10% return on foreign invested assets. Asetek had a total comprehensive income of $6.7 million for 2023, compared with total compre- hensive loss of $6.3 million in 2022. Comprehensive income included a posiꢀve $0.7 million translaꢀon adjustment in 2023 (negaꢀve $2.0 million in 2022). PERFORMANCE IN 2023 In 2023, total operaꢀng expense decreased by 3% to $25.3 million, from $26.2 million in 2022. Operaꢀng expense in 2023 included net one-ꢀme charges of $0.8 million associated with the Company’s dual lisꢀng on Nasdaq Copenhagen in May 2023. The change in operaꢀng expense was principally due to reduced legal costs associated with intellectual property defense and reduced personnel costs. Personnel expense decreased 3% in 2023 com- pared with 2022. Legal cost incurred associated with intellectual property seꢄlements, defense of exisꢀng IP and securing new IP was $0.2 million in Proﬁt and loss Total revenue for 2023 was $76.3 million, represent- ing an increase of 51% from 2022 ($50.7 million). Sealed loop cooling unit shipments for 2023 totaled 1.17 million compared with 0.8 million in 2022. Rev- enue and unit shipment changes reﬂect increased shipments of liquid cooling products. Average Sell- ing Prices (ASP) for liquid coolers in 2023 increased to $59.29 from $56.21 in 2022. Foreign currency transacꢀons in 2023 resulted in a $1.0 million loss ($0.3 million loss in 2022). Gross margin was 45.5% in 2023 compared with 41.0% in 2022. The change reﬂects a richer product MANAGEMENT REPORT ASETEK Annual Report 2023 / Page 24 Balance sheet other liquidity needs, management will consider oﬀerings of debt, equity, or a combinaꢀon thereof, depending on the cost of capital and the status of ﬁnancial markets at that ꢀme. 5% compared with 2023. The Group 2024 revenue outlook is derived from expected revenue develop- ment in the Liquid Cooling segment in the range of -10% to 0%, and for the SimSports segment revenue growth in the range of 40% to 60% compared with 2023. Adjusted EBITDA margin for the Group is expected to be in the range of 12% to 17%. assets under development associated with future products decreased by $0.8 million from 2022. Cash provided by ﬁnancing acꢀviꢀes was $12.3 million in 2023 compared with $18.3 million provid- ed in 2022. In May 2023, Asetek issued 71.2 million new common shares in a rights oﬀering, raising net proceeds of $16.1 million. This was partly oﬀset by $2.9 million of net payments on lines of credit associated with construcꢀon of a new development center and HQ facility ($18.6 million addiꢀons to lines of credit in 2022). Net increase in cash and cash equivalents was $1.7 million in 2023, compared with decrease of $15.9 million in 2021. Cash and cash equivalents at December 31, 2023 was $9.1 million ($7.4 million in 2022). Asetek’s total assets at December 31, 2023 were $102.7 million, compared with $78.6 million at the end of 2022. The principal factors aﬀecꢀng the change were as follows: Property, plant and equip- ment increased by $22.8 million as a result of build- ing construcꢀon for a future development center and headquarters facility; Inventory increased by $2.1 million due to increased investment to support higher sales volumes; Trade receivables increased by $1.8 million due to higher sales in the fourth quarter of 2023 compared with the same period of 2022. These increases were partly oﬀset by uꢀlizaꢀon of deferred tax assets and other receivables. Total liabiliꢀes increased by $0.7 million in 2023, due to oﬀseꢁng factors. Short-term debt decreased by $4.2 million and long-term debt increased by $0.9 million as a result of reﬁnanc- ing and principal payments on lines of credit. Trade payables increased by $3.9 million due to increased producꢀon volumes and conꢀnued pro- acꢀve management of vendors. 2023 RESULTS vs. EXPECTATIONS In the 2022 report, the Company communicated expectaꢀons of revenue growth between 5% to 15% for 2023, with expected operaꢀng income of between $2 and $4 million. During 2023, consumer demand exhibited more strength than originally expected, and the economy generally stabilized. As a result, the Company updated its outlook a few ꢀmes during the year, increasing its expectaꢀons for revenue and operaꢀng income. The Company’s last outlook provided in the Q3 2023 earnings release esꢀmated revenue growth of 40% to 45% and op- eraꢀng income of $8 to $9 million for 2023. Due to sustained consumer demand at the end of 2023, the Company’s actual results reﬂected revenue growth of 51% and operaꢀng income of $9.4 million, which exceeded management’s expectaꢀons. Liquidity and ﬁnancing In 2023, the Company had operaꢀng income of $9.4 million and as of December 31, 2023, has working capital of negaꢀve $3.2 million and non-current liabiliꢀes of $2.6 million. Working capital (current assets minus cur- rent liabiliꢀes) totaled negaꢀve $3.2 million at December 31, 2023 (negaꢀve $6.3 million in 2022). The change reﬂects improved operaꢀng cash ﬂow during 2023. Included in current liabiliꢀes is $14.7 million of debt related to faciliꢀes construcꢀon, which was subsequently reﬁnanced in January 2024 to be due and payable January 1, 2025. At that ꢀme, the Company expects to convert the loan to a long-term mortgage. In May 2023, the Company issued 71.2 million new common shares in a rights oﬀering, raising net proceeds of $16.1 million. While there is no assurance that the Company will generate suﬃcient revenue or operaꢀng prof- its in the future, Asetek’s management esꢀmate that the Company’s cash posiꢀon and the liquidity available from its operaꢀons, external borrowings and other sources currently available is suﬃcient to saꢀsfy its working capital requirements for the foreseeable future, based on ﬁnancial forecasts. To the extent necessary to fund expansion or EXPECTATIONS FOR 2024 The macro-economic environment in the beginning of 2024 is conꢀnuing to show signs of improvement, although the picture is mixed in diﬀerent regions. Geo-poliꢀcal tensions are sꢀll causing some market volaꢀlity and uncertainty, somewhat dampening discreꢀonary consumer spending. Statement of cash ꢂows Net cash provided by operaꢀng acꢀviꢀes was $16.3 million in 2023 ($8.4 million used in 2022). The change was principally due to net income generated in 2023 resulꢀng in increased cash receipts from higher revenue. Cash used by invesꢀng acꢀviꢀes was $27.4 million compared with $25.4 million used in 2022. Investment in construcꢀon of a future develop- ment center and headquarters facility conꢀnued in 2023, with addiꢀons totaling $22.8 million ($19.7 million invested in 2022). Addiꢀons to capitalized As stated in previous years, future revenue visi- bility remains low. In the laꢄer part of 2023, strong demand from major OEM customers reﬂected their build-up of inventory levels. The higher inventory levels heading into 2024 are resulꢀng in soꢂer de- mand for Asetek products, with indicaꢀons poinꢀng to more normalized inventory levels and customer demand in the second half of 2024. Considering the above factors, revenue development for 2024 at the Group level is expected to be in the range of -5% to CORPORATE GOVERNANCE ASETEK Annual Report 2023 / Page 25 CORPORATE GOVERNANCE The objecꢀve of corporate governance is to ensure that Asetek is managed as eﬃciently as possible in order to create shareholder value. This is achieved through a clear division of responsibiliꢀes be- tween the Annual General Meeꢀng, the Board and the execuꢀve management, as well as through clear regulaꢀons and transparent processes. ments, interim management statements, interim reports and annual reports as well as other news via e-mail. Company’s policies and procedures to ensure that the Group is managed in accordance with good cor- porate governance principles, upholding high ethics. The Company’s business plan, strategy and risks are regularly reviewed and evaluated by the Board. The Board Members are free to consult the Company’s senior execuꢀves as needed. Ordinarily, the Chairman of the Board proposes the agenda for each Board meeꢀng. Besides the Board Members, Board meeꢀngs are aꢄended by the Execuꢀve Board. Other parꢀcipants are summoned as needed. The Board approves decisions of parꢀcular impor- tance to the Company including the strategies and strategic plans, the approval of signiﬁcant invest- ments, and the approval of business acquisiꢀons and disposals. The general meeꢀng Financial reporꢀng The General Meeꢀng has the ﬁnal authority over the Company. The Board of Directors emphasize that shareholders are given detailed informaꢀon and an adequate basis for the decisions to be made by the General Meeꢀng. The General Meeꢀng elects the Board of Direc- tors, which currently consists of ﬁve members. The board members are elected for one year at a ꢀme with the opꢀon for re-elecꢀon. The Board of Directors receives regular ﬁnancial reports on the Company’s business and ﬁnancial status. Framework for corporate governance In this process, Asetek uses the corporate govern- ance recommendaꢀons from Nasdaq Copenhagen as an important source of inspiraꢀon. The recom- mendaꢀons can be found at: hꢄp://www.nasdaqomx.com/lisꢀng/europe/surveil- lance/copenhagen/corporategovernance The Board of Directors is fundamentally in full agreement with Danish Commiꢄee on Corporate Governance recommendaꢀons for good company governance. Asetek endeavors to follow the relevant recommendaꢀons for the Company, which support the business and ensure value for the Company’s stakeholders. The statutory report on Corporate Governance, cf. secꢀon 107b of the Danish Financial Statements Act, is available on the Company’s website: hꢄps://ir.asetek.com/Corporate-Govern- ance-Statement-2023/ Noꢀﬁcaꢀon of meeꢀngs and discussion of items The Board schedules regular meeꢀngs each year. Ordinarily, the Board meets eight to ten ꢀmes a year, of which four are quarterly update telecon- ferences. The meeꢀngs are typically conducted at either the facility in Aalborg, Denmark or via telephone. Addiꢀonal meeꢀngs may be convened on an ad hoc basis. All Board members receive regular informaꢀon about the Company’s operaꢀonal and ﬁnancial pro- gress in advance of the scheduled Board meeꢀngs. The Board members also regularly receive oper- aꢀons reports and parꢀcipate in strategy reviews. Amendment of Arꢀcles of Associaꢀon Conꢂicts of interest Unless otherwise required by the Danish Companies Act, resoluꢀons to amend the Arꢀcles of Associaꢀon must be approved by at least 2/3 of the votes cast as well as at least 2/3 of the voꢀng share capital represented at the General Meeꢀng. In a situaꢀon involving a member of the Board personally, this member will exclude him or herself from the discussions and voꢀng on the issue. Use of Commiꢃees Currently, the Company has a Nominaꢀon Commiꢄee, an Audit Commiꢄee and a Compensaꢀon Commiꢄee. Board responsibiliꢀes The Board of Directors’ main tasks include parꢀci- paꢀng in, developing, and adopꢀng the Company’s strategy, performing the relevant control funcꢀons and serving as an advisory body for the execuꢀve management. The Board reviews and adopts the Company’s plans and budgets. Items of major strategic or ﬁnancial importance for the Company are items processed by the Board. The Board is responsible for hiring the CEO and deﬁning his or her work instrucꢀons as well as seꢁng of his or her compensaꢀon. The Board periodically reviews the Danish Recommendaꢀon for Corporate Governance 2023 2022 Parꢀcipaꢀon: Communicaꢀon between the Company and its shareholders Complies with 38 2 38 2 The communicaꢀon between Asetek and sharehold- ers primarily takes place at the Company’s Annual General Meeꢀng and via company announcements. Asetek shareholders are encouraged to subscribe to the e-mail service to receive company announce- recommendaꢀons Explanaꢀon provided CORPORATE GOVERNANCE ASETEK Annual Report 2023 / Page 26 // The Nominaꢀon Commiꢄee is elected directly by the General Meeꢀng. The Commiꢄee consists of three members and must be independent from the Board of Directors and the management, however, it is recommended that the chairman of the Board of Directors is a member. The tasks include proposing candidates for the Board of Directors, propose remuneraꢀon for the Board of Directors as well as perform the annual assessment of the Board of Directors. Members: Ib Sønderby (chairman), Claus Berner Møller and René Svendsen-Tune. Compensaꢀon Name Elected 2023 2019 2019 2019 2022 2012 Independent Share holdings 241,842 145,267 164,171 39,685 Board meeꢀngs 6/6 commiꢁee Audit commiꢁee René Svendsen-Tune1 Erik Damsgaard Jukka Pertola Yes Yes Yes Yes Yes Yes 6/6 - - 4/4 - 12/12 12/12 12/12 12/12 6/6 8/8 - Maria Hjorth 4/4 - Maja Sand-Grimnitz Jørgen Schmidt2 53,583 - 2/2 - 1) Joined board 9 May, 2023. Aꢄended all meeꢀngs since joining 2) Aꢄended all meeꢀngs through term, which ended 9 May, 2023 Nominaꢀon commiꢃee meeꢀngs Meeꢀngs held during the year: 4 Parꢀcipaꢀon: The Board’s self-evaluaꢀon Internal audit Ib Sønderby (chair) (independent) Claus Berner Møller (independent) 100% 100% N/A The Board’s composiꢀon, competencies, work- ing methods and interacꢀon are discussed on an ongoing basis and evaluated formally on an annual basis. In this connecꢀon, the Board also evaluates its eﬀorts in terms of corporate governance. The need for an internal audit funcꢀon is considered regularly by the Audit Commiꢄee. However, due to the size of the Company and the established control acꢀviꢀes, the Audit Commiꢄee so far considers it unnecessary to establish an independent internal execuꢀve audit board. As part of risk management, Asetek has a whistle-blower funcꢀon for expedient and conﬁdenꢀal noꢀﬁcaꢀon of possible or suspect- ed wrongdoing. René Svendsen-Tune joined board May 9, 2023, no meeꢀngs held since he joined. Jukka Pertola (aꢄended all four meeꢀngs 100% during commiꢄee term which ended May 9, 2023 The composiꢀon of the Board is considered appropriate in terms of professional experience and relevant special competences to perform the tasks of the Board of Directors. The Board of Directors conꢀnuously assesses whether the competencies and experꢀse of members need to be updated. All of the members are independent persons, and none of the Board members parꢀcipates in the day-to-day operaꢀon of the Company. At the 2023 Ordinary General Meeꢀng on May 9, 2023, Mr. René Svend- sen-Tune was elected to the Board, receiving 99% of the votes cast. Mr. Svendsen-Tune was elected Chairman of the Board by the Board of Directors on May 9, 2023. // The Audit Commiꢄee is elected among the mem- bers of the Board of Directors and has responsibili- ꢀes related to ﬁnancial reporꢀng, the independent auditor, internal reporꢀng and risk management, in- cluding cybersecurity risks. The Commiꢄee consists of at least two shareholder elected Board members. Members: Maria Hjorth (chair), Erik Damsgaard. // The Compensaꢀon Commiꢄee has responsi- biliꢀes related to developing proposals for the applicable remuneraꢀon policy and remuneraꢀon of the Management Board. Members: Jukka Pertola (chairman) and René Svendsen-Tune. Risk management Refer to the Risk Management secꢀon of the Man- agement Report as well as Note 3 of the consolidat- ed ﬁnancial statements. CORPORATE GOVERNANCE ASETEK Annual Report 2023 / Page 27 BOARD OF DIRECTORS SHARE AUTHORIZATION Meeꢀng Date April 23, 2014 August 12, 2014 August 11, 2015 April 29, 2016 April 25, 2017 July 7, 2017 Meeꢀng Type Board Acꢀon Shares 118,210 32,970 Nominal Value Price NOK40.10 NOK33.90 NOK10.50 NOK19.50 NOK76.25 NOK113.00 Board issues warrants to employees and Board members Board issues warrants to employees and Board members Board issues warrants to employees and Board members Board issues warrants to employees and Board members Board issues warrants to employees and Board members Board issues warrants to employees DKK 0.10/share DKK 0.10/share DKK 0.10/share DKK 0.10/share DKK 0.10/share DKK 0.10/share Board Board 700,000 600,000 509,687 106,999 Board Board Board April 25, 2018 October 31, 2018 General Board Board authorized to acquire the Company's own shares Board introduces employee stock opꢀon program to replace warrant program and issues opꢀons to employees 378,500 494,900 DKK 0.10/share DKK 0.10/share NOK46.30 NOK24.70 April 10, 2019 September 8, 2019 April 22, 2020 April 23, 2020 April 21, 2021 April 22, 2021 April 28, 2022 September 7, 2022 March 8, 2023 May 9, 2023 General Board Board authorized to acquire the Company's own shares Board issues opꢀons to employees General Board Board authorized to acquire the Company's own shares Board issues opꢀons to employees 320,300 216,300 DKK 0.10/share DKK 0.10/share NOK38.33 Board Board issues opꢀons to employees NOK100.15 General General Board Board authorized to acquire the Company's own shares Board authorized to acquire the Company's own shares Board issues opꢀons to employees 376,500 DKK 0.10/share DKK 0.10/share NOK15.04 NOK3.00 Board Board authorized capital increase to raise DKK140 million in fully underwriꢄen rights issue Board authorized to acquire the Company's own shares Board issues opꢀons to employees 71,166,167 General Board December 12, 2023 2,956,850 DKK 0.10/share DKK4.07 CORPORATE GOVERNANCE ASETEK Annual Report 2023 / Page 28 BOARD OF DIRECTORS Date appointed to end of current term Execuꢀve and other posiꢀons held Age and gender Qualiﬁcaꢀons Independence status RENÉ SVENDSEN-TUNE, CHAIRMAN Nilﬁsk A/S- CEO and Member of the Board Stokke As- Chairman of the Board NKT A/S- Deputy Chairman 68 Male Former CEO at GN Store Nord A/S for 8 years; May 9, 2023 to Independent Internaꢀonal management, Management of listed April 30, 2024 companies, Specialist experꢀse in technology, ser- vice businesses, large account sales and strategy development with sustainability focus. Commiꢃee parꢀcipaꢀon: Compensaꢀon; Nominaꢀon Asetek equity holdings: 241,842 owned shares 2023 cash compensaꢀon: $41,763 ERIK DAMSGAARD, VICE CHAIRMAN 59 Male 20+ years of senior posiꢀons in electronics & electrical manufacturing, business development. April 10, 2019 to April 30, 2024 Independent OJ Group of companies- Managing director Bitzer Electronices A/S- Managing director Masenꢀa Group of companies- Chairman of the Board Tentoma A/S- Member of the Board ED Management Holding ApS- Owner and Managing director ED Management ApS- Owner and Managing director CRD Invest ApS- Managing director TRD Invest ApS- Managing director Commiꢃee parꢀcipaꢀon: Audit Asetek equity holdings: 145,267 owned shares 2023 cash compensaꢀon: $55,000 JUKKA PERTOLA, BOARD MEMBER Tryg A/S and Tryg Forsikring A/S- Chairman of the Board COWI Holding A/S- Chairman of the Board Siemens Gamesa Renewable Energy A/S – Chairman of the Board GN Store Nord A/S- Chairman of the Board 64 Male Former execuꢀve at Siemens A/S for 25+ years; Technology, Finance, Corporate governance, Risk management. Extensive board experience with mulꢀple Chairman roles for 10+ years. April 10, 2019 to April 30, 2024 Independent Commiꢃee parꢀcipaꢀon: Compensaꢀon (chair) Asetek equity holdings: 164,171 owned shares 2023 cash compensaꢀon: $52,150 CORPORATE GOVERNANCE ASETEK Annual Report 2023 / Page 29 BOARD OF DIRECTORS Date appointed to end of current term Execuꢀve and other posiꢀons held Age and gender Qualiﬁcaꢀons Independence status MARIA HJORTH, BOARD MEMBER Thylander Gruppen A/S- Chairman of the Board Maj Invest Holding A/S- Board Member Trifork Holding AG- Board Member Topdanmark A/S- Board Member 51 Female Board Professional, Former CEO Mercer Denmark, January 14, 2019 to Independent 20+ years in ﬁnance covering business develop- April 30, 2024 ment, M&A, investor relaꢀons. Top-Danmark-Fonden- Board Member Adform A/S- Board Member Nolu Holding ApS- Managing director Commiꢃee parꢀcipaꢀon: Audit (chair) Asetek equity holdings: 39,685 owned shares 2023 cash compensaꢀon: $45,000 MAJA FRØLUNDE SAND-GRIMNITZ, BOARD MEMBER Consultant, private pracꢀce 43 Female Experienced commercial markeꢀng leadership in B2C (FMCG, Consumer tech, Sports & Entertain- ment). Experꢀse in Brand GTM strategy, commer- cial growth, process & organizaꢀonal development and implementaꢀon. June 15, 2022 to April 30, 2024 Independent Commiꢃee parꢀcipaꢀon: Audit Asetek equity holdings: 53,583 owned shares 2023 cash compensaꢀon: $45,000 RISK MANAGEMENT ASETEK Annual Report 2023 / Page 30 RISK MANAGEMENT originates mainly from receivables from the sale of products as well as deposits in ﬁnancial insꢀtuꢀons. Receivables from the sale of products are split be- tween many customers and geographic areas. Three customers represented 35%, 16% and 12% of trade receivables at December 31, 2023. A systemaꢀc credit evaluaꢀon of all customers is conducted, and the raꢀng forms the basis for the payment terms oﬀered to the individual customer. Credit risk is monitored centrally. Asetek’s potenꢀal to realize the Company’s stra- tegic and operaꢀonal objecꢀves are subject to a number of commercial and ﬁnancial risks. Asetek is conꢀnuously working to idenꢀfy risks that can negaꢀvely impact the Company’s future growth, acꢀviꢀes, ﬁnancial posiꢀon and results as well as CSR-related risks. Asetek conducts its business with signiﬁcant focus on conꢀnuous risk monitor- ing and management. CSR-related risks Please see the separate Asetek Sustainability Report 2023 for idenꢀﬁed risks and remedies. Investment in SimSports In 2020 and 2021, Asetek acquired technology and intellectual property in support of the Company’s entrance into the fast-growing SimSports gaming market. In March 2022, the Company shipped the ﬁrst of its SimSports products and released several new products in 2022 and 2023. Revenue gener- ated from SimSports products totaled $7.2 million in 2023, approximately 9% of the Group’s total revenue for the year. The SimSports segment is not yet proﬁtable, generaꢀng an adjusted EBITDA loss of $6.7 million in 2023. There is no assurance that the SimSports segment will generate operaꢀng proﬁts in the future. Capital resources and indebtedness As of December 31, 2023 the Company has total debt of $18.4 million, of which $16.2 million is associated with the construcꢀon of a new development center and HQ facility, and outstanding commitments for addiꢀonal construcꢀon costs totalling DKK 26.3 mil- lion ($3.9 million). The Company’s construcꢀon loan is based on a variable interest rate (Danish CIBOR 3) and, aꢂer its reﬁnancing in January 2024, matures on January 1, 2025. At that ꢀme, the Company expects to convert the loan to a long-term mortgage. Con- strucꢀon of the facility is expected to be completed in mid-2024, with secꢀons of the facility not uꢀlized by Asetek to be leased to external tenants. The overall goal of risk management is to ensure that the Company is run with a level of risk, which is in a sensible raꢀo to the acꢀvity level, the nature of the business, and the Company’s expected earnings and equity. To the largest extent possible, Asetek tries to accommodate and limit the risks which the Company can aﬀect through its own acꢀons. Intellectual property defense Asetek has ﬁled and defended lawsuits against compeꢀtors for patent infringement. While some of the cases have been seꢄled or dismissed, some may conꢀnue, and new cases may be iniꢀated. Such cases may proceed for an extended period and could potenꢀally lead to an unfavorable outcome to Asetek. Asetek has historically incurred signiﬁcant legal costs associated with liꢀgaꢀon and may con- ꢀnue to do so in the future to the extent manage- ment believes it is necessary to protect intellectual property. Customer concentraꢀon In 2023, three customers accounted for 38%, 24% and 13% of total revenue. In the event of a decline or loss of any of these customers, replacement of the revenue stream would be diﬃcult for Asetek to achieve in the short term. The Company is acꢀvely working with its other customers to grow their respecꢀve market shares and order volumes. Insurance It is the Company’s policy to miꢀgate signiﬁcant risk areas with commercially available insurance prod- ucts. This currently includes insurance for product liability, operaꢀng material and inventory as well as compulsory coverage, which varies from country to country. Management assessments indicate that the necessary and relevant precauꢀons have been taken to thoroughly cover insurance issues. Asetek’s insurance policies and overall coverage approach are reviewed at least annually. Economic recession A general slowdown in the global economy, includ- ing a recession, inﬂaꢀon or a ꢀghtening of the credit markets could negaꢀvely impact Asetek’s business, ﬁnancial condiꢀon and liquidity. Adverse global economic condiꢀons have caused or exacerbated signiﬁcant slowdowns in the markets in which the Company operates, which have adversely aﬀected Asetek’s results of operaꢀons in the past. Macroeco- nomic weakness and uncertainty also make it more diﬃcult for management to accurately forecast revenue, gross margin, and expenses. Further economic downturn or increased uncertainty may also lead to increased credit and collecꢀbility risks, reduced availability of capital and credit markets, reduced liquidity and potenꢀally adverse impacts on Asetek’s suppliers. New chip releases Compeꢀꢀon Asetek’s liquid cooling revenue is dependent upon ꢀmely releases by major suppliers of new GPU’s and CPU’s. In recent years, the global economy was subject to an unprecedented shortage of semi- conductor chips due to producꢀon constraints and increased demand brought on by accelerated digital transformaꢀon. This shortage negaꢀvely impacted demand – Asetek’s OEM customers waiꢀng for com- ponents were limited in their ability to build prod- ucts with Asetek coolers; and end users who were The markets in which the Company operates are compeꢀꢀve, the technological development is rapid, and the Company may in the future also be exposed to increased compeꢀꢀon from current market play- ers or new entrants. Below, some of the risk factors management considers as being of special importance to the Group are described in no speciﬁc order. Credit risk Credit risk is the risk of a counterpart neglecꢀng to fulﬁll its contractual obligaꢀons and in so doing imposing a loss on Asetek. The Group’s credit risk RISK MANAGEMENT ASETEK Annual Report 2023 / Page 31 waiꢀng for new GPUs were delayed in purchasing new liquid coolers. The global chip shortage eased in 2023; however, the Company’s revenue conꢀnues to be dependent upon ꢀmely releases of GPU’s and CPU’s, and future shortages could negaꢀvely impact customer demand. Asetek’s liquid cooling products have been historically assembled in Xiamen, China by a single contract manufacturer which may be diﬃcult to subsꢀtute in the short term if the need should arise. Suppliers are proacꢀvely managed by the Compa- ny’s operaꢀons teams based in Xiamen and Aalborg. In the second quarter of 2023, the Company began outsourced manufacturing of certain products in Malaysia. to market uncertainꢀes, parꢀcularly in the liquid cooling segment. The Company conꢀnues to work to minimize the impact of the tariﬀ on Asetek and its customers. that about one third of its sold products ulꢀmately are delivered in Europe or Japan, which are the two geographical areas which could have the largest potenꢀal impact due to USD ﬂuctuaꢀon. Asetek believes that other factors in the end users’ buying decision play a larger role than price ﬂuctuaꢀon on the liquid cooling component. During 2023, the USD weakened against both the DKK and EUR by 3% and strengthened against the Japanese Yen by 7%. Asetek’s raw materials are predominantly pur- chased with USD, from vendors whose underlying currency is CNY. The USD strengthened against the CNY by 2% in 2023. Foreign exchange rates Substanꢀally all of Asetek’s revenue is billed in USD. However, many customers resell Asetek products to end users in countries where USD is not the transacꢀonal currency. As a result, there is a risk that ﬂuctuaꢀons in currency will aﬀect the cost of product to the end user and negaꢀvely impact mar- ket demand for Asetek products. Asetek esꢀmates Manufacturing supply Asetek relies upon suppliers and partners to supply products and services at compeꢀꢀve prices. Supply constraints, such as shutdowns in China and disrupꢀons in the global supply chain may increase component costs and limit the Company’s ability to fulﬁll customer demand. U.S. import tariﬀs The U.S. has imposed a 25% tariﬀ on imports of goods manufactured in China, which include Asetek products. The existence of the tariﬀ has contributed RISK MANAGEMENT ASETEK Annual Report 2023 / Page 32 Asetek recognizes that USD appreciaꢀon can result in sales price pressure for its suppliers. Historically, the Company has not seen signiﬁcant reacꢀon from its markets. In addiꢀon, Asetek believes that com- peꢀng products are prone to the same exchange rate scenarios as Asetek. A signiﬁcant porꢀon of Asetek’s overhead costs are incurred in DKK. As a result, ﬂuctuaꢀons in USD vs. DKK will conꢀnue to have an inﬂuence on results of operaꢀons and ﬁnancial posiꢀon. The Group has not entered into any forward exchange instruments. Knowledge resources Taxaꢀon Asetek is a knowledge-intensive company and in or- der to conꢀnue to develop innovaꢀve products and aꢄain saꢀsfactory ﬁnancial results, it is necessary to aꢄract and develop the right employees. Asetek has the goal of maintaining an aꢄracꢀve workplace and achieves this through various programs including a stock opꢀon incenꢀve program and aꢄracꢀve working condiꢀons. The Company seeks to support a company culture founded on individual responsi- bility and performance as well as team accomplish- ment. The tax situaꢀon of the Company is complex. In connecꢀon with its iniꢀal public oﬀering in 2013, Asetek moved its Parent company from the U.S. to Denmark. However, USA – in a unilateral tax treaty override – sꢀll considers Asetek A/S a U.S. tax subject, result- ing in double taxaꢀon of Parent company earnings. Asetek has approached both countries’ tax author- iꢀes with the aim of resolving the situaꢀon as per the double taxaꢀon treaty. However, a determina- ꢀon may take several years, and the authoriꢀes are not obligated to resolve the problem. The Company conꢀnues to make progress in working with the tax authoriꢀes of Denmark and U.S. to possibly resolve this issue. In June 2019, the U.S. released regulaꢀon for its Global Intangible Low-Taxed Income (GILTI) inclusion for U.S. taxaꢀon, eﬀecꢀve beginning with tax year 2018. The GILTI regulaꢀon requires U.S. companies to report foreign corporaꢀon intangible income that exceeds 10% return on foreign invested assets. Under prior law, U.S. owners of foreign corpora- ꢀons were able to defer recognizing taxable income unꢀl there was a distribuꢀon of earnings back to U.S. owners. In 2023, The GILTI regulaꢀon caused incremental uꢀlizaꢀon of the Company’s available deferred tax assets of approximately $0.8 million. GILTI did not materially impact deferred tax asset uꢀlizaꢀon in 2022. Because of Asetek’s U.S. tax sta- tus as described above, management believes that the impact of the GILTI regulaꢀon as it applies to the Company could be reformed in the future; however, such reform is not certain. The Company conꢀnues to work with its tax advisors to clarify and address these maꢄers. Research and development, product innovaꢀon, market development IT security Asetek conꢀnuously implements measures to moni- tor and respond to data breaches and cyberaꢄacks. Management ensures that security assessments, including vulnerability assessments and assumed breach tests are performed on a regular basis. Addiꢀonal security measures to miꢀgate phishing and spam mails are delivered to employees and password policies are maintained to miꢀgate the risk of password dicꢀonary aꢄacks or other forms of brute force hacking of individuals. The Company maintains ongoing eﬀorts with external special- ists to conꢀnuously improve and strengthen the IT Infrastructure security. Mandatory training in cybersecurity is carried out for all employees, and the knowledge level of cybersecurity is thus being changed from awareness-based to training- and compliance-based. During 2023, Asetek experienced a breach of one of its websites, which aﬀected the funcꢀonality of the Company’s webstore for less than two days. Asetek followed its cybersecurity conꢀngency plans, the websites were cleaned and restored, and the access methods and perimeter security were reinforced. The Company’s future success, including the oppor- tuniꢀes to ensure growth, depends on the ability to conꢀnue developing new soluꢀons and products adapted to the latest technology and the clients’ needs as well as improving exisꢀng soluꢀons and market posiꢀon. As such, the Company develops new releases on a regular basis, with emphasis on higher performance, improved eﬃciency and noise-reducꢀon. Providing new and innovaꢀve applicaꢀons for Asetek’s cooling technology is also a focus, as evidenced by the new SimSports products released during 2023. Projects and contracts It is important to Asetek’s overall success that development projects are executed at high quality and at predetermined ꢀmeframes and cost prices. Risks are aꢄached to the sale, analysis and design, development and iniꢀal manufacturing phases. Asetek has carefully deﬁned the individual phases and the acꢀviꢀes contained therein, with a view to acꢀve risk management and eﬃcient implementa- ꢀon. Through project reviews and ongoing analyses before, during, and aꢂer iniꢀaꢀon, Asetek works to ensure that agreements are adhered to and that revenue and margins are as planned. The Company has entered into an informaꢀon security risk insurance policy. This area is acꢀvely monitored by the Board of Directors’ Audit Com- miꢄee. CORPORATE SOCIAL RESPONSIBILITY ASETEK Annual Report 2023 / Page 33 CORPORATE SOCIAL RESPONSIBILITY Asetek seeks to be a good corporate ciꢀzen in everything that it does, and therefore has com- bined its operaꢀng principles into one framework policy. Historically, Asetek has been a diverse workplace, where employees have very diﬀerent backgrounds, competencies and living condiꢀons. Not only in relaꢀon to gender, age and origin, but equally in relaꢀon to educaꢀon, experience and personality. It is therefore Asetek’s goal that the management should equally reﬂect the diversity among our employees. In order to promote diversity among the company’s management and Board of Directors, there is a focus on this in recruiꢀng new managers. In 2023, Asetek has therefore sought to ensure broad diversity among applicants when recruiꢀng and promoꢀng. The board members of Asetek cover a wide range of experiences from both the Danish and internaꢀonal business community and the high-tech industry. This composiꢀon is considered appro- priate, as it ensures a breadth in the members’ approach to the tasks, and thus helps to ensure qualiﬁed consideraꢀons and decisions. The Asetek Sustainability Report 2023 is the Com- pany’s Report on Corporate Social Responsibility, c.f. Secꢀon 99a of the Danish Financial Statements Act. Please refer to the Report here: hꢄps://ir.asetek.com/ ESG-Report-2023 Pursuant to secꢀon 99b of the Danish Financial Statements Act, the Company is reporꢀng on its Gender Distribuꢀon in Management in the following secꢀons. The Asetek Sustainability Report 2023 is the Company’s Report on Data Ethics, c.f. Secꢀon 99d of the Danish Financial Statements Act. Please refer to the Report here: hꢄps://ir.asetek.com/ESG-Re- port-2023 Pursuant to secꢀon 107d of the Danish Financial Statements Act, the Company is reporꢀng on its di- versity policy in the following secꢀons. Furthermore, Asetek’s diversity policy is available here: hꢄps:// ir.asetek.com/Diversity-Policy. This statement of Asetek’s diversity policy is a component of the Management’s Report in the An- nual Report for 2023 and covers the ﬁnancial period 1 January- 31 December 2023: Asetek believes that diversity among employees and management, including an even distribuꢀon of age, naꢀonality and educaꢀonal background, contributes posiꢀvely to the work environment and strengthens the company’s compeꢀꢀveness and performance. At the end of the ﬁnancial year, 20% of the In accordance with secꢀon 99b of the Danish Finan- cial Statements Act, Asetek has a target for “other management levels”, deﬁned as a ﬁrst management level, which is idenꢀﬁed as oﬃcers, and a second management level comprising other execuꢀves reporꢀng to the ﬁrst management level. Here, the goal is to achieve a minimum of 25% female and 75% male at other management levels by 2030. In 2023, the number of employees at other management levels was 9 individuals, of which 11% were women. Asetek will conꢀnue to work towards the 2030 target. During 2023, the Company conꢀnued to acꢀvely encourage women to apply for open posiꢀons and has conꢀnued communicaꢀng with educaꢀonal insꢀtuꢀons that train both male and female candidates. Statutory reporꢀng of gender diversity for Asetek Execuꢀve Board and Board of Directors are of a naꢀonality other than Danish. In terms of age com- posiꢀon, 0% of management is under 40 years old, 71% are between 40 and 60 years old, and 29% of management is over 60. As of December 31, 2023, the Board of Directors consists of 5 individuals, of which 60% are men and 40% are women, which is considered equal gender diversity according to Secꢀon 99b of the Danish Financial Statements Act. Thus, Asetek conꢀnued to maintain a distribuꢀon of women and men on the Board in accordance with Secꢀon 99b of the Danish Financial Statements Act. Asetek’s goal is to conꢀnue to maintain, at minimum, a 60/40 balance of gender into the future. 2023 Board of Directors Number of members Minority gender in % Target in % 5 40% 40% Other management levels Number of members Minority gender in % Target in % 9 11% 25% 2030 Year of target FIVE-YEAR SUMMARY ASETEK Annual Report 2023 / Page 34 FIVE-YEAR SUMMARY FINANCIALS RATIOS & METRICS FISCAL YEAR 2023 2022 2021 2020 2019 FISCAL YEAR 2023 2022 2021 2020 2019 COMPREHENSIVE INCOME ($000’S) Revenue PROFIT & LOSS 76,332 34,708 9,403 (905) 50,650 20,765 (5,401) (477) 79,803 33,373 779 72,750 34,194 10,928 (1,502) 9,426 54,334 23,005 1,048 406 Gross margin 45.5% 12.3% 5.3% 41.0% -10.7% -4.4% 41.8% 1.0% 1.7% 9.7% 47.0% 15.0% 11.2% 33.9% 42.3% 1.9% Gross proﬁt Operaꢀng margin Return on invested capital (ROIC) Organic growth Operaꢀng income Financial items, net Income before tax Income for the year Comprehensive income -0.8% -19.3% 618 50.7% -36.5% 8,498 6,001 6,722 (5,878) (4,325) (6,296) 1,397 1,337 (372) 1,454 (628) 9,195 BALANCE SHEET Quick raꢀo 11,587 (1,072) 0.6 0.9 0.6 0.8 1.6 1.8 2.4 2.5 3.1 3.3 Operaꢀng income before amorꢀzaꢀon, depreciaꢀon and ﬁnancial items (EBITDA), unaudited Current raꢀo Days sales outstanding Inventory turns per year Days payable outstanding Debt to equity 50.6 5.2 63.1 4.8 69.6 11.5 145.4 6.7% 116.1 18.4 88.6 13.9 96.2 11.0% 14,503 15,864 (1,231) (791) 4,529 7,223 14,681 15,600 5,105 6,161 Adjusted EBITDA 129.0 27.8% 132.2 50.7% 133.6 8.7% BALANCE SHEET ($000’S) Total assets 102,739 66,126 18,378 (3,232) 112,177 78,615 42,748 21,689 (6,312) 99,346 75,354 48,388 3,243 71,393 47,525 4,129 54,105 39,008 4,292 STOCK MARKET Total equity Earnings per share, basic (USD) Earnings per share, diluted (USD) Shares issued (000's) 0.07 0.07 (0.08) (0.08) 27,147 1,256 8.46 0.03 0.03 0.18 0.17 (0.01) (0.01) 25,789 185 Interest-bearing debt Working capital Invested capital 20,603 80,900 32,837 81,786 27,919 81,949 98,314 1,256 3.90 26,970 1,262 26,433 931 Treasury shares (000's) Share price (DKK) Investment in property, plant and equipment 30.58 76.74 35.98 323,054 23.52 - 24,902 2,561 22,215 3,405 8,322 2,597 2,876 1,127 1,441 Share price to earnings Market capitalizaꢀon ($000's) 7.87 - 90.56 Investment in intangible assets 10,196 56,122 31,413 119,825 90,205 CASH FLOW ($000’S) BUSINESS DRIVERS Sealed loop units shipped (000's) 1,165 797 1,386 1,201 895 Operaꢀng acꢀviꢀes Invesꢀng acꢀviꢀes Financing acꢀviꢀes Total cash ﬂow 16,280 (27,373) 12,316 1,710 (8,354) (25,395) 18,327 14,317 (13,204) (4,636) (3,803) 11,430 (4,816) (5,088) 2,594 8,870 (2,154) (648) Average selling price per unit, liquid coolers (USD) 59.3 570 134 56.2 362 140 52.6 528 151 53.9 661 110 57.9 560 97 Revenue per employee ($000's) Average number of employees (15,885) 5,878 Refer to the Deﬁniꢀons of Raꢀos and Metrics on page 77 of this report. XXXXX ANNUAL REPORT 2023 / Page 35 FINANCIAL STATEMENTS Consolidated statement of comprehensive income 36 37 38 39 4 0 Consolidated balance sheet Consolidated statement of changes in equity Consolidated cash ﬂow statement Notes FINANCIAL STATEMENTS ASETEK Annual Report 2023 / Page 36 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (USD 000’s) Note 2023 76,332 2022 50,650 Revenue 4 8 Cost of sales GROSS PROFIT (41,624) 34,708 (29,885) 20,765 Research and development Selling, general and administraꢀve Special items (7,379) (17,079) (847) (5,163) (20,884) - 8 8 Other income - (119) TOTAL OPERATING EXPENSES (25,305) (26,166) OPERATING INCOME Foreign exchange gain (loss) Finance income 9,403 (1,015) 265 (5,401) (344) 45 9 9 9 Finance costs (155) (905) (178) (477) TOTAL FINANCIAL INCOME INCOME BEFORE TAX 8,498 (2,497) 6,001 (5,878) 1,553 Income tax (expense) beneﬁt INCOME FOR THE YEAR 10, 11 (4,325) Other comprehensive income items that may be reclassiﬁed to proﬁt or loss in subsequent periods: Foreign currency translaꢀon adjustments 721 (1,971) TOTAL COMPREHENSIVE INCOME 6,722 (6,296) INCOME PER SHARE: (IN USD) Basic 12 12 0.07 0.07 (0.08) (0.08) Diluted FINANCIAL STATEMENTS ASETEK Annual Report 2023 / Page 37 CONSOLIDATED BALANCE SHEET (USD 000’s) (USD 000’s) Note 2023 2022 Note 2023 2022 ASSETS EQUITY AND LIABILITIES EQUITY NON-CURRENT ASSETS Intangible assets 14 15 11 12,050 53,897 5,689 318 12,014 31,084 7,366 335 Share capital 18 1,478 76,029 444 54,406 Property, plant and equipment Deferred income tax assets Other assets Retained earnings Translaꢀon and other reserves TOTAL EQUITY (11,381) 66,126 (12,102) 42,748 TOTAL NON-CURRENT ASSETS 71,954 50,799 NON-CURRENT LIABILITIES Long-term debt CURRENT ASSETS 19 2,596 1,739 Inventory 17 16 9,053 12,611 9,121 6,973 13,432 7,411 TOTAL NON-CURRENT LIABILITIES 2,596 1,739 Trade and other receivables Cash and cash equivalents TOTAL CURRENT ASSETS CURRENT LIABILITIES Short-term debt 30,785 27,816 19, 20 15,782 1,790 19,950 1,896 Accrued liabiliꢀes TOTAL ASSETS 102,739 78,615 Accrued compensaꢀon and employee beneﬁts Trade payables 1,733 1,454 14,712 34,017 36,613 10,828 34,128 35,867 TOTAL CURRENT LIABILITIES TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES 102,739 78,615 FINANCIAL STATEMENTS ASETEK Annual Report 2023 / Page 38 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share capital Share premium Translaꢀon Treasury Retained earnings (USD 000’s) reserves share reserves Total EQUITY AT DECEMBER 31, 2021 Total comprehensive income for 2022 Income for the year 442 - 1,075 (11,206) 58,077 48,388 - - - - - - - (1,971) (1,971) - - - (4,325) - (4,325) (1,971) (6,296) Foreign currency translaꢀon adjustments Total comprehensive income for 2022 Transacꢀons with owners in 2022 Shares issued upon exercise of opꢀons Share-based payment expense Transacꢀons with owners in 2022 EQUITY AT DECEMBER 31, 2022 Total comprehensive income for 2023 Income for the year (4,325) 2 - - - - - - - 214 440 216 440 - - - - 2 654 656 444 (896) (11,206) 54,406 42,748 - - - - - - - 721 721 - - - 6,001 - 6,001 721 Foreign currency translaꢀon adjustments Total comprehensive income for 2023 Transacꢀons with owners in 2023 Shares issued in rights oﬀering, net of issuance costs Transfer 6,001 6,722 1,034 - 15,108 - - - 15,108 514 16,142 - (15,108) - - Share-based payment expense Transacꢀons with owners in 2023 EQUITY AT DECEMBER 31, 2023 - - - - - - - - 514 1,034 1,478 15,622 76,029 16,656 66,126 (175) (11,206) FINANCIAL STATEMENTS ASETEK Annual Report 2023 / Page 39 CONSOLIDATED CASH FLOW STATEMENT (USD 000’s) (USD 000’s) Note 2023 2022 Note 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES Income (loss) for the year CASH FLOWS FROM FINANCING ACTIVITIES Borrowings (repayment) on line of credit for building construcꢀon Borrowings (repayment) on line of credit Proceeds from issuance of share capital Costs incurred for issuance of share capital Financing of previously purchased equipment Principal payments on equipment ﬁnancing Principal payments on leases 6,001 5,100 - (4,325) 4,170 (53) 19 19 18 18 19 19 20 (2,874) - 18,582 (690) 216 Depreciaꢀon and amorꢀzaꢀon 14,15 Gain on sale of property, plant and equipment Impairment of intangible assets Finance income recognized 17,020 (878) 181 14 9 60 111 - (265) 1,284 265 (45) 1,129 (75) Finance costs incurred 9 663 (293) (840) 12,316 Finance income, cash received 45 (835) 18,327 Finance costs, cash paid (1,243) 2,497 543 (609) (1,553) 20 NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES Income tax expense (income) 10, 11 Eﬀect of exchange rate changes on cash and equivalents 487 (463) Cash receipt (payment) for income tax Share-based payments expense Changes in trade receivables, inventories, other assets Changes in trade payables and accrued liabiliꢀes NET CASH PROVIDED BY OPERATING ACTIVITIES NET CHANGES IN CASH AND CASH EQUIVALENTS 1,710 (15,885) 7 514 440 (847) 2,371 16,280 1,891 (9,109) (8,354) Cash and cash equivalents at beginning of period 7,411 23,296 CASH AND CASH EQUIVALENTS AT END OF PERIOD 9,121 7,411 SUPPLEMENTAL DISCLOSURE – NON-CASH ITEMS CASH FLOWS FROM INVESTING ACTIVITIES Addiꢀons to intangible assets Assets acquired under leases 20 273 95 14 15 15 (2,561) (24,902) 90 (3,405) (22,215) 225 Purchase of property, plant and equipment Disposal of long-term assets NET CASH USED IN INVESTING ACTIVITIES (27,373) (25,395) FREE CASH FLOW (11,093) (33,749) NOTES ASETEK Annual Report 2023 / Page 40 NOTES 2.3. Foreign currency Items included in the ﬁnancial statements of each of the Group’s enꢀꢀes are measured using the currency of the primary economic environment in which the enꢀty operates (‘the funcꢀonal currency’). The funcꢀon- al currency of the Company’s operaꢀons in the United States of America, Denmark and China are the U.S. dollar, Danish kroner, and Chinese Yuan Renminbi, respecꢀvely. The consolidated ﬁnancial statements are presented in U.S. dollars, which is the Group’s presentaꢀon currency. Foreign currency transacꢀons are translated into the funcꢀonal currency using the exchange rates prevail- ing at the dates of the transacꢀons. Foreign exchange gains and losses resulꢀng from the seꢄlement of such transacꢀons and from the translaꢀon at year-end exchange rates of monetary assets and liabiliꢀes denomi- nated in foreign currencies are recognized as operaꢀng expense in the income statement in foreign exchange (loss)/gain. Group companies that have a funcꢀonal currency diﬀerent from the presentaꢀon currency are translated into the presentaꢀon currency as follows: // Assets and liabiliꢀes for each balance sheet presented are translated at the closing rate at the date of that balance sheet; // Income and expenses for each income statement are translated at average exchange rates; // All resulꢀng exchange diﬀerences are recognized in other comprehensive income 1. GENERAL INFORMATION Asetek A/S (‘ the Company’), and its subsidiaries (together, ‘Asetek Group’, ‘the Group’ or ‘Asetek’) designs, develops and markets liquid cooling soluꢀons used in personal computers, servers and data centers. The Group’s core products uꢀlize liquid cooling technology to provide improved performance, acousꢀcs and energy eﬃciency. The Company is based in Aalborg, Denmark with personnel in USA, China and Taiwan. The Company’s shares trade on the Nasdaq Copenhagen under the symbol ‘ASTK’. 1.1. Liquidity from rights oﬀering On May 17, 2023, the Company issued 71,166,167 new common shares of stock in a rights oﬀering, raising net proceeds of $16.1 million aꢂer deducꢀon of total issuance costs of $3.7 million (Refer to Note 18). As a result of this capital increase, the Company’s liquidity is suﬃcient to eliminate the going concern uncertainty that existed as of the publicaꢀon of the 2022 Annual Report. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounꢀng policies applied in the preparaꢀon of these consolidated ﬁnancial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.4. Property and equipment Property and equipment are stated at historical cost less accumulated depreciaꢀon. For assets constructed, borrowing costs that are directly aꢄributable to the acquisiꢀon, construcꢀon or producꢀon of a qualifying asset are capitalized as part of the historical cost (Note 2.16). Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic beneﬁts associated with the item will ﬂow to the Group and the cost of the item can be measured reliably. The carrying amount of any replaced part is derecognized. All other repairs and maintenance are charged to the income statement during the ﬁnancial period in which they are incurred. Depreciaꢀon is provided over the esꢀmated useful lives of the depreciable assets, generally three to ﬁve years, using the straight-line method. The assets’ useful lives and residual values are reviewed, and adjusted if appropriate, at the end of each reporꢀng period. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized as other income or expense in the consolidated income state- ment. Property, plant and equipment is grouped as follows: 2.1. Basis of preparaꢀon The consolidated ﬁnancial statements have been prepared on a historical cost convenꢀon, in accordance with Internaꢀonal Financial Reporꢀng Standards (IFRS) as adopted by the European Union (EU) and the sup- plementary Danish informaꢀon requirements for class D publicly listed companies. 2.2. Consolidaꢀon The consolidated ﬁnancial statements comprise the Company and its consolidated subsidiaries. Subsidiaries are all enꢀꢀes (including structured enꢀꢀes) over which the Group has control. The Group controls an enꢀty when the Group is exposed to, or has rights to, variable returns from its involvement with the enꢀty and has the ability to aﬀect those returns through its power over the enꢀty. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Intercompany transacꢀons, balances, income and expenses on transacꢀons between Group compa- nies are eliminated. Proﬁts and losses resulꢀng from the intercompany transacꢀons that are recognized in assets are also eliminated. Accounꢀng policies of subsidiaries are consistent with the policies adopted by the Group. NOTES ASETEK Annual Report 2023 / Page 41 2.7. Financial assets Recogniꢀon and Measurement The Group determines the classiﬁcaꢀon of its ﬁnancial assets at iniꢀal recogniꢀon. Financial assets within the scope of IFRS 9 Financial Instruments are classiﬁed as follows: // ‘Amorꢀzed cost’ are ﬁnancial assets represenꢀng contractual cash ﬂows held for collecꢀon, where such cash ﬂows solely represent payment of principal and interest. // ‘Fair value’. All other ﬁnancial assets, represenꢀng other debt and equity instruments that do not meet the ‘amorꢀzed cost’ criteria, are recognized at fair value. All fair value movements on ﬁnancial assets are taken through the income statement, or for certain debt instruments that qualify, through other compre- hensive income. For all years presented, the Group’s ﬁnancial assets are all classiﬁed as ‘amorꢀzed cost’. Group Esꢀmated Useful Life Buildings 30–50 years Leasehold improvements Lesser of 5 years or lease term Plant and machinery 5 years Tools and ﬁxtures 3 to 5 years 2.5. Research and development Research costs are expensed as incurred. Costs directly aꢄributable to the design and tesꢀng of new or improved products to be held for sale by the Group are recognized as intangible assets within development projects when all of the following criteria are met: // it is technically feasible to complete the product so that it will be available for sale; // management intends to complete the product and use or sell it; // there is an ability to use or sell the product; // it can be demonstrated how the product will generate probable future economic beneﬁts; // adequate technical, ﬁnancial and other resources to complete the development and to use or sell the product are available; and // the expenditures aꢄributable to the product during its development can be reliably measured. Impairment of ﬁnancial assets For ﬁnancial assets carried at amorꢀzed cost, the Group measures at the end of each reporꢀng period the expected credit losses to be incurred for a ﬁnancial asset or group of ﬁnancial assets. The Company uꢀlizes historical experience, evaluaꢀon of possible outcomes, current condiꢀons and forecasts of future economic condiꢀons to determine expected credit losses. Evidence may include indicaꢀons that the debtors or a group of debtors is experiencing signiﬁcant ﬁnancial diﬃculty, default or delinquency in interest or principal pay- ments, the probability that they will enter bankruptcy or other ﬁnancial reorganizaꢀon, and where observa- ble data indicate that there is a measurable decrease in the esꢀmated future cash ﬂows, such as changes in arrears or economic condiꢀons that correlate with defaults. Directly aꢄributable costs that are capitalized as part of the product include the employee costs associated with development. Other development expenditures that do not meet these criteria are recognized as expense when incurred. Development costs previously recognized as expense are not recognized as an asset in a subsequent period. Development costs recognized as assets are amorꢀzed on a straight-line basis over their esꢀmated useful lives, which generally range between three and sixty months. Amorꢀzaꢀon expense related to capitalized development costs is included in research and development expense. 2.8. Financial liabiliꢀes Recogniꢀon and measurement. Financial liabiliꢀes within the scope of IFRS 9 are classiﬁed as ﬁnancial liabiliꢀes at fair value through proﬁt or loss, or other liabiliꢀes. The Group determines the classiﬁcaꢀon of its ﬁnancial liabiliꢀes at iniꢀal recogniꢀon. Financial liabiliꢀes are recognized iniꢀally at fair value less, in the case of other liabiliꢀes, directly aꢄributable transacꢀon costs. The measurement of ﬁnancial liabiliꢀes depends on their classiﬁcaꢀon as follows: // ‘Financial liabiliꢀes at fair value through proﬁt or loss’ are derivaꢀves entered into that do not meet the hedge accounꢀng criteria as deﬁned by IFRS 9. Gains or losses on liabiliꢀes held for trading are recognized in proﬁt and loss. At December 31, 2023, the Company has no liabiliꢀes measured at fair value through proﬁt and loss. // ‘Other liabiliꢀes’ – Aꢂer iniꢀal recogniꢀon, interest bearing debt is subsequently measured at amorꢀzed cost using the eﬀecꢀve interest rate method. Gains and losses are recognized in the income statement when the liabiliꢀes are derecognized as well as through the amorꢀzaꢀon process. The calculaꢀon takes into account any premium or discount on acquisiꢀon and includes transacꢀon costs and fees that are an integral part of the eﬀecꢀve interest rate. 2.6. Impairment of non-ﬁnancial assets Assets that are subject to amorꢀzaꢀon are reviewed for impairment annually, and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recov- erable amount is the higher of 1) an asset’s fair value less costs to sell or 2) its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately idenꢀﬁable cash ﬂows (cash-generaꢀng units). Non-ﬁnancial assets other than goodwill that previously suﬀered an im- pairment are reviewed for possible reversal of the impairment at each reporꢀng date. Goodwill is tested for impairment annually and whenever there is indicaꢀon that the goodwill may be impaired. If an impairment loss on goodwill is idenꢀﬁed, it is recognized as an expense and is not reversed in a subsequent period. NOTES ASETEK Annual Report 2023 / Page 42 Oﬀseꢁng of ﬁnancial instruments. Financial assets and ﬁnancial liabiliꢀes are oﬀset, and the net amount reported in the consolidated balance sheet if, and only if, there is a currently enforceable legal right to oﬀset the recognized amounts and there is an intenꢀon to seꢄle on a net basis, or to realize the assets and seꢄle the liabiliꢀes simultaneously. 2.11. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits with banks, overdraꢂs and other short-term high- ly liquid investments with original maturiꢀes of three months or less. 2.12. Share capital Ordinary shares are classiﬁed as equity. Incremental costs directly aꢄributable to the issue of new ordinary shares or opꢀons are shown in equity as a deducꢀon, net of tax, from the proceeds. 2.9. Inventories Inventories are stated at the lower of actual cost or net realizable value. Cost is determined using the ﬁrst-in, ﬁrst-out (FIFO) method. Net realizable value is the esꢀmated selling price in the ordinary course of business less esꢀmated costs necessary to make the sale. Adjustments to reduce the cost of inventory to its net realiz- able value, if required, are made for esꢀmated excess, obsolescence, or impaired balances. 2.13. Share-based payments The Company issues opꢀons (or warrants) that allow management and key personnel to acquire shares in the Company. Through equity-seꢄled, share-based compensaꢀon plans, the Company receives services from employees as consideraꢀon for the granꢀng of equity opꢀons to purchase shares in the Company at a ﬁxed exercise price. The fair value of the employee services received in exchange for the grant of the opꢀons is recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the opꢀons granted, excluding the impact of any non-market service and performance vesꢀng condiꢀons. The grant date fair value of opꢀons granted is recognized as an employee expense with a corresponding in- crease in equity, over the period that the employees become uncondiꢀonally enꢀtled to the opꢀons (vesꢀng 2.10. Trade receivables Trade receivables are amounts due from customers for product sold in the ordinary course of business. Trade receivables are recognized iniꢀally at fair value and subsequently measured at amorꢀzed cost using the eﬀecꢀve interest method, less any provision for expected credit losses. If collecꢀon is expected in one year or less, trade receivables are classiﬁed as current assets. Expected credit losses are determined uꢀlizing the simpliﬁed approach allowed under IFRS 9 Financial Instruments. NOTES ASETEK Annual Report 2023 / Page 43 period). The fair value of the opꢀons granted is measured using the Black-Scholes model, taking into account the terms and condiꢀons as set forth in the share opꢀon program. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volaꢀlity, weighted average expected life of the instruments (based on historical experience and general opꢀon holder behavior), expected dividends, and the risk- free interest rate. Service and non-market performance condiꢀons aꢄached to the transacꢀons are not taken into account in determining fair value. At each reporꢀng date, the Company revises its esꢀ- mates of the number of opꢀons that are expected to vest based on the non-market vesꢀng condiꢀons. The impact of the revision to original esꢀmates, if any, is recognized in the Statement of Comprehensive Income, with a corresponding adjustment to equity. The Group’s revenue is predominantly comprised of shipment of Asetek products in fulﬁllment of customer purchase orders. As such, the Company recognizes revenue when a valid contract is in place and control of the goods have transferred to the customer. Customer purchase orders and/or contracts are used as evi- dence of an arrangement. Delivery occurs and control of the goods is deemed to transfer when products are shipped to the speciﬁed locaꢀon and the risks of obsolescence and loss have been transferred to the custom- er. For certain customers with vendor-managed inventory, delivery does not occur unꢀl product is acquired by the customer from the vendor-managed inventory locaꢀon. The Company assesses collectability based primarily on the creditworthiness of the customer as determined by credit checks and customer payment history. Customers do not generally have a right of return. Income received as a result of patent liꢀgaꢀon seꢄlement is recorded as other income as an oﬀset to operaꢀng expense in the period the award is granted. Esꢀmated costs for future product returns under war- ranty are charged to cost of sales and included in accrued liabiliꢀes. 2.14. Current and deferred income tax The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respecꢀvely. The current income tax expense is calculated on the basis of the tax laws enacted or substanꢀvely enact- ed at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates posiꢀons taken in tax returns with respect to situaꢀons in which applicable tax regulaꢀon is subject to interpretaꢀon. Management establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authoriꢀes. Deferred income tax is recognized, using the liability method, on temporary diﬀerences arising between the tax bases of assets and liabiliꢀes and their carrying amounts in the consolidated ﬁnancial statements. However, deferred tax liabiliꢀes are not recognized if they arise from the iniꢀal recogniꢀon of goodwill; deferred income tax is not accounted for if it arises from iniꢀal recogniꢀon of an asset or liability in a trans- acꢀon other than a business combinaꢀon that at the ꢀme of the transacꢀon aﬀects neither accounꢀng nor taxable proﬁt or loss and does not give rise to equal taxable and deducꢀble temporary diﬀerences. Deferred income tax is determined using tax rates (and laws) that have been enacted or substanꢀvely enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is seꢄled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable proﬁt will be available against which the temporary diﬀerences can be uꢀlized. Deferred income tax assets and liabiliꢀes are oﬀset when there is a legally enforceable right to oﬀset current tax assets against current tax liabiliꢀes and when the deferred income tax assets and liabiliꢀes relate to income taxes levied by the same taxaꢀon authority on either the same taxable enꢀty or diﬀerent taxable enꢀꢀes where there is an intenꢀon to seꢄle the balances on a net basis. 2.16. Borrowings and related costs Borrowings are iniꢀally recognized at fair value, net of transacꢀon costs incurred. Borrowings are subse- quently measured at amorꢀzed cost. Any diﬀerence between the proceeds (net of transacꢀon costs) and the redempꢀon amount is recognized in proﬁt or loss over the period of the borrowings using the eﬀecꢀve interest method. Fees paid on the establishment of loan faciliꢀes are recognized as transacꢀon costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred unꢀl the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a prepayment for liquidity services and amorꢀzed over the period of the facility to which it relates. Borrowings are removed from the balance sheet when the obligaꢀon speciﬁed in the contract is dis- charged, cancelled or expired. The diﬀerence between the carrying amount of a ﬁnancial liability that has been exꢀnguished or transferred to another party and the consideraꢀon paid, including any non-cash assets transferred or liabiliꢀes assumed, is recognized in proﬁt or loss as other income or ﬁnance costs. General and speciﬁc borrowing costs that are directly aꢄributable to the acquisiꢀon, construcꢀon or producꢀon of a qualifying asset are capitalized during the period of ꢀme that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substan- ꢀal period of ꢀme to get ready for their intended use or sale. Investment income earned on the temporary investment of speciﬁc borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalizaꢀon. Other borrowing costs are expensed in the period in which they are incurred. 2.17. Leases Lease liabiliꢀes are accounted for under IFRS 16 Leases and measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate. Lease liabiliꢀes include the net present value of: ﬁxed lease payments, amounts expected to be payable under residual value guarantees, any purchase opꢀons that are reasonably expected to be exercised, and any penalꢀes for terminaꢀon re- ﬂected in the lease term. The corresponding rental obligaꢀons, net of ﬁnance charges, are included in other long-term debt. Amounts due within one year are included in short-term debt. 2.15. Revenue recogniꢀon and other income Revenue represents sale of the Group’s products to customers which are principally resellers and original equipment manufacturers. Revenue is measured at the fair value of the consideraꢀon received or receivable, and represents amounts receivable for goods supplied, stated net of discounts, sales tax, returns and aꢂer eliminaꢀng sales within the Group. NOTES ASETEK Annual Report 2023 / Page 44 Each lease payment is allocated between the liability and ﬁnance cost. The ﬁnance cost is charged to proﬁt or loss over the lease period to reﬂect a constant periodic rate of interest on the remaining balance of the liability for each period. Leased assets are recognized as a right-of-use asset at the date at which the leased asset is available for use by the Group, iniꢀally measured at the present value of the lease liability and included in Property and equipment on the balance sheet. 2.22. Criꢀcal accounꢀng esꢀmates and judgments The preparaꢀon of ﬁnancial statements in conformity with IFRS requires management to make esꢀmates and assumpꢀons that aﬀect the amounts reported in the ﬁnancial statements and accompanying notes. Actual results could diﬀer from those esꢀmates. Areas where signiﬁcant judgment has been applied are: // Valuaꢀon of deferred tax assets: deferred income tax assets are recognized to the extent that the realizaꢀon of the tax beneﬁt to oﬀset future tax liabiliꢀes is considered to be probable. The Company has recorded deferred tax assets represenꢀng the esꢀmated amount of net operaꢀng losses that will be uꢀlized to oﬀset future taxable income, based on income projecꢀons for the next ﬁve years. In future periods, management will conꢀnue to assess the probability of realizaꢀon of the assets’ value and adjust the valuaꢀon in accordance with IAS 12. // Capitalizaꢀon of development costs: the Group’s business includes a signiﬁcant element of research and development acꢀvity. Under IAS 38, there is a requirement to capitalize and amorꢀze development spend to match costs to expected beneﬁts from projects deemed to be commercially viable. The applicaꢀon of this policy involves the ongoing consideraꢀon by management of the forecasted economic beneﬁt from such projects compared to the level of capitalized costs, together with the selecꢀon of amorꢀzaꢀon peri- ods appropriate to the life of the associated revenue from the product. If customer demand for products or the useful lives of products vary from management esꢀmates, impairment charges on intangibles could occur. 2.18. Provisions A provision is recognized when the Company has a present legal or construcꢀve obligaꢀon as a result of past events, it is probable that an ouꢃlow of resources will be required to seꢄle the obligaꢀon, and the amount has been reliably esꢀmated. If the impact of ꢀme value is signiﬁcant, the provision is calculated by discount- ing anꢀcipated future cash ﬂow using a discount rate before tax that reﬂects the market’s pricing of the pres- ent value of money and, if relevant, risks speciﬁcally associated with the obligaꢀon. Provisions are reviewed at each balance sheet date and adjusted to reﬂect the current best esꢀmate. 2.19. Conꢀngent liabiliꢀes Conꢀngent liabiliꢀes are not recognized in the ﬁnancial statements. Signiﬁcant conꢀngent liabiliꢀes are dis- closed, with the excepꢀon of conꢀngent liabiliꢀes where the probability of the liability occurring is remote. 2.20. Segment reporꢀng Business segmentaꢀon. The Group is reporꢀng on three segments, Liquid cooling, SimSports and Data center. The three segments are idenꢀﬁed by their speciﬁc sets of products and speciﬁc sets of customers. The spliꢁng of operaꢀng expenses between segments is based on the Company’s best judgment and done by using the Company’s employee/project ꢀme tracking system to capture total hours charged by project code. Operaꢀng expenses that are not divisible by nature (rent, telecommunicaꢀon expenses, etc.) have been split according to actual ꢀme spent on the three businesses, and the Company’s best esꢀmate for aꢄribu- ꢀon. Costs incurred for intellectual property defense and headquarters administraꢀon have been classiﬁed separately as headquarters costs and excluded from segment operaꢀng expenses. The CEO is the Group’s chief operaꢀng decision maker. The CEO assesses the performance of the Group principally on measures of revenue and adjusted EBITDA. Geographical segmentaꢀon. Each of the Group’s oﬃces in its three principal geographies fulﬁlls a parꢀcu- lar funcꢀon that serves the Asetek Group as a whole. The majority of costs incurred in each of the geogra- phies are generally incurred for the beneﬁt of the enꢀre Group and not to generate revenue in the respecꢀve geography. As a result, the ﬁnancial results of the Group are not divided between mulꢀple geographical segments for key operaꢀng decision-making. Revenue and assets by geography is measured and reported in Note 4, Geographical informaꢀon. 2.23. Deﬁned contribuꢀon plan In 2008, the Company established a deﬁned contribuꢀon savings plan (the “Plan”) in the U.S. that meets the requirements under Secꢀon 401(k) of the U.S. Internal Revenue Code. This Plan covers U.S. employees who meet the minimum age and service requirements and allows parꢀcipants to defer a porꢀon of their annual compensaꢀon on a pre-tax basis. Company contribuꢀons to the Plan may be made at the discreꢀon of the Board of Directors. In the year ended December 31, 2023, the Company made matching contribuꢀons total- ing $17,000 ($39,000 in 2022). 2.24. Special items The Company may idenꢀfy special items that are signiﬁcant non-recurring items that management does not consider to be part of the Group’s ordinary acꢀviꢀes. Such special items may include one-ꢀme impairment costs, restructuring, and strategic consideraꢀons regarding the future of the business, and are presented separately in the Consolidated Statement of Comprehensive Income to provide a more comparable basis for the Company’s operaꢀons. Management assesses which items are to be idenꢀﬁed as special items and shown separately, in order to give a correct presentaꢀon of the statement of proﬁt or loss and other compre- hensive income. 2.21. Cash ꢂow statement The cash ﬂow statement is prepared using the indirect method. NOTES ASETEK Annual Report 2023 / Page 45 2.25. ESEF Regulaꢀon The Company’s Annual Report is prepared, in all material respects, in compliance with the Commission Dele- gated Regulaꢀon (EU) 2019/815 on the European Single Electronic Format (ESEF Regulaꢀon) which includes requirements related to the preparaꢀon of the Annual Report in XHTML format and iXBRL tagging of the Consolidated Financial Statements. Eﬀecꢀve Standard Content date EU endorsed as of December 31, 2023 Amendments to IFRS 16 Leases: Speciﬁes how a sale and leaseback is accounted for 1-Jan-24 Lease Liability in a Sale and Leaseback when reporꢀng aꢂer the date of the transacꢀon. Amendments to IAS 1 Presentaꢀon of The amendments specify that the condiꢀons 1-Jan-24 Financial Statements: Classiﬁcaꢀon which exist at the end of the reporꢀng period are of Liabiliꢀes as Current or Non-cur- those which will be used to determine if a right rent and Classiﬁcaꢀon of Liabiliꢀes to defer seꢄlement of a liability exists. Manage- as Current or Non-current- Deferral ment expectaꢀons about events aꢂer the balance of eﬀecꢀve date; and Non current sheet date are not relevant to the determinaꢀon. Liabiliꢀes with Covenants In addiꢀon, amendments specify that covenants to be complied with aꢂer the reporꢀng date do not aﬀect the classiﬁcaꢀon of debt as current or non-current at the reporꢀng date. Covenant details should be disclosed in notes to ﬁnancial statements. Not endorsed by EU as of December 31, 2023 Amendments to IAS 7 Statements Describes the characterisꢀcs of supplier ﬁnance 1-Jan-24 of Cash Flows and IFRS 7 Financial arrangements; requires disclosures of their terms Instruments: Disclosures: Supplier and condiꢀons, how arrangements impact liabili- Finance Arrangements ꢀes, cash ﬂows and exposure to liquidity risk, and eﬀects on carrying amounts of related ﬁnancial liabiliꢀes. Adds supplier ﬁnance arrangements as an example within the liquidity risk disclosure requirements in IFRS 7. Amendments to IAS 21 The Eﬀects of Amends IAS 21 to 1) specify when a currency is 1-Jan-25 Changes in Foreign Exchange Rates: exchangeable to another currency and when it is Lack of Exchangeability not; 2) specify how to determine the exchange rate to apply when a currency is not exchangea- ble; 3) require disclosure of addiꢀonal informa- ꢀon when a currency is not exchangeable. 2.26. Changes in accounꢀng policy and disclosures Applied new standards and amendments included in Annual Report for 2023. Certain new standards, amend- ments to standards, and annual improvements to standards and interpretaꢀons are eﬀecꢀve for annual periods beginning aꢂer January 1, 2023 and have been applied in preparing these consolidated ﬁnancial statements. These applicaꢀons did not materially impact the Group’s consolidated ﬁnancial statements. 2.27. New standards and amendments not applied in the Annual Report for 2023. There are some new standards and amendments to standards and interpretaꢀons that have not been applied in preparing these consolidated ﬁnancial statements. None of these is expected to have a signiﬁcant eﬀect on the consolidated ﬁnancial statements of the Group: NOTES ASETEK Annual Report 2023 / Page 46 3. RISK MANAGEMENT AND DEBT The Group’s acꢀviꢀes expose it to a variety of risks: liquidity risk, market risk (including foreign exchange risk and interest rate risk) and credit risk. The primary responsibility for Asetek’s risk management and internal controls in relaꢀon to the ﬁnancial reporꢀng process rests with execuꢀve management. Asetek’s internal control procedures are integrated in the accounꢀng and reporꢀng systems and include procedures with respect to review, authorizaꢀon, approval and reconciliaꢀon. All enꢀꢀes in the Asetek Group report ﬁnancial and operaꢀonal data to the execuꢀve oﬃce on a monthly basis, including commentary regarding ﬁnancial and business development. Based on this reporꢀng, the Group’s ﬁnancial statements are consolidated and reported to execuꢀve management. Management is in charge of ongoing eﬃcient risk management, including the idenꢀﬁcaꢀon of material risks, the development of systems for risk management, and that signiﬁcant risks are rouꢀnely reported to the Board of Directors. Debt covenants. Under lines of credit terms with Jyske Bank, the Company is required to comply with the following ﬁnancial covenants at each quarter-end: // Group solvency of at least 45% // Non-interest bearing debt to EBITDA maximum raꢀo of 2.5 // Posiꢀve free cash ﬂow aꢂer adjustment for property investment // Segment reporꢀng on EBITDA The Company has complied with the above covenants since their incepꢀon. There are no indicaꢀons that the Company will not comply with these covenants in the next reporꢀng period (Q1 2024). Under the lines of credit with Sydbank, the Company had covenants requiring minimum EBITDA and liquidity levels, and construcꢀon cost controls. The lines of credit with Sydbank were transiꢀoned to Jyske Bank in January 2024 (refer to Note 24). The following are contractual maturiꢀes of ﬁnancial liabiliꢀes, including lease and other ﬁnancing payments on an undiscounted basis: Liquidity risk. The Group incurred losses from operaꢀons and negaꢀve cash ﬂows from operaꢀons from incepꢀon through 2015. Posiꢀve operaꢀng cash ﬂows and operaꢀng income were ﬁrst generated in 2016 and conꢀnued through 2021. In 2022, the Company incurred operaꢀng losses and began faciliꢀes construcꢀon which required new capital. In 2023, the Company issued 71.2 new common shares of stock in a rights oﬀer- ing, raising net proceeds of $16.1 million (refer to Note 18). In 2023, the Company generated $9.4 million of operaꢀng income and $16.3 million of operaꢀng cash ﬂows. Current liabiliꢀes of the Company at December 31, 2023 includes $14.7 million of debt related to faciliꢀes construcꢀon, which was subsequently reﬁnanced in January 2024 to be due and payable January 1, 2025. At that ꢀme, the Company expects to convert the loan to a long-term mortgage. The Company believes that its cash posiꢀon and the liquidity available from its operaꢀons, external borrowings and other sources currently available is suﬃcient to saꢀsfy its working capital requirements for the foreseeable future. The Group’s corporate ﬁnance team monitors risk of a shortage of funds through regular updates and analysis of cash ﬂow projecꢀons and maturiꢀes of ﬁnancial assets and liabiliꢀes. The ﬁnance teams also review liquidity, balance sheet raꢀos (such as days’ sales outstanding, inventory turns) and other metrics on a regular basis to ensure compliance both on a short- and long-term basis. Asetek will conꢀnue to invest its capital principally in the development and markeꢀng of its products. In 2016, the Board of Directors implemented a policy under which it may declare and distribute dividends to shareholders. At the Annual General Meeꢀngs in 2023 and 2022, the Board was authorized to acquire the Company’s own shares and subsequently iniꢀated a share buyback program. In 2023 and 2022, the Company did not repurchase shares. When considering payment of dividends or Asetek share purchases, the Board takes into consideraꢀon the Company’s growth plans, internaꢀonal tax implicaꢀons, liquidity requirements and necessary ﬁnancial ﬂexibility. AS OF DECEMBER 31, 2023 On Less than 3 to 12 1 to 5 (USD 000’s) Demand 3 months months years Total Construcꢀon commitments - (1,689) (2,213) - (3,902) Lines of credit - - (14,700) (1,489) (16,189) Leases and equipment ﬁnancing - (256) (910) (1,180) (2,346) Payables and accrued liabiliꢀes - (17,447) (788) - (18,235) - (19,392) (18,611) (2,669) (40,672) AS OF DECEMBER 31, 2022 On Less than 3 to 12 1 to 5 (USD 000’s) Demand 3 months months years Total Construcꢀon commitments - (6,873) (14,622) (2,828) (24,323) Lines of credit (18,971) - - - (18,971) Leases and equipment ﬁnancing - (270) (832) (1,806) (2,908) Payables and accrued liabiliꢀes - (13,589) (589) - (14,178) (18,971) (20,732) (16,043) (4,634) (60,380) NOTES ASETEK Annual Report 2023 / Page 47 Market risk factors. The Group’s current principal ﬁnancial liabiliꢀes consist of short-term and long-term construcꢀon lines of credit, short-term operaꢀng line of credit and amounts owed on faciliꢀes and equip- ment leases. The Group’s ﬁnancial assets mainly comprise trade receivables, cash and deposits. The Group’s operaꢀons are exposed to market risks, principally foreign exchange risk and interest rate risk. (a) Foreign exchange risk. With few excepꢀons, the Group’s inventory purchase and sale transacꢀons are denominated in U.S. dollars. The Group operates internaꢀonally and is exposed to foreign exchange risk arising from currency exposures, principally with respect to the Danish kroner. Foreign exchange risk arises from operaꢀng results and net assets associated with Denmark-based operaꢀons where the Danish krone is the funcꢀonal currency. Translaꢀon of the Denmark enꢀty balance sheet accounts from Danish kroner to U.S. dollars aﬀect the equity balances of the Group. The Group has available lines of credit totaling 180 million Danish krone, of which DKK 109 million (USD 16.2 million) is outstanding at December 31, 2023 (the lines of credit are further described in “(b) Interest rate risk” below). The Group does not enter into derivaꢀves or other hedging transacꢀons to manage foreign exchange risk. Management miꢀgates this exposure through ꢀmely seꢄlement of intercompany operaꢀng liabiliꢀes. The ending exchange rate at December 31, 2023 was 6.74 Danish kroner to one U.S. dollar (6.97 to the U.S. dollar at December 31, 2022). The eﬀect of a 10% strengthening (weakening) of the Danish kroner against the U.S. dollar for the reporꢀng period would have resulted in an increase (decrease) in pre-tax income for ﬁscal year 2023 of ($1,640,000) (in 2022, decrease of the pre-tax income of ($1,519,000)). (b) Interest rate risk. The Group’s interest rate risk consists of the following credit lines. As of December 31, 2023, Asetek has three lines of credit totaling 180 million Danish krone (USD 26.7 million), of which USD 16.2 million has been uꢀlized, principally to ﬁnance construcꢀon of a new development center and HQ facility. // Asetek A/S, the Parent company, has a line of credit with Sydbank for DKK 100 million (USD 14.8 million), for which the total USD 14.7 million was uꢀlized at December 31, 2023. This line carries interest at Danish CIBOR 3 rate plus 1.25 percentage points which in total was 5.16% at December 31, 2023, and payment in full is due December 31, 2024. // Asetek Danmark A/S has a construcꢀon line of credit with Jyske Bank for DKK 75 million. The value of line in U.S. dollars is approximately USD 11.1 million, of which USD 1.5 million was uꢀlized at December 31, 2023. The line carries interest at the Danish CIBOR 3 rate plus 1.95 percentage points, which in total was 5.86% at December 31, 2023, and payment in full is due January 1, 2025. // Asetek Danmark A/S has an operaꢀng line of credit with Sydbank for DKK 5 million. The value of line in U.S. dollars is approximately USD 0.7 million, of which zero was uꢀlized at December 31, 2023. The line carries interest at the Danish CIBOR 3 rate plus 1.95 percentage points, which in total was 5.86% at De- cember 31, 2023, and payment in full is due December 31, 2024. The variable nature of the Danish CIBOR 3 rate results in risk of increased interest cost due to potenꢀal changes in rates. At the level of borrowings as of December 31, 2023, the eﬀect of a 50% relaꢀve increase in the Danish CIBOR 3 rate would result in increased annual interest cost of $0.3 million ($0.2 million in 2022). Capital and debt management. To date the Company’s primary focus has been to support its product development iniꢀaꢀves, maintain liquidity through use of ﬁnancing alternaꢀves, and maximize shareholder value. The Group manages its capital and debt structure with consideraꢀon of the liquidity needs of the NOTES ASETEK Annual Report 2023 / Page 48 Company and exisꢀng economic condiꢀons. In May 2023, to bridge a short-term working capital deﬁcit asso- ciated with its facility construcꢀon, the Company issued 71,166,167 new common shares of stock in a rights oﬀering, raising net proceeds of $16.1 million. Credit risk factors. Credit risk refers to the risk that a counterparty will default on its contractual obli- gaꢀons resulꢀng in ﬁnancial loss to the Group. The Group is exposed to credit risk primarily through trade receivables and cash deposits. Management miꢀgates credit risk through standard review of customer credit-worthiness and maintaining its liquid assets primarily with banks with credit raꢀngs of A or higher, such as Wells Fargo Bank in the U.S. and Jyske Bank in Denmark. The carrying amount of the ﬁnancial assets represents the maximum credit exposure. Trade receivables that are deemed uncollecꢀble are charged to expense with an oﬀseꢁng allowance re- corded against the trade receivable. Historically, bad debt expense has not been signiﬁcant. Certain custom- ers have accounted for a signiﬁcant porꢀon of the Company’s revenue in the years presented, as follows. In 2023, the Company’s three largest customers, all in the liquid cooling segment, accounted for 38%, 24% and 13% of revenue (three customers accounted for 32%, 22% and 18% of revenue in 2022), respecꢀvely. The Company miꢀgates risk with its largest customer by requiring two remiꢄances per month as well as frequent monitoring and communicaꢀng regarding invoices coming due. At December 31, 2023 three customers, all in the liquid cooling segment, represented 35%, 16% and 12% of outstanding trade receivables (three represented 38%, 24% and 10% at December 31, 2022), respecꢀvely. The reserve for uncollecꢀble trade accounts was $59,000 at December 31, 2023 and $41,000 at December 31, 2022. The aged trade receivables and bad debt reserve balances for all years presented are provided in Note 16. 4. GEOGRAPHICAL INFORMATION The Group operates internaꢀonally in several geographical areas, principally in Asia, Europe and the Americas. The following table presents the Group’s revenue and assets in each of the principal geographical areas: 2023 2022 Non- Non- Current current Current current (USD 000’s) Revenue assets assets Revenue assets assets Asia 65,252 11,045 119 40,216 10,041 167 Americas 5,130 5,369 1,099 6,017 2,849 1,866 Europe 5,950 14,371 70,736 4,417 14,926 48,766 TOTAL 76,332 30,785 71,954 50,650 27,816 50,799 For the purpose of the above presentaꢀon, the informaꢀon pertaining to revenue and current assets is calculated based on the locaꢀon of the customers, whereas informaꢀon pertaining to non-current assets is based on the physical locaꢀon of the assets. The informaꢀon pertaining to current assets is calculated as a summaꢀon of assets such as trade receivables and ﬁnished goods inventories reasonably aꢄributable to the speciﬁc geographical area. The maximum exposure to credit risk at the reporꢀng dates was: (USD 000’s) 2023 2022 Cash and cash equivalents 9,121 7,411 Trade receivables and other 12,611 13,432 Other assets 318 335 MAXIMUM CREDIT EXPOSURE 22,050 21,178 Non-current assets (USD 000’s) 2023 2022 Denmark 70,736 48,766 USA 1,099 1,866 China 119 167 TOTAL 71,954 50,799 Revenue (USD 000’s) 2023 2022 Denmark 525 250 China 8,576 6,665 Singapore 6,756 7,177 Taiwan 46,737 24,215 USA 4,917 5,621 Japan 2,667 1,381 All others 6,154 5,341 TOTAL 76,332 50,650 NOTES ASETEK Annual Report 2023 / Page 49 5. SEGMENT INFORMATION In 2023, the Company reports on three segments, Liquid cooling, Data center and SimSports. The three seg- ments are idenꢀﬁed by their speciﬁc sets of products and customers. The CEO is the Group’s chief operaꢀng decision-maker. The CEO assesses the performance of each segment principally on measures of revenue and adjusted EBITDA. Refer to page 77 for deﬁniꢀon of adjusted EBITDA. The following tables represent the results by operaꢀng segment in 2023 and 2022. Disaggregaꢀon of revenue by sales channel is also presented for the major markets within each segment. Revenue generated from retailers and online webstore is principally from the sale of SimSports products. Disaggregaꢀon of revenue (USD 000’s) 2023 2022 OEM and System Integrators 69,153 48,934 Retailers 4,289 893 Online webstore 2,890 823 TOTAL 76,332 50,650 Reconciliaꢀon of Adjusted EBITDA to Income before tax (USD 000’s) 2023 2022 EBITDA adjusted- Liquid Cooling 25,861 11,230 EBITDA adjusted- Data center 192 706 EBITDA adjusted- SimSports (6,688) (6,618) Special items (847) - Headquarters costs, net (3,501) (6,109) Share-based compensaꢀon (514) (440) Depreciaꢀon and amorꢀzaꢀon (5,100) (4,170) Total ﬁnancial income (expenses) (905) (477) CONSOLIDATED INCOME BEFORE TAX 8,498 (5,878) Segment operaꢀng results – years ended December 31 2023 2022 Liquid Not allocable Liquid Not allocable (USD 000's) Cooling Data center SimSports to divisions Total Cooling Data center SimSports to divisions Total Revenue 69,052 102 7,178 - 76,332 44,798 4,028 1,824 - 50,650 Adjusted EBITDA 25,861 192 (6,688) (3,501) 15,864 11,230 706 (6,618) (6,109) (791) NOTES ASETEK Annual Report 2023 / Page 50 6. SALARY COSTS AND REMUNERATIONS (USD 000’s) 2023 2022 Salaries 11,382 11,943 Reꢀrement fund payments to deﬁned contribuꢀon plan 578 584 Social cost 1,541 1,658 Share-based payment 514 440 Other expenses 806 719 TOTAL PERSONNEL COSTS 14,821 15,344 Less: Costs applied to inventory producꢀon (1,592) (1,127) Less: Capitalized as development cost (1,940) (1,648) TOTAL PERSONNEL EXPENSES IN OPERATING EXPENSE 11,289 12,569 AVERAGE NUMBER OF EMPLOYEES 134 140 The Company’s CEO has an agreement of twelve months’ severance pay in case of terminaꢀon or termina- ꢀon in connecꢀon with change of control. The Company’s CFO has an agreement of seven months’ severance pay in case of terminaꢀon or terminaꢀon in connecꢀon with change of control. Except for the Company’s CEO and CFO and other members of the execuꢀve group, no member of the administraꢀve, management or supervisory bodies has contracts with the Company or any of its subsidiaries providing for beneﬁts upon terminaꢀon of employment. Share ownership of oﬃcers, including immediate family members, at December 31, 2023: André S. Peter D. Eriksen Madsen Common shares 1,391,128 467,594 Opꢀons at DKK 4.07 1,150,000 393,400 Opꢀons at DKK 4.49 151,900 50,975 Opꢀons at DKK 7.37 106,800 61,750 Opꢀons at DKK 11.44 68,500 42,075 Opꢀons at DKK 13.82 53,300 26,500 Opꢀons at DKK 29.89 57,200 17,700 Warrants at: DKK 22.76 132,981 44,215 TOTAL SHARES CONTROLLED 3,111,809 1,104,209 (USD 000’s) 2023 2022 Research and development 4,517 4,121 Selling, general and administraꢀve 10,304 11,223 TOTAL PERSONNEL EXPENSES COSTS 14,821 15,344 Opꢀons Granted 2023 2022 Board of Directors - - Oﬃcers 1,543,400 202,175 Other execuꢀves 646,900 50,975 Other employees 766,550 123,350 TOTAL 2,956,850 376,500 Compensaꢀon to Board of Directors, Oﬃcers and Other Execuꢀves 2023 2022 Other Other (USD 000’s) Directors Oﬃcers Execuꢀves Total Directors Oﬃcers Execuꢀves Total Salary - 1,047 887 1,934 - 954 858 1,812 Bonus - 520 637 1,157 - 223 369 592 Share-based - 258 117 375 - 230 112 342 Other 255 219 65 539 236 193 64 493 TOTAL 255 2,044 1,706 4,005 236 1,600 1,403 3,239 * Other execuꢀves include the Chief Operaꢀng Oﬃcer and other members of the execuꢀve team who are leaders of the key funcꢀons (Engineering, Sales and Operaꢀons). NOTES ASETEK Annual Report 2023 / Page 51 7. SHARE BASED PAYMENT Acꢀvity for exercise prices of DKK 4.07 to DKK 7.37 Weighted Weighted Average Average Exercise price Exercise price 2023 (DKK) 2022 (DKK) Outstanding on January 1 992,460 5.94 822,371 4.41 Opꢀons/warrants granted 2,956,850 4.07 376,500 4.49 Opꢀons/warrants exercised - - (183,091) 3.30 Opꢀons/warrants forfeited (228,307) 5.84 (23,320) 7.23 OUTSTANDING ON DECEMBER 31 3,721,003 4.46 992,460 5.94 EXERCISABLE ON DECEMBER 31 558,766 6.52 595,917 6.61 The weighted average market price per share on the date of exercise for the above shares was DKK 8.20 in 2022. Acꢀvity for exercise prices of DKK 11.44 to DKK 33.72 Weighted Weighted Average Average Exercise price Exercise price 2023 (DKK) 2022 (DKK) Outstanding on January 1 1,226,419 20.15 1,290,144 14.69 Opꢀons/warrants granted - - - - Opꢀons/warrants exercised - - - - Opꢀons/warrants forfeited (27,943) 18.32 (63,725) 18.93 OUTSTANDING ON DECEMBER 31 1,198,476 20.20 1,226,419 20.15 EXERCISABLE ON DECEMBER 31 1,170,239 20.19 1,079,800 20.12 Asetek’s Equity Incenꢀve Program is a share compensaꢀon program where the employees that deliver servic- es to the Group have been granted share opꢀons (or warrants). The opꢀons, if vested and executed, will be seꢄled in common shares of the Company. The opꢀons are granted at the ꢀme of employment and, under other circumstances, at the discreꢀon of the Board of Directors. The opꢀons are granted with exercise prices equaling the fair market value of the underlying security. The exercise prices of opꢀon grants are determined based on the closing market price of the shares for the ﬁve most recent trading days prior to the grant date. Share-based compensaꢀon expense was $514,000 and $440,000 for the years ended December 31, 2023 and 2022, respecꢀvely. The goals of the equity incenꢀve program are as follows: // To aꢄract and retain the best available personnel for posiꢀons of substanꢀal responsibility; // To provide addiꢀonal incenꢀve to employees, directors and consultants, and // To promote the success of the Company’s business. In July 2023, in consideraꢀon of the diluꢀon eﬀect of the Company’s May 2023 rights oﬀering (Note 18), and transiꢀon of lisꢀng to the Nasdaq Copenhagen, the Board of Directors reduced the exercise prices of out- standing share opꢀons by 45% and converted the currency denominaꢀon to Danish krone. Stock compensa- ꢀon expense in 2023 associated with the exercise price adjustments was $142,000. The repricing of opꢀons is summarized as follows: Original Revised Grant year Exercise Price Exercise Price 2022 NOK 15.04 DKK 4.49 2021 NOK 100.15 DKK 29.89 2020 NOK 38.33 DKK 11.44 2019 NOK 24.70 DKK 7.37 2018 NOK 46.30 DKK 13.82 2017 NOK 76.25 DKK 22.76 2017 NOK 113.00 DKK 33.72 2016 NOK 19.50 DKK 5.82 The Company’s shares trade principally on the Nasdaq Copenhagen at prices denominated in Danish krone (DKK). The exchange rate at December 31, 2023 of DKK to USD was 6.74. In December 2023, the Company granted 2,956,850 opꢀons with exercise prices of DKK 4.07 per share. In September 2022, the Company granted 376,500 opꢀons which have exercise prices of DKK 4.49 per share aꢂer the eﬀect of the Company’s opꢀon repricing in July 2023. Movements in the number of share opꢀons outstanding and their related weighted average exercise price are speciﬁed on the following table. NOTES ASETEK Annual Report 2023 / Page 52 The composiꢀon of opꢀons and warrants outstanding at December 31 is as follows: Opꢀons and Warrants Outstanding at December 31 2023 2022 DKK 4.07 2,956,850 - DKK 4.49 370,381 375,500 DKK 5.82 - 216,418 DKK 7.37 393,772 400,542 DKK 11.44 258,427 264,687 DKK 13.82 278,791 287,853 DKK 22.76 384,054 392,747 DKK 29.89 180,205 184,133 DKK 33.72 96,999 96,999 TOTAL 4,919,479 2,218,879 8. EXPENSES BY NATURE Expenses by Nature (USD 000’s) Note 2023 2022 Inventories recognized as cost of sales 18 41,624 29,885 Personnel expenses 6 14,821 15,344 Depreciaꢀon and amorꢀzaꢀon 14,15 5,100 4,171 Legal, patent, consultants and auditor 2,269 5,202 Faciliꢀes and infrastructure 1,192 1,079 Special items 847 - Other expenses 3,637 3,656 TOTAL OPERATING EXPENSES BEFORE CAPITALIZATION 69,490 59,337 Less: capitalized costs for development projects 14 (2,561) (3,405) TOTAL EXPENSES 66,929 55,932 Total outstanding opꢀons and warrants represents 5.0% of total common shares issued at December 31, 2023 (8.2% in 2022). The Company calculated the fair value of each opꢀon award on the date of grant using the Black-Scholes opꢀon pricing model, which requires subjecꢀve assumpꢀons, including future stock price volaꢀlity and expected ꢀme to exercise. The Company sets the exercise price of shares granted as the average closing price of the Company’s shares for the ﬁve most recent trading days prior to the grant date. The expected volaꢀlity was based on the historical volaꢀlity of the Company’s stock price. The weighted average remaining contrac- tual term of opꢀons outstanding is 3.6 years. The opꢀons granted in December 2023 have an esꢀmated total value of $1.2 million. The opꢀons granted in September 2022 have an esꢀmated total value of $0.3 million. Expected volaꢀlity is calculated based on the actual volaꢀlity experienced during the three-year period prior to each opꢀon’s grant date. The following weighted average assumpꢀons were used for the period indicated. Depreciaꢀon and amorꢀzaꢀon expense classﬁcaꢀon (USD 000’s) 2023 2022 Depreciaꢀon and amorꢀzaꢀon expense included in: Research and development 2,560 2,117 Selling, general and administraꢀve 2,540 2,053 TOTAL 5,100 4,170 Special item and other income. In May 2023, in conjuncꢀon with the rights oﬀering described in Note 18, the Company began transiꢀon of its shares for trading from Oslo Stock Exchange to Nasdaq Copenhagen. Operaꢀng expense in 2023 includes $0.8 million of non-recurring costs associated with this lisꢀng change, classiﬁed as a special item in operaꢀng expense on the income statement. In October 2022, Asetek announced a seꢄlement of the pending patent infringement lawsuit with CoolIT Systems and Corsair Gaming. Total costs incurred including legal fees and seꢄlement associated with this law- suit was $3.4 million in 2022 and is included in selling, general and administraꢀve expense. Total operaꢀng expense in the consolidated statement of comprehensive income includes a separate component of other income (expense) totaling $0.1 million expense in 2022. Valuaꢀon assumpꢀons 2023 2022 Risk-free interest rate 4.33%- 3.34%- 4.58% 3.41% Dividend yield 0.0% 0.0% Expected life of opꢀons (years) 2.5- 3.96 2.5- 3.96 Expected volaꢀlity 114% 75%- 82% NOTES ASETEK Annual Report 2023 / Page 53 9. FINANCE COSTS AND INCOME 11. DEFERRED INCOME TAX (USD 000’s) 2023 2022 FOREIGN EXCHANGE GAIN (LOSS) (1,015) (344) FINANCE INCOME 265 45 Interest cost on line of credit (1,009) (506) Interest cost on leases and equipment ﬁnancing (109) (77) Other banking and ﬁnance fees (166) (80) Subtotal (1,284) (663) Less: amount capitalized 1,129 485 FINANCE COST (155) (178) (USD 000’s) 2023 2022 Potenꢀal tax assets from net losses 6,064 7,740 Potenꢀal tax assets resulꢀng from ꢀming diﬀerences between book and tax 618 585 Tax assets not recognized (993) (959) DEFERRED INCOME TAX ASSETS 5,689 7,366 At December 31, 2023, potenꢀal income tax assets totaled $6.7 million (2022: $8.3 million) in respect of ꢀm- ing diﬀerences and losses to be carried forward amounꢀng to $23.5 million that should be applied to diﬀer- ent tax rates. The losses can be carried forward against future taxable income. In 2023, the Group recorded deferred tax assets totaling $5.7 million ($7.4 million in 2022), which represents the net tax beneﬁt that the Company considers probable to be realized in the future, based on Company budget for the following year and esꢀmates for the subsequent years. In accordance with IAS 12, the Company recognizes deferred tax assets arising from unused tax losses or tax credits only to the extent that the enꢀty has suﬃcient taxable temporary diﬀerences or there is con- vincing other evidence that suﬃcient taxable proﬁt will be available against which the unused tax losses or unused tax credits can be uꢀlized by the Company. The esꢀmated tax beneﬁt is calculated considering historical levels of income, expectaꢀons and risks associated with esꢀmates of future taxable income. The calculaꢀon uꢀlizes the statutory tax rates that are expected to apply to taxable income for the years in which the asset is expected to be realized. Though the Company incurred net losses in 2022, Asetek’s revenue and operaꢀng income performance for 2023 resulted in net uꢀlizaꢀon of $1.7 million of deferred tax assets during the year. In 2024, revenue from the Liquid Cooling segment is expected to be close to 2023 revenue and revenue in the SimSports seg- ment is expected to increase compared to 2023. Management’s ﬁnancial projecꢀons esꢀmate that deferred tax assets associated with net operaꢀng loss carryforwards will be uꢀlized within the next four years. Losses of the U.S. parent company and U.S. subsidiary will begin to expire in 2028 for carryforward pur- poses. Losses of the Denmark subsidiary do not expire. Expiraꢀon of the carryforward of losses is summa- rized as follows: 10. INCOME TAXES Asetek A/S, the Group’s parent company, moved from U.S. to Denmark in 2013 and is currently subject to income tax in both U.S. and Denmark. The Company is working with the U.S. and Danish tax authoriꢀes to negoꢀate a resoluꢀon in accordance with internaꢀonal double taxaꢀon treaꢀes. The tax expense on the group’s income before tax diﬀers from the theoreꢀcal amount that would arise using the weighted average tax rate applicable to proﬁts of the consolidated enꢀꢀes as follows: (USD 000’s) 2023 2022 INCOME (LOSS) BEFORE TAX 8,498 (5,878) Tax calculated at domesꢀc rates applicable to proﬁts/losses in respecꢀve countries (1,902) 1,222 Tax eﬀects of: R&D credit 50 292 Timing diﬀerences between book and tax, recognized 70 57 Timing diﬀerences between book and tax, not previously recognized - 295 Eﬀect of U.S. GILTI regulaꢀon applied to foreign corporaꢀon income (766) - Other permanent diﬀerences between book and tax 51 (313) TAX (EXPENSE) BENEFIT (2,497) 1,553 (USD 000’s) Tax eﬀected loss Expire in years 2028 to 2034 1,049 Do not expire 3,991 TOTAL 5,040 NOTES ASETEK Annual Report 2023 / Page 54 Based on current interest rates and its recent bank ﬁnancing negoꢀaꢀons, the Company believes that book value approximates fair value for all ﬁnancial instruments as of December 31, 2023. The values of the Group’s assets and liabiliꢀes are as follows: 12. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the proﬁt or loss aꢄributable to equity holders of the Com- pany by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by adjusꢀng the number of common shares outstanding used in the Basic calculaꢀon for the eﬀect of diluꢀve equity instruments, which include opꢀons and warrants to the extent their inclusion in the calculaꢀon would be diluꢀve. As described in Note 18, in a rights oﬀering in May 2023, the Company issued new shares to exisꢀng shareholders at a discounted price from fair market value. IAS 33 requires that the price discount be rec- ognized as a bonus element, with retrospecꢀve adjustment to the denominators for both basic and diluted earnings per share amounts for all periods before the rights issue. In accordance with IAS 33, the Company calculated and applied a bonus factor of 2.05 to the weighted average shares outstanding for all prior peri- ods. At December 31, 2023 (USD 000’s) Amorꢀzed cost Assets as per balance sheet: Trade receivables and other 12,611 Cash and cash equivalents 9,121 21,732 At December 31, 2022 (USD 000’s) Amorꢀzed cost Assets as per balance sheet: Trade receivables and other 13,432 Cash and cash equivalents 7,411 20,843 (USD 000’s) 2023 2022 Income aꢄributable to equity holders of the Company (USD 000's) 6,001 (4,325) Weighted average number of common shares outstanding (000's) 81,642 52,978 BASIC EARNINGS PER SHARE $0.07 $(0.08) Weighted average number of common shares outstanding (000's) 81,642 52,978 Instruments with potenꢀally diluꢀve eﬀect: Warrants and opꢀons (000's) - - Weighted average number of common shares outstanding, diluted (000's) 81,642 52,978 DILUTED EARNINGS PER SHARE $0.07 $(0.08) At December 31, 2023 Liabiliꢀes at fair Other Financial value through Liabiliꢀes at (USD 000’s) proﬁt and loss amorꢀzed cost Total Liabiliꢀes as per balance sheet: Long-term debt - 2,596 2,596 Short-term debt - 15,782 15,782 Trade payables and accrued liabiliꢀes - 18,235 18,235 - 36,613 36,613 13. FINANCIAL INSTRUMENTS CATEGORY AND FAIR VALUE ESTIMATION The Company uses the following valuaꢀon methods for fair value esꢀmaꢀon of ﬁnancial instruments: // Quoted prices (unadjusted) in acꢀve markets (Level 1). // Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2) // Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). At December 31, 2022 Liabiliꢀes at fair Other Financial value through Liabiliꢀes at (USD 000’s) proﬁt and loss amorꢀzed cost Total Liabiliꢀes as per balance sheet: Long-term debt - 1,739 1,739 Short-term debt - 19,950 19,950 Trade payables and accrued liabiliꢀes - 14,178 14,178 - 35,867 35,867 All of the Company’s ﬁnancial assets as of December 31, 2023 are classiﬁed as “amorꢀzed cost” having ﬁxed or determinable payments that are not quoted in an acꢀve market (Level 3). As of December 31, 2023, all of the Company’s ﬁnancial liabiliꢀes are carried at amorꢀzed cost having ﬁxed or determinable payments that are not quoted in an acꢀve market (Level 3). NOTES ASETEK Annual Report 2023 / Page 55 14. INTANGIBLE ASSETS In 2021, the Company purchased intellectual property and other assets from a third party which included intangible assets with an esꢀmated fair value of $7.8 million, the majority of which were in development. As the assets are placed in service, they are being amorꢀzed over their esꢀmated useful lives ranging from 6 to 10 years. Goodwill. Goodwill of $0.5 million originated from an acquisiꢀon by the Company in 2020. Goodwill is not amorꢀzed but reviewed for impairment once a year and also if events or changes in circumstances indi- cate the carrying value may be impaired. If impairment is established, goodwill is wriꢄen down to its lower recoverable amount. The goodwill recorded is denominated in Danish krone and is subject to ﬂuctuaꢀon in the consolidated ﬁnancial statements due to changes in foreign exchange rates. The Company’s intangible assets are pledged as security for lines of credit outstanding as per Note 19. Intangible assets as of December 31 are as follows: Capitalized development costs (USD 000’s) 2023 2022 COST: Balance at January 1 7,487 5,956 Addiꢀons 2,561 3,405 Deleꢀons- compleꢀon of useful life (61) (1,367) Impairment loss (137) (507) BALANCE AT DECEMBER 31 9,850 7,487 ACCUMULATED AMORTIZATION AND IMPAIRMENT LOSSES: Balance at January 1 (2,724) (2,724) Amorꢀzaꢀon for year (2,053) (1,763) Amorꢀzaꢀon associated with deleꢀons 61 1,367 Amorꢀzaꢀon associated with impairment losses 77 396 BALANCE AT DECEMBER 31 (4,639) (2,724) CARRYING AMOUNT 5,211 4,763 (USD 000’s) 2023 2022 Goodwill 543 526 Capitalized development costs 5,211 4,763 Other assets 6,296 6,725 TOTAL INTANGIBLE ASSETS 12,050 12,014 Capitalized development costs. The Group rouꢀnely incurs costs directly aꢄributable to the design and tesꢀng of new or improved products to be held for sale. These costs are capitalized as intangible assets and amorꢀzed over the esꢀmated useful lives of the products, typically three to sixty months. Impairment tests are performed annually on developed assets and assets under construcꢀon. Impairment tests are also performed on completed assets whenever there are indicaꢀons of a need for write-oﬀs and for assets sꢀll in development regardless of whether there have been indicaꢀons for write downs. If the value of expected future free cash ﬂow of the speciﬁc development project is lower than the carrying value, the asset is wriꢄen down to the lower value. The booked value includes capitalized salary and related expenses for the cash ﬂow producing project. Expected future free cash ﬂow is based on budgets and anꢀcipaꢀons prepared by management. The main parameters are the development in revenue, EBIT and working capital. Impair- ment losses represent principally assets which are no longer associated with a future income stream. In 2023 and 2022, the Company recognized impairment of $0.1 million and $0.1 million on capitalized development costs, respecꢀvely, as a result of updated prioriꢀzaꢀon of future commercial projects. The following table presents a summary of the Company’s development projects. Other intangible assets (USD 000’s) 2023 2022 COST: Balance at January 1 6,958 7,394 Addiꢀons - - Exchange rate diﬀerences 237 (436) BALANCE AT DECEMBER 31 7,195 6,958 ACCUMULATED AMORTIZATION AND IMPAIRMENT LOSSES: Balance at January 1 (233) (247) Amorꢀzaꢀon for year (637) - Exchange rate diﬀerences (29) 14 BALANCE AT DECEMBER 31 (899) (233) CARRYING AMOUNT 6,296 6,725 Impairment assessment. Due to losses incurred in 2022, management performed an impairment test and concluded that the net present value of expected future cash ﬂows was suﬃcient to support the value of intangible assets at December 31, 2022. In 2023, management did not idenꢀfy indicators of potenꢀal im- pairment of capitalized development costs or other intangible assets. NOTES ASETEK Annual Report 2023 / Page 56 15. PROPERTY, PLANT AND EQUIPMENT The Company’s plans for the new development and HQ facility are to lease secꢀons of the building that are not occupied by Asetek for three to ﬁve years and to subsequently occupy the enꢀre facility thereaꢂer. The secꢀons to be leased to others are conꢀguous with the premises occupied by Asetek and cannot be feasibly separated. As a result, the asset is accounted for as a domicile property, recorded at cost and depreciated over its esꢀmated useful life aꢂer it is placed in service. The following table presents total property, plant and equipment. In 2023, the Company capitalized $22.8 million of costs associated with the construcꢀon of a new devel- opment center and headquarters facility, including $1.1 million of borrowing costs ($19.7 million and $0.5 million, respecꢀvely in 2022). Reference Note 19. At December 31, 2023, the Company had outstanding commitments for addiꢀonal construcꢀon costs totalling DKK 26.3 million ($3.9 million). Other ﬁxtures, Leasehold ﬁꢂngs, tools, Building under (USD 000’s) Improvements Machinery equipment Properꢀes construcꢀon Total COST: Balance at January 1, 2022 1,759 6,256 3,475 6,148 4,107 21,745 Addiꢀons - 1,338 1,038 92 19,747 22,215 Disposals - (232) (745) (98) - (1,075) Exchange rate diﬀerences (102) (319) (195) (173) - (789) BALANCE AT DECEMBER 31, 2022 1,657 7,043 3,573 5,969 23,854 42,095 Balance at January 1, 2023 1,657 7,043 3,573 5,969 23,854 42,095 Addiꢀons 20 1,517 843 29 22,766 25,175 Disposals (141) (852) (788) (654) - (2,435) Exchange rate diﬀerences (34) 246 92 98 - 402 BALANCE AT DECEMBER 31, 2023 1,502 7,954 3,720 5,442 46,620 65,237 ACCUMULATED DEPRECIATION: Balance at January 1, 2022 (1,236) (4,739) (2,462) (1,576) - (10,013) Disposals - 232 771 (100) - 903 Depreciaꢀon for the year (300) (902) (629) (576) - (2,407) Exchange rate diﬀerences 67 236 135 68 - 506 BALANCE AT DECEMBER 31, 2022 (1,469) (5,173) (2,185) (2,184) - (11,011) Balance at January 1, 2023 (1,469) (5,173) (2,185) (2,184) - (11,011) Disposals 141 849 701 654 - 2,345 Depreciaꢀon for the year (151) (1,058) (611) (590) - (2,410) Exchange rate diﬀerences 38 (173) (61) (68) - (264) BALANCE AT DECEMBER 31, 2023 (1,441) (5,555) (2,156) (2,188) - (11,340) CARRYING AMOUNT AT DECEMBER 31, 2022 188 1,870 1,388 3,785 23,854 31,084 CARRYING AMOUNT AT DECEMBER 31, 2023 61 2,399 1,564 3,254 46,620 53,897 NOTES ASETEK Annual Report 2023 / Page 57 16. TRADE RECEIVABLES AND OTHER Trade receivables are non-interest bearing and are generally on payment terms of Net 30 days. The trade receivables of Asetek Danmark A/S carry a general lien on the business of Asetek Danmark A/S (refer to Note 25). The carrying amount of trade receivables is approximately equal to fair value due to the short term to maturity. Regarding credit risks, refer to Note 3. Credit Loss Provision Matrix 2022 Past due: 31 to 60 Over 60 (USD 000’s) Total Not yet due 1 to 30 days days days Gross carrying amount 8,792 5,797 1,821 410 764 Expected credit loss rate 0.1% 0.5% 5.4% 0.4% Lifeꢀme expected credit loss (41) (6) (10) (22) (3) (USD 000’s) 2023 2022 Gross trade receivables 10,641 8,792 Provision for uncollecꢀble accounts (59) (41) NET TRADE RECEIVABLES 10,582 8,751 Other receivables 1,153 3,514 Prepaid assets 876 1,167 TOTAL TRADE RECEIVABLES AND OTHER 12,611 13,432 Provision for uncollecꢀble accounts (USD 000’s) 2023 2022 Balance at January 1 (41) (33) Addiꢀons (59) (41) Reversals 41 33 BALANCE AT DECEMBER 31 (59) (41) 17. INVENTORIES The Company’s inventories are pledged as security for lines of credit outstanding as per Note 19. Inventories at December 31 are as follows: (USD 000’s) 2023 2022 Raw materials and work-in-process 5,320 4,234 Finished goods 4,995 3,520 Total gross inventories 10,315 7,754 Less provision for inventory reserves (1,262) (781) TOTAL NET INVENTORIES 9,053 6,973 (USD 000’s) 2023 2022 Inventories recognized as cost of sales during period (41,624) (29,885) Write-down of inventories to net realizable value (1,262) (781) The aging of trade receivables as of reporꢀng date is as follows: Past due: 31 to 60 Over 60 (USD 000’s) Total Not yet due 1 to 30 days days days December 31, 2023 10,641 9,355 1,142 71 73 December 31, 2022 8,792 5,797 1,821 410 764 Credit Loss Provision Matrix 2023 Past due: 31 to 60 Over 60 (USD 000’s) Total Not yet due 1 to 30 days days days Gross carrying amount 10,641 9,355 1,142 71 73 Expected credit loss rate 0.1% 0.4% 4.2% 58.9% Lifeꢀme expected credit loss (59) (8) (5) (3) (43) A summary of the acꢀvity in the provision for inventory reserves is as follows: Provision for inventory reserves (USD 000’s) 2023 2022 Balance at January 1 (781) (631) Addiꢀons (1,262) (781) Write-oﬀs 781 631 BALANCE AT DECEMBER 31 (1,262) (781) NOTES ASETEK Annual Report 2023 / Page 58 18. SHARE CAPITAL // Asetek Danmark A/S has a construcꢀon line of credit with Jyske Bank for DKK 75 million (USD $11.1 million), of which USD 1.5 million was uꢀlized at December 31, 2023. The line is secured by the assets of Asetek Danmark A/S and carries interest at the Danish CIBOR 3 rate plus 1.95 percentage points, which in total was 5.86% at December 31, 2023. Payment in full is due January 1, 2025. // Asetek Danmark A/S has a revolving line of credit with Sydbank for DKK 5 million (USD $0.7 million), of which zero was uꢀlized at December 31, 2023. The line is secured by the assets of Asetek Danmark A/S and carries interest at the Danish CIBOR 3 rate plus 1.95 percentage points, which in total was 5.86% at December 31, 2023. Payment in full is due December 31, 2024. In May 2023, the Company issued 71,166,167 new common shares of stock in a rights oﬀering, raising net proceeds of $16.1 million aꢂer deducꢀon of total issuance costs of $3.7 million. The shares were issued through an oﬀering to then-exisꢀng shareholders to purchase 2.62 common shares for each share held at a price of NOK3.00 per share, represenꢀng a 64% discount on fair market value. The transacꢀon meets the requirements for exempꢀon from accounꢀng for derivaꢀve ﬁnancial instruments per IAS 32 Financial Instru- ments Presentaꢀon. In conjuncꢀon with the rights oﬀering, the Company established a dual lisꢀng of its shares for trading on Nasdaq Copenhagen, in addiꢀon to its exisꢀng lisꢀng on Oslo Børs Stock Exchange. The Company plans to delist from Oslo Børs in March 2024. Operaꢀng expense in 2023 includes $0.8 million of non-recurring costs associated with the dual lisꢀng, classiﬁed as a special item in operaꢀng expense on the income statement. In 2022, a total of 183 thousand opꢀons (0.6% of total shares, nominal value DKK 18.3 thousand) were exercised resulꢀng in $216,000 received by the Company. In 2023, there were no stock opꢀons exercised. As of December 31, 2023, there are 97,058 thousand common shares outstanding with a nominal value of 0.10 DKK per share and 1,256 thousand shares (1.3% of total shares, nominal value DKK 125.6 thousand) held in treasury. Included in equity is a reserve for treasury shares of approximately $11,206 thousand at December 31, 2023. All common shares outstanding are fully paid and carry no special rights. The Company does not cancel shares that are repurchased but maintains them in treasury to fulﬁll opꢀon exercises. Refer to ‘Shareholder informaꢀon’ in this report for informaꢀon regarding the composiꢀon of Asetek shareholders. Debt covenants. Under the terms of the lines of credit, the Company is required to comply with certain ﬁnancial covenants as described in Note 3. As of December 31, 2023, the Company is in compliance with all covenants. The capitalizaꢀon rate for borrowing costs on lines of credit was 100% in both 2023 and 2022, as all funds drawn were uꢀlized for addiꢀons to the qualifying asset. In June 2023 and September 2022, the Company entered into agreements to ﬁnance $0.2 million and $1.1 million, respecꢀvely, of previously purchased equipment. The amorꢀzed cost of the equipment at trans- acꢀon date was used as the esꢀmate of fair value and the liability is accounted for at amorꢀzed cost using the eﬀecꢀve interest rate method. The ﬁnancing agreements carry interest at the Danish CIBOR 3 rate plus 2.4 to 3.1 percentage points, which in total ranged from 6.3% to 7.0% at December 31, 2023. The following is a summary of the Company’s net debt and reconciliaꢀon of the lines of credit: (USD 000’s) 2023 2022 Line of credit- due within one year (14,700) (18,971) Equipment ﬁnancing- due within one year (270) (228) Leases- amounts due within one year (812) (751) DEBT INCLUDED IN CURRENT LIABILITIES (15,782) (19,950) Line of credit- due aꢂer one year (1,489) - Equipment ﬁnancing- due aꢂer one year (756) (826) Leases- amounts due aꢂer one year (351) (913) TOTAL DEBT (18,378) (21,689) Less cash and cash equivalents 9,121 7,411 NET DEBT (9,257) (14,278) The following table summarizes the common share acꢀvity in the years presented: (USD 000’s) 2023 2022 Common shares outstanding- January 1 25,891 25,708 Common shares issued in rights oﬀering 71,167 - Opꢀons and warrants exercised and shares issued - 183 COMMON SHARES OUTSTANDING – DECEMBER 31 97,058 25,891 19. NET DEBT In December 2023, the Company began to transiꢀon its exisꢀng lines of credit from Sydbank to Jyske Bank. The transiꢀon was completed in January 2024 (refer to Note 24). The Company’s debt at December 31, 2023 consists of the following: // Asetek A/S, the Parent company, has a line of credit with Sydbank for DKK 100 million (USD 14.8 million), of which USD 14.7 million was uꢀlized at December 31, 2023. This line is secured by the land and building under construcꢀon and carries interest at Danish CIBOR 3 rate plus 1.25 percentage points which in total was 5.16% at December 31, 2023. Payment in full is due December 31, 2024. (USD 000’s) 2023 2022 Beginning balance, line of credit (18,971) (743) Net paid (drawn) on line of credit 2,874 (17,892) Foreign exchange impact (92) (336) ENDING BALANCE, LINE OF CREDIT (16,189) (18,971) NOTES ASETEK Annual Report 2023 / Page 59 20. LEASES Right-of-use Assets. The following table presents a summary of the Right-of-use assets under lease, which is a subset of the property, plant and equipment presented in Note 15: Asetek leases certain equipment, its principal oﬃce faciliꢀes and certain motor vehicles. Contracts are typi- cally for ﬁxed periods of ﬁve years or more for oﬃce faciliꢀes, ﬁve years for equipment, and two years or less for motor vehicles. The leased asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. Operaꢀng expenses associated with leases of one year or less are not signiﬁcant in 2023 and 2022. The Company’s oﬃce space in Aalborg, Denmark is under lease through July 2025. The Company’s oﬃce space in Taipei, Taiwan is under lease unꢀl August 2025. Other ﬁxtures, ﬁꢂngs, tools, (USD 000’s) Machinery equipment Properꢀes Total COST: Balance at December 31, 2022 1,402 143 3,439 4,984 Addiꢀons - 290 29 319 Disposals and transfers - (95) (654) (749) Exchange rate diﬀerences - 1 98 99 BALANCE AT DECEMBER 31, 2023 1,402 339 2,912 4,653 ACCUMULATED DEPRECIATION: Balance at December 31, 2022 (1,098) (32) (2,158) (3,288) Disposals and transfers - 41 654 695 Depreciaꢀon for the year - (76) (590) (666) Exchange rate diﬀerences - (1) (66) (67) BALANCE AT DECEMBER 31, 2023 (1,098) (68) (2,160) (3,326) CARRYING AMOUNT AT DECEMBER 31, 2022 304 111 1,281 1,696 CARRYING AMOUNT AT DECEMBER 31, 2023 304 271 752 1,327 Reconciliaꢀon of lease liability (USD 000’s) 2023 2022 Beginning balance 1,664 2,500 Addiꢀons to lease liabiliꢀes 273 95 Payments of lease liabiliꢀes (802) (835) Adjustments/reducꢀons to leases (54) (33) Foreign exchange impact 82 (63) ENDING BALANCE 1,163 1,664 Total cash payments for leases was $840,000 and $826,000 in 2023 and 2022, respecꢀvely. Future minimum lease payments are as follows as of the balance sheet date: Future minimum lease payments (USD 000’s) 2023 2022 Minimum lease payments at December 31 1,010 1,687 Asset residual at end of lease 183 51 Less: amount represenꢀng interest (30) (74) TOTAL OBLIGATIONS UNDER LEASES 1,163 1,664 Obligaꢀons under leases due within one year 812 751 Obligaꢀons under leases due aꢂer one year 351 913 TOTAL OBLIGATIONS UNDER LEASES 1,163 1,664 NOTES ASETEK Annual Report 2023 / Page 60 21. TRANSACTIONS WITH RELATED PARTIES 23. AUDIT FEES The Company’s CEO serves as Chairman of the Board for a vendor that supplies informaꢀon technology ser- vices to the Company. In 2023, the Company purchased services totaling $0.8 million ($0.7 million in 2022) from this vendor. At December 31, 2023 and 2022, the Company had outstanding payables to this vendor of $66,000 and $51,000, respecꢀvely. The Company sponsors and occasionally purchases equipment and other services from Valdemar Eriksen Racing A/S (“VER”), an organizaꢀon parꢀally owned by the Company’s CEO. In the years ended December 31, 2023 and 2022, the Company paid $2,000 and $147,000 to VER. The Group’s principal auditors perform audits for all of Asetek’s enꢀꢀes except for the Xiamen, China sub- sidiary, which is audited by a local ﬁrm. The Group’s principal auditors received a total fee of $586,000 and $240,000 in 2023 and 2022, respecꢀvely. Fees for services other than statutory audits provided by PricewaterhouseCoopers Statsautoriseret Revi- sionspartnerselskab to the group amount to $294,000 ($54,000 in 2022) and consists principally of ﬁnancial review and veriﬁcaꢀon of ﬁlings associated with the Company’s rights oﬀering and lisꢀng on Nasdaq Copen- hagen in May 2023, as well as tax advice related to transfer pricing and other miscellaneous services. The fee is distributed between these services: (USD 000’s) 2023 2022 Audit 215 130 Other assurance services 294 6 Tax services 62 88 Other services 15 16 TOTAL 586 240 22. SUBSIDIARIES The following enꢀꢀes are included in the consolidated accounts: Voꢀng Company Domicile Stake Share Acꢀvity Asetek A/S Denmark 100% 100% Trading Asetek Holdings, Inc. USA 100% 100% Inacꢀve Asetek USA, Inc. USA 100% 100% Trading Asetek Danmark A/S Denmark 100% 100% Trading Xiamen Asetek Computer Industry Co., Ltd. China 100% 100% Trading JMH Gallows Pound Technologies Limited United Kingdom 100% 100% Inacꢀve NOTES ASETEK Annual Report 2023 / Page 61 24. POST BALANCE SHEET EVENTS The Company has evaluated the period aꢂer December 31, 2023 up through the date of the Management Statement and determined that there were no transacꢀons that required recogniꢀon in the Company’s ﬁnancial statements, except for the following: On January 5, 2024, the Company completed the transiꢀon of its principal banking relaꢀonship, moving the Asetek A/S line of credit totaling DKK 100 million (USD 14.8 million) to Jyske Bank. This line is secured by the land and building under construcꢀon and carries interest at Danish CIBOR 3 rate plus 1.25 percentage points. Payment in full is due January 1, 2025. Also on January 5, 2024, the Company transiꢀoned the Asetek Danmark A/S operaꢀng line of credit total- ing DKK 5 million (USD 0.7 million) to Jyske Bank. This line of credit is secured by collateral as stated in Note 25, carries interest at Danish CIBOR 3 rate plus 1.95 percentage points, and payment in full is due January 1, 2025. 25. CONTINGENT LIABILITIES The Company has challenged the Danish tax authoriꢀes in a maꢄer related to the deducꢀblity of expenses related to stock opꢀons granted to certain employees of a subsidiary. The maximum tax exposure for the Company is about $0.1 million. A formal complaint has been iniꢀated and further proceedings are pending. In May 2021, Asetek ﬁled a patent infringement lawsuit against Shenzen Apaltek Co. Ltd. and Apalcool (Guangdong Ang Pai Liquid Cooling Technology Co., Ltd.) in the Western District of Texas (WDTX) seeking judgment that Apaltek and Apalcool infringe Asetek’s U.S. Patent Nos. 8,240,362 (“the ’362 patent) and 8,245,764 (“the ’764 patent). Asetek moved to dismiss this case in 2023. The court granted Asetek’s moꢀon to dismiss and denied Apaltek’s moꢀon for aꢄorneys’ fees. Apaltek also ﬁled review peꢀꢀons with the Patent Trial and Appeal Board (PTAB) of the U.S. Patent and Trademark Oﬃce (USPTO) to challenge the validity of Asetek’s ’362 and ’764 patents. Asetek did not ﬁle opposiꢀons to Apaltek’s peꢀꢀons. The PTAB found Asetek’s ’362 and ’764 patents unpatentable (invalid) in January 2024. The PTAB has also ruled that Asetek’s U.S. Patent Nos. 10,078,354 (“the ’354 patent”) and 10,078,355 (“the ’355 patent”) invalid. The court of appeal aﬃrmed the PTAB’s ﬁnding for the ’354 patent and may also aﬃrm for the ’355 patent. The maꢄer is not expected to result in a signiﬁcant expense to the Company. In June 2021, Cooler Master Co., Ltd. and CMI USA, Inc. ﬁled an acꢀon in the United States District Court, Northern District of California, requesꢀng declaratory judgment that certain Cooler Master products do not infringe Asetek’s ‘362, ‘764, ’354 and ‘355 patents, or Asetek’s U.S. Patent Nos. 10,599,196 (“the ’196 pat- ent), a 10,613,601 (“the ’601 patent”). The court granted Asetek’s moꢀon to stay this case in view of other ongoing proceedings summarized herein. The case remains stayed. Debt collateral. In conjuncꢀon with the debt referenced in Note 19, Asetek’s creditors have secured the following as collateral for the credit provided: // Asetek Danmark A/S lines of credit totaling DKK 80 million (DKK 75 million with Jyske Bank and DKK 5 million with Sydbank) are secured by a lien on the Asetek Danmark A/S business totaling DKK 105 million (USD 15.6 million). // Asetek A/S, line of credit with Sydbank of DKK 100 million (USD 14.8 million), is secured by the Company’s property and building under construcꢀon at Skjoldet 20, 9230 Svenstrup, Denmark. Legal proceedings. In the ordinary course of conducꢀng business, the Company is involved in various intel- lectual property proceedings, including those in which it is a plainꢀﬀ that are complex in nature and have outcomes that are diﬃcult to predict. Asetek records accruals for such conꢀngencies to the extent that it is probable that a liability will be incurred, and the amount of the related loss can be reasonably esꢀmated. The Company’s assessment of each maꢄer may change based on future unexpected events. An unexpected ad- verse judgment in any pending liꢀgaꢀon could cause a material impact on the Group’s business operaꢀons, intellectual property, results of operaꢀons or ﬁnancial posiꢀon. In addiꢀon to the above, Asetek Group is engaged in various other ongoing cases. In the opinion of Management, neither seꢄlement nor conꢀnuaꢀon of such proceedings are expected to have a material eﬀect on Asetek’s ﬁnancial posiꢀon, operaꢀng proﬁt or cash ﬂow. XXXXX ANNUAL REPORT 2023 / Page 62 PARENT COMPANY FINANCIAL STATEMENTS Comprehensive income statement, parent company 63 64 Balance Sheet, parent company Statement of changes in equity, parent company 65 66 67 Statement of cash ﬂows, parent company Notes, parent company FINANCIAL STATEMENTS, PARENT COMPAMY ASETEK Annual Report 2023 / Page 63 COMPREHENSIVE INCOME STATEMENT, PARENT COMPANY (USD 000’s) Note 2023 3,699 3,699 (61) 2022 3,737 3,737 (64) Service fees 14 TOTAL REVENUE Research and development Selling, general and administraꢀve Special items 3, 4 3, 4 3 (3,769) (847) (2,975) - TOTAL OPERATING EXPENSES (4,677) (3,039) OPERATING INCOME Foreign exchange gain (loss) Finance income (978) (294) 101 698 (821) 405 6 6 6 Finance costs (333) (526) (18) TOTAL FINANCIAL INCOME (434) INCOME BEFORE TAX (1,504) 264 Income tax (expense) beneﬁt 10 58 (154) INCOME FOR THE YEAR (1,446) 110 TOTAL COMPREHENSIVE INCOME (LOSS) (1,446) 110 FINANCIAL STATEMENTS, PARENT COMPAMY ASETEK Annual Report 2023 / Page 64 BALANCE SHEET, PARENT COMPANY (USD 000’s) (USD 000’s) Note 2023 2022 Note 2023 2022 ASSETS EQUITY AND LIABILITIES EQUITY NON-CURRENT ASSETS Investments in subsidiaries Property, plant and equipment Receivables from subsidiaries TOTAL NON-CURRENT ASSETS 11 7 20,100 49,549 337 20,100 26,430 2,432 Share capital 13 1,478 58,961 444 44,785 Retained earnings Translaꢀon and other reserves TOTAL EQUITY 12 (11,206) 49,233 (11,206) 34,023 69,986 48,962 CURRENT ASSETS NON-CURRENT LIABILITIES Payables to subsidiaries Other assets 999 183 2,452 1,609 4,061 12 5,323 385 Cash and cash equivalents TOTAL CURRENT ASSETS TOTAL NON-CURRENT LIABILITIES 5,323 385 1,182 CURRENT LIABILITIES Short-term debt TOTAL ASSETS 71,168 53,023 8, 9 14,896 153 14,294 275 Accrued liabiliꢀes Accrued compensaꢀon and employee beneﬁts Trade payables 65 246 1,498 16,612 21,935 3,800 18,615 19,000 TOTAL CURRENT LIABILITIES TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES 71,168 53,023 FINANCIAL STATEMENTS, PARENT COMPAMY ASETEK Annual Report 2023 / Page 65 STATEMENT OF CHANGES IN EQUITY, PARENT COMPANY Share capital Share premium Translaꢀon Treasury Retained earnings (USD 000’s) reserves share reserves Total EQUITY AT DECEMBER 31, 2021 Total comprehensive income for 2022 Income for the year 442 - - (11,206) 44,022 33,257 - - - - - - - - 110 110 110 110 Total comprehensive income for 2022 Transacꢀons with owners in 2022 Shares issued upon exercise of opꢀons Share-based payment expense Transacꢀons with owners in 2022 EQUITY AT DECEMBER 31, 2022 Total comprehensive income for 2023 Income for the year 2 - - - - - - - - - - 214 440 216 440 - - 2 654 656 444 (11,206) 44,785 34,023 - - - - - - - - (1,446) (1,446) (1,446) (1,446) Total comprehensive income for 2023 Transacꢀons with owners in 2023 Shares issued in rights oﬀering, net of issuance costs Transfer 1,034 - 15,108 - - - - - - 16,142 - (15,108) - 15,108 514 Share-based payment expense Transacꢀons with owners in 2023 EQUITY AT DECEMBER 31, 2023 - - - - - - 514 1,034 1,478 15,622 58,961 16,656 49,233 (11,206) FINANCIAL STATEMENTS, PARENT COMPAMY ASETEK Annual Report 2023 / Page 66 STATEMENT OF CASH FLOWS, PARENT COMPANY (USD 000’s) (USD 000’s) Note 2023 2022 Note 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES Income (loss) for the year CASH FLOWS FROM FINANCING ACTIVITIES Lease payments on right-of-use assets Borrowings on line of credit (1,446) 86 110 43 9 8 (88) 464 (42) 14,236 216 Depreciaꢀon and amorꢀzaꢀon Share-based payments expense Finance cost incurred 7 4 514 440 Proceeds from issuance of share capital Costs incurred for issuance of share capital NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 13 13 17,019 (878) 6 1,062 (1,058) (58) 205 - Finance cost, cash paid 6 (203) 154 16,517 14,410 Income tax expense (income) Cash received (paid) for income taxes Changes in other assets 10 841 481 NET CHANGES IN CASH AND CASH EQUIVALENTS (1,426) (2,256) 3,548 (3,385) 104 (2,140) 634 Changes in trade payables and accrued liabiliꢀes NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Cash and cash equivalents at beginning of period 1 609 3 605 (276) CASH AND CASH EQUIVALENTS AT END OF PERIOD 183 1,609 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment SUPPLEMENTAL DISCLOSURE - NON-CASH ITEMS 7 (22,985) 4,938 (19,747) 3,357 Right-of-use assets acquired under leases 273 95 Net receipts from (payments to) subsidiaries NET CASH USED IN INVESTING ACTIVITIES 12 (18,047) (16,390) FREE CASH FLOW (17,943) (16 666) NOTES, PARENT COMPANY ASETEK Annual Report 2023 / Page 67 NOTES, PARENT COMPANY Special item. In May 2023, In conjuncꢀon with the rights oﬀering described in Note 18 of the consolidated ﬁnancial statements, the Company began transiꢀon of its shares for trading from Oslo Stock Exchange to Nasdaq Copenhagen. Operaꢀng expense in 2023 includes $0.8 million of non-recurring costs associated with this lisꢀng change, classiﬁed as a special item in operaꢀng expense on the income statement. 1. GENERAL INFORMATION Regarding accounꢀng policies, refer to Note 1 to the Consolidated Financial Statements. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 4. PERSONNEL EXPENSES The 2023 ﬁnancial statements for Asetek A/S have been prepared in accordance with Internaꢀonal Financial Re- porꢀng Standards (IFRS) as issued by IASB and adopted by the EU. Total personnel costs by type for the year ended December 31 The ﬁnancial statements are presented in U.S. Dollars (USD), which is the funcꢀonal currency. The accounꢀng policies for the Parent Company are the same as for the Asetek Group, as per Note 2 to the consolidated ﬁnancial statements, with the excepꢀon of the items listed below: (USD 000’s) 2023 1,948 514 2022 1,607 440 Salaries, pension and other Share-based payment TOTAL PERSONNEL EXPENSES 2,462 2,047 1.1. Dividends on investments in subsidiaries, joint ventures and associates. Dividends on investments in subsidiaries, joint ventures and associates are recognized as income in the income statement of the Parent Company in the ﬁnancial year in which the dividend is declared. Total personnel costs by classiﬁcaꢀon in the income statement for the year ended December 31 1.2. Investments in subsidiaries, joint ventures and associates. Investments in subsidiaries, joint ventures and associates are measured at the lower of cost or the recoverable amount. An impairment test on the investment in subsidiaries is performed if the carrying amount of the subsidiaries’ net assets is below the carrying value of the Parent Company’s investments in the consolidated ﬁnancial state- ments. (USD 000’s) 2023 61 2022 64 Research and development Selling, general and administraꢀve TOTAL EXPENSES 2,401 2,462 1,983 2,047 The average number of employees in the Parent company is two for both years presented. The ﬁgures listed above include a porꢀon of the execuꢀve management’s cash compensaꢀon based on an esꢀmate of the actual resources allocated to the management of the Parent company. The ﬁgures include incenꢀve-based compensaꢀon in the form of share opꢀons and warrants granted to employees in the Asetek Group. Refer to Notes 6 and 7 in the Consolidated Financial Statements for informaꢀon regarding incenꢀve compensaꢀon programs and management remuneraꢀon. Remuneraꢀon of the Group Board of Directors is speciﬁed in Note 6 to the Consolidated Financial Statements. The Company’s share-based incenꢀve pay program is described in Note 7 to the Consolidated Financial Statements. 3. TOTAL OPERATING EXPENSES Operaꢀng expenses consisted of the following for the year ended December 31 (USD 000’s) 2023 2,462 622 2022 2,047 400 Personnel expenses (Note 4) Legal, consultants and auditor Special item 847 - Other expenses 746 592 TOTAL EXPENSES 4,677 3,039 NOTES, PARENT COMPANY ASETEK Annual Report 2023 / Page 68 5. AUDIT FEES 7. PROPERTY, PLANT AND EQUIPMENT Fees associated with the Parent company ﬁnancial statements for services provided by the Company’s princi- pal auditors were as follows: The Company’s plans for the new development and HQ facility are to lease secꢀons of the building that are not occupied by Asetek for three to ﬁve years and to subsequently occupy the enꢀre facility thereaꢂer. The secꢀons to be leased to others are conꢀguous with the premises occupied by Asetek and cannot be feasibly separated. As a result, the asset is accounted for as a domicile property, recorded at cost and depreciated over its esꢀmated useful life aꢂer it is placed in service. As of December 31, 2023 and 2022, carrying value of vehicles under right-of-use leases totaled $195,000 and $76,000, respecꢀvely, and their associated leases are for terms of 12 months. Total property, plant and equipment is speciﬁed as follows: (USD 000’s) 2023 157 294 62 2022 76 5 Audit Other assurance services Tax services Other services TOTAL 11 - 14 527 92 Building under construcꢀon Vehicles and soꢃware Properꢀes Company Total Services other than statutory audit are described in Note 23 in the consolidated ﬁnancial statements. COST: Balance at January 1, 2022 Addiꢀons 118 95 2,493 4,107 19,747 - 6,718 19,842 (55) - 6. FINANCIAL INCOME AND COSTS Disposals (55) 158 158 492 (95) 555 - 2,493 2,493 - BALANCE AT DECEMBER 31, 2022 Balance at January 1, 2023 Addiꢀons 23,854 23,854 22,766 - 26,505 26,505 23,258 (95) (USD 000’s) 2023 (294) 90 2022 (821) 402 3 FOREIGN EXCHANGE GAIN (LOSS) Interest income on loans to subsidiaries Interest from bank accounts FINANCE INCOME Disposals - 12 BALANCE AT DECEMBER 31, 2023 ACCUMULATED DEPRECIATION: Balance at January 1, 2022 Disposals 2,493 46,620 49,668 101 405 (53) 21 - - (53) 21 Interest cost on loans from subsidiaries Interest cost on line of credit Interest cost on leases Other banking and ﬁnance fees Subtotal (326) (698) (4) - (127) (2) - - Depreciaꢀon for the year BALANCE AT DECEMBER 31, 2022 Balance at January 1, 2023 Disposals (43) (75) (75) 42 - - (43) - - (75) (34) (76) (205) 187 - - (75) (1,062) 729 - - - 42 Less: amount capitalized FINANCE COST Depreciaꢀon for the year BALANCE AT DECEMBER 31, 2023 CARRYING AMOUNT AT DECEMBER 31, 2022 CARRYING AMOUNT AT DECEMBER 31, 2023 (86) (119) 83 - - (86) (333) (18) - (119) 26,430 49,549 2,493 2,493 23,854 46,620 436 NOTES, PARENT COMPANY ASETEK Annual Report 2023 / Page 69 8. NET DEBT 10. INCOME TAX Asetek A/S has a line of credit with Sydbank for DKK 100 million (USD 14.8 million), of which $14.7 million is outstanding at December 31, 2023. This line carries interest at Danish CIBOR 3 rate plus 1.25 percentage points which in total was 5.16% at December 31, 2023, and payment in full is due December 31, 2024. At December 31, 2023 and 2022, the tax beneﬁt (provision) for Asetek A/S diﬀered from the statutory tax rate as a result of share compensaꢀon expenses that are treated diﬀerently for tax purposes. (USD 000’s) 2023 (1,504) 331 2022 264 Net debt is as follows at December 31: INCOME BEFORE TAX (USD 000’s) 2023 (14,700) (196) 2022 (14,236) (58) Tax calculated at domesꢀc rates applicable to proﬁts/losses in respecꢀve countries (58) Line of credit- due within one year Leases- amounts due within one year TOTAL DEBT Diﬀerences between book and tax (273) (96) (14,896) 183 (14,294) 1,609 INCOME TAX (EXPENSE) 58 (154) Less cash and cash equivalents NET DEBT (14,713) (12,685) 11. INVESTMENT IN SUBSIDIARIES Reconciliaꢀon of line of credit (USD 000’s) Investment in (USD 000’s) Asetek Holdings, Inc. 2023 (14,236) (464) 2022 - Balance at December 31, 2022 Addiꢀons 20,100 - Beginning balance Net paid (drawn) on line of credit ENDING BALANCE, LINE OF CREDIT (14,236) (14,236) Balance at December 31, 2023 CARRYING AMOUNT AT DECEMBER 31, 2022 CARRYING AMOUNT AT DECEMBER 31, 2023 20,100 20,100 20,100 (14,700) 9. LEASES Asetek A/S acquired 100% of Asetek Holdings, Inc. through the exchange of shares in February 2013. At the ꢀme of acquisiꢀon, Asetek Holdings, Inc. had negaꢀve net equity, resulꢀng in the iniꢀal investment to be valued at zero. Asetek Holdings, Inc. represents Asetek A/S’s only direct investment in subsidiaries. Obligaꢀons under leases are as follows: (USD 000’s) 2023 15 2022 7 Minimum lease payments as of December 31 Asset residual value at end of lease Less: amount represenꢀng interest TOTAL OBLIGATIONS UNDER LEASES 184 (3) 52 (1) 58 196 Total lease obligaꢀons due within one year were $196,000 and $58,000 at December 31, 2023 and 2022, respecꢀvely. Operaꢀng expenses associated with leases of one year or less are not signiﬁcant. NOTES, PARENT COMPANY ASETEK Annual Report 2023 / Page 70 12. NET RECEIVABLES FROM (PAYABLES TO) SUBSIDIARIES 15. EVENTS AFTER THE REPORTING PERIOD Net receivables is as follows at December 31: Refer to Note 24 to the Consolidated Financial Statements. (USD 000’s) 2023 (5,323) 135 2022 (385) 2,291 49 16. CONTINGENT LIABILITIES Asetek Danmark A/S Asetek USA, Inc. The Danish group enterprises are jointly and severally liable for tax on group income subject to joint taxaꢀon, as well as for Danish withholding taxes by way of dividend tax, royalty tax, tax on unearned income and any subsequent adjustments to these. Asetek A/S has executed a guarantee to its Group’s principal bank, Jyske Bank, for all outstanding maꢄers with its wholly owned subsidiary, Asetek Danmark A/S. Refer to Note 25 to the Consolidated Financial Statements. Asetek Xiamen 109 Asetek Holdings, Inc. NET DUE FROM (TO) SUBSIDIARIES AVERAGE EFFECTIVE INTEREST RATE 93 92 (4,986) 10.2% 2,047 7.4% Asetek Danmark A/S has a line of credit to support the construcꢀon of the development center and head- quarters facility for Asetek A/S. The total outstanding on this line of credit was $1.5 million as of December 31, 2023. Refer to Note 19 to the Consolidated Financial Statements. Borrowing costs of $0.4 million and $0.3 million incurred in 2023 and 2022, respecꢀvely, on the Asetek Danmark A/S line of credit are included as capitalized cost of the building under construcꢀon. 13. EQUITY Refer to Note 18 to the Consolidated Financial Statements. 14. TRANSACTIONS WITH RELATED PARTIES Asetek A/S charges its subsidiaries a management service fee. Reference Notes 4, 6 and 12 regarding trans- acꢀons with subsidiaries. With regard to transacꢀons with related parꢀes that are not subsidiaries, refer to Note 21 to the Consolidated Financial Statements. MANAGEMENT STATEMENT ASETEK Annual Report 2023 / Page 71 MANAGEMENT STATEMENT The Board of Directors and Execuꢀve Board have today considered and adopted the Annual Report of Asetek A/S for the ﬁnancial year January 1 – December 31, 2023. The Annual Report has been prepared in accord- ance with Internaꢀonal Financial Reporꢀng Standards as adopted by the EU and further requirements in the Danish Financial Statements Act. In our opinion, the Consolidated Financial Statements and Parent Company Financial Statements give a true and fair view of the ﬁnancial posiꢀon at December 31, 2023 of the Group and the Parent company and of the results of the Group and Parent company operaꢀons and cash ﬂows for 2023. In our opinion, Management’s Report includes a true and fair account of the development in the operaꢀons and ﬁnancial circumstances of the Group and the Parent company as well as a descripꢀon of the most signiﬁ- cant risks and elements of uncertainty facing the Group and the Parent company. In our opinion, the annual report of Asetek A/S for the ﬁnancial year 1 January to 31 December 2023 with the ﬁle name Asetek-2023-12-31-en.zip is prepared, in all material respects, in compliance with the ESEF Regulaꢀon. Aalborg, Denmark March 8, 2024 Management André S. Eriksen Peter Dam Madsen CEO CFO Board of Directors René Svendsen-Tune Erik Damsgaard Chairman Vice chairman Maria Hjorth Jukka Pertola Maja Frølunde Sand-Grimnitz Member Member Member INDEPENDENT AUDITOR’S REPORTS ASETEK Annual Report 2023 / Page 72 INDEPENDENT AUDITOR’S REPORTS To the shareholders of Asetek A/S REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Our opinion In our opinion, the Consolidated Financial Statements and the Parent Company Financial Statements give a true and fair view of the Group’s and the Parent Compa- ny’s ﬁnancial posiꢀon at 31 December 2023 and of the results of the Group’s and the Parent Company’s operaꢀons and cash ﬂows for the ﬁnancial year 1 January to 31 December 2023 in accordance with IFRS Accounꢀng Standards as adopted by the EU and further requirements in the Danish Financial Statements Act. Our opinion is consistent with our Auditor’s Long-form Report to the Audit Commiꢄee and the Board of Directors. What we have audited The Consolidated Financial Statements and Parent Company Financial Statements of Asetek A/S for the ﬁnancial year 1 January to 31 December 2023 comprise state- ment of comprehensive income, balance sheet, statement of changes in equity, cash ﬂow statement and notes, including material accounꢀng policy informaꢀon for the Group as well as for the Parent Company. Collecꢀvely referred to as the “Financial Statements”. Basis for opinion We conducted our audit in accordance with Internaꢀonal Standards on Audiꢀng (ISAs) and the addiꢀonal requirements applicable in Denmark. Our responsibiliꢀes under those standards and requirements are further described in the Auditor’s responsibiliꢀes for the audit of the Financial Statements secꢀon of our report. We believe that the audit evidence we have obtained is suﬃcient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the Internaꢀonal Ethics Standards Board for Accountants’ Internaꢀonal Code of Ethics for Professional Account- ants (IESBA Code) and the addiꢀonal ethical requirements applicable in Denmark. We have also fulﬁlled our other ethical responsibiliꢀes in accordance with these requirements and the IESBA Code. To the best of our knowledge and belief, prohibited non-audit services referred to in Arꢀcle 5(1) of Regulaꢀon (EU) No 537/2014 were not provided. Appointment Following the admission of the shares of Asetek A/S for lisꢀng on Oslo Stock Exchange, we were ﬁrst appointed auditors of Asetek A/S on 24 April 2014. We have been reappointed annually by shareholder resoluꢀon for a total period of uninterrupted engagement of 10 years including the ﬁnancial year 2023. INDEPENDENT AUDITOR’S REPORTS ASETEK Annual Report 2023 / Page 73 Key audit maꢃers Key audit maꢄers are those maꢄers that, in our professional judgement, were of most signiﬁcance in our audit of the Financial Statements for 2023. These maꢄers 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 maꢄers. Key audit maꢃer How our audit addressed the key audit maꢃer Capitalisaꢀon of development costs The Group capitalises development costs when certain criteria according to IFRS are met. The criteria for recogniꢀon and measurement of development costs are subject to Management’s judgment and assumpꢀons, which is uncertain by nature. Completed development projects are assessed for impairment indica- ꢀons. For in-progress development projects impairment tests are performed at least annually. The impairment tests are based on the strategy plan approved by Management and value-in-use calculaꢀons based on expected future cash ﬂows. We assessed whether the Group’s accounꢀng policies are in accordance with IFRS Accounꢀng Standards. We carried out risk assessment procedures in order to obtain an understanding of IT systems, business processes and relevant controls regarding capitalised development costs. For the controls, we assessed whether they were designed and implemented to eﬀecꢀvely address the risk of material misstatement. We focused on this area because the criteria for recogniꢀon and measurement of development projects are subject to Management judgments and assump- ꢀons. We selected a sample of in-progress development projects and considered whether all criteria described in IFRS Accounꢀng Standards were met as basis for capitalisaꢀon. Refer to note 14 in the Consolidated Financial Statements. We evaluated and challenged Management’s assessment of impairment indica- tors of completed development projects based on the commercial prospects of the projects. For in-progress development projects and projects with impairment indicators, we challenged the key assumpꢀons applied in the value-in-use cal- culaꢀons. Our work was based on our understanding of the business cases and signiﬁcant assumpꢀons applied. We challenged whether the intent to ﬁnalise the projects remain and whether the projects are expected to generate future economic beneﬁts exceeding the carrying values. INDEPENDENT AUDITOR’S REPORTS ASETEK Annual Report 2023 / Page 74 Statement on Management’s Review Management is responsible for Management’s Review. Our opinion on the Financial Statements does not cover Management’s Review, and we do not express any form of assurance conclusion thereon. In connecꢀon with our audit of the Financial Statements, our responsibility is to read Management’s Review and, in doing so, consider whether Management’s Re- view is materially inconsistent with the Financial Statements, or our knowledge obtained in the audit, or otherwise appears to be materially misstated. Moreover, we considered whether Management’s Review includes the disclosures required by the Danish Financial Statements Act. Based on the work we have performed, in our view, Management’s Review is in accordance with the Consolidated Financial Statements and the Parent Company Financial Statements and has been prepared in accordance with the requirements of the Danish Financial Statements Act. We did not idenꢀfy any material misstate- ment in Management’s Review. Management’s responsibiliꢀes for the Financial Statements Management is responsible for the preparaꢀon of consolidated ﬁnancial statements and parent company ﬁnancial statements that give a true and fair view in accordance with IFRS Accounꢀng Standards as adopted by the EU and further requirements in the Danish Financial Statements Act, and for such internal control as Management determines is necessary to enable the preparaꢀon of ﬁnancial statements that are free from material misstatement, whether due to fraud or error. In preparing the Financial Statements, Management is responsible for assessing the Group’s and the Parent Company’s ability to conꢀnue as a going concern, disclos- ing, as applicable, maꢄers related to going concern and using the going concern basis of accounꢀng unless Management either intends to liquidate the Group or the Parent Company or to cease operaꢀons, or has no realisꢀc alternaꢀve but to do so. Auditor’s responsibiliꢀes for the audit of the Financial Statements Our objecꢀves 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 and the addiꢀonal requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to inﬂuence the economic decisions of users taken on the basis of these Financial Statements. As part of an audit in accordance with ISAs and the addiꢀonal requirements applicable in Denmark, we exercise professional judgement and maintain professional scepꢀcism throughout the audit. We also: • Idenꢀfy and assess the risks of material misstatement of the Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is suﬃcient and appropriate to provide a basis for our opinion. The risk of not detecꢀng a material misstatement resulꢀng from fraud is higher than for one resulꢀng from error, as fraud may involve collusion, forgery, intenꢀonal omissions, misrepresentaꢀons, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the eﬀecꢀveness of the Group’s and the Parent Company’s internal control. • Evaluate the ppropriateness of accounꢀng policies used and the reasonableness of accounꢀng esꢀmates and related disclosures made by Management. INDEPENDENT AUDITOR’S REPORTS ASETEK Annual Report 2023 / Page 75 • Conclude on the appropriateness of Management’s use of the going concern basis of accounꢀng and based on the audit evidence obtained, whether a material uncertainty exists related to events or condiꢀons that may cast signiﬁcant doubt on the Group’s and the Parent Company’s ability to conꢀnue as a going concern. If we conclude that a material uncertainty exists, we are required to draw aꢄenꢀon 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 condiꢀons may cause the Group or the Parent Company to cease to conꢀnue as a going concern. • Evaluate the overall presentaꢀon, structure, and content of the Financial Statements, including the disclosures, and whether the Financial Statements represent the underlying transacꢀons and events in a manner that gives a true and fair view. • Obtain suﬃcient appropriate audit evidence regarding the ﬁnancial informaꢀon of the enꢀꢀes or business acꢀviꢀes within the Group to express an opinion on the Consolidated Financial Statements. We are responsible for the direcꢀon, supervision, and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other maꢄers, the planned scope and ꢀming of the audit and signiﬁcant audit ﬁndings, including any signiﬁcant deﬁciencies in internal control that we idenꢀfy during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relaꢀonships and other maꢄers that may reasonably be thought to bear on our independence and, where applicable, acꢀons taken to eliminate threats or safeguards applied. From the maꢄers communicated with those charged with governance, we determine those maꢄers that were of most signiﬁcance in the audit of the Financial Statements of the current period and are therefore the key audit maꢄers. We describe these maꢄers in our auditor’s report unless law or regulaꢀon precludes public disclosure about the maꢄer. Report on compliance with the ESEF Regulaꢀon As part of our audit of the Financial Statements we performed procedures to express an opinion on whether the annual report of Asetek A/S for the ﬁnancial year 1 January to 31 December 2023 with the ﬁle name Asetek-2023-12-31-en.zipis prepared, in all material respects, in compliance with the Commission Delegated Regulaꢀon (EU) 2019/815 on the European Single Electronic Format (ESEF Regulaꢀon) which includes requirements related to the preparaꢀon of the annual report in XHTML format and iXBRL tagging of the Consolidated Financial Statements including notes. Management is responsible for preparing an annual report that complies with the ESEF Regulaꢀon. This responsibility includes: • The preparing of the annual report in XHTML format; • The selecꢀon and applicaꢀon of appropriate iXBRL tags, including extensions to the ESEF taxonomy and the anchoring thereof to elements in the taxonomy, for all ﬁnancial informaꢀon required to be tagged using judgement where necessary; • Ensuring consistency between iXBRL tagged data and the Consolidated Financial Statements presented in human-readable format; and • For such internal control as Management determines necessary to enable the preparaꢀon of an annual report that is compliant with the ESEF Regulaꢀon. Our responsibility is to obtain reasonable assurance on whether the annual report is prepared, in all material respects, in compliance with the ESEF Regulaꢀon based on the evidence we have obtained, and to issue a report that includes our opinion. The nature, ꢀming and extent of procedures selected depend on the auditor’s judgement, including the assessment of the risks of material departures from the requirements set out in the ESEF Regulaꢀon, whether due to fraud or error. The procedures include: • Tesꢀng whether the annual report is prepared in XHTML format; • Obtaining an understanding of the company’s iXBRL tagging process and of internal control over the tagging process; INDEPENDENT AUDITOR’S REPORTS ASETEK Annual Report 2023 / Page 76 • Evaluaꢀng the completeness of the iXBRL tagging of the Consolidated Financial Statements including notes; • Evaluaꢀng the appropriateness of the company’s use of iXBRL elements selected from the ESEF taxonomy and the creaꢀon of extension elements where no suitable element in the ESEF taxonomy has been idenꢀﬁed; • Evaluaꢀng the use of anchoring of extension elements to elements in the ESEF taxonomy; and • Reconciling the iXBRL tagged data with the audited Consolidated Financial Statements. In our opinion, the annual report of Asetek A/S for the ﬁnancial year 1 January to 31 December 2023 with the ﬁle name Asetek-2023-12-31-en.zip is prepared, in all material respects, in compliance with the ESEF Regulaꢀon. Aarhus, March 8, 2024 PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab CVR no 3377 1231 Mads Melgaard Line Borregaard State Authorised Public Accountant mne34354 State Authorised Public Accountant mne34353 DEFINITION OF RATIOS AND METRICS ASETEK Annual Report 2023 / Page 77 DEFINITIONS OF RATIOS AND METRICS Asetek uses various metrics, ﬁnancial and non-ﬁnancial raꢀos which provide shareholders with useful informaꢀon about the Group’s ﬁnancial posiꢀon, performance and development. STOCK MARKET PROFIT & LOSS Earnings per share, basic Earnings per share, diluted Share price to earnings Refer to Note 12 of the Consolidated ﬁnancial statements Adjusted EBITDA Operaꢀng income + amorꢀzaꢀon & depreciaꢀon + share-based compensaꢀon + special items Refer to Note 12 of the Consolidated ﬁnancial statements Gross margin Gross proﬁt / Revenue Share price / NOK to USD exchange rate / Earnings per share, diluted. If earnings is negaꢀve, not reported. Operaꢀng margin Operaꢀng income / Revenue Income for the year / Invested capital Market capitalizaꢀon BUSINESS DRIVERS (Shares issued – Treasury shares) x (Share price in NOK / NOK to USD exchange rate) Return on Invested Capital (ROIC) Organic growth (Revenue current year – Comparable revenue prior year) / Comparable revenue* prior year Average selling price per unit, Liquid cooling revenue / Sealed loop units shipped Liquid Cooling BALANCE SHEET Invested capital Revenue per employee Revenue / Number of employees Equity raised from sale of shares and conversion of debt + interest bearing debt Quick raꢀo (Cash and cash equivalents + Trade receivables and other) / Total Current Liabiliꢀes Current raꢀo Total current assets / Total current liabiliꢀes Trade receivables / (Revenue / 365 days) Cost of sales / (beginning inventory + ending inventory / 2) Trade payables / (Cost of sales / 365 days) Interest-bearing debt / Total equity Days sales outstanding Inventory turns per year Days payable outstanding Debt to equity * Comparable revenue excludes changes in revenue aꢄributable to foreign exchange rates and any acquisiꢀons or divestments.

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