2operate aps, annual report 2014/15

AnnualReport2014/15

Annual Report for 2operate ApS

6th Fiscal Year1 July 2014 - 30 June 2015

Table of ContentsCompany Details....................................................................................2Report from the Management Team and Board of Directors...........................3Statement by the Executive Board and Board of Directors............................8Independent auditors' report on the financial statements.............................9Accounting Policies................................................................................11Income Statement................................................................................15Balance Sheet......................................................................................16Notes..................................................................................................18

Approved at the Annual General Assembly on 21 Aug. 2015

_____________________________

Carl-Erik Jørgensen, Chairman of the General Assembly

2operate ApS, Annual Report 2014/15

Company Details

Company 2operate ApSNiels Jernes Vej 10DK-9220 Aalborg ØDenmark

Phone: +45 9635 6150Web: www.2operate.comEmail: [email protected]

Reg. No.: DK32067522Founded: 16th February 2009Registered Office: AalborgFiscal Year: 1 July - 30 June

Ownership 2operate Holding ApSBorean Innovation A/SMoltsen Holding ApSSitella ApSThe Danish Agency for Science, Technology and InnovationTorben Svanberg

Board of Directors Kaj Juul-Pedersen, ChairmanCarl Erik Jørgensen, Vice ChairCarsten HellegaardTorben Svanberg

Management Team Lars Moltsen, CEOCarsten Hellegaard, CTO

Auditors Ernst & Young Godkendt Revisionspartnerselskab

Bank Jutlander Bank A/S

Legal Borean Innovation A/S

2operate ApS, Annual Report 2014/15Company Details

LMT: 1M subscribers in Latvia

Telia Danmark: 1.5M subscribers in Denmark

Omnitel: 1.7M subscribers in Lithuania

Faroese Tele: 56k subscribers in Faroe Islands

Omnitel: 3.2M subscribers in Finland

The European Space Agency

2operate proudly serves these customers

Report from the Management Team and Board of Directors

Development in ActivitiesFiscal year 2014/15 was a great year for 2operate in which revenues more than doubledcompared to last year, resulting in the first positive result since Company launch in 2009.After 5 years of product development and market entry in the regional Scandinavian andBaltic markets, this is a major milestone that has now been reached. Even more positivewas the order intake of the year which indicates that growth will continue into thecoming fiscal year.

2operate continued development of its award-winning principle product, 2solve, to meetdemands for simplicity and support of processes in network operations. A key effortduring this year was the establishment of a knowledge management team whereknowledge bases specific to each network technology (2G, 3G, and 4G) as well as foreach of the main vendors were placed under the same systematic quality control as anyother type of software. This was a natural strategic move to enable our customers tobenefit as much as possible from the unique auto-diagnostics capabilities of 2solve.

2operate's growth in fiscal year 2014/15 mainly came from existing customers inNorthern Europe. In the coming year, steps will be taken to move growth to newcustomers in the local market as well as in new global markets. During the past year, anactivity to prepare the sales process for scalability to new markets was carried out andwe expect to harvest from this initiative in coming years.

2operate ApS, Annual Report 2014/15Report from the Management Team and Board of Directors

During the fiscal year, 2operate's marketing activities were focused around the GSMAMobile World Congress, 2-5 March in Barcelona, and Teleforum, 20-22 May in Jerseyorganized by TOSS (Telecom Operators of Small States). Based on these activities thepipeline for new sales has been grown significantly. Moreover, a number of newpartnerships were signed with agents in markets around the world.

During the fiscal year, 2operate initiated a new project together with Thales Alenia Spaceand Tele Greenland for the European Space Agency (ESA). This project is bringing newrevenues and knowledge to the Company, paving the way for future business in thegrowing and very attractive satellite communications industry.

Financial DevelopmentIn fiscal year 2014/15 2operatereached the important milestone ofprofitability by presenting its firstpositive result of DKK 347 thousand.In comparison the result last yearwas negative by DKK 1.5 million.

Profitability came as a consequenceof increased revenues, in total DKK2.6 million for the year, which is anincrease of 160% compared to lastyear. Capitalised development costsand product rights amounts to DKK 2.3 million by the end of the year and equity reachedDKK 3.3 million. Long-term debts went down from DKK 1.3 million to DKK 766 thousand.It was decided between shareholders that old share holder loans of DKK 1.2 million were

2operate exhibited at Mobile World Congress 2015 in Barcelona


converted to ownership by 30 September 2014. All remaining long-term debts are low-interest loans from Nordjysk Lånefond.

Based on a solid backlog of orders and an optimistic development in sales when enteringfiscal year 2015/16, it is the opinion of the Management Team and Board of Directorsthat the Company is in a solid state having sufficient financial resources to executeacitivities and operations within budgets.

Events after the Balance Sheet DateNo events have occured after the balance sheet date that may materially affect theCompany's financial position.

Future ExpectationsBased on investments in the development of sales processes and the principle product infiscal year 2014/15, the Company is expected to further accelerate growth in comingyears. The offer that 2operate brings to network operators is unique and competitors arefar from being able to combine the required skills to reach a similar level of automationof incident troubleshooting as 2operate.

With a first positive annual result presented by this report and by already having supportfor all technologies and main vendors, 2operate has settled as an established - stillyoung and innovative - player in the OSS market. Earlier, it was a challenge to generatesufficient trust and resulting willingness to commit budgets to make sales. It is veryclear that we are now moving away from that challenge.

At the same time, the telecommunications industry is developing in a favorable directionfor 2operate. Networks are growing and becoming more and more complex, demandingtraining of current staff and/or recruitment of new staff. 2operate provides a solutionthat minimizes the need for extra staff and training.

2operate's offerings are targeted mobile network operators but the concept ofautomated diagnostics of technical units is generic and useful in many other domainssuch a the operations of windmill farms, smart grid power networks, or satellitecommunications networks. The new ESA project started in late 2014 is paving the wayfor new business in the satellite communications industry, and 2operate is in a goodposition to adapt its principle product, 2solve, to serve operators of satellite networks.This is seen as the first of several attempts to spread business into other domains, stillkeeping a strong focus on the current business in terrestrial telecommunications.


Principle Activities of the Company

2solve

2solve is 2operate's award-winning Operations Support System (OSS), IncidentManagement, and Customer Experience Management (CEM) solution that helps mobilenetwork operators achieving high performance in their network operations. 2solveutilizes Bayesian probabilistic reasoning algorithms to automate diagnostics of faultynetwork elements, primarily in Radio Access where the volume of network elements (andtechnical incidents) is high.

In traditional Incident Management (see the figure at the top of this page), engineersare allocated to manually diagnose identified problems received as Trouble Tickets fromCustomer Support. When a high-level diagnosis has been determined from theinvestigation of available performance data and alarms, the engineer will dispatch theTrouble Ticket to the most relevant technical specialist team for detailed diagnostics andrepair.

In 2solve, such high-level diagnostics is performed automatically by the reasoningengine, and the user does not need to understand underlying technical data. This meansthat non-technicians in Customer Support are able to quickly analyse incidents anddispatch them to the right specialist unit. The overall resolution time and resources spentis significantly reduced, and both network quality and customer satisfaction is improved.

2solve is provided with pre-configured knowledge bases per technology and perequipment vendor. Knowledge bases are developed and maintained by 2operate's teamof knowledge builders capturing the knowledge from system documentation, expertinterviews, and own experiments. A strong reasoning engine allows many simultaneous

2solve helps to speed up Incident Management in network operations.


users (and automated network scans) to troubleshoot incidents faster and with a higherlevel of accuracy than human troubleshooters.

Awards and public statements from customers

Based on its novelty 2solve has already won two prestigious awards by market analysts,Frost & Sullivan and GTB. These are important statements from leading experts intelecom industry development.

2solve is recognized by market analysts as one of the world's most innovative OSS products.

Current customers of 2solve have provided the following public statements on how theyhave experienced working with 2solve and 2operate:

• ”2operate provides a unique tool which enables our staff members close to thecustomer to work more efficiently on network incidents. Moreover, our technicalexperts are shielded from incident management and can focus on their ongoingprojects.”- Saulius Grudzinskas, Senior Manager of RAN Operations at TeliaSonera

• ”We evaluated 2solve over a three month period, and the solution metexpectations on our measured parameters. In particular, 2solve makes serviceand network data available to more staff members, what makes 2solve a commonworking tool between divisions. During the evaluation period, 2operate alsoproved to be very effective in reacting to our demands and requests.”- Gunars Danbergs, Technical Director of LMT

• ”At Faroese Telecom we have a strong focus on placing the customer at the centreof everything we do, and the way that 2operate makes network data moreavailable to staff members in customer support is just perfect for us.”- Kristian R. Davidsen, CEO of Faroese Telecom


Statement by the Executive Board and Board of DirectorsThe Board of Directors and the Management Team have today discussed and approvedthe annual report of 2operate ApS for the period 1 July 2014 – 30 June 2015.

The annual report is prepared in accordance with the Danish Financial Statements Act.

It is our opinion that the financial statements give a true and fair view of the Company'sfinancial position on 30 June 2015 as well as of the result of the Company's operationsfor the fiscal year 1 July 2014 – 30 June 2015.

Further, in our opinion, the Report from the Management Team and Board of Directorsgives a fair review of the matters addressed therein.

We recommend that the annual report be approved at the annual general meeting.

Aalborg, 21 August 2015

Management Team

______________________ ______________________

Lars Moltsen Carsten Hellegaard

Board of Directors

______________________ ______________________

Kaj Juul-Pedersen Carsten HellegaardChairman

______________________ ______________________

Carl Erik Jørgensen Torben Svanberg


Independent auditors' report on the financial statements

To the shareholders of 2operate ApS

We have audited the financial statements of 2operate ApS for the financial year 1 July2014 – 30 June 2015, which comprise income statement, balance sheet and notes,including a summary of significant accounting policies. The financial statements areprepared in accordance with the Danish Financial Statements Act.

Management's responsibility for the financial statements

Management is responsible for the preparation of financial statements that give a trueand fair view in accordance with the Danish Financial Statements Act and for suchinternal control that Management determines is necessary to enable the preparation offinancial statements that are free from material misstatement, whether due to fraud orerror.

Auditors' responsibility

Our responsibility is to express an opinion on the financial statements based on ouraudit. We conducted our audit in accordance with International Standards on Auditingand additional requirements under Danish audit regulation. This requires that we complywith ethical requirements and plan and perform the audit to obtain reasonable assuranceas to whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on the auditors'judgement, including the assessment of the risks of material misstatement of thefinancial statements, whether due to fraud or error. In making those risk assessments,the auditors consider internal control relevant to the Company's preparation of financialstatements that give a true and fair view in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion onthe effectiveness of the Company's internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accountingestimates made by Management, as well as evaluating the overall presentation of thefinancial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our opinion.

Our audit has not resulted in any qualification.


Opinion

In our opinion, the financial statements give a true and fair view of the Company'sfinancial position at 30 June 2015 and of the results of its operations for the financialyear 1 July 2014 – 30 June 2015 in accordance with the Danish Financial StatementsAct.

Aalborg, 21 August 2015

ERNST & YOUNGGodkendt Revisionspartnerselskab

______________________ ______________________

Niels David Nielsen Rikke BitschState Authorised State AuthorisedPublic Accountant Public Accountant


Accounting PoliciesThe annual report for 2operate in fiscal year 2014/15 has been prepared in accordancewith the provisions applying to reporting class B large enterprises under the DanishFinancial Statements Act and Danish Accounting Standards.

The accounting policies are in line with last year and comprise the following significantrecognition principles and measurement base.

General InformationIncome is recognised in the income statement as earned, including value adjustments offinancial assets and liabilities. Equally, all costs incurred are recognised, includingdepreciation, amortisation and impairment losses.

Assets are recognised in the balance sheet when it is probable that future economicbenefits will flow to the Company and the value of the asset can be reliably measured.

Liabilities are recognised in the balance sheet when an outflow of economic benefits isprobable and when the liability can be reliably measured.

On initial recognition, assets and liabilities are measured at cost. Subsequently, assetsand liabilities are measured as described below for each individual item.

Certain financial assets and liabilities are measured at amortised cost implying therecognition of a constant effective interest rate to maturity. Amortised cost is calculatedas initial cost minus any principal repayments and plus or minus the cumulativeamortisation of any difference between cost and nominal amount.

In recognising and measuring assets and liabilities, any losses and risks occurring priorto the presentation of the annual report that evidence conditions existing at the balancesheet date are taken into account.

The carrying amount of intangible and tangible fixed assets should be estimated annuallyto determine if there is any indication of impairment in excess of the amount reflected bynormal amortisation or depreciation. If this is the case, writedown should be made to thelower recoverable amount.

Income Statement

Net Revenue

The Net Revenue from sale of merchandise and finished goods is recognised in theincome statement if supply and risk transfer to purchaser has taken place before the endof the year. Net revenues is recognised exclusive of VAT, duties and less discountsrelated to the sale.

Other External Costs

Other external costs include costs relating to distribution, sale, advertising,

2operate ApS, Annual Report 2014/15Accounting Policies

administration, premises, loss on bad debts, and similar expenses.

Staff Costs

Staff costs include salaries including vacation pay, pensions, and other social costs ofemployees. Staff costs are subtracted received support from public authorities.

Financial Income and Expenses in General

Financial income and expenses include interest income and expenses, financial expensesof finance leases, realised and unrealised gains and losses arising from debt andtransactions in foreign currencies. Financial income and expenses are recognised in theincome statement by the amounts that relate to the financial year.

Tax

The tax for the year, which consists of the current tax for the year and changes indeferred tax, is recognised in the income statement by the portion that can be attributedto the profit for the year, and is recognised directly in the equity by the portion that canbe attributed to entries directly to the equity.

Balance Sheet

Intangible Assets

Acquired rights are measured at the lower of cost less accumulated amortisation orrecoverable amount. Acquired rights are amortised over 5 years.

Development costs comprise costs, including salaries, which can directly be related tothe Company’s development activities and which fulfil the criteria for recognition.

Capitalised development costs are measured at the lower of cost less accumulatedamortisation or recoverable amount.

Capitalised development costs are amortised on a straight-line basis over the estimateduseful life after completion of the development work, which is set to 5 years.

Intangible fixed assets are generally written down to the lower of recoverable value andcarrying amount.

Tangible fixed assets

Other plants, fixtures and equipment are measured at cost less accumulateddepreciation and write-downs.

The depreciation base is cost less estimated residual value after end of useful life.

The cost includes the acquisition price and costs incurred directly in connection with theacquisition until the time when the asset is ready to be used. As regards self-manufactured assets, the cost price includes cost of materials, components,subcontractors, direct payroll and indirect production costs.

Straight-line depreciation is provided on the basis of an assessment of the expecteduseful lives of the assets and their residual value as follows:


Useful life Residual value

Other plants, fixtures and equipment 2 years 0%

Profit or loss on disposal of tangible fixed assets is stated at the difference betweenselling price less selling costs and the carrying amount at the time of sale. Profits orlosses are recognised in the income statement.

Inventories

Inventories are measured at cost using the FIFO principle. If the net realisable value islower than cost, write-down is provided to the lower value.

The cost of merchandise as well as raw materials and consumables is calculated atacquisition price with addition of transportation and similar costs.

The cost of finished goods and work in progress includes the cost of raw materials,consumables, direct payroll costs and direct production costs.

The net realisable value of inventories is stated at sales price less completion costs andcosts incurred to execute the sale and is determined with due regard to marketability,obsolescence and development in expected sales price.

Accounts Receivable

Accounts Receivable are measured at nominal value less estimated losses based on anindividual assessment.

Contract work in progress

Work in progress on contract is measured at the sales value of the work performed. Thesales value is measured on the basis of the degree of completion on the balance sheetdate and the total anticipated revenue related to the specific piece of work in progress.

The specific piece of work in progress is recognised in the balance sheet as an accountreceivable or payable, depending on the net value of the selling price less progressinvoicing and progress payments.

Costs relating to sales work and obtaining of contracts are recognised in the incomestatement as and when they are incurred.

Accruals, Assets

Accruals recognised as assets include costs incurred relating to the subsequent financialyear.

Tax Payable and Deferred Tax

Current tax liabilities and receivable current tax are recognised in the balance sheet asthe calculated tax on the taxable income for the year, adjusted for tax on the taxableincome for previous years and taxes paid on account.

Deferred tax is measured on the temporary differences between the carrying amountand the tax value of assets and liabilities.

Deferred tax assets, including the tax value of tax loss carry-forwards, are measured at


the expected realisable value of the asset, either by set-off against tax on futureearnings or by set-off against deferred tax liabilities within the same legal tax unit.

Deferred tax is measured on the basis of the tax rules and tax rates that under thelegislation in force on the balance sheet date would be applicable when the deferred taxis expected to crystallise as current tax. Changes in deferred tax due to changes in taxrates are measured in the income statement except for entries going directly to theequity.

Liabilities

Liabilities are recognised at net realisable value.

Accruals, liabilities

Accruals recognised as liabilities include payments received regarding income insubsequent years.


Income Statement

2577 972

-83 -23

2494 949

1 -454 -1039-744 -972-824 -685

472 -1747

2 3-27 -52

448 -1796

2 -101 334

347 -1462

347 -1462

347 -1462

Note 2014/15DKK'000

2013/14DKK'000

Net Revenue

Cost of Sales

Gross Profit

Staff CostsOther Externals CostsDepreciation, Amortisation, and Impairment

Operating Profit

Other financial incomeOther financial expenses

Profit Before Tax

Tax on profit/loss for the year

Profit for the Year

Proposed Distribution of ProfitAccumulated Profit

Total


Balance Sheet

ASSETS

2276 215124 52

3 2301 2203

4 18

4 4 18

2305 2221

0 52

0 52

1247 5079 0

5 879 98043 155

205 20572 89

2525 1479

680 104

3204 1635

5509 3856

Note 2014/15DKK'000

2013/14DKK'000

Development ProjectsIntangible Fixed Assets Acquired

Intangible Fixed Assets

Other plants, machinery, tools and equipment

Tangible Fixed Assets

Fixed Assets

Finished goods and goods for resale

Inventories

Trade ReceivablesContract work in progressDeferred Tax AssetsOther ReceivablesTax ReceivablesPrepayments and Accrued Income

Accounts Receivable

Cash and Cash Equivalents

Current Assets

Total Assets

2operate ApS, Annual Report 2014/15Balance Sheet

EQUITY AND LIABILITIES

330 2892968 1443

6 3297 1732

766 1321

7 766 1321

7 100 100

28 73279 439

1038 1911446 803

2212 2124

5509 3856

8

Note 2014/15DKK'000

2013/14DKK'000

Share CapitalRetained Profit

Equity

Debt Instruments

Long-Term Liabilities

Short-Term Debt Instruments

Trade PayablesOther LiabilitiesPrepayments and Accrued IncomeCurrent Liabilities

Liabilities

Equity and Liabilities

Charges and securities

2operate ApS, Annual Report 2014/15Notes

Notes

1

392 96717 2145 51

454 1039

2

0 -1890 -11

101 -134

0 0

101 -333

3

3903 163

908 0

4811 163

1752 111782 28

2535 139

2276 24

4

9999

8114

95

4

Staff Costs 2014/15DKK'000

2013/14DKK'000

Wages and SalariesSocial Security CostsOther Staff Costs

Total Staff Costs

In fiscal year 2014/15, salaries and staff costs of DKK 908 thousand have been capitalised as development projects (2013/14: DKK 755 thousand). The decrease in staff costs in fiscal year 2014/15 is due to ramp-up of staff for product development (increased capitalization) and extraordinary salary expenses in 2013/14.

Tax 2014/15DKK'000

2013/14DKK'000

Tax on profit/loss for the yearAdjustment of tax in previous years

Adjustment of deferred tax

Adj. deferred tax due to changed tax rate

Intangible fixed assetsDev. Projects

CompletedDKK'000

Intang. FixedAssets Acq.

DKK'000

Cost at 1 July 2014

Addition

Cost at 30 June 2015

Depreciation/amortisation 1 July 2014Depreciation/amortisation of the year

Depreciation/amortisation 30 June 2015

Carrying amount at 30 June 2013

Tangible fixed assetsTang. FixedAssets Acq.

DKK'000

Cost at 1 July 2014Cost at 30 June 2015

Depreciation/amortisation 1 July 2014Depreciation/amortisation of the year

Depreciation/amortisation 30 June 2014

Carrying amount at 30 June 2014

2operate ApS, Annual Report 2014/15Notes

Notes

5

6

289 0 1442 1731

41 1179 1219

-1179 1179347 347

330 0 2968 3298

626234

13141

330

7

1421 866 100 0

1421 866 100 0

8

Deferred Tax AssetsDeferred tax per 30 June 2015 amounts to DKK 879 thousand compared to DKK 980 thousand last year. The deferred tax asset is primarily related to negative transferred results in previous years. Exploitation of negative transferred results depends of realization of revenue growth as well as positive results. The management estimates that the company will reach revenues and results within 2-3 years to exploit the deferred tax from negative transferred results.

EquityShare

CapitalDKK'000

ReservesDKK'000

RetainedEarningsDKK'000

TotalDKK'000

Equity at 1 July 2014

Capital Increase

Transfer to/from other ItemsResult of the Year

Equity at 30 June 2014

Changes in equity 2009-2012:Cash capital contribution, February 2009Non-cash contribution, February 2009Cash capital contribution, April 2010Loans converted to shares, June 2013Loans converted to shares, September 2014

Total Changes in Equity

Warrant Agreement:The company has issued 100,000 warrants of nominal value DKK 1 and strike price DKK 35. The warrants allows for capital increase of up to nominal value DKK 100,000. The warrants may be exercised within a four-year period starting 30 September 2014.

Long-Term Liabilities1 July '14

Total DebtsDKK'000

30 June '15Total Debts

DKK'000

RepaymentNext YearDKK'000

Debt outst.after 5 Years

DKK'000

Debt instruments

Charges and securities2operate ApS has provided as collateral for the fulfilment of the debt instruments of DKK 966 thousand by 30 June 2015 their right to development projects, other rights, and receivables from sales.

2operate aps, annual report 2014/15

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