Invitation to acquire shares in Tobii AB (publ) GLOBAL COORDINATOR AND JOINT BOOKRUNNER JOINT BOOKRUNNER

Transcription

1 Invitation to acquire shares in Tobii AB (publ) GLOBAL COORDINATOR AND JOINT BOOKRUNNER JOINT BOOKRUNNER

2 IMPORTANT INFORMATION TO INVESTORS The offering circular (the Offering Circular ) has been prepared in connection with the offering of shares in Tobii AB (publ) (a Swedish public limited liability company) to the public in Sweden and institutional investors and a listing of shares on Nasdaq Stockholm (the Offering ). In the Offering Circular, Tobii, the Company or the Group refers to Tobii AB (publ), the group in which Tobii AB (publ) is the parent company or a subsidiary of the group, as the context may indicate. The Joint Bookrunners refer to Carnegie Investment Bank AB (publ) ( Carnegie ) and ABG Sundal Collier AB ( ABG Sundal Collier ). See section Definitions for the definitions of these and other terms in the Offering Circular. The figures included in the Offering Circular have, in certain cases, been rounded off and, consequently, the tables included in the Offering Circular do not necessarily add up. All financial amounts are in Swedish kronor ( SEK ), unless indicated otherwise. Except as expressly stated herein, no financial information in the Offering Circular has been audited or reviewed by the Company s auditors. Financial information relating to the Company in the Offering Circular that is not part of the information audited or reviewed by the Company s auditor as outlined herein originates from the Company s internal accounting and reporting systems. The Offering is not directed to the general public in any country other than Sweden. Nor is the Offering directed to such persons whose participation requires additional offering circulars, registrations or measures other than those prescribed by Swedish law. No measures have been or will be taken in any other jurisdiction than Sweden, that would allow any offer of the shares to the public, or allow holding and distribution of the Offering Circular or any other documents pertaining to the Company or shares in such jurisdiction. Applications to acquire shares that violate such rules may be deemed invalid. Persons into whose possession the Offering Circular comes are required by the Company and the Joint Bookrunners to inform themselves about and to observe such restrictions. Neither the Company nor either of the Joint Bookrunners accepts any legal responsibility for any violation by any person, whether or not a prospective investor, of any such restrictions. The shares in the Offering have not been reviewed by any U.S. federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of the Offering Circular. Any representation to the contrary is a criminal offence in the United States. The shares in the Offering have not been and will not be registered under the U.S. Securities Act of 1933, as amended, (the Securities Act ) or under any U.S. state securities laws and are being offered and sold in the United States only to qualified institutional buyers as defined in and in reliance on Rule 144A under the Securities Act and to certain non-u.s. persons in transactions outside the United States in reliance on Regulation S under the Securities Act. Prospective purchasers that are qualified institutional buyers are hereby notified that the sellers of the shares in the Offering may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. The shares may not be offered, sold, pledged or otherwise transferred within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable state securities laws. In the United States, the Offering Circular is being furnished on a confidential basis solely for the purpose of enabling a prospective investor to consider purchasing the particular securities described herein. The information contained in the Offering Circular has been provided by the Company and other sources identified herein. Distribution of the Offering Circular to any person other than the offeree specified by the Joint Bookrunners or their representatives and those persons, if any, retained to advise such offeree with respect thereto, is prohibited, and any disclosure of its contents, without the Company s prior written consent, is prohibited. Any reproduction or distribution of the Offering Circular in the United States, in whole or in part, and any disclosure of its contents to any other person is prohibited. The Offering Circular is personal to each offeree and does not constitute any offer to any other person or to the general public to acquire shares in the Offering. The Offering and the Offering Circular are governed by Swedish law. The courts of Sweden have exclusive jurisdiction to settle any conflict or dispute arising out of or in connection with the Offering or the Offering Circular. A Swedish prospectus (the Prospectus ) has been approved and registered by the Swedish Financial Supervisory Authority (Sw. Finansinspektionen) in accordance with Chapter 2, Sections 25 and 26 of the Swedish Financial Instruments Trading Act (1991:1980) (Sw. lagen (1991:980) om handel med finansiella instrument). The Offering Circular is a translation into English of the Prospectus approved and registered by the Swedish Financial Supervisory Authority. In the event of discrepancies between the Offering Circular and the Prospectus, the Prospectus shall prevail with exception for the sections Certain U.S. federal income tax considerations and Transfer restrictions which only relate to matters attributable to the U.S. STABILIZATION In connection with the Offering, Carnegie may carry out transactions aimed at supporting the market price of the shares at levels above those which might otherwise prevail in the open market. Such stabilization transactions may be effected on Nasdaq Stockholm, in the over-the-counter market or otherwise, at any time during the period starting on the date of commencement of trading in the shares on Nasdaq Stockholm and ending no later than 30 calendar days thereafter. Carnegie is, however, not required to undertake any stabilization and there is no assurance that stabilization will be undertaken. Stabilization, if initiated, may be discontinued at any time without prior notice. In no event will transactions be effected at levels above the price set in the Offering. Within one week of the end of the stabilization period, Carnegie will make public whether or not stabilization was undertaken, the date at which stabilization started, the date at which stabilization last occurred and the price range within which stabilization was carried out, for each of the dates during which stabilization transactions were carried out. FORWARD-LOOKING STATEMENTS The Offering Circular contains certain forward-looking statements and opinions. Forward-looking statements are statements that do not relate to historical facts and events and such statements and opinions pertaining to the future that, by example, contain wording such as believes, estimates, anticipates, expects, assumes, forecasts, intends, could, will, should, would, according to estimates, is of the opinion, may, plans, potential, predicts, projects, to the knowledge of or similar expressions, which are intended to identify a statement as forward-looking. This applies, in particular, to statements and opinions in the Offering Circular concerning the future financial returns, plans and expectations with respect to the business and management of the Company, future growth and profitability and general economic and regulatory environment and other matters affecting the Company. Forward-looking statements are based on current estimates and assumptions made according to the best of the Company s knowledge. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause the actual results, including the Company s cash flow, financial condition and results of operations, to differ materially from the stated results, or fail to meet expectations expressly or implicitly assumed or described in those statements or to turn out to be less favorable than the results expressly or implicitly assumed or described in those statements. Accordingly, prospective investors should not place unreasonable high reliance on the forwardlooking statements herein and are strongly advised to read the Offering Circular, including the following sections: Summary, Risk factors, Business overview and Operating and financial review, which include more detailed descriptions of factors that might have an impact on the Company s business and the market in which it operates. None of the Company or any of the Joint Bookrunners can give any assurance regarding the future accuracy of the opinions set forth herein or as to the actual occurrence of any predicted developments. In light of the risks, uncertainties and assumptions associated with forward-looking statements, it is possible that the future events mentioned in the Offering Circular may not occur. Moreover, the forward-looking estimates and forecasts derived from third-party studies referred to in the Offering Circular may prove to be inaccurate. Actual results, performance or events may differ materially from those in such statements due to, without limitation: changes in general economic conditions, in particular economic conditions in the markets on which the Company operates, changed interest rate levels, changed currency exchange rates, changes in competition conditions, changes in laws and regulations, and occurrence of accidents or environmental damages. After the date of the Offering Circular, neither the Company nor any of the Joint Bookrunners assumes any obligation, except as required by law or Nasdaq Stockholm s Rule Book for Issuers, to update any forward-looking statements or to conform these forward-looking statements to actual events or developments. BUSINESS AND MARKET DATA Tobii operates in an industry in which it is difficult to obtain precise industry and market information. Tobii has obtained certain market and competitive position data in this Offering Circular from a report dated November 25, 2014, produced by Arthur D. Little, as well as from a review of Tobii s patent position commissioned from the independent intellectual property consultancy ClearViewIP Ltd and presented in a report dated October 2014 (jointly the Reports ). Tobii has commissioned the Reports and Tobii believes them to be reliable. As part of its supporting information for the Reports, both Arthur D. Little and ClearViewIP Ltd received market and company information from Tobii. Tobii cannot assure the accuracy and completeness of such information, and Tobii has not independently verified the market and competitive position data contained in the Offering Circular. In addition, in many cases Tobii has made statements in the Offering Circular regarding its industry and its competitive position in the industry based on its experience and its own investigation of market conditions. Tobii cannot assure that any of these assumptions are accurate or correctly reflect its competitive position in the industry, and none of Tobii s internal surveys or information have been verified by independent sources, which may have estimates or opinions regarding industry-related information which differ from Tobii s. The contents of the Company s website, the website of any member of the Group and any third party web sites referred to herein do not form any part of this Offering Circular. None of the Company or any of the Joint Bookrunners assumes responsibility for the correctness of any business or market data included in the Offering Circular. Information provided by third parties has been accurately reproduced and, as far as the Company is aware and has been able to ascertain from information published by such third parties, no facts have been omitted which would render the reproduced information inaccurate or misleading. IMPORTANT INFORMATION ABOUT THE POSSIBILITY TO SELL ALLOTTED SHARES Note that notifications about allotment to the public in Sweden will be made through distribution of contract notes, which is expected to occur on or around April 24, After payments for the allocated shares have been processed by Carnegie and Avanza, duly paid shares will be transferred to the securities depository account or the securities account specified by the acquirer. The time required to transfer payments and transfer duly paid shares to the acquirers of shares in Tobii means that these acquirers will not have shares available in the specified securities depository account or the securities account until April 28, 2015, at the earliest. Trading in Tobii s shares on Nasdaq Stockholm is expected to commence on or around April 24, Please note that the circumstance that shares may not be available in an acquirer s securities account or securities depository account until April 28, 2015 at the earliest, can mean that the acquirer may not be able to sell these shares on the stock exchange as from the time trading in the shares commences, but first when the shares are available in the securities account or the securities depository account.

3 Contents Summary 2 Risk factors Background and reasons 25 Terms and conditions 27 Business and market overview 33 Selected financial information 86 Pro forma income statement Auditors report on pro forma financials 93 Operating and financial review 94 Capitalization, indebtedness and other financial information 110 Board of Directors, executive management and auditor 112 Corporate governance 116 Share capital and ownership structure 120 Articles of association 123 Legal considerations and supplementary information 125 Tax considerations in Sweden 130 Certain U.S. federal income tax considerations 132 Transfer restrictions 136 Definitions 138 Audited consolidated annual accounts for the period F-1 Auditor s report regarding audited consolidated annual accounts for the period F-25 Addresses A-1 Summary of the Offering The Offering The Offering Circular has been prepared in connection with the offering of shares in Tobii to the public in Sweden and institutional investors and a listing of shares on Nasdaq Stockholm (the Offering ). Number of shares offered The Offering comprises a total of 17,901,000 20,101,000 shares in Tobii, The Company offers between 16,000,000 18,200,000 newly issued shares whereby the number of shares will be established to such amount that it provides Tobii with gross proceeds of SEK 400 million before transaction costs. Furthermore, a few existing shareholders offer 1,901,000 existing shares. The Company has undertaken, at the request of Joint Bookrunners, to issue a maximum of 3,015,150 additional new shares to cover a possible over-allotment in connection with the Offering. Offering price The price in the Offering is expected to be determined within the range of SEK The final Offering price will be determined through a book-building procedure and, consequently, based on demand and the overall market conditions. The price will be set by Tobii s Board of Directors in consultation with the Joint Bookrunners. The final Offering price is expected to be announced by way of a press release on or about April 24, Indicative timetable Application period for the public offering in Sweden April 14 April 22, 2015 Application period for the institutional offering April 14 April 23, 2015 First day of trading on Nasdaq Stockholm April 24, 2015 Settlement date April 28, 2015 Miscellaneous Short name (ticker) on Nasdaq Stockholm ISIN code Financial calendar TOBII SE Annual report 2014 May 20, 2015 Interim report for the period January 1 March 31, 2015, Q1 May 22, 2015 Annual general meeting June 10,

4 Summary Summary The summary is drawn up in accordance with information requirements in the form of a number of paragraphs which should include certain information. The paragraphs are numbered in sections A E (A.1 E.7). This summary contains all the paragraphs required in a summary for the relevant type of security and issuer. However, as certain paragraphs are not required, there may be gaps in paragraph numbering sequences. Even if it is necessary to include a paragraph in the summary for the security and issuer in question, it is possible that no relevant information can be provided for that paragraph. In such instances, the information has been replaced by a brief description of the paragraph, along with the specification not applicable. Section A Introduction and warnings A.1 Introduction and warnings A.2 Consent for use of the Offering Circular by financial intermediaries Section B Issuer and any guarantor B.1 Company and trading name B.2 Issuer s registered office and corporate form B.3 Description of the Issuer s operations This summary should be read as an introduction to the Offering Circular. Any decision to invest in the securities should be based on an assessment of the Offering Circular in its entirety by the investor. Where statements in respect of information contained in an offering circular are challenged in a court of law, the plaintiff investor may, in accordance with EU-member states national legislation, be forced to pay the costs of translating the Offering Circular before legal proceedings are initiated. Under civil law, only those individuals who have produced the summary, including translations thereof, may be enjoined, but only if the summary is misleading, incorrect or inconsistent with the other parts of the Offering Circular or if it does not, together with other parts of the Offering Circular, provide key information to help investors when considering whether to invest in the securities being offered. Not applicable. Financial intermediaries are not entitled to use the Offering Circular for subsequent trading or final placement of securities. Tobii AB (publ), reg. no Tobii s registered office is in Stockholm county, Danderyd municipality, Sweden. The Company is a Swedish public limited liability company founded in Sweden under Swedish law and operating under Swedish law. The Company s form of association is governed by the Swedish Companies Act (SFS 2005:551). Tobii is a global market leading provider of eye-tracking solutions. A product with an integrated eye-tracking sensor knows what a user is looking at. This makes it possible to interact with computers and machines using the eyes. Tobii conducts its business through three business units that each has its own distinct markets, products and dedicated personnel. The Company is accounting for each business unit as separate segments. Tobii Dynavox a globally leading supplier of assistive technology for communication. Today, the business products comprise of both eye-tracking based and touchscreenbased AAC-devices as well as various software. Tobii Pro a globally leading supplier of eye-tracking solutions for behavioral research studies. 2

5 Summary B.3 Description of the Issuer s operations, (cont.) Tobii Tech a leading supplier of eye-tracking components and platforms to integration customers. Tobii operates globally from offices in Sweden (Headquarters), the U.S. (offices in Boston, Washington DC, Pittsburgh and Mountain View), China, Japan, U.K., Germany and Norway. B.4a Trends Eye-tracking as a technology is a relatively new phenomenon and most of the application areas are in an early market phase. In view thereof, Tobii is affected more by how and to what extent customers and users adopt eye tracking and its applications that eye tracking permits rather than the overall market trends. The business unit Tobii Dynavox is dependant on trends on the market for assistive technology for communication. In a historical perspective, the market for assistive technology for communication has experienced steady growth driven by increased competence among prescribers, public awareness and improved funding systems. However, the total market have declined during the period , primarily in the U.S., due to regular consumer tablets with AAC-apps have been introduced on the market and that a specific, major funding program in Texas, U.S., has largely ceased for these types of products. However, the sub-market for eye tracking in assistive technology where Tobii Dynovox has a stong position, has grown substantially in recent years, to a large extent driven by new products and increasing knowledge and awareness of the opportunities with eye tracking. At an overall level, the entire market is affected by the access to health care financing in different countries, with the U.S. as the most important market. However, assistive technology for communication constitutes a very small percentage of the total health budgets, making the financing of this separate sector not necessarily correlate with the overall health budget. Furthermore, there is a general trend in many parts of the world to gradually strengthen the position and opportunities for people with special needs. The business unit Tobii Pro has academic customers which represent 56% of the business unit s revenues. This segment is affected by the availability of public funding for reseach of academic institutions, which in turn, can be influenced by, among other things, political priorities and the strength of public finances in various countries. It is the Company s understanding that, during the recent years, the climate for reseach budgets remained stable on a global basis. The remaining 44% of Tobii Pro s sales consist of commercial customers, including the market research industry. However, eye-tracking studies constitute a very small part of the total market for market research, therefore the Company is more influenced by how quickly customers start using eye tracking as a method for market research rather than the market as a whole. The total market for market research has, according to Esomar, grown slightly faster than the world GDP in recent years. In addition, there is a trend to use more and more implicit methods for studies, and eye tracking is considered as a typical growing implicit method. The business unit Tobii Tech has an ambition to introduce the Company s technology in several future eye-tracking markets such as computer games, regular computers, vehicles and medical applications. The Company is primarily affected by whether OEMcustomers and end-users start using applications based on eye tracking rather than development for these markets in general. In this context, it may be noted that many of the recent consumer electronic products consist of innovative technologies for user interface as a central part of the products such as Microsoft Kinect (gestures), Apple iphone/ipad (touch screen) and Nintendo Wii (movements). A possible early consumer market for Tobii s technology is the market for consumer games. This is one of the segments in the computer industry that is growing rapidly. B.5 Description of the Group and the issuer s position within the Group The Group comprises the parent company Tobii AB (publ) and 19 directly or indirectly owned subsidiaries. 3

6 Summary B.6 Major shareholders The below table states all the shareholders that immediately prior to the approval of the Prospectus, held 5% or more of the shares in the Company. Name No. of shares Ownership, % Invifed AB* 13,433, % Intel Capital Corporation 7,042, % Northzone Ventures AS 6,730, % Amadeus General Partner Limited 6,430, % Eskilsson, Henrik** 5,005, % The Sixth AP-fund* 5,000, % Elvesjö, John 4,085, % Skogö, Mårten 3,911, % Total 51,638, % * Invifed AB and The Sixth AP-fund are both Corner Investors who have agreed to, directly or indirectly through subsidiaries, acquire shares in the Offering, on the same terms and conditions as for other investors, corresponding to 17.53% and 6.52% of the total number of shares in the Offering respectively (based on full subscription in the Offering and the midpoint of the price range in the Offering (SEK 23.50)). ** Henrik Eskilsson also owns 22.5% of the shares in Eskilsson Consulting AB which in turn owns 1,916,000 shares in Tobii. In addition to the shareholders that hold more than 5% of the capital and the shares and as of the date of approval of the Prospectus, there are no other natural or legal persons that are subject to registration based on their shareholdings. B.7 Financial information in summary The financial information below has been retrieved from the audited consolidated annual accounts for the period , prepared in accordance with IFRS. Summary of consolidated income statement SEK million Net sales Cost of goods and services sold Gross profit Selling expenses Research and development expenses Administrative expenses Other operating income and operating expenses Operating income (EBIT) Profit/loss from financial items Share of profit/loss from associated companies Financial income Financial expenses Total financial income and expenses Income before taxes Taxes Net profit/loss for the year

7 Summary B.7 Financial information in summary, (cont.) Summary of consolidated balance sheet SEK million Non-current assets Intangible assets Tangible assets Other non-current assets Total non-current assets Current assets Accounts receivables Inventories Other receivables Prepaid expenses and accrued income Total current assets Cash and cash equivalents Total assets Equity and liabilities Equity Non-current liabilities Accounts payable trade Accrued expenses and deferred income Other current liabilities Total current liabilities Total equity and liabilities Summary of consolidated cash flow statement SEK million Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Cash flow for the period Cash and cash equivalents at the beginning of the period Exchange rate difference in cash and cash equivalents Cash and cash equivalents at the end of the period Segment information SEK million Net sales Tobii Dynavox Tobii Pro Tobii Tech Other and eliminations Group Operating income (EBIT) Tobii Dynavox Tobii Pro Tobii Tech Other and eliminations Group

8 Summary B.7 Financial information in summary (cont.) Segment information SEK million Adjusted EBIT 1) Tobii Dynavox Tobii Pro Tobii Tech Other and eliminations Group ) Adjusted for non-recurring items related to the aquisition of DynaVox Systems LLC in 2014 and Tobii s IPO. The Group s key information Earnings per share, SEK Earnings per share, assuming dilution, SEK Equity per share, SEK EBITDA, SEK million EBIT, SEK million Free cash flow, SEK million Operating working capital, SEK million Total assets, SEK million Net debt, SEK million Equity, SEK million Equity/asset ratio, % Net debt/equity, % Gross margin, % EBITDA margin, % EBIT margin, % Return on total equity, % Average number of shares in millions Number of shares at period-end in millions Number of (full time) employees at period-end Significant changes during the period January 1, 2012 December 31, 2014 In 2014, Tobii acquired the US company DynaVox Systems LLC, which prior to the acquisition, was Tobii s main competitor in the alternative communication market. DynaVox Systems LLC complements Tobii with a strong North American focus, leading touchscreen-based assistive communication products, leading software for users with cognitive disabilities and market leading software for teaching in special education schools. Two new share issues were completed in 2014 which together provided SEK 166 million in net proceeds and one share issue was completed in 2012 which provided SEK 143 million in gross proceeds. Significant events after December 31, 2014 In February 2015, Tobii and the computer-game company Ubisoft announced that Assassin s Creed Rouge PC, which is one of Ubisoft s most sold games, would implement Tobii s eye tracking in order for the game view to automatically follow where the player is looking, just as when a person is moving their gaze point. Deliveries of the game to stores commenced in March In February 2015, a bill was presented in the U.S. ( Steve Gleason Act ) proposing that (i) congress change the previously taken decision to classify assistive technology for communication as capped rental -products, and (ii) improve the possibilities to get financing for assistive eye-tracking technology through Medicare. If this bill is passed, it may have a positive effect on Tobii Dynavox in the medium term. 6

9 Summary B.8 Pro forma accounting Tobii acquired DynaVox Systems LLC on May 23, The Group s consolidated annual accounts for 2014 reflects the financial development based on this prerequisite, i.e. that the acquisition was concluded in the fifth month of the financial year. The purpose of the pro forma financial information is to present the earnings that the business could have achieved for the full year 2014 if the acquisition had taken place on January 1, The pro forma financial information describes a hypothetical situation and has been produced solely for illustrative purposes. Amounts in this section have been rounded off and the tables in this section may not always add up. SEK million DynaVox Systems LLC Pro forma US GAAP Tobii AB 1/1 5/31 adjustments to IFRS 1) 2014 IFRS 2) US GAAP 1/1 5/31 adjustments Pro forma 2014 Net sales Cost of goods and services sold Gross profit/loss Selling expenses Research and development expenses ) Administrative expenses ) 92.9 Other income and operating expenses ) 3.8 Operating profit/loss (EBIT) Profit/loss from financial items Share of profit in associated companies Financial income Financial expenses ) 18.7 Total financial income and expenses Profit/loss before tax Taxes 3.0 7) 3.0 Net profit/loss for the year Currency rates Pro forma adjustments in the income statement are calculated using an exchange rate of SEK/USD, which is equivalent to the average exchange rate applied by Tobii for the period January 1 May 31, ) Based on the audited consolidated financial statements for the financial year ) Based on unaudited, internally prepared financial statements recalculated using an average exchange rate of SEK/USD for the period January 1 May 31, ) Proforma adjustments amounting to 3.9 MSEK are attributable to the conversion of US GAAP to IFRS following the application of IAS 38 Intangible Assets whereby product development expenses are capitalized to the extent that it is probable that these products will generate future revenues. The amount which has been capitalized as intangible assets during the five-month period of January to May 2014 is 8.5 MSEK and the amortization of intangible assets amounts to 4.6 MSEK. 4) Pro forma adjustments totaling 17.1 MSEK refer to administrative expenses, of which 9.5 MSEK in the DynaVox Systems LLC income statement January 1 May 31, 2014, relates to sales expenses incurred by the previous owners while attempting to sell the DynaVox Group. The adjustment amount also includes acquisition costs incurred by Tobii in the amount of 7.4 MSEK as a result of Tobii s acquisition of DynaVox Systems LLC. Neither of these items would have affected the income statement had the acquisition taken place on January 1, ) Pro forma adjustments amounting to 7.0 MSEK relate to restructuring expenses incurred by DynaVox Systems LLC during the period of January 1 May 31 and are comprised primarily of severance payments to executive officers. 6) Pro forma adjustments totaling 4.4 MSEK are comprised of interest payments of 5.4 MSEK made by DynaVox Systems LLC on restructuring loans received during the period in order to finance restructuring. Had the acquisition taken place on January 1, 2014, these interest expenses would not have been incurred. The pro forma income statement includes interest expenses amounting to 0.9 MSEK, which would have been the borrowing costs incurred by Tobii on its loan taken for the purpose of the acquisition, had the loan been taken on January 1, ) DynaVox Systems LLC is jointly taxed with Tobii Assistive Inc. Tobii Assistive Inc has accumulated losses without corresponding deferred tax assets, therefore there is no impact on tax expense for the year in the pro forma income statement. 7

10 Summary B.9 Profit/loss forecast Not applicable. The Company has not presented any profit/loss forecast. B.10 Audit remarks Not applicable. There are no remarks in the audit reports. B.11 Insufficient net working capital Section C Securities Not applicable. The Board of Directors of Tobii believes that the existing net working capital is sufficient to meet the Company's needs over the next twelve month period. C.1 Securities offered Shares in Tobii AB (publ), reg. no ISIN number SE C.2 Denomination The shares are denominated in SEK. C.3 Total number of shares in the Company C.4 Rights associated with the securities C.5 Restrictions in free transferability C.6 Admission to trading As of the date of the Offering Circular, there are 68,927,883 shares in the Company, each with a quota value of approximately SEK The shares entitles to a total of 68,927,883 votes. All issued shares have been fully paid. The Offering comprises a total of 17,901,000 20,101,000 shares in Tobii, The Company offers between 16,000,000 18,200,000 newly issued shares whereby the number of shares will be established to such amount that it provides Tobii with gross proceeds of SEK 400 million before transaction costs. Furthermore, a few existing shareholders offer 1,901,000 existing shares. 1) The new share issue in the Offering corresponds to approximately 19 21% of the total number of shares and votes in the Company based on a fully diluted basis following the completion of the Offering. To cover possible over-allotment in connection with the Offering, the Company has undertaken to, at the request of the Joint Bookrunners, issue additional shares representing not more than 15% of the number of shares comprised by the Offering (the Overallotment option ), equal to not more than 3,015,150 shares, representing approximately 3% of the total number of shares in the Company on a fully diluted basis. Through the new share issue of a maximum of 18,200,000 shares, Tobii s share capital will increase by a maximum of approximately SEK 132,076 from SEK 500,250 to approximately SEK 632,281. 1) The selling shareholders includes among others, John Elvesjö, board member and a member of the executive management, who offers 150,000 shares and the board member Nils Bernhard, who offers 275,000 shares. Each share in the Company entitles the holder to one vote at shareholders meetings and each shareholder is entitled to cast votes equal in number to the number of shares held by the shareholder in the Company. If the Company issues new shares, warrants or convertibles in a cash issue or a set-off issue, shareholders shall, as a general rule, have preferential rights to subscribe for such securities proportionally to the number of shares held prior to the issue. The shares carry the right to payment of dividend for the first time on the record date for distribution which falls immediately after the listing. All shares in the Company give equal rights to dividends and the Company s assets and possible surpluses in the event of liquidation. Not applicable. The shares are not subject to any restrictions on transferability. Nasdaq Stockholm s listing committee has on March 6, 2015 decided to admit the Company s shares to trading on Nasdaq Stockholm, subject to customary conditions, such as that the distribution requirements in respect of the Company s shares being fulfilled no later than on the first day of trading. In case the Company s Board of Directors ultimately resolves to list the Company s shares, trading in the Company s shares is expected to begin on or around April 24, C.7 Dividend policy Over the next few years, Tobii s development and expansion ambitions for the business unit Tobii Tech will be given priority over dividends to shareholders. 8

11 Summary Section D Risks D.1 Main risks related to the issuer or the industry D.3 Main risks related to the securities Tobii s business and industry are subject to certain risks which are completely or partly outside the control of the Company and which could affect Tobii s operations, financial condition or results of operations. Described below, in no particular order and without claim to be exhaustive, are risks considered to be material to Tobii s future development. The main risks related to the Company s business and industry include: Tobii depends on development, market acceptance and awareness of the Company s products and technology, and if Tobii is unsuccessful in achieving this, it could adversely affect the Company; Tobii operates in a competitive market and the Company may not be able to compete successfully which could adversely affect the Company; Eye-tracking hardware is subject to price decline and if Tobii fails to adapt as its markets evolves, it may adversely affect the Company; Tobii is dependent on funding from public and private insurance and funding systems and changes to these systems could adversely affect the Company; Tobii is dependent on the supply of certain components and its products are subject to expressed and implied warranties making Tobii exposed to interruptions of production, warranty and product liability claims, which could adversely affect the Company; Potential future acquisitions as well as Tobii s acquisition of DynaVox Systems LLC, which was subject to a limited due diligence review, may not fully achieve Tobii s anticipated financial and strategic synergies which could adversely affect the Company; A large part of Tobii s balance sheet consists of intangible fixed assets, which is at risk to be subject to write-off that could adversely affect the Company; Risks relating to the Tobii s loan agreement with Swedbank AB (publ), e.g. the risk that Tobii cannot fulfill its undertakings under the agreement which could adversely affect the Company; Tobii is dependent on intellectual property rights and the Company s methods of protecting these rights may be inadequate, which may adversely affect the Company; There is a risk that Tobii becomes involved in legal and administrative proceedings, including claims relating to Tobii s intellectual property as well as claims of potential infringement of third party s intellectual property rights by Tobii, which could adversely affect the Company; and Tobii is exposed to tax risks and if these risks materialize, it may have an adverse affect on the Company. Any investment in securities involves risks. Any such risk could cause the trading price of the Company s shares to decline significantly and investors could lose all or parts of the value of their investment. Risks related to the Company s shares include: An active, liquid and orderly trading market for the Tobii shares may not develop, the price of the shares may be volatile, and potential investors could lose a part or all of their investment; Tobii may need additional capital, if available, which may dilute investors shareholdings and affect the price of the shares Following the Offering, the existing main shareholders will continue to have significant influence over Tobii and the ability to influence matters requiring shareholders approval; Tobii s ability to pay dividends is dependent upon the Company s future earnings, financial condition, cash flows, net working capital requirements, capital expenditures and other factors; Existing shareholders future sale of shares could cause the share price to decline; Cornerstone Investors may not fulfil their undertakings; Differences in currency exchange rates may adversely affect the value of shareholdings or dividends paid; and Shareholders in the U.S. or other countries outside Sweden may be excluded from future cash issues of shares. 9

12 Summary Section E Offering E.1 Issue proceeds and issue costs E.2a Motive and use of proceeds E.3 Offering forms and conditions The total value of the Offering amounts to approximately SEK million based on the price range. If the Over-allotment option is fully exercised, the total value of the Offering amounts to approximately SEK million. Based on the price range in the Offering, Tobii s shares are valued at approximately SEK billion following completion of the Offering and assuming the Over-allotment option is fully exercised. The Company s gross revenue from the Offering amounts to approximately SEK 400 million before transaction costs. The Company has undertaken to pay provisions to the Joint Bookrunners based on the gross revenues. The Company s costs associated with the listing on Nasdaq Stockholm and the Offering are expected to amount to approximately SEK 28 million. The Offering and the listing will expand the shareholder base, increase Tobii s capital and enable Tobii to access the Swedish and international capital markets, thereby increasing financing alternatives, which is expected to support the Company s sales and profit development. The Board of Directors of Tobii considers that the new share issue and listing of the Company s shares to be a logical and important step in Tobii s development in providing Tobii with growth opportunities and to further strengthen the Company s market position and increase the awareness of Tobii, its products and its technology. Tobii expects to receive gross proceeds of approximately SEK 400 million from the new share issue realized through the Offering. Tobii intends to use the major part of the net proceeds from the Offering for R&D investments into Tobii Tech with the aim to further develop the Company s technology to meet the needs of new potential volume markets and to support the Company s sales, marketing and business development efforts on such markets. The present business plan of Tobii Tech indicates a negative cash flow for the business unit of approximately SEK 400 million up to and including 2018, which the Group intends to finance partly with internal cash flow generated by Tobii Dynavox and Tobii Pro, partly with the proceeds of issue which the Offering aims to contribute to the Group. Tobii will also use the proceeds from the share issue to repay the two bank loans of USD 5 million and USD 6 million to Swedbank AB (publ). A smaller part of the proceeds, and potential proceeds from the Over-allotment option, may also be used for capital expenditures in the existing operations as well as for acquisitions of assets, technologies and companies complementary to the current business of the Company. At this time, Tobii has not identified any such specific assets, technologies or companies. To cover a possible over-allotment in connection with the Offering the Company has undertaken, at the request of Joint Bookrunners, to issue additional new shares so that Tobii may receive an additional maximum of approximately SEK 67 million in gross proceeds in the event that the Over-allotment option is fully exercised. The Offering: The Offering comprises a total of 17,901,000 20,101,000 shares in Tobii, The Company offers between 16,000,000 18,200,000 newly issued shares whereby the number of shares will be established to such amount that it provides Tobii with a gross proceeds of SEK 400 million before transaction costs. Furthermore, existing shareholders offer 1,901,000 existing shares. 1) The new share issue in the Offering corresponds to approximately 19 21% of the total number of shares and votes in the Company based on a fully diluted basis following the completion of the Offering. To cover a possible over-allotment in connection with the Offering, the Company has undertaken to, at the request of the Joint Bookrunners, issue additional shares representing not more than 15% of the number of shares comprised by the Offering (the Overallotment option), equal to not more than 3,015,150 shares, representing approximately 3% of the total number of shares in the Company on a fully diluted basis. The Offering is made to the general public in Sweden and to institutional investors. An offering is also made to certain employees through separate application processes. 1) The selling shareholders includes among others, John Elvesjö, board member and a member of the executive management, who offers 150,000 shares and the board member Nils Bernhard, who offers 275,000 shares. 10

13 Summary E.3 Offering forms and conditions, (cont) The Offering price: The Offering price will be determined by way of a book-building procedure and will consequently be based on demand and overall market conditions. The Offering price will be established by Tobii s Board of Directors in consultation with the Joint Bookrunners, within a range of SEK 22 SEK 25 per share. No commission will be charged. The Offering price is expected to be published on or around April 24, The application period: The application period for the public offering in Sweden is April 14 22, Institutional investors in Sweden and other countries are invited to participate in the book-building procedure that will take place between April 14 23, Application: The general public: Applications by the general public for the acquisition of shares shall comprise a minimum of 400 shares and a maximum of 45,000 shares, in even lots of 100 shares. Applications are binding. Applications shall be made using a specific application form, which is available at Carnegie s offices. The Offering Circular and the application form are also available on Tobii s website ( and Carnegie s website ( Customers of Avanza who are connected to Internet banking services can apply for acquisition of shares via Avanza s Internet services. If more than one application is submitted by the same acquirer, only the first registered application will be considered. Late, incomplete or incorrectly completed application forms may be disregarded. No additions or amendments may be made to the preprinted text on the application form. If you have an account with specific rules for securities transactions, such as an IPSdeposit, ISK-deposit (Sw. Investeringssparkonto) or deposit within an endowment insurance, you should confer with your nominee if and how you can apply for acquisition of shares in the Offering. Institutional investors: Institutional investors are invited to participate in a book-building process, which will take place during the period April 14 23, Tobii reserves the right to shorten or extend the application period in the institutional offering. Any such shortening or extension of the application period will be made public by the Company in a press release prior to the end of the application period. Applications shall be submitted to Carnegie or ABG Sundal Collier in accordance with specific instructions. Further information regarding the application is included in the section Terms and conditions. Allotment: The general public: The allotment of shares will be decided by the Board of Directors of Tobii in consultation with the Joint Bookrunners, whereby the aim to obtain a wide distribution of the shares among the general public in order to facilitate a regular and liquid trading in the Company s shares on Nasdaq Stockholm. Allotment is not dependent on when during the application period the applications are submitted. In the event of over-subscription it is possible that no allotment will be received or that the received allotment comprises fewer shares than applied for and allotment may, in whole or in part, be made through random selection. Certain customers to Carnegie and ABG Sundal Collier may be given special priority. Allotment to existing shareholders will be prioritized. Institutional investors: The decision on allotment of shares is made by the Board of Directors of Tobii in consultation with the Joint Bookrunners, with the aim to ensure that Tobii gets a good institutional shareholder base. The intention is that notifications of interest in participation, which are essentially deemed to be equivalent, should be treated equally. Interest registered by institutional investors who are deemed to be possible longterm shareholders in the Company may be given priority. Allotment to existing shareholders will be prioritized. Allotment will be entirely discretionary and no guarantees for allotment are given. 11

14 Summary E.3 Offering forms and conditions, (cont) Application and allotment for employees: An offering is also made to certain Tobii employees in France, Germany, Hungary, Japan, Norway, Sweden, the U.K. and the U.S. through separate application processes. Applications from all Tobii employees who are subject to the offer will be given special consideration up to a number of shares equal in value to the relevant investment limit. Tobii employees in Sweden will be subject to an investment limit of SEK 30,000. Tobii employees in the remaining jurisdictions will be subject to an investment limit of SEK 190,000. However, some of Tobii s employees in France, Hungary, Japan and the United States who receive the offer may apply for a number of shares that exceeds SEK 190,000 in value, but applications above this level will not be given any special consideration. Tobii employees who wish to acquire shares must follow the instructions issued by the Company. E.4 Interests and conflict of interests E.5 Selling shareholders/lock-up agreements Payment: Full payment for the allotted shares shall be made in cash no later than April 28, 2015 in accordance with the instructions on the received contract note. Registration: It is expected that allotted and paid shares, for both institutional investors and the general public in Sweden, will be registered with Euroclear Sweden AB starting on April 28, 2015, after which Euroclear Sweden AB will send out a securities notice showing the number of shares in the Company registered on the recipient s VP-account. Tobii s financial advisors in connection with the Offering and the listing are Carnegie and ABG Sundal Collier, who jointly are acting as Joint Bookrunners in the Offering. These advisors (and companies closely related to them) have provided, and may in the future provide, services in the ordinary course of business and in connection with other transactions to Tobii for which they have received, and may in the future receive, compensation. Under the placing agreement which is expected to be entered into between the Company and the Joint Bookrunners around April 23, 2015, certain large existing shareholders, shareholding members of the Board of Directors and the executive management, as well as certain other shareholders in the Company will undertake, with certain reservations, not to sell its respective holdings during a certain time period after trading on Nasdaq Stockholm has commenced (the Lock-up period ). The Lock-up period for certain large existing shareholders will be 180 days, while the Lock-up period for shareholding board members and members of the executive management will be 360 days. The Lock-up period for certain other shareholders in the Company will be 180 days. Henrik Eskilsson, John Elvesjö and Mårten Skogö have entered inte these agreements as large shareholders and not as members of the Board of Directors or as members of the executive management. Following the end of the Lock-up period, the shares may be offered for sale, which may affect the market price of the share. The Joint Bookrunners may make exceptions from these undertaking. Pursuant to the agreement, the Company will undertake, with certain exceptions, towards the Joint Bookrunners not to, e.g. resolve upon or propose to the shareholders meeting an increase of the share capital through issuance of shares or other financial instruments for a period of 360 days following the first day of trading of the Company s shares on Nasdaq Stockholm without a written consent from the Joint Bookrunners. E.6 Dilution effect The Offering comprises a total of 17,901,000 20,101,000 shares in Tobii, of which 16,000,000 18,200,000 are newly issued shares and 1,901,000 are existing shares offered by existing minor shareholders. The new share issue in the Offering corresponds to between 19 21% of the total number of shares and votes in the Company based on a fully diluted basis following the completion of the Offering. The Over-allotment option, equals to not more than 3,015,150 shares, representing approximately 3% of the total number of shares in the Company on a fully diluted basis. E.7 Costs imposed on investors by the issuer or offerer Not applicable. Brokerage commission will not be charged. 12

15 Risk factors Risk factors An investment in Tobii s shares involves various risks. A number of factors affect, or could affect, Tobii s business, both directly and indirectly. Described below, in no particular order and without claim to be exhaustive, are some of the risk factors and significant circumstances considered to be material to Tobii s business and future development. The risks described below are not the only risks to which the Company and its shareholders may be exposed. Additional risks that are not currently known to the Company, or that Tobii currently believes are immaterial, may also adversely affect Tobii s business, result of operations or financial condition. Such risks could also cause the price of Tobii s shares to fall significantly, and investors could potentially lose all or part of their investment. In addition to this section, investors should also take into consideration other information contained in this Offering Circular in its entirety. This Offering Circular also contains forward-looking statements that are subject to future events, risks and uncertainties. Tobii s actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including the risks described below and elsewhere in this Offering Circular. Risks related to Tobii, its business and industry Tobii depends on development, market acceptance and awareness of the Company s products and technology Tobii s future growth depends on the commercial success of the Company s technology. Eye-tracking technology, including the technology developed by the Company, is based on relatively new innovations that have not yet reached a broader market usage. Use cases of the technology, are largely immature and unproven. It is difficult to predict both the extent of and the timing for when end consumers, customers and partners will adopt eye-tracking technology and different applications based on that. There is a particular risk that Tobii will fail with its strategy to enter new volume markets for eye-tracking. Within all business units, Tobii is continuously working towards increased awareness among potential users and demonstrating the benefits of its products and solutions. However, increasing awareness requires substantial investments, both from a financial and time consumption point of view. In addition thereto, there is risk that the Group s target customers will not choose Tobii s technology for technical and commercial reasons. Several of the Group s target customers may decide to use other technologies or applications and may thereby find it difficult or unattractive to continue using, adapt to or switch to Tobii s technology. The Company s business units have planned for continued commercialization of their respective products in key markets. The ability of the Group to meet such projected timetables will depend upon achieving technical, market and commercial milestones. The Company does not have the personnel or economical resources to focus on all potential market opportunities. The business units Tobii Dynavox and Tobii Pro rely on complete solutions, including hardware and comprehensive software, for significant parts of their businesses. As an example, Tobii I-series, Dynavox s T-series, and the software Compass, Tobii Communicator and Tobii Studio are important parts of these business units solutions. There is a risk that the Company s customers may prefer alternate software and complete solutions even if they use the Company s core technology, which may result in significantly lower income for the Company. If Tobii is unsuccessful in increasing awareness about the eye-tracking market in general and its products in particular and if Tobii s future and existing customers do not widely purchase and adopt Tobii s technology and products, this could have a material adverse effect on the Group s business, financial condition or results of operations. Tobii operates in a competitive market and the Company may not be able to compete successfully The Group addresses its market segments through its three business units: Tobii Dynavox, a global market leader in assistive technology for alternative communication, Tobii Pro, a global market leader in eye-tracking solutions used to research and understand human behaviour and Tobii Tech, a business unit developing and selling eyetracking technology to original equipment manu facturers ( OEM ) who integrate the technology into their products. The Company has competitors in all its markets. There is a risk that Tobii s competitors are better or faster in adapting to and developing new and/or better products and technologies. Additionally, in the future, Tobii may encounter competition from other large, well-established and well-financed entities that may acquire, invest in or form joint ventures 13

16 Risk factors with providers of similar or competing technology, at the same time as existing competitors may elect to consolidate. Furthermore, the Company may face increased competition from component suppliers to markets where eyetracking technology can be implemented e.g. the automotive industry, computer producers, video-game console developers and niche competitors focusing only on one, or a few, of the business segments in which the Company is operating, or from makers of products in such applicable markets themselves. The Group is also competing with companies that offer software, for example analysis software for behavioral research and software for a so-called alternative communication. Tobii Dynavox as well as its competitors offer software in the form of apps for AAC (AAC = augmentative and alternative communication), that can be installed on consumer tablets (such as ipads). The market for consumer tablets (which are much cheaper than dedicated AAC-devices) has been growing rapidly in recent years and new AAC-apps have gained market shares from dedicated AAC-devices. Tobii s position in the existing markets could be eroded rapidly if new or existing competitors of the Company develop new, better and/or cheaper products and technologies. Also, current and potential competitors may have greater name recognition, more extensive customer bases and may be successful in increasing market shares by displacing dedicated devices for the benefit of products available on the consumer market. An eroded market position and/or increased competition could have a material adverse effect on the Group s business, financial condition or results. Eye-tracking hardware is subject to price decline and Tobii may fail to adapt as its markets evolve When a new, complex technology is brought to market, it is initially priced at a high price point and eye-tracking technology is no exception in this respect. General technology development combined with the R&D continuously conducted by Tobii and other actors, has in recent years substantially reduced the production cost for eye-tracking hardware. This has led to declining prices and increased volumes. The Company predicts that this trend will continue also in the future. Additionally, Tobii expects that a considerable amount of future revenues will come from software sales. Furthermore, as eye-tracking technology becomes more accessible in consumer electronics, the current price level for dedicated devices with integrated eye tracking could decline. If market prices for eye-tracking hardware decline substantially without Tobii being able to sufficiently meet this price reduction in terms of decreased costs, increased sales volumes, higher prices on other eye-tracking solutions and components or other revenue streams, or if Tobii fails to adapt to the expected shift from hardware to software for parts of its business, it could have a material adverse effect on the Group s business, financial condition or results of operations. Tobii is dependent on funding from public and private insurance and funding systems End consumers purchases of Tobii Dynavox s AAC-products are to a large extent dependent on public and private funding systems. The funding process comprises several steps normally starting with an individual visiting a hospital/evaluation center for a clinical evaluation to determine the individual s need for an AAC-device. Provided that the need is confirmed, the result of the evaluation is passed either through Tobii Dynavox or, by resellers, to a public funding body (such as Medicare/Medicaid in the U.S.), or a private insurer. The ability for customers to obtain funding from these providers is critical for the profitability of Tobii Dynavox. Funding varies from country to country and can significantly impact the demand for the Tobii Dynavox s products. Tobii Dynavox s products for special schools are mainly sold to schools, and the access to funding depends on the general funding climate in the school system. Curtailments, delays, changes in governments, shifts in priorities or general reductions in funding for the above products and solutions could delay or reduce Tobii s revenue. Tobii s business may also be adversely affected by changes in applicable legislation (for example in legislation relating to the U.S. healthcare system) and in the procurement processes or changes in the political leadership. In the past year, there have been both proposed and executed changes to the funding of AACdevices. An example of an executed change has been that Medicare has shifted to a model of so-called capped rental for the funding of AAC-devices, meaning that the payment is made over a series of monthly installments which has had a negative result impact on suppliers like Tobii. Medicare has, from time to time, also interpreted its legal framework differently with respect to funding of eye tracking for AAC-devices. This currently entails increased administration to retrieve payment for the part of the product cost that is constituted by eye tracking which is also reflected in the business current results and cash flow. This interpretation could improve as well as deteriorate in the future and the legal framework may also become clearer by way of a change in policy or new legislation which could have both a negative as well as a positive effect on Tobii. Tobii Pro s product offering is partly directed to universities, which normally have funding programs with budgets adopted on a yearly or project specific basis. The funding availability for these academic customers is uncertain and may vary significantly between different years, affecting which products customers purchase and the prices they are willing to pay. There is also a risk, for various reasons outside of Tobii s control, that parties providing funding withdraw the funding despite that it has previously been approved. If this occurs after Tobii has delivered ordered products to its customers, Tobii may become subject to credit losses. If any of these risks where to materialize, it could have a material adverse effect on Tobii s business, financial condition or results of operations. 14

17 Risk factors Tobii is dependent on the supply of certain components, and its products are subject to expressed and implied warranties making Tobii exposed to interruptions of production, warranty and product liability claims Tobii is dependent on the supply of certain components and other production goods and has supply agreements with a limited number of suppliers. Tobii has been and may also in the future be affected by its suppliers facing financial or operational problems, increasing prices or for other reasons being unable to make deliveries as agreed or in line with the Company s expectations. Incorrect, delayed or missing deliveries from suppliers may in turn result in Tobii s products becoming deficient or delayed. If one or some larger suppliers were to decrease or shut down their operations, this could affect Tobii s operations and the ability to supply the Company s products. Tobii s production comprises a chain of processes in which disruptions or disturbances in any part of the chain, for example due to breakdowns, fires, labor disputes or natural disasters, can have repercussions on Tobii s ability to fulfill its obligations towards its customers. Replacement of assets damaged by such events could be difficult or expensive. Customers may be dependent on planned deliveries from Tobii, and customers may have to reschedule their production or deliveries due to delivery delays on Tobii s part. Tobii is dependent on a strong brand name and on being able to maintain the reputation of and the value associated with its brand name. Should any of the abovementioned factors materialize, it could result in significant negative publicity, product recall, product liability exposure, breach of supply obligation or other events which could cause material damage to Tobii s brand name and lead to significant costs for Tobii. Further, Tobii s products are subject to expressed and implied warranty claims and Tobii may in the future incur significant losses if the Company is subject to e.g. warranty claims. Defects in Tobii s products may also result in product liability claims, product recalls, adverse customer reaction and negative publicity about Tobii and its technology and products. Some of Tobii s products and components are or may in the future be integrated into a variety of applications and products, e.g. computers, gaming devices and vehicles. If any of these products or applications proves to be defective, Tobii may be required to participate in product recalls involving such products. In turn, for Tobii, this could lead to incurring material costs as a result of liability following warranty and product related claims and adverse customer reactions, which could materially and adversely affect the Company s business, financial condition and results of operations. Investigations and disputes involving Tobii, whether meritorious or not, could be costly to defend or handle and could divert management s attention as well as operational resources. A successful claim brought against Tobii, or a requirement to participate in any product or application recall, could negatively affect Tobii s reputation. A large part of Tobii s products also operates in a human and private environment and, accordingly, for example product failures in case of battery explosions, could result in substantial harm to individuals or properties. The occurrence of any of these factors could have a material adverse effect on Tobii s business, financial condition or results of operations. Tobii s eye-tracking solutions are affected by physical and technical limitations The eye-tracking technology offered by Tobii is based on a highly complex hardware and software. The feasibility of utilizing the Company s eye-tracking technologies in different applications is dependent on that the technology fulfills several important requirements and features. Inter alia, it is important that i) the technology works accurately on people with different looks, glasses and other characteristics; ii) the technology works in different environments (e.g. with shifting light settings) iii) that the technology maintain its accuracy when the user is moving, iv) that algorithms are able to operate on a cost-effective and suitable hardware platform and v) ensuring that the technology readily integrates with other platforms and technologies where necessary. Furthermore, the current state of the Company s eyetracking technology but also biological factors such as the eye s shape and its physical attributes, limit the accuracy of eye-tracking technology in such a way that it is not possible to establish the exact fixation point of the eye. The accuracy of an eye tracker varies across different users and conditions, but is typically in the range of 1 2 degrees of visual angle (corresponding to 1 3 cm at normal working distance to a computer display). For some individuals these technological circumstances limit the ability to use eye tracking. The technological circumstances may limit the possibility of using eye tracking for applications and devices requiring an even higher level of accuracy in terms of tracking of the eye s gaze point. In addition, eye tracking is neither suitable for all environments such as strong and direct sunlight nor for all users, such as individuals wearing glasses with thick lenses. Consequently, the accuracy and applicability of eye-tracking technology could be considered as insufficient for certain users and markets which could have a material adverse effect on the Group s business, financial condition or results of operations. Tobii has not studied health effects of eye-tracking technology and the usage of eye tracking is potentially coupled with risk Tobii s products use infrared light ( IR-light ) to illuminate the eye when eye tracking is used. Exposure to high-intensity IR-light can in extreme cases be harmful to the eyes. In view thereof, harmonized standards, such as the IEC regarding photobiological safety of lamps and lamp systems, describe these risks with IR-light. It also defines how to measure and apply safety limits. Eyetracking products that are developed by Tobii are verified according to this standard. Simulations and measure- 15

18 Risk factors ments are done internally and, subsequently, an accredited body is consulted for independent measurement and verification. Tobii has not conducted any own studies on potential IR-light consequences but instead relies on the research that has been conducted as a basis for the re commendations set out in IEC There is a risk that Tobii s eye trackers could have negative effects on the eye and if this risk were to materialize, it could, inter alia, result in product liability claims or in other ways have a material adverse effect on the Group s business, financial condition or results of operations. People that have photosensitive epilepsy may induce seizures if exposed to flashing or flickering light. There are various contributing factors that may induce seizures in a photosensitive person including the frequency of the flashing or flickering light (how quickly the light flashes). Frequencies between 5 to 30 flashes per second (hertz) are most likely to trigger seizures, although this varies depending on the level of sensitivity between different individuals. All of Tobii s eye-tracking products have been designed to avoid visable flickering light in frequencies in the range between 5 to 30 hertz but, regardless of this, seizures may be trigged with certain individuals by visable flickering light in other frequency ranges. Eye tracking normally require that the product is near or worn by the user and there is risk that product failures, such as battery explosions cause severe damage to individuals or property. As a consequence, there is a risk that Tobii s products may cause both photosensitive epilepsy as well as damages in connection with usage which could have a material adverse effect on the Group s business, financial condition or results of operations. Tobii s insurances may not provide complete coverage to reimburse Tobii from any and all liabilities that may occur as a consequence of the business the Company conducts Tobii has insured its businesses against loss and/or potential liability in case of third party claims relating to e.g. property damage, business interruption, occupational injuries, product liability world wide and product recall. There are certain types of losses that generally are not insured because they are either considered uninsurable or for other reasons are excluded in the relevant insurance policies. This may for example be property losses occasioned by war or terrorism or professional/personal liability claims as a consequence of negligence or criminal intent. In addition, most of the insurance policies of Tobii have limitations (sums insured) on the maximum amounts that may be recovered for any single loss event, any series of losses and in aggregate during an insurance period. Recovery is also generally dependent on the insured first making payment of the appropriate excess or deductible and that the maximum limitation amount has not already been exhausted. In the event of an uninsured loss, a loss that exceeds insured limits or a succession of such losses could have a material adverse effect on Tobii s business, financial condition or results of operations. Potential future acquisitions as well as Tobii s acquisition of DynaVox Systems LLC, which was subject to a limited due diligence review, may fail to fully achieve Tobii s anticipated financial and strategic synergies In May 2014, an acquisition of DynaVox Systems LLC from DynaVox Inc. was carried out under an auction procedure in accordance with Chapter 11 of the United States Bankruptcy Code. Due to the public procedure, the acquisition was preceded only by a limited due diligence review and few meetings with DynaVox Systems LLC s management. In addition, DynaVox Systems LLC s financial statements had not been audited since June 2013 and the acquisition agreement did not contain any seller representations and warranties, which would have been the case if the acquisition had been subject to a customary transaction procedure. Consequently, Tobii has no limitations for any liabilities that DynaVox Systems LLC is exposed to. In order to achieve full anticipated financial and strategic synergies of the DynaVox Systems LLC acquisition, Tobii must rationalize, coordinate and integrate the operations conducted by DynaVox Systems LLC. This is a process that involves complex technical, operational and personnel-related challenges, which are time-consuming and expensive and may affect Tobii s ordinary business. The difficulties, costs and delays that could be encountered may, inter alia, include: i) difficulties, costs or complications in combining the companies operations which could result in Tobii not achieving the anticipated synergies; ii) lacking ability to use assets efficiently to develop the business of the combined company; iii) inconsistencies in standards, controls, procedures and policies, business cultures and compensation structures; iv) diversion of management s attention from ongoing business concerns and other strategic opportunities; v) lack of coordination between geographically separate organizations; vi) possible tax costs or inefficiencies associated with integrating the operations of the companies; and vii) restructuring costs and investments. For the above reasons, Tobii may have difficulties to fully achieve the financial and strategic synergies anticipated from its acquisition of DynaVox Systems LLC. In addition, any actual cost savings and synergies may be lower than Tobii expects and may take longer time to achieve than Tobii anticipates. Although the Company does not currently have any binding agreements with respect to any other possible acquisition Tobii will, as part of the business strategy going forward, evaluate and consider strategic relationships and acquisitions that the Company believes could complement the existing business. Tobii may not be able to realize the anticipated benefits of such investments or acquisitions and these transactions could become unprofitable and burden the other parts of the business. Similarly, if Tobii acquires additional businesses, the Company could have difficulties assimilating its personnel and operations, or the key personnel of the acquired business may decide to resign. Tobii could also run into difficulties if acquired technology or products are to be integrated into its operations. 16

19 Risk factors If any of these risks were to materialize, it could have a material adverse effect on the Group s business, financial condition or results of operations. A large part of Tobii s balance sheet consist of intangible fixed assets As at December 31, 2014, the Group s total intangible assets amounted to SEK 311 million. Out of these, SEK 105 million comprise of intangible fixed assets that occurred as a consequence of the acquisition of DynaVox Systems LLC. Tobii continuously invest in R&D relating to products and technology. A large part of the R&D expenditures are capitalized as intangible fixed assets. There is a risk that one or several of Tobii s investments result in products that cannot be commercialized, does not meet required safety standards, are not functional or in other ways does not fulfill Tobii s or the market s requirements. If Tobii for one reason or another fail to develop, receive approval for or commercialize the Company s products, it could result in significant impairments. Future changes in cash flows, evaluations, the cost of capital, or other factors may cause Tobii s intangible fixed assets to decline in value resulting in impairment of the assets. If a future write-off is required, it could have a material adverse effect on Tobii s reported results of operations and equity and may, inter alia, result in the Company not being able to meet its existing loan agreement with Swedbank AB (publ). Tobii s success will depend on its ability to continuously develop competitive products and effectively execute research & development projects Tobii invests a considerable amount of time and money in researching and developing eye-tracking technology and various products and solutions in order for the Group s businesses to survive, develop and grow. This is due to the need to meet the customers changing needs and position Tobii for the expected future eye-tracking markets. In addition, the Company s existing technology and products may become obsolete if competitors develop new products or technologies. It is the Company s prediction that Tobii s future success will inter alia depend on its ability to: develop and/or license new technologies that address the increasingly sophisticated and varied needs of prospective customers, and conduct such development on both a cost effective and a timely basis. Technology and product development entails significant technical and business risks as well as costs. There is a risk that Tobii does not succeed in using its R&D organization in an efficient way and Tobii may also fail to adapt its technology and products to user requirements or emerging industry standards. If Tobii s introductions of new products faces material delays, fail to live up to customers requirements and expectations or are cancelled in its entirety, the Company may fail to maintain existing customers and attract new customers, which could have a material adverse effect on the Group s business, financial condition or results of operations. Risks relating to the Company s loan agreement with Swedbank AB (publ) On May 21, 2014, Tobii and Swedbank AB (publ) entered into a loan agreement under which Swedbank AB (publ) granted Tobii two bank loans of USD 5 million and USD 6 million, respectively and two bank overdraft facilities with a maximum of SEK 85 million and USD 10 million, respectively. The loan agreement includes standard provisions and undertakings inter alia, in the form of financial key ratios for Tobii and its subsidiaries. If Tobii or its subsidiaries cannot fulfill all undertakings and provisions, the creditor is entitled to terminate the bank loans and demand repayment of outstanding loans and, if repayment of the loans does not take place, realize secured assets. Tobii s ability to repay its debts, in other ways fulfill its undertakings and the terms and condition according to the loan agreement as well as the Company s ability to refinance its loans and make payments according to other undertakings depend on Tobii s future results. The Company s future results depend on economical, financial, and competition related factors and other factors outside of the Company s control. Based on the general development within the businesses that Tobii operate or based on the Company s financial and/or operational development, there is a risk that Swedbank AB (publ) and/or other creditors of the Company may demand that existing loan agreements are renegotiated or terminated. To the extent such renegotiations leads to the implementation of additional restrictions or that additional requirements or demands are placed on the Company, the Company may fail to fulfill such obligations. If the loan agreement is terminated or if the Company cannot fulfill its obligations under the loan agreement, or breach undertakings therein, regardless if these obligations are existent or renegotiated, it could have a material adverse effect on Company s business, financial condition or results of operations as well as the Company s ability to obtain additional financing. Tobii may not be able to obtain additional financing to make supplementary investments or fulfill payment obligations To finance investments in, inter alia, R&D and/or working capital, Tobii may have to employ available financial assets and/or obtain additional financing through, for example, taking up loans or issuing new shares. Previous decided and on-going investments may also require additional funds compared to what was initially expected. The availability of additional financing is dependent on a variety of factors, such as market conditions, general availability of credit, overall availability of credit within the financial markets and Tobii s credit rating. There is a risk that Tobii is unable to secure sufficient funds, on favorable terms or 17

20 Risk factors at all, through public or private funding, strategic cooperation or other arrangements, in order to meet its future capital needs. Negative development in sales or margins or any unforeseen liabilities, changes in the timing for tax payments, payments of accounts payables or receipt of accounts receivables may lead to a strained liquidity and working capital position and thereby force a need for additional funding e.g. through equity financing or loans. There is a risk that this cannot take place on acceptable terms and if Tobii is unable to acquire required financing, Tobii could fail executing its business plan which may result in reduced profitability and financial flexibility. Furthermore, Tobii s loan agreement with Swedbank AB (publ) includes undertakings that limit the Group s maneuverability. If any of the risks outlined above was to materialize, it could have a material adverse effect on the Company s business, financial condition or results of operations. Tobii is dependent upon well-functioning IT-systems Tobii relies on an efficient and uninterrupted operation of various computer and communications systems to operate its business, including production systems, R&D, sales, warehousing, distribution and purchasing. A significant breakdown or other disruption to the computer and communications systems could affect the ability to conduct operations at production facilities, to develop technology, to perform effective sales or invoice and deliver products to customers. If Tobii fails to supply its customers with products and services, Tobii may be exposed to liabilities. Additionally, the Company s business involves the use and storage of information about employees and customers. The IT environment in which Tobii operates is also subject to comprehensive laws, rules and regulations, including, but not limited to, protection and processing of personal data, which is being frequently changed. These laws, rules and regulations sometime conflict among the various jurisdictions in which Tobii operates. While Tobii undertakes measures to protect the security and the privacy of personal data and proprietary information, it is possible that the Company s security measures for its systems, as well as other security practices it follows, may not prevent the improper access to or disclosure of personal data or proprietary information. This could harm Tobii s reputation and make the Company liable to pay damages, resulting in increased costs and/or loss of revenue. If any of these events were to materialize, it could have a material adverse effect on Tobii s business, financial condition and results of operations. Tobii operates in a global environment and is affected by political uncertainties, local business risks as well as laws, rules and regulations in many countries Tobii operates in a global environment and is consequently exposed to various risks such as implementation of new, or changes in existing legislation, rules or regulations. Trade restrictions introduced by the authorities in the countries where Tobii operates, or in other countries where Tobii may operate in the future, as well as sanctions or other measures by associations and organizations such as the EU and UN, may restrict the Company s operations, delay or prevent planned investments or otherwise adversely affect Tobii s financial results. Tobii s business is also subject to risks inherent in its business activities, such as: Recessionary trends, inflation or instability in local markets; Differences and unexpected changes in regulatory environments, including environmental, health and safety, detailed development plats and labor laws; The introduction or application of more stringent product norms and standards and associated costs; Exposure to different legal standards and enforcement mechanisms and the cost of compliance with those standards; Being subject to multiple taxation regimes, including regulations relating to transfer pricing and tax deductions on remittance and other payments by or to subsidiaries; Being subject to various, and potentially overlapping, regulations and rules, particularly those relating to export and import controls, anti-corruption and anti-bribery; Longer payment terms for debtors with respect to products and services delivered by the Company and difficulties collecting accounts receivable; Customs duties, charges, export controls, import restrictions and other trade barriers; Changes in pricing restrictions; Foreign exchange control and restriction on repatriation factors of funds; and Political and social unrest and instability. There is risk that Tobii fails to develop and implement systems, policies and practices to completely manage these risks or comply with applicable regulations without incurring substantial costs. The materialization of any of these risks could have a material adverse effect on Tobii s business, financial condition or results of operations. Some of Tobii Dynavox s ACC-products must be registered and approved as medical devices by governmental authorities, such as the U.S. Food and Drug 18

21 Risk factors Administration. If such registrations are delayed or for some other reason not successfully completed, Tobii Dynavox may be significantly restricted in its business and may, accordingly, lose market shares in relation to its competitors. Any of these factors could lead to delays in the release and sale of products and provide time for competing technologies to develop, which may result in loss of revenue and profitability for Tobii. Additionally, Tobii has operations in Suzhou, China, and is subject to general Chinese laws and regulations including laws applicable to wholly foreign-owned investments in China. In 1979, the Chinese government introduced comprehensive laws on economic matters. These laws have enhanced the protection of foreign investments in China. However, regardless of the enhanced legal protection of foreign investments, the Chinese legal system continues to evolve rapidly and the interpretation of many laws and regulations entails uncertainties which may limit the protection available to foreign investments like the Company s subsidiary Tobii Electronics Technology Suzhou Co. Ltd. In addition, resorting to administrative proceedings and to initiate court proceedings for purposes of enforcing legal rights that a contractual party is entitled to, are subject to a certain level of uncertainty. Decisions by administrative authorities and courts are marked by a certain level of discretion in interpreting laws, regulations and contractual terms without necessarily considering the legal aspects. Further, Tobii has a group of computer software programmers retained on a consultant basis in Kiev, Ukraine. Since 2014, Ukraine has been engaged in a territorial conflict with Russia in the south eastern parts of Ukraine which has led to general political uncertainty and acts of violence. If the political situation becomes worse or expands geographically to other parts of Ukraine, there is a risk that the work conducted by the personnel retained by Tobii in Kiev would be partially or fully interrupted, at least for a period of time. The above uncertainties and factors could have a material adverse effect on the Company s business, financial condition or results of operations. Tobii depends on its executives and key personnel as well as maintaining relationships with re-sellers Tobii s technology is very complex and the Company is dependent on executives and key personnel, including a competent sales force as well as expert engineers with a detailed knowledge of the Company s technology and industry. There is a risk that Tobii may not be able to retain or hire such personnel to the extent necessary for a continuous success on a market subject to competition. If Tobii fails to keep and retain executives and key personnel as well as recruiting highly skilled personnel, this could have a negative effect on the Company s business and results of operations and hamper future expansion of its R&D, sales and support operations. Furthermore, in many regions, Tobii is working with re-sellers as sales representatives/agents to sell its products and services. If Tobii fails to find competent re-sellers or if several contracts with re-sellers for some reason are terminated within a short period of time, Tobii may have difficulties to replace such re-sellers which could negatively affect Tobii s revenues. Tobii s risk and compliance management could leave Tobii exposed to unidentified or unanticipated risks With its global presence, Tobii is subject to various compliance related risks, for example, misconduct, fraud, non-compliance with applicable laws and regulations, including but not limited to the U.S. Health Insurance Portability and Accountability Act of 1996, or other improper activities by employees, agents or partners of Tobii. Such conduct could have a significant negative impact on the business and reputation of Tobii and could result in failure to comply with several different laws and regulations, inter alia, with respect to public procurement; protection of classified information; bribery and other corrupt practices; environmental, trade, competition and antitrust laws and regulations and internal controls of financial reporting. Failure to comply could subject Tobii to fines, penalties or other sanctions; or negative effects on its reputation, which could result in reduced revenues and profits. There is a risk that Tobii fails in being fully effective in handling the Company s risk exposure in all market environments or against all types of risk, including risks that are unidentified or unanticipated. Some of Tobii s methods of managing risks are based upon Tobii s assumptions and future predictions as regarding market behavior. As a result, the methods may not prevent future risk exposures, which could be significantly greater than current measures indicate, and Tobii may be subject to currently unidentified compliance issues in the various jurisdictions in which the Company operates. Other risk management and compliance methods depend upon evaluation of the markets in which Tobii operates, its customers or other issues and other information that are publicly available or otherwise accessible by Tobii. This information may in some respects be inaccurate, incomplete, not up to date or poorly evaluated. Any failure of Tobii s risk management and compliance methods may have a material adverse effect on its business, financial condition or results of operations. Further, marketing and sale of, in particular, Tobii Dynavox s products often require regulatory approvals in relevant markets. The authorization process for medicalgrade products varies between countries, which mean that it can be difficult for Tobii to predict the amount of resources in terms of time and cost that may be required to receive necessary product approvals in different markets and comply with the requirements surrounding these processes. There is also a risk that Tobii fails to receive and uphold such approvals. In addition, there is a risk that Tobii s personnel do not adhere to the Company s policies and procedures and personnel may take actions which are in direct conflict with 19

22 Risk factors Tobii s established policies and procedures, or alternatively commit actions, including fraudulent and corrupt behavior, that have not been sanctioned by Tobii. Moreover, Tobii s growth and expansion may affect the Company s ability to implement and maintain stringent internal controls. Tobii s risk management and internal control capabilities are also limited by the information, tools and technologies available to the Company. Any material deficiency in Tobii s risk management or other internal control policies or procedures may expose the Company to significant credit, liquidity, market, operational or technical risk, which may in turn have a material adverse effect on the Group s business, results of operations or financial condition. Tobii is dependent on intellectual property rights and the Company s methods of protecting these rights may be inadequate Tobii s business and business strategy are tied to the Company s products and technology. Tobii relies on a combination of patent and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect the Company s intellectual property. As of the date of the Offering Circular, Tobii holds more than 180 granted patents or filed patent applications (of which more than 25 are granted patents in the U.S. and more than 50 are patent applications in the U.S.). As of the date of this Offering Circular, it is Tobii s assessment that the patents and the patent applications will expire at various dates between 2018 and Generally, there is a risk that the Company will not be able to obtain patent protection on the key components of its technology or that the Company will not be able to obtain or uphold patents in key jurisdictions such as the U.S. or within the EU. There is a further risk that new products or technologies developed by Tobii are not patentable, that issued patents will not be able to provide the Company with the expected competitive advantages or that they will be nullified or cancelled by third parties, that the time to obtain issued patents may be greater than the lifetime of the technology, or that the patents of others will impair the Company s ability to develop and conduct its business. Governmental authorities may not approve trademark applications filed by the Company and even if the applications are approved, third parties may seek to oppose or challenge these registrations. A failure to obtain trademark registrations in Sweden, the U.S., Germany, China, Japan and other important markets could limit Tobii s ability to use the Company s trademarks and impede its marketing efforts in those jurisdictions. Tobii believes that the importance of intellectual property rights may increase if eye tracking enters the potential future volume markets with more competitors and more products available than in Tobii s existing markets. Despite Tobii s efforts to protect the Company s intellectual property, unauthorized parties may attempt to copy or obtain and use the Company s technology. Policing unauthorized use of technology is complicated and expensive, and the outcome of potential enforcement actions is uncertain. Consequently, there is a risk that the steps taken by the Company will not be sufficient to prevent misappropriation of its technology. There is a risk that the Company s measures for preserving the confidentiality on trade secrets and confidential information are insufficient to prevent others from obtaining such information. If any of the risks stated above were to materialize, it could have a material adverse effect on the Group s business, financial condition or results of operations. There is a risk that Tobii becomes involved in legal and administrative proceedings, including claims relating to Tobii s intellectual property as well as claims of potential infringement of third party s intellectual property rights by Tobii Substantial litigation pertaining to intellectual property exists in high-technology industries. Due to this, Tobii is subject to the risk of becoming involved in legal or administrative proceedings in the future, which may include substantial claims for damages or other payments, including damage claims by customers or competitors for violations of antitrust laws. Preparations, defense and resolution of these proceedings can be prolonged and costly. The outcome of such proceedings is difficult to predict. In the event of a negative outcome of any material legal, administrative or arbitration proceeding, whether based on a judgment or a settlement agreement, Tobii could be obligated to make substantial payments. In addition, the costs related to disputes and arbitration proceedings may be significant. Tobii s competitors or other persons may have already obtained, or may in the future, obtain patents relating to one or more aspects of the Company s technology. If Tobii is sued for patent infringement, the Company may be forced to incur substantial costs in defending itself and potentially be served with an injunction halting sales of products that are based on the challenged patent as long as the legal process regarding the patent is ongoing. If litigation were to result in a judgment that Tobii infringed a valid and enforceable patent, a court may order the Company to pay substantial damages or licensing fees to the owner of the patent and/or to stop using any infringing technology or products. This could cause a significant disruption in Tobii s business and force the Company to incur substantial costs to develop and implement alternative, non-infringing technology or products, or to obtain a license from the patent owner. This could also cause Tobii s licensees and customers to bring warranty claims against the Company. There is a risk that a successful patent infringement claim by an external party could lead to Tobii being unable to develop competitive alternatives at a reasonable cost that would be commercially acceptable, or that the Company would not be able to obtain a license from a patent owner on commercially reasonable terms, or at all. Following the completion of the acquisition DynaVox Systems LLC, a university in Virgina, U.S., raised a claim against the respondent Eye Response Technologies Inc. previously acquired by DynaVox Systems LLC, which is why 20

23 Risk factors the claim has been addressed to DynaVox Systems LLC. The claim relates to a licensing agreement. The university has initiated an arbitration procedure and a procedure in the United States District Court for the Western District of Virginia against DynaVox Systems LLC and claims damages in the order of USD 3 million. DynaVox Systems LLC is defending against the claim. Tobii has initiated a claim of patent infringement against The Eye Tribe in the Northern District of California, USA. There is a risk that the claim will be unsuccessful and no damages or royalty payments will be awarded to Tobii. This may incur a significant cost in terms of legal costs for Tobii. There is also a risk that Tobii will have to pay the legal costs of The Eye Tribe. Ongoing and future disputes may lead to substantial costs and/or damages which could have a material adverse effect on the Group s business, financial condition or the results of operations. Exposure to currency exchange risks may affect Tobii s cash flow, income statement and balance sheet Currency risk refers to the risk of exchange rate fluctuations having an adverse effect on the Group s cash flow, income statement, and balance sheet. The Company reports in SEK, and SEK is the Company s principal functional currency. Foreign exchange exposure occurs in conjunction with products and services being bought or sold in currencies other than the respective subsidiary s local currency (transaction exposure) and during conversion of the balance sheets and income statements of non- Swedish subsidiaries into SEK (translation exposure). Tobii s global operations give rise to significant cash flows in currencies other than the SEK. Tobii is principally exposed to changes in EUR, USD and JPY in relation to SEK. In 2014, a change of (+/ ) 10% in EUR/SEK would have effected Tobii s operating profits by (+/ ) SEK 6.4 million. The corresponding reduction for a 10% change in USD/SEK was SEK 7.7 million and SEK 2.4 million for JPY/SEK. Accordingly, any exchange rate fluctuations could have an adverse effect on the Group s business operations, financial condition or results of operations. Tobii is exposed to tax related risks Tobii s sales are primarily generated through subsidiaries in a number of countries. Transactions between Group companies are made in accordance with Tobii s transfer pricing policy and according to Tobii s understanding or interpretation of current tax laws, tax treaties, other tax law stipulations and the requirements of the concerned tax authorities. Transfer pricing risk is the risk of sanctions due to non-compliance with transfer pricing regulations. Tax authorities of all countries wish to ensure that the commercial terms between related entities reflect the fair prices which would be agreed between independent parties in similar circumstances, especially in cross-border situations. As a global actor, Tobii has to respect detailed transfer pricing regulations and documentation requirements issued by an ever growing number of countries. On certain markets, the Company only conduct sales through own sale channels which can make it more difficult to establish the transfer pricing since no third party comparisons can be made. This gives rise to a risk that transfer pricing in these countries may deviate from market prices. There is a risk that the tax authorities in these countries may make assessments that deviate from income-tax returns or other filed documents. Several of Tobii s foreign subsidiaries have reported losses in the past. The tax authorities of the countries concerned could make assessments and take decisions which deviate from Tobii s understanding or interpretation of the applicable laws, treaties, documentation requirements and other regulations. There is risk that increased tax costs (including tax surcharges) may arise if a tax authority changes a result which could lead to increased tax costs and tax surcharges, but also reduce the level of the Company s accumulated tax loss carry-forwards. As Tobii s operations have generated deficits, the Company has accumulated tax loss carry-forwards that may lead to future tax reductions of up to the level of SEK 78 million (of which SEK 43 million is reported as deferred tax assets). Ownership changes may result in limitations (fully or in part) in the entitlement to utilize such tax loss carry-forwards in the future. The opportunity of utilizing the tax loss carry-forwards in the future may also be negatively affected by changes in legislation. As mentioned, Tobii conducts sales in a number of countries. In certain countries the end customer is sometimes invoiced directly by Tobii AB (publ). There is a risk that these sales, from a tax perspective, mean that the Company is considered to have a permanent establishment where the sales take place, which in certain countries would lead to that local VAT shall be added to the invoice. This would in such cases result in increased VAT in such countries and it could affect the Company if the VAT is claimed retroactively and the VAT cannot be imposed on the customers. In relation to the acquisition of DynaVox Systems LLC, a risk was discovered during the due diligence exercise relating to non-payments of sales taxes in certain states in the U.S. In consultation with Tobii s tax advisors, the risk was estimated to USD 1.6 million which is included as a reservation in the opening balance. The estimation is based on that DynaVox Systems LLC enters into voluntary disclosure agreements with relevant states for the years 2010 to The Company has initiated the process of making these voluntary adjustments. If the Company fails to conclude the voluntary disclosure agreements for nonpayment of sales taxes, it may lead to the actual amount payable for non-payment of sales tax becomes higher than the amount that has been reserved in the opening balance. The materialization of any of these aforementioned risks could have a material adverse effect on Tobii s business, financial condition or results of operations. 21

24 Risk factors If Tobii is classified as a passive foreign investment company, then the Company s U.S. shareholders could suffer adverse tax consequences as a result Generally, if, for any taxable year, at least 75% of Tobii s gross income is passive income or at least 50% of the average quarterly value of assets is attributable to assets that produce passive income or are held for the production of passive income, including cash, Tobii would be characterized as a passive foreign investment company ( PFIC ) for U.S. federal income tax purposes. For purposes of these tests, passive income includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties (other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business). If Tobii is characterized as a PFIC, U.S. shareholders may suffer adverse tax consequences, including having gains realized on the sale of Tobii s ordinary shares treated as ordinary income, rather than capital gain, the loss of the preferential rate applicable to dividends received on Tobii s ordinary shares by individuals who are U.S. holders, and having interest charges apply to dividends made by Tobii and the proceeds of share sales. Tobii s status as a PFIC, may depend, in part, on how quickly it utilizes the cash proceeds from the Offering in its business. Since PFIC status depends on the composition of the Company s income and the composition and value of its assets (which may be determined in large part by reference to the market value of Tobii s shares, which may be volatile) from time to time, Tobii may be considered a PFIC for any taxable year. While Tobii believes that it was not a PFIC for its prior taxable year, since the PFIC tests are applied only at the end of a taxable year it is not currently possible to determine Tobii s PFIC status for the current or future years. If Tobii is classified as a PFIC then the Company s U.S. investors could suffer adverse tax consequences as a result. Prospective U.S. investors should discuss the issue of Tobii s possible status as a PFIC with their tax advisors. Risks relating to the Offering An active, liquid and orderly trading market for the Tobii shares may not develop, the price of the shares may be volatile, and potential investors could lose a part or all of their investment The Shares have not previously been subject to trading on an exchange. It is therefore difficult to predict the level of trading or the interest the Company s shares will receive. The price at which the shares will be traded and the price at which investors may realize their investment will be influenced by a large number of factors, some specific to Tobii and its operations and some general to quoted companies. Admission to trading on Nasdaq Stockholm should not be taken as implying that there will be a liquid market for the shares. There is also a risk that the share price will be highly volatile in connection with the shares becoming publicly traded and if a liquid trading does not evolve or remain sustainable, it could result in difficulties for shareholders to dispose of the shares. There is also a risk that the market price can differ substantially from the share price under the Offering. If any of these risks where to materialize, it could have a material adverse effect on the share price. Future issuances of shares or other securities in the Company may dilute the shareholding and affect the price of the shares Tobii may need additional capital to fund its business. For several years, Tobii has experienced negative cash flow from operations and investments, and it is Tobii s assessment that this also will be the case during the coming years, but it could also be the case thereafter. In addition, Tobii may need to make additional investments in equipment and/or technology and may need to raise additional funds through the issuance of equity, equity-related or convertible debt securities. There is a risk that additional financing will not be available to the Company on acceptable terms when required, or may not be available at all. Existing shareholders shareholdings may be diluted if the Company resolve to raise additional capital, e.g. by way of a new share issuance, which may affect the price of the shares. If these risk where to materialize, it could have a material adverse effect on the shareholders invested capital and/or the share price. Following the Offering, the existing main shareholders will continue to have significant influence over Tobii and the ability to influence matters requiring shareholders approval The existing main shareholders will continue to have the potential to significantly influence the outcome of matters submitted to Tobii s shareholders for approval, including the election of directors and any share capital increase, merger or sale of all or substantially all of Tobii s assets. To the best of Tobii s knowledge, no agreements between the largest shareholders exist aside from the Sell down agreement which has been entered into between the Joint Bookrunners and certain larger shareholders. Nevertheless, the interests of the main shareholders may not be aligned with Tobii s interests or those of the other shareholders, and the main shareholders could exercise influence over Tobii in a manner that does not promote the interest of the other shareholders in the best way. Tobii s ability to pay dividends is dependent upon its future earnings, financial condition, cash flows, working capital requirements, capital expenditures and other factors Tobii does not intend to pay any dividend during the coming years since the development and expansion plans for the business unit Tobii Tech will be prioritized. In addition, the amount of any future dividends that Tobii may pay, if any, will depend upon a number of factors, such as future revenues, financial condition, cash flows, working capital requirements, capital expenditures and other factors. Tobii may also not have sufficient distributable funds, and Tobii s shareholders may not resolve to pay dividends. 22

25 Risk factors Differences in currency exchange rates may adversely affect the value of shareholdings or dividends paid The shares will only be quoted in SEK and any dividend will be paid in SEK. As a result, shareholders outside Sweden may experience adverse effects on the value of their shareholdings and their dividends, when converted into other currencies, if the Swedish krona depreciates against the relevant currency. Existing shareholders future sale of shares could cause the share price to decline The price of Tobii s shares could decline if there are substantial sales of shares in the Company, particularly sales by the Company s directors, executive management, and significant shareholders, or when a large number of shares are sold. Sales of substantial amounts of shares by the main shareholders or the perception that such sales will occur, could have an adverse effect on the share price. Cornerstone Investors may not fulfil their undertakings Invifed AB, The Sixth AP-fund and RAM ONE (the Cornerstone Investors ) have agreed to, directly or indirectly through subsidiaries, acquire shares in the Offering, on the same terms and conditions as for other investors, corresponding to 17.53%, 6.52%, and 9.00% of the total number of shares in the Offering respectively. 1) The Cornerstone Investors undertakings are however not secured through a bank guarantee, blocked funds or pledge of collateral or similar arrangement. Hence, there is a risk that the Cornerstone Investors will not be able to fulfil their undertakings. Furthermore, the Cornerstone Investors undertakings are associated with certain conditions relating to, among other things, that the Offering is completed within a certain time frame. In the event that any of these conditions are not fulfilled, there is a risk that the Cornerstone Investors do not fulfil their undertakings, which could have an adverse effect on the completion of the Offering. Shareholders in the U.S. or other countries outside Sweden may be excluded from future cash offerings of shares If the Company issues new shares in a cash issue, shareholders have, as a general rule, preferential rights to subscribe for new shares proportionally to the number of shares held prior to the issue. Shareholders in certain countries may, however, be subject to limitations that prevent them from participating in rights offerings or otherwise makes participation difficult or limited. For example, shareholders in the U.S. may be unable to exercise rights to subscribe for new shares unless a registration statement under the Securities Act is effective in respect of such subscription rights and shares or an exemption from the registration requirements under the Securities Act is available. Shareholders in other jurisdictions outside Sweden may be similarly affected if the rights and the new shares being offered have not been registered with, or approved by, the relevant authorities in such jurisdiction. Tobii is under no obligation to file a registration statement under the Securities Act or seek similar approvals under the laws of any other jurisdiction outside Sweden in respect of any subscription rights and shares and doing so in the future may be impractical and costly. To the extent that Tobii s shareholders in jurisdictions outside Sweden are not able to exercise their rights to subscribe for new shares in any future rights issues, their proportional interests in the Company would be reduced. 1) Based on full subscription in the Offering and the midpoint of the price range in the Offering (SEK 23.50) 23

26 Invitation to acquire shares in Tobii AB (publ) In order to support the continued development and growth of the Company, the Board of Directors has resolved on the Offering. The Offering involves a combination of newly issued shares and the sale of existing shares. In line therewith, the Board of Directors has applied for and received an approval for a listing of the Company s shares on Nasdaq Stockholm, provided that, inter alia, the distribution requirement in respect of the Company s shares is fulfilled, The Offering comprises a total of 17,901,000 20,101,000 shares in Tobii, The Company offers between 16,000,000 18,200,000 newly issued shares whereby the number of shares will be established to such amount that it provides Tobii with gross proceeds of SEK 400 million before transaction costs. Furthermore, a few existing shareholders offer 1,901,000 existing shares. 1) Based on the price range, the new share issue in the Offering corresponds to approximately 19 21% of the total number of shares and votes in the Company based on a fully diluted basis following the completion of the Offering. To cover a possible over-allotment in connection with the Offering, the Company has undertaken to, at the request of the Joint Bookrunners, issue additional shares representing not more than 15% of the number of shares comprised by the Offering (the Over-allotment option ), equal to not more than 3,015,150 shares, representing approximately 3% of the total number of shares in the Company on a fully diluted basis following the completion of the Offering. The Offering is made to the general public in Sweden and to institutional investors. The Offering price will be determined by way of a book-building procedure and will consequently be based on demand and overall market conditions. The Offering price will be established by the Board of Directors in consultation with the Joint Bookrunners, within a price range of SEK 22 SEK 25 per share. The Offering price is expected to be published on or around April 24, The new shares will be issued by the Company based on an authorization granted to the Board of Directors at the extraordinary shareholders meeting held on March 9, Through the new share issue of no more than 18,200,000 shares, Tobii s share capital will increase by a maximum of SEK approximately 132,076 from SEK 500,250 to approximately SEK 632,281. Through the Offering, Tobii will receive a capital increase of SEK 400 million, before transaction expenses. In the event that the Over-allotment option is fully exercised, an additional maximum of 3,015,150 new shares will be issued, implying a further increase in the capital share of maximum SEK 21,881 where Tobii will receive a capital increase of no more than approximately SEK 67 million. The total value of the Offering amounts to SEK 442 million SEK 448 million based on the price range. If the Over-allotment option is fully exercised, the total value of the Offering amounts to SEK million. Based on the price range in the Offering, Tobii s shares are valued at approximately SEK 2.0 billion SEK 2.2 billion 2) after completion of the Offering and assuming the Over-allotment option is fully exercised. Pursuant to the terms and conditions set out in this Offering Circular, investors are hereby invited to acquire shares in Tobii AB (publ). Stockholm, April 10, 2015 Tobii AB (publ) The Board of Directors 1) The selling shareholders includes among others, John Elvesjö, board member and a member of the executive management, who offers 150,000 shares and the board member Nils Bernhard, who offers 275,000 shares. 2) Before dilution effects from existing employee stock options and warrants. 24

27 Background and reasons Background and reasons Tobii s background Tobii is the global market leader in the development and sale of eye-tracking technology and solutions 1). Tobii s vision is a world where all technology works in complete harmony with natural human behavior. Tobii conducts its operations in three business units, each with its distinct markets, products and personnel: i) Tobii Dynavox, the global market leader in solutions for assistive technology for communication, ii) Tobii Pro, the global market leader in solutions for understanding human behavior using eye tracking; and iii) Tobii Tech, a supplier of leading core eye-tracking technology, components and platforms, with future opportunity for volume integration into a wide range of devices. Tobii operates and serves customers on several markets with offices in Sweden (Headquarters), the U.S. (offices in Boston, Washington DC, Pittsburgh and Mountain View), China, Japan, Germany and Norway. In 2013, Tobii had a global market share of eye-tracking solutions estimated to approximately 57%. 1) Tobii was founded in 2001 and the first product was released in Since then, Tobii has developed its eyetracking technology and has, according to management, introduced a range of industry-leading products and solutions based on this technology. The Company has entered several markets where its technology has had a profound impact. In 2007, the Norwegian company Viking Software AS was acquired followed by the acquisition of the U.S. company, Assistive Technology Inc. in In 2014, Tobii acquired the U.S. company DynaVox Systems LLC, a company that up until then had been one of Tobii s main competitors in the assistive technology market. Two of the Company s business units Tobii Pro and Tobii Dynavox are profitable and cash-flow positive. Tobii continues to expand the business within both of these units. In the past few years, Tobii has increased investments into its business unit, Tobii Tech, with the aim to bring eye tracking into future volume markets by encouraging OEM customers to integrate, Tobii s core eye-tracking technology in, for example, gaming devices, regular computers, vehicles and medical equipment. Reasons for admitting the Tobii share to trading The Offering and the listing is conducted in order to expand the shareholder base, increase Tobii s capital and enable Tobii to access the Swedish and international capital markets, thereby increasing the Company s financing alternatives which is expected to support the Company s sales and profit development. Tobii s Board of Directors considers the new share issue and listing of the Company s shares to be a logical and important step in Tobii s development in providing Tobii with growth opportunities and to further strengthen the Company s market position and increase the awareness of Tobii, its products and its technology. Tobii expects to receive a gross proceed of SEK 400 million from the new share issue realized as a part of the Offering. Tobii intends to use the major part of the net proceeds from the Offering for R&D investments into the Tobii Tech business unit with the aim to further develop the Company s technology to meet the needs of new potential volume markets and to strengthen the Company s sales, marketing and business development efforts to target such markets. The present business plan of Tobii Tech indicates a negative cash flow of approximately SEK 400 million up to and including 2018 for the business unit, which the Group intends to finance partly with internal cash flow generated by Tobii Dynavox and Tobii Pro, partly with the proceeds of the issue which the Offering aims to contribute to the Group. In addition, Tobii will also use the proceeds from the share issue to repay the two bank loans of USD 5 million and USD 6 million to Swedbank AB (publ). A smaller part of the proceeds, and potential proceeds from the Overallotment option, may also be used for capital expenditures in the existing operations as well as for acquisitions of assets, technologies or companies complementary to the current business of the Company. At this time, Tobii has not identified any such specific assets, technologies or companies. To cover a possible over-allotment in connection with the Offering the Company has undertaken to, at the request of Joint Bookrunners, issue additional new shares, which could result in Tobii receiving an additional maximum of approximately SEK 67 million in gross proceeds in the event that the Over-allotment option is fully exercised. 1) Arthur D. Little 25

28 In other respects, reference is made to the full particulars of the Offering Circular, which has been prepared by the Board of Directors in connection with the application for listing of the Company s shares on Nasdaq Stockholm and the Offering made in connection with the listing. The Board of Directors is solely responsible for the contents of this Offering Circular. It is hereby assured that all reasonable precautionary measures have been taken to ensure that the information contained in this Offering Circular, as far as the Board of Directors knows, corresponds to the factual circumstances and that nothing has been omitted that could affect its purpose. In the event that information comes from a third party, the information has been correctly reflected and no information has been omitted in a way that would make the reflected information false or misleading. Stockholm, April 10, 2015 Tobii AB (publ) The Board of Directors 26

29 Terms and conditions Terms and conditions To facilitate the description of the Offer, this section does not distinguish between the newly issued shares and the existing shares, that could be offered for sale. The Offering The Offer compromises a maximum of 17,901,000 20,101,000 shares, of which 16,000,000 18,200,000 are newly issued shares and 1,901,000 are existing shares, and the Offer is divided into two parts: The offer to the general public in Sweden 1) The offer to institutional investors in Sweden and abroad 2) The outcome of the Offer is expected to be published through a press release around April 24, Over-allotment option Tobii has provided an over-allotment option to the Joint Bookrunners, which allows the Joint Bookrunners, within 30 days following the first day of trading in the Company s shares on Nasdaq Stockholm, at a price equivalent to the Offering price, to request that Tobii issues up to an additional maximum of 3,015,150 shares, corresponding to 15% of the maximum number of shares in the Offering. The over-allotment option may only be exercised in order to cover any potential over-allotment within the Offering. Distribution of shares The distribution of shares to the respective parts of the Offering will be based on demand. The distribution will be decided by Tobii s Board of Directors in consultation with the Joint Bookrunners. Book-building procedure In order to establish a market-based pricing of the shares in the Offering, institutional investors will be given the opportunity to participate in a book-building procedure. The book-building procedure will take place between April 14 23, The Offering price will be determined within the framework of this procedure. The book-building procedure for institutional investors may be terminated in advance or extended. Notice of any such termination or extension will be provided in a press release before the end of the book-building period. See also the section entitled Offering to institutional investors below. Offering price The Offering price will be established in the book-building procedure described above and is expected to be set within the range of SEK per share and is expected to be published in a press release on or about April 24, The Offering price to the general public will not exceed SEK 25 per share. No commission will be charged. The price range has been established by Tobii s Board of Directors in consultation with the Joint Bookrunners based on the expected investment interest from institutional investors. Offering to the general public Application Applications by the general public for the acquisition of shares shall comprise a minimum of 400 shares and a maximum of 45,000 shares 3), in even lots of 100 shares. Applications are binding. Applications can be made between April 14 22, 2015 and should be submitted to Carnegie. Application shall be made using a specific application form, which is available at Carnegie s offices. The Offering Circular and the application form are also available on Tobii s website ( and Carnegie s website ( Customers of Avanza who are connected to internet banking services can apply for acquisition of shares via Avanza s Internet services. If more than one application is submitted by the same acquirer, only the first registered application will be considered. Late, incomplete or incorrectly completed application forms may be disregarded. No additions or amendments may be made in the pre-printed text on the application form. If you have an account with specific rules for securities transactions, such as an IPS-deposit, ISK-deposit (Sw. Investeringssparkonto) or deposit within an endowment insurance, you should confer with your nominee if and how you can apply for acquisition of shares in the Offering. 1) The general public in Sweden comprises private individuals and legal entities in Sweden who apply for the acquisition of up to 45,000 shares. 2) Institutional investors comprise private individuals and legal entities who apply for the acquisition of more than 45,000 shares. 3) Anyone who applies for the acquisition of more than 45,000 shares must contact Carnegie or ABG Sundal Collier in accordance with what is stated in the section Offering to institutional investors. 27

30 Terms and conditions Application via Carnegie Applications may be submitted to Carnegie according to one of the following options: Complete the application form for the Offering and submit it to one of Carnegie s branch offices during the application period. The application form can be obtained from Carnegie s website, ( where the Offering Circular also is available; or The application form can also be sent by mail to Carnegie Investment Bank AB (publ), Transaction Support, Regeringsgatan 56, SE Stockholm, Sweden. Persons who apply for acquisition of shares via Carnegie must have a securities account ( VP-account ), a service account or a custody account with a Swedish account operator, or a custody or investment savings account with Carnegie. In the event that customers with ISK-deposits (Sw. Investeringssparkonto) in Carnegie are allotted shares, Carnegie will purchase the corresponding number of shares in the Offering and then sell them on to the customer at the same price as in the Offering. The application form must be received by Carnegie no later than 5 p.m. (CET) April 22, Application via Avanza Persons who are depository account customers with Avanza can apply for acquisition of shares via Avanza s internet services. Applications via Avanza can be made from April 14, 2015 until April 22, In order to not lose the right to allotment, depository account customers of Avanza must have sufficient funds available on their accounts from April 22, 2015 until April 28, More information is available on Tobii employees An offering is also made to certain Tobii employees in France, Germany, Hungary, Japan, Norway, Sweden, the U.K. and the U.S. through separate application processes. Applications from all Tobii employees who are subject the offer will be given special consideration up to a number of shares equal in value to the relevant investment limit. Tobii employees in Sweden will be subject to an investment limit of SEK 30,000. Tobii employees in the remaining jurisdictions will be subject to an investment limit of SEK 190,000. However, some of Tobii s employees in France, Hungary, Japan and the United States who receive the offer may apply for a number of shares that exceeds SEK 190,000 in value, but applications above this level will not be given any special consideration. Tobii employees who wish to acquire shares must follow the instructions issued by the Company. Allotment The allotment of shares will be decided by Tobii s Board of Directors in consultation with the Joint Bookrunners, whereby the aim to obtain a wide distribution of the shares among the general public in order to facilitate a regular and liquid trading in the Company s shares on Nasdaq Stockholm. Allotment is not dependent on when during the application period the applications are submitted. In the event of over-subscription it is possible that no allotment will be received or that the received allotment comprises fewer shares than applied for and allotment may, in whole or in part, be made through random selection. Certain customers to Carnegie and ABG Sundal Collier may be given special priority. All Tobii employees who receive an offer to subscribe for the acquisition of shares will be given special consideration up to the specified investment limit. Allotment to existing shareholders will be prioritized. Notification of allotment Allotment is expected to take place on or about April 24, As soon as possible thereafter, contract notes will be sent out to those who have been allotted shares in the Offering. Those who have not been allotted shares will not receive any notification. Via Carnegie Notification of allotment is expected to be provided starting from April 24, 2015 at the telephone number To receive notification of allotment, the following information must be provided: name, personal/corporate ID number, and VP-account, service account or custody account number with a bank or another securities firm. Via Avanza Persons who have applied via Avanza s internet services will receive information regarding allotment through a securities note in their designated account, which is expected to occur around 9 a.m. (CET) on April 24, Payment Full payment for the allotted shares shall be made in cash no later than April 28, 2015 in accordance with the instructions on the received contract note. Via Carnegie For those who receive a contract note from Carnegie, payment for allotted shares shall be made in accordance with the instructions on the received contract note. In order for Carnegie to provide delivery of the shares on the settlement date, April 28, 2015, full payment for the allotted shares should be made by bank transfer to bank giro no later than April 28, Via Avanza For individuals who hold depository accounts with Avanza, funds will be deducted from the associated account at the latest on settlement date, April 28, Note that liquid funds for payment of the allotted shares must be available in the depository account from the last day of the application period, April 22, 2015, until settlement date April 28,

31 Terms and conditions Failure or improper payments Please note that if full payment is not received in time or if the bank account specified contains insufficient funds, the allotted shares may be reassigned to another party. If the price received in the reassignment is lower than the Offering price in the Offering, the person who was originally allotted the shares may be liable to pay the difference. Offering to institutional investors Application Institutional investors are invited to participate in a bookbuilding process, which will take place during the period April 14 23, Tobii reserves the right to shorten or extend the application period in the institutional offering. Any such shortening or extension of the application period will be made public by the Company in a press release prior to the end of the application period. Applications shall be submitted to Carnegie or ABG Sundal Collier in accordance with specific instructions. Allotment The decision on allotment of shares is made by the Board of Directors on April 24, 2015 in consultation with the Joint Bookrunners, with the aim to ensure that Tobii gets a good institutional shareholder base. The intention is that notifications of interest in participation, which are essentially deemed to be equivalent, should be treated equally. Interest registered by institutional investors who are deemed to be possible long-term shareholders in the Company may be given priority. Allotment will be entirely discretionary and no guarantees for allotment are given. The Cornerstone Investors are however guaranteed allotment in accordance with their respective undertakings. Allotment to existing shareholders will be prioritized. Notification about allotment Institutional investors are expected to receive notification of allotment in particular order on or about April 24, 2015, after which a contract note is sent out. Payment Full payment for allotted shares must be paid in cash in accordance with the contract note against the delivery of shares on April 28, Failure or improper payments Note that if full payment has not been received within the prescribed time, the allotted shares may be reassigned to another party. If the price received in the reassignment is lower than the Offering price in the Offering, the institutional investor who was originally allotted the shares may be liable to pay the difference. Registration of allotted and paid shares It is expected that allotted and paid shares, for both institutional investors and the general public in Sweden, will be registered with Euroclear Sweden starting on April 28, 2015, after which Euroclear Sweden will send out a securities notice showing the number of shares in the Company registered on the recipient s VP-account. Note that purchasers from the general public who pay for allotted shares to a bank giro account in accordance with instructions on a contract note will receive the acquired shares in their VP-account or securities depository account first when Carnegie or Avanza, respectively, have received full payment. Depending on where, how and at what time of the day payment is made, it may take up to two or three banking days from the time funds are paid in. Notifications to shareholders who have specified that the shares should be delivered to a securities depository account will be made in accordance with each nominee s procedures. Listing of the shares Tobii s Board of Directors has applied for the admission to trading of the Company s shares on Nasdaq Stockholm. On March 6, 2015, the Nasdaq listing committee decided to admit the shares in Tobii to trading on Nasdaq Stockholm, subject to customary conditions, such as the distribution requirement for the Company s shares being fulfilled no later than on the first day of trading. In case the Company s Board of Directors ultimately resolves to list the Company s shares, trading in the Company s shares is expected to begin on or about April 24, Consequently, trading is expected to commence before the shares have been transferred to the acquirer s VP-account or securities depository account and in some cases before the contract note has been received. This means that trading is expected to commence before the terms and conditions for the completion of the Offering have been fulfilled. Trading in the Company s shares made before the Offering becomes unconditional April 28, 2015, will be cancelled if the Offering is not completed. The trading symbol on Nasdaq Stockholm for the Company s share is TOBII. Stabilization In connection with the Offering, Carnegie may execute transactions aimed at supporting the market price of the shares at levels above those which might other wise prevail in the open market. Such stabilization transactions may be executed on Nasdaq Stockholm, in the OTC market or otherwise, at any time during the period starting on the date of commencement of trading in the shares on Nasdaq Stockholm and ending not later than 30 calendar days thereafter. See also Stabilization in the section Legal considerations and supplementary information. Announcement of the outcome of the Offering The final outcome of the Offering is expected to be made public through a press release on or about April 24, The press release will be available on Tobii s website, 29

32 Terms and conditions Right to dividend The offered shares carry the right to dividend from the first dividend record date following the admission to trading of the Company s share. Dividends, if any, are paid following a resolution by the shareholders general meeting. The payment is handled by Euroclear Sweden. The right to dividend applies to shareholders who are registered as owners in the share register maintained by Euroclear Sweden on the record date decided by the shareholders general meeting. Regarding deduction of Swedish preliminary tax, see section Tax considerations in Sweden. For additional information, see also Dividends and dividend policy in section Share Capital and Ownership Structure. Terms and conditions for the fulfillment of the Offering The Company, Carnegie and ABG Sundal Collier intend to enter into an agreement on the placing of shares in Tobii on or about April 23, 2015 (the Placing agreement ). The Offering is conditional on the interest in the Offering, in the Joint Bookrunner s opinion, being sufficient for trading in the shares, that the Placing agreement is entered into, that certain conditions in the Placing agreement are fulfilled and that the Placing agreement is not terminated. Pursuant to the Placing agreement, the Joint Bookrunners commitment to designate purchasers of or, if the Joint Bookrunners fail to do so, themselves acquire the shares comprised by the Offering is conditional upon, inter alia, that no events occur which have such a materially adverse effect on the Company that it would be inappropriate to complete the Offering ( material adverse events ) and certain other conditions. The Joint Bookrunners may terminate the Placing agreement up until the settlement date, April 28, 2015, if any material adverse events occur, if the warranties that the Company has given the Joint Bookrunners should not be true and correct or if any other condition stipulated by the Placing agreement is not fulfilled. The Offering may be suspended if the above stated conditions are not fulfilled and if the Joint Bookrunners terminate the Placing agreement. In such event, neither delivery of nor payment for shares under the Offering will be made. See Placing agreement in the section Legal considerations and supplementary information for more information on the Placing agreement. Important information regarding the possibility to sell allotted shares Notifications about allotment to the general public in Sweden will be made through distribution of contract notes, expected to be distributed on or about April 24, After payments for the allotted shares have been processed by Carnegie and Avanza, respectively, the duly paid shares will be transferred to the securities depository account or the securities account specified by the acquirer. The time required to transfer payments and transfer duly paid shares to the acquirers of shares in Tobii may imply that these acquirers will not have shares available in their specified securities depository account or the securities account until April 28, 2015, at the earliest. Trading in Tobii s shares on Nasdaq Stockholm is expected to commence on or about April 24, Please note that, accordingly, if shares are not available in an acquirer s securities account or securities depository account until April 28, 2015 at the earliest, the acquirer might not be able to sell these shares on the stock exchange as from the time trading in the shares commences, but only once the shares are available in the securities account or the securities depository account. Information concerning processing of personal data Persons who acquire shares in the Offering will submit personal information to Carnegie, ABG Sundal Collier and Avanza, respectively. Personal information provided to Carnegie, ABG Sundal Collier and Avanza respectively, will be processed by computer systems to the extent necessary to provide services and manage customer engagements. Personal data obtained from other than the customer in question may also be processed. Personal data may also be processed in computer systems of companies with which Carnegie, ABG Sundal Collier and Avanza, respectively, co-operate. Information concerning processing of personal data is provided by Carnegie s, ABG Sundal Collier s or Avanza s branch offices, to which requests for correction of personal data should also be sent. Miscellaneous The fact that Carnegie is the issuer agent does not imply that Carnegie views any party that applies for shares in the Offering as a customer of the bank for the investment. Carnegie s, ABG Sundal Collier s or Avanza s receipt and handling of application forms will not result in any customer relationship between acquirers in the Offering and each respective bank. The acquirer is, in relation to the acquisition, considered as a customer of Carnegie, ABG Sundal Collier and Avanza, only if the bank has provided advice to the acquirer regarding the acquisition, or has otherwise contacted the acquirer individually about the acquisition. The consequence of Carnegie, ABG Sundal Collier and Avanza not regarding the acquirer as a customer in relation to the acquisition is that the rules regarding protection of investors under the Securities Markets Act will not be applicable to the acquisition. Among other things, this means that neither so-called customer classification or so-called suitability assessment will be made in relation to the acquisition. As a result, acquirers are themselves solely responsible for having adequate experience and knowledge to understand the risks associated with the acquisition. 30

33 Terms and conditions 31

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35 Business and market overview Tobii Business and market overview Tobii is the global leader in eye tracking based on the Company s total market share 1), leading technology and a comprehensive eye tracking patent portfolio. Eye tracking provides large benefits in a wide range of application areas. This includes established fields such as assistive technology for communication, market research and academic research. Eye tracking also has potential to create large new business opportunities within computer gaming, integration in mainstream computers, vehicle technology, medicial equipment and virtual reality. Tobii Dynavox and Tobii Pro are profitable and market-leading 1) business units, each with significant opportunities for growing both sales and profit margins. The business unit Tobii Tech is well positioned to address potentially significant opportunities for integration of the Group s eye tracking technology in several future volume markets. The Offering Circular includes business and market data concerning Tobii s business and markets but Tobii operates in an industry in which it is difficult to obtain precise industry and market information. Tobii has obtained certain market and competitive position data in this Offering Circular from a report dated November 25, 2014, produced by Arthur D. Little, as well as from a review of Tobii s patent position commissioned from the independent intellectual property consultancy ClearViewIP Ltd and presented in a report dated October 2014 (jointly the Reports ). Tobii has commissioned the Reports and Tobii believes them to be reliable. As part of its research for the Reports, both Arthur D. Little and ClearViewIP Ltd received market and company information from Tobii. Tobii cannot assure the accuracy and completeness of such information, and Tobii has not independently verified the market and competitive position data contained in the Offering Circular. In addition, in many cases Tobii has made statements in the Offering Circular regarding its industry and its competitive position in the industry based on its experience and its own investigation of market conditions. Tobii cannot assure that any of these assumptions are accurate or correctly reflect its competitive position in the industry, and none of Tobii s internal surveys or information have been verified by independent sources, which may have estimates or opinions regarding industry-related information which differ from Tobii s. Market and business information may include estimates regarding future market conditions and other forwardlooking information. Forward-looking information is not a guarantee of future results or development and actual outcomes may differ substantially from the statements set forth in the forward-looking information. Please see Important information to investors Forward-looking information on the inside cover of the Offering Circular. 1) Arthur D. Little 33

36 Business and market overview Tobii Eye tracking provides large benefits in a wide range of application areas A device containing a built-in eye tracking sensor knows what a user is looking at. This makes it possible for users to interact with computers and machines using their eyes, an innovation which provides several benefits: Understand human behavior The human brain accumulates the majority of the impressions that it processes using vision 1). With the ability to observe a user s gaze, it is possible to obtain deep insights into the person s attention and, based on this, conclude driving factors behind their behavior and actions. Enable hands-free interaction By using the eyes as an input to control a computer, in effect a pointer on a computer screen, eye tracking facilitates interactions with computers when the user cannot or does not wish to use hands as the input form. Create new user experiences and intuitive user interface By combining eye tracking with other input modalities, for example keyboard, touchpad and voice commands, it is possible to create new user experiences and innovative interfaces for mainstream consumer devices. These interfaces can be more intuitive, natural, engaging and efficient than conventional user interfaces. Assistive communication Research Mainstream computers A tool to generate speech and provide access to computers for millions of people who are in need of assistive technology for alternative communication. Tranformative insights into human behavior. Innovative user interfaces for mainstream computers and tablets. Gaming Automotive Specialty applications Creative new, immersive gaming experiences. New safety features in vehicles that warn drivers of drowsiness and lack of attention. Numerous other application areas within different medical and industrial applications. 1) European Scientific Journal, September 2014, special edition vol. 3. p

37 Business and market overview Tobii Introduction to eye tracking A device equipped with an eye tracker has the ability to understand what the user pays attention to, what information the person has processed and can give indications about the person s presence, attention, focus, drowsiness, consciousness or other mental states. This makes it possible, for example, to gain deep insights into consumer behavior or make possible new eye tracking enabled user interfaces for, as examples, computer games and mainstream computers. As seen in the illustration below, most eye trackers are comprised of three main components: i) a set of illuminators or projectors, ii) one or more cameras, and (iii) algorithms for image processing and mathematical calculations. These algorithms are run on either a dedicated processing system or on the processor of the host computer to which the eye tracker is connected. The eye tracker can determine with a high degree of accuracy where the user is looking, the position of the user s eyes, the presence of the user and the size of the user s pupils. In addition to the core eye tracking technology, there is also a need for application software that makes use of the data from an eye tracker. Such application software can provide tools for analyzing and understanding human behavior or can be used to create new user experiences and user interfaces. 1 2 An eye tracker consists of cameras, projectors and algorithms. The projectors create a pattern of near-infrared light on the eyes. The cameras 3 take high-frame-rate images of the user s eyes and the patterns. 4 The image-processing algorithms find specific details in the user s eyes and reflection patterns. - Gaze point The eye tracker Based on these details, 5 mathematical algorithms calculate the eyes exact position and gaze point, for instance on a computer monitor. 35

38 Business and market overview Tobii Tobii s three business units Since Tobii s establishment in 2001, Tobii has successfully introduced and commercialized a wide range of products and solutions in several markets. The Tobii Group has established two profitable and cash-flow-generating business units in Tobii Dynavox and Tobii Pro. Both units hold market-leading positions in their respective fields 1). Together, they form a solid foundation for the Group s business, organization and technology development. The third business unit, Tobii Tech, is currently in an investment phase with future opportunities to establish the Company s eye tracking technology within consumer electronics and other high volume markets. Each business unit has its own distinct markets, products and dedicated personnel. The principal operations such as general management, sales, marketing, R&D, support and training is conducted in each of the three business units. Certain functions such as finance, IT, purchasing, production, logistics and human resources are centralized within the Group to ensure that economies of scale are exploited. Tobii Pro, 26% 2) 3) Sales per business unit 2014 Tobii Tech, 6% Tobii Dynavox, 68% Tobii Dynavox supplies assistive technology solutions for alternative communication. The business unit delivers products that help users with a reduced ability to speak and/or motor disabilities to communicate and interact effectively with others. This business unit is active in a market with large unmet needs and, from low current penetration levels of approximately 10%, the market is expected to see short- and long-term growth. In 2014, Tobii Dynavox s sales amounted to SEK 442 million which corresponds to approximately 68% 3) of the Group s sales and SEK 54 million of the Group s adjusted EBIT (with an adjusted EBIT margin of 12%) 4). The business unit s customers include some 20,000 users who rely on Tobii Dynavox products for their everyday communication. Customer example Ryan Carter (21) from Atlanta, USA has Cerebral Palsy (CP) and lacks the ability to fully control his body movements, including his capacity for speech. Since the age of 18, Ryan uses an eye tracking computer from Tobii as his primary method of communication with the world at large. Ryan studies economics at university level and holds public presentations concerning life with functional disabilities. All communication is done through a Tobii I-12 that replaces Ryan s voice and functions as his computer, giving him access to the internet, telephone, social media and much more. Market share (2013) Tobii Dynavox, 45% Source: Arthur D. Little 1) Arthur D. Little 2) In addition to the three business units, external sales exist that correspond to less than 1% or SEK 4 million. 3) Before elimination of internal sales from Tobii Tech to Tobii Dynavox and Tobii Pro. 4) Adjusted for acquisition and restructuring costs related to the acquisition of DynaVox Systems LLC in 2014, for more information see Operating and financial review Use of non-ifrs measures. 36

39 Business and market overview Tobii Tobii Pro provides solutions for the execution of different types of market and academic research studies for the understanding of human behavior using eye tracking. This creates clear benefits for example for optimizing the design of advertisements, product packaging and websites. Tobii Pro is active in a market that is considered by the Company to have favorable long-term growth opportunities as eye tracking is likely to become more of a mainstream research method in many different fields. In 2014, Tobii Pro s sales amounted to SEK 167 million which corresponds to 26% 1) of the Group s sales and SEK 13 million of the Group s EBIT (and an EBIT margin of 8%). The business unit s customers include 2,000 commercial enterprises and 1,500 academic institutions, among which are the world s largest advertisers and market research companies such as Procter & Gamble, Microsoft, Ipsos and GfK as well as 49 of the world s 50 top-rated universities. 2) Customer example Alibaba China uses eye tracking for usability testing on its websites. Alibaba performs tests where users complete typical online purchase process activities while their eye movements are recorded. The eye tracking data shows where the users looked on the web page, as well as for how long and in what order the information was processed. The insights derived from the tests help Alibaba to identify usability problems and optimize the online user experience, which in turn drives increased revenue for the company. Market share (2013) Tobii Pro, 47% Source: Arthur D. Little Tobii Tech supplies platforms and components for eye tracking to OEM customers (original equipment manufacturers) who integrate these into their own products. Tobii Tech targets a number of potentially large future volume markets in areas such as gaming, mainstream computers, automotive, medical devices and virtual reality. Commercially, the business unit is at an early stage and today has a handful of integration customers with smaller volumes. The business unit is investing heavily to develop the core technology further as well as to work towards adoption in these potentially larger, future volume markets. In 2014, Tobii Tech s sales amounted to SEK 37 1) million which corresponds to 6% 1) of the Group s sales and had a negative impact on the Company s EBIT with SEK 122 million of investment in Customer example SteelSeries launched Sentry, the world s first gaming eye tracker for consumers, at the consumer electronics show CES in January The eye tracker offers new possibilities for game streaming, game training and new types of game experiences. 1) Before eliminating internal sales from Tobii Tech to Tobii Dynovox and Tobii Pro. 2) QS World University Rankings 2014/

40 Business and market overview Tobii Global leader in eye tracking Market leader: With its share of over half of the global market, Tobii is the world-leader in eye tracking solutions 1). Since the Company s founding in 2001, Tobii has gradually grown its market share to achieve today s market position. The diagram reflects market shares measured as the sales value of eye tracking solutions. In solutions where eye tracking constitutes the primary function, the value of the entire solution is used. In solutions where eye tracking constitutes only a minor function, the estimated customer value of the function is used. Smart Eye, 3% ASL, 3% SR Research, 4% SensoMotoric Instruments, 9% Seeing Machines, 10% Source: Arthur D. Little Market share (2013) Others, 14% Tobii, 57% Others includes Prentke Romich Company, Utechzone, EyeTech Digital Systems, Mirametrix, I-Scan, LC Technologies, Ergoneers, Forbes Rehab Services, Humanelektronik, NAC Image Technology, Alea, Grinbath, Fujitsu, GazePoint, The Eye Tribe. Leading technological advantage: The Company believes that its core eye tracking technology constitutes a strong competitive advantage and is recognized for its ease of use, functions reliably on many people and in many different environments, consistent high accuracy, cost and energy efficiency, and compact form factor. In addition to the core technology itself, Tobii also has a reputable track record of successfully developing and commercializing a number of complete solutions including different hardware and application software for diverse uses that give users the full benefit of the technology. The Company has made large investments over the past 13 years into this technology, including development of several generations of system designs, proprietary optical components, complex machine vision algorithms trained on millions of eye images, comprehensive so-called interaction engine for user interface concepts, as well as sophisticated software for interactive applications and the analysis of human behavior. Tobii continues to invest significant resources to maintain and strengthen the technological advantage that the Company considers itself to possess, exemplified, among other things, by the development of a custom designed SoC ASIC for eye tracking 2). Comprehensive patent portfolio in eye tracking: According to an external study, Tobii holds the most comprehensive portfolio of patents and patent applications related to eye tracking technology in the USA and Europe 3). The Group s patent portfolio comprises over 180 granted patents and pending patent applications across over 70 distinct inventions. This portfolio continues to grow through a proactive strategy of investment into research and intellectual property. Tobii s IP position provides the Company with key competitive advantages, revenue opportunities and basis for the Company s freedom to operate. Tobii believes that the importance of its intellectual property rights is likely to grow significantly in importance if eye tracking becomes adopted in volume markets. For more information, see section Patents. 1) Arthur D. Little. 2) SoC = System on Chip. ASIC = Application specific integrated circuit. 3) ClearViewIP Ltd. 38

41 Business and market overview Tobii Estimated number of publicly available American and European patents and patent applications specifically directed to eye tracking inventions, as of October 2014, excluding medical/opthalmology technology 1) Number of patents and patent applications Tobii Microsoft Canon Panasonic Sony Oracle Competitive landscape Most of the Company s existing competitors are smaller players that focus on eye tracking. Many of these have been active in eye tracking longer than Tobii, but some new players have emerged in recent years. In addition, some players have implemented eye tracking solutions for military applications. However, because these solutions are not available for commercial purposes these companies are not included in this competitive landscape description. In addition to general eye tracking competitors, Tobii also has competitors within its various market segments. Specifically, Tobii Dynavox has a broad product portfolio for alternative communication that also comprises touchscreen-based products and softwares that are not eye tracking technology-based. Tobii Dynavox has a number of competitors that sell different communication solutions, both with and without eye tracking. Google Delphi Technologies Eyefluence Swisscom Samsung Several large high-tech companies are showing a clear interest in using eye tracking in computers games, mainstream computers and tablets, vehicles, virtual reality, smartphones, and more. The Company deems it likely that large tech companies will use, and possibly even develop in-house, eye tracking technology. Companies that have publically unveiled concepts and prototypes for products using eye tracking include Microsoft, Intel, Hyundai, Mitsubishi, Jaguar-Landrover, NTT- Docomo, Synaptics and General Motors. Several of these have used eye tracking technology from Tobii or one of Tobii s smaller eye tracking competitors as the base for such prototypes. For further information on Tobii s markets, see sections Tobii Dynavox s market, Tobii Pro s market and Tobii Tech s market, respectively. Company Offers solutions in the following segments Behavioral studies Assistive technology 1) Study by ClearViewIP Ltd. See section Patents for details. Vehicles Offers the following types of eye tracking technology Technology for OEM integration Screen-based eye tracking High-frequency eye tracking Wearable eye tracking Tobii X X X X X X Sensomotoric Instruments X X X X X SeeingMachines X X X X ASL X X X X SR Research X X X X Smarteye X X X X The EyeTribe X X X Prentke Romich X X Utechzone X X X X 39

42 Business and market overview Tobii Mission and vision Mission Tobii s mission is to fundamentally transform and improve both lives and entire industries through humanized technology. With eye tracking as a base, Tobii creates the conditions for new insights into human behavior and more human user interfaces in mainstream computers, games, vehicles and other products. Vision Tobii s vision is a world where all technology works in complete harmony with natural human behavior. Business model The Company s business model is different for the three business units: Tobii Dynavox develops and sells communication solutions for people with speech or motor disabilities. These solutions include proprietary hardware and software products as well as services. Several of these products are approved as medical devices, and are often paid for, in their entirety or partially, by public and private insurances or funding sources. Other products are normally paid for directly by end users. Most of Tobii Dynavox s products are sold by way of a one-time payment and include training, multi-year support and warranty obligations. In addition, a portion of the business unit s products are pure software products that are licensed, either with a one-time payment or on a subscription fee basis. Tobii Dynavox mostly sells its products directly to customers in the US, Canada, Sweden and Norway, and through resellers in other regions. Tobii Tech develops and sells eye tracking technology for OEM customers who integrate this into their own products. The business unit is at an early stage commercially with a handful of OEM customers to date that are developing products or have launched products where the Company s technology is an integrated part. The customers either purchase complete white-label products (complete hardware including packaging), board-level integration platforms or key hardware components together with a license to a reference design for the complete system. In all cases, the customer also licenses required software and IP. Tobii Tech also conducts paid development projects together with OEM customers, primarily to adapt or modify the business unit s technology to suit specific integration needs. Tobii Pro develops and sells eye tracking solutions for understanding human behavior. These solutions include proprietary hardware and software as well as services. The customers include both commercial companies and academic research institutions. Hardware products are sold or rented, and software products are either licensed with a one-time payment plus an annual payment for support and upgrade contracts or licensed annually with a recently introduced subscription model. Training services are typically charged for on a daily or hourly basis and research services are often charged for on a per-project basis. Tobii Pro sells its products directly to its customers in most key markets and via resellers in some markets and for specific segments. 40

43 Business and market overview Tobii Financial development Tobii has shown organic revenue growth each year since inception in In addition, a few carefully selected acquisitions have further contributed to the Group s development, the latest being the acquisition of DynaVox Systems LLC in May Net sales have since 2008 grown by a CAGR of 21% and around 16% excluding acquisitions. Tobii s net sales reached SEK 621 million in 2014, and SEK 745 million on a pro forma basis had DynaVox Systems LLC been part of the Group as of January 1, ) SEK million Financial targets Net sales In preparation for the listing on Nasdaq Stockholm, Tobii s Board of Directors has adopted the financial targets for each business unit as depicted to the right. The combined financial targets for the three business units imply positive earnings before taxes and positive cash flow for the Group as of The Board of Directors estimates that the Group should be fully funded to execute its current business plan which stretches through 2018 when the Group as a whole is expected to have a positive cash flow supported by the capital raised from the Offering. Over the next few years, Tobii s development and expansion ambitions for the business unit Tobii Tech will be given priority over dividends to shareholders. Financial targets represent forward-looking information. Forward-looking information means that no guarantee can be given regarding future earnings or development and actual results may differ materially from those expressed in forward-looking information. See also Important information to investors Forward-looking statements on the inside cover of the Offering Circular and Risk factors. The business units Tobii Dynavox and Tobii Pro are profitable with EBIT margins of 12% 2) and 8% respectively in The business unit Tobii Tech invests heavily to develop its eye tracking technology to meet demands from future volume markets and had a negative impact on the Group s EBIT with SEK 122 million in Sales and adjusted EBIT per business unit SEK in millions Net sales Tobii Dynavox Tobii Pro Tobii Tech Other Eliminations The Group Adjusted EBIT Tobii Dynavox 54 1) 21 3 Tobii Pro Tobii Tech Other, net The Group 54 2) ) Adjusted for non-recurring items related to acquisition of DynaVox Systems LLC in ) Adjusted for non-recurring items related to the IPO. Tobii Dynavox Tobii Pro Tobii Tech Tobii Dynavox s long-term goal is to deliver revenue growth in excess of 10% per year, with an EBIT margin of 20%. Tobii Pro s long-term goal is to deliver revenue growth in excess of 15% per year with an EBIT margin in excess of 15%. In the midterm (next 2 3 years), Tobii Pro s goal is to deliver revenue growth of 10% with an EBIT margin of 10%. Tobii Tech s goal is to become cash flow positive during Until then, the business unit plans for a SEK 400 million negative cash flow due to significant investments in core technology. 1) For more information, see Proforma Income Statement ) Adjusted for acquisition and integration costs related to the acquisition of DynaVox Systems LLC 2014, for more information see Operating and financial review Use of non-ifrs measures. 41

44 Business and market overview Tobii History Since the Company s inception in 2001, Tobii has experienced 13 years of consecutive revenue growth. Tobii s development may be described in four stages: Pioneering eye tracking technology and its first application areas ( ) Upon recognizing the large potential of eye tracking, the three entrepreneurs John Elvesjö, Mårten Skogö and Henrik Eskilsson established Tobii in August In 2002, Tobii developed and commercialized its first product the world s first plug and play eye tracker, the Tobii ET-17. The eye tracker was easy to use and allowed the user to move in front of the computer, which was an innovation among similar products. Tobii ET-17 rapidly became an attractive and reliable tool among researchers seeking to gain an objective method for understanding human behavior in fields ranging from psychology to website optimization. This was the starting point of the business unit now known as Tobii Pro. In the subsequent years Tobii released new products based on its eye tracking techno logy and continuously developed the market. Entering the market for alternative communication (2005) Following its success in the market for behavioral research with the Tobii ET-17, Tobii identified the Augmentative and Alternative Communication (AAC) market as an earlyadopter market for eye tracking. Eye tracking enables individuals with reduced ability to speak and/or those with motoric challenges from conditions such as ALS, cerebral palsy (CP), and Retts syndrome to communicate and interact with the outside world. In 2005, the Company released MyTobii D10, its first product targeting the AAC market. This set the foundation for the business unit today known as Tobii Dynavox that has, since its inception, improved the lives of tens of thousands of individuals worldwide who were previously unable to communicate and interact with others effectively. International expansion and strategic acquisitions ( ) Tobii has sold products globally since 2002, but it was not until 2005 that the Company began establishing a physical international presence, opening offices in the USA (2005), Germany (2007), Japan (2008) and China (2008). Tobii also concluded three important strategic acquisitions: (i) Viking Software AS based in Norway in 2007, strengthening Tobii s AAC hardware with industry leading software, (ii) Boston-based Assistive Technology Inc. in 2008, increasing the Company s position in North America, and (iii) Pittsburgh-based DynaVox Systems LLC in DynaVox Systems LLC was Tobii s closest competitor in North America, and complemented Tobii s eye tracking AAC product portfolio with touchscreen-based AAC-devices and market-leading special-education software. Following the acquisition of DynaVox Systems LLC, the business unit that used to be known as Tobii Assistive Technology was renamed Tobii Dynavox. The first larger external round of equity financing was made in Tobii by Investor Growth Capital in In the following financing rounds Amadeus Capital, Intel Capital, Northzone Ventures and The Sixth AP Fund (Sw. Sjätte AP fonden) added. In total Tobii has raised approximately SEK 660 million in equity in the period from new and existing owners. Tobii has brought to market a range of eye tracking products of which most have become market-leading in their respective segments. As of today, five generations of eye tracking technology have been developed and brought to market. From 2008 to 2014, Tobii has reduced the production cost of its eye tracking technology by more than 95% while also improving the products performance and reducing physical size and power consumption. During this period, Tobii evolved from a local Swedish high-tech company to a global leader in eye tracking technology. Growing profitable business units and development for reaching future volume markets (2015 ) Tobii has created a stable business comprising of two growing and profitable business units Tobii Dynavox and Tobii Pro. For Tobii Dynavox, the Company sees opportunity to grow the business and further increase profit margins driven by the overall market growth for assistive technology for communication, by developing new products, by approaching new segments and geographies, and by realizing the full synergies from the acquisition of DynaVox Systems LLC. For Tobii Pro, the Company sees opportunity to grow the business and further increase profit margins driven by overall market growth for eye tracking for research, by developing new products and by approaching new segments. For the third business unit, Tobii Tech, the Company sees opportunities in delivering eye tracking components and platforms aimed at potential volume markets. The first step into such a consumer market was taken at the beginning of 2015 when SteelSeries, a leading provider of computer gaming peripherals and accessories, started to sell the SteelSeries Sentry, an eye tracker from Tobii aimed at enthusiast computer gamers. Furthermore, in March 2015, the computer-games company Ubisoft released Assassin s Creed Rouge PC which includes Tobii s eye tracking. 42

45 Business and market overview Tobii Acquisition of Viking Software Acquisition: Dynavox Systems Inc The first consumer product SteelSeries Sentry 2014 Tobii is founded 2001 Tobii TX-series The graph shows the number of sold eyetrackers per year 2007 Acquisition: Assistive Technology Inc The first high frequenze eyetracker TX Tobii IS3 platform Tobii Glasses 2 Tobii IS20 platform Tobiis first eyetracker Tobii ET-17 The world s first computer with built in eyetracking MyTobii P10 Tobii C-series The first generation of eyetracking-glasses Tobii Glasses 1 Tobii I-series Tobii X2-series 43

46 Business and market overview Power to be You Tobii Dynavox s mission is to give people the ability to live a richer and more independent life by providing a voice of their own and access to everyday technologies. 44

47 Business and market overview Tobii Dynavox Tobii Dynavox More than 0.5% of all people have such a severely impaired speech capacity or capability that they require assistive aids to communicate effectively. The business unit Tobii Dynavox is the global market leader in assistive technology for alternative communication and accounted for 68% 1) of Tobii s consolidated sales in The business unit provides products that greatly improve the users ability to communicate. Tobii launched its first eye controlled communication aid in Sales grew rapidly, primarily organically but also through acquisitions. In 2007, Tobii acquired Viking Software AS, a Norwegian company that complemented the product portfolio with important software for alternative communication. The following year, Tobii acquired a Boston-based company, Assistive Technology Inc., which both strengthened the business unit s position and Tobii s capability of managing the complex US funding system for assistive technology. In 2014, Tobii acquired the US company DynaVox Systems LLC, which prior to the acquisition, was Tobii s main competitor in the alternative communication market. DynaVox Systems LLC complement Tobii with a strong North American focus, leading touchscreen-based assistive communication products, leading software for users with cognitive disabilities and market leading software for teaching in special education schools. Following the acquisition, the name of the business unit was changed to Tobii Dynavox. Today, Tobii Dynavox has tens of thousands of users around the world that rely on its solutions for their communication. Tobii Dynavox offers a suite of different products including eye-tracking based and touchscreen-based speech generating devices as well as a number of software applications for communication and special education uses. The products are used by individuals with special needs as well as by therapists, speech language pathologists, caregivers, hospitals, evaluation centers and special education schools. Tobii Dynavox s products are sold in over 60 countries with its largest market in the US followed by the UK, Germany, Norway and Sweden. Europe, 31% Net sales by geography 2014 Rest of the world, 3% North America, 66% Financial overview Tobii Dynavox s net sales amounted to SEK 442 million in 2014, or pro forma SEK 566 million including DynaVox Systems LLC from January 1, Since 2008, net sales have grown by a CAGR of 29%, or 22% excluding acquisitions. The organic growth rate excluding acquisitions is not possible to exactly determine since DynaVox Systems LLC as of the fourth quarter has been integrated into the Tobii Group, but up to and including the third quarter 2014, the net sales of the original part of the Tobii Group increased by 26% and during the third quarter, the acquisition contributed SEK 62 million. The Company has invested during the period to develop the business unit. In 2012, the business area achieved profitability and in 2013, the EBIT margin improved from 1% to 9%. In 2014, the adjusted EBIT margin increased to 12% 2) Net sales & EBIT-margin SEK million % % Net sales by product type 2014 Others, Other AAC, 7% 1% Computer access, 7% Software for special ed schools, 6% Touchscreenbased AAC, 20% 9% Net sales (SEK millions) Adjusted EBITmargin (%) 2) % 2014 Eye tracking AAC, 59% ) Before elimination of internal sales from Tobii Tech to Tobii Dynavox and Tobii Pro. 2) Adjusted for acquisition and integration costs related to the acquisition of DynaVox Systems LLC during 2014, for more information see Operating and financial owerview Use of non-ifrs measures. 45

48 Business and market overview Tobii Dynavox Customer segments and products Described below are Tobii Dynavox s main customer segments and products. AAC Augmentative and Alternative Communication Users in need of AAC solutions have difficulty speaking and interacting with people around them, such as family, friends, teachers and caregivers. Users may have conditions such as cerebral palsy (CP), ALS (also known as Lou Gehrig s disease), Rett syndrome, autism or aphasia. These users require solutions to overcome speech and language disabilities as well as to accommodate a range of other disabilities that frequently appear concurrently. The primary users in this group are the individuals themselves with the different special needs and disabilities, whereas the paying party is often a private or public funding body. Therapists and speech language pathologists are also important users within this group, where, in this case, the paying party is often a hospital, a school or a rehabilitation center. Tobii Dynavox s product portfolio includes a series of specially designed computers (also called speech generating devices (SGDs)) that are controlled with the help of eye tracking, buttons and/or with a touchscreen. SGDs controlled by eye tracking are used by individuals that have motor functional disabilities as well as speech difficulties (and therefore cannot use regular touchscreen input), while SGDs controlled solely by touchscreen are used by individuals who have adequate or good motor skills. AAC products include comprehensive software to assist and enable effective communication with the help of symbols, images, phrases and text. An individual configuration of the software is often necessary to ensure an effective communications environment for specific users. Software and certain services are often included in the price for AAC products. The AAC segment accounted for 85% of Tobii Dynavox s 2014 net sales, of which eye-tracking AAC products accounted for 59%, touchscreen-based AAC products for 20%, other AAC accounted for 7% and stand-alone AAC apps for 6%. Kathrin Lemler the first non-verbal, CP inflicted individual to graduate from a university in Germany: Tobii gave me the opportunity to live a more independent life. I can speak with people, even without the help of caregivers and I can communicate indirectly, at a distance, with the help of different functions like SMS, chat and social networks like Facebook. Tobii Dynavox I-12 is a medical-grade, eye controlled SGD. It is a computer with an integrated eye tracker, powerful speakers, and long battery life with a very rugged build to thrive in tough everyday use. The product was launched in May Tobii Dynavox T10 is a medical-grade touchscreen-based SGD that combines the simplicity of a tablet with extra powerful speakers, long battery life and a robust build. It was launched in the third quarter of Compass is a comprehensive software that enables quick communication with the help of text or symbols, which function as an effective language and method of expression for the users. The software has been developed over the course of a decade in close cooperation with leading researchers in the field and clinical experts. It includes several speech language systems developed for different kinds of functional disabilities and can even be customized to the specific needs of an individual user. Compass is available as a software for PC and as an app for mainstream tablets. 46

49 Business and market overview Tobii Dynavox Computer access Users with conditions such as spinal cord injury, traumatic brain injury or multiple sclerosis (MS) may suffer from paralysis or other motor functional disabilities leaving them unable to fully use and access computers and thereby hindered from leading independent lives. The computer access customer group accounted for 7% of Tobii Dynavox s net sales in The Tobii PCEye Go is an eye tracker that connects to standard computers via a USB port. By using it together with Tobii Gaze Interaction Software a user can basically use all functions in a Windows-based computer or tablet by only using their eyes. The product was launched in Special education Children with special needs are often given specially designed curriculums (usually called individual education plans (IEPs) and educational activities, many times by legal mandate. Tobii Dynavox develops Boardmaker a globally market leading software for schools that engage in special education. Boardmaker is used by the teachers to create symbol-based activities and exercises as well as to follow and enforce progress in the IEPs. The product is purchased either in volume by school districts or is sold through Tobii Dynavox s e-commerce channels to individual users. If earlier versions of Boardmaker are included, then there are more than 250,000 active registered users. The special education customer group accounted for 6% of Tobii Dynavox s net sales in Stephen Murray Former BMX champion Former world-class BMX rider Stephen Murray was critically injured while performing at a competition. The crash left him paralyzed from the shoulders down. Using the Tobii PCEye gives me back some independence and privacy in my life. I had come to the point that I thought I would never be able to accomplish the things I can now do with Tobii s technology. It makes me excited to wake up each day and gives me new goals to work toward. The positive effects this has had on me psychologically are far better than anything that had ever been offered to me in the past. Boardmaker Online is the latest generation Boardmaker software. For the first time ever the software was offered as a cloud-based online version that allows its use on the user s choice of computer or tablet with an internet connection. Boardmaker Online was introduced in August 2014 and with a new subscription-based business model. 47

50 Business and market overview Tobii Dynavox Tobii Dynavox market The market data presented below has been generated by Arthur D. Little, using various sources such as databases, external market reports, surveys, interviews and Tobii s executive management. The current addressable market has been derived by estimating the percentage prevalence of users with conditions that warrant an AAC-device in relation to the size of the population of the applicable countries. The AAC and computer access spend per capita across countries as per 2013 and the market split per value and volume as per 2013 have mainly been derived from estimating the number of units sold and the average selling price per unit by country for devices typically offered on the market (dedicated touchscreen devices, dedicated eye tracking devices, apps, consumer tablets and computer access devices). The size in USD of the market during the historical period as well as the market shares as per 2013 have been derived by estimating the direct AAC and computer access sales for the companies typically active in the market, while the forecasted market size in USD from 2014 to 2016 has been derived from an estimate by country of the direct sales of AAC and computer access devices. The forecast has also considered the estimated development of the various devices typically sold on the market (touchscreen-based AAC-devices, eyetracking based AAC-devices, apps, consumer tablets and computer access devices) in terms of the estimated number of devices sold and the estimated average selling price per device. Current addressable market As stated above, there are a wide range of conditions, including cerebral palsy, ALS, aphasia and autism that often limit a person s ability to speak. Among the global population, more than 0.5% of the population experience limitations such that they cannot communicate effectively without the use of an AAC-device 1). Users with the need of AAC often have complex disabilities. Effective communication solutions for these users typically require well-developed support from the healthcare system to assess an individual s needs, implement individually customized solutions and to financially support the purchase of products and services through a private or public insurance system. Currently, effective reimbursement infrastructure for prescribing AAC-devices to end users only exists in a few countries. The vast majority of AAC sales are concentrated in markets with a reasonably developed reimbursement and prescriber infrastructure, namely the US, Canada, Australia, Sweden, Norway, Denmark, Germany, Switzerland, Austria, the UK, France and the Netherlands. Even in these markets, only approximately 300,000 out of the 3 million individuals who need an AAC-device for effective communication currently have access to such a device (i.e., 10% penetration), while the current unpenetrated market is approximately 2.7 million individuals (90%). The current 10% penetration includes both individuals who possess a dedicated higher-cost AAC-device from a market actor and users using a consumer tablet with a low-cost AAC app installed 2). The addressable AAC market (no. of individuals) Current addressable market in countries with established reimbursement: 3 million individuals who need AAC for effective communication 3) 2.7 million individuals without access to AAC (90%) Source: Arthur D. Little 300,000 individuals with access to AAC (10% penetration) Key reasons for current low penetration are (i) lack of knowledge of and expertise for prescribing and supporting AAC use among professionals, (ii) low awareness of AAC among potential users and their families, and (iii) complex processes to obtain funding for AAC-devices. This low penetration in markets with already established funding systems presents large potential for future market growth. Penetration in the rest of the world remains very low, with further potential for growth if and when awareness about AAC increases and when public or private funding systems are established in these countries. 1) Arthur D. Little 2) Arthur D. Little 3) U.S, UK, Sweden, Netherlands, Denmark, France, Australia, Norway, Germany, Switzerland, Austria and a prevalence of 0.5%. 48

51 Business and market overview Tobii Dynavox Funding process The funding for AAC-devices includes public and private funding sources, as well as private pay and charities. A clear majority of revenue for Tobii Dynavox stems from public and private funding sources. In the U.S., about 90% of Tobii Dynavox s revenues stems from pulic or private funding. In most markets with established reimbursement system, the funding process typically comprises three steps: An individual visits a hospital or evaluation center. The hospital or evaluation center provides a clinical evaluation (by an expert usually a speech language therapist) who determines the individual s need for an AAC-device and a suggested solution. If the need for such a device is confirmed, the evaluation is sent to the AAC-device provider or its reseller. The provider then responds with a quotation for the selected solution. The funding body (in the USA, for example, Medicare, Medicaid or private insurer) receives the clinical evaluation and the quotation (together referred to as a funding package ). The AAC-device provider and the applicable funding body process the order and, if needed, provide additional documentation. Once approval of the funding package has been provided by the funding body, the AAC-device provider delivers the product to the end user and assists with installation, set-up and training. The funding body is subsequently invoiced by the AACdevice provider. In the USA, payment terms are on average considerably longer in this field than in many other industries. Typical funding process for AAC-devices Funding Clinical 1 2 evaluations Clinical evaluation + product codes, etc. Hospital/ evaluation center Tobii Dynavox as reseller Public & private insurers, non-profit organizations Device and installation support 3 Order and reimbursement for device 49

52 Business and market overview Tobii Dynavox Funding & reimbursement in different countries In the countries listed below there is a reasonably developed reimbursement and prescriber infrastructure for the funding of AAC-devices: Country USA Sweden, Denmark, Norway, Germany, Austria, Switzerland, Netherlands, France, Canada, Australia, UK Other countries Reimbursement and infrastructure for prescribing AAC Reimbursed under Medicare, Medicaid and many private insurers including Blue Cross/Blue Shield, Kaiser, Tricare, Atena and Cigna Reimbursed under public or private insurance and with reasonable infrastructure for prescribing devices Currently no, or very limited, reimbursement and infrastructure Large spread of AAC spend per capita across countries Norway has the highest per capita spend for AAC worldwide, amounting to approximately USD 1.8 per person. This is approximately five times more than the per capita spend in the U.S. The key driving factor of this is the penetration attributable to an effective prescriber infrastructure for AAC products that is to say, access to centers with clinicians and SLPs with good knowledge of AAC. Penetration is also higher in those regions where there is one centralized decision body. In general, it is more common that larger cities and densely populated areas have a higher degree of penetration compared to smaller cities and the countryside. As an example Stockholm has a significantly higher per capita AAC spend than other regions in Sweden and the spend is close to the Norwegian level 1). AAC market composition, size and historical growth Dedicated devices comprise the majority of the AAC market in terms of value, with 49% attributed to dedicated touchscreen-based AAC-devices and 35% attributed to eye-tracking based AAC-devices. Consumer tablets (for example, ipads), including AAC apps, comprise 13% of the value of the market which is significantly less than the share of the number of users served (67%) by AAC apps. Consumer tablets are increasingly becoming the first step into dedicated AAC-devices and there exists significant potential to convert app users to dedicated devices by increasing awareness of their right to receive such device. Market 2) split by value 3) and volume 2013 value 2013 volume 49% 35% 13% 2% 24% 7% 67% 3% Dedicated touch AAC devices Dedicated eye-tracking AAC devices ACC apps on consumer tablets Computer access devices Source: Arthur D. Little 1) Arthur D. Little 2) USA, UK, Sweden, Netherlands, Denmark, France, Canada, Australia, Norway and Germany 3) Value includes consumer tablets 50

53 Business and market overview Tobii Dynavox The global AAC market has seen a CAGR of 11% from 2004 to Between 2008 and 2013, the US market, which is Tobii Dynavox s largest market, saw three significant developments detailed as follows: During , the Texas Specialized Telecommunications Assistance Program opened temporarily to AAC-devices on a large scale, resulting in a positive impact of USD 50 million in reimbursement for users. The great majority of the reimbursement was used during 2008 to 2011 with a peak impact of approximately USD 18 million in 2011 which later decreased to near zero in Starting in 2010 consumer tablets with AAC apps were introduced and partly competed with more expensive purpose-built touchscreen-based AACdevices. This resulted in a significant volume growth of the market s lower price point, but reduced the total market value in 2012 and A significant growth in eye tracking AAC-devices as evidenced, for instance, by Tobii s sales growth during these years. In the years 2011, 2012 and 2013 Tobii grew its global AAC sales by 11%, 16% and 20%, respectively. Historic global market growth for AAC Average annual growth of 11% the past 10 years USD million Market growth for USA 1) Launch of AAC apps for mainstream tablets 2) Texas STAP funding program 3) Growth in eye tracking AAC Source: Arthur D. Little 1) Specialized Telecommunications Assistance Tobii Program Assistive 2) Technology Estimate for end user market Tobii s sales of solutions for assistive communication (of which >90% is eye control AAC) USD million CAGR of 20%

54 Business and market overview Tobii Dynavox Key market trends and drivers Arthur D. Little estimate that the market for AAC will grow in the coming years. Below is a summary of the key market trends and drivers for Tobii Dynavox that will contribute to this expected growth: Improved knowledge among prescribers of AAC products Doctors, therapists and speech language pathologists who can recommend and prescribe AAC-devices and solutions must be aware that such devices and solutions exist. They must also trust the functionality of these devices and possess an understanding of how to apply them. Providing cutting-edge technology in a rather conservative field poses challenges for the industry. Even among professionals in developed countries, the knowledge of AAC and computer access solutions is limited. Hence, a large proportion of potential users in need never receive the opportunity to test the capabilities and experience the life improvement benefits of such devices and solutions. Both in existing markets and developing countries, there is a gradually growing awareness and know ledge of AAC among professionals, rendering opportunities for the industry to grow. Growing awareness among end users, their families and interest groups The end users, their families, and other patient and interest groups form a potent force for driving further penetration of AAC and computer access solutions. As more users become familiar with these solutions they can actively seek out effective solutions and sources of funding. The growth in adoption of consumer tablets and apps as AAC solutions in recent years has created increased awareness of the existence and value of such solutions, which is expected to also drive growth of the specially designed, dedicated SGDs. Improvements in funding systems in both existing markets and other countries Several countries still lack established funding systems for AAC solutions, while reimbursement even in established markets can still be further improved. For example, the United Kingdom established improved reimbursement policies for AAC solutions in October Improved funding systems in existing and new geographies enable more individuals to acquire and use AAC solutions. The Ice-Bucket challenge is one of the strongest viral campaigns of all times. It contributed greatly to increased awareness of ALS. The ice-bucket challenge was #5 in the most searched items on Google in It was started by Pete Frates who has ALS and who relies on a Tobii I-series eyecontrolled AAC-device for his daily communication. New segments, products and geographies Many segments within assistive technology for communication are still unexplored or are in their infancy. Through a combination of more effective marketing as well as the development of new products, these can grow. Some examples are eye-tracking solutions for individuals with repetitive strain injuries (such as mouse arm ), communications solutions for Intensive Care Units (ICUs) in hospitals as well as more effective products for the large potential market of users with aphasia. In addition, there are numerous geographical markets that Tobii Dynavox has yet to commercially address in a larger scale, for example, France, China and Brazil. Replacement sales Similar to other technologies, communication products are evolving rapidly and becoming more effective and easy to use. Most funding sources allow users to obtain new devices every five years, or in cases of medical necessity, more frequently. As the installed base of products in active use increases, the market for sales of replacement devices is likely to become a significant portion of total sales. 52

55 Business and market overview Tobii Dynavox Expected future growth The market for AAC-devices is expected to grow over the next three years by 5 10% per annum 1). This is projected to be primarily driven by eye-tracking devices as well as by a further rise in AAC apps for consumer tablets, while the market for purpose-built touchscreen devices is expected to grow but at a lower rate. Unit prices are likely to remain stable or may slowly decline since public funding systems and prices have historically shown a high degree of inertia with limited change in the short term. Touchscreen devices will likely see a price reduction in some markets. In addition to increasing awareness among physicians, therapists and speech language pathologists, and better funding, further growth opportunities are driven by geographic expansion and that more potential end users learn about AAC solutions 2). Historical and forecasted global market growth for AAC Average annual growth of 11% during the past 10 years Average annual growth of 5 10% from 2014 to 2016 USD million Market growth for USA 1) Launch of tablet 2) Texas STAP funding program 3) Growth in eye tracking AAC E 2015E 2016E Source: Arthur D. Little Tobii Assistive Technology 2) Global AAK marknad AAC and computer access competitive landscape As depicted in the graph to the right, Tobii Dynavox is the market leader within the AAC and computer access market having a global market share of approximately 45%. Tobii Dynavox s market leadership holds true in North America as well as in Europe 3). AAC and computer access market shares (2013) Others,19% Tablets excluding AAC software, 9% Tobii Dynavox, 45% Abilia, 7% 1) PRC, 20% 2) Source: Arthur D. Little (market shares as of 2013) 1) Abilia s market share only includes estimated communication revenues from AAC and computer access 2) Including Saltillo, which is a subsidiary of PRC (Prentke Romich Company) 1) Arthur D. Little 2) Arthur D. Little 3) Arthur D. Little 53

56 Business and market overview Tobii Dynavox Organization and employees Business Unit President Fredrik Ruben Sales, marketing and financing function, North America Sales and marketing outside of North America R&D Stockholm R&D Pittsburgh Production, logistics and support Controller R&D Bergen Product management At the end of 2014, Tobii Dynavox had 307 FTEs. Around 90% of the employees work outside of Sweden. Fredrik Ruben and his international management team lead the business unit. Sales and marketing Tobii Dynavox has a global sales and marketing organization. In the US, Canada, Sweden and Norway the business unit has approximately 90 directly employed sales representatives. Sales are primarily targeted at therapists, speech language pathologists, hospitals, rehabilitation and evaluation centers, and schools for children with special needs. Following the acquisition of DynaVox Systems LLC, the size of the US sales organization grew from 30 to over 70 sales representatives. Remuneration for the sales team is largely based on their performance. Around 90 resellers cover Tobii Dynavox s remaining markets. Most of the resellers are focused suppliers to the AAC market and, besides Tobii Dynavox s products, offer other products such as other AAC-devices, computer access products, peripheral products and services. Tobii Dynavox has solid experience in assisting users through the funding process. In the US organization, a 40 person in-house insurance and funding department assists potential users through the entire application process and assists with contacts to various insurance and funding sources. Tobii Dynavox has approximately 200 contracts with insurance companies and other funding agencies worldwide. Tobii Dynavox uses a mix of marketing strategies to attract users and caregivers, as well as to raise knowledge and awareness among prescribers, professionals and schools. Tobii Dynavox uses seminars focused on specific medical conditions and patient groups, as well as product promotions at industry trade shows and events. The use of various digital marketing channels, including social media, serves as an important element in the marketing of Tobii Dynavox offerings. Research & Development Tobii Dynavox has its own dedicated R&D organization, with around 101 FTEs (including 7 consultants based in Kiev). The team has a track record of developing several successful products in recent years. The R&D team designs and creates its own computers and tablets for AAC and integrates eye tracking platforms into some of its products. The development of hardware is completed in close collaboration with original design manufacturers of computers, who also manage industrial scale production. Tobii Dynavox retains ownership over its product designs. In addition, the team develops several important software products, including Compass, Communicator, Boardmaker and Tobii Gaze Interaction Software. The team has an experienced clinical language expert team that collaborates closely with leading university researchers. Tobii Dynavox operates four R&D centers, each with different R&D focuses. These centers are located in Stockholm, Sweden; Pittsburgh, USA; Bergen, Norway and Kiev, Ukraine. Tobii Dynavox s R&D budget for 2015 totals just over SEK 80 million and is earmarked primarily for investments into new hardware products for AAC (both eyetracking based and touchscreen-based), the development of new software for AAC and important new functionality in a number of the business unit s existing software for AAC and special education. 54

57 Business and market overview Tobii Dynavox Strengths The key strengths driving Tobii Dynavox s business are summarized below: Market leader in AAC solutions and special education software Following the acquisition of DynaVox Systems LLC in May 2014, the business unit became the market leader in AAC solutions 1), both eye-tracking based and touchscreenbased, as well as special education software. With a sales organization consisting of over 90 direct sales people and a reseller network of about the same number spanning more than 60 markets around the world, Tobii Dynavox has an extensive market coverage and distribution capacity within the industry. Tobii Dynavox has strong and established relationships with a very large number of prescribers, assessment centers and special education schools. Broad portfolio of strong products Tobii Dynavox has a broad product portfolio that includes a number of products, many of which Tobii Dynavox believes are market leading. The portfolio includes eye-tracking based and touchscreen-based communication devices, eye tracking products for computer access, communication software and symbol languages, and special education software and apps for tablets. Due to Tobii Dynavox s wide-ranging product portfolio, the business unit can meet the requirements of a wide range of conditions and different levels of access to financial assistance. Solid experience to manage the funding process Tobii Dynavox has a solid experience in helping its customers obtain funding for its products. The business unit has a dedicated funding team of some 40 experienced specialists. Globally, Tobii Dynavox has around 200 contracts with insurance companies and other funding agencies, including Blue Cross/Blue Shield, Kaiser, Tricare, Atena and Cigna. As of January 2015, Tobii Dynavox s personnel work in a joint, integrated IT-system with respect to the financing process. 1) Arthur D. Little Key initiatives Tobii Dynavox s key initiatives are summarized below: Educate speech language pathologists, therapists and doctors about AAC Tobii Dynavox is actively seeking to increase the competence and knowledge about AAC among them, prescribers of these types of assistive aids, primarily among speech language pathologists, therapists and doctors. This is done to raise awareness of the potential of AAC products to improve the quality of life for individuals with special needs as well as to strengthen the prescribers competence and comfort in both recommending and implementing AAC products. Tobii Dynavox s is working to create an ever stronger organization, and better methodologies and material to effectively educate industry professionals through sales meetings, seminars and conferences. Continue development of the product portfolio By continuing to develop its product portfolio, Tobii Dynavox believes that its addressable market can increase significantly. An example of this is to translate and adapt Tobii Dynavox s software and symbol language to new languages, thus opening up more geographic markets. Developing software solutions tailored for specific conditions will also open up new segments. A specific example with great potential is solutions specifically tailored to aphasia. Another initiative is a stronger focus on AAC apps for consumer tablets that are expected to serve as an entry-level solution for many potential users. Realize the synergies and cross-selling opportunities of the acquisition of DynaVox Systems LLC The acquisition of DynaVox Systems LLC in 2014 significantly widened Tobii s product portfolio and strengthened its presence in the North American market, increasing the number of in-house sales representatives in the US from 30 to about 70. The combined sales force has been re-structured and optimized during fall of Going forward, Tobii Dynavox s direct sales representatives and resellers in all geographies will sell a wider portfolio of products, thereby unlocking opportunities for increased sales as well as increasing efficiency within the sales organization. A new joint product roadmap has been developed during the fall of By consolidating Tobii Dynavox s different hardware and software platforms it is expected that the rate of product development will increase over the next few years while keeping stable the level of R&D expenditures. Additional back-office functions have also been consolidated during the fall of 2014, and the effect of this is expected to have positive impact on efficiencies and costs during

58 Business and market overview Envision human behavior Tobii Pro s mission is to help business and science professionals gain real insights into human behavior using world-leading eye tracking and analytics. 56

59 Business and market overview Tobii Pro Tobii Pro The business unit Tobii Pro is the world-leading provider of eye-tracking hardware and analytics software and services for understanding human behavior. 1) The business unit accounted for 26% 2) of the Group s sales in The first product was launched is 2002 and Tobii Pro was formalized as a business unit in Customers use the business unit s solutions to perform various types of research and market studies. These insights bring value to, for instance, companies that want to optimize the design of marketing communication, product packaging and websites. In academic research eye tracking is used in fields such as psychology, cognition and human computer interaction. Among Tobii Pro s customer base are 1,500 academic institutions (including 49 of the world s 50 top-rated universities) 3) and over 2,000 commercial enterprises (including many large corporations such as Procter & Gamble, Microsoft, Ipsos and GfK). Research utilizing eye-tracking technology directly reveals critical aspects concerning human behavior: what attracts a person s interest, to what details the person pays attention, whether or not certain information has been processed and/or the order in which it is processed. This information provides insights as to what drives a person s actions or decisions. Usage of eye tracking as a research method has increased steadily in recent years. Over the past few years, Tobii Pro has repositioned itself from being a provider of eye-tracking hardware to a provider of complete eye-tracking solutions for commercial and academic research. To complement its hardware offering, Tobii Pro has increased its focus on analytics software and services, including market research services provided under the brand name Tobii Insight. The Tobii Pro business unit is represented in more than 40 countries; its main market being the US, followed by Japan, China and Germany. Brief financial overview Tobii Pro s net sales amounted to SEK 167 million in Since 2008, net sales have grown by a CAGR surpassing 8%. Between 2012 and 2013, sales grew by 16%, primarily as a result of the launch of new products and increased revenue from analytics services. Between 2013 and 2014, sales dropped by 2%, mainly due to the proactive strategy to lower hardware prices and the introduction of the new product Tobii Glasses 2. Production of Tobii Glasses 1 stopped in May, and deliveries of the more profitable Tobii Glasses 2 started first in December As a result, some customer orders for the new product could not be delivered to customers before the year-end, pushing some sales revenue to EBIT margin was 8% in 2014, a decrease from 11% in 2013, due primarily to increased investments in sales and marketing and higher R&D expenses for developing Tobii Glasses Net sales & EBIT-margin SEK million % % % Net sales (SEK millions) Adjusted EBITmargin (%) % Net sales by geography 2014 Net sales by customer group 2014 Net sales by product/ product type 2014 Rest of the world, 43% North America, 28% Commercial customers, 44% Academic customers, 56% Others, 4% Services, 12% Software, 29% Hardware, 55% Europe, 29% 1) Arthur D. Little 2) Before elimination of internal sales from Tobii Tech to Tobii Dynovox and Tobii Pro. 3) QS World University Rankings 2014/

60 Business and market overview Tobii Pro Customer groups Tobii Pro targets two types of customer groups: (i) commercial customers and (ii) academic customers. Commercial customers Tobii Pro s customers include several of the world s largest global consumer goods companies such as Procter & Gamble, large product companies such as Microsoft, leading market research firms such as Ipsos, as well as many other Fortune 500 companies. Commercial customers accounted for 44% of Tobii Pro s net sales in Tobii Pro s eye-tracking solutions enable its customers to gain valuable insight into consumer behavior. These insights are used to optimize design and placement of marketing communication with consumers maximizing impact and user friendliness, thus leading to increased sales. Tobii Pro s commercial customers use eye tracking to conducts tests in the following areas: Package design Online advertising Print advertising In-store communication Store layout & shelf optimization TV advertising Outdoor advertising Website usability User experience of software and physical devices Ipsos case study using eye tracking in stores to understand shopper behavior Ipsos uses eye tracking to understand shoppers attention and behavior in Ipsos market research with leading brands. Shoppers wear Tobii Pro s eye tracking glasses while doing their shopping. The eye tracker records what shoppers see, do and in what order information is processed. Based on insights gathered from the recording, Ipsos recommends its clients on actions to improve in-store product performance, such as product arrangement and position on the shelf, visibility of the product on the shelf, product package or the design of the point-of-sales material. 58

61 Business and market overview Tobii Pro Oriflame using eye tracking to optimize sales catalogues Stratégir changing packaging led to 15% sales growth Oriflame sells cosmetics and beauty products through its catalogue. By using eye tracking, Oriflame can analyze how its customers experience and view the catalogue. Insights from the eye tracking studies are used continuously by Oriflame s design team to create visually appealing catalogues that lead to high sales. Market research company Stratégir was contracted to improve the design of a customer s packages. By using eye tracking, Stratégir gained valuable insight into how the consumers actually perceived different design proposals, an insight that was used to optimize the design and choose the best design. Eye tracking results showed that the new improved design enabled consumers to find relevant information and browse the different varieties more quickly. The new design resulted in a sales growth of 15% 1). Academic research customers Over 1,500 academic researchers, including 49 of the world s top 50 universities 2) use Tobii Pro s products. Academic research customers accounted for 56% of Tobii Pro s net sales in Customers in academia benefit from Tobii Pro s products by gaining deep and accurate understanding of behavior, attention and cognitive processes. These products are utilized across a wide range of research fields, including: Psychology & cognition Infant research Human computer interaction Ophthalmology Neurology Industrial design Reading Learning Linguistics Media Primates 1) Stratégir. 2) QS World University Rankings 2014/

62 Business and market overview Tobii Pro Products and services Tobii Pro offers a broad portfolio of products and services for understanding human behavior using eye tracking. Designing tests, collecting data, and analyzing results are all enabled through the use of Tobii Pro s eye-tracking hardware and rich analytics software products. Tobii Pro additionally offers customized research services, product training, and consultation services to assist customers in their eye-tracking based research. Hardware Tobii Pro s hardware offering consists of: (i) screen-based eye trackers for general research and testing; (ii) scientific-grade, high-frequency, screen-based eye trackers; and (iii) eye-tracking glasses (wearable eye trackers). All products are high-precision eye trackers, providing excellent accuracy and reliable tracking of a large proportion of the population in a variety of different environments. In 2014, eye-tracker hardware accounted for 55% of Tobii Pro s net sales. Tobii X2 is Tobii Pro s latest screen-based eye tracker, designed for general academic and commercial research. Tobii X2 is a small, fully featured eye-tracking system that can be attached to a laptop or monitor and is ready-to-use for studying websites, ads or product designs. The product was launched in the beginning of Tobii TX300 is a scientific-grade high-frequency eye tracker. It is primarily used in academic research and has the capacity to track eye movements at 300 frames/ second, enabling the study of saccades, short fixations, pupil size changes and blinking. The product was launched at the end of Tobii Glasses 2 is the second-generation eye-tracking glasses from Tobii Pro. The product was announced mid-2014 and started shipping to customers at the end of Tobii Glasses 2 is a discreet, ultra-lightweight eye-tracking system that is a significant improvement in terms of user friendliness and performance compared with other existing wearable eye tracking products. It allows researchers to conduct eye-tracking in any real-world environment, such as in stores, while driving a car or doing sports. 60

63 Business and market overview Tobii Pro Software Analytics software Tobii Studio Tobii Pro s analytics software enables customers to efficiently design tests, collect eye-tracking data and analyze outcomes in a variety of ways. The business unit offers advanced desktop software for instance, Tobii Studio and Tobii Glasses Analysis. Going forward, Tobii Pro also intends to offer cloud-based services that enable customers to design and share tests and results, as well as to cost-efficiently collect data from large-scale fleets of eye trackers. The software component of Tobii Pro s product portfolio is of significant importance. As the market for eyetracking based behavior research matures, the value Cloud-based solution Tobii Cloud escalates for effective software tools that can be used to perform studies and analyze the results. Software sales are expected to be the business unit s largest source of revenue within a few years. To date, Tobii Pro has sold its software on a per unit basis with an annual maintenance contract. The business unit will transition gradually to a subscription-based business model. This transition is likely to have a shortterm negative effect on revenue, but is expected to provide greater and more reliable revenue in the long term. In 2014, software accounted for 29% of Tobii Pro s net sales. Services Tobii Pro s services are recognized as an increasingly important component of the business unit s offering. Assisting customers in achieving good results is valuable to both Tobii Pro s customers and the business unit s own sales. Services include training, consultation, and customized research services. Tobii Insight specializes in providing eye-tracking based consumer research studies to customers that lack the capacity or time to do the research themselves. This includes both large market research companies and consumer goods companies. During the past years Tobii Insight has performed projects across the globe for customers such as Ipsos, GfK, Carlsberg, Oriflame, Toyota, Clear Channel and many more. Tobii Insight is a growing part of Tobii Pro s business and a long-term revenue growth opportunity. It also acts as a strong demand catalyst for hardware and software solutions, as it shows the value of eye tracking for end-clients and sets an example for best-practice in eye-tracking research. In 2014, services accounted for 12% of Tobii Pro s net sales. 61

64 Business and market overview Tobii Pro Tobii Pro s market The market data presented below has been generated by Arthur D. Little using various sources such as databases, external market reports, interviews and Tobii s management. The total addressable market has been derived by estimating the size of the global market-research market, the share of implicit research, the share of projects applicable for eye-tracking solutions and the share of hardware and software value out of the total project value. The size of the market in USD during the period and market shares as per 2013 have been derived by estimating the sales pertaining to research solutions for the companies typically active in this market. The forecasted market size in USD for the period 2014 to 2016 has been derived by estimating the anticipated development of the number of units sold and the average price per unit. Current addressable market The main addressable markets for Tobii Pro include: A large share of the global market research industry. Thousands of academic institutions worldwide. A large number of commercial companies in fields such as consumer goods, IT and telecom, finance, automotive and general industry. The market research industry is believed to be the largest medium-term opportunity. Market research is a large market with annual global turnover of USD 40 billion per year 1). This market is largely concentrated to a few very large companies including Nielsen, Ipsos, TNS/Kantar and GfK. Market researchers use a variety of methodologies to seek insight into consumer behavior and to gauge the impact and efficiency of advertising, online marketing, product packaging, store layouts, etc. Amongst the most commonly used methodologies today are conducting online questionnaires, telephone interviews, face-to-face interviews and the staging of focus groups. In the long term, eye tracking is likely to be applicable to a large portion of market research. Today, however, eye tracking is still early on the adoption curve, with a very small share of the total market-research market. The current value of commercial market research projects based on eye tracking (i.e. the type of services that Tobii Pro s typical customers provide) is estimated at about USD 230 million, which corresponds to a penetration level of about 0.5% 2) of the total market-research market. Currently, the market for eye-tracking hardware and software is approximately 10% of the total value of the market for such studies 3). Market size and growth As displayed in the graph below, the market for eye-tracking solutions for understanding human behavior has grown consistently the last ten years, experiencing a CAGR of 16% over that period 4). This growth has been driven by increased awareness and acceptance of eye tracking as a valuable behavior study methodology among both academia and commercial customers. In recent years, the growth rate has accelerated in terms of quantities of systems sold, but has slowed somewhat in value. In particular, quantities of systems sold increased by 30% p.a., while accompanying value increased by 10% p.a. through the period. This may be compared with a value increase of 19% p.a. through the period The main reason the value of the market has not increased at the same rate as the quantity of sold systems is that Tobii has led the market with proactive price reductions for several of its most important products. This is a deliberate strategy by Tobii Pro to drive development towards a future where eye-tracking hardware will be available at considerably lower prices deemed in the long term to present a larger opportunity to reach more customers and sell more software and services. By simultaneously investing in the development of new, more cost-effective products has enabled this strategy while maintaining gross margins. Historical global market development for sales of eye-tracking solutions for behavior studies USD million Source: Arthur D. Little CAGR : 16% ) Esomar report, ) Arthur D. Little 3) Arthur D. Little 4) Arthur D. Little 62

65 Business and market overview Tobii Pro Key market trends and drivers Penetration of eye-tracking methodologies into the commercial and academic research market is still low, as mentioned above. A large number of companies have already adopted eye-tracking technology, though its usage is still small scale. Below is a summary of the key market trends and drivers for Tobii Pro: Growth of implicit research Traditional market research is conducted primarily through surveying and interviewing consumers. Respondents offer their thoughts on particular matters (for example, a proposed new package design). While useful, this explicit market research is problematic since there are no guarantees that a test subject s responses are honest or that they will accurately describe the subject s real reactions and behavior. Implicit research, however, offers the benefit of measurement. Real behavior (such as actual purchases or movement through a physical or online store) is recorded, providing researchers the data to substantiate more valuable insights into consumer behavior. There is a general trend in market research towards more use of implicit research. These methods are becoming standard for ad measurement and package design, and accessibility is rapidly increasing. Eye tracking fits into this overall trend as a powerful implicit method 1). Methodology development The understanding of how to design eye-tracking studies and how to draw truly valuable conclusions from them is at an early stage. Methodologies in eye-tracking research are being gradually developed, matured and accepted by academia, research labs at consumer goods companies and market research companies. As the methodologies improve and standardize, it is expected that it will become easier to both buy and supply eye-tracking services on a larger scale, which is expected to significantly increase the volume of eye-tracking studies. Efficiency in the research process Eye-tracking studies are relatively costly to conduct today, mainly due to inefficient and costly data collection and analysis processes. Test subjects are often required to attend a laboratory to participate in studies, and results are analyzed manually. The declining price of hardware, however, paired with increasingly sophisticated software, will enable eye-tracking studies to be conducted closer to test subjects (e.g., in panels, kiosks, in shopping malls and subjects homes), as well as providing more automation of data analysis. Together, this is expected to reduce overall costs for conducting eye-tracking research studies, thus driving larger adoption. Increased awareness of eye tracking and its value Only few research practitioners are currently aware of and have deep knowledge of the type of insights that can be gained through conducting eye-tracking studies. Use of eye-tracking methods in market research is expected to grow as its value becomes better known in the market research community. 1) Elissa Moses Ipsos, 2015, What s next for non-conscious measurement? 63

66 Business and market overview Tobii Pro Expected future growth The current low penetration presents a clear opportunity to increase the use of eye tracking as a research methodology. With the maturing market, it is expected that eye tracking methodologies and tools will further develop and become more efficient. In the next five- to ten-year period, it is estimated that eye tracking as a method for market research has the opportunity to grow up to five times its current value 1). The market for selling eye tracking solutions for behavior research is projected to grow at a CAGR of 10% over the coming three years (see graph below). The market for analytics software is expected to grow significantly faster than the market for hardware as a reflection of Tobii s strategy to continue to proactively drive price reductions on hardware, thereby increasing the number of customers who will need more software and services in the long term. The academic segment is expected to grow in line with the average market, primarily driven by new product launches, increasing adoption of eye tracking in new and existing research segments, and through additional sales of eye-tracking systems to current research customers. The commercial segment is expected to experience growth, mainly driven by the increasing uptake of systems by market-research agencies resulting from increased awareness, maturing research methodologies and better cost-efficiency in research processes 1). Competitive landscape for eye-tracking solutions for behavior studies Tobii Pro is the market leader in providing eye-tracking solutions to the behavior-research market and holds a market share of approximately 47% (see graph below) 1). Tobii Pro is the market leader in both the commercial and academic segments across North American, European and Asian markets 1). Market share for eye-tracking solutions for behavior studies (2013) Smart Eye, 5% ASL, 7% SR Research, 8% Source: Arthur D. Little Others,17% SensoMotoric Instruments, 16% Tobii Pro, 47% Historical and estimated market development for sales of eye-tracking solutions for behavioral research studies USD million CAGR : 16% CAGR : 10% Source: Arthur D. Little E 2015E 2016E 1) Arthur D. Little 64

67 Business and market overview Tobii Pro Organization and employees Business Unit President Tom Englund R&D Product management Marketing Know-how & Support Sales Japan Sales North America Sales Rest of the world As of the close of 2014, Tobii Pro had 88 FTEs. About 40% of the employees work outside Sweden. Tom Englund and his management team lead the business unit. Sales and marketing Tobii Pro s sales and marketing organization comprises both direct sales representatives and resellers. Direct sales constitute the majority of Tobii Pro s total sales. Tobii Pro employs approximately 40 account managers who are either located at Tobii s offices (in Beijing, Shanghai, Stockholm, Tokyo, and Washington DC), or work from home offices (in Germany, France, the UK, Brazil, Korea and Hungary). Tobii Pro also has approximately 20 resellers to increase geographical coverage to, in total, more than 40 countries. Resellers are typically small companies that focus primarily on selling Tobii Pro s products and services. Primary marketing channels exploited by Tobii Pro include the Tobii Pro website, trade shows, conferences, webinars, customer case studies, social media, PR and online marketing. Research & Development Tobii Pro s dedicated R&D team comprises 43 FTEs (including 19 consultants based in Kiev) as of the close of The team has developed several successful products. Tobii Pro s R&D is primarily focused on developing desktop and cloud-based analytics software and eyetracking glasses. The R&D team works in close collaboration with external development partners and subcontractors but Tobii Pro retains ownership over product designs. Internally, the cost for development of the Tobii Glasses 2 product is shared between Tobii Pro and Tobii Tech. Tobii Pro has two R&D centers located in Stockholm, Sweden and Kiev, Ukraine. For 2015, Tobii Pro s R&D budget exceeds SEK 30 million and is earmarked primarily for investments in developing Tobii Glasses 2 to further improve performance and enhance functionality to suit more customer groups, developing a new generation analytics software and developing cloud-based eye tracking solutions. 65

68 Business and market overview Tobii Pro Strengths The key strengths driving Tobii Pro s business are summarized below: Market leader with leading technology and a strong brand Tobii Pro is the market-leading supplier of eye tracking solutions for behavior studies. 1) Essential competitive advantages for Tobii Pro include its broad portfolio of leading products in eye-tracking hardware, analytics software and services, combined with strong brand recognition and an established customer base ranging from top universities to market research and consumer goods companies. Tobii Pro believes it has the largest installed base of software for eye-tracking analytics in the industry. Strong sales channels and global reach Tobii Pro has global presence in sales, support and services to meet its customers demands. Many of these customers are Fortune 500 companies with operations in many countries, and large market research projects are often global in nature. Competent team with focus on expertise in eye tracking data Tobii Pro has assembled a talented team of individuals that function across multiple disciplines. This team drives the business unit s transition to becoming a provider of complete systems and knowledge solutions. As the usage and number of eye trackers increases, Tobii Pro considers itself to be well positioned to meet the growing demand for competent and deep analysis of data generated by eye tracking. Key initiatives Tobii Pro s key initiatives are summarized below: Drive awareness of eye tracking and its value in behavior research Tobii Pro will continue to increase awareness of eye tracking s unique value to diverse research fields. Customer conferences, trade shows, PR, customer case studies, social media, online marketing and webinars are the primary channels used to achieve this goal. Grow Tobii Insight to become a catalyst for the entire industry Tobii Pro began offering its Tobii Insight services in As a growing business, Tobii Insight has proven instrumental in establishing best practice for eye-tracking research and in driving general demand for eye-tracking based studies. Thus, Tobii Insight acts as a catalyst for the entire industry, and contributes by extension to increase sales of hardware and software solutions for the business unit. Develop products that increase efficiency in the eye-tracking research process Tobii Pro invests in the development of eye-tracking hardware, as well as desktop and cloud-based analytics software solutions. A key focus is to increase efficiency in its customers eye tracking processes. This is realized by continuously developing streamlined workflows, automation of manual work processes and cloud-based solutions that enable customers to efficiently perform geographically distributed research, and easily share and present tests and results. Such investments in development are expected to further increase the value of Tobii Pro s software and to form the basis for significant long-term, recurring revenue opportunities. The business unit has recently introduced a subscription-based business model for its analytics software. Take eye tracking outside of the lab Tobii Pro works in different ways to make it possible for customers to conduct eye-tracking research outside of their labs meaning that customers need not handle a physical eye tracker themselves or invite respondents to the lab. The continued development of cloud-based software solutions to manage large-scale distributed tests is a vital part of this strategy. Taking eye-tracking research out of the lab potentially results in great cost savings for customers and is expected to drive growth for the business unit. Pursue adjacent segments Eye-tracking research is valuable across a wide range of market segments and applications. The development of Tobii s product offering, together with lower prices and increased awareness of eye tracking in general, enables Tobii Pro to reach adjacent market segments. One such segment is performance analysis (i.e. measuring and analyzing human performance) where eye tracking can be used in areas such as simulator applications, athlete training, and various training situations in corporate environments. 1) Arthur D. Little 66

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70 Business and market overview Tobii Tech Humanize your Humanize your product product Tobii Tech s mission is to provide the leading eye tracking technology, giving its customers the power to develop products that intuitively understand the user and create truly natural experiences. 68

71 Business and market overview Tobii Tech Tobii Tech The business unit Tobii Tech offers eye-tracking components, software and platforms to OEM customers that integrate these into their own products. The business unit targets customers in a number of different segments, several of which have significant potential to become very large in the future. Such markets include computer gaming, mainstream computers, vehicles, medical devices and virtual reality. Tobii Tech is at an early stage commercially. Customers currently comprise: Tobii Dynavox and Tobii Pro Tobii s two other business units purchase eye-tracking platforms and products at market conditions with internal prices that have been negotiated between the business units. See Operating financial review Transfer pricing policy. External OEM customers A handful of early OEM customers buy eye-tracking technology or pay for development projects to integrate the technology into their computer gaming products, medical devices, vehicles and information kiosks. Software developers A few thousand software developers use Tobii Tech s products to develop different applications that use eye tracking. The business unit has operated as a business development center for the Group for several years, but in 2012 Tobii Tech was formalized as a business unit with global responsibility for sales, marketing and research and development of core eye tracking technology. Tobii Tech s net sales amounted to SEK 37 million 2) and accounted for 6% of the Group s consolidated sales in Tobii Tech invests heavily to: (i) develop Tobii s leading eye-tracking technology to meet demands from future volume markets, and (ii) bring about a broad range of software that uses eye tracking to create new user experiences and applications. Financial overview Tobii Tech s net sales amounted to SEK 37 million in Between 2012 and 2013, Tobii Tech s sales increased from SEK 3 million to SEK 21 million, primarily as a result of the launch of the Tobii IS20 platform and sales of this to Tobii Dynavox and Tobii Pro. Between 2013 and 2014, sales increased from SEK 21 million to SEK 37 million, largely due to higher sales to Tobii Dynavox and Tobii Pro, but also to new OEM customers. 1) Tobii Tech invests heavily to develop eye tracking technology to meet demands from future volume markets. EBIT decreased by SEK 37 million, from SEK 85 million in 2013 to SEK 122 million in 2014, because R&D expenses increased by SEK 37 million to SEK 99 million. Total R&D expenditures (i.e. including capitalized R&D) increased to SEK 117 million in Net sales 2) Total R&D expenditures EBIT SEK million SEK million SEK million ) OEM stands for Original Equipment Manufacturer. OEM-customer can e.g. be computer manufacturers; car producers and other product companies that produce own products and integrate technical components from sub-suppliers into such products. 2) Before elimination of internal sales from Tobii Tech to Tobii Dynavox and Tobii Pro. 69

72 Business and market overview Tobii Tech Customer groups There are considerable opportunities for eye tracking in several future volume markets, including: Gaming Computing Automotive Create new, immersive and more natural gaming experiences, for example, through more effective ways to control games and the possibilities of eye contact with virtual characters. Create more natural and intuitive user interfaces with eye tracking built into mainstream computers and tablets. Monitor and warn drivers of drowsiness and lack of attention to reduce the risk of accidents. Medical devices Virtual reality Enable hands-free interaction with computers in a clinical settings. Moreover, a number of new diagnostics applications that use eye tracking are currently under development by academics and companies. Improve user interface and graphics rendering in virtual reality products. 70

73 Business and market overview Tobii Tech Gaming new immersive gaming experiences The Company considers computer gaming to be a consumer market where eye tracking has potential to gain an early foothold since eye tracking can be used to create increased immersion, realism and intensity in many ways and in many types of computer games. Furthermore, gamers are often early adopters of new technologies and often spend relatively large amounts of money on computer equipment compared with general computer users. Examples of benefits of eye tracking in gaming are: More realistic control Control a game character with the mouse, keyboard and eyes simultaneously, for example to run in one direction and aim in another, which is more similar to what can be done in real life. Eye contact Establish eye contact with virtual characters in the game by which these suddenly come to life in an entirely new way. Pan automatically Change the view of the scene automatically based on where the player is looking, causing the game to behave like when you look around in real life. Eye controlled effects Audio and visual effects that adapt to where the user is looking. Streaming Today, there are many gamers who stream while they play, which means that others watch the game in real time online. When players who are streaming their game have an eye tracker, their audience can immediately see what the player is looking at, which makes streaming more interesting and entertaining. Training By studying what professional players pay attention to and what they consider important during a game, regular players can compare themselves with the professionals and improve their gaming performance. SteelSeries is Tobii s first OEM customer in the gaming industry. SteelSeries is a leading provider of keyboards, mice and headsets specially designed for gaming. Tobii Tech delivers the complete eye tracking product to Steel- Series which sells it under its own brand SteelSeries Sentry. SteelSeries Sentry is the world s first commercial eyetracking product for gaming. The product won several awards when it was presented at the Comsumer Electronics Show (CES) in January Initially the product is aimed at computer gaming enhusiast who use Sentry to be able to show where they are looking when they stream their games and as a training tool, but also to those who want to be first at testing new gaming experiences with eye tracking. For eye tracking to enjoy major success in the gaming market, a large number of game titles must have built-in functions that use eye tracking. The development of an eco system of games using eye tracking is in an early stage. Among the first games that integrate eye tracking are Assassin s Creed Rouge for PC from Ubisoft (launched in March 2015) and Son-of-Nor from Stillalive studios (launched in January 2015). Ubisoft is one of the world s leading game developers and publishers. Assassin s Creed is one of Ubisoft s best-selling game titles. Tobii s eye tracking has been integrated into the PC-version of Assasin s Creed Rouge. The camera view automatically follows where the player is looking, just as if the player were looking around in real life. The intention is to create a new, unique feeling of immersion. The title was released in stores in March The independent game developer Stillalive studios has integrated support for Tobii s eye control in the computer game Son-of-Nor. Son-of-Nor uses eye tracking so that the player can use the mouse, keyboard and eyes to run in one direction and pick up or throw an object in another. The intention is to create a more natural and immersive experience. The game was launched in January

74 Business and market overview Tobii Tech More intuitive user interfaces in mainstream computers Tobii anticipates eventual large-scale integration of eye tracking into mainstream computers and tablets. However, Tobii assumes that it will take considerable time and major investments in technology and marketing before eye tracking has fully penetrated in the mass markets for computers and tablets. Tobii is currently in discussions with computer manufacturers interested in integrating Tobii s technology in their products. In all likelihood, in smaller series of premium computers to start. Eye tracking has the potential to improve the interaction between users and devices. A computer with a built-in eye tracker can automatically detect that the user is interested in a particular object and subsequently offer user interfaces that are more intuitive, natural and reduces the need for a mouse or a touchpad, or makes use of these more efficient. Below are examples of concepts for the types of interfaces currently under development by Tobii: Other markets Besides gaming and computing, Tobii Tech recognizes large potential in several other fields, such as automotive, virtual reality and medical devices. Tobii Tech collaborates with several existing and potential OEM customers in all these segments. Mouse Warp: Place a finger on the touchpad and the pointer appears where the user is looking. Eye Click: Look at an object and press a button on the keyboard or touchpad to click on the object (instead of using the mouse to move the cursor to the object before clicking). Eye Zoom: Look at an area of a map or a picture and pinch on the touchpad or press a button, and the picture will zoom automatically to where the user is looking. Eye Scroll: Look at the bottom of a page and the computer will scroll down automatically. Presence: The screen remains turned on as long as the user is sitting in front of the computer, but dims down when the user looks away or leaves the computer. Can also be combined with computer locks or login. SR Labs has developed an eye-tracking information kiosk named Polifx that exposes store customers to new ways of experiencing the store s offerings and product range. Polifx also gathers intelligence about which articles catch customer interest. A beta version of the product was tested in several retail stores in Tobii EyeX Interaction is a software that adds eye tracking to the conventional Microsoft Windows environment (and many applications that run in Windows). This will enable users with an eye-tracker equipped computer to use several of the concepts described above. Currently under development, Tobii EyeX Interaction software is available as a prototype. I2Eye Diagnostics has developed a product for perimeter testing called SVOP. With the help of eye tracking this product assesses various aspects of a patient s visual field. Complete or partial loss of peripheral vision is an indicator for different medical conditions, including glaucoma and various neurological conditions. 72

75 Business and market overview Tobii Tech Products and technology System overview Tobii Tech s eye-tracking solutions comprise five technical layers: (i) hardware components, (ii) system design, (iii) algorithms, (iv) interaction engine, and (v) applications. To achieve a consistent, high-quality eye-tracking experience, each technical layer is of critical importance. Tobii has comprehensive technology, patents and other intellectual property in each of the layers. Applications A prerequisite for realizing the value of eye tracking is that different software use eye tracking to create new user experiences or other applications. Tobii Tech strives to bring about a large eco system of software developers who implement eye tracking in many different softwares. Tobii Tech also develops its own applications, e.g. Tobii EyeX Interaction and Game Analyzer. Interaction engine Tobii EyeX Engine is a so-called interaction engine that translates raw coordinates about where a user is looking into useful events in a user interface. Software developers use the interaction engine and included developer tools to quickly and easily develop software that provides new user experiences with eye tracking. Tobii EyeX Engine is a powerful interaction engine that combines eye tracking with input from the keyboard, mouse and touchpad. Algorithms Algorithms are the brain of an eye tracker and are processed either on the user s computer or on a dedicated processor (Tobii EyeChip, see below). The algorithms control the cameras and projectors and, based on the camera images, identify and calculate the position of the eyes, where the user is looking and the size of the pupils. Tobii EyeCore is a leading eye-tracking algorithm base for eye tracking that has been developed and improved for over 13 years, and that has been trained on millions of eye images in a wide range of environments. System design The system design is the blueprint that outlines how to integrate hardware components into an eye-tracking platform or complete system. Tobii Tech develops several different system designs optimized for different applications, e.g. for computer peripherals, computer integration and, in the future, for tablets, cars and other specialty systems. Hardware components Tobii Tech develops hardware components specifically designed for eye tracking. This includes special cameras based on adapted image sensors and optics, specially built projectors and Tobii EyeChip an in-house developed SoC ASIC 1) for eye-tracking under development. All components have been engineered to provide the foundation for a high-quality, low-cost and small form factor eye-tracking solution. 1) SoC = System on Chip; ASIC = Application Specific Integrated Circuit. 73

76 Business and market overview Tobii Tech Important eye tracking technology criteria In order for eye tracking to work well in many applications it should meet several key criteria. Some of the most important criteria include: Tracking robustness To succeed in volume markets, Tobii estimates that an eye tracker must be able to reliably track gaze direction of a very large proportion of all users regardless of varying physical attributes and surrounding conditions. Some particularly challenging cases are users with droopy eyelids, long eyelashes and those using very thick prescription glasses. Conditions such as intense ambient lighting are also challenging. Over the years, the Company has refined its technology for handling a wide variety of users and situations. Accuracy The accuracy of an eye tracking device is critical in enabling eye control by pointing at relatively small objects. Tobii has focused particularly on developing technology that maintains consistent accuracy, also when the user changes position or ambient light varies. Size and power consumption Small size and low power consumption is essential to integrate eye tracking in notebook computers and tablets. Tobii s future generations of the technology is more power-efficient and smaller, thus enabling integration in small notebook computers and potentially even in tablets. User experience How eye tracking is used in software to achieve new user experiences is equally as important as the performance of the underlying technology. Tobii has invested significant time and resources to understand what user interface concepts are truly valuable and how to fine-tune various aspects of such interfaces to provide a cohesive and intuitive experience. Much of this is implemented in Tobii EyeX Engine, Tobii s interaction engine that enables software developers to easily and rapidly create eye-tracking based user experiences. Cost To reach large volume markets, low cost is essential. Tobii has invested extensive resources to develop technology that can be produced at low cost in high volumes. To reach really large volumes in mainstream computers and tablets, Tobii will likely have to further reduce cost for the technology. Products Tobii Tech s main business model is to sell eye-tracking platforms and components to OEM customers. These OEM customers integrate Tobii s eye-tracking technology into their own devices and bring them to market under their own brand, utilizing their own sales channels. Tobii Tech offers its technology through three product offerings: platform integration, White label and components and reference design. The different product offerings are based on the same system designs and comprise the same core components, but support different business models and customer needs. Eye-tracking platforms for integration Tobii Tech offers complete standardized eye-tracking platforms ready for integration by OEMs into their devices. Since 2001, Tobii has developed five generations of eye-tracking platforms. Tobii IS20 is the leading eye-tracking platform for analytical, medical and other specialty applications. Delivery of the platform started in the first quarter of Examples of products with Tobii IS20 built in include Tobii I-series products by Tobii Dynavox and the Polifx information kiosk by SR Labs. Tobii IS3 is an eye-tracking platform for integration into consumer devices such as monitors and computer peripherals. Delivery of the Tobii IS3 platform started in the second quarter of This platform is built into the SteelSeries Sentry gaming-product launched in early 2015 and in PCEye Explore by Tobii Dynavox. The next generation platform, Tobii IS4, is expected to be available for large volume delivery in about one year. Tobii IS4 is the company s most advanced eye tracking platform so far and includes a custom developed SoC ASIC called Tobii EyeChip. Tobii IS4 is being designed to enable integration into notebooks, computer peripherals and many other applications. The eye-tracker platforms are bundled with a license to the interaction engine Tobii EyeX Engine. 74

77 Business and market overview Tobii Tech White label products White label products are complete products where Tobii Tech produces not only the eye-tracking platform but also the housing and the packaging, labeled with the customer s brand. Some examples of white label products supplied by Tobii Tech include the PCEye Go for Tobii Dynavox and the gaming eye tracker SteelSeries Sentry. Tobii EyeChip is an in-house developed SoC ASIC 1) specially developed and designed for eye tracking. It is available today as an engineering sample and will, according to plan, be validated and qualified for volume production within about one year. The company believes Tobii EyeChip will be the world s first specially developed SoC ASIC for eye tracking. It contains custom designed hardware acceleration and a processor architecture optimized for eye tracking and designed to optimally execute Tobii EyeCore algorithms. Tobii EyeChip makes it possible to develop and manufacture eye-tracking systems with high performance and low power consumption at low cost. Tobii EyeChip is considered to be an important step to reach consumer markets with eye tracking technology. It is therefore the Company s assessment that Tobii EyeChip also will give Tobii a strategically important competitive advantage in the future. The SteelSeries Sentry product. Components and reference design Tobii Tech also sells the key components for its eye-tracking technology together with a reference design directly to OEM customers. These components are the same as in Tobii Tech s eye-tracking platforms and include the business specially developed eye-tracking cameras, projectors and under development Tobii EyeChip (details below). With this business model an OEM customer can source other standard components directly from external manufacturers and assemble all components directly in their own product based on Tobii s reference design. This model is well established in the industry and typically used by large volume customers. Tobii-developed components for eye tracking. Tobii EyeChip. The specially developed components, i.e. Tobii EyeChip, cameras and projectors are sold with a license for a system reference design (i.e., the blueprints for how to integrate the components into a system) and Tobii EyeX Engine. As yet, Tobii Tech has no customers with products in markets that use this business model, but expect this to become the predominant business model for large volume customers in the future. Application software An integral part of Tobii Tech s strategy is to bring about a large eco system of developers who create software that uses eye tracking in different applications. Furthermore, Tobii Tech sells software developed by the business unit, primarily to ensure access to certain generic applications. This includes Tobii EyeX Interaction (under development), a software that adds eye control capabilities to Windows and Game Analyzer, a software for game training. Developed by Tobii, Game Analyzer is sold under the SteelSeries brand since January ) SoC = System on Chip; ASIC = Application Specific Integrated Circuit 75

78 Business and market overview Tobii Tech Tobii Tech s market The market data presented below have been generated by Arthur D. Little and relies mainly on external market reports. The total addressable market has been derived by estimating the historical and forecasted size of the global market in USD for PC hardware as well as the number of notebooks, desktop computers and tablets sold. Current addressable market There are large potential opportunities for eye tracking in several future volume markets such as computer gaming, mainstream computers, automotive, medical devices and virtual reality. The Company believes that gaming is likely to become the first volume segment that adopts eye tracking and that the first products in this segment will be eye-tracking products in the form of PC peripherals, likely followed by specialized gaming computers with built-in eye tracking and, in the longer term, by mainstream computers and tablets with built in eye tracking. Today there are an estimated 70 million enthusiast and performance PC gamers (enthusiast and performance gamers each spend more than USD 1,000 1) on their PC gaming hardware ). These 70 million people represent a clear initial target market for eye-tracking devices for gaming. According to market researchers, 370 million computers (desktop and notebook) and 460 million tablets will be sold by This represents the largest long-term market opportunity for Tobii Tech. Historical and forecasted market size and growth for key consumer electronics segments 1) USD billion PC gaming hardware E 2015E E 2017E Notebooks and Desktops Computers sold (millions) E 2015E 2016E 2017E Ultramobile Notebooks Desktop Tablets sold (millions) Tablets E 2015E 2016E 2017E Premium Basic Utility 1) Source: Arthur D. Little, Jon Peddie Research 76

79 Business and market overview Tobii Tech The need for a rich eco system of software To succeed long term in volume markets, eye tracking has to provide real value for end users. However, the value of eye tracking is never greater than the end-user experiences that different software realize in various applications. The value of Tobii Tech s eye-tracking platform, for both end consumers and OEM consumers, increases with the number of applications that use eye tracking. The value for a software developer to create a game or other applications using Tobii Tech s eye tracking increases with every OEM customer that starts selling products with built-in eye tracking since that increases the number of potential users in the market. Hence, it is very important for Tobii Tech to work both sides of this equation simultaneously. Tobii Tech works in different ways to create an eco system of software developers using eye tracking. This is a large, wide-spread investment for the business unit, one that will require both time and money to execute. When a large enough eco system has been created, the market forces have the potential to grow very strong. Tobii EyeX Development Kit gives developers the opportunity to buy a cheap eye-tracking hardware and supplied developer tools. This developer environment has been sold to a couple of thousand developers and customers since delivery started in the second quarter of Tobii Tech works with business development towards select software companies and with broad marketing activities to enthuse developers to create new applications with Tobii s eye tracking technology. Price points for eye tracking Specialty markets: OEM customers in certain niche markets, e.g. assistive technology, behavior research, medical and industrial applications typically have specific needs which require adapted products and supply terms. For these segments, Tobii can often charge higher prices for eye tracking technology, in exchange for product adaptations, than is possible for OEM customers targeting consumer markets. Over the past two years, Tobii Tech has seen a steady increase in sales from such specialty market segments, primarily from Tobii Dynavox and Tobii Pro, but also from a handful of smaller OEM customers. Volume markets: The price that an OEM customer is willing to pay to integrate Tobii Tech s eye tracking technology is dependent on several factors, among others (i) the price point of the customer s own product, (ii) the amount of different software using eye tracking that are available for end users, (iii) how attractive the end user benefit is, (iv) how well Tobii Tech s technology performs compared with competitors, and (v) the strength in Tobii Tech s intellectual property. It is clearly difficult to estimate what prices future potential volume markets for eye tracking will accept. One possible comparison is touch screen technology for notebooks. Touch screen technology 1) started to be integrated in reasonable volumes in notebooks ( inch screens) at a cost for the OEM customer of approximately USD and is currently (2014) increasing in volumes at a total cost of about USD ). Further cost reductions are likely necessary to reach massive scale in notebooks. The Tobii IS3 and IS4 eye tracker platforms enables the business unit to start offering eye tracking products at price points that enable integration into premium computer devices. However, to reach true mass volume adoption, Tobii likely needs to lower costs of future product generations further. The Company anticipates significant pressure on prices to secure the first contracts for integration of Tobii Tech s eye tracking platforms into consumer products and thus expects low gross margins initially from such deals before realizing large volumes. 1) The so-called OGS-technology is a technology commonly used in touch screens for note books with a 14" 15.4" screen that is used in e.g. Microsoft Windows 8. Display Search ) Display Search

80 Business and market overview Tobii Tech Organization and employees Business Unit President Oscar Werner Platform and component strategy Product management and marketing Sales R&D hardware and algorithms R&D software Sweden + 7 consultants (FTE) in Ukraine As of the end of 2014, Tobii Tech had 84 FTEs. About 7% of the employees work outside Sweden. Oscar Werner and his management team lead the business unit. Sales and marketing Tobii Tech s sales and marketing team comprises 14 FTEs located at the business unit s sales offices in Sweden, the US and Japan. Sales efforts focus on marketing eye-tracking technology to OEM customers and business development activities aimed at building the eco system of software developers. Sales to the business area s OEM customers is done mainly through direct relations with key decision makers of computer manufacturers, car manufacturers, their direct suppliers and other product companies. Strong relationships with several major players have already been established. To reach software developers, a variety of sales and marketing methods are applied. For example, large software studios are targeted through direct relations while smaller players are targeted through broader sales and marketing channels including internet, social media, tradeshows, developer conferences, so-called hackathons and game jams, PR, and more. Research & Development Tobii Tech invests considerable resources in R&D of its core technology to meet the demands of potential volume markets. Tobii has since 2001 developed five generations of eye-tracking platforms and introduced a range of products, most of which have become market-leading in their respective segments. From 2008 to 2014, Tobii has lowered the production cost of its core eye-tracking platforms by more than 95% while improving performance and reducing the physical size and power consumption. 78

81 Business and market overview Tobii Tech Tobii Tech has a seasoned development organization and well-proven R&D process led by a team in Stockholm, Sweden. Further R&D facilities and staff exist in Kiev, Ukraine, and Suzhou, China. The R&D team comprises around 75 FTEs including 7 consultants based in Kiev. The team includes experts in optronics, machine vision, mathematics, programming, mechatronics, ASIC design and user experience design. The goals of the R&D team are to: (i) develop eye tracking to meet the demands of future volume markets, (ii) maintain Tobii s leading position in eye-tracking performance and production cost, (iii) develop intuitive user interfaces based on eye tracking, and (iv) further develop Tobii s leading eye-tracking-related IP portfolio. In addition to its own staff, Tobii Tech uses partners and suppliers that develop specific components and sub systems based on Tobii Tech s design and specifications. When selecting suppliers, Tobii Tech looks for those who have the capacity and experience to scale up production to consumer mass-market volumes. Tobii Tech s R&D budget for 2015 amounts to around SEK 130 million, earmarked primarily for investments in the development of the Tobii IS4 platform, including Tobii EyeChip, but also in the development of Tobii EyeX Interaction, further development of the interaction engine Tobii EyeX Engine, further development of gaming software, as well as research and prototype development in various parts of the business unit s technology. 79

82 Business and market overview Tobii Tech Strengths Tobii Tech s key strengths are summarized below: Technology leadership The Company considers Tobii Tech the technology leader in eye tracking. Tobii Tech s technology is characterized by ease of use, reliability in many environments, consistently high precision, low power consumption and a compact form factor. The technology can be produced at low cost in high volumes. Over the past 13 years, the Company has invested heavily in its technology, including the development of several generations of system designs, custom designed optronic components, a custom designed SoC ASIC 1) (in development), complex image processing algorithms that have been trained on millions of eye images and an advanced interaction engine for eye tracking. Tobii Tech continues to make significant investments to maintain and strengthen the technical advantage that the Company considers it has. Proven track record as supplier of eye-tracking technology Tobii Tech is already today a supplier of eye-tracking technology and has products in the market with several OEM customers. This includes Tobii s two other business units Tobii Dynavox and Tobii Pro as well as a handful number of external OEM customers. In 2014, Tobii Tech supplied eye-tracking systems to these customers with consistently high quality and delivery precision. Strong relationships with potential OEM customers Tobii Tech has developed strong relationships with key decision makers at many leading OEM customers across several industries, including manufacturers in gaming products, computing, automotive and medical devices. Leading eye-tracking IP portfolio According to an external study, Tobii has the world s largest portfolio of granted and pending US and EU patents relating to eye tracking 2). This intellectual property protects the Company s current and future products, services and development efforts. The Group has over 180 granted and pending patent applications, spanning more than 70 unique eye tracking-related innovations. In Tobii s assessment, its IP portfolio provides significant competitive advantages, such as the possibility to reach and maintain higher margins than other companies in the industry, and the protection of the Company and its customers against IP claims from other companies. 1) Application Specific Integrated Circuit. 2) The review of Tobii s patent position was conducted at the end of 2014 by ClearViewIP Ltd an independent intellectual property consultancy. The review comprised searching for patents and patent applications related to eye tracking published by the United States Patent and Trademark Office and the European Patent Office. The results of the search were analyzed and reviewed by ClearViewIP Ltd, removed from the results were those patents not related to eye tracking and those not having eye tracking as their core invention. As with all human analysis, particularly analysis of intellectual property rights, it is the subject of judgment calls by the reviewer. As such, it is impossible to guarantee that 100% of the relevant results have been considered. 80

83 Business and market overview Tobii Tech Key initiatives Develop eye-tracking technology to meet demands of potential future volume markets Tobii Tech invests in R&D to further develop its eye-tracking technology to meet the demands from potential future consumer markets. One large ongoing R&D effort is the development of the Tobii IS4 platform, expected to be the business unit s next major platform. The platform is intended to provide significant improvements compared with existing platforms in terms of performance, form factor, power consumption and production cost. One target is that it will enable integration of eye tracking into premium notebooks. Tobii IS4 has a development budget of over SEK 110 million, of which around SEK 60 million has been spent as of the end of The budget includes the development of Tobii s first SoC ASIC, the Tobii EyeChip. To reach mass volumes in consumer markets, further evolution of the eye tracking technology beyond the Tobii IS4 platform is likely to be required. Develop the technology and business model for Tobii EyeChip Tobii EyeChip will become the Company s first custom designed SoC ASIC for eye tracking. Tobii EyeChip is specially designed for optimal processing of the Tobii EyeCore algorithms. The Company expects that Tobii EyeChip will bring with it important technical and costrelated advantages for Tobii Tech and its customers. Tobii Tech s strategy is also that Tobii EyeChip will be a core fundament for its long-term business model. Rather than licensing algorithms as software, Tobii EyeChip enables Tobii Tech to sell a physical chip including the algorithms which is likely to extract higher margins in the long term. Furthermore, the Tobii EyeChip will provide stronger protection for Tobii Tech s proprietary IP as it is more difficult to reverse engineer or replicate. Create an eco system of software Tobii Tech drives a number of activities to bring about a large eco system of software developers that in the long term develop applications leveraging Tobii s eye tracking. These activities include development of the interaction engine Tobii EyeX Engine and developer kits to enable rapid and efficient software creation. Tobii Tech is also developing applications of its own to create fundamental functionality and to serve as inspiration for other developers. Tobii is pursuing business development targeting select software development companies and works with a broad range of marketing activities directed at developers. Bring the first early-adopter products to market Tobii Tech is working in various ways to bring earlyadopter products to the consumer market. By developing and launching specific solutions targeting pioneer end users, either together with OEM customers and software partners or on its own, Tobii Tech can take the first steps towards consumer markets. Initial volumes for these products are expected to be relatively small, but still an important step en route to higher volumes. One concrete example of such an early-adopter product is the SteelSeries Sentry gaming eye tracker that targets computer gaming enthusiasts. 81

84 Business and market overview Tobii Patents Patents and intellectual property According to an externally conducted review, Tobii has the most comprehensive portfolio of eye tracking-related patents and patent applications in the USA and Europe 1). Tobii s patent portfolio comprises over 180 granted patents and pending patent applications across over 70 distinct inventions. Estimated number of publicly available U.S. and European patents and patent applications specifically directed to eye tracking inventions as of October 2014, not including medical/opthalmological technology 1) Please note that the graph below only shows publicly available patents and applications (patent applications are typically not public until 18 months after filing). Number of patents and patent applications Tobii Microsoft Canon Panasonic Sony Oracle Google Delphi Technologies Eyefluence Swisscom Samsung Source: ClearViewIP Ltd. Tobii s patent portfolio includes innovations that cover many different aspects of eye tracking and gaze interaction. One important area that the patents cover is different technologies to realize high-performance eye tracking at low cost and low power consumption. Another key area is the different ways of applying eye tracking in computer user interfaces. See the table on the right for an overview of the portfolio s unique innovations. Tobii s portfolio of distinct inventions The Company has one or more granted or patent pending application within each inventive concept. Eye tracking system design 11 Camera or illuminator design and control 13 OS integration and algorithms 8 Eye gaze interaction 36 Specific use cases 2) 11 Source: Internal estimates from March ) The review of Tobii s patent position was conducted at the end of 2014 by ClearViewIP Ltd an independent intellectual property consultancy. The review comprised searching for patents and patent applications related to eye tracking published by the United States Patent and Trademark Office and the European Patent Office. The results of the search were analyzed and reviewed by ClearViewIP Ltd, removed from the results were those patent not related to eye tracking and those not having eye tracking as their core invention. The graph above shows those assignees with at least 15 patents or patent applications fitting that criteria. As with all human analysis, particularly analysis of intellectual property rights, it is the subject of judgment calls by the reviewer. As such, it is impossible to guarantee that 100% of the relevant results have been considered. 2) Specific use cases include automotive applications and wearable applications. 82

85 Business and market overview Tobii Continuously growing the Company s patent portfolio is an important and integral part of Tobii s R&D process; Tobii invests significant resources in both the research and the protection of key technologies. Tobii s intellectual property efforts are led by the chief IP officer (CIPO) in close collaboration with the Chief Science Officer (CSO), Chief Technical Officer (CTO) and R&D organizations. Tobii files patent applications to protect inventions that are to be featured in upcoming products, as well as inventions determined to be of strategic value. Tobii aims to have a well-rounded patent portfolio covering the technology and usages involving its eye-tracking technology. In addition, Tobii files usage-specific patents in the areas of interaction, gaming, virtual reality and automotive. Tobii employs different filing types such as US provisional patent applications, US complete patent applications, UK patent applications, European patent applications and PCT applications. Tobii files the majority of its patent applications in the US and Europe, with some filings in China, Korea, Japan, India, Singapore and Canada. Tobii makes confidential all information regarding technological advancements that are not considered suitable for patent protection. The Company foresees that its strong patent position will provide strategic long-term advantages such as increased possibilities to win contracts with major customers, create prerequisites for higher margins, counteract product piracy, receive potential licensing revenue and protect the Company and its customers from infringement claims from other companies. Tobii has licensed patents to SensoMotoric Instruments GmbH and EyeTech Digital Systems Inc. For details, see the section Legal issues and supplementary information Material agreements. 83

86 Business and market overview Tobii Tobii Group organization The Group consists of the parent company Tobii AB (publ) and 19 subsidiaries. Tobii is mainly organized in three business units. Functions such as general management, sales, marketing, product management, R&D and technical support are conducted within each business unit. Tobii s head office is located in Sweden and offices are also located in the U.S. (Boston, Washington D.C., Pittsburgh and Mountain View), China, Japan, UK, Germany and Norway. Each business unit president is responsible for the P & L statement of their unit. Group functions generate policies and guidelines and support the business units on Group-wide matters such as purchasing, production management, logistics, IT, HR and financial services. Overview of Group organization CEO Henrik Eskilsson Deputy CEO and CTO John Elvesjö CFO Esben Olesen Chief IP Officer Head of IR Mats Ödman Chief Science Officer Mårten Skogö Corporate Communications HR Production/Purchase/ Logistics/IT President Tobii Dynavox Fredrik Ruben President Tobii Pro Tom Englund President Tobii Tech Oscar Werner Members of the Group executive management Other Group functions Employees As of the close of 2014, the total number of FTEs was 573 and the average number of FTEs during the year was 467. About 64% of the employees are employed outside of Sweden. Number of FTEs At the end of the period Average Of whom, women, % Per business unit Tobii Dynavox Tobii Pro Tobii Tech Group-wide functions

87 Business and market overview Tobii Purchasing, Production and Logistics The Group has three purchasing functions: (i) strategic sourcing which identifies, qualifies, selects, and negotiates with strategic suppliers, (ii) project sourcing that supports and supplies to ongoing development projects, and (iii) operational sourcing which supports and supplies production and is responsible for material handling, inventory management, forecasting, and order and delivery management. Tobii s strategic suppliers are typically very large and well-reputed suppliers of camera technology, illumination technology, ASICs, EMS production and logistics. The purchasing teams are based in Stockholm in Sweden, Pittsburgh in the US and Suzhou in China. The bulk of Tobii s hardware products are produced and assembled by third-party manufacturers. The Company s operations industrialization group participates in R&D projects to drive design for manufacturing (DFM) and build supply chains that optimize capacity, quality, and cost. As volume production begins, the manufacturing management group assumes control of production management, targeting performance, quality, unit cost, and delivering precision outcomes utilizing an established supplier governance model. Tobii regularly conducts business reviews and audits of its suppliers. Tobii also owns three production and logistics units primarily responsible for prototype production and assembly of low-volume products as well as deliveries to Tobii s resellers and end customers. These production units are located in Stockholm in Sweden, Pittsburgh in the US and Suzhou in China. Platforms and components for OEM integration are shipped directly from third-party suppliers to OEM customers. IT Tobii has a comprehensive IT infrastructure that supports almost all facets of the Company s business. The IT infrastructure comprises the Company s computers, several different ERP systems, CRM systems, document management systems, mail systems, R&D environments, cloud services to the company s customers, and several other parts. The IT function currently employs 8 FTEs. Tobii outsources IT user support and deploys various services to third party service providers. Corporate Social Responsibility (CSR) Tobii has developed a Code of Business Conduct and Ethics. The Code is based on international conventions such as the Universal Declaration of Human Rights, the Children s Rights and Business Principles, UN Guiding Principles for Business and Human Rights, OECD Guidelines for Multinational Enterprises, UN Global Compact and the International Labor Organization s Conventions and Recommendations. The Board of Directors has also adopted an Environmental Policy to ensure that Tobii remains well positioned in sustainable development. The Board of Directors has also adopted a Code of Conduct for Supp liers which is gradually being implemented and accepted by the Group s suppliers. 85

88 Selected financial information Selected financial information The tables below present selected historical financial information derived from Tobii s audited consolidated financial statements for the fiscal years ended December 31, 2012, 2013 and 2014 which have been prepared in accordance with International Financial Reporting Standards ( IFRS ). The information below should be read in conjunction with Operating and financial review, Pro forma income statement 2014, Capitalization, indebtedness and other financial information and Tobii s financial information (and the notes thereto) included elsewhere in this Offering Circular. Income statement SEK million Net sales Cost of goods and services sold Gross profit Selling expenses Research and development expenses Administrative expenses Other operating income and operating expenses Operating profit (EBIT) Profit/loss from financial items Share of profit/loss from associated companies Financial income Financial expenses Total financial income and expenses Profit/loss before taxes Taxes Net profit/loss for the year

89 Selected financial information Balance sheet SEK million Fixed assets Intangible assets Tangible assets Other non-current assets Total fixed assets Current assets Accounts receivable trade Inventories Other receivables Prepaid expenses and accrued income Total current assets Cash and cash equivalents Total assets Equity and liabilities Equity Non-current liabilities Accounts payable trade Accrued expenses and deferred income Other liabilities Total current liabilities Total equity and liabilities

90 Selected financial information Cash flow statement for the Group MSEK Operating activities Profit/loss after financial items Adjustment for items not included in the cash flow Taxes paid Cash flow from operating activities before changes in working capital Cash flow from changes in working capital Increase( )/decrease(+) in inventories Increase( )/decrease(+) in operating receivables Increase(+)/decrease( ) in operating liabilities Cash flow from operating activities Cash flow from investing activities Investments in intangible fixed assets Investments in property, plant and equipment Acquisition of subsidiaries 92.8 Divestment of Group company 1) 10.6 Investments in financial assets Cash flow from investing activities Financing activities New share issue Sales of warrants, incentive program Change in borrowing Change of ownership structure in subsidiary 24.8 Cash flows from financing activities Cash flow for the year Exchange rate difference in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at year-end ) Deconsolidation in 2013 of then subsidiary, Sticky AB, impacting cash flow in an amount of 10, of which 6 is cash and cash equivalents and 4 is working capital. 88

91 Selected financial information Segment information SEK million Net sales Tobii Dynavox Tobii Pro Tobii Tech Other and eliminations Total EBIT Tobii Dynavox Tobii Pro Tobii Tech Other and eliminations Total Adjusted EBIT 1) Tobii Dynavox Tobii Pro Tobii Tech Other, net Total ) For additional information about adjusted EBIT see section Operating and financial review Use of non-ifrs measures. Key information and data 1) Earnings per share, SEK Earnings per share, assuming dilution, SEK Equity per share, SEK EBITDA, SEK million EBIT, SEK million Free cash flow, SEK million Operating working capital, SEK million Total assets, SEK million Net debt, SEK million Equity, SEK million Equity/asset ratio, % Net debt/equity, % Gross margin, % EBITDA margin, % EBIT margin, % Return on total equity, % Average number of shares in millions Number of shares at period-end in millions Number of (full time) employees at period-end ) For definitions, see section Selected financial information Financial definitions. 89

92 Selected financial information Financial definitions Earnings per share: Net income/loss for the period, attributable to owners of the parent, divided by the average number of shares in the market Earnings per share assuming dilution: Net income/loss for the period, attributable to owners of the parent company, divided by the average number of shares in the market after estimated utilization of incentive programs Equity per share: Shareholders equity at the end of the period, attributable to owners of the parent company, divided by the number of shares in the market at the end of the period EBIT (Operating income): Earnings before interest and taxes EBIT margin (Operating margin): Operating income relative to net sales EBITDA: Earnings before interest, taxes, depreciation and amortization EBITDA margin: Earnings before interest, taxes, depreciation and amortization relative to net sales Equity: Shareholders equity at the end of the period Equity/asset ratio: Shareholders equity as a percentage of total assets Free cash flow: Cash flow from operating activities and investing activities Gross margin: Gross profit relative to net sales Net debt: Interest-bearing liabilities less cash and cash equivalents Net debt/equity ratio: Interest-bearing net debt divided by shareholders equity Number of employees: Average full-time employees during the period, including part-time employees calculated to FTEs Return on total equity: Net income/loss for the period, attributable to owners of the parent, as a percentage of average shareholders equity, attributable to owners of the parent company Total assets: Total assets at the end of the period Working capital: Inventories, accounts receivables and other operating receivables less accounts payables and other liabilities 90

93 Pro forma income statement 2014 Pro forma income statement 2014 Purpose of the pro forma financial information The purpose of the pro forma income statement is to present an overview of the impact which the acquisition of DynaVox Systems LLC would have had on Tobii s consolidated income statement for the period January 1, 2014 December 31, DynaVox Systems LLC was acquired on May 23, 2014 and included in Tobii s consolidated income statement from June 1, The pro forma financial information is neither intended to present the earnings that the business would have achieved if the acquisition had taken place on January 1, 2014, nor is it intended to indicate future earnings. The pro forma financial information describes a hypothetical situation and has been produced solely for illustrative purposes. Basis for the pro forma financial information The pro forma income statement is based on Tobii s income statement for the financial year 2014 and DynaVox Systems LLC s income statement based on internal financial reporting for the period January 1 to May 31, Tobii s financial statements are prepared in accordance with International Financial Reporting Standards ( IFRS ), as adopted by the EU, and the financial statements of Dynavox are prepared in accordance with US GAAP. The pro forma financial statements are prepared using Tobii s accounting principles as described in the financial reports on page F-6 of this document for fiscal year Tobii has performed an analysis to determine if there are significant differences between the accounting principles applied by Tobii in accordance with IFRS and the accounting principles applied by DynaVox Systems LLC. It was concluded that DynaVox Systems LLC s accounting principles are consistent with IFRS with the exception of capitalized expenditures for product development. 91

94 Pro forma income statement 2014 SEK millions DynaVox Tobii AB Systems LLC 1/1 5/31 Pro forma adjustments 1) 2014 IFRS 2) US GAAP 1/1 5/31 US GAAP to IFRS adjustments Pro forma 2014 Net sales Cost of goods and services sold Gross profit Selling expenses Research and development expenses ) Administrative expenses ) 92.9 Other operating income and operating expenses ) 3.8 Operating profit/loss Profit/loss from financial items Share of profit/loss from associated companies Financial income Financial expenses ) 18.7 Total financial income and expenses Profit/loss before tax Taxes 3.0 7) 3.0 Net profit/loss for the year Currency rates Pro forma adjustments in the income statement are calculated using an exchange rate of SEK/USD, which is equivalent to the average exchange rate applied by Tobii for the period January 1 May 31, ) Based on the audited consolidated financial statements for the financial year ) Based on unaudited, internally prepared financial statements recalculated using an average exchange rate of SEK/USD for the period January 1 May 31, ) Proforma adjustments amounting to 3.9 MSEK are attributable to the conversion of US GAAP to IFRS following the application of IAS 38 Intangible Assets whereby product development expenses are capitalized to the extent that it is probable that these products will generate future revenues. The amount which has been capitalized as intangible assets during the five-month period of January to May 2014 is 8.5 MSEK and the amortization of intangible assets amounts to 4.6 MSEK. 4) Pro forma adjustments totaling 17.1 MSEK refer to administrative expenses, of which 9.5 MSEK in the DynaVox Systems LLC income statement January 1 May 31, 2014, relates to sales expenses incurred by the previous owners while attempting to sell the DynaVox Group. The adjustment amount also includes acquisition costs incurred by Tobii in the amount of 7.4 MSEK as a result of Tobii s acquisition of DynaVox Systems LLC. Neither of these items would have affected the income statement had the acquisition taken place on January 1, ) Pro forma adjustments amounting to 7.0 MSEK relate to restructuring expenses incurred by DynaVox Systems LLC during the period of January 1 May 31 and are comprised primarily of severance payments to executive officers. 6) Pro forma adjustments totaling 4.4 MSEK are comprised of interest payments of 5.4 MSEK made by DynaVox Systems LLC on loans received during the period in order to finance restructuring. Had the acquisition taken place on January 1, 2014, these interest expenses would not have been incurred. The pro forma income statement includes interest expenses amounting to 0.9 MSEK, which would have been the borrowing costs incurred by Tobii on its loan taken for the purpose of the acquisition, had the loan been taken on January 1, ) DynaVox Systems LLC is jointly taxed with Tobii Assistive Inc. Tobii Assistive Inc has accumulated losses without corresponding deferred tax assets, therefore there is no impact on tax expense for the year in the pro forma income statement. 92

95 Auditors report on pro forma financials Auditors report on pro forma financials To the Board of Directors of Tobii AB (publ), Corporate Id No The Auditor s Report on Pro Forma Financial Information We have audited the pro forma financial information set out on pages in Tobii AB (publ) s prospectus dated 10 April The pro forma financial information has been prepared for illustrative purposes only to provide information about how Tobii AB (publ) s acquisition of the Dynavox Group might have affected the consolidated income statement for Tobii AB (publ) for the period 1 January -31 December 2014 if it had been acquired 1 January The Board of Directors responsibility It is the Board of Directors and the Managing Director s responsibility to prepare the pro forma financial information in accordance with the requirements of the Commission Regulation (EC) No 809/2004. The auditor s responsibility It is our responsibility to provide an opinion required by Annex II item 7 of Prospectus Regulation 809/2004/EC. We are not responsible for expressing any other opinion on the pro forma financial information or of any of its constituent elements. In particular, We do not accept any responsibility for any financial information used in the compilation of the pro forma financial information beyond that responsibility we have for auditor s reports regarding historical financial information issued in the past. Work performed We performed our work in accordance with FAR s Recommendation RevR 5 Examination of Prospectuses. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the historical information, assessing the evidence supporting the pro forma adjustments and discussing the pro forma financial information with the management of the company. We planned and performed our work so as to obtain the information and explanations we considered necessary in order to obtain reasonable assurance that the pro forma financial information has been compiled on the basis stated on pages 91-92, and in accordance with the accounting principles applied by the company. Opinion In our opinion the pro forma financial information has been properly compiled on the basis stated on pages and in accordance with the accounting principles applied by the company. Stockholm, 10 April 2015 PricewaterhouseCoopers AB Magnus Brändström Authorized Public Accountant 93

96 Operating and financial review Operating and financial review The information presented below should be read in conjunction with the section Selected financial information and the Company s audited consolidated financial statements for the period included elsewhere in the Offering Circular. The information in this discussion includes forward-looking statements that are subject to numerous risks and uncertainties. The Company s actual results may differ materially from those anticipated in these forward-looking statements as a result of many different factors, including, but not limited to, those described in section Important information to investors Forward-looking information and elsewhere in the Offering Circular, including those in section Risk factors. The Company s audited consolidated financial accounts for the period have been prepared in accordance with IFRS. Overview Tobii is a global market leading provider of eye-tracking solutions. 1) A product with an integrated eye-tracking sensor knows what a user is looking at. This makes it possible to interact with computers and machines using the eyes. Tobii was established in 2001 and has subsequently developed and introduced a broad spectrum of technologies, products and eye-tracking solutions, which have been introduced on several different markets. In addition thereto, the Company today offers a number of products that are not based on eye-tracking technology. The most important application areas today for the Company s products are assistive technology for communication for people with disabilities as well as a tool to conduct market research studies in order to gain insight on consumer behavior and within different areas of academic research. In Tobii s view, there is large potential in integrating eyetracking platforms and components in the future in gaming devices, mainstream computers, vehicles and medical products. Eye tracking is a technology that is constantly evolving and new applications based on eye tracking are gradually being introduced. Some early adoption markets have reached a certain maturity level for the technology, but most areas where eye tracking may become applicable in the future are to be considered in general as new or undeveloped markets. Tobii operates globally from its offices in Sweden (Headquarters), the U.S. (offices in Boston, Washington DC, Pittsburgh and Mountain View), China, Japan, U.K., Germany and Norway. In May 2014 and by way of an auction procedure under chapter 11 of the United States Bankruptcy Code, Tobii acquired the company DynaVox Systems LLC together with all of its assets, including its subsidiaries, from DynaVox Inc. and its affiliated debtors. Before the acquisition, DynaVox Systems LLC was Tobii s main competitor in the alternative communication market. DynaVox Systems LLC complemented Tobii with a strong North American focus, leading touchscreen-based assistive communication products, leading software for users with cognitive disabilities and market leading software for teaching in special education schools. Following the acquisition, Tobii has initiated the process of fully integrating DynaVox Systems LLC s organization and IT-systems with the business unit Tobii Dynavox. During the fall of 2014, the combined sales force was reorganized which led to new sales territories being allocated to the sales personnel with Tobii Dynavox s direct sales force and resellers today selling products from a wider product portfolio. As of January 2015, Tobii Dynavox s personnel work in a joint, integrated IT-system with respect to the financing process. Tobii Dynavox has experienced some initial difficulties with this system during the initial part of 2015 which has led to financing applications not being processed at the same rate as they are being received. This has had some negative effect on Tobii Dynavox s net sales in January It is the Company s assessment that the difficulties will be resolved and that the processing of the customers financing applications will be aligned during the second quarter of Tobii expects the integration to be completed during the second quarter of 2015 but it may take several additional quarters before the synergies of the acquisition are fully realized. See section Pro forma income statement 2014 regarding how the consolidated income statement could have been affected had the acquisition been effective as of January 1, The Group s total net sales accumulated to SEK million in 2014, SEK million in 2013 and SEK million in Tobii s gross margin was 70.8% in 2014, 65.2% in 2013 and 63.5% in The Group has gradually improved the gross margins, primarily due to introductions of new product generations with lower production costs. During the period, Tobii has invested substantial amounts in product development and in the Group s core technology. Total expenditures for product- and technology development were SEK million in 2014, SEK million in 2013 and SEK million in 2012, of which 45.8%, 62.3% and 72.4%, respectively, have been capitalized on the balance sheet as investments for product development investments for each year. The Group reported operating losses of SEK 68.9 million, SEK 37.5 million and SEK 53.0 million for the years 2014, 2013 and 2012 due to the substantial expenses relating to R&D. 1) Arthur D. Little 94

97 Operating and financial review Business units Tobii conducts its business through three business units that each has their own distinct markets, products and dedicated personnel. The Company is accounting for each business unit as separate segments. Tobii Dynavox a globally leading supplier of assistive technology for communication. 1) Today, the business products comprise of both eye tracking-based AAC devices, touchscreen-based AAC devices as well as various software. Tobii Pro a globally leading supplier of eye-tracking solutions for behavioral research studies. 1) Tobii Tech a leading supplier of eye-tracking components and platforms to integration customers. The business units operate as separate entities to a large extent. Tobii Dynavox and Tobii Pro buy eye-tracking components from Tobii Tech at internal prices that are set to correspond to market prices, developed through negotiations among business unit managers and benchmarked with comparable products, see section Transfer pricing policy. In 2014, out of the Group s sales 2) 68% was generated by Tobii Dynavox, 26% by Tobii Pro and 6% by Tobii Tech. Out of Tobii s net sales, 55% was generated in the U.S., 28% in the rest of Europe, 3% in Sweden and 14% in the Rest of the World. Factors affecting Tobii s operating profit In Tobii s opinion, the following factors are those that mainly affect the Group s financial performance: The general development of demand for eye-tracking solutions and assistive technology for communication Introduction of new products and services Development of sale prices and production costs Investments in Research & Development Private and public funding for assistive technology and for research using eye tracking Currency fluctuations General economic and political conditions The general development of demand for eye-tracking solutions and assistive technology for communication The sales and results of all of Tobii s business units are to a high degree affected by the development of the general demand for eye tracking and assistive technology for communication. In recent years, the market for assistive technology for communication has demonstrated a significant increase in demand for eye-tracking based ACC-products which has been an important driving factor for the business unit Tobii Dynavox s sales growth. In the longer perspective, the world market for assistive technology for communication has experienced steady growth driven by increased knowledge about ACC among therapists, doctors and speech and language pathologists, increased awareness among potential customers and improved funding systems. However, the total market declined during the period primarily due to (i) a major funding program for ACC in Texas, U.S. that was, to a large extent, retracted and (ii) regular consumer tablets (such as ipads) with AAC-apps has made it possible for users with less severe special needs to use such products instead of more expensive dedicated touchscreen-based AACdevices. This decline has had a significant negative impact on net sales and the results for DynaVox Systems LLC. During the fourth quarter, touchscreen-based AACdevices accounted for 26% of Tobii Dynavox s sales (18% 2) of the Group s sales). Following the acquisition of DynaVox Systems LLC, touchscreen-based AAC-devices represent approximately one quarter of the business unit s sales (and just below 20% 2) of the Group s sales). The market for behavioral studies with eye tracking has grown steadily during the past decade, albeit, with a lower growth rate in recent years. 1) The growth is driven by a gradually increased awareness of eye tracking as a method for both academic and commercial market research and that products gradually are becoming easier and more efficient to use. Tobii Tech is indirectly affected by the development described above since most of current sales comprise of sales of eye-tracking platforms to Tobii Dynavox and Tobii Pro. However, going forward, Tobii Tech will be highly affected by the extent and speed by which customers adopt eye tracking and Tobii s platforms within new application areas such as computer games, mainstream computers, vehicles and medical products. Tobii invests in sales and marketing in various forms within all business units in order to increase the awareness of the Group s technology, products and solutions. Within Tobii Dynavox, the market is being developed in order to increase the knowledge and awareness of assistive technology for communication. Tobii Pro is striving to increase the awareness and acceptance for eye tracking as a method in various types of studies within a wide range of disciplines. Tobii Tech is investing in growing an ecosystem of application developers that develop games and other applications that use eye tracking. These measures give rise to costs that affect the Company s financial results but are also expected contribute to increasing the demand for the Company s technology and products in the long term. 1) Arthur D. Little 2) Before elimination of internal sales from Tobii Tech to Tobii Dynavox and Tobii Pro. 95

98 Operating and financial review Introduction of new products and services The introduction of new products and services is an important driver for increased sales and higher margins for all of Tobii s business units. Historically, successful introductions of products have contributed in terms of widening the user base, increasing customer satisfaction, getting existing customers to buy new products, accessing new market segments and increasing the market shares. During the period , important product introductions include Tobii I-series (I-12 and I-15) (2013), Tobii IS20 eye-tracking platform (2013), Tobii PcEye Go (2013), Tobii X2-series (X2-30 och X2-60) (2013), Tobii M8 (2014), Tobii EyeX Controller (2014), Tobii IS-3 eyetracking platform (2014), Tobii Glasses 2 (2014), Tobii Dynavox T15 (2014), Compass App for ipad (2014), SteelSeries Sentry (2014/2015) and Boardmaker Online (2014). In addition, the acquisition of DynaVox Systems LLC in May 2014 added several important products to Tobii s product portfolio, such as the T10, Boardmaker and Compass. Some of Tobii Dynavox s products have to be registrered as medical-grade products and/or are subject to public procurements. This may lead to some delays in sales of new products before they are fully approved by relevant authorities, or public procurement processes have been concluded. When new products are introduced, a sales delay often occurs for some time since customers choose to hold off on buying older products or place orders for new products before these can be delivered and consequently invoiced. This may lead to a larger order book and lower sales around the time of the introduction of the product, followed by a reduced order book and increased invoicing when deliveries can be initiated. Potential delays in development projects may enhance such effects. During the second quarter of 2013, Tobii presented I-series which led to an unusually low level of invoiced sales during the quarter and a level of invoiced sales that was higher than normal in the third quarter of During the second quarter of 2014, Tobii Glasses 2 was introduced which contributed to an unusually low level of invoiced sales during the second and third quarter of 2014, and with a corresponding increased level of invoiced sales during the fourth quarter when product shipments were initiated. At the end of 2014, a part of this order book effect remained, which is expected to contribute to the business unit s sales during the first quarter of Development of sale prices and production costs A majority of Tobii Dynavox s products are medical-grade classified and are fully, or partly, funded by public or private funding systems. Price levels for sold products, particularly on the U.S. market, are therefore established based on the various funding thresholds for different product categories that are determined by the funding organs. Historically, these funding thresholds have been stable and the price levels have in general been consistent in recent years. However, potential changes in the funding thresholds could substantially affect Tobii Dynavox s net sales and results. In other regions, e.g. Sweden and Norway, AAC-products are subject to public procurement, where Tobii Dynavox competes based on a combination of price and functions. Such procurements usually take place on an annual or biannual basis per region, which may result in changes to the price levels on specific occasions. Tobii Dynavox also sells products directly to end consumers who pay for the products themselves. This is the case mainly for products that are priced at significantly lower levels. This area of Tobii Dynavox s market is growing fast eventhough the market is still small. The mix of products that are sold through funding systems and directly to end customers affects Tobii Dynavox s sales and results. DynaVox Systems LLC (which was acquired by Tobii in May 2014) experienced a negative effect on its net sales during 2012 and 2013, primarily due to a part of the market switching from more expensive dedicated devices to regular consumer tablets with AAC-apps. Tobii Pro sells complete solutions for eye-tracking based behavioral research studies consisting of hardware, software and services. In recent years, the business unit has lowered the prices on certain hardware products for eye tracking as a part of its strategy to grow the market for software and services in the long term. During the period , Tobii Pro lowered the price of its least expensive eye-tracking hardware by approximately 70%. The price reduction was compensated by significantly larger volumes and new products with lower production costs have led to stable gross margins during the period. Tobii Pro estimates that this price development will continue during the next coming years. Several of the products that Tobii Dynavox and Tobii Pro have introduced during the last couple of years have had significantly lower production costs than previous products, which have contributed to increased gross margins, especially for Tobii Dynavox. Tobii Tech s goal is to deliver products, platforms and components to OEM-customers in new, potentially large volume markets. The price per unit is substantially lower on several of these consumer markets compared to the Company s current markets but the potential volumes are, in turn, much larger. In order to be able to establish itself on these new markets, Tobii Tech has made significant investments in order to lower the production cost for its core technology for eye tracking and intends to continue with this strategy. During the period , the Company has reduced the production cost per eye tracker by more than 95%. Despite this, the Company believes that the initial integration transactions intended for consumer markets will show relatively low gross margins before large volumes are achieved. An additional effect is that significantly lower priced products from Tobii Tech and Tobii Tech s OEM-customers are, to some extent, beginning to compete with products from Tobii Pro and Tobii Dynavox. This may lead to a downward pressure on prices for their products and 96

99 Operating and financial review lead to certain customers choosing a simpler, consumertargeted eye tracker instead of more advanced products at higher prices. In 2014, Tobii Pro was negatively affected by such competition. Investments in research and development The markets where the Company is active in are evolving rapidly. Tobii makes major investments in all business units R&D regarding core technology as well as various products in order to expand its business, meet the requirements of its customers and to maintain and increase its market leading position. In addition, Tobii is investing in the development of new technology and products in order to lower production costs. R&D is thus of crucial importance in order to increase sales and gross margins but also entails significant investments and costs for the Company, as a whole as well as the separate business units. Tobii capitalizes several of its R&D projects on the balance sheet in accordance with the principles stated in IAS 38 and after have been approved by the Company s auditor. The level of capitalization depends on several factors, such as the type of project, how close the project is to being commercialized and the probability for the project becoming successful. Capitalization is initiated after the commercial introduction. The share of capitalized expenditures for R&D affects the Company s result of operations. During the period , Tobii spent SEK million on research and development, of which SEK million (57%) was capitalized on the balance sheet. Private and public funding for assistive technology for communication and for research using eye tracking A large part of the users of Tobii Dynavox s products are dependent on public and private sources of funding to partially, or completely, finance their purchase of Tobii s products. Furthermore, a significant part of Tobii Dynavox s sales derive from publicly funded schools. Tobii Dynavox s net sales and profits are thus to a large extent affected by the availability and the terms of both public as well as private funding systems. The availability of funding is also subject to changes in applicable legislation and in the procurement processes, changes in funding terms, priorities between different expense categories, changes in political leadership and changes in the global economic environment. In April 2014, the Centers for Medicare & Medicaid Services ( CMS ) in the U.S. changed the classification of speech generating devices into being so-called cappedrental items. Instead of reimbursing the supplier of the capped-rental product on delivery to the customer, the reimbursement is allocated evenly over 13 months and Tobii books the revenue over the same period. This has had a negative impact on Tobii Dynavox s net sales during 2014 and result. After 2011, a specific major financing program for AAC in Texas, U.S. has to a large extent been phased out, which has had a clear negative effect on the net sales and results of DynaVox Systems LLC. In 2014, the UK has granted new funds to finance infrastructure for purposes of subscribing AAC and AAC-products, which in the future may provide a positive sales contribution in this market. A large part of Tobii Pro s academic customers are dependent on public funds to finance their purchase of research equipment. Research budgets are often appropriated on a yearly basis. The funding availability for these academic customers may vary significantly from year to year, which impacts which products customers purchase and what prices they are willing to pay. Currency fluctuations Tobii s functional currency is the Swedish krona (SEK), but the Company s net sales and expenses are denominated in the local currencies of the jurisdictions where Tobii operates. A significant portion of Tobii s net sales and expenses are generated in currencies other than SEK, primarily when products and services are being bought or sold in the respective subsidiary s local functional currency (transaction exposure) and during conversion of the balance sheets and income statements of non-swedish subsidiaries into SEK (translation exposure). Tobii s global operations give rise to significant cash flow in non-swedish currencies where changes in USD, EUR and JPY compared to SEK constitute Tobii s main exposures. The table below sets forth how exchange rate fluctuations would have impacted the Group s consolidated operating profit during 2014, excluding currency hedges as an effect of the transaction exposure, assuming that all other variables are constant. Sensitivity analysis 2014 Change, % Effect on operating profit, SEK million USD EUR JPY The table shows that an appreciation of Tobii s main export currencies, USD and EUR, compared to SEK (the main currency for the cost base) gives a positive impact on the operating result. As an example, a 10% increase of USD against SEK (USD/SEK + 10%) would have had a positive impact of SEK 7.7 million. For the year 2014, 59%, 2%, 18% and 6% of Tobii s products were sold in USD, SEK, EUR and JPY, respectively, (compared to 46%, 1%, 25% and 11%, respectively, for the year 2013; and 44%, 5%, 26% and 11%, respectively, for the year 2012). Tobii translates the Company s non-swedish subsidiaries statements of profits or loss and financial position into SEK using the average exchange rate for the reporting period and the period-end exchange rate, respectively. Exchange gains and losses arising from transactions in non-swedish currencies and translation of monetary items are recognized in the income statements, except when deferred in other comprehensive income as qualifying 97

100 Operating and financial review cash flow hedges. Differences resulting from the translation of the statements of profit or loss and financial position are recorded in other comprehensive income as translation differences and included in reserves for translation differences in equity. Consequently, increases or decreases in the value of the USD may affect the value of certain line items with respect to Tobii s non-usd businesses in the Company s consolidated financial statements, even if their value has not changed in their original currency. General economic and political conditions Tobii sells products to a wide range of markets, which makes Tobii s performance significantly affected by fluctuations in economic conditions and subject to political stability in countries where Tobii operates. Historically, economic conditions in different countries have had an effect on the net sales and the results of operations. Tobii s businesses rely to a great extent on public funding that is subject to political resolutions. Political uncertainty or instability as well as fundamental changes in how certain countries are governed could affect such funding and thereby Tobii s net sales and operating profit. Transfer pricing policy Transfer-pricing documentation between legal entities within the Group is prepared annually on a Group level with the assistance from external experts in accordance with the requirements of the Organization for Economic Co-operation and Development, in order to demonstrate the arm s length nature of cross-business within different parts of the Group. The existence and up-to-dateness of the documentation are regularly reviewed by the Audit Committee. Since the beginning of 2013, internal sales of eyetracking products are made from the business unit Tobii Tech to the business units Tobii Dynavox and Tobii Pro. These transactions take place within the same legal entity, Tobii AB. For these transactions, the internal prices are set to correspond to market prices, developed through negotiations among the business unit presidents and to price levels deemed comparable to what Tobii Tech offers external customers, adjusted for volume discounts and specific sales terms. The prices are also benchmarked to comparable products offered by competitors. In addition, Tobii Dynavox and Tobii Pro are free to purchase eye-tracking technology from any other suppliers. Use of non-ifrs measures Tobii has included in this Offering Circular the following unaudited non-ifrs measures and ratios that are not required by, or presented in accordance with, IFRS: EBITDA, adjusted EBITDA and adjusted EBIT. Non-IFRS measures are presented because they and similar measures are widely used by certain investors, securities analysts and other interested parties as supplemental measures of performance and liquidity. The non-ifrs measures may not be comparable to other similarly titled measures of other companies and have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of Tobii s operating result as reported under IFRS. Non-IFRS measures and ratios are not considered as measurements of performance or liquidity under IFRS. Accordingly, they should neither be considered as alternatives to operating profit or net profit or any other performance measures derived in accordance with IFRS, nor as any other generally accepted accounting principles or as alternatives to cash flow from operating, investing or financing activities. For a discussion regarding the reasons for the changes in the line items that are included in the calculation of these non- IFRS measures during the periods indicated, see Results of operations. Tobii defines adjusted EBITDA as operating profit adjusted for depreciation, amortization and impairment losses and items affecting comparability (related to the acquisition and restructuring of DynaVox Systems LLC). Tobii defines adjusted EBIT as operating profit adjusted for items affecting comparability (related to the acquisition and restructuring of DynaVox Systems LLC). Acquisition costs primarily consist of legal process costs, legal due diligence and financial due diligence, while restructuring costs primarily consist of settlement redundancy payments to DynaVox Systems LLC laid-off sales and backoffice personnel in connection with the integration of DynaVox Systems LLC. The Group s result has also been affected by costs relating to the ongoing IPO. The following table sets forth a reconciliation of EBITDA, adjusted EBITDA, EBIT and adjusted EBIT for 2014: 98

101 Operating and financial review SEK million 2014 Group 2014 Tobii Dynavox EBITDA Acquisition costs 1) Restructuring costs 2) Costs relating to the IPO 3) Adjusted EBITDA EBIT Acquisition costs 1) Restructuring costs 2) Costs relating to the IPO 3) Adjusted EBIT ) Acquisition costs primarily constitutes of costs for legal process, legal due diligence and financial due diligence in connection with the acquisition of DynaVox Systems LLC. 2) Restructuring costs are constituted by settlement redundancy payments to personnel within sales and back-office in connection with the integration of DynaVox Systems LLC. 3) Costs relating to the IPO primarily constitutes of costs for financial, legal and commercial advisors. The table below reconciles EBITDA to operating profit (EBIT): EBITDA Depreciation of tangible fixed assets Amortization of intangible fixed assets Impairment Operating profit (EBIT)

102 Operating and financial review Key items in the income statement The following section contains a description of certain of the line items in Tobii s consolidated income statement. Net sales Tobii s net sales primarily consist of sales of products (self-manufactured as well as manufactured by third parties under contract at fixed prices) and, to a lesser extent, of services, mainly of support, service agreements, consulting assignments and education. The services are provided either (i) based on time consumption and material or, (ii) as fixed price agreements. Cost of goods and services sold Cost of goods and services sold consists of costs for purchase and handling of materials, including purchased services, license fees for third-party intellectual property used in Tobii products, product repairs, depreciation of machinery, tools and other tangible assets used for production. Inventory costs are included in Cost of goods and services sold, and include premise costs and costs for the scrapping of obsolete and excess inventory. Selling expenses Selling expenses includes all costs related to the sales function of the Company such as personnel costs, costs for premises, IT, travel and representation, marketing materials, and catalogues. Selling expenses is comprised of the sales of products and services and provisions for the impairment of accounts receivable. Research & development expenses R&D includes all internal and external costs related to the development of the Company s new products, patents, solutions, including costs for personnel, premises and IT. The part of the annual R&D investments that are accounted for in the statement of profit or loss is reported net of (i) capitalization of several of the Company s R&D projects in accordance with the principles set by IAS 38 and after approval by the Company s auditors, and (ii) after depreciation of accumulated capitalized R&D investments on the balance sheet. This part of the R&D investments is referred to as net R&D costs, (or R&D-costs) whereas the accumulated R&D expenses for the period are referred to as total R&D investments. Administrative expenses Administrative expenses includes costs related to the administrative functions of the Company, such as the CEO and board of directors, as well as personnel costs for IT, human resources and finance departments and costs for premises, audit fees and other general office costs. Other operating income and operating expenses Other operating income and operating expenses comprise material non-recurring items, secondary business, currency exchange rate differences on trade receivables and payables and capital gains/losses from the sale of tangible assets. Share of profit/loss from associated companies Tobii s share of profit/loss from associated companies, which are entities over which Tobii has significant influence (i.e. normally an ownership share between 20% and 50%) 1).Impairment to Tobii s share of the value of the associated company s net assets is accounted for on this line. Financial income and expenses Financial income and expenses are composed of interest revenues on bank deposits, claims and interest bearing securities, debt interests charge on loans and currency exchange differences on loans, Currency exchange differences that relate to financial claims and debts are accounted for among financial income and expense in the profit and loss account. Currency exchange differences that relate to operational items are accounted for on the respective line item in the profit and loss account and are part of the operating profit. Loan costs are accounted for in the financial period they relate to. Taxes Income tax expense consists of the total of current taxes and deferred tax. Income taxes are recognized in the financial statements except in cases where the underlying transaction is accounted for directly against equity or are included in other comprehensive income. Current taxes are taxes that are expected to be paid or received during the current year, by applying the taxation levels that are resolved upon, or in practice resolved upon, on the balance sheet date, including adjustments of current taxes that refer to previous periods. Deferred tax in the balance sheet has been calculated at the nominal tax rate based on temporary differences between accounting and tax basis of assets and liabilities on the balance sheet date. The following temporary differences are not considered: temporary differences that have occurred at the first account of goodwill, the first account of assets and debts which are not mergers & aquisitions and do neither affect the accounted or the taxable results. Furthermore, Tobii does not consider temporary differences relating to interests in subsidiaries and associated companies that do not expect to be reversed in the foreseeable future. The valuation of deferred tax is based upon how accounted values on assets and debts are expected to be realized or settled. Deferred tax is calculated based on the taxation rate and tax provisions that are resolved upon, or in practice resolved upon, on the balance sheet date. Deferred tax assets regarding tax deductible temporary differences and deductible deficiencies are accounted for only to the extent it is likely that they will be possible to use. The value of deferred tax assets are curtailed when it is likely that they will no longer be possible to utilize. Potential additional income taxes that occur due to dividends are accounted for at the same time as the dividend is booked as a debt. 1) At the end of 2014, Tobii held 30.5% of the shares and ownership in Sticky AB. 100

103 Operating and financial review Tobii s financial performance The following table sets forth, for the periods presented, the consolidated income statement. The information in the tables below should be read in conjunction with the audited consolidated financial statements for the period and the related notes, which are to be found elsewhere in the Offering Circular. SEK million Net sales Cost of goods and services sold Gross profit Selling expenses Research & development expenses 1) Administrative expenses Other operating income and operating expenses Operating profit (EBIT) Profit/loss from financial items Share of profit/loss from associated companies Financial income Financial expenses Total financial income and expenses Profit/loss before taxes Taxes Net profit/loss for the year EBITDA 2) The following tables show net sales, and EBIT and adjusted EBIT by business unit for the periods presented. Net sales Tobii Dynavox Tobii Pro Tobii Tech Other and eliminations The Group EBIT Tobii Dynavox Tobii Pro Tobii Tech Other and eliminations The Group Adjusted EBIT 3) Tobii Dynavox Tobii Pro Tobii Tech Other, net The Group ) See specification on the next page. 2) For additional information about EBITDA see Operating and financial review Use of non-ifrs measures. 3) For additional information about adjusted EBIT see Operating and financial review Use of non-ifrs measures. 101

104 Operating and financial review Specification of R&D costs in the Income Statement Tobii makes significant research and development investments, of which some is capitalized on the balance sheet. The table below reconciles how the Company s total research and development spend is reported. The year s total R&D expenditures (Total R&D spend) is the gross R&D expenditure for the period and includes all internal and external costs related to the development of the Company s new products, patents, solutions, including costs for personnel, premises, and IT. Capitalizeddevelopment expenses (Capitalized R&D) is the portion of development investments that Tobii believes will lead to future earnings and should therefore be capitalized on the balance sheet. Amortization and Impairments include the sum of the year s development-related amortization and impairments. In the Income Statement, Research & development expenses are reported net and consist of the year s gross research & development expenditures adjusted for capitalized development expenses and R&Drelated amortization and impairments. In 2012, SEK 6.8 million in total R&D spend, SEK 5.2 million in capitalized R&D and SEK 1.1 million in R&D related depreciation was attributable to Sticky AB. Group Total R&D expenditures (Total R&D spend) Capitalized development expenses (Capitalized R&D) R&D related amortization and impairments R&D expenses net, as in the income statement Tobii Dynavox Total R&D expenditures (Total R&D spend) Capitalized development expenses (Capitalized R&D) R&D related amortization and impairments R&D expenses net, as in the income statement Tobii Pro Total R&D expenditures (Total R&D spend) Capitalized development expenses (Capitalized R&D) R&D related amortization and impairments R&D expenses net, as in the income statement Tobii Tech Total R&D expenditures (Total R&D spend) Capitalized development expenses (Capitalized R&D) R&D related amortization and impairments R&D expenses net, as in the income statement

105 Operating and financial review Year ended December 31, 2014 compared to year ended December 31, 2013 Net sales The Group s net sales increased by 51% to SEK million in 2014 from SEK million in 2013 and by 45% following adjusting for currency effects. The main proportion of the increase was due the acquisition of DynaVox Systems LLC in May 2014 but also due to a strong demand for several of the Company s products as well as the currency effects mentioned above. Tobii Dynavox s net sales increased by 89% to SEK million in 2014 compared to SEK million in 2013 and by 82% adjusting for currency effects, primarily due to the acquisition in May of DynaVox Systems LLC. The increase was also due to organic growth, primarily increased sales of the product Tobii I-series as well as the currency effects mentioned above. In 2014, sales were negatively affected following the reclassification of assistive technology for communication in the U.S. in April 2014 to capped rental. This implies that products that are financed by Medicare are paid in monthly installments over 13 months instead of full payment at the time of the purchase. In addition to a delay in revenues, this has also led to reduced sales partly due to increased administration. Tobii Pro s net sales decreased by 2% to SEK million in 2014 compared to SEK million in Adjusted for currency effects, the decrease amounted to SEK 11.4 million or 7%. The decrease was due to a product generation shift and Tobii Pro s strategy to proactively reduce prices and costs for hardware products in order to accelerate long term sales of analytical software and consulting services. The production of Tobii Glasses 1 was terminated in May and the deliveries of the more profitable Tobii Glasses 2 were not initiated until December The business unit s net sales consequently decreased by 20% during the second quarter 2014 compared to the same period in 2013, and by 22% during the third quarter. Net sales increased by 22% during the fourth quarter compared to the same period in At the end of the year, an unusually large order book consisting of products that had yet to be delivered remained. Tobii Tech s net sales in 2014 increased by 79% to SEK 36.6 million compared to SEK 20.5 million in 2013 primarily due to the increase in internal sales to Tobii Dynavox and Tobii Pro, which increased from SEK 16.8 million to SEK 29.3 million. Sales to external customers increased to SEK 7.3 million in 2014 from SEK 3.7 million in Gross profit The Group s gross profit in 2014 increased by 64% to SEK million from SEK million in 2013, primarily due to increased sales and the acquisition of DynaVox Systems LLC. In addition, the gross margin increased to 70.8% from 65.2% owing to all three business units increasing their gross margins, both through the introduction of more profitable products and a positive product mix. Tobii Dynavox increased its gross profit to SEK million in 2014 from SEK million for This was primarily due to the acquisition of DynaVox Systems LLC but also due to a gross margin increase from 61.3% to 68.3% mainly owing to lower production costs for new products. Tobii Pro s gross profit increased by 3% to SEK million in 2014 from SEK million in This was due to a gross margin increase to 71.6% in 2014 from 68.3% in 2013, mainly due to lower production costs for new products. Tobii Tech s gross profit increased by SEK 8.5 million to SEK 16.3 million in 2014 from SEK 7.8 million in The increase was due to the increased net sales, which also contributed to improving the gross margin to 44.5% in 2014 from 38.0% in Operating profit (EBIT) The Group s operating profit in 2014 amounted to SEK 68.9 million compared to SEK 37.5 million in The decrease reflects the effect of the increased investments in Tobii Tech. The positive operating profits originating in Tobii Dynavox and Tobii Pro, which increased by a total of SEK 15.6 million in 2014 compared to SEK 54.8 million in 2013, were not sufficient to balance the operating loss in Tobii Tech, which in 2014 amounted to SEK million. The reduction of the Group s operating profit was primarily due to an increase in net R&D expenses in the income statement of SEK 65.1 million to SEK million in 2014, from SEK million in 2013 (which corresponds to approximately 25% of net sales in 2013 and 27% in 2014). The total R&D spend increased by 34% to SEK million from SEK million. Out of this, SEK 93.5 million or 46% was capitalized on the balance sheet for 2014 and SEK 95.3 million or 62% for Due to the net sales increase, selling expenses and administrative expenses decreased to 53.9% of the revenues from 50.7% in 2013, despite the fact that the aquisition of DynaVox Systems LLC had a negative effect. Tobii Dynavox s operating profit for 2014 increased to SEK 41.9 million from SEK 20.6 million for 2013 despite the second quarter 2014 being charged with acquisition related costs of SEK 7.4 million and the third quarter being charged with restructuring costs of SEK 4.9 million; both items are attributable to the acquisition of DynaVox Systems LLC. Adjusted for these items, the operating profit increased to SEK 54.2 million, which gave an adjusted operating profit margin of 12.3% for 2014 compared to 8.9% for The margin was improved despite the fact that the selling expenses and administrative expenses increased to 46.5% of net sales from 41.6% in 2013 due to that the acquired company DynaVox Systems LLC having higher administrative expenses as a percentage of net sales compared to the percentage of the original part of Tobii. The business unit s net R&D expenses in the income statement increased to SEK 51.2 million for 2014 from SEK 25.2 million in 2013 and increased compared to sales, to 12% in 2014 from 103

106 Operating and financial review 11% in 2013 despite DynaVox Systems LLC not being as R&D intensive as Tobii. Out of the total R&D spend of SEK 53.9 million and SEK 33.0 million, respectively, SEK 24 million or 45% was capitalized on the balance sheet in 2014 and SEK 24.4 million or 74% in Tobii Pro s operating profit in 2014 amounted to SEK 12.9 million compared to SEK 18.6 million in The decrease of SEK 5.7 million is explained both by a decrease in net sales of 2% and by an increase in operating costs. Selling expenses and administrative expenses increased by SEK 7.4 million or 9.2% to SEK 88.2 million or 52.7% of the revenues from SEK 80.8 million or 47.3% of the revenues in The net R&D expenses in the income statement increased by SEK 2.3 million or 14% to SEK 19.2 million, corresponding to 11% of net sales in 2014 compared to 10% of net sales in Operating profit margin decreased to 7.7% from 10.9%, both due to on the higher R&D expenses for Tobii Glasses 2 and due to a strengthened sales organization in Japan and China. The total R&D spend increased by 30% to SEK 33.6 million from SEK 25.8 million. Out of the total R&D spend, SEK 21.6 million or 64% was capitalized on the balance sheet in 2014 and SEK 23.2 million or 90% in Tobii Tech s operating profit in 2014 amounted to SEK million compared to SEK 84.9 million in The SEK 36.7 million lower operating profit were due to the planned increase in net R&D in the income statement of SEK 36.8 million to SEK 99.1 million in 2014 compared to SEK 62.3 million in The total R&D expenses increased by 24% or SEK 22.7 million to SEK million from SEK 94.1 million. Out of the total R&D spend, SEK 47.9 million or 41% was capitalized on the balance sheet in 2014 and SEK 47.8 million or 51% in Selling expenses and administrative expenses increased by SEK 7.4 million to SEK 37.6 million. Profit/loss before tax The profit/loss before tax for 2014 amounted to SEK 53.9 million compared to SEK 51.8 million in This change of SEK 2.1 million was SEK 29.3 million lower than the decrease in operating profit, which was due to the net financial income being changed to an income of SEK 15.0 million in 2014 compared to a loss of SEK 14.3 million in 2013, primarily due to positive currency exchange effects. Net profit/loss for the year and earnings per share The net profit/loss for 2014 amounted to SEK 50.9 million compared to SEK 45.1 million for 2013 after the profit/loss before tax was affected by positive tax entries of SEK 3.0 million and SEK 6.7 million, respectively since the Group had unused loss carry-forwards. Adjusted for currency effects after tax, the result for 2014 decreased by SEK 41 million. The net profit corresponds to earnings per share of SEK 0.82 in 2014 compared to SEK 0.76 in 2013, which are also the earnings per share after dilution due to negative net profits. Year ended December 31, 2013 compared to year ended December 31, 2012 Net sales The Group s net sales for 2013 increased by 12% to SEK million compared to SEK million for This increase of SEK 42.7 million was primarily due to Tobii Dynavox (with an increase of SEK 27.6 million) and Tobii Pro (with an increase of SEK 23.9 million), but also the third business unit, Tobii Tech (with an increase of SEK 17.2 million, including internal sales of SEK 16.8 million). Net sales was negatively affected by SEK 9.2 million from a change in the organizational structure. In 2013 Sticky AB changed status to an associated company from a consolidated subsidiary. Tobii Dynavox increased its net sales by SEK 27.6 million or 13% to SEK million from SEK million for 2012, despite negative currency effects of SEK 5.4 million or 3%. The sales increase was mainly driven by growing market demand and a new product launch (Tobii I-series) in May Tobii Pro increased its net sales by SEK 23.9 million or 16% to SEK million from SEK million for 2012, despite negative currency effects of SEK 7.8 million or 5.3%. The increase was primarily driven by growing market demand, new product releases (Tobii X2-series), and increased sales of Tobii Insight market research services. Tobii Tech increased its net sales by SEK 17.2 million to SEK 20.5 million in 2013 from SEK 3.3 million for The increase was mainly driven by internal sales of new eye-tracker platforms to Tobii Dynavox and Tobii Pro, which were released during the year and are the first products sold internally from Tobii Tech to the other business units. Gross profit The Group s gross profit for 2013 increased by SEK 34.3 million or 15% to SEK million compared to SEK million for All business units contributed to the improvement, while gross profit was negatively affected by SEK 7.1 million from the change of Sticky AB to an associated company from a consolidated subsidiary. Gross margin improved by 2 percentage points (pp) to 65.2% from 63.4% in Tobii Dynavox increased its gross profit by SEK 24.7 million or 21% to SEK million. The increase was due both to an increase in net sales of 13% and to the gross margin being improved to 61.3% from 57.5%, mainly due to lower production costs related to the new Tobii I-series. 104

107 Operating and financial review Tobii Pro improved its gross profit by SEK 9.5 million or 9% to SEK million. The improvement was due to a net sales increase of 16% while the gross margin decreased to 68.3% from 72.9%, mainly due to changes in the product mix. Tobii Tech increased its gross profit by SEK 7.1 million to SEK 7.8 million due to higher sales, primarily to Tobii Dynavox and Tobii Pro. Operating profit (EBIT) The Group s operating profit for 2013 improved to SEK 37.5 million from SEK 53.0 million for The outcome reflects that Tobii Dynavox s and Tobii Pro s operating profits are not yet sufficient to cover the Group s large investments in Tobii Tech in order to be able, in the future, to utilize its eye-tracking technology in new volume markets. The improvement in operating profit of SEK 15.5 million was due to Tobii Dynavox and Tobii Pro raising their operating profit by SEK 35.6 million to SEK 39.2 million while the de-consolidation of Sticky AB had a favorable impact of SEK 8.2 million. These two favorable effects were partially offset by a higher R&D spend activity in Tobii Tech. The Group s operating profit margin improved by 5 pp to 9.1% from 14.3%. This was due to the above-mentioned 2 pp gross margin improvement and lower operating costs in relation to net sales. The only item among the operating costs that increased more than net sales was net R&D expenses in the income statement, which increased by 53% to SEK million in 2013 from SEK 68.4 million. In relation to sales, net R&D expenses in the income statement increased by 7 pp from 17% to 25%. The total R&D spend increased by 44% to SEK million from SEK million. Out of this, SEK 95.3 million or 62% was capitalized on the balance sheet for 2013 and SEK 77.0 million or 72% for Selling expenses and administrative expenses decreased by 3% to SEK million from SEK million and to 47.4% of sales from 54.6% due to the increased net sales. Tobii Dynavox s operating profit for 2013 improved to SEK 20.6 million from SEK 3.0 million for 2012 and the operating profit margin improved to 8.8% from 1.5%. The improvement was due to the 13% net sales increase and the 3.8 pp gross margin increase, while SEK 10.2 million higher operating expenses had a 4.8 pp negative effect. This was primarily due to that selling expenses and administrative expenses increased by 10% to SEK 89.6 million from SEK 81.5 million in However, in relation to net sales, selling expenses and administrative expenses decreased to 38.3% from 39.5%. The net R&D expenses in the income statement of SEK 25.2 million were almost unchanged compared to 2012, where the expenses amounted to SEK 25.3 million, corresponding to 11% of net sales compared to 12% for The total R&D spend increased by 7% to SEK 33.0 million from SEK 30.9 million for Out of this, SEK 24.4 million or 74% was capitalized on the balance sheet for 2013 and SEK 23.1 million or 75% for Tobii Pro s operating profit for 2013 improved to SEK 18.6 million from SEK 0.5 million for 2012 and the operating profit margin improved to 10.9% in 2013 from 0.3% in The increase was driven by the net sales increase of 16% and by a decrease in net R&D expenses in the income statement to SEK 16.9 million from SEK 24.0 million in 2012 (corresponding to 10% and 16%, respectively, of net sales). The decrease was due to a higher capitalization of R&D. Capitalized R&D increased to SEK 23.2 million corresponding to 90% of the total R&D spend in 2013 compared to SEK 18.7 million or 74% of the total R&D investments in The higher degree of capitalization in 2013 was due to a higher share of the total R&D spend being allocated to projects that had come closer to commercialization. The total R&D expenses increased by 2% to SEK 25.8 million from SEK 25.4 million in Selling expenses and administrative expenses of SEK 75.9 million remained on almost the same level as in 2013, when they amounted to SEK 76.0 million, but decreased in relation to net sales to 44.4% from 51.7% in Tobii Tech s operating profit for 2013 amounted to SEK 84.9 million in 2013 compared to SEK 41.0 million for This decrease of SEK 44 million was due to a SEK 45.8 million increase in net R&D expenses in the income statement as a consequence of the strategy to further develop Tobii s core eye-tracking technology to the needs and requirements of future volume markets for eye tracking. In addition to the R&D expenses, operating costs increased with 4.8 million SEK as a result of increased sales expenses of SEK 5.0 million; for example, an office in Mountain View, USA was opened. However, administrative expenses remained at SEK 10.8 million compared to SEK 10.9 million in Net R&D expenses in the income statement increased to SEK 62.3 million in 2013 from SEK 16.5 million in 2012 and the total R&D spend more than doubled to SEK 94.1 million from SEK 43.3 million in Out of this, SEK 47.8 million was capitalized in the balance sheet or 51% in 2013, and SEK 30.0 million or 69% in Profit/loss before tax Profit/loss before tax for 2013 amounted to SEK 51.8 million compared to SEK 59.2 million for 2012, an improvement of SEK 7.3 million. Operating profit increased with SEK 15.5 million but was offset by a SEK 8.2 million negative effect from financials items, primarily as a result of the participation in the associated company Sticky AB which, as of 2013, was accounted for as a financial item. Net profit/loss for the year and earnings per share Net loss for 2013 amounted to SEK 45.1 million compared to SEK 58.4 million for 2012, an improvement of SEK 13.3 million. Adjusted for currency effects, net loss increased by SEK 27.7 million. The increase was driven by the increase in profit before tax and by positive tax effects. The net loss corresponds to a loss per share of SEK 0.76 for 2013 compared to SEK 0.93 for 2012, which also is the result per share following dilution due to the negative net profit/loss. 105

108 Operating and financial review Liquidity and capital resources Tobii has cash and other liquid assets to fund its operating activities. These assets are primarily in SEK, but also in USD, EUR and JPY. Tobii mainly relies on operating cash flows and credit facilities from Swedbank AB (publ) in accordance with a negotiated loan agreement. For further information, see Legal considerations and supplementary information Loan agreement with Swedbank. Cash flow The following table summarizes Tobii s cash flow in the periods presented. SEK million Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Cash flow for the period Cash and cash equivalents at the beginning of the period Exchange rate difference in cash and cash equivalents Cash and cash equivalents at the end of the period Year ended December 31, 2014 compared to year ended December 31, 2013 Cash flow from operating activities Cash flow from operating activities gave rise to an outflow of SEK 0.7 million in 2014 compared to an inflow of SEK 48.2 million in The decrease was partly due to higher trade receivables due to significantly higher sales levels in December 2014, partly due to a substantial increase of working capital in Cash flow from investing activities Cash flow from investing activities gave rise to an outflow of SEK million in 2014 compared to an outflow of SEK million in Out of the investments, SEK 94 million were investments in intangible fixed assets (primarily capitalized development expenses) SEK 22 million in tangible fixed assets and SEK 93 million the acquisition of DynaVox Systems LLC. Cash flow from financing activities Cash flow from financing activities gave rise to an inflow of SEK million in No financing activities occurred in 2013 while two new share issuances of SEK 100 million and SEK 69 million before deduction of transaction costs of SEK 3 million were conducted in In addition, the Group took a loan of SEK 119 million to finance the acquisition of DynaVox Systems LLC. The first mentioned new share issue was directed to the Sixth APfund while the second new share issue of convertibles with preferential right for existing shareholders. Year ended December 31, 2013 compared to year ended December 31, 2012 Cash flow from operating activities Cash flow from operating activities gave rise to an inflow of SEK 48.2 million in 2013 compared to an inflow of SEK 36.5 million in The increase was partly driven by the improvement in operating activities before change in working capital of SEK 19.6 million and partly driven by an improvement in working capital of SEK 29.2 million. The improvement in working capital was mainly due to lower inventories. Cash flow from investing activities Cash flow from investing activities gave rise to an outflow of SEK million in 2013 compared to an outflow of SEK 91.1 million in The increase was mainly driven by the increased investment in R&D projects. Cash flow from financing activities Cash flow from financing activities was SEK 0 million in 2013 compared to an inflow of SEK million in 2012 when a SEK 144 million new share issue was conducted. 106

109 Operating and financial review Working capital The table below summarizes Tobii s working capital, as of December 31, for the stated years. SEK million Inventory Accounts receivables and other current receivables Accounts payable Other current liabilities Working capital % of net sales 4.3% 6.2% 14.8% Year 2014 compared to year 2013 Working capital of SEK 26.6 million was at the end of 2014 close to the working capital at the end of 2013 of SEK 25.5 million. Inventory and accounts receivables increased substantially (by SEK 23.4 million and SEK 74.2 million, respectively), primarily due to the acquisition of DynaVox Systems LLC. Furthermore, as a consequence of the acquisition, accounts payable and other current debts liabilities (by SEK 27.5 million and SEK 69.1 million, respectively). Included in other current receivables are reservations to the opening balance with respect to the DynaVox-acquisition. Some of these reserves will be activated in 2015, why working capital in relation to net sales is expected to increase from the low levels of 4.3% at the end of Liquidity arrangements The acquisition of DynaVox Systems LLC was mainly financed by a USD loan from Swedbank AB (publ). As of December 31, 2014 Tobii s unutilized committed bank overdraft facilities under the loan agreement with Swedbank AB (publ) was SEK 108 million. Tobii seeks to manage liquidity by maintaining sufficient cash and have access to credit facilities through various credit facility agreements. Tobii s ability to meet future liquidity requirements will depend on the Company s future financial performance, which will be affected by a range of economic, compe titive and business factors, many of which are outside of Tobii s control. Year 2013 compared to year 2012 The working capital decreased by SEK 29.2 million to SEK 25.5 million in 2013 which means that the working capital in relation to net sales improved to 6.2% from 14.8%. This change was primarily due to a higher inventory turnover and higher current liabilities as a result of more efficient product flows and due to better agreements with the Company s suppliers. 107

110 Operating and financial review Quarterly financial information Income statement Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 SEK million Net sales Gross profit Operating costs Research & development Operating profit (EBIT) EBITDA Capex SEK million Q Q Q Q Q Intangible capex Tangible capex Total Q Q Q Q Q Q Q Cash flow SEK million Q Q Q Q Q Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Cash flow for the period Q Q Q Q Q Q Q Segment quarterly information Net sales Q Q Q Q Q Tobii Dynavox Tobii Pro Tobii Tech Other and eliminations Group Q Q Q Q Q Q Q Gross margin Q Q Q Q Q Tobii Dynavox 70.2% 70.3% 63.5% 67.3% 69.5% 65.2% 47.5% 56.7% 61.1% 56.7% 55.1% 57.2% Tobii Pro 74.0% 71.5% 69.8% 69.5% 69.9% 65.7% 65.4% 72.2% 73.0% 71.4% 70.9% 76.0% Tobii Tech 37.5% 28.6% 71.7% 46.3% 38.1% 44.2% 34.1% 16.1% 76.5% 68.8% 9.8% 69.6% Group 72.5% 71.2% 68.5% 69.9% 71.4% 67.1% 57.7% 62.0% 64.6% 62.2% 61.6% 65.5% Q Q Q Q Q Q Q

111 Operating and financial review EBIT Q Q Q Q Q Tobii Dynavox Tobii Pro Tobii Tech Other and eliminations Group Tobii Dynavox (Adjusted) 1) Group (Adjusted) 1) Q Q ) For additional information about adjusted EBIT see Operating and financial review Use of non-ifrs measures. Q Q Q Q Q EBIT-margin Q Q Q Q Q Tobii Dynavox 13.8% 5.5% 0.9% 19.6% 16.8% 22.2% neg. 3.0% 2.7% 1.9% neg. 2.9% Tobii Pro 22.4% neg. 0.5% 7.6% 19.8% 10.1% 6.5% 4.8% 8.0% neg. neg. 2.2% Tobii Tech neg. neg. neg. neg. neg. neg. neg. neg. neg. neg. neg. neg. Group neg. neg. neg. neg. neg. 3.4% neg. neg. neg. neg. neg. neg. Tobii Dynavox (Adjusted) 1) 14.3% 8.6% 8.8% Group (Adjusted) 1) neg. neg. neg. Total R&D Q Q Q Q Q Tobii Dynavox Tobii Pro Tobii Tech Other and eliminations Group Capitalized R&D Q Q Q Q Q Tobii Dynavox Tobii Pro Tobii Tech Other and eliminations Group Net R&D, as in P&L Q Q Q Q Q Tobii Dynavox Tobii Pro Tobii Tech Other and eliminations Group Q Q Q Q Q Q Q Q ) For additional information about adjusted EBIT See Operating and financial review Use of non-ifrs measures. Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q

112 Capitalization, indebtedness and other financial information Capitalization, indebtedness and other financial information The tables in this section describe the Company s capitalization and indebtedness at Group level as at February 28, See section Share capital and ownership structure for further information about the Company s share capital and shares. The tables in this section should be read in conjunction with section Operating and financial review and the Company s financial information, including the related notes, which may be found elsewhere in this Offering Circular. Capitalization The below table summarizes Tobii s capital structure based on equity and interest bearing debt as of February 28, February 28, SEK million 2015 Current debt Guaranteed 1) Secured 2) 60.3 Unguaranteed/unsecured Total current debt 60.3 Non-current debt Guaranteed Secured 82.7 Unguaranteed/unsecured Total non-current debt 82.7 Shareholders equity Share capital 0.3 Other contributed capital Other reserves 0.3 Retained earnings Total equity ) Guaranteed debt refers to debts to credit institutions, all as stipulated in the credit facility agreement with Swedbank AB (publ). 2 Secured assets for debt to credit institutes primarily relates to floating charges and shares and other assets in certain subsidiaries, all as stipulated in the credit facility agreement with Swedbank AB (publ). Net indebtedness The below table summarizes Tobii s net indebtedness as of February 28, February 28, SEK million 2015 (A) Cash 0 (B) Cash equivalents 82.5 (C) Trading securities (D) Liquidity (A)+(B)+(C) 82.5 (E) Current financial receivables (F) Current bank debt 60.3 (G) Current portion of non-current debt (H) Other current financial debt (I) Current financial debt (F)+(G)+(H) 60.3 (J) Net current financial indebtedness (I)-(E)-(D) 22.2 (K) Non-current bank loans 82.7 (L) Bonds issued (M) Other current financial debt (N) Non-current financial indebtedness (K)+(L)+(M) 82.7 (O) Net financial indebtedness (J)+(N) 60.5 Loan agreement On May 21, 2014, Tobii and Swedbank AB (publ) entered into a loan agreement under which Swedbank AB (publ) granted Tobii two bank loans of USD 5 million and USD 6 million, respectively, and two bank overdraft facilities with a maximum of SEK 85 million and USD 10 million, respectively. In December 2014, Tobii Technology Inc. acceded to the loan agreement as a guarantor and Tobii Assistive Technology Inc. and DynaVox Systems LLC as borrowers and guarantors. The interest is based on interbank rates for the relevant currency, plus a margin. In addition, a provision fee based on the sum of the outstanding loan within the respective bank overdraft facilities in relation to the total bank overdraft facility is charged. The loan agreement includes customary covenants and undertakings, inter alia in the form of financial key ratios for Tobii and its subsidiaries. The undertakings include a negative security pledge with customary exemptions regarding assignments and debts. The financial key ratios include net debt in relation to EBITDA, equity/asset ratio and interest cover. If Tobii or its subsidiaries fail to satisfy all undertakings, the lender is entitled to terminate the facility and demand repayment of outstanding loans and, if the loans are not repaid, realize the security. Provided that the Offering is concluded, the Company will repay the two bank loans of USD 5 million and USD 6 million in full. The two 110

113 Capitalization, indebtedness and other financial information bank overdraft facilities will remain in place but the Company will repay any withdrawals made with part of the proceeds received under the Offering. For more information regarding the Group s loan agreement see section Legal considerations and supplementary information Loan agreement with Swedbank. Investments The table below summarizes investments made in intangible and tangible fixed assets for the presented periods. Tobii has primarily financed the investments through internally generated cash flows, contributed equity and loans. Two new share issues were completed in 2014 which together provided SEK 166 million in net proceeds and one share issue was completed in 2012 which provided SEK 143 million in gross proceeds. External bank loans were taken in connection with the acquisition of DynaVox Systems LLC, for more information, see section Capitalization, indebtedness and other financial information Credit facilities agreement. SEK million Intangible fixed assets Balanced expenses for product development Other intangible fixed assets Tangible fixed assets Investments through acquisitions Intangible fixed assets Balanced expenses for product development 38.9 Brands 71.4 Tangible fixed assets 7.3 Total investments through acquisitions of intangible and tangible assets Total investments in intangible and tangible fixed assets, including acquisitions Investments in intangible fixed assets primarily consist of capitalized R&D expenses for product development to further develop Tobii s core eye-tracking technology as well as specific product developments projects. During the period , the main product development projects consisted of the development of the Tobii IS20-, Tobii IS3- and Tobii IS4-platforms, Tobii I-series and Tobii Glasses 2. Capitalized development costs in relation to total R&D investments amounted to 72.4%, 62.3% and 45.8% of the total R&D investments for the years 2012, 2013 and 2014, respectively. During the period , the Company has accounted for R&D expenses of SEK 68 million, SEK 105 million and SEK 170 million for the years 2012, 2013 and 2014, respectively which correspond to 64%, 68% and 83% of the total R&D spend for the respective year. The investments through acquisitions of other intangible fixed assets in 2014 primarily consist of capitalized costs for product development and brand which were identified as intangible assets in connection with the acquisition of DynaVox Systems LLC. Investments in tangible fixed assets primarily consist of equipment, tools and installations, demonstration units and improvements made to leased premises. In 2014, tangible fixed assets of SEK 7 million were added through the acquisition of DynaVox Systems LLC. Ongoing and future investments The Board of Directors have resolved on an R&D budget for 2015 of approximately SEK 240 million, where the single largest investment relates to the investment in the Tobii IS4-platform, which also include the development of Tobii EyeChip. For further information about each business unit s R&D budget for 2015, see section Business and market overview Research & Development (for each business unit). In 2015, up to and including February 28, 2015 the Group s investments in R&D amount to approximately SEK 48.5 million. Out of these, approximately 46% has been capitalized as investments in product development. As a prerequisite for the resolved investment budget for 2015, the Offering must be concluded. However, it is the Company s assessment that all ongoing development projects can be financed with available cash flows and ready means as well as existing debt facilities. The Group intends to conduct substantial investments in R&D within all three business units during the coming years. Working capital statement As of the date of the Offering Circular, Tobii s assessment is that existing working capital is sufficient to meet the needs of the ongoing business over the next twelve months. Working capital in this section is referring to Tobii s ability to fulfill its payment obligations as payments fall due. Significant events after December 31, 2014 In February 2015, Tobii and the computer-games company Ubisoft announced that Assassin s Creed Rouge PC, which is one of Ubisoft s most sold games, will include Tobii s eye tracking in order for the game view to automatically follow where the player is looking, just as when a person is moving its gaze point. Deliveries of the game to stores commenced in March In February 2015, a bill was presented in the U.S. ( Steve Gleason Act ) proposing that (i) congress change the previously taken decision to classify assistive technology for communication as capped rental -products, and (ii) improve the possibilities to get financing for assistive eye-tracking technology through Medicare. If this bill is passed, it may have positive effects on Tobii Dynavox in the medium term. 111

114 Board of Directors, executive management and auditor Board of Directors, executive management and auditor Board of directors Tobii s board of directors consists of seven ordinary members, including the chairman of the board, with no alternate directors, all of whom are elected for the period up until the end of the 2015 annual general meeting. The table below shows the members of the board of directors, when they were first elected and whether they are considered to be independent of the Company and/or the main shareholders. Independent of Name Position Member since The Company Main shareholders Kent Sander Chairman of the Board 2014 Yes Yes Anders Ösund Director 2007 Yes No Nils Bernhard Director 2004 Yes Yes Martin Gren Director 2007 Yes Yes John Elvesjö Director 2006 No No Åsa Hedin Director 2015 Yes Yes Magnus Ericson Director 2015 Yes No Kent Sander (born 1953) Chairman of the Board of Directors since Education/Background: BSc in Business Administration, Stockholm University. Kent Sander has more than 30 years of experience from leading positions in international Telecom and high-tech IT companies. Kent Sander was the CEO at TruePosition, held the position as Executive VP sales at Ericsson in the US and was during Chairman of the Board of Transmode when this world-leading company for optical net solutions went public and became listed on Nasdaq Stockholm. Other current assignments: Chairman of the board of directors of OnePhone Holding AB and Triboron International AB. Member of the board of directors of Expander Business Consulting AB, KR Sander Associates AB, BT OnePhone Ltd, KPN OnePhone Holding BV and Sander Capital Consulting AB. Alternate director of OnePhone UK SP AB. Previous assignments (last five years): Chairman of the board of directors of Transmode Systems AB, Transmode AB and Information Technologies Inc. Member of the board of directors of Corem Norr Holding AB, S4 International Services AB, S4 International Holding AB, Brain- Heart Partners AB, TRUX Holding AB and OnePhone Holding AB. Shareholding in the Company: Kent Sander holds 20,000 shares and 80,000 warrants. Anders Ösund (born 1970) Board member since Education/Background: Master of Science in Engineering Physics, KTH Royal Institute of Technology. Master of Science in Business and Economics, Stockholm School of Economics. Anders Ösund has 18 years of experience from investing in and developing growth companies. During the main part of that time, he has been an Investment Director at Investor Growth Capital AB ( IGC ). Tobii s largest shareholder, Invifed AB is controlled by IGC which in turn is a separate whollyowned subsidiary of Investor AB. Other current assignments: Founder and member of the board of directors of mfact Advisory AB. Member of the board of directors of Memira Holding AB. Alternate director of Memira AB. Previous assignments (last five years): Member of the board of directors of Cambio Healthcare Systems AB, Keybroker Group AB, Hoist Finance Service AB, Pocket- Mobile Communications Aktiebolag, Projectplace Holding AB, Projectplace International AB, Sörman Information Aktiebolag, Sörman Holding Aktiebolag, Sörman Intressenter AB, Telepo AB and Telepo Holding AB. Alternate director of SMT Tricept AB and Carmel Pharma Aktiebolag. Shareholding in the Company: Anders Ösund holds 25,000 shares in the Company. 112

115 Board of Directors, executive management and auditor Nils Bernhard (born 1947) Board member since Education/Background: Master of Science in Electrical Engineering, KTH Royal Institute of Technology. Master of Science in Business and Economics, Stockholm School of Economics. Nils Bernhard has 25 years of experience as an entrepreneur and angel investor. He has been actively involved in more than 20 companies as a shareholder and board member. He has founded or co-founded several companies including Precise Biometrics AB and Dannemora Mineral AB. Industries covered include electronics and IT, chemicals processing, internetbased services, minerals and mining, drugs and medical devices and the airline industry. Other current assignments: CEO and member of the board of directors of Mångubben AB. Chairman of the board of directors of Pajeb Kvarts AB. Member of the board of directors of WSSM Holding AB. Previous assignments (last five years): Chairman of the board of directors of Dannemora Mineral AB, Headweb AB and Headweb Personal AB. CEO and member of the board of directors of Mångubben Musik AB. Member of the board of directors of Bioimics AB. Shareholding in the Company: Nils Bernhard holds 2,575,000 1) shares, directly or indirectly through companies, and holds 28,000 warrants. Martin Gren (born 1962) Board member since Education/Background: Studied electronics at Lund Technical University. Martin Gren is the founder of Axis Communications. Other current assignments: Chairman of the board of directors of Axis Communications Aktiebolag, Gren & Karlsson Firmware Aktiebolag, Axis Technologies Aktiebolag, Axis Peripherals Aktiebolag, Axis Network Aktiebolag and Aktiebolag Grenspecialisten. CEO and member of the board of directors of Askero Sagoboks Förlag AB and Grenspecialisten Förvaltning AB. Member of the board of directors of H. Lundén Holding Aktiebolag, Axis Aktiebolag and Eikos Aktiebolag. Partner of Handelsbolaget Dekad and alternate director of Askero Invest AB. Previous assignments (last five years): Member of the board of directors of Askero Invest AB. Alternate director of Clearly AB, IT and Communications Technology Capital Sweden AB, Lexium AB and Drömkontoret AB. Shareholding in the Company: Martin Gren holds 87,000 shares, directly or indirectly through companies, and 28,000 warrants. 1) Nils Bernhard intends to sell shares prior to the listing. John Elvesjö (born 1977) Board member since Education/Background: Studies in Engineering Psysics, Royal Institute of Technology, Sweden. John Elvesjö is CTO, deputy CEO and co-founder of Tobii AB. Other current assignments: Member of the board of directors of The Incredible Machine of Sweden AB, HolidayPhone AB and Sticky AB. Previous assignments (last five years): Member of the board of the directors Xcerion Aktiebolag, Nangekri i Stockholm AB (formerly know as MuteWatch AB), Timpen Capital AB and Sticky AB. Alternate director of Sticky AB. Shareholding in the Company: John Elvesjö holds 4,085,335 shares directly and indirectly through companies, 130,000 employee stock options and 190,000 warrants. Magnus Ericson (born 1979) Board member since Education/Background: MSc in economics, Lund University. Bachelor s degree in statistics, Lund University. University degree in business administration, Lund University. Diploma Pro Board work, M Berglund Board value. During almost ten years, Magnus Ericson has been active in investing in companies. During the six of these years, he has been an Investment Director at Sixth AP-fund. Other current assignments: Magnus Ericson has no other current assignments. Previous assignments (last five years): Member of the board of directors of Aumar AB, Admeta Aktiebolag, Accedian Networks (Sweden) AB, Exertis Ztorm AB, Aronsson Pension Adviser Aktiebolag. Alternate director of Aumar AB. Shareholding in the Company: Magnus Ericson holds no shares in the Company. Åsa Hedin (born 1962) Board member since Education/Background: MSc in Biophysics and Bioengineering, University of Minnesota. BA in Physics, Gustavus Adolphus College. Diploma Pro Board work, M Berglund Board value. Other current assignments: Member of the board of directors of Svenska Rymdaktie bolaget and Nolato Aktiebolag. Industrial Advisor of Department of Microtechnology and Nanoscience at Chalmers AB. CEO and member of the board of directors of ASH&Partners AB (dormant). Previous assignments (last five years): Chairman of the board of directors of Elekta NeuroMag Oy. Member of the board of directors of MedCap AB (publ), Elekta Instrument AB, Rodebjer Form AB and Joy AB. Executive Vice President and member of executive committee of Elekta AB. CEO of Elekta Instrument AB. Alternate director of Kihlborg Film Aktiebolag. Shareholding in the Company: Åsa Hedin holds 7,000 shares and 28,000 warrants. 113

116 Board of Directors, executive management and auditor Executive management Henrik Eskilsson (born 1974) Chief executive officer since Education/Background: MSc in Industrial Engineering & Management, international profile, Linköping University. Co-founder of Tobii AB. Founder of Trampolinspecialisten i Stockholm AB. Other current assignments: Chairman of the board of directors of Eskilsson Consulting AB. CEO and member of the board of directors of Henrik Eskilsson AB. Alternate director of Sticky AB. Previous assignments (last five years): Chairman of the board of directors and alternate director of Sticky AB. Member of the board of directors of Trampolin specialisten i Stockholm AB and Sticky AB. Shareholding in the Company: Henrik Eskilsson holds, directly or indirectly through companies, 5,005,335 shares, as well as 160,000 employee stock options and 270,000 warrants. In addition thereto, Henrik Eskilsson owns 22.5% of Eskilsson Consulting which in turn owns 1,916,000 shares in Tobii. Esben Olesen (born 1965) Chief financial officer since Education/Background: MSc in Auditing and Business Administration, Copenhagen Business School. Certified public accountant, Denmark. Other current assignments: Esben Olesen has no other current assignments outside the Group. Shareholding in the Company: Esben Olesen holds 4,000 shares, as well as 95,000 employee stock options and 110,000 warrants. Mårten Skogö (born 1977) Chief science officer since Employed by Tobii since Education/Background: Studies in Engineering Psysics, Royal Institute of Technology, Sweden. Co-founder of Tobii AB. Previous assignments (last five years): Member of the board of directors of Mårten Skogö AB and Asti Capital AB. Shareholding in the Company: Mårten Skogö holds 3,911,193 shares, 20,000 employee stock options and 50,000 warrants. Mats Ödman (born 1950) Investor relationship manager since Education/Background: Studies in business administration at Uppsala University. Mats Ödman has previously worked as investor relationship director at Autoliv Inc. for 20 years. Previous assignments (last five years): Senior advisor at Fogel & Partners and member of the board of directors of Kommunikationskonsulten i Stockholm AB. Shareholding in the Company: Mats Ödman holds no shares in the Company. Tom Englund (born 1976) President of the business unit Tobii Pro since Education/Background: MSc in Industrial Engineering & Management, Linköping University. Studies at Ecole Polytechnique Fédérale de Lausanne and HEC in Lausanne. Previous assignments (last five years): Member of the board of directors of Sticky AB. Shareholding in the Company: Tom Englund holds 13,000 shares, as well as 125,000 employee stock options and 120,000 warrants. 114

117 Board of Directors, executive management and auditor Oscar Werner (born 1974) President of the business unit Tobii Tech since President of the business unit Tobii Assistive Technology (subsequently Tobii Dynavox) between 2010 and Education/Background: MSc in Business and Economics, Stockholm School of Economics. Studies in Industrial Engineering & Management at the Royal Institute of Technology, Sweden. Previous assignments (last five years): CEO and chairman of the board of directors of Getupdated Sverige AB and Getupdated Hosting Solutions AB. Chairman of the board of directors of MediaAnalys Trisodium AB. CEO of Oniva Online Group Europe AB. Shareholding in the Company: Oscar Werner holds 20,000 shares as well as 210,000 employee stock options and 220,000 warrants. Fredrik Ruben (born 1977) President of the business unit Tobii Dynavox since Education/Background: MSc in Industrial Engineering & Management, Linköping University. Previous assignments (last five years): CEO and member of the board of directors of 3L Media AB, Vitec Förvaltningssystem AB, 3L Consulting AB and Vitec Capifast AB. CEO of Vitec Mäklarsystem AB, 3L System Aktiebolag and Capitex AB. Member of advisory board of Vitec Software Group AB (publ), Vitec Mäklarsystem AB, Capitex AB, Vitec IT-Makeriet AS and Vitec Midas AS. Shareholding in the Company: Fredrik Ruben holds 8,000 shares, as well as 50,000 employee stock options and 175,000 warrants. John Elvesjö Chief technical officer and deputy Chief executive officer. Employed since See above under Board of directors. Auditor PricewaterhouseCoopers AB has been the Company s auditor since the annual general meeting in 2005 and was, at the annual general meeting 2014, re-elected until the end of the annual general meeting Magnus Brändström (born 1962) is the auditor in charge. Magnus Brändström is an authorized public accountant and a member of FAR (the Swedish trade organization for accounting consultants, auditors and advisors. PricewaterhouseCoopers AB s office address is Torsgatan 21, SE Stockholm, Sweden. Pricewaterhouse- Coopers AB has been auditor throughout the entire period which the historic financial information in the Offering Circular covers. Other information about the board of directors and executive management There are no family ties between any of the members of the Board of Directors or executive management. There are no conflicts of interest or potential conflicts of interest between the obligations of members of the board of directors and executive management of the Company and their private interests and/or other undertakings. Anders Ösund was an alternate director of SMT Tricept AB at the time of the company s bankruptcy and Magnus Ericson was a member of the board of directors of Aronsson Pension Adviser Aktiebolag at the time of the company s liquidation. Beside what is stated above, none of the members of the board of directors or the members of the executive management have, during the last five years, (i) been sentenced for fraud-related offences, (ii) represented a company which has been declared bankrupt or filed for liquidation, (iii) been the subject of sanctions or accused by authorities or bodies acting for particular professional groups under public law or (iv) been subject to injunctions against carrying on business. All members of the Board of Directors and the members of the executive management can be contacted through the Company s main office at Karlsrovägen 2 D, Danderyd, Sweden. 115

118 Corporate governance Corporate governance Corporate governance Tobii is a Swedish public limited liability company. Prior to the listing on Nasdaq Stockholm, corporate governance in the Company is based on Swedish law and internal rules and instructions. Once the Company has been listed on Nasdaq Stockholm, the Company will also comply with Nasdaq Stockholm s Rule Book for Issuers and apply the Swedish Corporate Governance Code (the Code ). The Code applies to all Swedish companies with shares listed on a regulated market in Sweden and shall be fully applied from the first annual general meeting held the year following the listing. The Company is not obliged to comply with every rule in the Code as the Code itself provides for the possibility to deviate from the rules, provided that any such deviations and the chosen alternative solutions are described and the reasons therefore are explained in the corporate governance report (the so-called comply or explain principle). The Company will apply the Code from the time of the listing of the shares on Nasdaq Stockholm. Any deviations from the Code will be reported in the Company s corporate governance report, which will be prepared for the first time for the 2015 financial year. However, in the first corporate governance report, the Company is not required to explain non-compliance with such rules that have not been relevant during the period covered by the corporate governance report. Currently, the Company expects to report a deviation from the Code with respect to alloted warrants to members of the Board of Directors within the framework of the Company s incentive program. Shareholders meeting According to the Swedish Companies Act (2005:551) (Sw. aktiebolagslagen), the shareholders meeting is the Company s ultimate decision-making body. At the shareholders meeting, the shareholders exercise their voting rights in key issues, such as the adoption of income statements and balance sheets, appropriation of the Company s results, discharge from liability of members of the board of directors and the CEO, election of members of the board of directors and auditors and remuneration to the board of directors and the auditors. The annual general meeting must be held within six months from the end of the financial year and notice shall be given no earlier than six weeks and no later than four weeks prior to the annual general meeting. In addition to the annual general meeting, extraordinary shareholders meetings may be convened by the Company. According to the articles of association, shareholders meetings are convened by publication of the convening notice in the Swedish National Gazette (Sw. Post- och Inrikes Tidningar) and on the Company s website. At the time of the notice convening the meeting, information regarding the notice shall be published in Svenska Dagbladet. Right to participate in shareholders meetings Shareholders who wish to participate in a shareholders meeting must be included in the shareholders register maintained by Euroclear Sweden on the day falling five workdays prior to the meeting and notify the Company of their participation no later than on the date stipulated in the notice convening the meeting. Shareholders may attend the shareholders meetings in person or by proxy and may be accompanied by a maximum of two assistants. Typically, it is possible for a shareholder to register for the shareholders meeting in several different ways as indicated in the notice of the meeting. Shareholders may vote for all shares in the Company held by the shareholder. Shareholder initiatives Shareholders who wish to have a matter brought before the shareholders meeting must submit a written request to the Board of Directors. Such request must normally be received by the Board of Directors no later than seven weeks prior to the shareholders meeting. Nomination committee Under the Code, the Company shall have a nomination committee, the purpose of which is to make proposals in respect of the chairman at shareholders meetings, board member candidates, including the chairman, fees and other remuneration of each board member as well as remuneration for committee work, election of and remuneration to the external auditors and proposal for nomination committee for the following annual general meeting. At the extraordinary shareholders meeting held on March 9, 2015, it was resolved that the nomination committee, ahead of the annual general meeting 2015, shall be composed of representatives of the three largest shareholders listed in the shareholders register maintained by Euroclear Sweden as of September 30, each year, together with the chairman of the Board of Directors. The nomination committee should therefore compose of four members in total. If any of these shareholders chose to abstain from the right to appoint a representative, the right is passed to the shareholder whom, in addition to these shareholders, has the largest shareholding. As long as the three founders Henrik Eskilsson, John Elvesjö and Mårten Skogö, directly or indirectly, owns shares in the Company that when combined makes them one of the three largest shareholders, they are entitled to jointly appoint one of the three shareholders representatives in the nomination committee. The committee ahead of the 116

119 Corporate governance annual general meeting 2015 shall be composed of representatives of the three largest shareholders (established according to the above mentioned principles) listed in the shareholders register maintained by Euroclear Sweden as of March 10, 2015 together with the chairman of the board. The member representing the largest shareholder shall convene the first meeting of the nomination committee and be appointed chairman of the nomination committee, unless the nomination committee unanimously appoints someone else. However, the chairman of the Board of Directors may not be appointed chairman of the nomination committee. If earlier than three months prior to the annual general meeting, one or more of the shareholders having appointed representatives to the nomination committee no longer are among the three largest shareholders, representatives appointed by these shareholders shall resign and the shareholders who then are among the three largest shareholders may appoint their representatives. Should a member resign from the nomination committee before its work is completed and the nomination committee considers it necessary to replace him or her, such substitute member is to represent the same shareholder or, if the shareholder is no longer one of the largest shareholders, the largest shareholder in turn. Changes to the composition of the nomination committee must be announced immediately. The composition of the nomination committee for the annual general meeting shall normally be announced no later than six months before that meeting. Remuneration shall not to be paid to the members of the nomination committee. The Company is to pay any necessary expenses that the nomination committee may incur in its work. The term of office for the nomination committee ends when the composition of the following nomination committee has been announced. Board of directors The board of directors is the second-highest decisionmaking body after the shareholders meeting. According to the Swedish Companies Act, the board of directors is responsible for the organization of a company and the management of the company s affairs, which means that the board of directors is responsible for, among other things, setting targets and strategies, securing routines and systems for evaluation of set targets, continuously assessing the financial condition and profits as well as evaluating the operating management. The board of directors is also responsible for ensuring that annual reports and interim reports are prepared in a timely manner. Moreover, the board of directors appoints the CEO. Members of the board of directors are normally appointed by the annual general meeting for the period until the end of the next annual general meeting. According to the Company s articles of association, the members of the board of directors elected by the shareholders meeting shall be not less than three and not more than nine members with no deputy members. According to the Code, the chairman of the board of directors is to be elected by the shareholders meeting and have a special responsibility for leading the work of the board of directors and for ensuring that the work of the board of directors is efficiently organized. The Board of Directors applies written rules of procedure, which are revised annually and adopted by the inaugural board meeting every year. Among other things, the rules of procedure govern the practice of the Board of Directors, functions and the division of work between the members of the Board of Directors and the CEO. At the inaugural board meeting, the Board of Directors also adopts instructions for the CEO, including instructions for financial reporting. The Board of Directors meets according to an annual predetermined schedule. In addition to these meetings, additional board meetings can be convened to handle issues which cannot be postponed until the next ordinary board meeting. In between the board meetings, the chairman of the Board of Directors and the CEO continuously discuss the management of the Company. Currently, the Company s Board of Directors consists of seven ordinary members, who are presented in section Board of Directors, executive management and auditor. Audit committee Tobii has an audit committee consisting of three members: Kent Sander, Anders Ösund and Åsa Hedin. The audit committee shall, without it affecting the responsibilities and tasks of the Board of Directors, monitor the Company s financial reporting, monitor the efficiency of the Company s internal controls, internal auditing and risk management, keep informed of the auditing of the annual report and the consolidated accounts, review and monitor the impartiality and independence of the auditors and pay close attention to whether the auditors are providing other services besides audit services for the Company, and assist in the preparation of proposals for the shareholders meeting s decision on election of auditors. Remuneration committee Tobii has a remuneration committee consisting of three members: Magnus Ericson, Kent Sander and Anders Ösund. The remuneration committee shall prepare matters concerning remuneration principles, remuneration and other employment terms for the CEO and other executive management. The CEO and other executive management The CEO is subordinated to the Board of Directors and is responsible for the everyday management and operations of the Company. The division of work between the Board of Directors and the CEO is set out in the rules of procedure for the Board of Directors and the CEO s instructions. The CEO is also responsible for the preparation of reports and compiling information for the board meetings and for presenting such materials at the board meetings. According to the instructions for the financial reporting, the CEO is responsible for the financial reporting in the Company and consequently must ensure that the 117

120 Corporate governance Board of Directors receives adequate information for the Board of Directors to be able to evaluate the Company s financial condition. The CEO must continuously keep the Board of Directors informed of developments in the Company s operations, the development of sales, the Company s result and financial condition, liquidity and credit status, important business events and all other events, circumstances or conditions which can be assumed to be of significance to the Company s shareholders. The CEO and executive management are presented in section Board of Directors, executive management and auditor. Remuneration to the members of the Board of Directors, CEO and other executive management Remuneration to the members of the Board of Directors Fees and other remuneration to the members of the Board of Directors, including the chairman, are resolved by the annual general meeting. At the extraordinary shareholders meeting held March 9, 2015, it was resolved that the fee to the chairman of the Board of Directors should be SEK 375,000 and that the fee to the members of the Board of Directors that are not employed by the Company, should be SEK 175,000, respectively. At the extraordinary shareholders meeting held January 16, 2015, it was resolved that remuneration for committee work shall be paid with, in total, a maximum of SEK 180,000. The remunerations stated above regard remuneration for a period of one year. Furthermore, it was resolved that the members of the board that are also employed by the Company should not receive any fee. The remuneration that should be paid to the members of the Board of Directors up until the annual shareholders meeting 2015 shall be calculated proportionally in relation to the date each member of the Board of Directors was elected. Members of the Board of Directors are not entitled to any benefits following termination of their assignments as members of the Board of Directors. Guidelines for remuneration to the CEO and other executive management The extraordinary shareholders meeting held on March , resolved on guidelines for remuneration which shall apply in relation to remuneration of the CEO and other members of the executive management. Remuneration during the financial year 2014 The table below presents an overview of remuneration to the current members of the Board of Directors, the CEO and other executive management for the 2014 financial year SEK million Board fee/ Basic salary Pension costs Variable remuneration Employee stock options/ warrants Nils Bernhard Martin Gren Anders Ösund John Elvesjö, member of the board of directors Total Board of Directors Total Henrik Eskilsson, CEO John Elvesjö, Chief technical officer and deputy CEO Other executive management (6 people) Total executive managment Total remuneration to the board of directors and the executive management

121 Corporate governance Current employment agreements for the CEO and other executive management Decisions as to the current remuneration levels and other conditions for employment for the CEO and the other members of the executive management have been resolved by the Board of Directors. Agreements concerning pensions shall, wherever possible, be based on fixed premiums and be in accordance with the levels, practice and collective bargaining agreements applicable in the country where the relevant member of the executive management is employed. The CEO, Henrik Eskilsson, and some of the other members of the executive management have employment agreements including reciprocal notice of termination of four months as well as an entitlement to four months severance payment provided the Company is the terminating party. The remaining executive managers have employment agreements that provide for up to six months notice period, without severance pay, or a longer notice period if stipulated by law. The CEO and other members of the executive management is not entitled to any additional remuneration following the termination of their employment. In 2014, the total remuneration to the CEO and the other members of the executive management amounted to approximately SEK 19.0 million (see distribution in the table above). As of the date of the Offering Circular, the executive management body has been expanded by one person in accordance with the consultancy agreement described below, and consists of seven people in addition to the CEO. In addition to the above stated employment agreements, the Company has entered into a consultancy agreement for the Company s IR-manager, Mats Ödman, which constitute part-time work of 1 2 days per week up until the publication of the interim report for the third quarter Insider and information policy The Company has prepared a policy document for the purpose of informing employees and others concerned within Tobii of the applicable rules and regulations applicable to the dissemination of information by the Company and the special requirements imposed on persons who are active in a listed company with regard to, e.g. price-sensitive information. Internal control The Board of Directors and the Board of Directors audit committee is responsible for internal control. Moreover, at Group level, each CEO of a legal entity together with the Group finance department and CFO are responsible for ensuring that necessary control is performed along with adequate monitoring. The internal control comprises the control of the Company s and the Group s organization, procedures and remedial measures. The object is to ensure reliable and correct financial reporting, to ensure that the Company s and the Group s financial reports are prepared in accordance with law and applicable accounting standards, that the Company s assets are protected, and that other requirements are complied with. The internal control system is also intended to monitor compliance with the Company s and Group s policies, principles and instructions. Internal control also involves analysis of risks and follow-up of implemented information and business systems. Auditing The auditor shall review the Company s annual reports and accounting, as well as the management of the Board of Directors and the CEO. Following each financial year, the auditor shall submit an audit report and a consolidated audit report to the annual general meeting. Pursuant to the Company s articles of association, the Company shall have one registered audit firm appointed. The Company s auditor is PricewaterhouseCoopers AB, with Magnus Brändström as auditor in charge. The Company s auditor is presented in more detail in section Board of Directors, executive management and auditor Auditor. In 2014, the total remuneration paid to the Company s auditor amounted to SEK 4 million. 119

122 Share capital and ownership structure Share capital and ownership structure General information Pursuant to the Company s articles of association, the Company s share capital may not be less than SEK 500,000 and not more than SEK 2,000,000, and the number of shares may not be less than 50,000,000 and not more than 200,000,000. As at the date of this Offering Circular, the Company has issued a total of 68,927,883 shares. The shares are denominated in SEK and the quota value of each share is approximately SEK 0,0073. All shares in the Company have been issued pursuant to Swedish law. All issued shares have been fully paid and are freely transferrable. The offered shares are not subject to a mandatory offering, redemption rights or sell-out obligation. No public takeover-offer has been made for the offered shares during the current or preceding financial year. Certain rights associated with the shares The offered shares are all of the same class. The rights associated with the shares issued by the Company, including those pursuant to the articles of association, can only be amended in accordance with the procedures set out in the Swedish Companies Act. Voting rights Each share in the Company entitles the holder to one vote at shareholders meetings and each shareholder is entitled to cast votes equal in number to the number of shares held by the shareholder in the Company. Preferential rights to new shares etc. If the Company issues new shares, warrants or convertibles in a cash issue or a set-off issue, shareholders shall, as a general rule, have preferential rights to subscribe for such securities proportionally to the number of shares held prior to the issue. Rights to dividends and balances in case of liquidation All shares give equal rights to dividends and the Company s assets and possible surpluses in the event of liquidation. Resolutions regarding dividend are passed by shareholders meetings. All shareholders registered as shareholders in the share register maintained by Euroclear Sweden on the record date adopted by the shareholders meeting shall be entitled to receive dividends. Dividends are normally distributed to shareholders as a cash payment per share through Euroclear Sweden, but may also be paid out in a manner other than cash (in-kind dividend). If shareholders cannot be reached through Euroclear Sweden, such shareholder still retains its claim on the Company to the dividend amount, subject to a statutory limitation of ten years. Upon the expiry of the period of limitations, the dividend amount shall pass to the Company. There are no restrictions on the right to dividends for shareholders domiciled outside Sweden. Shareholders not resident in Sweden for tax purposes must normally pay Swedish withholding tax, see also section Tax considerations in Sweden and, as applicable, Certain U.S. federal income tax considerations.. Dividend policy Over the next few years, Tobii s development and expansion ambitions for the business unit Tobii Tech will be given priority over dividends to shareholders. Central securities register The Company s shares are registered in a CSD register in accordance with the Swedish Financial Instruments Accounts Act (1998:1479). This register is managed by Euroclear Sweden AB, Box 191, SE Stockholm. No share certificates are issued for the Company s shares. The account operator is Carnegie. The ISIN code for the Company s shares is SE

123 Share capital and ownership structure Share capital development The below table shows historic changes in the Company s share capital since January 1, 2011 and the changes in the number of shares and the share capital which will be made in connection with the listing of the Company s shares on Nasdaq Stockholm. Number of shares Share capital (SEK) Registration date Event Change Total Change Total ) Share issue 3,015,150 90,143,033 21, , ) Share issue 18,200,000 87,127, , , Bonus issue 0 68,927, , , Share issue 41,000 68,927, , Warrant issue 629,043 68,886,883 3, , Exchange convertibles 3,684,458 68,258,840 18, , Share issue 60,663 64,573, , Share issue 5,000,000 64,512,719 25, , Share issue 6,217,391 59,512,719 31, , Warrant issue 45,348 59,467, , Share issue 100,000 59,367, , Warrant issue 353,980 59,013,391 1, , Warrant issue 700,000 58,313,391 3, , Share issue 3,000,000 55,313,391 15, , ) Based on authorization granted at the extraordinary shareholders meeting held on March 9, 2015, the Board of Directors will resolve upon an additional maximum of shares in accordance with the Over-allotment option that the Company has provided to the Joint Bookrunners. The change in the share capital has been included as if all of these shares are issued. The date for when this share issue will be registered is only an estimation and will depend upon if the Over-allotment option is exercised or not. 2) Based on authorization granted at the extraordinary shareholders meeting held on March 9, 2015, the Board of Directors will in connection with the Offering according to the Offering Circular, resolve on a new share issuance of a maximum of 18,200,000 shares. The change in the share capital is included as if all shares are issued. The shares will, for technical share issue reasons, be subscribed by the Joint Bookrunners, on behalf of the entitled subscribers, in accordance with the Offering Circular. The shares included in the Offering will thereby be issued at a subscription price of SEK per share, and the Joint Bookrunners will thereafter, on behalf on the entitled subscribers, make a capital contribution to the Company with an amount that correspond to the difference between the final, established Offering price and the subscription price of SEK (subject to deduction of certain transaction costs) and in accordance with undertakings of the Corner Investors. Convertibles, warrants, etc. In accordance with the section Incentive programs below, at total of 3,247,000 warrants have been issued by the Company which gives the right to subscribe for a total of the corresponding amount of shares in the Company. Out of these, 389,750 warrants have not yet been alloted within the framework of the incentive programs and are therefore held by Tobii Technology Options AB. The incentive program comprise of both employee stock options and warrants. A total of 1,222,000 employee stock options have been issued within the framework of the incentive program. In addition to what is stated above, there are no issued warrants, convertibles or any other equity related securities in the Company. Incentive programs Tobii has implemented an incentive program for members of the executive management and a smaller group of key individuals in the Company. The incentive program includes both warrants and employee stock options. Employee stock options are conditional upon continuous employment during large parts of the programs duration. Warrants are subscribed by the employee at market price. For information about the terms and conditions for subscription, including duration and subscription price, see Note 8 on pages F-13 F-16. In addition to the presentation on pages F-13 to F-16, an issue under the series 2015/20:1 was made in 2015 which entitles the holder a warrant to subscribe one share in Tobii, up until February 28, 2020, at a price of SEK 26 per share. In total, 164,000 warrants are issued in this series. The warrants value of 3.06 SEK is based on Black & Scholes evaluation model. Full utilization of the outstanding warrants and employee stock options, including the above mentioned warrants issued in 2015, entails a dilution effect of 4.50% 1) of the share capital. 1) Based on the number of issued shares as of the date of the Offering Circular. 121

124 Share capital and ownership structure Ownership structure The table below shows Tobii s ownership structure immediately prior to the approval of the Prospectus and immediately following the completion of the Offering. Name Sale of shares in connection with No. of shares the Offering No. of shares following the Offering 2) Ownership.% Ownership following the Offering 2), % INVIFED AB 13,433,495 16,750, % 18.87% INTEL CAPITAL CORPORATION 7,042,300 7,042, % 7.93% NORTHZONE VENTURES AS 6,730,546 6,730, % 7.58% AMADEUS GENERAL PARTNER LIMITED 6,430,163 6,430, % 7.24% ESKILSSON, HENRIK 1) 3) 5,005,335 5,005, % 5.64% SJÄTTE AP-FONDEN 5,000,000 6,234, % 7.02% ELVESJÖ, JOHN 4,085, ,000 3,935, % 4.43% SKOGÖ, MÅRTEN 3,911,193 3,911, % 4.41% BERNHARD, NILS 3) 4) 2,575, ,000 2,300, % 2.59% ESKILSSON CONSULTING AB 1) 1,916,000 1,916, % 2.16% ALMI STOCKHOLM INVESTERINGSFOND AB 1,476,000 1,476, % 0.00% RAM RATIONAL ASSET MANAGEMENT AB 1,194,532 1,194, % 1.35% ALKEMIKUM AB 1,022,000 1,022, % 1.15% STOCKEN AB 1,000,551 1,000, % 1.13% SHB SVENSKA SMÅBOLAGSFONDEN 759, , % 0.86% RAM ONE 1,702, % 2.40% Board members and executive management (aside from above) Martin Gren 3) 87,000 87, % 0.10% Anders Ösund 25,000 25, % 0.03% Kent Sander 20,000 20, % 0.02% Oscar Werner 20,000 20, % 0.02% Tom Englund 13,000 13, % 0.01% Fredrik Ruben 8,000 8, % 0.01% Åsa Hedin 7,000 7, % 0.01% Esben Olesen 4,000 4, % 0.00% Other 7,161,682 22,668, % 25.53% Total shares 68,927,883 1,901,000 88,787, % % 1) Henrik Eskilsson owns 22.5% of the shares in Eskilsson Consulting AB whose shares, at the time of the listing, will have been transferred to an endowment insurance. 2) Assuming that the new share issue under the Offering is conducted at a subscription price of SEK and that the shares offered under the Offering and the Overallotmentoption are subscribed in full and in accordance with undertakings of the Corner Investors. 3) Directly or indirectly through companies. 4) Nils Bernhard intends to sell 300,000 shares prior to the listing. Lock up-arrangements, etc. Under the placing agreement which is expected to be entered into between the Company and the Joint Bookrunners around April 23, 2015, certain large existing shareholders, shareholding members of the Board of Directors and the executive management, as well as certain other shareholders in the Company will undertake, with certain reservations, not to sell its respective holdings during a certain time period after trading on Nasdaq Stockholm has commenced (the Lock-up period ). The Lock-up period for certain large existing shareholders will be 180 days, while the Lock-up period for shareholding, the members of the executive management will be 360 days. The Lock-up period for certain other shareholders in the Company will be 180 days. Henrik Eskilsson, John Elvesjö and Mårten Skogö have entered into these agreements as large shareholders and not as members of the Board of Directors or as members of the executive management. Following the end of the Lock-up period, the shares may be offered for sale, which may affect the market price of the share. The Joint Bookrunners may make exceptions from these undertaking. Pursuant to the agreement, the Company will undertake, with certain exceptions, towards the Joint Bookrunners not to, e.g. resolve upon or propose to the shareholders meeting an increase of the share capital through issuance of shares or other financial instruments for a period of 360 days following the first day of trading of the Company s shares on Nasdaq Stockholm without a written consent from the Joint Bookrunners. See section Legal considerations and supplementary information Placing agreement. 122

125 Articles of association Articles of association N.B. Den engelska översättningen är en inofficiell översättning och i den mån det skulle förekomma avvikelser så ska den svenska språkversionen vara gällande. Note: The English translation is an inofficial translation and in the event of any discrepancies the Swedish language version shall prevail. BOLAGSORDNING ARTICLES OF ASSOCIATION för/for Tobii AB (publ) (org nr/reg. No ) Antagen på extra bolagsstämma den 9 mars ) Adopted at an extraordinary shareholders meeting on 9 March ) 1 Firma/Name Bolagets firma är Tobii AB (publ). The company s name is Tobii AB (publ). 2 Säte/Registered office Styrelsen skall ha sitt säte i Stockholms län, Danderyds kommun. The company s registered office shall be in the Stockholm county, Danderyd municipality. 3 Verksamhet/Object of the company s business Bolaget skall bedriva forskning, utveckling och försäljning av datorprogram och datorrelaterad hårdvara samt därmed förenlig verksamhet. The object of the company s business is to conduct research, development and sales of computer software and computer related hardware and any other activities compatible therewith. 4 Aktiekapital/Share capital Aktiekapitalet skall utgöra lägst kronor och högst kronor. The company s share capital shall be not less than SEK 500,000 and not more than SEK 2,000, Antal aktier/number of shares Bolaget skall ha lägst och högst aktier. The company shall have at least 50,000,000 and not more than 200,000,000 shares. 7 Revisor/Auditor Bolaget ska ha lägst en (1) och högst två (2) revisorer samt högst två (2) revisorssuppleanter. Till revisor samt, i förekommande fall, revisorssuppleant ska utses auktoriserad revisor eller registrerat revisionsbolag. The company shall have not less than one (1) and not more than two (2) auditors and not more than two (2) deputy auditors. As auditor and, when applicable, deputy auditor, an authorised public accountant or a registered public accounting firm shall be elected. 8 Kallelse till bolagsstämma/notice of shareholders meeting Kallelse till bolagsstämma ska ske genom annonsering i Post- och Inrikes Tidningar och genom att kallelsen hålls tillgänglig på bolagets webbplats. Samtidigt som kallelse sker ska bolaget genom annonsering i Svenska Dagbladet upplysa om att kallelse har skett. Notice of shareholders meetings shall be published in the Swedish Official Gazette and be kept available on the company s website. At the time of the notice, an announcement with information that the notice has been issued shall be published in Svenska Dagbladet. 9 Ort för bolagsstämma/place for shareholders meetings Stämman ska hållas i Danderyd eller i Stockholm. The shareholders meeting shall be held in Danderyd or in Stockholm. 6 Styrelse/Board of directors Styrelsen skall bestå av lägst tre och högst nio styrelseledamöter utan styrelsesuppleanter. The board of directors shall consist of at least three and not more than nine members without deputy members. 1) Bolagsstämmans beslut om att anta denna bolagsordning är villkorat av att anmälningsperioden för allmänheten i Erbjudandet löper ut. 1) The adoption of these Articles of Association, resolved upon at the shareholders meeting, are subject to that the subscription period for the generalpublic under the Offering is concluded. 123

126 Articles of association 10 Deltagande i bolagsstämma/participation in shareholders meetings Aktieägare som vill delta i en bolagsstämma ska dels vara upptagen som aktieägare i sådan utskrift eller annan framställning av hela aktieboken som avses i 7 kap. 28 tredje stycket aktiebolagslagen (2005:551), avseende förhållandena fem vardagar före stämman, dels anmäla detta till bolaget senast den dag som anges i kallelsen till stämman. Sistnämnda dag får inte vara söndag, annan allmän helgdag, lördag, midsommarafton, julafton eller nyårsafton och inte infalla tidigare än femte vardagen före stämman. Om en aktieägare vill ha med sig biträden vid bolagsstämman ska antalet biträden (högst två) anges i anmälan. A shareholder, who wants to participate in a shareholders meeting must be registered as shareholder in such a transcription or report of the entire share register as referred to in Chapter 7 Section 28 third paragraph of the Swedish Companies Act (2005:551), as regards the fact five weekdays prior to the meeting, and notify the company not later than on the day specified in the notice of the meeting. The aforementioned day must not be a Sunday, other public holiday, Saturday, Midsummer Eve, Christmas Eve or New Year s Eve and not fall earlier than the fifth weekday prior to the meeting. If a shareholder wishes to be joined by counsel (not more than two counsels) at the shareholders meeting, the number of counsels must be stated in the notice of participation. 11 Ärenden på årsstämma/business at annual shareholders meetings Vid årsstämman ska följande ärenden behandlas: 1) val av ordförande vid bolagsstämman; 2) upprättande och godkännande av röstlängd; 3) godkännande av dagordningen; 4) val av en eller två justeringspersoner att justera protokollet ; 5) prövning av om bolagsstämman blivit behörigen sammankallad; 6) framläggande av årsredovisning och revisionsberättelse samt, i förekommande fall, koncernredovisning och koncernrevisionsberättelse; 7) beslut om: a. fastställande av resultaträkning och balansräkning samt, i förekommande fall, koncernresultaträkning och koncernbalansräkning; b. dispositioner beträffande bolagets vinst eller förlust enligt den fastställda balansräkningen; c. ansvarsfrihet åt styrelseledamöter och verkställande direktör; 8) fastställande av antalet styrelseledamöter och styrelsesuppleanter och, antalet revisorer och, i förekommande fall, revisorssuppleanter; 9) fastställande av arvoden åt styrelsen och revisorerna; 10) val av styrelseledamöter; 11) val av revisorer och, i förekommande fall, revisorssuppleanter; 12) annat ärende, som ankommer på bolagsstämman enligt aktiebolagslagen eller bolagsordningen. 124 The following business shall be addressed at annual shareholders meetings: 1) Election of a chairman of the meeting; 2) Preparation and approval of the voting list; 3) Approval of the agenda; 4) Election of one or two persons who shall approve the minutes of the meeting; 5) Determination of whether the meeting was duly convened ; 6) Submission of the annual report and the auditors report and, where applicable, the consolidated financial statements and the auditors report for the group; 7) Resolutions regarding: a. Adoption of the income statement and the balance sheet and, when applicable, the consolidated income statement and the consolidated balance sheet; b. Allocation of the company s profits or losses in accordance with the adopted balance sheet; c. Discharge of the members of the board of directors and the managing director from liability; 8) Determination of the number of members and deputy members of the board of directors to be elected by the shareholders meeting and the number of auditors and, where applicable, deputy auditors; 9) Determination of fees for members of the board of directors and auditors; 10) Election of the members of the board of directors; 11) Election of auditors and, where applicable, deputy auditors; 12) Other matters, which should be resolved by the shareholders meeting according to the Swedish Companies Act or the company s articles of association. 12 Bolagsstämmans öppnande/opening of the shareholders meeting Styrelsens ordförande eller den styrelsen därtill utsett öppnar bolagsstämma och leder förhandlingarna till dess ordförande valts. The shareholders meeting shall be opened, and its discussions led, by the chairman of the board or the person appointed to do so by the board of directors until a chairman is elected. 13 Räkenskapsår/Financial year Bolagets räkenskapsår skall omfatta kalenderår (1 januari 31 december). The company s financial year shall be the calendar year (1 January 31 December). 14 Avstämningsförbehåll/Euroclear company Bolagets aktier skall vara registrerade i ett avstämningsregister enligt lagen (1998:1479) om kontoföring av finansiella instrument. The Company s shares shall be registered in a central securities depository register in accordance with the Swedish Financial Instruments Accounts Act (1998:1479).

127 Legal considerations and supplementary information Legal considerations and supplementary information Legal group structure The Company s business is conducted in accordance with the Swedish Companies Act. The parent company Tobii AB (publ) (registration number ) is a Swedish public limited liability company which was founded on July 3, 2001 and is registered with the Swedish Companies Registration Office on August 9, The Company s registered office is situated in Danderyd, Sweden.The Company is currently the parent company of 19 wholly or partly owned subsidiaries in accourdance with the legal group structare below. Tobii AB (publ) Sweden Sticky AB Tobii Technology Inc. Tobii Technology Norge AS Tobii Technology GmbH Tobii Technology Options AB Tobii Assistive Technology Inc. Tobii Electronics Technology Suzhou Co., Ltd. Tobii Electronics Trading Suzhou Co., Ltd. Tobii Technology Japan Ltd. T Analysis AB T Assistive AB Sweden 30.5% Virginia, USA 100% Norway 100% HRB Germany 100% Sweden 100% MA, USA 100% China 100% China 100% Japan 87% Sweden 100% Sweden 100% Tobii Dynavox LCC (previously named DynaVox Systems LLC) Delaware, USA 100% DynaVox Services Inc. Delaware, USA Blink Twice LLC Delaware, USA Mayer- Johnson LLC Delaware, USA DynaVox International Holding Inc. Delaware, USA Eye Response Technologies, Inc. Virginia, USA 100% 100% 100% 100% 100% Tobii Dynavox Ltd. DynaVox Canada Inc. England Canada 100% 100% 125

128 Legal considerations and supplementary information Acquisition of DynaVox Systems LLC In May 2014 and by way of an auction procedure under Chapter 11 of the United States Bankruptcy Code, the Company acquired 100% of the membership interests of DynaVox Systems LLC together with all of its assets, including its subsidiaries, from DynaVox Inc. and its affiliated debtors, free and clear of all liens, claims and encumbrances. The membership interests were sold without any further warranty or covenant of any kind save for that the seller had good and marketable title to the memberships interests. The acquisition was authorized by the United States Bankruptcy Court for the District of Delaware. Material agreements Supply agreements Tobii has entered into agreements with its suppliers of components, platforms and products. Some of these agreements concern development and production of products that represent a very large share of the Group s net sales. Of particular importance are (i) the agreement with the Company s development and production partner for Tobii EyeChip, which is under development and the most important single component for the coming Tobii IS4 eye-tracking platform, (ii) the agreements with the Company s development and production partner for Tobii I-series which currently represent approximately 40% of the Group s net sales, and (iii) the agreement with the Company s production and development partner for the Tobii IS20 eye-tracking platform which in turn is a component in products that currently represent approximately 50% of the Group s net sales. Loan agreement with Swedbank AB (publ) On May 21, 2014, Tobii and Swedbank AB (publ) entered into a loan agreement under which Swedbank AB (publ) granted Tobii two bank loans of USD 5 million and USD 6 million, respectively and two bank overdraft facilities with a maximum of SEK 85 million and USD 10 million, respectively (the Loan Agreement ). In December 2014, Tobii Technology, Inc. acceded to the Loan Agreement as guarantor and Tobii Assistive Technology, Inc. and DynaVox Systems LLC as borrowers and guarantors. The agreement includes a change-of-control clause which entitle the lender to terminate the agreement if one shareholder, or several shareholders acting jointly, holds more than 50% of the outstanding shares in the Company. For additional information about the Company s Loan Agreement, see section Capitalization, indebtedness and other financial information Loan agreement. License agreement with Sensomotoric Instruments GmbH To settle litigations on infringement and validity of Tobii s region-of-interest patent family, the Company and Sensomotoric Instruments GmbH have signed a license agreement in relation to the patent family. License agreement with EyeTech Digital Systems Inc. The Company has entered into a license agreement with EyeTech Digital systems Inc. ( EyeTech ) relating to the Company s patent regarding Region-of-interest technology. According to the agreement, the Company has granted to EyeTech a license to use and commercialize some of Tobii s patents for EyeTech s products. EyeTech shall, as consideration for the license granted, pay royalties to the Company. The agreement expires on the date of the expiration of the licensed patent rights. Customer agreement with SteelSeries In December 2013, the Company entered into a customer agreement with SteelSeries Aps ( SteelSeries ) under which Tobii provides SteelSeries with certain hardware components that are used in peripherals and accessories for computer games, mainly for SteelSeries Sentry, an eye tracker from Tobii intended for gaming enthusiasts. The agreement with SteelSeries includes a limited time and geographical exclusivity for some of the Company s products. Patent and other intellectual properties For information about the Company s patents, see section Business and market overview Patents. Tobii is the registered holder of a large number of domain names and top domains connected to its name, among others: tobii. com (with approximately 40 different top domains), tobiidynavox.com, tobiipro.com, tobiiarcade.com, eyex.com, tobiiglasses.com, tobiinsight.com, eyetracker.com (as well as a number of variants), boardmakerstudio.com and mayerjohnson.com. The Company is not aware of any agreements pursuant to which there are any restrictions on any of the Group s material intellectual property rights (besides the agreement with SteelSeries, see above, and with respect to patents, see below). Disputes Currently, the Company is involved in two disputes described below. Except for the below, the Company is not, and has not been, party to any legal or arbitration proceedings during the last 12 months which may have, or have had, significant effects on the Company s or the Group s financial condition or profitability. UVAPF Dispute The University of Virginia Patent Foundation ( UVAPF ) has instituted arbitration proceedings against the Company concerning a patent license pertaining to an eye-tracking computer-based apparatus and method. UVAPF initiated arbitration in June 2014 and an action in the United States District Court for the Western District of Virginia in March 2015 and seeks an award based on DynaVox Systems LLC s claimed failure to make adequate payments under the license agreement for the period

129 Legal considerations and supplementary information forward. The claimant demands damages of USD 3 million. DynaVox Systems LLC believes that it has substantial defenses to the claims. Further, according to the Company, the licensed rights are not material to the Company. The Eye Tribe Dispute The Company brought an action on December 18, 2013 against The Eye Tribe APS ( Eye Tribe ) for what the Company believes is an infringement of the Company s patents as Eye Tribe uses, sells, offers to sell and/or imports into the United States an eye tracker that infringes the Company s patents. The Company s intention is to seek an injunction and/ or remuneration for royalties. The first hearing is scheduled to May Eye Tribe has contended that the patent is invalid on the ground that the patent was not drafted in accordance with the required standards. The estimated total costs are USD 1,5 million. Insurance The Group has a general liability insurance as well as insurances against product liability (world wide); errors and omissions liability; directors and officers liability; property damage, business interruption losses and liabilities; transport and marine cargo; and business travel. The subsidiary DynaVox Systems LLC, including all its subsidiaries, is excluded from these insurance policies, except insurance regarding directors and officers liability. There are separate insurance policies in place for DynaVox Systems LLC and the aim for the Group is to have signed a joint insurance policy by June 1, The Company considers its insurances to be in line with those of other companies in the same business and that they are sufficient for the risks normally associated to the Company s business. However, there is no assurance that the Company will not suffer losses not covered by, or insufficiently covered by, insurances to avoid that unexpected costs will arise. Placing agreement According to the terms of an agreement on placing of shares which is intended to be entered into around April 23, 2015 between the Company and the Joint Bookrunners (the Placing agreement ), the Company undertakes to issue the shares comprised by the Offering to the purchasers indicated by the Joint Bookrunners. The Company also intends to grant an Over-allotment option, whereby it pledges at the request of the Joint Bookrunners at the latest 30 days from the first day of trading in the Company s shares to issue an additional maximum of 15% of the shares comprised by the Offering, corresponding to approximately 3% of the total number of shares in the Company, on a fully diluted basis after the Offering has been concluded. The Over-allotment option may only be exercised for the purpose of covering possible over-allotments under the Offering. Through the Placing agreement, the Company makes customary representations and warranties to the Joint Bookrunners, primarily in relation to the information in the Offering Circular being correct, the Offering Circular and the Offering fulfilling requirements in laws and regulation and that there are no legal, or other, hindrances for the Company to enter into the agreement or for the completion of the Offering. Pursuant to the Placing agreement, the Joint Bookrunners commitment to indicate purchasers to or, if the Joint Bookrunners fail to do so, themselves acquire the shares comprised by the Offering is conditional upon, among other things, the representations and warranties that the Company has made are correct. Under the Placing agreement, the Company will, subject to customary qualifications, undertake to indemnify the Joint Bookrunners against certain claims under certain conditions. Through the Placing agreement, the main shareholders, shareholding members of the Board of Directors and members of the Company s executive management and certain other shareholders undertakes, with customary conditions, not to sell its shares during the Lock-up period (see further in section Share capital and ownership structure Lock up-arrangements, etc. ). Under the Placing agreement, the Company also undertakes, not to (i) issue, offer, pledge, sell, undertake to sell or otherwise transfer or divest, directly or indirectly, any shares in the Company or any other securities which are convertible to or can be exercised or exchanged for such shares, or (ii) purchase or sell warrants or other instruments or enter into swap agreements or other arrangements which wholly or partly assign financial risk associated with ownership of the Company to another party prior to 360 days at the earliest after the date when trading starts on Nasdaq Stockholm. The Joint Bookrunners may, however, grant exemptions from these limitations. Subscription undertakings Invifed AB, The Sixth AP-fund and RAM ONE have on April 9, 2015 agreed with the Joint Bookrunners and Tobii to, directly or indirectly through subsidiaries, acquire shares in the Offering, on the same terms and conditions as for other investors, corresponding to 17.53%, 6.52% and 9.00% respectively of the total number of shares in the Offering and thus the Offering is secured up to approximately 33.05%. 1) The Cornerstone Investors will not receive any compensation for their respective undertakings and the Cornerstone Investors investments are made on the same terms and conditions as for other investors in the Offering. The Joint Bookrunners and Tobii s board of directors deem the Cornerstone Investors credit worthiness sound and that they meet their respective undertakings. The Cornerstone Investors undertakings are however not secured through a bank guarantee, blocked funds or pledge of collateral or similar arrangement. The Cornerstone Investors under takings are associated with certain conditions relating to, among other 1) Based on full subscription in the Offering and the midpoint of the price range in the Offering (SEK 23.50) 127

130 Legal considerations and supplementary information Cornerstone Investor Subscription undertaking (in SEK million or as % of the Offering) Total holding Number Per cent of after the 1) of shares 1) the Offering (%) Offering 1) Invifed AB 17.53% 3,317, % 16,750,941 Sjätte AP-Fonden 6.52% 1,234, ,234,042 RAM ONE SEK 40 million 1,702, ,702,127 Total 6,253, ) Based on full subscription in the Offering and the midpoint of the price range in the Offering (SEK 23.50) things, that the Offering is completed within a certain time frame. In the event that any of these conditions are not fulfilled, there is a risk that the Cornerstone Investors do not fulfil their undertakings. Description of Cornerstone Investors Invifed AB Invifed is a wholly-owned subsidiary of Investor AB. Investor, founded by the Wallenberg family a hundred years ago, is the leading owner of high quality Nordicbased international companies. Through board participation, its industrial experience, network and financial strength, Investor strives to make its companies best-inclass. At year-end 2014, Investor s net asset value amounted to SEK 261 billion. The Sixth AP-fund The Sixth AP-fund is a Swedish government investment fund with the mission of investing in unlisted companies. The fund is focused on creating long-term returns through active investments and management. At the end of 2014 the fund had approximately SEK 23.6 billion under management. RAM ONE RAM ONE is a global long / short equity hedge fund. The Fund invests in clearly predefined sectors with a core of Nordic companies. Typically, more than 50% of the portfolio invested in the Nordic region. RAM ONE s objective is to generate the highest possible returns over the long term with a balanced risk level. Shareholder agreement The shareholders agreement between the main shareholders of the Company will be dissolved in connection to the listing. As far as Tobii s Board of Directors is aware, no other shareholder agreements exist between the Company s shareholders that aim to jointly affect the Company. Furthermore, the Company s Board of Directors is, aside from the Sell down agreement mentioned below, not aware of any other agreements or similar that may lead to that the control of the Company is altered. Sell down agreement Some of the Company s major shareholders and Joint Bookrunners have entered into an agreement to regulate possible sale of shares in the Company after the Lock-up periods for these shareholders has expired (the Sell down agreement ). The Sell down agreement regulates, with certain exceptions, the sale of such shareholder s holding within a period of twelve months from the end of the initial six months lock-up period. During this period, these shareholders have to agree to co-ordinate all their sale of shares in the Company. The size, and the date, of such sales will be settled between these shareholders after consultation with a securities broker with regard to, among other things, market conditions at the time for the sell. Joint Bookrunners shall, based on a reasonable demand from these shareholders and in accordance with applicable law and good practice on the stock market support the sales in accordance with the Sell down agreement. Stabilization In connection with the Offering, Carnegie may effect transactions aimed at supporting the market price of the shares at levels above those which might otherwise prevail in the open market. Such stabilization transactions may be effected on Nasdaq Stockholm, in the over-thecounter market or in other ways, at any time during the period starting on the date of commencement of trading in the shares on Nasdaq Stockholm and ending not later than 30 calendar days thereafter. Carnegie is, however, not required to undertake any stabilization and there is no assurance that stabilization will be undertaken. Stabilization, if undertaken, may be discontinued at any time without prior notice. In no event will transactions be effected at levels above the price in the Offering. Within one week of the end of the stabilization period, Carnegie will make public whether or not stabilization was undertaken, the date at which stabilization started, the date at which stabilization last occurred and the price range within which stabilization was carried out, for each of the dates during which stabilization transactions were carried out. 128

131 Legal considerations and supplementary information Related party transactions Certain related party transactions exist within the Group, see Note 34 on page F-25 for further information. Related party transactions are also presented on Note 8 on page F-13 to F-16. Related party transactions are conducted on arms-length-basis. Interests of advisors The Joint Bookrunners provide financial advisory and other services to the Company in connection with the Offering and the listing, for which they will receive a commission from the Company equal to 3.5% of the gross proceeds of the shares sold in the Offering (as well as shares sold based in the potential Over-allotment option). In addition, the Company may choose to pay to the Joint Bookrunners a discretionary fee, the amount and allocation of which is to be determined on the first day of trading in the Company s shares on Nasdaq Stockholm, equal to at least 1% of the gross proceeds from the transaction. Costs related to the Offering In consideration of the Joint Bookrunners assistance in the Offering and the listing on Nasdaq Stockholm, the Joint Bookrunners will, subject to certain reservations, be reimbursed by the Company for external expenses incurred by them. The Company s gross revenue from the Offering is expected to amount to approximately SEK 400 million before transaction costs. The Company has undertaken to pay the provision to the Joint Bookrunners based on the gross revenues. The Company s costs associated with the listing on Nasdaq Stockholm and the Offering are expected to amount to approximately SEK 28 million. In addition to the provision to the Joint Bookrunners, such costs primarily relate to costs for auditors, attorneys, printing of the Offering Circular, costs related to management presentations, etc. Documents available for inspection Tobii s articles of association and annual reports for the financial years , including auditors reports, are available for inspection during office hours at the Company s head office at Karlsrovägen 2 D, SE , Danderyd, Sweden. These documents are also available in electronic form on Tobii s website, 129

132 Tax considerations in Sweden Tax considerations in Sweden Below is a summary of certain Swedish tax issues related to the Offering and the admission for trading of the shares in the Company on Nasdaq Stockholm for private individuals and limited liability companies that are residents of Sweden for tax purposes, unless otherwise stated. The summary is based on current legislation and is intended to provide general information only regarding the shares in the Company as from the admission for trading on Nasdaq Stockholm. The summary does not cover: situations where shares are held as current assets in business operations; situations where shares are held by a limited partnership or a partnership; the special rules regarding tax-free capital gains (including non-deductible capital losses) and dividends that may be applicable when the investor holds shares in the Company that are deemed to be held for business purposes (for tax purposes); the special rules which in certain cases may be applicable to shares in companies which are or have been so-called close companies or to shares acquired by means of such shares; the special rules that may be applicable to private individuals who make or reverse a so-called investor deduction (Sw. investeraravdrag); foreign companies conducting business through a permanent establishment in Sweden; or foreign companies that have been Swedish companies. Further, special tax rules apply to certain categories of companies. The tax consequences for each individual shareholder depend to some extent on the holder s particular circumstances. Each shareholder is advised to consult an independent tax advisor as to the tax consequences that could arise from the Offering and the admission for trading of the shares in the Company on Nasdaq Stockholm, including the applicability and effect of foreign tax legislation (including regulations) and provisions in tax treaties for the avoidance of double taxation. Private individuals For private individuals resident in Sweden for tax purposes, capital income such as interest income, dividends and capital gains is taxed in the capital income category. The tax rate in the capital income category is 30%. Capital gains or losses equal the difference between the proceeds, after reduction for sales costs, and the purchase price. The aggregate purchase price for all shares of the same kind and class is divided on the number of shares. As an alternative rule, applicable on listed shares, the purchase price may be calculated to 20% of the proceeds, after reduction for sales costs. Capital losses on listed shares may be fully offset against taxable capital gains the same year on shares, as well as on listed securities taxed as shares (however not mutual funds, (Sw. värdepappersfonder), or hedge funds, (Sw. specialfonder) or containing Swedish receivables only, (Sw. räntefonder)). Capital losses not absorbed by these set-off rules are deductible at 70% in the capital income category. Should a net loss arise in the capital income category, a reduction is granted of the tax on income from employment and business operations, as well as national and municipal property tax. This tax reduction is 30% of the net loss that does not exceed SEK 100,000 and 21% of any remaining net loss. A net loss cannot be carried forward to future tax years. For private individuals resident in Sweden for tax purposes, a preliminary tax of 30% is withheld on dividends. The preliminary tax is normally withheld by Euroclear Sweden or, in respect of nominee-registered shares, by the nominee. Private individuals who own shares through investment savings account (Sw. investeringssparkonto) are not taxed on capital gain on sale or dividend on such shares. Consequently, losses are not deductible. Tax is levied on a standard income, based on an assessed capital value of the investment savings account multiplied with the government loan interest, regardless of whether the investment savings account bears profit or loss. The standard tax is imposed yearly and amounts to 0,27% of the assessed capital value during Limited liability companies For limited liability companies (Sw. aktiebolag) all income, including taxable capital gains and taxable dividends, is taxed as income from business operations at a rate of 22%. Deductible capital losses on shares may only offset taxable capital gains on shares and other securities taxed as shares. A net capital loss on shares that cannot be utilized during the year of the loss, may be carried forward (by the limited liability company that has suffered the loss) and offset taxable capital gains on shares and other securities taxed as shares in future years, without any limitation in time. If a capital loss cannot be deducted by the company that has suffered the loss, it may be deducted from group taxable capital gains on shares and other securities taxed as shares from another legal entity within the same company group, provided that the companies are entitled to tax consolidation (through so-called group contributions) and both companies request this for a tax year having the same income tax return filing date for each company (or, if one of the companies accounting liability 130

133 Tax considerations in Sweden ceases, would have had the same income tax return filing date). Special tax rules may apply to certain categories of companies or certain legal persons, e.g. investment companies. Shareholders with limited tax liability in Sweden For shareholders not resident in Sweden for tax purposes that receive dividends on shares in a Swedish limited liability company, Swedish withholding tax is normally withheld. The same withholding tax applies to certain other payments made by a Swedish limited liability company, such as payments as a result of redemption of shares and repurchase of shares through an offer directed to all shareholders or all holders of shares of a certain class. The tax rate is 30%. The tax rate is, however, generally reduced through tax treaties for the avoidance of double taxation. In Sweden, withholding tax deductions are normally carried out by Euroclear Sweden or, in respect of nominee-registered shares, by the nominee. Shareholders not resident in Sweden for tax purposes which are not conducting business through a permanent establishment in Sweden are normally not liable for capital gains taxation in Sweden upon disposals of shares. Shareholders may, however, be subject to taxation in their state of residence. According to a special rule, private individuals not resident in Sweden for tax purposes are, however, subject to Swedish capital gains taxation upon disposals of shares in the Company, if they have been residents of Sweden or have had a habitual abode in Sweden at any time during the calendar year of disposal or the ten calendar years preceding the year of disposal. In a number of cases though, the applicability of this rule is limited by tax treaties for the avoidance of double taxation. 131

134 Certain U.S. federal income tax considerations Certain U.S. federal income tax considerations Holders are hereby notified that: (a) any discussion of u.s. Federal tax issues in this offering circular is not intended or written to be relied upon, and cannot be relied upon, by holders for the purpose of avoiding penalties that may be imposed on holders under the internal revenue code of 1986, as amended (the u.s. Code ); (b) such discussion is included herein by the company in connection with the promotion or marketing by the company of the transactions or matters addressed herein; and (c) holders should seek advice based on their particular circumstances from an independent tax adviser The following is a description of certain U.S. federal income tax consequences that may be relevant with respect to the receipt, exercise and disposition of the shares by a U.S. Holder (as defined below). This summary deals only with initial purchasers of shares in the Offering, who use the U.S. dollar as their functional currency and will hold the shares as capital assets. This description does not purport to address all material U.S. tax consequences of the receipt, exercise and disposition of the shares and does not address aspects of U.S. federal income taxation that may be applicable to investors that are subject to special tax rules, including without limitation: Certain financial institutions; dealers or certain traders in securities; real estate investment trusts, regulated investment entities or grantor trusts; persons holding shares as part of a straddle, wash sale, conversion transaction or integrated transaction or persons entering into a constructive sale with respect to the shares; persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar; persons who receive shares as compensation for the performance of services; persons who are resident in or have a permanent establishment in Sweden; tax-exempt entities; certain U.S. expatriates; dual resident corporations; persons that own or are deemed to own 10% or more of the Company s voting stock; or persons holding shares in connection with a trade or business outside the United States. Further, this description does not address state, local, foreign or other tax laws, nor does it address the 3.8% U.S. federal Medicare tax on net investment income, the alternative minimum tax or the U.S. federal gift and estate tax consequences of the receipt, exercise and disposition of the shares. This description is based on the U.S. Internal Revenue Code of 1986, as amended (U.S. Code), its legislative history, existing and proposed regulations promulgated thereunder, published rulings and court decisions, as well as on the Income Tax Convention Between the United States of America and Sweden (the Treaty ), in each case as in effect on the date of this Offering, all of which are subject to change (or to changes in interpretation), possibly with retroactive effect. The Company has not requested, and does not intend to request, a ruling from the U.S. Internal Revenue Service (the IRS ) with respect to matters addressed herein. U.S. Holders You are a U.S. Holder for purposes of this discussion if for U.S. federal income tax purposes you are a beneficial owner of the Company s shares and are: a citizen or individual resident of the United States; a corporation created or organized in or under the laws of the United States, any state therein or the District of Columbia; an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or a trust if (i) a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of the substantial decisions of such trust, or (ii) such trust has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes. If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds shares, 132

135 Certain U.S. federal income tax considerations the tax treatment of the partnership and a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its tax adviser as to the U.S. federal income tax consequences of acquiring, holding, or disposing of the shares. THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS FOR GEN- ERAL INFORMATION ONLY. ALL PROSPECTIVE HOLDERS SHOULD CONSULT THEIR TAX ADVISERS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING THE SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND POSSIBLE CHANGES IN TAX LAW. Taxation of distributions Subject to the PFIC rules discussed below, distributions paid on the shares (including the amount of any Swedish taxes withheld), other than certain pro rata distributions of shares to all shareholders, will be treated as dividends to the extent paid out of the Company s current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Because the Company does not maintain calculations of its earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to you as dividends. Subject to applicable limitations, if you are a non-corporate U.S. Holder, dividends paid to you may be eligible for taxation as qualified dividend income and therefore may be taxable at favorable rates. Dividends will be treated as qualified dividends (a) if certain holding period requirements are satisfied, (b) if the Company is eligible for the benefits of a comprehensive income tax treaty with the United States that the IRS has approved for the purposes of the qualified dividend rules, and (c) provided that the Company was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid, a PFIC. The Treaty has been approved for the purposes of the qualified dividend rules. The Company does not believe it was a PFIC in 2014 and does not expect to be a PFIC for However, its status in the current year and future years will depend upon its use of the funds from the Offering, as well as its income and assets (which for this purpose depends in part on the market value of the Company s shares) in those years. See the discussion below under Passive foreign investment company rules. You should consult your tax adviser regarding the availability of the reduced tax rate on qualified dividends. Dividends will generally be included in your income on the date of receipt. Dividends will not be eligible for the dividends-received deduction generally available to U.S. corporations under the U.S. Code. The amount of any dividend income paid in SEK will be the USD amount calculated by reference to the spot rate in effect on the date of receipt, regardless of whether the payment is in fact converted into USD. If the dividend is converted into USD on the date of receipt, you should not be required to recognize foreign currency gain or loss in respect of the amount received. You may have foreign currency gain or loss if the dividend is converted into USD after the date of receipt, and any such gain or loss will be U.S.-source ordinary income or loss. Dividends will be treated as foreign-source dividend income for foreign tax credit purposes. Subject to applicable limitations, some of which vary depending upon your circumstances, Swedish income taxes withheld from dividend payments on shares at a rate not exceeding any applicable Treaty rate will be creditable against your U.S. federal income tax liability. Swedish income taxes withheld in excess of the applicable Treaty rate will not be eligible for credit against your U.S. federal income tax liability. The rules governing foreign tax credits are complex, and you should consult your tax adviser regarding the creditability of foreign taxes in your particular circumstances. In lieu of claiming a foreign tax credit, you may elect to deduct foreign taxes, including any Swedish taxes, in computing your taxable income, subject to applicable limitations. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or accrued in the relevant taxable year. Sale or other taxable disposition of shares Subject to the PFIC rules discussed below, you generally will recognize taxable gain or loss on a sale or other taxable disposition of the shares equal to the difference between the amount realized on the sale or disposition and your tax basis in the shares, each as determined in USD. This gain or loss will generally be capital gain or loss, and will be long-term capital gain or loss if at the time of sale or disposition the shares have been held for more than one year. Any gain or loss will generally be U.S.- source for foreign tax credit purposes. The deductibility of capital losses is subject to limitations. If you receive SEK (or other currency other than USD) upon a sale, exchange or other disposition of the shares, the amount realized generally will be the USD value of the payment received determined on (a) the date of receipt of payment in the case of a cash basis U.S. Holder and (b) the date of disposition in the case of an accrual basis U.S. Holder. If the shares are traded on an established securities market, a cash basis taxpayer or, if it so elects, an accrual basis taxpayer, will determine the USD value of the amount realized by translating the amount received at the spot rate of exchange on the settlement date of the sale. A U.S. Holder will have a tax basis in the foreign currency received equal to the USD amount realized. Any currency exchange gain or loss realized on a subsequent conversion of the foreign currency into USD for a different amount generally will be treated as ordinary income or loss from sources within the United States. However, if such foreign currency is converted into USD on the date received by the U.S. Holder, a cash basis or electing accrual basis U.S. Holder should not recognize any gain or loss on such conversion. 133

136 Certain U.S. federal income tax considerations Passive foreign investment company rules A non-u.s. corporation will be classified as a passive foreign investment company, or a PFIC, for U.S. federal income tax purposes in any taxable year in which, after applying certain look-through rules, either: at least 75.0% of its gross income is passive income ; or at least 50.0% of the quarterly average value of its gross assets is attributable to assets that produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. However, rents and gains derived in the active conduct of a trade or business in certain circumstances are considered active income. In determining whether a non-u.s. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25.0% interest (by value) is taken into account. The Company does not believe that it was a PFIC for U.S. federal income tax purposes for its most recent taxable year and does not expect to be a PFIC for the current tax year. However, the determination of PFIC status is a factual determination that must be made annually at the close of each taxable year and, therefore, there can be no certainty as to the Company s status in this regard until the close of the current or any future taxable year. The Company s status could change depending, among other things, upon a decrease in the trading price of the shares, how quickly the Company makes use of the proceeds from the Offering, as well as changes in the composition and relative values of its assets, and the sources of its income. Moreover, the rules governing whether certain assets are active or passive are complex and in some cases their application can be uncertain. If the Company were a PFIC in any year during a U.S. Holder s holding period for the shares, the Company would ordinarily continue to be treated as a PFIC for each subsequent year during which the U.S. Holder owned the shares. If the Company were a PFIC for a taxable year during a U.S. Holder s holding period for the shares, U.S. Holders generally would be subject to additional taxes (including taxation at ordinary income rates and an interest charge) on any excess distributions received from the Company and on any gain realized from a sale or other disposition of the shares. A U.S. Holder would have an excess distribution to the extent that distributions on the shares during a taxable year exceed 125% of the average amount received during the three preceding taxable years (or, if shorter, the U.S. Holder s holding period). To compute the tax on excess distributions or any gain, (i) the excess distribution or gain would be allocated ratably over the U.S. Holder s holding period, (ii) amounts allocated to the current taxable year and any year before the Company became a PFIC would be taxed as ordinary income in the current year, (iii) amounts allocated to other taxable years would be taxed at the highest applicable marginal rate in effect for each such year (i.e., at ordinary income tax rates), and (iv) an interest charge would be imposed to recover the deemed benefit from the deferred payment of the tax attributable to each year described in (iii). Gain on the disposition of the shares will be subject to taxation in the same manner as an excess distribution, described immediately above. These adverse tax consequences may be mitigated if the U.S. Holder is eligible to and does elect to annually mark-to-market the stock. If the U.S. Holder makes a markto-market election, such holder will generally include as ordinary income the excess, if any, of the fair market value of the stock at the end of each taxable year over adjusted basis, and will be permitted an ordinary loss in respect of the excess, if any, of the adjusted basis of the stock over their fair market value at the end of the taxable year (but only to the extent of the net amount of income previously included in income as a result of the mark-to-market election). Any gain recognized on the sale or other disposition of stock will be treated as ordinary income. The mark-tomarket election is available only for marketable stock, which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter on a qualified exchange or other market, as defined in the applicable U.S. Treasury regulations. A qualified exchange includes a non-us securities exchange that is regulated or supervised by a governmental authority of the country in which the securities exchange is located and meets certain trading, listing, financial disclosure and other requirements set forth in U.S. Treasury regulations. It is unclear whether Nasdaq Stockholm would be treated as a qualified exchange for these purposes. A U.S. holder s adjusted tax basis in the stock will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market rules. If a U.S. Holder makes a mark-tomarket election it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the stock are no longer regularly traded on a qualified exchange or the IRS consents to the revocation of the election. The mark-to-market election would be inapplicable to any subsidiaries of the Company that were PFICs since their shares would not be marketable stock. U.S. Holders are urged to consult their tax advisors about the availability of the mark-to-market election, and whether making the election would be advisable in their particular circumstances. Some of the adverse PFIC tax consequences can also be minimized if a U.S. Holder in a PFIC is eligible and timely makes a valid qualified electing fund ( QEF ) election. In order for a U.S. Holder to be able to make a QEF election, the Company would be required to provide such U.S. Holder with certain information. As the Company does not expect to provide U.S. Holders with the required 134

137 Certain U.S. federal income tax considerations information, prospective investors should assume that a QEF election will not be available. If you own the Company s shares during any year in which the Company is a PFIC, you must file IRS Form 8621 with respect to the Company, generally with your federal income tax return for that year. You should consult your tax adviser regarding whether the Company is a PFIC and the potential application of the PFIC rules to your ownership of shares for any taxable year. Backup withholding and information reporting Payments of dividends and sales proceeds that are made within the United States or through U.S. or certain U.S.- related financial intermediaries will generally be subject to information reporting and backup withholding, unless (i) you are an exempt recipient or (ii) in the case of backup withholding, you provide a correct taxpayer identification number and certify that you are not subject to backup withholding. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability, provided that the required information is timely furnished to the IRS. You may be required to report information relating to non-u.s. accounts through which the shares are held (or information regarding the shares if the shares are not held through any financial institution). You should consult your tax adviser regarding your reporting obligations with respect to the shares. 135

138 Transfer restrictions Transfer restrictions The shares in the Offering have not been, and will not be, registered under the United States Securities Act of 1933, as amended, or with any securities regulatory authority of any state of the United States, and may not be offered or sold, except in a transaction not subject to, or pursuant to an exemption from, the registration requirements of the Securities Act. In addition, until the end of the 40th calendar day after the commencement of the Offering, an offer or sale of shares within the United States by a dealer (whether or not participating in the Offering) may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A under the Securities Act. Rule 144A shares Each purchaser of shares in the Offering within the United States purchasing pursuant to Rule 144A under the Securities Act or another exemption from the registration requirements of the Securities Act will be deemed to have represented, agreed and acknowledged that: (i) (ii) (iii) (iv) it has received a copy of the Offering Circular and such other information as it deems necessary to make an informed investment decision; the shares in the Offering have not been, and will not be, registered under the Securities Act or with any securities regulatory authority of any state of the United States, may not be offered or sold, except in a transaction not subject to, or pursuant to an exemption from, the registration requirements of the Securities Act and are subject to significant restrictions on transfer; it (a) is a QIB as that term is defined by Rule 144A under the Securities Act, (b) is aware that, and each beneficial owner of such shares has been advised that, the sale to it is being made in reliance on Rule 144A under the Securities Act or pursuant to another exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, (c) is acquiring such shares in the Offering for its own account or for the account of a QIB and (d) if it is acquiring such shares for the account of one or more QIBs, has sole investment discretion with respect to each such account and has full power to make the representations, agreements and acknowledgements herein on behalf of each such account; the shares in the Offering are being offered in the United States in a transaction not involving any public offering in the United States within the meaning of the Securities Act; (v) (vi) if, in the future, it decides to offer, resell, pledge or otherwise transfer shares in the Offering, such shares may be offered, sold, pledged or otherwise transferred only (a) to a person whom the beneficial owner or any person acting on its behalf reasonably believes is a QIB in a transaction meeting the requirements of Rule 144A, (b) in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S under the Securities Act, or (c) in accordance with Rule 144 under the Securities Act (if available), in each case in accordance with any applicable securities laws of any state of the United States or any other jurisdiction; the shares in the Offering are restricted securities within the meaning of Rule 144(a)(3) under the Securities Act and no representation is made as to the availability of the exemption provided by Rule 144 for the resale of any shares; (vii) it will not deposit or cause to be deposited the shares in the Offering into any depositary receipt facility established or maintained by a depositary bank other than a Rule 144A restricted depositary receipt facility, for so long as such shares are restricted securities within the meaning of Rule 144(a)(3) under the Securities Act; (viii) the Company and the Joint Bookrunners and their respective affiliates, and others will rely upon the truth and accuracy of the foregoing representations, agreements and acknowledgements; and (ix) the Company shall not recognize any offer, sale, pledge or other transfer of the shares made otherwise than in compliance with the above stated restrictions. PROSPECTIVE PURCHASERS ARE HEREBY NOTIFIED THAT SELLERS OF THE SHARES PURCHASED WITHIN THE UNITED STATES PURSUANT TO RULE 144A MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A UNDER THE SECURITIES ACT. 136

139 Transfer restrictions Regulation S shares Each purchaser of the shares in the Offering purchasing pursuant to Regulation S will be deemed to have represented, agreed and acknowledged that (terms used in this paragraph that are defined in Regulation S are used herein as defined therein): (i) it has received a copy of the Offering Circular and such other information as it deems necessary to make an informed investment decision; (ii) the shares in the Offering have not been, and will not be, registered under the Securities Act, or with any securities regulatory authority of any state of the United States; (iii) it and the person, if any, for whose account or benefit it is acquiring the shares in the Offering was located outside the United States at the time of the offer to it of the shares and at the time that the buy order for the shares was originated for the purposes of Rule 903 of Regulation S under the Securities Act; (iv) if it is acquiring shares as a fiduciary or agent for one or more investor accounts, it has sole investment discretion with respect to each such account and it has full power to make the representations, agreements and acknowledgements herein on behalf of each such account; (v) the shares in the Offering are being offered outside the United States pursuant to Regulation S and, subject to certain exceptions, such shares may not be offered or sold within the United States; (vi) it is aware of the restrictions on the offer and sale of the shares in the Offering pursuant to Regulation S described in this Offering Circular; (vii) the Company and the Joint Bookrunners and their respective affiliates, and others will rely upon the truth and accuracy of the foregoing representations, agreements and acknowledgements; and (viii) the Company shall not recognize any offer, sale, pledge or other transfer of the shares made otherwise than in compliance with the above stated restrictions. 137

140 Definitions Definitions The terms defined below are used in the Offering Circular: Tobii, the Company or the Group AAC ABG Sundal Collier ASIC Carnegie Code EUR Euroclear Sweden IFRS Joint Bookrunners Lock-up period Tobii AB (publ) reg. no , the group in which Tobii AB (publ) is the parent company or a subsidiary of the group, as the context may require. Augmentative and Alternative Communication. ABG Sundal Collier AB. Application specific integrated circuit, a computer chip that processes raw data from e.g. an eye-tracking sensor. Carnegie Investment Bank AB (publ). The Swedish Code of Corporate Governance. Euro. Euroclear Sweden AB. International Financial Reporting Standards. Carnegie and ABG Sundal Collier. The lock-up period described under the section Share capital and ownership structure Lock up-arrangements, etc. The regulated market operated by Nasdaq Stockholm AB. The offer of shares as set out in this Offering Circular. This Offering Circular. Nasdaq Stockholm Offering Offering Circular Offering price The final offering price is expected to be determined within the range of SEK Placing agreement The agreement regarding placing of shares described in section Legal considerations and supplementary information Placing agreement. Prospectus The Swedish version of the Offering Circular that has been approved by the Swedish Financial Supervisory Authority. QIB Qualified Institutional Buyer, as defined in Rule 144A under the Securities Act. R&D Research and development Securities Act The U.S. Securities Act of 1933, as amended. SEK Swedish krona. SoC System on Chip. USD U.S. Dollar. 138

141 Audited consolidated financial statements for the period Audited consolidated financial statements for the period Table of Contents Financial statements F-2 Notes F-6 Note 1 General information F-6 Note 2 Summary of important accounting principles F-6 Note 3 Financial risks F-10 Note 4 Important estimates and assumptions in applying accounting principles F-12 Note 5 Sales and profit/loss per business unit F-12 Note 6 Rental commitments and significant leasing commitments F-13 Note 7 Audit fees F-13 Note 8 Employees and personnel costs F-13 Note 9 Depreciation/amortization and impairment of tangible and intangible assets F-16 Note 10 Expenses by type F-16 Note 11 Other operating income and operating expenses F-16 Note 12 Financial income and expenses F-16 Note 13 Taxes F-17 Note 14 Earnings per share F-17 Note 15 Goodwill F-18 Note 16 Capitalized expenses for product development F-18 Note 17 Trademarks F-18 Note 18 Other intangible assets F-19 Note 19 Tangible assets F-19 Note 20 Participations in Group companies F-20 Note 21 Participations in associated companies F-21 Note 22 Accounts receivable trade F-21 Note 23 Inventories F-22 Note 24 Prepaid expenses and accrued income F-22 Note 25 Cash and cash equivalents F-22 Note 26 Financial instruments by category in the Group F-22 Note 27 Development of share capital F-23 Note 28 Reserves in equity F-23 Note 29 Provisions F-23 Note 30 Other liabilities F-24 Note 31 Accrued expenses and deferred income F-24 Note 32 Pledged assets and contingent liabilities F-24 Note 33 Supplementary disclosures to cash flow statements F-24 Note 34 Transactions with related parties F-25 Note 35 Business combinations F-25 Note 36 Events after the end of the reporting period F-25 F-1

142 Audited consolidated financial statements for the period Financial statements Consolidated statement of comprehensive income SEK million Note Net sales Cost of goods and services sold Gross profit/loss Selling expenses Research and development expenses Administrative expenses Other operating income and operating expenses Operating profit/loss 5,6,8,9, Profit/loss from financial items Share of profit/loss in associated companies Financial income Financial expenses Total financial income and expenses Profit/loss before tax Taxes Net profit/loss for the year Other comprehensive income Items which can later be reversed in the income statement Exchange rate differences Other comprehensive income, net after tax Total comprehensive income for the year Net profit/loss for the year attributable to: Shareholders in the Parent Company Non-controlling interests Total net profit/loss for the year Comprehensive income attributable to: Shareholders in the Parent Company Non-controlling interests Total comprehensive income for the year Earnings per share for the year before dilution, SEK Earnings per share for the year after dilution, SEK F-2

143 Audited consolidated financial statements for the period Consolidated Balance Sheet SEK million Note Fixed assets Goodwill Capitalized expenses for product development Trademarks Other intangible fixed assets Property, plant and equipment Financial assets Participations in associated companies 21 5 Deferred tax assets Other financial assets Total fixed assets Current assets Accounts receivable trade Inventories Other receivables Prepaid expenses and accrued income Cash and cash equivalents Total current assets Total assets Equity Share capital Other contributed capital Reserves Profit/loss brought forward including net profit/loss for the year Total equity attributable to shareholders in the Parent Company Non-controlling interest Total equity Non-current liabilities Deferred tax liabilities Provisions Bank loan Other non-current liabilities Total non-current liabilities Current liabilities Accounts payable trade Other liabilities Accrued expenses and deferred income Total current liabilities Total liabilities Total equity and liabilities F-3

144 Audited consolidated financial statements for the period Changes in equity for the Group Attributable to shareholders in the Parent Company SEK million Note Share capital Other contr. capital Reserves Profit/loss brought forward Total Noncontrolling interest Total equity Opening balance, 1 Jan Net profit/loss for the year Other comprehensive income 4 4 Comprehensive income for the year Contribution from minority New share issue Sales of warrants, incentive program 1 1 Equity-settled share-based payment transactions under IFRS Closing balance, 31 Dec Net profit/loss for the year Other comprehensive income 0 0 Comprehensive income for the year Divestment of jointly-owned subsidiary 8 Sales of warrants, incentive program 0 Equity-settled share-based payment transactions under IFRS Closing balance, 31 Dec Net profit/loss for the year Other comprehensive income 3 3 Comprehensive income for the year New share issue Sale of warrants, incentive program 0 0 Equity-settled share-based payment transactions under IFRS Closing balance, 31 Dec F-4

145 Audited consolidated financial statements for the period Cash flow statement for the Group SEK million Note Operating activities 33 Profit/loss after financial items Adjustment for items not included in the cash flow Taxes paid Cash flow from operating activities before changes in working capital Cash flow from changes in working capital Increase( )/decrease(+) in inventories Increase( )/decrease(+) in operating receivables Increase(+)/decrease( ) in operating liabilities Cash flow from operating activities Cash flow from investing activities Investments in intangible assets 16,17, Investments in property, plant and equipment Acquisition of subsidiaries Divestment of Group companies 1) 11 Investments in financial assets Cash flow from investing activities Financing activities New share issue Sales of warrants, incentive program 0 1 Change in borrowing Change of ownership structure in subsidiary 25 Cash flows from financing activities Cash flow for the year Exchange rate difference in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at year-end ) Deconsolidation in 2013 of the subsidiary, Sticky AB, impacting cash flow in an amount of 10, of which 6 is cash and cash equivalents and 4 is working capital. F-5

146 Audited consolidated financial statements for the period Notes Note 1 General information Tobii AB (publ) (the Parent Company), org no , is a limited liability company with its registered offices in Danderyd, Sweden. The address of the head office is Karlsrovägen 2D, Danderyd. Tobii AB (publ) and its subsidiaries (referred to collectively as the Group) is a global market-leading supplier of eye tracking solutions. A product with in-built eye tracking sensors knows where the user is looking, making it possible to interact with computers and machines by using the eyes. Tobii runs its operations in three distinct business units, each of which has it own markets, products and personnel. The Parent Company reports each business unit as a separate segment. Tobii Dynavox leading global supplier of assistance for alternative communication. The business unit offers products both with and without eye tracking capability. Tobii Pro leading global supplier of eye tracking solutions for behavioural studies. Tobii Tech leading supplier of eye tracking components and platforms to customers who integrate eye tracking into their own products. Tobii has global presence with offices in Sweden, USA (offices in Boston, Washington DC, Pittsburgh and Mountain View), China, Japan, UK, Germany and Norway. Note 2 Summary of important accounting principles Basis of preparation of the financial statements The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), as well as the interpretation statements of the International Financial Reporting Interpretations Committee (IFRIC), as approved by the European Commission for application within the EU. The Swedish Financial Reporting Board s Recommendation RFR 1 Supplementary Accounting Rules for Groups has also been applied. The preparation of financial statements in accordance with IFRS requires the application of various important estimations and assumptions for accounting purposes. The management is also required to make assessments regarding the application of the Group s accounting principles. The areas that involve a high degree of assessment, which are complex, or in which estimations and assumptions are of material importance for the consolidated financial statements, are described in Note 4. Changes in accounting principles and disclosures New standards applied by the Group from 1 January 2014: IFRS 10 Consolidated Financial Statements builds on existing principles by identifying the concept of control as the determining factor as to whether an entity should be included within the consolidated financial statements. The standard provides additional guidance to assist in the determination of this control where this is difficult to assess. The Group applies IFRS 10 for the financial year beginning on 1 January 2014, however it does not have a material impact on the Group s financial statements. IFRS 11 Joint Arrangements is a new standard for classification of joint arrangements as either joint ventures or joint operations. The standard is applicable from 1 January 2014 but does not have a material impact on the Group s financial statements. IFRS 12 Disclosures of Interests in Other Entities includes disclosure requirements for subsidiaries, joint arrangements, associated companies and structured entities which have not been consolidated. A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2014, and have not been applied in preparing these consolidated financial statement. None of these is expected to have a significant effect on the consolidated financial statements of the Group, except the following set out below: New standards and interpretations that have not yet entered into force and have not been adopted by the Group: IFRS 9, Financial instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. The standard is effective for accounting periods beginning on or after 1 January Early adoption is permitted. The Group has yet to assess the impact of the standard. IFRS 15, Revenue from contracts with customers deals with revenue recognition. The principles on which IFRS 15 is based shall provide useful information to users of financial statements about the company s revenues. The new standard replaces IAS 18 Revenue and IAS 11 Construction contracts and related SIC and IFRIC. IFRS 15 is effective from 1 January 2017 and earlier application is permitted. The Group has not yet assessed the impact of adopting the new standard. None of the other IFRSs or IFRIC interpretations that are not yet effective would be expected to have a material impact on the Group. Functional currency and dates The Parent Company s functional currency is the Swedish krona (SEK), which is also the presentation currency for the Parent Company and for the Group. This implies that the financial statements are denominated in Swedish krona. All amounts are, unless otherwise stated, rounded up/down to the nearest million krona (MSEK). Amounts in parentheses refer to the corresponding value for the previous year. Income statement items refer to the period 1 January 31 December, while balance sheet items refer to the closing date, 31 December. Consolidation principles Subsidiaries Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Subsidiaries are reported according to the purchase method. The acquisition cost for an acquisition consists of the fair value of the transferred assets, liabilities and shares issued by the Group. The purchase price also includes the fair value of all assets or liabilities arising as a result of an agreement on conditional purchase price. Costs relating to an acquisition are recognised as expenses when they arise. Identifiable acquired assets and assumed liabilities in a business combination are initially valued at fair value on the acquisition date. When the acquisition cost in a business combination exceeds the fair value of the acquired assets and assumed liabilities, as well as any contingent liabilities reported separately, the difference is reported as goodwill. If the difference is negative, this is reported directly in the statement of comprehensive income. F-6

147 Audited consolidated financial statements for the period The subsidiaries financial statements are included in the consolidated financial statements from the acquisition date until such time as the controlling interest is relinquished. When the Group no longer has a controlling interest, any remaining holdings are reported at fair value from the date on which the controlling interest ceases. Changes in the reported value are reported in the income statement. The fair value is applied as the initial reported value and forms the foundation for the continued reporting of the remaining holding as an associated company, joint venture or financial asset. All amounts referring to the divested entity which were previously reported in other comprehensive income are reported as though the Group had directly divested the associated assets or liabilities. This may entail that amounts which were previously reported in other comprehensive income are reclassified to profit/loss. Associated companies Associated companies are companies in which the Group has a significant influence, but not a controlling interest, usually associated with a shareholding of between 20 and 50 percent of the voting rights. Holdings in associated companies are reported according to the equity method. The application of the equity method implies that the investment is initially valued at acquisition cost, with the reported value subsequently increasing or decreasing pursuant to the Group s share in the associated company s profit or loss after the acquisition date. If the participating interest in an associated company decreases, but the investment continues to be classified as an associated company, only a proportional amount of the profit or loss which was previously reported in other comprehensive income is reclassified to profit/loss. The Group s share of the profit/loss arising after the acquisition is reported in the income statement, while its share of changes in other comprehensive income after the acquisition is reported in other comprehensive income, with a corresponding change in the carrying amount of the holding. When the Group s share of losses in an associated company equals or exceeds its participating interest in the associated company, including any unsecured receivables, the Group does not report any further losses unless the Group has assumed legal or constructive obligations or made payments on behalf of the associated company. In conjunction with each reporting date, the Group evaluates whether there is objective evidence of an impairment requirement for the investment in the associated company. If this proves to be the case, the Group calculates the amount of impairment required as the difference between the associated company s recoverable amount and its carrying amount, and reports this amount in the item Share of profit/loss in associated companies in the income statement. Transactions eliminated on consolidation Intra-Group receivables and liabilities, income or expenses and unrealised gains or losses arising from transactions between companies in the Group are eliminated in their entirety in the preparation of the consolidated financial statements. Unrealised gains arising from transactions with associated companies and jointly controlled entities are eliminated to an extent corresponding to the participating interest in the company. Unrealised losses are eliminated in the same manner as unrealised gains, but only in so far as there is no indication of an impairment requirement. Segment reporting Operating segments are reported in a manner which is consistent with the internal reporting presented to the chief operating decision-maker. The chief operating decision-maker is the function responsible for the allocation of resources and for analysing the profit/loss reported by the reporting segments. Within the Group, this function has been identified as Group management. Foreign currency Transactions in foreign currency Transactions in a foreign currency are translated to the functional currency at the exchange rate applying on the transaction date. Monetary assets and liabilities denominated in foreign currency are translated to the functional currency at the exchange rate applying on the balance sheet date. Non-monetary assets and liabilities reported at historical acquisition cost are translated at the exchange rate applying on the transaction date. Non-monetary assets and liabilities reported at fair value are translated to the functional currency at the exchange rate applying on the date on which fair value measurement was applied. Exchange rate differences arising on the translations are reported in the income statement, partly in operating profit/loss, partly in net financial items, depending on the nature of the underlying transactions. Foreign operations financial statements The functional currency is the currency in the primary economic environment in which the companies conduct their operations. Assets and liabilities in foreign operations, including goodwill and other consolidated surpluses and deficits, are translated from the foreign operations functional currency to the Group s presentation currency (SEK) at the exchange rate applicable on the balance sheet date. The functional currency is the currency in the primary economic environment in which the companies conduct their operations. Income and expenses in a foreign operation is translated to SEK at an average rate approximating the exchange rates applicable on the respective transaction dates. Translation differences arising on the translations of foreign operations are reported in other comprehensive income as a translation reserve. When a foreign operation is divested, the accumulated translation differences attributable to the operations are recognised in the consolidated statement of comprehensive income. Income General The Group recognises income in the statement of comprehensive income as net sales when the amount can be reliably measured and it is probable that the future economic benefits will accrue to the Group. Income is reported net after VAT at the fair value of the amounts received or expected to be received, less any granted discounts. Sales of goods Tobii s income from goods derives primarily from fixed price sales of its self-manufactured products. Income from sales of goods is recognised when a Group company has delivered the products and when all of the significant risks and benefits associated with the ownership of the products have been transferred to the purchaser. Income is not recognised when there is significant uncertainty regarding payment, associated expenses or risk of return. Service assignments Income from services consists primarily of support, service contracts, installations, consultancy assignments and training. These services are provided based either on materials and time, whereby the income is recognised in the period during which the service is rendered, or on fixed price agreements for a set period of time, whereby the income is recognised in the period during which the service is rendered, allocated on a straight-line basis over the term of the agreement. F-7

148 Audited consolidated financial statements for the period Rental income Income and corresponding expenses regarding the renting out of Tobii s products are recognised in the period to which the rental refers. Royalty income Income from royalties is allocated in accordance with the economic implications of the agreement in question. Government grants Government grants are reported in the balance sheet as deferred income when there is reasonable assurance that the grant will be received and the Group will fulfil the terms associated with the grant. Grants are allocated systematically in the income statement in the same manner and over the same periods as the expenses for which the grants are intended to compensate. Government grants related to assets are reported in the balance sheet as deferred income and are allocated over the asset s useful life as other operating income. Leasing Tobii has no assets which are leased through finance leases, i.e. leases where, in all material respects, the risks and benefits associated with the ownership of the leased asset have been transferred to the Group. Leases where, in all material respects, the risks and benefits associated with the ownership of the leased asset are retained by the lessor are classified as operating leases. All leases are classified and reported as rental agreements. This implies that lease fees are reported as expenses and are allocated over the duration of the agreement, based on utilization, which may differ from the amounts actually paid as lease fees during the year. Tobii s lease agreements refer primarily to the rental of premises and the leasing of machinery. Financial income and expenses Financial income and expenses consist of interest income on funds held in banks, receivables and interest expenses on borrowings, exchange rate differences and unrealised and realised gains on financial investments within the scope of the financial activities. Exchange rate differences attributable to financial receivables and liabilities are reported among financial items in the income statement. Exchange rate differences attributable to operating items are reported in the respective item in the income statement and are included in operating profit/loss. Interest expenses on the acquisition costs of assets (according to IAS 23) for so-called qualified assets are capitalized if there is no difficulty in tracing such expenses to the specific asset and the interest expense can be considered to be of material significance. Expenses for borrowings are reported in the period to which they refer. Tax Income tax is comprised of current tax and deferred tax. Income tax is reported in the income statement, except when the underlying transaction is reported directly in equity or other comprehensive income, in which case the associated tax effect is also reported directly in equity or other comprehensive income, respectively. Current tax is tax which is to be paid or received for the current year, with the application of the tax rates that are enacted or in practice enacted as per the balance sheet date. Current tax also includes adjustments to current tax attributable to previous periods. Deferred tax is calculated according to the balance sheet method on the basis of the temporary differences between the tax F-8 values and carrying amounts of assets and liabilities. The following temporary differences are not considered: temporary differences arising on the initial reporting of goodwill, the initial reporting of assets and liabilities that are not business combinations and which do not impact either reported or taxable profit/loss on the transaction date. Furthermore, temporary differences attributable to shares in subsidiaries and associated companies which are not expected to be reversed within the near future are not considered. The valuation of deferred tax is based on the manner in which the carrying amounts of assets and liabilities are expected to be realised or settled. Deferred tax is calculated with the application of the tax rates that are enacted or in practice per the balance sheet date. Deferred tax assets on deductible temporary differences and loss carry-forwards are reported only to the extent that it is likely that they can be utilised. The value of deferred tax assets is reduced when it is no longer deemed likely that they can be utilised. Any income tax surcharges arising in conjunction with the payment of dividends are reported simultaneously with the dividend being reported as a liability. Contingent liabilities A contingent liability is reported when there is a possible commitment arising from past events whose existence can be verified only by one or more uncertain future events, or when there is a commitment which is not recognised as a liability or provision due to it being unlikely that an outflow of resources will be required. Financial instruments Reporting and valuation of financial instruments Financial instruments reported as assets in the Tobii Group s balance sheet include accounts receivable, cash and cash equivalents, and other financial receivables. Items reported as liabilities include accounts payable, non-current liabilities and other financial liabilities. The Group classifies its financial instruments in the following categories: Loans receivable and accounts receivable; and Other financial liabilities. Tobii holds no instruments in the category Financial assets and liabilities at fair value via profit or loss. Loans receivable and accounts receivable are non- derivative financial assets, with fixed or determinable payments, and which are not listed on an active market. Such receivables arise when companies provide money, goods and services directly to borrowers with no intention to engage in trade in the rights to the receivables. Other financial liabilities are liabilities which are not held for trade and are valued in subsequent periods at amortised cost. Accounts receivable Accounts receivable are classified into the category accounts receivable and loans receivables. Accounts receivable are reported at the amounts expected to be received, after deductions for individually-assessed bad debts. The expected maturities of accounts receivable are short, which is why the values are reported at nominal amount, with no discounts. A provision for the impairment of accounts receivable is made when there is objective evidence that the Group will not receive all overdue amounts according to the original terms of the receivable. The impairment of accounts receivable is reported in operating expenses. Cash and cash equivalents The Group s cash and cash equivalents consist of cash and bank balances, and short-term, liquid investments with maturities of less than three months from the acquisition date, which are only exposed to an insignificant risk of fluctuations in value.

149 Audited consolidated financial statements for the period Accounts payable Accounts payable are classified into the category other financial liabilities. These are obligations to pay for goods or services acquired in the course of the operating activities from suppliers and are classified as current liabilities if they mature within one year. The expected maturities of accounts payable are short, which is why the values are reported at nominal amount, with no discounts. Inventories Inventories are valued at the lower of acquisition cost and net realizable value. The net realizable value is the expected sales price in the continuing operations, less estimated completion and selling expenses. The acquisition cost of inventories is calculated with the application of the first-in-first-out method (FIFO) and includes expenses arising on the acquisition of the inventory assets and for transporting such assets to their current location in their current condition. For produced goods and work in progress, the acquisition cost includes a reasonable portion of overhead costs based on normal capacity. Property, plant and equipment Owned assets Property, plant and equipment are reported as assets in the balance sheet if it is probable that the future economic benefits will accrue to the Parent Company and the acquisition cost for the asset can be reliably estimated. Property, plant and equipment are reported in the Group at acquisition cost less accumulated depreciation and any impairment. The acquisition cost includes the purchase price and expenses directly attributable to the transport of the asset to its required location and to ensure that the asset is in a suitable condition to be utilised as intended. Directly attributable expenses which are included in the acquisition cost may include, for example, expenses for delivery and handling, installation, registration of title, consultancy services and legal services. Expenses for improving the performance of an asset beyond its original level increase the asset s carrying amount. Repair and maintenance costs are reported as expenses. The acquisition cost for property, plant and equipment produced by the Parent Company includes expenses for material, remuneration to employees and, if applicable, other manufacturing overheads which are deemed to be directly attributable to the asset. Tobii does not apply component depreciation, as the Group s assets are not of the nature that the acquisition cost can be divided and, thereby, give a different valuation than the one currently applied. The carrying amount of an item in property, plant and equipment is removed from the balance sheet on the sale or disposal of the asset, or when no future economic benefits are expected to be derived from the utilization or sale/disposal of the asset. Gains or losses arising on the sale or disposal of an asset are comprised of the difference between the sales price and the asset s carrying amount, less direct selling expenses. Such gains and losses are reported as other operating income/expenses. Borrowing costs Borrowing costs that are directly attributable to the purchase, design or production of an asset which takes considerable time to complete for its intended use or sale are capitalized together with the fixed asset if the costs can be directly attributed to the asset and the costs can be deemed of material significance. Depreciation principles The straight-line method of depreciation is applied for all types of tangible assets. The following periods of depreciation are applied: Equipment, tools, fixtures and fittings 3 5 years Sales demonstration units 2 years Costs for IT equipment used within the Group are reported as expenses as and when they arise. Assets residual values and useful lives are reviewed each year. An asset is impaired if its carrying amount exceeds its estimated recoverable amount. Intangible assets Goodwill Goodwill is comprised of the difference between the acquisition cost and the Group s share of the fair value of an acquired subsidiary s identifiable assets, liabilities and contingent liabilities as at the acquisition date. Goodwill has an indefinite useful life and is not amortised, but is, instead, assessed annually in order to identify any impairment requirement. Research and development Costs for research are immediately expensed. Expenses for development projects (attributable to the construction and testing of new or improved products) are capitalized as an intangible asset in so far as these expenses are expected to generate future economic benefits. Other development costs are reported as expenses as they arise. Development costs which have previously been reported as expenses are not capitalized as an asset in subsequent periods. Direct expenses include personnel costs for development employees and a portion of indirect costs. The amortization of capitalized development costs is initiated when the product is available for general use and reassessments of the useful life and amortization are undertaken each year. The remaining unamortised amount of capitalized development is tested for impairment each year (in accordance with IAS 36) when the products which are the result of the development are not yet available for sale. Capitalized development costs 2 4 years Trademarks Trademarks acquired through business combinations are stated at fair value on the day of acquisition. The Group s acquired trademarks have an indefinite useful life and are not amortized but tested annually for impairment. Patents Expenses for patents are capitalized and amortised on a straightline basis over the patent s estimated useful life. Software Costs for the development and maintenance of software are usually reported as expenses as they arise. Expenses which are directly associated with the development of identifiable, unique software products controlled by the Group, and which are expected to generate economic benefits for a period of more than one year, are reported as intangible assets. Capitalized expenses for software are amortised on a straight-line basis over the asset s useful life. F-9

150 Audited consolidated financial statements for the period Impairment The reported values of the Group s assets are tested on each balance sheet date in order to ascertain whether there is any indication of an impairment requirement. Tobii AB applies IAS 36 for the impairment testing of assets other than financial assets, inventories and deferred tax assets. In the event that an impairment requirement is identified, the asset s recoverable amount is calculated. For assets exempted as per above, the values are tested in accordance with the appropriate standard. Impairment testing for tangible assets and intangible assets, and for shares in subsidiaries, associated companies and joint ventures If there is any indication of an impairment requirement, the asset s recoverable amount is calculated in accordance with IAS 36 (see below). For goodwill and other intangible assets with indefinite useful lives and intangible assets which are not yet ready for use, the recoverable amount is reviewed each year. If it is not possible to assign essentially independent cash flows to an individual asset when testing for impairment, the assets are to be grouped at the lowest possible level at which essentially independent cash flows can be identified (known as cash-generating units). Impairment is reported when an asset or cash-generating unit has a carrying amount which exceeds its recoverable amount. Impairment is reported in the income statement. The impairment of assets attributable to a cash-generating unit (or group of units) is initially allocated to goodwill. Following this initial allocation, other assets included in the unit, or group of units, are proportionally impaired. Reversal of impairment Impairment of goodwill is not reversed. Impairments of other assets are reversed in the event that a change has taken place in the assumptions which formed the basis for the calculation of the recoverable amount. Impairment is reversed only to the extent that the asset s carrying amount after the reversal does not exceed the carrying amount that the asset would have had if the impairment had never taken place, with consideration given to the depreciation/amortization which would have been reported. Share capital Dividends Dividends are reported as a liability after the general meeting of shareholders has approved the distribution of profits. Earnings per share Earnings per share are based on net profit/loss for the year in the Group attributable to the shareholders in the Parent Company and on the weighted average number of shares outstanding during the year. When calculating earnings per share after dilution, net profit/ loss for the year and the weighted average number of shares are adjusted to take into account the effects of potential dilutive ordinary shares, deriving from the long-term incentive program during the report period. Employee benefits Defined-contribution pension plans Commitments related to premiums for defined-contribution pension plans are reported as an expense in the income statement as they arise. Defined-contribution pension plans are those plans in which the company s obligations are limited to the fees which the company has committed to pay. In such cases, the size of the employee s pension is dependent on the fees that the company pays into the plan or to an insurance company and the return on capital that these fees provide. Subsequently, it is the employee who bears the actuarial risk (that compensation is lower than expected) and the investment risk (that the invested assets will be insufficient to provide the expected compensation). Defined-benefit pension plans The Group s net obligations regarding defined-benefit pension plans are calculated separately for every plan through an estimation of the future compensation that the employee has earned through his/her employment during both the current and previous periods; this compensation is discounted to a present value. The Group currently has no defined-benefit pension plans. Severance pay A provision is reported in conjunction with terminations of personnel only if the company is constructively obliged to prematurely terminate employment or when compensation is offered as an incentive to encourage voluntary redundancy. Share-based payments to employees The Group applies IFRS 2 for a share-based payment program which commenced in 2008 and which is reported as equitysettled share-based payment transactions in accordance with IFRS 2. Expenses for employee stock options and warrants are valued at fair value and allocated over the duration of the program, and are reported in equity. The Group reports a reserve for accrued social security contributions for the program based on the estimated taxable benefits payable to participants. Provisions A provision differs from other liabilities in that a certain degree of uncertainty prevails regarding the date of payment or the amount required to clear the provision. A provision is reported in the balance sheet when the Group has an existing legal or informal obligation as a result of an event that has occurred, when it is likely that an outflow of resources will be required to settle the obligation and when the amount required can be reliably estimated. When the date on which the payment is to be made is expected to have a material impact, provisions are calculated by means of a discounting of the expected future cash flow, with the application of an interest rate before tax which reflects actual market assessments of the time value of money and, if applicable, the risks associated with the liability. Guarantees A provision for guarantees is reported when the underlying products or services are sold. The provision is based on historical data regarding guarantees and a considered evaluation of the potential outcomes in relation to the probabilities associated with those outcomes. Note 3 Financial risks Operations can be exposed to various financial risks: currency risk, interest rate risk, credit risk and liquidity risk. Currency risk As well as in Sweden, Tobii has operations in Germany, Norway, the US, China and Japan. The primary currency exposure refers to the USD and EUR. Currency risk can be divided into translation risk and transaction risk. Translation risk is the risk that the value in SEK referring to net investment in foreign currencies fluctuates due to changes in exchange rates. Transaction risk is the risk that net profit/loss and cash flows are impacted as a result of the value F-10

151 Audited consolidated financial statements for the period of operational flows in foreign currencies changing in conjunction with exchange rate fluctuations. The currency exposure arising from net assets in the Group s foreign operations is not hedged. The operations undertaken are partly local, i.e. income and expenses arise in the same currency and, also, the Group s operations partly cooperate over the entire world. This exposes the Group to currency risk. Currently, Tobii does not utilise any derivative instruments to cover risks regarding exchange rate fluctuations. The table below shows the effect of a 10% appreciation of SEK for the financial years, while all other factors remain unchanged (such as, interest rates). The table shows only the impact in relation to USD and EURO, the currencies with the most significant in- and outflow. No hedging was done during these years which could have influenced these figures. Therefore, a corresponding 10% depreciation of SEK would have lead to an equal change, but in reverse. SEK million Effect on net profit before tax Other effect on equity Total effect on equity The revaluation of balance sheet items into the presentation currency is not included in the aforementioned calculations. Closing rate Average rate EUR 9,596 8,968 8,617 9,182 8,677 8,714 USD 7,887 6,538 6,511 6,953 6,533 6,741 Interest rate risk regarding cash flows and fair values Interest rate risk occurs when fluctuations in market interest rates affect interest income from the Group s interest-bearing assets and interest expense on the Group s interest-bearing debt. The table below shows the effects on net interest income over 12 months periods of an increase of 1 percentage (100 basis points) given the interest-bearing assets and liabilities at the end of the reporting period. SEK million Total effect on profit/loss before tax: Credit risk Credit risk is the risk that a party in a transaction involving a financial instrument cannot fulfil its commitments. Credit risk arises in the context of cash and cash equivalents, other balances with banks and financial institutions and credit exposure through accounts receivable. The amount of the respective accounts receivable credit risk is assessed for each client. In those markets in which Tobii is currently active with a sales company, the company is responsible for marketing and sales to the client. Tobii works with a network of agents and distributors in other markets and their capacity to carry losses on accounts receivable can impact the Group. The maximum exposure to credit risks regarding financial assets is equivalent to the reported value of each category, see Note 26. The maturity profile of outstanding accounts receivable is illustrated in Note 22. Liquidity risk Cash flow forecasts are prepared by the Group s operating companies and are aggregated by the common Group function. The forecasts are followed up on a regular basis in order to ensure that the Group has sufficient cash funds to meet the requirements of the operations. The Group has credit facilities (bank overdraft facilities) in order to facilitate liquidity planning and liquidity management. At year-end, Tobii had unutilized credit facilities totalling SEK 108 million with tenors up to and including March The liquidity in the Group s operating companies, in excess of that portion required to handle working capital requirements, is assessed continuously by the Group function in terms of whether, and in what manner, this surplus liquidity is to be invested, in accordance with directives adopted by the Board of Directors. The Group s Financial Liabilities and maturity structure SEK million Interest rate Currency Nom. amount < 1 month 1 3 month 3 12 month 1 5 years Carrying amount Bank loan 1) 3.25% USD Bank loan 1) 3.20% USD Bank overdraft facility 1)2) 2.5% USD 57.4 Bank overdraft facility 1)3) 2.25% SEK 0 Total interest-bearing liabilities Account payable 53.6 Total ) To the bank loans and bank overdraft facilities there are a number of covenants as part of the loan agreement that the Group must fulfill. They are: Net debt/ebitda ratio; Capitalized R&D cost/depreciations on R&D; Equity/Total Assets ratio; Interest Rate (variable) is equal to LIBOR(USD)/STIBOR (SEK) 3 months + rate shown above. 2) Bank overdraft facility USD 10 million. 3) Bank overdraft facility SEK 85 million. At year-end 2012 and 2013 Tobiis unutilized credit facilities totalled SEK 70 million with tenors to June 2013 and June 2014 respectively. Capital structure The Group s target regarding its capital structure is to secure the Group s capacity to continue its operations, so that it can generate a yield for the shareholders and benefits for other stakeholders, and that an optimal capital structure can be maintained to keep the cost of capital low. In order to maintain or adjust the capital structure, Tobii can change the dividend paid to shareholders, repay capital to shareholders, issue new shares, repurchase shares or sell assets in order to reduce liabilities. F-11

152 Audited consolidated financial statements for the period Note 4 Important estimates and assumptions in applying accounting principles The preparation of financial statements in accordance with IFRS requires a number of important assessments to be made by company management which impact the application of the accounting principles. Furthermore, the management makes estimates and assumptions regarding the future based on historical experience and a number of other factors considered reasonable under the prevailing circumstances. The results of these estimates and assumptions are, then, used to determine the carrying amounts of assets and liabilities which are otherwise not readily available from other sources. The actual outcome may differ from these estimates and assumptions. Estimates and assumptions are reviewed regularly. Any changes in estimates are reported in the period during which the change takes place if the change affects only that period, or in the period during which the change is made and in all future periods if the change affects both current and future periods. Those areas in which estimates and assumptions could imply a significant risk of adjustment in the reported values of assets and liabilities during coming financial years are mainly as follows: Capitalized expenses for product development Expenses for product development are capitalized to the extent that the expenditure can be expected to generate economic benefits. Capitalization commences when management deems that the product will be technically or economically viable. Capitalization ceases and the amortization of capitalized expenses for product development begins when the product is ready for sale. Capitalized expenses for product development are subject to a compulsory yearly impairment test whereby an assessment is made on the future technical and economic viability of the product. Impairment testing of goodwill and trademarks In accordance with the Parent Company s accounting principles, the Group annually tests whether there is an indication of an impairment requirement for goodwill and trademarks. The tests require an estimation of the parameters impacting future cash flow and the determination of a discount factor. Forecasts for future cash flows are based on the best possible estimation of future income and operating expenses. Guarantee commitments Management estimates the required provision for future guarantee claims based on information concerning historical guarantee claims. Valuation of loss carry-forwards Deferred tax assets on loss carry-forwards are reported to the extent that it is deemed likely that surpluses will be available in the future against which the deficits can be offset. Note 5 Sales and profit/loss per business unit In order to manage the operations the Group management monitors a number of key ratios, mainly net sales, operating profit/ loss and operating profit/loss before depreciation and amortization per business unit, as well as global net sales per geographic area. Net sales per business unit Group SEK million Tobii Dynavox Tobii Pro Tobii Tech Sticky 13 Other Eliminations 1) Total net sales ) Eliminations are completely composed to sales from the business unit Tobii Tech to Tobii Dynavox and Tobii Pro. Group SEK million Operating profit/loss before depreciation and amortization (EBITDA) Tobii Dynavox Tobii Pro Tobii Tech Sticky 14 Other 2 8 Total operating profit/ loss before depreciation and amortization (EBITDA) Operating profit/loss Tobii Dynavox Tobii Pro Tobii Tech Sticky 16 Other 2 8 Total operating profit/loss Financial items Profit/loss before tax Net sales per by country SEK million Sweden Other European countries USA Other countries Total Non-current assets by country SEK million Sweden USA Other countries Total F-12

153 Audited consolidated financial statements for the period Note 6 Rental commitments and significant leasing commitments Committed future payments in the Group for non-cancellable operational lease agreements Group SEK million Within 1 year Between 2 5 years Later than 5 years 0 Total commitments to pay Tobii s operational leasing commitments, primarily consists of rent for premises. Group SEK million Operational lease fees for the year: Note 7 Audit fees Group SEK million PricewaterhouseCoopers, Sweden Audit engagement Audit activities not included in audit engagement 2 Tax consultancy services Other services Total Other auditors Audit engagement Audit activities not included in audit engagement 0 0 Tax consultancy services 1 0 Other services 0 0 Total Total audit fees Note 8 Employees and personnel costs Average number of employees 2014 Of which women, % 2013 Of which women, % 2012 Of which women, % Parent Company Sweden % % % Other countries 5 22% 5 0% 2 0% Parent Company, total Average number of employees Subsidiaries Sweden 11 45% USA % 68 55% 73 60% Norway 14 16% 16 27% 17 29% Germany 8 0% 13 42% 13 38% Japan 15 43% 11 35% 8 50% China 61 63% 81 63% 53 57% UK 1 0% Subsidiaries, total Total average number of employees F-13

154 Audited consolidated financial statements for the period Group SEK million Board of Directors, CEO and other senior executives Salaries and other remuneration Defined-contribution pension costs Social security contributions Total Board of Directors, CEO and other executive management Group SEK million Other employees Salaries and other remuneration Defined-contribution pension costs Social security contributions Total other employees Total personnel costs Remuneration to the Parent Company s Board of Directors, CEO and other executive management 2014 Defined- SEK million Board fee/ Basic salary contribution pensions Variable remuneration Employee stock options Total Kent Sander Arne Almerfors Nils Bernhard Hans Otterling Martin Gren Ian Cooper Anders Ösund Hermann Hauser John Elvesjö, board member Total, Board of Directors Henrik Eskilsson, CEO John Elvesjö, Chief technical officer and deputy CEO Other executive management (6 individuals) Total executive management Total remuneration to the Company s Board of Directors and the executive management Remuneration to the Parent Company s Board of Directors, CEO and other executive management 2013 Defined- SEK million Board fee/ Basic salary contribution pensions Variable remuneration Employee stock options Total Arne Almerfors Nils Bernhard Hans Otterling Martin Gren Ian Cooper Anders Ösund Hermann Hauser John Elvesjö, board member Total, Board of Directors Henrik Eskilsson, CEO John Elvesjö, Chief technical officer and deputy CEO Other executive management (5 individuals) Total, senior executives Total remuneration to the Parent Company s Board of Directors and the executive management F-14

155 Audited consolidated financial statements for the period Remuneration to the Parent Company s Board of Directors, CEO and other executive management 2012 SEK million Board fee/ Basic salary Definedcontribution pensions Variable Employee stock remuneration options Nils Bernhard Göran Gezelius Martin Gren Anders Ösund Jeppe Zink Hans Otterling Arne Almerfors Hermann Hauser John Elvesjö, board member Total Board of Directors Total Henrik Eskilsson, CEO John Elvesjö, Chief technical officer and deputy CEO Other executive management (5 individuals) Total executive management Total remuneration to the Parent Company s Board of Directors and the executive management Changes in the number of outstanding options, incentive program (thousands) Warrants Employee stock options At the beginning of the year 640, , , , , ,110 Allocated 1,857,000 40, , ,000 52, ,000 Forfeited 220, , , ,110 At year-end 2,277, , , , , ,000 All warrants and employee stock options relate to senior executives, key individuals and board members. Incentive program Tobii offers an incentive program to senior executives and a small group of key employees in the Parent Company. The incentive program is comprised of both warrants and employee stock options. Employee stock options are conditional on remaining in employment for large parts of the duration of the program. Warrants are purchased by the employees at market price. Subscription terms: warrant/employee stock option program The 2010/2014 series 1 entitles the holder of a warrant to subscribe for one share in Tobii AB at a price of SEK 38 per share during a specific period in In total there are 130,000 warrants outstanding in the series. The 2010/2014 series 3 entitles the holder of an employee stock option to subscribe for one share in Tobii AB at a price of SEK 19 per share during a specific period in 2017/2018. In total there are 169,000 employee stock options outstanding in the series. The 2010/2014 series 4 entitles the holder of an employee stock option to subscribe for one share in Tobii AB at a price of SEK 19 per share during a specific period in 2015/2016. In total there are 117,000 employee stock options outstanding in the series. The 2012:1 series entitles the holder of a warrant to subscribe for one share in Tobii AB at a price of SEK 40 per share during a specific period in 2016/2017. In total there are 60,000 warrants outstanding in the series. The 2012:2 series entitles the holder of an employee stock option to subscribe for one share in Tobii AB at a price of SEK 20 per share during a specific period in 2016/2017. In total there are 78,000 employee stock options outstanding in the series. The 2012:3 series entitles the holder of a warrant to subscribe for one share in Tobii AB at a price of SEK per share during a specific period in In total there are 190,000 warrants outstanding in the series. The 2012:2 series entitles the holder of an employee stock option to subscribe for one share in Tobii AB at a price of SEK 23 per share during a specific period in In total there are 247,000 employee stock options outstanding in the series. The 2013:1 series entitles the holder of a warrant to subscribe for one share in Tobii AB at a price of SEK per share during a specific period in In total there are 40,000 warrants outstanding in the series. The 2013:2 series entitles the holder of an employee stock option to subscribe for one share in Tobii AB at a price of SEK 23 per share during a specific period in 2017/2018. In total there are 52,000 employee stock options outstanding in the series. F-15

156 Audited consolidated financial statements for the period The 2014/16:1 series entitles the holder of an employee stock option to subscribe for one share in Tobii AB at a price of SEK per share during a specific period in In total there are 117,000 employee stock options outstanding in the series. The 2014/18:1 series entitles the holder of a warrant/employee stock option to subscribe for one share in Tobii AB at a price of SEK 26 per share during a specific period in In total there are 1 657,000 warrants/employee stock options outstanding in the series. The 2014/18:2 series entitles the holder of an employee stock option to subscribe for one share in Tobii AB at a price of SEK 20 per share during a specific period in In total there are 26,000 employee stock options outstanding in the series. The 2014/24:1 series entitles the holder of warrant to sub scribe for one share in Tobii AB at a price of SEK 20 per share during certain periods between years 2015 and In total there are 200,000 warrants outstanding in the series. Full utilization of outstanding options entails a dilution effect of approximately 4.28% 1) of the share capital. Pensions Pension benefits to the CEO and senior executives, as for all other employees at Tobii, are paid to an insurance company or authority which then assumes the obligations towards the employee, a so-called defined-contribution plan. The Group has no defined-benefit plans, neither in Sweden nor in subsidiaries outside Sweden. Severance pay The Group management, including the CEO, have a resignation or termination notice period between three and six months, and an additional severance pay period between zero and six months. Note 9 Depreciation/amortization and impairment of tangible and intangible assets Group SEK million Intangible assets (Note 15, 16, 17, 18) Tangible assets (Not 19) Total depreciation/ amortization Impairment (Note 18) Total depreciation/ amortization/impairment ) Based on the number of options and the share capital as of December 31, Note 10 Expenses by type Group SEK million Costs for materials and changes in inventory Costs for employee benefits (Note 8) Other external expenses Depreciation/amortization and impairment (Note 9) Total expenses Note 11 Other operating income and operating expenses Group SEK million Other operating income Exchange rate differences on operating receivables and liabilities Subsidies received 1 Capital gain on reclassifications of subsidiaries to associated company 8 Other income Total operating income Other operating expenses Exchange rate differences operating receivables and liabilities Capital loss on sales of equipment 0 0 Restructuring expenses 5 Other expenses Total operating expenses Total income and expenses Note 12 Financial income and expenses Group SEK million Interest income and similar profit/loss items Exchange rate differences 38 Total financial income Share of profit/loss in associated companies (Note 20) 7 13 Interest expenses and similar profit/loss items Exchange rate differences Other Total financial expenses Total financial income and expenses F-16

157 Audited consolidated financial statements for the period Note 13 Taxes Reconciliation of effective tax Group SEK million Current tax Current tax attributable to previous years Total current tax Deferred tax Attributable to change in Swedish tax rate 3 Attributable to deferred tax assets Attributable to deferred tax liabilities Total deferred tax Total tax Deferred tax assets Inventories Fixed assets Current liabilities Current receivables 1 Loss carry-forwards 1) Total deferred tax assets Deferred tax liabilities Intangible assets 0 0 Other 1 Total deferred tax liabilities ) Unutilized loss carry-forwards for which no deferred tax assets are reported amounted to SEK million, 77.4 and 62.8 at year-end 2014, 2013 and The entire amount at December 31, 2014 is assessed to be able to be utilized for tax deduction against future gains until year It is estimated that SEK 7.7 million will expire in year 2030, SEK 18.6 million will expire in year 2031, SEK 21.8 million will expire in year 2032, SEK 14.7 million will expire in year 2033, SEK 14.7 million will expire in year 2034 and the remaining SEK 27.6 million is expected to expire in SEK million Reported profit/loss before tax Tax according to current tax rate Difference in tax rate in foreign operations Tax effect of nondeductible expenses Tax effect of non-taxable income Deficit without corresponding tax asset Tax effect of change in Swedish tax rate to 22% 3 Adjustment of taxes attributable to previous years Other Total reported tax expense( )/ tax income (+) Effective tax rate 6% 13% 13% Note 14 Earnings per share SEK million Net profit/loss for the year Weighted average number of outstanding ordinary shares (thousands) 61,934 59,513 58,187 Weighted average number of outstanding ordinary shares after dilution (thousands) 64,133 61,429 60,103 Earnings per share before dilution, SEK 0,82 0,76 0,93 Earnings per share after dilution, SEK 0,82 0,76 0,93 Earnings per share is calculated by dividing profit/loss attributable to shareholders in the Parent Company by the average number of outstanding shares during the period. Earnings per share after dilution is calculated by dividing profit/loss for the year attributable to shareholders in the Parent Company by the average number of shares during the period after dilution with outstanding options; this is only done for periods when there is a net profit. F-17

158 Audited consolidated financial statements for the period Note 15 Goodwill Group SEK million Opening acquisition cost Translation differences Closing acquisition cost Accumulated impairment Translation differences Closing accumulated impairment Net carrying amount Note 16 Capitalized expenses for product development Group SEK million Opening acquisition cost Investments Investments through business combinations 48 Disposals 9 Reclassifications 0 Translation differences Closing acquisition cost Opening accumulated amortization Disposals 1 Amortization through business combinations 9 Amortization for the year (Note 9) Impairment for the year (Note 9) 0 1 Reclassifications 0 0 Translation differences Closing accumulated amortization Net carrying amount Note 17 Trademarks Group SEK million Opening acquisition cost Investments through business combinations 71 Translation differences 10 Closing acquisition cost 81 Net carrying amount 81 Intangible assets with indefinite useful life are tested annually for impairment, or more often if there is indication of impairment. The recoverable amount for a cash generating unit is calculated based on the value in use of the asset. These calculations are based on estimated future pre-tax cash flows using financial budgets and forecasts approved by company management and which cover a five-year period. Cash flow forecasts are based on assumptions of expected growth rate and development of EBITA margin (operating margin before amortization and impairments of intangible assets). These estimates are based on financial budgets for the next year, and forecasts for the following four years, using the management s long-term expectations on operations, as wells as historical development. The calculated value in use is most sensitive to changes in assumptions about growth rate, EBITA-margin and discount rates. The assumptions used are based on previous experiences and market trends. Cash flow forecasts for years 2 5 are based on an annual growth rate between 5 to 20 percent. Beyond the five-year period, cash flows are extrapolated using an estimated long-term growth rate from two to three percent. A discount rate of 11.5 percent before tax is used when calculating recoverable amounts. Required rates of return has been decided in the light of the Group s future estimated capital structure as well as considering the risks borne by the business units. After carrying out impairment tests on intangible assets with an indefinite useful life, there is no need of impairment per December 31, A sensitivity analysis whereby an increase in the discount rate by two percent, a decrease in operating margin before amortization and impairment (EBITA-margin) by two percent or a decrease in the assumed long-term growth rate by two percent, would not each by itself entail the need for an impairment to arise. The table below shows total intangible assets which are subject to impairment testing: Trademarks with indefinite useful life and capitalized development costs amortization not started: SEK million Tobii Dynavox Tobii Pro Tobii Tech Total intangible assets subject to testing for impairment: F-18

159 Audited consolidated financial statements for the period Note 18 Other intangible assets 1) Note 19 Tangible assets Group SEK million Opening acquisition cost Investments Translation differences 0 Closing acquisition cost Opening accumulated amortization Amortization for the year (Note 9) Impairment for the year (Note 9) Translation differences 0 Closing accumulated amortization Net carrying amount ) Other intangible assets consist mainly of patents. Group SEK million Opening acquisition cost Investments Investment through business combinations 110 Sales/disposals Reclassifications 0 0 Translation differences Closing acquisition cost Opening accumulated depreciation Sales/disposals Reclassifications 0 0 Depreciation through business combinations 103 Depreciation for the year (Note 9) Impairment for the year (Note 9) 1 Translation differences Closing accumulated depreciation Net carrying amount F-19

160 Audited consolidated financial statements for the period Note 20 Participations in Group companies Parent company SEK million Acquistion cost Opening value at the beginning of the year Acquistions Reclassification to associated company 1) 18 Total acquisition cost ) Tobii s participating interest in Sticky AB (previously EyeTrackShop AB) decreased from 62% to 47.6%, and in 2014 it decreased further to 30.5%. Number of shares Carrying amount Participating interest, % 31 Dec Dec Dec 2012 Subsidiary to the Parent Company Tobii Technology Inc., , Falls Church, VA, USA Tobii Technology Norge AS, , Bergen, Norway Tobii Technology GmbH, HRB 78844, Frankfurt, Germany Tobii Technology Options AB, , Danderyd, Sweden 100, Tobii Assistive Technology Inc., , Boston, MA, USA Tobii Electronics Technology Suzhou Co., Ltd., , Suzhou, China Tobii Electronics Trading Suzhou Co., Ltd., Tobii Technology Japan Ltd., , Tokyo, Japan T Analysis AB, , Stockholm, Sweden 50, T Assistive AB, , Stockholm, Sweden 50, Sticky AB (tidigare EyeTrackShop AB) Stockholm 18 Total acquisition cost in subsidiaries F-20

161 Audited consolidated financial statements for the period Note 21 Participations in associated companies Group SEK million Reported value at the beginning of the year 5 Reclassification to associated company 1) 18 Share of profit/loss after tax in associated companies 7 11 Investment in associated company 2 Impairment 2 Carrying amount at year-end ) Tobii s participating interest in Sticky AB (previously EyeTrackShop AB) decreased in 2013 from 62% to 47.6%. As of that date on the Tobii Group s controlling interest in the company Sticky AB was relinquished after which Tobii s participation in Sticky AB has been valued at fair value. Sticky AB s net assets amounted to SEK 38 million, of which Tobii s share represented 47.6% and amounted to SEK 18 million Associated company Country Income Profit/ loss Total compreh. income Noncurrent assets Current assets Noncurrent liabilities Current liabilities Equity Participating interest, % Sticky AB Sverige ,5 Total Associated company Country Income Profit/ loss Total compreh. income Noncurrent assets Current assets Noncurrent liabilities Current liabilities Equity Participating interest, % Sticky AB Sverige ,6 Total Note 22 Accounts receivable trade Changes in the bad debts provision are as follows: Group SEK million Accounts receivable trade Bad debts provision Exchange rate effect Total accounts receivable trade Maturity analysis Not yet due days overdue days overdue days overdue Over 90 days overdue Closing balance Group SEK million Per 1 January Bad debts provision Receivables written off during the year as uncollectable 5 0 Reversed unutilised amount Exchange rate effect Per 31 December F-21

162 Audited consolidated financial statements for the period Note 23 Inventories Group SEK million Raw materials and consumables Finished goods Work in progress 1 0 Advances to suppliers Total inventories The costs for the inventory which have been expensed are included in the item Cost of goods and services sold and total SEK 100 million (52 for 2013 and 79 for 2012). Note 24 Prepaid expenses and accrued income Group SEK million Accrued income Accrued interest income 0 1 Prepaid rent/leasing Prepaid insurance Prepaid license fees Other items Total prepaid expenses and accrued income Note 25 Cash and cash equivalents Group SEK million Cash and bank balances Total cash and cash equivalents Note 26 Financial instruments by category in the Group The Tobii Group has the following types of financial instruments: Accounts and loans receivables SEK million Accounts receivable and other receivables, excluding interim receivables 1) Other financial assets Cash and cash equivalents Total accounts and loans receivables Liabilities SEK million Interest-bearing liabilities Non-current interest-bearing liabilities 77 Current interest-bearing liabilities 57 Total interest-bearing liabilities 134 Non-interest bearing liabilities Accounts payable and other financial liabilities, excluding non-financial liabilities 2) Total non-interest bearing liabilities Total liabilities ) Advance payments are excluded from accounts receivable and other receivables as this analysis is only required for financial instruments. 2) Non-financial liabilities, such as accrued social security contributions, are excluded, as this analysis is only required for financial instruments. The fair value is consistent with the carrying amounts. Tobii has no instruments in the category Assets at fair value via profit or loss. The financial instruments are described in detail in Note 22 Accounts receivable trade and Note 30 Other liabilities. F-22

163 Audited consolidated financial statements for the period Note 27 Development of share capital Development of share capital Change in share capital (SEK thousand) Share capital (SEK thousand) Total number of shares 2001 Formation , New share issue , New share issue , New share issue , New share issue , New share issue , New share issue , Split 1:2, ,502, New share issue ,620, New share issue ,096, New share issue ,149, New share issue ,512, New share issue ,886,883 Equity in the Group is comprised of share capital, other contributed capital, reserves and earned profits (including net profit/ loss for the year). Group Share capital The number of shares amount to 68,886,883 with a quotient value of SEK Reserves Reserves consist of a translation reserve comprising all exchange rate differences arising on the translation to SEK of foreign operations financial statements prepared in the currency used in the primary economic environment in which the respective company conducts its operations (functional currency). The Parent Company and the Group prepare their financial statements in SEK. Note 28 Reserves in equity The item reserves in equity refers, in its entirety, to translation differences. Note 29 Provisions Group SEK million Guarantee provisions At the beginning of the year Provisions during the year Amount utilized during the year Currency translation Total guarantee provisions Other provisions At the beginning of the year 1 Provisions during the year Amount utilized during the year 1 Currency translation Total other provisions Total provisions Tobii makes no provisions for its pension obligations as the Group s pension plans are defined-contribution plans and all pension commitments are settled by annual payments to pension companies, so that Tobii will not have no future financial liabilities to employees or Board members. Tobii generally offers a one- to two-year guarantee on its products. The provision for future guarantee costs is estimated by management based on information regarding historical guarantee requirements. Earned profits Earned profits in the Group consist of net profit/loss for the year plus the previous year s earned profits after the payment of any dividends. The Board of Directors presents a proposed dividend. The amount of the dividend is determined on the basis by the general meeting of shareholders. F-23

164 Audited consolidated financial statements for the period Not 30 Other liabilities Group SEK million Interest-bearing liabilities Non-current interest-bearing liabilities Bank loans 77 Total non-current interest-bearing liabilities 77 Current interest-bearing liabilities Credit facility 57 Total current interest-bearing liabilities 57 Total interest-bearing liabilities 134 Non-interest bearing liabilities Non-current non-interest bearing liabilities Deferred income, non-current portion 14 Total non-current non-interest bearing liabilities 14 Current non-interest bearing liabilities Accounts payable trade Other non-interest bearing liabilities Total current non-interest-bearing liabilities Total non-interest bearing liabilities Total other liabilities ) Unutilized credit facilities amounted to SEK 108 million, compared to SEK 70 million at year-end 2013 and SEK 40 million at year-end See note 3 Financial risks for information about the Group s financial liabilities. Not 31 Accrued expenses and deferred income Not 32 Pledged assets and contingent liabilities Group SEK million Pledged assets Contingent liabilities Pledged assets refer to floating charges on collateral. Not 33 Supplementary disclosures to the cash flow statements Group SEK million Interest paid and received Interest received Interest paid Total interest paid and received Adjustments for non-cash items Depreciation/amortization of assets Share of profit/loss in associated companies 7 13 Expenses for options pursuant to IFRS Capital gains/loss on disposals of tangible assets Provisions Change in non-current non-interest bearing liabilities 3 Unrealised exchange rate differences Profit/loss from reclassification of subsidiary to associated company 8 Other Total non-cash items Group SEK million Deferred income, current portion Accrued personnel costs Accrued commission to resellers Other accrued expenses Total accrued expenses and deferred income F-24

165 Audited consolidated financial statements for the period Not 34 Transactions with related parties Tobii has no pledged assets or contingent liabilities related to senior executives or the Board of Directors. For information regarding remuneration to senior executives and Board members, refer to Note 8. The wife of senior executive Mårten Skogö performed consulting services for Tobii for which she invoiced Tobii SEK 38 thousand in 2014 and SEK 278 thousand in No other transactions with related parties have occurred. Not 35 Business combinations As of May 23, 2014 the Group acquired 100 percent of DynaVox Systems LLC for a total consideration of SEK million. The acquired company develops, manufactures and sells alternative communication solutions for people with various cognitive or motoric conditions. The acquisition is expected to lead to both cost and sales synergies. The table below summarizes the preliminary purchase price allocation for DynaVox Systems LLC as well as the preliminary fair market value of the assets and liabilities acquired. The fair market value of these assets and liabilities is preliminary and awaiting a definitive appraisal of intangible assets as well as of accounts payable and other liabilities. No major adjustments have been made in the opening balance for the quarter. Purchase price as of May 23, 2014 SEK million Cash Total purchase price Preliminary recorded amounts for identifiable acquired assets and assumed liabilities Cash 26.3 Tangible assets 7.1 Intangible assets Inventory 18.5 Accounts receivable and other claims 40.7 Accounts payable and other liabilities 78.2 Preliminary fair market value of accounts receivable and other receivables total SEK 40.7 million and include accounts receivable with a fair market value of SEK 36.3 million. The contractual gross amount of accounts receivable that are due amounts to SEK 17.1 million, of which SEK 14.2 million likely cannot be collected. Accounts payable and other liabilities include estimates related to the outcome of known disputes. The estimates are based on management s judgment, and no assurance can be given that such estimates will prove to be correct. Since DynaVox Systems LLC has, from the fourth quarter been fully integrated in the Tobii Group the impact of the acquisition on the Tobii Group s revenues and profit for 2014, but during the third quarter the acquistion contributed SEK 62 million the Group s revenues. If the acquisition had become effective as of January 1, 2014, consolidated net sales of the Group during the year would have been approximately SEK million and earnings after taxes approximately SEK 35.4 million. Acquisition-related expense as of December 31 amounts to SEK 7.4 million for the period and has been reported as transaction expense in the total result of the period. Not 36 Events after the end of the reporting period In February 2015 Tobii, together with game company Ubisoft, announced that Assassins s Creed Rogue PC version, which is one of Ubisoft s best-selling games, will implement Tobii s eye tracking. This will allow the game s view to automatically shift with the user s gaze. The game will be available for sale in stores from March The Group s revenues are not expected to be impacted immediately, but every new game that adopts eye tracking subsequently increases the demand for eye tracking in gaming. In February 2015 a new bill was proposed in the USA ( Steve Gleason Act ) proposing: (i) that Congress takes back its earlier capped rental decision for medical communication devices and (ii) improvements in the possibilities to fund eye tracking through Medicare. In the event that the bill is enacted into law, it could have positive effects for Tobii in the medium-term. Total identifiable net assets F-25

166 Auditor s report regarding audited consolidated financial statements for the period Auditor s report regarding audited consolidated financial statements for the period To the Board of Directors of Tobii AB (publ), Corporate Id No Independent Auditors Report on Historical Financial Information We have audited the financial statements for Tobii AB (publ) on pages F-1 F-25, which comprise the balance sheet as of 31 December 2014, 31 December 2013 and 31 December 2012 and the income statement, cash flow statement and statement of changes in equity for the years then ended, and a summary of significant accounting policies and other explanatory notes. The Board of Directors and the Managing Director s responsibility for the financial statements The Board of Directors and the Managing Director are responsible for the preparation and the fair presentation of the financial statements in accordance with International Financial Reporting Standards as adopted by the EU and the Annual Accounts Act and additional applicable framework. This responsibility includes designing, implementing and maintaining internal control relevant to preparing and appropriately presenting financial statements that are free from material misstatement, whether due to fraud or error. The Board is also responsible for the preparation and fair presentation in accordance with the requirements in the Commission Regulation (EC) No 809/2004. The auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with FAR s Recommendation RevR 5 Examination of Prospectuses. This recommendation requires that we comply with ethical requirements and have planned and performed the audit to obtain reasonable assurance that the financial statements are free from material misstatements. An audit in accordance with FAR s Recommendation RevR 5 Examination of Prospectuses involves performing procedures to obtain audit evidence corroborating the amounts and disclosures in the financial statements. The audit procedures selected depend on our assessment of the risks of material misstatements in the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the company s preparation and fair presentation of the financial statements as a basis for designing audit procedures that are applicable under those circumstances but not for the purpose of expressing an opinion on the effectiveness of the company s internal control. An audit also involves evaluating the accounting policies applied and the reasonableness of the significant accounting estimates made by the Board of Directors and the Managing Director and evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion the financial statements give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU, Annual Accounts Act and additional applicable framework of the financial position of Tobii AB (publ) as of 31 December 2014, 31 December 2013 and 31 December 2012 and its financial performance, statement of changes in equity and cash flows for these years. Stockholm, 10 April 2015 PricewaterhouseCoopers AB Magnus Brändström Authorized Public Accountant F-26

167 Addresses Addresses The Company Tobii AB (publ) Karlsrovägen 2 D SE Danderyd Sweden Global Coordinator and Joint Bookrunner Carnegie Investment Bank AB (publ) Regeringsgatan 56 SE Stockholm Sweden Joint Bookrunner ABG Sundal Collier Regeringsgatan 65 SE Stockholm Sweden Legal Advisor to the Company As to Swedish law Advokatfirman Vinge KB Smålandsgatan 20 SE Stockholm Sweden Legal Advisor to the Joint Bookrunners As to Swedish and U.S. law Baker & McKenzie Advokatbyrå KB Vasagatan 7 SE Stockholm Sweden Baker & McKenzie LLP 100 New Bridge Street London EC4V 6JA United Kingdom Auditors PricewaterhouseCoopers AB Torsgatan 21 SE Stockholm Sweden A-1

168 Tobii AB (publ) Karlsrovägen 2 D SE Danderyd Sweden Ineko Finanstryck 2015 /