The consolidated financial statements of Napatech A/S and its subsidiary (collectively, the Group) for the year ended were authorized  

for issue in accordance with the resolution of the management on March 23 2023.  

NOTE 2  

SIGNIFICANT ACCOUNTING POLICIES  

General  

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the  

EU and additional requirements in the Danish Financial Statement Act.  

The consolidated financial statements are prepared on a historical cost basis.  

The consolidated financial statements are presented in thousand Danish kroner (DKK'000).  

New and amended standards and interpretations that have become operative  

All new or amended standards (IFRS) and interpretations (IFRIC) as adopted by the EU and which are effective for the financial year  

beginning on 1 January 2022 have been adopted. The implementation of these new or amended standards and interpretations had no  

material impact on the financial statements. The accounting policies have been applied consistently during the financial year and for the  

comparative figures. For standards implemented prospectively the comparative figures are not restated.  

New financial reporting standards not yet adopted  

Certain new accounting standards and interpretations have been published that are not yet in effect or endorsed by the EU and,  

therefore, not relevant for the preparation of 2022 consolidated financial statements. The Group expects to implement these standards  

as they take effect. These standards are not expected to have a material impact on the entity in the current or future reporting periods  

and on foreseeable future transactions.  

iXBRL reporting  

Napatech A/S has filed the Annual Report for 2022 in the European Single Electronic Format (ESEF), XHTML format, that can be displayed  

in a standard browser. The primary statements and notes in the consolidated financial statements are tagged using eXtensible Business  

Reporting Language (iXBRL), which complies with the ESEF taxonomy included in the ESEF Regulation.  

The consolidated financial statements  

The consolidated financial statements comprise the parent company, Napatech A/S, and its subsidiary. The subsidiary is fully consolidated  

from the date of acquisition and/or incorporation, being the date on which the parent company obtains control until the date when such  

control ceases. The financial statements of the subsidiary are prepared for the same reporting period as the parent company's financial  

statements, using consistent accounting policies. The consolidated financial statements are prepared as a consolidation of the parent  

company's and the subsidiary’s financial statements, eliminating all intragroup balances, transactions, unrealized gains and losses, and  

dividends.  

Currency translation  

For each group entity, a functional currency is determined, and items recognized in the financial statements of the individual entities are  

measured using that functional currency. The functional currency is the currency used as the primary currency for the activities of the  

reporting entity. Transactions denominated in currencies other than the functional currency are considered transactions denominated  

in foreign currencies.  

On initial recognition, transactions denominated in foreign currencies are translated into the functional currency at the exchange rates  

at the transaction date. Foreign exchange differences arising between the exchange rates at the transaction date and the date of payment  

are recognized in the income statement as financial income or financial expenses.  

NOTE 2  

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)  

Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates at the  

reporting date. Any exchange difference arising from the translation is recognized in the income statement as financial income or financial  

expenses. Non-monetary assets and liabilities measured in terms of historical cost in a foreign currency are translated using the exchange  

rates at the date of the initial transaction.  

Translation of group entities  

On recognition in the consolidated financial statements of foreign entities with a functional currency different from the parent company's  

presentation currency (DKK), the income statement and the statement of cash flows are translated at the exchange rates at the  

transaction date, while the statement of financial position items is translated at the exchange rates at the reporting date. Any foreign  

exchange differences arising from the translation are recognized as other comprehensive income in a separate reserve. On full or partial  

disposal of a foreign entity, the share of the currency reserve relating to that particular foreign entity is recognized in the income  

statement.  

Revenue  

The Group manufactures and sells network adapters including software to end-users and through third-party channel partners. The  

Group's sales contracts regarding network adapters do not include installation services or significant customization etc., and each sales  

transaction only relates to a single performance obligation. Extended warranties and technical product support regarding the network  

adapters are sold separately. The Group also provides specific engineering services according to separate contracts with customers.  

Revenue from contracts with customers is recognized in the income statement at the point in time when control of the goods is  

transferred to the customer, usually on delivery of the goods, and at an amount that reflects the consideration to which the Group  

expects to be entitled in exchange for these goods. Revenue is measured at the fair value of the consideration received, excluding rebates  

and VAT.  

If a payment is received or due (whichever is earlier) from a customer before the Group transfers the related goods or services, the  

revenue is deferred and recognized as a contract liability until the Group performs under the contract. Contract liabilities associated with  

engineering service are recognized as revenue in the income statement based on the stage of completion (over time), which is  

determined on the basis of the relationship between the Group’s resources in relation to recent total estimate of resource consumption.  

The degree of completion is assessed regularly and the projects are closely monitored by management, and further adjustments are  

made to the stage of completion if deemed necessary. When performing this evaluation, all factors concerning the relevant contract are  

taken into consideration and assessed appropriately. Contract liabilities associated with extended warranties and technical product  

support are recognized as revenue in the income statement divided equally over the period stated in the contract, and the costs  

associated with providing the extended warranties and technical product support are recognized as they are incurred.  

The Group applies the practical expedient to recognize incremental costs of obtaining a contract as they are incurred.  

A refund liability and a right-of-return asset are recognized for the products expected to be returned, estimated based on historical  

experience and expectations.  

Cost of goods sold  

Cost of goods sold is incurred to generate the period's revenue. Cost of goods sold comprises costs relating to purchases of products that  

are to be resold.  

Other operating income  

Other operating income comprises income of secondary nature in relation to the activities of the Group, including gain on the sale of  

tangible and intangible assets.  

Staff costs  

Staff costs include salaries, bonuses, pensions and social costs, share-based payments, vacation pay, and other benefits. Staff costs are  

recognized in the year in which the associated services are rendered by the employees.  

Share-based payments  

The Group's employees and management receive consideration in the form of share-based payments. The share-based consideration is  

an equity-settled program under which employees and management deliver services in return for share options. The share options are  

measured at fair value at the time of granting. The fair value of share options is determined using the Black-Scholes option-pricing model.  

Costs relating to equity-settled share-based payments are recognized in the income statement under staff costs and in equity over the  

vesting period. The total expense recognized for equity-settled share-based payments at the reporting date reflects the share of the  

vesting period that has lapsed and management's best estimate of the number of equity instruments that will ultimately vest.  

NOTE 2  

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)  

If the terms for equity-settled programs change, the minimum expense is the expense that would have been recognized had the terms  

not been changed, provided that the employee's or management's right had vested. In addition, an expense is recognized corresponding  

to the increase in the fair value of the share-based payment at the time at which the terms are changed.  

Other external costs  

Other external costs include costs incurred from the distribution of goods sold during the year and the cost of sales, including the cost of  

sales campaigns, advertising, exhibitions, etc. Other external costs also include administrative costs, including office-related expenses. In  

addition, write-downs on trade receivables are included.  

Finance income and cost  

Finance income and costs comprise realized interest income and expenses, unrealized exchange gains and losses on financial assets and  

liabilities in foreign currencies, and realized exchange gains and losses on foreign currency transactions.  

For all financial instruments measured at amortized cost, interest income and expenses are recognized using the effective interest rate  

method.  

Income tax for the year  

Tax for the year, which comprises the current tax charge for the year and changes in the deferred tax charge, including changes arising  

from changes in the tax rate, is recognized in the income statement as regards the portion that relates to the profit or loss for the year  

and in other comprehensive income as regards the portion that relates to entries in other comprehensive income. The tax rates and tax  

laws used to compute the amount are those that are enacted or substantively enacted, by the reporting date, in the countries where the  

Group operates and generates taxable income.  

Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are  

subject to interpretation and establishes provisions where appropriate.  

Intangible assets  

Intangible assets are initially recognized in the statement of financial position at cost. Subsequent to initial recognition, intangible assets  

are carried at cost less accumulated amortization and impairment losses.  

Intangible assets comprise development projects and patents with finite useful lives.  

Intangible assets with finite useful lives are amortized over their economic lives and tested for impairment whenever there is an  

indication that an asset might be impaired. Useful lives are reassessed on an annual basis. Changes in expected useful lives are accounted  

for as changes in accounting estimates. Amortization and impairment losses are recognized in the income statement.  

Gains and losses on the disposal of intangible assets are determined by comparing the proceeds from disposal with the carrying amount  

of the asset and are recognized in the income statement.  

Development projects  

Research costs are recognized in the income statement as incurred. Development costs incurred for individual projects are recognized  

as an intangible asset when the Group can demonstrate the following:  

•

The technical feasibility of completing the development project so that it will be available for use or sale;  

•

The intention to complete the development project and the Group's ability to use or sell it;  

•

The probability that the development project will generate future economic benefits;  

•

The availability of adequate technical, financial, and other resources to complete the development project and to use or sell it;  

•

The ability to measure the costs reliably.  

Subsequent to the initial recognition of the development costs as an intangible asset, the development project is recognized at cost less  

any accumulated amortization and impairment losses. Amortization of the intangible asset begins when the development of the asset  

has been completed and the asset is used as planned. Depreciation is provided on a straight-line basis over the expected useful lives of  

the assets.  

The expected useful life of development projects is 3-5 years.  

Patents  

Patents are recognized as intangible assets at the time of acquisition and measured at cost less accumulated amortization. Patents are  

amortized over their useful lives, starting at the time when the patent takes effect. Depreciation is provided on a straight-line basis over  

the expected useful lives of the assets. The useful life of patents is estimated at 10 years.  

NOTE 2  

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)  

Tangible assets  

Tangible assets include plant and equipment and leasehold improvements. Items of tangible assets are measured at cost less  

accumulated depreciation and impairment losses, the cost being the acquisition price and costs directly related to the acquisition until  

such time when the asset is ready for use.  

Depreciation is provided on a straight-line basis over the expected useful lives of the assets, as follows:  

Plant and equipment  

3 years  

Leasehold improvements  

5 years  

Gains and losses on the disposal of tangible assets are determined by comparing the proceeds from disposal with the carrying amount  

of the asset and are recognized in the income statement.  

Residual values and useful lives are reassessed on an annual basis. Changes in useful lives or residual values are accounted for as changes  

in accounting estimates.  

Leases  

The Group assesses at contract inception whether a contract is or contains a lease. That is, if the contract conveys the right to control  

the use of an identified asset for a period of time in exchange for consideration. The Group recognizes lease liabilities to make lease  

payments and right-of-use assets representing the right to use the underlying assets.  

The Group applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12  

months or less from the commencement date and do not contain a purchase option or extention option). The Group also applies the  

lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on  

short-term leases and leases of low-value assets are recognized as expenses on a straight-line basis over the lease term.  

A right-of-use asset and a lease liability are recognized in the balance sheet when the specifically identifiable asset is made available  

under the lease agreement during the lease term and when the Group gains the right to virtually all the economic benefits from the use  

of the identified asset and the right to control the use of the identified asset.  

The Group applies the practical expedient to recognize payments related to service components in leasing contracts for plant and  

equipment as part of the right-of-use asset and a lease liability.  

Lease liabilities  

Lease liabilities are initially measured at the present value of future lease payments to be made over the lease term. The lease payments  

include fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts  

expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably  

certain to be exercised by the Group and payments of penalties for terminating the lease unless the Group is very unlikely to exercise  

the option to terminate.  

In assessing the expected lease term for property leases, the Group estimates for strategic reasons that the expected rental period is  

between 3-5 years.  

In calculating the present value of lease payments, the Group uses its alternative borrowing rate at the lease commencement date  

because the interest rate implicit in the lease is not readily determinable. The alternative borrowing rate is the cost of raising external  

financing for a corresponding asset with a financing period corresponding to the term of the lease in the currency in which the lease  

payments are settled.  

After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease  

payments made. In addition, the carrying amount of lease liabilities are remeasured if there is a modification, a change in the lease  

term, or a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to  

determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.  

Right-of-use assets  

Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any  

remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs  

incurred, and lease payments made at or before the commencement date, less any lease incentives received. Right-of-use assets  

are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows:  

Properties  

3-5 years  

Plant and equipment  

3-6 years  

NOTE 2  

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)  

Impairment of non-financial assets  

In-progress development projects are tested for impairment once a year. Other long-term assets with finite useful lives are reviewed for  

impairment at each reporting date. Where indications of impairment are identified for in-progress development projects or other long-  

term assets with finite useful lives, the Group estimates the recoverable amount of the asset. The recoverable amount is determined for  

the individual asset or a group of assets constituting an integrated cash-generating unit. The recoverable amount is the higher of the  

asset or the cash-generating unit's fair value less costs to sell and its value in use. When the carrying amount of an asset or a cash-  

generating unit exceeds its recoverable amount, the asset is considered impaired, and the carrying amount is reduced to the recoverable  

amount. The impairment loss is recognized in the income statement.  

The value in use is calculated as the present value of expected future cash flows from the asset or the cash-generating unit of which the  

asset is a part.  

Inventories  

Inventories are measured at the lower of cost and net realizable value. The cost is determined using the first-in/first-out (FIFO) method.  

The cost of goods for resale, raw materials, and consumables comprises the purchase price plus delivery costs. The Group uses sub-  

suppliers for the primary production of goods for resale.  

The net realizable value of inventories is determined as the selling price less costs of completion and costs incurred to generate the  

revenue, taking into account marketability, obsolescence, and developments in the expected selling price.  

Receivables  

Receivables are measured at amortized cost less write-downs. Write-downs on trade receivables are based on the simplified expected  

credit loss model. Credit loss allowances on individual trade receivables and other receivables are provided for when objective indications  

of credit losses occur such as debtor’s bankruptcy and uncertainty about the debtor’s ability and/or willingness to pay, etc.  

Write-downs on receivables are recognized in the income statement under other external costs.  

Cash and cash equivalents  

Cash and cash equivalents comprise cash at banks.  

Equity  

Share premium  

Share premium is the value in excess of the nominal value of the shares that are contributed to the company upon formation or a capital  

increase. The share premium is part of the distributable reserves.  

Share-based payment reserve  

The value of share options granted is recognized in equity under share-based payment reserve over the vesting period as the employees  

deliver the relevant services. The reserve reflects the total value of share options granted based on the share of the vesting period that  

has lapsed and the Group's best estimate of the number of equity instruments that will ultimately vest. The reserve is part of the  

distributable reserves.  

Treasury shares  

Own equity instruments that are reacquired (treasury shares) are recognized at cost and deducted from equity. No gain or loss is  

recognized in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between  

the carrying amount and the consideration, if reissued, is recognized in the share premium.  

Foreign currency translation reserve  

The foreign currency translation reserve comprises exchange differences arising upon translation of the financial statements of foreign  

operations from their functional currency to the parent company's presentation currency (DKK).  

Upon full or partial realization of the investment in the foreign operation, foreign exchange adjustments are recognized in the income  

statement in the same item as the gain/loss from the sale. The reserve is part of the distributable reserves.  

Financial liabilities  

Amounts owed to banks etc., are recognized at the date of borrowing at the amount of proceeds received net of transaction costs paid.  

In subsequent periods, the financial liabilities are measured at amortized cost using the effective interest method. Accordingly, the  

difference between the proceeds and the nominal value is recognized in financial expenses over the term of the loan.  

Non-financial liabilities are measured at net realizable value.  

NOTE 2  

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)  

Provisions  

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, where it is probable  

that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made  

of the amount of the obligation. Provisions are discounted to net present value where this has a significant effect on the measurement  

of the liability.  

Contract liabilities  

A contract liability is recognized if a payment is received or a payment is due (whichever is earlier) from a customer before the Group  

transfers the related goods or services. Contract liabilities are recognized as revenue when the Group performs under the contract.  

Income tax and deferred tax  

Current tax liabilities and current tax receivable are recognized in the statement of financial position as the estimated tax charge for the  

period, adjusted for tax on previous years' taxable income, and tax paid on account.  

Deferred tax is measured, using the "balance sheet liability" method, of all temporary differences at the reporting date between the tax  

base and the carrying amount of assets and liabilities.  

Deferred tax is recognized for all taxable, temporary differences, except for taxable, temporary differences associated with investments  

in subsidiaries where the timing of the reversal of the temporary differences can be controlled, and it is probable that the temporary  

differences will not reverse in the foreseeable future.  

Deferred tax assets are recognized for all deductible, temporary differences, and all unutilized tax loss carry forward to the extent that it  

is probable that taxable profit will be available against which the deductible, temporary differences and the unutilized tax loss  

carryforward can be used.  

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable  

that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized.  

Unrecognized deferred tax assets are reviewed at each reporting date and are recognized to the extent that it has become probable that  

future taxable profits will be available against which the deferred tax asset can be utilized.  

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the  

liability is settled, based on tax rates (and tax laws) that have been enacted or substantially enacted at the balance sheet date.  

Deferred tax items are recognized in correlation to the underlying transaction either in other comprehensive income or directly in equity.  

Deferred tax assets and deferred tax liabilities relating to items recognized outside profit or loss are offset if a legally enforceable right  

exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the  

same taxation authority.  

Statement of cash flows  

The statement of cash flows shows the Group's cash flows for the year, broken down into operating, investing, and financing activities,  

the period's changes in cash and cash equivalents, and the Group's cash and cash equivalents at the beginning and the end of the period.  

Cash flows from operating activities are presented using the indirect method and are stated as the profit or loss for the year before tax,  

adjusted for non-cash operating items, changes in working capital, paid and/or received interests, and paid and/or received income taxes.  

Cash flows from investing activities comprise payments related to purchases and/or proceeds of/from non-current assets.  

Cash flows from financing activities comprise dividends distributed to shareholders, capital increases and/ or reductions, repayments  

and/or proceeds of/from interest-bearing debt and payments regarding lease agreements, including interests and instalments.  

Segment information  

The segment information is provided on geographical markets as the Group has only one business segment. The segmentation is based  

on the Group's internal financial reporting and has been prepared in accordance with the Group's accounting policies.  

Income/expenses in the segments comprise the items directly attributable to the individual segments as well as the items that may be  

allocated to the individual segments on a reliable basis. As a measure of segment profit or loss, the Group uses gross profit.  

NOTE 3  

SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES, AND ASSUMPTIONS  

The preparation of the consolidated financial statements requires the management to make judgments, estimates, and assumptions that  

affect the reported amounts of revenues, expenses, assets, and liabilities. Below are presented significant accounting judgments,  

estimates, and assumptions.  

Accounting estimates and uncertainty of estimates  

The valuation of certain assets and liabilities requires the management to make estimates and assumptions related to future events. The  

estimates and assumptions are based on historical experience and other factors that, according to the management's assessment, are  

reasonable but also inherently subject to uncertainty and unpredictability. The assumptions may be incomplete and inaccurate, and  

unexpected events and/or circumstances may arise.  

Furthermore, the Group is subject to risks and uncertainties that may cause the actual results to differ from these estimates, both  

positively and negatively. The Group's specific risks are discussed in the relevant sections of the management's review and in the notes  

to the consolidated financial statements.  

The major assumptions concerning future events and other sources of estimation of uncertainties at the reporting date, which involve a  

significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are  

presented below.  

Recovery of deferred tax assets  

Deferred tax assets are recognized for all unutilized tax losses to the extent that it is considered probable that taxable profits will be  

realized within a foreseeable number of years, in which the losses can be set off. Determining the amount that can be recognized for  

deferred tax assets is based on estimates of the probable timing and size of future taxable profit. When assessing future profits, historical  

profits have been taken into account.  

Due to uncertainty about the amount of tax losses that could be realized in the foreseeable future, the value of the deferred tax assets  

has been adjusted to DKK 0 thousand on December 31, 2022.  

Development projects  

There is an ongoing assessment of whether the development costs meet the criteria for capitalization as set out in the summary of  

accounting policies, note 2, and whether the development projects will generate future economic benefits.  

Development projects in progress are annually tested for impairment. Completed development projects are reviewed for impairment  

indicators. If there is evidence of impairment, an impairment test is carried out for the project concerned. The impairment test is prepared  

on the basis of factors such as the future use of the project, the present value of expected future income, interest, and risk. The carrying  

amount of completed development projects was DKK 35,102 thousand on December 31, 2022 (December 31 2021: DKK 26,685  

thousand).  

The accounting judgments, estimates, and assumptions that the management makes for development projects are consistent with  

previous years.  

NOTE 4  

OPERATING SEGMENTS  

The following tables present revenue and gross profit information about the Group's operating segments for the years ended December  

31, 2022, and 2021, respectively:  

Year ended 31 December 2022:  

AMERICAS  

ROW  

CONSOLIDATED  

DKK'000  

Revenue  

Total revenue  

117,886  

40,742  

158,628  

Cost of goods sold  

(56,985)  

(11,946)  

(68,931)  

Segment gross profit  

60,901  

28,796  

89,697  

NOTE 4  

OPERATING SEGMENTS (CONTINUED)  

Year ended 31 December 2021:  

AMERICAS  

ROW  

CONSOLIDATED  

DKK'000  

Revenue  

Total revenue  

146,189  

49,282  

195,471  

Cost of goods sold  

(44,828)  

(10,285)  

(55,113)  

Segment gross profit  

101,361  

38,997  

140,358  

Explanation abbreviations  

AMERICAS = North & South America

ROW = Rest of the World  

The Group's revenue relates to a single product category (SmartNIC products) why management has assessed that no further firm-wide  

disclosures according to IFRS 15 are necessary.  

Adjustments and eliminations  

Research and development costs, selling and distribution expenses, administrative expenses, finance income, and costs are not allocated  

to individual segments as they are managed on a group basis. Non-current assets, current taxes and deferred taxes are not allocated to  

individual segments as they are also managed on a group basis.  

Transactions with major customers  

In 2022, the Group has 1 customer (2021: 1 customer) with revenue amounting to 10% or more of the total revenue of the Group.  

Revenue from this significant customer amounted to DKK 61,526 thousand (2021: DKK 53,352 thousand), corresponding to 39% (2021:  

27%) of the Group revenue. Revenue from this customer is arising from the sales in the AMERICAS segment.  

NOTE 5  

OTHER OPERATING INCOME  

Other operating income comprises gain on the sale of tangible assets. Other operating income amounted to DKK 0 thousand (2021: DKK  

625 thousand).  

NOTE 6  

STAFF COSTS  

Employee benefits expense is reported as follows:  

2022  

2021  

DKK'000  

Wages and salaries  

85,575  

78,651  

Defined contribution schemes  

3,779  

3,413  

Share-based payment expense (Note 8)  

5,674  

3,107  

Social security costs  

3,883  

3,578  

Total employee benefits expense  

98,911  

88,749  

Average number of employees  

82  

81  

NOTE 6  

STAFF COSTS (CONTINUED)  

Compensation of key management personnel of the Group is as follows:  

Enployee benefits expense is reported as follows:  

2022  

2021  

Executive  

Other  

Board of  

Executive  

Other  

Board of  

management management  

Directors  

management management  

Directors  

Short-term staff benefits  

5,269  

6,849  

277  

4,718  

6,404  

813  

Defined contribution schemes  

154  

190  

-

140  

186  

-

Share-based payment expense  

860  

1,298  

2,609  

1,026  

946  

-

Total compensation of key management personnel  

6,283  

8,337  

2,886  

5,884  

7,536  

813  

The executive management in 2022 consisted of the CEO and the CFO, while other management consisted of the COO, CMO, and CR DO.  

Until February 2023, the CEO of Napatech was Ray Smets, and Henrik Brill Jensen was the COO. On February 27, 2023, Henrik Brill Jensen  

replaced Ray Smets as CEO of Napatech.  

NOTE 7  

RESEARCH AND DEVELOPMENT COSTS  

Research and development costs, including annual amortization and impairment of completed development projects and development  

projects in progress recognized in the consolidated income statement, are DKK 47,082 thousand (2021: DKK 34,349 thousand). All  

research and development costs are incurred by the parent company. The total amount of research and development costs recognized  

in the balance sheet is DKK 53,485 thousand (2021: DKK 42,274 thousand).  

NOTE 8  

SHARE-BASED PAYMENTS  

Employees and members of the management in both the parent company and the US-based subsidiary are eligible for share option  

schemes. They are granted a certain number of share options in the parent company in return for the services they provide to the Group.  

Share options under these schemes are granted at fixed exercise prices. The right to share options can only be vested as long as the  

holder is an employee of the Group. Members of the Board of Directors are eligible for share option schemes under corresponding terms  

as long as the holder is a member of the Board of Directors of the Group.  

The share-based payment expense is measured at fair value at the grant date using the Black-Scholes model. The expense is recognized  

in the income statement with the counter item in the other reserves under the equity, and it is recognized over (a) the period during  

share option holder has met the vesting conditions or (b) the period in which an exercising event is likely to occur if this period is shorter.  

In February 2013, after the share options of the Group's employees and management had vested but prior to the exercise date, the  

management made modifications to some of the share-based payment agreements concluded with employees and management.  

The management treats the change of terms as modifications to the existing share-based payment arrangements. Accordingly, the fair  

value determined at the original grant date has been charged to the income statement over the original vesting period. In addition, an  

expense is recognized over the new vesting period, corresponding to the increase in the fair value of the share-based payment as a result  

of the change of terms. All granted share options are equity-based.  

In December 2013, the initial public offering (IPO) on the Oslo Stock Exchange (OSE) resulted in an exercising event in relation to all share  

option programs. Therefore, the remaining vesting period of the share options has been accelerated.  

The general terms for share options are summarized as follows:  

Earliest exercise date  

1 year from the grant date  

Latest exercise date  

9 - 10 years from the grant date  

NOTE 8  

SHARE-BASED PAYMENTS (CONTINUED)  

Based on the decision made by General Assembly in April 2016 to issue 400,000 share options, the Board of Directors issued respectively  

145,000 share options in August 2016 with the nominal value of DKK 0.25 at an exercise price of NOK 22.00 (DKK 18.04), 150,000 share  

options in May 2017 with the nominal value of DKK 0.25 at an exercise price of NOK 24.50 (DKK 19.41) and the remaining share options  

in November 2017 with the nominal value of DKK 0.25 at an exercise price of NOK 19.00 (DKK 14.90). The share options’ lifetime is 5  

years, where the share options holders are subject to a lock-up period in the first 2 years of the share options’ lifetime. The share options  

vest with 1/3 in each of the remaining 3 years of the share options’ lifetime.  

The general terms for all issues based on the 2016 share options program are summarized as follows:  

Earliest exercise date  

2 years from the grant date  

Latest exercise date  

5 years from the grant date  

Based on the decision made by General Assembly in April 2017 to issue 460,000 share options, the Board of Directors issued 460,000  

share options in September 2018 with the nominal value of DKK 0.25 at an exercise price of NOK 5.00 (DKK 3.88). The share options'  

lifetime is 8 years, where the share options holders are subject to a lock-up period in the first 2 years of the share options' lifetime. The  

share options vest with 1/6 in each of the remaining 6 years of the share options' lifetime.  

Based on the decision made by General Assembly in April 2018 to issue 480,000 share options, the Board of Directors issued 319,600  

share options in September 2018 with the nominal value of DKK 0.25 at an exercise price of NOK 5.00 (DKK 3.88). The share options'  

lifetime is 8 years, where the share options holders are subject to a lock-up period in the first 2 years of the share options' lifetime. The  

share options vest with 1/6 in each of the remaining 6 years of the share options' lifetime.  

Based on the same decision made by General Assembly in April 2018 to issue 480,000 share options, the Board of Directors issued 55,000  

share options in December 2018 with the nominal value of DKK 0.25 at an exercise price of NOK 3.20 (DKK 2.45). The share options'  

lifetime is 8 years, where the share options holders are subject to a lock-up period in the first 2 years of the share options' lifetime. The  

share options vest with 1/6 in each of the remaining 6 years of the share options' lifetime.  

The general terms for all issues based on the 2017 and 2018 share options program are summarized as follows:  

Earliest exercise date  

2 years from the grant date  

Latest exercise date  

8 years from the grant date  

Based on the decision made by the General Assembly in April 2019 to issue 2,076,704 share options, the Board of Directors issued  

1,736,800 share options in July 2019 with the nominal value of DKK 0.25 at an exercise price of NOK 1.50 (DKK 1.16). The share options'  

lifetime is 8 years, where the share options holders are subject to a lock-up period in the first year of the share options' lifetime. The  

share options vest with 1/4 in each of the following 4 years.  

Based on the same decision made by General Assembly in April 2019 to issue 2,076,704 share options, the Board of Directors issued  

20,000 share options in February 2020 with the nominal value of DKK 0.25 at an exercise price of NOK 4.50 (DKK 3.32). The share options'  

lifetime is 8 years, where the share options holders are subject to a lock-up period in the first year of the share options' lifetime. The  

share options vest with 1/4 in each of the following 4 years  

The general terms for all issues based on the 2019 share options program are summarized as follows:  

Earliest exercise date  

1 year from the grant date  

Latest exercise date  

8 years from the grant date  

Based on the same decision made by General Assembly in April 2019 to issue 2,076,704 share options, the Board of Directors issued  

133,756 share options in July 2019 with the nominal value of DKK 0.25 at an exercise price of NOK 5.00 (DKK 3.88). The share options'  

lifetime is 8 years. The share options vest with 1/3 at the grant date, 1/3 after 12 months, and 1/3 after 24 months from the date of issue.  

Based on the same decision made by General Assembly in April 2019 to issue 2,076,704 share options, the Board of Directors issued  

133,488 share options in July 2019 with the nominal value of DKK 0.25 at an exercise price of NOK 1.89 (DKK 1.46). The share options'  

lifetime is 8 years. The share options vest with 1/3 at the grant date, 1/3 after 12 months, and 1/3 after 24 months from the date of issue.  

The general terms for all issues based on the 2019 share options program are summarized as follows:  

Earliest exercise date  

immediate from the grant date  

Latest exercise date  

8 years from the grant date  

Based on the decision made by General Assembly in April 2020 to issue 1,000,000 share options, the Board of Directors issued 995,000  

share options in May 2020 with the nominal value of DKK 0.25 at an exercise price of NOK 4.18 (DKK 2.89). The share options' lifetime is  

8 years, where the share options holders are subject to a lock-up period in the first year of the share options' lifetime. The share options  

vest with 1/4 in each of the following 4 years.  

NOTE 8  

SHARE-BASED PAYMENTS (CONTINUED)  

Based on the same decision made by General Assembly in April 2020 to issue 1,000,000 share options, the Board of Directors issued  

5,000 share options in December 2020 with the nominal value of DKK 0.25 at an exercise price of NOK 12.18 (DKK 8.62). The share  

options' lifetime is 8 years, where the share options holders are subject to a lock-up period in the first year of the share options' lifetime.  

The share options vest with 1/4 in each of the following 4 years.  

Based on the same decision made by General Assembly in April 2020 to issue 1,000,000 share options, the Board of Directors issued  

10,000 share options in November 2021 (as some share options have reverted to the pool) with the nominal value of DKK 0.25 at an  

exercise price of NOK 17.48 (DKK 14.63). The share options' lifetime is 8 years, where the share options holders are subject to a lock-up  

period in the first year of the share options' lifetime. The share options vest with 1/4 in each of the following 4 years.  

Based on the decision made by General Assembly in April 2021 to issue 460,000 share options, the Board of Directors issued 407,000  

share options in May 2021 with the nominal value of DKK 0.25 at an exercise price of NOK 19.70 (DKK 13.36). The share options' lifetime  

is 8 years, where the share options holders are subject to a lock-up period in the first year of the share options' lifetime. The share options  

vest with 1/4 in each of the following 4 years.  

The general terms for all issues based on the 2020 and 2021 share options program are summarized as follows:  

Earliest exercise date  

1 year from the grant date  

Latest exercise date  

8 years from the grant date  

Based on the decision made by General Assembly in April 2022 to issue 440,000 share options to members of the Board of Directors, the  

Board of Directors issued 114,487 share options in June 2022 with the nominal value of DKK 0.25 at an exercise price of DKK 0.25. The  

share options' lifetime is 2 years and 10 months. All the share options vest at grant date.  

Based on the decision made by General Assembly in April 2022 to issue 440,000 share options to members of the Board of Directors, the  

Board of Directors issued 251,007 share options in June 2022 with the nominal value of DKK 0.25 at an exercise price of DKK 0.25. The  

share options' lifetime is 2 years and 10 months. The share options vest with 1/10 in each of the following 10 months.  

The general terms for all issues based on the 2022 share options program to the Board of Directors are summarized as follows:  

Earliest exercise date  

immediate from the grant date  

Latest exercise date  

2 years and 10 months from the grant date  

Based on the decision made by General Assembly in April 2022 to issue 800,000 share options to key employees, the Board of Directors  

issued 300,000 share options in June 2022 with the nominal value of DKK 0.25 at an exercise price of NOK 11.00 (DKK 7.92). The share  

options' lifetime is 8 years, where the share options holders are subject to a lock-up period in the first year of the share options' lifetime.  

The share options vest with 1/4 in each of the following 4 years.  

The general terms for all issues based on the 2022 share options program to key employees are summarized as follows:  

Earliest exercise date  

1 year from the grant date  

Latest exercise date  

8 years from the grant date  

2022  

Other  

Board of Directors  

Management  

Employees  

Total  

Avg.  

Avg.  

Avg.  

Avg.  

Number  

Number  

Number  

Number  

Share options  

ex. price  

ex. price  

ex. price  

ex. price  

At 1 January 2022  

-

-

3,584,144  

4.15  

794,676  

5.45 4,378,820  

4.39  

Granted during the year  

365,494  

0.25  

300,000  

7.92  

-

-

665,494  

3.71  

Exercised/expired during the year  

-

-

-

-

(16,716)  

4.38  

(16,716)  

4.38  

At 31 December 2022  

365,494  

0.25 3,884,144  

4.44  

777,960  

5.47 5,027,598  

4.30  

Exercisable at 31 December 2022  

266,735  

0.25 1,854,977  

4.67  

436,085  

4.50 2,557,797  

4.18  

NOTE 8  

SHARE-BASED PAYMENTS (CONTINUED)  

2021  

Other  

Management  

Employees  

Total  

Avg.  

Avg.  

Avg.  

Number  

Number  

Number  

ex. price  

ex. price  

ex. price  

Share options  

At 1 January 2021  

3,374,144  

3.34  

1,010,000  

5.49  

4,384,144  

3.84  

Granted during the year  

250,000  

14.63  

167,000  

14.55  

417,000  

14.60  

Exercised/expired during the year  

(40,000)  

1.84  

(382,324)  

9.54  

(422,324)  

8.81  

At 31 December 2021  

3,584,144  

4.15  

794,676  

5.45  

4,378,820  

4.39  

Exercisable at 31 December 2021  

1,350,809  

4.32  

281,534  

4.06  

1,632,343  

4.27  

In 2022, 11,716 options were exercised, and 5,000 lapsed (2021: 47,906 exercised and 374,418 lapsed). The following shows the exercise  

price of the outstanding share options and warrants:  

2022  

2021  

Number of share options at 31 December  

Exercise price DKK 8.00  

306,000  

306,000  

Exercise price DKK 19.41  

150,000  

150,000  

Exercise price DKK 3.88  

626,935  

628,101  

Exercise price DKK 2.45  

55,000  

55,000  

Exercise price DKK 3.88  

133,756  

133,756  

Exercise price DKK 1.46  

133,488  

133,488  

Exercise price DKK 1.16  

1,605,925  

1,609,975  

Exercise price DKK 3.32  

15,000  

20,000  

Exercise price DKK 2.89  

934,000  

935,500  

Exercise price DKK 8.62  

-

5,000  

Exercise price DKK 14.63  

392,000  

392,000  

Exercise price DKK 13.36  

10,000  

10,000  

Exercise price DKK 0,25  

365,494  

-

Exercise price DKK 7,92  

300,000  

-

Total number of outstanding share options  

5,027,598  

4,378,820  

The weighted average of the remaining contractual period of the outstanding share options from the 2017 share options program on  

December 31, 2022 is 3 years and 9 months (at December 31 2021: 4 years and 9 months). The weighted average of the remaining  

contractual period of the outstanding share options from the 2018 share options program on December 31, 2022 is 3 years and 9 months  

(at December 31 2021: 4 years and 9 months). The weighted average of the remaining contractual period of the outstanding share options  

from the 2019 share options program on December 31, 2022 is 4 years and 6 months (at December 31 2021: 5 years and 6 months). The  

weighted average of the remaining contractual period of the outstanding share options from the 2020 share options program on  

December 31, 2022 is 5 years and 5 months (at December 31 2021: 6 years and 5 months). The weighted average of the remaining  

contractual period of the outstanding share options from the 2021 share options program on December 31, 2022 is 6 years and 5 months  

(at December 31 2021: 7 years and 5 months). The weighted average of the remaining contractual period of the outstanding share options  

from the 2022 share options program on December 31, 2022 is 4 years and 9 months.  

Assumptions for the calculation of the fair value of share options and warrants  

The fair value of share options and warrants granted during 2013, 2017, 2018, 2019, 2020, 2021 and 2022 was estimated on the date of  

grant using the following assumptions:  

NOTE 8  

SHARE-BASED PAYMENTS (CONTINUED)  

December  

May  

September  

December  

July  

2013  

2017  

2018  

2018  

2019  

Volatility  

47.92%  

50.50%  

56.00%  

67.71%  

68.25%  

Risk-free interest rate  

1.65%  

0.80% - 1.10%  

1.80%  

1.76%  

1.40%  

Exercise price (DKK)  

8.00  

19.41  

3.88  

2.45  

3.88  

Exercise period (years)  

2.27  

3.00 - 5.00  

3.00 - 8.00  

3.00 - 8.00  

1.00 - 8.00  

Number of options  

520,700  

150,000  

779,600  

55,000  

133,756  

Grant date fair value for each option (DKK)  

20.10  

3.88  

2.04  

1.50  

0.54  

July  

July  

February  

May  

December  

2019  

2019  

2020  

2020  

2020  

Volatility  

68.25%  

68.25%  

79.86%  

81.73%  

81.38%  

Risk-free interest rate  

1.40%  

1.40%  

1.35%  

0.61%  

0.95%  

Exercise price (DKK)  

1.46  

1.16  

3.32  

2.89  

8.62  

Exercise period (years)  

1.00 - 8.00  

2.00 - 8.00  

2.00 - 8.00  

2.00 - 8.00  

2.00 - 8.00  

Number of options  

133,488  

1,736,800  

20,000  

995,000  

5,000  

Grant date fair value for each option (DKK)  

0.75  

0.78  

2.69  

2.16  

6.55  

May  

November  

June  

June  

June  

2021  

2021  

2022  

2022  

2022  

Volatility  

80.60%  

80.54%  

80.54%  

80.54%  

80.54%  

Risk-free interest rate  

1.47%  

1.69%  

3.18%  

3.18%  

3.18%  

Exercise price (DKK)  

14.63  

13.36  

0.25  

0.25  

7.92  

Exercise period (years)  

2.00 - 8.00  

2.00 - 8.00  

0 - 2.75  

0.75 - 2.75  

2.00 - 8.00  

Number of options  

407,000  

10,000  

114,487  

251,007  

300,000  

Grant date fair value for each option (DKK)  

11.07  

10.18  

7.68  

7.67  

6.12  

The volatility is calculated based on a peer group of 5 similar companies listed on the Nasdaq Stock Exchange in the USA. The fair value  

of the share options is determined using the Black-Scholes option-pricing model. For 2022, the Group has recognized a share-based  

payment expense of DKK 5,674 thousand in the income statement (2021: DKK 3,107 thousand). DKK 2,609 thousand was recognized in  

relation to Board of Directors (2021: DKK 0 thousand), DKK 2,158 thousand was recognized in relation to Management (2021: DKK 1,972  

thousand) and DKK 907 thousand in relation to others (2021: DKK 1,135 thousand).  

NOTE 9  

AUDITORS' FEE  

2022  

2021  

DKK'000  

Fees to the Company's auditor appointed by the general meeting:  

Statutory audit fee  

594  

521  

Assurance engagements  

-

60  

Tax advisory fee  

46  

-

Fees for other services  

26  

13  

Total auditors' fees  

666  

594  

The fee in relation to non-audit services from EY Godkendt Revisionspartnerselskab, DKK 72 thousand, consists of tax advice regarding  

transfer pricing and general accounting advice.  

NOTE 10  

DEPRECIATION, AMORTIZATION AND IMPAIRMENT  

DKK'000  

2022  

2021  

Depreciation, amortization and impairment are reported as follows:  

Depreciation of plant and equipment  

3,218  

985  

Depreciation of leasehold improvements  

337  

329  

Depreciation of right-of-use assets  

2,773  

2,941  

Total depreciation of tangible assets  

6,328  

4,255  

Amortization of patents  

665  

690  

Amortization of completed development projects  

19,085  

17,308  

Total amortization and impairment of intangible assets  

19,750  

17,998  

Total depreciation, amortization and impairment  

26,078  

22,253  

NOTE 11  

FINANCE INCOME  

2022  

2021  

DKK'000  

Interest receivable from banks  

7

19  

Foreign exchange gains  

3,589  

4,594  

Other finance income  

-

2,359  

Total finance income  

3,596  

6,972  

Finance income at amortized costs  

7

2,378  

NOTE 12  

FINANCE COSTS  

2022  

2021  

DKK'000  

Interest payable to banks  

921  

197  

Interest payable under leases  

184  

259  

Other finance costs  

435  

180  

Total finance costs  

1,540  

636  

Finance costs at amortized costs  

1,540  

636  

NOTE 13  

INCOME TAX  

2022  

2021  

DKK'000  

Current tax recognised in the consolidated income statement:  

Current income tax  

7

1,281  

Current income tax carry back refund  

(5,500)  

-

Change in deferred tax  

9,715  

(4,783)  

Adjustment prior years taxes  

(107)  

272  

Total income tax  

4,115  

(3,230)  

A reconciliation between tax expense and profit before tax multiplied by the applicable income tax rate for the Group for 2022 and 2021  

is as follows:  

2022  

2021  

DKK'000  

Profit before tax  

(44,144)  

36,998  

At the applicable Danish income tax rate for the Group, 22.0% (2020: 22.0%)  

(9,712)  

8,140  

Tax effect of:  

Tax-deductable expenses  

(3,041)  

(2,236)  

Non-deductible expenses  

1,030  

447  

Accounting estimate for not recognized deferred tax assets  

16,569  

(10,891)  

Adjustment prior year taxes  

(107)  

272  

Other deviations in foreign subsidiaries including other tax rates  

(624)  

1,038  

At the effective income tax rate of -9% (2021: -9%)  

4,115  

(3,230)  

NOTE 14  

EARNINGS PER SHARE  

2022  

2021  

DKK'000  

Net profit attributable to equity holders of the parent company  

for basic earnings and the effect of dilution  

(48,259)  

40,228  

2022  

2021  

Thousands  

Thousands  

Weighted average number of shares for basic earnings per share  

83,084  

83,084  

Effect of dilution:  

Share options  

2,933  

3,040  

Weighted average number of shares adjusted for the effect of dilution  

86,017  

86,124  

NOTE 15  

INTANGIBLE ASSETS  

Development  

Development  

projects,  

projects, in  

Other  

completed  

progress  

Patents  

intangible assets  

Total  

2022  

2021  

2022  

2021  

2022  

2021  

2022  

2021  

2022  

2021  

DKK'000  

Cost at 1 January  

276,862 256,197  

40,807  

32,978  

10,435  

10,426  

2,139  

2,139 330,243 301,740  

Additions in the year  

-

-

30,296  

28,494  

-

9

-

-

30,296  

28,503  

Transfers in the year  

27,502  

20,665  

(27,502) (20,665)  

-

-

-

-

-

-

Disposals  

-

-

(25,218)  

-

-

-

(2,139)  

-

(27,357)  

-

Cost at 31 December  

304,364 276,862  

18,383  

40,807  

10,435  

10,435  

-

2,139 333,182 330,243  

Accumulated impairment and  

amortization  

at 1 January  

250,177 232,869  

25,218  

25,218  

7,419  

6,729  

2,139  

2,139 284,953 266,955  

Amortization for the year  

19,085  

17,308  

-

-

665  

690  

-

-

19,750  

17,998  

Disposals  

-

-

(25,218)  

-

-

-

(2,139)  

-

(27,357)  

-

Accumulated amortization  

and impairment  

at 31 December  

269,262 250,177  

-

25,218  

8,084  

7,419  

-

2,139 277,346 284,953  

Carrying amount at 31  

December  

35,102 26,685  

18,383  

15,589  

2,351  

3,016  

-

-

55,836 45,290  

Within the completed development projects there are 3 material development projects with a carrying amount of DKK 12,798 thousand,  

DKK 4,324 thousand and DKK 4,134 thousand on December 31, 2022, respectively (December 31 2021, the first project was in progress  

with a carrying amount of DKK 7,474 thousand, the second project was completed with a carrying amount of DKK 7,207 thousand and  

the third project was in progress with a carrying amount of DKK 1,586 thousand). The first project is aimed to enhance the feature set on  

Napatech’s virtual switching solution implementing new features such as RSS, HW QoS, and OpenStack RDO. The second project is  

Napatech’s virtual switching solution aimed at developing a full virtualization data plane offload solution. The third project is a native  

DPDK driver aimed to be integrated into Napatech’s virtual switching solution. The remaining amortization periods of these 3 projects  

are 2 years and 5 months, 1 year and 6 months and 2 years and 10 months, respectively.  

Within the in-progress development projects there is 1 material development projects with a carrying amount of DKK 13,353 thousand  

on December 31, 2022 (December 31 2021, the carrying amount was 4,315 thousand). The aim of the project is to develop Napatech’s  

NT400D13 HW platform capable of delivering full throughput for 2x100G.  

The Group recognized DKK 0 thousand as an impairment in 2022 (2021: DKK 0 thousand) in respect of the Group's development projects  

and patents.  

At year-end 2022, the Group performed its annual impairment test, based on the value in use, for both Completed and In Progress  

Development Projects. The Group considers the relationship between its market capitalization and its accounting value, among other  

factors, when assessing for indicators of impairment.  

In relation to the annual impairment test, the following key assumptions were applied:  

•

The recoverable amount has been determined based on a value-in-use calculation using cash flow projections from financial  

budgets for 2023 and cash flow projections for a three-year period. The three-year cash flow projections are based on a three-  

year strategic plan and investment budget, which are approved by the board of directors. The assumed CAGR from 2022 to  

2025 assumed in the impairment test is 39%. Due to uncertainty on projections, the impairment test is therefore based on a  

finite life span of 3 years equalling the estimated useful life, and does not include any terminal period.  

•

Discount rates representing the current market assessment of the risks specific to the development project were applied to  

cash flow projections, but due to the fact that the impairment test is based on a finite life span of 3 years and without any  

terminal period, the applied discount rate only had a marginal impact on the impairment test. A discount rate after tax of 20%  

is used in the impairment test. A sensitivity analysis has been performed on the impartment test showing a DKK 0.6 million  

impairment need if a discount rate after tax of 22% is used. Similarly, a sensitivity analysis has been performed on the  

impartment test showing a DKK 0.3 million impairment need if the CAGR for the period is lowered by 1%.