Annual Report 2021 - 2372627.fs1.hubspotusercontent-na1

LETTER FROM THE CEOA year of expansion2021 was a record year for Smart Eye on all fronts.There is clearly a pent-up demand for our technologyacross all of our business units. During the second halfof the year, most of our markets started to come backstrong, despite the continued effects of the pandemicand semiconductor shortage that hit the automotivesector hard. Nonetheless, we expect continued stronggrowth going forward. Furthermore, we are set up forthe future with our acquisition of Affectiva andiMotions, two pioneers in their respective fields.There are also risks on the horizon: new waves of thecoronavirus might emerge, semiconductors areexpected to be in short supply for at leastthroughout 2022, and geopolitical events in the wakeof the Russian invasion of Ukraine would likely affectthe global economy. However, we stand prepared andwill continue to navigate world events. The bottom lineis that our technology and products are in high andgrowing demand.Human Insight AISmart Eye started 23 years ago as an eye trackingcompany. Today, with the evolution of DriverMonitoring into Interior Sensing, we havebroadened the scope. For example, in automotive, wenow offer features such as face identification,detection of drowsiness, seatbelts, child left behindand analysis of driver and passenger facialexpressions and reactions, and activities, such aseating and drinking.The acquisition of Affectiva in June secured the world’sleading Emotion AI, strengthening our position inInterior Sensing, and adding strong capacity inmachine learning and data acquisition and12 ANNUAL REPORT 2021 - SMART EYEannotation to the company. With the acquisition ofiMotions in November, we now have access to amultimodal software platform for combiningphysiological signals.We call all this Human Insight AI, a whole newcategory of technology that helps understand, supportand predict human behavior in complexenvironments. Our multimodal approach yields a newand unprecedented understanding of human behavioron a deep level.Long-term visionThe vision of the company is that Human Insight AItechnology represents a quantum leap in how peopleand computers interact, an extension of the punchedcard of old times that led to the keyboard and monitor,the mouse that led to the touch screen and nowconversational AI. We believe that Human Insight AIwill complement existing human-machine interfacesand will have universal applicability. Human Insight AIhas the potential to enable us to lead safer, healthier,happier and more connected lives. This is a grandvision that will take time to unfold.Through our Behavioral Research arm we service awide variety of customers and we constantly monitorthe development of new emerging verticals. In thelong run, Human Insight AI will simplify computerinteraction everywhere and all the time.Strategic directionFor now, we continue to focus our efforts onAutomotive and Behavioral Research. The explanationfor the automotive focus is very simple: early on werealized that what we do is an important piece of thepuzzle to mitigate 1.2 million deaths and 50 millioninjuries in traffic every year. We have always believedthat this will be supported by legislation, and now wesee this materialize. Regulatory tailwind supports ourindustry and there will soon be a driver monitoringsystem in every car sold in Europe, with other regionsfollowing suit. Interior Sensing will be as common asseatbelts and airbags in the future. Automotive is thefirst broad mass market roll out of the technology, butthere will surely be others.Cars are getting more and more sophisticated. Thetwo megatrends are electrification and the everincreasing software content of the car. The totalavailable processing power is increasing for each newcar generation and the software – oftenAI-powered – is growing in complexity. Also,consumers are becoming used to seamless userexperiences in the products they use, whether it becars or electronic devices. These trends support theimplementation of advanced sensors, deployed forinterior as well as exterior use. Simply put – our carsare becoming smarter.Our automotive strategy is twofold: a scalablesoftware business model for high volume customers,complemented with a fleet hardware product for smallto medium volumes.As a high-tech company we rely on our ability tounderstand the underlying trends and adapt oursolutions accordingly. We are increasing the numberand size of the teams, but the most important assetis our understanding of all the moving parts of ourdomain on a deep level. It helps us to make tacticaldecisions on how to invest resources for the bestpossible effect.Closing wordsThe automotive industry is under rapid change: theamount of software content of the car is increasingat a high rate, as is the complexity of the software.The automotive industry is competing with othersectors where similar software and machine learningcompetence is in high demand. This situation is goodfor Smart Eye, as we continue to attract world-classtalent and own best-in-class hardware and softwaretechnology that is in high demand. We will continueto improve as a valued partner in the automotive techecosystem and continue to look for opportunities todeliver even more value to cars in the future. At thesame time, our fast-growing Behavioral Research armis the perfect vehicle for setting us up for new andexciting verticals beyond automotive.Martin Krantz,CEO Smart EyeAnother important strategic axis is our BehavioralResearch branch, with the dual purpose of running aprofitable and growing business as well as monitoringthe trends in various markets and academia. Throughour Behavioral Research arm we service a wide varietyof customers and we constantly monitor thedevelopment of new emerging verticals. AddingiMotions greatly increases our footprint in this spaceand sets us up for the very exciting possibilitiesemerging within the field of multimodal sensing. Whatthis means is that we can understand more of humanintent and behavior by measuring more modalities.At some point in time, it may be the right decisionto venture outside of Automotive and BehavioralResearch, but not now. Instead, we intend to, in closecollaboration with our customers, redefine the waythe driver, passengers and vehicle collaborate, interactand understand each other.Execution of the strategyWe are operating close to full capacity in executingour strategic objectives for Automotive andBehavioral Research. Our team is focused ondelivering existing programs to the automotive industry, while also investing heavily in Interior Sensinginnovation to enable advanced safety and mobilityexperiences that enhance comfort, wellness andentertainment.SMART EYE - ANNUAL REPORT 2021 13

H U M A N I N S I G H T A I : W H AT I S I T ?See furtherwith HumanInsight AI.In recent years, we have seen rapid advances intechnology and AI, allowing for unprecedented insightsinto human behavior and powering human-to-machineinteractions in entirely new ways. Sensor technologieshave become more accessible and are easier and morecost effective to deploy. Combined with advancedcompute processing power, new machine learningmethodologies and access to massive amounts ofdata, we are entering a new era of intelligent systems– systems that assess complex human behaviors andstates, and enable us to lead safer, healthier, happierand more connected lives. We call this Human Insight AI:technology that understands, supports and predictshuman behavior in complex environments.Smart Eye has created the new technology categoryof Human Insight AI, and with our subsidiariesAffectiva and iMotions we are positioned to becomethe global leader of this rapidly growing space.Our multimodal approach is unique: we are the firstto combine different sensor technologies to discovermore than what meets the eye.We decode nuanced human states and behaviors in alarge variety of complex situations. This enables ourclients to gain a deep and unique understanding ofhow people act, react and interact with technologyand each other.14 ANNUAL REPORT 2021 - SMART EYEApplying novel deep learning methodologies andmassive amounts of data, our Human Insight AIdraws on multiple data sources in an unobtrusive,non-invasive manner. This provides real-time analysiswith a high level of computational accuracy. Designedto be reliable, scalable, robust and able to run on anyplatform.At Smart Eye we are pioneering unprecedentedsolutions with the power to transform any industryfrom automotive, aviation, assistive technology andbehavioral science to media, marketing and beyond.SMART EYE - ANNUAL REPORT 2021 15

STRATEGYSTRATEGYStructured for Diversified GrowthC O R P O R AT E S T R AT E G YEnabling safer transport today andpowering the experiences of tomorrowIn 2021, Smart Eye acquired Affectiva and iMotions to expand our technologyfootprint and market access. In doing so, we revolutionized the field bymerging market leaders in Human Insight AI, all of which share a passion tohumanize technology and have extensive experience developing sophisticatedtechnologies that yield unique human insights.Entering 2022, Smart Eye’s market leadership in theautomotive vertical solidifies with continued designwins that will provide exponential revenue growthin 2022 and beyond. Our commitment to expansionwithin the Human Behavioral Research field will alsoprovide near-term growth for investors.In support of this diversified growth approach, wehave structured our business operations into twoprimary areas: Automotive and Behavioral Research.Automotive consists of two business units: Automotive Solutions Applied AI Systems (AIS)Behavioral Research consists of three business units: Affectiva Media Analytics Research Instruments iMotionsBEHAVIORAL RESEARCHAUTOMOTIVE01110000 0111100 0 00For more than two decades, Smart Eye has been on a mission to betterunderstand human behaviors with the world’s best eye tracking systems.Extending this legacy, Smart Eye has now expanded to provide best-in-classfacial analysis, emotion recognition, activity detection, multi-sensor data fusion,multimodal behavioral analytics and more — all developed by an organization known worldwide for successfully merging innovation with quality. Acrossindustries, Smart Eye’s Human Insight AI is being used to create a safer, moreengaging, and more enriching experience for the world.1 11 11 1AutomotiveSolutionsApplied AISystemsWith this newly expanded Smart Eye family, our strategy remains consistentbut accelerated: we are committed to preserving our position as the premierprovider of Human Insight AI by maintaining an unwavering commitment toquality and innovation. Our commercial strategy to diversify growth acrossmultiple market segments will yield steady growth immediately and in theyears to come.Sells & deliversSmart Eye’s industryleading embeddedDriver Monitoring& Interior Sensing solutions toautomotive OEMsand Tier 1 suppliersfor newly producedvehicles.Produces & sells acomplete aftermarket hardware andsoftware DriverMonitoring Systemthat can be easilydeployed withinexisting vehiclecabins or smallvolume OEMs.Smart Eye Mantra for Success2. ExecuteAs the pioneer of Human Insight AI, Smart Eye musteffectively balance the needs of today’s customers,with maintaining our scientific and thoughtleadership position to accelerate the future of mobility.To successfully achieve this, we center our strategicdecisions on a three-word mantra: Innovate, Executeand Deliver.16 ANNUAL REPORT 2021 - SMART EYE1. InnovateInnovation continues to be the lifeblood of Smart Eyeand will solidify our leadership position for years tocome. Staffed by preeminent researchers and bolsteredby the Affectiva acquisition, our Research division hasthe mandate to explore cutting edge technologies, fusemodalities for improved accuracies and applications, anddevelop new capabilities — driving the future of AI-powered behavioral analytics and human machine interfacesin complex environments. Smart Eye’s Research divisionhas built a vast ecosystem of research partners andcollaborators across industries and academia.AffectivaMediaAnalyticsDevelops themarket leadingcloud-basedEmotion AI offeringdesigned for advertising, television/movie and userexperience testing,leveraging Affectiva’s decade-longleadership in thisarea.Executing on our product strategy keeps Smart Eyeat the forefront of Human Insight AI. In close collaboration with partners and customers, we constantlyassess emerging needs and develop new algorithmsin anticipation of market demand. With a productdevelopment organization comprised of experiencedmachine learning and data scientists, seasoned software engineers, and deep embedded expertise, oursolutions continue to deliver on the promise of todayand power the vision of tomorrow.ResearchInstrumentsDelivers the besteye tracking solutions for advancedresearch and training applications, inboth the academicand commercialsectors, includingautomotive, aviation,assistive technologies and behavioralscience.0 0 001iMotionsProvides thepremier multimodalhuman behavioralresearch platformthat fuses data froma large variety ofsensors for unprecedented analyticsfor the academicand commercialsectors.3. DeliverWe deliver on customer commitments. In automotivewe are in production with 5 OEMs across 3 continents,and our #1 priority is to power vehicles on the road.Our skilled team optimizes our technology to exactproduction requirements, meeting client needs with anabsolute commitment to quality. With production engineering processes designed to meet the highest safetystandards, we provide dedicated engineering servicesto ensure the highest quality solution is delivered ontime and on spec.SMART EYE - ANNUAL REPORT 2021 17

STRATEGYSTRATEGYPioneering multimodality to deliver cutting edge Human Insight AI in automotive and beyondThe emergence of multimodal Human Behavioral ResearchHuman behavioral researchers have long understood the importance of fusing input frommultiple sensors and signals to gain a deepunderstanding of human states, behaviors,activities, reactions and interactions. Termed“multimodality” this trend that emerged in academic research, is now rapidly gaining tractionwith commercial customers.For decades, Smart Eye’s subsidiaryiMotions has been providing human behavioral researchers with the world’s mostsophisticated biosensor software platform.iMotions’ software in real-time synchronizesdata streams from multiple sensors to deliverunique insights faster and more cost effectivelythan alternative approaches.Emotion AI pioneer Affectiva uses computervision and machine learning algorithms toanalyze facial emotional expressions, reactions and human activities —signals that giveinsight into complex human emotional andcognitive states in context.Combining iMotions and Affectiva technologies with Smart Eye’s premier eye trackingsolutions, we are uniquely positioned toprovide an end-to-end, multimodal approachto analyzing complex human behaviors inreal world and challenging environments anddelivering holistic human insights.Smart Eye enters 2022 with an undeniabletechnological and commercial advantageas the Human Insight AI field continues torapidly advance.The logical evolution of Driver Monitoring Systems to multimodal Interior SensingIn parallel, the automotive industry has takennotice of the value provided from a multimodalapproach.Car manufacturers are actively sourcing computer vision and AI-based Driver MonitoringSystems as cost effective and highly accuratesolutions to meet legislative and regulatorysafety requirements.Leading OEMs and Tier 1s are now requestingto widen the aperture to gain a complete viewof what’s happening in a vehicle. The rapidlyemerging auto tech category of Interior Sensing AI combines Driver Monitoring with CabinMonitoring, to understand the state of thedriver, the cabin and the occupants in it.An accurate understanding of human behaviorin very complex automotive environments, necessitates a multimodal approach, that deploysmultiple sensors in vehicles and fuses thatinput for higher accuracies and new insights.In anticipation of this continued market evolution, Smart Eye is once again leading theway for our automotive customers, foreverchanging automotive safety and the mobilityexperience.With the automotive vertical as its initial growthmarket, Smart Eye is uniquely positioned toextend multimodal Human Insight AI to manyother verticals including aviation, healthcareand beyond.Leveraging presence in research market to expand into new industrial volume verticals Research customers drive early developmentImproved products open new industry verticalsNew industry verticals spur innovationThis innovation is applied to the development of new offerings18 ANNUAL REPORT 2021 - SMART EYESMART EYE - ANNUAL REPORT 2021 19

INNOVATIONINNOVATIONI N N O VAT I O NPioneering thetechnology oftomorrowFor over 20 years, Smart Eye has been developingsolutions for understanding human behaviorat the leading edge of innovation. But to maintain our competitive advantage, we need tokeep exploring new ways to further enhance thealgorithms that have made us the number oneprovider of Human Insight AI within automotive,behavioral research and beyond.Through co-funded research and collaborationwith academia, governmental institutions, automotive partners and more, we are constantlydriving innovation forward towards new technological milestones.Development at theleading edge of technologyProactive research and advanced developmenthave always been critical to the success of eachof Smart Eye’s business divisions. Acting as astarting point for technological development, ourResearch team is ahead of the market, developing valuable new capabilities before they areeven requested by customers. This enables us tocontinuously innovate and advance the state-ofthe-art.Technological innovation acrossbusiness verticalsSmart Eye’s work within research is not limited todeveloping new products or features. To keep ontop of technological advancement, we also makesure our existing solutions are regularly updatedand enhanced. The research division is continuously experimenting with new machine lear-20 ANNUAL REPORT 2021 - SMART EYEning, computer vision and data science methodologies, and is always developing new algorithmsto better support our core tracking capabilities —improving all Smart Eye products in the process.Our research also helps build bridges betweendifferent Smart Eye’s business areas, adaptingtechnologies that are established within our automotive divisions to customers within research andacademia, and vice versa.The starting point offuture breakthroughsThe work of the research division has evolvedSmart Eye’s technology from classic computervision methods to also include deep learningbased artificial intelligence (AI).For the past couple of years, Smart Eye’s researchdivision can also be credited with extending ourleading DMS technology to the entire cabin —making it possible to combine driver monitoringand cabin monitoring into Interior Sensing. Several of the Interior Sensing features first developedwithin Smart Eye’s Research division have nowmoved into pre-production, ready to be installedin new car models coming to market.Mitigating data collection hindrancesIn 2021, COVID-19 has caused delays andcomplications in several of the industries SmartEye collaborates with. Likewise, the pandemichas affected the research we conduct within thecompany. Smart Eye’s research largely dependson our ability to collect data of head, face, eye,and body movements, and most of this research is conducted through in-person studies. AsCOVID-19 has required us to limit human contact,collecting large amounts of data has becomemore challenging.In this aspect, Smart Eye has benefitted from ourglobal presence, with offices and staff in variousparts of the world. Since the timing for lockdownsand restrictions related to COVID-19 has variedin different parts of the world, we have been ableto focus our data collection on sites currently lessaffected by the pandemic.Meanwhile, we have been researching ways tomitigate similar data collection hindrances in thefuture. While Smart Eye’s in-person data collection inevitably slowed down during the peaksof COVID-19, we have taken the opportunity toexplore alternative ways to collect data. One wayis through synthetic data generation.The unlocked potential of synthetic dataFor several years, Smart Eye has been involved inresearch projects focusing on the generation ofsynthetic data. Like all technologies using deeplearning methods, Smart Eye’s Human Insight AIrelies on access to very large amounts of data.However, data collection and generation is a veryexpensive and time-consuming process.Synthetic data, on the other hand, is automaticallygenerated and can help create many differentvariations of an image. In Smart Eye’s case, it isalready used to produce images of millions ofunique faces for training of our algorithms. As acost-effective way to accelerate network training,synthetic data is expected to become an increasingly common method of data generation in thefuture.Multimodal research: for deeper insightinto human behaviorIn order to increase our understanding of humanbehavior, Smart Eye uses multiple different sensors and modalities to measure how people act incomplex environments. This multimodal approachallows us to study many different aspects ofhuman behavior at once, enabling deeper insightthan would be possible by only tracking a person’seye movements or heart rate, for example.Smart Eye’s research around multi-modal sensingis exploring how to effectively combine the outputfrom multiple data streams into a more comprehensive understanding of human behavior. Thismethod can be applied to all kinds of researchand environments, including in vehicles for moreaccurate predictions and interventions based onthe driver’s state. Simultaneously, Smart Eye isresearching potential new sensing technologiesthat could lead to an even better understandingof human behavior in the future.OrganizationSmart Eye’s Research division headquarters inGothenburg, Sweden. Apart from conductingresearch within several parallel research projects, internally and externally, the team workson advanced development and collaborates withcolleagues in the different Smart Eye businessareas to complete technology for customers.Since 2017, the team has been led by Henrik Lind,who has decades of experience within researchand the automotive industry, most recently asTechnical Expert in Remote Sensing at Volvo CarCorporation.Integrating the acquired expertise ofAffectiva and iMotionsSince Smart Eye’s acquisitions of Affectiva in June2021, and of iMotions in November 2021, theResearch division is in the process of integratingthe resources and

design with a global Japanese customer, with an estimated re-venue of SEK 25 million, based on forecasts of the estimated product life cycle. The order is for one new car model on an existing platform, which will go into production in late 2022. The combined companies bring together complementary exper-tise in sensing technologies and