C r o s s r i d e r p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 6 Crossrider plc Annual Report and Accounts 2016 Digital Distribution Platform Crossrider is an online distribution and digital product company. The Company provides best-in-class internet security products. Crossrider’s vision is to deliver its customers digital goods which provide a private, secure and superior online experience. See more online at investors.crossrider.com Contents Strategic report Financials Highlights Chairman’s statement Chief Executive Officer’s review Chief Financial Officer’s review Principal risks and uncertainties Governance Corporate governance Board of Directors Remuneration Committee report Directors’ report Directors’ responsibility statement 01 02 04 07 10 12 14 16 18 20 Independent auditor’s report to the members of Crossrider plc Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements 21 22 23 24 25 26 Shareholder information and advisers IBC STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Crossrider plc Annual Report and Accounts 2016 01 Highlights 2016 › Completed restructuring – realising $2m in annualised savings › Acquisition of DriverAgent to expand product offering › Refocused the business to establish two core segments: Media and App Distribution › Significant progress made against our strategic plan $56.5m Revenue $72.1m Cash and cash equivalents $6.4m Adjusted EBITDA 123% Conversion of Adjusted EBITDA $7.9m Adjusted cash from operations 02 Crossrider plc Annual Report and Accounts 2016 Chairman’s statement 2016 has been a year of both change and progress for Crossrider. In June, we commenced a major restructuring to streamline our business and simplify our reporting structure going forward. The Company’s restructuring has resulted in achieving significant cost reductions and enabled us to pursue a new strategic direction, focused on expanding our digital distribution platform. Additionally, Crossrider has appointed Moran Laufer as Chief Financial Officer (‘CFO’). Moran has been a key member of the finance team since 2012 and successfully supported the Group’s admission to AIM. In the short space of seven months, our management team has already been able to implement significant strategic change and we believe it is a very exciting time in the Company’s transformation. 720,000 Paying customers 2016 has been a year of both change and progress for Crossrider. In June, we commenced a major restructuring to streamline our business and simplify our reporting structure going forward. The Company’s restructuring has resulted in achieving significant cost reductions and enabled us to pursue a new strategic direction, focused on expanding our digital distribution platform. Strengthening the Board In May of this year, Crossrider announced the appointment of Ido Erlichman as Chief Executive Officer (‘CEO’). Ido’s appointment has been pivotal in reshaping our business as we transition from a pure ad-tech business to a leading software and digital distribution platform. Ido has in-depth understanding of the market in which we operate and brings significant experience in the technology sector garnered through roles in private equity, consulting and finance and past experience in his previous CEO role with turning around Visual DNA. Don Elgie Non-Executive Chairman Crossrider plc Annual Report and Accounts 2016 03 28.3% Segment margins New strategic direction The strategic overhaul of Crossrider has resulted in stable growth in our areas of focus – the App Distribution Division and the Media Division. Since the beginning of 2016 we have been winding down our operations in the Web Apps vertical and management is now solely focused on our two core divisions. Crossrider anticipated a decline in the Web Apps sector due to changes in the market environment. As a result, the Company shifted its focus away from the Web Apps sector in the period, including the browser extension platform, which has been outsourced through a licensing agreement since January 2016. We expect the year to 31 December 2017 to be the last year of reporting for this segment. Foundation for growth Crossrider continues to capitalise on opportunities consistent with our strategic vision and is confident in the Company’s ability to accelerate the growth trajectory of its digital distribution platform, particularly through acquisitions. The Company’s expansion in this sector started successfully with the acquisition of DriverAgent in October. Crossrider has now completed the integration of DriverAgent and anticipates its contribution to revenue and earnings to materialise in the coming year. Importantly, this acquisition has proven the efficacy of our platform. The Board expects to deliver further growth in this division through larger synergistic acquisitions in the coming year. We now feel we have a solid foundation in place from which we can drive future growth and continue to strengthen and expand the business. The significant progress made by the Group in the course of the year would not have been possible without the talented and dedicated Crossrider team who continue to be key in executing on our strategic plan. Don Elgie Non-Executive Chairman 13 March 2017 STRATEGIC REPORTCORPORATE GOVERNANCE FINANCIAL STATEMENTS 04 Crossrider plc Annual Report and Accounts 2016 Chief Executive Officer’s review 2016 has been a transformational year for Crossrider, during which the Company has successfully executed a three-step strategic plan to reposition the business as a leading software and digital distribution platform. Ido Erlichman Chief Executive Officer 2016 has been a transformational year for Crossrider, during which the Company has successfully executed a three-step strategic plan to reposition the business as a leading software and digital distribution platform. Secondly, management was focused on achieving organic growth in these core divisions and we are delighted that our App Distribution segment has achieved 20 per cent growth in the period while our Media division has remained stable. Having restructured the business, the Board believes the Company is now ideally placed to capitalise on opportunities to grow organically through investment in our in-house capabilities and through selective acquisitions. The Group’s reshaped operations are focused on combining our strong digital media capabilities with our growing digital product platform, with a particular emphasis on serving the cyber security arena. The third component of our strategy was to lay the foundations for future expansion through bolt-on and strategic acquisitions, building on our existing and refined business model. We have successfully executed on this, announcing in October the highly synergistic acquisition of DriverAgent, a leading device driver search and update service, and we continue to actively assess acquisition opportunities in 2017. In the course of the year, management’s primary challenge was to restructure and strengthen the Company’s core operations and we are pleased to report that we have been able to achieve $2.0 milllion in annualised savings as a result of this process and, in addition, establish two core business divisions – App Distribution and Media. We have also taken further steps to strengthen our cash-generative activities, improving working capital discipline while still providing quality service to all of our customers and partners, which has resulted in an increase in the cash generated from operations. All of the initiatives that have been implemented are in support of our strategic decision to expand our existing digital distribution platform and extend our product offering, particularly in the cyber security space. Evolving our business model to an online distribution and product hub Strong technology Online distribution Online products Leveraging tech capabilities Using distribution capabilities Expanding product portfolio Online digital product distribution company Crossrider plc Annual Report and Accounts 2016 05 App Distribution App distribution product hub, generating revenues from end users purchasing digital products online that this provides us with a competitive advantage in the marketplace and a strong foundation from which to expand both our product offering and geographic reach. In the App Distribution division we are now offering two main products: Reimage computer repair software and service, and the DriverAgent driver repair software and service. We have 720,000 paying subscribers around the world. Our top three markets are the US, UK and Germany. In the last year we have strengthened our platform so it now provides an unrivalled and enhanced customer experience and lifetime value, further improving our customer service metrics. We believe In addition, we now have better control over our distribution, as we have initiated the process of bringing our customer service in-house, which allows us to improve the quality of our processes. We have also bolstered our in-house media buying capabilities enabling us to diversify our media sources, resulting in increased traffic volume, quality and market share. We expect these changes to extend customer lifetime value, enable margin consolidation and improve customer retention, thereby increasing profitability. In October, we announced the acquisition of DriverAgent, which is designed for use with desktop computers, tablets and mobile devices, to identify outdated drivers. This acquisition was highly complementary to our existing App Distribution hub and is now fully integrated into the Group. The DriverAgent acquisition demonstrates our progress in successfully expanding our portfolio through our digital product hub and we continue to look to expand this vertical, predominantly through acquisition and third-party strategic partnerships. Commenced the execution of our M&A strategy Business model transformation Larger strategic M&A • Portfolio of products • User base • Immediate earnings • Strong growth trajectory • Scale Smaller bolt-on M&A e.g. DriverAgent • Products to expand the portfolio • Add immediate value • Tactical deals to enhance • Technology supporting the organic growth distribution funnel M&A is vital to achieve critical scale STRATEGIC REPORTCORPORATE GOVERNANCE FINANCIAL STATEMENTS 06 Crossrider plc Annual Report and Accounts 2016 Chief Executive Officer’s review continued Current trading and outlook This year we have made significant progress in the turnaround of the business, reducing our cost base and realigning our strategic priorities. We believe these significant changes have repositioned the Company, enabling us to complete the turnaround and grow our core divisions in the medium-term. The full impact of the turnaround and subsequent benefits will be realised in the coming year. In 2017, while we will continue to drive organic growth opportunities, we will also focus on strategic acquisitions designed to broaden our exposure to SaaS revenues, mainly in the cyber security vertical. We are currently exploring the viability of a number of companies, evaluating them along the following criteria: › Sizeable and growing user base › Recurring revenue sales model › Strong technological team › Ability to deliver strong synergies with both the Group’s media capabilities and digital distribution platform We have made a strong start to 2017 and will continue to drive profitability and long-term future growth for the Group. Ido Erlichman Chief Executive Officer 13 March 2017 “The acquisition of the DriverAgent was highly complementary to our existing App Distribution platform” Media Marketing technology platforms and ad agency activities, generating revenue through agreements with media partners In the Media division we work with companies primarily in Europe and provide them with end-to-end media and advertising technologies services. These include media buying, ad agency technologies and services and ad serving technologies as well as programmatic video buying capabilities. In this division, we have expanded our foothold in the evolving media and advertising space by leveraging our strong mobile capabilities. We have successfully entered new markets and broadened our current offering into the native, social and content distribution channels. We continue to develop our advertising technologies and supporting tools to address the constantly evolving marketplace and ensure we optimise our technologies for our media buying services. This is all consistent with our Company-wide strategy to maintain best-in-class online distribution funnels for our digital products. Crossrider plc Annual Report and Accounts 2016 07 Chief Financial Officer’s review Crossrider remains highly cash-generative. During the period, App Distribution improved in margins significantly. Moran Laufer Chief Financial Officer Overview Revenue in the year to 31 December 2016 decreased to $56.5 million (2015: $84.6 million) and Adjusted EBITDA to $6.4 million (2015: $10.1 million). The decrease is attributable to the Board’s decision to cease investment in the Web Apps platform and outsource its monetisation to a third party. Excluding the Web Apps segment, revenue at $52.0 million is lower in comparison to $57.6 million in 2015. However, segment results have significantly increased, at $14.7 million (2015: $12.9 million) and margins have also increased at 28.3 per cent (2015: 22.4 per cent). Crossrider remains a highly cash-generative business, with an increase of $1 million in cash generated from operations after adjusting for one-off non-recurring items of $7.9 million (2015: $6.9 million). This represents adjusted cash conversion of 123 per cent, compared to 69 per cent in 2015. The Group’s balance sheet remains strong with cash of $72.1 million at 31 December 2016 (31 December 2015: $71.3 million) and no debt. During the period, the Group went through a major restructuring, resulting in changes to its management reporting system and now operates three reportable segments: › App Distribution – comprising the Group’s desktop app distribution platform; › Media – comprising the Group’s marketing technology platforms and ad network activities; and › Web Apps and License – comprising revenue generated from licensing the Web Apps monetisation platform and associated technology. Consequently, the previous period segmental results have been restated. The results of these segments are set out below. Segment result App Distribution Media Web Apps and License Revenue Revenue Segment result 2016 $’000 38,241 13,783 4,508 Restated 2015 $’000 37,229 20,426 26,980 2016 $’000 11,267 3,480 4,508 Restated 2015 $’000 9,414 3,499 13,611 56,532 84,635 19,255 26,524 The segment result has been calculated using revenue less costs directly attributable to that segment. Cost of sales comprises commissions paid to publishers and payment processing fees. Direct sales and marketing costs comprise traffic acquisition costs. STRATEGIC REPORTCORPORATE GOVERNANCE FINANCIAL STATEMENTS 08 Crossrider plc Annual Report and Accounts 2016 Chief Financial Officer’s review continued App Distribution Revenue Cost of sales Direct sales and marketing costs Segment result Segment margin 2016 $’000 38,241 (2,360) (24,614) 11,267 29.5 2015 $’000 37,229 (1,854) (25,961) 9,414 25.3 During the period, App Distribution improved in margins significantly, reaching 29.5 per cent compared to 25.3 per cent in the comparable period, resulting in a $1.9 million increase in the segment result. This represents a 20 per cent uplift. The margin improvement is attributable to two main drivers: improved media buying efficiency resulting in better traffic quality as well as user targeting and secondly, an improvement in customer retention and upselling to existing customers. In October 2016, Crossrider completed the acquisition of DriverAgent, a driver repair and update software product, for a consideration of $1.2 million. Media Revenue Direct sales and marketing costs Segment result Segment margin % 2016 $’000 2015 $’000 13,783 (10,303) 20,426 (16,927) 3,480 25.25 3,499 17.13 In the Media division, revenues have decreased by 32.5 per cent and segment results have remained stable compared to 2015. The decrease in revenues is attributable to two low margin contracts with high working capital requirements that were signed in the fourth quarter of 2015 and terminated in 2016 to improve cash flow and decrease risk. If these contracts were to be excluded the segment results would have shown an increase of circa 11.9 per cent from a base of $3.1 million in 2015. This increase is attributable to an expansion in new territories and verticals, mainly mobile app distribution. Web Apps and License Revenue Cost of sales Direct sales and marketing costs Segment result Segment margin % 2016 $’000 4,508 – – 4,508 100 2015 $’000 26,980 (5,534) (7,835) 13,611 50.45 At the beginning of 2016, the board decided to outsource the monetisation of its Web Apps platform to a third party. In light of this shift in this part of the Group’s business model the Group ceased its media acquisition in this segment. Revenue in the period is comprised of consideration for license of the platform and its associated technology. The year to 31 December 2017 is expected to be the last year of reporting for this segment as the technology license contracts are expiring on September 2017. Adjusted EBITDA Adjusted EBITDA for the year to 31 December 2016 was $6.4 million (2015: $10.1 million). Adjusted EBITDA is a non-GAAP Company-specific measure which is considered to be a key performance indicator for the Group’s financial performance. It excludes share-based payment charges and expenses which are considered to be one-off and non-recurring in nature and are excluded from the following analysis: Revenue Cost of sales Direct sales and marketing costs Segment result Indirect sales and marketing costs Research and development costs Management, general and administrative costs Adjusted EBITDA 2016 $’000 2015 $’000 56,532 (2,360) (34,917) 84,635 (7,388) (50,723) 19,255 26,524 (4,265) (1,299) (3,016) (2,539) (7,278) (10,905) 6,413 10,064 Operating loss A reconciliation of Adjusted EBITDA to operating loss is provided as follows: Adjusted EBITDA Employee share-based payment charge Exceptional and non-recurring costs Depreciation and amortisation Impairment of intangible assets Operating loss 2016 $’000 6,413 (716) (862) (9,884) (4,683) 2015 $’000 10,064 (3,407) (1,957) (9,370) (9,132) (9,732) (13,802) Exceptional and non-recurring costs in FY2016 comprised non-recurring staff restructuring costs of $0.6 million and a $0.3 million one-time onerous contract written-off in the period. The decrease in the employee share-based payment charge is due to reversal of charges from previous periods for employees that left the Company during the year. Crossrider plc Annual Report and Accounts 2016 09 Financial position At 31 December 2016, the Group had cash of $72.1 million (31 December 2015: $71.3 million), had net assets of $80.5 million (31 December 2015: $91.5million) and is debt free. At 31 December 2016, trade receivables were $5.6 million (31 December 2015: $13.0 million) which represented 44 days outstanding (31 December 2015: 52 days). Moran Laufer Chief Financial Officer 13 March 2017 Impairment of intangible assets The intangible assets related to the acquisition of the Definiti ad network in 2014 are allocated to the Group’s Media segment and are considered to be a separate cash generating unit (‘CGU’) for the purpose of assessing carrying values. Following regulatory changes in the mobile subscription vertical in which Definiti operates, management now forecasts modest growth in advertising volumes from the Definiti ad network over the coming years. The carried value of the intangible assets of the Definiti ad network CGU have therefore been reassessed, resulting in a goodwill impairment of $4.7 million being recognised in the year (2015: $nil). Loss before tax Loss before tax was $10.0 million (2015: $14.7 million). Loss after tax Loss after tax was $10.7 million (2015: $17.6 million). The tax charge derives mainly from Group subsidiaries, residual profits. The Group continues to recognise a deferred tax asset of $0.2 million (2015: $0.7 million) in respect of tax losses accumulated in previous years. Cash flow Cash flow from operations Exceptional and non-recurring costs Adjusted cash flow from operations % of Adjusted EBITDA 2016 $’000 5,922 1,951 7,873 123% 2015 $’000 5,910 995 6,905 69% Cash flow from operations was strong at $7.9 million (2015: $5.9 million). Adjusted cash flows from operations after adding back acquisition payments treated as remuneration and payments that are one-off in nature, was $7.9 million; this represents an improvement in cash conversion to 123 per cent of Adjusted EBITDA, from 69 per cent in 2015. Tax paid in the period was $0.9 million (2015: $1.8 million). Cash spent in the period on capital expenditure of $0.8 million (2015: $1.8 million) mainly comprises capitalised development costs and purchase of fixed assets. Cash payments in respect of previous acquisitions totalled $1.4 million (2015: $1.4 million). The Company paid $0.9 million (2015: $0.1 million) in respect of the acquisition of the DriverAgent software business. As a result, net cash outflow from investing activities was $3.0 million (2015: $3.2 million). The share buy-back programme, announced in November 2015, was completed in January 2016, returning $1.0 million to shareholders in 2016 (2015: $5.1 million). STRATEGIC REPORTCORPORATE GOVERNANCE FINANCIAL STATEMENTS 10 Crossrider plc Annual Report and Accounts 2016 Principal risks and uncertainties There are a number of potential risks and uncertainties that could have a material impact on the Group’s long- term performance and could cause results to differ materially from expected and historical results. The risks to which the business is exposed are set out below: Risks Background Mitigating controls › All the information that the Group obtains regarding users and their profiling is information that may correspond to a particular person, account or profile, but does not identify, allow contact or enable Crossrider to locate the person to whom such information pertains. As a consequence, the Group is not regulated by any regulator or subject to any regulatory approval for its day-to-day operations. › While not externally regulated, the Group adheres to a strict set of controls with its partners. Partners, developers, publishers and advertisers are required to comply with these contractually-imposed controls, which have been jointly created by the Group and its legal advisers. › The Group actively monitors the developments of the large and established internet, antivirus and technology companies to identify any threats that may impair the Group’s ability to operate. Regulatory, legislative or self-regulatory developments regarding internet privacy matters could adversely affect the Group’s ability to conduct its business. International regulatory bodies are increasingly focused on online privacy issues and, in particular, on online advertising activities that use cookies and other online tools to track users. Certain internet browsers, such as Safari, automatically block cookies, and users are also able to adjust their internet browser settings to block or delete cookies. In addition, many jurisdictions have also begun to implement legislation requiring advertisers and digital media sources to allow users to set their cookie preferences independently of such settings. Large and established internet, antivirus and technology companies may be able to significantly impair the Group’s ability to operate. Large and established internet, antivirus and technology companies such as Adobe Systems Incorporated, Symantec Corporation, Amazon.com, Inc. (‘Amazon’), AOL Inc., Apple, eBay Inc., Facebook, Inc. (‘Facebook’), Google, Microsoft and Yahoo! Inc. may have the power to significantly change the very nature of the app distribution and internet display advertising marketplace; these changes could materially disadvantage the Group. For example, Amazon, Apple, Facebook, Google and Microsoft have substantial resources and control a significant share of widely adopted industry platforms such as web browsers, mobile operating systems and advertising exchanges and networks. Changes to their web browsers, mobile operating systems, platforms, exchanges, networks or other products or services could be significantly harmful to the Group’s business. Such companies could also seek to replicate all or parts of the Group’s business. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Crossrider plc Annual Report and Accounts 2016 11 Risks Background Mitigating controls If the Group fails to innovate and respond effectively to rapidly changing technology, the Group’s solution may become less competitive or obsolete. Failures in the Group’s IT systems and infrastructure supporting its solution could significantly disrupt its operations and cause it to lose clients. To remain competitive, the Group’s future success will depend on its ability to continuously enhance and improve its solutions to meet client needs, add functionality to advertiser and publisher platforms and address technological advancements. For example, as e-commerce and consumption of content continues to migrate from the web to mobile and tablet devices and advertisements more frequently include video or incorporate animation, sound and/ or interactivity (rich media content), businesses are increasingly demanding that internet display advertising solutions extend to all three screens and support video and rich media content. In addition, as consumers spend more time watching videos and playing social network games online, as opposed to browsing static webpages, businesses may increasingly shift their advertising budgets to video and game publishers or, if consumers fail to engage with advertisements displayed on smaller screens, reduce their internet display advertising budgets. In addition to the optimal performance of the Crossrider Engine, the Group’s business relies on the continued and uninterrupted performance of its software and hardware infrastructures. The Group currently places over 1.8 billion advertisements per day and each of those advertisements is placed in milliseconds. Sustained or repeated system failures of its software and hardware infrastructures, which interrupt its ability to deliver advertisements quickly and accurately, its ability to serve and track advertisements and its ability to process consumers’ responses to those advertisements, could significantly reduce the attractiveness of its solution to advertiser clients and publishers, reduce its revenue and affect its reputation. The Group is a multinational organisation faced with increasingly complex tax issues in many jurisdictions, and it could be obliged to pay additional taxes in various jurisdictions as a result of new taxes, laws or interpretation, including sales taxes, which may negatively affect its business. As a multinational organisation, operating in multiple jurisdictions such as the Isle of Man, Cyprus, Israel, Romania and the United Kingdom, the Group may be subject to taxation in several jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes it pays in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, which could have a material adverse effect on its liquidity and results of operations. › The Group invests in research and development resources to ensure that the Group’s technology platforms are continually enhanced through evolution and innovation. › The Group also invests in acquisitions to expand its technology platforms and adapt to the rapidly changing technology environment. › The Group outsources hosting services, holding minimal server infrastructure itself. This allows the Group to flex and grow its operations efficiently. › Crossrider uses third party content distribution network services in order to offload traffic served directly from its own infrastructure and minimise network latency. › The Group uses advisers to review its tax position and ensure compliance with local tax legislation. 12 Crossrider plc Annual Report and Accounts 2016 Corporate governance The Board of Directors of the Company (the ‘Board’) is responsible for the Group’s system of corporate governance. Overview The current policies and procedures as adopted by the Group are set out below. Role of the Board The Board is responsible for the overall strategy and direction of the Group. It provides robust leadership of the Company within a framework of effective controls which enables risk to be assessed and managed. The Board, in setting the Company’s aims, ensures that the necessary financial and human resources are in place to meet its objectives. It regularly reviews management performance and upholds the Company’s values and standards so that its obligations to shareholders and others are understood and met. The Board is supplied with information in a quality form and in a timely manner to enable it to discharge its duties. The Board also reviews arrangements under which employees can raise concerns in confidence about possible improprieties in matters of financial reporting or other areas. Division of responsibilities During 2016, the Chairman, Donald (Don) Elgie had a clear and distinctive responsibility for running the Board while the executive responsibility for running the Company’s business was delegated to the Chief Executive Officer, Ido Erlichman, when he was appointed on 31 May 2016. When Koby Menachemi, the former Chief Executive Officer, announced his intention to resign in January 2016, Don Elgie fulfilled the temporary role of Executive Chairman from 1 February 2016 until the appointment of Ido Erlichman, after which he reverted to the Non-Executive Chairman role. Moran Laufer was appointed to the Board on 6 February 2017, having been appointed to the position of Chief Financial Officer on 27 October 2016. As at 31 December 2016, the Board comprised four Directors, three of whom were Non-Executive Directors. The Non-Executive Directors normally do not have any day-to-day involvement in the running of the business but are responsible for scrutinising the performance of management in meeting agreed goals and objectives and monitoring the reporting of performance. All Board members are considered to be able to allocate sufficient time to the Company to discharge their responsibilities as Directors effectively. The Board meets at regular scheduled intervals and follows a formal agenda; it also meets as and when required. No one individual has unfettered powers of decision. The Directors may take independent professional advice at the Group’s expense. Board committees The Group has an Audit Committee, a Nominations Committee, and a Remuneration Committee, each consisting of three Non- Executive Directors. Each committee has written terms of delegated responsibilities which will be available for review at the end of the Annual General Meeting for 2017 and which are available for review in the Investor Relations section of the Group’s website www.crossrider.com. The Board and its committees are considered to have the appropriate balance of skills, experience, independence and knowledge of the Company to enable them to discharge their respective duties and responsibilities effectively. Remuneration Committee The Remuneration Committee is comprised of David Cotterell (Chair of the Committee), Don Elgie and Martin Blair, all of whom are Non-Executive Directors. It is responsible for making recommendations to the Board on remuneration policy as applied to the Company’s Executive Directors. The Remuneration Committee also considers grants of options under the Company’s share option schemes. The policy of the Remuneration Committee is to grant share options to employees as part of a remuneration package to motivate them to contribute to the growth of the Group over the medium to long-term. The Chief Executive Officer may, at the Remuneration Committee’s invitation, attend meetings, except where his own remuneration is discussed. The Remuneration Committee met three times during the past financial year. The Remuneration Committee’s terms of reference, which can be found on the Company’s website www.crossrider.com, are reviewed on an annual basis and updated as required. The Remuneration Committee report, which includes details of Directors’ remuneration, pension entitlements and Directors’ interests, together with information on service contracts, is set out on pages 16 to 17. Audit Committee The Audit Committee is comprised of Martin Blair (Chair of the Committee), David Cotterell and Don Elgie, all of whom are Non-Executive Directors. The Committee meets at least twice a year and at other times as agreed between the members of the Committee. Executive Directors and the Group’s auditors may be invited to attend all or part of any meetings. The Committee also meets with the Group’s external auditors without the presence of the Executive Directors. The Committee’s terms of reference, which can be found on the Company’s website www.crossrider.com, are reviewed on an annual basis and updated as required. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Crossrider plc Annual Report and Accounts 2016 13 › Advising the Board on any areas where further recruitment may be appropriate; and › Succession planning for key executives at Board level and below. Where necessary and appropriate, recruitment consultants are used to assist the Committee in delivering its objectives and responsibilities. The Committee leads the process for the identification and selection of new Directors and makes recommendations to the Board in respect of such appointments. The Committee also makes recommendations to the Board on membership of its committees. The Committee’s terms of reference, which can be found on the Company’s website www.crossrider.com, are reviewed on an annual basis and updated as required. Risk management and internal controls During the year, the Audit Committee has reviewed the scope and effectiveness of systems to identify and address financial and non-financial risks. The review identified the key risks, risk control measures and the implementation status of the risk control measures. The report was presented to the Committee by the Chief Financial Officer. Audit of the Group’s Annual Report Financial Statements In advance of the audit of the Group’s Annual Report and Financial Statements, the Audit Committee reviewed the plan as presented by the Group’s external auditor, BDO LLP. The plan set out the proposed scope of work, audit approach, materiality and identified areas of audit risk. The Audit Committee also reviewed the Annual Report and Financial Statements along with the audit findings report presented by BDO LLP. Auditor independence The Audit Committee monitors the independence of the Group’s external auditor. During the year BDO LLP provided the Group with the following non-audit services: › Taxation compliance services; and › Taxation advisory services. The Audit Committee considered the threats to the independence of BDO LLP created by the provision of the non-audit services and concluded that sufficient safeguards were in place. BDO was appointed as auditor of the Group for the year ended 31 December 2013. The Audit Committee will keep under review, in consultation with major shareholders, the decision as to whether to conduct a tender in respect of the audit in line with the recommendations of the Financial Reporting Council. Nominations Committee The Nominations Committee is comprised of Don Elgie (Chair of the Committee), Martin Blair and David Cotterell, all of whom are Independent Non-Executive directors. The Committee meets when appropriate and considers the composition of the Board, retirements and appointments of additional and replacement Directors and makes appropriate recommendations to the Board. The objective of the Committee is to review the composition of the Board and to plan for its progressive refreshing, with regard to balance and structure. The Committee is responsible for: › Reviewing the structure of the Board; › Evaluating the balance of skills, knowledge, experience and diversity of the Board; 14 Crossrider plc Annual Report and Accounts 2016 Board of Directors Don Elgie Non-Executive Chairman Ido Erlichman Chief Executive Officer Background and experience Don retired as Group CEO of Creston plc (LSE: CRE), a marketing services company which is listed on the Main Market, at the end of March 2014. He founded Creston plc, a digitally-focused communications and insight group, in 2001, and built it into an international group which generated £75 million revenue, £12 million EBITDA and employed over 800 people as at March 2014. Don has many years’ experience in marketing services including developing companies organically and by acquisition. He is Chairman of the Company’s Nominations Committee. Background and experience Ido joined Crossrider plc in May 2016 as Group Chief Executive Officer. Ido has more than nine years’ experience in the technology sector garnered through roles in private equity, consulting and finance. Prior to joining Crossrider, Ido was acting joint chief executive officer of VisualDNA (which was acquired by The Nielsen Company), a leading psychographic data business, where he led its geographic expansion and oversaw significant EBITDA growth. Prior to VisualDNA, Ido also worked as a senior associate within KPMG’s private equity deal advisory practice in London and as a senior manager within KPMG’s Transaction Services practice focusing on technology deals in Israel and with the Israeli Ministry of Finance. Ido is the author of the best-selling book ‘Battle of Strategies’ published in Israel by Yediot Books. Ido is a Certified Public Accountant, graduated magna cum laude in Accounting and Economics from The Hebrew University of Jerusalem, obtained his Masters degree in Law from Bar-Ilan University, and received an MBA from the University of Cambridge’s Judge Business School. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Crossrider plc Annual Report and Accounts 2016 15 David Cotterell Non-Executive Director Martin Blair Non-Executive Director Background and experience David has over 25 years’ experience in the information technology software and service sector. He has held senior management roles with firms such as ACT Financial Systems, DST, Advent and SQS Group plc and has led and successfully implemented two trade sales of technology companies. Between 2006 and 2011 David served as the CEO of UKIISA Region (UK, Ireland, South Africa and India) and as board director at SQS Group plc (LSE: SQS). David is currently non-executive chairman of RapidCloud Int plc (LSE: RCI) and SyQic plc (LSE: SYQ). David sits on the remuneration and audit committees of both companies. Additionally, David is chairman of IT services company, Qualitest UK. David is Crossrider Group’s Senior Independent Director and also Chairman of the Company’s Remuneration Committee. Background and experience Prior to joining the Board of Crossrider, Martin acted as CFO of Pilat Media Global plc, a company previously admitted to trading on both AIM and the Tel Aviv Stock Exchange, which developed, marketed and supported new generation business management software solutions for content and service providers in the media industry. Martin joined Pilat Media in 2001, ahead of its admission to AIM in 2002. Pilat Media was acquired by SintecMedia Ltd for £63.3 million in April 2014. Martin qualified as a chartered accountant with Ernst & Young in 1982 and between 1983 and 1986 worked for PwC. He then joined the mail order and retail company, Freemans plc, and later moved into the media sector as director of finance & administration and then as vice president of United International Pictures Limited, between 1988 and 1996. Martin is Chairman of the Company’s Audit Committee. 16 Crossrider plc Annual Report and Accounts 2016 Remuneration Committee report (Unaudited) The Remuneration Committee (for the purpose of the Remuneration Committee report, the ‘Committee’) is comprised of David Cotterell (Chair of the Committee), Don Elgie and Martin Blair, all of whom are Non-Executive Directors. The Directors (other than alternate Directors) shall be entitled to receive by way of fees for their services as Directors (in addition to fees paid for employment or executive services) such sum as the Board may from time to time determine, provided that such amount shall not exceed in aggregate £500,000 per annum or such greater sum as the Company in general meeting shall from time to time determine by ordinary resolution. Any fees payable shall be distinct from any salary, remuneration or other amounts payable to a Director. Each Director is entitled to be repaid all reasonable travelling, hotel and other expenses properly incurred by him in or about the performance of his duties as a Director, including any expenses incurred in attending meetings of the Board or any committee of the Board or general meetings or separate meetings of the holders of any class of shares or of debentures of the Company. Directors’ emoluments Directors’ emoluments for the 2016 financial year are set in Pounds Sterling. These are set out in the tables below along with the US Dollar equivalent cost to the Company: Name Ido Erlichman Don Elgie David Cotterell Martin Blair Name Koby Menachemi Mark Carlisle Base salary/fees GBP£ 176,154 156,295 50,000 53,938 Base salary/fees GBP£ 61,250 96,155 Benefits GBP£ 24,074 – – – Benefits GBP£ 16,940 1,217 The US Dollar equivalent cost to the Company has been calculated using a USD/GBP rate of 1.24: Name Ido Erlichman Don Elgie David Cotterell Martin Blair Base salary/fees $ 218,423 193,806 62,005 66,883 Benefits $ 29,852 – – – Pension GBP£ 5,285 – – – Pension GBP£ 3,063 4,758 Pension $ 6,553 – – – Bonus GBP£ 58,333 – – – Bonus GBP£ – – Bonus $ 72,333 – – – Total GBP£ 263,846 156,295 50,000 53,938 Total GBP£ 81,253 102,130 Total $ 327,161 193,806 62,005 66,883 Benefits include the living allowance paid to Koby Menachemi as he was required to relocate from Israel on his appointment. The beneficial interests of the Directors who held office at 31 December 2016, together with that of persons connected with the Directors, in the share capital of the Company were as follows: Directors’ interests in shares Name Ido Erlichman Don Elgie Martin Blair David Cotterell 2016 2015 Percentage of issued share capital Number of ordinary shares Percentage of issued share capital Number of ordinary shares 0.07% 0.07% 0.01% 0.03% 100,000 97,087 19,417 48,544 – 0.07% 0.01% 0.03% – 97,087 19,417 48,544 STRATEGIC STRATEGIC REPORT REPORT CORPORATE CORPORATE GOVERNANCE GOVERNANCE FINANCIAL FINANCIAL STATEMENTS STATEMENTS Crossrider plc Annual Report and Accounts 2016 17 Directors’ interests in share options Name Ido Erlichman Number of ordinary shares under option at 31 December 2015 Date of grant Exercise price Number of ordinary shares under option at 31 December 2016 0 1 June 2016 £0.275 2,000,000 Note: Vesting schedule: 25% one year from date of grant of 1 June 2016 and then in 12 equal quarterly instalments thereafter. Annual bonus The bonuses for the Executive Directors for 2017 will be based on Adjusted EBIDTA and non-financial and strategic objectives. The level of bonus payable by reference to the financial performance of the Company will be determined on a sliding scale based on the Company’s budget for the forthcoming financial year. Service contracts Executive Directors The service agreements of the Executive Directors are for an indefinite term and provide for formal notice of six months to be served to terminate the agreement, either by the Company or by the Director. In addition to their annual salaries, the Executive Directors are entitled to annual pension contributions of 3 per cent as well as other benefits commensurate with their positions, including health, related benefits. Non-Executive Directors Fees for Non-Executive Directors are set with reference to time commitment, the number of committees chaired and relevant external market benchmarks. In addition to covering travel expenses, the Remuneration Committee has approved additional fees of £1,750 per day to be paid to Non-Executive Directors for additional time commitments outside of those agreed upon their appointment up to a maximum of 20 days. During the year, Don Elgie was paid for 11.5 additional days and Martin Blair was paid for 2.25 additional days. The Committee also approved additional compensation of £14,042 per month to be paid to the Non-Executive Chairman for his increased role in the Company during the recruitment of a new Chief Executive Officer. Don Elgie was paid for 4 months’ additional compensation. The Non-Executive Directors each have specific letters of appointment, rather than service contracts. Non-Executive Directors are appointed for an initial term of three years and, under normal circumstances, would be expected to serve for additional three-year terms, up to a maximum of nine years, subject to satisfactory performance and re-election at the Annual General Meeting as required. David Cotterell Chairman, Remuneration Committee 13 March 2017 18 Crossrider plc Annual Report and Accounts 2016 Directors’ report The Directors present their Annual Report on the affairs of the Group, together with the financial statements and independent auditor’s report for the year ended 31 December 2016. The corporate governance statement set out on pages 12 to 13 forms part of this report. The Company’s full name is Crossrider plc, domiciled in the Isle of Man with company number 011402V. Crossrider plc is a public listed company, listed on the Alternative Investment Market (‘AIM’) of the London Stock Exchange. Principal activity The principal activity of the Group is online digital product development and distribution and the provision of software platforms to the digital advertising industry. A detailed overview of the Group’s activities is set out on pages 4 to 6. Review of business and future developments Details of the Group’s performance during the year under review and expected future developments are set out in the strategic report on pages 1 to 11. A description of the principal risks and uncertainties facing the Group is set out on pages 10 to 11. Dividends The Directors do not recommend the payment of a dividend (2015: $nil). The declaration and payment by the Company of any future dividends on the ordinary shares will depend on the results of the Group’s operations, its financial condition, cash requirements, future prospects, profits available for distribution and other factors deemed to be relevant at the time. The Board recognises the importance of dividend income to shareholders and intends to adopt, at the appropriate time, a progressive dividend policy to reflect the expectation of future cash flow generation and long-term earnings potential of the Company. However, it is not the current intention of the Board to declare any dividends in the near-term. The Board may revise the Company’s dividend policy from time to time in line with the actual results of the Company. Directors The Directors who served during the period were as follows: Ido Erlichman Donald (Don) Elgie David Cotterell Martin Blair Yakov (Koby) Menachemi Mark Carlisle Active, appointed 31 May 2016 Active Active Active Resigned 31 March 2016 Resigned 19 August 2016 Re-election of Directors The articles of association require that at each Annual General Meeting one third of the Directors (excluding any Director who has been appointed by the Board since the previous Annual General Meeting) or, if their number is not an integral multiple of three, the number nearest to one third but not exceeding one third, shall retire from office (but so that if there are fewer than three Directors who are subject to retirement by rotation, one shall retire). Any Director who is not required to retire by rotation but who has been in office for three years or more since his appointment or his last reappointment or who would have held office at not less than three consecutive Annual General Meetings of the Company without retiring, shall retire from office. Appointment of a Director The articles of association require that any Director appointed by the Board shall, unless appointed at such meeting, hold office only until the dissolution of the Annual General Meeting of the Company next following such appointment. Directors’ responsibility statement The statement of Directors’ responsibility is set out on page 20. Directors’ indemnities The Directors have been granted an indemnity from the Company to the extent permitted by law in respect of liabilities incurred as a result of their office which remains in force at the date of this report. Employee policies At 31 December 2016, the Group employed 74 people, (31 December 2015: 93 people). The Group is committed to attracting and retaining personnel with the requisite technical skills and experience to implement its growth strategy and maintain its position in the competitive industry in which it operates. Crossrider therefore places significant emphasis on ensuring that it has a strong recruitment team as well as appropriate remuneration and bonus policies which are set by reference to appropriate objectives and include share-based incentive schemes, details of which are set out in note 18 to the financial statements. Financial instruments The Group does not currently use derivative financial instruments. A summary of the Group’s financial instruments, changes in share capital and related disclosures are set out in notes 15 and 17 to the financial statements. The Group has no material exposure to price, liquidity or cash flow risk that would impact its objectives. Capital structure Under the IOM Companies Act, the Company is not required to have an authorised share capital. The ordinary shares in issue at 31 December 2016 have been created pursuant to the BVI Companies Act and the articles of association of the Company in place prior to the re-domiciliation of the Company from the BVI to the IOM on 13 August 2014 and are ordinary shares of USD 0.0001 par value. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Crossrider plc Annual Report and Accounts 2016 19 Details of the issued share capital as at 31 December 2016 of 148,496,073 ordinary shares of USD 0.0001 par value, together with details of the movements in the Company’s issued share capital during the year, are shown in note 15 to the financial statements. The Company has one class of ordinary shares, which carry no right to fixed income. Each share carries the right to one vote at general meetings of the Company. Annual General Meeting The Annual General Meeting for 2017 will be held at the offices of BLP, Adelaide House, London Bridge, London EC4R 9HA on Thursday 18 May 2017 at 12:00 noon. The notice convening the Annual General Meeting for this year, and an explanation of the items of non-routine business, are set out in the circular that accompanies the Annual Report. There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the articles of association and prevailing legislation. Save as provided by the terms of certain lock-in agreements entered into between the Company, the Directors and certain shareholders, the Directors are not aware of any agreements between holders of the Company’s shares that may result in restrictions on the transfer of securities or on voting rights. As at 31 December 2016 the Company held 7,451,423 shares in treasury and no shares in the capital of the Company are held by or on behalf of the Company or by any of the Company’s subsidiaries. Auditor A resolution to reappoint BDO LLP as the Company’s auditor will be proposed at the 2017 Annual General Meeting. Each of the persons who is a Director at the date of approval of this Annual Report confirms that: › So far as the Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and › The Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. Details of employee share schemes are set out in note 18 to the financial statements. Signed on behalf of the Board by: Don Elgie Non-Executive Chairman 13 March 2017 Political and charitable donations The Company made no political or charitable donations during the year (2015: $nil). Related party transactions Details of all related party transactions are set out in note 21 to the financial statements. Research and development The Group maintains an integrated global research and development team which has a staff of 14 (2015: 32). In the opinion of the Directors, continuity of investment in this area is essential for the maintenance of the Group’s market position and for future growth. The amount of research and development costs capitalised in the year was $744,000 (2015: $1,593,000). Going concern The Directors, having considered the Group’s resources financially and the associated risks with doing business in the current economic climate, believe the Group is capable of successfully managing these risks. The Board has reviewed the cash flow forecast and business plan as provided by management which includes the rate of revenue growth, margins and cost control. As such, the Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing these financial statements. 20 Crossrider plc Annual Report and Accounts 2016 Directors’ responsibility statement The Directors are responsible for keeping adequate accounting records that correctly explain the transactions of the Company, enable the financial position of the Company to be determined with reasonable accuracy at any time and allow financial statements to be prepared. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. The Directors’ responsibility also extends to the continued integrity of the financial statements contained therein. Signed on behalf of the Board by: Don Elgie Non-Executive Chairman 13 March 2017 The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Isle of Man company law does not require the Directors to prepare financial statements for each financial year, however the Group is required to do so to satisfy the requirements of the AIM rules. Under company law, when preparing the financial statements, the Directors are required to prepare the Group financial statements in accordance with an appropriate set of generally accepted accounting principles or practice. The Directors have elected to use International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union. Under company law, the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, International Accounting Standard 1 (revised) requires that Directors: › Properly select and apply accounting policies; › Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; › Provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and › Make an assessment of the Company’s ability to continue as a going concern. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Crossrider plc Annual Report and Accounts 2016 21 Independent auditor’s report to the members of Crossrider plc We have audited the financial statements of Crossrider plc for the year ended 31 December 2016 which comprise the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cash flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union. This report is made solely to the Company’s members as a body, in accordance with our engagement letter dated 1 December 2016. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, and the Company’s members as a body for our audit work, for this report, or for the opinion we have formed. Respective responsibilities of Directors and auditors As explained more fully in the statement of Directors’ responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable Isle of Man company law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on the financial statements In our opinion, the financial statements: › Give a true and fair view of the state of the Group’s affairs as at 31 December 2016 and of its loss for the year then ended; and › Have been properly prepared in accordance with IFRSs as adopted by the EU. BDO LLP Chartered Accountants London United Kingdom 13 March 2017 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 22 Crossrider plc Annual Report and Accounts 2016 Consolidated statement of comprehensive income For the year ended 31 December 2016 Revenue Cost of sales Gross profit Selling and marketing costs Research and development costs Management, general and administrative costs Depreciation and amortisation Impairment of intangible assets Total operating costs Operating loss Adjusted EBITDA Employee share-based payment charge Exceptional and non-recurring costs Depreciation and amortisation Impairment of intangible assets Operating loss Share of results of equity accounted associates Finance income Finance costs Loss before taxation Exceptional tax charge Tax charge Loss for the year Other comprehensive income: Foreign exchange differences on translation of foreign operations Total comprehensive income for the year Basic earnings per share (cents) Diluted earnings per share (cents) Note 4 10,11 10 2016 $’000 2015 $’000 56,532 (2,360) 84,635 (7,388) 54,172 77,247 (39,915) (1,661) (7,761) (9,884) (4,683) (54,146) (3,500) (14,901) (9,370) (9,132) (63,904) (91,049) 6 (9,732) (13,802) 6 6 10,11 10 8 9 9 6,413 (716) (862) (9,884) (4,683) 10,064 (3,407) (1,957) (9,370) (9,132) (9,732) (13,802) 47 4 (332) (38) 15 (870) (10,013) – (665) (14,695) (2,200) (702) (10,678) (17,597) – 1 (10,678) (17,596) 19 19 (7.6) (7.6) (11.9) (11.9) STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Crossrider plc Annual Report and Accounts 2016 23 Consolidated statement of financial position As at 31 December 2016 Non-current assets Intangible assets Property, plant and equipment Investments in equity accounted associates Deferred tax asset Current assets Trade and other receivables Cash and cash equivalents Total assets Equity Share capital Additional paid in capital Retained earnings Equity attributable to equity holders of the parent Non-current liabilities Deferred tax liabilities Deferred consideration Current liabilities Trade and other payables Deferred consideration Total equity and liabilities The financial statements were approved by the Board and authorised for issue on 13 March 2017. Ido Erlichman Chief Executive Officer Moran Laufer Chief Financial Officer Note 10 11 16 9 12 13 9 24 14 24 2016 $’000 7,113 591 859 166 2015 $’000 19,254 1,003 812 716 8,729 21,785 7,950 72,064 16,280 71,336 80,014 87,616 88,743 109,401 14 130,292 (49,753) 14 131,287 (39,791) 80,553 91,510 691 160 851 7,096 243 7,339 986 184 1,170 15,316 1,405 16,721 88,743 109,401 24 Crossrider plc Annual Report and Accounts 2016 Consolidated statement of changes in equity For the year ended 31 December 2016 At 1 January 2015 Loss for the year Other comprehensive income: Foreign exchange differences on translation of foreign operations Total comprehensive income for the year Transactions with owners: Share-based payments Exercise of employee options (note 15) Purchase of own shares (note 15) At 31 December 2015 At 1 January 2016 Loss for the year Other comprehensive income: Foreign exchange differences on translation of foreign operations Total comprehensive income for the year Transactions with owners: Share-based payments Purchase of own shares (note 15) At 31 December 2016 Share capital $’000 Additional paid in capital $’000 Retained earnings $’000 Total $’000 15 – 136,399 – (25,602) (17,597) 110,812 (17,597) – – – – (1) 14 14 – – – – – – – 1 1 (17,596) (17,596) – 18 (5,130) 3,407 – – 3,407 18 (5,131) 131,287 (39,791) 91,510 131,287 – (39,791) (10,678) 91,510 (10,678) – – – – (10,678) (10,678) – (995) 716 – 716 (995) 14 130,292 (49,753) 80,553 STRATEGIC STRATEGIC REPORT REPORT CORPORATE CORPORATE GOVERNANCE GOVERNANCE FINANCIAL FINANCIAL STATEMENTS STATEMENTS Crossrider plc Annual Report and Accounts 2016 25 Consolidated statement of cash flows For the year ended 31 December 2016 Cash flow from operating activities Loss for the year after taxation Adjustments for: Amortisation of intangible assets Impairment of intangible assets Depreciation of property, plant and equipment Loss on sale of property, plant and equipment Tax charge Interest income Interest expenses Share-based payment charge Share of results of associates Unrealised foreign exchange differences Operating cash flow before movement in working capital Decrease/increase) in trade and other receivables Decrease in trade and other payables (Decrease)/increase in other current liabilities Cash flow from operations Tax paid net of refunds Cash generated from operations Cash flow from investing activities Purchases of property, plant and equipment Sale of property, plant and equipment Net cash paid on business combination Intangible assets acquired Net cash paid on investment in associates Capitalisation of development costs Net cash used in investing activities Cash flow from financing activities Net payment for purchase of own shares Net cash generated from financing activities Net (decrease)/increase in cash and cash equivalents Revaluation of cash due to changes in foreign exchange rates Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Note 2016 $’000 2015 $’000 (10,678) (17,597) 10 10 11 11 9 8 18 16 11 24 16 10 15 9,421 4,683 463 35 665 (4) 51 716 (47) 4 5,309 8,327 (6,625) (1,089) 5,922 (904) 5,018 (108) 24 (1,089) (850) (350) (744) 8,974 9,132 396 – 2,902 (15) 210 3,407 38 660 8,107 (2,529) (631) 963 5,910 (1,826) 4,084 (220) – (902) – (500) (1,593) (3,117) (3,215) (995) (995) 906 (178) 71,336 (5,131) (5,131) (4,262) (443) 76,041 13 72,064 71,336 26 Crossrider plc Annual Report and Accounts 2016 Notes to the consolidated financial statements 1 Basis of preparation The financial information provided is for Crossrider plc (‘the Company’) and its subsidiary undertakings (together the ‘Group’) in respect of the financial years ended 31 December 2016 and 2015. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date. Goodwill is measured as the excess of the sum of the consideration transferred and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed. Contingent consideration that is classified as an asset or a liability is initially recognised at fair value and subsequently at fair value thorough profit and loss in accordance with IAS 39 as appropriate. Consideration which is contingent on completion of a service period by an employee of the Group is treated as remuneration and is expensed over the service period. Foreign currencies (a) Presentational currency Items included in the Group’s financial statements are measured using the currency of the primary economic environment in which each entity of the Group operates (the ‘functional currency’). The financial statements are presented in United States Dollars ($’000). (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Exchange rate gains and losses are recognised net within finance cost. (c) Consolidation The functional currency of the Company, and the presentation currency for the consolidated financial statements, is United States Dollars. For the purpose of the consolidated financial statements, the assets and liabilities of the Group’s foreign operations with a functional currency other than United States Dollars are translated into United States Dollars using exchange rates prevailing on the reporting date. Income and expense items (including comparatives) are translated at the exchange rates at the dates of the transactions. Exchange differences arising, if any, are recognised directly in equity. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. The financial information has been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and interpretations (collectively ‘IFRS’) as adopted by the EU. Going concern The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. They therefore continue to adopt the going concern basis of accounting in preparing the financial statements. Adoption of new and revised standards New standards and amendments to existing standards that have been published and are mandatory for the first time for the financial year beginning 1 January 2016 have been adopted but had no significant impact on the Group. New standards, amendments to standards and interpretations have been issued but are not effective (and in some cases have not yet been adopted by the EU) for the financial year beginning 1 January 2016 and have not been early adopted. A detailed impact assessment has not been performed on the adoption of these standards, therefore it is not known if adoption will have a material impact on the financial information of the Group in future periods. 2 Significant accounting policies Basis of consolidation The Group consolidated financial statements comprise the financial statements of the Parent Company Crossrider plc and the financial statements of the subsidiaries as shown in note 20 of the consolidated financial statements. The Group has been partly formed from a series of common control transactions. The financial statements of all the Group companies are prepared using uniform accounting policies. All transactions and balances between Group companies have been eliminated on consolidation. Business combinations and goodwill Acquisitions of businesses not under common control are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Crossrider plc Annual Report and Accounts 2016 27 2 Significant accounting policies continued Merger accounting Common control transactions have been accounted for using merger accounting. Under merger accounting, the assets and liabilities of both entities are recorded at book value, not fair value (although adjustments are made to achieve uniform accounting policies), intangible assets and contingent liabilities are recognised only to the extent that they were recognised by the legal acquiree in accordance within applicable IFRS, no goodwill is recognised, any expenses of the combination are written-off immediately to the income statement and comparative amounts, if applicable, are restated as if the combination had taken place at the beginning of the earliest accounting period presented. The result is that the merged groups are treated as if they had been combined throughout the current and comparative accounting periods. Associates Where the Group has the power to participate in (but not control) the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recognised in the consolidated statement of financial position at cost. Subsequently, associates are accounted for using the equity method, where the Group’s share of post-acquisition profits and losses and other comprehensive income is recognised in the consolidated statement of profit and loss and other comprehensive income (except for losses in excess of the Group’s investment in the associate unless there is an obligation to make good those losses). Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes. (a) Revenue from advertising The Group generates revenues only when its customers’ advertising campaigns achieve certain predefined performance- based and validated results such as cost per mille impressions (‘CPM’), cost-per-acquisition (‘CPA’), cost-per-sale (‘CPS’), cost-per- lead (‘CPL’), cost-per-download (‘CPD’) and cost-per-install (‘CPI’). These revenues are recognised only when the amount of revenue can be measured reliably, it is probable that the economic benefits associated will flow to the Group, the transactions are complete and the related costs can be measured reliably. (b) Revenue from sale of software tools Revenue from sales of software tools is recognised at electronic point of sale when payment is identified by the respective credit card payment processor and rights to use the software have been granted. (c) Presentation of net revenues Revenues are recognised net when it is identified that the Group is acting as an agent and gross when it is identified that the Group is acting as a principal in accordance with the terms of the arrangement. Intangible assets Amortisation for all classes of intangible assets is included within amortisation and depreciation costs in the income statement. (a) Externally acquired intangible assets Externally acquired intangible assets comprise intellectual property (‘IP’), customer lists, trademarks and internet domains. All such intangible assets are stated at cost less any accumulated amortisation and any accumulated impairment losses. Amortisation of these intangible assets is calculated using the straight-line method over their useful economic lives. Where intangible assets are acquired as part of a business combination they are recorded initially at their fair value. The useful economic life of IP, customer lists and trademarks is three to five years. Internet domains are generally considered to have an indefinite useful economic life. They are purchased due to the marketability of the related domain name, are not specific to a particular product, brand, market or service and therefore are not expected to diminish in value or use as a function of time. An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised. (b) Internally generated intangible assets (development costs) An internally generated intangible asset arising from the Group’s e-business development is recognised only if all of the following conditions are met: › An asset is created that can be identified (such as software and new processes); › It is probable that the asset created will generate future economic benefits; and › The development cost of the asset can be measured reliably. Internally generated intangible assets are amortised on a straight- line basis over their estimated useful lives, which is three to five years. Amortisation commences when the asset is available for use. Where no internally generated intangible asset can be recognised, development expenditure is charged to profit or loss in the period in which it is incurred. 28 Crossrider plc Annual Report and Accounts 2016 Notes to the consolidated financial statements continued 2 Significant accounting policies continued An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised. (c) Goodwill Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. The Group tests goodwill annually for impairment, or more frequently if there are indicators that goodwill might be impaired. Intangible assets are tested separately from goodwill only where impairment indicators exist. Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Trade receivables Trade receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Cash and cash equivalents For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash at bank and short-term bank deposits. Trade payables Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method. Depreciation is calculated on the straight-line method so as to write-off the cost of each asset to its residual value over its estimated useful life. The annual depreciation rates used are as follows: Current and deferred tax Income tax expense represents the sum of the tax currently payable and deferred tax. › Computer equipment: three years › Furniture, fixtures and office equipment: 6-15 years › Leasehold improvements: ten years or the term of the lease, if shorter The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each reporting date. Where the carrying amount of an asset is greater than its estimated recoverable amount, the asset is written-down immediately to its recoverable amount. Expenditure for repairs and maintenance of property, plant and equipment is charged to profit or loss in the year in which it is incurred. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. Impairment of property, plant and equipment and internally generated intangible assets Assets that have an indefinite useful life are not subject to depreciation or amortisation and are tested annually for impairment. Assets that are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). Current tax Current tax liabilities and assets are measured at the amount expected to be paid to or recovered from the taxation authorities, using the tax rates and laws that have been enacted, or substantively enacted, by the reporting date. Deferred tax Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised, based on tax rates that have been enacted or substantively enacted by the period end date, and is not discounted. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same fiscal authority. Operating leases Leases, where a significant portion of the risks and rewards of ownership are retained by the lessor, are classified as operating leases. Payments made under operating leases are charged to profit or loss on a straight-line basis over the period of the lease. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Crossrider plc Annual Report and Accounts 2016 29 2 Significant accounting policies continued Share-based payments Crossrider operates equity-settled, share-based compensation plans, under which the entity receives services from employees as consideration for Crossrider equity instruments (options). The fair value of the options and share awards is recognised as an employee benefit expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the income statement, with a corresponding adjustment to equity. The proceeds received net of any directly attributable transaction costs are credited to share capital (par value) and share premium when the options are exercised. Share capital Ordinary shares are classified as equity. The difference between the fair value of the consideration received by the Group and the nominal value of the share capital being issued is classified as additional paid in capital. Critical accounting estimates and judgements The preparation of consolidated financial statements under IFRS requires the Group to make estimates and judgements that affect the application of policies and reported amounts. Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The following accounting policies cover areas that the Directors consider require estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year: (a) Impairment of intangible assets Intangible assets are initially recorded at acquisition cost and are amortised on a straight-line basis over their useful economic life. Intangible assets that are acquired through a business combination are initially recorded at fair value at the date of acquisition. Intangible assets with indefinite useful life are reviewed for impairment at least once per year. The impairment test is performed using the discounted cash flows expected to be generated through the use of the intangible assets, using a discount rate that reflects the current market estimations and the risks associated with the asset. When it is impractical to estimate the recoverable amount of an asset, the Group estimates the recoverable amount of the cash generating unit in which the asset belongs to (see also note 10). (b) Capitalisation of development expenses Research and development costs which create identifiable assets and are expected to generate future economic benefits are capitalised, and the remainder is expensed to the income statement. This requires the Group to perform judgements in apportioning costs to identifiable assets and making judgements about which assets are expected to give rise to future economic benefits. (c) Presentation of net revenues The Group makes judgements in assessing whether it has acted as a principal or agent in transactions for selling and acquiring advertising media space, and therefore whether it reports its revenues gross or net respectively. The Group assesses a number of criteria in making these judgements, including the party, who is responsible for price setting and credit risk of the transaction, the losses the Group would suffer for non-delivery of service as well as the perceived and contractual relationship between the media publisher and seller or ad network. 3 Financial risk management The Group is exposed to interest rate risk, credit risk, liquidity risk, currency risk and capital risk management arising from the financial instruments it holds (see also note 17). The risk management policies employed by the Group to manage these risks are discussed below: Interest rate risk Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The Group has no material interest-bearing financial instruments and is therefore not exposed to changes in market rates of interest or fair value interest rate risk. Credit risk Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the reporting date. The principle credit risk is considered to result from new relationships with customers with which the Group does not have a long working relationship and for which reliable information as to their credit ratings cannot be obtained. In such cases, the Group limits the initial credit facility afforded to these customers. Cash balances are held with high credit quality financial institutions and the Group has policies to limit the amount of credit exposure to any financial institution or customer. Liquidity risk Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The Group has procedures with the object of minimising such losses, such as by having available an adequate amount of committed credit facilities from the ultimate shareholder and related parties, and maintaining sufficient cash and other highly liquid current assets. Currency risk Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the Group’s measurement currency. The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the Israeli New Shekel, British Pound, Euro, Australian Dollar and Canadian Dollar. The Group’s management monitors the exchange rate fluctuations on a continuous basis and acts accordingly and also avoids engaging in a significant level of transactions in currencies which are considered volatile or exposed to risk of significant fluctuations. 30 Crossrider plc Annual Report and Accounts 2016 Notes to the consolidated financial statements continued 4 Revenue Revenue from advertising Sale of software tool 2016 $’000 18,291 38,241 2015 $’000 47,406 37,229 56,532 84,635 Revenues from sale of software tool is generated mainly from the App Distribution CGU, while revenues from advertising is generated mainly from the Media CGU. 5 Segmental information Segments revenues and results During the period a major restructuring has been undertaken, resulting in changes to the Group’s management reporting. The change in reporting provides a more accurate and transparent description of activities. The Group now operates three reportable segments: › App Distribution – comprising the Group’s app distribution platform; › Media – comprising the Group’s ad network activities and associated technology platforms; and › Web Apps and License – comprising revenue generated from monetising Web Apps and licensing the associated technology. Consequently, the prior year segmental results have been restated. Revenue Cost of sales Direct sales and marketing costs Segment result Central operating costs Adjusted EBITDA(1) Depreciation and amortisation Impairment of intangible assets Employee share-based payment charge Exceptional and non-recurring costs Operating loss Share of results of associates Finance income Finance costs Loss before tax Taxation Loss after taxation App Distribution 2016 $’000 Media 2016 $’000 Web Apps and License 2016 $’000 38,241 (2,360) (24,614) 13,783 – (10,303) 11,267 3,480 4,508 – – 4,508 Total 2016 $’000 56,532 (2,360) (34,917) 19,255 (12,842) 6,413 (9,884) (4,683) (716) (862) (9,732) 47 4 (332) (10,013) (665) (10,678) Exceptional and non-recurring costs in 2016 comprised non-recurring staff restructuring costs of $0.6 million and a $0.3 million one-time onerous contract written-off in the period. The decrease in the employee share-based payment charge is due to reversal of charges from previous periods for employees that left the Company during the year. The impairment of intangible assets charge of $4,683,000 relates to the Media segment. After allocating this charge to the Media segment, the segment result is $1,203,000 loss. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Crossrider plc Annual Report and Accounts 2016 31 5 Segmental information continued Revenue Cost of sales Direct sales and marketing costs Segment result Central operating costs Adjusted EBITDA(1) Depreciation and amortisation Impairment of intangible assets Employee share-based payment charge Exceptional and non-recurring costs Operating loss Share of results of associates Finance income Finance costs Loss before tax Taxation Loss after taxation App Distribution 2015 $’000 Media 2015 $’000 Web Apps and License 2015 $’000 37,229 (1,854) (25,961) 20,426 0 (16,927) 26,980 (5,534) (7,835) 9,414 3,499 13,611 Total 2015 $’000 84,635 (7,388) (50,723) 26,524 (16,460) 10,064 (9,370) (9,132) (3,407) (1,957) (13,802) (38) 15 (870) (14,695) (2,902) (17,597) (1) Adjusted EBITDA is a company-specific measure which is calculated as operating loss before depreciation, amortisation, exceptional and non-recurring costs, employee share-based payment charges and impairment of intangible assets which are considered to be one-off and non-recurring in nature, as set out in note 6. The Directors believe that this provides a better understanding of the underlying trading performance of the business. Exceptional and non-recurring costs in 2015 comprise non-recurring staff costs of $0.1 million and payments of contingent consideration treated as remuneration in respect of the Ajillion and Definiti Media acquisitions expensed through the income statement of $1.9 million. The impairment of intangible assets charge of $9,132,000 relates to the Web Apps and License segment. After allocating this charge to the Web Apps and License segment, the segment result is $4,479,000. Information about major customers In 2016 and 2015 there were no customers contributing more than 10 per cent of total revenue of the Group. Geographical analysis of revenue Revenue by origin Europe British Virgin Islands Asia Geographical analysis of non-current assets Europe British Virgin Islands Asia Total intangible assets and property, plant and equipment 2016 $’000 17,297 27,520 11,715 2015 $’000 3,641 68,300 12,694 56,532 84,635 2016 $’000 3,990 – 3,714 7,704 2015 $’000 10,245 87 9,925 20,257 32 Crossrider plc Annual Report and Accounts 2016 Notes to the consolidated financial statements continued 6 Operating loss Operating loss has been arrived at after charging: Exceptional and non-recurring costs Non-recurring staff costs Onerous contract Expensed contingent payments arising from business combinations (note 7) Auditor’s remuneration: Audit Other services Amortisation of intangible assets Depreciation Impairment of intangible assets (note 10) Employee share-based payment charge (note 7) Rent payable under operating leases Operating costs Operating costs are further analysed as follows: Direct sales and marketing costs Indirect sales and marketing costs Selling and marketing costs Research and development costs Management, general and administrative costs Depreciation and amortisation Impairment of intangible assets Total operating costs 2016 $’000 562 300 – 862 147 21 9,421 463 4,683 716 459 2015 $’000 95 – 1,862 1,957 97 20 8,974 396 9,132 3,407 294 2016 Adjusted $’000 2016 Total $’000 2015 Adjusted $’000 2015 Total $’000 34,917 4,265 34,917 4,998 50,722 3,016 50,722 3,424 39,182 39,915 53,738 54,146 1,299 7,278 1,379 – 1,661 7,761 9,884 4,683 2,539 10,906 1,048 – 3,500 14,901 9,370 9,132 49,138 63,904 68,231 91,049 Adjusted operating costs exclude share-based payment charges, exceptional and non-recurring costs, amortisation of acquired intangible assets and impairment of intangible assets. 7 Staff costs Total staff costs comprise the following: Salaries and related costs Expensed contingent payments arising from business combinations (note 24) Employee share-based payment charge (note 18) 2016 $’000 7,204 – 716 7,920 2015 $’000 9,915 1,862 3,407 15,184 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Crossrider plc Annual Report and Accounts 2016 33 7 Staff costs continued The remuneration of the key management personnel of the Group, which comprises the Executive Directors and senior management team, is set out below: The aggregate remuneration comprised: Wages and salaries Expensed contingent payments arising from business combinations (note 24) Employee share-based payment charge Details of Directors’ remuneration are set out in the Remuneration Committee report on pages 16 to 17. 8 Finance costs Interest expense Net foreign exchange and other finance expenses 2016 $’000 2015 $’000 1,490 – 185 1,675 2,190 912 1,585 4,687 2016 $’000 51 281 332 2015 $’000 210 660 870 9 Taxation The Parent Company is domiciled, for tax purposes, in both the Isle of Man and the UK. The final tax charge shown below arises partially from the difference in tax rates applied in the different jurisdictions. The tax charge in the year 2015 of $2,902,000 includes an exceptional tax charge of $2,200,000 arising as a result of the change in previously established corporation tax guidance in Israel relating to tax positions taken in respect of the 2013 and 2014 financial years. Of the $2,200,000 charge, $1,200,000 has been agreed and settled in relation to profits generated in Israel in 2013, which have subsequently been deemed to be taxable as a result of revised OECD guidance and application. The remaining $1,000,000 has arisen from a retrospective change to the cost plus transfer pricing methodology (which was established and ratified by Israeli case law in 2015) on share option charges incurred by subsidiaries in Israel in 2014. The Group continues to recognise a deferred tax asset of $166,000 (2015: $716,000) in respect of tax losses accumulated in previous years. The total tax charge can be reconciled to the overall tax charge as follows: Loss before taxation Tax at the applicable tax rate of 20% (2015: 20%) Tax effect of: Differences in overseas rates Exceptional tax charge Expenses not deductible for tax purposes Deferred tax not recognised on losses carried forward Tax expense for previous years Tax charge for the year Analysed as: Deferred taxation in respect of the current year Current tax charge Tax charge for the year 2016 $’000 2015 $’000 (10,013) (14,695) (2,003) (2,939) 976 – 1,327 440 (75) 665 263 402 665 2,233 2,200 1,408 – – 2,902 (463) 3,365 2,902 34 Crossrider plc Annual Report and Accounts 2016 Notes to the consolidated financial statements continued 9 Taxation continued The Group has maximum corporation tax losses carried forward at each period end as set out below: Corporate tax losses carried forward Details of the deferred tax asset recognised (arising in respect of losses) is set out below: At the beginning of the year (Derecognised)/recognised in the year Foreign exchange revaluation At the end of the year 2016 $’000 2015 $’000 28,320 19,322 2016 $’000 716 (558) 8 166 2015 $’000 567 166 (17) 716 Details of the deferred tax liability recognised (arising from timing differences on intangible valuations on business combinations) is set out below: At the beginning of the year Movement in the year due to temporary differences At the end of the year In addition, the Group has an unrecognised deferred tax asset in respect of the following: Tax losses carried forward 2016 $’000 986 (295) 691 2015 $’000 1,283 (297) 986 2016 $’000 2015 $’000 28,047 10,729 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Crossrider plc Annual Report and Accounts 2016 35 10 Intangible assets Cost At 1 January 2015 Additions At 31 December 2015 Additions At 31 December 2016 Accumulated amortisation At 1 January 2015 Charge for the year Impairment losses At 31 December 2015 Charge for the period Impairment losses At 31 December 2016 Net book value At 1 January 2015 At 31 December 2015 At 31 December 2016 Intellectual property $’000 Trademarks $’000 Customer lists $’000 35,205 – 35,205 1,219 36,424 (16,367) (5,953) (4,711) (27,031) (6,528) – 9,462 – 9,462 – 9,462 (3,241) (1,892) (1,341) (6,474) (1,494) – 2,383 – 2,383 – 2,383 (400) (477) (55) (932) (483) – Goodwill $’000 7,684 – 7,684 – 7,684 – – (2,316) (2,316) – (4,683) (33,559) (7,968) (1,415) (6,999) 18,838 8,174 2,865 6,221 2,988 1,494 1,983 1,451 1,968 7,684 5,368 685 Capitalised software development costs $’000 Internet domains $’000 Total $’000 55,916 1,593 57,509 1,963 1,113 1,593 2,706 744 3,450 59,472 (141) (652) (709) (1,502) (916) – (20,149) (8,974) (9,132) (38,255) (9,421) (4,683) (2,418) (52,359) 972 1,204 1,032 35,767 19,254 7,113 69 – 69 – 69 – – – – – – – 69 69 69 In October 2016, the Group exercised an option to acquire the intellectual property of PC maintenance software product DriverAgent, from eSupport.com Inc for a total consideration of $1,208,000. $150,000 from the consideration was paid in the year ending 31 December 2015 for the option, $850,000 was paid during the year ending 31 December 2016. Another $208,000 is deferred consideration which is contingent on future results of the product. Goodwill acquired in a business combination is allocated at acquisition to the cash generating units (‘CGUs’), or group of units, that are expected to benefit from that business combination. Following the change in reportable segments, the Group goodwill was allocated to the Media segment. Before recognition of the impairment charge, the goodwill has a carrying value as at 31 December 2016 of $5,368,000 (2015: $5,368,000). The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value-in-use calculations. The key assumptions for the value-in-use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. At 31 December 2016, before impairment testing, the carrying value of intangible assets allocated to the Media CGU was $9,417,000, including goodwill of $5,368,000. As a result of the reduction in the management forecasted cash flows attributable to the acquired intangible assets, the carrying value of the goodwill has therefore been reduced to its recoverable amount of $685,000 through recognition of an impairment loss of $4,683,000. For the Media CGU, the Group has prepared calculations based on cash flow projections for the next five years from the most recent budgets approved by management and extrapolated cash flows beyond this period using an estimated growth rate of 1 per cent (2015: 1 per cent). This rate does not exceed the average long-term growth rate for the relevant markets. The rate used to discount these forecast cash flows is 25 per cent (2015: 25 per cent). The discount rate used in the valuation of the Media CGU was 25 per cent. If the discount rate was increased by 1 percentage point the impairment would increase by $176,000. The discount rate used in the valuation of the Web Apps and License CGU was reduced to 10 per cent compared to 25 per cent in 2015 as cash flows are generated from two short-term license agreements and are considered to be at low risk. 36 Crossrider plc Annual Report and Accounts 2016 Notes to the consolidated financial statements continued 10 Intangible assets continued The carrying value of goodwill and intangible assets by CGU less provisions for impairment is set out as follows: Carrying value before impairment losses at 1 January 2016 Provisions for impairment Net book value at 31 December 2016 Web Apps and License $’000 974 – 974 Media $’000 9,417 (4,683) 4,734 App Distribution $’000 1,405 – 1,405 Total $’000 11,796 (4,683) 7,113 At 31 December 2015, before impairment testing, the carrying value of intangible assets allocated to the Web Apps and License CGU was $17,423,000, including goodwill of $2,316,000. Due to the significant reduction in advertising volumes that management believes can be achieved in the web extensions business in 2016 the group has revised its cash flow forecasts for this CGU. The carrying value of the intangible assets of the Web Apps and License CGU has therefore been reduced to its recoverable amount of $8,291,000 through recognition of an impairment loss of $9,132,000, of which $2,316,000 has been allocated to goodwill. Carrying value before impairment losses at 1 January 2015 Provisions for impairment Net book value at 31 December 2015 Web Apps and License $’000 Media $’000 App Distribution $’000 17,423 (9,132) 10,894 – 8,291 10,894 69 – 69 Total $’000 28,386 (9,132) 19,254 The Group tests the useful economic life of the intangible asset whenever events or changes in circumstances indicate that the useful economic life may need to be changed. The Web Apps initial intellectual property and customer lists were fully amortised in the year ending 31 December 2016 due to a change in management assumptions with the expected useful life of these assets. If the management assumption was not changed, the amortisation attributed to the Web Apps intellectual property and customer lists would be $3,865,000 instead of $5,807,000. 11 Property, plant and equipment Cost At 1 January 2015 Additions At 31 December 2015 Additions Disposals At 31 December 2016 Accumulated depreciation: At 1 January 2015 Charge for the period Exchange differences At 31 December 2015 Charge for the period Disposals Exchange differences At 31 December 2016 Net book value At 1 January 2015 At 31 December 2015 At 31 December 2016 Furniture, fixtures and office equipment $’000 Leasehold improvements $’000 Computer equipment $’000 808 109 917 78 (19) 976 (417) (158) 1 (574) (150) 11 2 (711) 391 343 265 345 29 374 3 (98) 279 (52) (35) – (87) (50) 49 – (88) 293 287 191 654 82 736 27 (313) 450 (160) (203) – (363) (263) 311 – (315) 494 373 135 Total $’000 1,807 220 2,027 108 (430) 1,705 (629) (396) 1 (1,024) (463) 371 2 (1,114) 1,178 1,003 591 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Crossrider plc Annual Report and Accounts 2016 37 12 Trade and other receivables Trade receivables and accrued income Prepayments Other receivables The ageing of trade receivables that are past due but not impaired is shown below: Between 1 and 30 days Between 31 and 60 days More than 60 days 2016 $’000 5,604 391 1,955 7,950 2016 $’000 685 219 247 1,151 2015 $’000 12,973 995 2,312 16,280 2015 $’000 1,620 258 176 2,054 The fair values of trade and other receivables due within one year approximate to their carrying amounts as presented above. The exposure of the Group to credit risk and impairment losses in relation to trade and other receivables is set out in note 17 of the consolidated financial statements. 13 Cash and cash equivalents Cash in bank accounts Bank deposits The carrying value of these assets represents a reasonable approximation to their fair value. 14 Trade and other payables Trade payables Accrued expenses Employee liabilities Other payables 2016 $’000 59,857 12,207 2015 $’000 71,172 164 72,064 71,336 2016 $’000 1,879 3,367 709 1,141 7,096 2015 $’000 2,963 7,908 1,744 2,701 15,316 The Group’s management consider that the carrying value of trade and other payables approximates their fair value. The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe and no interest has been charged by any suppliers as a result of late payment of invoices. 15 Shareholder’s equity Issued and paid up ordinary shares of $0.0001 2016 Number of shares 2015 Number of shares 148,496,073 148,496,073 The issued share capital of the Company on incorporation was 10,000 ordinary shares of $1.00 par value. During the year a total of nil new ordinary shares of $0.0001 par value were issued for cash in relation to share option schemes resulting in cash consideration of $nil (2015: $18,000). 38 Crossrider plc Annual Report and Accounts 2016 Notes to the consolidated financial statements continued 15 Shareholder’s equity continued During the year a total of 1,250,000 ordinary shares of $0.0001 par value were purchased by the Company for a total cash consideration of $994,952 and are held in treasury at the reporting date (2015: $5,130,920). As at 31 December 2016, the Company held in treasury a total of 7,451,423 ordinary shares of $0.0001 par value (2015: 6,201,423). The following describes the nature and purpose of each reserve within owner’s equity: Reserve Description and purpose Additional paid in capital Retained earnings Share premium (i.e. amount subscribed or share capital in excess of nominal value) Cumulative net gains and losses recognised in the consolidated statement of comprehensive income 16 Interests in associates In September 2015, the Group acquired 16.67 per cent of the share capital of Clearvelvet Trading Limited for a total consideration of $850,000, of which $350,000 was paid in 2016 on completion of certain milestones. Although the Group holds less than 20 per cent of the equity shares of the voting power at shareholder meetings, the Group exercises significant influence by virtue of its contractual right to appoint one of four directors to the Board of Directors of Clearvelvet Ltd and to veto certain significant trading and investment decisions. Interest in associates at the beginning of the year Investment in associates in the year Share of results Interest in associates at the end of the year Aggregated amounts relating to Clearvelvet Limited are as follows: Total current assets Total current liabilities Revenues Profit (loss) 2016 $’000 812 – 47 859 2016 $’000 6,117 5,467 11,793 288 2015 $’000 – 850 (38) 812 2015 $’000 1,266 1,107 1,805 (230) In January 2016, the Company signed a loan facility agreement with Clearvelvet Trading Limited in order to support Clearvelvet’s working capital requirements. As at 31 December 2016, the loan amount is $720,000 (2015: nil). Clearvelvet’s trade debtor balance is used as a guarantee for the loan. 17 Financial instruments The Group is exposed to the risks that arise from its use of financial instruments. This note describes the objectives, policies and processes of the Group for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout this financial information. Principal financial instruments The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows: › Trade and other receivables › Trade and other payables › Cash and cash equivalents › Loans receivable › Deferred consideration STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Crossrider plc Annual Report and Accounts 2016 39 17 Financial instruments continued Financial assets The Group held the following financial assets: Trade receivables and accrued income Other receivables Cash Financial liabilities The Group held the following financial liabilities: Amortised cost Trade payables Other payables and accrued expenses Deferred consideration (see note 24) 2016 $’000 5,604 1,955 72,064 2015 $’000 12,973 2,312 71,336 79,623 86,621 2016 $’000 2015 $’000 1,879 4,611 403 6,893 2,963 12,353 1,589 16,905 The Group’s Directors monitor and manage the financial risks relating to the operation of the Group. These risks include market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk. Market risk (a) Foreign currency risk management The carrying amounts of the Group’s foreign currency-denominated monetary assets and monetary liabilities at the reporting date are as follows: Israeli New Shekel Euro British Pound Australian Dollar Canadian Dollar Romanian Leu Liabilities Assets 2016 $’000 473 761 209 – – 38 1,481 2015 $’000 1,087 2,747 1,845 – – – 5,679 2016 $’000 703 2,300 48 11 – 107 3,169 2015 $’000 1,696 5,988 2,874 16 54 – 10,628 A 10 per cent weakening of the United States Dollar against the following currencies at 31 December would have increased/(decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. For a 10 per cent strengthening of the United States Dollar against the relevant currency, there would be an equal and opposite impact on the profit and other equity. Israeli New Shekel Euro British Pound Australian Dollar Canadian Dollar Romanian Leu Equity Profit or loss 2016 $’000 23 154 (16) 1 – 7 169 2015 $’000 61 324 103 2 5 – 495 2016 $’000 23 154 (16) 1 – 7 169 2015 $’000 61 324 103 2 5 – 495 40 Crossrider plc Annual Report and Accounts 2016 Notes to the consolidated financial statements continued 17 Financial instruments continued (b) Interest rate risk management At the reporting date, the interest rate analysis of financial instruments was: Fixed rate financial instruments Financial assets 2016 $’000 2015 $’000 72,064 72,064 71,336 71,336 Any increase/(decrease) in interest rates will have no effect on results and equity of the Group, because all financial instruments are fixed rate. Credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: Trade and other receivables Cash at bank Bank deposits Receivables from related companies 2016 $’000 5,738 59,857 12,207 1,821 2015 $’000 13,784 71,172 164 1,501 79,623 86,621 Before accepting a new customer, the Group assesses each potential customer’s credit quality and risk. Customer contracts are drafted to reduce any potential credit risk to the Group. Where appropriate, the customer’s recent financial statements are reviewed. Trade receivables are regularly reviewed for bad and doubtful debts. The Group holds a provision of $230,000 at 31 December 2016 against bad and doubtful debts (2015: $337,000). At 31 December 2016, the Group had trade receivables of $1,151,000 (2015: $2,054,000) that were past due but not impaired. The ageing analysis of these past due receivables is set out in note 12. In determining the recoverability of trade receivables, the Group considers any change in the credit quality of the trade receivable from the date the credit was initially granted up to the reporting date. The Group does not hold any collateral as security. Impairments of trade receivables are expensed as operating expenses. The fair value of receivables equates to their book value. The Group does not collect external credit ratings for customers but uses its own methods for determining creditworthiness. The Group and Company seek to limit the level of credit risk on cash and cash equivalents by depositing funds with banks that have high credit ratings. Liquidity risk management The Group’s liquidity risk is monitored using regular cash flow reporting and projections to ensure that it is able to meet its obligations as they fall due. The following tables detail the Group’s remaining contractual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. 2016 Trade and other payables Payables to related parties Deferred consideration Carrying amounts $’000 Contractual cash flows $’000 3 months or less $’000 Between 3-12 months $’000 Between 1-5 years $’000 More than 5 years $’000 6,470 20 403 6,893 6,470 20 503 6,993 6,265 20 – 6,285 205 – 253 458 – – 250 250 – – – – STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Crossrider plc Annual Report and Accounts 2016 41 17 Financial instruments continued 2015 Trade and other payables Payables to related parties Deferred consideration Carrying amounts $’000 Contractual cash flows $’000 3 months or less $’000 Between 3-12 months $’000 Between 1-5 years $’000 More than 5 years $’000 13,740 1,576 1,589 13,740 1,576 1,644 12,445 1,576 – 16,905 16,960 14,021 1,090 – 1,439 2,529 205 – 205 410 – – – – 18 Employee share-based payments Options have been granted under the Group’s share option scheme to subscribe for ordinary shares of the Company. At 31 December 2016, the following options were outstanding (2015: 14,481,158): Group Group 2 Group 3 Group 7 Group 8 Group 9 Group 10 Group 11 Group 12 Total Grant date 29 May 2014 29 May 2014 30 September 2014 21 April 2015 18 November 2015 5 January 2016 31 May 2016 26 October 2016 Number of shares under option Subscription price per share 1,182,790 2,413,819 854,940 633,062 200,000 742,500 2,000,000 2,232,272 10,259,383 $0.449 $0.538 $1.662 $1.523 $0.820 $0.820 $0.402 $0.445 Vesting conditions Group 2: 50 per cent at the end of the first year following the grant date. 12.5 per cent on a quarterly basis during 12 quarters period thereafter. Groups 3–12: 25 per cent at the end of the first year following the grant date. 6.25 per cent on a quarterly basis during 12 quarters period thereafter. The total number of shares exercisable as of 31 December 2016 was 3,840,679 (2015: 8,312,028). The weighted average fair value of options granted in the year using the Cox, Ross and Rubinstein’s Binomial Model (the ‘Binomial Model’) was $0.26. The inputs into the Binomial Model are as follows: Early exercise factor Fair value of Group’s stock Expected volatility Risk-free interest rate Dividend yield Forfeiture rate 2016 $’000 100%-150% $0.40-$0.80 60% 0.25-1.89% – 7%-14% 2015 $’000 100%-150% $0.75-$1.51 60% 0.5-1.93% – 4%-13% Expected volatility was determined based on the historical volatility of comparable companies. Forfeiture rate is assumed to be 7 to 14 per cent for senior management and 26 per cent for other employees. The risk-free interest rate was estimated based on average yields of UK government bonds. 42 Crossrider plc Annual Report and Accounts 2016 Notes to the consolidated financial statements continued 18 Employee share-based payments continued The Group recognised total share-based payments relating to equity-settled share-based payment transactions as follows: Share-based payment charge 2016 $’000 716 2015 $’000 3,407 Movements in the number of share options outstanding and their related weighted average exercise prices are as follows: At the beginning of the year Granted Lapsed Exercised At the end of the year 2016 2015 Weighted average exercise price $0.66 $0.51 $0.56 – Number of options 14,481,158 5,338,272 (9,560,047) – Weighted average exercise price $0.577 $1.42 $0.538 $0.538 Number of options 13,869,357 1,325,500 (680,665) (33,034) $0.66 10,259,383 $0.66 14,481,158 The options outstanding at 31 December 2016 had a weighted average remaining contractual life of 7.9 years (2015: 8.5 years). 19 Earnings per share Basic loss/earnings per share is calculated by dividing the loss/earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. Basic and diluted Adjusted basic Adjusted diluted 2016 cents (7.6) 2.7 2.7 2015 cents (11.9) 4.8 4.6 Adjusted earnings per share is a non-GAAP measure and therefore the approach may differ between companies. Adjusted earnings have been calculated as follows: Loss for the year Post-tax adjustments: Employee share-based payment charge Exceptional and non-recurring costs Amortisation on acquired intangible assets Impairment of intangible assets Exceptional tax charge Adjusted profit for the year Denominator – basic: Weighted average number of equity shares for the purpose of earnings per share Denominator – diluted: Weighted average number of equity shares for the purpose of diluted earnings per share 2016 $’000 2015 $’000 (10,678) (17,597) 823 774 8,208 4,683 – 3,810 3,343 1,941 8,025 9,132 2,200 7,044 Number Number 141,068,557 147,779,641 141,182,911 152,107,062 The diluted denominator has not been used where this has anti-dilutive effect. Basic and diluted loss per share are therefore the same for reporting purposes. The difference between weighted average number of ordinary shares used for basic earnings per share and the diluted earnings per share is 114,354, being the effect of all potentially dilutive ordinary shares derived from the number of share options granted to employees. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Crossrider plc Annual Report and Accounts 2016 43 20 Subsidiaries Name Country of incorporation Principal activities Holding % BestAd Hi Tech Media Limited (2) Crossrider Advanced Technologies Limited (2) Crossrider (Israel) Limited (2) Crossrider Technologies Limited (formerly Market Connect (Cyprus) Limited) Crossrider Sports Limited (2) Reimage Limited (1) Reimage Limited R.S.F. Remote Software Fixing Limited (2) Crosspath Trading Limited Israel Israel Israel Cyprus Development technical support and marketing services Development services and technical and marketing support Provision of marketing services to related parties Licensing of IP software and agency services to related parties United Kingdom Isle of Man Cyprus Israel Provision of consulting services Development and sale of the ‘Reimage’ software tool Consulting, market research and software development services Provision of development, technical support and marketing support services to its parent company British Virgin Islands Performance of commercial activity through the licensing of Blueroad Trading Limited Frontbase Trading Limited Crossrider ROM SRL Definiti Media Ltd Cyprus Cyprus Romania Israel (1) Re-domiciled from British Virgin Islands on 8 September 2016. (2) Indirect shareholding. technology from Crossrider Technologies Ltd Provision of agency services to Crosspath Limited Provision of agency services to Crosspath Limited Provision of marketing and development services Providing digital advertising services for mobile platforms 100 100 100 100 100 100 100 100 100 100 100 100 100 The Group has been formed from a series of common control transactions which have been accounted for using merger accounting, and acquisitions from third parties which have been accounted for using the acquisition method. 21 Related party transactions The Group is controlled by Unikmind Holdings Limited, incorporated in the British Virgin Islands, which owns 73 per cent of the Company’s shares. The controlling party is the Solidinsight Trust, established under the laws of the Isle of Man. Mr Teddy Sagi is the sole ultimate beneficiary of the Solidinsight Trust. (a) Related party transactions The following transactions were carried out with related parties: Revenue from common controlled company Technical support services to end customers provided by common controlled company Payment processing services provided by common controlled company Office rent expenses to common controlled companies Revenue from equity investments (b) Receivables owed by related parties (note 17) Parent Company Equity investments Companies related by virtue of common control Nature of transaction Unpaid share capital Loan and trade Trade 2016 $’000 5,034 (2,105) (300) (82) 100 2,647 2016 $’000 10 799 1,022 1,831 2015 $’000 4,709 (1,226) (774) – – 2,709 2015 $’000 10 – 1,501 1,511 44 Crossrider plc Annual Report and Accounts 2016 Notes to the consolidated financial statements continued 21 Related party transaction continued (c) Payables to related parties (note 17) Amount owed to Director Companies related by virtue of common control 22 Operating leases Due less than 1 year Due between 1 and 5 years Nature of transaction Other 2016 $’000 – 20 20 2016 $’000 553 868 1,421 2015 $’000 1,151 425 1,576 2015 $’000 619 1,052 1,671 The table above summarises the minimum commitments under the Group’s office rental agreements. 23 Contingent liabilities The Group had no contingent liabilities as at 31 December 2016. 24 Deferred consideration (a) Acquisition of Definiti Media Limited The consideration for the acquisition of Definiti Media Ltd in May 2014 included $2,489,000 deferred consideration. Of this, $845,000 was repaid during the year ending 31 December 2014 and $746,000 was repaid during the year ending 31 December 2015. The remaining amount was repaid during the year ending 31 December 2016. In addition, $1,427,000, included as part of the acquisition arrangements, has been recognised directly in the income statement during the year ending 31 December 2015 as set out in note 7. (b) Acquisition of AjillionMax The consideration for the acquisition of certain assets of AjillionMax Limited in May 2014 included $654,000 deferred consideration. Of this, $104,000 was repaid during the year ending 31 December 2014, $156,000 was repaid during the year ending 31 December 2015, $189,000 was repaid during the year ending 31 December 2016 and the remaining amount will be repaid during the year ending 31 December 2017. In addition, $435,000, included as part of the acquisition arrangements, has been recognised directly in the income statement during the year ending 31 December 2015. (c) Investment in Clearvelvet Trading Ltd In September 2015, the Group acquired 16.67 per cent of the share capital of Clearvelvet Limited for a total consideration of $850,000, of which $350,000 was paid in 2016 on completion of certain development milestones. (d) Acquisition of DriverAgent intangibles In October 2016, the Group acquired the intellectual property of PC maintenance software product, DriverAgent, from eSupport.com, Inc for a total consideration of $1.2 million. The consideration included $0.2 million of deferred consideration which is contingent on future results. Of this, $48,000 is expected to be repaid during the year ending 31 December 2017. The remaining amount is expected to be repaid during the year ending 31 December 2018. 25 Subsequent events On 13 March 2017 the group acquired CyberGhost SRL, a company incorporated in Romania, for initial consideration of €6.1 million and potential maximum consideration of €3 million. CyberGhost is one of the leading cyber security SaaS providers, with a focus on the provision of Virtual Private Network (“VPN”) solution. The acquisition meets the group’s previously announced intention to strengthen its B2C market reach, allowing it to operate as a digital distribution and product platform, utilising its existing technology and intellectual property. Due to the acquisition being executed on the same date as the authorisation of the financial statements the detailed acquisition accounting has not yet been undertaken and is therefore incomplete. It is anticipated that the acquisition will be accounted for in full in the interim financial statements for the period ending 30 June 2017. Shareholder information and advisers Shareholder information, including financial results, news and information on products and services, can be found at www.crossrider.com. Independent Auditor BDO LLP 55 Baker Street London W1U 7EU Nominated Advisor Shore Capital & Corporate Limited Bond Street House 14 Clifford Street London W1S 4JU Investor Relations Vigo Communications 180 Piccadilly London W1J 9HF Corporate Legal Advisers Berwin Leighton Paisner LLP Adelaide House London Bridge London EC4R 9HA Broker Shore Capital Stockbrokers Limited Bond Street House 14 Clifford Street London W1S 4JU Registrars Computershare Investor Services (Jersey) Limited Queensway House Hilgrove Street St Helier Jersey JE1 1ES Registered Office Sovereign House 14-16 Nelson Street Douglas Isle of Man IM1 2AL Stock exchanges The Company’s ordinary shares are listed on the London Stock Exchange (AIM) under the symbol ‘CROS’. The Company does not maintain listings on any other stock exchanges. Crossrider plc Interchange Triangle Stables Market Chalk Farm Road London NW1 8AB Tel: +44 (0) 203 355 7926 C r o s s r i d e r p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 6 crossrider.com