Annual Report • Apr 11, 2016
Annual Report
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Apptix Annual Report 2015 will only be issued in English. The report is available on www.apptix.com/investor and on www.oslobors.no/app
| Shareholder's Letter | Page 3 |
|---|---|
| Directors' Report |
Page 6 |
| Report on Corporate Governance | Page 13 |
| Executive Management Remuneration | Page 19 |
| Consolidated Financial Statements | Page 21 |
| Financial Statements Apptix ASA | Page 60 |
| Auditors Report | Page 74 |
We entered 2015 with a go-to-market strategy of providing managed public, private, and hybrid cloud services that addresses the complex needs of mid-market and enterprise organizations. The foundation of this strategy was built upon a segment of the Company's existing customer base that currently benefits from this strategic approach.
A move in this direction required a number of keys steps to be taken during 2015. These key steps included a move away from directly competing with Microsoft Office 365 and other competitors in the SMB market for email-centric service offerings primarily based on price; the establishment of a direct sales force with experience selling managed cloud IT services; and the expansion of managed cloud IT services. During 2015, the Company made significant progress on each of these key initiatives.
As discussed in our 2014 Shareholder's Letter, our topline revenues had remained stagnant over the past few years due to the considerable pricing pressure from Microsoft and Office 365 along with Google and AWS's direct entry into the market. Customers selecting these organizations as email-centric service providers are looking for standardized solutions with lower cost of ownership. The challenge facing Apptix was the size of its existing public cloud customer base and their desire for such a standardized, lower cost service offering.
The Company addressed this challenge during the third quarter of 2015 with the sale of its public cloud customer base. On September 8, 2015, the Company signed and closed an Asset Purchase Agreement with GoDaddy.com LLC ("GoDaddy") for the sale of a majority of its direct public cloud customers and was paid USD 22, 5 million in cash at closing, excluding fees and transaction costs. Based on the attainment of certain migration milestones, the Company could have benefited from additional consideration. However, the additional migration milestones were not met.
The customers subject to the sale were primarily Hosted Exchange ("HEX") and Microsoft Office 365 users and were migrated to Microsoft's Office 365 service offering via GoDaddy, one of Microsoft's largest Office 365 resellers. Post migration, the Company began to close down its public cloud HEX environment, an effort that continues into early 2016. The Company also entered into a Transition Services Agreement to assist GoDaddy with customer care and migrations through February 2016.
The sale of the public cloud customer base accounted for approximately 40% of the Company's total revenues. The Company used approximately USD 10 million of the net proceeds to fund the distribution of a 1 NOK per share payment to each shareholder as approved by the shareholders at the November 2015 extraordinary general meeting. The balance of the proceeds is being used to fund the Company's organic and inorganic growth strategy including costs required to realign the Company's business operations post transaction.
The Company's existing private cloud customers and key channel partners were not impacted by this transaction. However, such customers and partners did benefit from this transaction as it allowed the Company to concentrate more of its resources on the delivery of its managed service expertise for these existing relationships.
In January 2015, the Company hired Tom Tighe, a managed service veteran and proven sales leader to join the Company and lead the Product, Marketing, Sales, and Business Development teams to drive growth and market share.
We expanded our direct sales presence with the addition of experienced managed services professionals. The sales teams began to focus on managed cloud IT services, larger HEX deployments along with professional consulting services.
Over the course of the year, we experienced a number of customer successes that helped reinforce our belief in the new strategy. We signed a two year agreement with our large healthcare customer to provide additional security services related to email phishing as well as malicious file attachment protection. We also benefited from the sale of an enterprise level Hosted Exchange deployment for a private cloud environment. Later, we broadened our service reach within an existing customer by providing desktop-as-a-service, virtual servers and VoIP communication services. During the fourth quarter, we leveraged our technical skills resources to provide security assessment and remediation consulting services.
The managed cloud IT services approach centers on a broad range of solutions focused on a proactive management approach of a customer's entire network infrastructure, technologies, and applications. These services include the deployment and management of infrastructure and network monitoring tools, virtual workstations, servers, firewalls, mobile devices, enterprise backup, disaster recovery, email, VoIP, mobile device management and others. As a managed service provider integrating "best of breed" cloud solutions, the Company aims to become a comprehensive technology partner for its customers.
While we are still early at the aggregation of the full scope, managed cloud IT services approach, the Company was able to bring substantial benefits to our customers as mentioned above.
During 2015, we launched the following new services and relationships:
2015 was a year of significant change for the Company. It started with the strategic shift to become a Managed IT Cloud Solutions Provider. We are leveraging our key assets to deliver services beyond just Hosted Exchange and have begun to expand our cloud based service offering. We are pleased with the success we are seeing here, but recognize it will take time to fully make the shift. We expect the composition of our 2016 bookings transactions to be similar to those of our 2015 bookings. We also continued to show that we can make the operational and infrastructure changes necessary to ensure the future of the business is fundamentally sound. The 2014 and 2015 realignments and restructuring activities are on-track and delivering promised results. The sale of our public cloud customers was a major milestone for the Company. While the transaction provided capital to grow our business, it also allowed us to make a capital distribution to our shareholders. The steps taken in 2015 have helped strengthen our business model and the Company.
We are confident that we have the right strategy and personnel to meet the demands of our customers, the challenges of today's market and the expectations of our shareholders.
Johan Lindqvist Christopher E. Mack
Oslo, Norway/Herndon, Virginia, USA 6 April, 2016
Chairman of the Board President & Chief Executive Officer
Most of 2015 was focused on the realignment of the business that started in late 2014. The movement away from a heavy dependency on smaller, public cloud customers; the alignment of both sales and operational resources behind a managed cloud IT service strategy and the broadening of a managed cloud IT service offering were all key areas of emphasis during 2015. All of which were necessary to begin the movement towards topline growth in 2016.
The most significant activity that took place during 2015 was the sale of the Company's public cloud customer base to GoDaddy in September 2015. This single initiative accelerated our move away from providing public cloud email services to smaller customers; funded our realignment initiatives to become a managed cloud IT service company; provided working capital for organic and inorganic growth; and allowed us to return 1 NOK per share of capital back to our investors. Additionally, the sale of the public cloud customers provided the Company with the opportunity to remove a substantial amount of inherent market risk from the Company's current business operations. This move is expected to provide meaningful operating results in 2016 in the form of top line revenue growth.
In 2015, the Company generated USD 34, 4 million in total revenues, down from USD 39, 3 million in 2014. The lower revenues were directly attributable to the sale of the Company's public cloud customer base in September 2015. Net income for 2015 totaled USD 6, 9 million as compared to a net loss of USD 10, 6 million in 2014. Both the 2015 and 2014 net results included certain one-time charges as detailed further below.
Revenues for the twelve months ended December 31, 2015 totaled USD 34, 4 million down 12% from the same period in 2014. The decline in revenues year over year was primarily due the sale of the Company's public cloud customer base to GoDaddy in September 2015.
With the sale of the public cloud customers, the Company realigned its existing business model to support its go-forward managed IT cloud business strategy. During the second half of 2015, the Company reduced its workforce by approximately 45% and took a one-time compensation related charge totaling USD 1,5 million. The charge included the monthly carrying cost of the employees through December 2015, severance payments to be made to the impacted staff, outplacement assistance and other residual employee termination costs.
In addition to the realignment of staffing, the Company began the process of discontinuing a number of its current operating expenditures and agreements. The operating agreements and expenditures included such items as rents, licenses, maintenance, professional fees, and other costs that will no longer be required by the Company due to the sale of its public cloud customer base. In order to terminate these agreements in advance of their contractual end date, the Company recorded a USD 1,0 million charge to fund this initiative and complete the negotiations with the various parties.
The Company also completed a review of its goodwill and other intangible assets during the third quarter of 2015 to determine if an impairment existed. The estimate reflected the
Company's assessment of the value of the cash-generating unit to which the goodwill is allocated or the intangible asset is associated with. Calculating the value in use required the Company to estimate the expected cash flows from the cash-generating unit (if available) and also to choose a suitable discount rate in order to calculate the present value of cash flow.
The Company has historically evaluated its goodwill on a consolidated basis as a single cash generating unit. The recoverable amount for the cash generating unit has been determined based on a value in use calculation using cash flow projections based on financial budgets or forecasts approved by senior management covering a five-year period. The discount rate applied to cash flow projections was 12% (pre-tax) and assumed a constant growth rate of 3% (nominal) beyond year five. The Company's analysis of its non-current asset carry value resulted in an impairment of approximately USD 10,0 million. The Company first allocated the impairment to fixed assets which totaled approximately USD 4 million and then allocated the residual balance to goodwill which totaled approximately USD 6 million.
As the public cloud users and customers migrated off the Company's public cloud environment, the Company began to decommission the underlying computer related equipment.
With of the sale of its public cloud customer base, the Company recorded an after taxation Gain on Sale of USD 19, 9 million during 2015. The gain from the transaction is shown separately under "Other Income and Expense". The calculation of the gain is as follows:
| (Amounts in USD 1 000) | USD |
|---|---|
| Proceeds from sale of public cloud customer base | 22 500 |
| Less - Transaction sales cost | (2 334) |
| Less - Estimated taxes | ( 288) |
| Net gain on transaction | 19 878 |
In 2014, the Company began its shift from a Hosted Exchange company to a Managed IT Cloud Solutions provider. As disclosed in its 2014 Annual Report, the Company incurred one-time charges related to this realignment totaling USD 5,4 million. Included in the realignment charges were costs associated with office and data center consolidations, personnel staffing changes, licenses and lease termination costs and restructuring costs. The Company also incurred a USD 5,7 million goodwill impairment charge in 2014.
Excluding the aforementioned one-time charges for both 2015 and 2014, the Company recorded a Net Loss of USD 526 000 in 2015 as compared to Net Income of USD 529 000 in 2014. The change in profit was due to the sale of the Company's public cloud customers.
Cash used by operating activities, including the impact of changes in currency rates, totaled USD 3,2 million, as compared to cash generated by operations of USD 3,3 million in 2014. Equipment purchases, net of financings under equipment leases, during the calendar year of 2015 were USD 403 000 compared to USD 234 000 in 2014. Net cash used by financing activities totaled USD 3, 6 million for both comparable periods.
The Company closed the fourth quarter of 2015 with USD 7, 8 million in cash and no amounts outstanding on its working capital facility.
In April 2015, the Company entered into a definitive agreement with its financial institution to replace its expiring working capital facility. The new facilities provided for a USD 2 million revolving line of credit and a USD 4, 7 million term note payable. Amounts available pursuant to the revolving line of credit are based on 80% of eligible accounts receivable and subject to certain limitations such as foreign accounts receivable, accounts receivable older than 90 days and individual customer account balances in excess of 25% of total accounts receivable. The revolving line of credit carries a floating interest rate of prime plus 1.75% with a minimum prime rate of 3.25%.
The USD 4, 7 million term note payable matures on March 31, 2020 and carries a floating interest rate of prime plus 2.25% with a minimum prime rate of 3.25%. During 2015, the Company made interest only payments. The principal repayment schedule of the term note payable is as follows:
| Period | Amount | Number of Payments |
Total Principal Payments - USD |
|---|---|---|---|
| April 2015 through December 2015 | $\overline{\phantom{0}}$ | - | |
| January 2016 through September 2016 | 39 167 | 9 | 352.503 |
| October 2016 through September 2017 | 58 750 | 12 | 705 000 |
| October 2017 through September 2018 | 58 750 | 12 | 705 000 |
| October 2018 through September 2019 | 78 333 | 12 | 939 998 |
| October 2019 through March 2020 | 78 333 | 6 | 469 998 |
| Payment at Maturity March 2020 | 1 527 501 | 1 527 501 | |
| Total | 4700 000 |
In September and November 2015, the Company entered into amendments with its financial institution to modify the financial covenants related to its debt facilities. As a result, both the revolving line of credit and term note facility are now subject to a minimum adjusted EBITDA threshold and a minimum liquidity ratio.
Throughout the year and on average, Apptix continued to meet or exceed its average Service Level objectives. As of December 31, 2015, the Company had approximately 380 000 billable users as compared to approximately 425 000 users as of December 31, 2014.
The Company did not conduct any research and development activities during 2015 and 2014.
At the end of 2015, Apptix was comprised of two legal entities: Apptix ASA and Apptix, Inc. The Company's operational activities are performed in the United States of America.
Apptix ASA recorded no revenues in 2015 as the subsidiary no longer utilizes the legacy provisioning software owned by Apptix ASA. This compares to NOK 121 000 recorded in 2014. Operating expenses, excluding the reversal of the intercompany receivable impairment of NOK 59 549 000 increased from NOK 3 082 thousand in 2014 to NOK 3 331 thousand, or 8%, as a result of increased professional and administrative fees incurred during the year. The operating income for 2015 was NOK 56 218 000 as compared to a loss of NOK 2 961 000 in 2014. The net profit for 2015 was NOK 70 764 000, as compared to net loss of NOK 28 665 000. The change in operating income and net profit was primarily due to the reversal of the previously impaired intercompany receivable.
Historically investment in subsidiaries had been accounted for in accordance with the equity method. The intercompany receivable had been accounted for together with the cost of shares as a part of the entity's net investment since settlement was neither planned nor likely to occur in the foreseeable future. During 2015 a transaction occurred that changed the likelihood that the subsidiary would be able to pay down its debt. Management reviewed the accounting principle and determined that the equity method of accounting was no longer the best accounting principle for Apptix ASA, and elected to change the accounting principle to the cost method. As a result of this change, the Company recorded a one-time, retroactive adjustment for 2015 of NOK 59 million.
The cloud services market continues to grow at a rapid pace. More than 80% of organizations surveyed by RightScale in January 2016 had deployed some type of cloud service. The RightScale survey did not reveal a significant difference between enterprise and small-tomedium size organization use of the cloud services.1 Gartner estimates that worldwide spending on public cloud services for 2016 will top USD 113, 6 billion, excluding cloud advertising, with a 19% projected to grow rate. 2 The Infrastructure-as-a-Service (IaaS) segment continues to remain the fastest growing segment in 2016, forecasted to reach USD 22, 4 billion. The need to access infrastructure, greater scalability and faster time-to-market were cited as the main benefits for cloud adoption in the RightScale survey.3
Despite this dramatic market growth, according to Phil Shih of Structure Research, "adoption of hosting and cloud-based services is still in its early stages and there is plenty of runway left to attack. A typical organization today is only putting a portion of its IT infrastructure in a cloud environment. They continue to store data and run legacy applications on-premise. Many of those workloads, plus all the new ones being written, are going to find their way to cloud-based infrastructure."
Service providers are gearing to tap into this opportunity by expanding their capabilities. Doing more on the Internet means more complexity. And that will require managed services and consulting. More workloads in the cloud require a 'best-fit' approach with performance and capacity matched with the application's requirements. There is no one-size-fits-all platform. The diversity of needs can only be served with a wide range of infrastructure hosting capabilities. This means a choice between bare metal, private clouds and raw virtual infrastructure – supported by a management layer that is both a helping hand and proactive, consultative resource.
While standardized cloud offerings are "good enough" for smaller businesses, these don't meet the unique needs of mid-market firms that lack the resources or expertise to develop and manage customized solutions. Gartner further reports that mid-market firms are actually willing to pay more for an IT solution that includes superior support services. And that as private and hybrid
1 RightScale, State of The Cloud Report; January 2016
2 Gartner, Public Cloud Services, Worldwide, 2013-2019, 4Q15 Update
3 RightScale, State of The Cloud Report; January 2016
Apptix – Directors' Report 2015 Page 9
cloud adoption continues to increase, so the complexity it is expected to create for organizations using these services also increases.4
Lack of resources and expertise has become the biggest challenge for organizations5 , surpassing security as the prime barrier to cloud adoption. Successful providers are differentiating themselves with specialized, value added services such as integration expertise and hybrid offerings, highly reliable service delivery, and top quality customer service – capabilities Amazon, Google, and Microsoft are unable to match within their mass-market business models.
Mr. Lindqvist was appointed Chairman of the Board of Apptix in 2007. He is also Chairman of the Board for Nipsoft AB, and Advance AB. From 2004 to 2006, Mr. Lindqvist was the CEO for TeleComputing ASA. He served as the managing director of TeleComputing Sweden AB from 2001 to 2004. Since 1996, Mr. Lindqvist held various positions in Alfaskop AB, including serving as the CEO from 1999 to 2001. He holds a degree in Civil Engineering (Industrial Economy) from the Technical University in Linkøping, Sweden.
Mr. Rogne was appointed as a Director of Apptix in 2007. He is currently Chairman of the Board for Nordic Semiconductor ASA and for Nokas AS. He is also a Director of Unified Messaging Systems AS. From 1994 to 2004, he served as the CFO for Tandberg ASA. From 2004 through 2007, he then served as the Head of Operations and Investor Relations. Prior to Tandberg, he was head of Finance with Kvaerner AS. Mr. Rogne has an MBA from University of San Diego and a Bachelor of Business Degree from the Oslo School of Business Administration.
Mrs. Fåhraeus was appointed Director of Apptix in 2008. She is Chairman of Connect Skåne; Director of Arc Aroma Pure, the faculty of medicine at Lunds University and, CEO of Lunds Life Science Incubator. From 2010 through 2014 she served as Director of Business Development at the private equity company Aqilles Invest AB in Sweden. From 2001 to 2010 she served at Anoto AB, acting as Vice President of Sales and Marketing from 2006-2010. She has previously worked in various leadership positions at Raufoss ASA, Cederroth AB, SCA, Johnson & Johnson, and Kreab Group. She has a degree in Business Administration from Stockholm School of Economics.
Apptix has a stimulating and positive work environment with a highly qualified and motivated staff. No accidents have occurred during 2015. There were no significant absences due to illness in 2015 or 2014. Employment decisions at Apptix are based on merit, qualifications, and abilities. Apptix is an equal opportunity employer, and does not discriminate based on race, religion, color, sex, age, national origin, citizenship, marital status, disability, veteran's status, sexual orientation, or any other characteristic protected by law. This policy applies to all decisions regarding terms, conditions, and privileges of employment. As of December 31, 2015, the members of the senior management team consisted of four males while the Board of Directors consisted of two males and one female. The Company's operations do not pollute the environment.
4 Gartner, Market Insight: Midsize-Business Primer, 2014; July 2014
5 RightScale, State of The Cloud Report; January 2016
Apptix – Directors' Report 2015 Page 10
Companies are increasingly aware of their obligation to act responsibly in social matters like human rights, employee rights, environmental concerns and anti-corruption. The Board of Directors and Management of Apptix fully support these initiatives.
Apptix is committed to ensure that both basic human rights and employee rights are respected and fully complied with. In its operations, Apptix strives to ensure that all employees, consultants, contractors and customers adhere to basic human rights. Further, Apptix acknowledges and complies with employee rights and other applicable social issues in all its dealings as an employer.
Apptix is committed to protect the environment and has taken various steps to ensure that the business operation has limited negative impact on the environment. Corruption represents a potential problem for developing fair trade. Due to the nature of the Company's business and geographic presence, corruption is not regarded as a real threat to its operations.
While Corporate Social Responsibility is covered in various company internal documents, the company has not seen the need to develop a separate policy document to this effect.
The Company's goals and strategies associated with the management of financial risks include evaluating the effects of market, credit and liquidity risks related to the Company's assets, liabilities, financial position and operating results.
Market Risk: The Company's principal operating market is the United States with its functional currency being the US Dollar. The Company has limited operating expense outside of the United States. The Company has limited transactional currency exposure, which results from transactions in a currency other than its functional currency.
Credit Risk: The Company transacts with a wide variety of customers from the Global 1 000 to companies with fewer than five employees. A large percentage of small business customers pay via credit card, significantly reducing the Company's credit risk with respect to these customers. To ensure that credit risk is managed appropriately, the Company monitors its receivables balance regularly and ceases providing service when customer accounts become significantly overdue.
Liquidity Risk: The Company has an ongoing process of ensuring that it has sufficient cash resources to maintain its operations and is currently generating positive cash flow. The Board is fully committed to ensure that the Company's financial position is satisfactory.
Overall, the Company's financial risk is primarily limited to the above referenced areas. The Company's believes it is taking the steps necessary to mitigate exposure and to hedge potential areas of risk.
2015 was a year of significant change for the Company. The continued realignment of the business and operations to support its managed cloud IT service strategy and the sale of its public cloud customers favorably impacted the future prospects of Apptix.
The Company will continue to leverage its strong operational foundation and solid customer base of nearly 380 000 users under contract during 2016. We anticipate growth in managed cloud IT services, large HEX deployments along with professional service engagements. We have the ability to meet the unique technology challenges and new service requirements of our current and future customers.
However, all predictions of future growth prospects are subject to a variety of uncertainties in the market place. These uncertainties include market-based competition, internal demands for allocation of resources within our existing customer base when considering new products and services, the timing of the various staffing, resource realignment and consolidation efforts currently underway by the Company to name a few.
The Company believes the steps being taken will provide a more solid foundation for topline revenue growth in 2016 and beyond.
According to the Norwegian Accounting Act, the Board confirms that the requirements for going concern are present, and the accounts are presented under this assumption. Financial forecasts for 2016 and the Group's equity and liquidity position provides the basis for this assessment.
The results of the holding company, Apptix ASA, were a net profit of NOK 70,7 million. The Board recommends the net profit be transferred to other equity.
Chairman of the Board Director Director President & Chief Executive Officer
31 December, 2015 / 6 April, 2016
Apptix – Directors' Report 2015 Page 12
Apptix Corporate Governance policy is intended to ensure appropriate division of roles and responsibilities between the shareholders, the Board of Directors, and the Executive Management. Apptix emphasizes the importance of adhering to corporate governance principles consistent with the principles set out in the Norwegian Code of Practice for Corporate Governance as amended October 30, 2014, and include the equitable and equal treatment of all shareholders; the importance of having independent and qualified people in the Company's governing bodies; ensuring that all financial accounts are audited by qualified, independent auditors; and that information provided by the Company provides a timely and accurate representation of the underlying business activities and results.
The Corporate Governance report is included by reference in the Directors' Report as part of the Company's Annual Report.
The Company has developed ethical guidelines as well as guidelines for corporate social responsibility.
The Company's business objective, as defined in the Articles of Association, is to market, rent, and sell information technology-based solutions and related services to businesses of all sizes.
The Annual Report includes the Company's objectives and business strategy.
On December 31, 2015, Apptix had cash reserves of USD 7, 8 million, approximately USD 1,5 million available and unused pursuant to its working capital facility and an equity ratio of 32.8%. The Company believes it has, or will have through the use of future debt or equity facilities, sufficient capital to meet its objectives, strategy, and risk profile. The Board will aim to achieve the Company's overall objective to increase shareholder value through increased share price and, when appropriate, through dividends in accordance with a transparent dividend policy. However, as the Company has not historically earned net profits, the Board has established a policy not to pay dividends. Once profitability has consistently been achieved, the Board will re-evaluate this policy. At the Company's November 2015 extraordinary general meeting, the Company's shareholders approved a distribution of paid capital of 1 NOK per share. The distribution totaled 81 430 178 NOK or approximately USD 10, 1 million.
The registered share capital on December 31, 2015 was NOK 27 116 249 divided into 81 430 178 shares. There is only one class of shares in the Company, and all shares are freely transferable without any Company-imposed restrictions. The Company strives to provide accurate and sufficiently detailed information each quarter related to the Financial and Operational performance of the Company.
It is the Board's policy that authorizations from shareholders to increase the Company's share capital will be limited to defined purposes. If proposed increases in the Company's share capital cover multiple purposes, then each authorization will be considered separately in the shareholder meeting. Authorizations to the Board will be limited in time to no later than the next annual shareholder meeting.
The current valid authorization grants the Board the power to increase the share capital of the Company by up to NOK 350 000. The authorization is valid until June 30, 2016. The authorization shall only be used when issuing shares pursuant to option agreements.
The Company has only one class of shares and each share entitles the holder to one vote at the General Meetings. All transactions in the Company's shares will be carried out through the Oslo Stock Exchange or at prevailing Stock Exchange prices.
Shareholders pre-emptive rights will only be waived when this is appropriate and considered to be in the best interest of the Company and its shareholders. The Company will in such situations explain the justification for waiving the pre-emptive rights in the stock exchange announcement in connection with the increase in share capital.
The Board is committed to treat all shareholders equally. All transactions between the Company and shareholders, members of the Board, members of the Executive Management, or close associates of any such party will only be completed if all conditions in the Public Companies Act are fulfilled. This includes a written independent valuation report and the performance of a proper investigation to ensure whether any conflict of interest could exist. Members of the Board and Executive Management are obliged to report if they have a material, direct or indirect, interest in any transaction entered into by the Company.
The shares in the Company are freely tradable, and there are no restrictions to the shares' negotiability in the Company's Articles of Association.
The Company encourages shareholders to participate in shareholders' meetings. Calling notices with agenda, proposed resolutions, and attendance notice are sent to all shareholders no later than two weeks prior to the meeting. There is no formal deadline for the shareholders to confirm attendance to the shareholder meetings. All shareholders have the right to vote through proxies at shareholder meetings. A proxy form is distributed to all shareholders together with the Calling Notice where each agenda item is listed separately. The proxy form will include information about the procedure for shareholders to be represented through a proxy, including the named person that is available as representative for the shareholders under the proxy. To the extent possible, Board members, the Company's auditor, and members of the Nomination Committee will be present. The Board will ensure that the shareholder meetings will be chaired by an independent chairman.
All information relating to General Meetings, including proxy form, are posted on the Company's Website (www.apptix.com) as early as possible in advance of a General Meeting and no later than 21 days prior to the meeting. Election of nominated candidates for the Board will be made separately for each candidate.
The Nomination Committee is described in the Company's Articles of Association and consists of three members. The members of the current Nomination Committee were elected for a 2 year term at the ordinary Shareholder meeting on May 6, 2015. The members of the Nomination Committee are independent of the Board and the Executive Management team and endeavor to represent the shareholder's joint interests. None of the Nomination Committee members are members of the Board or the Executive Management team.
The Nomination Committee's tasks are to nominate candidates to the Board and to propose fees for Board members. All recommendations from the Nomination Committee will be justified in writing and associated information will be provided to shareholders at least 21 days prior to the relevant Shareholder meeting.
The Company's General Meeting will stipulate guidelines for the duties of the Nomination Committee.
Contact information related to the Company's Nomination Committee is provided on the Company's Investor Relations web page.
The Company does not have an elected corporate assembly. Given the Company's structure with all operations in a subsidiary in USA, this is not considered necessary or required.
The composition of the Board is designed to ensure that Board members represent the common interest of all shareholders, and represent required and useful expertise in various fields. The composition of the Board ensures independence from main shareholders and that the Board can operate independently of any special interests. The Chairman of the Board Johan Lindqvist is the Company's second largest shareholder through his companies Windchange AS and Windchange Invest AB. None of the Board members are related to or dependent upon large shareholders or members of the executive management.
Neither the Chief Executive Officer nor any other executive personnel are a member of the Board of Directors.
The Chairman of the Board and the other Board members are elected at the General Meeting and the term of all elected Board members is two years, with possibilities for re-election. The Company's Annual Report provides information on each of the Board members, including qualifications and relevant experience.
None of the members of the Board has stock options in the Company.
Members of the Board are encouraged to hold shares in the Company.
The Board meets regularly both in closed sessions and in face to face meetings with the CEO, CFO and with other members of the Executive team present as the Board deems fit.
The Board has established Corporate Governance, Audit, and Remuneration and Compensation Committees. The Company has established clearly defined roles, responsibilities and tasks for the Board and management. Further, the Board produces an annual plan detailing its role in developing the Company's strategy as well as the specific objectives for each year. The Board evaluates its work and its competence on an annual basis.
The Board is responsible for ensuring that management establishes and maintains adequate internal control over financial reporting. Apptix's internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting, and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and valid as of December 31, 2015.
Apptix internal control over financial reporting includes those policies and procedures that:
There are inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility of human error and the circumvention or overriding of controls. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of the changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. The internal reporting will also include reporting in line with the Company's ethical guidelines and the guidelines for corporate social responsibility.
Apptix's Board believes Apptix's system of internal control provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
Compensation for Board members is resolved by the shareholders in the General Meeting and reflects the responsibility, competence, time commitment, and the complexity of the Company's business. In addition, the Chairman has a consulting agreement with the Company where he receives NOK 400 000 per year for extra services above and beyond his duties as Chairman of the Board. The agreement is approved annually at the general shareholders meeting. During the fourth quarter of 2014, the Company's Board of Directors approved an additional consulting fee of USD 15 000 per month for the Chairman as part of the Company's 2014 changes in executive leadership. Given the Company's current status, the competence and contribution of the Chairman is required at this stage. The additional consulting fee for the Chairman was approved at the May 2015 general shareholders meeting.
The Annual Report includes information on all remuneration paid to the Board members, and any remuneration in addition to the normal Director's fee is detailed.
As of December 31, 2015, the Executive Management team of the Company consisted of four persons. The compensation of the Company's Chief Executive Officer is set by the Compensation Committee of the Board. No member of the Compensation Committee is an employee of the Company. Additionally, the Chief Executive Officer sets the compensation of the remaining members of the Executive Management team in accordance with guidelines established by, and upon consultation with, the Compensation Committee and the Board. The Company's executive compensation policies are intended to provide competitive levels of compensation that reflect the Company's annual and long-term performance goals, reward superior corporate performance, and assist the Company in attracting and retaining qualified executives. Total compensation for each of the Executive Management team is comprised of three principal components: base salary, annual incentive compensation, and stock-based awards. Performance-related compensation is linked to value creation for the Company's shareholders. The total performance-related remuneration to each of the Executive Management team will not exceed 60% of base salary.
The statement of remuneration of Executive Management will be produced as a separate document and made available on the Company's website together with the calling notice to the annual shareholder meeting. The statement of remuneration will be presented to advisory vote at the annual shareholder meeting. If the remuneration includes equity-based remuneration the annual meetings will vote will be binding. The statement will, if applicable, be presented in two separate votes.
The Board of Apptix has established guidelines for the Company's reporting of financial and other information to ensure that all shareholders, and the investor market as a whole, are treated equally. Further, the Company has internal guidelines covering market communication through OSE releases. In addition, all financial information is available on Apptix's Website at www.apptix.com.
In the event of a take-over bid, the Board will ensure that all shareholders are treated equally and given sufficient information and time to form a view of the offer. The Board would normally not seek to prevent, hinder, or obstruct take-over bids. Further, the Board will, in relevant situations, ensure compliance with the provisions in Chapter 14 of Corporate Governance Guidelines.
The auditor participates in Board meetings that deal with annual accounts. In addition, separate meetings are arranged between the Audit Committee and the auditor when required, and at least once a year where neither the CEO nor other employees are present. The specified remuneration to the auditor is presented for resolution at the Annual meeting.
Board of Directors Apptix ASA 6 April, 2016
Total compensation for each of the Executive Officers, as well as other senior executives, is comprised of three principal components: base salary; annual incentive compensation; and stockbased awards.
The base salaries are fixed at levels which the Compensation Committee believes are comparable to those of executives of similar status in the Company's industry, and are targeted to be competitive in the marketplace. In addition to base salary, each executive officer is eligible to receive an annual bonus tied to the Company's success in achieving certain annual performance measures, as well as individual performance. The Board and the Compensation Committee also believe that longer-term incentives are appropriate to motivate and retain key personnel, and that stock ownership by management is beneficial in aligning management's and shareholders' interests in the enhancement of shareholder value. Accordingly, the Compensation Committee has a policy of considering annual grants of stock-based awards to executive officers. Historically, such grants have been in the form of stock options.
Each year, the Chief Executive Officer recommends to the Compensation Committee a base salary level for each of the other executive officers. In formulating such recommendations, the Chief Executive Officer considers industry, peer group and national surveys, and performance judgments as to the past and expected future contributions of the individual senior executives. The Compensation Committee then reviews the recommendations and fixes the base salaries of each of the executive officers and of the Chief Executive Officer based on both available competitive compensation data and the Compensation Committee's assessment of each officer's past performance and its expectation as to future contributions.
The Compensation Committee administers the Bonus Plan, which is designed to compensate key management personnel for extraordinary efforts reaching certain performance milestones and to aid the Company in attracting, retaining, and motivating personnel required for the Company's continued growth. The size of the pool of funds available to be paid to eligible participants under the Bonus Plan is set by the Compensation Committee, subject to approval by the Board, either as a fixed amount or as a percentage of the combined annual salaries of eligible participants. Bonuses are generally paid to eligible participants during the first and third quarter of each year based upon annual corporate performance measures for the second half of the previous year and first half of the current year, respectively, as well as individual performance.
The Company generally makes periodic grants in the form of Stock Options. Stock Options are granted with a strike price representing at least the fair market value of the Company's common stock at the time of the grants. Stock Options vest over varying terms as determined by the Compensation Committee, at the time of grant, but generally 4 years. Individual option grants are made by the Compensation Committee based upon recommendations of the Chief Executive Officer and the Compensation Committee's own deliberations as to the individual's contribution to the Company and overall level.
In May 2015, the shareholders approved a Management Incentive Program ("Incentive or Bonus") in support of shareholder value creation for the Company. The maximum term of the Incentive is five years or Exit Date ("a sale or merger of the Company before the five year term ends"). During the term, the participating and eligible employees can earn an Incentive based on a progressive variable compensation rate for each USD 5 million of incremental value created over USD 30 million. No Incentive or Bonus is earned for a value less than USD 30 million. The maximum variable compensation rate that can be earned for a USD 5 million increment is 20%. Once the Company's value exceeds USD 75 million, the variable compensation rate that can be earned is limited to 20% for each USD 5 million increment. If after four years from the start date but prior to the end of the five year term or an Exit Date, eligible and participating employees may elect to be paid their allocated management Incentive. The Incentive or Bonus can be paid in either cash or shares of Company stock. If paid in shares, eligible participants will be required to pay NOK 0.333 per share. Only employees of the Company or its affiliates are eligible for participation. The Management Incentive Program will be managed by the Company's Board of Directors.
The Company has agreements with each of its senior executives which provide for, among other things, the payment of severance and the continuation of medical and dental benefits for periods up to twelve months in the event the senior executive is properly terminated by the Company without Cause, due to Change of Control or by the executive for Good Reasons as defined by the agreements.
The Company offers a 401(k) pension plan (a U.S. tax law based pension scheme) which allows for all employees to make voluntary contributions on a pre-tax basis. During 2015, the Company provided an employer match of 50% of employee contributions up to 6% of the employee's salary.
Board of Directors Apptix ASA 6 April, 2016
| Apptix Group | ||||||
|---|---|---|---|---|---|---|
| (Amounts in USD 1 000) | ||||||
| Year Ended December 31, | ||||||
| Note | 2015 | 2014 | ||||
| OPERATING REVENUE | ||||||
| Recurring Revenues (subscription revenues) | 3 | 32 929 | 38 486 | |||
| Other Revenues (professional services) | 1 487 | 840 | ||||
| Operating Revenue | 34 416 | 39 326 | ||||
| OPERATING EXPENSES | ||||||
| Cost of Sales | 4 | 10 299 | 13 350 | |||
| Employee Compensation and Benefits | 5 | 14 401 | 13 905 | |||
| Other Operational and Administrative Costs | 6 | 8 984 | 9 386 | |||
| Restructuring Charge | 18 | - | 1 955 | |||
| Additional Depreciation | 11 | 4 000 | - | |||
| Goodwill or Intangible Asset Impairment Charge | 9,11 | 6 000 | 5 681 | |||
| Depreciations and Amortization | 9,10 | 2 687 | 4 365 | |||
| Total Operating Expenses | 46 371 | 48 642 | ||||
| Operating Income (before interest & taxes) | (11 955) | (9 316) | ||||
| FINANCIAL INCOME AND EXPENSES | ||||||
| Interest Expense | 7 | (1 071) | (1 272) | |||
| Other Financial Expense | - | (2) | ||||
| Other Income and Expense | 7 | 20 166 | - | |||
| Net Financial Expenses | 19 095 | (1 274) | ||||
| Income Before Taxes | 7 140 | (10 590) | ||||
| TAXES | ||||||
| Income Tax Expense | 19 | ( 288) | - | |||
| Net Income for the Period | 8 | 6 852 | (10 590) | |||
| Attributable to: | ||||||
| Equity Holders of Parent | 6 852 | (10 590) | ||||
| Earnings per share: | 8 | |||||
| * Basic, profit for the year attributable to ordinary | 0.08 | (0.13) | ||||
| equity holders of the parent | ||||||
| * Diluted, profit for the year attributable to ordinary | 0.08 | (0.13) | ||||
| equity holders of the parent | ||||||
| Weighted Average Common Shares Outstanding | 8 | 81 430 | 81 617 | |||
| Page 21 | ||||||
| Apptix Group (Amounts in USD 1 000) |
||
|---|---|---|
| Year Ended December 31, | ||
| 2015 | 2014 | |
| Income for the Period | 6 852 | (10 590) |
| Exchange Rate Differences on Translation of Foreign Operations | 358 | 32 |
| Items that may be Reclassified Subsequently to Income Statement | 358 | 32 |
| Items that will not be Reclassified to Income Statement | - | - |
| Total Other Comprehensive Income/(Loss) for the Period | 358 | 32 |
| Total Comprehensive Income for the Period | 7 210 | (10 558) |
| Attributed to Equity Holders of Parent | 7 210 | (10 558) |
| Apptix Group | |||
|---|---|---|---|
| (Amounts in USD 1 000) | |||
| Year Ended December 31, | |||
| Note | 2015 | 2014 | |
| ASSETS | |||
| Non-current Assets | |||
| Intangible Assets | |||
| Goodwill | 9,11 | 9 967 | 15 967 |
| Software and Licenses | 9 | 163 | 248 |
| Total Intangible Assets | 10 130 | 16 215 | |
| Property and Equipment | |||
| Computer Equipment | 10,16,17 | 3 893 | 9 200 |
| Furniture and Fixtures | 1 0 |
71 | 116 |
| Leasehold Improvements | 1 0 |
74 | 11 |
| Total Property and Equipment | 4 038 | 9 327 | |
| Total Non-Current Assets | 14 168 | 25 542 | |
| Current Assets | |||
| Accounts Receivable | 1 3 |
2 013 | 1 988 |
| Other Current Assets | 1 4 |
151 | 156 |
| Prepaid Expenses | 619 | 400 | |
| Cash and Cash Equivalents | 1 5 |
7 800 | 2 608 |
| Total Current Assets | 10 583 | 5 152 | |
| TOTAL ASSETS | 24 751 | 30 694 | |
| EQUITY AND LIABILITIES | |||
| Equity | |||
| Share Capital | 21,22 | 4 666 | 4 666 |
| Share Premium | 7, 21,22 | 63 319 | 73 437 |
| Other Paid-in Capital | 21,22 | 6 198 | 6 175 |
| Translation Reserve | 21,22 | 3 927 | 3 927 |
| Retained Earnings | 21,22 | (69 980) | (77 189) |
| Total Equity | 8 130 | 11 016 | |
| Long Term Debt | |||
| Interest-Bearing Long Term Debt | 16,17,25 | 5 852 | 3 072 |
| Total Long Term Debt | 5 852 | 3 072 | |
| Current Liabilities | |||
| Trade Accounts Payable | 2 5 |
1 913 | 1 526 |
| Interest-Bearing Short Term Debt | 16,17 | 3 247 | 8 670 |
| Other Current Liabilities | 1 8 |
5 609 | 6 410 |
| Total Current Liabilities | 10 769 | 16 606 | |
| TOTAL EQUITY AND LIABILITIES | 24 751 | 30 694 |
Chairman of the Board Director Director President & Chief
Executive Officer
31 December, 2015 / 6 April, 2016
Page 23
| Apptix Group | |||||
|---|---|---|---|---|---|
| (Amounts in USD 1 000) | |||||
| Year Ended December 31, | |||||
| Note | 2015 | 2014 | |||
| Cash flows from Operating Activities | |||||
| Earnings Before Interest and Taxes | (11 955) | (9 316) | |||
| Share-based Employee Compensation Expense | 20,21 | 23 | 68 | ||
| Depreciation and Amortization | 9,11 | 2 687 | 4 365 | ||
| Goodwill Impairment | 11 | 6 000 | 5 681 | ||
| Impairment/Loss on Sale of Fixed Assets | 10 | 4 000 | 2 | ||
| Change in Accounts Receivable | ( 25) | ( 188) | |||
| Change in Trade Accounts Payable | 387 | 381 | |||
| Change in Other Assets and Liabilities | (3 636) | 3 518 | |||
| Cash Flows Provided by Operating Activities | (2 519) | 4 511 | |||
| Interest paid | (1 071) | (1 272) | |||
| Income tax paid | - | - | |||
| Net Cash Flows Provided by Operating Activities | (3 590) | 3 239 | |||
| Cash Flows from Investing Activities | |||||
| Purchases of Property and Equipment, net | 10 | ( 403) | ( 234) | ||
| Proceeds from Sale of Customer Base | 7 | 22 500 | - | ||
| Net Cash Flows Used in Investing Activities |
22 097 | ( 234) | |||
| Cash Flows from Financing Activities | |||||
| Payments on Interest-Bearing Debt | 16,17 | (3 554) | (3 553) | ||
| Distribution of Paid in Capital | 7 | (10 118) | - | ||
| Net Cash flows Used in Financing Activities |
(13 672) | (3 553) | |||
| Effect of Exchange Rates on Cash and Cash Equivalents | 357 - |
32 - |
|||
| Net Increase/(Decrease) in Cash | 5 192 | ( 516) | |||
| Cash at Beginning of Period | 15 | 2 608 | 3 124 | ||
| Cash at End of Period | 7 800 | 2 608 |
| Apptix Group | ||||||||
|---|---|---|---|---|---|---|---|---|
| Share | Share Premium |
Other Paid | Foreign Currency Translation |
Retained | ||||
| (Amounts in USD 1 000) | Note | Capital | Reserve | in Capital | Reserves | Earnings | Total Equity | |
| Equity December 31, 2013 | 4 666 | 73 437 | 6 107 | 3 927 | (66 632) | 21 505 | ||
| Net Income for the Period | - | - | - | - | (10 590) | (10 590) | ||
| Other Comprehensive Income | - | - | - | - | 32 | 32 | ||
| Total Comprehensive Income | - | - | - | - | (10 558) | (10 558) | ||
| Equity Element of Expensed Options | 20 | - | - | 68 | - | - | 68 | |
| Equity December 31, 2014 | 4 666 | 73 437 | 6 175 | 3 927 | (77 190) | 11 016 | ||
| Net Income for the Period | - | - | - | - | 6 852 | 6 852 | ||
| Other Comprehensive Income | - | - | - | - | 358 | 358 | ||
| Total Comprehensive Income | - | - | - | - | 7 210 | 7 210 | ||
| Distribution of Paid in Capital | 7 | - | (10 118) | - | - | - | (10 118) | |
| Equity Element of Expensed Options | 20 | - | - | 23 | - | - | 23 | |
| Equity December 31, 2015 | 4 666 | 63 319 | 6 198 | 3 927 | (69 980) | 8 130 |
Apptix ASA ("Apptix", the "Company" or the "Group") is a public Company registered in Norway and traded on the Oslo Stock Exchange. The Company's head office is located at 13461 Sunrise Valley Drive, Suite 300, Herndon, Virginia (USA) and its registered business address is Nesoyveien 4, Billingstad, Norway. Apptix is the premier provider of managed and hosted business communication, collaboration, compliance & security, and infrastructure solutions to mid-market and enterprise customers and blue chip channel partners. A cloud services pioneer in the managed hosted space, Apptix has almost 380 000 users under contract around the world; with more than one-third of users in highly regulated industries.
Apptix's comprehensive portfolio of Cloud solutions includes Microsoft® Exchange, Microsoft Office 365®, SharePoint®, and Lync®, as well as hosted VoIP, encryption, archiving, mobile device management, enterprise back-up, disaster recovery, file synch and share and virtual desktops. Apptix hosted services are delivered across an advanced network infrastructure and built upon best-in-class hardware and software housed in Tier IV, SSAE 16 SOC 1 Type II certified, geographically dispersed interconnected datacenters to ensure the highest level of availability and reliability. 24/7 customer service and support is provided by a fully U.S.-based, industry recognized support department.
The financial statements were approved by the Board of Directors for publication on 6 April, 2016.
The consolidated financial statements of Apptix ASA have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), as adopted by the EU.
The consolidated financial statements of Apptix ASA have been prepared on a historical cost basis. The consolidated financial statements are presented in USD and all values are rounded to the nearest thousand except when otherwise indicated.
The accounting principles used in 2015 are the same as in 2014. The Group has reviewed new and amended IFRS and IFRIC interpretations during the year, along with the annual improvements. Adoption of these revised standards and interpretations did not have any effect on the financial performance or position of the Group
The consolidated financial statements are comprised of the financial statements of Apptix ASA and its fully owned subsidiary Apptix, Inc. The financial statements of the subsidiary are prepared for the same reporting year as the parent Company, using consistent accounting policies. Inter-Company transactions and balances, including internal profits and unrealized gains and losses are eliminated in full as part of the consolidation process. As a result of rounding differences, numbers or percentages included within may not add up to the total.
Current assets and liabilities include balances typically due within one year. All other balances are classified as non-current assets and other long-term debt.
Apptix ASA has a single subsidiary whose primary economic environment is in the United States. The functional currency of this subsidiary is USD. Apptix ASA Group presents its financial statements and notes to the consolidated financial statements in USD, except where a transaction was specifically denominated in NOK. The functional currency of Apptix ASA is NOK and the Company presents its income statement, balance sheet, cash flow and notes in NOK only. The translation principles are as follows: (a) balance sheet figures for companies with a functional currency other than the presentation currency have been translated to the presentation currency at the rate applicable at the balance sheet date (b) income statement figures for companies with a functional currency other than the presentation currency have been translated to the presentation currency at the average exchange rate for the month in which the transaction occurred and (c) exchange rate differences are recognized as part of the other comprehensive income.
Operating revenues are recognized when persuasive evidence of an agreement exists, the service has been delivered, fees are reliably measurable, collections are probable, and when other significant obligations have been fulfilled. Subscription revenue is earned under monthly subscription license agreements. Annual subscription licenses are amortized into revenue on a monthly basis as the services are delivered. As such, revenue is recognized during the period for which the service was delivered and it has been determined that collection of the related subscription fee is probable. Professional services represent one-time fees for specific work performed that is not included in the monthly subscription license agreement. Professional services (non-recurring revenue) are recognized once the service has been performed and collection of the associated fee is probable.
The tax expense in the income statement includes taxes payable on the ordinary results for the period as well as the change in deferred tax. Deferred tax is calculated with a nominal tax rate on the temporary differences between the recorded values and tax values, as well as on any tax loss carry-forwards at the balance sheet date. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to offset current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. Any temporary differences, increasing or reducing taxes that will or may reverse in the same period, are netted. The net deferred tax benefit is recorded as an asset if it is regarded as probable that the Group will be able to realize the benefit through future earnings or realistic tax efficient planning.
Generally, intangible assets are recognized in the balance sheet if it is probable that there are future economic benefits that can be attributed to the asset which is owned by the Company, and the asset's cost can be reasonably estimated. Intangible assets are recorded at cost. Intangible assets with indefinite useful lives are not amortized, but impairment losses are recognized if the recoverable amount is less than the current carrying value. The recoverable amount is calculated each year or if there are any indications of a decrease of value. Intangible assets with a finite useful life are amortized over the useful life and the need for any impairment losses to be recognized is considered quarterly. Amortization is carried out using the straight-line method over the estimated useful life. The amortization estimate and method is subject to an annual assessment based on the future economic benefits.
Expenditures related to the purchase of software are capitalized in the balance sheet as an intangible asset provided these expenditures do not form part of hardware acquisition costs. Software is amortized using the straight-line method over 3 years. Expenses incurred as a result of maintaining or upholding the future usefulness of software, are expensed as incurred unless the changes in the software increase the future economic benefits.
Acquisitions are accounted for by eliminating the cost price of the shares in the parent Company against equity in the subsidiary at the time of acquisition. The cost of the acquisition is allocated to the assets acquired and the liabilities assumed according to their estimated fair market values at the time of acquisition. The amount allocated to goodwill represents the excess purchase price paid over the fair value of the assets acquired and the liabilities assumed. In the event that the accounting for the business combination is incomplete by the end of the reporting period where the business combination occurs, the provisional amounts recognized at the acquisition date will be adjusted to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognized as of that date. The period where the provisional amounts can be adjusted ends as soon as the necessary information is obtained to complete the purchase price allocation, and will in any case not exceed one year from the acquisition date.APTIX
Goodwill is not amortized; however an assessment is made quarterly, and when there is an indication the carrying amount cannot be justified by future cash flows. If there is any indication that an impairment loss needs to be recognized, an assessment will be made to determine whether or not the discounted cash flow exceeds the carrying amount of goodwill. If the discounted cash flow is less than the carrying amount, goodwill will be written down to its fair value.
Property and equipment are stated at cost less accumulated depreciation and impairment losses. When assets are sold or disposed of, the gross carrying amount and accumulated depreciation are eliminated, and any gain or loss on the sale or disposal is recognized in the income statement. Depreciation is computed for owned assets using the straight-line method over useful life and is recognized in the income statement. The useful life is equal to the estimated useful economic life since the Company uses the assets until they have no remaining residual value. The depreciation period and method are assessed each year to ensure that the method and period used synchronize with the financial realities of the non-current asset. The same methodology applies to the residual value.
The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date as to whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Capitalized finance leases are expensed on a straight-line basis over the estimated period of use. The estimated period of use corresponds to the estimated useful life of the assets, since the Company uses the assets until they have no remaining value. If it is not certain that the Company will take over the asset when the lease expires, the asset is depreciated over the lease's term or the depreciation period for equivalent assets owned by the Group, whichever is the shorter. Total lease payments, less estimated interest, are recorded as long-term debt at the inception of the lease. The liability is reduced by the lease payments less the estimated interest expense.
Leases for which substantially all the risks and benefits incidental to ownership of the leased item are not transferred to the Group are classified as operating leases. Lease payments are classified as operating costs and recognized in the income statement during the contract period.
Cash includes cash on hand and at the bank. Cash equivalents are short-term liquid investments that can be converted into cash within three months to a known amount, and which contain insignificant risk elements.
Financial instruments are reviewed at each balance sheet date to determine if there has been any decrease in value. Financial assets, which are valued at amortized cost, are written down when it is probable that the Company will not recover the full amount of the asset. The amount of the impairment loss is recognized in the income statement. A previous impairment loss may be reversed if the circumstances warrant such a reversal. A reversal of an impairment loss is presented as income. The carrying amount is only recognized to the extent that it does not exceed what the amortized cost would have been had the impairment loss not been recognized.
The Company utilizes valuation allowance accounts where appropriate for its financial instruments. The Company will directly reduce the carrying value of a financial asset when the impairment has occurred within a current reporting period. The Company will reduce the carrying value of a financial asset by way of increasing its valuation allowance when the impairment occurred outside of the current reporting period.
An assessment of impairment losses on other assets is made when there is an indication that the recoverable amount of an asset has fallen below its carrying amount. If an asset's carrying amount is higher than the asset's recoverable amount, an impairment loss will be recognized in the income statement. With the exception of goodwill (see Note 10), impairment losses recognized in the income statements for previous periods are reversed when there is information that the impairment loss no longer exists or the carrying value of the impairment loss should be reduced. The reversal is recognized as revenue or an increase in other reserves. However, no reversal takes place if the reversal leads to the carrying amount exceeding what the carrying amount would have been if appropriate depreciation had occurred.
The recoverable amount is the greater of the fair value of the asset less the net selling costs, or the discounted cash flow from continued use. "Value in use" is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. For assets that do not generate cash inflows, and which are largely independent of those from other assets or groups of assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
Financial instruments are classified as liabilities or equity depending on the underlying financial circumstances. Interest, dividends, gains and losses relating to a financial instrument classified as a liability will be presented as an expense or revenue.
Direct transaction costs relating to an equity offering are recognized against equity after deducting tax expenses. No other costs are directly recognized against equity.
Exchange differences arise in connection with currency differences when foreign entities are consolidated. Currency differences relating to monetary items (liabilities or receivables), which are in reality part of the Company's net investment in a foreign entity, are treated as an exchange difference. When a foreign operation is sold, the accumulated exchange differences linked to the entity are reversed and recognized in the income statement in the same period as the gain or loss on the sale is recognized.
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit or loss.
The Company provides severance pay in situations where employment contracts are terminated as a result of reorganization. The costs related to severance pay are provided for once management has decided on a plan that will lead to reductions in the workforce and the work of restructuring has started or the reduction in the workforce has been communicated to affected employees.
The employees and management of the Company receive compensation in the form of equitysettled share-based payments. The cost of equity-settled transactions is determined by the fair value of the options at the time of the grant. The fair value is determined using an appropriate pricing model. Additional information is provided in Note 20. The expense associated with equity-settled transactions is recognized, together with a corresponding increase in equity, during the period over which the service conditions and/or performance conditions are satisfied and the employee is fully entitled to the award (vesting date).
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
New information on the Company's positions at the balance sheet date is taken into account in the annual financial statements. Events occurring after the balance sheet date that do not affect the Company's position at the balance sheet date, but which will affect the Company's position in the future, are stated, if significant.
The cash flow statement is prepared in accordance with the indirect method. Included in cash and cash equivalents are bank deposits and cash on hand. Cash and cash equivalents are presented at the market value on the balance sheet date.
The preparation of the Group's consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.
The most significant uncertainty in the Company's judgment relates to impairment testing of goodwill. The Company reviews whether or not goodwill has been impaired on a quarterly basis. Estimating the value in use requires the Company to estimate the expected cash flows from the cash-generating unit as well as a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at December 31, 2015 was USD 9,9 million. Additional information related to goodwill appears in Note 9. Other significant areas of judgment and estimates include fixed asset impairment, determining expense associated with the issuance of stock options and the establishment of allowances for doubtful accounts.
In the financial statements for 2016 and beyond, the following standards, amendments and interpretations will be effective, along with annual improvements. While early adoption is permitted, the Group has chosen not to adopt these changes prior to 2015.
The Group does not expect these standards, revisions and interpretations to have a material impact on the financial position or performance of the Group.
The standards and interpretations are summarized below:
IAS 16 and IAS 38 both establish the principle for the basis of depreciation and amortization as being the expected pattern of consumption of the future economic benefits of an asset. The IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The IASB also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances. The amendment adopted by the EU is effective for annual periods beginning on or after 1 January 2016. It is expected that the changes will not give any effect on the financial statements.
The IASB and the FASB have issued their joint revenue recognition standard, IFRS 15 Revenue from Contracts with Customers. The standard replaces existing IFRS and US GAAP revenue requirements. The core principle of IFRS 15 is that revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard applies to all revenue contracts and provides a model for the recognition and measurement of sales of some non-financial assets (e.g., disposals of property, plant and equipment). The standard is not yet approved by the EU. It is expected that the changes will not give any material effect on the financial statements.
IFRS 16 Leases replaces existing IFRS leases requirements. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, relating to the customer ('lessee') and the supplier ('lessor'). The new leases standard requires lessees to recognize assets and liabilities for most leases, which is a significant change from current requirements. For lessor, IFRS 16 substantially carries forward the accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. The standard is not yet approved by the EU. The company's preliminary assessment is that this standard will result in changes to the accounting for operational lease.
The amendment to IAS 16.35(a) and IAS 38.80(a) clarifies that revaluation can be performed, as follows:
• Adjust the gross carrying amount of the asset to market value
• Determine the market value of the carrying amount and adjust the gross carrying amount proportionately so that the resulting carrying amount equals the market value.
The IASB also clarified that accumulated depreciation/amortization is the difference between the gross carrying amount and the carrying amount of the asset (i.e., gross carrying amount – accumulated depreciation/amortization = carrying amount). The amendment to IAS 16.35(b) and IAS 38.80(b) clarifies that the accumulated depreciation/amortization is eliminated so that the gross carrying amount and carrying amount equal the market value. The amendment adopted by the EU is effective for annual periods beginning on or after 1 February 2015. It is expected that the changes will not give any effect on the financial statements.
The Company has assessed its internal organizational structure, internal reporting system and geographical business units, and concluded that it does not have any reportable segments that should be reported separately. The Company only delivers services that are exposed to the same risk and return (business segment), and the business of the Company is not engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments (geographical segment).
The Company delivers services to its customers via the use of a public hosted cloud environment, a private (i.e. dedicated) or semi-dedicated cloud environment or a hybrid business model which is a combination of both public and private cloud environments.
(Amounts in USD 1 000) 2015 2014 Exchange 22 506 28 571 Archiving 2 299 2 123 SharePoint 2 014 2 460 VoIP 1 896 2 227 Mobility 1 634 2 300 Targeted Attack Protection (TAP) 1 559 - Other Services 1 021 805 Total Recurring Revenue 32 929 38 486 Year Ended December 31,
The following table summarizes the components of the Company's recurring revenue:
Exchange - Microsoft Exchange based corporate class hosted email, shared calendaring, contacts and task capabilities.
Archiving - Secure indexing of all messages in a tamper-proof storage environment to meet security and regulatory requirements.
SharePoint - Microsoft SharePoint solution allowing corporate collaboration through document sharing, workflows and discussion forums.
VoIP - Enterprise class hosted business phone service replacing traditional PBX business phone systems.
TAP - Comprehensive, cloud-based solution for combatting targeted email attacks.
Mobility - Instant access to email, calendars, contacts, and task lists through a mobile device.
Other Services - All other recurring revenue sources provided by the company
The following table summarizes the components of the Company's Cost of Sales:
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| December 31, | ||||||
| (Amounts in USD 1 000) | 2015 | 2014 | ||||
| License Fees | 8 229 | 8 993 | ||||
| Communications | 18 | 18 | ||||
| Hardware & Software | 73 | 71 | ||||
| Data Center Facilities | 1 689 | 3 940 | ||||
| Commissions and Referrals | 290 | 328 | ||||
| Total Cost of Sales | 10 299 | 13 350 |
The Company incurred USD 1,4 million of one-time charges in 2014 related to the Company's 2014 Operational Streamlining and Restructuring Initiative of which USD 421 000 is included in License Fees and USD 1,1 million is included in Data Center Facilities.
The following table summarizes the components of the Company's Compensation and Benefits:
| Year Ended | |||||
|---|---|---|---|---|---|
| December 31, | |||||
| (Amounts in USD 1 000) | 2015 | 2014 | |||
| Salaries | 11 190 | 10 944 | |||
| Share-based Compensation | 23 | 68 | |||
| Social Security Tax | 703 | 832 | |||
| Pension expense | 224 | 256 | |||
| Other Compensation | 2 261 | 1 805 | |||
| Total Employee Compensation and Benefits | 14 401 | 13 905 | |||
| Average Number of Employees | 98 | 119 |
With the sale of the public cloud customers, the Company realigned its existing business model to support its go-forward managed IT cloud business strategy. During the second half of 2015, the Company reduced its workforce by approximately 45% and took a one-time compensation related charge totaling USD 1, 5 million. The charge included the monthly carrying cost of the employees through December 2015, severance payments to be made to the impacted staff, outplacement assistance and other residual employee termination costs.
The tables below set forth the compensation summary for the Executive Team and Board of Directors for the years ended December 31, 2015 and 2014.
| 2015 Compensation | ||||||
|---|---|---|---|---|---|---|
| (Amounts in USD 1 000) | Board | Value of | Total | |||
| Executive Team and Board Members | Salary | Bonus | Other | Fees | Options | Remuneration |
| Chris Mack (President & CEO) | 300 | 330 | 6 | - | 8 | 644 |
| Thomas Tighe (Chief Revenue Officer) | 227 | 127 | 4 | - | - | 358 |
| Shane Smith (SVP Technology) | 210 | 100 | 4 | - | 3 | 317 |
| Chris Damvakaris (VP Sales & Business Development) | 197 | 68 | 26 | - | - | 291 |
| David Ehrhardt (Former CEO) | - | - | 282 | - | - | 282 |
| Aubrey Smoot (Former SVP Business Development) | - | - | 8 | - | - | 8 |
| Johan Lindqvist (Chairman) | - | - | 243 | 50 | - | 293 |
| Ebba Fahraeus (Board Member) | - | - | - | 25 | - | 25 |
| Terje Rogne (Board Member) | - | - | - | 25 | - | 25 |
| Total | 934 | 625 | 573 | 100 | 11 | 2 243 |
| 2014 Compensation | ||||||
|---|---|---|---|---|---|---|
| (Amounts in USD 1 000) | Board | Value of | Total | |||
| Executive Team and Board Members | Salary | Bonus | Other | Fees | Options | Remuneration |
| Chris Mack (President & CEO) | 265 | 23 | 7 | - | 22 | 317 |
| Shane Smith (SVP Technology) | 207 | 15 | 3 | - | 9 | 234 |
| Chris Damvakaris (VP Sales & Business Development) | 70 | - | 2 | - | - | 72 |
| David Ehrhardt (Former CEO) | 211 | 23 | 134 | - | 9 | 377 |
| Aubrey Smoot (Former SVP Business Development) | 176 | 10 | 43 | - | 10 | 239 |
| Johan Lindqvist (Chairman) | - | - | 139 | 64 | - | 203 |
| Ebba Fahraeus (Board Member) | - | - | - | 32 | - | 32 |
| Terje Rogne (Board Member) | - | - | - | 32 | - | 32 |
| Total | 929 | 71 | 328 | 128 | 50 | 1 506 |
The Company offers a 401(k) pension plan which allows for all employees to make voluntary contributions on a pre-tax basis. The Company has an employer match of 50% of employee contributions up to 6% of the employee's salary.
The value of options included in the above tables represents the cost amortized during 2015 and 2014, respectively. Other compensation consists of matching 401(k) contributions made by the Company during 2015 and 2014 and severance amounts paid.
The Company's Chairman, Johan Lindqvist is entitled to a fee of NOK 400 000 per annum of which NOK 100 000 was outstanding as of December 31, 2015. Mr. Lindqvist is also entitled to a fee of NOK 400 000 for consulting services as approved annually by the shareholders, all of which was paid as of December 31, 2015. During the fourth quarter of 2014, the Company's Board of Directors approved an additional consulting fee of USD 15 000 per month for the Chairman as part of the Company's 2014 changes in executive leadership. The additional consulting fee was approved by the shareholders in May 2015.
Terje Rogne and Ebba Fahraeus are paid a Directors fee of NOK 200 000 per year of which NOK 50 000 was outstanding to each as of December 31, 2015. All outstanding board fees were paid in February 2016.
Members of the Executive Team are eligible for annual performance bonuses, as approved by the Company's Board of Directors, based on a percentage of the respective executive's base compensation. The bonus percentages range from 30% to 60%.
The Company has agreements with each of its senior executives which provide for, among other things, the payment of severance and the continuation of medical and dental benefits for periods up to twelve months in the event the senior executive is properly terminated by the Company without cause, due to change of control or by the Executive Team for good reasons.
The tables below sets forth the stock option summary for the Executive Team and Board of Directors as of December 31, 2015 and 2014. See Note 20 in connection with valuation.
| Options | |||||||
|---|---|---|---|---|---|---|---|
| Options - | Options | Options | Expired/ | Options - | Avg | ||
| Dec. 31, | Granted | Exercised | Forfeited in | Dec. 31, | Exercise | Maturity | |
| Executive Team | 2014 | 2015 | in 2015 | 2015 | 2015 | Price | Period |
| Chris Mack (President & CEO) | 925 000 | - | - | (525 000) 400 000 | 2,94 | 0,91 | |
| Shane Smith (SVP Technology) | 275 000 | - | - | (100 000) 175 000 | 2,78 | 1,38 | |
| Aubrey Smoot (Former SVP Business Development) | 303 750 | - | - | (303 750) | - | - | - |
| Total | 1 503 750 | - | - | (928,750) 575 000 | 2,89 | 1,05 |
| Options | |||||||
|---|---|---|---|---|---|---|---|
| Options - | Options | Options | Expired/ | Options - | Avg | ||
| Dec. 31, | Granted | Exercised | Forfeited in | Dec. 31, | Exercise | Maturity | |
| Executive Team | 2013 | 2014 | in 2014 | 2014 | 2014 | Price | Period |
| Chris Mack (President & CEO) | 925 000 | - | - | - | 925 000 | 2,80 | 1,02 |
| Shane Smith (SVP Technology) | 250 000 | 25 000 | - | - | 275 000 | 2.75 | 1,64 |
| David Ehrhardt (Former CEO) | 1 715 000 | - | - | (1715 000) | - | - | - |
| Aubrey Smoot (Former SVP Business Development) | 375 000 | 25 000 | - | (96 250) 303 750 | 2.81 | .94 | |
| Joy Nemitz (Former CMO) | 120 000 | - | - | (120 000) | - | - | - |
| Total | 3 385 000 | 50 000 | - | (1931 250) 1 503 750 | 2,80 | 1,12 |
There were no options exercised during 2015 or 2014.
The Directors have elected to waive any rights to stock-based compensation.
Total compensation for each of the Executive Team members as well as the other senior executives is comprised of three principal components: base salary, annual incentive compensation and stock-based awards. The base salaries are fixed at levels which the Compensation Committee believes are comparable to those of executives of similar status in the Company's industry and are targeted to be competitive in the marketplace. In addition to base salary, each Executive Team member is eligible to receive an annual bonus tied to the Company's success in achieving certain annual performance measures, as well as individual performance. The Board and the Compensation Committee also believe that longer-term incentives are appropriate to motivate and retain key personnel and that stock ownership by management is beneficial in aligning management's and stockholders' interests in the enhancement of stockholder value. Accordingly, the Compensation Committee has a policy of considering periodic grants of stock-based awards to Executive Team members. Historically, such grants have been in the form of stock options. In May 2015, the Company's shareholders approved an Executive Incentive Program where participants can earn an incentive based on a progressive scale related to the Company's enterprise value. For additional information related to the Executive Incentive Program, please refer to the Company's 2015 Report on Management Remuneration.
The following table summarizes the components of the Company's Other Operational and Administrative Costs:
| Year Ended December 31, |
|||
|---|---|---|---|
| (Amounts in USD 1 000) | |||
| 2015 | 2014 | ||
| Marketing | 667 | 820 | |
| Travel & Entertainment | 440 | 393 | |
| Rent | 698 | 914 | |
| Professional Fees | 1 188 | 1 418 | |
| Communications | 608 | 645 | |
| Maintenance and Support | 2 379 | 1 221 | |
| Utilities and Maintenance Costs | 644 | 769 | |
| Computer Equipment and Software | 1 604 | 2 254 | |
| Other SG&A | 756 | 952 | |
| Total Other Operating Expenses | 8 984 | 9 386 |
The table below summarizes the components of the Company's audit related fees:
| Year Ended December 31, |
|||
|---|---|---|---|
| (Amounts in USD 1 000) | 2015 | 2014 | |
| Audit Services | 152 | 89 | |
| Other Attestation Services | - | - | |
| Tax Services | - | - | |
| Other Non-audit services | - | 6 | |
| Total Audit Fees | 152 |
The following table summarizes the components of the Company's Financial Income and Expense:
| Year Ended | ||||
|---|---|---|---|---|
| December 31, | ||||
| (Amounts in USD 1 000) | 2015 | 2014 | ||
| Interest on Bank Deposits | - | - | ||
| Interest Expense | (1 071) | (1 272) | ||
| Other Income and Expense | 20 166 | - | ||
| Gain & Losses on Sale of Fixed Assets | - | ( 2) | ||
| Interest, Net | 19 095 | (1 274) |
| Net Gain on transaction | 20 166 |
|---|---|
| Less - Transaction sales costs | (2 334) |
| Proceeds from sale of public cloud customer base | 22 500 |
On September 8, 2015, the Company signed and closed an Asset Purchase Agreement with GoDaddy for the sale of a majority of its direct public cloud customers and was paid USD 22,5 million in cash at closing, excluding fees and transaction costs. Based on the attainment of certain migration milestones, the Company could have benefited from additional consideration. However, the additional migration milestones were not met. The net proceeds from this transaction were used to fund the realignment of the Company to become a managed cloud IT service provider and working capital for organic and inorganic growth. Additionally, the Company used approximately USD 10 million to return 1 NOK per share of capital back to its investors.
The basic and diluted earnings per share are calculated as the ratio of the net income (or net loss) for the year that is due to the ordinary shareholders. The net income for 2015 of USD 6,9 million is divided by the weighted average number of ordinary shares outstanding of 81 430 000 resulting in an earnings per share of USD 0,08. For 2014, net loss of USD 10,6 million is divided by the weighted average number of ordinary shares outstanding of 81 617 000 resulting in loss per share of USD 0,13.
The following table presents the earnings per share:
| Year Ended | |||
|---|---|---|---|
| December 31, | |||
| (Amounts in USD 1 000 Except for Share Data) | 2015 | 2014 | |
| Income for the Year | 6 852 | (10 590) | |
| Total Income for the Year to Holders of Ordinary Shares | 6 852 | (10 590) | |
| Weighted average number of ordinary shares for basic earnings per | |||
| share | 81 430 | 81 617 | |
| Effect of dilution: | |||
| Share options | - | - | |
| Weighted average number of ordinary shares adjusted for | |||
| the effect of dilution | 81 430 | 81 617 | |
| Basic and Diluted Earnings Per Share From Continuing Operations | 0.08 | (0.13) | |
| Basic and Diluted Earnings Per Share for the Year | 0.08 | (0.13) |
The following table summarizes the activity of the Company's Intangible Assets:
| Internally | Total | |||
|---|---|---|---|---|
| Software | Developed | Software | ||
| (Amounts in USD 1 000) | Goodwill | Licenses | Software | Licenses |
| Cost December 31, 2013 | 29 648 | 8 154 | 1 144 | 9 298 |
| Additions | - | 548 | - | 548 |
| Cost December 31, 2014 | 29 648 | 8 702 | 1 144 | 9 846 |
| Additions 2015 | - | 430 | - | 430 |
| Cost December 31, 2015 | 29 648 | 9 132 | 1 144 | 10 276 |
| Accumulated Depreciation/ | ||||
| Impairment - December 31, 2013 | 8 000 | 7 556 | 1 144 | 8 700 |
| Depreciation Charges / Impairment Charge | 5 681 | 898 | - | 898 |
| Accumulated Depreciation/ | ||||
| Impairment - December 31, 2014 | 13 681 | 8 454 | 1 144 | 9 598 |
| Depreciation Charges / Impairment Charge | 6 000 | 515 | - | 515 |
| Accumulated Depreciation/ | ||||
| Impairment - December 31, 2015 | 19 681 | 8 969 | 1 144 | 10 113 |
| Net Book Value: | ||||
| Balance December 31, 2013 | 21 648 | 598 | - | 598 |
| Balance December 31, 2014 | 15 967 | 248 | - | 248 |
| Balance December 31, 2015 | 9 967 | 163 | - | 163 |
Software Licenses are amortized on a straight-line basis over a three-year period. This is the Company's best estimate of the life of such assets.
| The following table summarizes the activity of the Company's Property and Equipment: | ||
|---|---|---|
| Computer | Furniture | Leasehold | |||
|---|---|---|---|---|---|
| (Amounts in USD 1 000) | Equipment | & Fixtures | Improvements | Total | |
| Cost December 31, 2013 | 25 817 | 440 | 157 | 26 414 | |
| Additions | 4 261 | - | - | 4 261 | |
| Disposals | (2 431) | - | ( 27) | (2 458) | |
| Cost December 31, 2014 | 27 647 | 440 | 130 | 28 217 | |
| Additions | 796 | - | 86 | 882 | |
| Impairment of Fixed Assets | (4 000) | (4 000) | |||
| Disposals | ( 147) | ( 25) | ( 77) | ( 248) | |
| Cost December 31, 2015 | 24 296 | 415 | 140 | 24 851 | |
| Accumulated Depreciation - December 31, 2013 | 17 482 | 267 | 131 | 17 880 | |
| Depreciation Charges For The Year | 3 395 | 57 | 15 | 3 467 | |
| Disposals | (2 430) | - | ( 27) | (2 457) | |
| Accumulated Depreciation - December 31, 2014 | 18 447 | 324 | 119 | 18 890 | |
| Depreciation Charges For The Year | 2 103 | 45 | 23 | 2 171 | |
| Disposals | ( 147) | ( 25) | ( 77) | ( 248) | |
| Accumulated Depreciation - December 31, 2015 | 20 403 | 345 | 65 | 20 813 | |
| Net Book Value: Balance December 31, 2014 9 200 116 11 9 327 Balance December 31, 2015 3 893 71 74 4 038 Computer equipment and furniture and fixtures are depreciated on a straight-line basis over three to seven years, respectively. Leasehold improvements are depreciated on a straight-line basis over the lesser of the estimated useful life of the improvement or the remainder of the lease term, generally five years. Finance leases accounted for USD 910 thousand and USD 4 426 thousand of the property, equipment and intangible assets acquired in 2015 and 2014, respectively. Assets acquired utilizing finance leases are pledged as security by the Company to the Lessor until the finance lease obligation is satisfied. |
|||||
| The net carrying value of property and equipment acquired via finance leases was USD 3 649 thousand and USD 9 224 thousand at December 31, 2015 and 2014, respectively. |
|||||
| Change of estimate regarding | depreciation of fixed assets | ||||
| The Company closed down majority of the public cloud customers in September 2015. As a result changes to the business the company undertook needed to operate the business going forward. The Company reviewed all of its fixed assets and specifically capitalized servers and storage to see if period) still was appropriate. In accordance with IAS 16, the Company assessed the future lives of these fixed assets and the expected use of such assets in future periods. Based on the |
the estimated | the Florida Office and the Florida Datacenter in 2015 and sold the an assessment of fixed assets and other assets useful |
of these two major life (depreciation |
Company's financial forecasts and value in use calculations, the Company determined that useful life of some of the fixed assets needed to be reduced. The result of this assessment was that USD 4 million of the fixed assets was written off as a one time charge.
As previously noted, the Company migrated the public cloud customers to GoDaddy during the fourth quarter of 2015 and began the decommissioning of the underlying computer related equipment in early 2016 leaving the Company with excess equipment and capacity that is not expected to be utilized in future periods.
As part of the Company's annual review process it assesses whether or not acquired goodwill or other non current assets have been impaired. The estimate reflects the Company's assessment of the value of the cash-generating unit to which the goodwill is allocated or the non current assets are associated. Calculating the value in use requires the Company to estimate the expected cash flows from the cash-generating unit (if available) and also to choose a suitable discount rate in order to calculate the present value of cash flow.
Apptix has historically operated in the highly competitive and price sensitive Hosted Exchange and public cloud market. With the aggressive expansion efforts of Microsoft, Google and AWS, the Company's longer term growth potential was at risk. The highly competitive and price sensitive public cloud market was a main driver for the sale of the Company's public cloud customer base in September 2015 (please refer to Note 7). As noted in previous annual reports, one of the primary factors impacting future carrying value of the Company's intangible assets is revenue growth. Given the limited revenue growth achieved over the past five years in comparison to projected revenues along with the Company's shift in business strategy from primarily a Hosted Exchange provider to a Managed Services Provider, the Company's analysis of its non current assets carrying value resulted in an impairment of USD 5,7 million in 2014 and USD 6,0 million in 2015. These one-time, non-cash charges are based on the Company's financial forecasts over the next 5 years and the discounted cash flow model supporting such financial forecast.
The Company evaluates its non current assets on a consolidated basis as a single cash generating unit. The recoverable amount for the cash generating unit has been determined based on a value in use calculation using cash flow projections based on financial budgets approved by senior management covering a five-year period. The discount rate applied to cash flow projections was 12,3% (pre-tax) and assumed a constant growth rate of 3% (nominal) beyond year five.
The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of non current assets:
Revenues - The basis for determining the value assigned to budgeted revenue growth is a combination of the average percentage change in revenue in the year immediately prior to the budgeted year and management's estimates for the next five years. The Company's FY16 forecast has been adjusted to reflect the impact of the customer sold to GoDaddy and for the expected growth rate in the remaining business. The Company has historically struggled to grow its top-line revenues over the past 5 years despite double digit user growth over the same period.
There are a number of contributing factors to this challenge including the downward pricing pressure (in the market) being applied by Microsoft, Google and others. While the Company has added users over the past few years, the ARPU associated with the new users have been at lower rates and not sufficient to offset the higher ARPU churn. The churn has been largely due to customers moving to the largely public cloud service providers such as Microsoft. In the impairment analysis, the assumption used is an average increase in revenue of 5% for the period 2017 to 2020 and thereafter a 3% revenue growth. For fiscal year 2016, the revenue growth assumption used was 6%.
Gross Margins - The basis for determining the value assigned to budgeted gross margins is the average gross margins achieved in the year immediately prior to the budgeted year and management's estimates for the next five years. In the impairment analysis, the Company expects a declining gross margin compared to prior years. In 2015 the Company achieved a 70% gross margin and is expecting a gross margin closer to 60% in 2016 and beyond.
Operating Expenses - The basis for determining the value assigned to operating expenses is the forecasted operating expenses based on the revenue projections, using historical costs adjusted for inflation. The Company expects the operating costs to follow changes in revenue. The basis used in the impairment analysis is a consistent percentage of revenue of 48% which an improvement over prior year. The Company expects to remain in this range for the next 5 years. The Company has established a track record of effectively managing its costs and believes its operating expense scalability to be reasonable.
Capital Expenditures – The Company believes future capital expenditures will be significantly less than historical levels given the sale of the Company's public cloud customer base. The primary reason for this is the shift in business strategy from a Hosted Exchange service provider to provider of broader, technology based managed services. Some of these services will be selfhosted by the Company while other services will be deployed via a syndication model. Additionally, the cost of hardware or capital equipment continues to become more scalable due to advances in technology. Over the past few years, the Company has made substantial capital investments related to storage and to a lesser degree, servers to free up the storage capacity. These sizable investments (roughly 10% of revenues) were made based on the Company's previous go-to-market user aggregation strategy. With such excess capacity, the Company has taken a more stringent capex approach for the next 3-5 years. The Company expects to benefit and utilize these new technologies and incorporate such offerings into its service delivery models. The Company used a capital expenditure rate of 5% of revenues for its impairment analysis for future periods beyond 2015.
Pre-Tax Discount Rates – To determine the present value of the future cash flows, the Company has calculated a pre-tax discount rate. The discount rate used is 12,3%. The Company has used a WACC model (Weighted Average Cost of Capital). The basis for the calculations is a presumption of a market premium of 6%, a beta of approximately 0,95, interest free rate of 2,5% and liquidity premium of 2,0%. The Beta is based upon actual trading of the Company shares, but since there are minimal trades of the Company stock, a liquidity premium of 2,0 has been added to the calculation. To determine the cost of debt the Company has used the general market conditions on current availability of equipment lease debt. Pre-tax discount rates reflect management's estimates of the risk specific to the business as a whole. This benchmark is used by management to assess operating performance and to evaluate future investment proposals.
With regard to the assessment of value of intangible assets in use, management has evaluated the impact of potential changes in key assumptions on future carrying values of the intangible assets. Depending upon future growth rates, acceptance of the Company's product and services in the markets it serves, operating costs as well as cost of capital, any adverse change in these key assumptions would, in isolation, have an impact on the carrying value of the Company's intangible assets in future periods.
The impairment test shows that the recoverable amount of goodwill is USD 10, 7 million. The changes in the following table to assumptions used in the impairment analysis would, in isolation, lead to an (increase)/decrease to the aggregate impairment loss recognized in the year ended December 31, 2015. The table shows how recoverable amount of goodwill will be affected:
| Assumption | Change in recoverable amount | |
|---|---|---|
| Discount rate | +/- 1% | +/- USD 2,4 million |
| Revenue growth after 5 years | +/- 1% | +/- USD 2,1 million |
| CAPEX | +/- 1% | +/- USD 2,9 million |
| Gross margins | +/- 1% | +/- USD 2,9 million |
The following table summarizes the Company's subsidiaries:
| Incorporation/ | Office | Ownership Interest | |
|---|---|---|---|
| Companies | Acquisition | Location | & Voting Shares |
| Apptix, Inc. | 1999 | Virginia, USA | 100% |
Apptix, Inc. is 100% owned by Apptix ASA.
The table below sets forth the Company's trade receivables, net of the allowance provision as of December 31, 2015 and 2014:
| Neither Past Nor |
Past Due, Not Impaired | ||||
|---|---|---|---|---|---|
| (Amounts in USD 1 000) | Total | Impaired | 30-60 Days | 60-90 Days | >90 Days |
| 2015 | 2 013 | 1 028 | 845 | 140 | - |
| 2014 | 1 988 | 1 507 | 479 | 2 | - |
The Company evaluates its provision for trade receivables on a regular basis. Key factors that are considered when determining whether a provision is required due to potential impairment include the age of the trade receivable, the amount past due and the payment history of the customer. The table below sets forth the movement in the Company's trade receivable provision for 2014 and 2015:
| (Amounts in USD 1 000) | |
|---|---|
| December 31, 2013 | 4 |
| Charge for the Period | 90 |
| Increase in Reserve | 105 |
| Amounts Utilized | ( 132) |
| December 31, 2014 | 67 |
| Charge for the Period | 60 |
| Increase in Reserve | 110 |
| Amounts Utilized | ( 188) |
| December 31, 2015 | 49 |
Included in the Company's income statement are losses on trade receivables totaling USD 60 000 and USD 90 000, respectively. Additionally, the Company reduced current year revenues by USD 110 000 related to potential future revenue disputes.
The following table summarizes the Company's Other Current Assets. The components contained within are non-interest bearing items.
| Year Ended December 31, |
|||
|---|---|---|---|
| (Amounts in USD 1 000) | |||
| 2015 | 2014 | ||
| Security Deposit | 151 | 151 | |
| VAT Receivable/Other | - | 5 | |
| Total Other Current Assets | 151 156 |
The following table summarizes the Company's Cash and Cash Equivalents. Cash balances held by the Company's bank earns interest at a floating rate based on average daily balances:
| Year Ended | |||
|---|---|---|---|
| December 31, | |||
| (Amounts in USD 1 000) | 2015 | 2014 | |
| Cash at the Bank | 7 776 | 2 554 | |
| Restricted Cash | 24 | 54 | |
| Total Cash and Cash Equivalents | 7 800 2 608 |
The following table summarizes the Company's Interest-Bearing Debt:
| Year Ended | |||||
|---|---|---|---|---|---|
| (Amounts in USD 1 000) | |||||
| Effective Interest | |||||
| Current | Rate | Maturity | 2015 | 2014 | |
| Obligations Under Finance Leases | 13.32% | 2016 | 2 719 | 3 970 | |
| Term Note Payable | 6.47% | 2016 | 528 | - | |
| Revolving Line of Credit | 6.50% | - | 4 700 | ||
| Total Current Obligations | 3 247 | 8 670 | |||
| Long Term | |||||
| Obligations Under Finance Leases | 13.56% | 2017-2018 | 1 680 | 3 072 | |
| Term Note Payable | 6.47% | 2017-2020 | 4 172 | - | |
| Total Long Term Obligations | 5 852 | 3 072 |
The Company utilizes finance leases to fund purchases of its property and equipment needs. All such finance leases have either a USD 1 buyout option or a percentage of fair market value bargain purchase option. At the beginning of the lease term the Company calculates the expected buyout and includes this in the calculation of the asset and liability. In 2015, the Company discovered the calculation of the buyout value has been too low in some circumstances and an extra charge of USD 500 000 has been paid or accrued for. Normally this extra charge should have increased the value of the asset and been depreciated over the remaining of the life of the asset, however due to the Company's impairment situation the extra buyout expense has been expensed. The total expensed amount in 2015 totaled USD 500 000. See note 17 for more details about finance lease obligation.
On April 10, 2015, the Company entered into a definitive agreement with its financial institution to replace its expiring working capital facility. The new facility provides for a USD 2 million revolving line of credit and a USD 4,7 million term note payable. Amounts available pursuant to the revolving line of credit will be based on 80% of eligible accounts receivable subject to certain limitations such as foreign accounts receivable, accounts receivable older than 90 days and individual customer account balances in excess of 25% of total accounts receivable. The revolving line of credit will carry a floating interest rate of prime plus 1.75% with a minimum prime rate of 3.25%. As of December 31, 2015 there was no amount outstanding on the Company's line of credit facility.
The USD 4,7 million term note payable matures on March 31, 2020 and carries a floating interest rate of prime plus 2.25% with a minimum prime rate of 3.25%. For the period of April through December of 2015, there were no principal repayments. Interest only payments applied for this period of time. The principal repayment schedule of the term note is provided below:
| USD Monthly | Number of | Total Principal | |
|---|---|---|---|
| Period | Payment | Months | Payments |
| January 2016 through September 2016 | 39 167 | 9 | 352 503 |
| October 2016 through September 2017 | 58 750 | 12 | 705 000 |
| October 2017 through September 2018 | 58 750 | 12 | 705 000 |
| October 2018 through September 2019 | 78 333 | 12 | 939 996 |
| October 2019 through March 2020 | 78 333 | 6 | 470 000 |
| Payment at Maturity - March 2020 | 1527 501 | 1 | 1527 501 |
| Total | 4700 000 |
Following the sale of the Company's public cloud customer base, the Company entered into two amendments with its financial institution to modify its credit facility covenants. As such, both the revolving line of credit and term note facility are subject to a Minimum Adjusted EBITDA calculation and a Minimum Net Liquidity Ratio.
The Company has funded investments in property and equipment and office space through various lease agreements. The following information summarizes the Company's operating and finance lease obligations:
The following table summarizes the Company's future operating lease commitments at December 31, 2015:
| Year Ended | |
|---|---|
| (Amounts in USD 1 000) | December 31, |
| Operating Leases | 2015 |
| Payable in 2016 | 838 |
| Payable in 2017 | 74 |
| Payable in 2018 | 37 |
| Thereafter | 68 |
| Total Minimum Lease Payments | 1 017 |
The Company's current lease agreement for its Herndon, Virginia office space expires in December 2016, the Company's lease agreement for its Davie, Florida location expires in February 2017 and the Company's lease agreement for its Austin, Texas location expires in 2020. The Company has deemed the Herndon lease and the Florida lease to be onerous contracts where the cost of meeting the obligation under contracts exceeds the economic benefit expected. Therefore, per IAS 37, a provision has been established to cover the obligation arising from the onerous contracts (see note 18).
The Company has finance leases that are 3-year capital leases with a USD 1 buyout. The Company has one capital lease with a term of 5 years with a USD 1 buyout option. Additionally, the Company has capital leases with terms ranging from two to four years and bargain purchase options based on a percentage of fair market value. The capitalized lease amount is included in the net property and equipment balances summarized in Note 11.
Equipment funded under finance leases are pledged as collateral in support of the amounts borrowed.
The following table summarizes the Company's Finance Lease commitments:
| Year Ended | ||||
|---|---|---|---|---|
| December 31, | ||||
| (Amounts in USD 1 000) | 2015 | 2014 | ||
| Minimum | Present | Minimum | Present | |
| Finance Leases | Payments | Value | Payments | Value |
| Payable Within One Year | 2 935 | 2 718 | 4 656 | 3 970 |
| Payable After One Year, But Not More Than Five Years | 2 153 | 1 680 | 3 433 | 3 072 |
| Total Minimum Lease Payments | 5 088 | 4 398 | 8 089 | 7 042 |
| Less Amounts Representing Finance Charges | ( 690) | - | (1 047) | - |
| Present Value of Minimum Lease Payments | 4 398 | 4 398 | 7 042 | 7 042 |
The following table summarizes the Company's Other Current Liabilities:
| Year Ended | |||
|---|---|---|---|
| December 31, | |||
| (Amounts in USD 1 000) | 2015 | 2014 | |
| Deferred Revenue | 359 | 771 | |
| Cost of Sales Accrual | 1 017 | 1 006 | |
| Employee Compensation Accrual | 434 | 480 | |
| Other Operational Costs Accrual | 1 313 | 877 | |
| Deferred Rent | 115 | 204 | |
| Restructuring Provision | 2 371 | 3 072 | |
| Total Accrued Expenses | 5 609 | 6 410 |
Deferred revenue consists of upfront payments on a 12 month subscription. The revenue is recognized over the period the service is provided.
| (Amounts in USD 1 000) | |
|---|---|
| December 31, 2013 | 876 |
| Billings Deferred | 1 775 |
| Revenue Recognized | (1 880) |
| December 31, 2014 | 771 |
| Billings Deferred | 1 371 |
| Revenue Recognized | (1 783) |
| December 31, 2015 | 359 |
The Company incurred USD 2,5 and 5,4 million of one-time charges in 2015 and 2014 related to the Company's Operational Streamlining and Restructuring Initiatives. Included in the December 31, 2015 and 2014 Accrued Expenses balance was the remaining provision of USD 2,4 and 3,1 million associated with the Operational Streamlining and Restructuring Initiatives.
The table below summarizes the activity related to the restructuring provision:
| Provision at | Increase in Amount | Provision at | |||
|---|---|---|---|---|---|
| Description | December 31, 2014 | Provision | Utilized | Reclass | December 31, 2015 |
| Leadership Changes | 332 | - | ( 332) | - | - |
| Facility Consolidations | 1 535 | 300 | ( 897) | - | 938 |
| Restructuring | 637 | 1 500 | (1 547) | - | 590 |
| Leases & Licenses | 43 | 700 | - | - | 743 |
| Other Prepaids & Assets | 525 | - | ( 425) | - | 100 |
| Total | 3 072 | 2 500 | (3 201) | - | 2 371 |
Provisions related to severance agreements associated with former executive management pursuant to contractual employment agreements. Anticipated cash outflows are based on terms of employment agreements.
Provisions related to the shut down and consolidation of the Company's Florida office space and Florida datacenter. The timing of the cash flows can be reasonably estimated based on Company's defined project plans.
Provisions related to severance payments, outplacement assistance or relocation assistance associated with the Company's facility consolidations. The anticipated cash outflows can be reasonably estimated based on the Company's defined project plans.
Provisions related to certain license fees and equipment leases. The timing of the anticipated cash outflows can be reasonably estimated based on vendor agreements.
Provisions related certain sales, marketing, and operational initiatives. The timing of the anticipated cash outflows can be reasonably estimated based on Company project plans.
As a result of its new managed service business strategy, the Company implemented a USD 5,4 million operational streamlining and restructuring initiative ("the Restructuring") during the fourth quarter of 2014. The Restructuring initiative included the consolidation of the Florida office facility and datacenter operations, the reduction and consolidation of staff in all three Company locations, and the write-down of certain non-performing assets. The one-time charges for 2014 totaled USD 5,4 million. The Company also expects to incur about USD 800 000 of residual, one-time costs related to the 2014 Restructuring during 2015. The total savings associated with the streamlining initiative is approximately USD 2 million and is expected to be fully incorporated into the Company's financial statements by the end of 2015. The 2015 cash implications related to the Restructuring initiative is approximately USD 4,4 million and will be expended over the course of 2015 and 2016.
As a result of the sale of the Company's public cloud customer base, the Company implemented an additional restructuring initiative during 2015. The Company reduced its workforce by approximately 45% during the fourth quarter of 2015. In September 2015, the Company notified the impacted staff of the pending change in their work status. Since the impacted staff will not be remaining with the business in 2016, the Company recorded a one-time compensation related charge totaling USD 1,5 million. The charge included the monthly carrying cost of the employees through December 2015, severance payments to be made to the impacted staff, outplacement assistance and other residual employee termination costs. These cash disbursements took place during the fourth quarter of 2015 and the first quarter of 2016.
In addition to the realignment of staffing, the Company began the process of discontinuing a number of its current operating expenditures and agreements. The operating agreements and expenditures include such items as rents, licenses, maintenance, professional fees, and other costs that will no longer be required by the Company due to the sale of its public cloud customer base. In order to terminate these agreements in advance of their contractual end date, the Company estimated a USD 1,0 million charge as it finalizes this initiative and completes the negotiations with the various parties. These cash disbursements took place during the fourth quarter of 2015 and the first quarter of 2016.
The Norwegian Company is taxed at the statutory tax rate of 25%, and the U.S. Company is taxed at statutory rates of 15% to 39% applied to marginal income levels.
| (Amounts in USD 1 000) | ||
|---|---|---|
| Income tax expense | 2015 | 2014 |
| Tax payable | 288 | - |
| Changes in deferred tax | - | - |
| Income tax expense | 288 | - |
| Reconciliation of tax expense | 2015 | 2014 |
| Profit before tax | 7 140 | (10 590) |
| Tax assessed | 2 429 | (4 742) |
| Permanent differences | 2 251 | 28 |
| Change of unrecognized deferred tax asset | (4 054) | 5 126 |
| Translation adjustment | ( 338) | ( 413) |
| Income tax expense | 288 | - |
Income tax expense relates solely to certain state income tax payments made in the US.
| (Amounts in USD 1 000) | Balance Sheet | Balance Sheet |
|---|---|---|
| Deferred tax and tax advantage | 2015 | 2014 |
| Deferred tax assets | ||
| Non-current assets | 1 397 | 600 |
| Current assets | 8 097 | 7 901 |
| Loss carry forward | 44 055 | 50 901 |
| Tax advantage - gross | 53 549 | 59 402 |
| Deferred tax liabilities | ||
| Non-current assets | (1 582) | (1 410) |
| Current assets | - | - |
| Other | - | - |
| Deferred tax liabilities - gross | (1 582) | (1 410) |
| Net deferred tax asset | 51 967 | 57 993 |
| Net unrecognized deferred tax asset continued operations | 51 967 | 57 993 |
In the US, there is approximately USD 121 million of federal loss carry forwards at December 31, 2014, which expire in future years starting in 2018 through 2032.
The Company has a Stock Option Plan ("Plan"), which is administered by the Company's Board of Directors. The Plan provides for the granting of options to purchase shares of Common Stock to eligible employees. Typically, option grants vest over a 4 year period and the option term does not exceed five years. The Company has adopted the Black-Scholes model for the purpose of
calculating fair value of options under IFRS. There were no options granted in 2015. There were 160 000 options granted in 2014. For the Company's 2014 stock option grants, the Company used a risk-free interest rate of 1.73% and a volatility percentage of 79%. The Company also assumed an estimated life of 365 days once the option becomes vested. In 2015, the Company recognized a total of USD 23 thousand in stock option expense and USD 68 thousand in stock option expense for 2014.
The share options granted could lead to a dilutive effect on the Company shareholders. As of December 31, 2015 and 2014, only 2014 were the effects of the share options dilutive.
A summary of the Company's stock option activity, and related information for the year ended December 31, 2015 and 2014 follows:
| 2015 | 2014 | |||
|---|---|---|---|---|
| Weighted Avg | Weighted Avg | |||
| Exercise | Exercise | |||
| Shares | Price | Shares | Price | |
| Outstanding at Beginning of Period | 2 103 750 | 2,80 | 3 925 000 | 2,76 |
| Granted | - | - | 160 000 | 3,10 |
| Exercised | - | - | - | - |
| Forfeited | (303 750) | 2,81 | (1981 250) | 2,74 |
| Canceled | - | - | - | - |
| Expired | (990 000) | 2,70 | - | - |
| Outstanding at End of Period | 810 000 | 2,92 | 2 103 750 | 2,80 |
| Exercisable at End of Period | 588 250 | 2,91 | 1 694 750 | 2,77 |
The following table summarizes the Company's stock options at December 31, 2015:
| Outstanding Stock Options | Exercisable Stock Options | ||||
|---|---|---|---|---|---|
| Weighted Avg | Weighted Avg | Weighted Avg | |||
| Remaining | Exercise | Exercise | |||
| Exercise Price | Shares | Contractual Life | Price | Shares | Price |
| NOK 0 - 2,99 | 575 000 | 1,09 | 2,87 | 456 250 | 2,87 |
| NOK 3,00 - 3,10 | 235 000 | 1,91 | 3,06 | 132 000 | 3,03 |
| Total | 810 000 | 1.20 | 2,92 | 588 250 | 2,91 |
There were no share issuances during 2015 and 2014. There were also no options exercised during 2015 and 2014.
| Number of | Percentage of | |
|---|---|---|
| Shareholder | Shares Owned | Shares Owned |
| BNP PARIBAS SECS SERVICES S.C.A | 25 964 540 | 31.9% |
| WINDCHANGE AS | 9 120 000 | 11.2% |
| BNP PARIBAS SECS SERVICES PARIS | 7 086 820 | 8.7% |
| SPENCER TRADING INC | 5 396 419 | 6.6% |
| TTC INVEST AS | 4 200 000 | 5.2% |
| HAADEM INVEST AS | 3 183 751 | 3.9% |
| UBS SWITZERLAND AG | 2 379 807 | 2.9% |
| WINDCHANGE INVEST AB | 2 000 000 | 2.5% |
| FRANS ENGER AS | 1 963 383 | 2.4% |
| ADMANIHA AS | 1 942 694 | 2.4% |
| AVANZA BANK AS | 1 347 747 | 1.7% |
| NORDNET BANK AB | 1 062 506 | 1.3% |
| HÜBERT LEIF | 958 080 | 1.2% |
| HAADEM | 924 369 | 1.1% |
| SØGNE SHIPPING AS | 882 701 | 1.1% |
| LOLIGO AS | 878 567 | 1.1% |
| NORDGAARD | 780 167 | 1.0% |
| LAIKA INVEST AS | 556 342 | 0.7% |
| SVEEN KJERSTI | 513 477 | 0.6% |
| SVENSKA HANDLESBANKEN AB | 411 514 | 0.5% |
| Total Largest 20 Shareholders | 71 552 884 | 87.9% |
| Other Shareholders | 9 877 294 | 12.1% |
| Total Shares Outstanding | 81 430 178 | 100.0% |
| Note 22 - Shareholder Structure At December 31, 2015, the Company had 0,333. Each share has one vote. shares are registered in the Norwegian Registry of Securities. Total outstanding and issued shares at December 31, 2015 were 81 430 178. |
only one class of shares with There are no trade limitations on the Company's shares. The |
a par value of NOK |
| BNP PARIBAS SECS Services S.C.A is the nominee for the Celox SA holdings. Celox SA owns approximately 32% of the total outstanding shares of the Company. |
||
| Windchange AS and Windchange Invest AB chairman. The total ownership reflected above the Company's chairman. Company's directors. |
are entities 100% owned by the Company's does not include 35 059 Admaniha AS is an entity 100% owned by Terje Rogne, one of the |
shares held directly by |
| Average | ||||
|---|---|---|---|---|
| Name | Position | Shares | Options | Exercise Price |
| Chris Mack | President & CEO | 38 949 | 400 000 | 2,94 |
| Johan Lindqvist | Chairman | 11 155 059 | - | - |
| Terje Rogne | Board member | 1 942 694 | - | - |
| Ebba Fahraeus | Board member | 240 053 | - | - |
| Total | 13 376 755 | 400 000 | 2,94 |
Shares owned (both directly and indirectly) by the Board of Directors and the Company's President at December 31, 2015 is provided in the table below:
At December 31, 2015, Jon Schultz, the Company's legal counsel, owned directly and indirectly 556 342 shares of Apptix ASA.
The Company's Chairman, Johan Lindqvist is entitled to a fee of NOK 400 000 per annum of which NOK 100 000 was outstanding as of December 31, 2015. Mr. Lindqvist is also entitled to a fee of NOK 400 000 for consulting services as approved by the shareholders in May 2012, all of which was paid as of December 31, 2015. In 2015, the annual shareholder meeting, also approved an additional consulting fee of USD 15 000 per month for the Chairman as part of the Company's changes in executive leadership.
The Company contracts with Jon Schultz, a former Board member, to provide legal services. The Company paid Mr. Schultz's legal firm NOK 420 000 in 2015 for professional legal services. The Company believes the remuneration paid to Mr. Schultz's legal firm during 2015 was equivalent to prevailing market rates.
Mr. Schultz along with shareholders Richard Urbanski and Fredrik Stenmo are members of the Company's nominating committee. In 2015, the members received no compensation for their services. Mr. Urbanski represents TTC Invest AS and Mr. Stenmo represents the Company's largest shareholder, Celox SA.
The Company does not have any other transactions with related parties except for compensation to key management and Board of Directors as summarized in Note 5 and the equity related transactions as summarized in Notes 20, 21 and 22.
None.
The Company's principal financial instruments include operating leases, finance leases, and cash. The primary purpose of these financial instruments is to finance the Company's operations and strategic acquisition plans. The Company has various other financial assets and liabilities such as trade receivables and trade payables, which are a direct result of the Company's operations.
It is the Company's policy not to engage in trading of financial instruments.
The primary risks arising from the Company's financial instruments are foreign currency risk, credit risk, interest risk and liquidity risk. The Company evaluates its risk exposure in order to determine the potential effect on its business operations by reviewing the products and services provided to the markets the Company serves and the countries in which it conducts business. The Company believes it does not have any significant single concentration of risk.
The policies are summarized below.
The Company's principal operating market is the United States with its functional currency being the US Dollar. The Company has limited operating expense outside of the United States. The Company has limited transactional currency exposure, which results from transactions in a currency other than its functional currency.
The Company transacts with a wide variety of customers. Most small business customers pay via credit card, dramatically reducing the Company's credit risk. To ensure that credit risk is managed appropriately, the Company monitors its receivables balance regularly and ceases providing service when customer accounts become significantly overdue. At December 31, 2015, the Company's maximum credit risk is the carrying value of its trade accounts receivable of 2 013 thousand. The Company believes it does not have any material credit risk associated with trade accounts receivables that are neither past due nor impaired.
The Company's exposure to the risk of interest rate fluctuations relates primarily to the Company's need to obtain equipment financing for computer hardware and equipment and the Company's working capital facility, as required to support the business. The Company's lease agreements are primarily fixed rate agreements and not subject to fluctuation while the Company's working capital facility is subject to changes in its financial institution's prime interest rate. Interest rate fluctuation related to the working capital facility is limited to a maximum increase of two percent above the prime interest rate.
The following table demonstrates the sensitivity to a reasonably possible change in US interest rates (full % points), with all other variables held constant, of the Company's loss before tax. There is no impact on the Company's equity.
| 2015 2014 |
Decrease In Interest Rates 3% |
Profit Before Taxes |
|---|---|---|
| 141 | ||
| -3% | (141) | |
| 3% | 141 | |
| -3% | (141) | |
| Liquidity Risk | ||
| The Company's objective is to maintain a balance between continuity of funding and flexibility through the use of operating leases and finance leases. |
||
| The table below summarizes the maturity profile of the Company's financial liabilities as of December 31, 2015 and 2014 based on contractual undiscounted payments: |
||
| (Amounts in USD 1 000) Due within |
Due within | |
| Year Ended December 31, 2015 12 Months |
1 to 5 Years | Total |
| Trade Accounts Payable 1 913 |
- | 1 913 |
| Other Current Liabilities 8 856 |
- | 8 856 |
| Other Long Term Debt - |
5 852 | 5 852 |
| Total 10 769 |
5 852 | 16 621 |
| Due within | Due within | |
| Year Ended December 31, 2014 12 Months |
1 to 5 Years | Total |
| Trade Accounts Payable 1 526 |
- | 1 526 |
| Other Current Liabilities 15 080 |
- | 15 080 |
| Other Long Term Debt - |
3 072 | 3 072 |
| Total 16 606 |
3 072 | 19 678 |
| (Amounts in USD 1 000) | Due within | Due within | |
|---|---|---|---|
| Year Ended December 31, 2015 | 12 Months | 1 to 5 Years | Total |
| Trade Accounts Payable | 1 913 | - | 1 913 |
| Other Current Liabilities | 8 856 | - | 8 856 |
| Other Long Term Debt | - | 5 852 | 5 852 |
| Total | 10 769 | 5 852 | 16 621 |
| Due within | Due within | ||
|---|---|---|---|
| Year Ended December 31, 2014 | 12 Months | 1 to 5 Years | Total |
| Trade Accounts Payable | 1 526 | - | 1 526 |
| Other Current Liabilities | 15 080 | - | 15 080 |
| Other Long Term Debt | - | 3 072 | 3 072 |
| Total | 16 606 | 3 072 | 19 678 |
The Company's deferred revenues are amortized into revenues and income over time. The Company does not have a history of refunding annual subscription payments once
The Company's restructuring provision of USD 2,4 million will be paid throughout 2016, allowing the Company's current EBITDA to generate sufficient cash flow to fund the disbursements.
The table below sets forth the carrying amounts and fair values of the Company's financial instruments:
| Carrying Amount | Fair Value | |||
|---|---|---|---|---|
| (Amounts in USD 1 000) | 2015 | 2014 | 2015 | 2014 |
| Cash and Cash Equivalents | 7 800 | 2 608 | 7 800 | 2 608 |
| Accounts Receivable | 2 013 | 1 988 | 2 013 | 1 988 |
| Interest-bearing loans and borrowings: | ||||
| Bank Equipment Loans & Line of Credit Facility | 4 700 | 4 700 | 4 700 | 4 700 |
| Obligations under Finance Lease | 4 399 | 7 042 | 4 399 | 7 042 |
The market interest rates associated with the fair value of the loans and finance leases are consistent with the effective rates of the carrying amounts for such loans and finance leases. Therefore, there is not a difference in the carrying amounts and fair value for such financial liabilities.
The Company's 2015 line of credit facility is secured by a first priority position in all of the assets of the Company except for those assets financed via capital leases. At December 31, 2015, the Company had no amount outstanding under its line of credit facility. The Company's term loan facility extends through March, 31, 2020 and requires the Company to maintain certain financial covenants such as liquidity ratio (as defined by the financial institution). At December 31, 2015, the Company had USD 4,7 million outstanding under its term loan credit agreement.
The primary objective of the Company's capital management is to ensure it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. The Company considers both equity and debt financing (i.e. subordinated or convertible debt) as part of the capital resources that it actively manages.
Given the Company's operating losses, the Company has historically relied on debt and equity financings, equipment financings and working capital loans to meet its on-going working capital needs. The Company monitors earnings before interest, taxes, depreciation and amortization (EBITDA) both in absolute currency and as a percentage of net revenues in order to determine whether or not the Company has sufficient capital resources to satisfy its contractual debt obligations and business plan for the next twelve months. When evaluating the Company's current business plan, the Company will assess the likelihood of securing the financing needed to satisfy its capital resources for the upcoming year. The Company will also assess the cost and risk associated with the various financing options and when appropriate, modify its business plan to correspond with an acceptable cost of capital.
External reporting requirements related to securing capital are likely to include EBITDA, tangible net worth and minimum cash balances. The table below sets forth the Company's EBITDA from continuing operations for 2015 and 2014:
| (Amounts in USD 1 000) | EBITDA |
|---|---|
| 2015 | 732 |
| 2014 | 730 |
As detailed in Note 18 the Company incurred USD 2,5 million of one-time charges in 2015 and USD 5,4 million in 2014 related to the Company's Operational Streamlining and Restructuring Initiatives. Excluding these one-time charges, the Company's 2015 EBITDA was USD 3,2 million and the Company's 2014 EBITDA was USD 5,9 million.
As detailed in Note 16, the Company has entered into a new working capital facility that provides the Company working capital advances up to a maximum of USD 2 million.
| (Amounts in NOK 1 000) | Year Ended December 31, | ||
|---|---|---|---|
| Note | 2015 | 2014 | |
| OPERATING REVENUE | |||
| Other Revenue | 10 | - | 121 |
| Operating Revenue | - | 121 | |
| OPERATING EXPENSES | |||
| Employee Benefits | 4 | 913 | 913 |
| Reversal of impaired intercompany receivable (income) | 6 | (59 549) | - |
| Other Operational and Administrative Costs | 2 418 | 2 169 | |
| Total Operating Expenses | (56 218) | 3 082 | |
| Operating Profit (Loss) | 56 218 | (2 961) | |
| FINANCIAL INCOME AND EXPENSES | |||
| Income/(Loss) From Investment in Subsidiaries | 5 | - | (38 662) |
| Interest income from group companies | 6 | 14 485 | 12 958 |
| Interest income other | 61 | - | |
| Net Financial Expenses | 14 546 | (25 704) | |
| Profit/Loss Before Taxes | 70 764 | (28 665) | |
| TAXES | |||
| Income Tax Expenses | 7 | - | - |
| Net Profit/Loss | 70 764 | (28 665) | |
| Allocated as follows | |||
| Transferred to share premium | 70 764 | (28 665) | |
| Total allocations | 70 764 | (28 665) | |
| Profit/Loss Per Share: | |||
| Basic and Diluted Loss Per Share | 0.87 | (0.35) | |
| Common Shares Outstanding | 81 430 | 81 430 |
| (Amounts in NOK 1 000) | Year Ended December 31, | ||
|---|---|---|---|
| Note | 2015 | 2014 | |
| ASSETS | |||
| Financial Non-current Assets | |||
| Intercompany Receivable | 6 | 72,311 | - |
| Investment in Subsidiaries | 5 | - | - |
| Total Financial Non-current Assets | 72 311 | - | |
| Total Non-current Assets | 72 311 | - | |
| Current Assets | |||
| Other Current Assets | 306 | 101 | |
| Cash and Cash Equivalents | 3 | 208 | 384 |
| Total Current Assets | 514 | 485 | |
| TOTAL ASSETS | 72 825 | 485 | |
| EQUITY AND LIABILITIES | |||
| Equity | |||
| Share Capital | 8, 9 | 27 116 | 27 116 |
| Share Premium | 8 | 44 909 | (27 044) |
| Other Paid-in Capital | 8 | - | - |
| Total Equity | 72 025 | 72 | |
| Total Long Term Debt | - | - | |
| Current Liabilities | |||
| Trade Accounts Payable | 443 | 57 | |
| Other Current Liabilities | 357 | 356 | |
| Total Current Liabilities | 800 | 413 | |
| TOTAL EQUITY AND LIABILITIES | 72 825 | 485 |
Chairman of the Board Director Director President & Chief Executive Officer
31 December, 2015 / 6 April, 2016
| (Amounts in NOK 1 000) | Year Ended December 31, | ||
|---|---|---|---|
| Note | 2015 | 2014 | |
| Cash Flows From Operating Activities | |||
| Profit/Loss Before Tax | 70 764 | (28 665) | |
| Reversal of impaired intercompany receivable (income) | 6 | (59 549) | - |
| Loss From Investment in Subsidiaries | 5 | - | 38 662 |
| Change in intercompany receivable (interest) | 6 | (14,485) | - |
| Change in Trade Accounts Payable | 386 | 52 | |
| Change in Other Assets and Liabilities | ( 204) | ( 6) | |
| Cash Flows Provided by Operating Activities | (3 088) | 10 043 | |
| Cash Flows Used in Investing Activities Other |
- | - | |
| Cash Flows Used in Investing Activities | - | - | |
| Cash Flows From Financing Activities | |||
| Payments received from subsidiary | 6 | 84,342 | 3,029 |
| Paid in capital distribution to shareholders | 8 | (81,430) | - |
| Cash Flows Used in Financing Activities | 2,912 | 3,029 | |
| Net (Decrease) Increase in Cash and Cash Equivalents | ( 176) | 13 072 | |
| Cash and Cash Equivalents at Beginning of Period | 13 342 | 270 | |
| Cash and Cash Equivalents at End of Period | 13 166 | 13 342 |
Apptix ASA is a public Company registered in Norway. The Company's registered business address is located at Nesoyveien 4, 1396 Billingstad, Norway.
The financial statements of Apptix ASA are prepared in accordance with the Norwegian Accounting Act of 1998 and Norwegian Generally Accepted Accounting Principles.
The Company's functional currency and presentation currency is NOK.
Investments in Subsidiaries are valued using the cost method in the Company accounts. The investment is valued as the cost of acquiring shares in the subsidiary, providing a write down is not required. A write down to fair value will be made if the reduction in value is caused by circumstances which may not be regarded as incidental, and deemed necessary by generally accepted accounting principles. Write downs are reversed when the cause for the initial write down is no longer present.
Dividends and other distributions are recognized in the same year as appropriated in the subsidiary accounts. If dividends exceed withheld profits after acquisition, the excess amount represents reimbursement of invested capital, and the distribution will be subtracted from the value of the acquisition in the balance sheet.
Intercompany receivables are valued at the lower of cost or net realizable value. Other debtors are stated at face value, and reduced by a provision for anticipated losses. The provision is made on the basis of individual evaluations.
Royalty revenue from Apptix Inc. is recognized when the services have been delivered.
Current assets and liabilities include balances typically due within one year. All other balances are classified as non-current assets and other long-term debt. Current assets are valued at the lower of cost or net realizable value. Short-term debt is stated at the historical nominal value. Fixed assets are valued at cost, but written down to realizable value if the decline in value is expected to be permanent. Long-term debt is disclosed at the historical nominal value.
Other debtors are stated at face value, and reduced by a provision for anticipated losses. The provision is made on the basis of individual evaluations of each customer.
Monetary items denominated in foreign currencies are translated at the exchange rate applicable on the balance sheet date.
The tax expense in the income statement includes taxes payable on the ordinary result for the period as well as the change in deferred tax. Deferred tax is calculated with a nominal tax rate on the temporary differences between the recorded values and tax values, as well as on any tax loss carry-forwards at the balance sheet date. Any temporary differences increasing or reducing taxes that will or may reverse in the same period are netted. The net deferred tax benefit is recorded as an asset if it is regarded as likely that the Company will be able to realize the benefit through future earnings or realistic tax efficient planning.
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts in the interim balance sheet and the disclosure on the balance sheet date. Actual results can differ from these estimates.
The cash flow statement is prepared in accordance with the indirect method. Included in cash and cash equivalents are bank deposits and cash on hand. Cash and cash equivalents are carried at the market value on the balance sheet date.ANUAL REPORT APPTIX
The following table summarizes the Company's Cash and Cash Equivalents:
| (Amounts in NOK 1 000) | Year Ended December 31, | ||
|---|---|---|---|
| 2015 | 2014 | ||
| Cash at the Bank | 73 | 249 | |
| Restricted Cash | 135 | 135 | |
| Total Cash and Cash Equivalents | 208 | 384 |
The following table summarizes the Compensation and Employee Benefits:
| (Amounts in NOK 1 000) | Year Ended December 31, | ||
|---|---|---|---|
| 2015 | 2014 | ||
| Board of Director Fees | 800 | 800 | |
| Social Security Tax | 113 | 113 | |
| Total Employee Benefits | 913 | 913 | |
| Average Number of Employees | - | - |
As of December 31, 2015 and 2014, Apptix ASA did not have any employees.
For further information regarding compensation, refer to Note 5 in the Apptix Group consolidated financial statements. For further information regarding share based compensation, refer to Note 20 in the Apptix Group consolidated financial statements. For further information regarding share ownership in Apptix ASA by the management team and members of the Board, refer to Note 22 in the Apptix Group consolidated financial statements.
The table below summarizes the components of the Company's audit related fees:
| Year Ended December 31, | ||
|---|---|---|
| (Amounts in NOK 1 000) | 2015 | 2014 |
| Audit Services | 438 | 189 |
| Other Attestation Services | - | - |
| Tax Sevices | - | - |
| Other Non-audit Services | - | - |
| Total Audit Fees | 438 | 189 |
The following table summarizes the Company's subsidiaries:
| Incorporation/ | Office | Ownership Interest | |
|---|---|---|---|
| Companies | Acquisition | Location | & Voting Shares |
| Apptix, Inc. | 1999 | Virginia, USA | 100% |
Apptix, Inc. is 100% owned by Apptix ASA.
Historically investment in subsidiaries has been accounted for in accordance with the equity method. The intercompany receivable has been accounted for together with the cost of shares as a part of the entity's net investment since settlement was neither planned nor likely to occur in the foreseeable future. During 2015 a transaction occurred that changed the likelihood that the subsidiary would be able to pay down its debt. Management reviewed the accounting principle and determined that the equity method of accounting was no longer the best accounting principle for Apptix ASA, and decided to change the accounting principle to the cost method.
Using the cost method, the subsidiary and the intercompany balances are valued separately in the financial statement.
Management reviewed its budgets and forecast and determined that the fair value of the shares was impaired, and an impairment charge has been made. The write down will be reversed when the causes of the initial write down are no longer present.
To calculate the impairment charge the Company has used a Value in Use (VIU) calculation. The accounting standards require the valuation to be done in "hindsight" meaning the valuation is based upon the information available at each point in time. The Company has used its historical goodwill impairment assessment which is based upon Board approved budgets and forecasts. The cash flow is then discounted based upon historical discount rates. The table below summarizes the Apptix shares in subsidiary.
| Shares in Apptix Inc. At cost | 131,071 |
|---|---|
| Impairment charge | (131,071) |
| Net amount capitalized as of December 31, 2015 | - |
As described in Footnote 5, the intercompany receivable has historically been combined with the shares in subsidiary in accordance with the equity method of accounting. From January 1, 2015 the Company changed the accounting principle from the equity method of accounting to the cost method. By changing to the cost method of accounting, the subsidiary and intercompany balances are valued separately in the financial statements. The face value of the intercompany as of January 1, 2015 was NOK 337,9 million. Management reviewed its budgets and forecast and determined the fair value of the receivable was impaired, and an impairment charge has been made. The write down will be reversed when the causes of the initial write down are no longer present.
To calculate the impairment charge as of January 1, 2015, the Company has used the VIU calculation. The Norwegian accounting standards require the valuation to be done in "hindsight" meaning the valuation is based upon the information available at each point in time. The Company has used its historical goodwill impairment assessment which is based upon Board approved budgets and forecasts. The cash flow is then discounted based upon historical discount rates.
Based upon the valuation Apptix ASA calculated an impairment of NOK 255,4 million as of January 1, 2015. The net value of the intercompany receivable of NOK 82,6 million, has been capitalized as long term receivable by offsetting equity.
In October 2015 the Company prepared an interim balance sheet to reimburse invested capital to the shareholders. In this regard, the valuation of the intercompany was updated and the impairment charge was reversed by NOK 59 million. Since there has been no significant changes to the business since the last valuation date, the figures as of October 15, 2015 as used
in the interim balance sheet and approved by the BOD to distibute the paid in capital, is still applicable and only interest has been capitalized since that date.
The table below reflects the changes in Apptix ASA's Capitalized Intercompany Receivable from Apptix, Inc.:
| (Amounts in NOK 1 000) | |
|---|---|
| Net face value of intercompany December 31, 2013 | 328,050 |
| Interest | 12,958 |
| Payment received | (3,029) |
| Net face value Intercompany Balance at December 31, 2014 | 337,979 |
| Impairment *) | (255,359) |
| Net Capitalized Intercompany Receivable at January 1, 2015 **) | 82,620 |
| Interest ***) | 14,485 |
| Payment received ****) | (84,343) |
| Reversal of impairment *) | 59,549 |
| Net Capitalized Intercompany Receivable at December 31, 2015 | 72,311 |
*) Impairment January 1, 2015 based upon hindsight valuation
** Intercompany receivable capitalized as of January 1, 2015 by increasing equity
***) Interest on intercompany interest used 2,61 %
****) On September 8, 2015, the subsidiary signed and closed an Asset Purchase Agreement with GoDaddy, LLC for the sale of a majority of Apptix, Inc.'s direct public cloud customers. The subsidiary was paid USD 22.5 million in cash at closing, and has used USD 10 million to pay down on its debt to the parent.
*****) The management believes it is reasonable to assume that Apptix, Inc. may be able to provide additional distributions to Apptix ASA in the future. The Company updated its valuation in Q4 and reversed part of the impairment.
The Norwegian Company is taxed at the statutory tax rate of 27%.
| (Amounts in NOK 1 000) | ||
|---|---|---|
| Income tax expense | 2015 | 2014 |
| Tax payable | - | - |
| Changes in deferred tax | - | - |
| Income tax expense | - | - |
| Reconciliation of tax expense | 2015 | 2014 |
| Loss before tax | 70 764 | (28 665) |
| Permanent differences | (59 549) | - |
| Net loss from investing in subsidiary | - | 38 662 |
| Change of unrecognized deferred tax asset | ( 295) | ( 425) |
| Loss carry forward used | (10 920) | (9 572) |
| Total basis for tax payable | - | - |
| Deferred tax assets | 2015 | 2014 |
| Loss carry forward | 197 399 | 208 320 |
| Fixed assets | 658 | 953 |
| Tax advantage - gross | 198 057 | 209 273 |
| Net deferred tax asset | 49 514 | 56 504 |
| Net recognized deferred tax asset | - | - |
| Unrecognized tax asset | 49 514 | 56 504 |
There were no options exercised or share issuances during 2015 and 2014.
The following table summarizes the net change in the Company's shareholder equity:
| Paid in | Other | |||
|---|---|---|---|---|
| Common | Premium | Paid-in | Total | |
| (Amounts in NOK 1 000) | Stock | Reserve | Capital | Equity |
| Shareholders' Equity December 31, 2013 | 27 116 | 1 620 | - | 28 736 |
| Net Loss 2014 | - | (28 665) | - | (28 665) |
| Shareholders' Equity December 31, 2014 as previously stated | 27 116 | (27 045) | - | 72 |
| Change in accounting principle *) | - | 82 620 | - | 82 620 |
| Net Profit 2015 | - | 70 764 | - | 70 764 |
| Paid in capital distribution to shareholders | - | (81 430) | - | (81 430) |
| Shareholders' Equity December 31, 2015 | 27 116 | 44 909 | - | 72 025 |
| Investment in subsidiary in accordance with the equity method of accounting January 1, 2015 | - |
|---|---|
| Capitalized value of the shares in accordance with the cost method of accounting | - |
| Capitalized value of the intercompany receivable in accordance with the cost method of accounting | 82,620 |
| Net change in accounting principle charged directly to equity | 82,620 |
At December 31, 2015, the Company had only one class of shares with a par value of NOK 0,333. Each share has one vote. There are no trade limitations on the Company's shares. The shares are registered in the Norwegian Registry of Securities. Total outstanding and issued shares at December 31, 2015 were 81 430 178.
| Number of | Percentage of | |
|---|---|---|
| Shareholder | Shares Owned | Shares Owned |
| BNP PARIBAS SECS SERVICES S.C.A | 25 964 540 | 31.9% |
| WINDCHANGE AS | 9 120 000 | 11.2% |
| BNP PARIBAS SECS SERVICES PARIS | 7 086 820 | 8.7% |
| SPENCER TRADING INC | 5 396 419 | 6.6% |
| TTC INVEST AS | 4 200 000 | 5.2% |
| HAADEM INVEST AS | 3 183 751 | 3.9% |
| UBS SWITZERLAND AG | 2 379 807 | 2.9% |
| WINDCHANGE INVEST AB | 2 000 000 | 2.5% |
| FRANS ENGER AS | 1 963 383 | 2.4% |
| ADMANIHA AS | 1 942 694 | 2.4% |
| AVANZA BANK AS | 1 347 747 | 1.7% |
| NORDNET BANK AB | 1 062 506 | 1.3% |
| HÜBERT LEIF | 958 080 | 1.2% |
| HAADEM | 924 369 | 1.1% |
| SØGNE SHIPPING AS | 882 701 | 1.1% |
| LOLIGO AS | 878 567 | 1.1% |
| NORDGAARD | 780 167 | 1.0% |
| LAIKA INVEST AS | 556 342 | 0.7% |
| SVEEN KJERSTI | 513 477 | 0.6% |
| SVENSKA HANDLESBANKEN AB | 411 514 | 0.5% |
| Total Largest 20 Shareholders | 71 552 884 | 87.9% |
| Other Shareholders | 9 877 294 | 12.1% |
| Total Shares Outstanding | 81 430 178 | 100.0% |
BNP PARIBAS SECS Services is the nominee for the Celox SA holdings. Celox SA owns approximately 32% of the total outstanding shares of the Company.
Windchange AS and Windchange Invest AB are entities 100% owned by the Company's chairman. The total ownership reflected above does not include 35 059 shares held directly by the Company's chairman. Admaniha AS is an entity 100% owned by Terje Rogne, one of the Company's directors.
Shares owned (both directly and indirectly) by the Board of Directors and the CEO at December 31, 2015:
| Average | ||||
|---|---|---|---|---|
| Name | Position | Shares | Options | Exercise Price |
| Chris Mack | President & CEO | 38 949 | 400 000 | 2,94 |
| Johan Lindqvist | Chairman | 11 155 059 | - | - |
| Terje Rogne | Board member | 1 942 694 | - | - |
| Ebba Fahraeus | Board member | 240 053 | - | - |
| Total | 13 376 755 | 400 000 | 2,94 |
At December 31, 2015, Jon Schultz, the Company's legal counsel, owned directly and indirectly 556 342 shares of Apptix ASA
The revenue generated and interest earned by Apptix ASA is related to its wholly owned subsidiary, Apptix, Inc. The table below summarizes the Company's revenue and interest income:
| (Amounts in NOK 1 000) | Year Ended December 31, | ||
|---|---|---|---|
| 2015 | 2014 | ||
| Other Revenue | - | 121 | |
| Intercompany Interest | 14 485 | 12 958 |
As described in Footnote 5, the investment in subsidiary has in prior years been accounted for using the equity method of accounting. In 2015 the company has changed their accounting principle to the cost method of accounting. The Norwegian Company Act §4-3and NRS 5 states that when changing accounting principle, the prior year's financial statement should be adjusted to reflect this change, except in those cases where it is not significant for understanding the Financial Statement. The Company has chosen not to adjust the prior year balances, but has shown effect of change in the accounting principle in the footnotes to the financial statement. The effect of the change in accounting principle on January 1, 2015 was capitalization of intercompany receivable of NOK 82,6 million and corresponding increase in equity by the same amount. The change has been described in detail in Footnotes 5, 6 and 8. The effect in the income statement in 2015 is an income adjustment of NOK 59,5 million as a result of reversing the impairment charge performed on the opening balance.
We confirm, to the best of our knowledge that the financial statements for the period 1 January to 31 December 2015 have been prepared in accordance with current applicable accounting standards, and give a true and fair view of the assets, liabilities, financial position and profit or loss of the entity and the group taken as a whole. We also confirm that the management report includes a true and fair review of the development and performance of the business and the position of the entity and the group, together with a description of the principal risks and uncertainties facing the entity and the group.
Officer
Chairman of the Board Director Director President & Chief Executive
31 December, 2015 / 6 April, 2016
Page 73
Board of Directors Operator of the Share Register Account Johan Lindqvist - Chairman Nordea Bank Norge ASA Chairman of the Board, Nipsoft AB and Advance AB Securities Services
Ebba Fahraeus - Director 0107 Oslo CEO of Lunds Life Sciences Incubator Norway Chariman of the Board, Connect Skane Phone: +47 22 48 50 00 Director, Arc Aroma Pure, the faculty of medicine at Lunds University Fax: +47 22 48 44 44
Terje Rogne - Director Chairman of the Board, Nokas AS and Nordic Corporate Headquarters Semiconductor ASA 13461 Sunrise Valley Drive Director, Unified Messaging Systems AS Suite 300
Corporate Officers Fax: +1 703 890 2801 Christopher E. Mack www. apptix.com President, Chief Executive Officer & Chief Financial Officer
Chief Revenue Officer OSE Symbol: APP
Management Team Independent Accountants Christopher E. Mack Ernst & Young AS President, Chief Executive Officer & Chief Financial Officer Nedre Storgt. 42
Tom Tighe N-3002 Drammen Chief Revenue Officer Norway
Shane Smith Fax: +47 32 83 86 25 Senior Vice President, Technology www. ey.no
Chris Damvakaris Investor Services Vice President, Sales & Business Development To request additional information about the
The Company encourages all shareholders to register for electronic Herndon, Virginia 20171 USA delivery of documents through the VPS system. A shareholder Phone: +1 703 890 2800 can register for electronic delivery via your log-on page in the Fax: +1 703 890 2801 VPS account or by contacting your VPS bank. chris.mack @apptix.com
Verdipapirseksjonen Postboks 1166 Sentrum www. nordea.com
Herndon, Virginia 20171 USA Phone: +1 703 890 2800
Tom Tighe Stock traded on the Oslo Stock Exchange www. ose.no
Postboks 560 Brakeroya Phone: +47 32 83 88 90
Company, its finances, operations and services, contact:
Chairman of the Board, Apptix Sweden Phone: +46 733 550935 Fax: +46 60 668007 johan.lindqvist @windchange.se
President, Chief Executive Officer & Chief Financial Officer 13461 Sunrise Valley Drive, Suite 300
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