artnet AG — Annual Report 2015

Apr 8, 2016

Annual Report 2015

Key Financial Figures for the artnet Group

	12/31/2015	12/31/2014	Difference (Balance)
Revenue (k EUR)	17,285	13,907	3,378
Profit from Operations (k EUR)	707	(588)	1,295
Earnings Before Tax (k EUR)	671	(2,197)	2,868
Earnings per Share (EUR)	0.12	(0.55)	0.67
Weighted Number of Shares (k EUR)	5,553	5,553	–
Cash Flow from Operating Activities (k EUR)	(40)	827	(867)
Staff (Year End)	118	106	12
Cash and Cash Equivalents (k EUR)	1,181	1,529	(348)
Equity (k EUR)	(223)	2,214	(2,437)
Total Assets (k EUR)	4,627	6,039	(1,412)

Development of the artnet AG Share XETRA Closing Prices in 2015

Jacob Pabst CEO, artnet AG

Dear Shareholders,

I am pleased to present to you the 2015 Annual Report.

Over the course of the year, artnet achieved the highest revenue in the Company's history. Compared to 2014, revenue increased by 24.3% to 17.3 million EUR, and by 3.9% to 19.2 million USD. In addition to the strong growth of our advertising revenue, the changes in the euro-US dollar exchange rate had a significant influence on the Company's net profit, resulting in an increased revenue in euros and a decreased revenue in US dollars. The result was positive, achieving a profit of 0.65 million EUR (0.71 million USD) that exceeded our predictions, thanks in part to our successful effort to reduce costs.

Revenue from artnet Auctions decreased by 8% in US dollars, while ultimately resulting in a 10% growth in Euros due to the exchange rate. Compared to the previous year, the number of lots sold increased by 13%, while the overall revenue achieved per auction specialist also increased. The public's growing acceptance of online art auctions was demonstrated by a 120% increase in new registrations, a higher number of lots offered, and an improved sell-through rate. As a result of this growing interest in the online art auction market, more competitors entered this field to compete for desirable consignments. In addition to several start-up companies—which, for good reason, do not usually publish their results—traditional auction houses have also begun to pursue this burgeoning market. This demonstrates that artnet's foresight to develop an online auction platform was the right investment, as we notably established ourselves as the first company to offer online auctions for fine art. The proportion of online auctions within the art market is expected to grow, and artnet will continue to stay ahead of this trend with a larger team of auction specialists, improved efficiency, and a focus on high-value lots.

Two years ago, artnet launched a source for comprehensive art market coverage, artnet News. Delivering relevant and timely market information to the art world has always been a key component of the Company's success, dating back to 1996 when artnet became the first to publish art news online with artnet Magazine. Eventually, this product grew outdated and its restructuring would have been have prohibitively costly, and as a result, was shut down. With the launch of artnet News, an entirely new digital platform, this endeavor represented an entrepreneurial challenge for the Company, as it was the second product, after artnet Auctions, to be funded solely from our own resources.

The development of artnet News was one of the main reasons for the negative result of the 2014 fiscal year, yet its launch has proven to be a major success that continues to offer new possibilities for the Company as a whole. It quickly became the most read and influential art news platform in the world, with visits in 2015 almost doubling as compared to the previous year. Advertising revenue subsequently increased by 128.4% in euros (91% in US dollars) as compared to 2014, leading to a positive result for the Company in the 2015 fiscal year. To continue to expand and capitalize on this success in the coming year, we have increased our international sales team. Thanks to the additional revenue provided from advertising, we can also allocate more resources to artnet Auctions to continue to expand our leadership in this field.

Meanwhile, revenue from Price Database subscriptions increased by 17.2% in euros and decreased slightly by 3.8% in US dollars. It should be noted, however, that the aforementioned changes in currency exchange rates led to this negative US dollar figure, as a portion of our revenue is generated in euros—were it not for this effect, revenue in US dollars would have been positive as well. The number of auction results in the Price Database exceeded 10 million in 2015, continuing its role as the most comprehensive database of its kind. Every lot is catalogued, translated, and edited by our team of multilingual specialists, ensuring its unrivaled quality that is trusted by auction houses, galleries, and collectors worldwide. As intended, we emphasized yearly contracts instead of short-term subscriptions, thereby achieving a higher client retention rate and a more predictable revenue stream. Over the course of the current fiscal year, we will continue to focus on institutional clients and redesign a simplified product page in order to attract new subscribers.

Despite growing competition, revenue from the Galleries segment remained stable, achieving an overall increase of 6% in US dollars. Revenue from the Gallery Network increased by 9% in euros, yet decreased by 9% in US dollars. The overall positive revenue of the segment was achieved through the higher number of visitors to the site, which greatly raised the value of our memberships and advertising space. Moreover, Auction House Partnerships was successful with a 17% overall revenue increase in US dollars, thereby strengthening our longstanding close relationships with international auction houses. In the current fiscal year, we will work on improving the presentation of galleries and their inventory on artnet, while simultaneously simplifying the usability of gallery member sites. The Gallery Network will therefore be improved considerably in 2016, and the sales team will aim at selling more memberships and advertising space to galleries to further grow revenue from this segment.

In the lawsuit of a French photographer concerning his claim of copyright violation, the French Court of Cassation has ruled in favor of the photographer on a procedural aspect, after artnet had filed an appeal. In the previous level of jurisdiction, the Paris Court of Appeal had ordered artnet AG, artnet France Sarl, and Artnet Worldwide Corporation to pay approximately 0.76 million EUR to the photographer, holding all three jointly and severally liable. We will continue to carefully evaluate our options in this ongoing matter.

To achieve the goal of a third consecutive year of revenue growth, we have set ambitious targets for the 2016 fiscal year. The successes of 2015 shall be further expanded and developed, meaning that we will continue to grow artnet News' pageviews, intensify advertising sales, concentrate on the Price Database's institutional clients, and boost the efficiency of artnet Auctions. Additionally, we will focus on improving the Gallery Network, enlarging the artnet Auctions team, and expanding our site content. Thanks to our efforts, artnet will become an even more attractive source for art research, enriching the experience of our 2.1 million monthly visitors and expanding our leadership position within the art market. As always, I will keep you updated on all developments regularly.

Yours sincerely,

Jacob Pabst CEO, artnet AG

Core Statement

artnet is the leading online resource for the international art market. Established in 1989, artnet provides reliable information and market transparency to art collectors. Our comprehensive suite of products includes the artnet Price Database, which offers objective price information, and the artnet Gallery Network, a platform for connecting leading galleries with collectors from around the world.

With 24/7 worldwide bidding, artnet Auctions was the first online marketplace for collecting art. Our auction platform allows for immediate transactions, with seamless flow between consignors, specialists, and collectors.

Company Development

artnet AG was formed in 1998 as an information service provider for the art market. It took over the Artnet Worldwide Corporation, which was formed in New York in 1989, and moved the Price Database and the Gallery Network online by the mid-1990s.

More than any other company, artnet has modernized the way people buy, sell, and research art. Its products provide reliable and transparent information used by collectors, gallery owners, museums, and investors, and have become indispensable tools for independent market players. Through artnet Auctions, artnet has developed from a pure information service provider to a transaction platform, and has further expanded its leading position in the art market.

artnet has gradually built up its information services and transaction platform around its first product, the Price Database Fine Art and Design. This database was created as a response to the decentralized art market of the late 1980s. At the time, the market lacked transparency, which was a stumbling block for buyers in particular. The art business had, of course, always been international, but it was managed locally in a relatively inefficient market by tens of thousands of geographically disparate art dealers, galleries, auction houses, book publishers, museums, and collectors.

The Price Database provides these local markets with a global standard of comparison, listing fine art, design, and decorative art auction results, including results for more than 320,000 artists and designers. Since 2009, the Price Database Decorative Art has provided results for international antique auctions. Today, the Price Database contains over 10 million auction results from more than 1,700 international auction houses, dating back to 1985.

Another pillar of the artnet business is the Gallery Network, which was introduced in 1995. With 1,300 galleries and approximately 170,000 artworks by nearly 35,000 artists from around the globe, this product is the world's most comprehensive platform for galleries online. The Gallery Network serves dealers and art buyers in equal measure by giving them an overview of the global market, prices, and price trends, and allowing users to be in direct contact with the gallery.

Created in 2008, artnet Auctions was the first online platform dedicated to buying and selling art. With faster turnaround and lower commissions, artnet Auctions is available around the clock. Every component of a sale, from consignments to the placing of bids, happens more efficiently and quickly than at traditional brick-and-mortar auction houses.

In 2014, artnet launched a 24/7 global art newswire: artnet News. artnet News is a one-stop platform for the events, trends, developments, and people that shape the art market and global art industry, providing up-to-the-minute analysis and commentary, with the highest possible standards in cultural journalism.

An office was opened in London in November 2007, with the formation of artnet UK Ltd., the UK subsidiary of Artnet Worldwide Corporation. artnet AG and its subsidiaries employ a total of 115 people. The office in Paris was closed in 2012, and, since then, the French subsidiary has been inactive.

Company Background

artnet.com AG was incorporated under the laws of Germany in 1998. In 1999, Management took the Company public on the Neuer Markt of the Frankfurt Stock Exchange. In 2002, artnet .com AG changed its name to artnet AG. On October 4, 2002, artnet AG left the Neuer Markt, and was then listed in the General Standard of the Frankfurt Stock Exchange, a segment of the EU-regulated Geregelter Markt. Effective February 1, 2007, artnet AG is listed in the Prime Standard of the Frankfurt Stock Exchange, the segment with the highest transparency standards. Its principal holding is its wholly owned subsidiary, Artnet Worldwide Corporation, a New York corporation that was founded in 1989. The consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS).

Report of the Supervisory Board

The Supervisory Board held five meetings in 2015, on April 23, 2015, May 28, 2015, July 15, 2015, September 28–29, 2015, and December 16, 2015, all of which were unanimously attended. Three of these meetings were held by telephone, and consisted of the exchange of relevant operating, technical, and financial information. Two were in-person meetings held at the Company headquarters in Berlin and at the offices in New York. In each case, the chair distributed draft agendas in advance and, after several phone and email exchanges, the agenda was finalized and the scope of each meeting was defined. Board members exchanged several "unanimous consent" resolutions after email and telephone discussions to adopt certain resolutions. In addition, there were numerous informal telephone conferences and frequent email exchanges on specific business matters. We monitored the activities, decisions, and performance of Jacob Pabst, CEO and sole member of the Management Board, and, in addition worked closely with Michael Probst, vice president of finance. At the meetings held in Berlin and New York, we dealt with strategic planning and budgets, and interviewed key management personnel concerning their general business outlook and projects; in New York, we adopted a preliminary budget for 2016. Members of the Supervisory Board met individually with the Management Board and other key officers in New York and Berlin. They provided legal, financial, editorial, and other business advice in regards to business progress and, in particular, to certain ongoing litigations.

The Supervisory Board received regular, detailed management reports throughout the entire year in both written (email) and oral form from the Management Board. These reports detailed the Company's current status, the course of its business, its strategy, and various important decisions. The quarterly reports, semi-annual reports, and the detailed results from the individual segments were reviewed with the Management Board. In addition, the board discussed issues of fundamental importance for corporate policy on an ongoing basis with the Supervisory Board. These included financial planning (cash management and expense management), technical (website and app) development, the progress of the Auctions segment, the stabilization of the Gallery Network, the continued growth of the Price Database, and the status of advertising and marketing, particularly in connection with artnet News. The Supervisory Board has not formed any committees.

The Supervisory Board's meetings focused on discussing revenue and profit growth, the Company's liquidity, and its major expenditures, as well as its human resources policies, international activities (particularly the proposal to enter the Chinese art market), and the future position of the individual segments. We focused on the monthly reporting of the growth of the artnet News segment and related advertising revenues. We are pleased to report that artnet News is already considered the most important online publication in the art world, and are confident that the upward trend in advertising revenue will continue. The existence of artnet News has resulted in substantially increased traffic to our Price Database and Auctions segments, as had been anticipated.

In 2015, artnet maintained its momentum of growth and increased its revenue to 19.2 million USD, the highest revenue ever achieved in the Company's history. At the same time, due to diligent cost management, artnet was able to lower operational expenses.

2015 was a turnaround year for artnet. Income from operations amounted to 785,000 USD, a sharp contrast to the operating loss of -780,000 USD reported in 2014. Processes put into place in late 2014 insulated artnet from significant US dollar and euro currency fluctuations. Meanwhile, the Auctions segment continued to experience a significant increase in new registrations, in both buyers and sellers. The Gallery Network and Auction House Partnerships member sites underwent redesigns, and an iPhone app for artnet News was launched.

The Management Board has been diligent in expense and cash management. The Supervisory Board reviews monthly figures which contain detailed breakdowns of the source and application of funds. Cash on hand decreased throughout the year, but expenses also declined as a percentage of revenue—and, most notably, short- and long-term liabilities decreased significantly. We are pleased to report that artnet achieved a profit of 709,000 USD in 2015.

A key factor in the success of the Company is the continued addition of auction results to the Price Database in a timely manner. In 2015, the number of results in the database exceeded 10 million. Furthermore, as artnet is an online service, growth in web traffic is essential. Following the launch of artnet News, the number of visits to artnet increased by 35% in 2015, with a monthly average of 2.1 million users.

At the Annual General Meeting in July 2015, we disclosed the existence of ongoing litigations in France and Germany relating to allegations of copyright infringement made by a photographer. In 2014, after consulting with auditors, artnet reserved 950,000 EUR for the purpose of anticipated legal expenses and potential liabilities associated with these litigations. The verdict in the German case is currently pending. Meanwhile, artnet has appealed the decision of the lower French court in this matter, and this appeal is also still pending.

The annual financial statements (HGB) and the consolidated financial statements (IFRS), prepared by the Management Board for artnet AG for the 2015 fiscal year, together with the management report and group management report were audited by the firm Ebner Stolz GmbH & Co. KG Wirtschaftsprüfungsgesellschaft, Steuerberatungsgesellschaft, Hamburg, Germany. The Supervisory Board determined that the auditors are independent. The auditors determined that both the annual financial statements (HGB), as well as the consolidated financial statements in accordance with the provisions of IFRS, present a true and fair view of the financial position and results of operations for the financial year, and issued an unrestricted audit opinion in each case. After completing their assessment, the auditors participated in the Supervisory Board's meeting to discuss the financial statements and report on the results of their audit. The Supervisory Board concurred with their findings.

The Supervisory Board reviewed the annual financial statements, consolidated financial statements of artnet AG, and the associated management reports. Having completed its own in-depth review, no objections were raised by the Supervisory Board. The board approved the annual financial statements for artnet AG prepared by the Board of Directors in the version

audited by Ebner Stolz GmbH & Co. KG Wirtschaftsprüfungsgesellschaft, Steuerberatungsgesellschaft, Hamburg, Germany, with a resolution on April 8, 2016. The annual financial statements as of December 31, 2015 were thus adopted. The consolidated financial statements as of December 31, 2015 were also approved by the Supervisory Board by way of a resolution on April 8, 2016.

The Supervisory Board would like to thank the Management Board and all of the Company's employees for their work in the past year.

Naples, FL, USA, April 8, 2016

John Hushon Chairman of the Supervisory Board

Wayne Thiebaud, Bow Ties, 1990. Sold for \$24,600 (with premium) on artnet Auctions. Art © Wayne Thiebaud/Licensed by VAGA, New York, NY.

Vik Muniz, Flag, after Jasper Johns (from Pictures of Pigment), 2007. Sold for \$144,000 (with premium) on artnet Auctions. Art © Vik Muniz/Licensed by VAGA, New York, NY.

Corporate Governance Report

artnet attaches great importance to corporate governance. artnet AG complies with the recommendations of the German Corporate Governance Code in the current version dated May 5, 2015, and published in the German Bundesnazeiger on June 12, 2015, with the exception of the recommendations in No. 3.8 para. 3, No. 4.2.1 sent. 1, No. 5.1.2 para. 2 sent. 3, No. 5.3.1, No. 5.3.2, No. 5.3.3, No. 5.4.1 para. 2 (age limit for members of the Supervisory Board), and 7.1.2 sent. 4. The Management and Supervisory boards of artnet AG have adopted the declaration of conformity with the code detailed at the end of this report. It is published online at artnet.com/investor-relations.

1. Supervisory Board

According to the German Aktiengesetz, artnet AG has a dual-pronged management and control structure, comprising a sole member of the Management Board and the three-person Supervisory Board. Management and control functions are strictly split in the dual-management system. It is not legally permissible to simultaneously work for the Management Board and the Supervisory Board. The tasks and responsibilities of these two bodies are clearly legally defined in each case.

The Supervisory Board monitors and advises the Management Board in conducting the business. The Supervisory Board discusses the business growth and forecasts, as well as the strategy and its implementation at regular intervals. In addition, the Supervisory Board adopts the annual financial statements and appoints the members of the Management Board. The Supervisory Board has defined approval requirements by the Supervisory Board for transactions of fundamental importance. These include decisions or activities that have a fundamental impact on the Company's financial position or results of operations. The Management Board provides the Supervisory Board with regular, up-to-the-minute, comprehensive information on all of the issues of relevance to the Company with regard to forecasting, business growth, risks, and risk management.

The members of the Supervisory Board are independent in their decision-making, and are not subject to instructions or specifications by third parties. In addition, consulting, service, and certain other agreements between artnet and the members of its Supervisory Board have to be approved by the Supervisory Board. According to Item 5.4.1 of the Code, the Supervisory Board shall specify concrete objectives regarding its composition, which, whilst considering the specifics of the enterprise, take into account the international activities of the enterprise, potential conflicts of interest, an age limit to be specified for the members of the Supervisory Board, and diversity. These concrete objectives shall, in particular, stipulate an appropriate degree of female representation. The concrete objectives of the Supervisory Board and the status of the implementation shall be published in the Corporate Governance Report.

2. Management Board

The Management Board is responsible for the Company's management. It must follow the Company's interests and undertake to increase the sustained enterprise value. It is responsible for the Company's strategic orientation in agreement with the Supervisory Board. The Management Board cooperates closely with the Supervisory Board.

The Management Board ensures that statutory provisions are upheld and that there is suitable risk management and risk control at the Company.

3. Directors' Dealings Transactions and Shareholdings of Managing Directors and Supervisory Board Members

During the past financial year, no purchases or sales of at least 5,000 EUR were executed by members of the Company's Management Board and Supervisory Board, or other executives who regularly have access to the Company's insider information and who are authorized to make material entrepreneurial decisions, and certain persons closely related to these persons.

On April 8, 2016, the Management Board and Supervisory Board held 1,576,605, or 28%, of the shares or financial instruments based thereupon.

Supervisory Board
Galerie Neuendorf AG	1,523,551 shares
John Hushon	53,054 shares

4. Relationship with Shareholders

artnet AG reports to its shareholders four times each financial year on business growth and on the Group companies' financial position and results of operations. The annual General Meeting is held during the first eight months of each financial year. The General Meeting resolves, among other things, on issues including the appropriation of profits, the ratification of the Management and Supervisory boards, and the election of the auditor. Changes to the articles of incorporation and capitalization activities are resolved exclusively by the General Meeting.

5. Declaration of Conformity with the German Corporate Governance Code

Pursuant to Section 161 of the Aktiengesetz (AktG - German Public Limited Companies Act.), the Management Board and Supervisory Board of artnet AG hereby announce that they have complied with the recommendations of the German Corporate Governance Code ("Code") since its last Declaration of Compliance, dated March 27, 2015. The Management Board and Supervisory Board of artnet AG complied with the Code dated June 24, 2014 (published in the official section of the federal gazette on September 30, 2014) from March 27, 2015 to June 11, 2015, and complied with the Code dated May 5, 2015 (published in the official section of the federal gazette on June 12, 2015) until the present day, with exception of the following.

1. Number 3.8, paragraph 3: "A similar deductible must be agreed upon in any D&O policy for the Supervisory Board."

artnet AG does not believe that the due care and diligence that the members of its Supervisory Board exercise in discharging their duties could be increased further by agreeing to a deductible. For this reason, artnet AG does not intend to change existing D&O insurance policies that do not provide for such a deductible.

2. Number 4.2.1, sentence 1: "The Board of Directors shall be comprised of several people and have a chairman or spokesman."

Since its establishment, the Board of Directors of artnet AG has been comprised of one person. By contrast, the management of the subsidiary Artnet Worldwide Corporation in New York, which is largely responsible for operations within the Group, is comprised of several people. To date, the Company has not increased the size of its Board of Directors for cost reasons.

1. Number 5.1.2, paragraph 2, sentence 3: "An age limit for members of the Board of Directors shall be specified."

artnet AG considers a provision of this nature to be inappropriate because general age limits would unduly limit the Supervisory Board's discretionary powers when selecting members of the Board of Directors.

1. Number 5.3.1., Number 5.3.2., and Number 5.3.3.: In these sections, the Code recommends that the Supervisory Board form an Audit Committee and a Nomination Committee.

As the Supervisory Board of artnet AG is comprised of only three members, it does not make sense to form committees. The tasks envisioned for the Audit Committee and the Nomination Committee are undertaken jointly by the Supervisory Board as a whole.

1. Number 5.4.1, paragraph 2, sentence 1: The Code recommends to set an age limit for members of the Supervisory Board.

artnet AG considers a provision of this nature to be inappropriate because general age limits and requirements for diversity would unduly limit the shareholders' discretionary powers when selecting members of the Supervisory Board.

1. Number 7.1.2, sentence 4: "The Consolidated Financial Statements shall be publicly accessible within 90 days of the end of the financial year; interim reports shall be publicly accessible within 45 days of the end of the reporting period."

The 2015 Consolidated Financial Statements were not published within the 90-day period recommended in the Code. However, they will be published within the statutory period. In the future, artnet AG intends to publish its consolidated financial statements within the recommended period.

In the future, the artnet AG will comply with the recommendations of the current code, with exception of numbers 1 to 5 listed above.

Update to the Declaration of Compliance with the German Corporate Governance Code

Because of recent events, the Management Board and Supervisory Board of artnet AG hereby announce that—in a deviation from the Declaration of Compliance dated March 16, 2016—they will not fully comply with the recommendations of the German Corporate Governance Code ("Code") dated May 5, 2015 (published in the official section of the federal gazette on June 12, 2015):

Number 7.1.2, sentence 4: "The Consolidated Financial Statements shall be publicly accessible within 90 days of the end of the financial year; interim reports shall be publicly accessible within 45 days of the end of the reporting period."

The Consolidated Financial Statements for the 2015 Fiscal Year are not published within the 90-day period recommended in the Code. However, they will be published within the statutory period. In regards to this matter, we refer to the Ad-hoc Announcement dated March 30, 2015. In the future, artnet AG intends to its consolidated financial statements within the recommended period.

Berlin, March 31, 2016

Jacob Pabst CEO artnet AG

John Hushon Chairman of the Supervisory Board artnet AG

Responsibility Statement

To the best of knowledge, and in accordance with the applicable reporting principles, the following consolidated financial statements give a true and fair view of the assets, liabilities, financial position, and profit or loss of the artnet Group. The Group Management Report includes a fair review of the development and performance of the business, as well as the position of the Group, along with a description of the principal opportunities and risks attributed to the expected Group development.

Berlin, April 7, 2016

Jacob Pabst CEO, artnet AG

Group Management Report 2015

1. General Information and Business Activities

Business Model and artnet Group Organization

artnet AG is a holding company listed on the "Regulierter Markt" in the Prime Standard segment of the Frankfurt Stock Exchange. artnet AG's principal holding is its wholly owned subsidiary, Artnet Worldwide Corporation, which was formed in 1989 in New York. artnet AG ("artnet" or the "Company") and Artnet Worldwide Corporation ("Artnet Corp.," collectively the "artnet Group" or the "Group") operate under the trade name "artnet."

Artnet Corp. has two wholly owned subsidiaries: artnet UK Ltd. and artnet France Sarl. artnet France Sarl has been inactive since 2012, while artnet UK Ltd. provides sales and client support from the United Kingdom.

With a monthly average of 2.1 million visitors to its domains, artnet.com, artnet.com/auctions, artnet.de, artnet.fr, and news.artnet.com, artnet offers the world's most comprehensive art market overview. The provision of timely information about artwork values, artists, galleries, price developments, exhibitions, news, and reviews enables collectors and art professionals to better navigate the art market.

As of December 31, 2015, the artnet Gallery Network represented approximately 1,300 of the world's most prestigious galleries from over 60 countries. Members of the Gallery Network are indexed by specialty and location, with approximately 170,000 artworks by 35,000 artists featured on the platform. In addition to all forms of contemporary and Modern fine art, the Gallery Network also offers decorative art and design objects from the 1st century BC to the present. Concurrently, artnet Auction House Partnerships offer an ideal way for auction houses to gain international exposure for their sales and drive a high volume of potential buyers directly to their proprietary sites. With a partnership, auction houses have the flexibility to post complete or partial sales on artnet, with the option of linking every lot on artnet back to the same lot in their own online catalogue. All upcoming sales are listed on our Events page, and rank high in both artnet and external Google

search results. Auction House Partnerships also provides reporting and direct traffic from artnet to the client's.

The artnet Price Database, which is comprised of the Price Database Fine Art and Design and the Price Database Decorative Art, is an online database of over 10 million colorillustrated auction results from more than 1,700 leading international auction houses. This product brings price transparency to an otherwise inaccessible market. Subscribers to the database receive access to upcoming auction information, recent auction results, and auction records dating back to 1985, as well as the most up-to-date and impartial appraisal value of artworks. Subscribers include appraisers, dealers, auctioneers, financiers, and private and government institutions (including the IRS and the FBI). Most importantly, it provides an illustrated "blue book" for private collectors with which to appraise the works they own, and measure opportunities at upcoming auctions or on the dealer market. Dealers and auctioneers also use comparable sales from the Price Database to support the valuation and sale of important works of art.

artnet Market Alerts, a derivative of the Price Database, informs subscribers via email when artworks by their favorite artists come up at auction, are featured in upcoming events, or are offered in the Gallery Network or on artnet Auctions.

artnet Analytics Reports provides and visualizes art market information that allows users to monitor the performance of artists and art movements, customer-specified groups of artworks, and art categories, with the option to compare market performance against each other or financial indices, such as the Dow Jones or the S&P 500, gold, or against other financial investments.

With artnet Auctions, artnet has become a leading transaction platform in the competitive online auction market. The main advantages for buyers and sellers are the attractive prices and fast turnaround, which can be finalized in a few weeks, as compared to the six months or a year required by brick-andmortar art auctioneers. artnet Auctions routinely offers works by blue-chip Modern and contemporary artists that sell in the fiveand six-figure range.

artnet News was launched in February 2014, and is the world's first dedicated 24-hour international art market newswire. This platform informs, engages, and connects members of the art community to the events, trends, and people shaping the market and global art industry through timely articles and insightful opinion pieces.

Objectives and Strategies

artnet will remain faithful to its founding mission to increase transparency in the art market. Our goal is to maintain our leadership position in the increasingly competitive online art market, where we have operated for more than 25 years. artnet's Management team is confident that with constant product improvements and innovations, we will continue to strengthen our brand.

Control System

A standardized controlling and reporting system has been put into place for the value-based management of the Group and the management of individual segments. For the individual segments, the earnings before interest and taxes (EBIT) were compared to budgets and numbers from previous years, and determined as key financial data. Regarding the financial position, the Group focuses on the availability of liquid assets.

Furthermore, leading economic indicators that may impact the business are constantly monitored and evaluated. For the Gallery Network and the Price Database products, these indicators include the number of contract terminations and renewals, as well as the additions of new contracts. For artnet Auctions, the number of lots available, the number of lots sold, and average prices are the measured indicators. Another essential aspect of the management control system is the ongoing monitoring of web traffic, in which important patterns are evaluated and analyzed. artnet evaluates site visits on a daily, weekly, and monthly basis to obtain information about the development of each individual segment. This analysis continues to grow in importance for billing advertising contracts based on traffic performance.

Research and Development

The artnet website forms the foundation of the Group's products. It is of the utmost importance to keep pace with the latest

developments in technology, and to develop new products that increase benefits for customers. In this regard, our developers use software based on Microsoft technology, which gives them the flexibility required to adapt applications to our customers' ever-changing needs. In 2015, the Product Development Team focused mainly on expanding new technologies to increase advertising revenue, without affecting the website's usability or our products' functionality. In addition, the artnet News app was developed and launched in December 2015.

2. Economic Report

2.1 Macroeconomic and Industry Conditions

Global Economic Situation

The global economy slowed down in 2015. While the economies of industrial countries improved slightly, the economic growth in developing and emerging markets slowed down for the fifth consecutive year. Overall, the global economy was impacted by declining consumer demand from China, lower oil prices, and the more rigid monetary policy adopted by the FED.

Art Market Development

Though 2014 marked a record year of growth in the fine art auction market, our data shows an overall contraction in the 2015 calendar year. Global fine art sales brought in a collective 14.8 billion USD, a decrease of 9% over the course of 2014, effectively returning the market to its 2013 total of 14.5 billion USD. This performance is in sharp contrast to the 156.4% increase we saw during the 2009–2014 period.

The United States was by far the strongest-performing market, growing nearly 10% since 2014. By contrast, China's auction sales shrank by 30%, due in part to macroeconomic factors. Germany, meanwhile, achieved 260 million USD in 2015, experiencing a near 6% loss in total sales value over 2014 with a decrease of 5% in lots sold—its first down year since 2012.

2.2 Result of Operations, Financial Position, and Net Assets artnet generates its revenue primarily in US dollars. The headquarters of artnet's subsidiary, Artnet Worldwide Corporation, is located in New York, the global center of the art market,

and thus incurs its expenses mainly in US dollars. As a result of the significantly increased strength of the US dollar as compared to the previous year, presenting this years' results in US dollars is more reflective of recent economic developments than presenting in euros, as results in euros are strongly affected by exchange rate fluctuations. Therefore, the performance of the Group is described in US dollars, while the impact of the USD/euro currency exchange will be described in a separate section.

Result of Operations

In the 2015 fiscal year, artnet has maintained its course of ongoing growth. artnet had previously reached its highest revenue in the Company's history (18.5 million USD) in 2014, and revenue in the current fiscal year increased again by 4% to 19.2 million USD. Compared to the previous year, which was impacted by exceptional expense items, the operating result in 2015 increased to 785k USD from a negative operating result of -780k USD in 2014. This significant turnaround was largely due to higher advertising revenues, mainly coming from the artnet News and artnet Galleries segments, as well as cost reductions for personnel and administrative expenses. While the Price Database and Galleries segments achieved positive results overall, the artnet News and artnet Auctions segments have not yet generated a positive contribution to profits.

Revenue Growth

Despite a challenging and competitive market environment, artnet increased revenue to 19,184k USD in 2015. The predicted revenue target (19 million USD to 20 million USD) was thus achieved, and revenue in US dollars increased by 4% as compared to the previous year.

In 2015, revenue from artnet Auctions reached 2,906k USD as compared to 3,151k USD in 2014. The predicted revenue increase of 10% was thus clearly missed, while the average buyer and seller premiums of 22% remained constant as compared to the previous year. The average price of lots sold in the fiscal year decreased, from 9,578 USD to 7,948 USD, while the total number of sold lots increased by 13%.

Revenue from the Gallery Network also decreased in the reporting year as compared to 2014 by 9%, or 514k USD, from 5,942k USD to 5,428k USD, mostly due to an ongoing decline in memberships. The revenue reported in USD was additionally affected by the fluctuating exchange rates of euro-generated revenue, amounting to approximately 252k USD in 2015 and corresponding to 49% of the total decline in revenue. A recently redesigned user interface and improvements to customer service led to a reduced number of cancellations, but the predicted stabilization of the number of memberships and an increase in revenue has not yet been achieved. Meanwhile, Auction House Partnerships has increasingly established itself in the market, and showed a slight increase in sales of 17 % to 477k USD.

Revenue for the Price Database decreased compared to the previous year by 238k USD, from 7,469k USD to 7,231k USD. However, when taking the currency conversion effect into an account, revenue did increase in USD by 1%, with the currency exchange rate effect of euro-generated revenue amounting to 307k USD in 2015. Despite the forecast of a slight growth in sales, revenue for this product decreased slightly. The number of subscriptions to the Price Database at the end of the year 2015 remained constant as compared to the previous year, with an intended shift to long-term subscriptions.

The predicted strong revenue growth for advertising has been achieved. With an increase of 91%, the revenue almost doubled from 1,894k USD to 3,619k USD. Overall, advertising revenue benefitted from the redesign of the website and the addition of new and attractive advertising placements, as well as the high volume of visits brought in by artnet News. Advertising revenues are allocated to the segment artnet News (47%), artnet Galleries (41%), and artnet Price Database (12%).

Changes in Costs and Results

Gross profit increased to 12,567k USD, or by 14% as compared to the previous year (11,062k USD). This was due to the increase in revenue, savings in personnel and sales costs, and lower depreciation and amortization.

Sales and marketing expenses in 2015 remained constant at 4,234k USD as compared to the previous year (4,231 USD). While marketing expenses in the reporting period decreased by 308k USD, expenses for artnet News increased correspondingly. During the previous year, artnet News was still in development and not all positions were staffed, therefore personnel expenses for the artnet News team in 2015 increased. Sales expenses remained the same as compared to the previous year.

Expenses for product development increased in 2015 by 7% to 3,518k USD as compared to the previous year (3,284k USD). External development costs for the website redesign were capitalized in 2014, while in 2015 development costs accrued due to further improvements of the artnet Auctions platform, the newly launched artnet News app, and the redesign of several product pages. External development costs, and thus the risk of overdependence on third parties, were continuously decreased throughout the fiscal year, while internal personnel expenses in this segment increased with the filling of vacant and new positions.

General and administrative expenses decreased to 3,934k USD by 8% as compared to the previous year (4,255k USD) due to lower legal expenses, consulting fees, travel, and internal event expenses.

Development of Segments

At the beginning of the 2015 fiscal year, the Group adjusted its segment reporting. As part of the modification of internal reporting, the decision was made to disclose the online news platform, artnet News, as its own segment. The number of reportable segments has not increased, as Management no longer considers appropriate the disclosure of advertising as a standalone segment. Advertising revenue will now be allocated to the segments where banners have been placed. In addition, since the beginning of the 2015 fiscal year, the segment reporting was changed to a multilevel Contribution Margin accounting method. Following the requirements of IFRS 8 "Operating Segments" (Management Approach), this realignment has retroactively led to a change in the segment report in 2014.

The Management controls the individual segments based of the contribution margin II (with CM II equaling revenue minus direct and indirect variable costs). Therefore, it will be presented below as a segment result. Non-directly allocable expenses are mainly allocated to reportable segments based on the number of employees and revenue per reportable segment. The segment reporting is presented in US dollars only, in accordance to internal communication policy.

The Galleries and Price Database segments generated a positive contribution margin II, wherein the Galleries segment increased by 32% to 4,230k USD, due to higher revenue and lower expenses for product development, as compared to the previous year. The CM II for the Price Database segment decreased slightly by 2% to 4,308k USD. The artnet News segment still generated a negative contribution margin II of -807k USD. Compared to the previous year (-1,295k USD), the CM II improved by 38% due to higher revenues despite higher product development costs. CM II for the Auctions segment deteriorated due to lower revenue and higher personnel expenses by 381k USD to -738 USD.

Group Profit or Loss

After a substantial loss of -3,891k USD due to significant non-cash effects in the amount of -3,057k USD in the previous year, artnet generated a positive result after tax in the amount of 709k USD in 2015. Thus, the predicted increase in earnings to an income within the range of 100k USD to 500k USD was clearly exceeded.

Currency Conversion and Profit Situation in Euros

Currency conversion in the consolidated statement of comprehensive income is based on the average exchange rate for the period from January 1 to December 31, 2015. Throughout 2015, the average exchange rate was 0.901 USD/EUR, as compared to 0.754 USD/EUR during the 2014 fiscal year. This corresponds to a depreciation of the average exchange rate of the euro by 19%. Currency conversion for the balance sheet is based on the exchange rate at the end of the period. As of December 31, 2015, the rate was 0.917 USD/EUR, as compared to 0.823 USD/EUR on December 31, 2014. This corresponds to an appreciation of 11% in euros.

artnet is subject to these exchange rate fluctuations because it invoices in euros, US dollars, and British pounds, but conducts most of its business in the United States. Approximately 20% of the Group's revenue is generated in euros, and due to the weakness of the currency, changes in revenue and expenses in euros are substantially higher than in US dollars.

With the significant devaluation of the euro against the US dollar in 2015, the profitability of the Group in euros is affected significantly by foreign currency exchange effects, as compared to the previous year.

In euros, the Group's revenue increased from approximately 13.9 million EUR to 17.3 million EUR in 2015, or approximately 24% as compared to approximately 4% in US dollars. All product segments show a revenue growth in euros due to the exchange rate.

Gross profit of sales, when reported in euros, increased by 3 million EUR (36 %) to 11.3 million EUR, while in US dollars, this increase amounted to only 14%. Revenue and most of the Group's operating costs is obtained in US dollars, and therefore operating expenses in euros increased by approximately 19%, as compared to a slight decrease of 0.5% in US dollars. The Group thus generated a positive operating profit of 707k EUR, as compared to an operating loss of -588k EUR in the previous year. In 2015, consolidated net income in euros amounted to 638k EUR, as compared to a loss of -3,047k EUR in the previous year, due to non-cash effects in the amount of 2,412k EUR.

Financial Position

Operating cash flow increased to 235k USD (2014: -69k USD), mainly due to realized profit. The cash outflow arising from the reduction of liabilities and the increase in accounts receivable, however, counteracted this development. Receivables increased due to higher advertising revenue in the last quarter by 387k USD as compared to the previous year, while accounts payables decreased by 421k USD. Consolidated results were influenced by non-cash expenses in the previous year and, despite the enormous deficit of 2014, the operative cash flow was nearly balanced.

In 2015, cash outflow from investing activities amounted to only 32k USD, and decreased significantly as compared to the previous year (213k USD). Investments in intangible assets related to the redesign of the website (178k USD) during 2014 led to a higher cash outflow overall.

The 2015 cash outflow from financing activities amounted to 526k USD, as compared to 303k USD in the previous year, and included repayments of liabilities due to finance leases (276k USD) and the shareholder loan (250k USD).

Contrary to the forecast of a slight increase in cash and cash equivalents, this position in the balance sheet decreased from 1,436k USD on December 31, 2014 to 1,084k USD as of the current balance sheet date. The decline in cash and cash equivalents of 25% in US dollars was mainly due to the reduction in current and non-current liabilities, while the Group improved its net income.

In euros, the changes in cash flows from operating, investing, and financing activities are similar to the US dollar figures. Due to the strength of the US dollar, cash and cash equivalents in euros increased in the amount of 104k EUR. Therefore, the liquidity portfolio of the Group decreased in euros from 1,181k EUR to 994k EUR, or by 16% as compared to the previous year.

The cash investment policy for the Group is conservative and based on short-term investments, allowing all cash to be liquid and available. As of December 31, 2015, the liquidity per share totaled 0.20 USD (0.18 EUR) based on an average of 5,552,986 shares in circulation, as compared to 0.26 USD (0.21 EUR) on December 31, 2014.

Financial Status

Consolidated total assets amounted to 5,436k USD on December 31, 2015, as compared to 5,625k USD as of December 31, 2014, representing a decrease of 3%. This is mainly the result of the planned reduction of tangible and intangible assets. The decrease in cash and cash equivalents of the Group is compensated by the increase of accounts receivable.

Accounts receivable increased by 387k USD to 1,387k USD at the reporting date, due mainly to increased advertising revenues.

The Group's non-current assets are primarily held in US dollars. Fixed assets, which are comprised of intangible and tangible assets, decreased by 296k USD to 1,266k USD. This decrease was due to scheduled depreciation and amortization, which was partly offset by necessary hardware and software renewals in the amount of 240k USD. These purchases were financed through new finance lease agreements, and had only a small effect on liquidity.

The deferred tax assets, in particular those for anticipated future tax benefits coming from tax losses carried forward for Artnet Worldwide Corporation, have been set for the same amount of 884k USD. In 2015, carried-forward losses have benefitted partially from the achievement of a taxable profit of the subsidiary. Therefore, the value of this balance sheet item has been confirmed. For subsequent years, an ongoing increase of taxable profits of Artnet Worldwide Corporation is assumed.

Total current liabilities and provisions decreased by 942k USD, from 5,221k USD to 4,279k USD. This decrease of 18% was mainly due to the reduction of accounts payable, the obligation of finance leases, and the reduction of deferred revenue. Current liabilities were further affected by the currency exchange rate-related decrease in provisions, as well as the shareholder loan nominated in euros. These provisions included costs in the amount of 950k EUR for potential indemnity payments to a photographer and related legal costs in France (800k EUR) and Germany (150k EUR). For more information regarding the details of this provision, refer to the information provided in note 17 of the consolidated financial notes section.

Meanwhile, long-term liabilities decreased in the reporting year by 36% to 429k USD as of December 31, 2015. This decrease is mainly due to the reclassification of the previous long-term amount of the shareholder loan to the current liabilities. The delimitation of the rent-free period of the lease in 2012 decreased slightly as planned, and liabilities from finance leases and other long-term liabilities increased slightly.

artnet Group's consolidated equity amounted to 727k USD as of December 31, 2015, due to the realized profit and positive currency exchange effects. In the previous year, a negative Group equity amounted to -272k USD.

The Price Database constitutes an intangible asset that has been developed by the gathering of auction information, with results dating back to 1985. This valuable asset to the Group has not been attributed full-earning recognition on the balance sheet due to accounting rules, however, balance sheet assets would be substantially increased if this recognition were allowed by law.

Non-Financial Performance Indicators

Employees

As of December 31, 2015, there were 113 full-time employees in the Group, versus 118 in the previous year. Additionally, the artnet Group had two part-time employees in 2015, as compared to three in the previous year. In sales and other departments, the Group employed 11 freelancers, as compared to 12 in 2014.

Personnel expenses totaled 12,255k USD, as compared to 12,483k USD in the previous year. While personnel expenses in the costs of sales and general administrative costs were reduced, personnel expenses in sales and marketing and for product development arose in general due to new hires.

Other Non-financial Performance Indicators

The quality of our services and the associated satisfaction of Gallery Network and Price Database clients are of the utmost importance to our business. Criticism and reasons for contract cancellations are evaluated for quality assurance purposes through customer surveys, allowing us to respond to future cancellations in a timely and targeted manner.

For the Gallery Network, monitoring and controlling indicators include the number of contract cancellations and the number of new contracts. In 2015, cancellations were reduced by approximately 23%, while new contracts decreased by 17% as compared to 2014. Overall, the number of gallery members decreased by 75 to approximately 1,300. In addition, the number of inquiries sent to galleries and auction houses through artnet is documented and, as a result of the site redesign, these inquiries have more than doubled in 2015, as compared to the previous year.

For the Price Database, the number of the different types of subscriptions is closely monitored. In 2015, this number remained stable as compared to 2014, with a shift towards annual and higher-priced subscriptions. Furthermore, the number of newly added auction results to the database is taken into consideration, although these numbers depend on the number of auctions and lots offered worldwide. In 2015, the number of auction results in the Price Database exceeded 10 million.

For the monitoring and controlling of artnet Auctions, the number of lots sold and their average prices are important indicators. Compared to 2014, the number of lots sold increased by 13%, while the average price per lot sold declined by 17%. Another important performance indicator is the number of new registrants, which increased by 124% as compared to 2014.

For the performance measurement of advertising campaigns on artnet, indicators such as CPM (price for 1,000 impressions), impressions (the frequency with which an ad is fetched from its source), and viewabilty (the probability an ad is viewed) are evaluated.

The ongoing monitoring of web traffic is of the utmost importance to artnet as it provides all its services online, with different figures for the existing domains recorded and evaluated daily. Since the launch of artnet News, the number of visits to artnet.com increased by 28%. Compared to the previous year, the number of visitors at artnet News increased by 91%.

3. Disclosure of Takeover Provisions

Composition of Capital Stock

artnet AG's fully paid-in capital stock, as of December 31, 2015, totaled an unchanged 5,631,067 EUR, and comprises 5,631,067 no-par value bearer shares based on a notional common stock of 1.00 EUR per share. These are registered shares.

Voting Limits or Assignment Limits

There are no restrictions on voting rights or transfer of these shares.

Direct or Indirect Shareholdings which Exceed 10% of Voting Rights

Direct or indirect shareholdings which exceed 10% of voting rights for artnet AG are held by Galerie Neuendorf AG, Berlin, at 27.06 %, as of December 31, 2015.

Preferred Shares

There are no preferred shares.

Voting Rights Monitoring in the Event of Employee Holdings Any employee with holdings in artnet AG is obliged to exercise his or her control rights directly.

Appointment and Dismissal of Members of the Executive Board, Amendments to the Articles of Incorporation Members of the Supervisory Board are appointed and dismissed according to §§ 84, 85 of the German Stock Corporation Act (AktG). The amendments to the Articles of Incorporation were made in accordance with §§ 133, 179 AktG.

Authorization of the Executive Board to Issue and Repurchase Shares

Authorized Capital

The Shareholder's Meeting of artnet AG on July 16, 2014 authorized the Management Board, with the approval of the Supervisory Board, to increase the subscribed capital of 2,800,000 new bearer shares by up to 2,800k EUR in exchange for cash contributions, or contributions in kind (Authorized Capital 2014) until July 15, 2019. No shares were issued from the authorized capital so far.

Conditional Capital

As per the resolution of the Shareholder's Meeting on July 15, 2009, the registered capital was increased by up to 560,000 new no-par value shares (conditional capital 2009/I) to the Company's directors and management team members of affiliated companies and employees of artnet AG. The authorized conditional capital 2009/I expired during the previous fiscal year. No shares have been issued from it.

In 2009, 2010, and 2014, 398,907 stock options were granted to the Management and employees of the subsidiary Artnet Corp. from the 2009 stock option program. As of now, none of these options has been exercised. All of these 398,907 issued share options can increase the conditional capital (conditional capital 2009/I) if they are exercised.

4. Declaration of Conformity with the German Corporate Governance Code of § 161 AktG

The current Declaration of Compliance with the German Corporate Governance Code according to § 161 of the German Stock Corporation Act (AktG) can be viewed online at artnet.com/investor-relations/declaration-of-compliance.

5. Remuneration Report

This remuneration report is based on the recommendations of the German Corporate Governance Code. It summarizes the principles that apply to defining the remuneration for artnet AG's Management Board, and explains the amount and structure of the Management Board's remuneration. In addition, it describes the principles behind, and the amount of, the remuneration of the Supervisory Board. Furthermore, the remuneration report includes information that also forms part of the notes to the consolidated financial statements according to § 314 of the German Commercial Code (HGB), or the Group Management according to § 315 of the German Commercial Code (HGB).

5.1 Remuneration of the Management Board

Granted Remuneration, CEO	Jacob Pabst
EUR	2014		2015
	Granted	Granted	(Min)	(Max)
Fixed Basic Remuneration	235,469	304,088	304,088	304,088
Remuneration in Kind	8,859	10,025	10,025	10,025
Total	244,327	314,112	314,112	314,112
Short-Term Remuneration	–	25,000	–	304,088
Benefits	–	–	–	–
Total Remuneration	244,327	339,112	314,112	618,200

Paid, CEO	Jacob Pabst
EUR	2014	2015
Fixed Basic Remuneration	235,469	304,088
Remuneration in Kind	8,859	10,025
Total	244,327	314,112
Short-Term Remuneration	–	–
Benefits	–	–
Total Remuneration	244,327	314,112

The Supervisory Board is responsible for setting the remuneration of the Management Board. Setting remuneration for artnet AG's Management Board is based on the Company's size and activities, its economic and financial position, and the amount and structure of remuneration for the Management Board at comparable companies. Remuneration must be set such that it is competitive in the international market for highly qualified executives, and that it offers an incentive for successful work.

Jacob Pabst receives no remuneration from artnet AG. The payment of his duties as a board member of artnet AG is compensated with the remuneration for his role as CEO of Artnet Worldwide Corporation. Both the management contract with artnet AG and the employment contract with Artnet Worldwide Corporation were extended on July 1, 2014 for two years, until July 1, 2016.

Remuneration for Jacob Pabst as a board member, comprised of a fixed basic remuneration and a yearly variable compensation component (short-term performance-related incentive (STI)), is described below:

Fixed basic remuneration: The fixed remuneration is paid out as a monthly salary. In the first year of the contract, a basic remuneration of 27,083 USD per month, or 325k USD per year, is paid. In the second year of the contract, the basic remuneration increases to 29,167 USD per month, or 350k USD per year. In addition, the Company continues to pay health insurance in the amount of 450 EUR per month, and the costs of the Company's group medical plan. The Company has taken out accident insurance with coverage for invalidity (300k EUR) and death (150k EUR). In the 2015 fiscal year, the fixed cash remuneration of the Management Board member, Jacob Pabst, totaled 314,112 EUR (342,633 USD). The increase of the fixed remuneration is mainly due to currency exchange effects related to the strong US dollar. In US dollars, the

remuneration increased according to the contract by 5.7% from 324,257 to 342,633 USD.

Variable compensation component (STI): In addition to the fixed basic remuneration, the Management Board receives a variable compensation component. The amount of this component is at the discretion of the Supervisory Board. The basis for calculation of this component is the consolidated financial statement of the year, in which the variable compensation component is paid. The variable remuneration component should not exceed the fixed basic remuneration. The variable remuneration component is dependent on one third of each of the following objectives:

• 1/3 of the achievement of the budgeted net income and cash flow
• 1/3 of the share price performance of artnet AG
• 1/3 of the discretion of the Supervisory Board, based, in particular, on long-term goals, such as the introduction of new products or new business areas, expected profitability in the future, and significant transactions

The variable remuneration component will be, as far as granted, paid in 10 equal monthly installments, starting in the month in which it was granted. In 2015, the Supervisory Board considered a variable compensation in the amount of 25,000 EUR based on performance goals and cash flow as appropriate.

5.2 Remuneration of the Supervisory Board

The remuneration of the Supervisory Board is defined by the General Meeting based on a proposal by the Management Board and the Supervisory Board. It is regulated in the articles of incorporation.

Remuneration of the Supervisory Board is based on the Company's size, the tasks and responsibilities of the members of the Supervisory Board, and the Company's economic situation and performance.

The members of the Supervisory Board receive a fixed remuneration every year. The chairman of the Supervisory Board receives 50,000 EUR, the deputy chairman receives 37,500 EUR, and the third member of the Supervisory Board receives 25,000 EUR.

6. Risk and Opportunity Report

6.1 Risk Report

Risk Management

The artnet Group has introduced a risk management system to identify and constantly monitor the Group's operating and financial risks. This system, which aims to alleviate the impact of any unforeseen events, is largely comprised of the following four components:

• Finance, which monitors the actual results of business activities, provides forecast/actual comparisons as part of monthly reporting, and provides comparisons with the previous year
• IT infrastructure, which ensures and monitors the 24/7 availability and functionality of the website
• Project management, which monitors the development and progress of the individual technology projects
• Ongoing traffic monitoring, which evaluates and tracks the key areas of web traffic

The risk management system ensures that critical information is passed on to the Group's Management Board directly and in a timely manner.

Early Warning System Ensures Identification of Potential Risks

As a rule, in order to measure, monitor, and control its business growth and risks, the artnet Group uses a management and control system which is mostly based on financial accounting data. The risk inventory, which is developed based on this document, lists the key existing threats and allocates levels of responsibility within the artnet Group. Existing risk potential is observed on an ongoing basis; suitable activities to limit risks are put in place whenever possible. The risk management system includes regular internal reporting on the course of business, current market developments, and customer relationships, as well as a Group-wide budget process which deals with operating risks and changes in the business environment. This process is supported by regular analysis of the market and competition.

Dealing with Major Potential Risks

Operative Management is directly responsible for the early recognition, control, and communication of risks. As a result, the artnet Group can react to potential risks in a comprehensive and targeted manner. Risk policy is geared to generate sustained growth and secure enterprise value over the long term, and to avoid any reasonable risks.

Accounting-Related Internal Control System with Regard to the Group Accounting Process

The Management Board has set up an internal control system for the wide range of organizational, technical, and economic workflows in the Group. A key competency is the principle of the segregation of duties, which aims to ensure that executive (e.g. sales), recording (e.g. Accounting), and administrative (e.g. IT administration) departments are not united in the same place. The principle of dual control ensures that no material workflows go uncontrolled.

Expectations of the Management Board are defined and documented by regular, targeted agreements. The implemented risk management system ensures that critical information and data will pass directly to the Management.

The preparation of the consolidated financial statement was made by the finance director of Artnet Worldwide Corporation, who has many years of experience and special expertise in consolidation issues.

Risks

The Group has identified the following risks:

External Risks

Art Market Economic Trends

artnet is subject to fluctuations in the art market. As the market is constantly impacted by the changing conditions of domestic and global economies, the extent to which these developments will also impact the art market in the future is unclear.

Operating Risks

IT System Infrastructure

Interruptions to the website's functions can reduce artnet's ongoing revenues and profits, and could also impact future

revenue and earnings. Frequent or sustained interruptions to service could cause existing or interested users to consider the Group's systems as unreliable, thus having a negative impact on the Group's overall image and reputation. Any such interruption increases the work required by the IT Department, which, in turn, leads to delays in launching new functions and services. Even though the Group's systems have been designed so that periods of interruption in the event of a power outage or catastrophe are low, they remain susceptible to damage or disruption from flooding, fire, and power outages, or interruptions to telecommunications services due to terrorist attacks, computer viruses, or other unforeseen events. That being said, artnet's web servers are located in an extremely secure external facility.

Product Development

artnet's future success depends on how fast the Group can adjust to technological changes and new industry standards. The Management Board intends to further improve the functionality and reliability of the website, and to launch new products that benefit both existing and potential customers. The Group observes market trends and focuses on product development, reinforcing the importance of the Development Team over the past few years. The recent staff increases will allow artnet to meet its customers' growing needs, and to increase growth potential by launching new products.

There is always the risk that product innovations and further product developments will not be immediately accepted by users, and that the associated goals will not be met. In the case of achieving lower revenue, artnet's results of operations would be impacted by increasing costs of product development and higher ongoing costs.

There are also risks in product development due to a growing number of Internet startups entering the market, many of which are directly competing with one or more of our product segments.

Traffic to the Website

Website visits (traffic) are of key importance to artnet, and a downturn in visitor numbers could lead to reduced revenue for all products. artnet monitors traffic on a daily, weekly, and monthly basis in order to ensure that traffic meets expectations. To further increase visits to the site, the Group requires a larger financial commitment to advertising and marketing. Whenever possible, artnet monitors visitor numbers and revenue generated through the website, and compares these numbers with the corresponding advertising and marketing expenses in order to assess the success of advertising and marketing activities.

Legal Risks

Trademark Laws

artnet protects itself through the trademark of the artnet name in the Group's key market areas, in particular, the United States, Germany, France, and the European Union. Trademark infringements are costly and are subject to review from national authorities, which can result in a negative outcome for the Group. Additionally, the Group must defend itself against copyright and other legal claims, which could also result in a negative outcome for the Group.

Copyright Laws

artnet uses a number of photographs of decorative art objects in its database, and, as an international company, is exposed to different regulations for copyright protection. For this reason, artnet agreed on a license contract with the Copyright Collective Bild-Kunst in Germany and the Artist Rights Society in the United States. However, these contracts do not cover all rights for all images used in the database. In response to a French photographer who sued artnet in both French and German courts over his rights as the creator of photographs taken for an auction catalogue, and which were subsequently used in the Price Database Decorative Art, artnet will take legal action and all necessary contractual steps to avoid future lawsuits. It cannot be ruled out that other photographers, especially in France, may file similar lawsuits. This could have a significant impact on net assets, financial position, and results of operations.

Protection of Customer Data

artnet stores customer data in compliance with all current laws and regulations. However, if a third party were to succeed in bypassing the artnet security measures and obtain customer information, artnet could be liable for any damages incurred.

Financial Risk

Foreign Currency Fluctuation, Default, and Liquidity Risks artnet conducts a portion of its business outside of the United States, thereby facing exposure to adverse movements in currency exchange rates. As exchange rates are subject to fluctuation, revenues and operating expenses may differ substantially from expectations. artnet does not currently engage in exchange rate hedging against these risks. Instead, the Group accepts payments from customers in euros and British pounds, and pays their suppliers in Europe in these currencies. This reduces the exchange rate risks.

Due to the intragroup loan in which the parent company, artnet AG based in the Eurozone, is financed by its US based subsidiary, as well due to its euro-nominated bank accounts, Artnet Worldwide Corp., faces a currency exchange risk. Currency translation adjustments arising from the valuation of intercompany long-term loan receivables, which qualify as part of a net investment, are not reflected in the profit or loss of the Group, but are recognized in the other comprehensive income and will be accumulated in a separate component of equity until full or partial disposal of artnet AG ownership interest in Artnet Corp. The Board desists from a hedge of this foreign currency risk due to reasons of efficiency.

artnet has no significant concentration of default risk for financial assets because the exposure is averaged over a large number of customers, including individuals and entities dealing in the fine art market. Nevertheless, the global economic downturn could negatively influence the solvency of the Group's customers, leading to an increase in the average credit period, or, at worst, leading to an increase in customer default. This would negatively affect the Group's earnings, as well as its financial position. artnet attempts to counter such risks by insisting on upfront payments from customers whenever possible.

Liquidity risk represents the instance where artnet might be unable to meet deadlines to make due payments. artnet is settling its current costs and investments from existing cash on hand and cash flow operations, and has no lines of credit. In 2015, cash and cash equivalents decreased mainly due to the lowering of open accounts payable, as well as the redemption of leasing and loan liabilities.

The March 2015 ruling by the French Court of Appeal, in connection to the alleged violation of copyright of a French photographer for high indemnity payments in the amount of 0.8 million EUR, could eventually lead to counter-liquidity risks if the amount is required to be paid on short notice. artnet continues to take legal action against this judgment. On May 25, 2015 artnet appealed this decision. In March 2016, the French Court of Cassation ruled in favor of the French photographer on a procedural aspect, without considering the arguments that artnet formed to challenge the grounds of the ruling from the Court of Appeal. A reregistration of the case depends on a full or partial payment of the compensation of 0.8 million EUR. Currently, artnet is carefully evaluating all options to prevent the enforcement of the ruling in Germany and the United States. The provision made for this case as of December 31, 2015 has not changed. The provision covers the maximum risk of this trial.

The German Court in the same matter has yet to render its decision, and is not expected before mid-2016. artnet reserves its rights to appeal against the decision. A provision including legal costs amounting 150k EUR for the German lawsuit was also made in the previous year. The risk evaluation has not changed since last year, as there were no new facts available at the closing date.

Aside from all legal remedies, artnet continues its efforts to achieve a settlement with the French photographer. Considering all its options, artnet does not believe a full payment of damages will be required in 2016.

As the artnet Group only has interest-bearing debts in the form of finance leases and shareholder loans, the risk of changes to interest rates is to be regarded as insignificant.

Other Risks

Key Employees

The market for skilled and motivated managers is highly competitive. As a result of artnet's relatively small size, the loss of employees in key positions could have a significant impact on the Company's day-to-day operations.

There is always the possibility that the above list does not outline all risks to which artnet is exposed. Unrecognized and unreported risks could arise, negatively impacting business performance. The Group continues to monitor its environment and review the effectiveness of the risk management systems. Despite continuous adjustments to the risk management system, it is not possible to entirely quantify the probability of all risks or their financial impact.

6.2 Opportunities

The online art market is characterized by a dynamic environment, with constant opportunities for artnet. The size of the Company and short decision-making processes allow us to respond quickly to changing circumstances and trend reversals, weighing the potential risks. Opportunities may arise from the internal or external environment.

The development of the international art market is closely linked to the economy of industrial countries. Changes in economic circumstances will have an impact on our business activities. If the global economy, and, in particular, the European economy, recovers more sustainably than expected, this could have a positive effect on our earnings.

The confidence of buyers and sellers in the Internet as a transaction platform is growing steadily, including confidence in transactions for high-priced artworks. In the coming years, the online sector of the art market is expected to grow by a double-digit percentage rate, reaching 10 billion EUR by 2020. If this sector grows faster than currently expected, we could surpass our midterm projections, particularly those in the Auctions segment.

The Company's success depends, to a large extent, on our ability to provide our customers with innovative solutions and improved products. Thus, we continue to increase the effectiveness of our products and implement website developments. Of course, if we are able to progress faster than is currently expected, we would be able to implement product improvements more quickly, and this could have a positive effect on our revenue and earnings.

The 2014 launch of artnet News adds to artnet's current product package. The launch of the artnet News app for iPhone supplemented the coverage of artnet News, and will help to increase brand awareness and the number of unique visitors to our website. This addition already had a positive impact on the number of visitors and, as a result of the higher traffic on artnet websites, the revenue from advertising increased as compared to last year.

7. Subsequent Report

In March 2016, the French Court of Cassation rendered its decision in a lawsuit of a French photographer versus artnet AG, artnet France Sarl, and Artnet Worldwide Corp. concerning his claim of a violation of copyright. Based on procedural aspects of the case, the French Court of Cassation has ruled in favor of the French photographer.

In the previous level of jurisdiction, the Paris Court of Appeal had ordered artnet AG, artnet France Sarl, and Artnet Worldwide Corp. to pay 764,412 EUR to Mr. Briolant, and held that artnet AG, artnet France Sarl, and Artnet Worldwide Corp. are jointly and severally liable. The appeal filed against this judgment by artnet AG, artnet France Sarl, and Artnet Worldwide Corp. intended to obtain a cancellation of this ruling by the Court of Cassation, and sought to have the entire case reviewed by a different Court of Appeal. However, the French photographer filed a motion claiming that this appeal cannot be processed by the Court of Cassation for failure to meet certain prerequisites with respect to the enforcement of the ruling from the Court of Appeal. This motion was argued by the parties before the court in a hearing which led to a pre-trial ruling in favor of the motion of the French photographer.

Consequently, the pre-trial ruling is not based on any consideration of the arguments that artnet AG, artnet France Sarl, and Artnet Worldwide Corp. formed to challenge the grounds of the ruling from the Court of Appeal. The Court of Cassation could reregister the case if all or part of the above mentioned compensations are paid within a two-year period.

The Company will carefully evaluate its legal options and all other available means concerning this matter.

No other reportable events of significance for the net assets, financial position, and results of the artnet Group have occurred after the balance sheet date.

8. Outlook

The following report describes forecasts made by the Management Board regarding the future performance of artnet's segments and general business. The actual business performance may differ in a positive or negative way from these forecasts due to the occurrence of risks and opportunities, as described in the Risk and Opportunity Report.

In 2016, artnet is poised to continue its leading position in an ongoing competitive market, taking advantage of the ever-growing popularity of artnet News. Bringing timely articles, opinion pieces, and trend reports to the art world since December 2015, readership has recently expanded even further with the release of the artnet News iPhone app, whose growing popularity is projected to increase the number of visitors and pageviews significantly. In addition, an Android app is currently in development and will be made available within the first half of 2016. These improvements will have a positive impact on advertising revenue (which is not limited to the artnet News segment), and a strong revenue growth for artnet News is projected during the 2016 fiscal year.

The number of subscriptions to the Price Database stabilized in 2015, revealing a shift to long-term and higher-priced subscriptions. The Management expects that this trend will continue in 2016, and that the Price Database segment will show a slight increase in revenue.

In 2015, the Gallery Network member sites underwent a redesign, creating, among other benefits, a double in the number of inquiries sent to galleries and auction houses, as well as a higher level of satisfaction reported by our clients. In this competitive market, the Management expects the number of memberships to stabilize. Due to an anticipated revenue increase for Auction House Partnerships and an increase of advertising revenue for the Galleries segment, a slight increase in revenue is expected for this segment.

Thanks to the continued acceptance of the online auction market, artnet Auctions will play an even more important role in the art world as higher-priced artworks become more prevalent. Growing interest in online auctions has led to a significant increase in the registrations of new buyers and sellers to this platform in 2015. The Management expects to profit from this trend, and forecasts a significant revenue growth for artnet Auctions.

Due to the expectations for individual segments outlined above, the Management predicts a revenue increase of 20 to 21 million USD (18 to 19 million EUR) and profit after tax of 1.0 to 1.3 million USD (0.9 to 1.2 million EUR) for 2016. With the forecast revenue and planned expenses, cash and cash equivalents are expected to show a slight increase as compared to December 31, 2015.

Berlin, April 7, 2016

Jacob Pabst CEO, artnet AG

Consolidated Financial Statements as of December 31, 2015

artnet AG Consolidated Balance Sheet

As of December 31, 2015

	Notes No.	12/31/2015 USD .	12/31/2014 USD .	12/31/2015 EUR .	12/31/2014 EUR .
Assets
Current Assets
Cash and Cash Equivalents	3	1,083,526	1,435,839	993,593	1,181,121
Trade Receivables	4	1,387,025	999,922	1,271,902	822,536
Other Current Assets	5	426,504	353,743	391,104	290,989
Total Current Assets		2,897,055	2,789,504	2,656,599	2,294,646
Non-Current Assets
Property, Plant, and Equipment	6	712,176	773,136	653,065	635,982
Intangible Assets	7	553,800	788,968	507,835	649,005
Security Deposits		388,361	388,845	356,127	319,864
Deferred Tax Assets	8	884,432	884,432	811,024	727,534
Total Non-Current Assets		2,538,769	2,835,381	2,328,051	2,332,385
Total Assets		5,435,824	5,624,885	4,984,650	4,627,031
Equity and Liabilities
Current Liabilities
Accounts Payable	9	299,425	720,760	274,573	592,897
Accrued Expenses and Other Liabilities	10	749,348	705,878	687,152	580,655
Provisions	11	1,035,987	1,319,644	950,000	1,085,540
Short-Term Liabilities from Finance Leases	12	131,362	225,401	120,459	185,415
Deferred Revenue	14	1,742,160	1,880,882	1,597,561	1,547,214
Loans	27	320,961	368,750	294,321	303,334
Total Current Liabilities		4,279,243	5,221,315	3,924,066	4,295,055
Long-Term Liabilities Office Rent Amortization	13	330,141	375,930	302,739	309,240
Long-Term Liabilities from Finance Leases	12	81,312	56,014	74,563	46,077
Loans	27	–	243,132	–	200,000
Other Long-Term Liabilities	18	17,834	–	16,354	–
Total Long-Term Liabilities		429,287	675,076	393,656	555,317
Total Liabilities		4,708,530	5,896,391	4,317,722	4,850,372
Shareholders' Equity
Common Stock	15	5,941,512	5,941,512	5,631,067	5,631,067
Treasury Stock	15	(269,241)	(269,241)	(264,425)	(264,425)
Additional Paid-In Capital		52,404,326	52,325,939	50,997,910	50,927,279
Accumulated Deficit		(58,762,833)	(54,872,246)	(56,916,361)	(53,868,969)
Current Net Profit		709,155	(3,890,587)	638,949	(3,047,392)
Foreign Currency Translation		704,375	493,117	579,788	399,099
Total Shareholders' Equity		727,294	(271,506)	666,928	(223,341)
Total Liabilities and Shareholders' Equity		5,435,824	5,624,885	4,984,650	4,627,031

artnet AG Consolidated Income Statement

For the Fiscal Year from January 1 to December 31, 2015

	Notes No.	2015 . USD .	2014 . USD .	2015 . EUR .	2014 . EUR .
Revenue
Gallery Network		5,428,160	5,941,627	4,890,772	4,477,016
Price Database		7,231,242	7,469,366	6,515,349	5,628,167
Advertising		3,618,644	1,894,422	3,260,398	1,427,447
Auctions		2,905,750	3,150,649	2,618,081	2,374,014
Total Revenue	24	19,183,796	18,456,064	17,284,600	13,906,644
Cost of Sales		6,616,792	7,393,886	5,961,730	5,571,293
Gross Profit		12,567,004	11,062,178	11,322,870	8,335,351
Operating Expenses
Sales and Marketing		4,233,544	4,231,219	3,814,423	3,188,224
General Administrative		3,933,670	4,254,590	3,544,237	3,205,834
Product Development		3,518,373	3,283,789	3,170,054	2,474,335
Non-Cash Compensation	18	96,221	73,112	86,695	55,090
Total Operating Expenses		11,781,808	11,842,710	10,615,409	8,923,482
Operating Income		785,196	(780,532)	707,461	(588,131)
Interest Expenses	22	32,037	68,274	28,865	51,444
Interest Income	22	820	58	739	44
Extraordinary Depreciation		–	653,192	–	537,316
Other Income/(Expenses)	22	(9,150)	(93,545)	(8,244)	(70,486)
Provision for Litigation Risks	22	–	1,260,783	–	950,000
Earnings Before Taxes		744,829	(2,856,268)	671,091	(2,197,333)
Income Taxes	8	(35,674)	(11,174)	(32,142)	(8,420)
Deferred Tax Benefit/(Expense)		–	(1,023,145)	–	(841,639)
Total Taxes		(35,674)	(1,034,319)	(32,142)	(850,059)
Net Profit/(Loss)		709,155	(3,890,587)	638,949	(3,047,392)
Other Comprehensive Income
OCI Recycled: Differences from Foreign Currency Translation		211,258	497,777	180,689	554,967
Total Comprehensive Income		920,413	(3,392,810)	819,638	(2,492,425)
Result per Share
Basic and Diluted	21	0.13	(0.70)	0.12	(0.55)

artnet AG Consolidated Statement of Changes in Shareholders Equity (USD)

For the Fiscal Year from January 1 to December 31, 2015

Common Stock
	Issued Shares	Amount	Treasury Stock	Additional Paid-In Capital	Accumulated Deficit	Foreign Currency Translation	Total
Balance as of 12/31/2013	5,631,067	5,941,512	(269,241)	52,252,827	(54,872,246)	(4,660)	3,048,192
Net Income/(Loss)	–	–	–	–	(3,890,587)	497,777	(3,392,810)
Remuneration from Stock Options	–	–	–	73,112	–	–	73,112
Balance as of 12/31/2014	5,631,067	5,941,512	(269,241)	52,325,939	(58,762,833)	493,117	(271,506)
Net Income/(Loss)	–	–	–	–	709,155	211,258	920,413
Remuneration from Stock Options	–	–	–	78,387	–	–	78,387
Balance as of 12/31/2015	5,631,067	5,941,512	(269,241)	52,404,326	(58,053,678)	704,375	727,294

artnet AG Consolidated Statement of Changes in Shareholders Equity (EUR)

For the Fiscal Year from January 1 to December 31, 2015

	Common Stock
	Issued Shares	Amount	Treasury Stock	Additional Paid-In Capital	Accumulated Deficit	Foreign Currency Translation	Total
Balance as of 12/31/2013	5,631,067	5,631,067	(264,425)	50,872,189	(53,868,969)	(155,868)	2,213,994
Net Income/(Loss)	–	–	–	–	(3,047,392)	554,967	(2,492,425)
Remuneration from Stock Options	–	–	–	55,090	–	–	55,090
Balance as of 12/31/2014	5,631,067	5,631,067	(264,425)	50,927,279	(56,916,361)	399,099	(223,341)
Net Income/(Loss)	–	–	–	–	638,949	180,689	819,638
Remuneration from Stock Options	–	–	–	70,631	–	–	70,631
Balance as of 12/31/2015	5,631,067	5,631,067	(264,425)	50,997,910	(56,277,412)	579,788	666,928

artnet AG Consolidated Statement of Cash Flows

For the Fiscal Year/Period from January 1 to December 31, 2015

	Notes No.	2015 . USD .	2014 . USD .	2015 . EUR .	2014 . EUR .
Cash Flow from Operating Activities
Net Profit/Loss		709,155	(3,890,587)	638,949	(3,047,392)
Adjustments to Reconcile Net Profit to Net Cash Provided by/(used in) Operating Activities
Depreciation and Amortization	6,7,22	531,468	1,283,299	478,852	944,934
Impairments/Write-Offs for Receivables	4	301,093	(161,234)	271,285	(121,490)
Changes in Deferred Tax Assets	8	–	1,023,145	–	841,639
Non-Cash Compensation from Stock Options	18	78,387	73,112	70,627	55,090
Other Non-Cash Transactions		57,898	492,924	52,166	438,587
Changes in Operating Assets and Liabilities
Trade Receivables	4	(688,196)	28,957	(620,065)	21,819
Other Current Assets	5	(72,761)	54,457	(65,558)	41,033
Security Deposits		484	(2,678)	436	(2,018)
Accounts Payable	9	(421,335)	79,593	(379,623)	59,973
Provisions	11	(120,645)	1,154,874	(108,701)	870,198
Accrued Expenses and Tax Liabilities	10	(2,319)	(122,591)	(2,090)	(92,372)
Deferred Revenue	14	(138,722)	(81,941)	(124,989)	(61,743)
Total Adjustments		(474,648)	3,821,917	(427,660)	2,995,650
Cash Flow Provided by/(used in) Operating Activities		234,507	(68,669)	211,289	(51,742)
Cash Flow from Investing Activities
Purchase of Property and Equipment	6,12	(24,695)	(35,536)	(22,645)	(26,776)
Purchase and Development of Intangible Assets	7,12	(7,616)	(177,961)	(6,983)	(134,094)
Cash Flow Used in Investing Activities		(32,310)	(213,497)	(29,628)	(160,870)
Cash Flow from Financing Activities
Repayment of Finance Leases	12	(275,786)	(302,796)	(248,483)	(228,157)
Loan Payments	27	(249,723)	–	(225,000)	–
Cash Flow Used in Financing Activities		(525,509)	(302,796)	(473,483)	(228,157)
Effects of Exchange Rate Changes on Cash		(29,001)	(83,976)	104,294	93,127
Changes in Cash and Cash Equivalents		(352,313)	(668,939)	(187,528)	(347,642)
Cash and Cash Equivalents—Start of Period	3	1,435,839	2,104,778	1,181,121	1,528,763
Cash and Cash Equivalents—End of Period	3	1,083,526	1,435,839	993,593	1,181,121
Supplemental Disclosures of Cash Flow
Income Tax Receipts/(Payments)	8	(20,873)	(9,531)	(18,807)	(7,182)
Interest Payments	22	(14,293)	(63,849)	(12,878)	(48,110)
Interest Receipts	22	820	58	739	44

1. Corporate Information and Statement of Compliance 34
2. Summary of Significant Accounting Policies 34
3. Cash and Cash Equivalents and Explanation of Consolidated Statement of Cash Flow 37
4. Accounts Receivable 37
5. Other Current Assets 38
6. Tangible Assets 38
7. Intangible Assets 38
8. Taxes and Deferred Taxes 39
9. Accounts Payable 40
10. Accruals and Other Liabilities 40
11. Provisions 41
12. Liabilities from Finance Leases 41
13. Deferred Rent Incentive 41
14. Deferred Revenue and Revenue Recognition 41
15. Equity 42
16. Capital Management 43
17. Financial Instruments and Risks Arising from Financial Instruments 43
18. Share-Based Remuneration 45
19. Personnel Expenses 46
20. Defined Contribution Plans 47
21. Earnings per Share 47
22. Other Disclosures on the Consolidated Statement of Comprehensive Income 47
23. Segment Reporting 48
24. Information by Geographic Region 49
25. Operating Leases 50
26. Auditor's Fees 50
27. Related-Party Transactions 50
28. Accounting Estimates and Judgments 51
29. Significant Events After the Balance Sheet Date 51
30. Notifications According to the Wertpapierhandelsgesetz (WpHG - German Securities Trading Act) 52

1. Corporate Information and Statement of Compliance

artnet AG (hereinafter referred to as "artnet AG" or the "Company") is a publicly traded corporation headquartered in Berlin, Germany. The address of its registered office is Oranienstraße 164, 10969 Berlin, Germany.

artnet AG holds 100% of the shares in Artnet Worldwide Corporation ("Artnet Corp."), which is located in New York, NY, USA. Artnet Corp. holds 100% of the shares in artnet UK Ltd. and artnet France Sarl. artnet AG and Artnet Corp., together with the latter's wholly owned subsidiaries, are referred to as the "artnet Group" or the "Group."

The Group's goal is to provide art collectors, galleries, publishers, auction houses, and art enthusiasts with a website to research artists and art prices. Users can find artworks that are currently available for sale in the Gallery Network, Auction House Partnerships, or on artnet Auctions, an online transaction platform for buying and selling art. artnet News, the 24-hour newswire, informs users about the events, trends, and people shaping the global art market.

Applying § 315a of the German Commercial Code (HGB), accompanying the consolidated financial statements as of December 31, 2015, financial statements for the parent and subsidiary companies were prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations of the International Accounting Standards Board (IASB) effective within the EU. The consolidated financial statements were authorized for issuance by the CEO on March 17, 2016.

2. Summary of Significant Accounting Policies

Basis of Accounting and Reporting Currency

Amounts included in the consolidated financial statements and notes to the consolidated financial statements are stated in euros (EUR) as required by German law, unless otherwise noted. The reporting currency is the euro.

Due to rounding, amounts presented may not add up precisely.

The currency of the primary economic environment in which artnet operates is US dollars. For convenience, especially for our US-based investors, the consolidated statement of financial position, statement of comprehensive income, cash flow statement, and statement of changes in equity are also presented in US dollars.

The consolidated financial statements have been prepared on a historical cost basis. The balance sheet date is December 31, 2015. The principal accounting policies adopted are set out below.

The consolidated financial statements as of December 31, 2015 have been prepared under the assumption that the Company will continue operations, as the Company assumes that the due payment obligations in 2016 can be fulfilled. Due to planned measures against the enforcement of the French ruling, artnet assumes no full cash outflows for the claimed damage. For the German lawsuit in the same matter, due to planned legal remedies, artnet does not expect to make any payments during the 2016 fiscal year. The potential liquidity risk related to ongoing litigations on the subject of copyright infringement is explained in detail in the liquidity risk section in the Group Management Report 2015.

Basis of Consolidation and Consolidated Companies

The consolidated financial statements include the parent company, artnet AG, as its wholly owned subsidiary, and Artnet Worldwide Corporation, as the subsidiaries of the Company. A company determines whether it is a parent by assessing whether it controls one or more investees. A company considers all relevant facts and circumstances when assessing whether it controls an investee. A company controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. artnet AG has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. An investor must be exposed, or have rights to variable returns from involvement with an investee, to control the investee. Such returns must have the potential to vary as a result of the investee's performance and can be positive, negative, or both. Variable returns include dividends, fixed and variable interest rates, fees and charges, fluctuations in the value of investments, and other economic benefits.

On February 23, 1999, artnet AG entered into a transaction with Artnet Corp., which was treated as a recapitalization of Artnet Corp., with Artnet Corp. as the acquirer of artnet AG. The Company accounted for the business combination of artnet AG and Artnet Corp. as a reverse acquisition in accordance with IFRS 2, B1 et seq.

On November 1, 2007, Artnet Corp. established artnet UK Ltd., which is a wholly owned subsidiary of Artnet Corp. artnet UK Ltd. conducts sales and provides customer support for Artnet Corp. in the United Kingdom.

The active business operations of artnet France Sarl, a wholly owned subsidiary of Artnet Corp., was closed in June 2012.

All significant intercompany transactions, balances, income, and expenses are eliminated in full on consolidation.

Reporting Period

The consolidated financial statements were prepared for the reporting period, from January 1, 2015 through December 31, 2015. The financial year for all Group companies coincides with the calendar year.

Accounting Principles of General Importance for artnet

artnet has reviewed its notes for the 2015 fiscal year in accordance to the specifications of IASB on essentiality and relevance. The following section about the accounting principles was shortened significantly. Further explanations to individual balance sheet items can be found in the notes items and explanations with less relevance have been removed.

Impairment

The Group reviews tangible and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, tangible and intangible assets, as well as intangible assets not yet available for use, are subject to an annual impairment test. Recoverability of assets is measured by the comparison of the carrying amount of the asset to the recoverable amount, which is the higher of the asset's value in use and its fair value minus the cost to sell. In the event that the asset does not generate cash flows independent from other assets, the impairment test is not performed at an individual asset level; instead, it is

performed at the level of the cash-generating unit to which the asset belongs. If the recoverable amount of the cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized as an expense as soon as it occurs. The asset's value in use, either at an independent level or at a cash-generating unit level, is measured by discounting the asset's estimated future cash flows. If there is an indication that the reasons that caused the impairment loss no longer exist, the Group will assess the need to reverse all or a portion of the impairment, as long as it does not exceed the original carrying amount. In 2015, no impairment of tangible or intangible assets has been recorded. In the previous year, an impairment of 537k EUR on an intangible asset was made.

Foreign Currency Translation and Business Transactions

The currency of the primary economic environment in which the artnet Group operates is US dollars, which is the operating currency for the subsidiary Artnet Corp. Transactions in currencies other than US dollars are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Gains and losses from foreign currency transactions are recognized as other income/expenses.

On consolidation, the assets and liabilities of the Group's operations are also translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. The accumulated gains and losses resulting from translation are recorded as a separate component of the Group's equity.

If the conditions of IAS 21.15 are met, intercompany loan receivables are classified as part of a net investment. Accordingly, exchange differences on the loan amount in euros will be recognized in the foreign currency adjustment item in equity at closing dates (including interim reports).

Currency exchange rates significant to the artnet Group, are the translation of US dollars to euros, and of US dollars to British pounds (GBP). The following exchange rates have been used for the currency translation in the years presented:

		USD to GBP
	12/31/2015	12/31/2014	12/31/2015	12/31/2014
Current Rate Year End	0.917	0.823	0.676	0.644
Average Rate for the Year	0.901	0.754	0.654	0.607

New and Amended Standards and

Interpretations for the Fiscal Year

The following new or amended standards and interpretations for which the application was mandatory in the 2015 fiscal year, did not have any material impact on the Company's consolidated financial statements.

New Features and Changes in Accounting Standards
	Date of EU
Issued	Endorsement
6/17/2014	6/13/2014
1/1/2015	12/18/2014

Not Yet Applied New or Revised

Standards and Interpretations

Future Features and Changes in Accounting

			Date of EU
	New Standards or Interpretations	Issued	Endorsement
IFRS 9	Financial Instruments	1/1/2018	H2 2016
IFRS 14	Regulatory Deferral Accounts	1/1/2016	No Endorsement
IFRS 15	Revenue from Contracts with Customers	1/1/2018	Q2 2016
IFRS 16	Leases	1/1/2019	TBD
	Changes of Standards
	Changes in IFRS 10, IFRS 12, IAS 28: Amendments Regarding the Application of the Investment Entities	1/1/2016	Q2 2016
	Changes in IAS 12: Amendments regarding the recognition of deferred tax assets for unrealized losses	1/1/2017	Q4 2016
	Changes in IAS 7: Disclosure Initiative	1/1/2017	Q4 2016
	Changes in IAS 1: Disclosure Initiative	1/1/2016	12/18/2015
venture	Changes in IFRS 10, IAS 28: Sales or contributions of assets between an investor and its associate/joint	Rescheduled Undecided	Rescheduled
	Changes in IAS 27: To Allow Application of the Equity Method in Separate Financial Statements	1/1/2016	12/18/2015
	Changes in IAS 16, IAS 38: Acceptable Methods of Depreciation and Amortization	1/1/2016	12/2/2015
Changes in IAS 19:	Employee contributions	2/1/2015	12/17/2014
Operation	Changes in IFRS 11: Acquisition of an Interest in a Joint	1/1/2016	11/24/2015
	Changes IAS 16, IAS 41: Accounting Bearer plants	1/1/2016	11/23/2015
	Annual Improvement Project of IASB 2010–2012	2/1/2015	12/17/2014
	Annual Improvement Project of IASB 2012–2014	1/1/2016	12/15/2015

Explanations of standards with potential relevance to artnet's accounting and reporting

IFRS 15 "Revenue from Contracts with Customers"

The standard IFRS 15 "Revenue from Contracts with Customers" is effective for fiscal years beginning on or after January 1, 2018. The new standard reflects the recognition of revenue with the transfer of confirmed goods or services for customers with the expected amount of what the Company will get in exchange for these goods or services. Revenue will be recognized when the customer receives the authority to dispose of these goods or services. IFRS 15 regulates also the disclosure of existing commitments and received compensatory measures. Conceptually, revenue recognition is based on a five-step model. First, the contract has to be identified, which is required for the new standard IFRS 15. Performance obligations in the contract also must be identified. In a next step, the transaction price is determined. Then, the transaction price is allocated to the performance obligations in the contract. Finally, revenue is recognized. The Company currently investigates the effects of the application of IFRS 15 on its consolidated financial statements. The identification of contracts with customers and contractual arrangements is the main concern, as these affect the revenue recognition. As of now, no significant impact on revenue recognition and deferred revenue for the Group are expected from the first-time application.

IAS 1 Amendments "Disclosure Initiative"

Amendments to IAS 1 "Presentation of Financial Statements" are part of the Disclosure Initiative of IASB, which is composed of several subprojects. These include clarifications on:

• the assessing of the materiality of the details of the financial statement
• the presentation of additional financial statement items in the balance sheet and in the statement of profit or loss
• the presentation of other comprehensive income of associates and joint ventures accounted for using the equity method
• the structure of the notes and the presentation of the relevant accounting policies

artnet has already complied to the emphasis of the materiality and the relevance of the notes for the consolidated statements in 2015, and checked the notes against these criteria. This has led to changes in the presentation of the accounting principles in the balance sheet items and to a shortening of details with limited relevance in the notes.

For other prospective new and amended standards, the accounting and reporting of the artnet Group is expected to be of no or little relevance.

3. Cash and Cash Equivalents and Explanation of Consolidated Statement of Cash Flow

Cash and cash equivalents are comprised of cash and bank balances. Cash and bank balances are stated at fair value. The Company considers all highly liquid investments with less than threemonth maturity from the date of acquisition to be cash equivalents.

Based on cash transactions, artnet Group's cash flow statement represents the change in liquid assets in the reporting period. According to IAS 7, cash flows are reported separately by the source and the application of operating activities, investing, and financing activities.

Cash flow from operating activities is derived indirectly, based on the Group's net income. In contrast, cash flow from investing and financing activities is calculated directly from inflows and outflows. Acquisition of tangible and intangible assets under finance leases is eliminated from the cash flow statement, as these investments are non-cash expenses. Subsequent repayments of finance lease liabilities are represented as cash flow from financing activities.

The performance of the various cash flows arise by considering the effects of exchange rate, and shows the change in cash and cash equivalents of the Group. Cash and cash equivalents as presented in the cash flow statement include all cash and cash equivalents recognized in the balance sheet.

4. Accounts Receivable

Accounts receivable are non-derivative financial assets with fixed or determinable payments that are not listed in an active market. Accounts receivable are recorded at the invoiced amount and

do not bear interest. They include credit card transactions which have already been settled, but for which no payment has been received. The accounts receivable balance demonstrates a net of allowance for doubtful accounts. The allowance for doubtful accounts involves significant Management judgment, and review of individual receivables based on individual customer credit worthiness, current economic trends, and analysis of historical bad debts on a portfolio basis. Actual results could differ from those estimates.

Accounts receivable consist of the following:

	12/31/2015 EUR	12/31/2014 EUR
Gross Accounts Receivable	1,517,751	1,022,026
Less: Allowance for Value Adjustment Accounts Receivable	(245,849)	(199,490)
Receivables After Impairment	1,271,902	822,536

All accounts receivable are due within one year.

There is no concentration of credit risk with respect to accounts receivable, as the Group has a diversified customer base. The carrying amount of accounts receivable is equal to their fair value.

Receivables by maturity:

	12/31/2015	12/31/2014
	EUR	EUR
Overdue but not Impaired Receivables
Between 0 and 60 Days	1,037,953	682,591
Carrying Amounts of Impaired Receivables
Overdue Between 61 and 90 Days	105,825	75,953
Overdue More than 90 Days	128,123	63,992
Total Overdue and Impaired Receivables	233,949	139,944
Receivables After Impairment	1,271,902	822,536

The allowance for doubtful accounts is the Group's best estimate of the amount of probable credit losses in the Group's existing accounts receivable. Accounts receivable that are less than 60 days overdue are not provided for. Accounts receivable that are more than 60 days overdue are provided for on a grading scale, based on the age of the individual receivable, with allowances between 10% and 90% of the nominal value. The Group does not hold any collateral for accounts receivable balances.

Allowance for doubtful accounts developed as follows:

	12/31/2015 EUR	12/31/2014 EUR
Balance at the Beginning of the Fiscal Year	199,490	291,962
Bad Debt Expenses for the Year	298,880	262,707
Write-Off of Bad Debts	(280,721)	(382,857)
Currency Exchange Differences	28,200	27,679
Balance at the End of the Fiscal Year	245,849	199,490

5. Other Current Assets

Other current assets consist mainly of designated restricted cash balances for defined contribution retirement plans and health insurance plans in the amount of 164,668 EUR (2014: 127,846 EUR). For software maintenance and insurance deposits, prepayments have been made in the amount of 199,607 EUR (2014: 124,192 EUR). In addition, there are claims on tax payments in Germany and the United Kingdom amounting to 22,095 EUR (2014: 34,525 EUR).

6. Tangible Assets

Tangible assets are recorded at historical cost minus accumulated depreciation. artnet depreciates its assets over their estimated useful life using the straight-line method. Computer equipment, furniture, fixtures, and office equipment are depreciated over an estimated useful life of three to seven years. Leasehold improvements are amortized over the lesser of the term of the related lease or its estimated useful life, which is up to 10 years. Maintenance expenses that neither enhance the value of an asset nor prolong the useful life are expensed as incurred.

Tangible Assets in the 2015 and 2014 fiscal years developed as follows:

	Computer and Hardware EUR	Operating and Office Equipment EUR	Leasehold Improvement EUR	Total EUR
Acquisition Costs
As of December 31, 2013	571,013	649,760	386,381	1,607,154
Exchange Differences	62,152	78,545	41,435	182,132
Disposals	(259,954)	(23,987)	–	(283,941)
Additions	29,232	1,780	–	31,012
As of December 31, 2014	402,442	706,098	427,816	1,536,357
Exchange Differences	50,823	77,218	40,630	168,671
Disposals	(153,847)	(179,322)	–	(333,169)
Additions	195,971	–	–	195,971
As of December 31, 2015	495,390	603,994	468,446	1,567,830
Depreciation
As of December 31, 2013	454,651	320,802	89,876	865,328
Exchange Differences	63,691	51,499	14,031	129,221
Disposals	(260,072)	(23,987)	–	(284,059)
Depreciation for the period	83.698	70.349	35.838	189.885
As of December 31, 2014	341,967	418,662	139,745	900,374
Exchange Differences	45,774	46,403	11,524	103,700
Disposals	(153,847)	(179,322)	–	(333,169)
Depreciation for the period	96,654	79,830	67,376	243,860
As of December 31, 2015	330,548	365,573	218,644	914,765
Carrying Amount
As of December 31, 2014	60,475	287,437	288,071	635,982
Includes: Finance Leases	24,308	205,925	–	230,234
As of December 31, 2015	164,842	238,421	249,803	653,065
Includes: Finance Leases	126,810	177,582	–	304,392

The depreciation expense of tangible assets is included in the cost of sales.

7. Intangible Assets

Intangible assets are comprised of purchased software and website development costs. Intangible assets are recorded as historical costs, and amortized on a straight-line basis over their estimated useful life of three to 10 years. All intangible assets have a limited useful life. Costs related to the research, planning, and post-implementation phases of the Group's websites—such as minor enhancements and maintenance or development efforts—are expensed as incurred. Maintenance expenses which neither enhance the value of an asset nor prolong the useful life are recorded as expenses. Costs incurred in the development phase are capitalized if:

• the product or process is technically and commercially feasible
• there is a market for the outcome of the website development
• the attributable expenditure can be reliably measured
• the Group has sufficient resources to complete development

The market condition is substantiated, as only expenditures related to website development projects and material expansions are capitalized if such improvements to the website are expected to generate future revenues.

Intangible assets in the 2015 and 2014 fiscal years developed as follows:

	Development Costs EUR	Software EUR	Total EUR
Acquisition Costs
As of December 31, 2013	1,729,845	344,688	2,074,532
Exchange Differences	168,515	45,725	214,240
Disposals	–	(15,682)	(15,682)
Additions	202,330	1,657	203,987
As of December 31, 2014	2,100,690	376,388	2,477,077
Exchange Differences	241,071	43,193	284,265
Disposals	–	(48,389)	(48,389)
Additions	–	23,518	23,518
As of December 31, 2015	2,341,761	394,710	2,736,470
Amortization
As of December 31, 2013	732,272	166,401	898,673
Exchange Differences	158,209	31,449	189,658
Disposals	–	(15,308)	(15,308)
Amortization for the period	648,550	106,499	755,049
As of December 31, 2014	1,539,031	289,041	1,828,072
Exchange Differences	179,186	34,772	213,958
Disposals	–	(48,389)	(48,389)
Amortization for the period	144,750	90,244	234,994
As of December 31, 2015	1,862,968	365,668	2,228,636
Carrying Amount
As of December 31, 2014	561,659	87,346	649,005
Includes: Finance Leases	–	72,535	72,535
As of December 31, 2015	478,793	29,042	507,835
Includes: Finance Leases	–	17,579	17,579

In the previous years, external development costs for the redesign of the website in the amount of 661k EUR were capitalized. The website redesign included an end-to-end restructuring of the architecture of the website, which changed the structure and organization of the pages as well as its navigation. Since

the implementation of the first and fundamental phase of the redesign in April 2014, it is amortized on a straight-line basis over its estimated useful life of five years.

The amortization expenses for intangible assets are included in the cost of sales. The extraordinary deprecations for another intangible asset (development costs of the product Analytics Reports) in the previous year were reported as a separate item in the statement of comprehensive income.

As of December 31, 2015, the Group did not have any material contractual obligations for the acquisition of intangible assets.

8. Taxes and Deferred Taxes

The current tax expense is determined on the basis of the taxable income of each of the Group's companies for the fiscal year. The taxable income is adjusted for items that are non-taxable or tax deductible. The current tax expense is calculated based on the applicable tax rates on the balance sheet date.

Income tax expense/(benefit) consists of the following:

	2015	2014
	k EUR	k EUR
Current Income Taxes
Income Tax Payments in France and Great Britain	1	1
US Corporate Tax (Federal, State) and Income Tax Expenses of
Other Consolidated Companies	31	7
Tax Refunds from Previous Years	–	–
Total Current Income Taxes	32	8
Deferred Tax
Change in Deferred Tax Assets Based on Loss Carryforwards	(83)	608
Temporary Differences	–	50
Exchange Rate Differences	83	184
Total Deferred Taxes	–	842
Total Income Taxes	32	850

Due to its tax loss carryforwards, Artnet Worldwide Corporation only has to pay the alternative minimum corporation tax.

Deferred Tax Asset

Deferred taxes are recognized under the asset and liability method in respect to temporary differences between the financial statement carrying amounts of assets and liabilities, and their respective tax bases. Deferred tax liabilities are recognized for all taxable temporary differences.

Deferred tax assets and liabilities are measured using enacted or substantially enacted statutory tax rates for the time in which the differences are expected to reverse. Deferred tax assets are recognized to the extent that it is probable that future taxable income will be available, against which the deductible temporary differences, unused tax losses, and unused tax credits can be utilized.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities, and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority, on either the same taxable business or different taxable businesses where there is an intention to offset the balances on a net basis.

As of the 2015 balance sheet date, Artnet Corp. has a total of 24.5 million EUR (26.7 million USD) in carried-forward tax losses, available for offset against future profits. As of December 31, 2014, these carried-forward tax losses amounted to 23 million EUR (28 million USD). In the 2015 fiscal year, the carried-forward tax loss in the amount of 1.3 million USD was utilized by achieving a taxable profit. A deferred tax asset of 811k EUR (728k EUR as of December 31, 2013) is recognized in the financial statements for the existing carried-forward tax losses of Artnet Corp. This increase in euros as compared to last year is due solely to currency conversion—the capitalized amount in US dollars remained at 884k USD. The tax rate used is unchanged at 43%, and represents the average income tax rate of Artnet Corp. The recognition of deferred tax assets on carried-forward tax losses is based on a three-year budget. Carried-forward tax losses can be used over a period of 20 years, and will begin to expire in 2018 with an amount of 0.7 million EUR (0.8 million USD). The remaining unused carried-forward tax losses of Artnet Corp. will expire in subsequent years.

artnet AG has additional carried-forward tax losses available to offset corporation and commercial tax in the amount of 34.9 million EUR (12/31/2014: 31.4 million EUR). Due to the current organizational structure of the artnet Group, these tax loss carryforwards cannot be used under the German tax law.

In total, deferred taxes recognized relate to the following balance sheet items:

	Deferred Tax Assets 12/31/2015	Deferred Tax Assets 12/31/2014
	k EUR	k EUR
Deferred Tax Assets	811	728
Fixed Assets	(6)	(134)
Accounts Receivable	6	134
Total	728	1,386

Tax Rate Reconciliation

The following table reconciles the expected income tax expense and/or benefit to the actual income tax expense presented in the financial statements.

The tax rate of 43% (2014: 43%) is the average income tax rate of the Artnet Corp., because Artnet Corp. as the main operating entity generates the taxable income of the Group.

	2015 k EUR	2014 k EUR
Earnings Before Tax from Continued Operations	671	(2,197)
Expected Income Tax Expense/(Benefit)—Tax Rate 43%	289	(945)
Non-Deductible Expenses and Other Effects	(66)	86
Tax Refunds from Previous Years	(469)	–
Non-Recognition of Deferred Tax Assets of Loss Carryforwards in Germany and the United States, and Tax Rate Differences	278	867
Adjustments for Deferred Tax Assets for Tax Loss Carryforwards from Previous Years	–	842
Income Tax Expense/(Benefit) as Presented on the Consolidated Statement of Comprehensive Income	32	850

9. Accounts Payable

Accounts payable are principally comprised of amounts outstanding for purchases and current costs. The average credit period taken for accounts payable is 30 days. The carrying amount of accounts payable approximates their fair value.

10. Accruals and Other Liabilities

Accruals and other liabilities consist of the following for the years presented:

	12/31/2015 EUR	12/31/2014 EUR
Outstanding Invoices	185,816	168,348
Bonus Payments	182,483	160,407
401(k) Payments (Retirement provisions in the USA)	124,563	102,082
Taxes and Social Security	82,266	76,236
Accrued Vacation Pay	11,899	9,612
Taxes	11,531	–
Other	88,594	63,970
Total	687,152	580,655

11. Provisions

Provisions are recognized when the Group has a present obligation from a past event, that is to say, when it is probable that the fulfillment of this obligation is accompanied by the outflow of resources and when a reliable estimate of the amount can be made.

Provisions decreased in the fiscal year from 1,085k EUR by 135k EUR to 950k EUR. Provisions in the previous year for an inherent risk related to a legal dispute with a former consultant and an employee (135k EUR) were used for settlements in the amount of 107k USD. The remaining amount was released to income.

Provisions in the amount of 950k EUR were recorded for possible indemnity payments due to accusations of copyright infringement by a French photographer, granted in March 2015 by the Paris Court of Appeal (800k EUR), and for a case on the same proceeding in Germany (150k EUR). This provision reflects the inherent risk to artnet in consideration of all available information, and covers the alleged claim for damages by the photographer, and related potential legal and consulting fees.

On May 25, 2015, artnet appealed to the decision at the French Court of Cassation, and the decision of the court is still pending. Meanwhile, the judgment of the Germany circuit court is expected by mid-2016. Regardless of the awaited judgments, artnet has tried to achieve an amicably settlement with the photographer in question. As of the closing date, the provision for the litigations retained unchanged. During the assessment, no new information about the lawsuits occurred that could justify a reduction of the provision. Due to completed and planned legal remedies coupled with the current progress of litigation, artnet does not expect to pay the total amount of indemnities in 2016.

12. Liabilities from Finance Leases

Assets held under finance leases are initially recognized at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. Depreciation and amortization are recorded over the economic useful life, or over a shorter contractual period using the depreciation method that also applies to comparable assets acquired or manufactured. The finance lease obligation is shown separately

in the consolidated balance statement under liabilities from finance leases. Minimum lease payments are apportioned in the finance charge and the reduction of the lease liability, so as to achieve a constant interest rate applied to the remaining liability. Contingent lease payments are recorded as expenses in the periods in which they occur.

Liabilities from finance leases occurred due to purchased equipment such as servers, computer equipment, software, and new office and business equipment in previous years. At the end of the respective contractual period, there is a purchase option for Artnet Corp. The liabilities from finance leases are carried at the present value of the future lease payments, using the discount rate on which the lease agreement is based. The minimum lease payments were reconciled to the present value as follows:

12/31/2015	Total EUR	< 1 year EUR	> 1–3 years EUR
Present Value of Minimum Lease Payments	195,022	120,459	74,563
Interest Portion	19,448	12,420	7,028
Minimum Lease Payments	214,470	132,879	81,591
12/31/2014	Total EUR	< 1 year EUR	> 1–3 years EUR
Present Value of Minimum Lease Payments	231,492	185,415	46,077
Interest Portion	11,797	10,870	927
Minimum Lease Payments	243,289	196,285	47,004

The carrying amount of liabilities from finance leases corresponds to their fair value.

13. Deferred Rent Incentive

Non-current liabilities from deferrals for the rent incentive relate to the advantages from rent-free periods in the amount of 303k EUR (2014: 309k EUR) for the office premises rented in New York as of December 31, 2015. Deferrals in US dollars decreased as scheduled by 46k USD, while the amount in euros remained almost constant due to currency exchange effects.

14. Deferred Revenue and Revenue Recognition

Revenue for services is recognized when services have been rendered, that is to say, when the amount of revenue can be reliably measured and when the receipt of cash for the corresponding claim can be expected. For Gallery Network memberships and Auction House Partnerships, revenue is recognized when artnet met its contractual performance obligation and the respective member site is created, and thus available on the artnet website. Revenue is recognized at the beginning of each performance or billing period, and revenue will be deferred on a monthly basis. Revenues from Price Database subscriptions are recorded by the same methodology. Revenues are realized in the period when the customer account was created. Revenue recognition of advertising contracts is based on the billing terms mentioned in the contract, with a distinction made between a fixed price and a performance-based model. Revenue from advertising contracts with a fixed price are recorded similarly to the revenue from gallery memberships and subscriptions to the Price Database: for the period in which the banners are on the website or in newsletters. Revenue recognition for performance-based advertising contracts will be recognized retroactively, after the agreed performance indicators were evaluated and coordinated with the relevant customer. For online auctions, buyer and seller commissions are realized the moment when artnet has arranged the corresponding business successfully.

Revenues are measured at the fair value of the received or to be received consideration, minus any discounts, VAT, and other sales taxes.

Customers make advanced payments for certain service contracts with artnet. These prepaid amounts are realized as revenue only when artnet provides the agreed service. artnet records these amounts as liabilities from deferred revenue as of December 31, 2015, amounting to 1,598k EUR as compared to 1,547k EUR in the previous year.

15. Equity

	12/31/2015	12/31/2014
Authorized No-Par Value Shares
(accounting par value 1.00 EUR per share)	5,631,067	5,631,067
Issued and Fully-Paid No-Par Value Shares
(accounting par value 1.00 EUR per share)	5,552,986	5,552,986
Treasury No-Par Value Shares	78,081	78,081

artnet AG has only restricted shares. These shares doesn't carry any right to fixed income.

Authorized Capital

The Shareholders' Meeting of artnet AG on July 16, 2014 authorized the Board of Directors, with the approval of the Supervisory Board, to increase the capital stock by up to 2,800k EUR before July 15, 2019, through the issue of 2,800,000 new no-par value bearer shares in exchange for cash contributions or contributions in kind (Authorized Capital 2014).

No shares have been issued from the Authorized Capital 2014 at this point.

Conditional Capital

As per the resolution of the Shareholder's Meeting on July 15, 2009, the registered capital was increased by up to 560,000 new no-par value shares (conditional capital 2009/I) to the Company's directors and management team members of affiliated companies and employees of artnet AG. The authorized conditional capital 2009/I expired during the previous fiscal year. No shares have been issued from it.

In 2009, 2010, and 2014, 398,907 stock options were granted to the Management and employees of the subsidiary Artnet Corp. from the 2009 stock option program. As of now, none of these options has been exercised. All of these 398,907 issued share options can increase the conditional capital (conditional capital 2009/I) if they are exercised.

Treasury Shares

As of December 31, 2015, artnet AG held 78,081 of its own shares, as in the previous year, representing 1.4% of common stock. The Group's equity will be reduced by the acquisition costs of artnet's treasury stock.

The Shareholders' Meeting of artnet AG on July 14, 2010 authorized the Board of Directors, with the approval of the Supervisory Board, to acquire its own shares until the end of July 13, 2015, up to a 10% stake in the current share capital. At no point may the acquired shares, together with other shares owned by the Company or attributable to the Company under Articles 71 et seq. AktG (German Stock Corporation Act), constitute more than 10% of the share capital. The time limit applied only

to acquiring—and not holding—the shares. The decision to acquire own shares expired on July 13, 2015 without making use of this option.

On consolidation, the assets and liabilities of the Group's operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. The accumulated gains and losses resulting from translation are recorded as a separate component of the Group equity. Since the initial consolidation of the Group, exchange differences arising from translating assets and liabilities at spot rate—and translating revenue and expenses at the average rate for the year by volatile exchange rates—are recorded in the other comprehensive income of the Group.

Since 2015, the other comprehensive income also includes exchange differences arising from the evaluation of the long-term intracompany loan, which is classified as part of a net investment. For more information regarding the currency exchange differences, refer to paragraph 17 of the consolidated notes "Financial Instruments and Risks Arising from Financial Instruments."

16. Capital Management

The capital structure of the artnet Group consists essentially of current liabilities from current business transactions, long-term finance lease obligations, a shareholder's loan, and equity. Equity is attributable to the shareholders of the parent company, and consists primarily of issued shares, capital reserve, and the accumulated results of the Group. In addition, Artnet Corp. entered into various finance lease arrangements in the fiscal year and in the previous years, which will require payments over the next three to four years. Artnet Corp. also entered into an operating lease agreement for new office space, which will require payment over the next seven years. All other business activities are currently financed by the cash balance and the operating cash flows.

17. Financial Instruments and Risks Arising from Financial Instruments

Categories of Financial Instruments

The artnet Group's financial assets are cash and cash equivalents, accounts receivable, and rent security deposits. These financial assets are classified under the category "Loans and Receivables."

The Group's financial liabilities are accounts payable, other liabilities, and liabilities arising from finance finance leases and loans. Accounts payable and other liabilities are measured at amortized cost. Liabilities arising from finance leases are measured by their present value of minimum lease payments in accordance with IAS 17.

Both the carrying amounts of financial assets and the carrying amounts of financial liabilities are a reasonable approximation of their fair value. No financial assets or financial liabilities were designated at fair value.

In the 2015 and 2014 business years, the artnet Group did not use any derivative financial instruments.

Net Results from Financial Assets and Liabilities

The following chart shows the net results arising from financial assets and liabilities:

	Net Results 2015 EUR	Net Results 2014 EUR
Loans and Receivables	(366,439)	(473,420)
Financial Liabilities	(8,645)	17,651
Total	(375,084)	(455,769)

The components of the net results are gains or losses from exchange rate differences, and bad debt expenses for doubtful accounts and write-offs. Interest expenses in the amount of 28k EUR (2014: 35k EUR) are included in the net result of financial liabilities.

Credit Risk

Credit risk refers to the risk that is inherent if a counterparty defaults on its contractual obligations, resulting in a financial loss. These financial assets represent the artnet Group's maximum exposure to credit risk.

The artnet Group's credit risk is primarily attributable to its accounts receivable. The amount presented in the balance sheet is a net of allowances for doubtful accounts, estimated by Management, based on the aging of the receivable portfolio and customer payment trends.

artnet has no significant concentration of default risk because the exposure is distributed over a large number of customers, including individuals and entities dealing within the fine art market. Nevertheless, the global economic downturn could negatively influence the solvency of the Group's customers, leading to an increase in the average credit period, or, at worst, leading to an increase in customer default. This would negatively affect the Group's earnings, as well as its financial position. artnet tries to counteract such risks by requiring upfront payments from customers whenever possible.

Liquidity and Interest Risk

Liquidity risk arises in the event that the artnet Group could not meet financial obligations on their due date. Therefore, the aim is to provide sufficient liquidity to meet liabilities on time. To this end, the artnet Group is reliant on generating a positive cash flow from operating activities. Liquidity risk is constantly revalued on a daily basis, using a deviation analysis of current and monthly cash equivalents as reported in the liquidity planning, which ensures a quick response to changes in the risk potential. Management expects a positive operating cash flow for the 2016 fiscal year, based mainly on planned sales increases and the assumption that a potential payment obligation related to the copyright infringement litigation will not occur. If revenue does not increase as expected, planned investments may be rescheduled, or their implementation may be extended.

The artnet Group faces no material interest-rate risk. The Group's companies have several interest-bearing finance lease agreements in the amount of 195k EUR (2014: 231k EUR), and an interest-bearing shareholder loan in the amount of 294k EUR (2014: 500k EUR). Other current liabilities and accrued expenses have a remaining term of less than one year.

The gross cash flows arising from financial liabilities, including

anticipated interest payments, are shown in the following chart:

	Carrying	Gross	Gross	Gross
	Amount	Cash Flow	Cash Flow	Cash Flow
12/31/2015	EUR	EUR	EUR	EUR
		Total	< 1 Year	> 1 Year
Liabilities at
Amortized Costs	754,710	761,235	761,235	–
Liabilities from
Finance Leases	195,022	214,470	132,879	81,591
	Carrying	Gross	Gross	Gross
	Amount	Cash Flow	Cash Flow	Cash Flow
12/31/2014	EUR	EUR	EUR	EUR
		Total	< 1 Year	> 1 Year
Liabilities at
Amortized Costs	1,264,579	1,282,579	1,078,579	204,000
Liabilities from
Finance Leases	231,492	243,289	196,285	47,004

As of December 31, 2015, liabilities at amortized cost included the shareholder loan, along with accrued interest in the carrying value of 294k EUR (2014: 500k EUR).

Provisions are not financial instruments, and are therefore not mentioned in the above calculation of liquidity risk under IFRS 7. It is assumed that the current provisions will lead to a cash outflow in the 2016 fiscal year. Exceptions to this include the current provisions for legal disputes in France and Germany in the amount of 950,000 EUR for the alleged copyright infringement of a photographer. Contrary to the short-term disclosure, artnet does not expect a cash outflow of the total amount accrued in the 2016 fiscal year due to planned legal remedies.

Market Risk—Foreign Currency Risk

Market risks are mainly relevant in the form of foreign currency exchange risks for the Group's companies, as most of the revenues are generated in US dollars but a certain amount of costs must be paid in euros. The artnet Group controls these currency exchange risks by invoicing its European customers in euros, and using these cash payments to fulfill its obligations in the foreign currency. This helps to reduce the exchange rate risk. Besides the US-dollar-to-euro exchange rate risk, the artnet Group is also exposed to the US-dollar-to-British-pound exchange rate risk, but on a smaller scale. In addition, foreign currency risks exist for the artnet Group from intercompany euro claims coming from financing the parent company artnet AG, which is located in the Europe, and the operating subsidiary Artnet Corp., which is located in the United States, and for euro bank stocks for Artnet Corp.

The carrying amounts of the Group's monetary assets and monetary liabilities, denominated in currencies other than the US dollar at the reporting date, are as follows:

Foreign Currency		Financial Assets		Financial Liabilities
	12/31/2015 k EUR	12/31/2014 k EUR	12/31/2015 k EUR	12/31/2014 k EUR
EUR	537	648	18	21
GBP	268	158	2	6

Additionally, the intragroup receivables validating in euros from Artnet Corp. against artnet AG amounted to 2,104k EUR as of December 31, 2015 (2014: 2,178k EUR). This bears a theoretical currency risk for Artnet Corp., which will not be recognized in profit or loss in the consolidated financial statements. To minimize this risk, Artnet Corp. converted existing current intercompany receivables of artnet AG in the amount of 2.1 million EUR into a long-term intercompany loan. In December 2015, this long-term intercompany loan was reduced to 1.5 million EUR. A settlement for this this loan is neither planned nor likely to occur in the foreseeable future. The intercompany loan qualifies as a net investment according to IAS 21.15. Accordingly, exchange differences on the euro-validating loan will be recognized in other comprehensive income, and will thus be accumulated in a separate component of equity until full or partial disposal of artnet AG ownership interest in Artnet Corp. In 2015, currency exchange effects in the amount of 226k EUR were recognized as net investment in other comprehensive income, and reduced the equity.

The following table details the Group's sensitivity to a 10% increase and decrease of the US dollar against the euro and the British pound. The sensitivity analysis includes only outstanding foreign currency denominated monetary items, and adjusts their translation at the balance sheet date in accordance with a 10% change in foreign currency rates. Included in the chart is also the exchange rate risk, as mentioned above from the intragroup receivables. A positive number below indicates an increase in profit and other equity.

	EUR	EUR	GBP	GBP
Against USD	12/31/2015 k EUR	12/31/2014 k EUR	12/31/2015 k EUR	12/31/2014 k EUR
+10%
Result	(89)	(243)	(16)	(8)
Equity	69	-246	-2	-3
-10%
Result	109	298	20	10
Equity	(84)	225	2	3

As compared to December 31, 2014 (0.823 USD/EUR), the US dollar has increased against the euro as of December 31, 2015 (0.917 USD/EUR) by 11.4%.

Interest Rate Risk

The finance leases of the Group bear a fixed interest rate. As of December 31, 2015, liabilities with a floating rate are solely comprised of the interest rate limit of the shareholder loan. Therefore, the artnet Group is currently exposed only to an insignificant interest rate risk.

18. Share-Based Remuneration

Stock Option Plan

artnet AG provided equity-settled share-based payments to executive management and to certain employees of Artnet Corp. The equity-settled share-based payments are measured at fair value at the date of the grant. The fair value determined at the grant date, minus the fair value of any consideration received at the grant date, is expensed over the vesting period based on the estimated amount of shares that will eventually vest. The fair value of the equity-settled share-based payments is measured using the binomial model.

Conditional Capital 2009/I served as the basis for the stock option plan—also resolved by the Shareholders' Meeting on July 15, 2009 on the subject of the 2009 stock option plan—and comprised of 560,000 shares of common stock with a nominal value of 1.00 EUR each. The Conditional Capital expired on July 14, 2014.

In 2009, 2010, and 2014, stock options were granted to the Management and employees of the subsidiary Artnet Corp. from the 2009 stock option programs.

	Options
	2014	2010	2009
Number of Options Granted	75,000	130,000	193,907
Share Price at the Time of Granting (EUR)	2.70	5.03	5.02
Weighted Average Exercise Price (EUR)	2.64	5.13	4.66
Weighted Average Performance Target (EUR)	2.90	5.64	5.13
Average Maturity (Years)	10	10	10
Risk-Free Rate (%)	0.59	1.27	3.40
Expected Average Volatility (%)	65	70	55
Expected Dividend Return	–	–	–
Fair Value of Options at the Time of Granting (EUR)	1.90	3.18	3.89
Fair Value of Options at the Time of Granting Total (EUR)	142,500	413,400	754,298

As of December 31, 2015 the number of outstanding options remained at 398,907. As in the previous year, the outstanding options for the years 2009 and 2010 could not be exercised, as the market price of the artnet shares were significantly below the respective exercise price. The options granted in 2014 may not be exercised for a two-year period (March 31, 2016). The outstanding options on December 31, 2015, had a weighted average remaining term of 4.91 years (December 31, 2014: 5.91 years).

The fair value of the stock options was calculated in 2009, 2010, and 2014 from the date on which the options were granted based on the binomial model, on the basis of the assumptions of the chart above.

The options can be exercised for the first time at the end of two years, beginning at midnight on the option allotment date, and then up until the end of their term; they expire 10 years after the grant date. Rights may not be exercised in the period from two weeks before the end of the quarter until the end of the first trading day after publication of the quarterly results, and also may not be exercised in the period from two weeks before the end of the fiscal year until the end of the first trading day after publication of the results for the past fiscal year.

The plan also sets out that rights may only be exercised if the closing market price determined before the date of the planned exercise of the option exceeds the exercise price by at least 10%. If this performance target has been reached on one occasion, the options can be exercised during the exercise periods, independent of further price development of the artnet shares over their term.

Stock Appreciation Rights (SAR)

In 2015, Artnet Corp. launched a "Stock Appreciation Rights Program" for certain executives. As part of this program, participating employees receive a certain number of rights to benefit from artnet AG's share price increase. The participation rights grant solely a right to cash settlement, not to artnet AG's shares. The assessment of the Stock Appreciation Rights follows the intrinsic value. To evaluate the Stock Appreciation Rights, a binomial model was used. This model takes various conventional vesting conditions for stockbased compensation models into account. The expected volatility is calculated based on the monthly, weekly, and daily changes in the stock market price for the period of 2013 to 2015. The arising changes in value due to share price changes are recognized during the vesting period as personnel costs, or, in case of impairment, in other operating income. Cash payment obligations are recognized as other long-term or current liabilities, depending on the remaining time of the vesting period.

In 2015, 35,000 Stock Appreciation Rights were issued to employees. These are exercisable when the artnet AG's share price exceeds at least 10% on the issue date, but at the earliest after the end of the vesting period of two years. The share price was 2.09 EUR on the issue date, and the target price of 2.30 EUR was exceeded within 2015. As of December 31, 2015, the time until the end of the vesting period was 1.25 years. Outstanding rights expire in 9.25 years.

For issued Stock Appreciation Rights, a liability in the amount of 16.354 EUR was recognized separately in non-current liabilities, the same amount that is recorded as expenses for these rights in 2015. Expenses in the amount of 86.695 EUR were booked for share-based remunerations in the 2015 fiscal year, compared to 55,090 EUR in 2014.

19. Personnel Expenses

The consolidated statement of comprehensive income includes personnel expenses of discontinued divisions for the fiscal years stated in the following expense categories:

Personnel Expenses by Expense Category	2015 k EUR	2014 k EUR
Cost of Sales	3,697	3,454
Sales and Marketing	2,959	2,197
General and Administrative Expenses	1,722	1,496
Product Development	2,664	1,934
Total Personnel Expenses	11,042	9,081

While personnel expenses decreased in the operating currency of US dollars by 2% to 12,255k USD, it increased in the reporting currency of euros by 22% due to exchange rate effects.

The total personnel costs in the 2015 and 2014 fiscal years include social security expenses of 1,423k EUR and 1 million EUR, and 401(k) expenses of 121k EUR and 104k EUR.

On average, the Group employed 113 full-time employees in 2015, as compared to 116 in the previous year. Additionally, the Group employed two part-time employees in 2015, as compared to four in the previous year. In sales and other departments, the Group had 11 freelancers, which was the same as in the previous year.

The average number of employees in the 2015 and 2014 fiscal years was 127 and 131, respectively. The employees were engaged in the following activities:

	2015	2014
Cost of Sales	59	68
Sales and Marketing	36	33
General and Administrative Expenses	13	12
Product Development	19	18
Total	127	131

20. Defined Contribution Plans

The subsidiary Artnet Corp. offers a retirement plan to all qualifying employees, which qualifies under Section 401(k) of the Internal Revenue Code of the United States. The assets of this plan are held separately from those of Artnet Corp., and are managed by a trustee. Participating employees may contribute up to 100% of their annual salary, but not more than statutory limits. Artnet Corp. has a discretionary matching contribution each year. In 2015, the matching contributions were 121k EUR, as compared to 104k EUR in the previous year.

21. Earnings Per Share

Basic earnings per share are calculated by dividing net income by the weighted average number of outstanding common shares during the year.

Diluted earnings per share are calculated in the same manner as basic earnings per share, with the exception that the average number of outstanding shares increased with the addition of the potential number of shares from stock option conversions.

The calculation of earnings per share is based on the following:

	2015	2014
	EUR	EUR
Numerator (Earnings):
Net income for the fiscal year	638,949	(3,047,392)
Denominator (Number of Shares):
Weighted average number of ordinary shares
used to calculate basic earnings per share
(issued and fully paid ordinary shares)	5,552,986	5,552,986
Effect of potential dilutive shares
from stock options	–	–
Weighted average number of ordinary shares
used to calculate dilutive earnings per share	5,552,986	5,552,986

The weighted average share price of stock options (4.43 EUR) is higher than the weighted average exercise price in 2015 (2.09 EUR). As a result, there are no diluted shares.

22. Other Disclosures on the Consolidated Statement of Comprehensive Income

Net Operating Income

The net operating income stated results after the deduction of the following operating expenses:

	2015 k EUR	2014 k EUR
Scheduled Amortization/Depreciation	479	407
Personnel Expenses	11,042	9,081

Scheduled depreciation and amortization are presented in the consolidated statement of comprehensive income as part of the cost of sales. The breakdown of the amortization of intangible assets and tangible assets is listed in sections 6 and 7 of the consolidated notes.

Financial Results

The financial result in 2015 primarily includes interest expenses for liabilities from finance leases in the amount of 13k EUR

(2014: 31k EUR). For the long-term shareholder loan granted in 2013, which was converted into a short-term loan, interests amounted to 16k EUR, (2014: 20k EUR).

Other Income and Expenses

In the previous year, other expenses amounted to 1,020k EUR and included mainly provisions for legal disputes in the amount of 950k EUR, and realized and unrealized losses on currency exchange rates in the amount of 286k EUR. In 2015, the realized and unrealized losses on currency exchange rates amounted to 67k EUR. In 2015, 8k EUR was incurred for non-operating income and expenses.

23. Segment Reporting

The Group reports on the operating segments in the same way it reports this information internally to the Management and Supervisory boards.

At the beginning of the 2015 fiscal year, the Group adjusted its segment reporting. Management no longer considers the previous segmentation appropriate to provide sufficient information. As part of the modification of internal reporting, the decision was made to disclose the online news platform, artnet News, as its own segment. In the previous year, the English-language news platform was considered a PR and marketing tool that supported business operations as a whole. The number of reportable segments has not increased, as Management no longer considers it appropriate to disclose advertising as a standalone segment. Advertising revenue will now be allocated to the segments where banners have been placed. If an advertising banner, for example, is placed on the product page of the Price Database, advertising revenues will be allocated to that segment. In addition, since the beginning of the fiscal year the segment reporting was changed to a multilevel Contribution Margin accounting. In the first stage, the difference of the generated revenues and the direct variable costs (Contribution Margin (CM I)) for each segment is calculated. In a second step, variable indirect costs, which are not directly attributable to a segment, are subtracted from the CM I by allocating them to the segments with an allocation key. The so-determined Contribution Margin (CM II) is the amount available by segment to cover the fixed costs. Management expects a better picture of the profitability of each segment due to this change.

Following the requirements of IFRS 8 "Operating Segments" (Management Approach), this realignment has retroactively led to a change in the segment report in 2014.

The Group's reporting is based on the following four segments:

• The Gallery Network segment, which presents artworks from member galleries and partner auction houses online
• The Price Database segment, comprising all database-related products, including the Price Database Fine Art and Design and the Price Database Decorative Art, as well as the products based thereupon, Market Alerts and Analytics Reports
• The artnet Auctions segment, which provides a platform to buy and sell artworks online
• The artnet News segment, offering an online news service providing information about the events, trends, and people shaping the art market and global art industry

Management decisions for segments are based on the Contribution Margin II (revenue minus direct and indirect variable costs), which is therefore presented below as the segment result. Indirectly attributable expenses are allocated to the segments using the ratio of headcounts and revenue for each segment. The segment reporting is presented, similarly to the internal communication, in US dollars.

An allocation of assets or liabilities for each segment is not provided to Management. Therefore, segment-related assets and liabilities are not presented in this report.

	Revenue	Contribution Margin II
2015	k USD	k USD
artnet Galleries	6,895	4,230
artnet Price Database	7,678	4,308
artnet Auctions	2,906	(738)
artnet News	1,704	(807)
Total	19,183	6,994

2014 (adjusted)	Revenue k USD	Contribution Margin II k USD
artnet Galleries	6,518	3,216
artnet Price Database	8,308	4,391
artnet Auctions	3,151	(357)
artnet News	479	(1,295)
Total	18,456	5,955

The reconciliation of the Contribution Margin II to the operating income of the Group is presented in the following table:

Reconciliation of Segments Contribution	2015	2014
Margin II to the Operating Income	k USD	k USD
Contribution Margin II	6,994	5,955
Fix Costs included in Sales Expenses Including Depreciation -531,000 USD (Previous Year: 630,000 USD)	2,237	2,321
Fix Costs included in General and Administrative Expenses	3,475	3,863
Fix Costs included in Product Development Expenses	496	552
Operating Income	785	(781)

Advertising revenue will now be allocated to the segments where banners have been placed. The following table reconciles the advertising revenue in the consolidated statement and the presentation in the segment reporting:

2015	Revenue in Consolidated Income Statement k USD	Allocated Advertising Revenue k USD	Revenue by Segment k USD
Segments
artnet Galleries	5,428	1,467	6,895
artnet Price Database	7,231	447	7,678
artnet Auctions	2,906	–	2,906
artnet News	–	1,704	1,704
Allocated advertising revenue	3,618	-3,618	–
Total	19,183	–	19,183

	Revenue in Consolidated	Allocated Advertising	Revenue by
	Income Statement	Revenue	Segment
2014 (adjusted)	k USD	k USD	k USD
Segments
artnet Galleries	5,942	576	6,518
artnet Price Database	7,469	839	8,308
artnet Auctions	3,151	–	3,151
artnet News	–	479	479
Allocated advertising revenue	1,894	-1,884	–
Total	18,456	–	18,456

The subsequent adjustments for receivables as non-cash expenses are affecting the result of each segment. The allocation of scheduled depreciation and amortization to each segment is reported to the Management and the Supervisory Board on a regular basis:

2015	Scheduled Depreciation/	Allowance for
k USD	Amortization	Bad Debts
artnet Galleries	155	106
artnet Price Database	173	121
artnet Auctions	111	52
artnet News	92	22
Total	531	301

2014 k USD	Scheduled Depreciation/ Amortization	Allowance for Bad Debts
artnet Galleries	184	63
artnet Price Database	205	72
artnet Auctions	132	31
artnet News	109	13
Total	630	179

24. Information by Geographic Region

The Group's operations are primarily located in the United States, represented by the subsidiary, Artnet Corp.

The following table provides an analysis of the Group's revenue by geographic market:

	2015	2014
Revenue	k EUR	k EUR
USA	10,166	7,554
Europe	5,562	5,124
Other	1,556	1,229
Total	17,284	13,907

Assets by Geographic Region

The following table presents an analysis of the carrying amount of the Group's assets, and additions to property and equipment and intangible assets, analyzed by the geographic region in which the assets are located.

	Carrying Amounts of Assets		Additions to Fixed Assets
	12/31/2015 k EUR	12/31/2014 k EUR	12/31/2015 k EUR	12/31/2014 k EUR
United States	4,865	4,444	218	161
Germany	84	119	1	–
Great Britain	32	35	–	–
France	3	29	–	–
Total	4,985	4,627	219	161

The segment results and liabilities of the Group are not allocated by geographic region, as this is not possible in a meaningful way. The Group's scheduled depreciation and amortization amounting to 479k EUR is mainly allocated to the assets in the United States of (2014: 930k EUR, including non-scheduled depreciation).

25. Operating Leases

Operating lease payments are recognized as an expense in the statement of comprehensive income on a straight-line basis over the term of the lease. Benefits received and receivable, as an incentive to enter into an operating lease, are spread over the lease term on a straight-line basis.

Artnet Corp. has rented its offices in New York as part of irredeemable leases (operating leases) with a term through April 30, 2023.

For the new office in Berlin, the Group has agreed on a lease for two years. The lease includes an option to extend the lease for another year. The lease for artnet UK Ltd.'s office in London can be terminated at any time.

As of both December 31, 2015 and 2014, the following future minimum lease payments resulting from the existing office lease agreements:

Lease Payments	12/31/2015 k EUR	12/31/2014 k EUR
Expiring in less than One Year	866	809
Expiring Between Two and Five Years	3,677	3,164
Expiring in more than Five Years	2,299	2,912
Total	6,843	6,885

Office lease expenses for the Group in the fiscal year amounted to 884k EUR, and to 737k EUR in the previous year.

26. Auditor's Fees

Auditor's fees, including travel expenses, for the audit of the statutory financial statements of the Company and the consolidated financial statements amounted to 61k EUR in 2015, and 63k EUR in the previous year. In addition, the Company recorded 20k EUR in 2015, and 19k EUR in 2014, for other services. All fees are recognized as expenses in 2015 and 2014, respectively.

27. Related-Party Transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Management Board

Jacob Pabst is the CEO of artnet AG and Artnet Corp.

In the 2015 and 2014 fiscal years, Jacob Pabst received the following remuneration from the Group:

	2015	2014 EUR
	EUR
Fixed Salary	304,088	235,469
Value of Additional Payments (Health Insurance)	10,025	8,859
Fixed Remuneration Components	314,112	244,327
Bonus (Variable Compensation)	25,000	–
Total	339,112	244,327

Supervisory Board

• John D. Hushon, Naples, Florida, USA, Chairman
• Hans Neuendorf, Berlin, Germany, Deputy Chairman
• Piroschka Dossi, Munich, Germany

Mr. Neuendorf, and companies under his control, own 1,523,551 shares of artnet AG.

Mr. Hushon holds 53,054 shares of artnet AG.

Remunerations in the following amounts were paid to the members of the Supervisory Board in the 2015 and 2014 fiscal years:

	2015 EUR	2014
		EUR
John D. Hushon	50,000	50,000
Hans Neuendorf	37,500	37,500
Piroschka Dossi	25,000	25,000
Total	112,500	112,500

The remuneration report outlines the principles used for determining the compensation of the Supervisory Board of artnet AG In addition, the report describes the policies and levels of compensation paid to Supervisory Board members.

Other Transactions with Related Parties

During the fiscal year, Hans Neuendorf sold one item on the online

auction platform, artnet Auctions. In accordance with the current terms and conditions, no commission was charged for this sale, as the value of this artwork exceeded 10,000 USD.

On March 28, 2013, the main shareholder of the Company, Hans Neuendorf, granted a loan at better-than-market conditions in the amount of 500k EUR, repayable by May 1, 2015. The loan is subject to a floating interest rate (30-day LIBOR plus 200 basis points), with a minimum interest rate of 4% per year, and is not collateralized. On November 6, 2014, the two parties agreed on repaying the loan in 20 equal monthly installments of 25k EUR, starting on January 31, 2015 until August 31, 2016, under the conditions that the cash and bank position is 1.5 million USD for the respective month. On May 20, 2015, the shareholder loan was terminated with mutual consent and replaced by a short-term loan in the amount of 510,002 EUR. Later in 2015, the loan was redeemed in the amount of 225k EUR. Interest in the amount of 16k EUR (2014: 20k EUR) was expensed in 2015.

The related parties of Mr. Neuendorf (Deputy Chairman) and Mr. Pabst (CEO) worked or provided services in the amount of 100,326 EUR in 2015 and 62,295 EUR in 2014, respectively, at market conditions.

28. Accounting Estimates and Judgments

The preparation of the Group's consolidated financial statements requires Management estimates and assumptions that affect reported amounts and related disclosures. All estimates and assumptions are made to the best of Management's knowledge in order to fairly present the Group's financial position and results of operations. Actual results and developments may deviate from current assumptions

The following accounting policies are significantly impacted by Management's estimates and judgments:

Deferred Tax Assets

At each balance sheet date, the Group assesses whether the realization of future tax benefits is sufficiently probable to recognize deferred tax assets. This assessment requires the exercise of judgment on the part of Management with respect to, among other things, benefits that could be realized from available tax strategies and future taxable income, as well as other positive and negative factors. The amount of deferred tax assets could be reduced if projected future taxable profits are lowered.

Capitalized Costs of Website Development

Capitalized website development costs relate to new products, material additions, or improvements to the website that the Company anticipates will produce revenue in the future. The revenue projections for these new products are based on Management's best estimates, but actual results could vary from projections.

Provisions

Based on reasonable estimates, provisions for possible legal issues will be recorded. Opinions from external experts such as lawyers or tax consultants will be considered for such evaluations. Any differences between the original estimate and the actual outcome in the respective period can have an impact on the net assets, financial position, and results of operations of the Group.

For current provisions, a cash outflow is anticipated for the 2016 fiscal year, with an exception for the provision in the amount of 950k EUR for litigations in France and Germany in connection to a copyright infringement claim by a photographer. Contrary to the short-term disclosure, due to legal actions undertaken by artnet, the Group does not expect a cash outflow for this provision in 2016. There are significant uncertainties related to the timing and the actual amount for the cash outflow.

29. Significant Events After the Balance Sheet Date

In March 2016, the French Court of Cassation rendered its decision in a lawsuit of a French photographer versus artnet AG, artnet France Sarl, and Artnet Worldwide Corp. concerning his claim of a violation of copyright. Based on procedural aspects of the case, the French Court of Cassation has ruled in favor of the French photographer.

In the previous level of jurisdiction, the Paris Court of Appeal had ordered artnet AG, artnet France Sarl, and Artnet Worldwide Corp. to pay 764,412 EUR to Mr. Briolant, and held that artnet AG, artnet France Sarl, and Artnet Worldwide Corp. are jointly and severally liable. The appeal filed against this judgment by artnet AG, artnet France Sarl, and Artnet Worldwide Corp. intended to obtain a cancellation of this ruling by the Court of Cassation, and sought to have the entire case reviewed by a different Court of Appeal. However, the French photographer filed a motion claiming that this appeal cannot be processed by the Court of Cassation for failure to meet certain prerequisites with respect to the enforcement of the ruling from the Court of Appeal. This motion was argued by the parties before the court in a hearing which led to a pre-trial ruling in favor of the motion of the French photographer.

Consequently, the pre-trial ruling is not based on any consideration of the arguments that artnet AG, artnet France Sarl, and Artnet Worldwide Corp. formed to challenge the grounds of the ruling from the Court of Appeal. The Court of Cassation could reregister the case if all or part of the above mentioned compensations are paid within a two-year period.

The Company will carefully evaluate its legal options and all other available means concerning this matter.

No other reportable events of significance for the net assets, financial position, and results of the artnet Group have occurred after the balance sheet date.

30. Notifications According to the Wertpapierhandelsgesetz (WpHG - German Securities Trading Act)

According to § 21 WpHG shareholders are required to report when the level of their shareholdings exceed or fall below certain thresholds. The thresholds are 3%, 5%, 10%, 15%, 20%, 25%, 30%, 50%, and 75%.

artnet AG was notified about the following notification of voting rights as per § 26 WpHG:

October 7, 2015

Mr. Brewster Fine, United States, informed us on October 6, 2015 that his share of the voting rights in artnet AG exceeded the threshold of 3% on October 1, 2015 and on this date amounts to 3.24% (182,198 voting rights of the total of 5,631,067 voting rights in artnet AG).

April 7, 2015

1. Weng Fine Art AG with its registered office in Krefeld, Germany, informed us on April 2, 2015 that its share of the voting rights in artnet AG fell below the threshold of 3% on March 27, 2015 and on this date amounts to 2.66% (150,000 voting rights of the total of 5,631,067 voting rights in artnet AG).

2. Mr. Rüdiger K. Weng, Germany, informed us on April 2, 2015 that his share of the voting rights in artnet AG fell below the threshold of 3% on March 27, 2015 and on this date amounts to 2.67%, (150,100 voting rights of the total of 5,631,067 voting rights in artnet AG). The entire voting rights are attributable to Mr. Rüdiger K. Weng pursuant to sec. 22 para. 1 sent. 1 no. 1 WpHG.

March 23, 2015

1. Weng Fine Art AG with its registered office in Krefeld, Germany, informed us on March 20, 2015 that its share of the voting rights in artnet AG fell below the threshold of 5% on March 16, 2015 and on this date amounts to 4.56% (257,000 voting rights of the total of 5,631,067 voting rights in artnet AG).

2. Mr. Rüdiger K. Weng, Germany, informed us on March 20, 2015 that his share of the voting rights in artnet AG fell below the threshold of 5% on March 16, 2015 and on this date amounts to 4.58%, (258,150 voting rights of the total of 5,631,067 voting rights in artnet AG). The entire voting rights are attributable to Mr. Rüdiger K. Weng pursuant to sec. 22 para. 1 sent. 1 no. 1 WpHG, including the voting rights of the following shareholder whose holdings of voting rights amount to 3% or more: Weng Fine Art AG.

March 12, 2015

Mr. Hans-Herbert Döbert, Germany, informed us on March 11, 2015 that his share of the voting rights in artnet AG exceeded the threshold of 3% on March 10, 2015 and on this date amounts to 3.01%, (169,700 voting rights of the total of 5,631,067 voting rights in artnet AG).

artnet AG Annual Report 2015

The Company has published this information on its investor relations page online.

Berlin, April 7, 2016

Jacob Pabst CEO, artnet AG

English Translation of the Independent Auditors' Report

We have audited the consolidated financial statements prepared by artnet AG, Berlin, comprising the consolidated statement of financial position, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash flows and the notes to the consolidated financial statements, together with the Group management report for the business year from January 1 to December 31, 2015. The preparation of the consolidated financial statements and group management report in accordance with IFRS as adopted by the EU, and the additional requirements of German commercial law pursuant to § 315a (1) German Commercial Code (HGB) are the responsibility of the legal representatives of the Company. Our responsibility is to express an opinion on the consolidated financial statements and on the Group management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with § 317 HGB [Handelsgesetzbuch; "German Commercial Code"] and German generally accepted standards for the audit of financial statements promulgated by the Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer – IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the Group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the Group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in the consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and the Group management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRSs as adopted by the EU and the additional requirements of German Commercial Law pursuant to § 315a (1) HGB and give a true and fair view of the net assets, financial position and results of operations of the Group, in accordance with these requirements. The Group management report is consistent with the consolidated financial statements, as a whole provides a suitable view of the Group's position and suitably presents the opportunities and risks of future development.

Without qualifying our opinion we refer to the deliberations of the management board concerning the liquidity risk in the risk reporting section of the group management report. There it is stated that it could still lead to liquidity risks which could endanger the group as a going concern if the judgment in March 2015 to damages of EUR 0.8 million by an appeal court in France would have to be paid on a short term basis. The appeal filed against this judgment in May 2015 was dismissed by the French Court of Cassation in March 2016 by means of a pre-trial ruling. The management board wants to exercise all legal options available against the enforcement of the judgment as well as conduct negotiations with the plaintiff for a settlement out of court. Therefore the management board does not expect a complete cash outflow because of the judgment in 2016.

Hamburg, April 8, 2016

Ebner Stolz GmbH & Co. KG

Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft

Florian Riedl Wirtschaftsprüfer Dirk Schützenmeister Wirtschaftsprüfer

artnet AG

Supervisory Board John Hushon, Chairman Hans Neuendorf, Deputy Chairman Piroschka Dossi Management Board Jacob Pabst, CEO

Artnet Worldwide Corporation

Jacob Pabst, CEO

artnet France sarl Jacob Pabst, CEO

artnet UK Ltd. Jacob Pabst, CEO

Addresses

artnet AG

Oranienstraße 164 10969 Berlin info@artnet.de T: +49 (0)30 209 178-0 F: +49 (0)30 209 178-29

Artnet Worldwide Corporation

233 Broadway, 26th Floor New York, NY 10279 USA info@artnet.com T: +1-212-497-9700 F: +1-212-497-9707

artnet UK Ltd.

Morrell House 98 Curtain Road London EC2A 3AF United Kingdom info@artnet.co.uk T: +44 (0)20 7729 0824 F: +44 (0)20 7033 9077 Investor Relations

You can find information for investors and the annual financial statements at artnet.com/investor-relations.

If you have further queries, please send an email to ir@artnet.com, or send your inquiry by mail to one of our offices.

German Securities Code Number

The common stock of artnet AG is traded on the Prime Standard of the Frankfurt Stock Exchange under the symbol "ART." You can find notices of relevant company developments at artnet.com/investor-relations.

Wertpapier-Kenn-Nummer

[WKN] A1K037

ISIN DE000A1K0375

Concept and Production Artnet Worldwide Corporation

©2016 artnet AG, Berlin