ANNUAL REPORT

2016

Annual report 2016

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Contents

Highlights ________________________________________________________________ 2

Message from the CEO _____________________________________________________ 3

About Cxense _____________________________________________________________ 4

Board of Directors and key executives __________________________________________ 7

Report from the Board of Directors ____________________________________________ 9

Corporate governance _____________________________________________________ 21

Corporate social responsibility _______________________________________________ 30

Group financial statements __________________________________________________ 33

Notes to the consolidated financial statements __________________________________ 37

Financial statements for Cxense ASA _________________________________________ 66

Notes to the annual financial statements Cxense ASA ____________________________ 69

Statement by the Board of Directors and the Chief Executive Officer _________________ 85

Auditors report ___________________________________________________________ 86

Definitions _______________________________________________________________ 92

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Highlights

Cxense develops the world’s leading personalization and data management software. The Cxense software

enables businesses to gather, analyze and act on data to increase conversion and revenue across all digital

platforms.

The digital economy is growing, with real-time data management and personalization as a key driver for

reaching the online audience on all digital surfaces. Important steps were taken in 2016 to position Cxense

for the opportunities ahead.

• Strong growth for Cxense’s core business, software for data management and personalization of websites and

apps

• Group revenue growth of 39% over 2015; revenue for core offering of data management and personalization

software increased 81% year-over-year

• Raised new equity of USD 27.6 million from leading investors and warrant program to accelerate growth

through investments in sales and marketing

• Continued revenue growth and cost focus led to improved financial performance, even considering investments

in the sales organization

• Signed 137 recurring revenue contracts across all sales regions, of which 58% with new customers and 42%

as upsell to existing clients

• An expanding customer base within existing core verticals; media, publishers, and e-commerce

• Adding new customers in new verticals; including consumer brands, sports, and financial services

• A more focused Cxense following successful integration of the 2015 acquisitions, with strengthened R&D

capacity, OPEX synergies realized, and doubled North American revenue base

• R&D focused on developing the personalization offering, which is driving growth

• Increased industry recognition, with Cxense included in research group Gartner’s Magic Quadrant for Digital

Marketing Hubs

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Message from the CEO

We help companies grow digital revenue The economy is turning digital. During 2016, online advertising revenue surpassed TV advertising, and global e-

commerce was growing at a rate of more than 20% per year. Competition for consumer attention online is

increasing, and companies struggle to achieve good one-to-one communication with their customers. Our software

enables companies to create personalized online experiences, deliver what people want, grow their online revenue,

and conquer the digital world.

In 2016, Cxense delivered strong growth in our core business area – data management, and personalization of

websites and apps. We continued to develop our software, which provides our clients with market leading results,

and which has placed us at the forefront of the technological shift driving online sales.

Software-as-a-service

Our software solution is provided to customers as a subscriber service, which tailors the customers’ websites to

every single site visitor, based on user data, which is captured, analyzed, and acted upon in real-time. We provide

clients with real-time insight into how users engage with their sites and mobile apps, so that they can improve their

site’s performance. In sum, we enable businesses to engage their audience in a relevant and personal manner.

This is something people want, and it makes them spend more time on each site, click on more links, see more

offers tailored to them, and ultimately buy more.

Growing recognition

In our view, we have only scratched the surface of our market potential, as all companies with sites and apps are

potential Cxense clients. Our solutions help some of the world’s biggest media and e-commerce brands store and

retrieve more and better audience data in a highly scalable, cloud-based platform. We provide industry-leading

capabilities for managing and analyzing these vast amounts of data, enabling real-time personalization and content

recommendations.

Our position was further recognized in February 2017, when Gartner Group included Cxense in its third Magic

Quadrant for Digital Marketing Hubs. Made up of 22 companies, the quadrant provides an overview of vendors

representing advertising, marketing automation, and analytics, which deliver personalized digital marketing at scale.

Growth capacity

None of this would have been possible without the efforts of the Cxense team located around the world – in Buenos

Aires, New York, Boston, Oslo, London, Madrid, Samara, Singapore, and Tokyo. I’d like to take this opportunity to

thank them for their contribution. They are at the heart of our success, and will be a driving force, as we continue

to develop our leading technology, and market penetration.

To further develop our technological leadership, we continue to invest in our software platform. During 2016, we

raised significant new capital from leading institutional investors, which has provided a strong financial platform for

future growth. Our partnership with mporium has strengthened as we together develop a tailor-made, one-stop-

shop offering for international advertising agencies. Additionally, in 2017 we partnered with RepKnight, which will

enable us to extend the personalization offering to include more social media insight.

We have taken significant steps to boost our sales and marketing organization, which has expanded our lead

pipeline, increased sales, and strengthened our ability to create industry-leading ROI for our customers. These

investments will increase costs in the short term, before the combination of additional sales capacity and our SaaS

business model allows us to scale to profitability.

Our goal is simple: To grow our business by enabling customers to “deliver what people want”.

Ståle Bjørnstad,

CEO, Cxense ASA

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About Cxense

CXENSE – DELIVER WHAT PEOPLE WANT

COMPANY VISION

“To understand better than anyone what people want and to enable our customers to use that insight to engage

and monetize their audience”

CXENSE IN BRIEF

Cxense is a B2B Software-as-a-Service company, which markets its own proprietary data management and

personalization software

Cxense’s customers are all companies with online sites and apps

The revenue model is based on monthly subscriptions

Cxense’s software helps customers increase revenue from websites and apps, by enabling personalized online

shopping, news sites and subscription offerings

Cxense enables its customers to take control of their audience data, and to deliver more engaging and relevant

user experiences

Businesses that use Cxense’s advanced real-time analytics, data management and personalization software

gain more engaged users, increased digital revenue and higher sales conversions

Approximately 1.7 billion devices interacted with Cxense’s technology in Q4 2016

Customers include the Wall Street Journal, USA Today (Gannett), Grupo Clarin, El Pais, Bonnier, Naspers,

Ebay, The Golf Channel, PGA, NBA, NFL, ABC News, FOX Sports, Singapore Press Holdings, South China

Morning Post, AEON, DMM, Rakuten and many more

The company has 183 employees in Europe, the Americas, and Asia, and is headquartered in Oslo, Norway

Cxense is listed on the Oslo Stock Exchange’s main list under the ticker ‘CXENSE’. For more information:

www.cxense.com; Twitter: @Cxense

A SOFTWARE-AS-A-SERVICE (SAAS) BUSINESS

SaaS is a software delivery model in which software and associated data are centrally hosted and delivered over

the Internet as a service. As opposed to installing and maintaining software locally, SaaS customers access the

software via an Internet browser. SaaS solutions run on the SaaS provider’s servers and the provider manages

access to the application, including network access, security, availability, maintenance and performance. SaaS

customers do not have to invest in hardware or install any software. SaaS applications are also known as Web-

based software, on-demand software or hosted software.

Cxense products are delivered as SaaS, where customers pay a monthly license subscription fee. Customer

contracts are typically for 12 months, with automatic renewal. Cxense is committed to being a leading provider of

on-demand SaaS solutions, helping customers provide superior user experiences and effectively monetize their

online properties. A main benefit from using Cxense’s SaaS solution is easy access. All customers need to get

started, is an Internet access.

Cxense delivers its solutions from scalable, outsourced data centers in the USA, Europe and Japan. Based on

distributed software architecture, Cxense software solutions are data center agnostic, enabling customers to buy

their hosting capacity from the reputable provider of their choice at the most competitive price. Cxense’s platform

enables businesses to comprehensively personalize their site for every single site visitor, across mobile, tablet and

desktop devices. The content, products, and ads that are most relevant for the individual user, are brought forward,

increasing audience engagement, conversions, and digital revenue.

Cxense Data Management & Analytics

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Cxense’s unique advantage is the company’s ability to aggregate and analyze massive quantities of real-time data,

which has rapidly become the fuel powering the entire content, commerce and advertising ecosystems. Cxense

Insight provides real-time analytics for customers’ sites and mobile apps, so that the customers can constantly

improve user experiences and maximize engagement with their content, ads and offers.

The solution captures all interactions - across desktop, tablet and mobile devices - and display the data in intuitive

dashboards. Key benefits are detailed traffic reports on how content is consumed, and the ability to identify external

sites that drive traffic to customer web sites; split traffic across different devices, browsers and operating systems;

monitor the popularity of individual articles and pages through their lifecycles; get detailed information on page

views and unique users; select timeframes and add filters to analyze traffic patterns; understand how people

navigate to individual articles, how much time they spend reading the article and where they go next; and inspect

the keywords that characterize the article, and how the article can drive recommendations and contextual ads.

Beyond providing a detailed view of all digital activity across a customer’s user base, Cxense DMP (Data

Management Platform) makes the customer’s data actionable, integrated and “portable”, enabling publishers and

digital businesses to aggregate, segment and act on user data to drive higher user engagement and revenue.

Cxense DMP enables automatic data capture in real time, across all devices. Customers can combine the data

captured with other first, second, and third-party data, analyze the combined data, develop individual user profiles

and audience segments and put the data to work across their sites and multi-channel marketing plan.

Customers look to Cxense to future-proof their digital experiences. The company is uniquely positioned to help

businesses fuse all relevant and actionable data, to provide a comprehensive view of their end users now and in

the future, regardless of where and when data are generated. Cxense is also well positioned for future application

of the Internet of Things and Beacon technologies.

Cxense Personalization and Conversion Optimization

The power of website personalization is evident in its measurable and robust ROI. Personalization increases user

engagement and sales conversions by providing every single user with individually tailored experiences. Cxense

Content aggregates and indexes customer content, including articles, images, videos, etc: gathers and analyzes

real-time user behavior, and provides a framework that enables customers to deliver content recommendations and

personalized experiences in real time. Customers can actively leverage analyzed, data such as location, device,

interests, subscriptions and past purchases. Website personalization delivers an immediate increase in page views

and time spent on a site, while decreasing bounce rates.

Cxense’s customers are more and more focused on revenue diversification, which is putting a bright light on the

ability to drive conversions from their digital audiences. These conversions take the form of subscription and

registration offerings, products and advertising. Cxense’s solutions can be readily applied to all these use cases.

Over the past two years, Cxense has also aggressively expanded the product and technology portfolio, providing

machine learning technology and advertising optimization solutions through Cxense Maxifier, and adding powerful

video indexing technology, and a complete solution for hosting, analytics and recommendations to address the

explosive growth in the use of video across the various use cases in publishing, marketing and commerce.

Cxense Display

Cxense Display is an ad-serving solution that boosts digital advertising revenue for publishers. Cxense Display

integrates with the DMP, allowing publishers to segment their audience and target ads to specific visitors. Cxense

Display enables audience targeting, based on user interests, intent, location, device, keywords, categories and

more.

Cxense Maxifier

Cxense Maxifier enables customers to take control of advertising campaign delivery and optimization. Premium

inventory is the key to profitability, and performance improvements can have a substantial impact. While most

solutions focus on monetizing low value remnant inventory, Cxense Maxifier helps drive optimal value from premium

inventory. The solution analyzes data, and identifies the highest performing inventory setup for each advertising

campaign, enabling an automated optimization process to continually enhance performance. Key customer benefits

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include: streamlined operations for efficiency and scale, increased performance, ability to partner with advertisers,

reduction of hyper-targeting, valuable insight into ad products, and the ability to promote automated optimization.

THE PCAN BUSINESS SEGMENT Publisher-Controlled Advertising Networks (PCANs) act as publisher-controlled brokers between advertisers and

publishers, distributing and sharing advertising revenues generated in the network with the publishers. Serving as

an advertising technology provider, Cxense has helped establish several PCANs. By charging a fee based on the

revenues generated by the PCAN, Cxense aligns its interests with those of its customers. The company a 53%

ownership share in a Spanish PCAN. As a result of its majority ownership, this PCAN is consolidated into the group

accounts and reported in Cxense’s PCAN business area.

PRIVACY AND INFORMATION SECURITY Cxense respects the privacy of its customers and their end users. To safeguard these interests, Cxense maintains

a privacy policy that applies to all of its services and websites operated by, or enabled by, Cxense, its subsidiaries,

or affiliated companies. From time to time, Cxense may also post service-specific notices, or documentation, to

explain in more detail how Cxense services handle end user information.

Cxense is also required to comply with the European Union’s Data Protection Directive (Directive 95/46/EC), and

local enabling legislation, regarding its processing, or storage, of EU residents’ end user data.

Cxense maintains an information security policy to safeguard its systems and data, utilizing a range of physical,

electronic, and logical security barriers and current best practices. Cxense has also partnered with enterprise-level

data centers, to provide industry-leading security practices for its cloud operations.

For questions or more information about these policies, please visit www.cxense.com/about-us/privacy-policy, or

contact Cxense’s Data Protection Officer at legal@cxense.com.

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Board of Directors and key executives

BOARD OF DIRECTORS

MORTEN OPSTAD BENTE SOLLID STOREHAUG

NADINE SHARARA

Chairman of the Board

Morten Opstad is the Chairman of the Board

of Directors, and a partner at Advokatfirma

Ræder.

Morten is a veteran within the legal fields of

the IT industry. He has served as adviser to a

number of successful technology companies,

from the entrepreneurial phase, through to

stock exchange listing.

He is the Chairman of two stock exchange

listed technology companies, and focuses his

strategic counselling on questions related to

the stock exchange, company law, and tax.

Morten also advises on strategic counselling,

focusing on the international side of a client’s

business.

Board member

Bente Sollid Storehaug is CEO of ESV Digital

AS. ESV Digital is the only agency in Norway

that uses algorithms to map the real influence

of different media channels before user

conversion.

Bente is a serial entrepreneur, a board

member of both start-ups and publicly traded

companies, and a mentor for entrepreneurs

through Innovation Norway/Connect Norway.

She is the Chairman and co-founder of Dot

Global, Norway’s only commercial top level

domain registry, and a member of the

Executive Boards of Polaris Media ASA and

Eika-Alliansen.

In 1993, she established Digital Hverdag,

which is publicly listed at the Oslo Stock

Exchange under the current company name

Bouvet. Bente is also the youngest member

ever of the Association of Norwegian Editors.

Board member

Nadine Sharara is Ecommerce and Customer

Director at Hobbs London, a leading British

retailer of womenswear, where she is

responsible for global ecommerce and

customer experience across all channels.

Prior to this Nadine was Ecommerce & CRM

Director at Moët Hennessy where she led the

Global B2C Ecommerce and CRM business

unit. She previously served as Head of e-

commerce at Thomas Pink and Space.nk, in

addition to several marketing positions in

other companies.

Nadine is a multi-channel professional, with

end to end e-commerce and retail experience

from platform development, through to

trading optimization. Nadine is passionate

about customers, and experienced in cross

channel sale, and is inspired by brands.

She has specialized in trading, helping

retailers maximize their online and offline

opportunities by acquiring, converting and

retaining valuable customers. Nadine has BA

in Marketing from University of Strathclyde.

SVEIN RAMSAY GOLI

DAVID ROWE

Board member

Svein Ramsay Goli served as Director in IBM

Norway, with responsibility for sales and

marketing. He was three years with IBM

European and Middle East, headquartered in

Paris, in the team responsible for the Nordic

countries. Svein started Oracle Norway, and

served as Vice President in Oracle, with

responsibility for the Nordic countries.

Svein has chaired several boards in the IT

industry, such as Visma, Tandberg Data,

Data Respons, KSD, and Norman.

Board member

David Rowe is CEO of Black Green Capital,

an investment company, which primarily

invests in digital business and services.

David was the former CEO and founder of

Easynet Group, a global Enterprise Cloud

services business. Easynet was one of the

first Internet companies in the UK to list on

AIM in 1996, and subsequently on the

London Stock Exchange in 1999.

David also has experience as Managing

Director at Sky Enterprise Division. David has

a Master’s Degree in Information

Technology.

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KEY EXECUTIVES

Ståle Bjørnstad, Chief Executive

Officer

Jørgen Marius Loeng, Chief

Financial Officer

Aleksander Øhrn, Chief

Technology Officer

Tom Wilde, Chief Product Officer Vigleik Takle, Chief Operating

Officer

Camilla G. Moen, Executive Vice

President, Human Resources

John T. Sviland, Chief Business

Development Officer

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Report from the Board of Directors

For the year 2016, Cxense made significant progress developing its core offering, the data

management and personalization software. Cxense experienced increased recognition

among companies with ambitions to boost online revenues through a personalized user

experience. Cxense provides the cutting edge technology that enables customers to create

these personal experiences, and customers’ regard for Cxense’s solutions is reflected in

significant revenue growth.

OPERATIONAL REVIEW

Developing Data Management and Personalization leadership

Cxense strengthened its position as a leading provider of real-time data management and personalization solutions

in 2016. The customer base widened in all regions, and the company expanded engagements with existing clients,

confirming the positive impact experienced by customers using Cxense’s software.

The Cxense software enables publishers and e-commerce companies to personalize their online sites and apps. A

personalized website presents users with content, advertising and promotions tailored to their interests, as opposed

to a traditional site, where everyone sees the same version of the site. The result is increased engagement,

conversion rates and revenue.

The 2016 group revenue amounted to USD 25.5 million, compared with USD 18.3 million in 2015. The increase in

revenue was due to a growing number of data management and personalization software customers in the SaaS

segment and the effect from the 2015 acquisitions. Revenue from data management and personalization software

rose by 81% in 2016, representing 64% of group revenues for the full year, compared with 49% in 2015. Sales of

advertising software declined by 15%, and represented 22% (37%) of 2016 group revenues.

The company experienced strong

demand for data management and

personalization software driven by

increasing online business activity and

adoption of advanced personalization

techniques. Customers select

Cxense’s solutions due to robust user

tracking techniques, strong first-party

and third-party data capture

capabilities and the deepest real-time

audience user profiles in the market. In

2016, data management and

personalization software accounted for

94% of new Annual Recurring Revenue

(ARR) contracts closed. Upselling on

existing customers remained an

important growth factor, representing

42% of the number of new contracts

signed over the year.

Most of Cxense’s customers are in the online publishing market vertical. Nevertheless, the company made a

breakthrough in the e-commerce vertical in 2016, with several customer wins in Japan. Cxense has established a

position in Japan, with strong brands, such as AEON, Nissen, and Lawson Fresh, and with proven results of

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personalization driving sales. The e-commerce market, measuring USD 2 trillion, and growing by more than 20%

per year1, represents a significant market opportunity for Cxense.

Another milestone in 2016, was the private placement to Aker ASA, Ferd AS, and Charles Street International

Holdings Ltd, raising USD 19 million in new growth capital. A subsequent offering to existing shareholders, where

members of the board and management participated, raised USD 3 million. An additional USD 6 million was raised

in Q4 2016, from a warrant program. The new equity positions Cxense to pursue growth in the Data Management

and Personalization software market.

The company’s unique position won industry recognition in February 2017, as Gartner Group included Cxense in

its third Magic Quadrant for Digital Marketing Hubs. The quadrant provides an overview of vendors from advertising,

marketing automation and analytics that deliver personalized digital marketing at scale. Adding Cxense to the 2017

quadrant, which comprise 22 selected vendors globally, including SAP and SAS, Gartner stated that “marketing

leaders need a system that can integrate and coordinate data and activities across channels, devices and contexts,

continuously and in real time”.

Organizational development and cost effectiveness

Organizational development during 1H 2016 was characterized by the completion of the integration of the Ramp

and Maxifier acquisitions, both of which closed in 2H 2015. The post integration organization has provided Cxense

a stronger North American sales & marketing growth capacity and new R&D hub in Samara, Russia, which will

contribute significantly to product development output in the years to come.

The 1H 2016 integration has furthermore captured cost synergies, and led to an overall EBITDA improvement in

2016 over 2015.

In the latter part of 2016, Cxense started focusing on growing the sales organization. In Q4 2016 the company had

on average 18 full sales quota equivalents, up from 15 in Q3. Cxense has continued to build the sales organization

into 2017, and plans to increase to 30 full sales quota equivalents by the end of H1 2017. Assuming the actual Q4

1 Source: https://www.emarketer.com/Article/Worldwide-Retail-Ecommerce-Sales-Will-Reach-1915-Trillion-This-Year/1014369

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sales performance, a sales force of 30 has the potential to deliver quarterly new ARR of USD 3.5 million, compared

with USD 2.1 million signed in Q4.

Investments and acquisitions

mporium group plc

In 2015, Cxense signed a three-year OEM license agreement with the UK mobile e-commerce provider mporium

Group plc, which delivers commerce solutions, including tablet and smartphone apps, and end-to-end, fully

transactional mobile websites, to online merchants and brands. The agreement permits mporium to include Cxense

real-time technology in their offering, while providing Cxense with distribution of its SaaS platform in the high-growth

mobile e-commerce industry vertical. Cxense received a share-based consideration for the license agreement, and

made investments that resulted in a 21.3% holding in mporium (100,000,000 shares at 2 pence per share) at year-

end 2015.

In 2016, Cxense invested a further USD 0.87 million in mporium, by acquiring 8,790,403 new shares at a price of

7.5 pence per share in a private placement. Following this transaction, Cxense held 108,790,403 shares in mporium,

equaling 21.2% of the shares outstanding and a weighted average subscription price of 2.4 pence per share.

As at 31 December 2016, the fair value of the group's interest in mporium group plc, which is listed on the London

Stock Exchange, was approximately USD 17.4 million, while the carrying amount of the group's interest amounted

to USD 4.3 million. (See Notes 14 and 25.)

In 2016, Cxense continued to work with mporium to develop a tailor-made, one-stop-shop offering for international

advertising agencies. By identifying ”micro moments” (signals from TV and other data feeds that indicates that

consumers are interested in a specific piece of advertising), mporium is able to drive quality traffic, which Cxense

picks up to direct to a transaction. The two companies have continued to make progress in 2017, and are confident

the offering may change the dynamics of ad agencies. On 21 March 2017, Cxense ASA made an investment of

GBP 0.65 million in mporium Group plc through participation in a GBP 3.05 million private placement to strengthen

mporium’s balance sheet and growth capacity. Cxense subscribed for 4,333,000 shares, each at a price of 15

pence. After the investment, Cxense holds 113,123,403 shares in mporium, which represents 21.16% of the

outstanding shares, with a weighted average subscription price of 2.9 pence. On 20 March 2017, the closing share

price of mporium was 14.88 pence.

RepKnight Ltd

Given the increased importance of social media, Cxense decided to make an investment in RepKnight in Q1 2017.

At the same time, Cxense signed an extensive partner agreement with the company. RepKnight provides insight

from Twitter to Cxense, which will enable Cxense to extend the personalization offering to also include information

sharing on Twitter, in addition to what is consumed on a web page.

R&D DEVELOPMENTS

2016 was another watershed year for Cxense in terms of developing the product line. Cxense R&D focuses on

three major areas, in order to deliver market-leading solutions in a highly competitive environment: 1) Successful

scaling and operation of the multi-tenant cloud infrastructure, to meet strict service level agreements with customers;

2) Research and development of the award-winning data capabilities; and 3) Development of market solutions and

applications for target market verticals.

In regard to scaling and operations, Cxense R&D made significant infrastructure investments, including optimization

of the global datacenter footprint and design updates to the core architecture. As Cxense works with some of the

world’s largest media and e-commerce brands, the company continues to evolve its backend, enabling customers

to store more data across their event, audience and content profiles, as well as to scale the absolute volume of data

they can store and retrieve in the Cxense platform. Cxense also successfully merged the backend operations of

Ramp Media, which was acquired in late 2015, delivering notable performance and cost efficiency improvements.

Cxense’s leading position in the aggregation and activation of customer data has been consolidated. Major

improvements were made with regards to the freshness of data available within customer audience “segments”.

Cxense also expanded the number and type of “events” its software can capture and make available to customers

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in real-time, for personalization and recommendations across content and e-commerce use cases. The company

also completed a number of major partner integrations in 2016, including AppNexus, Google and other key

ecosystem players. These integrations increase the value of Cxense’s solution to customers, by extending the

venues within which they can activate customer data.

Based on the evolution of the company’s markets, Cxense has two critical focus areas for 2017. The first, during

the first half of the year, is a major initiative directed at the company’s applications. While Cxense has long been

recognized for its data management capabilities, customer have increasingly requested tools, workflows, and

graphic user interfaces (GUIs) that enable their non-technical staff to configure, manage and optimize Cxense

solutions post onboarding. Cxense made a number of important changes in 2016 to prepare for this initiative,

including the appointment of the first-ever Chief Product Officer, Tom Wilde, who was the founder and CEO of

Ramp. Cxense has also increased investments in product management, as well as user experience and design

resources, to add this discipline to Cxense’s products and solutions. At the end of 2016, the company had charted

a detailed product roadmap that defines planned improvements of the application for Cxense’s customer user

interfaces, as well as ongoing improvements to core platform capabilities.

In terms of maintaining and expanding leadership in data management, Cxense plans to invest significantly in two

critical market areas; online identity management, through probabilistic and deterministic data analysis, and a

broader application of artificial intelligence and machine learning, based on the 2015 acquisition of Maxifier, which

included unique capabilities in this category. Dramatic advances in the field of machine learning represents one of

the most significant transformations of the online marketing, advertising and e-commerce verticals ever witnessed,

with applications that include self-learning recommendation algorithms, machine-based campaign optimizations

and artificial intelligence-based advertising targeting.

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CXENSE GROUP – FINANCIAL DEVELOPMENT SUMMARY

USD 1,000 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 2015 2016

IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRSSaaS segment

SaaS segment

Revenues total 3 301 2 954 4 183 5 291 5 467 5 381 5 511 5 654 15 728 22 013

Cost of sales 532 664 700 780 908 967 1 252 1 195 2 676 4 323

Gross profit 2 769 2 290 3 483 4 510 4 558 4 414 4 259 4 460 13 052 17 691

Gross margin % 84 % 78 % 83 % 85 % 83 % 82 % 77 % 79 % 83 % 80 %SaaS segment

Personnel 2 802 3 063 3 834 3 904 4 657 3 675 4 141 4 574 13 603 17 047

Other OPEX 1 462 2 255 1 739 1 928 1 735 1 915 1 772 2 258 7 383 7 679

OPEX 4 264 5 318 5 573 5 832 6 392 5 590 5 913 6 832 20 986 24 727

EBITDA (1 495) (3 028) (2 090) (1 321) (1 833) (1 176) (1 654) (2 374) (7 934) (7 037)SaaS segment

NON-IFRS adjustment of OPEX level

Share-based payment costs 121 93 156 144 171 56 149 191 514 567

Share-based social costs provision 10 (130) 9 37 54 (111) 91

Salary and social restructuring provisions/costs 140 327 361 467 361

Office moving and restructuring costs 126 45 210 126 255

Extraordinary/special

One-off provision for doubtful debt 16 55 84 16 139

Transaction costs 658 195 166 45 81 78 79 1 019 283

R&D refund (152) (430) (42) (167) (582) (209)

Total reported OPEX adjustment items 121 901 523 (95) 659 204 226 397 1 450 1 486SaaS segment

Estimated full effect of cost-reduction program 176 525 176 525

SaaS segment

OPEX adjusted 3 967 4 417 5 050 5 927 5 208 5 386 5 686 6 435 19 360 22 715

EBITDA adjusted (1 199) (2 126) (1 568) (1 416) (649) (972) (1 428) (1 977) (6 309) (5 026)SaaS segment

Capitalized operating expense (450) (460) (440) (496) (498) (494) (496) (891) (1 846) (2 379)

EBITDA adjusted with capitalization add back (1 649) (2 587) (2 007) (1 912) (1 147) (1 466) (1 924) (2 868) (8 155) (7 405)

SaaS segment

PCAN segment

Revenues total 619 620 675 805 837 990 840 938 2 719 3 605

Cost of goods sold 472 484 512 629 679 810 705 824 2 097 3 017

Gross profit 148 136 163 175 159 180 135 115 622 588

Gross margin % 24 % 22 % 24 % 22 % 19 % 18 % 16 % 12 % 23 % 16 %PCAN segment

Personnel 116 131 136 176 200 218 168 153 559 739

Other OPEX 86 69 71 86 97 96 185 219 312 597

OPEX 203 200 206 261 298 314 353 371 871 1 336

EBITDA (55) (65) (44) (86) (139) (134) (219) (257) (249) (748)

PCAN segment

GROUP

Revenues, all segments 3 920 3 574 4 858 6 095 6 304 6 371 6 350 6 593 18 447 25 618

Intra-segment eliminations (39) (34) (39) (39) (41) (41) (34) (30) (151) (146)

Revenues consolidated 3 881 3 540 4 818 6 056 6 263 6 330 6 317 6 562 18 296 25 472

Gross profit 2 916 2 426 3 645 4 686 4 717 4 594 4 394 4 575 13 674 18 280

Gross margin % 75 % 69 % 76 % 77 % 75 % 73 % 70 % 70 % 75 % 72 %

OPEX 4 466 5 518 5 779 6 093 6 689 5 904 6 266 7 204 21 857 26 063

EBITDA (1 550) (3 092) (2 134) (1 407) (1 972) (1 310) (1 873) (2 629) (8 184) (7 783)

NON-IFRS adjustment of OPEX level

Total reported OPEX adjustment items 121 901 523 (95) 659 204 226 397 1 450 1 486

Estimated full effect of cost-reduction program 176 525 176 525

EBITDA adjusted (1 253) (2 191) (1 611) (1 502) (789) (1 106) (1 646) (2 232) (6 558) (5 772)

Capitalized operating expense (450) (460) (440) (496) (498) (494) (496) (891) (1 846) (2 379)

EBITDA adjusted with capitalization add back (1 703) (2 651) (2 051) (1 998) (1 286) (1 600) (2 142) (3 120) (8 404) (8 148)

Annual report 2016

14

Revenue

The 2016 group revenue from continuing operations amounted to USD 25.5 million, an increase of 39% over the

2015 revenue of USD 18.3 million. Cxense has two business segments: Cxense Software-as-a-Service (SaaS) and

Cxense Publisher Controlled Advertising Networks (PCAN). The increase in group revenue is due to a growing

number of customers in the SaaS segment, and the effect from the acquisitions of Ramp Media and Maxifier Inc in

H2 2015. Revenue for the Cxense SaaS segment was USD 22 million in 2016, compared with USD 15.7 million in

2015. The SaaS segment revenues relate predominantly to sales of recurring software licenses, and some

implementation and consulting services. The PCAN segment produced revenue of USD 3.61 million in 2016, up

from USD 2.72 million in 2015. Revenue from the PCAN segment represents sales of online advertising.

Cost base

Total cost of sales for the group in 2016 was USD 7.19 million, compared with USD 4.62 million in 2015. Cost of

sales in 2016 amounted to USD 4.32 million for the SaaS segment, and USD 3.02 million for the PCAN segment.

Cost of sales within the SaaS segment predominantly relates to the hosting of the software applications used by

the company’s customers. Cost of sales within the PCAN segment relates to revenue share paid to publishers that

provide their advertising space, and to agency commissions paid to advertising agencies. The 2016 gross margin

was 80% for the SaaS segment, compared with 83% in 2015, and 16% for the 2016 PCAN segment, compared

with 23% in 2015.

The employee benefit expenses were USD 17.8 million in 2016, compared with USD 14.2 million in 2015. The

increase reflects a growing number of employees in H2 2016, salary increases, severance costs and higher share-

based costs. R&D refund relating to personnel costs for 2016 was USD 0.29 million (USD 0.36 million), and the

capitalization of employee benefit expenses related to software development activities amounted to USD 1.81

million in 2016 (USD 1.37 million).

Other operating expenses amounted to USD 8.26 million in 2016, compared with USD 7.67 million in 2015. Most

of the expenses relate to travel, marketing, consulting services, and contractors. In 2016, an R&D refund of USD

0.18 million was booked as a cost reduction to other operating expenses (USD 0.23 million). Other operating

expenses of USD 0.57 million, related to software development activities, were capitalized in 2016.

Results

EBITDA improved to USD -7.78 million in 2016, compared with USD -8.18 million in 2015.

Depreciation and amortization amounted to USD 3.84 million in 2016, compared with USD 2.04 million in 2015. The

increase is attributable to capitalization of R&D, and amortization of intangible assets from the acquisitions of

Maxifier and Ramp Media. In addition, an assessment of the potential value of a capitalized advertising solution

currently under development, resulted in an impairment of USD 337 thousand. After the impairment made in Q4

2016, recognized fair value of the advertising solutions is USD 0.5 million.

Finance income in 2016 was USD 5.7 million, compared with USD 1.11 million in 2015. The significant increase

relates to reversal of contingent considerations to the sellers of Maxifier and Ramp, of USD 4.7 million, and USD

0.74 million, respectively. The considerations, which were booked as liabilities in the balance sheet, were reversed

in Q3 and Q4 2016, as the earn-out conditions were no longer expected to be met. The reversals resulted in positive

net profit contributions of USD 4.7 million in Q3, and USD 0.74 million in Q4, respectively. See Note 9 for more

details. Finance expenses, mostly relating to currency expenses, amounted to USD 862 thousand in 2016 and USD

444 thousand in 2015.

The 2016 share of profit of investments in associated companies was USD -1.2 million, compared with USD 250

thousand in 2015, and is related to the investment in the associated company mporium, where Cxense holds a

21.2% stake. As addressed on page 7 in the Q4 2016 report, the share of profit is updated with actual figures in the

Annual Report 2016. The 2016 reported share of profit from mporium has changed from USD -1.7 million, as

reported in Q4 2016. The reason for the change is that, according to IAS 28, the financial reports used for calculating

the share of profit shall not be older than three months. Since mporium reports bi-annually, financial reports from

mporium, compliant with IAS 28, were not available when reporting the Q4 2016 financials. The H2 2016 interim

report for mporium published 29 September 2016 was therefore used to estimate the share of profit for Cxense in

Annual report 2016

15

Q4 2016. For the 2016 annual report, the reported mporium figures for the full year 2016 has been used as

documentation.

Tax expense for 2016 was USD 432 thousand, compared with USD 110 thousand in 2015. In general, the income

tax expense arises in Cxense SaaS subsidiaries in the USA, Japan, and Australia, which perform Sales & Marketing

and Research & Development activities for the parent company, based on intercompany agreements (with arm’s-

length pricing principles).

The group net loss amounted to USD 8.4 million in 2016, compared with USD 9.42 million in 2015. This represented

a loss of USD 0.0012 per share in 2016, compared to a loss of USD 0.0020 per share in 2015.

Financial position

Total assets at 31 December 2016 were USD 57.7 million, compared with USD 42.8 million at year-end 2015. The

increase in total assets for the year was mainly related to the June 2016 private placement, and the exercise of

warrants to subscribe to new shares in Q4 2016. Total equity was USD 48.3 million, compared with USD 29.0 million

at the end of 2015.

Goodwill of USD 14.4 million at 31 December 2016 was related to the acquisitions of Emediate, Maxifier and Ramp

Media, of USD 3.8 million, USD 5.9 million, and USD 4.7 million, respectively. 2016 intangible assets of USD 11.8

million were related to excess value of, respectively, USD 5.4 million from the Ramp Media acquisition, USD 1.5

million from the Maxifier acquisition, and USD 2.1 million from the Emediate acquisition, as well as capitalized R&D

of USD 2.8 million. Cxense holds 21.2% of the shares in mporium Group plc, which is classified as an associated

company.

Trade receivables were at USD 3.63 million (equal to 50 days of inventory2) at the end of 2016, compared to USD

3.54 million (53 days) at the end of 2015. The SaaS segment trade receivables were at USD 2.84 million at year-

end 2016 (equal to 45 days of inventory), and the PCAN segment trade receivables amounted to USD 0.79 million

(76 days).

The cash position at 31 December 2016 was USD 22 million, compared with USD 5.8 million at the end of 2015.

The change was mainly related to the private placement and warrants exercise.

Other long-term liabilities were USD 44 thousand, compared with USD 2.67 million at year-end 2015. The decrease

relates to the removal of the long-term contingent considerations of USD 1.9 million for Maxifier, and 0.74 million

for Ramp Media. See Note 20 for further details.

Total current liabilities at year-end 2016 were USD 8.4 million, compared with USD 10.1 million in 2015. The

decrease was mainly related to the removal of the short-term contingent consideration of USD 2.8 million for

Maxifier.

Cash flow

Net cash flow used in operating activities was USD 8.24 million in 2016, compared with USD 9.49 million in 2015.

Currency translation effects impacted negatively on 2016 cash flow from operations.

The 2016 net cash flow used in investing activities was USD 3.22 million, which mainly comprised an investment in

mporium of USD 0.87 million, and capitalization of R&D. This compares to cash flow used in investments of USD

6.4 million in 2015, reflecting the Maxifier and Ramp acquisitions, investments in mporium, and capitalization of

R&D.

2 Days = Receivables / Q4 2016 revenues * 90 days

Annual report 2016

16

Net cash flow from financing activities was USD 27.6 million in 2016, following the June private placement of 1.25

million new shares, and the exercise of warrants in Q4. Net cash flow from financing in 2015 was USD 18.9 million,

following issue of new shares through the year.

PARENT COMPANY FINANCIAL STATEMENTS

Revenue in the parent company was NOK 143.7 million in 2016, compared with NOK 87.6 million in 2015. Personnel

and payroll costs were NOK 72.3 million in 2016, up from NOK 61.0 million in the preceding year. The increase is

explained by increases in the number of employees and salaries. The parent company had on average 51

employees, compared with 41 in 2015.

Cost of sales amounted to NOK 114.9 million in 2016, an increase from NOK 59.8 million in 2015. The cost of

services largely relates to the purchase of services from subsidiaries. Most subsidiaries experienced increased

activity in its research and development or sales and marketing activities, impacting Cxense ASA cost.

Other operating expenses amounted to NOK 34.1 million, compared with NOK 38.6 million in 2015. The audit fee

expensed in 2016 was NOK 1.2 million. Net financial income was NOK 0.3 million in 2016, compared with a net

financial expense of NOK 3.29 million in 2015. The reduced financial expense relates mainly to net currency gains

of NOK 1.1 million in 2016, while the company experienced a net currency loss in 2015 of NOK 3.1 million, which

was relating to a currency adjustment of the contingent consideration for Maxifier.

The net result for Cxense ASA in 2016, was a loss of NOK 102.4 million, compared with a loss of NOK 80.9 million

in 2015.

The Board of Directors proposes that NOK 102.4 million is transferred from the share premium reserve. The Board

does not propose to pay a dividend for 2016.

SHARE CAPITAL

As at 31 December 2016, Cxense ASA had share capital of NOK 39,734,435, consisting of 7,946,887 shares, with

a nominal value of NOK 5 each. The shares in the company have been listed and traded on the Oslo Stock

Exchange since July 2014.

Issue of shares

Cxense issued new shares on several occasions in 2016, as part of private placements and subsequent offerings,

and to finance acquisitions. The table below provides an overview of the separate transactions executed during

2016.

Date announced Type of issue Number

of shares

Subscription price

per share

Gross proceeds Date registered

25 Feb 2016 Ramp Media purchase price

adjustment3

43,583 NOK 103.44 04 Mar 2016

24 May 2016 Private placement 1,250,000 NOK 120.00 NOK 150 million 29 Jun 2016

25 May 2016 Subsequent offering 208,333 NOK 120.00 NOK 25 million 01 Aug 2016

01 Jul 2016 Options and subscription

rights exercise

3,400 NOK 106.47 NOK 0.4 million 19 Jul 2016

3 Share based acquisition proceeds

Annual report 2016

17

12 Oct 2016 Warrant exercising4 393,100 NOK 130.00 NOK 51 million 30 Nov 2016

14 Dec 2016 Options and subscription

rights exercise

11,125 NOK 98.96 NOK 1.1 million 06 Jan 2017

Warrants

Investors allocated shares in the private placement and subsequent offering announced in September 2015, were

granted one non-transferrable warrant for every two new shares allocated. Each warrant gave the holder, subject

to certain conditions being fulfilled, inter alia the allocated new shares not being sold in the 12-month period following

the extraordinary general meeting (EGM) on 12 October 2015, the right to subscribe for one additional new share

in Cxense at a subscription price of NOK 130. The warrants were exercisable from 12 months after the EGM date,

through to no later than 12 months and 30 calendar days after the EGM date.

On 12 November 2016, 82.7% of the 475,000 warrants were exercised by warrant holders, and, as a consequence,

393,100 shares were issued to the warrant holders. There were no warrants outstanding as of 31 December 2016.

Share options and subscription rights

On 25 August 2016, the Board of Directors of Cxense ASA resolved to issue 130,500 subscription rights to

employees in the company. The grant was made under the company's 2016 incentive subscription rights plan, as

resolved at the AGM on 12 May 2016. The exercise price of the subscription rights is NOK 165.80 per share. The

issued subscription rights vest over 4 years by 25% on each anniversary from the date of the grant, and expire on

12 May 2021.

On 16 November 2016, the Board of Directors of Cxense ASA resolved to issue 19,500 subscription rights to

employees in the company. The grant was made under the company's 2016 incentive subscription rights plan, as

resolved at the AGM on 12 May 2016. The exercise price of the subscription rights is NOK 148.80 per share. The

issued subscription rights vest over 4 years by 25% on each anniversary from the date of the grant, and expire on

12 May 2021.

At 31 December 2016, there were 346,000 outstanding share options and subscription rights to Cxense employees.

Costs of share based payments are booked to the profit and loss statement, in accordance with the IFRS 2

accounting standard. (Se Note 2.1)

RISKS AND RISK MANAGEMENT

Cxense bases risk management on the principle that risk evaluation is integral to all business activities. As a

technology company with global operations, Cxense is exposed to various risk factors of financial and operational

nature. These factors can affect the group’s business activities and financial position. The board of Cxense

prioritizes risk management, and has established routines and policies to limit overall risk exposure.

Market risk

Cxense’s markets are undergoing rapid technological change. The company’s future success will depend on its

ability to meet the changing needs of the industry, develop new technologies that address the increasingly

sophisticated and varied needs of prospective customers, and respond to technological advances and emerging

industry standards and practices on a cost-effective and timely basis.

4 Subscribers in a private placement and subsequent offering announced 7 September 2015 were granted 1 warrant for every 2 shares allocated with an exercise period from 12 October to 12 November 2016

Annual report 2016

18

Regulatory and IPR-related risk

Cxense’s technology is closely tied to the group’s operations and business strategy. The company relies on a

combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions

to protect the company’s intellectual property rights (IPR). Cxense is working to protect its products and

technologies in all markets of operation, but will always face risk related to copyright protection of new products,

how third parties will challenge them, and how the technology of others can impair the company’s ability to do

business.

Going forward, Cxense may be subject to government regulations of the industry, which could adversely affect the

current business model. The company is not aware of any forthcoming legislation or regulation that will affect the

business negatively.

Foreign exchange risk

Cxense is subject to certain financial risks associated with currency and interest rates. There is a broad currency

mix in both revenues and costs incurred, so no single, large currency risk has been identified to affect the company’s

net profit. Cxense’s cost basis is largely in Norwegian kroner, US dollars, Japanese yen, Russian rubles and Euro.

The commercial revenues are essentially in US dollars, Japanese yen, Euro, Danish kroner, Norwegian kroner and

Swedish kroner. Proceeds from share issues are saved in Norwegian kroner. Cxense has not entered into any

hedging agreements.

Liquidity and credit risk

Cxense operates at a loss, and does not have any assets suitable for secured borrowing. During 2016, the company

raised new equity with net proceeds of USD 27.1 million. The company may seek to raise further capital to finance

its expansion plans.

Cxense is exposed to customer-related credit risk, i.e. risk related to the financial strength and characteristics of the

its customers. There is always a risk of loss on accounts receivable from customers and reduced sales to customers,

if they face liquidity challenges.

CORPORATE GOVERNANCE

Cxense is committed to a high standard of corporate governance, and has adequate monitoring and control systems

in place to ensure insight and control over the activities. The company complies with the legislation, regulations and

recommendations to which a public limited company is subject, including Section 3-3b of the Norwegian Accounting

Act on corporate governance, day-to-day obligations of a company listed on the Oslo Stock Exchange, and the

current version of the Norwegian Code of Practice for Corporate Governance, last updated 30 October 2014.

A detailed statement of the Company’s corporate governance policy is provided in a separate section of this annual

report.

EMPLOYEES, CORPORATE SOCIAL RESPONSIBILITY AND THE ENVIRONMENT

Cxense aspires to achieve sustainable development by striking a good balance between financial results, value

creation, sustainability, and corporate social responsibility (CSR). Pursuant to section 3-3c of the Norwegian

Accounting Act, the Board of Directors has drawn up guidelines covering business ethics and CSR.

Cxense’s activities in the area of social responsibility, including human rights, labor rights, the working environment,

equality, discrimination, anti-corruption, and the external environment, are described in a separate section of this

annual report.

GOING CONCERN AND EVENTS IN 2017

The board confirms that the financial statements of the company, as well as of the parent company, have been

prepared under the going concern assumption. The board is confident that the company is well positioned to

continue in operational existence, based on the current balance sheet, revenue forecast, and projected expenses.

Annual report 2016

19

In 2016, Cxense raised USD 27.1 million in net proceeds, from issuing shares by private placement and subsequent

offerings, and from exercise of warrants. The proceeds are expected to secure the company’s working capital

requirements going forward. At the end of 2016 the consolidated cash position was USD 22 million.

On 10 February 2017, Cxense announced a technology licensing agreement with RepKnight, a UK-based developer

of social media analytics technology. Cxense invested GBP 3 million in cash for a 30% stake in RepKnight, providing

the company with growth capital, and strengthening the strategic partnership. RepKnight provides insight from

Twitter to Cxense, which will enable Cxense to extend the personalization offering to also include information

sharing on Twitter, in addition to what is consumed on a web page. The combined solution allows content publishers

and e-commerce sites to improve customer engagement, increase site traffic, deliver more relevant personalization,

and drive conversions.

On 21 March 2017, Cxense ASA made an investment of GBP 0.65 million in mporium Group plc, through

participation in a GBP 3.05 million private placement, to strengthen mporium’s balance sheet and growth capacity.

Cxense subscribed for 4,333,000 shares, each at a price of 15 pence. After the investment, Cxense holds

113,123,403 shares in mporium with a weighted average subscription price of 2.9 pence. On 20 March 2017, the

closing price of mporium shares was 14.88 pence.

In the period from 31 December 2016 until the presentation of this report, the company has secured a number of

new contracts. Reference is made to Cxense’s stock exchange announcements.

OUTLOOK

Market

It is increasingly apparent that a key success factor in the digital economy is the ability to offer people relevant and

engaging online experiences. Cxense’s software enables the company’s customers to offer personalized online

shopping experiences to drive sales, tailor unique news sites that keep viewers engaged for a longer time and drive

advertising income, and create personalized subscription offers, which have measurable impact on the ability to

turn sporadic viewers into paying, loyal subscribers.

Publishers, broadcasters, and e-commerce businesses continue to improve their ability to capture, store and

process data, to develop a clearer picture of how consumers interact with content and advertising across devices.

Cxense’s core vision and strategy is to enable customers to analyze these massive amounts of data, and make the

results actionable in real time, to ensure truly personalized online experiences, regardless of device.

With its solutions, Cxense is positioned to tap into a rapidly growing Internet advertising market and an ecommerce

segment growing more than 20% annually.

Global Internet advertising spending is forecast to grow from USD 154 billion in 2015, to USD 260 billion in

2020, representing a CAGR of 11%. Internet advertising is likely to have surpassed TV as the largest single

advertising category in 20165. Mobile advertising CAGR is estimated at 20% over the period, to reach USD 85

billion in 2020, growing nearly twice as fast as the overall Internet advertising market.

The retail e-commerce market is expected to grow by 24% in 2017, to USD 2.4 trillion6, and to reach USD 4.1

trillion by 2020. This equals an estimated share for e-commerce of 10% of the global retail market in 2017,

rising to nearly 15% in 2020.

Adoption of advance web and app personalization technology is increasing. A recent study by eMarketer7

shows that 22% of marketers are using site personalization techniques while 56% of responds they plan to

start using it.

5 http://www.pwc.com/gx/en/entertainment-media/pdf/outlook-internet-advertising-2016.pdf 6 https://www.emarketer.com/Article/Worldwide-Retail-Ecommerce-Sales-Will-Reach-1915-Trillion-This-Year/1014369 7 eMarketer, Personalization Roundup September 2016

Annual report 2016

21

Corporate governance

Cxense ASA (Cxense) seeks to create sustained shareholder value, and the company pays due respect to the

norms of its various stakeholders. In addition to shareholders, Cxense considers as stakeholders its employees, its

business partners, society in general and the authorities. Cxense is committed to maintaining a high standard of

corporate governance, being a good corporate citizen and demonstrating integrity and high ethical standards

throughout its business dealings.

1. IMPLEMENTATION AND REPORTING ON CORPORATE GOVERNANCE

Cxense is a Norwegian public limited company listed on the Oslo Stock Exchange, and bases its corporate

governance structure on Norwegian legislation and recommended guidelines.

The company’s corporate governance practices were resolved and stated on 13 March 2014. This review of the

company’s corporate governance principles and practices is prepared in compliance with Section 3-3b of the

Norwegian Accounting Act, and the Norwegian Code of Practice for Corporate Governance (“code of practice”) as

updated per 30 October 2014. The code of practice is available online at www.nues.no.

Application of the code of practice is based on the “comply or explain” principle, which stipulates that any deviations

from the code, should be explained.

The principles and implementation of corporate governance is subject to annual reviews and discussions by the

company’s board. The corporate governance statement will be made available in the annual report.

Cxense did not deviate from the recommendations in the code of practice in 2016.

Corporate values, Code of Conduct, and Corporate Social Responsibility

Cxense’s values shape everything the company does:

● People

We care about people – our own people, our clients, and their customers.

● Integrity

We strive to do the right thing by everyone, always. We say what we mean and, we do what we say.

● Passion

Our passion for our team, our technology and our customers’ success drives us.

● Innovation

We’re innovators, and explorers in data. We’re agile, transparent and forward thinking

The board has resolved a set of ethical guidelines, in accordance with the values that apply to all employees,

consultants and contractors, as well as non-executive directors. The ethical guidelines are also incorporated in the

company’s guidelines for corporate social responsibility.

Through their employment contracts, all employees have committed to adhere to the policies, and the management

will ensure that compliance work is kept in focus and that frequent training is provided on relevant topics. Any

potential or actual breaches of the company’s policies during daily operations will be reported and tracked.

Cxense recognizes that the formal guidelines are only a starting point for establishing and maintaining sound

business ethics throughout the company. Emphasizing ethical conduct is a management responsibility, and the

company’s ethical standards will further evolve over time, as vigilance and monitoring between colleagues clarify

issues, lead to discussion, and direct attention to activities and issues which pose particular challenges.

The company strives to ensure that suppliers and business partners operate in alignment with Cxense’s principles.

for sustainability and CSR.

Deviations from the code of practice: None

Annual report 2016

22

2. CXENSE’S BUSINESS

Cxense empowers publishers and e-commerce companies to apply advanced online personalization techniques

through easy-to-use software.

Businesses using Cxense’s real-time analytics, data management (DMP), advertising, search and personalization

technology gain more engaged users, increased digital revenue and higher sales conversions. Cxense technology

powers more than 6,000 sites worldwide; securely maintaining approximately one billion unique user profiles on

behalf of their customers. Cxense is headquartered in Oslo, Norway, with offices around the globe.

The articles of association defines the company’s business: “The Company’s business is information technology,

including development, operations, sales and licensing of software, and other naturally associated activities,

including participation in other companies with similar operations.”

The company’s business goals and key strategies are stated in a business plan adopted by the board. The plan is

reviewed and revised as and when appropriate. The business goals and key strategies are presented in the annual

report. The articles of association are available on www.cxense.com.

Deviations from the code of practice: None

3. EQUITY AND DIVIDENDS

The board aims to maintain a satisfactory equity ratio, in light of the company’s goals, strategy and risk profile, and

thereby to ensure an appropriate balance between equity and other sources of financing. The board regularly

assesses the company’s capital requirements. By 31 December 2016, Cxense had a total equity of USD 48.2

million, representing an equity ratio of 84%.

Cxense does not have an established dividend policy in place, except to say that the company’s aim and focus is

to enhance shareholder value, and provide an active market in its shares. The company has historically never

declared or paid dividends on its shares, and does not anticipate paying any cash dividends for 2016, or the next

few years. Cxense intends to retain future earnings, if any, to finance operations and the expansion of its business.

Any future determination to pay dividends will depend on the company’s financial condition, operational results and

capital requirements.

Board mandates

At the annual general meeting (AGM) in 2016, the board was granted authorizations to issue shares with a nominal

value of NOK 3,046,027, representing 10% of the registered share capital at the time of the authorization. The

authorizations are valid until the date of the 2017 AGM, however no later than 30 June 2017. The authorizations

may be used (i) in connection with private placements, where shareholders’ pre-emptive rights may be set aside,

and (ii) in connection with rights issues. The authorizations for private placements and rights issues shall collectively

be limited to 10% of the share capital at the time of the authorization.

The AGM granted an authorization for share issues upon exercise of any of the issued and outstanding share

options in the company, in an amount limited to a nominal value of NOK 494,750, reflecting the 98,950 issued and

outstanding share options in the company at the date of the AGM. As of 31 December 2016, 52,200 share options

were outstanding.

The authorizations are limited to general purposes. Each mandate for the board to issue shares was considered

and voted separately, by type and purpose.

The authorization underlying the company’s share option program, as resolved by the EGM on 21 September 2012,

was granted for two years. The AGM in 2015 adopted a new subscription rights plan for share-based incentive

programs, which was renewed for one year at the AGM in 2016. All future grants of share-based incentives shall

be made under the subscription rights plan, while issued and outstanding share options under the share option plan

shall remain in effect, in accordance with their terms. To enable four-year vesting periods, Cxense will renew its

subscription rights plan each year at the AGM, whereby the preceding plan is closed for new grants when the new

plan takes effect. Two subscription rights grants were made in 2016, both under the company's 2016 incentive

subscription rights plan. On 25 August 2016, and on 16 November 2016, the board resolved to issue, respectively,

130,500, and 19,500 subscription rights to employees in the company.

Annual report 2016

23

A more detailed overview of the share-based incentive program is described in the Notes to the financial statements

in the 2016 annual report.

In 2016, 13,900 shares were issued under the share options authorization, and a total of 625 shares were issued

under the 2015 subscription rights program. 11,125 of these shares were resolved to be issued in 2016, but

registered in 2017. As of 31 December 2016, 7,958,012 shares, and 346,000 share options and subscription rights,

were outstanding. 11,125 of these shares were not registered at 31 December 2016 (see Note 18 in the financial

statements in the 2016 annual report).

At the 12 May 2016 AGM, the board was authorized to purchase up to 10% of the company’s shares, for a maximum

price of NOK 1,000 per share. The authorization expires at the date of the 2017 AGM, but no later than 30 June

2017. As of 31 December 2016, the authorization has not been used.

An Extraordinary General Meeting (EGM) on 21 June 2016 approved an authorization to issue shares representing

total par value of NOK 6,250,000 in a placement directed at the three investors: Aker ASA, Ferd AS, and Charles

Street International Holding Ltd. In addition, the EGM granted the board an authorization to increase the company's

share capital by par value of NOK 1,041,665 in a subsequent offering. As of 31 December 2016, the 21 June 2016

authorizations have been fully utilized.

An EGM on 12 October 2015 approved a private placement and subsequent offering, which included the issuance

of one warrant for every two shares subscribed for and allocated to the subscriber. Each warrant entitled the holder

to subscribe for one new Cxense share at an exercise price of NOK 130, on the condition that the investor did not

sell his/her allocation within the 12-month holding period ending 12 October 2016. A total of 475,000 warrants were

issued. At the end of the warrant exercise period on 12 November 2016, a total of 393,100 new shares were issued

to warrant holders that had subscribed for shares. As of 31 December 2016, there were no warrants outstanding.

Deviations from the code of practice: None

4. EQUAL TREATMENT OF SHAREHOLDERS AND TRANSACTIONS WITH CLOSE

ASSOCIATES

Cxense has one class of shares. Each share carries one vote and equal rights to the company’s profits. Each share

has a nominal value of NOK 5. Further information on voting rights at general meetings is provided under Section

6.

The company places great emphasis on ensuring equal treatment of its shareholders. There are no trading

restrictions, voting restrictions or limitations relating only to non-residents of Norway under the company’s articles

of association.

Over the last years, Cxense has on several occasions been in need of raising equity to fund its activities, which has

resulted in dilution of existing shareholders’ shareholdings. In authorizations to issue new shares where the

shareholders have resolved to waive the pre-emptive rights of existing shareholders, the rationale for doing so has

been included as part of the decision material presented to the general meeting. When such transactions have been

conducted, the justification has also been included in the announcements to the market.

All related-party transactions in effect have been, and will be carried out on an arm’s-length basis. Any not-

immaterial future related-party transactions shall be subject to independent third-party valuation, unless the

transaction by law requires shareholder approval. The company takes legal and financial advice on these matters

when relevant.

Members of the board and the management are obliged to notify the board if they have any material, direct or

indirect, interest in any transaction contemplated, or entered into by the company.

Deviations from the code of practice: None

Annual report 2016

24

5. FREELY NEGOTIABLE SHARES

All shares are freely assignable, except for consideration shares issued to certain majority sellers of Maxifier Inc.,

and to Ramp Holdings Inc. These are subject to lock-up mechanisms for 24 months following completion for

Maxifier, and for 18 months following the delivery date in relation to the Ramp Media acquisition.

The articles of association do not contain any restrictions on the shares. There are no shareholders’ agreements in

effect that restrict assignability of the company’s shares. However, the company has, by contract, imposed certain

restrictions on the sale and transfer of shares by employee shareholders.

Deviations from the code of practice: None

6. GENERAL MEETINGS

The GM is Cxense’s governing body, and provides a forum where shareholders can raise issues with the board.

The AGM has adopted the articles of association, where topics, such as the agenda, notice period and attendance

are regulated. EGMs are held in accordance with the provisions of the Public Limited Liability Companies Act, and

may be called by the board.

Notification

The AGM is held by the end of June each year. The 2017 AGM is scheduled for 10 May.

Notice of a GM shall be sent no later than 21 days before the date of the GM. According to the articles of association

§12, the notice of the GM and related documents can be made available on the company’s website only. All

documents will be made available in English.

Registration and proxies

The notice will provide information on the procedures shareholders must observe in order to participate in, and vote

at the GM. The board endeavors to provide comprehensive information in relation to each agenda item, in order to

facilitate productive discussions and informed resolutions at the meeting.

Shareholders wishing to attend the GM, in person or by proxy, shall electronically submit a written confirmation

through the company’s website, or by mail or e-mail to the company’s registrar, DNB Bank ASA. The confirmation

of attendance must be submitted no later than two days prior to the GM. If a shareholder does not notify the company

of his or her attendance in a timely manner, the company may deny him or her access to the meeting.

Shareholders are entitled to request that specific matters be placed on the agenda of an AGM, by giving the board

written notice in due time before the notice of the meeting, however, no later than one week before the notice is

issued.

Shareholders who are unable to attend in person, will be provided the option to vote by proxy. The notice shall

contain a proxy form, as well as information about the procedure for proxy representation. At the meeting, votes

shall be cast separately on each subject, and for each office/candidate in the elections. Consequently, the proxy

form shall, to the extent possible, facilitate separate voting instructions on each subject, and on each

office/candidate in the elections.

Agenda and execution

The agenda for the general meeting is set by the board, and the main items are specified in §6 of the articles of

association.

The shareholders elect a person to chair the GM. The board will arrange for an independent candidate, if so

requested by shareholders.

As far as is at all possible, all members of the board and nomination committee shall be present at the GM, together

with the company’s auditors.

The company will announce the protocol for the GM, in accordance with stock exchange regulations.

Deviations from the code of practice: None

Annual report 2016

25

7. NOMINATION COMMITTEE

The company’s nomination committee is regulated by the articles of association, §7. The implementation of a

nomination committee was resolved at the AGM on 2 April 2014.

The nomination committee consists of three members, who are elected for a period of two years. The committee

and its chair are elected by the GM, which also decides on the remuneration of the committee.

The current nomination committee comprises Robert Keith and Mikal Rohde, both elected at the AGM held 13 May

2015, and Davor Sutija, elected at the AGM held 12 May 2016. In accordance with the instructions for the nomination

committee, the committee itself proposes new members for the committee, and remuneration of the committee

members.

The nomination committee proposes candidates for election to the board at the GM, and recommends remuneration

for board members.

Deviations from the code of practice: None

8. CORPORATE ASSEMBLY AND BOARD OF DIRECTORS; COMPOSITION AND

INDEPENDENCE

Cxense does not have a corporate assembly.

Composition of the board

Pursuant to the articles of association, §5, the board shall have three to six members, elected by the GM. As at 31

December 2016, the board comprised five members, whereof two women and three men, hence fulfilling the gender

diversity requirements pursuant to Norwegian legislation.

Board members are elected for a period of two years, and may be re-elected. The GM elects the chairman of the

board.

Mr. Morten Opstad (chairman), Ms. Bente Sollid Storehaug, and Mr. Svein Goli were elected to continue as directors

for the second year of their respective terms at the AGM on 12 May 2016. Ms. Nadine Sharara and Mr. David Rowe

were elected as board members for a period of two years.

Independence of the board

The majority of the directors are independent of the company’s management and material business contacts, and

at least two of the shareholder-elected directors are independent of the company’s major shareholders. The

directors are independent from the company’s management, and the executive management is not represented on

the board.

All directors are required to make decisions objectively, in the best interest of the company, and the presence of

independent directors is intended to ensure that additional independent advice and judgment is brought to bear.

Share ownership

The board considers that, at this stage of Cxense’s corporate development, it is beneficial for the company and its

shareholders that board directors are also shareholders in the company. The board therefore encourages directors

to hold shares in the company.

The board pays attention that ownership shall not in any way affect or interfere with the proper performance of

fiduciary duties that the directors and management owe the company, and all shareholders. As and when

appropriate, the board takes independent advice in respect of its procedures, corporate governance, and other

compliance matters.

Deviations from the code of practice: None

Annual report 2016

26

9. THE WORK OF THE BOARD OF DIRECTORS

The board’s tasks

The board is elected by the shareholders to oversee the executive management, and to assure that the long-term

interests of the shareholders and other stakeholders are served.

The board has the ultimate responsibility for management and the company’s activities in general. The main

responsibilities include the company’s organization and planning, and the control and supervision of operations.

The board shall also ensure that the organization of accounting and funds management is compliant and under

satisfactory control.

The board adopts an annual plan for its work, with particular emphasis on objectives, strategy, and implementation.

Instructions to the board

The board has issued instructions for its own work, as well as for the CEO, to allocate duties and responsibilit ies

between the CEO and the board. The instructions are based on applicable laws and well-established practices. The

current instructions were last amended by the board in March 2014.

The board instructions state that, in situations when the Chairman cannot, or should not, lead the work of the board,

the longest-serving director shall chair the board, until an interim chairman has been elected by and among the

directors present.

Audit committee

In accordance with the Public Companies Act, Cxense has established an audit committee. The main

responsibilities of the audit committee relate to financial reporting, audits, internal control, and overall risk

management.

The audit committee was elected at the board meeting on 25 July 2016, and comprises two board members: Morten

Opstad and Svein Ramsay Goli (committee chairman).

Remuneration committee

Cxense has established a remuneration committee. The main responsibilities of the committee relate to preparing

the compensation policy, which is reviewed annually. The full board determines the remuneration of the CEO, and

determines the overall salary framework. The remuneration of the board and the nomination committee is proposed

by the nomination committee.

The remuneration committee was elected at the board meeting on 25 July 2016, and consists of three board

members: Morten Opstad, Nadine Sharara, and David Rowe (committee chairman).

Evaluation of the board

The board evaluates its performance and expertise annually.

Deviations from the code of practice: None

10. RISK MANAGEMENT AND INTERNAL CONTROL

The board has adopted internal rules and guidelines regarding, among other matters, risk management and internal

control. The rules and guidelines take into account the extent and nature of the company’s activities, as well as the

company’s corporate values and ethical guidelines, including corporate social responsibility. The board conducts

an annual review of the company’s most important areas of risk exposure, and its internal control arrangements.

The board has appointed an audit committee to support its work related to financial reporting, audits, internal control

and overall risk management.

The management prepares monthly performance reports for review by the board. In addition, quarterly financial

reports are prepared, and reported to the financial market, in accordance with the Oslo Stock Exchange’s

requirements. These quarterly reports are presented to the audit committee, which reviews the reports prior to the

Annual report 2016

27

board meeting. The auditor takes part in the audit committee’s meetings on an ad hoc basis, and meets with the

entire board for the presentation and approval of the annual financial statements.

The board has adopted an insider manual with ancillary documents. The insider manual is intended to ensure that,

i.a. trading in the company’s shares by board members, executives and/or employees, including close relations to

the aforementioned, is conducted in accordance with applicable laws and regulations.

Deviations from the code of practice: None

11. REMUNERATION OF THE BOARD OF DIRECTORS

The GM determines the remuneration of the board, based on proposals from the nomination committee. The

remuneration shall reflect the board’s responsibilities, competence, time spent, and the complexity of the business.

The remuneration is not linked to performance, and none of the board members have share options issued by the

company.

Beyond the scope of board responsibility, directors can, from time to time, take on certain consultancy projects for

the company. Any director performing work for the company beyond board duties shall ensure that such

assignments do not in any way affect, or interfere with proper performance of his/her fiduciary duties as director.

Moreover, the board (without the participation of the interested director) shall approve the terms and conditions of

such arrangements. Adequate details shall be disclosed in the annual financial statements.

Advokatfirma Ræder DA, in which the chairman Morten Opstad is a partner, renders legal services to Cxense. While

the bulk of the legal services provided by Advokatfirma Ræder are carried out by lawyers other than Morten Opstad,

some of the services provided by Ræder may be carried out by Morten Opstad. Any such services, which would be

beyond Morten Opstad’s duties as chairman, are billed by Ræder. Mr. Opstad abstains from voting on any board

matters concerning the company’s affiliation with Advokatfirma Ræder DA.

An overview of the remuneration of the individual board members is provided in the notes to the financial statement

in the annual report for 2016.

Deviations from the code of practice: None

12. REMUNERATION TO EXECUTIVE MANAGEMENT

Cxense offers market-based compensation packages for executives and employees, in order to attract and retain

the competence the company needs. The exercise price for any share option is in line with the share price at the

time of the grant. The share options vest in tranches over four years. The company does not employ so-

called ”golden parachutes”, and post-employment pay will only apply in cases where the company invokes

contractual non-competition clauses.

While the remuneration committee prepares the overall compensation policy, the board shall determine the

compensation of the CEO. There is a maximum amount of cash incentive remuneration per calendar year for

performance dependent bonus. It follows from the nature of the incentive share option program resolved by the

AGM, that the limit does not apply to the possible gain on share options.

At the AGM, the board will present a statement regarding management remuneration to the shareholders. The

resolution by the AGM is binding, to the extent that it relates to share-based compensation, and advisory in other

aspects.

An overview of the remuneration of individual members of management is provided in the notes to the financial

statement in the 2016 annual report.

Deviations from the code of practice: None

13. INFORMATION AND COMMUNICATIONS

Investor relations

The board places great emphasis on the relationship and communication with shareholders. The primary purpose

of Cxense’s external information activities, is to provide the financial markets sufficient information to accurately

Annual report 2016

28

value the company’s shares. The information shall be presented factually and soberly, and be issued using methods

and channels that ensure simultaneous, fair and wide distribution of the information. All information is published in

English, which is the corporate language of Cxense.

The primary channels for communication are the interim reports, the annual report and the associated financial

statements. Cxense also issues other notices to shareholders when appropriate.

All reports and notices are issued and distributed in accordance with the Oslo Stock Exchange’s rules and practices,

and are made available on the company’s website, and at www.newsweb.no.

Cxense has, in line with the code, adopted an investor relations policy. The CEO and the CFO are responsible for

communicating with the shareholders, stock exchange, analysts and the media, but all press releases and stock

exchange announcements shall be approved by the chairman. The GM provides a forum for shareholders to raise

issues with the board.

The board has adopted the following policies for information and investor relations:

● Policy for reporting of financial and other information, and investor relations;

● Policy for contact with shareholders outside general meetings; and

● Policy for information management in unusual situations, which attract or are likely to attract media or other

external interest.

Financial information

Cxense holds open investor presentations in association with the publishing of its quarterly results. These

presentations are open, and provide an overview of the company’s operational and financial performance in the

previous quarter, as well as of the general market outlook, and the company’s own future prospects. These

presentations are also made available on the company’s website.

Cxense’s financial reporting is fully compliant with applicable laws and regulations. Cxense prepares and presents

its interim and annual financial reports in accordance with IFRS. The interim reports are published on the Oslo

Stock Exchange no more than 60 days after the close of the quarter, and the annual reports are published no later

than ultimo April each year, in line with the stock exchange’s regulations. The reports, and other pertinent

information, are also available at www.cxense.com.

Quiet period

Cxense practices a minimum of two weeks’ quiet period before scheduled interim and annual report publication

dates. In this period, no meetings, telephone conferences, or similar are held with analysts, investors, press, or

other parties in the financial market. Communication, if any, shall be limited to practical matters, and provision of

previously issued statements and reports on request.

Financial calendar

Cxense publishes an annual financial calendar for the following year, setting forth the dates for major events, such

as its annual general meeting, publication of interim reports, any scheduled public presentations, any dividend

payment date, if applicable, etc. The reports and other pertinent information are also available on the company’s

website, www.cxense.com.

Deviations from the code of practice: None

14. TAKEOVERS

Cxense has no takeover defense mechanisms in place. The board will endeavor to maximize shareholder value,

and to treat all shareholders equally. The board shall otherwise ensure full compliance with section 14 of the code.

Deviations from the code of practice: None

Annual report 2016

29

15. AUDITOR

The company’s auditor is appointed by the GM, and is responsible for the financial audit of the parent company,

and the group accounts. The auditor is fully independent of Cxense, and the company represents a minimal share

of the auditor’s business.

The auditor annually presents a plan to the audit committee, covering the main considerations for carrying out the

audit. The auditor participates in at least two of the audit committee’s meetings each year, whereof one is the board

meeting where the annual accounts are approved. The auditor will attend other meetings if requested.

The auditor presents the audit results to the audit committee and the board at the approval meeting for the annual

accounts. The audit results include a presentation of any material changes in the company’s accounting principles,

significant accounting estimates, and a report of any material matters, in case of disagreements between the

external auditor and the management.

At least once per year, a meeting will be held between the auditor and the board, without the presence of the CEO

or other executive management members. The audit committee has a specific obligation to survey the auditor’s

independence and qualifications, and to propose candidates for external audit of the company to the GM.

Cxense does not obtain advice from its auditor on business strategy, operational execution, investment evaluation,

or tax planning. The auditor may provide certain technical and clerical services in connection with the preparation

of the annual tax return and other secondary reports, for which Cxense ASA assumes full responsibility.

Assignment to auditor

The board has established written guidelines for the CEO in respect of assignments to the auditor, other than the

statutory audit. The sum total of the audit firm’s fees and expenses for services which are not related to assurance

services, shall not exceed 50% of the audit firm’s fees and expenses for the assurance service.

Before any assignment beyond assurance service is awarded to the auditor, it is the management’s duty to carefully

assess that (i) the assignment is in the best interest of Cxense, (ii) the auditor is the optimal vendor available, (iii)

the assignment does not constitute risk of compromising the integrity and independence of the auditor, and (iv)

there is no conflict of interest. It is taken for granted that audit firm staff engaged in providing service beyond the

mandatory audit, is not engaged in the audit of the same service.

Members of Cxense’s management team or their close relations may not purchase any services from the audit firm.

Deviations from the Code of Practice: None

Annual report 2016

30

Corporate social responsibility

GUIDELINES

Cxense aspires to achieve sustainable development by striking a good balance between financial results, value

creation, sustainability and CSR. The value created shall benefit owners, stakeholders and society at large.

Cxense operates worldwide within IT, media and other industries. From time to time, the company operates in areas

which, compared to Norway, have less-developed frameworks, traditions, and understanding of labor rights,

environmental protection, anti-corruption and human rights.

Hence, Cxense has developed policies for ethics and social responsibility that constitute general principles and

guidelines for business practices and personal conduct, and provide a basis for the attitudes and values that should

govern the culture in Cxense.

Cxense’s core CSR principles are based on four pillars: people, quality, safety and integrity. In addition, the

company has adopted standards set by the UN Global Compact, International Labour Organization, and

Transparency International, to ensure that it is in line with all relevant regulations related to sustainability and CSR.

The principles and policies are intended to promote the company’s long-term business goals, and are followed up

frequently by reporting key performance to the board of directors.

The board would like to thank all Cxense employees for their great contributions throughout the year.

HUMAN RIGHTS

Cxense adheres to the internationally recognized human rights described by the UN Universal Declaration of

Human Rights. This means that human rights abuses shall not occur in Cxense, and that the company respects

labor rights, opposes any form of child labor, forced labor, or discrimination, avoids corruption and is considerate to

the environment.

ORGANIZATION AND EMPLOYEES

Working environment and demographics

As a company with global operations, Cxense aims to engage employees who derive from a variety of nationalities

and cultural backgrounds, and have the right competence and experience for the job.

The overall number of employees in Cxense grew from 180 full-time employees (FTE) at the end of 2015, to 183 at

the end of 2016, located in 15 different countries. At the end of 2016, 13 (16) FTEs worked within the PCAN business

segment, and 170 (164) within the SaaS business segment.

In 2016, Cxense continued the process of removing overlapping resources in relation to the acquisitions of Maxifier

Inc. and Ramp Media, which closed in 2015. The related reduction amounted to 25 FTEs in 2016. As part of this

process, Cxense closed its research and development hubs in Stockholm, Sweden, and Melbourne, Australia.

Of the 170 FTEs in the SaaS segment at 31 December 2016, 78 FTEs worked in the R&D organization, including

product management, compared with 84 FTEs at the end of 2015. Furthermore, 76 FTEs worked in sales &

marketing (2015: 69 FTE), of whom 3 (3) in sales management, 27 (31) in front-end sales, 46 (35) in operations

and support, and 16 (11) in management, legal, finance & administration.

Diversity and equality

Cxense shall be a healthy workplace, where all employees are given opportunities for professional development.

All employees shall have equal opportunities for development, irrespective of gender, ethnicity or other

distinguishing characteristics.

Annual report 2016

31

At the end of 2016, Cxense had employees from 15 (15) nationalities. Within the group, 50 (35) of 183 (180) FTEs

were women and 133 (145) were men. Women comprised 8 (10) of 13 (16) FTEs in the PCAN segment, and 42

(26) of 170 (164) FTEs in the SaaS segment.

The company had 11(16) employees in executive positions in 2016, of whom 18% were women, compared to 20%

in 2015. The board of directors as of 31 December 2016 comprised five members, two of whom were women.

When hiring new candidates, Cxense seeks to identify highly qualified candidates for all positions, and to maintain

an environment that is neutral and independent of ethnic origin, religious beliefs or orientation, nationality, or other

criteria not relevant to their work. Cxense does not classify its employees based on such criteria, nor are they

considered relevant for a career within the company. Cxense believes that qualifications and achievements are the

key decision factors for employment, but will – everything else being equal – seek to employ more women in leading

positions, to improve the gender balance. In addition, Cxense has a policy of equal pay for equal work.

Competence raising

Cxense is a knowledge-intensive company, and continuous learning and development among employees is

imperative for driving the business forward. Cxense emphasizes knowledge sharing and collaborative learning,

ensuring a high competence level across the organization.

Health and safety

Cxense has a strong commitment to the health, safety and welfare of its employees and their families, and its

customers. The company has developed clear policies related to health, alcohol and drug use, to support its

commitment to providing a safe and secure workplace.

Cxense seeks to create a good working environment with high job satisfaction. All employees are encouraged to

take advantage of flexible working hours, to better balance their jobs with responsibilities at home.

Sick leave in 2016 was 0.42%, compared with 1.12% in 2015, remaining well below the national average of

approximately 5.4% (2015: 5.4%)8, and below the averages for the information and communication industry sub-

segment of 3.2% (3.1%)9. No work accidents that have caused personal injuries or material damage occurred in

2016. Individually tailored interventions or adapted work tasks are offered to prevent or minimize sick leave, when

necessary.

All employees are free to organize, and Cxense supports the right to collective bargaining. Wages shall be above

the minimum to live on.

ANTI-CORRUPTION

Cxense has zero tolerance for corruption in any form, including extortion and bribery. The company is committed

to following the regulations provided by FCPA, the UK Bribery Act, and the Norwegian penal code, and has, over

the years, given significant attention to preventing corruption and bribery.

The company recognizes that some of its operations are in countries with a high level of acceptance for corruption,

as reported by Transparency International. Hence, Cxense follows the reports from Transparency International

closely, and adjusts its level of precautions accordingly. As an example, all employees are required to take an online

anti-corruption course when joining Cxense.

Going forward, the company will continue its strong focus on compliance with anti-corruption efforts, and to maintain

a high level of relevant training in the organization.

8 Source: NAV

9 Source: NAV

Annual report 2016

32

THE ENVIRONMENT

Cxense is committed to reduce its environmental impact, and continually improve its environmental performance,

as an integral and fundamental part of its business strategy and operations. The company has therefore

implemented an “Environmental policy and Environmental standard”, which forms the basis for the company’s work

to ensure the development of environmentally proactive measures.

Overall, Cxense’s operations result in minimal pollution of the natural environment. The company practices recycling

of paper at its offices, where a system is available.

Annual report 2016

33

Group financial statements

CONSOLIDATED INCOME STATEMENT

USD 1,000 Note

Year ended 31

Dec 2016

Year ended 31

Dec 2015

Revenue 4,5 25 472 18 296

Operating expense

Cost of sales 4,6 7 192 4 622

Employee benefit expense 7 17 787 14 162

Other operating expense 8 8 276 7 696

EBITDA (7 783) (8 183)

Depreciation & amortization expense 12 3 836 2 043

Net operating income/(loss) (11 619) (10 226)

Financial income and expense

Finance income 9 5 704 1 111

Finance expense 9 (862) (444)

Net financial income/(expense) 4 842 667

Share of profit from associated companies 14 (1 204) 250

Net loss before taxes (7 981) (9 309)

Income tax expense 10 432 110

Total net loss for the period (8 412) (9 419)

Net loss attributable to:

Owners of the Company (8 074) (9 280)

Non-controlling interests (338) (138)

Earnings per share:

Basic and diluted 11 (0.0012) (0.0020)

Statement of comprehensive income

Net loss for the period (8 412) (9 419)

Other comprehensive income:

- Currency translation differences (220) (790)

Total comprehensive loss (8 632) (10 209)

Total comprehensive income/(loss) attributable to:

Owners of the Company (8 294) (10 071)

Non-controlling interests (338) (138)

Annual report 2016

34

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

USD 1,000 Note

As at 31 Dec

2016

As at 31 Dec

2015

Assets

Non-current assets

Goodwill 13 14 364 14 365

Deferred tax asset 10 15 36

Intangible assets 12 11 832 13 181

Office machinery, equipment, etc. 12 218 419

Investments in associated companies 14 4 267 4 484

Other financial assets 14 388 241

Total non-current assets 31 084 32 725

Current assets

Trade receivables 15 3 632 3 537

Other short-term assets 16 1 023 734

Cash and cash equivalents 17 21 960 5 829

Total current assets 26 615 10 100

Total assets 57 699 42 825

Equity and liabilities

Equity

Share capital 18 4 616 3 433

Other paid-in capital 49 665 32 415

Currency translation differences 6 818 7 037

Accumulated losses (12 472) (13 303)

Equity attributable to the holders of the Company 48 627 29 583

Non-controlling interest (379) (541)

Total equity 48 248 29 042

Liabilities

Non-current liabilities

Deferred tax liabilities 10 783 1 060

Other provisions 183

Other long-term liabilities 20 44 2 656

Total non-current liabilities 1 010 3 716

Current liabilities

Trade payables 20 1 764 1 381

Current taxes 10 210 179

Other short-term liabilities 19 6 467 8 508

Total current liabilities 8 441 10 068

Total liabilities 9 451 13 784

Total equity and liabilities 57 699 42 825

Annual report 2016

35

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

USD 1,000

Nominal

share

capital

Own

shares

Other paid-

in capital

Currency

translation

differences

Retained

earnings

Attributable

to owners of

parent

company

Non-

controlling

interest

Total

equity

Total equity as at 1 January 2015 2 477 0 18 170 4 238 (15 097) 9 788 (403) 9 385

Profit for the period (9 280) (9 280) (138) (9 419)

Other comprehensive income (2 521) 1 730 (790) (790)

Total comprehensive income/(loss) 2015 0 0 0 (2 521) (7 550) (10 070) (138) (10 209)

Transaction costs 0 0 (1 400) 0 0 (1 400) 0 (1 400)

Share-based payments 0 0 470 0 0 470 0 470

Increase in share capital 1 448 0 29 348 0 0 30 797 0 30 797

Reclassification of equity 0 0 (9 345) 0 9 345 0 0 0

Currency effects from translation of equity (492) (4 828) 5 320 0 0 0 0

Total equity as at 31 December 2015 3 433 0 32 415 7 037 (13 303) 29 583 (541) 29 042

Profit for the period (8 074) (8 074) (338) (8 412)

Other comprehensive income 0 0 0 (207) (13) (220) 0 (220)

Total comprehensive income/(loss) 2016 0 0 0 (207) (8 087) (8 294) (338) (8 632)

Reduction of paid-in capital 0 0 0 0 0 0 0 0

Transaction costs 0 0 (822) 0 0 (822) 0 (823)

Share-based payments 0 0 553 0 0 553 0 552

Increase in share capital 1 141 0 26 468 0 0 27 609 0 27 609

Reclassification of equity 0 0 (8 918) 0 8 918 0 0 0

Transactions with non-controlling interests 0 0 0 0 0 0 500 500

Currency effects from translation of equity 43 0 (30) (13) 0 0 0 (0)

Total equity as at 31 December 2016 4 617 0 49 666 6 818 (12 472) 48 627 (379) 48 248

Annual report 2016

36

CONSOLIDATED STATEMENT OF CASH FLOW

USD 1,000

Note

Year ended 31

Dec 2016

Year ended 31

Dec 2015

Cash flow from operating activities

Profit/(loss) after income tax (8 412) (9 419)

Adjustments:

Income tax payable (255) (185)

Share-based payments 7 567 514

Share of profit of investments accounted for using the equity method 14 1 204 (250)

Depreciation and amortization 12 3 836 2 043

Currency translation effects (379) (733)

Change in trade receivables (96) (601)

Change in trade payables 382 (144)

Change in other accrual and non-current items (5 086) (712)

Net cash flow from/(used in) operating activities (8 238) (9 488)

Cash flow from investing activities

Investment in furniture, fixtures and office machines 12 34 (27)

Investment in intangible assets 12 (2 379) (5 802)

Investment in associated companies 14 (873) (760)

Investment in subsidiary 193

Net cash flow from/(used in) investing activities (3 219) (6 398)

Cash flow from financing activities

Net proceeds from share issues 27 087 18 886

Proceeds from minority interest 500

Net cash flow from/(used in) financing activities 27 587 18 886

Net increase/(decrease) in cash and cash equivalents

16 130 3 000

Cash and cash equivalents at the beginning of the period

5 829 2 828

Cash and cash equivalents at the end of the period 21 960 5 829

Annual report 2016

37

Notes to the consolidated financial statements

NOTE 1: GENERAL INFORMATION

Cxense ASA, the parent company of the Cxense group (the group) is a limited liability company incorporated and

domiciled in Norway, with its head office in Karenslyst Allé 4, 0278 Oslo. Cxense is a global technology company,

which delivers innovative and intuitive products that help companies build unique online experiences.

These consolidated financial statements have been approved for issuance by the board of directors on 24 April

2017, and is subject to approval by the Annual General Meeting (AGM) on 10 May 2017.

NOTE 2.1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out

below.

Basis for preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting

Standards (IFRS) as adopted by the European Union (EU) and in accordance with the additional requirements

following the Norwegian Accounting Act.

The financial statements have been prepared on a historical cost basis, except for fair value of contingent

considerations in business combinations.

The consolidated financial statements are presented in US Dollars (USD).

Foreign currency

Functional currency, presentation currency and consolidation

The group’s presentation currency is USD. The functional currency of the parent company is NOK.

For consolidation purposes, the balance sheet figures for subsidiaries with a different functional currency than USD

are translated into the presentation currency (USD) at the rate applicable at the balance sheet date. Income

statements are translated at the exchange rate that approximates the prevailing rate at the date of transaction.

Exchange differences from translating subsidiaries are recognized in other comprehensive income. Currency

effects from translating equity items in the parent company are presented within equity.

Transactions in foreign currency

Foreign currency transactions are translated into the functional currency using the exchange rates at the transaction

date. Monetary balances in foreign currencies are translated into the functional currency at the exchange rates on

the date of the balance sheet. Foreign exchange gains and losses resulting from the settlement of such

transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies are

generally recognized in the income statement.

Principles of consolidation and equity accounting

Subsidiaries

Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an

entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity, and has

the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully

consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that

control ceases.

The acquisition method of accounting is used to account for business combinations by the group (refer to the

Business combinations section below).

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38

Intercompany transactions, balances and unrealized gains on transactions between group companies are

eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the

transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency

with the policies adopted by the group.

Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement

of profit or loss, statement of comprehensive income, statement of changes in equity and balance sheet,

respectively.

Investments in associated companies

Associated companies are all entities over which the company has significant influence, but not control or joint

control. Significant influence is the power to participate in the financial and operating policy decisions of the investee,

but without the ability to have control over those policies. This is generally the case where the group holds between

20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of

accounting, after initially being recognized at cost.

Business combinations

The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, liabilities incurred to the former owners of the acquired business, equity interests issued by the Group, fair value of any asset or liability resulting from a contingent consideration arrangement and fair value of any pre-existing equity interest in the subsidiary. Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The group recognizes any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value, or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. Acquisition-related costs are expensed as incurred.

Goodwill arising on acquisition is recognized as an asset measured at the excess of the sum of the consideration transferred, the fair value of any previously held equity interests and the amount of any non-controlling interests in the acquired entity over the net amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the group’s interest in the net fair value of the acquired entity’s identifiable assets, liabilities and contingent liabilities exceeds the total consideration of the business combination, the excess is recognized in the income statement immediately. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability

are subsequently re-measured to fair value with changes in fair value recognized in profit or loss.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously

held equity interest in the acquisition is re-measured to fair value at the acquisition date. Any gains or losses arising

from such re-measurement are recognized in profit or loss.

Equity method

Under the equity method of accounting, the investments are initially recognized at cost and adjusted thereafter to

recognize the group’s share of the post-acquisition profits or losses of the investee in profit or loss, and the group’s

share of movements in other comprehensive income of the investee in other comprehensive income. Dividends

received or receivable from associates and joint ventures are recognized as a reduction in the carrying amount of

the investment.

Annual report 2016

39

When the group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity,

including any other unsecured long-term receivables, the group does not recognize further losses, unless it has

incurred obligations or made payments on behalf of the other entity.

Unrealized gains on transactions between the group and its associates are eliminated to the extent of the group’s

interest in these entities. Unrealized losses are also eliminated, unless the transaction provides evidence of an

impairment of the asset transferred. Accounting policies of equity accounted investees have been changed where

necessary to ensure consistency with the policies adopted by the group.

The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy

described in the “Impairment of assets” section.

Changes in ownership interests

The group treats transactions with non-controlling interests that do not result in a loss of control as transactions with

equity owners of the group. A change in ownership interest results in an adjustment between the carrying amounts

of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference

between the amount of the adjustment to non-controlling interests, and any consideration paid or received, is

recognized in a separate reserve within equity attributable to owners.

When the group ceases to consolidate or equity account for an investment because of a loss of control, joint control

or significant influence, any retained interest in the entity is re-measured to its fair value with the change in carrying

amount recognized in profit or loss. This fair value becomes the initial carrying amount for the purposes of

subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any

amounts previously recognized in other comprehensive income in respect of that entity, are accounted for as if the

group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized

in other comprehensive income are reclassified to profit or loss.

If the ownership interest in an associate is reduced but joint control or significant influence is retained, only a

proportionate share of the amounts previously recognized in other comprehensive income are reclassified to profit

or loss where appropriate.

Property, plant and equipment

Property, plant and equipment are stated at historical cost, less accumulated depreciation and any impairment

charges. Depreciations are calculated on a straight-line basis over the assets’ expected useful life and adjusted for

any impairment charges. Expected useful lives of long-lived assets are reviewed annually, and, where they differ

significantly from previous estimates, depreciation periods are changed accordingly. Ordinary repairs and

maintenance costs are charged to the income statement during the financial period in which they are incurred.

Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and

are included in operating profit. Major assets with different expected useful lives are reported as separate

components.

Property, plant and equipment are reviewed for potential impairment whenever events or changes in circumstances

indicate that the carrying amount of an asset exceeds its recoverable amount.

The difference between the assets carrying amount and its recoverable amount is recognized in the income

statement as impairment. Property, plant and equipment that have suffered impairment are reviewed for possible

reversal of the impairment at each reporting date.

Intangible assets

Intangible assets acquired separately that have a finite useful life are carried at cost less accumulated amortization

and any impairment charges. Amortization is calculated on a straight-line basis over the assets’ expected useful life

and adjusted for any impairment charges.

Internally generated intangible assets

Annual report 2016

40

Expenditures on research activities, undertaken with the prospect of gaining new technical knowledge and

understanding, are recognized in profit or loss as incurred. Amortization is calculated on a straight-line basis over

the assets’ expected useful life and adjusted for any impairment charges.

Expenditures on development activities are capitalized, providing a future financial benefit relating to the

development of an identifiable intangible asset can be identified and the expenses can be reliably measured.

Otherwise, such expenses are expensed as and when incurred. R&D expenses are depreciated on a straight-line

basis over the asset's expected useful life.

Goodwill

Goodwill arising in a business combination is not amortized.

Goodwill does not generate cash flows independently of other assets or groups of assets, and is allocated to the

cash-generating units expected to benefit from the synergies of the combination that gave rise to the goodwill. A

cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely

independent of the cash inflows from other assets or group of assets.

An impairment is recognized if the recoverable amount (the higher of fair value, less cost to sell, and value in use)

of the cash-generating unit is less than the carrying amount of the cash-generating unit.

Impairment of assets

Cash-generating units to which goodwill has been allocated, are tested for impairment annually or more frequently

if there is any indication that the cash-generating unit may be impaired.

Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying

amount may not be recoverable. Intangible assets not yet brought into use are assessed for impairment annually.

If it is not possible to estimate the recoverable amount of an individual asset, the group determines the recoverable

amount of the cash-generating unit to which the asset belongs.

An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable

amount. The recoverable amount is the higher of an asset’s fair value, less costs to sell, and value in use. In

assessing value in use, the estimated future cash flows are discounted to their present value, using a discount rate

that reflects current market assessments of the time value of money and the risks specific to the asset or the cash-

generating unit to which the asset belongs.

An impairment of other assets than goodwill is reviewed for possible reversal at the end of each reporting period.

Trade receivables and other current receivables

Trade receivables and other current receivables are initially recognized at fair value, plus any transaction costs.

The receivables are subsequently measured at amortized cost using the effective interest method, if the

amortization effect is material, less provision for impairment. Other current receivables include prepayments and

receivables on related parties.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits with banks and other short-term highly liquid investments

with original maturities of three months or less.

Trade creditors

Trade creditors are initially recognized at fair value, and subsequently measured at amortized cost using the

effective interest method, if the amortization effect is material.

Taxes

Income tax expense for the period comprises current tax expense and deferred tax expense.

Annual report 2016

41

Tax is recognized in the income statement, except to the extent that it relates to items recognized in other

comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income

or directly in equity.

Deferred tax assets and liabilities are calculated on the basis of existing temporary differences between the carrying

amounts of assets and liabilities in the financial statement and their tax basis, together with tax losses carried

forward at the balance sheet date. Deferred tax assets and liabilities are calculated based on the tax rates and tax

legislation that are expected to apply when the assets are realized, or the liabilities are settled, based on the tax

rates and tax legislation that have been enacted or substantially enacted on the balance sheet date. Deferred tax

assets are recognized only to the extent that it is probable that future taxable profits will be available, against which

the assets can be utilized. Deferred tax assets and liabilities are not discounted. Deferred 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 tax assets and liabilities relate to income taxes levied by the same taxation authority on the same

taxable entity.

The companies included in the consolidated financial statement are subject to income tax in the countries where

they are domiciled.

Revenue recognition

In general, revenue comprises the fair value of the consideration received or receivable, for the sale of goods and

services in the ordinary course of the group’s activities. Revenue is presented net of value-added tax, returns,

rebates and discounts and after eliminating sales within the group. The group recognizes revenue when the amount

of revenue can be reliably measured, when it is probable that future economic benefits will flow to the entity and

when specific criteria have been met for each of the group’s activities as described below.

Sale of right to use software

Revenue from the use of the group’s technological platforms are recognized in the month the service is provided.

Revenue is based on fixed, monthly software fees and/or royalty payments dependent on platform utilization. There

are few significant cut-off judgments to make for sales of software. Service revenue from onboarding of customers,

onboarding fee, is recognized upon completion.

Revenue from advertising activities

The group generates revenue from the sale of online advertising on the sites of various publishers. Amounts of

revenue generated are measured continuously, but are invoiced from the group the following month.

Income received from advertisers, and costs incurred from advertising agencies and publishers, are presented

gross, which reflects that the group does have separate transactions with separate counterparty risks. That is, the

group does not act only as an agent in these transactions.

Segment reporting

An operating segment is a component of an entity that engages in business activities from which it may earn

revenues and incur expenses. Furthermore, the entity’s component’s operating results are regularly reviewed by

the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and

to assess its performance, and thus separate financial information is available. The company has determined that

the Board of Directors is collectively the chief operating decision maker.

Cxense is organized into two operating segments; Cxense SaaS and PCAN.

Pension plans

The group has a defined contribution plan for some of its employees. The group’s payments are recognized in the

income statement as employee benefit expenses for the year to which the contribution applies.

Provisions

A provision is recognized when the group has a present legal or constructive obligation as a result of past events,

it is probable (i.e., more likely than not) that an outflow of resources will be required to settle the obligation, and the

Annual report 2016

42

amount can be reliably estimated. At each balance sheet date, the provisions are reviewed and adjusted to reflect

the current best estimate. Provisions are measured at the present value of the expenditures expected to be required

to settle the obligation. The increase in the provision due to passage of time is recognized as finance cost.

Leases (as lessee)

Financial leases

Leases where the group assumes most of the risk and rewards of ownership are classified as financial leases.

Operating leases

Leases in which most of the risks and rewards of ownership are retained by the lessor, are classified as operating

leases. Payments made under operating leases are charged to the income statement on a straight-line basis over

the period of the lease.

Share-based payment

Share-based compensation benefits are provided to executives and senior employees. Equity-settled, share-based payments are measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant. The fair value, calculated by applying the Black-Scholes option-pricing model, is expensed over the vesting period as an employee benefits expense, with a corresponding increase in equity. The vesting period is the period over which all of the specified vesting conditions are to be satisfied. At the end of each period, the entity revises its estimates of the number of options and subscription rights that are expected to vest, based on the non-market vesting and service conditions. It recognizes the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. Social security contributions payable in connection with an option grant are considered an integral part of the grant itself. The charges are treated as cash-settled, share-based payments and re-measured at each reporting date. When the options are exercised, the appropriate number of shares are transferred to the employee. The proceeds

received from the exercise of the options and subscription rights (net of any directly attributable transaction costs)

are credited directly to equity.

Government grants

Government grants, such as “Skattefunn” is recognized in profit and loss in the period it is granted for. The grants

are presented as a reduction of the applicable costs.

Government grants related to capitalized expenses are presented in the balance by deducting the grant in arriving

at the carrying amount of the asset.

Warrants

In relation to capital issues, the company may issue warrants as part of these offerings. A warrant gives the counterparty a right to subscribe for a fixed number of the entity’s shares for a fixed amount of cash. According to IAS 32, warrants are therefore considered as equity instruments. Warrants issued in relation to share issues will not trigger any specific accounting treatment when included as a part of the initial share issue. Upon exercise, the warrants will increase the share capital when the exercise price is paid. Currently, the company has no issued warrants. Earnings per share

The calculation of basic earnings per share is based on the profit attributable to ordinary shares using the weighted

average number of ordinary shares outstanding during the year after deduction of the average number of treasury

shares held over the period.

The calculation of diluted earnings per share is consistent with the calculation of the basic earnings per share, but

at the same time gives effect to all dilutive potential ordinary shares that were outstanding during the period, by

Annual report 2016

43

adjusting the profit/loss and the weighted average number of shares outstanding for the effects of all dilutive

potential shares, i.e.:

• The profit/loss for the period attributable to ordinary shares is adjusted for changes in profit/loss that would

result from the conversion of the dilutive potential ordinary shares

• The weighted average number of ordinary shares is increased by the weighted average number of additional

ordinary shares that would have been outstanding, assuming the conversion of all dilutive potential ordinary

shares

Contingent liabilities

Contingent liabilities are not recognized in the financial statements. Significant contingent liabilities are disclosed,

with the exception of contingent liabilities where the probability of the liability occurring is remote.

NOTE 2.2: NEW AND AMENDED STANDARDS ADOPTED AND NOT YET ADOPTED BY THE GROUP

The group has applied the following standards and amendments for the first time for their annual reporting

period commencing 1 January 2016:

• Clarification of acceptable methods of depreciation and amortization – Amendments to IAS 16 and IAS 38

• Annual improvements to IFRSs 2012 – 2014 cycle, and

• Disclosure initiative – amendments to IAS 1

The adoption of these amendments did not have any impact on the current period or any prior period and is not

likely to affect future periods.

New standards and interpretations not yet adopted by the group

Except as described above, the group has elected not to early adopt any standards or interpretations that have an

adoption date after the balance sheet date. Below is an overview of the most central standards that have been

adopted by the IASB, but not the EU.

IFRS 9 Financial Instruments: Classification and Measurement (effective from 1 January 2018 and approved by the

EU)

IFRS 9 addresses the classification, measurement and de-recognition of financial assets and financial liabilities,

and introduces new rules for hedge accounting and a new impairment model for financial assets. The group does

not intend to adapt IFRS 9 before its mandatory date.

While the group has yet to undertake a detailed assessment of the classification and measurement of financial

assets, the group does not expect any changes. Other financial assets, which is a minor amount in the group’s

balance sheet, includes investment in equity instruments measured at cost and deposits measured at amortized

cost.

There will be no impact on the group’s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the group does not have any such liabilities. The de-recognition rules have been transferred from IAS 39 Financial Instruments: Recognition and Measurement, and have not been changed. The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL), rather than only incurred credit losses as is the case under IAS 39. It applies to financial assets classified at amortized cost, debt instruments measured at FVOCI, contract assets under IFRS 15 Revenue from contracts with customers, lease receivables, loan commitments and certain financial guarantee contracts. While the group has not yet undertaken a detailed assessment of how its impairment provisions would be affected by the new model, it may result in an earlier recognition of credit losses.

Annual report 2016

44

The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the group’s disclosures about its financial instruments, particularly in the year of the adoption of the new standard. IFRS 15 Revenue recognition (effective from 1 January 2018 and approved by the EU)

The IASB has issued a new standard for the recognition of revenue, IFRS 15 Revenue from Contracts with

Customers, with an effective date of 1 January 2018. IFRS 15 has been approved by the EU and earlier application

is permitted. IFRS 15 replaces IAS 18 Revenue, which covers contracts for goods and services, and IAS 11

Construction Contracts. IFRS 15 is based on the principle that revenue is recognized when control of a good or

service transfers to a customer. This concept of control replaces the existing IAS 18 notion of risks and rewards,

and is a broader concept, that includes the transfer of risk and reward as one of the control criteria.

IFRS 15 requires that a five-step process be used to evaluate all customer contracts to determine revenue

recognition and measurement. The five steps are:

1. identify contracts with customers,

2. identify the separate performance obligations,

3. determine the transaction price of the contract,

4. allocate the transaction price to each of the separate performance obligations, and

5. recognize the revenue as each performance obligation is satisfied.

Currently revenue is recognized in the month the service is provided. The group has customer contracts that are

within the scope of IFRS 15. The preliminary assessment indicates that onboarding fee should be amortized over

the customer life period. Further, the cost of obtaining the contract is evaluated.

IFRS 15 permits entities to apply the guidance retrospectively, which means restating and disclosing 2017

comparative financial statements upon adoption (full retrospective approach). Alternatively, an entity is permitted to

recognize the cumulative effect of initially applying the guidance as an opening balance sheet adjustment to equity

in the period of initial application (modified approach, and 2017 is not restated). The group will adopt IFRS 15 as of

1 January 2018, using the full retrospective approach. The implementation of IFRS 15 is expected to have an effect

on the financial statements, but is not expected to have a material effect on total reported revenues, costs, assets

or liabilities. The group will complete its IFRS 15 adoption analysis during 2017.

IFRS 16 Leases (effective date 1 January 2019 and not approved by the EU)

IFRS 16 eliminates the current distinction between operating and finance leases, as is required by IAS 17 Leases

and, instead, introduces a single lessee accounting model. When applying the new model, a lessee is required to

recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of

low value, and recognize depreciation of lease assets separately from interest on lease liabilities in the income

statement. For the group this implies that current operating leases which satisfy the criteria will be recognized with

assets and liabilities. As at the reporting date, the group has non-cancellable operating lease commitments of USD

5.4 million, see note 23. However, the group has not yet determined to which extent these commitments will result

in the recognition of an asset and a liability for future payments, and how this will affect the group’s profit and

classification of cash flows. The group does not intend to adapt IFRS 16 before its mandatory date.

IASB has also issued several small changes and clarifications in several different standards where the changes

have not yet been implemented or approved by the EU.

It is not expected that any of these changes will have a considerable effect for the group.

There are no other standards that are not yet effective and that would be expected to have a material impact on the

entity in the current or future reporting periods and on foreseeable future transactions.

Annual report 2016

45

NOTE 2.3: KEY SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGMENTS

The preparation of the financial statements in accordance with IFRS requires management to make judgments and

use estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses.

The estimates and associated assumptions are based on historical experience and various other factors that are

considered to be reasonable under the circumstances. The estimates and underlying assumptions are reviewed on

an ongoing basis. The management does not assess that there are any specific areas for which there has been

much estimation uncertainty.

Critical accounting judgments:

a) Capitalization of intangible assets

The group works continuously on improving its technical platforms. This work involves both maintenance, and

research and development. Most of these activities are very integrated, and there is often no clear distinction

between them, making it difficult to assess if the activities are maintenance, research or development. The

management has assessed that the specific criteria for capitalization of development costs have been met.

b) Business combination

Assets acquired and liabilities assumed in acquiring the Maxifier Group and Ramp business shall (with some

exceptions) be recognized at fair value at the acquisition date. Valuing intangible assets such as customer

relationship and technology are subject to substantial judgement. The purchase price allocation assessment has

been performed by the company. See note 3 for further information.

NOTE 3: BUSINESS COMBINATIONS

In 2016, there were no business combinations affecting the Cxense group. Two acquisitions took place in 2015.

Details of these two transactions (including the purchase price allocations and associated goodwill) are set out

below.

Acquisition of Maxifier Limited

On 2 July 2015, the group acquired 100% of the share capital of Maxifier Limited, a company that visualizes and

optimizes their customers’ direct-sold advertising campaigns. The transaction consideration was Cxense shares,

and included a performance-based earn-out structure. The total purchase price, including deferred considerations,

was estimated to be USD 7.83 million. Details of net assets acquired and goodwill are as follows:

The 230,027 shares paid as part of the consideration for 100% of Maxifier Limited were issued at a price of NOK

109.20 per share. The earn-out was based on management’s best estimates regarding certain Maxifier revenue

growth assumptions that might trigger the earn-out mechanism. Any future earn-out will be settled by issuing

Cxense shares. The deferred earn-out was capped at USD 10.6 million, and the earn-out period was to be ending

30 June 2017. In 2016, all liabilities related to the contingent consideration from the Maxifier acquisition were

removed from short- and long-term liabilities, and recognized against financial income. (See Note 9) See Note 19

and 20 for subsequent measurement of the earn-out.

The goodwill was attributable to the assumed synergies resulting from the combination of the Maxifier online

advertising optimization technology with Cxense data-driven products, which focus on personalizing and

optimizing. The acquisition broadened Cxense's offering to clients in the online media and advertising sector with

Maxifier's products.

The assets and liabilities identified in the acquisition are as follows:

USD 1,000 On acquisition

Purchase consideration:

- Shares issued 3 197

- Contingent consideration 4 635

Total purchase consideration 7 832

Fair value of assets acquired (see below) 1 936

Goodwill 5 896

Annual report 2016

46

In 2015, the acquisition of Maxifier contributed USD 1.44 million to revenue and USD -0.31 million to net profit

before tax for the group. If the business combination had taken place at the beginning of the year, Maxifier would

have contributed revenue of USD 2.87 million and net profit before tax of USD -2.69 million for the group.

Acquisition of media business from Ramp Holdings Inc.

On 23 October 2015, the group acquired Ramp Holdings Inc’s media business. The transaction was structured as

an asset purchase. This media business comprises a Software-as-a-Service-based video platform that delivers a

next-generation solution for indexing, tagging, search and publishing of online video content. The transaction

consideration was paid partly with cash and partly with Cxense shares, and included a performance-based earn-

out structure to be settled in Cxense shares.

The total purchase price, including contingent considerations, was estimated to be USD 10.94 million. The

purchase price allocation (PPA) is set out below:

The 435,550 shares paid as part of the consideration were issued on 23 October 2015 at a price of NOK 103.44

per share.

In February 2016, Cxense issued an additional 43,543 new shares to Ramp Holdings Inc. as a purchase price

adjustment of the acquisition, based on the final closing balances taken over. This adjustment was equivalent to

USD 564,000, as set out in the purchase price allocation above. As of year-end 2015, the USD 564,000 was

recognized as short-term debt.

The performance-based earn-out of USD 0.74 million, recognized within the total purchase consideration, was

accounted for as long-term debt. The estimate for the earn-out was based on management’s best estimates of

Ramp revenue growth assumptions that might trigger the transaction earn-out. There were two earn-out periods;

the first ending 30 September 2016, the second ending 30 September 2017. Any contingent consideration was to

be settled by issuing Cxense shares. The contingent consideration was limited to USD 9 million, according to the

share purchase agreement. In 2016, all liabilities related to the contingent consideration from the Ramp acquisition

were removed from the long-term liabilities, and recognized against financial income. (See note 9) See note 19

and 20 for subsequent measurement of the earn-out.

The recognized goodwill was attributable to synergies resulting from the combination of the Ramp video platform

with the Cxense data-driven products. The assets and liabilities recognized in the acquisition were as follows:

USD 1,000 Fair value

Customer relationships 1 241

Trade and other receivables 860

Property, plant and equipment 343

Technology 727

Cash and cash equivalents 193

Trade and other payables (71)

Other current liabilities (593)

Deferred tax liabilities (764)

Net assets acquired 1 936

USD 1,000 On acquisition

Purchase consideration:

- Cash Payment 4 135

- Shares issued 5 500

- Contingent consideration 1 308

Total purchase consideration 10 943

Fair value of assets acquired (see below) 6 282

Goodwill 4 661

USD 1,000 Fair value

Customer relationships 4 308

Technology 2 516

Obligation to deliver services (542)

Net assets acquired 6 282

Annual report 2016

47

The prepaid service obligation represents the estimated fair value of the obligation to deliver acquired prepaid

services. Fair value is the estimated costs to deliver the services with the addition of a reasonable margin.

In 2015, the acquisition of Ramp business contributed USD 0.97 million to revenue and USD -0.09 million to net

profit before tax for the group. Ramp has historically been an integrated part of the total operations of Ramp

Holdings, and the proposed transaction was carried out as an asset purchase. Hence, no historical financial

information is available for the business, and the full-year contribution to the group was not stated.

The purchase price allocations are final and unchanged, compared to the Annual Report 2015.

NOTE 4: SEGMENT INFORMATION

The segment information for the period 2015 to 2016 is reported in accordance with the reporting to board of

directors (chief operating decision makers), and is consistent with financial information used for assessing

performance and allocating resources. EBITDA is defined as segment profit or loss.

The group is organized into two business segments based on product and services; Cxense SaaS and PCAN.

Transfer prices between operating segments are on an arm's-length basis, in a manner similar to transactions

with third parties.

Cxense SaaS

This business unit sells Software-as-a-Service applications based on a real-time data-engine, the Extraordinary

Insight Engine™ (EIE™), for analysis of content, user context, and behavior. The data-engine is fully integrated

in a range of software applications that can be used by companies to personalize their sites and apps. The result

is increasing engagement, conversions and revenue.

All goodwill accounted for in the group relates to this segment, as all past acquisitions (Emediate, Maxifier Limited

and Ramp Holdings Inc.’s media business) have been allocated to the Cxense SaaS segment. Each of the

transactions have complemented the other transactions in terms of economic characteristics and cash flow.

There have been no changes to the grouping of segments compared to the 2015 annual report. EBITDA is defined

as segment profit/loss.

Publisher-Controlled Advertising Networks (PCANs)

PCANs sell online advertising on the sites of various publishers, and distribute and share the advertising revenues

generated in the network with publishers.

Annual report 2016

48

Full-year 2016

USD 1,000

Cxense

SaaS PCAN Eliminations Consolidated

Revenue

External customers 21 867 3 605 - 25 472

Inter-segment 146 - (146) -

Revenues total 22 013 3 605 (146) 25 472

Gross profit 17 692 588 - 18 281

EBITDA (7 035) (748) (7 783)

Depreciation and amortization expenses (3 827) (9) - (3 836)

Share of profit from associated companies (1 204) (1 204)

Net finance income/(expense) 4 838 4 - 4 842

Income tax income/(expense) (431) - - (431)

Total net income/(loss) for the period (7 659) (753) - (8 412)

Total segment assets 56 647 826 226 57 699

Total segment liabilities 8 253 1 457 (259) 9 451

Full-year 2015

USD 1,000

Cxense

SaaS PCAN Eliminations Consolidated

Revenue

External customers 15 577 2 719 0 18 296

Inter-segment 151 0 (151) 0

Revenues total 15 728 2 719 (151) 18 296

Gross profit 13 052 622 0 13 674

EBITDA (7 934) (249) (8 183)

Depreciation & amortization expenses 2 039 4 0 2 043

Share of profit from associated companies 250 0 0 250

Net finance income/(expense) 667 0 0 667

Income tax income/(expense) (110) 0 0 (110)

Total net income/(loss) for the period (9 166) (253) 0 (9 419)

Total segment assets 41 805 779 241 42 825

Total segment liabilities 12 601 1 159 24 13 784

Annual report 2016

49

Geographical Information

The revenue information above is based on the location of the entity generating the revenue.

Information about major customers

The company does not have single customers that generate 10% or more of the entity's total revenue.

NOTE 5: REVENUE

Specification of revenue

NOTE 6: COST OF SALES

Specification of cost of sales

Reconciliation

YTD 31 Dec

2016

YTD 31 Dec

2015

USD 1,000

Total net income/(loss) for the period (8 412) (9 419)

Income tax (432) (110)

Net income/(loss) before taxes (7 981) (9 309)

Share of profit from investments accounted for using the equity method 1 204 (250)

Net financial (income)/expense (4 842) (667)

Depreciation & amortization expense 3 836 2 043

EBITDA (7 783) (8 183)

Revenues from external customers: 2 016 2 015

Europe, the Middle East and Africa (EMEA) 12 269 11 361

Americas 9 862 5 148

Pacific 3 341 1 787

Total revenue from external customers 25 472 18 296

2016 2015

Data Management & Personalization software 16 289 9 008

Advertising software 5 578 6 569

Advertising sale 3 605 2 719

Total revenue 21 867 18 296

2016 2015

Hosting costs 4 268 2 865

Cost of advertising 2 879 1 752

Other cost of sale 45 5

Total Cost of sale 7 192 4 622

Annual report 2016

50

NOTE 7: EMPLOYEE BENEFIT EXPENSE

Specification of employee expense

Governmental refund, such as “Skattefunn”, of USD -289 thousand in 2016 (-357 thousand in 2015) is included in

payroll expense

See note 18 for information regarding remuneration to management.

The average number of employees in 2016 was 182, compared to 143 in 2015.

Pensions

Cxense ASA (parent company) are obligated to follow the stipulations in the Norwegian mandatory occupational

pensions act. The company's pension scheme adheres to the requirements, as set in the act.

Pension rights of group employees vary between the legal entities. However, all of the plans are defined as

contribution plans. The contribution plan has 60 members.

Share-based payments

In September 2012, the group established an option program for executives and senior employees in the group.

The exercise price of the share options is equal to the market price of the Cxense ASA share on the date of grant.

The share options vest over a four-year period, providing the employee is still employed by the group.

Amounts in NOK:

USD 1,000 2016 2015

Payroll expense 15 031 12 084

Share-based payments excluding social security tax 567 514

Social security tax 2 146 1 465

Pensions 252 361

Other personnel expense 1 600 1 102

Capitalized personnel expense (1 809) (1 365)

Total employee benefit expense 17 787 14 612

Option series

Number

granted Grant date Expiry date

Exercise

price

(NOK)

Fair value per

option at

grant date

(NOK)

Exercised in

2016

Number

forfeited

during 2016

Number of

outstanding

31.12.2016

Grant 1: August 2012 31 400 24.08.2012 24.08.2017 90.00 47.85 8 800 600 22 000

Grant 2: December 2012 32 800 09.12.2012 09.12.2017 112.50 59.81 0 13 200 6 400

Grant 3: April 2013 9 800 22.04.2013 22.04.2018 115.00 61.14 0 1 200 3 600

Grant 4: August 2013 8 000 26.08.2013 26.08.2018 115.00 61.14 0 0 8 000

Grant 5: October 2013 24 800 14.10.2013 14.10.2018 115.00 61.14 3 500 6 750 2 400

Grant 6: December 2013 7 800 09.12.2013 09.12.2018 125.00 66.46 0 0 4 200

Grant 7: January 2014 18 000 22.01.2014 22.01.2019 125.00 66.94 0 8 000 0

Grant 8: March 2014 16 800 25.03.2014 25.03.2019 125.00 66.94 1 600 3 100 5 600

Other inputs to the fair value measurement:

Grant 1-6 Grant 7-8

Option life 4 years 4 years

Expected volatility 70 % 70 %

Risk-free interest rate 1.60 % 2.00 %

Expected dividends 0 0

Annual report 2016

51

Subscription rights program for other employees

At the 2 April 2014 AGM, the shareholders adopted a new subscription rights plan available for employees in the

company, and its subsidiaries and affiliated companies. All future grants of share-based incentives shall be made

under the subscription rights plan (issued and outstanding share options under the share option plan shall remain

in effect in accordance with their terms).

At the 12 May 2016 AGM, the shareholders renewed the subscription rights plan adopted at the 2 April 2014 AGM

and renewed 13 May 2015. Granted subscription rights vest over four years, by 25% on each anniversary from the

date of the grant, and expire after five years. When exercising the subscription rights, the purchase price for the

shares shall be paid to the company in cash or by check or by such other means of payment as may be accepted

by the board in compliance with the PLCA. Or, if so permitted, through the delivery of irrevocable instructions to a

broker, to deliver promptly to the company an amount equal to the aggregate subscription right price for the shares

being purchased.

As of 31 December 2016, there were 346,000 outstanding share options and subscription rights to Cxense

employees.

Amounts in NOK:

The weighted average fair value of subscription rights granted during 2016 was NOK 89.53

All share options vest over 4 years. The volatility is based on comparable companies.

Subscription rights

Number

granted Grant date Expiry date

Exercise

price

(NOK)

Fair value per

option at

grant date

(NOK)

Exercised in

2016

Number

forfeited

during 2016

Number of

outstanding

31.12.2016

Grant 1: May 2014 78 700 12.05.2014 02.04.2019 125.00 66.94 0 10 600 40 800

Grant 2: June 2015 117 000 29.06.2015 13.05.2020 109.40 66.66 625 22 875 86 000

Grant 3: November 2015 17 000 19.11.2015 13.05.2020 101.85 59.62 0 0 17 000

Grant 4: December 2015 10 000 17.12.2015 13.05.2020 105.72 57.24 0 10 000 0

Grant 5: August 2016 130 500 25.08.2016 12.05.2021 165.80 89.88 0 0 130 500

Grant 6: November 2016 19 500 16.11.2016 12.05.2021 148.80 87.16 0 0 19 500

Other inputs to the fair value measurement:

Grant 1 Grant 2 Grant 3-4 Grant 5 Grant 6

Subscription right life 5 years 5 years 5 years 5 years 4 years

Expected volatility 70 % 70 % 70 % 70 % 70 %

Risk-free interest rate 2.00 % 1.21 % 0.95 % 0.69 % 1.21 %

Expected dividends 0 0 0 0 0

Subscription rights and share options NOK

Subscription rights and share options terminated in 2016 76 325

Subscription rights and share options exercised in 2016 14 525

Subscription rights and share options expired in 2016 0

Vested share options 91 525

Annual report 2016

52

NOTE 8: OTHER OPERATING EXPENSES

Specification of other operating expenses

Governmental refund, such as “Skattefunn”, of USD -135 thousand in 2016 (-225 thousand in 2015) was included

in other operating expenses.

Specification of auditors’ fees (1):

NOTE 9: FINANCIAL INCOME AND EXPENSE

Other financial income represents the recognized gain related to the earn-out agreements for the acquisition of

Ramp and Maxifier Ltd. in 2015, see also Note 19 and 20.

NOTE 10: TAX

Specification of income tax:

USD 1,000 2016 2015

Audit, legal and other consulting fees 3 801 4 097

Office rental and related expenses 1 416 996

Marketing and representation 1 395 794

Travel expenses 1 269 1 431

Other operating expenses (1) 967 859

Capitalized other operating expenses (571) (481)

Total other operating expenses 8 276 7 696

USD 1,000 2 016 2 015

Statutory audit 139 93

Other assurance services 32 43

Tax advisory services 12 0

Other advisory services 16 7

Total auditor's fees (excl. VAT) 199 143

USD 1,000 2 016 2 015

Interest income 48 41

Currency income 289 1 069

Other financial income 5 367 0

Total financial income 5 704 1 111

Interest expense 68 6

Other financial expenses 141 78

Currency expenses 653 360

Total financial expense 862 444

Net financial income/(expense) 4 842 667

Annual report 2016

53

Specification of tax effects of temporary differences:

Capitalization of deferred income tax assets is subject to strict requirements in respect of the ability to substantiate

sufficient taxable profit will be available against which the unused tax losses can be utilized. Based on these

requirements, no deferred tax asset from Cxense ASA has been recognized.

The major part of tax losses carried forward relates to the parent company, and for this part, there is no time-limit

related to when the tax losses may be utilized.

Reconciliation of effective tax rate:

Movements in deferred tax:

USD 1,000 2016 2015

Income tax payable 577 322

Deferred tax income (145) (212)

Total income tax expense 432 110

2 016 2 015

Intangible assets (1 076) (1 494)

Other temporary differences (79) 32

Tax losses carried forward 11 541 8 294

Total basis for deferred tax 10 386 6 832

Deferred tax asset not recognized (11 155) (7 856)

Deferred tax asset (+) / liability (-) (769) (1 024)

Whereof:

Presented as deferred tax asset 15 36

Presented as deferred tax liability (783) (1 060)

2 016 2 015

Profit before income tax (7 981) (9 309)

Expected income tax assessed at the tax rate for the Parent company (25%) (1 995) (2 513)

Adjusted for tax effect of the following items:

Permanent differences (241) (173)

Change in not recognized deferred tax asset/valuation allowance 3 758 1 386

Effect of change in tax rate (459) (628)

Profit and loss from associated companies 301 (68)

Withheld tax 345 221

Effect of different tax rate in subsidiary, currency effects and local accounting regulations (1 276) 1 884

Total income tax expense 432 110

Effective income tax rate -5 % -1 %

2 016 2 015

Carrying amount net deferred tax assets (+)/ liabilities(-) at 1 January (1 024) (445)

Recognized as income/expense (-) in income statement 145 212

Recognized from business combinations 0 (765)

Valuation allowance for deferred tax assets 97 0

Effect from currency effects and other items 13 (27)

Carrying amount net deferred tax assets (+)/ liabilities(-) at 31 December (769) (1 024)

Annual report 2016

54

NOTE 11: EARNINGS PER SHARE

1) The company has 346,000 potential dilutive shares from share options and subscription rights outstanding, of

which 45,829 incremental shares were in the money as per 31 December 2016.

NOTE 12: INTANGIBLE AND FIXED ASSETS

USD 1,000 2 016 2015

Net income/(loss) for the year attributable to the parent company (8 074) (9 280)

Weighted average number of shares outstanding for basic earnings per share 6 837 612 4 740 887

Earnings per share

- Basic (0.0012) (0.0020)

- Diluted (1) (0.0012) (0.0019)

USD 1,000 Development

Other

Intangible

assets

Office

machinery,

equipment etc. Total

Cost

Cost at 1 January 2015 - 5 616 398 6 014

1 780 - 446 2 226

8 694 328 9 022

Disposals - - - -

Currency effects - - - -

Cost at 31 December 2015 1 780 14 310 1 172 17 262

Reclassifications (97) 97 -

2 149 117 140 2 406

Disposals - - (359) (359)

Currency effects (36) (4) 2 (38)

Cost at 31 December 2016 3 796 14 520 955 19 271

Depreciation and impairment

Accumulated at 1 January 2015 - (187) (103) (290)

Amortization and depreciation for the year (90) (2 633) (650) (3 373)

Impairment - - (1) (1)

Disposals - - - -

Currency effects

Accumulated at 31 December 2015 (90) (2 820) (754) (3 664)

Amortization and depreciation for the year (519) (2 732) (246) (3 497)

Impairment (337) - (337)

Disposals - - 260 260

Currency effects (5) 19 3 17

Accumulated at 31 December 2016 (951) (5 533) (737) (7 221)

Carrying amount at 31 December 2015 1 690 11 491 419 13 598

Carrying amount at 31 December 2016 2 845 8 987 218 12 050

Depreciation plan Linear Linear Linear

Estimated useful life (years) 3 years 5-6 years 3-5 years

Additions

Additions

Additions through business combinations

Annual report 2016

55

Capitalization of development expenses

Cxense started capitalizing personnel benefit expenses and other operating expenses related to software

development activities from Q1 2015, as the R&D department expanded and was organized with more separable

tasks and deliverables. R&D expenses of USD 3.0 million has been recognized as operating expense, compared

with USD 4.9 million in 2015.

NOTE 13 GOODWILL AND IMPAIRMENT

As of year-end 2016, the group had recognized goodwill of USD 14.4 million in the balance sheet. There have been

no changes since 2015. The goodwill relates to one acquisition in 2013 (Emediate) and two acquisitions in 2015

(Maxifier and the Ramp media business). Goodwill allocated to the Ramp acquisition are tax depreciated with 20%

per year. The details of the purchase price allocation for the two acquisitions in 2015 are set out in Note 3.

Overview of goodwill

The group is required to test, on an annual basis, whether the goodwill has suffered any impairment in line with IAS

36. The recoverable amount is determined based on value in use calculations. The use of this method requires the

estimation of future cash flows and the determination of a discount rate in order to calculate the present value of

the cash flows.

All goodwill recognized in the group relates to the Cxense SaaS segment, as all past acquisitions (Emediate,

Maxifier Limited and Ramp Holdings Inc.’s media business) have been allocated to this segment. Each of the

transactions have complemented the other transactions in terms of economic characteristics and cash flow. As

such, the acquisitions make up a coherent business unit where it is no longer possible to separate out cash flows

from one or the other of past acquisitions. For impairment purposes, the Cxense SaaS segment therefore

constitutes the smallest cash generating unit (CGU) that generates cash inflows that are largely independent of the

cash inflow from the other segment – the PCANs segment.

The recognized goodwill of USD 14.4 million will therefore relate to the Cxense SaaS segment itself, and not to any

specific acquisitions in the past. The goodwill will be assessed for impairment if any indications of impairments

come up, and at least annually in relation to the year-end closing.

Discounted cash flow models are applied to determine the value in use. Management has projected cash flows

based on the approved budget for 2017 and financial forecasts covering the years 2018 to 2026. The selected

discounted cash flow time is used in order to show the value of the current sales force and to reduce the terminal

value as a percentage of total valuation. Beyond the explicit forecast period of seven years, the cash flows are

extrapolated using constant nominal growth rates.

Revenue growth is estimated based on the budget for 2017 and the management expectations for the years 2018

to 2026. The SaaS model implies that a consistent sales force could increase revenues substantially before churn

on the portfolio exceeds new sales.

EBITDA margin growth is mainly driven by higher gross profit due to the revenue growth combined with limited

growth in OPEX.

Terminal growth is set based on a conservative assessment equal to long-term expected inflation.

The segment contains companies in different countries. This means that the different companies are exposed to

different interest rates and tax rates. In order to reflect this, a blended WACC (which is the discount rate used for

USD 1,000 Year

Goodwill

recognized

Any subsequent

impairment

Goodwill as at 31

December 2016

Acquisition:

Emediate 2 013 3 807 - 3 807

Maxifier 2 015 5 896 - 5 896

Ramp 2 015 4 661 - 4 661

Total: 14 364

Annual report 2016

56

discounting the cash flows) is calculated. The interest rate and the tax rate is weighted in relation to the different

companies’ external revenue.

The interest free rate is normally a long-term government bond rate. However, in the current market situation with

government bond rates that are very low or close to zero this would not be representative and a normalized risk

free rate is used instead.

Beta is based on an average of peer companies in their segment with a small company premium.

In the value-in-use calculation, the estimated recoverable amount exceeds the carrying amount with significant

headroom.

The following key assumptions have been applied to estimate the recoverable amount:

• Revenue is based on the budget for 2017 and by projecting sales with the same sales capacity going forward.

• Terminal value growth of 2.0%

• WACC before tax of 11.8%

• WACC after tax of 11.7%

In connection with the impairment testing of goodwill, sensitivity analyses have been carried out. The terminal value

is most sensitive to changes in assumptions.

If any of the following changes were made to the key assumptions for the terminal value, the recoverable amount

would equal the carrying amount.

• WACC before tax has to increase from 11.7% to 24%

• Terminal growth may be 0, but still have positive recoverable amount

• If the company abandoned its growth strategy, all employees related to growing the portfolio could be made

redundant, i.e. entering a harvest case. Only cost to maintain the current customer portfolio would be kept (e.g.

key account managers, R&D bug fixing and maintenance, admin etc. It is assumed that 60% of all operating

expenses could be removed resulting in limited top line growth and churn on the current portfolio. This scenario

would result in faster break even and equal the recoverable amount.

NOTE 14: OTHER FINANCIAL ASSETS

1) Investment in associated companies

On 15 May 2015, Cxense signed a three-year OEM license agreement with UK mobile e-commerce provider

mporium group plc (formerly named MoPowered Group plc), visiting address 106 New Bond Street, London, W1S

1DN, UK. mporium provides online merchants and leading brands with a complete suite of mobile commerce

solutions, including tablet and smartphone apps, and end-to-end fully transactional mobile websites.

For the license agreement, Cxense received 50,000,000 shares in mporium at the total value of GBP 1.0 million, in

addition to a cash payment to be paid after 36 months. Full quarterly recognized revenue effect from the license

agreement will be USD 150 thousand, of which USD 75 thousand was recognized in Q2 2015. In addition to the

license agreement, Cxense has taken a minority investment in mporium of GBP 0.5 million. Further, both mporium

and Cxense agreed to swap shares worth GBP 0.5 million as part of building a strong strategic partnership between

the two companies. In total, Cxense holds 100,000,000 shares in mporium.

USD 1,000 2 016 2 015

Investment in associated companies (1) 4 267 4 484

Investment in other shares and interests 178 140

Other long term receivables 210 101

Other long term financial assets 4 655 4 724

Annual report 2016

57

On 26 November 2015, mporium group plc announced that the company had raised approximately GBP 3.1 million

before expenses (approximately GBP 3.0 million net of expenses) through a placing (the “Issue”) of 38,389,042

ordinary shares of 0.5 pence each, at a price of 8 pence per new share, from a combination of new and existing

shareholders. After the private placement, Cxense held 21.3% of the voting rights in mporium group plc.

On 18 July 2016, Cxense acquired 8,790,403 shares at a price per share of 7.5 pence in mporium Group PLC,

through a private placement. Following the private placement, Cxense held 108,790,403 shares in mporium which

represented 21.3% of the outstanding shares after the private placement, and 21.2% at 31 December 2016, leading

to a reduction of 0.1% from 31 December 2015.

As at 31 December 2016, the fair value of the group's interest in mporium group plc, which is listed on the London

Stock Exchange, was USD 17.5 million, and the carrying amount of the group's interest was USD 3.79 million (USD

4.48 million in 2015).

Summarized financial information for mporium group plc

NOTE: 15 TRADE RECEIVABLES

Trade receivables are non-interest bearing and trading terms range from 30 to 60 days.

USD 1,000 2016 2 015

Total assets 8 533 12 049

Total liabilities (1 519) (2 734)

Net assets 7 015 9 315

Group's share of net assets: 1 491 1 981

Total revenue 2 474 1 937

Total loss for the year (5 667) (7 537)

Group share of loss (1 204) (495)

Gain on deemed shares 0 745

Share of net income (loss) from associated company(1 204) 250

USD 1,000 2016 2015

Trade receivables 3 887 3 958

Allowance for doubtful debts (255) (421)

Total trade receivables 3 632 3 537

Annual report 2016

58

As of 31 December, the age analysis of trade receivables is as follows

Movements in allowance for doubtful debt:

NOTE 16: OTHER SHORT-TERM ASSETS

NOTE 17: CASH AND CASH EQUIVALENTS

All cash and cash equivalents are bank deposits.

USD 1,000

Total

Neither past due

nor impaired <30 days 31-90 days >90 days

2016 3 887 1 651 903 864 469

2015 3 958 2 215 996 383 365

Past due but not impaired

USD 1,000 2016 2015

Balance at the beginning of the year 421 450

Impairment losses recognized on receivables 151 100

Amounts written off during the year as uncollectible (154) (60)

Amounts reclassified within balance sheet (131) 0

Amounts recovered during the year 0 (6)

Impairment losses reversed (32) (63)

Balance at the end of the period 255 421

USD 1,000 2016 2015

Accrued income 99 93

Prepayments 379 183

Receivable on authorities and government grants 0 166

Other short-term receivables 545 292

Other-short term assets 1 023 734

USD 1,000 2 016 2 015

Bank deposits 21 960 5 829

Cash and cash equivalents 21 960 5 829

Restricted cash included in the above:

Withholding tax in relation to employee benefits 270 381

Other 25 0

Annual report 2016

59

NOTE 18: SHARE CAPITAL AND SHAREHOLDER INFORMATION

1) 11,125 of the shares above were not registered as per 31 December 2016. The registered and outstanding

shares as of 31 December 2016 were 7,946,887.

Warrants

There were no warrants outstanding as of 31 December 2016.

Share options and subscription rights

As of 31 December 2015, there were 346,000 outstanding share options and subscription rights outstanding to

Cxense employees. This is an increase from 31 December 2015, when the company had 286,850 share options

and subscription rights outstanding to Cxense employees. See Note 7 for further details.

20 largest shareholders registered in VPS as of 31 December 2016

Number of shares Share capital NOK

Share capital USD

1,000

Balance at 1 January 2015 3 681 717 18 408 585 2 477

Issued during the year 2 366 754 11 833 770 1 448

Currency effects from translation of equity (492)

Balance at 31 December 2015 6 048 471 30 242 355 3 433

Issued during the year 1) 1 909 541 9 547 705 1 141

Currency effects from translation of equity 43

Balance as at 31 December 2016 7 958 012 39 790 060 4 617

Shareholder Number of shares % Share

ASAH AS 691 592 8.7 %

FERD AS 658 999 8.3 %

CXVEST LIMITED 592 062 7.5 %

CITIBANK, N.A. 479 133 6.0 %

AKER CAPITAL AS 455 599 5.7 %

CHARLES STREET INT. HOLDINGS LTD 416 666 5.2 %

POLARIS MEDIA ASA 415 328 5.2 %

STOREBRAND VEKST VERDIPAPIRFOND 361 526 4.5 %

DATUM AS 296 187 3.7 %

VERDIPAPIRFONDET DNB SMB 290 017 3.6 %

NORRON SICAV - TARGET 266 560 3.4 %

ELTEK HOLDING AS 199 185 2.5 %

HOME CAPITAL AS 197 001 2.5 %

VERDIPAPIRFONDET STOREBRAND OPTIMA 171 281 2.2 %

ALDEN AS 108 608 1.4 %

NORRON SICAV - SELECT 95 802 1.2 %

AWILHELMSEN CAPITAL II AS 93 969 1.2 %

MIDELFART INVEST AS 90 000 1.1 %

NOMURA INTERNATIONAL PLC 87 786 1.1 %

FOLLO EIENDOM AS 83 882 1.1 %

Total top 20 shareholders 6 051 183 76 %

Others 1 895 704 24 %

Total 7 946 887 100 %

Annual report 2016

60

An updated list over the 20 largest shareholders can be found in the Investor Relations section of Cxense’s website

www.cxense.com

Number of shares owned directly or indirectly by executives and board of directors at 31 December 2016

NOTE 19: OTHER SHORT-TERM LIABILITIES

1) The deferred Maxifier transaction consideration was estimated to amount to USD 4.6 million in 2015, of which

USD 1.9 million was recognized as long-term debt, and USD 2.8 million was recognized as other current liabilities.

The estimate was based on certain Maxifier revenue growth assumptions that might trigger the transaction earn-

out mechanism. The deferred Maxifier consideration included contingent earn-out considerations to the sellers at

11, 12 and 24 months after closing. With regards to 11 and 12 months, the conditions were not met, and

consequently the consideration will not be made to the sellers. Also, , the conditions for the earn-out 24 months

after closing are not expected to be met. Consequently, all liabilities related to the contingent consideration from

the Maxifier acquisition were removed from short-term and long-term liabilities and recognized against financial

income.

The deferred Ramp transaction consideration was estimated at USD 1.3 million in 2015, of which USD 0.74 million

was recognized as long-term debt, and USD 0.56 million recognized as other current liabilities. The estimate was

based on certain Ramp revenue growth assumptions that might trigger the transaction earn-out mechanism. The

conditions for the earn-out 24 months after closing are not expected to be met. Consequently, all liabilities related

to the contingent consideration from the Ramp acquisition are removed from the long-term liabilities and recognized

against financial income.

Name

Number of

shares

% of total

shares

Number of

share

options

Number of

subscription

rights

Morten Opstad (BoD), through Marc O Polo Norge AS 11 829 0.1 %

Svein Ramsay Goli (BoD), through RAMS AS 57 577 0.7 %

Ståle Bjørnstad (CEO), directly and through Kuler & Krutt AS 9 899 0.1 % 42 500

Jørgen M. Loeng (CFO), through JLO Invest AS 34 350 0.4 % 20 000 21 000

Vigleik Takle (COO) 4 498 0.1 % 8 000 14 500

Aleksander Øhrn (CTO) 63 000 0.8 % 14 000

Tom Wilde (CPO) 20 091 0.3 % 10 000

Camilla Moen (EVP HR) 5 992 0.1 % 8 000

John T. Sviland (CBDO), through GBBT AS 81 800 1.0 % 2 000

Total 289 036 3.6 % 28 000 112 000

USD 1,000 2016 2015

Public duties payables 667 424

Prepayments from customers 2 158 1 654

Accrued expenses 2 452 1 513

Salary-related provisions 962 1 032

Other current liabilities (1)

229 3 886

Total other short-term liabilities 6 467 8 508

Annual report 2016

61

NOTE 20: FINANCIAL INSTRUMENTS

Categories of financial instruments

1) Prepaid expenses and accruals are excluded since they are not defined as financial instruments

2) Accruals for incurred costs and prepayments are excluded since they are not defined as financial instruments.

USD 3.345 million of the other current liabilities in 2015 are the estimated contingent considerations for Maxifier

and Ramp that were due within a year. The liabilities related to the contingent consideration were removed

from short- and long-term liabilities, and recognized against financial income (see Note 19)

3) In 2015, the estimated contingent considerations for Ramp and Maxifier of USD 744 thousand and USD 1.859

million, respectively, were included. The contingent consideration was revalued during 2016 and recognized

as financial income (see Note 19)

Fair value of financial instruments

The carrying amount of all of the group’s current financial assets and liabilities is approximately equal to fair value since these instruments have a short term to maturity, and thus the time value is not material. Non-current financial assets have been discounted to reflect the current value.

Financial risk

The most significant financial risks which affect the group are listed below. The management performs a continuous evaluation of these risks and determines policies related to how these risks are to be handled within the group.

Credit risk

Carrying amounts of financial assets presented above represents the maximum credit exposure. The group is

mainly exposed to credit risk related to trade receivables and cash and cash equivalents.

Trade receivables: The group does not have specific procedures for assessing credit risks for its customers before

transactions are entered into. However, most of the transactions are of limited amounts, and the group does not

have significant credit risk associated with a single counter-party or several counterparties that can be considered

a group. During 2015 and 2016, the group did not suffer significant credit-related losses, and, furthermore, the group

did not notice significant increases in delayed customer payments.

See Note 15 for information about the aging analysis of trade receivables.

Cash and cash equivalents: The counterparties for the group's cash deposits are large banks that are assessed to

be solid. It is assumed that there is no material credit risk associated with these deposits.

USD 1,000 Category 2016 2015

Financial assets:

Investment in other shares and interests Measured at cost 178 140

Other long-term receivables Measured at amortized cost 210 101

Trade receivables Loans and receivables 3 632 3 537

Other receivables 1)

Loans and receivables 668 559

Cash and cash equivalents Loans and receivables 21 960 5 829

Total financial assets 26 648 10 166

Financial liab ilities:

Trade creditors Measured at amortized cost 1 764 1 381

Other current liabilities 2)

Measured at amortized cost 1 191 4 918

Other long-term liabilities 3)

Measured at amortized cost 44 2 656

Total financial liabilities 2 999 8 955

Annual report 2016

62

Liquidity risk:

Liquidity risk is the risk of being unable to pay financial liabilities as they come due. The group’s approach to

managing liquidity risk is to ensure that it will always have sufficient liquidity to meet its financial liabilities as they

come due, under normal as well as extraordinary circumstances, without incurring unacceptable losses or risking

damage to the group’s reputation.

The group’s financial liabilities are mainly trade payables, which are all short term, as they are due within six months.

Due to current large cash positions, there is limited liquidity risk as at 31 December.

Foreign exchange rate risk:

Entities included in this consolidated financial statement have various functional currencies (NOK, USD, AUD, JPY,

DKK, SEK, EUR, GBP and RUB). Currency risk arises due to balances in currencies other than the respective

functional currencies. For the purpose of disclosure, the currency exchange rates used for conversion at year-end

are provided below.

At 31 December 2016 and 2015, the group was exposed to exchange rate risk mainly due to trade receivables and

payables in USD, EUR, JPY, RUB and DKK in the parent company, and SEK and EUR in Emediate ApS.

Sensitivity analysis 31 December 2016

If the following currencies had strengthened 10% against the NOK as at 31 December 2016, the effect on the

group's profit would have been:

For consolidation of subsidiaries in the consolidated financial statements, the following currency rates have been

applied (for 1 USD):

Capital management

The primary focus of the group's capital management is to ensure that it maintains a healthy equity ratio in order to

support its business and maximize shareholder value. The group manages its capital structure in light of changes

in economic and actual conditions. To maintain or adjust the capital structure, the group may pay dividends to

USD 1,000 2016 2015

Currency

EUR 96 47

USD 189 167

DKK 87 41

SEK 15 23

ARS 23 27

AUD 13 20

JPY 102

GBP 5

BRL 3

RUB 22

Profit and Loss Balance sheet Profit and Loss Balance sheet

NOK 0.1190 0.1160 0.1240 0.1135

AUD 0.7434 0.7222 0.7514 0.7319

JPY 0.0092 0.0085 0.0083 0.0083

DKK 0.1486 0.1418 0.1487 0.1463

SEK 0.1169 0.1103 0.1185 0.1189

EUR 1.1061 1.0541 1.1088 1.0920

GBP 1.3562 1.2312 1.5283 1.4839

RUB 0.0150 0.0164 0.0165 0.0136

2016 2015

Annual report 2016

63

shareholders, purchase treasury shares, issue new shares or sell assets to reduce debt. The group monitors its

capital structure using an equity ratio, which is total equity divided by total assets. As at 31 December 2016, the

equity ratio was 84% (67% as at 31 December 2015).

NOTE 21: RELATED PARTY DISCLOSURES

Balances and transactions between the company and its subsidiaries, which are related parties to the company,

have been eliminated on consolidation, and are not disclosed in this note. The group does not have other

transactions with related parties, except for remuneration to management, as disclosed below:

Remuneration to management:

1) Commenced 1 August 2016

USD 1,000

Sale of services to Description of services 2016 2015

mporium group plc License 551 366

ESV Digital AS Reseller agreement 115 -

USD 1,000

Purchase of services from Description of services 2016 2015

Advokatfirma Ræder (1) Legal services 296 585

ESV Digital AS Commission 40 -

(1) The Chairman of the Board in Cxense ASA is a partner in Advokatfirma Ræder.

USD 1,000

Balances with related parties Balance type 2016 2015

Advokatfirma Ræder Other short-term liabilities 141 189

USD 1,000 Salary

Pension

contribution

Share-based

payment

Other

remuneration

Total

remuneration

Ståle Bjørnstad (CEO) 467 3 92 1 563

Jørgen M. Loeng (CFO) 289 3 55 1 348

Aleksander Øhrn (CTO) 135 3 31 1 170

Tom Wilde (CPO) (1) 340 0 34 0 374

Vigleik Takle (COO) 182 3 43 1 229

Camilla G. Moen (EVP, HR) 138 3 14 1 156

John T. Sviland (CBDO) 276 3 3 1 283

Total 1 827 16 272 7 2 122

Annual report 2016

64

1) The CEO received a bonus in connection with the private placement concluded in October 2015, in the amount

of NOK 1,361,000. The bonus has been accounted for as an adjustment to equity

2) Commenced 8 October 2015

3) Commenced 7 July 2015

4) Commenced 11 January 2016

Remuneration to Board of Directors in the parent company

The annual board remuneration amounted to USD 26,800 for each board member not employed by the company.

No board remuneration was payable to board members who were also employed by the company. Payment was

based on the service period, in the manner that payment was made for the period up until the 2016 AGM. Directors

who were elected during the service period received proportionate remuneration, based on the actual service

period. The chairman received an additional amount of USD 8,900, and the members of the audit committee

received an additional amount of USD 3,000.

NOTE 22: SUBSIDIARIES

1) In 2016, the Maxifier KK entity was terminated. All remaining operations were transferred to Cxense Co., Ltd. in

Japan.

2) In 2016, HIBU Argentina S.A. invested USD 500,000 in the Cxense ASA subsidiary Premium Audience Network,

S.L. At the same time, Cxense ASA converted a debt of USD 650,000 to equity. After these transactions, the Cxense

share in Premium Audience Network, S.L. is 53.81%, which was an increase from 2015 (51%).

Principal activity

according to segment

Place of

incorporation

Portion of ownership

and voting power

Cxense Ltd. Cxense SaaS Australia 100.0 %

Cxense Co., Ltd. Cxense SaaS Japan 100.0 %

Cxense, Inc. Cxense SaaS USA 100.0 %

Cxense Inc. NV Holdings Cxense SaaS USA 100.0 %

Emediate Aps Cxense SaaS Denmark 100.0 %

Emseas Teknik AB (Emediate Sweden) Cxense SaaS Sweden 100.0 %

Maxifier Ltd. Cxense SaaS UK 100.0 %

Maxifier Inc. Cxense SaaS USA 100.0 %

Maxifier KK (1) Cxense SaaS Japan 100.0 %

Maxifier Development Cxense SaaS Russia 100.0 %

Premium Audience Network, s.l.u. (2) PCAN Spain 53.8 %

Name of subsidiary

Annual report 2016

65

NOTE 23: LEASES

The Group has finance lease agreements in the balance sheet of USD 44 thousand as of 31 December 2016.

The Group has entered into operating leases for office facilities. The lease costs consist of ordinary lease payments,

and include:

The future minimum rents related to non-cancellable leases come due as follows:

The parent company entered into a new lease agreement for the corporate headquarter at the end of 2016. This

has contributed to increase future minimum rents.

NOTE 24: CONTINGENT LIABILITIES

The group has not been involved in any legal or financial disputes in 2016, where an adverse outcome is considered

more likely than remote.

NOTE 25: EVENTS AFTER THE REPORTING PERIOD

Since 31 December 2016 and until the date of these financial statements, the Board of Directors is not aware of

any matter or circumstance not otherwise dealt with in this report that has significantly affected, or may significantly

affect the operations of the consolidated entity, with the exception of the following:

On 14 February 2017, Cxense invested GBP 3 million in cash for a 30% stake in RepKnight, providing the company

with growth capital and a strategic partnership. Cxense holds 135,978 shares in RepKnight after the transaction.

On 21 March 2017, Cxense ASA made an investment of GBP 0.65 million in mporium Group plc through

participation in a GBP 3.05 million private placement to strengthen mporium’s balance sheet and growth capacity.

Cxense subscribed for 4,333,000 shares, each at a price of 15 pence. After the investment, Cxense holds

113,123,403 shares in mporium, which represents 21.16% of the outstanding shares, with a weighted average

subscription price of 2.9 pence. On 20 March 2017, the closing share price of mporium was 14.88 pence.

For further stock exchange notices please see www.cxense.com.

USD 1,000 2016 2015

Lease office premises 837 838

Other 57 36

Total lease costs 894 874

USD 1,000 2016 2015

Within 1 year 1 275 864

1 to 5 years 4 133 1 727

After 5 years 25 115

Total 5 433 2 706

Annual report 2016

66

Financial statements for Cxense ASA

PROFIT AND LOSS STATEMENT CXENSE ASA

(Numbers in NOK) Note 2016 2015

Revenue 2, 12, 18 143 738 733 87 562 004

Cost of providing services 12 114 934 944 59 797 436

Employee benefit expense 4, 5 72 305 909 60 968 520

Depreciation and amortization 8 19 160 810 4 009 985

Impairment of intangible asset 8 3 127 066 0

Other operating expense 6, 18 34 065 615 38 599 175

Total operating expense 243 594 344 163 375 116

Net operating income/(loss) (99 855 611) (75 813 111)

Interest income from group entities 12 650 411 232 793

Other interest income 383 748 329 411

Currency gains 4 414 775 1 828 429

Other financial income 17 6 837 348 0

Total financial income 12 286 282 2 390 633

Interest expense to group entities 12 807 137 377 778

Other interest expenses 903 369 433 711

Currency losses 3 262 423 4 871 109

Impairment of financial fixed assets 11 7 000 000 0

Total financial expenses 11 972 929 5 682 598

Net financial income/(expense) 313 353 -3 291 965

Net income/(loss) before taxes (99 542 258) (79 105 076)

Income tax expense 7 (2 894 877) (1 784 535)

Net income/(loss) for the period (102 437 135) (80 889 612)

Result of the year (102 437 135) (80 889 612)

Transfers

Transfers to/from reserves 16 (102 437 135) (80 889 612)

Transfers to/from other equity 16 0 0

Total transfers and allocations (102 437 135) (80 889 612)

Annual report 2016

67

BALANCE SHEET CXENSE ASA

(Numbers in NOK) Note 2016 2015

ASSETS

Non-current assets

Intangible assets

Goodwill 8 30 589 884 39 513 420

Intangible assets 8 48 665 763 43 182 906

Total intangible assets 79 255 647 82 696 326

Tangible fixed assets

Office machinery, equipment etc. 8 1 058 691 1 689 330

Total tangible fixed assets 1 058 691 1 689 330

Financial fixed assets

Investments in subsidiaries 11 88 819 991 127 730 106

Loans to group companies 12 25 886 129 31 110 763

Investments in shares 11 42 524 769 34 824 481

Deposits 1 126 736 50 246

Total financial fixed assets 158 357 625 193 715 596

Total non-current assets 238 671 963 278 101 252

Current assets

Receivables

Trade receivables 9, 12 20 258 149 6 174 128

Other receivables 7 270 045 3 414 683

Group receivables 12 17 325 448 23 203 200

Total receivables 44 853 642 32 792 012

Cash and cash equivalents 10 161 255 664 33 797 409

Total bank deposits, cash in hand, etc 161 255 664 33 797 409

Total current assets 206 109 306 66 589 421

Total assets 444 781 269 344 690 672

EQUITY AND LIABILITIES

Equity

Paid-in capital

Share capital 13, 14, 15 39 790 060 30 242 355

Share premium reserve 16 326 066 276 211 027 055

Total paid-in capital 365 856 336 241 269 410

Total equity 365 856 336 241 269 410

Liabilities

Non-current liabilities

Long term liabilities 17 3 195 050 23 392 581

Total non-current liabilities 3 195 050 23 392 581

Current liabilities

Trade creditors 12 12 283 598 8 790 302

Public duties payable 4 820 803 3 861 817

Group payables 12 33 360 732 12 505 734

Other short-term liabilities 17 25 264 750 54 870 827

Total current liabilities 75 729 883 80 028 680

Total liabilities 78 924 933 103 421 261

Total equity and liabilities 444 781 269 344 690 672

Annual report 2016

68

STATEMENT OF CASH FLOW CXENSE ASA

1) Impairment of financial fixed assets includes the change in contingent contribution of Maxifier recognized

against cost price, as described in Note 9

(Numbers in NOK) 2016 2015

Cash flow from operating activities

Net loss before taxes (99 542 258) (79 105 077)

Taxes paid in the period (2 894 877) (1 784 535)

Depreciation, amortization and impairments of fixed and intangible assets 22 287 876 0

Impairment of financial fixed assets 1) 7 000 000 4 009 985

Share based payments 4 762 791 4 144 413

Change in trade receivables (14 084 021) (2 546 828)

Change in trade payables 3 493 296 5 313 682

Change in other accrual and non-current items 12 813 092 (11 898 683)

Currency translation effects (383 309) 6 369 770

Net cash flow from / used in (-) operating activities (66 547 410) (75 497 273)

Cash flow from investing activities

Purchase of fixed assets (335 897) (686 083)

Purchase of intangible assets (19 434 665) (48 671 581)

Deposit (1 078 698)

Loans to related parties 4 676 117 (2 317 804)

Purchase of shares and investments in other companies (14 045 000) (5 668 338)

Net cash flow from / used in (-) investing activities (30 218 143) (57 343 806)

Cash flow from financing activities

Net proceeds from share issue 224 223 806 155 680 224

Net cash flow from / used in (-) financing activities 224 223 806 155 680 224

Net increase / decrease (-) in cash and cash equivalents 127 458 253 22 839 145

Cash and cash equivalents at the beginning of the period 33 797 409 10 958 264

Cash and cash equivalents at the end of the period 161 255 662 33 797 409

Annual report 2016

69

Notes to the annual financial statements Cxense ASA

NOTE 1: GENERAL INFORMATION

Cxense ASA is a limited liability company incorporated and domiciled in Norway, with its head office in Karenslyst

Allé 4, 0278 Oslo. Cxense ASA is listed on the Oslo Stock Exchange (Oslo Børs).

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

The financial statements have been prepared in accordance with the Norwegian Accounting Act and generally

accepted accounting principles in Norway.

The financial statements have been prepared on a historical cost basis, except for the fair value of contingent

consideration in business combinations.

The functional currency and the presentation currency of Cxense ASA is Norwegian Krone (NOK).

The Statement of Cash Flow has been prepared according to the indirect method.

Use of estimates

Preparation of the financial statements requires the company to make estimates and assumptions that affect the

reported amounts of assets, liabilities, revenues and expenses. Actual results may ultimately differ from the

estimates and assumptions used.

Areas which to a great extent contain such assessments, a high degree of complexity, or areas in which

assumptions and estimates are significant for the financial statements, are described in the Notes.

Revenue recognition

In general, revenue comprises the value of the consideration received or receivable for the sale of goods and

services in the ordinary course of the company’s activities. Revenue is presented net of value-added tax, returns,

rebates, and discounts. The company recognizes revenue when the amount of revenue can be reliably measured,

when it is probable that future economic benefits will flow to the entity and when specific criteria have been met for

each of the company’s activities.

Sale of right to use software Revenue from the use of the technological platforms is recognized in the month the service is provided. Revenue

is based on fixed monthly software fees and/or royalty payments dependent on platform utilization. There are few

difficult judgments in determining the amount of revenue.

Income received from advertisers, and costs incurred from advertising agencies and publishers are presented

gross, which reflects that the company does have separate transactions with separate counterparty risks. That is,

the company does not act only as an agent in these transactions.

Business combinations

The acquisition method of accounting is used to account for all business combinations, regardless of whether equity

instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises

the:

● fair value of the assets transferred

● liabilities incurred to the former owners of the acquired business

● equity interests issued by the company

● fair value of any asset or liability resulting from a contingent consideration arrangement, and

● fair value of any pre-existing equity interest in the subsidiary

Annual report 2016

70

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with

limited exceptions, measured initially at their fair values at the acquisition date.

Acquisition-related costs are expensed as incurred.

The excess of the consideration transferred, amount of any non-controlling interest in the acquired entity, and acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net

identifiable assets acquired, is recorded as goodwill. If those amounts are less than the fair value of the net

identifiable assets of the subsidiary acquired, the difference is recognized directly in profit or loss as a bargain

purchase.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted

to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate,

being the rate at which a similar borrowing could be obtained from an independent financier under comparable

terms and conditions.

Contingent consideration is classified either as equity or as a financial liability. Amounts classified as a financial

liability are subsequently re-measured to fair value with changes in fair value recognized in profit or loss.

Goodwill

Goodwill relates to the acquisition of the Ramp business in 2015 and is amortized over a period of five years in the

stand-alone Company accounts of Cxense ASA, but is tested yearly for impairment for the purpose of preparing

consolidated annual accounts in accordance with IFRS as adopted by the EU.

Intangible assets

Intangible assets acquired separately that have a finite useful life are carried at cost less accumulated amortization

and any impairment charges. Amortization is calculated on a straight-line basis over the asset’s expected useful life

and adjusted for any impairment charges.

Internally generated intangible assets

Expenditures on development of the group’s technical platforms are capitalized, providing a future financial benefit

relating to the development of an identifiable intangible asset can be identified, and the expenses can be reliably

measured. Amortization is calculated on a straight-line basis over the asset’s expected useful life, and adjusted for

any impairment charges.

Expenditures on research activities, undertaken with the prospects of gaining new technical knowledge and

understanding, are recognized in profit or loss as incurred.

Fixed assets

Fixed assets are reflected at cost, less accumulated depreciation and accumulated impairment losses.

Depreciation is calculated on a straight-line basis over the asset’s expected useful life.

Direct maintenance of assets is expensed as incurred as operating cost, while additions and improvements are

added to the cost of asset to be depreciated as the asset itself.

Investments in Subsidiaries and Associates

The cost method is applied to investments in subsidiaries and associates. The cost price is increased when funds

are added through capital increases or when group contributions are made to subsidiaries. Dividends received are

initially taken to income. Dividends exceeding the portion of retained equity after the purchase, are reflected as a

reduction in purchase cost. Dividend/group contribution from subsidiaries are reflected in the same year as the

subsidiary makes a provision for the amount. Dividends from other companies are reflected as financial income

when it has been approved.

Associates are all entities over which the company has significant influence, but not control or joint control. This is

generally the case where the group holds between 20% and 50% of the voting rights.

Annual report 2016

71

Impairment of assets

Assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount

may not be recoverable. Intangible assets not yet brought into use are assessed for impairment annually. If it is not

possible to estimate the recoverable amount of an individual asset, the company determines the recoverable

amount of the cash-generating unit to which the asset belongs.

An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable

amount. The recoverable amount is the higher of an asset’s fair value less costs to sell, and value in use. In

assessing value in use, the estimated future cash flows are discounted to their present value, using a discount rate

that reflects current market assessments of the time value of money, and the risks specific to the asset or the cash-

generating unit to which the asset belongs.

An impairment of assets is reviewed for possible reversal at the end of each reporting period.

Financial assets

Financial assets representing loans and receivables are initially recognized at cost and subsequently measured at

amortized cost, using the effective interest method.

Trade receivables are carried at the original invoice amount less a provision for doubtful receivables, which is made

when there is evidence that the company will be unable to recover the balances in full.

Financial assets are presented as current, if the liabilities are due to be settled within 12 months after the balance

sheet date.

Financial liabilities

Interest-bearing loans and borrowings are initially recognized at cost, and subsequently measured at amortized

cost, using the effective interest method. Amortized cost is calculated by taking into account any issue costs as well

as discount or premium on settlement.

Financial liabilities are presented as current, if the liabilities are due to be settled within 12 months after the balance

sheet date.

Share-based payments

Share-based compensation benefits are provided to executives and senior employees.

Equity-settled share-based payments are measured at fair value (excluding the effect of non-market-based vesting

conditions) at the date of grant. The fair value, calculated by applying the Black-Scholes option-pricing model, is

expensed over the vesting period as an employee benefits expense, with a corresponding increase in equity.

The vesting period is the period over which all of the specified vesting conditions are to be satisfied. At the end of

each period, the entity revises its estimates of the number of options and subscription rights that are expected to

vest based on the non-market vesting and service conditions. It recognizes the impact of the revision to original

estimates, if any, in profit or loss, with a corresponding adjustment to equity.

Social security contributions payable in connection with an option grant are considered an integral part of the grant

itself. The charges are treated as cash-settled share-based payments, and re-measured at each reporting date.

When the options are exercised, the appropriate number of shares are transferred to the employee. The proceeds

received from the exercise of the options and subscription rights (net of any directly attributable transaction costs)

are credited directly to equity.

Warrants

In relation to capital issues, the Company may issue warrants as part of these offerings. A warrant gives the

counterparty a right to subscribe for a fixed number of the entity’s shares for a fixed amount of cash. Warrants

Annual report 2016

72

issued in relation to share issues will not trigger any specific accounting treatment when included as a part of the

initial share issue.

Currently, the company have no issued warrants.

Income tax

The tax expense consists of the tax payable, and changes to deferred tax. Deferred tax is calculated as 24% (25%

in 2015) of temporary differences, and the tax effect of tax losses carried forward.

Taxable and deductible temporary differences which reverse or can reverse in the same period, are offset, and the

tax impact is calculated on a net basis.

Foreign currencies

Assets and liabilities in foreign currencies are valued at the exchange rate on the balance sheet date. Exchange

gains and losses relating to sales and purchases in foreign currencies are recognized as operating income and cost

of goods sold.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits with banks and other short-term highly liquid investments

with original maturities of three months or less.

NOTE 3: OPERATING INCOME

The operating income is predominantly generated in the EMEA region.

NOTE 4: PAYROLL EXPENSES, NUMBER OF EMPLOYEES, REMUNERATIONS, ETC.

The average number of employees in 2016 was 51 (41 in 2015).

Option program for executives and senior employees

In 2012, the company established an option program for executives and senior employees in the company. The

exercise price of the share options is equal to the market price of the Cxense ASA share on the date of grant.

The share options vest over a four-year period, providing the employee still is employed by the company.

The table sets out the options in existence:

Specification of operating income

(Numbers in NOK) 2016 2015

Sales revenues 42 771 484 36 158 481

License income 70 651 444 33 067 754

Royalty income 24 694 754 12 891 956

Management fee 5 621 052 5 443 813

Total operating income 143 738 733 87 562 003

(Numbers in NOK) 2016 2015

Salaries/wages 55 601 431 48 920 369

Share based payment 4 762 791 4 144 413

Sosial security fees 9 143 030 5 432 819

Pension costs 1 004 765 830 672

Other remuneration 1 793 892 1 640 248

Total 72 305 909 60 968 521

Annual report 2016

73

Subscription rights program for other employees

At the 2 April 2014 AGM, the shareholders adopted a new subscription rights plan, available for employees in the

company and its subsidiaries and affiliated companies. All future grants of share-based incentives shall be made

under the subscription rights plan (issued and outstanding share options under the share option plan shall remain

in effect in accordance with their terms).

At the 12 May 2016 AGM, the shareholders renewed the subscription rights plan initially adopted at the 2 April 2014

AGM, and renewed at the 13 May 2015 AGM. Granted subscription rights vest over 4 years, by 25% on each

anniversary from the date of the grant, and expire after five years.

As of 31 December 2016, there were 346,000 outstanding share options and subscription rights to Cxense

employees.

The table sets out the subscription rights in existence:

The weighted average fair value of subscription rights granted during 2016 was NOK 89.53.

All share options vest over 4 years. The volatility is based on comparable companies.

Mandatory occupational pension scheme

Cxense ASA is required to have an occupational pension scheme in accordance with the Norwegian law of

mandatory occupational pension. The company’s pension scheme fulfills the requirements of the law. The company

has established a defined contribution scheme for all employees.

Option series

Number

granted Grant date Expiry date

Exercise

price

(NOK)

Fair value per

option at

grant date

(NOK)

Exercised in

2016

Number

forfeited

during 2016

Number of

outstanding

31.12.2016

Grant 1: August 2012 31 400 24.08.2012 24.08.2017 90.00 47.85 8 800 600 22 000

Grant 2: December 2012 32 800 09.12.2012 09.12.2017 112.50 59.81 0 13 200 6 400

Grant 3: April 2013 9 800 22.04.2013 22.04.2018 115.00 61.14 0 1 200 3 600

Grant 4: August 2013 8 000 26.08.2013 26.08.2018 115.00 61.14 0 0 8 000

Grant 5: October 2013 24 800 14.10.2013 14.10.2018 115.00 61.14 3 500 6 750 2 400

Grant 6: December 2013 7 800 09.12.2013 09.12.2018 125.00 66.46 0 0 4 200

Grant 7: January 2014 18 000 22.01.2014 22.01.2019 125.00 66.94 0 8 000 0

Grant 8: March 2014 16 800 25.03.2014 25.03.2019 125.00 66.94 1 600 3 100 5 600

Other inputs to the fair value measurement:

Grant 1-6 Grant 7-8

Option life 4 years 4 years

Expected volatility 70 % 70 %

Risk-free interest rate 1.60 % 2.00 %

Expected dividends 0 0

Subscription rights

Number

granted Grant date Expiry date

Exercise

price

(NOK)

Fair value per

option at

grant date

(NOK)

Exercised in

2016

Number

forfeited

during 2016

Number of

outstanding

31.12.2016

Grant 1: May 2014 78 700 12.05.2014 02.04.2019 125.00 66.94 0 10 600 40 800

Grant 2: June 2015 117 000 29.06.2015 13.05.2020 109.40 66.66 625 22 875 86 000

Grant 3: November 2015 17 000 19.11.2015 13.05.2020 101.85 59.62 0 0 17 000

Grant 4: December 2015 10 000 17.12.2015 13.05.2020 105.72 57.24 0 10 000 0

Grant 5: August 2016 130 500 25.08.2016 12.05.2021 165.80 89.88 0 0 130 500

Grant 6: November 2016 19 500 16.11.2016 12.05.2021 148.80 87.16 0 0 19 500

Annual report 2016

74

NOTE 5: REMUNERATION TO EXECUTIVES

The CEO has a cash bonus agreement whereby he may receive an annual bonus maximized to 100% of his base

salary, subject to attainment of certain bonus objectives/milestones. The CEO, chairman, or other related parties

have not been granted loans/sureties.

NOTE 6: AUDIT FEE

VAT is not included in the audit fee

Audit fee of NOK 389,480 is directly attributable to capital increases and has been accounted for against equity.

(Numbers in NOK) Managing director BoD

Salaries 4 156 735 0

Pension costs 22 218 0

Other remuneration 8 084 1 250 000

Total 4 187 037 1 250 000

(Numbers in NOK) 2016 2015

Statutory audit 766 000 400 000

Other assurance services 268 400 0

Tax advisory fee (incl. technical assistance with tax return) 30 000 0

Other assistance 135 800 351 406

Total audit fees 1 200 200 751 406

Annual report 2016

75

NOTE 7: TAXES

The tax rate will change from 25% in 2016, to 24% in 2017. The deferred tax and the deferred tax benefit is

calculated using 24%.

Deferred tax benefits of NOK 97,673,952 are not reflected in the balance as at 31 December 2016. The company

has not recognized any withholding tax assets in the balance sheet as at 31 December 2016.

(Numbers in NOK) 2016 2015

Income before taxes (99 542 258) (76 238 261)

Permanent differences and other changes (12 617 281) (5 155 342)

Change in temporary differences 3 096 357 (7 319 098)

Change in losses carried forward 109 063 182 88 712 701

Taxable income 0 0

2016 2015

Tax payable 0 0

Tax effect of group contribution 0 0

Tax payable 0 0

2016 2015

25% (27% ) of income before taxes (24 885 565) (20 584 330)

25% (27%) of permanent differences (3 154 320) (1 391 942)

25% (27%) Deferred tax asset not recognised 28 039 885 21 976 273

Withheld tax abroad 2 894 877 1 784 535

Tax on ordinary result 2 894 877 1 784 535

Calculation of deferred tax/deferred tax benefit

Temporary differences 2 016 2 015

Fixed assets 4 426 021 6 705 040

Current assets (454 155) (151 058)

Current liabilities (586 469) (72 226)

Net temporary differences 3 385 397 6 481 756

Tax losses carried forward (392 355 812) (283 292 630)

Basis for deferred tax (388 970 415) (276 810 874)

Deferred tax (24/25%) (93 352 900) (69 202 719)

Deferred tax benefit not shown in the balance sheet 93 352 900 69 202 719

Deferred tax in the balance sheet 0 0

Annual report 2016

76

NOTE 8: INTANGIBLE AND FIXED ASSETS

The assets acquired in the Ramp business acquisition are accounted for in USD, the functional currency of the

Ramp business. This results in a currency translation effect for those assets.

Capitalization of development expenses

Research and development (R&D) is a highly important component of innovation. The company invests substantial

resources in research and development to enhance the applications and technology infrastructure, develop new

features, conduct quality assurance testing and improve the core technology. The company expects to continue to

expand capabilities of the technology in the future, and to invest significantly in continued research and development

efforts. These activities are very integrated, and there is often no clear distinction between them, making it difficult

to assess if the activities are maintenance, research, or development

Goodwill related to Ramp Holding Inc.’s media business.

The recognized goodwill in Cxense ASA is attributable to synergies resulting from the combination of the Ramp

video platform with the Cxense data-driven products. See Note 11 in these accounts and Note 3 in the group’s

financial accounts.

(Numbers in NOK) Equipment Machines

Total fixed

assets

Purchase cost 01.01.2016 494 287 2 292 504 2 786 791

Additions 335 897 0 335 897

Disposals 0 0 0

Purchase cost 31.12.2016 830 184 2 292 504 3 122 688

Accumulated depreciation 373 183 1 690 816 2 064 001

Net book value 31.12.2016 457 001 601 688 1 058 689

Depreciation in the year 202 378 764 160 966 538

Expected useful life 3 years 3 years

Depreciation plan Straight line Straight line

(Numbers in NOK) R&D

Patents &

Licenses

Ramp

customer

relationship &

technology

Goodwill

Ramp

Total

intangible

assets

Purchase cost 01.01.2016 14 941 799 27 823 232 38 007 755 80 772 786

Additions 18 450 528 984 137 0 19 434 665

Disposals 0 0 0 0

Purchase cost 31.12.2016 33 392 327 984 137 27 823 232 38 007 755 100 207 451

Currency translation effect 1 420 226 2 168 769 3 588 995

Impairment 3 127 066 3 127 066

Accumulated amortization 5 208 061 168 375 6 450 657 9 586 640 21 413 733

Net book value 31.12.2016 25 057 200 815 762 22 792 801 30 589 884 79 255 647

Amortization in the year 4 415 190 168 375 5 575 403 8 035 305 18 194 273

Expected useful life 3 years 3-5 years 5-6 years 5 years

Depreciation plan Straight line Straight line Straight line Straight line

Annual report 2016

77

NOTE 9: TRADE DEBTORS

Trade debtors are recorded in the balance sheet at nominal value, less expected losses on debt.

A loss of NOK 96,850 in trade debtors was recognized in 2016.

NOTE 10: RESTRICTED BANK DEPOSITS

Included in bank deposits was an account for withheld employee taxes amounting to NOK 2,324,265. Withheld

employee taxes amounted to NOK 2,286,543.

NOTE 11: BUSINESS COMBINATIONS AND INVESTMENTS IN SUBSIDIARIES AND ASSOCIATED COMPANIES

On 23 October 2015, the group acquired Ramp Holdings Inc.’s media business. The transaction was structured

as an asset purchase. This media business comprises a Software-as-a-Service-based video platform that delivers

a next-generation solution for indexing, tagging, search, and publishing of online video content. The transaction

consideration was paid partly with cash, and partly with Cxense shares, and included a performance-based earn-

out structure to be settled in Cxense shares.

The total purchase price, including contingent considerations is estimated to be NOK 89.5 million. The purchase

price allocation (PPA) is set out below:

The purchase price allocation reflects the 100% acquisition of the Ramp media business. However, some of the

Ramp media business assets were allocated to Cxense’s US subsidiary Cxense Inc. The assets transferred to

Cxense Inc. were customer relationships, net of unearned revenue, amounting to NOK 23.6 million.

The 435,550 shares paid as part of the consideration were issued on 23 October 2015, at a price of NOK 103.44

per share.

In February 2016, Cxense issued an additional 43.543 new shares to Ramp Holdings Inc. as a purchase price

adjustment of the acquisition, based on the final closing balances taken over. This adjustment was equivalent to

USD 564,000 as set out in the purchase price allocation above. As of year-end 2015, the USD 564,000 was

recognized as short-term debt.

The performance-based earn-out of USD 0.74 million recognized within the total purchase consideration was

accounted for as long-term debt. The estimate for the earn-out was based on management’s best estimates of

Ramp revenue growth assumptions that might trigger the transaction earn-out. There were two earn-out periods:

the first ends 30 September 2016, and the second ends 30 September 2017. Any contingent consideration was to

be settled by issuing Cxense shares. The contingent consideration was limited to USD 9 million according to the

share purchase agreement. The earn-out conditions are not expected to be met, see Note 15 for more information.

(Numbers in NOK) 2016 2015

Trade debtors nominal value 20 893 158 6 442 150

Bad debts provision (635 010) (268 021)

Trade debtors in the balance sheet 20 258 149 6 174 128

(Numbers in NOK 1,000) On acquisition

Purchase consideration:

- Cash Payment 33 729

- Shares issued in 2015 45 053

- Shares issued in Q1 2016 4 623

- Earn-out (contingent consideration) 6 099

Total purchase consideration 89 505

Fair value of assets acquired (see below) 51 449

Goodwill 38 006

Annual report 2016

78

The recognized goodwill is attributable to synergies resulting from the combination of the Ramp video platform

with the Cxense data-driven products.

The assets and liabilities recognized in the acquisition are as follows:

The prepaid service obligation represents the estimated fair value of the obligation to deliver acquired prepaid

services. The prepaid service obligation consists of the estimated costs to deliver the services with the addition of

a reasonable margin. The acquired Ramp media business has invoiced license and consulting revenues prior to

delivering these services. Hence, the Ramp media business has an obligation to deliver the invoiced services

subsequent to the acquisition date.

*Out of the assets acquired, NOK 23.6 million worth of customer relationships, net of unearned revenue were

transferred to Cxense’s US subsidiary, Cxense Inc. This amount is recorded as an intercompany loan.

Investments in subsidiaries

The contingent consideration for Maxifier Ltd was revalued in 2016 and the value was set to zero. According to

Norwegian standards, it is possible to recognize changes in contingent consideration against cost price. The

company recognized a reduction in cost price of NOK 38.3 million. The remaining book value of the investment as

of 31 December 2016, were NOK 26 million.

The company prepares impairment tests for each subsidiary based on future expected cash flows, in order to

support book values. The impairment tests were performed using a discounted cash flow model, where the

companies’ forecast for the period 2017-2021 were used as assumptions. Based on the impairment test performed,

the management concluded to recognize an impairment of NOK 7 million, relating to its investment in Emediate

ApS. The remaining book value of the investment as of 31 December 2016, was NOK 56 million.

Investments in associated companies

Set out below are the associates of the group as at 31 December 2016. These associates have share capital

consisting solely of ordinary shares, held directly by the group; the country of incorporation or registration is also

their principal place of business.

(Numbers in NOK 1,000) Fair value

Customer relationships 35 314

Technology 20 627

Prepaid service obligation (4 443)

Customer relationship transferred to Cxense Inc* (23 595)

Net assets acquired 51 449

Customer relationships transferred to Cxense Inc at the date of the acqusitions (23 595)

Net assets acquired and recognized by the company 27 854

Company Location

Ownership/ voting

rights Booked value (NOK)

cXense Co. Ltd Japan 100 % 709 015

cXense Ltd. Australia 100 % 0

cX Inc. NA holding USA 100 % 29 980

Emediate ApS Denmark 100 % 56 465 113

Premium Audience Network S.L. Spain 54 % 5 637 003

Maxifier Ltd UK 100 % 25 978 880

Annual report 2016

79

Mporium

In May and June 2015, Cxense acquired 18% of mporium group plc, a UK based mobile e-commerce provider,

listed on AIM in the UK, and incorporated in the United Kingdom. In a subsequent transaction on 23 June 2015, the

shareholding was increased to 23.5% (subsequent share issues in 2015 where Cxense did not participate, reduced

the shareholding to 21.3% at year-end). The total purchase cost was USD 4.3 million. One quarter of the acquisition

was settled with cash, one quarter through a share-swap where Cxense issued shares for shares in mporium; and

the remaining two quarters was settled through entering into a service agreement between Cxense and mporium

(the agreement described in the following section).

In the share-swap described above, Cxense issued 51,177 shares at 113.5 NOK per share. The transaction was

structured as a private placement where Cxense issued shares as consideration for 25,000,000 shares in mporium.

On 18 July 2016, Cxense acquired 8,790,403 shares at a price per share of 7.5 pence in mporium Group PLC,

through a private placement. Following the private placement, Cxense held 108,790,403 shares in mporium which

represented 21.3% of the outstanding shares after the private placement, and 21.2% at 31 December 2016, leading

to a reduction of 0.1% from 31 December 2015.

As at 31 December 2016, the fair value of the group's interest in mporium group plc, which is listed on the London

Stock Exchange, was USD 17.5 million, and the carrying amount of Cxense ASA’s interest was NOK 40.99 million

(NOK 33.59 million in 2015).

Service agreement

As part of the initial purchase of 23.5% of mporium, Cxense also signed a three-year OEM license agreement with

mporium. In exchange for granting mporium access to Cxense’s technology for the next three years, mporium paid

partly with shares, and partly with a cash payment of GBP 200,000 due in May 2018. The shares have been

accounted for as acquisition cost for the mporium investment (see above), and also as a liability of USD 1.5 million

since Cxense is obliged to deliver services for the next three years according to the service agreement. The liability

will gradually be reduced (linearly) over the three-year period ending in May 2018, and recognized as income. The

received cash payment of GBP 200,000 are also recognized linearly as income over the three-year period.

Annual report 2016

80

NOTE 12: INTERCOMPANY BALANCES AND TRANSACTIONS

(Numbers in NOK)

Loans to group companies 2016 2015

cXense Inc. NA Holding 24 810 572 25 359 089

Premium Audience Network Spain 1 075 557 5 751 674

Total loans to group companies 25 886 129 31 110 763

Receivables subsidiaries 2016 2015

cXense Ltd 0 457 358

Premium Audience Network Spain 1 317 496 552 828

cXense Co. Ltd 3 892 931 693 623

cXense Inc. NA Holding 20 029 578 12 862 829

Emediate Aps 0 2 239 869

Maxifier Ltd 6 904 031 9 228 832

Total group receivables including

intercompany trade receivables32 144 036 26 035 339

Intercompany interest income 2016 2015

Premium Audience Network Spain 148 471 215 175

cXense Ltd 17 618

Maxifier Ltd 501 940 0

Total interest income from group

companies650 411 232 793

Payables subsidiaries 2016 2015

cXense Ltd 3 418 569 2 097 728

cXense Co. Ltd 811 122 110 212

cXense Inc. NA Holding 7 647 507 3 345 267

Emediate Aps 16 532 275 12 172 071

Maxifier Ltd 9 464 113 0

Maxifier Inc 1 276 934 0

Total group payables including

intercompany trade payables39 150 520 17 725 278

Capitalized intercompany R&D costs 2016 2015

cXense Ltd 8 686 294

Maxifier Ltd 5 143 052

Total 5 143 052 8 686 294

(Numbers in NOK)

Intercompany interest cost 2016 2015

Emediate Aps 706 847 377 778

cXense Ltd 49 456

Maxifier Inc 50 834

Total interest cost from group

companies807 137 377 778

Annual report 2016

81

NOTE 13: SHARE CAPITAL

The share capital of NOK 39,790,060 consists of 7,958,012 shares, with a nominal value of NOK 5 each. The company has one class of shares.

Issue of shares

On 4 March 2016, the company issued 43,583 new shares to Ramp Holdings, Inc. to settle the final purchase price adjustment related to the acquisition of the media business in 2015. The subscription price per share was NOK 103.44. The EGM in Cxense on 21 June 2016 approved a private placement towards Aker ASA, Ferd AS and Charles Street International Holdings Ltd. The placement consisted of 1,250,000 new shares of NOK 120 per share, raising gross proceeds of NOK 150 million. A subsequent offering of new shares was completed in July 2016 following an approval at the EGM on 21 June 2016. A total of 208,333 new shares were offered and subscribed, providing gross proceeds of NOK 25 million at a share price of NOK 120. On 1 July 2016, the Board of Directors of Cxense resolved to issue 3,400 shares to two former employees, in accordance with the company's 2012 share option plan. The average subscription price of the 3,400 shares issued was NOK 106.47. The total subscription price was NOK 362,000. On 12 November 2016, 82.7% of the 475,000 warrants outstanding were exercised by warrant holders in relation to the exercise of the warrants subscribed for as part of the private placement and subsequent offering in September and October 2015. As a consequence, 393,100 shares were issued to the warrant holders at NOK 130 per share, raising gross proceeds of NOK 51 million. On 14 December 2016, the Board of Directors resolved to issue 11,125 shares to employees and former employees that have exercised share options and Subscription Rights (SRs), whereof 10,500 shares were issued and resolved in accordance with the company's 2012 share option plan and 625 shares were issued and resolved in accordance with the 2015 Subscription Rights plan. The average exercise price of the 11,125 share options and SRs was NOK 98.96. The total subscription price for the 11,125 shares was NOK 1,100,875, which was paid in 2016. The share capital increase is included in the equity, share capital and number of shares as presented at year end, but was formally registered in the Norwegian Register of Business Enterprises on 6 January 2017. Total cost of equity transactions recognized in equity was NOK 7.9 million as of 31 December 2016.

Specification of intercompany revenue 2016 2015

Royalty income cXense Co. Ltd 24 694 754 12 891 956

License income cXense Inc. NA holding 66 020 529 30 118 484

Emediate ApS 5 621 052 5 443 813

Sales revenues PAN Spain 1 225 091 1 220 481

Total 97 561 425 49 674 734

Specification of intercompany costs 2016 2015

Services bought from cXense Ltd. 7 307 036 4 606 853

Services bought from cXense Inc. NA

holding55 582 338 26 266 963

Services bought from cXense Co. Ltd 18 661 229 13 809 352

Premium Audience Network Spain 0 15 269

Maxifier Ltd 4 059 436 0

Total 85 610 039 44 698 437

Annual report 2016

82

Warrants

Following the private placement and the subsequent offering resolved by the EGM on 12 October 2015, Cxense

had 475,000 warrants outstanding. The warrants expired on 12 November 2016, at which time 82.7% of the

warrants were exercised. Cxense has no warrants outstanding.

NOTE 14: SHAREHOLDER INFORMATION

20 largest shareholders registered in VPS as of 31 December 2016

NOTE 15: SHAREHOLDINGS OF SENIOR EXECUTIVES

Shares owned directly or indirectly by executives and board of directors at 31 December 2016

Shareholder Number of shares % Share

ASAH AS 691 592 8.7 %

FERD AS 658 999 8.3 %

CXVEST LIMITED 592 062 7.5 %

CITIBANK, N.A. 479 133 6.0 %

AKER CAPITAL AS 455 599 5.7 %

CHARLES STREET INT. HOLDINGS LTD 416 666 5.2 %

POLARIS MEDIA ASA 415 328 5.2 %

STOREBRAND VEKST VERDIPAPIRFOND 361 526 4.5 %

DATUM AS 296 187 3.7 %

VERDIPAPIRFONDET DNB SMB 290 017 3.6 %

NORRON SICAV - TARGET 266 560 3.4 %

ELTEK HOLDING AS 199 185 2.5 %

HOME CAPITAL AS 197 001 2.5 %

VERDIPAPIRFONDET STOREBRAND OPTIMA 171 281 2.2 %

ALDEN AS 108 608 1.4 %

NORRON SICAV - SELECT 95 802 1.2 %

AWILHELMSEN CAPITAL II AS 93 969 1.2 %

MIDELFART INVEST AS 90 000 1.1 %

NOMURA INTERNATIONAL PLC 87 786 1.1 %

FOLLO EIENDOM AS 83 882 1.1 %

Total top 20 shareholders 6 051 183 76 %

Others 1 895 704 24 %

Total 7 946 887 100 %

Name

Number of

shares

% of total

shares

Number of

share

options

Number of

subscription

rights

Morten Opstad (BoD), through Marc O Polo Norge AS 11 829 0.1 %

Svein Ramsay Goli (BoD), through RAMS AS 57 577 0.7 %

Ståle Bjørnstad (CEO), directly and through Kuler & Krutt AS 9 899 0.1 % 42 500

Jørgen M. Loeng (CFO), through JLO Invest AS 34 350 0.4 % 20 000 21 000

Vigleik Takle (COO) 4 498 0.1 % 8 000 14 500

Aleksander Øhrn (CTO) 63 000 0.8 % 14 000

Tom Wilde (CPO) 20 091 0.3 % 10 000

Camilla Moen (EVP HR) 5 992 0.1 % 8 000

John T. Sviland (CBDO), through GBBT AS 81 800 1.0 % 2 000

Total 289 036 3.6 % 28 000 112 000

Annual report 2016

83

NOTE 16: SHAREHOLDER EQUITY

Accumulated currency translation effects were NOK 4.406.707 as of 31 December 2016 and NOK -1.963.063 as of

31 December 2015.

The private placement in 2016 was a share issue, settling the final purchase price adjustment related to the

acquisition of the media business in 2015, see Note 13. A total of 43,583 new shares was issued to Ramp Holdings,

Inc.

NOTE 17: LONG-TERM AND SHORT-TERM LIABILITIES

Long-term liabilities of NOK 23.4 million in 2015 were deferred considerations related to the acquisitions of Maxifier

and Ramp's media business. Cxense ASA short-term liabilities included considerations in relation to the above-

mentioned business combinations of NOK 29.5 million in 2015.

The deferred Maxifier transaction consideration was estimated to NOK 41.2 million in 2015, of which NOK 16.8

million was recognized as long-term debt, and NOK 24.5 million recognized as other current liabilities. The estimate

was based on certain Maxifier revenue growth assumptions that might trigger the transaction earn-out mechanism.

The deferred Maxifier consideration included contingent earn-out considerations to the sellers after 11, 12 and 24

months after closing. The conditions for the 11 and 12 months were not met and consequently the consideration

will not be made to the sellers.Tthe conditions for the earn-out 24 months after closing are also not expected to be

met. Consequently, all liabilities, amounting to NOK 38.3 million as of 31 December 2016, related to the contingent

consideration from the Maxifier acquisition were removed from long-term and short-term liabilities and recognized

against the cost price of Maxifier.

The deferred Ramp transaction consideration was estimated at NOK 11.6 million in 2015, of which NOK 6.6 million

was recognized as long-term debt, and USD 5 million recognized as other current liabilities. The estimate was

based on certain Ramp revenue growth assumptions that might trigger the transaction earn-out mechanism. The

NOK 5 million current liability was settled in the first quarter of 2016 through NOK 4.9 million in Cxense shares and

a NOK 0.1 million cash payment. The conditions for the remaining earn-out 24 months after closing are not expected

to be met. Consequently, all remaining liabilities, amounting to NOK 6.8 million related to the contingent

consideration from the Ramp acquisition were removed from long-term liabilities and recognized against financial

income.

There are no long-term liabilities with date of payment later than 5 years ahead.

(Numbers in NOK)

Specification of Equity Share capital

Own

shares

Share

premium

Other paid-in

equity

Retained

earnings Total

Equity 31.12.2014 18 408 585 0 52 740 167 0 0 71 148 752

Share based payments 4 144 413 4 144 413

Private placement 3 583 770 82 593 095 86 176 865

Share issue 8 250 000 146 069 225 154 319 225

Currency translation effects 6 369 770 6 369 770

Net loss for the period (80 889 612) (80 889 612)

Equity 31.12.2015 30 242 355 0 211 027 055 0 0 241 269 410

(Numbers in NOK)

Specification of Equity Share capital

Own

shares

Share

premium

Other paid-in

equity

Retained

earnings Total

Equity 31.12.2015 30 242 355 0 211 027 055 0 0 241 269 410

Share based payments 4 762 791 4 762 791

Private placement 217 915 4 290 311 4 508 226

Share issue 9 329 790 210 385 790 219 715 580

Currency translation effects (1 962 535) (1 962 535)

Net loss for the period (102 437 135) (102 437 135)

Equity 31.12.2016 39 790 060 0 326 066 276 0 0 365 856 336

Annual report 2016

84

NOTE 18: TRANSACTIONS WITH RELATED PARTIES

Balances and transactions between the company and its subsidiaries, which are related parties to the company,

have been eliminated on consolidation, and are not disclosed in this Note. The company does not have other

transactions with related parties, except for remuneration to management, other than those disclosed below:

NOTE 19: EVENTS AFTER THE REPORTING PERIOD

On 14 February 2017, Cxense invested GBP 3 million in cash for a 30% stake in RepKnight, providing the company

with growth capital and strengthening the strategic partnership. Cxense holds 135,978 shares in RepKnight after

the transaction.

On 21 March 2017, Cxense ASA made an investment of GBP 0.65 million in mporium Group plc through

participation in a GBP 3.05 million private placement to strengthen mporium’s balance sheet and growth capacity.

Cxense subscribed for 4,333,000 shares, each at a price of 15 pence. After the investment, Cxense holds

113,123,403 shares in mporium with a weighted average subscription price of 2.9 pence. On 20 March 2017, the

closing share price of mporium was 14.88 pence.

(Numbers in NOK 1,000) 2016 2015

Sale of services to Description of services

Mporium Group plc License 4 631 2 949

ESV Digital AS (1) Reseller agreement 965 0

Purchase of services from Description of services

Advokatfirma Ræder (2) Legal services 2 490 4 714

ESV Digital AS (1) Commission 338 0

(1) Cxense Board member Bente Sollid Storhaug is the general manager of Esv Digital AS

(2) The Chairman of the Board in Cxense ASA is a partner in Advokafirma Ræder

Balance with related parties

Purchase of services from Description of services

Advokatfirma Ræder Legal services 1 185 1665

Annual report 2016

86

Auditors report

Annual report 2016

87

Annual report 2016

88

Annual report 2016

89

Annual report 2016

90

Annual report 2016

91

Annual report 2016

92

Definitions

Alternative Performance Measures

Cxense’ financial information is prepared in accordance with International Financial Reporting Standards (IFRS).

In addition, the company presents alternative performance measures (APM). The APMs are regularly reviewed by

management and their aim is to enhance stakeholders’ understanding of the company’s performance. APMs are

calculated consistently over time and are based on financial data presented in accordance with IFRS and other

operational data as described in the table below. The alternative performance measures presented may be

determined or calculated differently by other companies.

ARR Annualized Recurring Revenue (ARR) is the annualized value of a recurring revenue

contract. E.g. a recurring revenue contract with USD 10 thousand of revenue per month

has ARR of USD 120 thousand (10 thousand *12).

Closed New ARR The sum of all ARR for all contracts closed in a certain financial period

Lost ARR (churn) The sum of all ARR for all contracts lost in a certain financial period

Net New ARR New ARR – Lost ARR (Churn)

EBITDA Earnings before interest, taxes, depreciation and amortization. EBITDA corresponds to

the “operating income before depreciation, amortization and impairment” in the

consolidated income statement.

OPEX Operational Expenditure as presented according to IFRS

Non IFRS OPEX

adjustments

OPEX elements shown separately for the purpose of excluding them from OPEX

OPEX adjusted OPEX + Non IFRS OPEX adjustments

EBITDA Adjusted EBITDA calculated using OPEX adjusted instead of OPEX

Capitalized R&D Capitalized software development cost as per IFRS

EBITDA with

capitalization add

back

EBITDA adjusted before Capitalized R&D

Annualized

underlying organic

growth

Net New ARR from the quarter / Quarterly SaaS segment revenue

Sales quota

equivalent

A sales quota equivalent is 100% of a 1 sales quota. A sales rep has 100% of a sales

quota. Sales Managers, Customer Success Managers and other individuals within the

sales organization may have 75% or less sales quotas.

Annual report 2016

93

OFFICE LOCATIONS

North America Latin America Japan Europe Asia Pacific

New York City, NY Buenos Aires,

Argentina

Tokyo, Japan Oslo, Norway

(Corporate HQ)

Singapore

Cxense, Inc.

381 Park Avenue South

(8th floor)

New York, NY 10016,

USA

Cxense Argentina

Victoria Ocampo 360

Puerto Madero

Ciudad de Buenos Aires

Argentina

Cxense Co., Ltd.

MarkCity W22, 1-12-1

Dougenzaka,

Shibuya-ku

Tokyo, 150-0043

Japan

Cxense ASA

Karenslyst Allé 4

NO-0278 Oslo,

Norway

Cxense Asia

218 Orchard Road

Level 6

Orchard Gateway @

Emerald

238851 Singapore

Boston, MA Stockholm, Sweden Samara, Russia

Cxense, Inc.

451 D Street, Suite 707

Boston

MA 02210

USA

Cxense Sweden AB

c/o Ramberg Advokater

KB

Box 3137

103 62 Stockholm

Maxifier Development

443125, Russia, Samara

Novo-Sadovaya, 349a

3th floor

San Francisco, CA Madrid, Spain

P.O. Box 1464

San Carlos, CA 94070,

USA

Cxense Spain

PAN Spain

C/ Arlabán 7, 8 planta

28014 Madrid

Spain

Cxense UK

105-106 New Bond

Street

London W1S 1DN,

United Kingdom