ANNUAL REPORT
ANNUAL REPORT AND ACCOUNTS2017 MARCH 31 ENDED YEAR AND ACCOUNTS
YEAR ENDED 31 MARCH 2017
COMPANY NO: 06223359 SAFE HARBOR DISCLOSURE
This Annual Report contains forward-looking By their nature, forward-looking statements involve statements. These include, but are not limited to, risk and uncertainty because they relate to future statements regarding: events and circumstances, including, but not limited to, US and UK domestic and global economic and the growth and prospects of the digital business conditions, the effects of blogs and media advertising industry; coverage, the effects of continued volatility in credit markets, market-related risks such as changes in forecasts regarding Internet usage and interest rates and exchange rates, the policies and advertising spend; actions of governmental and regulatory authorities, changes in legislation, the further development of projected levels of growth in our markets; standards and interpretations under International our expectations about the factors that Financial Reporting Standards (IFRS) applicable to drive business; past, current and future periods, evolving practices with regard to the interpretation and application of the growth of our business and revenues; standards under IFRS, the outcome of pending and future litigation, the success of future acquisitions the potential for declines in our revenue; and other strategic transactions, and the impact our plans to continue to invest in our of competition—a number of which are beyond people, processes and products; RhythmOne’s control.
our plans to continue our current pace As used herein, “RhythmOne,” “the Company,” of acquisitions; “the Group,” “we,” “our,” and similar terms include RhythmOne plc and its subsidiaries, unless the our investments in international context indicates otherwise. “RhythmOne” and other and emerging markets and sectors; trademarks of ours appearing in this report are estimates of future compensation expenses; our property. This report contains additional trade names and trademarks of other companies. We do our plans to use funds; not intend our use or display of other companies’ trade names or trademarks to imply an endorsement operating expenses; and or sponsorship of us by such companies, or any relationship with any of these companies. other statements regarding our prospects, and business strategies. Except as required by the Financial Conduct Authority (FCA), Alternative Investment Market (AIM), or applicable law, RhythmOne expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward- ORRNLQJVWDWHPHQWVFRQWDLQHGLQWKLVUHSRUWWRUHÀHFW any changes in RhythmOne’s expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. Neither the content of the Company’s website (or any other website) nor the content of any website accessible from hyperlinks on the Company’s website (or any other website) is incorporated into, or forms part of, this report. None of these statements should be construed as a recommendation to invest in the Company. CONTENTS
STRATEGIC REPORT KEY HIGHLIGHTS 2 BUSINESS OVERVIEW 4 CHAIRMAN’S STATEMENT 9 CEO’S REPORT 10 CFO‘S REPORT 12 CORPORATE STRATEGY 16 COMMERCIAL MODEL 23
GOVERNANCE CORPORATE GOVERNANCE REPORT 25 BOARD OF DIRECTORS 28 REMUNERATION COMMITTEE REPORT 31 AUDIT COMMITTEE REPORT 34 NOMINATION COMMITTEE REPORT 36 DIRECTORS’ REPORT 37
FINANCIALS INDEPENDENT AUDITORS’ REPORT 41 CONSOLIDATED INCOME STATEMENT 43 CONSOLIDATED BALANCE SHEET 45 CONSOLIDATED CASH FLOW STATEMENT 47 NOTES TO FINANCIAL STATEMENTS 48 SHAREHOLDER INFORMATION AND ADVISORS 80 GLOSSARY 81 KEY HIGHLIGHTS
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2 FY2017 WAS A PIVOTAL YEAR FOR RHYTHMONE... THE COMPANY REINFORCED ITS POSITION AS A LEADING MULTI-CHANNEL, MULTI-FORMAT PROGRAMMATIC PLATFORM WITH SIGNIFICANT SCALE, CUTTING-EDGE TECHNOLOGY AND UNIQUE, HIGH-QUALITY INVENTORY.
TOTAL NET CASH & ADJ. EBITDA REVENUE3 MARKETABLE $175.4M $1.4M SECURITIES $166.7M ($10.5M) $75.2M $78.5M
Time Period: FY2017 (top) , FY2016 (bottom)
3 BUSINESS OVERVIEW
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RhythmOne
BRANDS AUDIENCES
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CONTENT
RhythmOne
BRANDS AGENTS PUBLISHERS AUDIENCES
DEVICES
6 Revenue EQUATION
FILL REVENUE PRICE VOLUME = RATE
Definitions: Volume: Total number of ad requests processed through the platform and available to monetize Fill: Proportion of ad requests actually monetized, based on filtering, targeting and availability of demand Price: Weighted average price of inventory across all ad formats flowing through the platform
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7 RHYTHMONE HAS GROWN INTO A SIGNIFICANT DIGITAL ADVERTISING ENTITY WITH MASSIVE SCALE, CUTTING-EDGE TECHNOLOGY AND QUALITY, DIFFERENTIATED SUPPLY. THE COMPANY IS WELL ON ITS WAY TO BECOMING A FULL STACK PROVIDER THAT RIVALS THE SCALE AND SCOPE OF THE SUPER-MAJORS.
8 CHAIRMAN’S STATEMENT
Raj Chellaraj )<ZDVWUDQVIRUPDWLRQDOIRU5K\WKP2QH Chairman of the Board FXOPLQDWLQJLQDUHWXUQWRJURZWKDQGXQGHUO\LQJ of Directors SUR¿WDELOLW\RQDQDGMXVWHG(%,7'$EDVLV7KH &RPSDQ\¶VSHUIRUPDQFHGHPRQVWUDWHVWKHVXFFHVV RILWVVWUDWHJ\WRH[SDQG&RUHPRELOHYLGHRDQG SURJUDPPDWLFRIIHULQJVDQGGHHPSKDVL]H1RQ 5K\WKP2QHKDVJURZQLQWRDVLJQL¿FDQWGLJLWDO &RUHEXVLQHVVOLQHVWKDWDUHQRORQJHUVWUDWHJLF DGYHUWLVLQJHQWLW\ZLWKPDVVLYHVFDOHFXWWLQJ WRWKHLQGXVWU\RU&RPSDQ\'XULQJDSHULRGRI HGJHWHFKQRORJ\DQGTXDOLW\GLIIHUHQWLDWHGVXSSO\ FRQWLQXHGG\QDPLFFKDQJHZLWKLQWKHLQGXVWU\ 7KH&RPSDQ\LVZHOORQLWVZD\WREHFRPLQJD LQFOXGLQJRQJRLQJFRQVROLGDWLRQZLWKLQDQGRXWVLGH IXOOVWDFNSURYLGHUWKDWULYDOVWKHVFDOHDQGVFRSH RIDGWHFKZHDUHSOHDVHGWRKDYHVXFFHVVIXOO\ RIWKHVXSHUPDMRUV7KHHQWLUH5K\WKP2QH H[HFXWHGWKLVWUDQVIRUPDWLRQDQGDUHH[FLWHG WHDPGHVHUYHVUHFRJQLWLRQDQGSUDLVHIRUWKHLU DERXWRXUQHDUDQGORQJWHUPSURVSHFWV HIIRUWVLQIXHOLQJWKH&RPSDQ\¶V&RUHJURZWK VWUDWHJ\H[HFXWLQJDVPRRWKH[LWRI1RQ&RUH 7KH&RPSDQ\¶VVXFFHVVLQ)<ZDVSULQFLSDOO\ EXVLQHVVOLQHVDQGGHOLYHULQJDUHWXUQWRJURZWK IXHOHGE\WKHJURZWKRILWVXQL¿HGSURJUDPPDWLF DQGXQGHUO\LQJSUR¿WDELOLW\7KLVPRPHQWXP SODWIRUP5K\WKP0D[ZKLFKDFKLHYHGEHQFKPDUN FRPELQHGZLWKDVWURQJEDODQFHVKHHWSRVLWLRQV SHUIRUPDQFHKLJKVZKLOHPDLQWDLQLQJWKHPRVW 5K\WKP2QHWROHDGFRQVROLGDWLRQHIIRUWVLQWKH VWULQJHQWVWDQGDUGVRITXDOLW\DQGEUDQGVDIHW\ LQGXVWU\²DGYDQFLQJLWVJRDORIEHFRPLQJWKH 5K\WKP2QH¶VLQYHVWPHQWLQLWV&RUHSURGXFW PRVWHI¿FLHQWDQGHIIHFWLYHPDUNHWSODFHIRUGLJLWDO DUHDVKDYHSURYLGHGWKHVWUXFWXUHIRURUJDQLFDQG DGYHUWLVLQJDQGFRQWHQWGLVWULEXWLRQ LQRUJDQLFJURZWKDVZHKDYHIRUZDUGLQWHJUDWHG WKURXJKWKHYDOXHFKDLQVWUHDPOLQLQJWKH ,ZRXOGOLNHWRRIIHUP\WKDQNVWRDOORXU H[FKDQJHEHWZHHQFRQVXPHUVDQGDGYHUWLVHUV VKDUHKROGHUVERWKSULYDWHDQGLQVWLWXWLRQDODV ZHOODVRXUFXVWRPHUVHPSOR\HHVDQGSDUWQHUV 7KHDFTXLVLWLRQRI3HUN,QFWKHPRELOH¿UVW IRUWKHLUVXSSRUWRI5K\WKP2QH7KH%RDUG supply side rewards and engagement platform FRQWLQXHVWREHLQVSLUHGE\WKHPRQXPHQWDO ZDVDQRWKHUNH\PLOHVWRQHLQDEXV\\HDUIRUWKH FKDQJHVWKDW5K\WKP2QHDQGWKHPDQDJHPHQW &RPSDQ\'XULQJWKH)RXUWK4XDUWHURI)< WHDPVXFFHVVIXOO\H[HFXWHGGXULQJ)<DQGLV 5K\WKP2QHLQWHJUDWHG3HUN¶VFURVVGHYLFH FRQ¿GHQWDQGH[FLWHGDERXWWKH&RPSDQ\¶VIXWXUH RZQHGDQGRSHUDWHGLQYHQWRU\LQWRLWVXQL¿HG DQGSURVSHFWV SURJUDPPDWLFSODWIRUPGHHSHQLQJLWVDXGLHQFH UHDFKDQGHQKDQFLQJWKHTXDOLW\DQGTXDQWLW\ 5DM&KHOODUDM RIXQLTXHEUDQGDQGSHUIRUPDQFHIRFXVHG &KDLUPDQRIWKH%RDUGRI'LUHFWRUV LQYHQWRU\7KH&RPSDQ\ZDVDOVRSOHDVHGWR 0D\ RQERDUGWKHWDOHQWHGDQGWHQXUHG3HUNWHDPDQG DQQRXQFHWKHDSSRLQWPHQWRI0U7HG+DVWLQJV DVDQ([HFXWLYH'LUHFWRURIWKH%RDUG7HGEULQJV RYHU¿IWHHQ\HDUVRIH[SHULHQFHLQEXLOGLQJ VXFFHVVIXOVRIWZDUH,QWHUQHWDQGGLJLWDOPHGLD FRPSDQLHVDQGZLOOSOD\DQLQVWUXPHQWDOUROH LQKHOSLQJ5K\WKP2QH¶VFRUSRUDWHDQGEXVLQHVV development efforts.
9 CEO’S REPORT
Subhransu (“Brian”) :HDUHGHOLJKWHGWRUHSRUWDFKLHYHPHQWRIRXU Mukherjee REMHFWLYHVIRU)<PDUNLQJDGUDPDWLFVKLIW Chief Executive Officer LQWKHUHYHQXHSURGXFWDQGFRVWSUR¿OHRIWKH &RPSDQ\²IXOO\LQOLQHZLWKWKHIXQGDPHQWDO WUDQVIRUPDWLRQZHEHJDQRYHUWZR\HDUVDJR 'XULQJWKH\HDU5K\WKP2QHGHHSHQHGLWV LQYHVWPHQWLQLWV&RUHVWUDWHJLFFDSDELOLWLHVRI PRELOHYLGHRDQGSURJUDPPDWLFWUDGLQJZKLOH WDNLQJGHFLVLYHVWHSVWRH[LWWKH1RQ&RUHDQG 'XULQJ)<WKHRQOLQHDGYHUWLVLQJLQGXVWU\ QRQSURJUDPPDWLFSURGXFWOLQHVWKDWQRORQJHU FRQWLQXHGWRHYROYH6SHQGVKLIWHGIURPRIÀLQH DUHFRQVLGHUHGVWUDWHJLFWRIXWXUHJURZWKDQGZLOO WRRQOLQHFKDQQHOVDVDGYHUWLVHUVIROORZHG FHDVHWREHWKHIRFXVRIRQJRLQJRSHUDWLRQV FRQVXPHUVRQOLQHZLWKPRELOHYLGHRDQG SURJUDPPDWLFVHJPHQWVJURZLQJIDVWHVWZLWKLQ 3HUIRUPDQFHLQ)<ZDVOHGE\VWURQJJURZWK WKHLQGXVWU\7HVWDPHQWWRWKLVWUHQGGLJLWDO LQ&RUHUHYHQXHVDQGLQSDUWLFXODUSURJUDPPDWLF DGYHUWLVLQJVSHQGLQWKH86RXWSDFHGWHOHYLVLRQ WUDGLQJ7KHUDSLGH[SDQVLRQRIWKH&RPSDQ\¶V VSHQGIRUWKH¿UVWWLPHLQKLVWRU\$VH[SHFWHG XQL¿HGSURJUDPPDWLFSODWIRUP5K\WKP0D[ WKHPDUNHWKDVFRQWLQXHGWRSRODUL]HEHWZHHQ GURYHJURZWKLQ&RUHUHYHQXHV\HDURQ HQWLWLHVWKDWSURYLGHDQLQWHJUDWHGRIIHULQJDQG \HDUFRQWULEXWLQJ 0LQUHYHQXHGXULQJWKH SRLQWVROXWLRQVWKDWIDFHFKDOOHQJHVRIVFDOHDQG \HDUFRPSDUHGZLWK0GXULQJ)< VFRSHPDNLQJWKHPULSHIRUFRQVROLGDWLRQ 7KHSODWIRUPDOVRH[SHULHQFHGDQLQFUHGLEOH LQFUHDVHLQWUDQVDFWLRQYROXPHV\HDURQ\HDU $JDLQVWWKLVG\QDPLFEDFNGURS,EHOLHYH 5K\WKP2QHQRZKDVWKHWHFKQRORJ\WDOHQWDQG 7KHFORVHRI)<VDZDGHOLEHUDWHH[LWIURP UHODWLRQVKLSVLQSODFHWRVFDOHERWKRUJDQLFDQG 1RQ&RUHSURGXFWVDVWKH&RPSDQ\KHLJKWHQHG LQRUJDQLFJURZWKDVWKHLQGXVWU\FRQWLQXHVWR LWVIRFXVRQ&RUHJURZWK7KLVDFWLRQLQFOXGHG HYROYHDQGFRQVROLGDWH7KURXJKVWURQJFRVW WKHGLVSRVDORILWV3ULPH9LVLELOLW\DJHQF\VHUYLFHV GLVFLSOLQHDQGDVWUDWHJLFIRFXVRQ&RUHPRELOH EXVLQHVVDQGFORVXUHRIFHUWDLQKLVWRULFDOQRQ YLGHRDQGSURJUDPPDWLFSURGXFWVZHDUH SURJUDPPDWLFGHVNWRSOLQHV2QDJRIRUZDUG SHUIHFWO\DOLJQHGZLWKEURDGHUVWUXFWXUDOPDUNHW EDVLVWKLVDFWLRQZLOOUHVXOWLQDPRUHQDUURZO\ WUHQGVZLWKWKHVFDOHDQGPRPHQWXPWRDFWLYHO\ GH¿QHGSURGXFWVXLWH±IXOO\DOLJQHGZLWKGRPLQDQW GULYHYDOXHFKDLQFRQVROLGDWLRQ:HIHHOHQHUJL]HG LQGXVWU\JURZWKWUHQGVZLWK&RPSDQ\RSHUDWLRQV DVZHHQWHUDQHZ¿QDQFLDO\HDUDQGSODQWRIRFXV IRFXVHGH[FOXVLYHO\RQ&RUHJURZWKLQLWLDWLYHV RXUDWWHQWLRQRQFRQWLQXHGUHYHQXHJURZWKDQG ,QOLQHZLWKWKH&RPSDQ\¶V&RUHJURZWKVWUDWHJ\ SUR¿WDELOLW\DVZHDGYDQFHRXUYLVLRQWREXLOGWKH 5K\WKP2QHFRPSOHWHGWKHDFTXLVLWLRQRI3HUN,QF PRVWHI¿FLHQWDQGHIIHFWLYHSODWIRUPIRUGLJLWDO GXULQJWKH3HULRG±DFFHOHUDWLQJWKH&RPSDQ\¶V DGYHUWLVLQJJ\JDQGFRQWHQWGLVWULEXWLRQJOREDOO\ VWUDWHJ\WREXLOGDXQL¿HGSURJUDPPDWLFSODWIRUP ZLWKXQLTXHDXGLHQFHVRIXQLIRUPTXDOLW\DW VFDOH7KURXJK3HUN,QF5K\WKP2QHJDLQHG DFFHVVWRVHYHUDOSUHPLXPFRQVXPHUPRELOHDSSV DQGZHESURSHUWLHVDGGLQJH[FOXVLYHLQYHQWRU\ WRWKH&RPSDQ\¶VVXSSO\SRUWIROLRWKDWFDQEH 6XEKUDQVX6XEKUDQVX ³ %UL %ULDQDQ´ 0 0XNKHUMHHXNKHUMHH SURJUDPPDWLFDOO\HQDEOHGDVZHOODVVWUDWHJLF &KLHI([HFXWLYH2I¿FHU GHPDQGUHODWLRQVKLSV3HUN,QFLVH[SHFWHG 5K\WKP2QHSOF WRDGYDQFH5K\WKP2QH¶VIXWXUHSHUIRUPDQFH 0D\ DQGKHOSXVWRVFDOHDOHDGLQJSODWIRUPWRGULYH LQGXVWU\ZLGHFRQVROLGDWLRQLQWKHVHFRQGFRPLQJ RIDGWHFK
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10 THE COMPANY’S CORE PRODUCT INVESTMENTS AND INITIATIVES HAVE PROVIDED THE STRUCTURE FOR CONTINUED ORGANIC AND INORGANIC GROWTH AS THE COMPANY FORWARD-INTEGRATES THROUGH THE VALUE CHAIN, STREAMLINING THE VALUE EXCHANGE BETWEEN CONSUMERS AND ADVERTISERS.
11 CFO’S REPORT
Richard O’Connor Chief Financial Officer
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TXDOLW\DIWHUWKHFDPSDLJQKDVFRQFOXGHG,QFRQWUDVW5K\WKP2QHKDVDGRSWHGDQHYHQPRUHVWULQJHQWTXDOLW\PHDVXUH²VFUHHQLQJ TXDOLI\LQJDQGHOLPLQDWLQJXQGHUSHUIRUPLQJLQYHQWRU\IURPLWVHFRV\VWHPEHIRUHLWLVPDGHDYDLODEOHWRDGYHUWLVHUV5K\WKP*XDUG HQKDQFHV5K\WKP2QH¶VDELOLW\WRUXQTXHU\WLPHDOJRULWKPVWRLGHQWLI\SRRUTXDOLW\LPSUHVVLRQVDQGEORFNWKHPIURPHQWHULQJLWV PDUNHWSODFH%\LQWHJUDWLQJWKLVWHFKQRORJ\LQWRLWVSODWIRUP5K\WKP2QHDXJPHQWVDGYHUWLVHUV¶DELOLW\WRPD[LPL]HWKHLUUHWXUQRQ LQYHVWPHQWDFURVVGHVNWRSYLGHRDQGPRELOHLQYHQWRU\ZKLOHSURYLGLQJLWVSXEOLVKHUSDUWQHUVKLJKHU\LHOGVIRUYDOLGDWHGWUDI¿F Product ARCHITECTURE RHYTHMMAX FOR ADVERTISERS RHYTHMMAX FOR PUBLISHERS CREATIVES SAFETY TRAFFICKING MONETIZATION FORECASTING TARGETING QUALITY YIELD PERFORMANCE PORTAL INFRASTRUCTURE AD SERVING OPTIMIZATION SECURITY SERVICES EXCHANGE 1 23 [RHYTHMONE’S] MISSION IS TO MAXIMIZE RETURN ON INVESTMENT BY PROVIDING THE MOST EFFICIENT AND EFFECTIVE MARKETPLACE FOR DIGITAL ADVERTISING AND CONTENT DISTRIBUTION. 1824 CORPORATEGOVERNANCE REPORT OVERVIEW The Directors recognize the value and importance of the highest standards of Corporate Governance. We strive to comply with the principles and provisions of Corporate Governance as far as practicable for a Group of its size and structure, even though as the Group is listed on the AIM Market of the London Stock Exchange, it is not required to comply fully with the principles of Corporate Governance as set out in the UK Corporate Governance Code (the Code). This report sets out the Governance approach. ROLE ANDCOMPOSITION OF THE BOARD The Board’s role is to provide entrepreneurial leadership to the Company. The Board is focused on ensuring that the risk register and management of those risks remain pertinent in the face of a continually evolving business. The principal risks and uncertainties are reviewed regularly, and are set out on pages 14 to 15. Whilst it is recognized that the Group is subject to a number of risks greater than this list, we include those that are of most concern and relevance to the business at this point in time. The Board is also responsible for articulating the Company’s strategic aims and ensuring that the business has the resources necessary to enable the Company to meet its objectives. It also determines the Company’s values and standards, and ensures that its obligations to shareholders are met. The Board is comprised of Executive Directors and Non-Executive Directors. Corporate governance guidelines require that boards should be “balanced between Executive and Non-Executive Directors, and should have at least two independent, Non-Executive Directors.” At the year-end date, RhythmOne plc exceeds this requirement, with five of the seven Board Directors being independent, Non-Executive Directors. The beneficial interests of the Non-Executive Directors in the share capital of the Company are set out on page 31. In the opinion of the Board, these interests do not detract from the Directors’ independence. In the event of a conflict of interest, the relevant Director is required to declare the conflict and, where appropriate, abstain from voting on any resolutions connected to it. DIVISION OF RESPONSIBILITIES There is a clear division of responsibility at the head of the Company between the running of the Board, which is delegated to the Chairman, Mr. Raj Chellaraj, and the executive responsibility for the running of the Company’s business, which is delegated to the Chief Executive Officer, Mr. Subhransu (“Brian”) Mukherjee. As Chairman, Mr. Chellaraj is responsible for leadership of the Board, setting the Board’s agenda, and ensuring that there is sufficient time available for discussion of all agenda items. The Non-Executive Directors do not have any day-to-day involvement in the running of the business. They work together to constructively challenge and assist in the development of strategic proposals and to fulfill the Board committee roles. The Board convenes at regular scheduled intervals and follows a formal agenda of matters specifically reserved for discussion, including such matters as: Ⅲ determining the Group’s strategy; Ⅲ ensuring open and informative communication with shareholders; Ⅲ reviewing and managing risks; Ⅲ evaluating major capital expenditures; Ⅲ evaluating material contracts to be entered into; Ⅲ shaping key operational policies; Ⅲ reviewing and approving the Group’s business plan and forecasts; Ⅲ measuring performance; and Ⅲ approving the annual and interim financial statements. It also meets outside of the formal schedule of meetings as and when required. The number of formal meetings of the Board during the year ended 31 March 2017, and attendance at each are summarized below: NUMBER OF MEETINGS NUMBER OF MEETINGS DIRECTOR DURING APPOINTMENT ATTENDED Raj Chellaraj 15 14 Subhransu (“Brian”) Mukherjee 15 15 Suranga Chandratillake 15 14 Mark Opzoomer 15 14 Ujjal Kohli 15 14 Andrea Lee (“Andy”) Cunningham 15 14 Edward (“Ted”) Hastings (appointed 10 February 2017) 1 1 In the event that any Director is unable to attend a meeting, they have the opportunity to relay their comments through the Chairman. If the Chairman is absent, another Non-Executive Director is appointed Chairman for that meeting. At certain times, where there may be a perceived conflict due to the subject matter of a meeting, a Director is recused from that meeting. The size and composition of the Board is regularly reviewed to ensure that it is of an appropriate size and structure. The Directors may take independent professional advice at the Group’s expense and all are covered by Directors and Officers insurance. 25 BOARDCOMMITTEES The Board has established an Audit Committee, Nomination Committee and a Remuneration Committee. These committees each comprise a small sub-committee of the main Board and are entirely made up of Non-Executive Directors. Each has its own terms of reference and responsibilities. The reports of each Board Committee are set out later in this document. EFFECTIVENESS We have considered the overall balance between Executive and Non-Executive Directors and believe that the structure of the Board, coupled with the integrity and commitment of the individuals who make up the Board, ensures that no one individual has a greater proportion of decision-making power. The Board has a good balance between financial, industry-specific and general business knowledge experience, with a highly experienced executive management team. All Directors are considered able to dedicate sufficient time to their role to ensure that they can discharge their responsibilities effectively. On joining the Board, all new Directors receive a comprehensive induction to introduce them to the business, enhance their knowledge of the industry and to meet the key personnel across the Group. The Board is committed to a culture of continued personal development, and all members of the Board are encouraged to undertake any training which will enhance their understanding or ability to serve the Board and refresh their knowledge. Regular updates on Corporate Governance are also provided. Board effectiveness is reviewed regularly. The most recent review, shortly before the year end, concluded that the Board and its individual members continue to perform effectively. The review is considered a general overview as to the operation of the Board, opinions on shareholder relationships, views on the Board’s inputs into strategy, governance and compliance, risk management and succession planning. INFORMATIONANDSUPPORT The Board is supplied with information in a form that enables it to discharge its responsibilities effectively. Board papers are supplied on a timely basis, with sufficient time for the Board to review and raise questions ahead of the formal meeting to which they relate. The culture of the Board is to encourage participation and active debate in a constructive and supportive manner. RELATIONSHIPS WITH SHAREHOLDERS The Board believes in open and regular dialogue with shareholders to ensure that the objectives and overall business strategy of the Group are effectively communicated. As such, the Chief Executive Officer, Chief Financial Officer and the Chairman, working in consultation with the Group’s corporate brokers and advisors, make themselves available to meet shareholders at least once a year at the Annual General Meeting. There are also a series of meetings with analysts and institutional investors in relation to the Company’s annual and interim financial statements. The Non-Executive Directors make themselves available to meet shareholders on an ad hoc basis as necessary, and consider the Annual General Meeting a good opportunity to canvas opinion and hold discussions with individual shareholders. The Board makes constructive use of the Annual General Meeting to communicate with investors and encourages full participation. Trading updates and press releases are issued as appropriate and the Company’s brokers provide information on shareholder opinion and compile independent feedback from investor meetings. INTERNAL CONTROLAND RISK MANAGEMENT The Board acknowledges its responsibility for ensuring that the Group maintains a sound system of internal control to provide them with reasonable assurance that the assets of the Group are safeguarded and that the shareholders’ investments are protected. It has established a continuous process for identifying, evaluating and monitoring the significant risks to which the Group is exposed. The Board has overall responsibility for ensuring the Group maintains an adequate system of internal control and risk management, while the Audit Committee reviews the effectiveness of those systems on behalf of the Board. This review is performed at least annually. The implementation of internal control systems is the responsibility of executive management. The organizational structure of the Group has clearly defined lines of responsibility and delegation of accountability and authority. The Board’s review of the significant risks in the year covered financial, operational, commercial, regulatory, fraud and R&D risks. The risk review is an ongoing process with at least annual input and review from the Board. The primary purpose of this review is to ensure that, having considered the controls that are in place to mitigate risks, the Board is satisfied with the residual level of risk being taken in pursuit of the Company’s strategy. 26 Our risk review comprised: Ⅲ the review of the risk register, considering the ongoing pertinence of each risk, and whether changes in the business meant that additional risks had been identified which should be added to the register. All risks were recorded in a centrally maintained register; Ⅲ risk assessment, which is performed in terms of the likelihood of occurrence and the potential impact on the Group; and Ⅲ identification of appropriate mitigating actions for each risk, with responsible parties and a timetable for completion assigned. Any system of internal control is designed to manage, rather than eliminate, the risks inherent in a fast-moving industry, and can therefore only provide reasonable and not absolute assurance against the possibility of material misstatement or loss. However, during the course of its reviews of the system of internal control during the year, the Board has not identified, nor been informed of any instances of control failings or significant weaknesses. The Board also operates a whistleblowing policy which provides for all employees to raise concerns to the Audit Committee, in strict confidence about any unethical behaviors, suspected fraud, misconduct or wrongdoing without fear of recrimination. There were no whistleblowing reports throughout financial year 2017, and to the date of this report. FINANCIAL REPORTING The Board is responsible for reviewing and approving the annual and half year financial statements, and for ensuring that they present a fair, balanced and understandable assessment of the Group’s position and performance. The Strategic Report, on pages 4 to 7 sets out the information necessary to enable readers to understand the business model and strategy. Drafts of the annual report are reviewed by the Board prior to approval with a formal process for addressing comments from the Board. 27 BOARDOFDIRECTORS The Directors who served throughout the year to 31 March 2017 and to the date of this report were as follows: NAME AGE POSITION Raj Chellaraj 61 Non-Executive Chairman S. Brian Mukherjee 50 Executive Director Suranga Chandratillake 39 Non-Executive Director Mark Opzoomer 60 Non-Executive Director Ujjal Kohli 58 Non-Executive Director Andy Cunningham 60 Non-Executive Director Ted Hastings 43 Executive Director On 10 February 2017, Ted Hastings joined the Board of Directors as an Executive Director. RAJCHELLARAJ Based in Palo Alto, California, Raj currently serves as the Non-Executive Chairman of RhythmOne plc. (LSE AIM: RTHM) He also serves as Associate Dean for Finance and Administration at the Stanford Business School and as the Chief Operating Officer at the Stanford Institute for Innovation in Developing Economies (SEED). Prior to joining Stanford University, Raj held several senior government positions. Most recently, he was the Assistant Secretary of State for Administration in the United States Department of State, to which he was nominated by President George W. Bush and confirmed unanimously by the United States Senate. Previously, he was a Senior Executive Officer at the United States Mint in Washington DC. In addition to his public sector expertise, Mr. Chellaraj has several years of senior corporate leadership experience, most recently as Vice President, Planning, at Hostess Brands Corporation, part of Ripplewood Holdings, where he was a member of the CEO’s Senior Leadership Team. Earlier, he served as Director of Corporate Development at Celanese Corporation (NYSE: CE), a Blackstone Group Company. He also held various management, finance, operations and planning roles at Exxon Corporation (NYSE: XOM), Strategic Analysis Inc. and FMC Corporation (NYSE: FMC). Raj holds an M.P.A. in Business and Government Policy from Harvard University, an M.B.A. in Finance from New York University, an M.S. in Chemical Engineering from Clarkson University and a B.S. in Chemical Engineering from Madras University, India. S. BRIAN MUKHERJEE Brian is the Chief Executive Officer of RhythmOne plc (LSE AIM: RTHM). With a strong strategy, operations and engineering background, Brian has helped build and transform several public and private technology and media businesses globally. Brian joined the Company in 2011 through the acquisition of Prime Visibility Media Group, Inc. (PVMG), where he was the President & CEO, after its sale to RhythmOne. Before PVMG, Brian was the Senior Vice President & Group Managing Director of Miva, Inc. (NASDAQ: MIVA), responsible for the turnaround and eventual sale of its global Media Division. Earlier in his career, Brian held executive, staff and line management positions at several private equity and venture-backed Internet, mobile and software companies where he played pivotal roles in building high performance teams, accelerating growth and profitability, raising capital, mergers, acquisitions and exits. Brian started his career as an engineer and a strategy consultant. He currently serves on the Board of Directors of Inflexxion, Inc. Brian holds B.E. (Honors) and M.S. (Honors) degrees in Engineering, and an M.B.A. (Honors) from the University of Chicago, Booth School of Business. 28 SURANGA CHANDRATILLAKE Suranga is a General Partner at Balderton Capital. He was previously an entrepreneur and engineer. Suranga founded blinkx (LSE AIM: BLNX), the intelligent search engine for video and audio content, in Cambridge in 2004. He then led the company for eight years as CEO through its journey of moving to San Francisco, building a profitable business and going public in London. He continues to serve on the RhythmOne plc (LSE AIM: RTHM) Board. Before founding blinkx, Suranga was an early employee at Autonomy Corporation (LSE: AU)—joining as an engineer in the Cambridge R&D team and ultimately serving as the company’s US CTO in San Francisco. Suranga also serves on the boards of Banjo, Contentful, Dalia Research, Tab Media and Vivino. Suranga has an M.A. in Computer Science from the University of Cambridge. He holds patents in the areas of video discovery and online video advertising, was elected a Fellow of the Royal Academy of Engineering in 2012, and was chosen as one of the World Economic Forum’s Young Global Leaders in 2009. MARK OPZOOMER Mark Opzoomer has extensive knowledge of Internet, communications and media markets in many different countries and 25 years of corporate operating and deal making experience. Mark is currently a partner in Bond Capital Partners, a Non-Executive Director of Entertainment One Limited (LSE: ETO), Benross Golf Limited and Non-Executive Chairman of Somo Global Limited. Previous Non-Executive directorships include Web Reservations International Limited, Newbay Software Limited, Autonomy plc and Miva Inc. (NASDAQ: MIVA) Previous operating experience includes CEO of Rambler Media Limited, regional Vice-President of Yahoo! Europe (NASDAQ: YHOO), Deputy Chief Executive of Hodder Headline plc, Commercial and Finance Director of Sega Europe Ltd and Commercial Director of Virgin Communications Ltd. Mark qualified as a chartered accountant through the Canadian Institute of Chartered Accountants and has an M.B.A. from IMD, Lausanne, Switzerland. UJJAL KOHLI Ujjal Kohli joined the Board of Directors in 2014 as a Non-Executive Director. Ujjal brings over twenty-five years of executive management, engineering, marketing, strategy, M&A and board level experiences to RhythmOne (LSE AIM: RTHM). Ujjal co-founded and led Mountain View-headquartered Rhythm NewMedia (“Rhythm”) as CEO, before its acquisition by RhythmOne plc in December 2013. Under his leadership, Rhythm emerged as a dominant mobile video technology and advertising platform for tablets and smartphones—working with ultra-premium media partners, including NBC Universal, CBS, ABC, Fox, and Warner Bros., as well as top brand advertisers, such as Disney, McDonald’s, General Motors, Ford, AT&T, Verizon, and Macy’s. Most recently, Ujjal was the CEO of Preact Inc, a SaaS company in predictive analytics that wasacquiredbySpotifyandbeforeRhythm,Ujjalco-foundedandservedasCEOofMeru Networks (NASDAQ: MERU). Prior to this he was EVP of Marketing and National Sales for AirTouch Cellular (NYSE: ATI), and was part of the Executive team there. AirTouch merged with Vodafone (LSE: VOD) in a $60B transaction in 1999. Previously, Ujjal was a consultant with McKinsey and Company in London, Los Angeles and Silicon Valley. Mr. Kohli has also been an investor, advisor, and a previous Board member at several technology companies, including Magma Design Automation, Berkeley Networks, ByteMobile, Maverick Semiconductor, Convergenet, and WirelessHome. Ujjal holds an M.B.A. from Harvard Business School, an M.S. in Electrical Engineering from the University of Rochester and a BTech in Electrical Engineering from the Indian Institute of Technology, New Delhi. 29 ANDY CUNNINGHAM Andy brings over thirty years’ experience in creating and executing marketing, branding and communication strategies that accelerate growth, increase shareholder value and advance corporate reputation. She is the founder and president of Cunningham Collective, a brand strategy firm dedicated to bringing innovation to market, and has played a key role in the launch of a number of new categories that include: video games, personal computers, desktop publishing, digital imaging, RISC microprocessors, software as a service, very light jets, and clean tech investing. Andy began her career in 1983 working for Regis McKenna and helped Steve Jobs launch the Macintosh. When Steve left Apple (NASDAQ: AAPL) to form NeXT and acquire Pixar, he selected Andy’s public relations agency, Cunningham Communication, to represent him. Andy serves on the following corporate boards: Specialized Bicycle Components, Inc., Finelite, Inc., GrowthPlay, LLC, and RhythmOne plc (LSE AIM: RTHM). Andy also advises the following companies: Virta Health, AirPR, Traackr, MixR, OptzzChain and Wellomics. In addition, Andy sits on the boards of the following institutions and non-profit organizations: The Aspen Institute, Menlo College, Northwestern University Medill School of Journalism, Media, Integrated Marketing Communications, and ZERO1: The Art & Technology Network. Past board affiliations include YPO, WPO, CEO, the Peninsula Open Space Trust and the Computer History Museum. She is an Aspen Institute Henry Crown Fellow and holds memberships in WPO, CEO, TED and Women Corporate Directors. TED HASTINGS Ted Hastings is the President of RhythmOne plc (LSE AIM: RTHM) and joined the Board of Directors in 2017 as an Executive Director, bringing with him significant digital advertising, publishing and ad tech experience to the Board. Most recently, he served as the CEO of Perk Inc (TSE: PER), the mobile-first supply side rewards and engagement platform that was acquired by RhythmOne plc in January 2017. Prior to Perk, Ted served as CEO for Rebellion Media, a diversified digital media company, where he completed 13 acquisitions in the first two years of operation. Previously, he served as President at Geosign Corporation, which was subsequently sold to Moxy Media/Tsavo Media, a wholly-owned subsidiary of American Capital. As the President and CEO at these firms, Ted built out the executive teams, managed company restructuring and oversaw key financing and acquisition activities. Earlier in his career, Ted was CEO at sales and distribution software company Global Beverage Group. He began his career as an associate in the Audit division of Deloitte & Touche LLP in Canada. Ted currently serves on the boards of Push Strength and Fongo. Previously, he served on the boards of Maintenance Assistant, Coreworx, Brick Brewing (TSE: BRB) and Communitech. He was inducted into the Waterloo Region Hall of Fame as Intrepid award winner in 2010, and named to Canada’s Top 40 under 40 for 2009. He also served as head executive coach of HyperDrive, a $30 million venture fund located in Waterloo, Ontario. Ted holds a Bachelor of Business Administration from Wilfrid Laurier University. 30 REMUNERATION COMMITTEE REPORT (UNAUDITED UNLESS STATED OTHERWISE) The Remuneration Committee (hereafter referred to as “the Committee” in this report) is appointed by the Board, and is formed of Non-Executive Directors. The Committee is chaired by Mr. Ujjal Kohli. Other members of the Committee include Andy Cunningham and Suranga Chandratillake. The Committee’s principal responsibilities are: Ⅲ to review and make recommendations in relation to the remuneration policy; Ⅲ consult with key shareholders on compensation-related proposals and recommendations; Ⅲ apply these recommendations to the Executive Director, and senior members of the executive management team; Ⅲ determine the metrics for the bonus scheme of the executive management team; Ⅲ ensure that the policies and metrics are aligned with the Company’s strategy; and Ⅲ to consider and award other performance-related benefits such as Restricted Stock Units (RSUs) and Market Value Share Options (MVSOs), as and when appropriate. The Committee met once during the year, and details of the attendance at the meetings of the Committee are as shown below. The Committee’s terms of reference are available for public inspection on the Company’s website—https://investor.rhythmone.com. 10 FEBRUARY 2017 Ujjal Kohli ✓ Suranga Chandratillake ✓ Andy Cunningham ✓ The Company has not appointed any external consultants during the year for any advice on executive and employee remuneration. PAY PHILOSOPHY The remuneration policy continues to be designed to ensure that senior managers and Executive Directors are appropriately incentivized and rewarded for their performance, responsibility and experience. The Remuneration Committee aims to ensure that the policy aligns the interests of the Executive Directors with those of the shareholders. The Company’s pay policy is designed to ensure salaries and bonus amounts are paid at or around market levels. Equity awards are linked to performance conditions which more closely align with long-term value creation for shareholders. PAY POLICY FOR EXECUTIVE DIRECTORS Remuneration at the Company for Executive Directors is comprised of three elements: base salary, annual bonus and long-term equity incentives. Details of the CEO’s remuneration are indicated below. BASE SALARY AND ANNUAL BONUS The Chief Executive’s base salary and bonus opportunity was adjusted in FY2016 to bring in line with market levels when compared to both US and UK competitors. The bonus opportunity for FY2017 was based on achievement of FY2017 Revenue, adjusted EBITDA targets and Management Business Objectives (‘MBOs’). LONG-TERM INCENTIVES During FY2017, equity awards were made in MVSOs that vest quarterly and have been in use within the Company since the IPO, but with an additional performance component where the equity awards require a minimum stock price threshold for options to vest and an accelerated vesting schedule upon the stock price reaching certain predetermined thresholds above the stock price at grant. The Committee believes that along with the performance criteria for bonus eligibility that addresses operational excellence, the quantum and performance criteria for the equity grants fully aligns the interests of the shareholders and management team to drive long-term value. The table below sets out the beneficial interests in shares and vested share options of the Directors holding office at year end (audited). No equity awards were made to Executive or Non-executive Directors during FY2017. INTERESTS IN INTERESTS IN INTERESTS IN ORDINARY SHARES SHARE OPTIONS RSUs TOTAL AT AT AT AT AT AT AT AT 31 MARCH 31 MARCH 31 MARCH 31 MARCH 31 MARCH 31 MARCH 31 MARCH 31 MARCH 2016 2017 2016 2017 2016 2017 2016 2017 DIRECTOR NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER RajChellaraj50,00050,000----50,00050,000 S. Brian Mukherjee 750,000 850,000 9,080,000 9,080,000 100,000 - 9,930,000 9,930,000 Suranga Chandratillake 159,770 735,047 2,487,179 1,752,132 33,333 - 2,680,279 2,487,179 Mark Opzoomer 400,000 400,000 ----400,000 400,000 UjjalKohli46,86746,867----46,86746,867 Andy Cunningham - 50,000 -----50,000 Ted Hastings - 4,469,898 -----4,469,898 31 PAY POLICY FOR NON-EXECUTIVE DIRECTORS Fees for Non-Executive Directors are set with reference to time commitment, the number of committees chaired and relevant external market benchmarks. Other than covering travel expenses, no additional fees or equity compensation is provided to Non-Executive Directors for ad hoc services, such as Committee memberships, Board meetings, etc. PAY AND CONDITIONS ELSEWHERE IN THE GROUP No element of remuneration is operated exclusively for Executive Directors and the philosophy of using variable remuneration to drive the Company’s performance is applied to all roles throughout the Group. All employees are eligible for an annual bonus and some senior roles are eligible to receive share options. When setting the quantum of remuneration for Executive Directors, the Committee considers the pay differential between Executive Directors and other roles. SERVICE AGREEMENTS The Chief Executive’s Service Agreement provides that his employment with the Company is on an “at will” basis which means that either the Executive or the Company shall be entitled to terminate employment at any time, and for any reason, with or without cause. In line with typical US practice, the Service Agreement includes a number of protections for the Chief Executive in the event of a termination of his employment in certain circumstances. All Non-Executive Directors’ appointments are terminable on at least three months’ notice on either side. The current service contracts and letters of appointment of the Directors include the following terms: DIRECTOR DATE OF CONTRACT NOTICE PERIOD EXECUTIVE DIRECTORS: S. Brian Mukherjee 19 July 2012 None Ted Hastings 10 February 2017 None NON-EXECUTIVE DIRECTORS: Raj Chellaraj, Chairman 1 October 2014 3 months Suranga Chandratillake 9 May 2007 3 months Mark Opzoomer 9 May 2007 3 months Ujjal Kohli 20 February 2014 3 months Andy Cunningham 1 March 2016 3 months DIRECTORS’ REMUNERATIONREPORT (AUDITED) The Directors received the following remuneration for the years ended 31 March 2017 and 31 March 2016. BASE OTHER YEAR ENDED YEAR ENDED SALARY/ ANNUAL LONG-TERM FEES PAID 31 MARCH 31 MARCH NED FEES BONUS INCENTIVES IN RSUs 2017 TOTAL 2016 TOTAL DIRECTOR $ $ $ $ $ $ EXECUTIVE DIRECTOR AND HIGHEST PAID DIRECTOR: S. Brian Mukherjee 500,000 355,0002 38,5743 - 893,574 1,475,000 Ted Hastings 34,0004 - - - 34,000 - NON-EXECUTIVE DIRECTORS:1 Raj Chellaraj 104,000 - - - 104,000 108,000 Suranga Chandratillake 65,000 - 12,857 - 77,857 162,000 Mark Opzoomer 65,000 - - - 65,000 75,000 Ujjal Kohli 65,000 - - - 65,000 75,000 Andy Cunningham 65,000 - 11,700 - 76,700 - Anthony Bettencourt (former Director) - - - - - 75,000 Judy Vezmar (former Director) - - - - - 30,000 AGGREGATE EMOLUMENTS 898,000 335,000 63,131 - 1,316,131 2,000,000 1 Non-Executive Directors’ fees are set at £50,000 for all Directors except for the Chairman of Board whose fees are set at £80,000. The above table includes the value in $ using an exchange rate of $1.30 to £1. 2 Bonus payments are made to Executive Directors only and are determined based on the following performance conditions: individual Executive Directors’ MBOs and Company operating performance. Annual bonus amount was earned in FY2017 and paid in FY2017. 3 Long-term incentive awards represent awards of MVSOs and RSUs issued to Executive Directors and Non-Executive Directors which vested during the year. Long-term incentive value represents the notional gain on MVSOs or RSUs, but are not realized until the awards are sold. 4 Ted Hastings was appointed to the Board of Directors on February 10, 2017. 32 None of the Directors had pension, retirement benefits or similar entitlement. No payment or awards were made to former Directors during the year, and no payments were made in compensation for loss of office. Long-term incentives include MSOVs which are fully vested and have an expiry period of 10 years. There are also MSOVs outstanding which vest quarterly but cannot be exercised until a minimum share price threshold for RhythmOne plc is achieved. These MSOVs also have an expiry period of 10 years. Aggregate emoluments disclosed above do not include any amounts for the value of MVSOs to acquire ordinary shares or restricted stock units in the Company granted to or held by any Directors. Details of the options and RSUs exercised during the year are as follows: RANGE OF GAINS ON GAINS ON MARKET EXERCISES IN EXERCISES IN PRICES AT YEAR ENDED YEAR ENDED VEST DATE 31 MARCH 2017 31 MARCH 2016 DIRECTOR SCHEME NUMBER £ $ $ S. Brian Mukherjee RSUs 100,000 0.22-0.37 38,574 72,000 Suranga Chandratillake RSUs 33,333 0.22-0.37 12,857 24,000 Andy Cunningham RSUs 50,000 0.19-0.22 9,000 - Total 183,333 60,431 96,000 Details of options and RSUs for Directors who served during the year are as follows: AT 31 MARCH AT 31 MARCH 2016 GRANTED VESTED 2017 DIRECTOR SCHEME(S) NUMBER NUMBER NUMBER NUMBER S. Brian Mukherjee Options 9,080,000 - - 9,080,000 RSU 100,000 - (100,000) - Suranga Chandratillake Options 2,487,179 - - 2,487,179 RSU 33,333 - (33,333) - Andy Cunningham Options - - - - RSU - 50,000 (50,000) - LONG-TERM INCENTIVES Details of the contractual RSU awards and long-term incentive awards vesting during the year are as follows: RANGE OF MARKET MARKET PRICES PRICES AT NUMBER AT AWARD DATE VESTING DATE DIRECTOR SCHEME(S) VESTED £ £ S. Brian Mukherjee blinkx US share option plan RSUs 100,000 1.55 0.22-0.37 Suranga Chandratillake blinkx US share option plan RSUs 33,333 1.55 0.22-0.37 Any Cunningham RSUs 50,000 0.19 0.19-0.22 Total 183,333 33 AUDIT COMMITTEE REPORT The Audit Committee (hereafter referred to as “the Committee” in this report) is appointed by the Board, and is formed of Non-Executive Directors, chaired by Mark Opzoomer. Other members of the Committee are Suranga Chandratillake and Raj Chellaraj. Its principal responsibilities are: Ⅲ monitoring the integrity of the financial statements of the Group and any formal announcements relating to the Group’s financial performance; Ⅲ overseeing the involvement of the Group’s external auditors, in planning and reviewing the audit of the financial statements; Ⅲ recommending the appointment and fees of the external auditor, including maintaining an appropriate policy on the level of non-audit fees; Ⅲ reviewing and monitoring the independence and objectivity of the external auditor, and the effectiveness of the external audit process; Ⅲ reviewing, at least annually, the need for an internal audit function; Ⅲ reviewing the risk management process, and the effectiveness of internal controls, including identifying and implementing improvements; and Ⅲ reviewing the arrangements through which staff may raise concerns about possible improprieties in confidence. The Committee met three times during the year, and details of the attendance at the meetings of the Committee are as shown below. The Committee’s terms of reference are available for public inspection on the Company’s website—https://investor.rhythmone.com. 10 MAY 8 NOVEMBER 9 FEBRUARY 2016 2016 2017 Mark Opzoomer, Chairman ✓✓✓ Suranga Chandratillake ✓✓✓ Raj Chellaraj ✓✓✓ The Committee promotes the highest standards of integrity, financial reporting, risk management and internal control. In addition to the members of the Committee, meetings are typically also attended by the Chief Executive Officer and the Chief Financial Officer. The Committee meets the external auditors at least three times a year, including at least one meeting each year without members of executive management present. The Committee should include at least one financially qualified individual with recent and relevant experience, and currently Mark Opzoomer, a qualified chartered accountant who trained with Coopers & Lybrand, and Raj Chellaraj, who has an M.B.A. in Finance from New York University, fulfill these criteria. The Board has overall responsibility for the establishment and oversight of the Group’s risk register, including the identification and evaluation of any newly recognized risks and implementing mitigating actions on a timely basis. The Committee assists the Board in its oversight and monitoring of financial reporting, risk management and internal controls. The Committee has considered the recent FRC guidance on audit committees, and has expanded its report to include more information on significant matters considered by the Committee. There has been a particular focus throughout the year on ensuring that the Group’s risk management and internal controls are adequately evolving and developing in line with changes in the Group and best practices in the industry. During the year, the Committee engaged Moss Adams LLP to continue a review of its controls over the key financial reporting areas, to ensure that controls remained robust and enabled executive management to be satisfied as to the reliability of the Group’s internal systems and processes. ASSESSMENT OF THEEXTERNAL AUDITOR Each year the Committee assesses the expertise, independence and quality of the external auditor, and the objectivity and effectiveness of the audit process. This assessment was carried out on the basis of the Committee’s own appraisal of the performance of the auditor and the views of its senior management team as well as consideration of materials provided by the auditor. The criteria used for this assessment remained unchanged from last year and were as follows: Ⅲ delivery of a thorough and efficient audit in compliance with agreed plan and timescales; Ⅲ provision of accurate, robust and perceptive advice on key accounting and audit judgments, technical issues and best practices; Ⅲ a high level of professionalism and technical expertise consistently demonstrated by all audit staff; Ⅲ plans for ensuring the maintenance of continuity within the core audit team; and Ⅲ strict adherence to independence policies and other regulatory requirements. Independence and objectivity are regularly considered by the Committee, taking into consideration, the relevant UK professional and regulatory requirements and the audit firm’s own policies to maintain auditor independence, which include rotation of the Senior Statutory Auditor every five years. Our policy on non-audit services is to appoint the adviser who we believe is in the best position to advise the Company on the matter in question, and, where we believe we are best served by our audit firm, auditor objectivity and independence is carefully considered and safeguarded via the monitoring of fees paid in respect of audit and non-audit work and approving all additional work performed by the external auditor. The fees paid to the auditor for audit and non-audit services are set out in note 9. The Committee has confirmed it is satisfied with the independence, objectivity and effectiveness of PricewaterhouseCoopers LLP and has recommended to the Board that the auditors be reappointed, and there will be a resolution to this effect at the forthcoming Annual General Meeting. 34 REVIEW OF FINANCIAL STATEMENTS AND AUDIT FINDINGS The Committee reviews the full and half-year financial statements, and the reports from the auditor on these statements. It takes the opportunity to discuss key accounting matters with the auditor and the range of approaches to each. Significant matters which were specifically considered by the Committee in the year were as follows: ISSUE SPECIFIC CONSIDERATIONS Impairment of goodwill and intangible assets In accordance with IAS 36, management prepared an impairment review on a CGU basis. The Committee discussed the calculations, including the assumptions within, the methodology applied and the anticipated forecasts. It also reviewed the auditor’s report detailing the results and conclusion of the audit testing. Revenue recognition The Committee keeps under close review the revenue recognition policies of the Group, with particular reference to the appropriateness of the revenue recognition policies of acquired businesses, and the continued pertinence of the policies in the legacy RhythmOne plc business. Acquisition accounting for Perk Acquired intangibles must be fair valued in accordance with IFRS 3. The Committee reviewed the valuation reports related to the Perk acquisition, prepared by the external valuator, to ensure that the assumptions inherent in the valuation model were reasonable and appropriate, and that the disclosures in the financial statements were prepared in accordance with IFRS 3. Disposal of non-core business units In accordance with IFRS 5, the Committee reviewed the facts surrounding the disposal of the non-core business units by the Company and determined that they met the criteria to present the income statement of the discontinued operations separately from that of the continuing operations. INTERNAL AUDIT The Committee considers the need for an internal audit function at least annually. Given the size of the Group and the organization of the finance team into centers of excellence, which are overseen by an experienced CFO, and considering the robustness and integrity of the internal controls of the Group which are overseen centrally, the Committee is of the opinion that no internal audit function is required at this time, but will keep this matter under close scrutiny. The Committee has however, engaged Moss Adams to document the Group’s key controls, and initiate a rolling testing strategy of those controls, similar to the controls oversight that would be exercised by an internal audit function. 35 NOMINATION COMMITTEE REPORT The Nomination Committee is appointed by the Board and is responsible for: Ⅲ the structure, size and composition of the Board; Ⅲ the diversity on the Board, and across the Group; Ⅲ advising the Board on areas where further recruitment may be appropriate; Ⅲ the overall leadership needs of the organization; Ⅲ consideration of succession planning for Directors; and Ⅲ the search for and selection of suitable candidates for the appointment or replacement of additional Directors. The Nomination Committee (hereafter “the Committee” throughout this report) was chaired by Raj Chellaraj. Ujjal Kohil and Andy Cunningham are also members of the Committee. The Committee met once during the year, and details of the attendance at the meetings of the Committee are as shown below. The Committee meets as required to initiate the selection process of, and make recommendations to the Board with regard to the appointment of new Directors. The Committee’s terms of reference are available for public inspection on the Company’s website— https://investor.rhythmone.com. 10 FEBRUARY 2017 Raj Chellaraj, Chairman ✓ Ujjal Kohil ✓ Andy Cunningham ✓ APPOINTMENT OF NEW DIRECTORS During the year, the Committee met and made recommendations to the Board regarding the appointment of Ted Hastings as an Executive Director. Mr. Hastings’s brings significant digital advertising, publishing and ad-tech and M&A expertise and his appointment will be instrumental to the Board as RhythmOne plc actively pursues continued growth. The Articles of Association require that any Director appointed by the Board shall, unless appointed at such meeting, hold office only until the dissolution of the next Annual General Meeting of the Company following appointment. RE-ELECTIONTO THE BOARD Following evaluation of the Board, we consider that the performance of all members of the Board continues to be effective, and that all individuals demonstrate appropriate commitment to their roles. In accordance with best practice and the Company’s articles of Association, which require at least one third of Directors to be subject to re-election at each Annual General Meeting, Mark Opzoomer and Ujjal Kohli retire by rotation and will stand for reappointment while Ted Hastings will stand for appointment at the AGM on June 27, 2017. DIVERSITY POLICY The Board recognizes the value in diversity in its richest sense, and considers it essential in maximizing its effectiveness. The Group approaches diversity comprehensively, in order to recruit the best talent available at all levels in the business, based on merit, and assessed against criteria such as: range of skills, experience and independence. 36 DIRECTORS’ REPORT The Directors present their annual report on the affairs of the Group, together with the Financial Statements and auditor’s report for the year ended 31 March 2017. This report contains certain statutory, regulatory and other information and incorporates, by reference, the Strategic Report and Corporate Governance reports included earlier in this document. The table below sets out the location of certain information specifically related to the business review: CONTENT SECTION PAGE(S) Review of the Business and Future Developments Strategic Review, Chairman and CEO Reports 2-11 Principal Risk and Uncertainties CFO Report 12-15 Corporate Governance Corporate Governance Report 25-27 Directors, Re-election and Appointment Corporate Governance Report and Nomination Committee report 25-36 Directors’ Interests Remuneration Committee Report 31-33 Key Performance Indicators CFO Report 12 Research and Development CFO Report 13 CAPITAL STRUCTURE Details of the issued share capital, together with details of the movements in the Company’s issued share capital during the year, including the issue of 90,631,068 shares, are shown in note 22. The Company has one class of ordinary shares, which carry no right to fixed income. Each share carries the right to one vote at general meetings of the Company. There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements between holders of the Company’s shares that may result in restrictions on the transfer of securities or on voting rights. Details of employee share schemes are set out in note 26. FINANCIAL RISK MANAGEMENT The Group’s financial risk management objective is to minimize risk whilst achieving maximum return on liquid assets. The Directors are averse to principal loss and manage the safety and preservation of the Group’s invested funds by limiting default and market risks by investing only with highly-rated financial institutions. The Group’s financial instruments primarily comprise cash and cash equivalents, marketable securities, loans, trade receivables and payables from operations. No derivative financial instruments are used. Foreign currency risks are managed through natural hedges arising from currency bank accounts. The Group has not faced any material exposure to price risk, liquidity risk, or cash flow risk that would affect the ultimate objectives of thebusiness.Seenote27. The Board is cautious and measured in respect to investing the Group’s surplus funds and in relation to treasury planning. The Board’s objectives are to minimize risk whilst achieving maximum return on liquid assets. Risk is limited by investing cash surplus only in highly-rated financial institutions and instruments. Foreign currency risks are managed through natural hedges with currency bank accounts. The Group has not experienced any material exposure to price risk, liquidity risk or cash flow risk that would affect the ultimate objectives of the Group. Further details on the Group’s financial risk management policies are included in note 27 to the financial statements. Detailed working capital projections and forecasts are prepared by management, and reviewed and approved by the Board at least annually. These are updated throughout the year for significant events. Actual monthly results are compared to forecasts and variances investigated and explained by the executive management team. There are no external capital requirements or financial covenants that the Group has to abide by, and the Board’s consideration of going concern is discussed on page 38. RESULTS ANDDIVIDENDS The results of the Group are set out in the Consolidated Income Statement on page 43. The Directors are unable to recommend the payment of a dividend (2016: $nil). CHARITABLE AND POLITICAL DONATIONS No charitable or political donations were made during the year. DIRECTORS’ INDEMNITIES The Group has made qualifying third party indemnity provisions for the benefit of its Directors which remain in force at the date of this report. 37 EMPLOYEE CONSULTATION The Group places considerable value on the involvement of its employees and has continued to keep them informed on matters affecting them as employees and on the various factors affecting the performance of the Group. This is achieved through formal and informal meetings, the Group Intranet site and internal communications from the management team. Employees are consulted regularly on a wide range of matters affecting their current and future interests. We value employees’ opinions and seek to actively consult them in the decision making process and keep them apprised of Company news. Company-wide briefings and communications are held and feedback is actively sought from all employees. The employee share option scheme has been running successfully since its inception and is open to all employees. In addition, employees typically receive an annual bonus related to the overall profitability of the Group. EQUAL OPPORTUNITIES Our employment policies, including a commitment to equal opportunity, are designed to attract and retain high-caliber individuals, regardless of age, sex, religion, disability, marital status, race, ethnicity, nationality or sexual orientation. RhythmOne plc is an equal opportunities employer and ensures that applications for employment from people with disabilities and other under-represented groups are given full and fair consideration. Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Group continues and that appropriate training is arranged and support provided, including flexible working to assist re-entry into the workplace and making any necessary alternate provisions. It is our policy to provide equally to all staff, training and career development for growth within the Company, and to explore objectively, through performance appraisal, opportunities for employee advancement. We take measures to ensure good working conditions. Employees are expected at all times to act honestly, respectfully, and in accordance with our Company ethos. The Company does not tolerate misconduct or harassment in any form and will diligently investigate and, where necessary, take action against any complaints therein, including those of confidential “whistle blowers.” SUBSTANTIAL SHAREHOLDINGS On 31 March 2017, the Company had been notified of the following voting rights as a shareholder of the Company: NUMBER SHARES % Toscafund Asset Management 138,465,657 27.97% River & Mercantile Asset Management 45,285,860 9.15% Mr. Richard Griffiths 30,443,134 6.15% Hargreaves Lansdown Asset Mgt 27,285,858 5.51% TD Direct Investing 21,462,273 4.33% Total shares outstanding at 31 March 2017 495,093,938 On April 30, 2017 the Company received notification of the following voting rights as a shareholder of the Company: NUMBER SHARES % Toscafund Asset Management 138,651,013 28.00% River & Mercantile Asset Management 45,635,860 9.22% Mr. Richard Griffiths 30,415,963 6.14% Hargreaves Lansdown Asset Mgt. 26,994,377 5.45% TD Direct Investing 20,982,832 4.24% Total shares outstanding at 30 April 2017 495,189,527 POST BALANCE SHEET EVENTS There are no significant post balance sheet events. GOINGCONCERN The Directors have considered the financial resources of the Group and the risks associated with doing business in the current economic climate and believe the Group is well placed to manage these risks successfully. In doing this, the Board has reviewed management’s business plan and cash flow forecast setting out key business assumptions, including the rate of revenue growth, margins and cost 38 control. The Directors consider the assumptions therein to be reasonable and that the Group has adequate resources to continue in operational existence for the foreseeable future, being a period of no less than 12 months from the date of signing this Annual Report. Accordingly, they continue to adopt the going concern basis in preparing these financial statements. ANNUAL GENERAL MEETING The Annual General Meeting will be held at 200 Aldersgate Street, London, EC1A 4HD, United Kingdom on June 27, 2017 at 9:00 AM BST. Members of the Board will present on recent developments and the performance of the business and shareholders will have the opportunity to ask questions of the Board members present. INDEPENDENT AUDITORS Each of the persons who is a Director at the date of approval of this Annual Report confirms that: Ⅲ so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and Ⅲ the Director has taken all of the steps that he/she ought to have taken as a Director in order to make him/herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006. STATEMENT OF DIRECTORS’ RESPONSIBILITIES The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation. Company law requires the Directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and parent company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of the profit or loss of the Group and parent company for that period. In preparing the financial statements, the Directors are required to: Ⅲ select suitable accounting policies and then apply them consistently; Ⅲ state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and IFRSs as adopted by the European Union have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements; Ⅲ make judgments and accounting estimates that are reasonable and prudent; and Ⅲ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and parent company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and parent company and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. The Directors are also responsible for safeguarding the assets of the Group and parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the parent company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and parent company’s performance, business model and strategy. Each of the Directors, whose names and functions are listed in the Board of Directors confirm that, to the best of their knowledge: Ⅲ the parent company financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Company; Ⅲ the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Group; and Ⅲ the Directors’ Report includes a fair review of the development and performance of the business and the position of the Group and parent company, together with a description of the principal risks and uncertainties that it faces. The Strategic and Directors report have been signed on behalf of the Board by: Subhransu (“Brian”) Mukherjee Chief Executive Officer RhythmOne plc 15 May 2017 39 FINANCIAL STATEMENTS 40 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERSOF RHYTHMONE PLC REPORT ON THE FINANCIAL STATEMENTS OUR OPINION In our opinion: Ⅲ RhythmOne plc’s group financial statements and company financial statements (the “financial statements”) give a true and fair view of the state of the group’s and of the company’s affairs as at 31 March 2017 and of the group’s loss and the group’s and the company’s cash flows for the year then ended; Ⅲ the group financial statements have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union; Ⅲ the company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and Ⅲ the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. WHAT WE HAVE AUDITED The financial statements, included within the Annual Report and Accounts (the “Annual Report”), comprise: Ⅲ the Consolidated and company balance sheets as at 31 March 2017; Ⅲ the Consolidated income statement and the Consolidated statement of comprehensive income for the year then ended; Ⅲ the Consolidated and company cash flow statements for the year then ended; Ⅲ the Consolidated and company statements of changes in equity for the year then ended; and Ⅲ the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited. The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the European Union and, as regards the company financial statements, as applied in accordance with the provisions of the Companies Act 2006, and applicable law. In applying the financial reporting framework, the directors have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events. OPINIONSON OTHER MATTERS PRESCRIBED BY THECOMPANIES ACT2006 In our opinion, based on the work undertaken in the course of the audit: Ⅲ the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and Ⅲ the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. In addition, in light of the knowledge and understanding of the group, the company and their environment obtained in the course of the audit, we are required to report if we have identified any material misstatements in the Strategic Report and the Directors’ Report. We have nothing to report in this respect. OTHER MATTERSON WHICHWE ARE REQUIRED TO REPORT BY EXCEPTION ADEQUACY OF ACCOUNTING RECORDS AND INFORMATION AND EXPLANATIONS RECEIVED Under the Companies Act 2006 we are required to report to you if, in our opinion: Ⅲ we have not received all the information and explanations we require for our audit; or Ⅲ adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or Ⅲ the company financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. DIRECTORS’ REMUNERATION Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. RESPONSIBILITIES FORTHEFINANCIAL STATEMENTS AND THE AUDIT OUR RESPONSIBILITIES AND THOSE OF THE DIRECTORS As explained more fully in the Statement of Directors’ Responsibilities set out on page 39, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. 41 This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. WHAT AN AUDIT OF FINANCIAL STATEMENTS INVOLVES We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: Ⅲ whether the accounting policies are appropriate to the group’s and the company’s circumstances and have been consistently applied and adequately disclosed; Ⅲ the reasonableness of significant accounting estimates made by the directors; and Ⅲ the overall presentation of the financial statements. We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. With respect to the Strategic Report and Directors’ Report, we consider whether those reports include the disclosures required by applicable legal requirements. Jaskamal Sarai (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Uxbridge 15 May 2017 42 CONSOLIDATED INCOMESTATEMENT RhythmOne plc Annual Report FORTHE YEAR ENDED 31 MARCH2017 and Accounts FY2017 YEAR ENDED 31 MARCH 2017 YEAR ENDED 31 MARCH 2016 BEFORE BEFORE EXCEPTIONAL EXCEPTIONAL EXCEPTIONAL EXCEPTIONAL COSTS COSTS TOTAL COSTS COSTS TOTAL NOTE $000’s $000’s $000’s $000’s $000’s $000’s Revenue 5 149,025 - 149,025 116,058 - 116,058 Cost of revenue (98,478) - (98,478) (72,690) - (72,690) Operating expenses 28 & 29 (60,557) (5,245) (65,802) (73,415) (47,192) (120,607) Loss before tax and finance income and expense (10,010) (5,245) (15,255) (30,047) (47,192) (77,239) Finance income 11 631 - 631 256 - 256 Finance expense 11 (266) - (266) (198) - (198) Loss before income tax (9,645) (5,245) (14,890) (29,989) (47,192) (77,181) Income tax recovery 12 861 - 861 1,654 - 1,654 Loss from continuing operations (8,784) (5,245) (14,029) (28,335) (47,192) (75,527) Discontinued operations Loss from discontinued operations, net of tax 6 (827) (3,934) (4,761) 1,377 (18,103) (16,726) Loss for the year (9,611) (9,179) (18,790) (29,958) (65,295) (92,253) NOTE CENTS CENTS LOSS PER SHARE ATTRIBUTABLE TO RHYTHMONE PLC BASIC 13 (4.45) (22.88) DILUTED 13 (4.45) (22.88) LOSS PER SHARE FROM CONTINUING OPERATIONS BASIC 13 (3.32) (18.73) DILUTED 13 (3.32) (18.73) 43 CONSOLIDATED STATEMENT OF RhythmOne plc Annual Report COMPREHENSIVE INCOME and Accounts FY2017 FORTHE YEAR ENDED 31 MARCH2017 YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 $000’s $000’s Loss for the year (18,790) (92,253) Items which might be potentially reclassified to profit or loss Exchange difference on translation of foreign operations 245 (34) (Loss) / gains on marketable securities (net of tax) (27) 19 TOTAL COMPREHENSIVE LOSS FOR THE YEAR (18,572) (92,268) 44 CONSOLIDATED BALANCE SHEET RhythmOne plc Annual Report AS AT 31 MARCH2017 and Accounts FY2017 AS AT AS AT 31 MARCH 2017 31 MARCH 2016 NOTE $000’s $000’s ASSETS NON-CURRENT ASSETS Goodwill 14 48,530 37,207 Intangible assets 15 37,971 24,200 Property, plant and equipment 16 4,556 3,358 Other receivables and restricted cash 18 4,686 828 Deferred tax asset 20 19,271 19,208 Marketable securities 19 22,864 29,539 137,878 114,340 CURRENT ASSETS Trade receivables 18 41,470 22,825 Other receivables and restricted cash 18 3,433 2,422 Cash and cash equivalents 19,338 18,222 Marketable securities 19 33,002 30,725 97,243 74,194 TOTAL ASSETS 235,121 188,534 LIABILITIES NON-CURRENT LIABILITIES Deferred tax liability 20 (3,863) (318) Other payables 21 (2,228) (1,679) Provisions 21 (1,502) (5) (7,593) (2,002) CURRENT LIABILITIES Trade and other payables 21 (43,386) (29,894) Provisions 21 (907) (700) (44,293) (30,594) TOTAL LIABILITIES (51,886) (32,596) NET ASSETS 183,235 155,938 SHAREHOLDERS’ EQUITY Share capital 22 8,667 7,537 Share premium account 23 168,159 168,045 Shares to be issued 24 24 24 Share-based compensation reserve 28,605 26,590 Currency translation reserve (8,591) (8,836) Merger reserve 24 107,820 65,208 Accumulated other comprehensive (loss)/income (8) 19 Retained (deficit) (121,441) (102,649) TOTAL EQUITY 183,235 155,938 Note 1 to note 31 form an integral part of the financial statements The consolidated financial statements of RhythmOne plc (registered number 06223359) were approved by the Board of Directors and authorized for issue on 15 May 2017. They were signed on its behalf by: Subhransu (“Brian”) Mukherjee Chief Executive Officer RhythmOne plc 15 May 2017 45 CONSOLIDATED STATEMENT OF CHANGES IN RhythmOne plc Annual Report EQUITY and Accounts FY2017 FORTHE YEAR ENDED 31 MARCH2017 ORDINARY SHARE SHARES SHARE BASED CURRENCY RETAINED SHARE PREMIUM TO BE COMPENSATION TRANSLATION MERGER OTHER (DEFICIT)/ TOTAL CAPITAL ACCOUNT ISSUED RESERVE RESERVE RESERVE RESERVES EARNINGS EQUITY $000’s $000’s $000’s $000’s $000’s $000’s $000’s $000’s $000’s BALANCE AS AT 31 March 2015 7,502 168,008 1,686 22,175 (8,802) 63,554 - (10,426) 243,697 Net loss for the year ------(92,253) (92,253) Other comprehensive loss - - - - (34) - 19 - (15) Total comprehensive loss for the year - - - - (34) - 19 (92,253) (92,268) Issue of shares, net of costs 35 37 (1,662) - - 1,654 - - 64 Credit to equity for Share- based payments - - - 4,415 - - - - 4,415 Tax movement on share options ------30 30 BALANCE AS AT 31 March 2016 7,537 168,045 24 26,590 (8,836) 65,208 19 (102,649) 155,938 Net loss for the year ------(18,790) (18,790) Other comprehensive loss - - - - 245 - (27) - 218 Total comprehensive loss for the year - - - - 245 - (27) (18,790) (18,572) Issue of shares, net of costs 1,130 114 - - - 42,612 - (2) 43,854 Credit to equity for Share- based payments - - - 2,015 - - - - 2,015 BALANCE AS AT 31 March 2017 8,667 168,159 24 28,605 (8,591) 107,820 (8) (121,441) 183,235 46 CONSOLIDATED CASH FLOW STATEMENT RhythmOne plc Annual Report FORTHE YEAR ENDED 31 MARCH2017 and Accounts FY2017 YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 $000’s $000’s CASH FLOWS FROM OPERATING ACTIVITIES LOSS FOR THE YEAR (18,790) (92,253) Adjustments for: Taxation (861) (2,031) Depreciation and amortization 10,208 26,180 Share based payments 2,015 4,415 Interest income (631) (256) Interest expense 266 201 Impairment of goodwill - 50,322 Loss on sale of computer equipment 82 56 Loss on disposal of PVMG assets 3,858 - Foreign exchange gain 66 3 OPERATING CASH FLOWS BEFORE MOVEMENTS IN WORKING CAPITAL (3,787) (13,363) CHANGES IN OPERATING ASSETS AND LIABILITIES (Increase) / Decrease in trade and other receivables (11,991) 18,350 Increase / (Decrease) in trade and other payables 7,507 (14,891) Increase / (Decrease) in provisions 1,704 (490) (6,567) (10,394) Income tax refund received 1,250 4,182 Income tax paid (1,065) - NET CASH USED IN OPERATING ACTIVITIES (6,382) (6,212) CASH FLOWS FROM INVESTING ACTIVITIES Interest received 631 256 Purchase of property, plant and equipment (2,394) (741) Capitalization of internal development charges (3,266) (4,353) Purchase of marketable securities (631) (60,245) Acquisition payment of deferred consideration (499) (5,000) Proceeds from the sale of computer equipment -4 Proceeds from the sale of the assets of PVMG 1,064 - Proceeds from the sale of marketable securities 5,002 - Acquisitions, net of cash acquired 10,229 - NET CASH FROM / (USED IN) INVESTING ACTIVITIES 10,136 (70,079) CASH FLOWS FROM FINANCING ACTIVITIES Net payments on finance lease (1,050) (1,080) Interest payments (187) (198) Repayment of credit facility (1,507) - Proceeds from issuance of shares 159 64 NET CASH USED IN FINANCING ACTIVITIES (2,585) (1,214) Net increase / (decrease) in cash and cash equivalents 1,169 (77,505) Beginning cash and cash equivalents 18,222 95,734 Effect of foreign exchange on cash and cash equivalents (53) (7) ENDING CASH AND CASH EQUIVALENTS 19,338 18,222 47 NOTES TO THECONSOLIDATED FINANCIAL RhythmOne plc Annual Report STATEMENTS and Accounts FY2017 1 GENERAL INFORMATION RhythmOne plc is a public limited Company incorporated in England and Wales under the Companies Act 2006. The Company’s ordinary shares are traded on the Alternative Investment Market (“AIM”). The address of the registered office is 40 Dukes Place, London, EC3A 7NH, United Kingdom. The nature of the Group’s operations and its principal activities are set out in the Strategic Report. On June 16, 2016 the Company changed its name from blinkx plc to RhythmOne plc. The Parent Company’s functional currency is Sterling, being the currency of the primary economic environment in which the Company operates. The presentational currency of the Group is US Dollars as that is the currency of the primary economic environment in which the Group operates. Foreign operations are included in accordance with policies set out in note 3. 2ADOPTION OF NEWAND REVISED STANDARDS The following new and revised Standards and Interpretations have been adopted in the current Period. Their adoption has not had any significant impact on the amounts reported in these consolidated financial statements but may impact the accounting for future transactions and arrangements. Amendments to IAS 19, ‘Employee benefits’ on defined benefit plans Annual improvements 2010-2012: IFRS 2, ‘Share based payment’ on definition of a vesting condition IFRS 3, ‘Business combinations’ to clarify obligations to pay contingent consideration IAS16, ‘Property plant and equipment’ and IAS 38, ‘Intangible assets’ on gross carrying amount and depreciation are treated with revaluation model IFRS 8, ‘Operating segments’ on disclosure of judgments IAS 24, ‘Related party disclosures’ regarding disclosures of the reporting entity Annual improvements 2012-2014: IFRS 5, ‘Non-current assets held for sale and discontinued operations’ regarding methods of disposal IFRS 7, ‘Financial instruments: Disclosures’ IAS 19, ‘Employee benefits’ IAS 34, ‘Interim financial reporting’ IFRS 14, ‘Regulatory deferral accounts’ Amendment to IFRS 11 ‘Joint arrangements’ on Accounting for acquisitions of interests in joint operations Amendments to IAS 16, ‘Property plant and equipment’ and IAS 41, ‘Agriculture’ on Agriculture: Bearer plants Amendments to IAS 16, ‘Property plant and equipment’ and IAS 38, ‘Intangible assets’ on clarification of acceptable methods of depreciation and amortization Amendments to IAS 27, ‘Separate financial statements’ on equity method in separate financial statements Amendments to IFRS 10, ‘Consolidated financial statements’ and IAS 28, ‘Investments in associates’, on Investment entities: Applying the consolidation exception Amendments to IAS 1, ‘Presentation of financial statements’ Disclosure initiative Amendments to IFRS 10, ‘Consolidated financial statements’ and IAS 28, ‘Investments in associates’ on the sale or contribution between an investor and its associate or joint venture At the date of authorization of these consolidated financial statements, the following Standards and Interpretations which have not yet been applied in these consolidated financial statements were in issue but not yet effective: Amendment to IAS 12, ‘Income taxes’, ‘Recognition of deferred tax assets for unrealized losses’ Amendment to IAS 7, ‘Cash flow statements’, Disclosure initiative Annual improvements 2014-2016 : IFRS 12, ‘Disclosure of interests in other entities’ IFRS 9, ‘Financial instruments’ IFRS 15, ‘Revenue from contracts with customers’ Amendment to IFRS 15, ‘Revenue from contracts with customers’ clarifications Amendments to IFRS 2, ‘Share based payments’ classification and measurement of share-based payment transactions Amendments to IFRS 4, ‘Insurance contracts’, regarding implementation of IFRS 9 Amendment to IAS 40, ‘Investment property’ regarding the transfer of property IFRS 1, ‘First time adoption of IFRS,’ regarding IFRS 7, IAS 19 and IFRS 10, IAS 28 ‘Investment in associates and joint ventures’ IFRIC 22, ‘Foreign currency transactions and advance consideration’ IFRS 16, ‘Leases’ The Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the Group in future periods other than IFRS 15 “Revenue from contracts with Customers” and IFRS 16 “Leases” which may impact the way the Group recognizes revenue and accounts for leases. 3SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations as adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical convention as modified. 48 RhythmOne plc Annual Report and Accounts FY2017 As a result of the discontinued operations in FY2017, certain comparative figures in the primary financial statements have been adjusted to conform to the current year presentation of the financial statements. Certain comparative notes have been adjusted to reflect the change to continuing operations, which are clearly labelled. The preparation of the financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4. The financial statements have been prepared on the historical cost basis except for marketable securities which are carried at fair value. The principal accounting policies adopted are set out below. GOING CONCERN The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. They continue to adopt the going concern basis of accounting in preparing the financial statements. Further detail is contained in the Directors’ Report on page 38. BASIS OF CONSOLIDATION The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) prepared up to 31 March each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effectivedateofacquisitionoruptotheeffectivedateofdisposal,asappropriate.Wherenecessary,adjustmentsaremadetothe financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. GOODWILL Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is initially recognized as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognized as an asset is reviewed for impairment at least annually. Any impairment is recognized immediately in profit or loss and is not subsequently reversed. Goodwill is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount is less than the carrying amount, the impairment loss is allocated to reduce the carrying amount of goodwill. An impairment loss recognized for goodwill is not reversed in a subsequent period. REVENUE RECOGNITION The Group earns its revenue from providing online advertising services. The Group’s business is based on the principle of facilitating free access to technology and content via an advertising-supported distribution model and its revenues are derived from advertising on the Internet. The Group applies its technology across a set of standard and inter-related products to connect its audience with contextually relevant advertising in a variety of formats. Advertisers select from these formats which are priced on different pricing schemes that include both impression-based, Cost per Mille (CPM), and performance-based, Cost per Click (CPC) and Cost per Action (CPA) options. Contracts containing multiple deliverables are split into their constituent parts and each deliverable’s fair value is separately determined and recognized accordingly. The policies for each of the Group’s key revenue streams in relation to services are set out below: ADVERTISING REVENUE When sales values are based on the volume of impressions (Cost per Mille), revenue is based on an agreed amount per impression and the number of impressions displayed. This revenue is recognized as the volumes are reported either by the Group’s customers, the Group’s internal reporting system or an authoritative third party, based on the contractual terms. When sales values are based on volume of clicks (pay per click), revenue is based upon an agreed amount per click that the end user makes after viewing the advertisement and the number of clicks made by the users, in the period in which the clicks occur. SHARE OF ADVERTISING REVENUES Where customers use the RhythmOne technology to retrieve their own content, contractual arrangements may provide for the Group to receive a share of the customer’s advertising revenues. The amount of revenue is dependent upon the amount paid per click or per advertisement shown. This revenue is recognized as reported by the Group’s customers, in the period to which it relates. 49 RhythmOne plc Annual Report and Accounts FY2017 FINANCE INCOME AND EXPENSE Finance income includes bank interest and income from short-term deposits and marketable securities. Finance expense includes interest on finance leases. CLASSIFICATION OF EXPENSES COST OF REVENUES Cost of revenues consists primarily of traffic acquisition costs (TAC) that are directly attributable to revenue generated by the Group. OPERATING EXPENSES Operating expenses consist of costs associated with the Company’s research and development and sales and marketing activities in addition to general and administrative costs and charges for depreciation of property plant and equipment and amortization of intangible assets. Research and development expenses consist primarily of compensation and related costs for personnel responsible for the research and development of new and existing products and services, in addition to co-locations and facilities charges. The development expenditures are capitalized in accordance with the Group’s standard internal capitalization policy outlined further below. All research costs are expensed when incurred. Sales and marketing expenses consist primarily of compensation and related costs for personnel engaged in customer service, sales, and sales support functions, as well as advertising and promotional expenditures that are not directly attributable to revenue, in addition to facilities charges. General and administrative expenses consist primarily of compensation and related costs for personnel and facilities, and include costs related to our facilities, finance, human resources, information technology, and legal organizations, and fees for professional services. Professional services are principally comprised of outside legal, audit, information technology consulting, and outsourcing services. ACQUISITION AND EXCEPTIONAL COSTS In line with the way the Board and chief operating decision-maker review the business, large one-off acquisition and exceptional costs are separately identified and shown in the financial statements. The types of costs included within acquisition costs are those which are directly attributable to an acquisition, for example legal and accounting expenses, integration costs, severance and retention remuneration. An example of the type of cost considered exceptional is severance costs, impairment losses and other significant assets write-downs. LEASING Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognized as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Group’s general policy on borrowing costs. Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. FOREIGN CURRENCIES Transactions in currencies other than the functional currency of the entity concerned are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated into the presentational currency, US Dollars, at the rates prevailing on the balance sheet date. The Group has selected US Dollars as its presentational currency as that is the currency of the principal economic environment in which the Group operates. 50 RhythmOne plc Annual Report and Accounts FY2017 Exchange differences are recognized in profit or loss in the period in which they arise except for exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment. On consolidation, the assets and liabilities of the Group’s foreign denominated operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the Period unless exchange rates fluctuate significantly. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognized as income or as expenses in the period in which the operation is disposed of. DISCONTINUED OPERATIONS A discontinued operation is a component of the Company’s business; the operations and cash flows of which can be clearly distinguished from the rest of the Company and which: Ⅲ Represents a separate major line of business or geographic area; Ⅲ Is part of a single coordinated plan to dispose of a separate major line of business or geographic area of operations; or Ⅲ Is a subsidiary acquired exclusively with a view to re-sale. Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale. When an operation is classified as a discontinued operation, the income statement and comprehensive loss is represented as if the operation has been discontinued from the start of the comparative year. During the year ended March 31, 2017, the Company has classified its non-core operations as discontinued operations as further described in note 6. The 2016 income statement has been restated to remove the results of discontinued operations. TAXATION The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable or receivable is based on taxable loss/profit for the year. Taxable loss/profit differs from net loss/profit as reported in the income statement because it will exclude items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits are available against which deductible temporary differences can be utilized. Such assets and liabilities will not be recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits are available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax will also be dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same tax authority and the Group intends to settle its current tax assets and liabilities on a net basis. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost less accumulated depreciation and any recognized impairment loss. Cost includes expenditure that is directly attributable to the acquisition of the assets. Depreciation is charged so as to write off the cost of assets, over their estimated useful lives, using the straight-line method, on the following bases: Fixtures, fittings, office and computer equipment Over 3–5 years Leasehold improvements Over shorter of economic life or lease term 51 RhythmOne plc Annual Report and Accounts FY2017 The gain or loss arising from the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in income. INTERNALLY-GENERATED INTANGIBLE ASSETS—RESEARCH AND DEVELOPMENT EXPENDITURE Expenditure on research activities is recognized as an expense in the period in which it is incurred. An internally-generated intangible asset arising from the Group’s product development is recognized only if all of the following conditions are met: Ⅲ the product from which the asset arises meets the Group’s criteria for technical feasibility, so it will be available for use; Ⅲ the asset is intended to be completed, and will be used or sold; Ⅲ the asset created is expected to generate demonstrable future economic benefits; Ⅲ the development cost of the asset can be measured reliably; and Ⅲ adequate technical, financial and other resources are available to complete development of the asset. Internally-generated intangible assets are amortized on a straight-line basis over their useful life, which is considered to be three years starting when the associated technology is available for use. Where no internally-generated intangible asset can be recognized, development expenditure is recognized as an expense in the period in which it is incurred. OTHER INTANGIBLE ASSETS EXCLUDING GOODWILL Other intangible assets excluding goodwill are measured initially at purchase cost or at fair value if acquired as part of a business combination, and are amortized on a straight-line basis over their estimated useful lives, on the following bases: Tradenames, patents and trademarks 3–10 years Software licenses 3 years Purchased technology 3–5 years Relationships with publishers and customers 3–12 years IMPAIRMENT OF ASSETS EXCLUDING GOODWILL At each balance sheet date, the Group will review the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of 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 pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Any increase in the recoverable amount of previously impaired goodwill is not subsequently reversed. PROVISIONS Provisions are recognized when the Group has a present obligation as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, taking into account risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. A restructuring provision is recognized when the Group has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity. 52 RhythmOne plc Annual Report and Accounts FY2017 Present obligations arising under onerous contracts are recognized and measured as provisions. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. SHARE-BASED PAYMENTS The Group applies IFRS 2 Share-based Payments in accounting for its Share-based Compensation plans. The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant by use of an appropriate valuation model. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. Fair value is measured by use of the Black-Scholes and Monte Carlo models. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioral considerations. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognized in profit and loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves. When the options are exercised, the Company issues new shares. The proceeds received, net of any directly attributable costs are credited to share capital (nominal value) and share premium. RETIREMENT BENEFITS Payments to a defined contribution scheme are charged as an expense as they fall due. FINANCIAL INSTRUMENTS Financial assets and financial liabilities are recognized in the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. LOANS AND RECEIVABLES Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. RESTRICTED CASH Where required, the Group keeps amounts on deposit with financial institutions as a condition of certain property leases and purchase card facility requirements. This cash may not be used by the Group and is held as security against the lease or credit facility. At the cessation of the lease or credit facility, the cash restrictions cease, and the cash will be immediately accessible. Until this time, the cash is classified as “Restricted cash” in non-current assets. IMPAIRMENT OF FINANCIAL ASSETS For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables. For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the financial asset’s original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss. CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. MARKETABLE SECURITIES Marketable securities represent the Group’s investments in corporate bonds, commercial papers, government bonds, collateralized securities and certificates of deposit. These are recognized either as current or non-current assets, in accordance with their maturity. Marketable securities are carried at fair value with the change in its fair value recognized directly in the Statement of Comprehensive Income. Interest income and dividends on marketable securities is recognized in the Income Statement, as well as any foreign exchange gains and losses and impairment losses. 53 RhythmOne plc Annual Report and Accounts FY2017 FINANCIAL LIABILITIES AND EQUITY Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. EQUITY INSTRUMENTS An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. FINANCIAL LIABILITIES All financial liabilities are classified as ‘other financial liabilities.’ Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability or, where appropriate, a shorter period, to the net carrying amount on initial recognition. The Group derecognizes financial liabilities when, and only when, the Group’s obligations are discharged, canceled or they expire. DERIVATIVE FINANCIAL INSTRUMENTS The Group does not use derivative financial instruments. BUSINESS COMBINATIONS Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognized in profit or loss as incurred. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments. All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs. Changes in the fair value of contingent consideration classified as equity are not recognized. Where a business combination is achieved in stages, the Group’s previously-held interests in the acquired entity are re-measured to fair value at the acquisition date (i.e., the date the Group attains control) and the resulting gain or loss, if any, is recognized in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (Revised 2008) are recognized at their fair value at the acquisition date, except that: Ⅲ deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognized and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; Ⅲ liabilities or equity instruments related to the replacement by the Group of an acquiree’s share-based payment awards are measured in accordance with IFRS 2 Share-based Payment; and Ⅲ assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized as of that date. The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date, and is subject to a maximum of one year. 4CRITICAL JUDGMENTS AND KEY SOURCES OF ESTIMATIONUNCERTAINTY CRITICAL JUDGMENTS IN APPLYING THE GROUP’S ACCOUNTING POLICIES The following are the critical judgments apart from those involving estimations (which are dealt with separately below), that the Directors have made in the process of applying the Group accounting policies and that have the most significant effect on the amounts recognized in the financial statements. 54 RhythmOne plc Annual Report and Accounts FY2017 BUSINESS COMBINATIONS In making their judgments with regards to the fair value and useful life of assets and liabilities for acquired businesses, the Directors have considered the classification criteria for accounting for business combinations set out in IFRS 3 ‘Business Combinations’, including the identification and valuation of acquired intangible assets. IDENTIFICATION AND VALUATION OF ACQUIRED INTANGIBLES In making judgments in relation to the identification, valuation and useful economic life of acquired intangibles, the Directors base their assessment on valuation reports prepared by an expert third party at the time of an acquisition. DISCONTINUED OPERATIONS When assessing whether to account for a business segment as a discontinued operation the Directors have considered the detailed criteria set out in IFRS 5 ‘Non-Current Assets Held for Sale and Discontinued Operations’ in particular whether a business unit qualifies for disclosure as a discontinued operation. The Directors consider the non-core operations to represent a major line of business and part of a single disposal plan. REVENUE RECOGNITION In making their judgment with regard to revenue recognition, the Directors have considered the detailed criteria for the recognition of revenue for the provision of services set out in IAS 18 ‘Revenue’ and the policy in note 3, in particular regarding whether the debt is collectible. There is a policy in relation to the sales and doubtful debt allowance and the Directors have exercised judgment in relation to this. DETERMINATION OF FUNCTIONAL CURRENCY Determining the appropriate functional currency requires management judgment and consideration of the economic factors in which the entity operates, such as the currency that mainly influences revenue, labour, material and other costs. KEY SOURCES OF ESTIMATION UNCERTAINTY The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period, are discussed below. IMPAIRMENT OF GOODWILL Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating unit (CGU) to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows of the CGU and a suitable discount rate in order to calculate present value. The carrying amount of goodwill at the balance sheet date was $48.5m (2016: $37.2m). SUBSIDIARY INVESTMENTS The Company’s initial valuation of its’ investments in its subsidiary undertakings are based on cost and subsequent capital contributions. The Directors have considered the criteria in IAS 36, Impairment of Assets, in assessing the carrying value. DEFERRED TAX ASSET In determining the level of recognition of the deferred tax assets, the Directors have considered the level of future taxable profits that are expected to be received in the foreseeable future. SHARE OPTIONS AND RESTRICTED SHARE UNITS In calculating the fair value of the share options, the Directors have considered the expected life of the option, the volatility of the Company’s share price, the risk free rate and forfeiture rates. In calculating the fair value of the restricted share units the Company uses the share price at the date of grant. 5SEGMENTAL ANALYSIS RhythmOne plc is organized internally along function lines with each line reporting to the Group’s chief operating decision-maker, the Chief Executive Officer. The primary function lines include: finance, human resources, operations, marketing, sales, business development, technology and product development. Each of these functions supports the overall business activities; however, they do not engage in activities from which they earn revenues or incur expenditure in their operations with each other. No discrete financial information is produced for these functional lines. The Group’s chief operating decision-maker is ultimately responsible for entity-wide resource allocation decisions and evaluates the performance of the Group on a Group-wide basis. The Company integrates acquired businesses and products into the RhythmOne business model such that separate management financial data on these entities is not generally maintained post-acquisition. Acquired businesses immediately benefit from the primary function lines noted above and their products and services are enhanced by the inclusion of RhythmOne technology, functionality and the Group’s wider sales channels to the market. 55 RhythmOne plc Annual Report and Accounts FY2017 The Group operates a global Internet business and its commercial activity is not generated from distinguishable geographic origins. Although the Group has operations in several geographic locations, no discrete financial performance information is maintained on a regional basis because of the globally distributed nature of the revenues and high degree of functional integration among the different geographic locations. Consequently, decisions around the allocation of resources are not determined on a regional basis and the chief operating decision-maker does not assess the Group’s performance on a geographic basis. Consequently, the Group’s chief operating decision maker reviews financial information for the Group as a whole, determining where to allocate resources and drive business forward by examining consolidated results showing underlying results adjusted for acquisition and exceptional charges and amortization of purchased intangibles. The Group’s business is based on the principle of facilitating free access to content via an advertising-supported distribution model and its revenues are derived from online advertising. The Group applies its technology across a set of standard and inter-related products to connect its audience with contextually relevant advertising. Advertisers select from several product types which are priced on different pricing schemes. Each of the products generates revenues from a mix of the various pricing methodologies. There is considerable overlap among the products and advertisers and it is not meaningful to separate the revenues by primary pricing scheme or product. Consequently, separate financial information is not reviewed by the chief operating decision-maker for the various products to assess their performance or for the purpose of resource allocation decisions. As a consequence of the above factors the Group has one operating and reportable segment in accordance with IFRS 8 “Operating Segments.” IFRS 8 also requires information on any customer who accounts for 10% or more of the combined revenue. There is one customer who accounts for 23.62% of the combined current year revenue (2016: one customer accounted for 12.56% of combined revenue). Geographical analysis of the Group’s revenues, including analysis between the Group’s country of domicile and other countries, is not disclosed under IFRS 8 as materially all the customers are US-based. As required in accordance with IAS 18 “Revenue” an analysis of the Group’s revenue is as follows: YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 $000’s $000’s CONTINUING OPERATIONS Rendering of services 149,025 116,058 6DISCONTINUED OPERATIONS On March 31, 2017, the Company discontinued its Non-Core business operations. This included ceasing the operations of its consumer business activities and the sale of certain assets and specific liabilities of Prime Visibility Media Group (“PVMG”). The results of these operations are presented as discontinued operations in the Group’s Income Statement. The comparatives have been restated to show the discontinued operation separately from the continuing operations. Management committed to a plan to discontinue Non-Core operations and sell certain assets and specific liabilities of PVMG in February 2017 and the disposals were finalized on March 31, 2017. Results of the discontinued operations for the periods presented through to the date of discontinuance are as follows: YEAR ENDED 31 MARCH 2017 YEAR ENDED 31 MARCH 2016 BEFORE BEFORE EXCEPTIONAL EXCEPTIONAL EXCEPTIONAL EXCEPTIONAL COSTS COSTS TOTAL COSTS COSTS TOTAL $000’s $000’s $000’s $000’s $000’s $000’s Revenue 26,356 - 26,356 50,657 - 50,657 Cost of revenue (13,779) - (13,779) (27,750) - (27,750) Operating expenses (13,404) (76) (13,480) (21,904) (18,103) (40,007) Profit / (Loss) before tax and loss on other items (827) (76) (903) 1,003 (18,103) (17,100) Finance expense - - - (3) (3) Loss on disposition of assets - (3,858) (3,858) - - - Profit / (Loss) before income taxes (827) (3,934) (4,761) 1,000 (18,103) (17,103) Income tax recovery - - - 377 - 377 Profit / (loss) discontinued operations (827) (3,934) (4,761) 1,377 (18,103) (16,726) CENTS CENTS LOSS PER SHARE BASIC (1.13) (4.15) DILUTED (1.13) (4.15) 56 RhythmOne plc Annual Report and Accounts FY2017 CASH FLOWS FROM / (USED IN) DISCONTINUED OPERATIONS: YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 $000’s $000’s Net cash (used in) / from operating activities (776) 5,439 Net cash from / (used in) investing activities 948 (206) Net cash (used in) financing activities (438) (5,791) Net cash (used in) discontinued operations (266) (558) CONSIDERATION RECEIVED FOR SALE OF CERTAIN ASSETS AND SPECIFIC LIABILITIES OF PVMG: 31 MARCH 2017 $000’s Consideration received from the purchaser: Cash consideration received 1,064 Deferred sales proceeds(a) 2,450 3,514 a) The acquirer issued an unsecured promissory note to the Company which is repayable in annual installments of $0.8m through March 31, 2020 and bears interest at 6% per annum. DETAILS OF THE NET ASSETS AND LIABILITIES OF PVMG DISPOSED OF ARE AS FOLLOWS: 31 MARCH 2017 $000’s Assets disposed of: Prepaid expenses 14 Property plant and equipment 15 Intangible assets 922 Goodwill 6,121 7,072 LOSS ON DISPOSITION OF ASSETS AND LIABILITIES OF PVMG: 31 MARCH 2017 $000’s Consideration received 3,514 Transaction costs (300) Net assets of PVMG disposed of (7,072) (3,858) NET CASH INFLOW ON DISPOSAL OF PVMG: 31 MARCH 2017 $000’s Consideration received, satisfied in cash 1,064 Transaction costs (300) 764 7 BUSINESS COMBINATION On January 19, 2017, the Company acquired 100% of the issued and outstanding shares of Perk Inc. (“Perk”), a Waterloo, Ontario, Canada based innovator in rewarded video for mobile devices for consideration of $43.7m. The acquisition accelerates the Company’s strategy to build a unified programmatic platform with unique audiences of uniform quality at scale. Through Perk, RhythmOne plc gains access to a number of premium consumer mobile apps and web properties, adding exclusive inventory to the Company’s supply side portfolio, as well as strategic demand relationships. The Company issued 88,235,410 of its common shares with a value of $43.7m in consideration for the acquisition. The acquisition was accounted for using the acquisition method in accordance with IFRS 3, Business Combinations, with the results of operations consolidated with those of the Company effective January 19, 2017. Transaction costs of $0.9m were recorded in transaction costs within net loss. The acquisition incrementally added $13.1m of revenue to the Group in the current fiscal year and generated a loss before tax of $0.5m. If the acquisition had been completed on the first day of the financial year, Group revenues for the period would have been $234m and loss before tax would have been $21.5m. 57 RhythmOne plc Annual Report and Accounts FY2017 The provisional allocation of the purchase price as follows is subject to change once management has finalized the acquisition accounting: $000’s PURCHASE CONSIDERATION Consideration in the Company’s shares (88,235,410 common shares) 43,697 ASSETS Current assets Cash 10,229 Trade accounts receivable 10,255 Other receivables 1,753 Property plant and equipment 630 Software 99 Trade names and trademarks 5,400 Technology related assets 4,700 Customer relationships & user base 9,700 LIABILITIES Current liabilities Trade and other payables (9,058) Term loans (832) Provisions (300) Income tax payable (953) Term loans (675) Deferred tax liabilities (4,695) PROVISIONAL FAIR VALUE OF NET IDENTIFIABLE ASSETS AND LIABILITIES ASSUMED 26,253 PROVISIONAL GOODWILL 17,444 The provisional fair value of the financial assets includes trade accounts receivables with a fair value of $10.3m and a gross contractual value of $10.3m. The best estimate at acquisition date of the contractual cash flows not to be collected is $ nil. The goodwill of $17.4m arising from the acquisition was primarily attributable to the assembled workforce of the acquired business and synergies expected to arise post acquisition and integration of the business. None of the goodwill recognized is expected to be deductible for tax purposes. The Group engaged an independent valuator to assess and determine the acquired intangibles and goodwill balances. 8 LOSS FORTHE YEAR Loss for the year is stated after charging: YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 $000’s $000’s Net foreign exchange losses 66 3 Operating lease payments (see note 25) 2,992 3,461 Research and development costs (excluding amortization of intangibles below) 22,668 16,198 Depreciation of property, plant and equipment: (see note 16) Owned 535 1,050 Leased 1,201 1,122 Amortization of intangibles: (see note 15) Relationships with customers & publishers 3,882 8,994 Purchased technology 932 6,525 Capitalized development costs 2,089 6,837 Trade names, trademarks and patents 896 1,016 Software licenses 673 657 Loss on disposal of property and equipment 82 56 Acquisition and exceptional costs (see note 28)(a) 9,179 65,295 Staff costs (see note 10) 38,830 45,588 Impairment loss recognized on trade receivables (see note 18) 495 585 (a) Exceptional costs include $5.2m from continuing operations (2016—$47.2m) and $3.9m from discontinued operations (2016—$18.1m). 58 RhythmOne plc Annual Report and Accounts FY2017 9 AUDITOR’S REMUNERATION The analysis of auditor’s remuneration is as follows: YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 $000’s $000’s Fees payable to the Company’s auditors for the audit of the Parent Company and Consolidated annual financial statements 440 394 Fees payable to the Company’s auditors and their associates for other services to the Group: Audit related assurance services 64 70 Taxadvisoryservices - 145 Transaction related services 156 - Total Fees 660 609 10STAFF COSTS The average monthly number of employees (including Directors) and related staff costs for continuing and discontinued operations was: YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 Sales and marketing 154 185 Research and development 88 85 Administration and operations 41 45 TOTAL 283 315 YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 $000’s $000’s Wages and salaries 31,686 36,066 Share based compensation 2,015 4,415 Social Security costs 2,138 2,579 Other pension costs 15 35,840 43,065 Other employee benefits and costs 3,695 4,291 Costs allocated to internally-generated assets (705) (1,768) INCLUDED IN LOSS FOR THE YEAR 38,830 45,588 11 FINANCE INCOME ANDEXPENSE FROM CONTINUINGOPERATIONS YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 $000’s $000’s Interest income on cash and cash equivalents 631 256 Interest expense on obligations under finance leases (266) (198) NET FINANCE INCOME 365 58 12 TAX FROM CONTINUINGOPERATIONS YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 $000’s $000’s Current tax 352 (1,864) Deferred tax (1,213) 210 (861) (1,654) Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2015 (on 26 October 2015) and Finance Bill 2016 (on 7 September 2016). These include reductions to the main rate to reduce the rate to 19% from 1 April 2017 and to 17% from 1 April 2020. Deferred taxes at the balance sheet date have been measured using these enacted tax rates and reflected in these financial statements. 59 RhythmOne plc Annual Report and Accounts FY2017 The credit for the year can be reconciled to the loss per the income statement as follows: YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 $000’s $000’s Loss before tax (14,890) (77,181) Tax at UK corporation rate of 20% (2016: 20%) (2,978) (15,437) Adjustment for overseas tax rate (15,107) (12,127) Tax effect of expense not deductible in determining taxable profit / loss 444 1,392 Non deductible impairment expense - 13,750 Reduced tax in subsidiaries operating in other jurisdictions 39,848 (1,103) Deferred tax not recognized/utilisation of tax losses (23,852) 13,794 Impact of share-based payments 368 1,141 Adjustment in respect to prior years 416 (3,064) TAX CREDIT (861) (1,654) 13EARNINGS PER SHARE YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 $000’s $000’s LOSS Loss used in calculation of basic and diluted earnings per share (18,790) (92,253) Loss used in calculation of basic and diluted earnings per share from continuing operations (14,029) (75,527) SHARES SHARES NUMBER OF SHARES Weighted average number of shares for the purpose of basic earnings per share 422,606,922 403,198,763 Weighted average number of shares for the purpose of diluted earnings per share 422,606,922 403,198,763 In accordance with IAS 33 “Earnings per share” as the Group generated a loss for the year. The inclusion of potentially dilutive options and shares to be issued would have an antidilutive effect on the loss per share for the Period. The impact of these has therefore been excluded from the calculation for the year ended 31 March 2017 and 2016. 14 GOODWILL The Group tests goodwill for impairment annually or more often if there are indications that it may be impaired. The carrying amount of goodwill has been allocated between the CGUs: ACQUISITION AND AS AT DISPOSAL AS AT 31 MARCH 2016 ADJUSTMENTS RECLASSIFICATION 31 MARCH 2017 $000’s $000’s $000’s $000’s RhythmOne 21,086 - 10,000 31,086 AdKarma 10,000 - (10,000) - PVMG 6,121 (6,121) - - Perk Inc. - 17,444 - 17,444 Total 37,207 11,323 - 48,530 During the period, RhythmOne plc consolidated certain products, infrastructure, sales and marketing efforts under its trade name, RhythmOne. The AdKarma CGU was consolidated with RhythmOne resulting in the goodwill associated with AdKarma being reclassified to the RhythmOne CGU. The key assumptions for the value in use calculations are those regarding the discount rates, revenue growth rates and terminal growth rate. The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next five years and extrapolates cash flows into perpetuity using a terminal growth rate. The cash flow forecasts were prepared using an average revenue growth rate of 6% per year for RhythmOne and 4.7% per year for Perk. The cash flows beyond the five year period are extrapolated into perpetuity using a terminal growth rate of 2% (2016: 2%). This rate is based on an estimated long-term growth rate for the industry and countries in which RhythmOne operates, and does not exceed the average long-term growth rate for the relevant markets based on the historical Consumer Price Index in the United States. The assumptions for growth rates are based on past experience of each CGUs trading performance and are consistent with industry analyst expectations. The assumptions used differ between CGUs, reflecting the differences in products, customers and suppliers between each CGU. 60 RhythmOne plc Annual Report and Accounts FY2017 The pre-tax rate used to discount the forecast cash flows is 21.6% (2016: 19%) for all CGUs. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. No reasonable changes in assumptions would lead to an impairment of the goodwill. 15 INTANGIBLE ASSETS RELATIONSHIPS WITH CAPITALIZED TRADENAMES, CUSTOMERS & PURCHASED DEVELOPMENT TRADEMARKS SOFTWARE PUBLISHERS TECHNOLOGY COSTS & PATENTS LICENSES TOTAL $000’s $000’s $000’s $000’s $000’s $000’s COST At 31 March 2015 39,180 17,754 13,537 10,177 6,802 87,450 Additions - - 4,283 24 46 4,353 Acquired through acquisitions - 60 - 10 - 70 At 31 March 2016 39,180 17,814 17,820 10,211 6,848 91,873 Additions - - 3,266 - - 3,266 Acquired on acquisition of subsidiaries 9,700 4,700 - 5,400 99 19,899 Disposed through disposition of subsidiary (1,100) - - (2,150) (1,088) (4,338) At 31 March 2017 47,780 22,514 21,086 13,461 5,859 110,700 ACCUMULATED AMORTIZATION At 31 March 2015 (15,084) (10,182) (7,268) (6,079) (5,031) (43,644) Amortization (8,994) (6,525) (6,837) (1,016) (657) (24,029) At 31 March 2016 (24,078) (16,707) (14,105) (7,095) (5,688) (67,673) Disposed through disposition of subsidiary 1,100 1,228 1,088 3,416 Amortization (3,882) (932) (2,089) (896) (673) (8,472) At 31 March 2017 (26,860) (17,639) (16,194) (6,763) (5,273) (72,729) NET BOOK VALUE At 31 March 2016 15,102 1,107 3,715 3,116 1,160 24,200 At 31 March 2017 20,920 4,875 4,892 6,698 586 37,971 61 RhythmOne plc Annual Report and Accounts FY2017 16 PROPERTY, PLANT ANDEQUIPMENT FIXURES, FITTINGS COMPUTER AND OFFICE LEASEHOLD EQUIPMENT EQUIPMENT IMPROVEMENTS TOTAL $000’s $000’s $000’s $000’s COST At 31 March 2015 7,136 1,882 728 9,746 Additions 1,880 38 341 2,259 Disposal (162) (88) (4) (254) Exchange differences (13) (3) (3) (19) At 31 March 2016 8,841 1,829 1,062 11,732 Additions 2,112 229 53 2,394 Acquired upon acquisition of subsidiary 323 58 249 630 Disposals (1,050) (665) (354) (2,069) Disposed of upon disposition of subsidiary - (114) (20) (134) Exchange differences (55) - - (55) At 31 March 2017 10,171 1,337 990 12,498 ACCUMULATED DEPRECIATION At 31 March 2015 (4,756) (1,224) (426) (6,406) Depreciation (1,695) (317) (160) (2,172) Disposal 133 60 1 194 Exchange differences 7 2 1 10 At 31 March 2016 (6,311) (1,479) (584) (8,374) Depreciation (1,389) (194) (153) (1,736) Disposals 1,036 665 302 2,003 Disposed of upon disposition of subsidiary - 103 15 118 Exchange differences 47 - - 47 At 31 March 2017 (6,617) (905) (420) (7,942) NET BOOK VALUE At 31 March 2016 2,530 350 478 3,358 At 31 March 2017 3,554 432 570 4,556 The carrying value of assets under finance leases at 31 March 2017 was $2.8m (2016: $2.0m), all of which is included in Computer Equipment. The Group’s obligations under finance leases are typically secured by the assets to which the lease relates. 62 RhythmOne plc Annual Report and Accounts FY2017 17SUBSIDIARIES PROPORTION OF ALLOTTED SHARE CAPITAL HELD NATURE OF (DIRECTLY OR PRINCIPAL COUNTRY OF NAME OF COMPANY BUSINESS INDIRECTLY) PLACE OF BUSINESS REGISTRATION RhythmOne (US) Holdings, Inc. Holding company 100% – Directly held 251 Kearny St, San Fransisco, United States CA 94108 RhythmOne, LLC Trading company 100% – Indirectly held 251 Kearny St, San Fransisco, United States CA 94108 Blinkx(Canada), Inc. Trading company 100% – Directly held 3500 Maisonneuve West, Canada Westmount, QC H3Z 3C1 Prime Visibility LLC Trading company 100% – Indirectly held 251 Kearny St, San Fransisco, United States CA 94108 Verti Technology Group, Inc Trading company 100% – Indirectly held 251 Kearny St, San Fransisco, United States CA 94108 AdOn Network LLC Trading company 100% – Indirectly held 251 Kearny St, San Fransisco, United States CA 94108 Perk Inc. Holding company 100% – Indirectly held 150 Caroline Street Waterloo, Canada ON H3Z 0A5 Perk.com U.S. Inc. Trading company 100% – Indirectly held 720 Brazos Street Austin, United States TX 78701 Perk.com Canada Inc. Trading company 100% – Indirectly held 150 Caroline Street Waterloo, Canada ON H3Z 0A5 Perk.com Software Private Limited Trading company 100% – Indirectly held No. 95 Koramangala India 4thBlock,S.T.Bed,Bangalore 560034 Perkstar LLC Holding company 100% – Indirectly held 720 Brazos Street Austin, United States TX 78701 AppRedeem Inc. Trading company 100% – Indirectly held 720 Brazos Street Austin, United States TX 78701 Playerize Network Inc. Trading company 100% – Indirectly held 150 Caroline Street Waterloo, Canada ON H3Z 0A5 0945993 BC Ltd. Holding company 100% – Indirectly held 150 Caroline Street Waterloo, Canada ON H3Z 0A5 Playerize Inc. Trading company 100% – Indirectly held 720 Brazos Street Austin, United States TX 78701 Viggle Rewards Inc. Trading company 100% – Indirectly held 720 Brazos Street Austin, United States TX 78701 18OTHERRECEIVABLES AND RESTRICTED CASH AS AT AS AT 31 MARCH 2017 31 MARCH 2016 $000’s $000’s CURRENT ASSETS Trade receivables 42,413 24,246 Sales and doubtful debts allowance (943) (1,421) NET TRADE RECEIVABLES 41,470 22,825 Other receivables and deposits 1,753 39 Prepayments 1,680 2,383 OTHER RECEIVABLES 3,433 2,422 NON CURRENT ASSETS Other receivables 1,804 200 Restricted cash amounts 2,882 628 OTHER RECEIVABLES AND RESTRICTED CASH 4,686 828 The average credit period taken on sales is 67 days (2016: 50 days). Refer to the financial instruments note 27 for information on credit risk. 63 RhythmOne plc Annual Report and Accounts FY2017 Movement in the sales and doubtful debts allowance is as follows: AS AT AS AT 31 MARCH 2017 31 MARCH 2016 $000’s $000’s Balance at beginning of the Period 1,421 2,105 Receivables written off during the year as uncollectible (973) (1,269) Provision for receivables impairment 495 585 Balance at end of the Period 943 1,421 AGING OF PAST DUE BUT NOT IMPAIRED RECEIVABLES As at 31 March 2017, trade receivables of $5.9m (2016: $8.0m) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The aging analysis of these trade receivables is as follows: AS AT AS AT 31 MARCH 2017 31 MARCH 2016 $000’s $000’s 1–90days 5,399 3,728 in excess of 90 days 547 4,264 Totalpastduebutnotimpaired 5,946 7,992 AGING OF PAST DUE AND IMPAIRED RECEIVABLES As at 31 March 2017, trade receivables of $0.9m (2016: $1.4m) were impaired. The aging of these receivables is as follows: AS AT AS AT 31 MARCH 2017 31 MARCH 2016 $000’s $000’s 1–90days 517 in excess of 90 days 938 1,404 Total past due and impaired 943 1,421 The Directors have considered the credit quality of assets neither past due nor impaired and do not consider further credit provision is required in excess of the allowance for sales and doubtful debts. No interest has been charged for overdue debts in the period. The Directors consider that the carrying amount of trade and other receivables approximates their fair value. (ii) Cash and Cash Equivalents Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of one month or less. The carrying amount of these assets approximates their fair value. (iii) Restricted Cash Restricted cash is classified in non–current assets as it is not immediately accessible by the Group. 64 RhythmOne plc Annual Report and Accounts FY2017 19 MARKETABLE SECURITIES AS AT AS AT 31 MARCH 2017 31 MARCH 2016 $000’s $000’s Balance at beginning of the Period 60,264 - Additions 631 60,245 Withdrawal (5,002) - Net (loss) / gain recorded in other reserves (27) 19 Balance at the end the Period 55,866 60,264 Less non-current portion (22,864) (29,539) Current portion 33,002 30,725 Marketable securities include the following: AS AT AS AT 31 MARCH 2017 31 MARCH 2016 $000’s $000’s Listed securities: Corporate and government debt instruments 55,063 59,461 Certificates of deposit 803 803 TOTAL 55,866 60,264 The maximum exposure to credit risk at the reporting date is the carrying value of the debt securities classified as marketable securities. None of these financial assets are either past due or impaired. 20 DEFERRED TAX Deferred tax is calculated in full on temporary differences under the liability method using the substantively enacted tax rates of the jurisdictions in which the temporary differences are expected to reverse. (i) Recognized Deferred Tax Assets / Liabilities Deferred tax assets have been recognized in respect of tax losses and other deductible temporary differences where it is probable that these assets will be recovered. The movements in deferred tax assets and liabilities (including offsetting of balances within the same jurisdiction as permitted under IAS 12) during the period is shown below. Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net. ASSETS ASSETS LIABILITIES LIABILITIES NET NET 31 MARCH 31 MARCH 31 MARCH 31 MARCH 31 MARCH 31 MARCH 2017 2016 2017 2016 2017 2016 $000’s $000’s $000’s $000’s $000’s $000’s Property, plant and equipment and intangible assets (4,606) (3,145) 3,422 - (1,184) (3,145) Tax credit and loss carry forward (13,080) (12,021) - - (13,080) (12,021) Share based payments (583) (387) - - (583) (387) Other deductible temporary differences (1,002) (3,723) 441 386 (561) (3,337) Deferred tax (assets) / liabilities (19,271) (19,276) 3,863 386 (15,408) (18,890) Offset tax -68- 68- - Net deferred tax (assets) / liabilities (19,271) (19,208) 3,863 318 (15,408) (18,890) (ii) Unrecognized Deferred Tax Assets There is an unrecognized deferred tax asset arising from unrecognized temporary differences of $25.6m (2016: $18.2m) which has not been recognized due to insufficient certainty that taxable profits will be available against which this asset could be used. 65 RhythmOne plc Annual Report and Accounts FY2017 (iii) Movement in Temporary Differences BALANCE AT RECOGNIZED RECOGNIZED BALANCE AT 31 MARCH 2016 IN INCOME IN GOODWILL 31 MARCH 2017 $000’s $000’s $000’s $000’s Property, plant and equipment and intangible assets (3,145) (1,304) 3,265 (1,184) Tax credit and losses carry-forward (12,021) (1,986) 927 (13,080) Share based payments (387) (196) - (583) Other deductible temporary differences (3,337) 2,273 503 (561) (18,890) (1,213) 4,695 (15,408) The amount of credit that can be recognized in the income statement is limited under IAS 12 and any remaining credit is taken to equity. 21 OTHER PAYABLES AND PROVISIONSFOR LIABILITIES TRADE AND OTHER PAYABLES AS AT AS AT 31 MARCH 2017 31 MARCH 2016 $000’s $000’s CURRENT LIABILITIES Trade payables 29,734 18,722 Customer deposits 348 709 Onerous lease provision 907 700 Other accrued liabilities (including the amount of finance leases due within 12 months) 13,304 10,463 44,293 30,594 NON CURRENT LIABILITIES Deferred tax liability 3,863 318 Onerous lease provision 1,502 5 Non current liabilities 2,228 1,679 7,593 2,002 Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 86 days (2016: 69 days). No interest has been charged by suppliers in respect of overdue amounts in the year. Non-current liabilities include deferred rent of $0.1m (2016: $0.5m) and obligations under finance leases of $2.1m (2016: $1.2m). The Directors consider that the carrying amount of trade payables approximates to their fair value. The onerous lease provision comprises obligations for future rents payable on properties that are vacant or only partially utilized. These provisions are expected to be utilized by 30 September 2021. PROVISIONS AS AT AS AT 31 MARCH 2017 31 MARCH 2016 $000’s $000’s Balance at beginning of the Period 705 749 Additional provision in the year 2,159 193 Utilization of provision (455) (237) Balance at end of the Period 2,409 705 66 RhythmOne plc Annual Report and Accounts FY2017 Obligations under finance lease: The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment period AS AT AS AT 31 MARCH 2017 31 MARCH 2016 $000’s $000’s AMOUNTS PAYABLE UNDER FINANCE LEASES Within one year 602 910 In second to fifth years inclusive 2,165 1,172 2,767 2,082 Less: Amounts due for settlement within 12 months (shown under current liabilities) (602) (910) Amounts due for settlement after 12 months 2,165 1,172 For the year ended 31 March 2017, the average effective borrowing rate was 6.6% (2016: 8.7%). There is no material difference between the minimum lease payment and their present values. The Group’s obligations under finance leases are typically secured on the assets to which the lease relates. 22 SHARECAPITAL AS AT AS AT 31 MARCH 2017 31 MARCH 2016 $000’s $000’s Issued and fully paid 495,093,938 ordinary shares of 1 pence each (2016: 404,462,870 ordinary shares of 1 pence each) 8,667 7,537 The Company has one class of ordinary share which carry no right to fixed income. During the current year 90,631,068 shares were issued, of which 88,235,410 shares related to the acquisition of Perk, 1,588,301 shares related to exercise of employee share options and 807,357 shares related to restricted stock units. (2016: 2,136,359 shares were issued, of which 512,877 shares related to the acquisition of Rhythm NewMedia Inc., 255,980 shares related to exercise of employee share options and 1,367,502 shares related to restricted stock units). 23SHARE PREMIUM ACCOUNT SHARE PREMIUM $000’s Balance at 31 March 2015 168,008 Premium arising on issue of equity shares, net of costs 37 Balance at 31 March 2016 168,045 Premium arising on issue of equity shares, net of costs 114 Balance at 31 March 2017 168,159 24SHARES TO BE ISSUED AND MERGERRESERVE The shares to be issued reserve relates to shares that are expected to be issued to former Burst shareholders as part of the consideration who have not yet submitted the paperwork to effect the exchange of Burst shares for RhythmOne plc shares. The merger reserve arises in business combinations where shares are issued for greater than 90% of consideration. The difference between the fair value and the nominal value of the shares transferred as consideration is taken to the merger reserve. 67 RhythmOne plc Annual Report and Accounts FY2017 25OPERATING LEASE ARRANGEMENTS YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 $000’s $000’s Lease payments under operating leases recognized as an expense in the year 2,992 3,461 At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancelable operating leases, of which it is recovering a portion of the lease payments under non-cancelable sub-lease agreements, which fall due as follows: YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 $000’s $000’s Within one year 3,140 2386 In the second to fifth years inclusive 6,740 5236 More than five years - 182 9,880 7,804 Amounts due to be received under non-cancellable sub-lease agreements 1,103 190 8,777 7,614 Operating lease payments represent rentals payable by the Group for certain of its office properties, computer equipment and software. Lease terms range from two to ten years. 26SHARE-BASED PAYMENTS ANDEQUITY SETTLED SHAREOPTION SCHEMES On the demerger from Autonomy Corporation plc the Company has established the following share options schemes: Ⅲ The blinkx 2007 Enterprise Management Incentive Plan (the ‘RhythmOne EMI Scheme’) Ⅲ The blinkx US Share Option Plan (the ‘RhythmOne US Plan’) Ⅲ The blinkx Autonomy Employee Discretionary Share Option Scheme 2007 (the ‘Autonomy Discretionary Scheme’) Ⅲ The blinkx Autonomy Employee US Share Option Plan (the ‘Autonomy US Plan’) The RhythmOne EMI Scheme and the RhythmOne US Plan allow for the grant of options over ordinary shares to employees of the Company and its subsidiaries. At the time of demerger two special grants were made under these plans. The first allowed a fully vested grant at nominal value and the second was a grant at nominal value but with a three-year vesting period. Since then grants have been made at market value and with a three or four-year vesting period with options vesting in varying sized tranches over that period. No option may be granted for a term in excess of 10 years. Vested options are exercisable following termination of employment for a period ranging from 40 to 90 days. Vesting criteria are based on continued employment with the Company. On 16 September 2013, the Board of Directors approved the amendment of RhythmOne Plc US Share Option Plan to allow the grant of Restricted Stock Units to be made under its terms. On 3 July 2015 the Board of Directors approved the Executive Plan for Market Value Share Options (MVSOs) that vest quarterly with an additional performance component. The equity awards require a minimum stock price threshold for options to vest and have a further accelerated vesting schedule when the stock price reaches a certain predetermined threshold above the stock price at grant. The Autonomy Discretionary Scheme and the Autonomy US Plan allowed a one-time grant of RhythmOne plc options to certain Autonomy employees who at the time of the demerger had vested Autonomy options. Options granted under this plan were granted at market price and vest over a period of three years. Share-based compensation charges have been charged in the income statement within the following line: YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 $000’s $000’s Operating expenses 2,015 4,415 68 RhythmOne plc Annual Report and Accounts FY2017 The following table summarizes options outstanding at 31 March 2017 relating to the RhythmOne EMI scheme and the RhythmOne US plan. All option exercise prices are quoted in sterling. 2017 2016 WEIGHTED WEIGHTED AVERAGE AVERAGE NUMBER £ NUMBER £ Outstanding balance at beginning of year 29,269,661 0.38 23,690,152 0.50 Granted during the year 8,102,500 0.24 12,747,500 0.27 Exercised during the year (1,588,301) 0.07 (255,980) 0.10 Forfeited during the year (5,310,901) 0.35 (6,912,011) 0.59 Outstanding balance at end of year 30,472,959 0.37 29,269,661 0.38 Exercisable at end of year 18,013,926 0.44 11,669,968 0.52 The weighted average share price at the date of exercise for share options exercised during the period was £0.34 (FY2016: £0.27). The options outstanding at 31 March 2017 had a weighted average exercise price of £0.37 (FY2016: £0.38). The weighted average remaining contractual life of the options was 8 years (FY2016: 8 years). The inputs to the Black-Scholes and Monte Carlo models were as follows: 2017 2016 Weighted average share price 0.25 0.27 Weighted average exercise price 0.34 0.27 Expected volatility 39-74% 51-85% Expected life 6, 10 years 6, 10 years Risk free rate 1.57-2.41% 2.17-2.37% Expected dividend -- Expected volatility was determined by calculating the historical volatility of the Group’s share price for the last 90 days prior to grant. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioral considerations. Options were granted on 2 June 2016, 14 June 2016, 16 June 2016, 10 January 2017, 10 February 2017. The weighted average of the fair value of the options granted in the year was £0.34 per share, (2016: £0.27 per share). The following table summarizes options outstanding as at 31 March 2017 in relation to the Autonomy Discretionary Share Scheme and Autonomy US Plan options. 2017 2016 WEIGHTED WEIGHTED AVERAGE AVERAGE NUMBER £ NUMBER £ Outstanding balance at beginning of year 481,139 0.45 543,938 0.45 Lapsed during the year (252,254) 0.45 (62,799) 0.45 Outstanding balance at end of year 228,885 0.45 481,139 0.45 Exercisable at end of year 228,885 0.45 481,139 0.45 No options were exercised during the year from the Autonomy plan. (2016: No options were exercised during the year from the Autonomy plan). The options outstanding at 31 March 2017 had a weighted average exercise price of £0.45 (2016: £0.45). These stock options expire on 21 May 2017. In 2016 the weighted average remaining contractual life of the options was 1 year. No options were granted during the current or prior year. The following table summarizes Restricted Stock Units (RSUs) outstanding as at 31 March 2017. NUMBER OF NUMBER OF RSUs RSUs 2017 2016 Outstanding balance at beginning of year 1,325,408 2,933,184 RSUs granted 50,000 - RSUs vested (807,357) (1,367,502) RSUs forfeited (501,384) (240,274) 66,667 1,325,408 During the year 50,000 RSU’s were granted and immediately exercised. During the 2016 financial year there were no RSU’s granted. The majority of RSUs that vested in fiscal year 2016 were net-share settled such that the Company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The weighted average vesting share price during the period was £0.32 (2016: £0.24). 69 RhythmOne plc Annual Report and Accounts FY2017 27FINANCIAL INSTRUMENTS CAPITAL RISK MANAGEMENT The Group manages its capital to ensure that entities in the Group will be able to continue operating as a going concern while maximizing shareholder returns. The capital structure of the Group consists of cash and cash equivalents, marketable securities, and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings. The Group’s overall strategy remains unchanged from the prior year. The Group finances its operations through a combination of retained profits and interest received on bank accounts. Management maintains its capital structure and makes adjustments as necessary in light of changes in the economic environment and strategic objectives of the Group, ensuring that there are sufficient liquid resources available to take advantage of opportunities as they arise. The Group’s capital risk management policies are unchanged from prior year. The Group is not subject to externally imposed capital requirements. Categories of financial instrument: AS AT AS AT 31 MARCH 2017 31 MARCH 2016 $000’s $000’s Financial assets Loans and receivables: Cash and cash equivalents 19,338 18,222 Trade receivables 41,470 22,825 Restricted cash and other receivables 8,119 3,250 Available-for-sale: Marketable securities 55,866 60,264 124,793 104,561 Financial liabilities (amortized cost): Provisions (2,409) (705) Trade and other payables (42,343) (29,894) (44,752) (30,599) FINANCIAL RISK MANAGEMENT Management is responsible for monitoring and managing the financial risks relating to the operations of the Group, which include credit risk, market risk arising from interest rate risk and currency risk, and liquidity risk. The Board of Directors and the Audit Committee review and approve the internal policies for managing each of these risks as summarized below. The Group is not subject to any externally imposed capital requirements. The Group’s financial function provides services to the business, monitors and manages the financial risks relating to the operations of the Group. These risks (together with the related risk management policy) include: CREDIT RISK Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group’s credit risk is primarily with cash and cash equivalents and amounts owing from customers. The Group’s principal financial assets are cash and cash equivalents, trade and other receivables. One customer represents 23.62% of revenue in the year (2016: one customer represented 12.56% of revenue). This is not considered indicative of a high credit risk as the customer in question has a history with the Company and a positive credit rating. The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The Group defines counterparties as having similar characteristics if they are related entities. Concentration of credit risk did not exceed 16% of gross monetary assets at any time during the year (2016: 13%). Before accepting any new customer, the Group uses an external credit rating system to assess the potential customer’s credit quality. All customers have credit limits set by credit managers and are subject to standard terms of payment. The Group has adopted a policy of only dealing with counterparties that are considered to be creditworthy by management, having completed various credit checks. The risk of default from a financial institution is considered limited because counterparties are a number of different banks with high credit ratings assigned by international credit-rating agencies, which range from A to AA. The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group’s maximum exposure to credit risk. MARKET RISK (INCLUDING INTEREST RATE RISK AND CURRENCY RISK) Interest rate risk The Group has no loans and borrowings outside finance leases and as such, the Directors are satisfied that interest rate risk is negligible. 70 RhythmOne plc Annual Report and Accounts FY2017 Currency risk The Group does not enter into or trade financial instruments, including derivative financial instruments, for any purpose. The Group maintains the majority of its cash in US Dollars as a natural hedge, in line with our revenue and costs which are predominantly US-based. The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates as it undertakes certain transactions denominated in foreign currencies. The Group’s presentational currency is US Dollars and the Company’s functional currency is Sterling. The Group operates subsidiaries in the US, UK and Canada and as a result cash is held predominantly in Sterling, Canadian Dollars and US Dollars. The Group holds its funds in several different financial institutions. The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows: AS AT AS AT AS AT AS AT 31 MARCH 2017 31 MARCH 2016 31 MARCH 2017 31 MARCH 2016 LIABILITIES LIABILITIES ASSETS ASSETS $000’s $000’s $000’s $000’s Sterling 617 634 292 222 Canadian Dollars 2,766 - 1,802 - The following table details the Group’s sensitivity to a 20% increase and decrease in the functional currency of the entity against the relevant foreign currencies. 20% is the sensitivity rate used (2016: 20%) when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity includes outstanding foreign currency denominated monetary items and adjusts their translation at the year-end for a 20% change (2016: 20%) in foreign currency rates. The sensitivity analysis includes loans to foreign operations within the Group where the denomination of the loan is in a currency other than the currency of the lender or the borrower. A negative number indicates a decrease in profit and other equity where the Sterling and Canadian Dollar weakens 20% against the US Dollar. For a 20% strengthening of the Sterling and Canadian Dollar against the US Dollar there would be an equal and opposite impact on the profit and other equity and the negative balances below would be positive. 2017 2016 $000’s $000’s Cash and cash equivalents (308) (44) Trade and other receivables (111) - Trade and other payables 676 127 No sensitivity has been performed on a change in interest rates, as the impact of interest rate risk is so low. Liquidity risk The Group seeks to manage financial risk to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash safely and profitably by maintaining adequate reserves and cash on hand by continuously monitoring forecast and actual cash flows and by matching the maturity profiles of financial assets and liabilities. The Group reviews its cash flow requirements on a monthly basis, to ensure that it maintains adequate cash reserves, diversifying its cash accounts across several banking institutions and constantly monitoring forecast and actual cash flows. The fair value of all of the Group’s financial instruments is derived from inputs other than unadjusted quoted prices that are observable for the asset or liability, either directly or indirectly. The carrying amount of financial assets and financial liabilities recorded at amortized cost in the financial statements approximate their fair values. Therefore there is no difference between the carrying value and fair value of the above financial assets and liabilities. FAIR VALUE OF ASSETS AND LIABILITIES The Group has assets and liabilities that have been fair valued, on a non-recurring basis, which have arisen through the acquisitions in the previous years. The only asset carried at fair value is marketable securities which represent the Group’s investments in corporate bonds, commercial papers, government bonds, collateralized securities and certificates of deposit. These are valued using both level 1 and level 2 inputs. Level 1 financial assets are valued using quoted prices in active markets for identical assets. Level 2 financial assets are valued by an external specialist based upon net asset value per unit of the collective assets in the pooled fund. 71 RhythmOne plc Annual Report and Accounts FY2017 28EXCEPTIONAL COSTSFROM CONTINUINGOPERATIONS Large one-off acquisition and exceptional costs and other costs related to acquisitions are separately identified as exceptional costs. The types of costs included within acquisition costs are those which are directly attributable to an acquisition, such as legal and accounting expenses, integration costs, severance and retention remuneration. The types of costs which are considered exceptional include severance costs, impairment losses and other significant assets write-downs. YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 $000’s $000’s Acquisition - related costs: Severance and retention costs 217 825 Onerous lease 917 - Professional fees 1,301 309 Total acquisition related costs 2,435 1,134 Exceptional costs: Goodwill impairment - 32,363 Change in intangible assets lives - 12,027 Restructuring charges 2,042 595 Severance costs 768 1,073 Total exceptional costs 2,810 46,058 Total acquisition - related and exceptional costs 5,245 47,192 The acquisition - related costs primarily relate to the acquisition of Perk Inc. The exceptional restructuring charges primarily relate to onerous lease provisions. 29OPERATINGEXPENSES BY NATUREFROM CONTINUINGOPERATIONS Operating expenses by nature include the following: YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 $000’s $000’s Depreciation and amortization 9,456 12,485 Market research, public and investor relations, branding 4,313 5,278 Occupancy 4,049 4,340 Other expenses(a) 969 818 Professional services 3,499 5,811 Salaries & wages 29,467 29,331 Share based compensation 2,015 4,415 Technology 5,177 9,043 Travel 1,612 1,894 60,557 73,415 (a) Other expenses primarily include bank charges and merchant fees, office costs, training and recruitment costs. 30 RELATED PARTY TRANSACTIONS Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. The remuneration of the Directors, who are the Group’s key management personnel, in accordance with IAS 24 Related Party Disclosures, is disclosed in the Directors’ Remuneration Report on page 32. There were no other related party transactions in either the current or prior year. 31 EVENTS AFTERTHE BALANCE SHEET DATE(GROUP ANDCOMPANY) There are no post balance sheet events to report. 72 RhythmOne plc Annual Report and Accounts FY2017 COMPANY BALANCE SHEET AS AT 31 MARCH 2017 AS AT AS AT 31 MARCH 2017 31 MARCH 2016 NOTE £000’s £000’s ASSETS NON-CURRENT ASSETS Investment in subsidiaries 33 151,877 110,443 151,877 110,443 CURRENT ASSETS Amounts due from subsidiary undertakings 36 5,285 4,435 Other receivables 24 30 Cash and cash equivalents 233 505 Total assets 157,419 115,413 CURRENT LIABILITIES Trade and other payables (440) (197) Amounts due to subsidiary undertakings 36 (2,065) (233) Total liabilities (2,505) (430) NET ASSETS 154,914 114,983 CAPITAL AND RESERVES Share capital 37 4,951 4,045 Share premium account 38 98,210 98,119 Shares to be issued reserve 15 15 Share-based compensation reserve 12,506 11,013 Merger reserve 44,616 9,984 Profit for the year 39 2,809 (131,942) Retained deficit 39 (8,193) 123,749 TOTAL EQUITY 154,914 114,983 Note 32 to note 42 form an integral part of this balance sheet. The financial statements of RhythmOne plc (registered number 06223359) were approved by the Board of Directors and authorized for issue on 15 May 2017. They were signed on its behalf by: Subhransu (“Brian”) Mukherjee Chief Executive Officer RhythmOne plc 15 May 2017 73 RhythmOne plc Annual Report and Accounts FY2017 COMPANY STATEMENT OF CHANGES IN EQUITY FORTHE YEAR ENDED 31MARCH2017 ORDINARY SHARE SHARES SHARE BASED SHARE ACCOUNT TO BE COMPENSATION MERGER RETAINED TOTAL CAPITAL PREMIUM ISSUED RESERVE RESERVE DEFICIT EQUITY £000’s £000’s £000’s £000’s £000’s £000’s £000’s BALANCE AS AT 31 March 2015 4,023 98,096 1,033 8,129 138,031 (5,381) 243,931 Net loss for the year - - - - - (131,942) (131,942) Other comprehensive loss ------Total comprehensive loss for the year - - - - - (131,942) (131,942) Reclassification of the impairment loss from retained deficit to merger reserve - - - - (129,060) 129,060 - Issue of shares, net of costs 22 23 (1,018) - 1,013 - 40 Tax movement on share options - - - - - 70 70 Capital contribution - - - 2,884 - - 2,884 BALANCE AS AT 31 March 2016 4,045 98,119 15 11,013 9,984 (8,193) 114,983 Net profit for the year - - - - - 2,809 2,809 Other comprehensive profit ------Total comprehensive profit for the year - - - - - 2,809 2,809 Reclassification of the impairment loss from merger reserve to retaineddeficit ------Issue of shares, net of costs 906 91 - - 34,632 - 35,629 Capital contribution - - - 1,493 - - 1,493 BALANCE AS AT 31 March 2017 4,951 98,210 15 12,506 44,616 (5,384) 154,914 74 RhythmOne plc Annual Report and Accounts FY2017 COMPANY CASH FLOW STATEMENT FORTHE YEAR ENDED 31MARCH2017 YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 £000’s £000’s NET CASH USED IN OPERATING ACTIVITIES (388) (5,037) CASH FLOWS FROM INVESTING ACTIVITIES Investment in subsidiary - (15,948) Interest received -13 NET CASH USED IN INVESTING ACTIVITIES - (15,935) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of shares 116 40 NET CASH GENERATED FROM FINANCING ACTIVITIES 116 40 Net decrease in cash and cash equivalents (272) (20,932) Beginning cash and cash equivalents 505 22,708 Effect of foreign exchange on cash and cash equivalents - (1,271) ENDING CASH AND CASH EQUIVALENTS 233 505 75 RhythmOne plc Annual Report and Accounts FY2017 32 SIGNIFICANT ACCOUNTING POLICIES The separate financial statements of the Company are presented in accordance with the Companies Act 2006. As permitted by that Act, the separate financial statements have been prepared in accordance with International Financial Reporting Standards adopted by the European Union. The Company has two Executive Directors and five Non-Executive Directors. Their remuneration is shown in the Directors’ Remuneration Report on page 32. The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are the same as those set out in note 3 to the consolidated financial statements except as noted below. Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment. These Company financial statements are presented in sterling as that is the currency of the primary economic environment in which the Company operates. As permitted by section 408 of the Companies Act 2006, the income statement of the parent Company is not presented as part of these financial statements. The parent Company’s profit for the financial year amounted to £2,809,000 (2016: loss of £131,942,000). The Company’s loss/profit for each year is the same as its total comprehensive income and hence no separate statement has been presented. 33 INVESTMENTS IN SUBSIDIARIES £000’s COST AND NET BOOK VALUE At 31 March 2015 209,381 Capital contribution due to share-based payments 2,884 Investment in subsidiaries 27,238 Impairment of investment in subsidiary (129,060) At 31 March 2016 110,443 Capital contribution due to share-based payments 1,493 Investment in subsidiaries 39,941 At 31 March 2017 151,877 Investments in subsidiary companies are subject to review for impairment. The capital contribution is in respect of equity settled share-based payments made to employees of the Company’s subsidiaries for which the Company receives no reimbursement. Refer to note 40 for further details on the Group’s Share Option Schemes. All subsidiary companies within the Group’s operation at 31 March 2017 are shown in note 17. 34 FINANCIAL INSTRUMENTS FINANCIAL ASSETS AMOUNTS DUE FROM SUBSIDIARY UNDERTAKINGS At the balance sheet date there are receivables from fellow Group companies amounting to £5,285,000 (2016: £4,435,000). The carrying amount of these assets approximates their fair value. There are no past due or impaired receivable balances (2016: none). Amounts due from subsidiary undertakings are unsecured, interest free, have no fixed date of repayment and are repayable on demand. CASH AND CASH EQUIVALENTS These comprise cash held by the Company and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value. FINANCIAL LIABILITIES AMOUNTS DUE TO SUBSIDIARY UNDERTAKINGS At the balance sheet date there are payables to fellow Group companies amounting to £2,065,000 (2016: £233,000). The carrying amount of these liabilities approximates to their fair value. Amounts due to subsidiary undertakings are unsecured, interest free, have no fixed date of repayment and are repayable on demand. TRADE AND OTHER PAYABLES Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 134 days (2016: 54 days). The carrying amount of trade payables approximates to their fair value. The financial risk and risk management policies are the same as those of the Group, which are discussed in note 27. 76 RhythmOne plc Annual Report and Accounts FY2017 FOREIGN CURRENCY RISK MANAGEMENT The Company is mainly exposed to movements in US Dollar. The table below shows the carrying amounts of the Company’s foreign currency monetary assets and monetary liabilities at the reporting date: 2017 2016 2017 2016 Liabilities Liabilities Assets Assets £000’s £000’S £000’s £000’s US Dollar 2,392 414 5,309 4,462 FOREIGN CURRENCY SENSITIVITY ANALYSIS The Company has maintained its sensitivity at 20% in 2017 (2016: 20%). The following table details the Company’s sensitivity to a 20% increase and decrease (2016: 20%) in the functional currency of the entity against the relevant foreign currencies. 20% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year-end for a 20% change in foreign currency rates. The sensitivity analysis includes loans to foreign operations where the denomination of the loan is in a currency other than the currency of the lender or the borrower. A negative number indicates a decrease in profit and other equity where the US Dollar weakens 20% against the Sterling. For a 20% strengthening of the US Dollar against the Sterling there would be an equal and opposite impact on profit and other equity and the negative balances below would be positive. 2017 2016 £000’s £000’S Cash and cash equivalents - (80) Amounts due from subsidiary undertakings (1,322) (887) Amounts due to subsidiary undertakings 517 47 Categories of financial instrument: 2017 2016 £000’s £000’s Financial assets (loans and receivables) Cash and cash equivalents 233 505 Other receivables 24 30 Amounts due from subsidiary undertakings 5,285 4,435 5,542 4,970 Financial liabilities (amortized cost) Trade payables 327 197 Amounts due to subsidiary undertakings 2,065 233 2,392 430 The fair value of all of the Group’s financial instruments is derived from inputs other than unadjusted quoted prices that are observable for the asset or liability, either directly or indirectly. The carrying amount of financial assets and financial liabilities recorded at amortized cost in the financial statements approximate their fair values. Therefore there is no difference between the carrying value and fair value of the above financial assets and liabilities. 35 DEFERRED TAX No deferred tax assets or liabilities have been recognized by the Company in the year. At the balance sheet date there is an unrecognized deferred tax asset of £0.8m (2016: £0.8m). 36 RELATED PARTY TRANSACTIONS The amount owed by subsidiary undertakings is £5.3m (2016: £4.4m). The amount owed to subsidiary undertaking is £2.1m (2016: £0.2m). Amounts are repayable on demand. No interest is payable and the amounts are unsecured. The remuneration of the Directors, who are the Group’s key management personnel, in accordance with IAS 24 Related Party Disclosures, is disclosed in the Directors Remuneration Report on page 32. 37 SHARECAPITAL AS AT AS AT 31 MARCH 2017 31 MARCH 2016 £000’s £000’s Issued and fully paid 495,093,938 ordinary shares of 1 pence each (2016: 404,462,870 ordinary shares of 1 pence each) 4,951 4,045 77 RhythmOne plc Annual Report and Accounts FY2017 The Company has one class of ordinary share which carries no right to fixed income. During the current year 90,631,068 shares were issued, of which 88,235,410 relate to the acquisition of Perk; 1,588,301 shares were issued related to exercise of employee share options and 807,357 shares were issued related to restricted stock units (2016: 2,136,359 shares were issued, of which 512,877 shares related to the acquisition of Rhythm NewMedia Inc., 255,980 shares were issued related to exercise of employee share options and 1,367,502 shares were issued related to restricted stock units). 38 SHARE PREMIUM SHARE PREMIUM £000’s Balance at 31 March 2015 98,096 Premium arising on issue of equity shares, net of costs 23 Balance at 31 March 2016 98,119 Premium arising on issue of equity shares, net of costs 91 Balance at 31 March 2017 98,210 39 RETAINED DEFICIT £000’s Balance at 31 March 2015 (5,381) Net loss for the year (131,942) Reclassification of impairment loss to merger reserve 129,060 Tax movement on share options 70 Balance at 31 March 2016 (8,193) Netprofitfortheyear 2,809 Balance at 31 March 2017 (5,384) 40 SHARE-BASED PAYMENTS See note 26, Share-based Payments Equity Settled Share Option Schemes. 41NOTES TO THECASH FLOW STATEMENT YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 £000’s £000’s Cash Flow From Operating Activities Profit/(loss) for the year 2,809 (131,942) Impairment in subsidiary - 129,060 Gain on intercompany balances (4,260) - Foreign exchange (gain) / loss (167) 1,271 Operating cash flows before movements in working capital (1,618) (1,611) Decrease/(increase) in amounts due from group undertakings 982 (3,468) Decrease in receivables 633 Increase in payables 242 9 Cash used in operations (388) (5,037) 42 STAFF COSTS The average monthly number of employees (including Directors) and related staff costs for the year were: YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 Sales and marketing 1- Research and development 21 Total 31 78 RhythmOne plc Annual Report and Accounts FY2017 YEAR ENDED YEAR ENDED 31 MARCH 2017 31 MARCH 2016 £000’s £000’s Wages and salaries 435 40 Social Security costs 68 1 Other pension costs 1- 504 41 Other employee benefits and costs 57 3 INCLUDED IN PROFIT FOR THE YEAR 561 44 79 SHAREHOLDERINFORMATIONAND ADVISORS RhythmOne plc Annual Report and Accounts FY2017 REGISTRARS AND RHYTHMONE PLCSHAREHOLDER SERVICES All administrative inquiries regarding shareholdings such as questions about lost share certificates should be directed to the Company’s registrars as follows: Computershare Investor Services PLC The Pavilions Bridgewater Road Bristol BS99 6ZY United Kingdom Tel: +44 870 707 1593 email: [email protected] STOCK EXCHANGES RhythmOne’s ordinary shares are listed on the London Stock Exchange (AIM) under the symbol “RTHM.” RhythmOne does not maintain listings on any other stock exchanges. SHAREHOLDER COMMUNICATIONS Topics featured in this Annual Report can be found via the RhythmOne plc home page on the Internet (http://www.rhythmone.com). Financial results, news on RhythmOne products, services and other activities can also be found via that address. AIM NOMINATED ADVISORS/AUDITOR ADVISOR AND BROKER INVESTOR RELATIONS PricewaterhouseCoopers LLP Numis Securities Limited FTI Consulting, Inc. The Atrium The London Stock 200 Aldersgate 1 Harefield Road Exchange Building Aldersgate Street Uxbridge, UB8 1EX 10 Paternoster Square London, EC1A 4HD United Kingdom London, EC4M 7LT United Kingdom United Kingdom CORPORATE LEGAL ADVISORS REGISTERED OFFICE Bird & Bird LLP DLA Piper LLP 40 Dukes Place 15 Fetter Lane 2000 University Avenue London London, EC4A 1JP East Palo Alto, CA 94303 EC3A 7NH United Kingdom USA United Kingdom Headquarters: 251 Kearny Street, 2nd Floor, San Francisco, CA 94108 Tel: +1 (415) 655-1450 // Fax: +1 (415) 665-1440 80 GLOSSARY RhythmOne plc Annual Report and Accounts FY2017 Ad Blocking – Using technology to remove or alter advertising content in a webpage. Advertising can exist in a variety of forms including static banners, rich media, video, text, or pop-up windows. Ad Exchange – An online marketplace for advertisers and publishers to buy and sell inventory, often through real-time auctions. Ad Network – A company that has deals with advertisers and publishers to manually buy and sell ads across the Internet. Ad Server – Company whose technology relays an ad buy to a website and reports on how it performed. Agency Trading Desk – A division within an ad agency focused on buying ads using ad technology. Audience Extension – Sometimes called “look-alike modeling,” a process that takes a known audience segment and catalogs various shared characteristics that can be used to target people who bear similarities. Audience Verification – Third-party reporting to provide validation that a site, and the ads on it, reach a legitimate, verifiable audience. Behavioral Targeting – Showing ads to people based on the type of sites they visit. Click Through Rate (CTR) – Measure of how many people clicked on an ad or a piece of digital content. Used as a proxy to determine the level of engagement of the ad or content by the consumer. Connected TV – Television sets and set-top boxes with built-in integration of web features, such as streaming services and apps. Also known as Smart TVs. Cookie – Identifier attached to a person’s Internet browser to track the sites he or she visits. Cost Per Click (CPC) – Represents the cost an advertiser pays each time a user clicks on their ad. Cost Per Download/Install (CPD/CPI) – Represents the cost an advertiser/software provider pays each time a consumer downloads or installs their software. Cost Per Mille/Thousand Advertising Impressions (CPM) – Represents the cost of an advertising placement divided by the number of impressions generated (in thousands). Cost Per View (CPV) – The price an advertiser pays for a single view of their content or ad, typically measured and priced in increments of one thousand views. Data-Management Platform (DMP) – Company that provides technology to store and catalog marketer data. Demand – Advertisers’ need for advertising inventory to place their ads on digital properties. Typically represented by volume, price and ad format for a specified timeframe. Demand is typically executed on behalf of advertisers by their agency who may also use a series of intermediaries, such as trading desks, demand side platforms and advertising exchanges to execute ad campaigns. demand side platform (DSP) – A company that provides technology for media buyers to purchase ad placements, typically via bids in exchange’s real-time auctions. First-Party Data – Data that a company has collected directly, like a retailer’s list of loyalty members. Fraudulent Advertising – When a company knowingly serves ads that no one will actually see as a way to drive “views” and revenue (Ad Fraud). Geo-targeting – Showing ads to people based on their mobile device’s location; ZIP code information they submit when registering for a site/service; or GPS coordinates collected by a site/service. Hashing – A way for separate companies to match their data sets without either side being able to access the other’s data. Header Bidding – Also known as pre-bidding, header bidding is a programmatic technique wherein publishers offer inventory to multiple ad exchanges simultaneously before making calls to their ad servers. By letting multiple demand sources bid on the same inventory at the same time, publishers are able to better monetize their inventory. Identifier for Advertisers (IDFA or IFA) – A temporary device identifier used on mobile devices for targeted advertising, which provides device identification without compromising personally identifiable information. Replaces Apple’s Unique Identifier (UDID) and Android ID and used instead of cookies that are common on desktop devices. Impression – Measure of the number of times an ad is seen. In-Stream – An ad that appears within a piece of content. Mobile Apps – Specialized computer programs designed to run on smartphones, tablets and other mobile devices. Mobile Web – Access to the web from a handheld mobile device, such as a smartphone or tablet. Pixel – A piece of code placed on websites so companies can recognize which cookies have already been dropped on a person’s browser and put in new cookies. Programmatic Direct – An ad buy done directly between a publisher and advertiser through automated ad-buying systems. 81 RhythmOne plc Annual Report and Accounts FY2017 Real-Time Bidding (RTB) – The purchase and sale of ads through computer-run auctions that happen within milliseconds. Retargeting – Showing an ad to a person who visited your site while that person is visiting another site. Second-Party Data – When a company makes its first-party data directly available to another company. Supply – Advertising inventory offered by publishers or owners of digital properties. Typically supply is represented by volume, price and ad format for a specified time period. Supply may be offered up directly by the owners of the inventory (owned and operated supply) or through a series of intermediaries (such as ad networks, exchanges and Supply Side Platforms). Supply Side Platform (SSP) – An ad-tech company that works with publishers to help them sell their inventory at scale. Third-Party Data – Information that a company collects indirectly (such as through cookies) or aggregated from others (such as credit card companies and magazine publishers) and then sells to ad buyers to aid in targeting. Traffic – The result of the act of browsing the Internet or other digital properties by consumers. Such browsing behavior generates advertising inventory. Used as a proxy for the volume and level of user attention or engagement and typically priced and aggregated into and sold as audiences to agencies who represent advertisers. Unique-User/Device ID – Identifier assigned to a device or user that lasts until the device in reset or the account is deleted. Viewability – Measuring an ad to make sure that it was visible to the user. The industry is moving toward this as a new standard for impression. VTR (View-Through Rate) – The measurement of how many people saw an ad and eventually visited the advertiser’s site. 82 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] ANNUAL REPORT AND ACCOUNTS2017 MARCH 31 ENDED YEAR Headquarters: 251 Kearny Street, 2nd Floor San Francisco, CA 94108 USA Tel: +1 415 655 1450