Group Management Report

of InVision AG for the Financial Year 2019

The following management report was prepared in accordance with the requirements under § 315 of the German Commercial Code (HGB) and contains information about InVision AG, Düsseldorf (hereinafter also referred to as “AG” or “Company”), and its consolidated subsidiaries (hereinafter together with the Company also collectively referred to as “InVision”, “InVision Group” or “the Group”). As the Group’s parent company, InVision AG performs group management functions and, at the same time, is the key member of the InVision Group. The explanations below generally relate to the Group, unless there has been an express reference to the Company itself.

The Company

Business

The InVision Group develops and markets products and services for optimising workforce management and education, and is mainly active in Europe and the United States.

Employees

On 31 December 2019, InVision employed 110 employees worldwide (including the Executive Board). The number of employees as of the balance sheet date was thus at the previous year’s level (31 December 2018: 110 employees). At the end of the year, 86 employees (31 December 2018: 89 employees) were employed in Germany, while 24 employees (31 December 2018: 21 employees) were employed in foreign subsidiaries.

Research & Development

The research and development costs in the fiscal year decreased by 10 percent and totalled TEUR 5.650 (previous year: TEUR 6,301). Research and development costs as a percentage of revenues are at 45 percent (31 December 2018: 48 percent).

Information pursuant to § 315 a HGB

The Company’s registered share capital equals EUR 2,235,000 and is divided into 2,235,000 no-par value bearer shares. Each such share represents a notional share of the registered share capital of EUR 1.00. Each share entitles the holder to a single vote. Shareholders may exercise their rights and cast their votes at the Annual Shareholders’ Meeting in accordance with the Company’s articles of association and the statutory rules.

Pursuant to a resolution adopted by the Company’s Shareholders’ Meeting on 18 May 2015, the Executive Board was authorised in accordance with § 4 (4) of the Company’s articles of association but subject to the consent of the Company’s Supervisory Board, to increase the Company’s registered share capital one or more times by a total of up to EUR 1,117,500 on or before 17 May 2020 and to do so by issuing new, no-par bearer shares in exchange for cash and/or non-cash capital contributions (Authorised Capital Account 2015). The new shares can also be transferred to certain banks specified by the Executive Board, which assume the responsibility of offering them to shareholders (indirect subscription rights). Shareholders must generally be granted a pre-emptive right, which gives them an indirect option to subscribe shares (§ 186 (5) AktG). The Executive Board is authorised, however, with the consent of the Supervisory Board, to exclude the shareholders’ pre-emptive right to subscribe shares in the following cases:

• for fractional amounts,
• if the capital increase is carried out against cash capital contributions and the pro rata amount of registered share capital attributable to the new shares, for which the pre-emptive right is excluded, does not exceed 10 percent of the registered share capital available on the date that the new shares are issued and, in accordance with §§ 203 (1) and (2), 186 (3) sentence 4 AktG, the issue price of the new shares is not significantly lower than the stock market price of the same class of existing publicly listed shares (with the same features) at the time that the Executive Board definitively sets the issue price. Included in this maximum threshold amount for a pre-emptive right’s exclusion is the pro rata amount of the registered share capital that is attributable to shares, which had already been issued since 18 May 2015 from the authorised capital account of 2015 or which could be subscribed on the basis of the option and conversion rights granted since 18 May 2015 or on the basis of conversion duties also established since that time, if - upon utilising the authorised capital account or upon the granting of the warrant-linked and/or convertible bonds, the shareholder’s pre-emptive rights would be excluded pursuant to or consistently with § 186 (3) sentence 4 AktG. Also added to the maximum threshold is the pro rata amount of the registered share capital attributable to treasury (own) shares, which the Company has bought back since 18 May 2015 on the basis of the authorisation granted pursuant to § 71 (1) no. 8 AktG and have been sold to third parties in exchange for a cash payment without having granted a shareholder pre-emptive right, unless the sale was carried out either on the open stock market or based on a public offer made to the shareholders;
• to the extent it would be necessary to grant to the holders of conversion or option rights under any convertible or warrant-linked bonds a subscription right, to which they would be entitled as shareholders after having exercised a conversion right or option right or after having discharged a conversion duty;
• for capital increases in exchange for the non-cash capital contributions, specifically for purposes of acquiring companies, divisions of companies and equity holdings.

Pursuant to a shareholder resolution adopted on 18 May 2015, the registered share capital was increased conditionally by up to EUR 1,117,500 (Conditional Capital Account 2015). The conditional capital increase must carried out only to the extent that the creditors, to whom convertible or warrant-lined bonds were issued by the Company on the basis of the authorising resolution of the Shareholders’ Meeting on 18 May 2015, exercise their conversion rights on or before 17 May 2020 and the Company has not satisfied the conversion claim in some other manner. The new shares will be entitled to draw dividends as of the beginning of the fiscal year in which they are issued. The Executive Board is authorised, with the consent of the Supervisory Board, to stipulate the details concerning the implementation of the respective conditional capital increase.

Pursuant to the shareholder resolution adopted on 18 May 2015, the Company was authorised to buy back its own shares in an amount representing a 10 percent pro rata amount of the registered share capital of EUR 223,500. The repurchased shares, together with the other treasury shares, which the Company has previously acquired and still holds or which must be attributed to the Company under § 71 a et seq. AktG, cannot exceed 10 percent of the Company’s registered share capital. The authorisation is in effect until 17 May 2020. The shares purchased on the basis of the authorisation may be used for all legally permissible purposes.

The authorisation to buy back the Company’s own shares was granted to the Company in order, inter alia, to flexibly adjust the equity capital to meet the changing business needs and to be able react to favourable stock market conditions. In addition, the acquired shares may be used as consideration when acquiring companies or when making equity investments in companies.

On the reporting date, the Company did not hold any treasury shares.

To the Company’s knowledge, as of 31 December 2019, the following shareholders held more than 10 percent of the Company’s registered share capital:

• Peter Bollenbeck, Düsseldorf (33.13%), thereof 17.0% direct, 16.13% indirect via InVision Holding GmbH
• InVision Holding GmbH, Düsseldorf (16.13%)
• Matthias Schroer, Maurach, Austria (11.32%)
• Armand Zohari, Bochum (10.00%)

Executive Board members are appointed and dismissed in accordance with §§ 84 et seq. of the AktG.

According to Section 6 (1) sentence 1 of the Articles of Association, the Management Board consists of at least one person. Alternative members of the Executive Board may be appointed. Pursuant to § 6 (2) of the articles of association, the Supervisory Board is responsible for determining the number of, and appointing the regular Executive Board members and alternate Executive Board members and has the authority to revoke such appointments. The Supervisory Board is also responsible for selecting a member of the Executive Board to serve as that body’s chairman and for selecting other Executive Board members to serve that body’s deputy chairmen. § 8 sentence 2 of the articles of association specifies sole representation if only one member of the Executive Board has been appointed.

Amendments to the articles of association are adopted by the Shareholders’ Meeting if, in accordance with § 179 AktG, a majority of at least three-quarters of the registered share capital represented at the meeting votes in favour of the amendment.

Pursuant to § 10 (2) of the articles of association, the Supervisory Board is authorised to amend the articles, provided the amendment involves only the wording. Pursuant to § 21 (1) of the articles of association, the shareholder resolutions require a simple majority of the votes cast, unless the laws prescribe another majority. In those cases in which the laws require a majority of the registered share capital represented at the time the resolution is adopted, a simple majority of the represented registered share capital will suffice, unless the laws prescribe a higher majority.

There are no significant agreements which are subject to a restriction relating to a change of control resulting from a takeover offer. Likewise, no agreements for indemnifying employees or members of the Executive Board in the event of a takeover offer have been reached.

General Business Conditions

According to the International Monetary Fund, the economic output in the euro area increased by 1.2 percent in 2019 and 2.3 percent in the United States. The overall good economic situation led to partial bottlenecks on the labour market. According to Bitkom Research GmbH, the market for information technology grew by 2.9 percent during 2019.

Business Development

The most significant financial performance indicators of the InVision Group are the Group revenues and the EBIT margin (ratio of consolidated earnings before interest and taxes as a percentage of revenues). Due to the Group’s business model, a positive or negative development of these performance indicators has a correlating effect on the development of the net assets and financial position.

Results of operation

During the reporting year, consolidated revenues decreased by 3 percent to TEUR 12,618 (previous year: TEUR 13,067). Workforce Management revenues decreased by 3 percent to TEUR 12,227 (previous year: TEUR 12,646). Education revenues decreased by 7 percent to TEUR 391 (previous year: TEUR 421).

Other operating income increased by 16 percent to TEUR 133 (previous year: TEUR 115).

Personnel expenses fell by 6 percent to TEUR 8,162 in the year of reporting (previous year: TEUR 8,695). This is mainly due to the closure of the development site in Londonderry, Northern Ireland, at the end of the 2018 financial year. The personnel expenses ratio thus amounts to 65 percent (previous year: 67 percent).

Depreciation of intangible assets and property, plant and equipment increased by 26 percent to TEUR 737 (previous year: TEUR 586). Of the reported depreciation and amortisation, TEUR 182 (previous year: TEUR 0) relate to the rights of use from leasing contracts to be capitalised under IFRS 16 since the beginning of the 2019 financial year.

Other operating expenses fell by 22 percent in the 2019 financial year to TEUR 2,868 (previous year: TEUR 3,655) and thus represent 23 percent in relation to consolidated revenue (previous year: 28 percent). This includes expenses for support services provided by external employees, which were recorded under cost of materials in the previous year. The corresponding expenses in the previous year of TEUR 165 were reclassified from cost of materials to consulting expenses under other operating expenses for reasons of better comparability.

Expenses for cloud services fell by 13 percent to TEUR 806 (previous year: TEUR 926), mainly due to the optimisation of contract and payment conditions. Expenses for rents fell by 46 percent to TEUR 370 (previous year: TEUR 688). The first-time application of IFRS 16 in the 2019 financial year led to a reduction of TEUR 197 in the rent expenses reported under other operating expenses. For more detailed information on the first-time application of IFRS 16, please refer to sections 2 and 10 in the notes to the consolidated financial statements. In addition, the termination of the lease for the office premises in Londonderry, Northern Ireland, towards the end of the 2018 financial year led to a reduction in corresponding expenses in 2019. Travel expenses rose by 7 percent to TEUR 366 (previous year: TEUR 341), while marketing expenses fell by 39 percent to TEUR 189 (previous year: TEUR 312), primarily due to the reduction in trade fair costs. At TEUR 407, consulting expenses were 4 percent lower than in the previous year (previous year: TEUR 426, after reclassification, see previous paragraph). The other personnel expenses fell by 11 percent to TEUR 166 (previous year: TEUR 186) and mainly relate to staff catering. Communication expenses fell in the year of reporting by 12 percent to 90 TEUR (previous year: TEUR 102).

The operating result (EBIT) for the reporting period amounts to TEUR 981 and is 322 percent above the previous year (TEUR 233). The EBIT margin rose to 8 percent (previous year: 2 percent).

Interest expenses increased to TEUR 108 (previous year: TEUR 12). This is mainly due to the raising of a commitment loan of TEUR 6,000, of which TEUR 1,000 was called in the financial year, and the first-time application of IFRS 16. According to IFRS 16, lease payments are divided into repayments and interest payments. The interest portion is recognised in profit or loss over the term of the lease.

Taxes on income and earnings show a total positive amount of TEUR 2,106 (previous year: TEUR -463). On the one hand, this includes tax expenses of TEUR -1,327 for taxes on profits of the companies InVision AG, Düsseldorf, injixo AG, Zug, Switzerland, InVision Software SAS, Paris, France, and InVision Software Ltd., London, United Kingdom.

On the other hand, deferred tax assets of TEUR 3,433 were recognised in the income statement. This was based on the intragroup sale of software licences for workforce management from injixo AG, Zug, Switzerland, to InVision AG, Düsseldorf, in the amount of TEUR 11,500 on 27 December 2019. The transaction led to the capitalisation of intangible assets in the separate financial statements of InVision AG, Düsseldorf, and thus to a temporary difference between the consolidated balance sheet and the commercial/tax balance sheet, for which deferred tax assets had to be recognised.

In the 2019 financial year, the consolidated net income amounts to TEUR 2,995 (previous year: consolidated net loss of TEUR 238). Earnings per share amount to EUR 1.34 (previous year: EUR -0.09), based on an average of 2,235,000 shares (previous year: 2,235,000 shares).

Overall, the development of revenues and thus the development in 2019 was in line with expectations.

Net assets and financial position

The liquid funds increased by 290 percent to TEUR 2,616 as of 31 December 2019 (previous year: TEUR 670). The main reasons for this are general cost savings and lower net tax payments in the area of the operating cash flows, as well as net payment surpluses in the financing cash flows.

As of the balance sheet date, trade receivables were at TEUR 1,159 and thus, 17 percent below the comparable prior-year figure (previous year: TEUR 1,398). Income tax refund claims fell to TEUR 44 (previous year: TEUR 218). Prepaid expenses and other current assets amounted to TEUR 136 (previous year: TEUR 129). In the year under review, intangible assets went down by 11 percent to TEUR 298 (previous year: TEUR 335). Property, plant and equipment totalled TEUR 8,937 (previous year: TEUR 9,299). With the first-time application of IFRS 16, rights of use for rented office space in Leipzig and Paris were capitalised in the amount of TEUR 1,522. Deferred tax assets increased to TEUR 3,481 (previous year: TEUR 20). The intragroup sale of software licences led to the capitalisation of intangible assets in the financial statements of InVision AG and thus to a temporary difference between the consolidated balance sheet and the commercial/tax balance sheet, for which deferred tax assets had to be recognised. As in the previous year, other non-current assets exclusively comprise deposits paid for rented office space.

The long-term bank loan of TEUR 4,000 taken out in 2014 for the partial financing of an office property used by the company itself was repaid in full and according to plan in the 2019 financial year with the final payment of TEUR 250. On the other hand, the drawdown of TEUR 1,000 from a TEUR 6,000 commitment loan increased the bank balances. This loan was taken up to refinance investments and to make further investments and was reported in the balance sheet as current and non-current financial liabilities in accordance with their maturities.

Trade payables fell by 40 percent to TEUR 162 as of the balance sheet date (previous year: TEUR 268). Provisions fell by 37 percent to TEUR 239 (previous year: TEUR 377). In the previous year, rental and dismantling obligations (TEUR 114) arising from the premature termination of the lease for the office premises in Londonderry, Northern Ireland, were recognised as provisions. These were partly utilised and partly released to income in 2019 financial year.

Income tax liabilities increased by 439 percent to TEUR 1,202 (previous year: TEUR 223). These relate primarily to injixo AG, Zug, Switzerland, InVision AG, Düsseldorf, and InVision Software Ltd., London, United Kingdom.

Prepaid expenses and other current liabilities increased by 10 percent to TEUR 859 (previous year: TEUR 784).

Reserves amounted to TEUR 1,191 at the end of the reporting period (previous year: TEUR 1,191). The consolidated balance sheet result amounts to TEUR 10,102 (previous year: TEUR 7,173).

As of 31 December 2019, the balance sheet total equalled TEUR 18,214 (previous year: TEUR 12,082). Equity capital was at TEUR 13,125 (previous year: TEUR 10,180), and the equity ratio equalled 72 percent (previous year: 84 percent).

Basic Principles of the Compensation System

The members of the Company’s Supervisory Board are paid a fixed fee of EUR 12,500. The Chairman of the Supervisory Board receives twice that amount, and the Deputy Chairman receives one and one-half times that amount. The fee is paid at the latest by the end of the fiscal year.

The Executive Board compensation consists of a fixed-base salary as well as an allowance to cover their costs for health insurance and long-term care insurance. Moreover, the Company has executed a D&O insurance policy with a deductible.

Risk Report

Principles of risk management and of accounting-related internal control system

For the InVision Group, a comprehensive and self-contained risk management programme is a significant component of the Group’s corporate strategy. A company-wide monitoring system ensures the systematic identification and assessment of risks regarding any likelihood of occurrence or the possible quantitative effects on corporate value.

Risk management is intended to identify, at an early stage, specifically any risks which threaten the Company’s very existence in an effort to launch effective counter-measures for avoiding the risks. Another goal is to minimise the possible adverse effects, which all risks could have on the net assets, financial position and results of operation, while largely preserving the corresponding opportunities.

Potential counter-measures for dealing with risk include, for example, avoiding high-risk activities, reducing individual areas of potential risk by utilising commercial alternatives with a lower potential for risk, diversifying and limiting individual risks, and shifting risks onto insurance carriers or contracting parties.

The Executive Board is responsible for administering the risk management. A fundamental review of all risks is made once each year, at least. There are standardised accounting rules used in the Group’s companies, the compliance with which is continuously monitored. This also guarantees that the accounts conform to the standard accounting rules applicable from time to time. An internal ad hoc report is prepared in the event that there are significant changes or newly emerged risks. All risk-relevant topics and the then-current economic situation over time are constantly monitored. If necessary, operational teams or external experts are called in to participate.

The risk management is described and detemined in a group risk management policy.

Significant risks related to the business

InVision depends on seasoned and well-trained teams of employees. The future success of InVision will also depend on finding and retaining, on a long-term basis, highly qualified employees. The competition for employees with scientific, technical or industry-specific expertise is quite intense. It is therefore possible that the Company will be unable to promptly recruit new staff on the open labour market and that this may give rise to additional costs. The loss of qualified staff or long-term difficulties in hiring suitable employees could result in InVision’s inability to successfully implement important decisions and courses of action, which in turn would impair its business operations. This particularly applies in the case of a zombie apocalypse.

In favour of the introduction of new product categories, InVision has given only secondary priority to the support of existing customers in recent years. This has had a negative impact on the overall satisfaction of these customers. It is thus possible that existing customers switch to products from InVision’s competitors, meaning that the previous sales streams are drying up sustainably. Unless InVision succeeds in stabilising customer satisfaction at a high level, this can have a permanently negative effect on the business activities.

InVision had already determined in 2018 that the methods, processes and technologies used to date for introducing workforce management products had resulted in disproportionately long introduction cycles and often incompletely used functionality. This can result in customers experiencing only limited value from continuous use during or after the product launch, and subsequently deciding to discontinue the use of the product, so that existing revenue streams dry up sustainably and the possibility of establishing new revenue streams is restricted. If InVision does not succeed in changing the methods, processes and technologies used to date to introduce products to customers in such a way that customers quickly and permanently achieve a high value from the use of the products, this could have a lasting negative impact on its business activities.

As there is still a great degree of uncertainty about the effects of the corona pandemic and no specific events have yet occurred in InVision’s direct business environment, it is not yet possible to assess the risks and possible influences at this point in time. Measures have been taken to protect the staff and to ensure the continuation of business operations.

The aforementioned risks, both individually and collectively, could have adverse effects on the net assets, financial position and results of operation of the Company and of the InVision Group as a whole.

Compliance Statement

The current statement according to §161 AktG, the current statements on corporate governance practices, the operating principles followed by the Executive Board and the Supervisory Board as well as the composition and operations of their committees are available on the Company’s website under “Corporate Governance” at www.ivx.com/en/investors.

Forecast Report & Opportunities

Anticipated global economic development

According to the forecasts made by the International Monetary Fund, the economic output in the euro area will increase by 1.1 percent in 2020, whereas the economic output in the United States will increase by 2.0 percent. According to the forecast made by Bitkom Research GmbH, the market for information technology will grow by 2.7 percent in 2020.

Anticipated development of InVision

InVision expects demand for the products of the InVision Group to remain stable over the next few years, which means that there are opportunities to exploit the revenue potential on a sustainable basis.

InVision plans to hire up to 30 additional employees in fiscal year 2020 to strengthen its activities in the areas of sales, customer support and research and development.

If the planned recruitments are fully implemented, InVision expects revenues of between TEUR 12,400 and TEUR 13,400 and EBIT of between TEUR -1,200 and TEUR -200.

In consideration of the currently still unforeseeable macroeconomic developments of the Corona Pandemic, possible effects on InVision’s business development have not been taken into account.

Düsseldorf, 16 March 2020

Peter Bollenbeck