Consolidated Statement of Operations

Consolidated Statement of Changes in Net Assets

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements 

for the six-month period ended 30 June 2019

(Stated in United States Dollars)

1.            Organization and principal activity

The Kubera Cross-Border Fund Limited (the "Company" or the "Fund") was incorporated in the Cayman Islands on 23 November 2006 as an exempted company with limited liability.

The Fund is a closed-end investment company trading on AIM, part of London Stock Exchange. The Fund makes private equity investments in cross-border companies, primarily in businesses that operate in the US-India corridor.

The Fund is a Limited Partner in Kubera Cross-Border Fund LP (the "Partnership"), an exempted limited partnership formed on 28 November 2006 under the laws of Cayman Islands. The primary business of the Partnership is to purchase and sell investments for the purpose of carrying out an investment strategy that is consistent with the strategy described in the Admission Document of the Fund.

Kubera Cross-Border Fund (GP) Limited (the "General Partner"), a company incorporated under the laws of the Cayman Islands is a wholly owned subsidiary of the Fund, and serves as the general partner of the Partnership.

The Partnership holds 100% ownership in Kubera Cross-Border Fund (Mauritius) Limited ('Kubera Mauritius'), a company incorporated in Mauritius.

Kubera Partners LLC (the "former Manager"), a Delaware limited liability company, managed the investment portfolio of the Fund and had full discretionary investment management authority until the expiry of the Investment Management Agreement on 22 December 2016. Following the expiration of the Investment Management Agreement, the Fund has been self-managed by the Board of Directors (the "Board").

FIM Capital Limited, (the "Administrator") is the administrator and also performs certain accounting services on behalf of the Fund, the General Partner and the Partnership.

2.            Significant accounting policies

The accompanying consolidated financial statements are prepared in conformity with US generally accepted accounting principles ("US GAAP"). The significant accounting policies adopted by the Fund are as follows:

a.            Use of estimates

US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, the results of operations during the reporting period and the reported amounts of increases and decreases in net assets from operations during the reporting period.

Significant estimates and assumptions are used for, but not limited to, accounting for the fair values of investments in portfolio companies. Management believes that the estimates made in the preparation of the financial statements are prudent and reasonable. Actual results could differ from those estimates. Changes in estimates are reflected in the financial statements in the period in which the changes are made and if material, these effects are disclosed in the notes to the financial statements.

b.            Functional currency

The measurement and presentation currency of the financial statements is the United States dollar ("USD").

c.             Basis of consolidation

The consolidated financial statements include the accounts of the Fund and its wholly owned subsidiary, the General Partner and its majority owned entities, the Partnership, Kubera Mauritius and New Wave Holdings Limited (together referred to as the "Group"). All inter-company balances and transactions have been eliminated.

d.            Investment transactions and related investment income and expenses

Realised gains and losses and movements in unrealised gains and losses are recognized in the statement of operations and determined on weighted average cost method basis. Movements in fair value are recorded in the statement of operations at each valuation date.

Interest income and expense are recognized on an accruals basis except for securities in default for which interest is recognized on a cash basis.

e.             Fair value

Definition and hierarchy

Investments are recorded at estimated fair value as at the reporting date. The Group follows ASC 820 "Fair Value Measurements and Disclosures" which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the "exit price") in an orderly transaction between market participants at the measurement date.

ASC 820 establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Investments measured and reported at fair value as determined by the Board are classified and disclosed in one of the following categories:

Level I - Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.

Level II - Observable inputs other than quoted prices included in Level I that are not observable for the asset or liability either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates, and similar data.

Level III - Unobservable inputs for the asset or liability to the extent that relevant observable inputs are not available, representing the Group's own assumptions about the assumptions that a market participant would use in valuing the asset or liability, and that would be based on the best information available.

In determining fair value, the Board applies various valuation approaches. Inputs that are used in determining fair value of an instrument may include price information; quotations received from market makers, brokers, dealers and/or counterparties (when available and considered reliable); credit data; volatility statistics and other factors. Inputs, including price information, may be provided by independent pricing services or derived from market data. Inputs can be either observable or unobservable.

The valuations of those investments subject to sales and purchase agreements are based on the net sales proceeds contracted to be received discounted to reflect the time value of money, lack of liquidity and credit risks.

The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level III. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Valuation

Private company

Investment in a private company consists of a direct ownership of common and/or preferred stock of a privately held company. The transaction price, excluding transaction costs, is typically the Board's best estimate of fair value at inception. When evidence supports a change to the carrying value from the transaction price, adjustments are made to reflect expected exit values in the investment's principal market under current market conditions.

The Board, with assistance from the Administrator and advisers, performs ongoing valuation reviews based on an assessment of trends in the performance of each underlying investment from the inception date through the most recent valuation date.

Valuation process

The Board, with assistance from the Administrator and advisers, establishes valuation processes and procedures to ensure that the valuation techniques for investments that are categorized within Level III of the fair value hierarchy are fair, consistent, and verifiable.

The Board, with assistance from the Administrator and advisers, is responsible for reviewing the Group's written valuation processes and procedures, conducting periodic reviews of the valuation policies, and evaluating the overall fairness and consistent application of the valuation policies.

Valuations are required to be supported by market data, third-party pricing sources; industry accepted pricing models, or other methods the Board deems to be appropriate, including the use of internal proprietary pricing models.

The following table summarizes the valuation of the Group's investments based on ASC 820 fair value hierarchy levels as of 30 June 2019.

The changes in the investments classified as Level III are as follows:

*On 14 June 2019 the Fund announced the completion of the disposal of the investment in Planetcast Media Services Limited ("PMSL") for proceeds of USD 22.0 million (USD 20.0 million excluding former Manager's co-investment). PMSL was originally acquired at a cost of USD 14.7 million resulting in realised gain of USD 7.3 million.

The following table summarizes the valuation of the Group's investments based on the above ASC 820 fair value hierarchy levels as of 30 June 2018.

Total realised and unrealised gains and losses, if any, recorded for the Level III investment is reported in net realised gain (loss) on investments in securities and net change in unrealised gain (loss) on investments in securities respectively, in the Consolidated statement of operations.

f.             Foreign currency translation

Assets and liabilities denominated in a currency other than the USD are translated into USD at the exchange rate as at the reporting date. Purchases and sales of investments and income and expenses denominated in currencies other than USD are translated at the exchange rate on the respective dates of such transactions.

The Board does not generally isolate that portion of the results of operations arising as a result of changes in the foreign currency exchange rates from the fluctuations arising from changes in the market prices of securities. Accordingly, such foreign currency gain (loss) is included in net realised and unrealised gain (loss) on investments.

g.            Cash and cash equivalents

Cash and cash equivalents includes highly liquid investments, such as money market funds, that are readily convertible to known amounts of cash within 90 days from the date of purchase. All cash balances are held at major banking institutions.

h.            Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions.

i.              Fair value of financial instruments other than investment in securities

The Group's investments are accounted as described in Note 2(e). The Group's financial instruments include other current assets, accounts payable and accrued expenses, which are realizable or to be settled within a short period of time. The carrying amounts of these financial instruments approximate their fair values.

j.              Comprehensive income

The Group has no comprehensive income other than the net income disclosed in the statement of operations. Therefore, a statement of comprehensive income has not been prepared.

k.             Recent accounting announcements

There are no recent accounting pronouncements that will have a material impact on the Group's financial condition or results of operations.

l.              Net asset value per share

The net asset value per share is computed by dividing the net assets attributable to the shareholders by the number of shares at the end of the reporting period.

3.            Carried interest

During the six-month period ended 30 June 2019, no carried interest was paid / payable (30 June 2018: Nil).

4.            Directors' fees and expenses

The Fund pays Robert Michael Tyler an annual fee of GBP 25,000 and Martin Michael Adams an annual fee of GBP 27,000, plus reimbursement for out-of-pocket expenses incurred in the performance of their duties. Mr. Raghavendran has waived his Director's fees as he has interest in the former Manager. The fees paid to the directors for the period amounted to USD 33,293 (six months ended 30 June 2018: USD 35,369).

The Fund does not remunerate its Directors by way of share options and other long term incentives or by way of contribution to a pension scheme.

5.            Cash and cash equivalents

6.            Share capital and additional paid-in capital

7.            Income taxes

Under the laws of the Cayman Islands, the Fund, the General Partner and the Partnership are not required to pay any tax on profits, income and gains or appreciations. In addition, no tax is to be levied on profits, income, gains, or appreciations or which is in the nature of estate duty or inheritance tax on the shares, debentures or other obligations of the Fund and its Cayman based entities, or by way of withholding in whole or part of a payment of dividend or other distribution of income or capital by the Fund and its Cayman based entities, to its members or a payment of principal or interest or other sums due under a debenture or other obligation of the Fund and its Cayman based entities.

Under laws and regulations in Mauritius, the Fund's majority owned subsidiaries, Kubera Mauritius and New Wave Holdings Limited, are liable to pay income tax on their net income at a rate of 15%.  They are however entitled to a tax credit equivalent to the higher of actual foreign tax suffered or 80% of Mauritius tax payable in respect of their foreign source income tax thus reducing their maximum effective tax rate to 3%. Both subsidiaries have received a tax residence certificate from the Mauritian authorities certifying that they are residents of Mauritius, which is renewable on an annual basis subject to meeting certain conditions and which make them eligible to obtain benefits under the Double Tax Avoidance Treaty between Mauritius and India.

No Mauritian capital gains tax is payable on profits arising from sale of securities, and any dividends and redemption proceeds paid by Kubera Mauritius and New Wave Holdings Limited to its shareholders will be exempt in Mauritius from any withholding tax.

With the assistance of the Administrator and advisers, the Board monitors proposed and issued tax law, regulations and cases to determine the potential impact to uncertain income tax positions.  As at 30 June 2019, there are no potential subsequent events that would have a material impact on unrecognized income tax benefits within the next six months.

8.            Non-controlling interest

Non-controlling interest is composed of the partnership interests of Kubera Cross-Border Incentives SPC - Co-Investment Segregated Portfolio, a Cayman Islands company and an affiliate of the former Manager, in the consolidated affiliates.

9.            Transactions with related parties

A.    The following table lists the related parties of the Group:

Directors' fees and expenses paid during the period are disclosed in note 4.

10.          Financial instruments and associated risks

The Group's investment activities expose it to various types of risks, which are associated with the financial instruments and markets in which it invests. The financial instruments expose the Group in varying degrees to elements of liquidity, market and credit risk. The following summary is not intended to be a comprehensive summary of all risks inherent in investing in the Fund and reference should be made to the Fund's admission document for a more detailed discussion of risks.

a)            Market risk

Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market variables such as interest, foreign exchange rates and equity prices, whether those changes are caused by factors specific to the particular security or factors that affect all securities in the markets. Investments are typically made with a specific focus on India and thus are concentrated in that region. Political or economic conditions and the possible imposition of adverse governmental laws or currency exchange restrictions in that region could cause the Group's investments and their markets to be less liquid and prices more volatile. The Group is exposed to market risk on all of its investments.

b)            Industry risk

The Group's investments may have concentration in a particular industry or sector and performance of that particular industry or sector may have a significant impact on the Group. The Group's investments may also be subject to the risk associated with investing in private equity securities. Investments in private equity securities may be illiquid and subject to various restrictions on resale and there can be no assurance that the Group will be able to realize the value of such investments in a timely manner.

c)             Credit risk

Credit risk is the risk that an issuer/counterparty will be unable or unwilling to meet its commitments to the Group. Financial assets that are potentially subject to significant credit risk consist of cash and cash equivalents. The maximum credit risk exposure of these items is their carrying value.

d)            Currency risk

The Group has assets denominated in currencies other than the USD the functional currency. The Group is therefore exposed to currency risk as the value of assets denominated in other currencies will fluctuate due to changes in exchange rates. The Group's cash and cash equivalents are held in USD.

e)            Liquidity risk

The Group is exposed to liquidity risk as a majority of the Group's investments are largely illiquid. Illiquid investments include any securities or instruments which are not actively traded on any major securities market or for which no established secondary market exists where the investments can be readily converted into cash. Reduced liquidity resulting from the absence of an established secondary market may have an adverse effect on the prices of the Group's investments and the Group's ability to dispose of them where necessary to meet liquidity requirements

f)             Political, economic and social risk

Political, economic and social factors, mainly changes in Indian laws or regulations and the status of India's relations with other countries may adversely affect the value of the Group's investments.

11.  Subsequent events

There were no other significant subsequent events.