INTERNET RESEARCH INSTITUTE LTD

Interim Financial Reporting(Unaudited)
30 June 2019

INTERNET RESEARCH INSTITUTE LTD
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
USD (in thousands)

Note
ASSET
CURRENT ASSETS
Cash and cash equivalents
Trade receivables
Contract assets
Related parties
Income tax receivables
Other current assets
TOTAL CURRENT ASSETSNON-CURRENT ASSETS
Right-of-use assets
Investments accounted for using the equity
methodOther financial assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Other non-current assets
TOTAL NON-CURRENT ASSETSTOTAL ASSETSLIABILITIES AND EQUITYCURRENT LIABILITIES
Trade payable
Accruals and other payables
Contract liabilities
Short-term lease liabilities
Related parties
Income taxes payables
TOTAL CURRENT LIABILITIESNON-CURRENT LIABILITIESLong-term lease liabilities
Asset Retirement Obligations
TOTAL NON-CURRENT LIABILITIESTOTAL LIABILITIESEQUITY
Share capital
Capital surplus
Accumulated other comprehensive income
Exchange differences on translation fromfunctional currency to presentation currency
Retained earnings
TOTAL EQUITYTOTAL LIABILITIES AND EQUITY

30 June(Unaudited)

30 June(Unaudited)

31 December

2018

2019

2018

7

7,731
450
102
170
16
1,595
10,064

10,973
703
41
21
-;748
12,486

11,282
21
267
50
511
567
12,698

2

-;-

7,009

-;-

5

21,475

16,36017,531

3

808
642
17
51
-;22,993
33,057

1,225
667
293
61
9
25,624
38,110

1,087
724
15
147
-;19,504
32,202

2,682
1,571
255
13
36
415
4,972

2,638
1,999
807
1,201
329
746
7,720

147
1,500
2,947
12
6
-;4,612

2
203
205
5,177

5,708
237
5,945
13,665

65
209
274
4,886

-;9,604
178-;14,845
269-;14,845
352

1,286

1,991

1,495

16,812
27,88033,057

7,340
24,445
38,11010,62427,31632,202

4

2
7

2

2

INTERNET RESEARCH INSTITUTE LTD
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Note
Revenue
Operating costs and expenses:
Cost of sales
Selling, general and administrative
Research and Development expenses
Other incomes
Other expenses
Total operating costs and expenses
Operating profit
Other expenses (Impairment)
Finance income
Finance expense
Finance income (expense), net

USD (in thousands)
Six month period
ended 30 June (Unaudited)
2018
2019

Year ended
31 December
2018

4

8,568

9,402

10,45522
2(2,826)(5,526)(34)
6(6)(8,386)182

2-;-;-;-(3,333)(6,411)(900)
183-;(10,461)(1,059)(16)-;(58)(58)(3,455)(9,771)(33)
18(2)(13,243)(2,788)
(955)
90
(8)
82

Share of profit(loss) of investments accounted
for using the equity method

5

3,003

40

993

Gain on change in share of investments
accounted for using equity method

5

41

1,423

112

Profit (Loss) before income taxes
Income tax expense

3,226
(727)

330
(879)

(2,556)(259)

Profit (Loss) for the year

2,499

Profit (Loss) for the period attributable to:
Owners of the parent

2,499

(549)

(2,815)

(17)

(4)

34

-;-

-;-

-;-

504

657

435

(8)

(13)

18

2

5

258

(81)

394

Total other comprehensive income, net of tax
Comprehensive income for the year

694
3,193

413
(136)

1,077
(1,738)

Earnings per share attributable to owners of theparentBasic (USD)
Diluted (USD)

0.072
0.072

(0.012)(0.012)(0.071)(0.071)(549)(2,815)

Profit (Loss) for the year
Other comprehensive income, net of tax:
Items that may be reclassified to profit or loss
Share of other comprehensive income ofinvestments accounted for using equity method

5

Change in fair value of available-for-salefinancial assets
Differences from translation of financial
statements from functional currency topresentation currency
Items that will not be classified to profit or loss
Differences from translation of financial
statements from functional currency topresentation currency
Change in fair value of available-for-salefinancial assets
Share of other comprehensive income (loss) ofinvestments accounted for using equity method5

INTERNET RESEARCH INSTITUTE LTD
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGE IN EQUITY
USD (in thousands)
Equity attributable to owners of the parent

SharecapitalCapitalsurplusRetainedearnings

Accumulated
othercomprehensive
income (loss)

Exchangedifferences ontranslation
fromfunctional
currency topresentation
currency

Balance as of 31 December 2017

-;-

9,604

13,752373

852

24,581

Adjustment on adoption of new accounting standards
Balance as of 1 January 2018 (reclassified)-;-;--;9,604561
14,313

(454)
(81)

(1)
851

106
24,687

Profit for the period
Other comprehensive loss, net of tax
Total comprehensive income (loss) for the period-;-;-;--;-;-;-

2,499-;2,499

-;259
259

-;435
435

2,499
694
3,193

-;-

9,604

16,812

178

1,286

27,880

Note

Balance as of 30 June 2018(Unaudited)

Total equity

INTERNET RESEARCH INSTITUTE LTD
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGE IN EQUITY
USD (in thousands)
Equity attributable to owners of the parent

Note

Balance as of 1 January 2019

SharecapitalCapitalsurplusRetainedearnings

Accumulated
othercomprehensive
income (loss)

Exchangedifferencesontranslation
fromfunctional
currency topresentation
currency

Total equity-;-

14,845

10,624352

1,495

27,316-;--;-(2,735)-;--;-(2,735)-;-

14,845

7,889

352

1,495

24,581

Profit for the period

-;-

-;-

Other comprehensive loss, net of tax
Total comprehensive income (loss) for the period-;-;-;-

Adjustment on adoption of new accounting
standards
Balance as of 1 January 2019 (reclassified)Balance as of 30 June,2019(Unaudited)

2

-;-

-;-

-;-;-

(549)
-;(549)

(83)
(83)

496
496

(549)
413
(136)

14,845

7,340

269

1,991

24,445INTERNET RESEARCH INSTITUTE LTD
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGE IN EQUITY

USD (in thousands)
Equity attributable to owners of the parent

Note

Balance as of 31 December,2017
Adjustment on adoption of new accounting
standards
Balance as of 1 January,2018 (reclassified)Profit for the year
Other comprehensive loss, net of tax
Total comprehensive income (loss) for the period
Shares IPO, net of IPO expenses
Transfer to capital from retained earnings
Total transaction with owners and other
Balance as of 31 December,2018

SharecapitalCapitalsurplusRetainedearnings

Accumulated
othercomprehensive
income (loss)

Exchangedifferencesontranslation
fromfunctional
currency topresentation
currency

Total equity

-;-

9,604

13,752373

852

24,581

-;-

-;-

561

(454)

(1)

106

-;-

9,604

14,313(81)851

24,687-;-;-;--;-;-;-(2,815)-;(2,815)

-;433
433

-;644
644

(2,815)
1,077(1,738)-;-;-;-;-

4,367
874
5,241
14,845-;(874)(874)
10,624-;-;-;352-;-;-;1,495

4,367-;4,367
27,316

INTERNET RESEARCH INSTITUTE LTD
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSUSD (in thousands)
Six months ended 30 June
(Unaudited)
Note
Cash flows from operating activities:
Profit before income taxes
Depreciation and amortization
Share of profit of investments accounted for using equity
methodGain on change in share of investments accounted forusing the equity method
Finance income and finance expense, net
IPO related costs with regards to issuance cost
Change in assets and liabilities
Trade receivables
Contract assets
Trade payable
Accruals and other payables
Contract liabilities
OthersDividends received
Interest received
Interest paid
Income taxes received (paid)
Net cash provided by operating activities
Cash flows from investing activities:
Acquisitions of property, plant and equipment
Acquisitions of intangible assets
Acquisition of Investment Securities
Acquisition of subsidiary, net of cash acquired
Loans to related parties
Acquisition of other financial assets
Proceeds from collection of guarantee deposits
Net cash used in investing activities

3,226
51
5

(3,003)

51

(41)

4
4

8
7

Cash flows from financing activities:
Payment for IPO related cost
Proceeds from issuance of common shares
Repayments of short-term financing liabilities
Borrowings from related parties
Repayments of obligations under finance leases
Net cash provided by financing activities

72

Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Capital fund from translation differences
Cash and cash equivalents at end of year

7

2018

2019

31 December
2018

330

577
(40)
(1,423)(2,556)
117
(993)
(112)

0
169

58
-;-

1
-;-

(497)
99
2,546
(583)
(2,532)
(9)
103
0
(0)
142
(329)

(629)
226
2,417
-;(2,153)
74
102
0
(58)
313

(206)

(1,534)(429)(7)-;-;-;(1)
97
(340)

(2)
(80)
(9)
142
(74)
(1)
-;(24)

(486)
(7)

(741)
-;-;-;(6)(747)-;-;228
6
(521)
(287)

-;4,367-;-;(46)
4,321(1,416)
8,949
198
7,731

(517)
11,282
208
10,973

2,106
8,949
227
11,282

412
(81)
(38)

(283)
184

(372)
2,540
0
(1)
(352)

(282)
-;-;(2)96(681)

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE 1 – GNERAL INFORMATION, REORGANIZATION AND BASIS OF PRESENTATION
1.1 General Information
Internet Research Institute Ltd (hereinafter - the Company) was incorporated and registered in
Israel as a private company on August 8, 2017. The Company listed shares of its common stockon the Tel-Aviv Stock Exchange on August 9, 2018. The Company wholly holds in Internet
Research Institute, Inc. (hereinafter – IRI Japan), a private company that was incorporated inJapan on December 9, 1996. IRI Japan registered address is in Tokyo, Japan.
The Company’s operations, via IRI Japan and its subsidiaries (hereinafter – the Group), are focusedon Internet technologies (and, in particular, IoT), cyber security and AI (see the definitions of theseterms above), and include consultation, research, investments, and production of conferences andevents in these fields.
Upon its incorporation in Israel, the Company was wholly owned by Dr. Hiroshi Fujiwara. After theCompany’s incorporation, Dr. Fujiwara set up a company that was wholly owned by him, which wasincorporated under Japanese law (the “New IRI Japan”) the entire issued capital of which wastransferred by Dr. Fujiwara to the Company immediately following its incorporation. Just prior to
the date of the incorporation, a merger transaction (under Japanese law, hereinafter: the “Merger”)
was effected, in which the following actions were performed at the same time: (i) Dr. Fujiwaratransferred 34,786 shares of the Company (out of the 34,787 shares existing in the issued capital of
the Company) to the New IRI Japan; (ii) the operations of (the original) IRI Japan were merged
into the New IRI Japan; and (iii) the New IRI Japan transferred the shares of the Company to theshareholders of (the original) IRI Japan at a ratio of 1:2 (i.e., two shares of the Company for eachshare of the original IRI Japan). For the purpose of the merger, 756 ordinary A shares of (theoriginal) IRI Japan were converted for ordinary shares of (the original) IRI Japan, at a ratio of 1:1.
As a result of the above, after the completion of the above mentioned merger, the shareholders of
the Company were the persons who were the shareholders of (the original) IRI Japan.
Pursuant to the law that is applicable in Japan, on the date of the merger, the New IRI Japan, as therecipient corporation in the merger, accepted all of the assets and liabilities of the original IRI Japan
as such had been on the date of the merger. Therefore, in this financial statements, the term “IRIJapan” shall refer to the original IRI Japan and to the New IRI Japan, without distinction.
After completing the foregoing merger, the Company allotted bonus shares to its shareholders, sothat an additional 999 shares were allotted for each share of the Company.
All references in the financial statements to the number of shares outstanding of the Company havebeen adjusted to reflect the effect of the triangle merger and allotted bonus shares.
1.2 Terms
In this financial statements:
The Company, IRI Israel –Internet Research Institute Ltd.
The Group – the Company and its subsidiaries and its affiliates.
IRI Japan – Internet Research Institute, Inc., a private company that is wholly owned by theCompany, and that was incorporated in Japan.
NOM – NANO OPT Media, Inc., a private company that is wholly owned by IRI Japan, which wasincorporated in Japan.
IOT – IoT square, Inc., a private company that is wholly owned by IRI Japan, which wasincorporated in Japan.
FAEV – Fintech A-Eye Ventures, Inc., a private company that is wholly owned by IRI Japan, which
was incorporated in Japan.
8

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BBT – BroadBand Tower, Inc., a public company incorporated in Japan, the shares of which arelisted for trading on the Tokyo Stock Exchange, in which IRI Japan holds 19.7% of the issued andpaid up share capital.
MIC – Mobile Internet Capital, Inc., a private company which was incorporated in Japan. WhichIRI Japan holds 30% of the issued and paid up share capital.
1.3 Basis of Preparation
The unaudited interim condensed consolidated financial statements of the Group (“the interim
financial statements”) have been prepared in accordance with IAS 34 Interim Financial Reportingfor the purpose of preparation for the unaudited interim condensed consolidated financial
statements of IRI Israel. The interim financial statements were included in the unaudited interim
condensed consolidated financial statements of the Group which were approved by Hiroshi
Fujiwara, Chairman and Chief executive officer, Mirei Kuroda, and external Director, Elchanan
Harel on 28 August 2019.
The unaudited interim condensed consolidated financial statements do not include all theinformation and disclosures required in the annual consolidated financial statements and should
be read in conjunction with the Group’s annual consolidated financial statements as of 31 December
2018.
The preparation of the unaudited interim condensed consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent amounts at the date of the unaudited interim condensed
consolidated financial statements as well as the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The significant estimates andassumptions are reviewed by management on a regular basis. The effects of a change in estimatesand assumptions are recognized in the period of the change or in the period of the change and future
periods.
Also note that all comparative financial information for the six month ended 30 June 2018presented in this financial statements, which was prepared at IRI Israel’s consolidated basis,
whereas all current financial information for the six month ended 30 June 2018 was prepared at
IRI Japan’s sub consolidated basis.
1.4 Liquidity of the Company:

1. In the six months period ended 30 June 2019, the Company had USD 206 thousand negative

cash flows from operating activities (USD 329 thousand as of 30 June 2018, USD 1,534
thousand as 31 December 2018, cash flows from operating activities are also negative in those
periods).
The cash flow in the six months period ended 30 June 2019 is inter alia improved as a result of
implementation of a new financial standard (resulting deduction of rental payments includedin financing activities commencing 1 January 2019).

2. The Company's cash and cash equivalents as of 30 June 2019 mounts USD 10,973 thousands.
3. According to the Company's management assessment, the continuance of IoT Square, Inc.
("IoT") operation will cause the Company
the Management examined an efficiency plan.

anegative

cash

flow.

Therefore,

4. See in note 10 the efficiency plan that has approved by the Company's Board of Directors on 28
August 20199

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE 2 – SIGNIFICANT ACCOUNTING POLICIESThe principal accounting policies applied in the preparation of the consolidated financial
statements are set out below. These policies have been consistently applied throughout the year
ended 31 December 2018, unless otherwise stated.
The consolidated financial statements of the Group (“the financial statements”) have been preparedin accordance with International Financial Reporting Standards (“IFRS”) issued by theInternational Accounting Standard Board (the “IASB”). 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 judgement in the process of applying the accounting policies. The areas
involving a higher degree of judgement or complexity, or areas where assumptions and estimates
are significant to the Financial Statements are identical to those disclosed in Note 4 to the annual
consolidated financial statements for the year ended 31 December 2018.
The adoption of new and revised IFRS issued by IASB that are mandatorily effective for an
accounting period that begins on or after 1 January 2019 had no impact on the Group’s unaudited
interim condensed consolidated financial statements as of and for the six-month periods ended 30
June 2018 and 2019 and annual consolidated financial statements as of 31 December 2018, except
for the following standards.
The company included Separate Financial Information according to Israel Securities Authority
regulations, section 38D (Periodic and Immediate Reports), 1970
2.1 IFRS16 Leases
The Group has adopted IFRS 16 Leases from the fiscal year beginning 1 January 2019. The Group
has applied the modified retrospective method permitted by IFRS 16 and recognized the cumulative
amount of the impact as of 1 January 2019 upon adoption of the standard. As a result, the Group
has not restated the amounts in the comparative reporting period prior to adoption of IFRS 16.
IFRS 16 sets out the principal for the recognition, measurement, presentation and disclosure oflease contracts for lessees and lessors. Under IFRS 16, lessees no longer make a distinction between
finance and operating leases as required under IAS 17, and apply a single accounting model. At thecommencement date of a lease, lessees recognize a liability to make lease payments (i.e., the leaseliability) and an asset representing the right to use the underlying asset during the lease term (i.e.,
the right-of-use assets). Subsequently, lessees are required to recognize separately the interest
expense on the lease liability and the depreciation expense on the right-of-use assets. The right-ofuse assets are depreciated on a straight-line basis over the shorter of the estimated useful life of theassets or the lease term. Lessors accounting under IFRS 16 remains substantially unchanged from
IAS 17.
Upon the adoption of IFRS 16, the Group recognized lease liabilities for its leases previouslyclassified as operating lease under IAS 17. The lease liabilities were measured at the present valueof the remaining lease payments, discounted at the incremental borrowing rate as of 1 January 2019.
The weighted average incremental borrowing rate used for the lease liabilities as of 1 January 2019was 1.64%.
The Group applied the following practical expedients permitted by IFRS 16 when applying IFRS 16:- Accounted operating leases with less than 12 months of of lease term remaining as of 1
January, 2019 for short-term leases.
- Used hindsight when determining the lease term where the contract containes options toextend or terminate the lease.
- By class of underlying asset, not to separate non-lease components from lease components,
and instead accounts for each lease component and any associated non-lease components
as a single lease component.

10INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Group elected not to apply IFRS 16 to the agreements that were not identified as containing alease component applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a
Lease.
USD(in thousands)
Commitments for operating lease as of 31 December 2018 as disclosed in the Group’s
479
consolidated financial statements
Discounted using the group’s incremental borrowing rate of 1.64%(7)
Add: finance lease liabilities recognized as at 31 December 201877
(Less): short term leases and low value leases recognized on straight-line basis as(8)
expenseAdd: adjustments as a result of different treatment of extension and termination
5,691
options
Lease liabilities recognized at 1 January 2019
6,232
Current lease liabilities
849
Non-current lease leabilities
5,383
As a result of above, the Group recognized 6,230 thousand USD and 6,155 thousand USD for theright-of-use assets and lease liabilities, respectively, in the unaudited interim condensed
consolidated financial position as of 1 January 2019. As at 1 January and 30 June 2019, the Group’s
right-of-use assets consist almost entirely of Bulidings. The Group’s right-of-use assets and the leaseliabilities comprise of two segments as Information technology segment and Information service
business segement, respectively, and the ending balances of right-of-use assets and lease liabilities
as of 30 June 2019 are 3,982 thousand USD and 3,908 thousand USD associated with Information
technology segment, and 3,027 thousand USD and 3,001 thousand USD associated with
Information service business segement, respectively.
In addition, BBT and Mobile Internet Capital, Inc. (“MIC”) as affiliates of the Group have also
adopted IFRS 16 from the fiscal year beginning 1 January 2019. As a result of adoption of IFRS 16
by each affiliate in accordance with the Group’s accounting policies discussed above, the following
impacts were identified.
1. BBT
Please refer to Note 11.
2. MICMIC recognized 709 thousand USD and 741 thousand USD for the right-of-use assets and leaseliabilities, respectively at their financial statements as of 1 January 2019As a result of the adjustments in each affiliate, related cumulative loss profit investments accounted
for using equity method and its tax effects of 2,735 thousand USD was adjusted to retained earnings
through applying the equity method by the Group.
Due to the adoption of IFRS 16, the rent expense which included operating lease expenses decreasedby 522 thousand USD for the six month period ended 30 June 2019. The depreciation andamortization expenses which included the depreciation expenses of right-of-use assets, and financecosts which included interest expenses for lease liabilities increased by 510 thousand USD and 53
thousand USD , respectively for the six month period ended 30 June 2019.
In addition, cash out flow by operating activities decreased by 515 thousand USD and cash out flowby financing activies increased by 515 thousand USD compared to those under IAS 17, due to cash
payments for the principal of the lease liabilities being classified to the cash flows from financial
activities.
The accounting policies applied by the Group in accordance with the IFRS 16 as of 1 January 2019are as follows:
The Group, as a lessee, mainly leases properties. Lease contracts are normally entered into the fixed
term from 2 years to 8 years.
11

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Leases are recognized as right-of-use assets and the corresponding liabilities when the lease assets
become available for use by the Group. Each lease payment is apportioned between repayments of
the lease liability and finance costs. The finance costs are accounted for as expenses over the leaseterm and calculated based on constant periodic rate of interest on the remaining balance of the leaseliability. The right-of-use assets are depreciated over the shorter of the estimated useful life of theasset or the lease term.
The assets and liabilities arising from leases are measured at the present value ofthe lease at thecommencement date. The lease liability includes the net present value of the following lease
payments:

fixed payments less any lease incentives
the exercise price of a purchase option if the lessee is reasonably certain to exercise that
optionpayments of penalties for terminating the lease, if the lease term reflects the lessee
exercising an option. to terminate the lease

Lease payments are determined using the Group’s incremental borrowing rate, since the implicit
rate in the lease can not be readily determined.
The right-of-use assets is measured at cost shall comprise:
the amount of the initial measurement of the lease liability
any lease payments made at or before the commencement date, less any lease incentives
received
any initial direct costcost of restoring the underlying asset to the original condition
The lease payments associated with short-term lease and leases of low-value assets are recognized
as expenses on a straight-line basis.
A short-term lease is a lease that, at the commencement date, has a lease term of 12 months or less.
A lease of low-value asset, for example, comprises low value assets such as office furniture andfixture.
The Group’s property leases include extension options and termination options.
Extension option shall be included in the lease term only if the lessee is reasonably certain to
exercise that option.
2.2 Government grants
IoT as a new subsidiary of the Company received USD 66 thousand of govement grants and it wasrecorded as “other incomes” in unaudited interim condensed consolidated statements of profit orloss for the six-month period ended 30 June 2019. As of 30 June 2019, there are no unfulfilledconditions or other contengencies attaching to this grants. IoT did not benefit directly from anyother forms of government assistance.
NOTE 3 – FAIR VALUE MEASUREMENTS
Fair value hierarchy
The Group referred to the levels of the fair value hierarchy for financial instruments measured atfair value on the interim condensed consolidated financial statements based on the following inputs:– Level 1 inputs are quoted prices in active markets for identical assets or liabilities.
– Level 2 inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for
identical or similar assets or liabilities in markets that are not active, inputs other than quoted pricesthat are observable, and inputs that are derived principally from or corroborated by observable
market data by correlation or other means.
12

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS– Level 3 inputs are derived from valuation techniques in which one or more significant inputs orvalue drivers are unobservable, which reflect the reporting entity’s own assumptions that market
participants would use in establishing a price.
Transfers between levels of the fair value hierarchy are recognized as if they have occurred at the
beginning of the reporting period.
(1) Fair value measurements by fair value hierarchy
Assets measured at fair values on a recurring basis in the Interim Consolidated Statement of
Financial Position as of 30 June 2019, 30 June 2018 and 31 December 2018 are as follows:
Level 1
USD (inthousands)

Level 2
USD (inthousands)

As at 30 June 2019
(Unaudited)
AssetsFinancial assets at Fair value
through profit and loss –equity
securities
Financial assets at FVOCI

-;-

-;-

Total

Level 3
USD (inthousands)

Total
USD (inthousands)

89

89

246

246

335

335

33

33

80

80

224

224

304

304

As at 30 June 2018
(Unaudited)
AssetsFinancial assets at FVOCI

-;-

-;-

As at 31 December 2018
AssetsFinancial assets at Fair value
through profit and loss –equity
securities
Financial assets at FVOCI

-;-

-;-

(2) Reconciliations from the opening balance to the closing balance of financial instruments
categorized within Level 3 are as follows:

Financial assets at
level 3
USD (in thousands)
The six month period ended 30 June, 2019 (unaudited)
Balance at 31 December 2018
Purchases
Fair value gain/(loss) on valuation
Translation differences
Balance at 30 June 2019 (unaudited)

304
40
(35)
26
335
13

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The six month period ended 30 June 2018 (unaudited)
Balance at 31 December 2017
Fair value gain/(loss) on valuation
Translation differences
Balance at 30 June 2018 (unaudited)15
18(*)-;33

The year ended 31, December, 2018 (audited)
Balance at 31 December 201715
Purchases (**)
282
Fair value gain/(loss) on valuation(9)
Translation differences
16
Balance at 31 December 2018304(*) less than thousand US dollars.
(**) The Company purchased the preferred BB shares issued by Beta-O2 Technologises Ltd., acompany incorporated in Israel, which deals in the field of biomedicine. And the investments iscategorized as financial assets at FVOCI.
As at 30 June 2019, 30 June 2018 and 31 December 2018 financial assets at FVOCI comprise of
equity instruments.
NOTE 4– Revenue from contracts with customers
4.1 Disaggregation of revenue from contracts with customers
Details regarding disaggregated revenue included at segments reporting note (see Note 9).
4.2 Assets and liabilities related to contracts with customers
The Group has recognized the following revenue-related contract assets and liabilities.

Contract assets (1)Contract liabilities (2)USD (in thousands)
31 December
30 June30 June
2018
2018
2019
267
102
41
2,947

255

807

(1) Contract assets consist of “Costs to fulfil a contract” which is attributed to the host or thecustomer’s event in information services business.
(2) Contract liabilities consist of “Unsatisfied performance obligations” which is related to
information services business. The obligations will be satisfied within a year.
The full amount of USD 2,947 thousand recognized in contract liabilities at the beginning of theperiod has been recognized as revenue for the six months ended 30 June 2019.

14

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE 5– INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
1.

Name ofCompany

General Information
Set out below are the associates of the Group as at 30 June 2019, 30 June 2018 and 31 December
2018. The entities listed below have share capital consisting solely of ordinary shares, which are held
directly by the Group. The country of incorporation or registration is also their principal place ofbusiness, and the proportion of ownership interest is the same as the proportion of voting rights
held.
% of ownership interest
30 June31 December(Unaudited)
Nature ofPlace ofrelationshipbusiness
Main Business
2018
2019
2018

BroadBand
Tower, Inc.

・Computer plat form
・AI solutions business・Media solutions
business

22%

19.7%

22%

Associate (1)

Tokyo
Japan

MobileInternet
Capital, Inc.

Investment
management

30%

30%

30%

Associate (2)

Tokyo
Japan

Carrying amount of each investment as at 30 June 2018, 30 June 2017 and 31 December 2018 and dividend
received from each affiliate are as follows.
Carrying amount30 June31 December(Unaudited)
Name of Company

2018

Dividend received

2019

2018

Six months ended
30 June(Unaudited)
2018

2019

31
December
2018

USD (in thousands)
BroadBand Tower, Inc.

15,94914,072

15,230

103

102

203

Mobile Internet Capital,
Inc.

5,526

2,288

2,301

-;-

-;-

2,337

21,475

16,36017,531

2,540

Quoted fair value of BroadBand Tower, Inc. as at 30 June 2019, 30 June 2018 and 31 December
2018, are USD 25,452 thousand, USD 17,140 thousand and USD 28,822 thousand, respectively.
(1) BroadBand Tower, Inc. is a trailblazer in the specialty Internet data center business, as a service evolved
from ICT for modern businesses, through its advanced technological capabilities, experienced staff, andhigh-grade facilities and services. BroadBand Tower, Inc. has subsidiaries and affiliates, and they
provide planning, construction, and providing dedicated platform services (video, voice, data delivery)and support of VNO setup/operation services to cable television operators.
As shown in the table above, during the six-month period ended 30 June 2019, the Company’sownership interest ratio has decreased due to the following transactions.
a) Acquistion of TSS LINK, Inc by BBT through share exchange
As discussed in Note. 11, BBT acquired TSS LINK, Inc through share exchange on 31 January 2019and it led to o.3% of decrease in the Company’s ownership interest ratio.
b) Issuance of common shares and 10th Series of Stock Acquisition Rights
On 22 April 2019, BBT issued its common shares and 10th series of stock acquisition rights throughthird party allotment to Macquarie Bank Limited (the “Allottee”), pursuant to a resolution of a15

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
meeting of the Board of Directors on 5 April 2019. From 23 April to 30 June 2019, the Allottee
exercised approximately 59% of the rights owned by them and BBT issued common shares to the
Allotee. Those transactions led to 1.9% of decrease in the Company’s ownership interest ratio. If
the Allotte exercise the remain rights, the Company’s ownership interest ratio will decrease to 18.8%.
As of 30 June 2019, the Company holds 19.7% of the voting rights, two directors of the Company
are also designated as directors of this entity and they participate in all significant financial andoperating decisions of the entity. The Group has therefore determined that it has significant
influence over this entity. BBT’s common stock is listed and traded in the Tokyo Stock Exchange,
and above BBT’s quoted fair value is categorized as level 1 under IFRS 13, which is quoted prices in
active markets.
(2) Mobile Internet Capital, Inc. is a venture capital investing in ICT related venture companies.
The Company holds 30% of the voting rights, therefore the Company has determined that it has
significant influence over this entity.
(3) Impact from the change in ownership interest at BBT recorded as a gain on change in share ofinvestments accounted for using the equity method in statement of income, due to the following
contributions: (a) Gain on sale on owner dilution in the holding percentage of BBT; (b) Reclassificationof a portion of BBT's accumulated OCI following such sale or dilution, and ; (c) The company's share inequity movement in BBT not resulting from its comprehensive income.
2.

The summary financial statement of BroadBand Tower, Inc. adjusted to IFRS is asfollows:

Current assets
Non-current assets
Total assets

USD (in thousands)
Six months ended 30 June
31 December(Unaudited)
2018
2019
2018
91,684
102,927
93,03185,734295,464
125,281
177,418
398,385
218,312Current liabilities
Non-current liabilities
Total liabilities*40,700*43,498
84,19864,797
230,434
295,231*39,495*81,153
120,648

Total Net assets

93,220103,154

97,664

Group’s share in %Carrying amount22%
15,94919.7%
14,072

15,23022%*Re-StatedRevenue
ExpenseProfit (loss) fromcontinuing operations
Profit fromdiscontinued
operations *Profit (Loss)

USD (In thousands)
Six months ended 30 June
31 December(Unaudited)
2018
2019
2018
54,51364,741
110,31357,63263,437
115,198(3,119)1,304(4,885)-;--;-(3,400)(3,119)1,304(8,285)

Profit (Loss)
attributable to:16

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Owners of the parentof the company
Non-controllinginterests
Other comprehensive
income (loss)
Total comprehensive
income (loss)
Total comprehensive
income (loss)
attributable to:
Owners of the parentof the company
Non-controllinginterests(2,981)

434

(138)

870

239

366

1,146

(2,880)1,670(7,139)(2,733)(22)(6,384)

(148)

1,692

(755)

(7,587)(698)* Discontinued operations for the year ended 31 December 2018 is relating to the sale of IoT Square, Inc. asa wholly owned subsidiary and lost its control on 4 January 2019. Further details is discussed in Note 8.
Individually immaterial associates*
USD (in thousands)
Six months ended 30 June
31 December(Unaudited)
2018
2019
2018
Aggregate carrying
amount of individually
immaterial associates
The investments in
Mobile Internet Capital
Inc.
Profit from continuing
operations
Other comprehensive
incomeTotal comprehensive
income18,421

7,627

7,670

5,526

2,288

2,301

12,199

(103)

8,870

1,044

(87)

1,292

13,243(190)

10,162(*) As shown in the table above, during the six month period ended 30 June 2018 the amount of theinvestments in MIC has significantly increased compared to the previous period.
It caused by the fact that MIC gained an outstanding performance in the period by three IPOs fromtheir operating funds, one of which investments is a smash success by HEROZ, Inc. After their IPO in
April, the MIC’s fund sold off all their holdings in HEROZ through the stock exchange. The total gainon sale of securities that MIC recognized amounts to 18 million USD before tax effect, while no successfee was paid in the previous financial year. As a result, IRI assumed profit of investments accounted forusing the equity method from MIC in its H1 financial statements as approximately USD 4M. In thesecond half of the year ended 31 December 2018, MIC paid 2,337 thousand USD of dividend to theCompany.
MIC is a fund management company described above, and it will not continuously secure the good
performance like MIC’s the result in this period. In fact, the success fee still gross amount before any
payment of performance incentives to fund managers, dividend distribution, and so on. Therefore, theGroup determined that the reporting good results is a temporary, and accordingly MIC is still
determined as individually immaterial associate.
3. Share of profit and of other comprehensive income (loss) of investments accounted forusing the equity method17

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(a) Share of profit of investments accounted for using equity method
Six months ended 30 June
(Unaudited)
2018
2019
USD (in thousands)
Profit (loss) attributable toowners of BBTGroup’s share in BBT %Share of profit (loss)of BBT
Profit attributable to ownersof MICGroup’s share in MIC %Share of profit (loss) of MIC
Share of profit ofinvestments accounted
for using the equity
method31
December
2018(2,981)
22%
(656)

434
19.7%
72

(7,587)22%(1,669)12,199
30%
3,659

(103)
30%
(31)

8,870
30%
2,661

3,003

40

992

(b) Share of other comprehensive income (loss) of investments accounted for using equity method
Six months ended 30 June
31 December(Unaudited)
2018
2019
2018
USD (in thousands)
Other comprehensive
income (loss) attributable toowners of BBTGroup’s share in BBT %Share of othercomprehensive income(loss) of BBT, net of tax*
Other comprehensive
income (loss) attributable toowners of MIC
Group’s share in MIC %Share of Other
comprehensive income(loss) of MIC, net of tax*
Share of othercomprehensive income(loss) of investments
accounted for using theequity method


254
22%

(539)
19.7%

1,146
22%

56

(68)

175

1,044
30%

(87)
30%

1,292
30%

313

(17)

253

369

(85)

428

Including deduction of deferred income tax allocated to other comprehensive income due toinvestments in affiliates.

NOTE 6 – SEASONAL OPERATIONS
Due to the seasonal nature of the NOM segment, higher revenues and operating profits are usually
expected in the three month period ended 30 June than other quarterly periods. This is mainly due
to the fact that the Interop Tokyo, Email Security Expo & Conference as a biggest event operated by
NANO OPT Media Inc. which is held in June every year. In the fiscal year ended 31 December 2018,
48% of revenues in the three month period ended 30 June was recorded in the NOM segment.
18

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE 7 – RELATED PARTY TRANSACTIONS
For the purposes of this Interim Financial Information, parties are considered to be related to theGroup if the party has the ability, directly or indirectly, to exercise significant influence over theGroup in making financial and operating decisions. Related parties may be individuals (being
members of key management personnel, significant shareholders and/or their close family
members) or other entities and include entities which are under the significant influence of relatedparties of the Group where those parties are individuals. Parties are also considered to be related ifthey are subject to common control.
The directors are of the view that the following individuals and companies were related parties that
had transactions or balances with the Group for the six-month periods ended 30 June 2018 and2019, and the year ended 31 December 2018.
Name of related parties
Hiroshi Fujiwara
Mieko Nakagawa
Mirei Kuroda
Harel ElchananInternet Research Institute, Inc.
NANO OPT Media, Inc.
IoT Square, Inc.
BroadBand Tower, Inc.
Japan Cable Cast Inc.
Unimo, Inc.
Remote Sensing Technology
Center of Japan
Internet Association Japan
Astro Aerospace

Relationship with the Company/Group
Director of the Company, Chairman of theboard of directors and CEO, andRepresentative director of IRI Japan,
President and CEO
Director of the Company, andDirector of IRI Japan, COO
CFO of the Group
Director of the Company
Subsidiary
Subsidiary
Subsidiary
Affiliate
Subsidiary of affiliate
Company owned by director
Company owned by director
Company owned by director
Company owned by director(a) BALANCES classified as related parties
USD (in thousands)
30 June (Unaudited)
31 December
2018
2019
2018
Current assets
Booked in the company and IRI Japan:
Trade Receivable to a company own by director-Trade Receivable to Internet Association Japan-Prepaid expense to Internet Association Japan-Trade Receivable to Unimo, Inc.
-Allowance for Doubtful accounts to Unimo, Inc.

60

Booked in NANO OPT Media, Inc.:-Other receivable to Unimo, Inc.
-Allowance for Doubtful accounts to Unimo, Inc.
-Prepaid expense to Astro-Aerospace Ltd.
-Trade Receivable to Japan CableCast, Inc.
Booked in IoT Square, Inc.:-Trade Receivable to Broad band Tower, Inc.
-Prepaid expense to Broad band Tower, Inc.
Total
Non-current assets
1950(*)-;10
(10)

-;0
10
(10)

21
(21)
120

21
(21)
-;2

21
(21)
-;-

-;-;1708
11
21-;-;500
0(10)INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Booked in the company:
Total

-;-

-;-

-;-

Current liabilities
Booked in the company and IRI Japan:-Account payable to BroadBand Tower, Inc.
-Other payable for Hiroshi Fujiwara-Other payable for key role personals-Advance payment from BroadBand Tower, Inc.

1
35

3
-;-

-;-

1
15
63
-;-

-;-

1

3

-;-;-

15
1

-;-;-

-;-

233

-;-

36

329

6

Booked in NANO OPT Media, Inc.:-Account payable to BroadBand Tower, Inc.
Booked in IoT Square, Inc.:-Trade Payable to Broad band Tower, Inc.
-Account payable for Broad band Tower, Inc.
-Short-term borrowings from Directors of the IoT Square,
Inc.
Total

-;-

(*) less than thousand USD

All of the above transactions with related parties were conducted in the ordinary course of the businessof the Group based on the terms mutually agreed between the relevant parties.
(b) Transactions with related parties
USD (in thousands)
30 June31 December(Unaudited)
2018
2019
2018
Booked in the company and IRI Japan:
Transaction with Other Related Parties Outsourcing cost to BroadBand Tower, Inc.
 Purchse of common shares of IoT Square, Inc.
from BroadBand Tower, Inc.
 Sales to IoT Square, Inc.
 Sales to Internet Association Japan
 Revisions of contract amount in relation to sales
transactions with Internet Association Japan Payment of membership fee to Internet
Association Japan
Booked in NANO OPT Media, Inc.
Transaction with Other Related Parties
 Sales to BroadBand Tower, Inc.
 Sales to Japan CableCast, Inc.
 Consulting fee to Astro Aerospace Outsourcing cost to BroadBand Tower, Inc.
Booked in IoT Square, Inc.:
Transaction with Other Related Parties
 Sales to BroadBand Tower, Inc.
 Short-term borrowings from Directors of the IoT
Square, Inc.
 Sales to Remote Sensing Technology Center of Japan
 Outsourcing cost to BroadBand Tower, Inc.
Total
20

(6)

(5)

(14)

-;-

70

-;-

14
46

-;0

13
136

-;-

(49)

-;-

(1)

(2)

(1)

10

-;-

61
-;-

11
1
-;-;-

(181)
(2)

-;-;-

-;107

-;-;-

-;-

228

-;-

-;-;124

9
(60)
310

-;-;(49)

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(c) Key management compensation
As discussed in the above, until the change in reporting entity occurred on 20 November 2017, key
management personal includes 5 directors and 1 corporate auditors of IRI Japan. After the date,
key management has been changed to 7 directors and 1 CFO of the Company. The compensation
paid or payable to key management for employee services is shown below:
USD (in thousand)30-June (Unaudited)
2018
85
-;85

Executive compensation
Share-based payment
Total

2019
153
-;153

31 December
2018
323
-;323

NOTE 8 – BUSINESS COMBINATION
Acquisition of IoT Square, Inc.
On 20 December 2018, the Company’s board of director meeting resolved to acquire of IoT Square, Inc.
(“IoT”), accompany incorporated in Japan and as a wholly subsidiary of BBT.
Based on the resolution, the Company entered into the share purchase agreement with BBT on 21 December
2018. According to the terms and conditions of the agreement, the acquisition was completed on 4 January
2019 and it resulted that IoT becomes a wholly subsidiary of the Company.
IoT is an R&D company which operates in a number of fields of operations, the principal ones being thedevelopment of systems for the management and sale of digital tickets to events, management and operation
services to solar power plants, the development of solutions and consultation services in the field of datesecurity, and the design and production of films and production services.
Assets acquired and liabilities assumed
The identifiable assets and liabilities of IoT, which are measured at fair value as of the date of acquisition
except for limited exceptions in accordance with IFRS, were as follows:(USD in thousands)
Fair value
recognizedon acquisition
AssetsCash and cash equivalents
Trade receivables
Related parties
Other current assets
Other financial assets
Property and equipment
Right-of-use assets
Intangible assets
Other non-current assets
Total
Liabilities
Accruals and other payables
Related parties
Other liabilities
Lease liabilities
Asset Retirement Obligations

213
29
10
83
105
53
537
4
10
1,044
(271)
(59)
(15)
(516)
(21)
21

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Total
Total identifiable net assets at fair value
Negative goodwill
Total consideration

(882)
162
(91)
71

All consideration was paid in cash and the amount is USD 71 thousand. The fair value of the trade receivables
was USD 29 thousand. The gross contractual amounts of the trade receivables were not materially different
from the fair value determined as part of the purchase price allocation.
Negative goodwill of USD 91 thousand represented the value of expected synergies decreasing from theacquisition and was allocated entirely to the IRI segment. None of the goodwill recognized was expected to
be deductible for income tax purposes.
(USD in thousands)
Analysis of cash flows on acquisition:
Total consideration related to the acqusition
Net cash and cash equivalents acquired at theacquisition date
Net cash flows on acquisition (incuded in
cash flows from investing activities)

(71)
213
142

The Pro Forma Statement of Financial Positions as of 30 June 2018 and 31 December 2018, and the Pro
Forma Statement of Income of the Group for the six-month period ended 30 June 2018 and the year ended
31 December 2018 which the profit or loss of IoT have been retrospectively consolidated as part of Group’s
consolidated financial statements as if the acquisition of IoT had occurred on 1 January 2017 were as
followed:
Pro Forma Statement of Financial Positions
USD (in thousands)
30 June31 December
2018
2018
ASSET
CURRENT ASSETS
Cash and cash equivalents
Trade receivables
Contract assets
Related parties
Income tax receivables
Other current assets
TOTAL CURRENT ASSETSNON-CURRENT ASSETS
Other financial assets
Investments accounted for using the equity
methodProperty, plant and equipment
Intangible assets
Deferred tax assets
Other non-current assets
TOTAL NON-CURRENT ASSETSTOTAL ASSETSLIABILITIES AND EQUITYCURRENT LIABILITIES
22

9,735
631
102
170
16
1,674
12,328

11,495
50
267
60
511
651
13,034

2,292
21,475

1,192
17,531

3,345
24
51-;27,187
39,515

777
19
147
9
19,67532,702INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Trade payable
Accruals and other payables
Contract liabilities
Income taxes payables
Obligations under finance leases
Related parties
TOTAL CURRENT LIABILITIESNON-CURRENT LIABILITIES
Obligations under finance leases
Asset Retirement Obligations
Contingencies and commitments
TOTAL NON-CURRENT LIABILITIESTOTAL LIABILITIESEQUITY
Share capital
Capital surplus
Accumulated other comprehensive income
Exchange differences on translation fromfunctional currency to presentation currency
Retained earnings
TOTAL EQUITYTOTAL LIABILITIES AND EQUITY

2,682
255
1,859
434
212
37
5,479

147
2,947
1,766
16
12
62
4,950

2,522
332
-;2,854
8,333

65
209
-;274
5,224

-;9,604
178-;14,845
352

1,286

1,495

20,114
31,18239,515

10,78627,47832,702

Pro Forma Statement of Income

Revenue
Operating costs and expenses:
Cost of sales
Selling, general and administrative
Research and Development
expenses
Other incomes
Other expenses
Total operating costs and expenses
Operating loss
Operating expense
Finance income
Finance expense
Finance income (expense), net
Share of profit of investments
accounted for using the equity
methodGain on change in share ofinvestments accounted for using
the equity method
Profit (loss) before income taxes
Income tax benefit
Profit (loss) for the year
Profit (loss) for the period attributableto:
Items that may be reclassified to
profit or loss
23

USD (in thousand)Six months
Year ended
ended
2018
2018
11,1699,143(3,419)(6,553)(582)(4,281)(11,898)(1,202)10(16)(10,560)(1,417)
0
(0)
(0)
3,354

31
(2)
(17,352)(6,183)
(955)
90
(8)
82
1,739

63

162

2,000
(729)
1,271

(5,155)(264)(5,419)INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Share of other comprehensive
income of investments accounted
for using equity method
Change in fair value of availablefor-sale financial assets
Differences from translation offinancial statements fromfunctional currency to presentation
currency
Items that will not be classified to
profit or loss
Differences from translation offinancial statements fromfunctional currency to presentation
currency
Change in fair value of equity
securities at FVOCI
Share of other comprehensive
income (loss) of investments
accounted for using equity method
Total other comprehensive income,net of tax
Comprehensive loss for the year

24

(17)

34

-;-

-;-

-;-

657

435

(13)

18

5

258

394

694

1,077

1,964

(4,343)

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE 9 – SEGMENT REPORTING
Operating segments were determined based on the reports reviewed by the Chief Executive Officer(CEO) who is responsible for allocating resources and assessing performance of the operating
segments, who is the Chief Operating Decision Maker (“CODM”).
An operating segment of the Group is a component for which discrete financial information isavailable. No operating segments have been aggregated to form the reportable segments.
The CEO considers the business from two areas of activities, as follows;(a) Information technology, which includes two operating segments:(i) IRI Japan- it mainly provides consultancy services, research services and the reviewing ofmarket trends in the field of internet technologies for companies, organizations andgovernment institutions in Japan.
(ii) BBT- it mainly provides data center services, cloud services, storage solutions, AI (artificial
intelligence) solutions, dedicated platform services and support of Virtual Network
Operator setup/operation services to cable television operators. In addition, BBT deals inrenewable energy and is the owner of a number of solar power stations. Revenue from asingle external customers were approximately 14,465 thousands USD for six month ended
30 June 2018, 7,232 thousands USD for the three month ended 30 June 2018, 14,668
thousands USD for six month ended 30 June 2019, 7,336 thousands USD for the threemonth ended 30 June 2019 respectively.
(iii) IoT- it mainly provides IOT solutions and consultation services in the field of data security,and the design and production of films and production services.
(b) Information service business(i) NOM – it mainly provides planning, organization, production and management ofconferences, exhibitions, seminars and other business events in the fields of internet
technology, hi-tech, cyber security, etc.
(c) Other
Other comprise of the investments in MIC. It is a general partner in an investment fund thatmainly invests in startups in the technology and services industry, which focus on next
generation ICT (information and communications technology) companies and in related areas.
Each segment is divided to services and equipment relating to revenues and cost of revenues.
The reportable operating segments include the following measures: Revenues, Operating profit(loss), and Interest expenses and incomes, Tax, Depreciation and Assets.

25

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six months ended 30 June 2018
Unaudited
USD (in thousands)
Technology Information
IRI
BBT
*IoT
Segment
revenues
Operating profit(loss)
Share of profit(loss) ofinvestments
accounted forusing the equity
methodGain on change
in share ofinvestments
accounted forusing equity
methodProfit (loss) before
income tax
Income tax expenses(benefit)
Profit (loss) fromcontinued
operations
Profit (loss) fromdiscontinued
operation
Profit (loss) for
the year

NOM

Other

Sub total

Adjustments

Total

166

*53,924

589

8,402

-

63,081(54,513)

8,568(2,266)*(2,556)(1,599)2,448-(3,973)

4,155

182

(656)

454

-

-

3,659

3,457

(454)

3,003

41

-

-

-

-

41

-

41

(2,881)*(2,067)(1,599)

2,448

3,659

(440)

3,666

3,226

127

*548

(2)

(854)

-

(181)

(546)

(727)

(2,754)*(1,519)(1,601)

1,594

3,659

(620)

3,119

2,499

-

*(1,601)

1,601

-

-

-

-

-

(2,754)*(3,120)

-

1,594

3,659

(620)

3,119

2,499

*Re-classified
Six months ended 30 June 2019
Unaudited
USD (in thousands)
Technology Information
IRI
BBT
I0T
Segment revenues
Operating profit(loss)
Share of profit(loss) ofinvestments
accounted forusing the equity
methodGain on change inshare ofinvestments
accounted forusing equity
methodProfit (loss) before
income tax
Income tax expenses(benefit)
Profit (loss) for
the year

NOM

Other

Sub total

Adjustments

Total(64,755)

9,402

38

64,741

595

8,783

-

74,157(1,421)

1,940(1,614)

1,946

-

851

72

-

-

-

(32)

40

-

40

1,423

-

-

-

-

1,423

-

1,423

40

2,273

(1,630)

1,922

(32)

2,573

(61)

(969)

-

(809)

(9)

(1,848)

(21)

1,304

(1,630)

1,113

(39)

725

26

(1,910)(2,243)969(1,275)(1,059)

330
(879)
(549)

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 December 2018
USD (in thousands)
Technology Information
*IRI
BBT
*IoT
Segment revenues
Operating profit(loss)
Share of profit(loss) ofinvestments
accounted forusing the equity
methodGain on change inshare ofinvestments
accounted forusing equity
methodProfit (loss) before
income tax
Income tax expenses(benefit)
Profit (loss) fromcontinued
operations
Profit (loss) fromdiscontinued
operation
Profit (loss) for
the year
Other segment
items
Finance income
Finance expense
Depreciation andamortization
Capitalexpenditure

NOM

Other

Sub total

Adjustments

Total(111,054)

10,4559,398(2,788)

1,435

(442)

993

-

112

-

112

1,135

2,661

(11,684)

9,128(2,556)

(5)

(483)

-

584

(843)

(259)

(4,885)(3,400)

652

2,661

(11,100)

8,285(2,815)-(3,400)

3,400

-

-

-

-

-

(4,086)(8,285)

-

652

2,661

(9,058)8,285(2,815)

90
(8)

317
(489)

-

(1)

-

406
(498)

(316)
489

90
(8)

(73)

(10,473)

-

(43)

-

(10,589)

10,473(116)

427

46,066-65-

46,558(46,066)

492

281

110,313727

10,188-

121,509(3,923)(6,002)(3,396)1,135-(12,186)(1,668)

442

-

-

2,661

112

-

-

-

(6,352)(5,733)(3,395)224

848(6,128)* Re-classified
30 June 2018 (Unaudited)
USD (in thousands)
Technology Information
IRI
Segment assets*BBT

20,745

175,011

*IoT
2,407

NOM

Other

6,786

Adjustments
5,526(177,418)

Total
33,05730 June 2019 (Unaudited)
USD (in thousands)
Technology Information
IRI
Segment assets

BBT

25,457398,391

IoT

NOM

1,391

11,253

Other

Adjustments
2,288(400,670)

Total
38,11031 December 2018
USD (in thousands)
Technology Information
IRI
Segment assets

24,351*BBT
217,161

*IoT
499

NOM
5,550

* Re-classified

27

Other

Adjustments
2,301(217,660)

Total
32,202INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNOTE 10 – SUBSEQUENT EVENTSOn 28 August 2019 the Company's Board of Directors has approved the efficiency plan that wasdeveloped by the Management, as follows:a. Costs reduction by minimizing half of IoT employees, merging the ticket activity of IoT
into IRI Japan and interrupting other IoT's activities by no later than the end of 2019. or,alternatively, selling IoT's activities or raising additional investment in order to fund its
operation.
b. Selling BBT shares or, alternatively, funding through non- recourse bank borrowing
against BBT's shares or privately subscribed bond on amount of USD 2.5 million.
According to the Company's management assessment, and based on the management
plans as stated above, the Company believes that expected cash flow will be sufficient tofund the Company's planned operations for at least the next 12 months.

NOTE 11 – RECONCILIATION of BBT's FINANCIAL STATEMENTS FROM J-GAAP TO IFRSOn 6 August 2017, the Company submitted an application to the Securities Authority for approvalof relief in attaching the reports of the affiliateBBT, whose securities are listed for trading on theTokyo Stock Exchange in Japan, mainly approval to attach to the Company's reports BBT's
financial statements prepared according to the accepted accounting principles in Japan (J-GAAP),
as published for the public in Japan, translated into to English, together with a reconciliation notesetting out the relevant differences in the BBT financial statements between the J-GAAP and the
IFRS.
Moreover, in view of the fact that BBT's annual financial statements are published in Japan at theend of the second quarter of the calendar year (meaning 30 June), the Securities Authority staff
approves the Company's requested to attach BBT’s reports according to its reporting cycle.
To the financial statements of the Company for the period ended on 30 June 2019, attached is theaudited quarterly reports of BBT, since BBT informed the Company that as of 31 December 2018,it has updated its reporting period in order to have the annual financial statements of BBT
published together with the annual financial statements of the Company.
Below is transition from Japanese GAAP to IFRS at BBT as of and for the year ended 31 December
2018 and 2019. Since BBT’s financial information under Japanese GAAP is denominated in JPY,
the reconciliation below is presented in thousands of JPY.
Consolidated statement of financial position
JPY (in thousands)
As of 31 December 2018
Presentation under
J-GAAP
Current assets
Cash and cash
equivalents
Notes and accounts
receivable - tradeMarketable securities
Inventories

Note

Reported
underJapanese
GAAP

Effect oftransition to
IFRS

IFRS

7,250,975(22,983)

7,227,993

J

1,717,958(19,638)

1,698,320E

221,964-;-

221,964

282,482-;-

282,482

28

Presentation
under IFRSCurrent assets
Cash and cash
equivalents
Notes and accounts
receivable – trade
Investment securities
at fair value (Current)
Inventories

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-;-

A

Current assets – Others
Allowance for doubtful
accounts

J

Total current assets-;-

48,727

48,727744,718(3,231)

741,487(15,393)

15,393-;-

10,202,704

18,26910,220,973

Non-current assets
Property, plant andequipment
Intangible assets

I

6,643,234

78,364

6,721,598

B

1,960,730

Goodwill

B

663,584

48,639(5,343)2,009,369
658,241

Investment securities

E, K

1,822,665(1,788,736)

33,929-;--;-2,105,616

2,105,616

-;-

-;-

171,190

171,190

209,959

243,247

453,206

1,488,263(9,708)1,478,555

158,947(26,522)

132,423

Deferred tax assets
Lease and guarantee
deposits
Non-current assets Others

C

29

Assets classified asheld for sale
Current assets –OthersAllowance for
doubtful accounts
Total current
assetsNon-current
assetsProperty, plant andequipment
Intangible assets
Goodwill
Investments
accounted for using
the equity method
Financial assets atfair value throughcomprehensive
incomeFinancial assets atfair value throughprofit or loss
Deferred tax assets non current
Lease and guarantee
deposits
Non-current assets OthersINTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JPY (in thousands)
As of 31 December 2018
Presentation under
J-GAAP

Note

Reported
underJapanese
GAAP

Effect oftransition to
IFRS

IFRS

Presentation
under IFRS

Total non-current
assets12,947,382

816,745

13,764,127

Total non-current
assetsTotal assets

23,150,086

835,013

23,985,099

Total assets

JPY (in thousands)
As of 31 December 2018
Presentation under
J-GAAP

Note

Reported
underJapanese
GAAP

Effect oftransition to
IFRS

IFRS

Current liabilities
Accounts payable-trade607,429-;-

607,429

Short-term borrowings

1,831,952-;-

1,831,952

25,866-;-25,866779,206(25,501)

753,705

45,143-;-(1,776)366,324

43,367366,324-;-

41,07941,079795,191(125,704)*

669,487*

4,084,792

254,422

4,339,214

Lease obligations - current

Current liabilities

I

Accounts payable-other
Income taxes payable
-;-

G

-;-

OthersTotal current
liabilities
Non-current
liabilities
Lease obligations
Long-term borrowings

I

Asset retirement
obligations

271,109-;-271,1096,339,164(85,903)6,253,261

1,537,157-;-

1,537,157

Deferred tax liabilities

C

468,984

60,530529,515

-;-

G

-;-

10,716

10,716

277,735

36,347*314,082*

8,894,149

21,6908,915,842

Non-current liabilities– Others
Total non-current
liabilities

Presentation
under IFRS

30

Trade payable
Short-termborrowings
Obligation underfinance leases current
Accruals, provisions
and other payables
Income taxes payable
Contract liabilities
Liabilities directly
associated with assets
classified as held for
sale
Other current
liabilities
Total current
liabilities
Non-current
liabilities
Obligation underfinance leases
Long-term
borrowings
Asset retirement
obligations
Deferred tax
liabilities - noncurrent
Contract liabilities non current
Other non-current
liabilities
Total non-current
liabilities

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JPY (in thousands)
As of 31 December 2018
Presentation under
J-GAAP

Note

Total liabilities

Reported
underJapanese
GAAP

Effect oftransition to
IFRS

12,978,936

276,109

Presentation
under IFRS

IFRS

13,255,045

Total liabilities

EquityShareholders’equityCapital stock

2,404,404

Capital surplus
Retained earnings

2,841,553
2,247,960-;5,260
423,994

2,404,404
2,846,813
2,671,955

EquityShareholders’equityCapital stock
Capital surplus
Retained earnings

Treasury shares(259,690)-;-(259,690)

Treasury shares

Total shareholders’equity7,234,230

429,254

7,663,484

-;-

-;-

-;-

(3,313)

6,864

3,551

Foreign currencytranslation adjustment(19,830)-;-(19,830)

Total othercomprehensive
income(23,143)

6,864(16,279)

Non-controllinginterests

2,960,066

122,785

3,082,851

Non-controllinginterests

Total equity

10,171,150

558,904

10,730,054

Total equity

Total liabilities andequity23,150,086

835,013

23,985,099

Total liabilities
and equity

K

Other
comprehensive
incomeValuation differences ofavailable-for-saleinvestments

Totalshareholders’equityOther
comprehensive
incomeValuation differencesof available-for-saleinvestments
Foreign currencytranslation
adjustment
Total othercomprehensive
income* Re-classified
JPY (in thousands)
As of 30 June 2019
Presentation under
J-GAAP

Note

Reported
underJapanese
GAAP

Effect of transition
to IFRS

Presentation under
IFRS

IFRS

Current assets
Cash and cash equivalents
Notes and accounts
receivable-trade
Inventories
Current assets-Others
Allowance for doubtful
accounts
Total current assets

JJ

8,723,112-;-

8,723,112

1,859,664(9,314)1,850,350

191,938
519,249-;(204,257)

191,938
314,992(9,314)

9,314-

11,284,649(204,257)

11,080,392

Non-current assets

Current assets
Cash and cash
equivalents
Notes and accounts
receivable-trade
Inventories
Other current liabilities-;Total current assets
Non-current assets

31

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JPY (in thousands)
As of 30 June 2019
Presentation under
J-GAAP

Note

Reported
underJapanese GAAP

Effect oftransition to
IFRS

IFRS

Property, plant andequipment-;Intangible assets
GoodwillI

6,567,117

86,237

6,653,354

GB-;2,076,346
639,455

17,499,059
38,087
18,787

17,499,059
2,114,432
658,241

Investment securities

E,J

2,121,319(2,087,387)

33,932

-;-

E

-;-

2,485,119

2,485,119-;-

251,249

251,249

1,478,306-

1,478,306

236,766

189,169

425,935

159,983

47,286207,269

13,279,291

18,527,607

31,806,897

24,563,940

18,323,350

42,887,290

E-;-

Lease and guarantee
deposits
Deferred tax assets
Non-current assetsOthers
Total non-current
assetsC

Total assets

Presentation under
IFRS
Property, plant andequipment
Right-of-use assets
Intangible assets
Goodwill
Investments accounted
for using the equity
methodFinancial assets at fairvalue through othercomprehensive income
Financial assets at fairvalue through profit orloss
Other financial assets at
amortised cost
Deferred tax assets
Other non-current
assetsTotal non-current
assetsTotal assets
JPY (in thousands)

Presentation under
J-GAAP
Current liabilities
Accounts payable-trade
Short-term borrowings

Note

Reported
underJapanese GAAPAs of 30 June 2019
Effect oftransition to
IFRS
IFRS

478,367
1,919,726-

478,367
1,919,726

Lease obligations-current

36,1003,013,219

3,049,319

Accounts payable-other

460,090-460,090106,287
940,338

460,068(438,604)

106,287
460,068
501,734

3,940,908

3,034,683

6,975,592

Income taxes payable-;Current liabilities-Others
Total current
liabilities

I

H
L

Non-current liabilities
Lease obligations
Long-term borrowings
Asset retirement
obligations
Deferred tax liabilitiesnon-current-;-

Presentation under
IFRS
Current liabilities
Trade payable
Short-term borrowings
Obligation underfinance leases-current
Accruals, provisions andother payables
Income taxes payable
Contract liabilities
Other current liabilities
Total current
liabilities
Non-current
liabilities
Obligation underfinance leaseLong-term borrowings
Asset retirement
obligations

292,233

15,503,699

15,795,932

6,506,708(76,987)

6,429,721

1,542,272-

1,542,272

D

502,570

71,867574,437

Deferred tax liabilities

H-

104,997

104,997

Contract liabilities-noncurrent

I

32

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JPY (in thousands)
Presentation under
J-GAAP

Note

Non-current liabilities –OthersTotal non-current
liabilities

Reported
underJapanese GAAP

E

Total liabilities
EquityShareholders’ equity
Capital stock
Capital surplus
Retained earnings
Treasury shares
Total shareholders’equityAs of 30 June 2019
Effect oftransition to
IFRS
IFRS

Presentation under
IFRS

289,487

70,049359,537

9,133,271

15,673,625

24,806,896

13,074,179

18,708,308

31,782,487

3,032,125
3,512,474
1,853,811(87,662)

10,545(558,920)-

3,032,125
3,523,019
1,294,891(87,662)

8,310,748(548,375)

7,762,373(10,339)(39,888)(50,227)(25,338)-(25,338)(35,677)(39,888)(75,565)

3,493(3,493)-;-

Non-controlling interests

3,211,197

206,798

3,417,995

Total equity
Total liabilities andequity11,489,761(384,958)

11,104,803

24,563,940

18,323,350

42,887,290

K

Other comprehensive
incomeValuation differences ofavailable-for-saleinvestments
Foreign currencytranslation adjustment
Total othercomprehensive
incomeStock compensation

G

Other non-current
liabilities
Total non-current
liabilities
Total liabilities
EquityShareholders’ equity
Capital stock
Capital surplus
Retained earnings
Treasury shares
Total shareholders’equityOther
comprehensive
incomeValuation differences offinancial assets at
amortised cost
Foreign currencytranslation adjustment
Total othercomprehensive
incomeStock compensation
Non-controllinginterests
Total equity
Total liabilities andequityConsolidated statement of financial position
JPY (in thousands)
Presentation under
J-GAAP
Current assets
Cash and cash
equivalents
Notes and accounts
receivable-trade
-;-

Note

-;-

6,627,920

L

1,476,944(6,702)

1,470,242

G-;-

740,741

740,741

223,559
1,068,836-;20,329

223,559
1,089,165(6,702)

6,702

-;-

9,390,558

761,069

10,151,627

Current assets-Others

Total current assets

Presentation
under IFRS

6,627,920

Inventories

Allowance for doubtful
accounts

Reported underJapanese GAAPAs of 30 June 2018
Effect oftransition to
IFRS
IFRS

L

33

Current assets
Cash and cash
equivalents
Notes and accounts
receivable-trade
Financial assets atfair value throughother comprehensive
income-current
Inventories
Other current
liabilities-;Total current
assetsINTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Non-current assets
Property, plant andequipment
Intangible assets
GoodwillJ4,112,432(10,084)

4,102,348

D

1,547,985
615,207

6,330(11,164)

1,554,315
604,043

Investment securities

G, L

1,597,125(1,564,014)

33,111

-;-

G

-;-

1,739,212

1,739,212-;-

160,894

160,894

845,693-;-845,693-;-248,263248,263

126,979

77,855

204,834

8,845,423

647,292

9,492,715

18,235,982

1,408,360

19,644,342

G-;Lease and guarantee
deposits-;Non-current assetsOthers
Total non-current
assetsE

Total assets

Non-current assets
Property, plant andequipment
Intangible assets
Goodwill
Investments
accounted for using
the equity method
Financial assets atfair value throughother comprehensive
incomeFinancial assets atfair value throughprofit or loss
Other financial assets
at amortised cost
Deferred tax assets
Other non-current
assetsTotal non-current
assetsTotal assets

JPY (in thousands)
Presentation under
J-GAAP

Note

Reported underJapanese GAAPAs of 30 June 2018
Effect oftransition to
IFRS
IFRS

Current liabilities
Accounts payable-trade418,587-;-

418,587

Short-term borrowings

1,763,532-;-

1,763,532

26,228-;-26,2281,293,727-;-

1,293,727

H

116,088-;--;429,929

116,088429,929F

729,101(270,741)*

458,359*

4,347,263

159,189

4,506,452

Lease obligationscurrent
Accounts payable-other
Income taxes payable-;Current liabilitiesOthers
Total current
liabilities
Non-current
liabilities
Lease obligations
Long-term borrowings

K283,776-;-

283,776

3,195,600(26,775)

3,168,825

636,001-;-

636,001

Asset retirement
obligations
Deferred tax liabilities

E488,745

32,731

521,476

-;-

H

-;-

86,25486,254102,152

17,808*

119,960*

Non-current liabilities Others

34

Presentation
under IFRSCurrent liabilities
Trade payable
Short-termborrowings
Obligation underfinance leases-current
Accruals, provisions
and other payables
Income taxes payable
Contract liabilities
Other current
liabilities
Total current
liabilities
Non-current
liabilities
Obligation underfinance leaseLong-term
borrowings
Asset retirement
obligations
Deferred tax liabilities
Contract liabilitiesnon current
Other non-current
liabilities

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JPY (in thousands)
Presentation under
J-GAAP

Note

As of 30 June 2018
Effect oftransition to
IFRS
IFRS

Reported underJapanese GAAP

Presentation
under IFRS

Total non-current
liabilities

4,706,274

110,018

4,816,292

Total non-current
liabilities

Total liabilities

9,053,538

269,206

9,322,744

Total liabilities

EquityShareholders’equityCapital stock
Capital surplus
Retained earnings
Treasury shares

2,383,721
2,798,278
2,133,962(259,690)-;-;1,113,403-;-

2,383,721
2,798,278
3,247,365(259,690)

7,056,272

1,113,403

8,169,675-;-(63,949)(63,949)(58,957)-;-(58,957)(58,958)(63,948)(122,906)

11,997

14,414

26,411

2,173,132

75,2852,248,417

9,182,444

1,139,154

10,321,598

18,235,982

1,408,360

19,644,342

M

Total shareholders’equityOther
comprehensive
incomeValuation differencesof available-for-saleinvestments

G

Foreign currencytranslation adjustment
Total othercomprehensive
incomeStock compensation
Non-controllinginterests
Total equity
Total liabilities andequityEquityShareholders’equityCapital stock
Capital surplus
Retained earnings
Treasury shares
Total
shareholders’equityOther
comprehensive
incomeValuation differencesof financial assets at
amortised cost
Foreign currencytranslation
adjustment
Total othercomprehensive
incomeStock compensation
Non-controllinginterests
Total equity
Total liabilities
and equity*Re-classified

Consolidated statement of income
JPY (in thousands)
For the 6 month ended 30 June 2018
Presentation under
J-GAAP

Note

Reported
underJapanese
GAAP

Effect oftransition
to IFRS

Reclassification
into
Discontinued
Operations

IFRS

Presentation under
IFRS

Net revenue

A, F

5,897,683

27,159(95,986)

5,828,856

Revenue

Cost of revenue

A, F(4,486,764)(410,151)

85,623(4,811,292)

Cost of sales

1,410,919(382,993)(10,363)

1,017,564

Gross profit

B, E(1,548,676)(1,866)

171,456(1,379,086)

Selling, general andadministrative expenses

A

082,635(442)

82,193

Other income

A, I

0

(11,589)

1,174(10,415)

Other expense

Gross profit
Selling, general andadministrative expenses

35

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Operating profit(137,756)(313,813)

161,825(289,744)

Operating profit

Non-operating incomeJ

89,756(89,756)00-Non-operating expenses

J(102,304)

102,304

0

0-

Finance income

J021,797

0

21,797

Finance income

Financial expense

A, J

0

(17,964)

3,999(13,965)

Finance expense

Loss under equity method

J049,316049,316(150,305)(248,115)

165,824(232,596)

Ordinary Loss

Share of loss ofinvestments accounted forusing the equity method
Ordinary Loss

Extraordinary incomeJ

50,698(50,698)

00Extraordinary income

Extraordinary loss

J

(427,716)

427,71600Extraordinary loss

(527,324)

128,904

165,824(232,596)(16,368)

75,697223

59,552(543,691)

204,601

166,047(173,043)

46,595(31,609)0

14,9860

0

0

0

Loss attributable toowners of parent(497,096)

172,992

166,047(158,057)

Loss attributable toowners of parent

Loss after income taxes(543,691)

204,601

166,047(173,043)

Loss for the year

-;-

-;-

(166,047)(166,047)(33)

41,323-

41,290(14,247)--(14,247)

Loss before income
taxes
Income taxes

A

Loss after income taxes
Minority interest-

Reclassification of loss
from discontinuedC
operations
Other comprehensive
income (loss), net of tax:
Valuation difference on
available-for-saleEinvestment
Foreign currencytranslation adjustment
Share of othercomprehensive income ofentities accounted for using
equity method(1,123)--(1,123)

Total othercomprehensive income(loss), net of tax(15,402)41,323025,921

Comprehensive income(loss)(559,093)

245,924

166,047(147,123)

Loss before income
taxes
Income taxes
Loss after income
taxes
Minority interest-

Reclassification of loss
from discontinued
operations
Other comprehensive
income (loss), net of tax:
Change in fair value ofavailable-for-sale financial
assetsForeign currencytranslation adjustment
Share of othercomprehensive income ofinvestments using theequity method
Total othercomprehensive
income (loss), net oftax
Comprehensive
income (loss)

Comprehensive income
attributable to
Owners of parent(512,498)

215,479

166,047(130,972)

Comprehensive income
attributable to
Owners of parent

Non-controlling interests(46,595)

30,445-(16,150)

Non-controlling interests

36

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JPY (in thousands)
For the 6 month ended 30 June 2019
Presentation under
J-GAAPNet revenue
Cost of revenue
Gross profit
Selling, general andadministrative expenses

Note
F
F, G

B,E,G

-;-;Operating loss

Reported
underJapanese
GAAP
7,260,724(5,540,731)
1,719,993

Effect oftransition to
IFRS(137,428)
621,117

IFRS

Presentation under IFRS

483,689

7,123,296(4,919,614)
2,203,682

Revenue
Cost of sales
Gross profit(1,917,169)(82,719)(1,999,887)

Selling, general and administrative
expenses-;-;-

27,295(17,662)

27,295(17,662)

Other income
Other expense(197,176)

410,603

213,428

Operating profit

Non-operating incomeJ

47,922(47,922)-;--;-

Non-operating expenses

J(58,710)58,710

-;-

-;-

-;-;-

J
J

-;-;-

141,346(104,733)

141,346(104,733)

-;-

J

-;-

4

4

(207,964)

458,009250,045-;-(35,214)35,214-;--;-(243,178)

493,222250,045

Profit before income taxes(43,381)(63,198)(106,579)

Income taxes expense(286,559)

430,024

143,466

Loss for the year

56,23639,497

95,733

Minority interest(342,794)

390,527

47,733

Loss attributable to owner ofparent(286,558)

430,024

143,466

Ordinary profit
Extraordinary loss
Profit before income
taxes
Income taxes
Loss after income
taxes
Minority interest

J

C

Loss attributable toowners of parent
Loss after income
taxes
Other comprehensive
income, net of tax:
Valuation difference
on available-for-saleinvestment
Foreign currencytranslation adjustment
Total othercomprehensive
income, net of tax
Comprehensive
incomeComprehensive
income attributable to
Owners of parent
Non-controllinginterests

Finance income
Finance expense
Share of profit of investments
accounted for using the equity method

Loss for the year
Other comprehensive income, net oftax:

E(34,277)

80,00245,726

Change in fair value of availablefor-sale financial assets(5,507)-;-(5,507)

Foreign currency translation
adjustment(39,784)

80,002

40,219Total other comprehensive
loss, net of tax(326,343)

510,026

183,685

Comprehensive income
Comprehensive income
attributable to
Owners of parent(355,653)

353,226(2,427)29,311

156,800

186,11237

Non-controlling interests

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JPY (in thousands)
For the 6 month ended 30 June 2019
Presentation under
J-GAAP

Note

Reported
underJapanese
GAAP

Effect oftransition to
IFRS

IFRS

Presentation under IFRS

A) Acquisition of TSS LINK, Inc.
Pursuant to the share exchange agreement executed on 21 December 2018, the Company completed a shareexchange on 31 January 2019, whereby the Company became a wholly owning parent company resulting
from share exchange, and TSS LINK, Inc. (“TSS”) became a wholly owned subsidiary resulting from shareexchange, with the aim of enhancing its computer platform business to increase competitiveness. As a resultof the above, the Company acquired 100% voting rights in TSS and made it a consolidated subsidiary.
Assets acquired and liabilities assumed
The identifiable assets and liabilities of TSS, which are measured at fair value as of the date of acquisition
except for limited exceptions in accordance with IFRS, were as follows:(JPY in thousands)
Fair Valuerecognizedon acquisition
AssetsCurrent asset
Non-current asset
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Total identifiable net assets at fair value
Total consideration

140,069
178,955
319,024(49,837)(52,490)(102,327)
216,697
216,697

Detail of purchase consideration is as follow.
(in thousands of yen)
10,203(3,785)210,279
216,697

Cash paid
Loss on step acquisition
Ordinary shares issued
Total purchase consideration

From the date of acquisition, TSS had contributed JPY 66,646 thousand to the revenue of BBT and had
increased profit from continuing operations of BBT by JPY 18,109 thousand. If the business combination
had taken place on 1 January 2019, consolidated pro-forma revenue and profit from continuing operations
would have been JPY 7,133,342 thousand and JPY 28,944 thousand for the 6 month ended 30 June 2019.
B) Acquisition of Okinawa Cable Network Inc.
On 3 October 2018, JapanCableCast Inc. (“JCC”), which is BBT’s consolidated subsidiary, acquired 100% of
the voting shares of Okinawa Cable Network Inc. (“OCN”), an unlisted company based in Okinawa, Japan,
specializing in providing dedicated cable television service. As a result of the acquisition, JCC obtained
control, and OCN became consolidated subsidiaries of BBT. JCC acquired OCN for the purpose of proposing
cable television operators to make progress of innovation of IP business by providing data broadcasting
services with IP video distribution service, mutual smart TV service and hybrid cast technology.
As the purchase price allocation is incomplete as of issuance date of the consolidated financial statements,
BBT reports provisional amounts at the acquisition as of 31 December 2018 and 30 June 2019 for38

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated statement of financial position and for the 6 month ended 30 June 2019 for Consolidated
statement of income.
Assets acquired and liabilities assumed
The identifiable assets and liabilities of OCN, which are measured at fair value as of the date of acquisition
except for limited exceptions in accordance with IFRS, were as follows:(JPY in thousands)
Fair Valuerecognizedon acquisition
AssetsCash and cash equivalents
Trade receivables
Inventories
OthersProperty and equipment
Customer relationship assets
Other intangible assets
Deferred tax assets
Other non-current asset
Total assets
Liabilities
Trade payables
Accruals and other payables
Income taxes payables
Asset Retirement Obligations
Other current liabilities
Other non-current liabilities
Total liabilities

387,560
185,701
18,05853,747
380,588
49,261
10,289193,257
4,071
1,282,532(36,723)(152,172)(78,222)(762,518)(8,899)(198,195)(1,236,729)

Total identifiable net assets at fair value
Goodwill
Total consideration

45,80354,197100,000

All consideration was paid in cash. The fair value of the trade receivables was JPY 185,701 thousand. The
gross contractual amounts of the trade receivables were not materially different from the fair value
determined as part of the purchase price allocation.
Goodwill of JPY 54,198 thousand represented the value of expected synergies arising from the acquisition
and was allocated entirely to the BBT segment. None of the goodwill recognized was expected to be
deductible for income tax purposes.
C) Presentation of discontinued operations
Under Japanese GAAP, there is no specific requirements for the presentation of discontinued operations
and reclassification of assets and liabilities as assets and liabilities held for sale.
Under IFRS, an operation which meets certain criteria is classified as a discontinued operation and its
results should be presented separately from continuing operations.
The Company engaged to sell whole share of its 100% investment in IoT square, Inc. on 21, December 2018.
Due to this, the assets and liabilities of IoT square, Inc. as at 31 December 2018 are reclassified as assets
classified as held for sale and liabilities directly associated with assets classified as held for sale and income
from discontinued operations for the 6 months ended 30 June 2018 are separately presented retrospectively.
D) Goodwill and intangibles
As allowed under Japanese GAAP, goodwill is amortized for a period of less than 20 years. Under IFRS,
goodwill is not amortized and the impairment test is performed at least annually, or more frequently uponoccurrence of a trigger event.
As a result, JPY 604,043 thousand, JPY 658,241 thousand and JPY 658,241 thousand of goodwill is recorded
under IFRS as at 30 June 2018, 31 December 2018 and 30 June 2019, respectively. Subsequently, JCC,
which is a subsidiary of BBT, acquired OCN on 3 October 2018. Goodwill arising from OCN acquisition is39

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
newly included as at 31 December 2018 and 30 June 2019. Reconciliation of goodwill between Japanese
GAAP and IFRS 30 June 2018 , 31 December 2018 and 30 June 2019 are as follow.
JPY (in thousands)
30 June 201931 December 2018

30 June 2018

Goodwill under Japanese GAAP

639,455

663,584

615,207

Reversal of amortization expenseof goodwill under Japanese GAAP

79,36755,23832,379(60,581)(60,581)(43,543)658,241

658,241604,043

GAAP adjustment from Japanese
GAAP to IFRS as of 10 October
related to JCC
Goodwill under IFRSThe Company tests whether goodwill has suffered any impairment on an annual basis at every 31 December
under IFRS. The Company did not perform the impairment test, because there was no indication ofpotential impairment as at 30 June 2019.
E) Deferred tax assets and deferred tax liabilities
Japanese GAAP provides detailed guidance on assessing the recoverability of deferred tax assets. An entity
is classified into 5 categories by its profitability and the extent of the recoverability of deferred tax assets
and the length of estimated future periods to assess the recoverability of deferred tax assets are determinedby such categories, and the scheduling of estimated future taxable income and the amounts thereof is taken
into account in recording deferred tax assets by assessing the recoverability of assets in terms of thesufficiency of taxable income based on profitability, existence of tax planning and sufficiency of taxable
temporary differences.
Under IFRS, the recoverability of deferred tax assets is assessed as they are recognized in terms of whether
it is probable that taxable profits will be available against which the assets can be utilized. Deferred taxes
recognized for other temporary differences arising from adjustments related to IFRS are also adjusted.
As a result, , JPY248,263 thousand, JPY243,247 thousand and JPY 189,169 thousand of deferred tax assets
are 1) adjusted as the differences of the treatment of recoverability of deferred taxes under Japanese GAAP
and IFRS, 2) recorded from the adjustment accounting entries from Japanese GAAP to IFRS, also off set
the deferred tax assets with the liabilities, as at 30 June 2018, 31 December 2018 and 30 June 2019,respectively.
F) Unused paid absences
Under Japanese GAAP, no provision is made for employees’ unused rights to paid absences. Under IFRS,
they are recognized in other current liabilities.
For the 6 month ended 30 June 2018 and 2019, the expense relating to the unused paid absence at JPY
35,801(expense) thousand and JPY 50,057(expense) thousand are included as the adjustment fromJapanese GAAP to IFRS, respectively. In addition, others in the current liability as at 30 June 2018, 31
December 2018 and 30 June 2019 are increased by JPY 77,023 thousand, JPY 53,767 thousand and JPY
103,824 thousand, respectively, due to the adjustment from Japanese GAAP to IFRS.
G) Fair value measurement
Under Japanese GAAP, if a financial asset does not have a quoted market value, then where an entity is able
to reasonably calculate a price which can be considered to be a quasi-quoted price, such price may be used
for that financial asset as a market value. The “reasonably calculated price” represents, a price calculatedusing reasonable estimates of management.
Under IFRS, the Company referred to the levels of the fair value hierarchy for financial instruments
measured at fair value on the reconciliation based on the following inputs:– Level 1 inputs are quoted prices in active markets for identical assets or liabilities.
– Level 2 inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identicalor similar assets or liabilities in markets that are not active, inputs other than quoted prices that are
observable, and inputs that are derived principally from or corroborated by observable market data bycorrelation or other means.
40

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS– Level 3 inputs are derived from valuation techniques in which one or more significant inputs or value
drivers are unobservable, which reflect the reporting entity’s own assumptions that market participants
would use in establishing a price.
(1) Fair value measurements by fair value hierarchy
Assets measured at fair values on a recurring basis in the reconciliation as of 31 December 2018 and 30 June2019 are as follows:

As at 30 June 2018
AssetsFinancial assets at fair value
through other comprehensive
incomeFinancial assets at fair value
through profit or loss
Total

As at 31 December 2018
AssetsFinancial assets at fair value
through other comprehensive
incomeFinancial assets at fair value
through profit or loss
Total

As at 30 June 2019
AssetsFinancial assets at fair value
through other comprehensive
incomeFinancial assets at fair value
through profit or loss
Total

JPY (in thousands)
Level 3
Total

Level 1

Level 2-;-740,741

1,518,260

2,259,001

-;-

-;-

160,894

160,894-;-

740,741

1,679,154

2,419,895

Level 1

Level 2-;--;-

2,327,579

2,327,579

-;-

-;-

171,190

171,190-;--;-2,498,769

2,498,769

Level 1

Level 2-;--;-

2,485,119

-;-

-;-

251,249-;-

2,736,368

JPY (in thousands)
Level 3Total

JPY (in thousands)
Level 3Total

The table below presents the changes in level 3 instruments for the relevant periods:
Level 3
JPY (in thousands)

Balance at 1 January 2018
Additions of financial assets
Disposal of financial assets
Fair value gain/(loss) through othercomprehensive income
Balance at 30 June 2018

1,699,874
589,058(452,086)

Balance at 1 January 2019
Additions of financial assets
Disposal of financial assets

2,498,769
396,333(222,000)

63,2601,900,10641

2,485,119
251,249
2,736,368

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fair value gain/(loss) through othercomprehensive income
Fair value gain/(loss) on valuation
carried to other comprehensive income
OthersBalance at 30 June 2019

(51,703)
120,724(5,755)2,736,368

There were no transfers between levels 1, 2 and 3 during the relevant periods.
H) Fair value measurement
Under Japanese GAAP, if a financial asset does not have a quoted market value, then where an entity is able
to reasonably calculate a price which can be considered to be a quasi-quoted price, such price may be used
for that financial asset as a market value. The “reasonably calculated price” represents, a price calculatedusing reasonable estimates of management.
Under IFRS, the Company referred to the levels of the fair value hierarchy for financial instruments
measured at fair value on the reconciliation based on the following inputs:– Level 1 inputs are quoted prices in active markets for identical assets or liabilities.
– Level 2 inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identicalor similar assets or liabilities in markets that are not active, inputs other than quoted prices that are
observable, and inputs that are derived principally from or corroborated by observable market data bycorrelation or other means.
– Level 3 inputs are derived from valuation techniques in which one or more significant inputs or value
drivers are unobservable, which reflect the reporting entity’s own assumptions that market participants
would use in establishing a price.
(2) Fair value measurements by fair value hierarchy
Assets measured at fair values on a recurring basis in the reconciliation as of 31 December 2018 and 30 June2019 are as follows:

As at 30 June 2018
AssetsFinancial assets at fair value
through other comprehensive
incomeFinancial assets at fair value
through profit or loss
Total

As at 31 December 2018
AssetsFinancial assets at fair value
through other comprehensive
incomeFinancial assets at fair value
through profit or loss
Total

JPY (in thousands)
Level 3
Total

Level 1

Level 2-;-740,741

1,518,260

2,259,001

-;-

-;-

160,894

160,894-;-

740,741

1,679,154

2,419,895

Level 1

Level 2-;--;-

2,327,579

2,327,579

-;-

-;-

171,190

171,190-;--;-2,498,769

2,498,769

Level 1

Level 2As at 30 June 2019
Assets42

JPY (in thousands)
Level 3Total

JPY (in thousands)
Level 3Total

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Financial assets at fair value
through other comprehensive
incomeFinancial assets at fair value
through profit or loss
Total

-;-

-;-

2,485,119

-;-

-;-

251,249-;-

2,736,368

2,485,119
251,249
2,736,368

The table below presents the changes in level 3 instruments for the relevant periods:
Level 3
JPY (in thousands)

Balance at 1 January 2018
Additions of financial assets
Disposal of financial assets
Fair value gain/(loss) through othercomprehensive income
Balance at 30 June 2018

1,699,874
589,058(452,086)

Balance at 1 January 2019
Additions of financial assets
Disposal of financial assets
Fair value gain/(loss) through othercomprehensive income
Fair value gain/(loss) on valuation
carried to other comprehensive income
OthersBalance at 30 June 2019

2,498,769
396,333(222,000)(51,703)

63,2601,900,106

120,724(5,755)2,736,368

There were no transfers between levels 1, 2 and 3 during the relevant periods.
I) Fair value measurement
Under Japanese GAAP, if a financial asset does not have a quoted market value, then where an entity is able
to reasonably calculate a price which can be considered to be a quasi-quoted price, such price may be used
for that financial asset as a market value. The “reasonably calculated price” represents, a price calculatedusing reasonable estimates of management.
Under IFRS, the Company referred to the levels of the fair value hierarchy for financial instruments
measured at fair value on the reconciliation based on the following inputs:– Level 1 inputs are quoted prices in active markets for identical assets or liabilities.
– Level 2 inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identicalor similar assets or liabilities in markets that are not active, inputs other than quoted prices that are
observable, and inputs that are derived principally from or corroborated by observable market data bycorrelation or other means.
– Level 3 inputs are derived from valuation techniques in which one or more significant inputs or value
drivers are unobservable, which reflect the reporting entity’s own assumptions that market participants
would use in establishing a price.
(3) Fair value measurements by fair value hierarchy
Assets measured at fair values on a recurring basis in the reconciliation as of 31 December 2018 and 30 June2019 are as follows:

Level 1As at 30 June 201843

Level 2

JPY (in thousands)
Level 3Total

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AssetsFinancial assets at fair value
through other comprehensive
incomeFinancial assets at fair value
through profit or loss
Total

-;-

740,741

1,518,260

2,259,001

-;-

-;-

160,894

160,894-;-

740,741

1,679,154

2,419,895

Level 1

Level 2-;--;-

2,327,579

2,327,579

-;-

-;-

171,190

171,190-;--;-2,498,769

2,498,769

Level 1

Level 2-;--;-

2,485,119

-;-

-;-

251,249-;-

2,736,368

As at 31 December 2018
AssetsFinancial assets at fair value
through other comprehensive
incomeFinancial assets at fair value
through profit or loss
Total

As at 30 June 2019
AssetsFinancial assets at fair value
through other comprehensive
incomeFinancial assets at fair value
through profit or loss
Total

JPY (in thousands)
Level 3Total

JPY (in thousands)
Level 3Total

The table below presents the changes in level 3 instruments for the relevant periods:
Level 3
JPY (in thousands)

Balance at 1 January 2018
Additions of financial assets
Disposal of financial assets
Fair value gain/(loss) through othercomprehensive income
Balance at 30 June 2018

1,699,874
589,058(452,086)

Balance at 1 January 2019
Additions of financial assets
Disposal of financial assets
Fair value gain/(loss) through othercomprehensive income
Fair value gain/(loss) on valuation
carried to other comprehensive income
OthersBalance at 30 June 2019

2,498,769
396,333(222,000)(51,703)

63,2601,900,106

120,724(5,755)2,736,368

There were no transfers between levels 1, 2 and 3 during the relevant periods.

44

2,485,119
251,249
2,736,368

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTSJ) Fair value measurement
Under Japanese GAAP, if a financial asset does not have a quoted market value, then where an entity is able
to reasonably calculate a price which can be considered to be a quasi-quoted price, such price may be used
for that financial asset as a market value. The “reasonably calculated price” represents, a price calculatedusing reasonable estimates of management.
Under IFRS, the Company referred to the levels of the fair value hierarchy for financial instruments
measured at fair value on the reconciliation based on the following inputs:– Level 1 inputs are quoted prices in active markets for identical assets or liabilities.
– Level 2 inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identicalor similar assets or liabilities in markets that are not active, inputs other than quoted prices that are
observable, and inputs that are derived principally from or corroborated by observable market data bycorrelation or other means.
– Level 3 inputs are derived from valuation techniques in which one or more significant inputs or value
drivers are unobservable, which reflect the reporting entity’s own assumptions that market participants
would use in establishing a price.
(4) Fair value measurements by fair value hierarchy
Assets measured at fair values on a recurring basis in the reconciliation as of 31 December 2018 and 30 June2019 are as follows:

As at 30 June 2018
AssetsFinancial assets at fair value
through other comprehensive
incomeFinancial assets at fair value
through profit or loss
Total

As at 31 December 2018
AssetsFinancial assets at fair value
through other comprehensive
incomeFinancial assets at fair value
through profit or loss
Total

As at 30 June 2019
AssetsFinancial assets at fair value
through other comprehensive
incomeFinancial assets at fair value
through profit or loss
Total

JPY (in thousands)
Level 3
Total

Level 1

Level 2-;-740,741

1,518,260

2,259,001

-;-

-;-

160,894

160,894-;-

740,741

1,679,154

2,419,895

Level 1

Level 2-;--;-

2,327,579

2,327,579

-;-

-;-

171,190

171,190-;--;-2,498,769

2,498,769

Level 1

Level 2-;--;-

2,485,119

-;-

-;-

251,249-;-

2,736,368

45

JPY (in thousands)
Level 3Total

JPY (in thousands)
Level 3
Total

2,485,119
251,249
2,736,368

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The table below presents the changes in level 3 instruments for the relevant periods:
Level 3
JPY (in thousands)

Balance at 1 January 2018
Additions of financial assets
Disposal of financial assets
Fair value gain/(loss) through othercomprehensive income
Balance at 30 June 2018

1,699,874
589,058(452,086)

Balance at 1 January 2019
Additions of financial assets
Disposal of financial assets
Fair value gain/(loss) through othercomprehensive income
Fair value gain/(loss) on valuation
carried to other comprehensive income
OthersBalance at 30 June 2019

2,498,769
396,333(222,000)(51,703)

63,2601,900,106

120,724(5,755)2,736,368

There were no transfers between levels 1, 2 and 3 during the relevant periods.
K) Revenue recognition
BBT derives more than 90% of its revenues from recurring revenue streams, consisting primarily of 1)
Computer platform business; 2) IoT/AI solution business; 3) Media solution business.
1) Computer platform business
Main component in the computer platform business is data center business, consisting primarily of 1)
colocation, which includes the licensing of cabinet space and power; (2) interconnection offerings; (3)managed infrastructure solutions. The remainder of the revenues are from non-recurring revenue streams,
such as installation revenues, professional services and equipment sales. Under the revenue accounting
guidance under IFRS 15, revenues are recognized when control of these products and services is transferred
to its customers, in an amount that reflects the consideration it expects to be entitled to in exchange for the
products and services. Revenues from recurring revenue streams are generally billed monthly andrecognized ratably over the term of the contract, generally one to three years for data center customers.
Non-recurring installation fees, although generally paid upfront upon installation, are deferred andrecognized ratably over the average customer relationship periods. Professional service fees and equipment
sales are recognized in the period when the services were provided.
2) IoT/AI solution business
IoT/AI solution business mainly supports contact centers and help desks operators through natural
language analysis technology. Under the revenue accounting guidance under IFRS15, revenues arerecognized when control of these services is transferred to its customers, in an amount that reflects theconsideration it expects to be entitled to in exchange for the services. Revenue from the services arerecognized in the period when the services were provided.
3) Media solution businessMedia solution business provides the telecommunications network business for cable television operatorsand program suppliers throughout Japan. The remainder of the revenues are from non-recurring revenue
streams, such as installation revenues, professional services and equipment sales. Under the revenue
accounting guidance under IFRS 15, revenues are recognized when control of these products and services istransferred to its customers, in an amount that reflects the consideration it expects to be entitled to inexchange for the products and services. Revenues from recurring revenue streams are generally billed
monthly and recognized ratably over the term of the contract, generally one to three years for cable46

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
television operators and program suppliers. Non-recurring installation fees are recognized in the period
when the services were provided.
Under Japanese GAAP, revenue is recognized when each good is accepted by the Company’s customer orfor the contractual period when each service is provided. The revenue from initial installation services atthe datacenter business is recognized at the time of installation.
However, under IFRS 15, which has been adopted from 1 January 2018, the Company recognize revenue
when (or as) the entity satisfies a performance obligation by transferring a promised good or service (i.e. anasset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset. The
Company has concluded that the current methods of revenue recognition and measurement under Japanese
GAAP are in accordance with both IFRS 15 and former IAS 18, with the exception of installation services.
Under both IFRS 15 and former IAS 18, the initial installation services is recognized over the period of the
expected period of the customer relationship.
As a result of the adjustment at revenue recognition, the revenue for the 6 month ended 30 June 2018
increased by JPY 27,158 thousand and the revenue for the 6 month ended 30 June 2019 decreased by JPY
84,721 thousand. Also the cost of sales for the 6 month ended 30 June 2018 increased by JPY 20,054
thousand and the cost of sales for the 6 month ended 30 June 2019 decreased by JPY 37,278 thousand.
The Company has provided the services to various customers. In the computer platform business of BBT,Yahoo Japan Corporation is the largest customer for more than 10 percent of total segment revenue under
J-GAAP at JPY 1,604,237 thousand and JPY 1,624,095 thousand for the 6 month ended 30 June 2018 and2019, respectively.

47

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
L) Lease
BBT has adopted IFRS 16 Leases from the fiscal year beginning 1 January 2019. BBT has applied themodified retrospective method permitted by IFRS 16 and recognized the cumulative amount ofthe impact
as of 1 January 2019 upon adoption ofthe standard. As a result, BBT has not restated the amounts in thecomparative reporting period prior to adoption of IFRS 16.
IFRS 16 sets out the principal for the recognition, measurement, presentation and disclosure of lease
contracts for lessees and lessors. Under IFRS 16, lessees no longer make a distinction between finance andoperating leases as required under IAS 17, and apply a single accounting model. At the commencement dateof a lease, lessees recognize a liability to make lease payments (i.e., the lease liability) and an asset
representing the right to use the underlying asset during the lease term (i.e., the right-of-use assets).
Subsequently, lessees are required to recognize separately the interest expense on the lease liability and thedepreciation expense on the right-of-use assets. The right-of-use assets are depreciated on a straight-line
basis over the shorter of the estimated useful life ofthe assets or the lease term. Lessors accounting under
IFRS 16 remains substantially unchanged fias IAS 17.
Upon the adoption of IFRS 16, BBT recognized lease liabilities for its leases previously classified as operatinglease under IAS 17. The lease liabilities were measured at the present value ofthe remaining lease payments,
discounted at the incremental borrowmg rate as of 1 January 2019. The weighted average incremental
borrowing rate used for the lease liabilities as of 1 January 2019 was 0. 51%.
BBT applied the following practical expedients permitted by IFRS 16 when applying IFRS 16:- Accounted operating leases with less than 12 months of lease term remaining as of 1 January 2019
for as short-term leases and low value leases.
- Used hindsight when determining the lease term of contract including extension options and/or
termination options.
- By class of underlying asset, not to separate non-lease components from lease components, andinstead accounts for each lease component and any associated non-lease components as a single
lease component.
BBT elected not to apply IFRS 16 to the agreements that were not identified as containing a lease
component applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease.
As a result, BBT recognized JPY 17,334,928 thousand for the right-of-use assets and lease liabilities,
respectively, in the Consolidated Statement of Financial Position as of 1 January 2019 and JPY 1,476,841
thousand of impairment loss related to the right-of-use assets as of 1 January 2019 is recognized. Due torecognition of right-of-use assets and liabilities, BBT recognized corresponding same amount of deferred
tax assets and liabilities, thus impact of deferred tax accounting relating to the implementation of IFRS 16
was nill.
The carrying amount of right of use assets at the first implementation day and at the end of the reporting
period are as follow.
JPY (in thousands)
Buildings
Machines and equipment
Total

31 December 2018

30 June 201915,286,547

15,824,419

571,540

1,674,640

15,858,087

17,499,059

Due to the adoption of IFRS 16, cost of revenue and rent expense which included operating lease expenses
decreased by JPY 1,148,266 thousand and JPY 169,482 thousand, respectively for the 6 month period ended
30 June 2019. The depreciation and amortization expenses which included the depreciation expenses
48

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ofright-of-use assets, and finance costs which included interest expenses for lease liabilities increased by
JPY 871,412 thousand and JPY 52,076 thousand, respectively for the six month period ended 30 June 2019.
The accounting policies applied by the Group in accordance with the IFRS 16 Leaes as of 1 January 2019 are
as follows:
BBT, as a lessee, mainly leases properties. A lease contract is normally entered into the fixed term fiom 1
year to 15 years but it may include extension options.
Leases are recognized as right-of-use assets and the corresponding liabilities when the lease assets become
available for use by BBT. Each lease payment is apportioned between repayments of the lease liability andfinance costs. The finance costs are accounted for as expenses over the lease term and calculated based on
constant periodic rate ofinterest on the remaining balance ofthe lease liability. The right-of-use assets are
depreciated over the shorter ofthe estimated useful life ofthe asset or the lease term.
The assets and liabilities arising from leases are measured at the present value of the lease at thecommencement date. The lease liability includes the net present value ofthe following lease payments:- fixed payments less any lease incentives- variable lease payments that depends on an index or a rate
- amounts expected to be payable under a residual value guarantee- the exercise price of a purchase option if the lessee is reasonably certain to exercise that option- payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an
option. to terminate the lease
Lease payments are determined using the discount rate as the interest rate implicit in the lease, ifthat rate
can be readily determined, or the Group’s incremental borrowing rate.
The right-of-use assets is measured at cost shall comprise:- the amount ofthe initial measurement ofthe lease liability- any lease payments made at or before the commencement date, less any lease incentives received- any initial direct cost
- cost ofrestoring the underlying asset to the original condition
As a practical expedient, BBT elects, by class of underlying asset, not to separate non-lease components
from lease components, and instead accounts for each lease component and any associated non-lease
components as a single lease component.
The lease payments associated with short-term lease and leases oflow-value assets are recognized as
expenses on a straight-line basis.
A short-term lease is a lease that, at the commencement date, has a lease term of 12 months or less. A leaseoflow-value asset, for example, comprises low value assets such as office furniture and fixture.
Most ofthe BBT’s property leases include extension options and termination options.
Extension option shall be included in the lease term only ifthe lessee is reasonably certain to exercise that
option.
Due to adoption of IFRS 16, JPY 1,485,459 thousand of “Priciple elements of lease payment” is disclosed in“Cash flows from financing activities” in the BBT consolidated statement of cash flow. On the other hand,“Priciple elements of lease payment” is presented in “Cash flows from operating activities” since opreratinglease is off-balanced under Japanese GAAP.

49

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
M) Impairment of plant, property and equipment
Under Japanese GAAP, an impairment loss is recognized when there is an indicator of impairment and (1)The undiscounted value of total future cash flows is below the asset’s carrying amount; then (2) The
recoverable amount of an asset is below its carrying amount. There are two steps for recognition of an
impairment loss.
Under IFRS, an impairment loss is recognized when there is an indication of impairment and when therecoverable amount of an asset is below its carrying amount. Step 1 under Japanese GAAP is not required
under IFRS.
N) Loan covenants
To raise funds flexibly for investment demand in the new data center established in August 2018, BBT hassigned a commitment-type syndicated loan agreement of 4.0 billion in total with five banks including ourcounterparties arranged by Sumitomo Mitsui Banking Corporation in March 2018 and the agreement was
updated in December 2018. This agreement includes financial conditions as follows.
1) At the end of the fiscal year ended 30 June 2018 and every subsequent fiscal year-end, the total amountof net assets on the consolidated balance sheet shall not be less than the higher of either: an amountequivalent to 80% of total net assets on the consolidated balance sheet at the end of the fiscal year ended 30
June 2017; or an amount equivalent to 80% of total net assets on the consolidated balance sheet at the endof the most recent fiscal year.
2) At the end of the fiscal year ended 31 December 2020 and every subsequent fiscal year-end, an ordinary
loss on the consolidated statement of income shall not be recorded for two consecutive fiscal years.
3) At the second quarter end of the fiscal year ended 31 December 2020, an ordinary loss on the consolidated
statement of income shall not be recorded.
The Company has complied with these covenants throughout the reporting period.
O) Reclassificationa) Allowance for doubtful accounts
Under Japanese GAAP, the allowance for doubtful accounts is separately presented on the balance
sheet. Under IFRS, allowances for doubtful accounts are offset against the applicable accounts (i.e.
accounts receivable).
As a result, JPY 6,702 thousand, JPY 15,394 thousand and JPY 9,314 thousand included in the accountof the allowance for doubtful accounts are transferred to Notes and accounts receivables – trade as at
30 June 2018, 31 December 2018 and 30 June 2019, respectively.
b) Investment securities
Under Japanese GAAP, investments accounted for using the equity method are presented as a part ofinvestment securities with the investment securities, however, under IFRS, it’s independently
presented as the investment accounted for using the equity method.
JPY 33,111 thousand, JPY 16,259 thousand and JPY 16,262 thousand included in the account of theinvestment securities are independently presented as at 30 June 2018, 31 December 2018 and 30 June
2019, respectively.
c) Non-operating income & expense and Extraordinary income & loss
Under Japanese GAAP, non-operating income and expense are presented below operating profit.
These accounts consist of financial income and expense, foreign exchange gain (loss), profit (loss)
under equity method investment and others. In addition, exceptional items are required to bepresented as “Extraordinary income and loss” on the face of the income statement. The definition of“special” is broader compared to IFRS and includes some extraordinary items.
Under IFRS, financial income, financial expense and profit (loss) under equity method investment isusually shown below operating profit. The term exceptional items is not used or defined, however,separate disclosure is required (either on the face of the comprehensive income statement or in thenotes) when it is necessary to allow an entity to explain its performance for the period as a result of thesize, nature or incidence of certain items of income and expense. It is prohibited to present any items
as “Extraordinary” under IFRS.
P) Retained earnings
Reconciliation of retained earnings under Japanese GAAP and IFRS is below-

50

INTERNET RESEARCH INSTITUTE LTDNOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
30 June 201831 December 2018

30 June 2019

JPY (in thousands)

JPY (in thousands)

JPY (in thousands)

2,133,962
32,3792,247,961
55,237

1,853,811
79,368-;-(2,463)(7,389)365,745(77,022)

237,848(39,469)

205,955(83,637)(24,394)(35,153)

68,801(130,276)(11,827)(79,551)(49,467)(11,827)(35,916)(44,204)(11,828)(95,096)

Adjustment for application of Effective
interest method

83,44285,56977,654

Discontinuing the use of the equity
method688,617-;--;-340,136

340,136(161,900)-;(1,019)
42,417
2,671,954

397,460(44,100)(970,075)(34,722)(97,107)
1,294,891

Reported under Japanese GAAP
Reversal of amortization of goodwill
Amortization of customer relationship
asset
Deferred taxes
Unused paid absences
Impairment of Property, Plant &Equipment
Revenue recognition
Impairment of investment securities
Non-controlling interests

Effect of application of IFRS 9
Provision for unfavorable contract
Effect of application of IFRS 16

Employee benefit obligation
OthersReported under IFRS-;-;-;-(73,846)
3,247,36551