INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020

TABLE OF CONTENTS

Page
Report of Independent Auditors

3

CONSOLIDATED FINANCIAL STATEMENTS (in thousands USD):
Consolidated Statements of Financial Position

4

Consolidated Statements of Income

5-6

Consolidated Statements of Changes in Equity

7-8

Consolidated Statements of Cash Flow

9-10

Notes to the financial statements

11-76

AUDITORS' REPORTTo the shareholders ofInternet Research Institute Ltd
We have audited the accompanying consolidated statements of financial position of Internet ResearchInstitute Ltd ("The Company") as of December 31, 2020 and 2019, and the Consolidated Statement of
profit or loss and other comprehensive income or loss, changes in equity and cash flow for each of thethree years then ended. These financial statements are the responsibility of the Company's board of
directors and management. Our responsibility is to express an opinion on these financial statements
based on our audit.
We have conducted our audit in accordance with generally accepted auditing standards in Israel,including standards prescribed by the Auditor's Regulations (Auditor's Mode of Performance), 1973.
Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatements. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by the board of
directors and management, as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, thefinancial position of the Company and its consolidated companies as of December 31, 2020 and 2019,
and the results of their operations, changes in equity and their cash flows for each of the three years in
the period ended December 31, 2020, in conformity with International Financial Reporting Standards(IFRS) and with the provisions of the Securities Regulations (Annual Financial Statements) – 2010.
Without qualifying our opinion, we draw attention to Note 1b of the financial statements, according towhich as part of an organizational restructuring that the group is undergoing, the Company submitted
an application for approval to distribute a dividend which does not meet the profit test and to distributethe shares of Internet Research Institute, Inc to IRI Acquisition Ltd (hereinafter – the parent company)so that the entire transferred shares will be held directly by the parent company, after which thecompany will be dissolved.
Tel-Aviv, Israel

Kesselman & Kesselman

March 24, 2021

Certified Public Accountants (lsr.)
A member firm of PricewaterhouseCoopers International LimitedINTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF FINANCIAL POSITION
USD (In thousands)
December 31
Note
2019
2020
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
Borrowings
Contract liabilities
Accruals and other payables
Current lease liabilities
Related parties
Current Provisions
TOTAL CURRENT LIABILITIESNON-CURRENT LIABILITIES
Non-current lease liabilities
Non-Current Provisions
Borrowings
TOTAL NON-CURRENT LIABILITIESTOTAL LIABILITIESEQUITY
Share capital
Capital surplus
Accumulated other comprehensive income
Exchange differences on translation fromfunctional currency to presentation currency
Retained earnings (accumulated deficit)

7,251
360
332
17
32
844
8,836

7,438
203
191
15
33
595
8,475

5,997

5,203

26

13,894

14,968

17
14

1,228
597
265
92
9
22,08230,918

1,065
511
212
6
21,96530,440

487
230

341
107

5
21
25
27

2,784
1,740
1,221
46
119
6,627

4,671
1,233
1,213
44
126
7,735

25
23
22

5,055
412
5,467
12,094

4,110
308
2,619
7,037
14,772

20-;14,845
1,707-;14,845
2,217
2,818

19
5
27
18

25

22

1,693
1,039
19,284(460)
18,82430,918Non- controlling interests
TOTAL EQUITYTOTAL LIABILITIES AND EQUITYMarch 24, 2021
Approval date of financial statements

Hiroshi Fujiwara
Chairman of the Board of Directors
and CEO

Mirei Kuroda
CFO

The accompanying notes are an integral part of the Consolidated Financial Statements.

-4-(5,020)14,860808
15,66830,440INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF FINANCIAL POSITION

2018

USD (In thousands)
Year ended
December 31
2019

2020

10,455

12,1205,272

6(3,455)(4,538)(1,680)7(9,771)(11,569)(9,694)(33)(1,743)(1,620)

16

216

225

(13,243)(2,788)
(955)
90
(8)
82

(17,634)(5,514)
(18)
88
(108)
(20)

(12,769)(7,497)
-;4
(328)
(324)

993

(2,791)

668

112

1,849

439

(2,556)(259)(2,815)(6,494)(489)(6,983)(6,714)14(6,700)(2,815)(2,815)(6,850)(133)(6,983)(6,059)(641)(6,700)

34

1

(2)

Items that will not be classified to profit orloss
Differences from translation offinancial statements fromfunctional currency topresentation currency
Change in fair value of equity
securities at FVOCI

644

198

1,125

5

10

(230)

Share of other comprehensive
income (loss) of investments
accounted for using equity
method, net of tax

394

44

280

Note
Revenue
Operating costs and expenses:
Cost of sales
Selling, general andadministrative
Research and Development
expenses
Other operational income(expenses), net
Total operating costs and expenses
Operating loss
Other expenses
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
equity method
Loss before income taxes
Income tax expense
Loss for the year

8.1

8.2
10
10

15

11

Loss for the period attributable to:
Owners of the parent
Non-Controlling interest
Total Loss for the year
Loss for the year
Other comprehensive income, net oftax:
Items that may be reclassified to profit orloss
Share of other comprehensive
income of investments accounted
15
for using equity method, net of
tax

15

-5-

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Total other comprehensive income,net of tax
Comprehensive income (loss) for theyear
Attribution of the total loss for theyear:
Owners of the parent
Non-Controlling interest
Total Loss for the year
Earnings per share attributable to owners of theparentBasic (USD)
12
Diluted (USD)
12

1,077

253

1,173

(1,738)(6,730)(5,527)-;-;-(6,597)(133)(6,730)(4,886)(641)(5,527)(0.071)(0.071)(0.147)(0.147)(0.130)(0.130)

The accompanying notes are an integral part of the Consolidated Financial Statements.

-6-

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY-;-

14,845

1,039

1,707

(460)

Exchangedifferences ontranslation fromfunctional
currency topresentation
currency
1,693

Loss for the year
Other comprehensive income, netof taxIssuance of preferred shares bysubsidiary

-;-

-;-

(6,059)

-;-

(641)

-;-

(6,700)

-;-

48

-;-

1,125

1,173

-

-

-

-

1,836

-

1,836

Share-based compensation

-

-

-

-

36

-

36

Change in interest in subsidiaries

-;-

-;-

462

-;-

499

(5,020)

2,217

37
808

2,818

15,668

Note

Balance as of December 31,2019Balance as of December 31,2020

SharecapitalCapitalsurplus-;--;-

Accumulated
othercomprehensive
incomeRetainedearnings

14,845

NonControllinginterest

The accompanying notes are an integral part of the Consolidated Financial Statements.

-7-

Total equity

18,824

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

Note

Share
capitalCapitalsurplus

Accumulated
othercomprehensive
incomeRetainedearnings-;-

14,845

10,624

352

-;-

-;-

(2,735)-;--;-

14,845

7,889

Loss for the year
Other comprehensive income, netof taxChange in interest in subsidiaries

-;-

-;-

Balance as of December 31,2019-;-Balance as of December 31,2018
Adjustment on adoption of new
accounting standard
Balance as of January 1,2019 (restated)

NonControllinginterest

Exchangedifferences ontranslation fromfunctional currency
to presentation
currency

Total equity

-;-

1,495

-;-

-;-

352

-;-

1,495

(2,735)24,581(6,850)

-;-

(133)

-;-

(6,982)

-;-

-;-

55

-;-

198

252

-;-

-;-

1,300

-;-

973

1,039

1,707

(327)
(460)

1,693

18,824

14,845The accompanying notes are an integral part of the Consolidated Financial Statements.

-8-

27,316

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF FINANCIAL POSITION

USD (In thousands)
Year Ended December 31
Note

2018

2019

2020

(2,556)(6,494)(6,714)

Depreciation and amortization

117

1,301

1,275

Impairment loss of right-of-use assets

-;-

345

-

-

-

40

(993)

2,791

(668)

(112)

(1,849)

(479)

1

22

79

-;-

-;-

35

412

(299)

181

(81)

(61)

153

(38)

319

(176)

Cash flows from operating activities:
Profit (loss) before income taxes

Loss on sale of the investments
accounted for using equity method
Share of profit of investments
accounted for using equity method

15

Gain on change in share ofinvestments accounted for using
equity method
Finance income and finance expense,net
Share-based compensation expenses

10

Change in assets and liabilities
Trade receivables
Contract assets

5

Trade payable
Accruals and other payables

21

(283)

(267)

(3)

Contract liabilities

5

184

(199)

1,680

Provisions

23

-;-

297

(121)

(372)

(343)

329

2,540

206

205

Interest received

-;-

4

-

Interest paid

(1)

(108)

(108)

Income taxes received (paid)

(352)

270

(342)

(1,534)(4,065)(4,634)

(486)

(12)

-

-

Acquisitions of intangible assets

(7)

(282)

-

Acquisition of IOT

-;-

142

-

Acquisition of Investment Securities

(282)

(7)

(29)

OthersDividends received

15

Net cash used in operating activities
Cash flows from investing activities:
Acquisitions of property, plant andequipment
Proceeds from sales of investments
accounted for using the equity method

-9-

(9)
1,017

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Acquisition of subsidiary, net of cash

(69)

-;-

-;-

-;-

-;-

97

96

-;-

19

(2)

(7)

(1)

(681)

(166)

1,025

-;-

-;-

(163)

-;-

230

-

4,367

-;-

-;-

Proceeds from borrowings

-;-

-;-

2,528

Repayments of obligations under finance leases(46)(1,110)(1,241)

Issuance of shares in a subsidiary

-;-

973

2,241

4,321

93

3,365

Net change in cash and cash equivalents

2,106(4,138)(244)

Cash and cash equivalents at beginning of year

8,949

11,282

7,251

Capital fund from translation differences

227

107

431

Cash and cash equivalents at end of year

11,282

7,251

7,438

payments
Proceeds from sales of shares ofsubsidiaries
Proceeds from sales of investment
securities

Acquisition of other financial assets
Net cash used in (provided by) investing
activities
Cash flows from financing activities:
Payments for borrowings

Proceeds from short-term loans

22

Proceeds from issuance of commonshares20

Net cash provided by financing activities

The accompanying notes are an integral part of the Consolidated Financial Statements.

- 10 -

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Regarding the acquisition of NOM through the exchange of shares, see Note 2b (4).
NOTE 1 – GENERAL
a. 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 stock on
the Tel-Aviv Stock Exchange on August 9, 2018. The Company wholly holds in Internet ResearchInstitute, Inc. (hereinafter – IRI Japan), a private company that was incorporated in Japan 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, ECBO), cyber security and AI (see the definitions ofthese terms above), and include consultation, research, investments, and production of conferencesand events 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 these 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.
b. Structural change
In accordance with the Companies Law, 1999, the Securities Law, 1968 and the Securities
Regulations, 2000 (Tender Offer Regulations), on July 13, 2020, IRI Acquisition Ltd. applied arequest to purchase all the Company's shares held by the public, in such a way that after the purchase,
the Company will become a privately owned company of IRI Acquisition Ltd (hereinafter – theParent Company). The purchase occurred on September 22, 2020.
On January 7, 2021, as part of an organizational restructuring that the group is undergoing andtowards the dissolution of the company, the Company submitted to the Tel Aviv-Yafo District Court
an application for approval of division - according to section 303 of the Companies Law (TA 1329901-21). As part of the application, the court was asked to authorize the Company to distribute a
dividend which does not meet the profit test and to distribute its subsidiary, IRI Inc., to the Parent
Company, so that the entire transferred shares will be held directly by the Parent Company.

11

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS
In accordance with the court's decision from January 11, 2021 the Company submitted theapplication to the Commissioner for Insolvency and Economic Rehabilitation Proceedings(hereinafter: the “Commissioner”) (as well as to the relevant bodies in the Tax Authority); The
Commissioner is required to submit his response to the division request to the court by April 11,
2021.
c. Covid-19 implications:
The outbreak of the COVID-19 virus (hereafter, the "Corona virus") in the world in the first quarterof 2020 and its spread, as of the reporting date of this consolidated financial statements, causes
great uncertainty in Israeli and Japanese markets, causing a significant upheaval in the global
economy.
In dealing with the outbreak of the Corona virus and attempting to curb its spread, widespread
regulatory measures that significantly restrict people's mobility and public gathering are being taken
in wide areas of the world, as well as in Israel and Japan.
As of the date of issuance of the financial reporting, a number of conferences that were expected totake place in Japan as part of NOM's activities in planning, organizing, producing and conducting
conferences, exhibitions, seminars and other business events, including the Interop Conference,
which is NOM's main conference, were canceled due to the spread of Corona virus and the relevant
authorities’ guidelines in this regard.
As a result, a material negative effect on NOM’s revenues occurred in the year ended December 31,
2020 and it resulted that NOM’s revenues significantly decreased in the period. However, the impact
on NOM's cash flow is smaller than the effect on its revenue, since advances paid for attending theconferences will not be refunded by NOM and clients will be credited with invitations to conferences
next year, and because of the cost reduction due to the event cancelation.
In addition, given the uncertainty regarding the continued spread of the virus and the resulting
regulatory restrictions, the Company's management estimates that there may be another significant
impact on NOM's results in the current year, depending on the situation's duration, which theCompany's management cannot estimate at this time.
According to the Company's management, BBT's operations were not significantly affected by theCorona virus.
In light of the above, the Board of Directors and the Company's management have approved astreamlining plan (hereinafter, the "Management Plan"), as follows:
1. Given the fact that ECBO has operating losses (see Note 29), the Company will not continue
financing ECBO's activities from the Group's resources and will take actions to achieve externalfinancing such as equity investment or loan to ECBO. See also Note 32 (b).
2. Make efforts to reduce costs in the Group companies.
3. Partial realization of the Company's investment in BBT.
4. Apply for a special long-term loan, due to the impact of Corona virus, which is limited to US $ 2.78
million from Japanese banks. The loan funded by Japan's Finance Corporation is awarded tocompanies whose operations have been significantly damaged by the Corona virus impact.
Company's management believes that the Company meets the loan criteria.
In the Company's management opinion, based on the management plan as stated above, theCompany is able to meet its liabilities and the expected cash flow will enable the Company to finance
its activities for the coming year.
d. Terms
In these financial statements:
The Company, IRI Israel –Internet Research Institute Ltd.
The Group – the Company and its subsidiaries and its affiliates.

12

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS
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.
ECBO – ECBO square, Inc., a private company in which IRI Japan holds 71% of the issued and paidup share capital, which was incorporated in Japan.
FAEV – Fintech A-Eye Ventures, Inc., a private company that is wholly owned by IRI Japan, which
was incorporated in Japan.
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% of the issued and paidup share capital.
MIC – Mobile Internet Capital, Inc., a private company which was incorporated in Japan in which IRI
Japan holds 30% of the issued and paid-up share capital.
Stake holders and controlling interests – As defined in TASE ordinance
Related Parties – As defined in IAS 24

NOTE 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 through the years ended December
31, 2020 and 2019, unless otherwise stated.
The consolidated financial statements are measured in thousands of Japanese YEN (“¥”), which is
the Group’s functional currency as it is the currency of the primary economic environment in which
the Group operates. And the consolidated financial statements are presented in thousands of U.S.
Dollars (USD or $ or dollar), unless otherwise stated.

2.1 Basis of preparation
The consolidated financial statements of the Group (“the financial statements”) have been
prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by
the International Accounting Standard Board (the “IASB”) for the purpose of preparation forthe consolidated financial statements of IRI Israel. The financial statements were included in
the consolidated financial statements of IRI Israel which were approved by Representative
Director, President Hiroshi Fujiwara and Chief executive officer, Mirei Kuroda, and external
Director, on March 24, 2021.
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 theprocess 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 disclosed in Note 4.
Also note that all comparative financial information for the year ended December 31, 2019 were
presented in these financial statements, which were prepared at IRI Israel’s consolidated basis,
whereas all current financial information for the year ended December 31, 2020 were preparedat IRI Japan’s sub consolidated basis.
2.1.1. New and amended standards adopted by the Group13

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

The group has applied the following standards and amendments for the first time for theirannual reporting period commencing January 1, 2019:l

IFRS 16 Leases

The Group had to change its accounting policies as a result of adopting IFRS16. The group
elected to adopt the new rules retrospectively but recognized the cumulative effect of initiallyapplying the new standard on January 1, 2019. This is disclosed in Note 2.20.
2.1.2. New standards and amendments to existing standards not yet adopted by theGroup
Certain new accounting standards and interpretations have been published that are notmandatory for December 31,2020 reporting periods and have not been early adopted by thegroup. These standards are not expected to have a material impact on the early in the current
or future reporting periods and on foreseeable future transactions.
2.2 Basis of consolidation(a) Subsidiaries
Subsidiaries are all entities (including a structured entities) over which the Group has control.
The Group controls an entity when the Group is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to affect those returns through its powerover the entity. Subsidiaries are consolidated from the date on which control is transferred to
the Group. They are deconsolidated from the date that control ceases.
(b) Associates
An associate is an entity in which the Group has significant influence, but not control, over theentity's financial and operating policies. Significant influence is presumed to exist when theGroup holds between 20% and 50% of the voting power of another entity, unless it can be clearly
demonstrated that it is not the case.
The Group's investments in associates are accounted for using the equity method. Under theequity method, the investment in an associate is initially recognized at cost and the carrying
amount is adjusted to recognize the Group's share of the profit or loss and changes in equity of
the associate after the date of acquisition, including its share in the associate's othercomprehensive income. Dividends received or receivable from associates and joint ventures arerecognized as a reduction in the carrying amount of the investment.
If an associate uses accounting policies different from those of the Group for like transactions
and events in similar circumstances, appropriate adjustments are made to its financial
statements in applying the equity method.
Changes in ownership interests in associates that do not change the significant influence status
in such associate, are accounted for as follows: the difference between any consideration
received for sale of the associate shares, and the change in the carrying amount of theinvestment, is carried to income; a proportionate share of the associate's other comprehensive
income is reclassified to profit or loss.
(c) Transactions with non-controlling interests which does not results with loss ofcontrol
Transactions with non-controlling interests which does not results with loss of control
accounted as transactions with owners. In these transactions, the difference between the fairvalue of any proceed paid or received and the amount where non-controlling interests disclosed
in order to reflect the changes in its proportional rights in the subsidiaries, recognized in theowners’ equity.
14

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS(d) Business combinations under common control
On December 21, 2018, Internet Research Institute, Inc. (“original IRI Japan”) which wasestablished as a limited company in Japan engaged with ECBO in an agreement to purchase 100%of its common shares. According the agreement terms, the purchase accomplished on January 4,
2019, accordingly, ECBO is consolidated in the Company reports from this day onward. Over 2019,and until December 31, 2019, ECBO issued new shares to a third party. Accordingly, IRI holding
decreased to 77% from 100% initially.

(e) Business combinations by establishment of a new entity
On September 2018, Internet Research Institute, Inc. (“original IRI Japan”) which wasestablished as a limited company in Japan established Fintech A-Eye Ventures, Inc. (hereto“FAEV”). Accordingly, the company is a full owner of FAEV.
2.3 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided
to the chief operating decision-maker. The Chief Operating Decision-Maker ("CODM"), who is
responsible for allocating resources and assessing performance of the operating segments, hasbeen identified as the CEO of the Group that makes strategic decisions.
2.4 Property, plant and equipment
Property, plant and equipment are measured on a historical cost basis, less accumulated
depreciation and accumulated impairment losses. Historical cost includes costs directly
attributable to the acquisition of the asset and the initial estimated costs related to disassembly,
retirement and site restoration.
Depreciation is calculated using the straight-line method to allocate their cost to their residual
values over their estimated useful lives, as follows:- Leasehold improvement- Equipment

4 to 12 years
2 to 12 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the endof each reporting date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s
carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with carrying amountand are recognized within “Other (expenses)/incomes, net” in the profit or loss.
2.5

Intangible assets
Computer software
Computer software is stated at cost less accumulated amortization and impairment losses.
Amortization is calculated using the straight-line method to allocate the cost over theirestimated useful lives, which does not exceed five years.
Nano-opt Media Inc. (“NOM”) has entered into a license agreement for use of a trademark, with
United Business Media, LLC. (“UBM”), which holds the rights related to Interop events aroundthe world, under which UBM granted an exclusive license to NOM to use three registeredtrademarks for Interop events in Japan. In consideration for the right of use of the trademarks
as aforesaid, NOM shall provide UBM with royalties in the sum of 5% of the net revenues ofmore than JPY 500 million, which may be received from any event. If the net revenues from theevent are less than JPY 500 million, no royalties will be paid for the event. The royalties paid to
UBM are contingent payments which are not capitalized upfront but rather expensed as
incurred.
15

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

2.6 Impairment of non-financial assets
Assets that are subject to amortization are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. An impairment loss
is recognized for the amount by which the asset’s carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset’s fair value less costs to disposal andvalue in use. For the purposes of assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash flows (cash-generating units). Non-financial
assets that suffered an impairment are reviewed for possible reversal of the impairment at eachreporting date.
2.7

Government grants
ECBO as a new subsidiary of the Company received USD 66 thousand and USD 114 thousandsof government grants and they were recorded as “other incomes” in the consolidated statements
of profit or loss for the period ended December 31, 2019 and 2020, respectively. As of
December 31, 2020, there are no unfulfilled conditions or other contingencies attaching to thesegrants. ECBO did not benefit directly from any other forms of government assistance.

2.8

Financial assets(a) Classification of financial assets
Based on the Group’s business model for managing the financial assets and the characteristics
of contractual cash flow of the financial assets, the Group classifies the financial assets byfollowing categories. Gains and losses arising from assets measured at fair value are either
recorded in profit or loss or other comprehensive income, depending on the Group’s intention.
i. Financial assets as amortized cost
Financial assets measured at amortized cost are debt instruments held for collection ofcontractual cash flows and those cash flows represent solely payments of principal and interest.
ii. Financial assets at fair value through other comprehensive income
Financial assets measured at fair value through other comprehensive income are debt
instruments whose contractual cash flows represent solely payments of principal and intereston the principal amount outstanding and which are held within a business model both to collectcontractual cash flows and sell and equity instruments which the Group has made anirrevocable election at the time of initial recognition to account for the equity investment at fairvalue through other comprehensive income.
iii. Financial assets at fair value through profit or loss
Subsequent to initial recognition, financial assets are measured at fair value. A gain or loss on
debt instruments which is not part of a hedging relationship is recognized in profit or loss.
(b) Measurement of financial assets
Initial measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of afinancial asset at fair value through other comprehensive income, transaction costs that are
directly attributable to the acquisition of the financial asset. Transaction costs of financial assets
carried at fair value through profit or loss are expensed in profit or loss.
16

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Subsequent measurement
Debt instruments:
i. Amortized cost
Financial assets at amortized cost are measured at amortized cost using the effective interest
method, and related interest income is included in finance income. When the asset isderecognized or impaired, a gain or loss on a debt investment is recognized in profit or loss.
ii. Fair value through other comprehensive income (FVOCI)
Subsequent to initial recognition, financial assets are measured at fair value and gains or losses
arising from changes in the fair value are recorded in other comprehensive income, except for
the recognition of interest revenue, foreign exchange gains or losses and expected credit losses
which are recognized in profit or loss.
iii. Fair value through profit or loss
Subsequent to initial recognition, financial assets are measured at fair value. A gain or loss on
debt instruments which is not part of a hedging relationship is recognized in profit or loss.
Equity instruments:
Where the Group has irrevocably elected to designate equity instruments as financial assets
measured at fair value through other comprehensive income, movements in the carrying
amount by fair value measurement are recognized as other comprehensive income.
There is no subsequent reclassification of cumulative gains or losses previously recognized inother comprehensive income to profit or loss. Where the Group has not elected to designate
equity instruments as financial assets at fair value through other comprehensive income,movements in the carrying amount by fair value measurement are recognized in profit or loss.
Dividends from equity investments are recognized in profit or loss as “Finance income” when
the Group’s right to receive payments is established.
(c) De-recognition of a financial asset
The Group derecognizes a financial asset when the contractual rights to the cash flows from theasset expire, or it transfers the rights to receive the contractual cash flows on the financial asset
in a transaction in which substantially all the risks and rewards of ownership of the financial
asset are transferred. Any interest in transferred financial assets that is created or retained by
the Group is recognized as a separate asset or liability. If the Group retains substantially all therisks and rewards of ownership of the transferred financial assets, the Group continues torecognize the transferred financial assets and recognizes financial liabilities for theconsideration received.
(d) Financial Liabilities
The Group recognizes financial liabilities in the Consolidated Statements of Financial Position
when the Group becomes a party to the contractual provisions of the financial liability. At thedate of initial recognition, financial liabilities are measured at fair value, net of transaction costs.
Subsequent to initial recognition, financial liabilities are measured at amortized cost using theeffective interest method.
The Group derecognizes financial liabilities from the Consolidated Statements of Financial
Position when it is extinguished (i.e. when the obligation specified in the contract is discharged,
canceled or expires).
(e) Impairment of financial assets
17

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

The Group assesses the expected credit losses associated with its assets carried at amortizedcost and FVOCI. The impairment methodology applied depends on whether there has been asignificant increase in credit risk.
For trade receivables only, the Group applies the simplified approach permitted by IFRS9,
which requires expected lifetime losses to be recognized from initial recognition of thereceivables.
2.9 Cash and cash equivalents
In the consolidated statements of cash flows, cash and cash equivalents include cash in hand,deposits held at call with banks, other short-term highly liquid investments with original
maturities of three months. In the consolidated statements of financial position, bankoverdrafts are shown within borrowings in current liabilities.
2.10 Trade receivables
Trade receivables are amounts due from customers for services performed in the ordinary
course of business. If collection of trade and other receivables is expected in one year or less (orin the normal operating cycle of the business if longer), they are classified as current assets.
Trade and other receivables are recognized initially at fair value less provision for impairment.
At the end of each reporting period, the Group assesses the recognition of any impairment offinancial assets on whether there is a significant increase in credit risk from the initialrecognition.
2.11 Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in theordinary shares of business from suppliers. Accounts payable are classified as current liabilities
if payable is due within one year or less. Trade payable are recognized initially at fair value, andsubsequently measured at amortized cost.
2.12 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognized in profit
or loss, except to the extent that it relates to items recognized in other comprehensive income
or directly in equity. In this case, the tax is also recognized in other comprehensive income or
directly in equity, respectively.
(a) Current income tax
The current income tax charge is calculated on the basis of the tax laws enacted or substantively
enacted at the statements of financial position date in the countries where the Group operates
and generates taxable income. Management periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax regulation is subject to interpretation.
It establishes provisions where appropriate on the basis of amounts expected to be paid to thetax authorities.
(b) Deferred income tax
Deferred tax is recognized using the asset-liability method in respect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting purpose and theamounts used for taxation purposes. A deferred tax liability is recognized for all temporary18

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

differences. A deferred tax asset is recognized for all deductible temporary differences, unused
tax losses and unused tax credits to the extent that it is probable that a taxable profit will beavailable against which they can be utilized. However, deferred tax is not recognized for thefollowing temporary differences: the initial recognition of assets or liabilities in a transactionthat is not a business combination and that affects neither accounting profit or loss nor taxable
income.
The Group recognizes a deferred tax liability for all taxable temporary differences associatedwith investments in subsidiaries and associates, except to the extent that the Group is able tocontrol the timing of the reversal of the temporary differences and it is probable that thetemporary differences will not reverse in the foreseeable future. The Group recognizes adeferred tax asset for all deductible temporary differences arising from investments in
subsidiaries and associates, to the extent that it is probable that the temporary differences willreverse in the foreseeable future and taxable profit will be available against which the temporary
differences can be utilized.
The carrying amount of a deferred tax asset is reviewed at the end of each reporting period andis reduced to the extent that it is no longer probable that sufficient taxable profit will be available
to allow the benefit of part or all of that deferred tax assets to be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
period when the asset is realized or the liability is settled, based on tax rates and tax laws thathave been enacted or substantively enacted by the end of the reporting period. The
measurement of deferred tax liabilities and deferred tax assets reflects the tax consequencesthat would follow, in a manner that the Group expects, at the end of the reporting period torecover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset
the related current tax liabilities and assets, and they relate to income taxes levied on the same
taxable entity by the same tax authority.
2.13 Employee benefits(a) Profit-sharing and bonus plans
The Group recognizes a liability and an expense for bonuses and profit-sharing, based on aformula that takes into consideration the profit attributable to the Company’s shareholders
after certain adjustments. The Group recognizes a provision where contractually obliged orwhere there is a past practice that has created a constructive obligation.
(b) Employees leave entitlements
Employee entitlements to annual leave are recognized when they accrue to employees. A
provision is made for the estimated liability for annual leave as a result of services rendered by
employees up to the year-end date.
Employee entitlements to sick leave and maternity leave are not recognized until the time ofleave.
(c) Share-based payments
The Group has granted stock options to directors and employees. The fair values of the stock
options are measured at the grant dates. Compensation expenses related to stock options arerecognized over the vesting period. Refer to Note 21 Share-based Payments for more details on
the valuation methodology of stock options and the assumptions used in such valuation
2.14 Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as aresult of a past event, it is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation and a reliable estimate can be made of the amount of
19

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

the obligation.
The Company is required to incur certain costs in respect of liability to dismantle and remove
assets and to restore sites on which the assets were located. The dismantling costs are calculated
according to best estimate of future expected payments discounted at a pre-tax discount ratethat reflects current market assessments of the time value of money and the risks specific to theliability. The increase in the provision due to the passage of time is recognized as finance costs(unwinding of discount).
2.15 Borrowings
Borrowings recognized initially in their fair value, net of transaction costs. In subsequent
periods the borrowings measured in an amortized cost. Any differences between the proceeds(net of transaction costs) to the redemption amount sorted to the profit and loss over the loan
period according to the effective interest method.
Borrowings are classified as a current liability, unless the group possess an unconditional rightto postpone the loans installments for at least 12 months after the reporting period, if applicable
the loans will be classified as non-current liabilities.
2.16 Revenue recognition
The Group has applied the following accounting policies in accordance with IFRS 15 commencing
on January 1, 2018.
As discussed in Note 30 Segment Reporting, the Group mainly provides the following two business.
Information technology
The business is mainly to provide consultancy services, research services and the reviewing of market
trends in the field of internet technologies for companies, organizations and government institutionsin Japan. In addition, ECBO who has become a subsidiary of the Company during the year ended
December 31, 2019, the subsidiary mainly provides IoT solutions and consultation services in thefield of data security, maintenance services for solar power facilities, and the design and productionof films. The business is determined as operating segment.
The business mainly consists of a) providing research report/deliverables of design and productionof films to the customer and b) providing consulting/lecture/IoT solution service to the customer
and the Group recognizes the revenues as follows.
a) Providing research report/deliverables of design and production of films to the customer
Based on the contracts with the customer, the Group has an obligation to provide the research
report to their customer in such a field of internet technologies in Japan etc. and to provide
deliverables of the design and production of films etc.
The obligation is satisfied at a point in time when the research report or the deliverables wasdelivered to the customer or accepted by them, and accordingly, the Group recognizes its
revenues at the time.
b) Providing consulting/lecture/IoT solution services and maintenance services for solar power
facilities to the customer
Based on the contracts with the customer, the Group has an obligation to provide the consulting/lecture/IoT solution services and maintenance services for solar power facilities to the customer
over the contract period.
The obligation satisfied over time, and the customer equally receives the benefit from the service
over the contract period.
Accordingly, the Group recognizes its revenues based on the straight-line method over thecontract period.
Information service business
The business is mainly to provide planning, organization, production and management ofconferences, exhibitions, seminars and other business in the fields of internet technology, hi-tech,

20

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS
cyber security etc. The business mainly consists of a) host event business and b) private event
support service, and the Group recognizes the revenues as follows.
a) Host event business
The business is to plan, hold, operate and manage conferences, exhibitions and seminars(hereafter “host event”) by the Group as an organizer entirely, and it is the performanceobligation of the Group.
The customer of the business are mainly exhibitors and sponsors of the host events, and theyreceive the benefit of the business provided by the Group over the event period. Therefore, theGroup’s performance obligation is evenly satisfied over time and assessed that a straight-line
method over event period.
Accordingly, the Group recognizes its revenues based on the straight-line method over the event
period.
b) Private event support service
The service is to provide support service for the private event held by the customer who is anorganizer of the event. The support service is mainly providing the promotion activities and thereception of the private event etc. behalf of the customer, and the content of the service depends
on each contract and accordingly, the performance obligation is different in each contract. Basedon the performance obligation in each contract, the Group mainly recognizes its revenue basedon the method as “At a point in time when the event has been totally completed.” or “Over thecontract period on a cost method due to the facts that outcome of its performance obligation will
be clear in the late stage of the services on around relevant event date.”
There are no significant financing components (i.e. payment terms exceeding one year) within theservices provided to the customer by the Group.

2.17 Research and development expenses
Research and development expenses are charged to the statement of income as incurred unless
all of following conditions have been met:(a) The technical feasibility of completing the intangible asset so that it will be available for use
or sales.
(b) Its intention to complete the intangible asset and use or sell it.
(c) Its ability to use or sell the intangible asset.
(d) How the intangible asset will generate probable future economic benefits. Among otherthings, the entity demonstrates the existence or a market for the output of the intangible
asset or the intangible asset itself or, if it is to be used internally, the usefulness of theintangible asset.
(e) The availability of adequate technical, financial and other resources to complete thedevelopment and to use or sell the intangible asset.
(f) Its ability to measure reliably the expenditure attributable to the intangible asset during its
development.
As of December 31, 2020 and 2019, the above criteria for capitalization have not been met.
2.18 Leases
As explained in Note 2.1.1 above, the group has changed its accounting policy for leases where
the group is the lessee. The new policy and its impact of the change in Note 2.20.
Until December 31, 2018, leases of property, plant and equipment where the group, as lessee,
had substantially all the risks and rewards of ownership been classified as finance leases.
Finance leases were capitalized at the lease’s inception at the fair value of the leased property
or, if lower, the present value of the minimum lease payments. The corresponding rental
obligations, net of finance charges, were included in other short-term and long-term payables.
21

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Each lease payment was allocated between the liability and finance cost. The finance cost was
charged to profit or loss over the lease period so as to produce a constant periodic rate of intereston the remaining balance of the liability for each period. The property, plant and equipment
acquired under finance leases was depreciated over the asset’s useful life, or over the shorter of
the asset’s useful life and the lease term if there is no reasonable certainly that the group willobtain ownership at the end of the lease term.
Leases in which a significant portion of the rewards of ownership were not transferred to thegroup as lessee were classified as operating leases. Payments made under operating leases (netof any incentives received from the lessor) were charged to profit or loss on a straight-line basis
over the period of the lease.
2.19 Share capital
Ordinary shares are classified as equity. Company’s share acquired by the Company (treasury
shares) are presented as a reduction of equity, at the consideration paid, including any
incremental attributable costs, net of tax. Treasury shares do not have a right to receive
dividends or to vote.
2.20 Earnings per share (EPS)
Basic earnings per share is calculated by dividing the profit attributable to equity holders of theCompany by the weighted average number of ordinary shares in issue during the year excluding
ordinary shares in issue during the year excluding ordinary shares purchased by the Company
and held as treasury shares.
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary
shares outstanding to assume exercise of all dilutive potential ordinary shares. The instrumentsthat are potential dilutive ordinary shares are equity instruments granted to employees. A
calculation is done to determine the number of shares that could have been acquired at fairvalue (determined as the average annual market share price of the company’s shares) based on
the monetary value of the subscription rights attached to outstanding share options. The
number of shares calculated as above is compared with the number of shares that would havebeen issued assuming the exercise of the share options.

NOTE 3 – FINANCIAL RISK MANAGEMENT:
3.1

Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (including, cash flow
and fair value interest rate risk), credit risk and liquidity risk. The Group’s overall risk
management program focuses on the unpredictability of financial markets and seeks tominimize potential adverse effects on the Group’s financial performance. The Group does notuse any derivative financial instruments for speculative purposes.
Risk management is carried out by management of the Group. Formal and informal
management meetings are held to identify significant risks and to develop procedures to deal
with any risks in relation to the Group’s businesses.

(a)Market risk
The Group’s interest rate risk arises from bank balances which are carried at variable rates,
which expose the Group to cash flow interest rate risk.
The Group’s fair value interest rate risk arises from bank balances which are carried at fixed
rates, which expose the Group to fair value interest rate risk.
22

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS(b) Credit risk
Credit risk is the risk of financial losses to the Group if a customer or counterparty to a financial
instrument fails to meet its contractual obligations, and arises principally from the Group’s
receivables from customers and investments.
In regards of the bank deposits, the Group only deals with banks with high credit ratings, asassigned by external rating agencies, so as to minimize the credit risks.
Maximum amounts of possible financial loss to the Group due to credit risk as of December 31,
2020 and 2019 are as follows:

December 31,
2019
Book value(In thousands)
Cash at bank (1)Trade receivable (1)(2)
Other receivables (1)(2)
Related parties (2)Office security deposits (1)
Total

December 31,
2020
Book value(In thousands)

7,248
360
8
21
889
8,526

7,438
203
23
15
925
8,604

(*) less than thousand US dollars.
(1) None of these assets were past due or impaired at the end of the respective reporting period.
(2) The Group's exposure to credit risk is influenced mainly by the individual characteristics ofeach customer. The Group regularly performs credit assessments on customers andcounterparties considering their financial position and historical data in order to manage
the credit risk.
Management makes periodic assessment on the recoverability of trade and other receivables
based on historical payment records, the length of the overdue period, the financial strength ofthe debtors and whether there are any disputes with the debtors. The Group’s historicalexperience in collection of trade and other receivables falls within the recorded allowances andthe directors are of the opinion that adequate provision for uncollectible receivables has been
made in the Financial Information.
In case e of impairment of financial assets, the Group does not directly write off such assets by
reducing the carrying amount, but instead records an allowance for doubtful accounts. However,in the event that there is no realistic prospect of future recovery, financial assets are directly
written off.
Below is the movement in the allowance for doubtful accounts:
Allowance for
doubtful accounts
USD(In thousands)
Balance on December 31, 2018
Allowance for bad debt

77
-;23

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

ReversalUtilized
Translation difference
Balance at December 31, 2019
Allowance for bad debt
ReversalUtilized
Translation difference
Balance at December 31, 2020

(3)
(43)
4
35
-;-;-;62
97(*) less than thousand US dollars.
(c) Liquidity risk
Liquidity risk refers to the risk that an entity will encounter difficulty in meeting obligations
associated with financial liabilities that are settled by delivering cash or another financial assets.
Prudent liquidity risk management implies maintaining sufficient cash and bank balances, theavailability of funding from an adequate amount of committed credit facilities from leadingbanks and the ability to close out market position.
The Group maintains liquidity by a number of sources including orderly realization of shortterm financial assets and receivables; and long-term financing including long-term borrowings.
The Group aims to maintain flexibility in funding by keeping sufficient bank balances,committed credit lines available and interest-bearing borrowings which enable the Group tocontinue its business for the foreseeable future.
The table below analyses the Group’s non-derivative financial liabilities into relevant maturity
groupings based on the remaining period at the end of the reporting period to the contractual
maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Balances due within 12 months equal to their carrying amounts as the impact of discounting is
not significant.

As of December 31, 2019
Trade payables
Other payables (excluding accruals
and provisions)
Obligation under finance lease
Amounts due to related parties

As of December 31, 2020
Trade payables
Other payables (excluding accruals
and provisions)
Obligation under finance lease
Borrowings

Within 1
year
USD
thousands

Between 1
and 2 years
USD
thousands

Over 2 years

Total

USD
thousands

USD
thousands

487
728

-;-;-

-;-;-

487
728

1,221
230
2,720

1,152
-;1,152

3,904-;3,904

6,277
230
7,776

341
571

-;-;-

-;-;-

341
571

1,213
107
2,232

1,077
94
1,171

3,032
2,525
5,557

5,323
2,726
8,961

24

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

3.2 Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue
as a going concern in order to provide returns for shareholders and benefits for otherstakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the number ofdividends paid to shareholders, return capital to shareholders, issue new shares or sell assets
to reduce debt.
3.3 Fair value estimation
The table below analyses the Group’s financial instruments carried at fair value by level of the
inputs to valuation techniques used to measure fair value. Such inputs are categorized into threelevels within a fair value hierarchy as follows:•••

Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
Inputs other than quoted prices included within level 1 that are observable for the asset
or liability, either directly (that is, as prices) or indirectly (that is, derived from prices)(level 2).
Inputs for the asset or liability that are not based on observable market data (that is,unobservable inputs) (level 3).
Level 1
USD
thousands

Level 2
USD
thousands

As of December 31, 2019
AssetsFinancial assets at Fair value
through profit and loss –equity securities
Financial assets available forsale for equity securities
Total
As of December 31, 2020
AssetsFinancial assets at Fair value
through profit and loss –equity securities
Financial assets available forsale for equity securities
Total

Level 3USD
thousands

Total
USD
thousands

87

87

252

252

339

339

41

41

88

88

129

129

(a) Financial instruments in level 1

The fair value of financial instruments traded in active markets is based on quoted market
prices at the statements of financial position date. A market is regarded as active if quoted prices
are readily and regularly available from an exchange, dealer, broker, industry group, pricing
service, or regulatory agency, and those prices represent actual and regularly occurring market
transactions on an arm’s length basis. The quoted market price used for financial assets held by
the Group is the current bid price. These instruments are included in level 1. Instruments
25

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

included in level 1 represent listed equity investments classified as fair value through othercomprehensive income which were not held for trading purpose.
(b) Financial instruments in level 2

The fair value of financial instruments that are not traded in an active market is determined byusing valuation techniques. These valuation techniques maximize the use of observable market
data where it is available and rely as little as possible on entity specific estimates. If all
significant inputs required to fair value an instrument are observable, the instrument isincluded in level 2.
(c) Financial instruments in level 3

If one or more of the significant inputs is not based on observable market data, the instruments
is included in level 3.
Specific valuation techniques used to value financial instruments include:•

Quoted market prices or dealer quotes for similar instruments.

•

Other techniques, such as discounted cash flow analysis, are used to determine fairvalue for the remaining financial instrument.

The table below presents the changes in level 3 instruments for the relevant periods:
Available for salefinancial assets
USD (In thousands)
Balance as of January 1, 2019
Purchases
Fair value gain/(loss) on
valuation
Translation differences
Balance as of December 31, 2019

304
21
10
4
339

Balance as of January 1,2020
Purchases
Decrease due to sales
Fair value gain/(loss) on
valuation

339
29
(15)
(230)
6

Translation differences
Balance as of December 31, 2020(*) less than thousand US dollars.

129

There were no transfers between levels 1, 2 and 3 during the relevant periods.
3.4 Offsetting financial assets and financial liabilities
As of December 31, 2020 and 2019, there were no financial assets or financial liabilities whichwere subject to offsetting, enforceable master netting or similar agreements.

26

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 4 – CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of the Group’s consolidated financial statements requires management tomake estimates and assumptions are based on the best judgement of the management in lightof historical experience and various factors deemed to be reasonable as of the fiscal year end
date. Given their nature, uncertainty about these assumptions and estimates could result theoutcomes that require a material adjustment to the carrying amount of assets or liabilities
affected in future periods.
The estimates and assumptions are continuously reviewed by the management. The effects of achange in estimates and assumptions are recognized in the period of the change or in the periodof the change and future periods. Among estimates and assumptions made by the management,
the following are ones that may have a material effect on the amounts recognized in the
consolidated financial statements of the Group.
(a) Impairment- Non-financial assets
Non-current assets, such as property and equipment, and investments in associates, areassessed for indications of impairment at the end of reporting period. The Group evaluates
both internal and external sources of information to assess whether impairment indicators
exist. Some of the impairment indicators are evidence of obsolescence or significant adversechanges in the technological, market, economic or legal environment of the market in which
the Group operates, or the asset is dedicated. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent, if any, of the impairment
loss. Likewise, the determination of the assets’ recoverable amounts involves the use of
estimates by the management that can have a material impact on the respective values andultimately the amount of any impairment.
- Financial assets measured at amortized cost
Regarding the financial assets measured at amortized cost, the Group assesses whether there is any
objective evidence that financial assets are impaired on a quarterly basis. If there is any objective
evidence, the Group recognizes the difference between carrying value of the asset and the present
value of estimated future cash flows as an impairment loss. When the Group estimates the future
cash flows, the management considers the probability of failure of credit, time of recovery and pasttrend of losses, and decides whether the actual loss, which reflects current economic and credit
conditions, is more or less that past trend. The Group considers these estimates to be significant
because any adjustments may significantly affect the amount of an impairment loss for thefinancial assets measured at amortized cost.
(b) Recoverability of deferred tax assets
Deferred tax assets are recognized for all deductible temporary differences, unused tax losses
carryforward and unused tax credits carryforward to the extent that it is probable that taxable
income will be available. The elimination of future taxable income is calculated based on
financial budgets approved by management of the Group, and it is based on management’s
subjective judgements and assumptions. The Group considers these estimates to be significant
because any adjustments in the assumed conditions and amendments of tax laws in the future
may significantly affect the amounts of deferred tax assets and deferred tax liabilities.
(c) Method of determining fair value for financial instruments measured at fair value
with unobservable inputs
Certain financial assets and financial liabilities held by the Group measured at fair value
require using valuation techniques that incorporate unobservable inputs based on thejudgement and assumptions of Group management, such as experience assumption, and theuse of specific numerical calculation models.
(d) Provisions (d)The Group recognizes asset retirement obligations related to assets leased under operatingleases in the consolidated statements of financial position. These provisions are recognized27

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

based on the best estimates of the costs expected to incur for the restoration of the operatinglease properties to the state as specified in the rental agreements upon termination of theoperating leases. The estimation takes risks and uncertainty related to the obligation into
account as of the fiscal year end date.

NOTE 5 – REVENUES FROM CONTRACTS WITH CUSTOMERS
5.1 Disaggregation of revenue from contracts with customers
Details regarding disaggregated revenue included at segments reporting note (see Note 30).
5.2 Assets and liabilities related to contracts with customers
The Group has recognized the following revenue-related contract assets and liabilities.

Contract assets (1)December 31,
2019
332

Contract liabilities (2)2,784

December 31,
2020
191
4,671

(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.

As shown in the above table, there was no significant changes in contract assets and liabilities
during the year ended December 31, 2020.
The USD 683 thousand out of USD 2,784 thousand recognized in contract liabilities as ofDecember 31,2020 have been recognized as revenue for the year ended December 31,2020.
5.3 Accounting policies and significant judgements
The accounting policies and significant judgements for the group’s revenues from contracts
with customers are explained in Note 2.16.

NOTE 6 – COST OF SALES
USD thousand
December 31
2019
Labor costs
Outsourcing expenses
Rental expenses for exhibition space etc.
Other
Total

2020
442
2,021
1,701
374
4,538

28

124
793
580
183
1,680

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 7 – SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Advertising expenses
Salaries, bonuses and other employee expenses
Share-based compensation expenses
Traveling and transportation expenses
Rent expenses
Depreciation and amortization
Impairment loss of right-of-use assets
Professional fee
DonationEntertainment
Bad debt expense
Other
Total

USD thousand
Year Ended December 31
2018
2019
2020
1,330
686
1,534
4,381
4,463
3,167
-;34
-;637
240
468
-;-;940
1,301
1,277
117
345
-;1,617
1,821
2,311
407
405
419
184
56
133
297
-;866
916
682
9,771
11,5699,694

NOTE 8 – OTHER INCOME AND OTHER EXPENSES
8.1 Other incomes

Other incomes
Other expenses:
Loss on retirement of property, plant and equipment
Foreign exchange loss

8.2 Other expenses

USD thousand
Year Ended December 31
2018
2019
2020
18
216
254
(2)
16

216

(29)
225

USD thousand
Year Ended December 31
2018
2019
2020

Impairment of financial assets
Loss of changes in fair value of financial assets

(945)
(10)
(955)

(19)
1
(18)

-

NOTE 9 – EMPLOYEE BENEFITS EXPENSE (INCLUDING DIRECTORS’EMOLUMENTS)
USD thousand
Year Ended December 31
2018
2019
2020
4,601
4,090
2,830
564
549
337
4,639
3,167
5,165

Salaries, bonuses and allowances
Other employee benefits
Total

29

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 10 – FINANCE INCOME (EXPENSE), NET
USD thousand
Year Ended December 31
2018
Finance income –Interest income and exchange rate differences

2019

2020

90

88

(313)

(8)
82

(108)

(11)

(20)

(324)

Finance expense

Interest expense
Finance income (expense), net

NOTE 11 – INCOME TAX EXPENSES
11.1

The Company's tax rates

In January 2016, the Law for the Amendment of the Income Tax Ordinance (No. 216) was published,enacting a reduction of corporate tax rate in 2016 and thereafter, from 26.5% to 25%.
In December 2016, the Economic Efficiency Law (Legislative Amendments for Implementing the
Economic Policy for the 2017 and 2018 Budget Year), 2016 was published, introducing a gradual reduction
in corporate tax rate from 25% to 23%. However, the law also included a temporary provision setting thecorporate tax rate in 2017 at 24%. As a result, the corporate tax rate will be 24% in 2017 and 23% in 2018
and thereafter.
11.2

Income tax expenses in statements of income:1) As follows:

Current income tax- Japan corporate income tax for the year
Deferred income tax expenses (Note 24)

USD (In thousands)
Year Ended December 31
2018
2019
2020
164
95
259

454
35
489

32
(46)
(14)

Japan corporate income tax has been calculated on the estimated assessable profit for the
relevant periods at the rates of taxation prevailing in Japan in which the Group operates.
The tax on the Group’s profit before income tax differs from the theoretical amount that would
arise using the income tax rate of Israel as follows:

USD (In thousand)December 31
2019

2018

Loss before income tax
Tax Calculated at applicable Israel
corporate income tax
30

2020

(2,556)(6,494)(6,713)(588)(1,494)(1,544)

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Increase (decrease) regarding tax
rates differences of subsidiaries inJapan
Permanent non-deductible expenses
Permanent exempt income
Equity method investment gain
Assessment of the recoverability ofdeferred tax assets
Other
Tax expense

(50)

(773)

(685)

232
(429)
(373)

217
(35)
317

37
(34)
(258)

1,456

2,032

2,640

11
259

11
275

(37)
119

The Group is subject to national corporate income tax, inhabitants’ tax, and enterprise tax inJapan, which, in aggregate, resulted in effective tax rates approximately 33.59% for the years
ended December 31, 2019 and December 31, 2020.
Under Japanese tax law and regulations, every company is required to submit an annual tax
return to tax authorities. The statute of limitations to request a correction of prior year tax
liabilities is five years from when the original tax return was filed.
After filling of tax return, it may take a tax inspection by the tax authorities on an irregular base.
Most recently, Nano-opt Media Inc. took the tax inspection in July 2019. As a result of the tax
inspection, Nano-opt Media Inc. amended its tax return, but the amended amount was
immaterial.
The following table sets forth the applicable tax rate for the company during the period and theformula in calculating each type of tax.

1. Corporate tax rate:
2. Local corporate tax rate:
3. Inhabitants’ tax rate (At Tokyo):
4. Enterprise tax rate (At Tokyo):(a)Profit-based tax rate(b)Special local corporate tax rate
Effective tax rate
1.

2018

December 31
2019

23.40%
4.4%
12.90%

23.20%
4.4%
12.90%

23.20%
10.3%
7.00%

6.70%
43.20%
33.80%

6.70%
43.20%
33.59%

7.00%
37.00%
33.59%

2020

Corporate tax rate is imposed on a corporation’s taxable income. Amendments to theJapanese tax regulations were enacted into law on March 29, 2016 and it resulted that thecorporate tax rate has been reduced to 23.40% effective from the year ended December 31,
2017 and 23.20% effective from the year ending December 31, 2019.

2. Local corporate tax rate is imposed on total of a corporation’s corporate tax and income tax
credit. Amendments to the Japanese tax regulations were enacted into law on November 28,
2016 and it resulted that the local corporate tax rate is scheduled to be increased to 10.30%
effective from the year ending December 31,2020.
3. Inhabitants’ tax rate is imposed on total of a corporation’s corporate tax and income tax
credit allocated to each prefecture in Japan. This allocation is generally made on the basis of
the number of employees and number of offices in each location. The applied tax rate isdifferent in each prefecture. Amendments to the Japanese tax regulations were enacted into
law on November 28, 2016 and it resulted that the inhabitants’ tax rate is scheduled to be
reduced to 7.00% effective from the year ending December 31, 2020.
31

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

4. Enterprise tax rate is imposed on a corporation’s taxable income allocated to eachprefecture in Japan and it comprise of (a) Profit-based tax and (b) Special local corporate
tax rate. This allocation is generally made on the basis of the number of employees andnumber of offices in each location. The applied tax rate is different in each prefecture.
Amendments to the Japanese tax regulations were enacted into law on November 28, 2016.
As a result of this amendment, (a) Profit-based tax rate is scheduled to be increased to 9.60%
effective from the year ending December 31, 2020, while, (b) Special local corporate tax,
which is rate multiplied by the income portion of enterprise tax, is scheduled to be abolishedfrom the year ending December 31, 2020 and replaced by enterprise tax.
The detailed formulas for calculating each tape of taxes are as follows. Corporate tax consists
mostly of the effective tax rate, and the change in the rate of corporate tax would result in asimilar change ratio of the effective tax rate.
1. Corporate tax = (Taxable income×Corporate tax rate) – Income tax credit
2. Local corporate tax = (Corporate tax + Income tax credit) × Local corporate tax rate
3. Inhabitants tax = (Corporate tax + Income tax credit) ×Inhabitant tax rate
4. Enterprise tax is calculated as the sum of the followings:(a) Profit-based tax = Taxable income×Profit-based tax rate(b) Special local corporate tax = Taxable income×Special local corporate tax rate
5. Effective tax rate is calculated as:
Corporate tax rate×(1+Local corporate tax rate + Inhabitant tax rate)+Enterprise tax rate(a)+Enterprise tax rate(a)×Enterprisetax rate(b)1+Enterprise tax rate(a)+Enterprise tax rate(a)×Enterprise tax rate(b)NOTE 12 – EARNING PER SHARE
Earnings per share attributable to owners of the parent for the years ended December 31 2020,2019 and 2018 are calculated based on the following information.

Basic
Diluted Earnings (losses) per share
attributable to owners of the parent (USD)
Numerator (thousands of USD)
Profit (loss) for the year attributable toowners of the parent
Denominator (Shares)
Weighted average number of common shares
outstanding, basic
Effect of dilutive securities:
Weighted average number of common shares
outstanding, diluted

2018

2019

2020

(0.071)(0.147)(0.130)(0.071)(0.147)(0.130)(2,815)(6,850)(6,774)39,537,516

46,502,800

46,630,205

39,537,516

46,502,800

46,630,205

The outstanding preferred shares and the stock options issued by ECBO through the year ended
December 31, 2020 were excluded from the calculation of diluted per share for the year ended
December 31, 2020 as they had an anti-dilutive impact on losses per share attributable toowners of the parent

32

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 13 – DIVIDENDS
So far, the company has not declared or paid any dividend.
In accordance with the Japanese Companies Law, dividend can be distributed from the balanceof retained earnings, includes dividend income from affiliated companies, and does notincludes the retained earnings of affiliated companies that were defined in accordance with JGAAP as distributable in further periods. This takes into consideration that IRI Israel has nocontrol over the distribution of dividend by its affiliates.
In accordance with the Japanese Companies Law, the amount of JPY 437,231, thousand, equal
to USD 4,242 thousand, translated according to the exchange rate as of December 31, 2020,
can be distributed in IRI Japan in the year ended December 31, 2020.

33

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 14 – PROPERTY, PLANT AND EQUIPMENT

Year ended December 31, 2019
Opening net book amount
Adjustment on adoption of new
accounting standards Acquisition cost

483
-;-

241
(80)

-;-;-

724
(80)

Adjustment on adoption of new
accounting standards Accumulated depreciations

-;-

3

-;-

3

Additions
Acquisition of subsidiary Acquisition cost

-;33

12
49

-;-;-

12
82

Acquisition of subsidiary Accumulated depreciations

(4)

(25)

-;-

(29)

Depreciation
Retirement
Translation differences
Closing net book amount

(72)
-;6
446

(52)
-;3
151

-;-;-;-;-

(124)
-;9
597

As of December 31, 2019
Acquisition cost
Accumulated depreciation
Net book amount

588
(142)
446

321
(170)
151

-;-;-;-

909
(312)
597

446

151

-;-

597

-;-

-;-

-;-

-;-

-;-

-;-

-;-

-;-

-;-

9

-;-

9

-;-

-;-

-;-

-;-

-;-

-;-

-;-

-;-

(73)
-;20
393

(49)
-;7
118

-;-;-;-;-

(122)
-;27
511

619
(226)
393

339
(221)
118

-;-;-;-

958
(446)
511

Year ended December 31, 2020
Opening net book amount
Adjustment on adoption of new
accounting standards Acquisition cost
Adjustment on adoption of new
accounting standards Accumulated depreciations
Additions
Acquisition of subsidiary Acquisition cost
Acquisition of subsidiary Accumulated depreciations
Depreciation
Retirement
Translation differences
Closing net book amount
As of December 31, 2020
Acquisition cost
Accumulated depreciation
Net book amount34

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Depreciation expenses of 122 thousands of USD have been charged in Selling, general andadministrative for the years ended December 31,2020.

NOTE 15 – INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
1.

General Information
Set out below are the associates of the Group as of December 31, 2019 and 2020. 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 ownershipinterest (3)December 31

Name ofCompany

Main Business

2019

2020

Nature ofrelationship

Place ofbusiness

BroadBand
Tower, Inc.

・Computer platform
・AI solutions
business
・Media solutions
business

19%

18%

Associate (1)

Tokyo
Japan

MobileInternet
Capital, Inc.

Investment
management

30%

30%

Associate (2)

Tokyo
Japan

Carrying amount of each investment as of December 31 2020 and 2019, and dividend received
from each affiliate are as follows.

Name of Company

USD (In thousands)
Carrying amount
Dividend received
December 31
December 31
2019
2020
2019
2020

BroadBand Tower, Inc.

11,573

11,905

206

205

Mobile Internet Capital, Inc.

2,319

3,063

-;-

-;-

Quoted fair value of BroadBand Tower, Inc. as of December 31 2019 and 2020, are USD 26,905
thousand and USD 34,049 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, and high-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.

35

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

As shown in the table above, during the year ended December 31, 2020, the Company’s ownershipinterest ratio has decreased mainly due to sale of a part of shares owned by the Company.
As of December 31, 2020, the Company holds 18% of the voting rights, two directors of theCompany are also designated as directors of this entity and they participate in all significant
financial and operating decisions of the entity. Therefore, the Group 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)Reclassification of a portion of BBT's accumulated OCI following such sale or dilution, and; (c) The
company's share in equity movement in BBT not resulting from its comprehensive income.
2.

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

Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities

USD (In thousands)
December 31, 2019
December 31, 2020
81,07586,186297,139
290,674
378,214
376,860
66,401
215,842
282,243

72,180200,053272,233

Total Net assets

95,971

104,627

Group’s share in %Carrying amount19%
11,57318%
11,905

Year ended
December 31,2019
131,001
144,872

Year ended
December 31,2020
145,909145,876(13,871)33(13,871)33(14,778)

539

907

(506)

1,307

915

(12,564)

948

Revenue
ExpenseProfit (loss) from continuing
operations
Profit (loss)
Profit attributable to:
Owners of the parent of thecompany
Non-controlling interests
Other comprehensive income(loss)
Total comprehensive income36

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Total comprehensive income
attributable to:
Owners of the parent of thecompany
Non-controlling interests
lost attributable to owners of
the parent of the company
Group’s share in %Share of profit of investments
accounted for using the equity
method(14,277)

2,467

1,713

(1,519)(14,777)

539

19%

18%

(2,810)96

Individually immaterial associates*
December 31
2019
2020
USD (In thousands)
USD (In thousands)
Aggregate carrying amount of
individually immaterial
associates
The investments in Mobile
Internet Capital Inc.
Profit from continuing
operations
Other comprehensive income
Total comprehensive income

7,730

10,212

2,319

3,063

63

1,804

(93)
(30)

197
2,001

1. Share of profit and of other comprehensive income (loss) of investments accounted
for using the equity method(a) Share of profit of investments accounted for using equity method
December 31
December 31
December 31
2018
2019
2020
USD (In thousands)
Profit (loss) attributable toowners of BBT(7,587)(14,778)
539
22%
19%
18%
Group’s share in BBT %(1,668)(2,810)127
Share of profit (loss)of BBT
Profit attributable to ownersof MICGroup’s share in MIC %Share of profit of MIC
Share of profit ofinvestments accounted
for using the equity
method

8,870
30%
2,661

63
30%
19

1,804
30%
541

993

(2,791)

668(b) Share of other comprehensive income (loss) of investments accounted for using equity
methodSix months ended
Year ended
Year ended
December 31
December 31
December 31
2018
2019
2020
USD (In thousands)
37

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Other comprehensive
income (loss) attributableto owners of BBTGroup’s share in BBT %Share of othercomprehensive income(loss) of BBT
Other comprehensive
income (loss) attributableto owners of MIC
Group’s share in MIC %Share of Other
comprehensive income(loss) of MIC
Share of othercomprehensive
income (loss) ofinvestments accounted
for using the equity
method

1,146
22%

471
19%

1,929
18%

252

93

360

1,292
30%

(93)
30%

197
30%

388

(28)

59

428

65

419

38

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 16 – FINANCIAL INSTRUMENTS BY CATEGORY
USD thousand
December 31
2019
2020
Financial assets:
Available-for-sale for equity securities
Financial assets at FVOCI –equity securities
Financial assets at Fair value through profit
and loss –equity securities
Other financial assets at amortized cost,
mainly office security deposits
Financial assets at amortized cost:
Trade receivables
Deposits and other receivables (including
amounts due from related parties)
Cash and cash equivalents

Financial liabilities:
Financial liabilities at amortized cost
Trade payables
Other payables
Amounts due to related parties
Obligations under finance lease

252
87

41
88

889

936

1,228

1,065

360

203

29

39

7,251
7,640
8,868

7,438
7,680
8,745

487
1,133
12
6,276
230
8,138

341
882
3
5,322
2,726
9,274

NOTE 17 –OTHER FINANCIAL ASSETS:
USD thousand
December 31
2019
2020
Non-current
Financial assets at Fair value through OCI
Financial assets at Fair value through profit
and loss
Other financial assets at amortized cost,
mainly office security deposits

252
87

41
88

889

936

1,228

1,065

Hereby details regarding investments in financial assets as of December 31, 2020:(a) Investment in Beta-O2 Technologies Ltd.
On September 3, 2018, IRI Japan executed an investment agreement with Beta-O2 Technologies
Ltd. (hereinafter – BO2), a company incorporated in Israel, which deals in the field of biomedicine,39

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS
in the context of which IRI Japan invested the sum of USD 202 thousands in BO2, as part of roundB investment in BO2, in consideration for an issue of shares of BO2, which constitute approximately
0.46% of its issued and paid up capital.
(b) Investment in Arch Medical Devices Ltd.
The Company purchased shares of Arch Medical Devices Ltd. (hereinafter – Arch) from Capital
Point, in consideration for the sum of USD 650 thousands, and invested an additional sum of USD
25 thousands in the shares of Arch. As of the date of the Report, the Company holds approximately
9% of the share capital of Arch (fully diluted base). The Company appraise the fair value of Arch ata negligible amount, and therefore reduced the full value of its investment in Arch. The Company
together with Capital Point is exploring several possible arrangements which may partiallycompensate the Company for the loss the Company suffered from depreciating these investments.
(c) Investment in Dia Imaging Analysis Ltd.
The Company has purchased shares of Dia Imaging Analysis Ltd. (hereinafter – Dia), whichconstitutes approximately 0.43% of the shares of Dia, from Capital Point, in consideration for thesum of USD 350 thousands, and invested an additional sum of USD 25 thousands in January 2019.
The Company appraise the fair value of its investment in Dia in amount of USD 87 thousands, andtherefore recognized impairment in amount of USD 288 thousands in its financial statements. The
Company together with Capital Point is exploring several possible arrangements which may partiallycompensate the Company for the loss the Company suffered from depreciating these investments.

NOTE 18 – OTHER CURRENT ASSETS
USD thousand
December 31
2019
2020

646
180
16
843

Prepaid expense
Consumption tax receivable
Other receivables

305
262
28
595

NOTE 19 – CASH AND CASH EQUIVALENTS
USD thousand
December 31
2019
2020
3
1
7,248
7,437
7,251
7,438

Cash in handBank deposits

NOTE 20 – EQUITY
a. Share Capital
The Company’s total number of shares authorized and issued for the years ended December 31,
2019 and 2020 are as follows:40

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

December 31
Total number of common shares, no par value:
Authorized shares
Issued shares

2019

2020

10,000,000,000
46,502,000

10,000,000,000
46,502,000

The number of shares outstanding of the Company have been adjusted to reflect the effect of
the triangle merger and allotted bonus shares, as described in note 1.1.
All shares issued as of December 31, 2020 and 2019 have been fully paid-up.
Changes in the issued and paid-up share capital during the year ended December 31,
2018:
In August 2018, the Company completed a first initial public offering (hereinafter – IPO) andlisting of its shares for trade on the Tel Aviv Stock Exchange Ltd. (hereinafter – TASE). On August
9, 2018, the trading in the Company's shares was commenced on TASE. The Company issued
11,715,800 ordinary shares for price of NIS 1.73 per share. As a result, the Company raised NIS
16,218 thousand, equals to USD 4,367 thousands, after deduction of issuance expenses paid in cash.
Net amounts received at the Company's bank account close to the issue date.
Changes in the issued and paid-up share capital during the year ended December 31,
2017:(a) Issuance of common stock to a director, employee and other investors
At the annual extraordinary general meeting of shareholders held on 12 January 2017, IRI Japan
resolved to issue 30,000 common stock to a director of the company, 20,000 ordinary stocks toemployee and 600,000 ordinary stocks to general investors and to authorize the board of directors
to determine the subscription requirements. The details of the common stock are as follows:

Issuance of common stock on 12 January 2017
Candidates and numbers of
One director, one employee and three general investors.
candidates
Total number of common stocks
650,000 sharesissuedAmount of proceeds for common
JPY 105 per share, equal to USD 0.92 per sharestock (*)
Payment period
From 23 January 2017 to 31 January 2017
The share capital and capital Under the Companies act of Japan, at least 50% of the proceeds ofreserve to be increase
certain issuances of share capital shall be credited to share capital.
The remaining proceeds shall be credited to share premium.
(*) The fair value of IRI Japan’s share on 12 January 2017 is estimated at JPY 125 per share
which is based on the issue-price of 17 May 2017 (see paragraph (b)). Therefore, the sharebased compensation expenses of USD 9 thousand have been charged in the second quarter of
2017.
(b) Issuance of common stock to Media Do Co., Ltd.
Issuance of common stock on 17 May 2017
Candidates and numbers ofMedia Do Co., Ltd.
candidates
Total number of common stock
7,000,000 sharesissuedAmount of proceeds for common
125 yen per share, equal to 1.11 U.S dollars per share
stock
Payment date
31 May 2017
The share capital and capital Under the Companies act of Japan, at least 50% of the proceeds of41

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

reserve to be increase

certain issuances of share capital shall be credited to share capital.
The remaining proceeds shall be credited to share premium.

b. Capital Surplus and Retained Earnings
Capital surplus consists of capital reserves and other capital surplus that is derived from equity
transactions and not recorded in share capital. The primary component of capital surplus is capitalreserves. The Companies Act of Japan provides that no less than 50% of the paid-in amount orproceeds of issuance of shares shall be incorporated in share capital, and that the remaining shallbe incorporated in capital reserves. Capital reserves are restricted to distribute as dividend andmay be, if necessary, incorporated share capital and other capital surplus upon approval of theGeneral Meeting of Shareholders.
IRI Japan has not declared or paid cash dividends to date, and therefore no legal earnings reserves
have been recorded as of December 31, 2019 and 2020.
c. Incorporation of accumulated earnings into share capital in a subsidiary
IRI Japan’s general meeting of shareholders held on March 15,2018, resolved the incorporation of
accumulated earnings into share capital in accordance with the Companies Act of Japan. The
effective date is the same date with the resolution and the incorporation amount is JPY 96,100
thousand, equal to USD 874 thousands.

NOTE 21 – ACCRUALS AND OTHER PAYABLES
USD thousand
December 31
2019
2020
288
297
658
466
93
129
395
61
141
88
115
152
46
31
4
9
1,740
1,233

Accounts payable
Accrued expenses
Accrued consumption taxes
Income tax payable
Expense payable due to withholding tax
Accrued vacation payable
Accrued bonuses
Other

NOTE 22 – BORROWINGSThe Group’s borrowings as of December 31, 2020 is comprised of the short term borrowings by ECBO
and the long term borrowings by ECBO and NOM.
ECBO entered into loan agreement with its director on 16 September 2020. The maturity date ofborrowing is 15 September 2021.
In the agreement, the borrowings should be repaid by cash, but in the case where ECBO executes thirdparty allotments before the maturity date of borrowings, the directors as lender can select an optionthat they can acquire ECBO’s common shares which is equivalent to the amounts of borrowings asalternative method of settlement of the borrowings. The Group determined the borrowing as financial
liabilities under IAS 32.
Due to the outbreak of the Corona virus in Japan, the special loan funded by Japan Finance Corporation(“JFC”) is awarded to companies whose operations have been significantly damaged by the Corona virus
impact. Since NOM is awarded to the special loan, NOM applied the special loan on 2 October 2020
and 582 thousand USD of the relevant loan was recorded as of December 31, 2020. A partial repaymentof the loan is required from after three years from the borrowing date.
ECBO entered into the loan agreement with SBI Estate Finance on 5 October 2020 and 2,037 thousand
42

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

USD of the relevant loan was recorded as of December 31, 2020. A partial repayment of the loan isrequired from 5 May 2022.
USD thousand
December 31
2019
Current portion
Borrowing from ECBO’s management

2020
230

107

Non-current portion
Borrowing from Japanese government-controlledbank - Japan Finance Corporation (JFC)
Borrowing from external party

-;-

2,037

Total borrowings

230

2,726

582

As of December 31,2019 and 2020, the Group’s borrowings were repayable as follows:
USD thousand
December 31
2019Within 1 year
Between 1 and 2 years
Between 2 and 5 years
Over 5 years

2020
230
-;-;-;230

NOTE 23 – Asset Retirement Obligations
Changes in Asset Retirement Obligation

USD thousand
Asset Retirement
Obligations
209

On December 31, 2019
Arising during the year
Utilized
Unwinding of discount and changes in the discount
rate

21
-;-;3
233

On December 31, 2019
Acquisition of subsidiary
Utilized
Unwinding of discount and changes in the discountrate
Translation differences
On December 31, 202043-;-;-;12
245

107
94
886
1,639
2,726

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

The Group records provisions for Asset Retirement Obligations related to its properties as the Group isrequired to restore these properties upon termination of its properties to the state specified in the rental
agreement.
Changes in provision for onerous contract in relation to CyberGym business
USD thousand
For the year ended
December 31, 2019
299
(121)
11
189

Balance as of December 31,2019
Arising during the year
Translation differences
Balance as of December 31,2020

The Group records a provision for certain maintenance expense payable to the third-party vendors in
relation to Cybergym business since relevant contract is determined as Onerous contract under IAS37.

NOTE 24 – LEASESThe Group, as lessee, mainly leases properties. The lease contracts may contain extension options but
do not include material purchase options, escalation clause and restrictions imposed by leases, such asadditional financing and additional leases.
Information for the year ended December 31, 2019 and 2020 are disclosed based on IFRS 16 Leases.
(i) The expenses relating to leases are as follows.
USD thousand
For the year ended
December 31, 2019

USD thousand
For the year ended
December 31, 2020

Depreciation of right-of-use assets
Buildings
Equipment
Total depreciation expenses(1,028)(107)(1,135)(1,053)(17)(1,070)Interest expenses relating to lease liabilities
Expenses relating to leases of low-value assets

(108)
(4)

(94)
(4)

(ii) The carrying amounts of the right-of-use assets and lease liabilities are as follows.
USD thousand
December 31, 2019

USD thousand
December 31, 2020

Total

5,905
92
5,997

5,127
76
5,203

Total

1,221
5,055
6,276

1,213
4,110
5,323

Right-of-use assets
Buildings
Equipment

Lease liabilities
Current
Non-current(iii) The changes in the carrying amounts of the right-of-use assets are as follows:44

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS
USD thousand
December 31, 2019

USD thousand
December 31, 2020

Balance at 1 January, under finance lease80-;transactions
Adjustments on adoption of IFRS16
6,230-;Balance at 1 January, (adjusted)
6,310
5,997
New lease transactions
599-;Acquisition of subsidiary537-;Depreciation(1,135)(1,070)
Impairment loss (*)(345)-;Translation differences
31
276
Balance at December 31
5,997
5,203
(*) The Group determined that there were indications of impairment on right-of-use assets inconnection with CyberGym business within technology information segment. As a result, impairmentof right-of-use assets in the amounts of USD 345 thousand was recognized for the year ended December
31, 2019.
(iv) The changes in the lease liabilities are as follows:
USD thousand
December 31, 2019

USD thousand
December 31, 2020

78

-;-

6,155
6,233
599
516
(1,110)38
6,276-;6,276-;-;(1,241)
288
5,323

Balance at 1 January, under finance leasetransactions
Adjustments on adoption of IFRS16
Balance at 1 January (adjusted)
New lease transactions
Acquisition of subsidiary
Repayment
Translation differences
Balance on December 31

As of December 31, 2019 and 2020, there are no lease contracts not yet commenced.

NOTE 25– DEFERRED TAX BALANCES

Deferred tax assets
The balance comprises temporary
differences attributable to:

USD thousand
December 31
2019
2020

Tax losses
Prepaid expense
Allowance for paid leave
Allowance for bonus
Bad debt allowance
Property plant and equipment
Lease obligations
OthersTotal deferred income tax assets

1,078
35
18
16
7
5
931
32
2,122
45

1,224
-;-;-;-;-;-;-;1,224

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Deferred income tax liabilities
The balance comprises temporary
differences attributable to:Undistributed earnings relating toinvestments in affiliate
Depreciation
Right-of-use assets
Other comprehensive income
Total deferred income tax liabilities(1,070)(1,221)

(15)
(937)
(8)
(2,030)-;-;(3)(1,224)92-;-

Net deferred tax assets

Undistributed earnings relating to investments in affiliate recorded in deferred income tax liabilities
are derived from taxable temporary differences due to distributable retained amounts in BBT and
MIC.
Deferred income tax assets
USD thousand
Movements

Tax
losses

Accrued Allowance
Allowance
enterprise for paid
for bonus
taxes
leave

Lease
Prepaid
liabilities expense

Bad debt
allowance

Others

Total

Balances on December 31,
2019

1,078

931

35

32-

18

16

7

5 2,122

Adjustment on adoption of
new accounting standards

-;-

-;-

-;-

-;-

-;-

-;-

-;-

-;-

-;-

Translation difference

60

15

1

1

0

0

(0)

(0)

77

Credited/(charged) to profit or
loss

85

(946)

(36)

(33)

(18)-

(16)

(7)

(5) (975)

Balances on December 31,
2020

1,224

-;

-;

-;-

-;

-;

-;-

-; 1,224

Deferred income tax liabilities
USD (In thousands)
Movements

Undistributed
earnings relating
to investments
in affiliate

Right-of-use
AssetsDepreciation

Other comprehensive
incomeBalances on December 31, 2019
Adjustment on adoption of new
accounting standards
Charged to othercomprehensive income(1,070)

(937)

(14)

(8)

(2,029)

-;-

-;-

-;-

-;-

-;-

-;-

-;-

-;-

5

5

Translation difference
Credited/(charged) to profit orloss
Balances on December 31,2020

(60)

(15)

(0)

(0)

(75)

(91)

952

14

-;-

875

(1,221)

-;-

-;-

(3)

(1,224)Total

The Group takes into account the probability that deductible temporary differences or tax losses carriedforward can be utilised against future taxable profits on recognition of deferred income tax assets. In
assessing recoverability of deferred income tax assets, the Group takes into account scheduled reversalof deferred income tax liabilities, projected future taxable profit and tax planning.
46

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

The Group offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current
tax assets and liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes
levied by the same tax authority.
As a result of the assessment of the recoverability of deferred income tax assets, the Group does notrecognise deferred income tax assets for a portion of deductible temporary differences or tax losses
carried forward as of December 31, 2019 and 2020. The amounts of deductible temporary differences
and tax losses carried forward for which deferred income tax assets that are not recognised as ofDecember 31, 2019 and 2020 are as follows:

Deductible temporary differences
Losses carried forward
Total

USD thousand
December 31
2019
2020
826
2,044
22,40518,722
23,231
20,766The expiration of tax losses carried forward for which deferred income tax assets are not recognised is
as follows:
USD thousand
December 31
2019
2020
Grand total
1st Year
2nd Year
3rd Year
4th Year
5th Year and thereafter
Total

7,246
1,241
393
862
12,66322,405

82
414
908
967
16,351
18,722

The amount of tax losses carried forward are shown in the above table, which are related to IRI Japan,
NOM and ECBO.

NOTE 26 – CONTINGENCIES AND COMMITMENTS
As of December 31, 2020 and 2019, the Group and the Company did not have any significant contingent
liabilities.
IRI Japan entered into a donation agreement with the Israel Technological Institute (the “Technion”)
and with the Technion Japan on March, 2017. IRI Japan undertook to donate the sum of USD 4 million(in 10 equal installments over 10 years) to the Technion, which would be used to support the researchand development operations of the Cyber Security Research Center at the Technion from July 1, 2017
to June 30, 2027, which would be called the Hiroshi Fujiwara Cyber Security Research Center.
The agreement is treated as an executory contract in accordance with IFRS 9 and accordingly, an
expense is recognized over the 10-year agreement period, starting July 1, 2017.
On September 8, 2016, IRI Japan entered into a memorandum with Technion Japan Co., Ltd.
(“Technion Japan”), the branch of the Technion in Japan, under which IRI Japan would have a firstright upon any sales and/or production on the Japanese market of products developed by startup
companies from the Technion, or located by the Technion, which deal in research and development in
the fields of medicine, life sciences, biology, food and hygiene.

47

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 27 – RELATED PARTY TRANSACTIONS AND BALANCESFor the purposes of this Financial Information, parties are considered to be related to the Group if theparty has the ability, directly or indirectly, to exercise significant influence over the Group 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 related parties of the Group where
those parties are individuals. Parties are also considered to be related if they 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 reporting periods ended December 31, 2019 and 2020,are as follows.
Name of related parties

Hiroshi Fujiwara

Mieko Nakagawa
Mirei Kuroda
Elchanan HarelIRI Israel
NANO Opt Media, Inc.
ECBO Square, Inc.
Fintech A-Eye ventures Inc.
BroadBand Tower, Inc.
Mobile Internet Capital Inc.
Japan Cable Cast Inc.
Unimo, Inc.
Remote Sensing Technology
Center of Japan
Internet Association Japan

Relationship with theCompany/Group
Director of the parent company,
Chairman of the board of directors andCEO, and
Representative director of IRI Japan,
President and CEO
Director of the Company, andDirector of IRI Japan, COO
CFO of the Group
Director of the parent company
Parent company
Subsidiary
Subsidiary
Subsidiary
Affiliate
Affiliate
Subsidiary of affiliate
Company owned by director
Company owned by director
Company owned by director(a) Balances classified as related parties:
The following balances were financial assets and liabilities attributed to related parties:
USD thousand
December 31
2019
2020
Current assets
Booked in IRI Japan:
Trade Receivable to a company own by director
1010Trade Receivable to ECBO Square, Inc.
Allowance for Doubtful accounts to a company own
by director
(10)
(10)
Booked in NOM:
Other receivable to a company own by director
Allowance for Doubtful accounts to a company own
by director

48

21

-;-

(21)

-;-

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Booked in ECBO Square, Inc.:
Trade Receivable to Broad band Tower, Inc.
Prepaid expense to Broad band Tower, Inc.
Total

8
9
17

9
6
15

Current liabilities
Booked in the Company –Account payable to BroadBand Tower, Inc.
Account payable for Hiroshi Fujiwara
Account payable for Directors of the Company
Account payable for the Group's CFO

4
15
9
8

-;15
8
18

Booked in NOM –Account payable to BroadBand Tower, Inc.

3

1

Booked in ECBO Square, Inc.:-Trade Payable to Broad band Tower, Inc.
-Account payable for Broad band Tower, Inc.
Total

4
3
48

2
-;44

All of the above transactions with related parties were conducted in the ordinary course of thebusiness of the Group based on the terms mutually agreed between the relevant parties.
(b) Transactions with related parties:

USD thousand
2018

Transaction with Other Related Parties in IRI
Japan:
Purchase of common shares of ECBO Square, Inc.
from BroadBand Tower, Inc.
Outsourcing cost to BroadBand Tower, Inc.
Sales to ECBO Square, Inc.
Sales to a company own by director
Revisions of contract amount in relation to sales
transactions with Internet Association Japan
Payment of membership fee to a company own by
director

Transaction with Other Related Parties in
NOM:
Sales to BBTSales to a company own by director
Consulting fee to a company own by director
Outsourcing cost to BBT
Booked in ECBO square, Inc.:-Sales to BroadBand Tower, Inc.
-Sales to Remote Sensing Technology Center ofJapan-Outsourcing cost to BroadBand Tower, Inc.
Total

-;-

71

-;-

(14)
13
136

(11)
-;-;-

(12)
-;-;-

-;-

(50)

-;-

(1)

(2)

(2)

-;-;(181)
(2)

11
1
-;-;-

-;-;-;-;-

-;-

108
9

111
-;-

(63)
74

(25)
72

-;-;(48)

49

Year ended December 31
2019
2020

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS(C) Key management compensation
As discussed in the above, until the change in reporting entity occurred on November 20, 2017,
key management personal includes 5 directors and 1 corporate auditors of IRI Japan. After thedate, key management has been changed to 3 directors and 1 CFO of the Company. The
compensation paid or payable to key management for employee services for the year ended
December 31, 2020, 2019 and 2018 are respectively shown below:
USD thousand
Year ended December 31
2018
2019
2020
Executive compensation
323
236
205
Total
323
236
205
(D) Guarantees provided by shareholders and directors
As of January 1, 2017, the company's bank accounts are guaranteed by a personal guarantee
provided by the controlling shareholder, Dr. Hiroshi Fujiwara. The guarantee related tobank loans for NOM subsidiary and restricted to these loans extant.
On November 15, 2017 the above loan was fully repaid. Accordingly, the personal guarantee
was invalid.
NOTE 28 – BUSINESS COMBINATIONAs discussed in Note 1.1, on March 31, 2020, the Company acquired a 51% controlling interest of theauthorized and issued shares of Digit Inc. ("Digit"), which provides consulting services to enterprises inJapan in the HR field especially in business behavior assessment, skills management and organizationand strategic consulting. On June 30, 2020, the Company sold its entire shareholding in Digit, resulting
in an insignificant loss on disposal. Digit's results were consolidated in the consolidated statement ofincome from its acquisition date through its disposal.

NOTE 29 –SEGMENT INFORMATION(1)

General information
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 theoperating segments, who is the Chief Operating Decision Maker (“CODM”) of IRI Israel as theCompany’s parent company.
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 three operating segments:(i) IRI- 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.
In addition, from the second half of the year ended December 31, 2019, IRI provides
Cybersecurity Training and Technology Arena in Tokyo (“CyberGym business”) under the
strategic collaboration with CyberGym Control Ltd. and Strategic Cyber Holdings LLC.
(ii) BBT- it mainly provides data center services, cloud services, storage solutions, AI(artificial intelligence) solutions, dedicated platform services and support of VNO
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 from50

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS
a single external customer was approximately 33,418 thousands USD for the year ended
December 31, 2019 and 30,331 thousands USD for the year ended December 31, 2020,
respectively.
(iii) ECBO – it mainly provides IOT solutions and consultation services in the field of data
security, the design and production of films and production services, maintenance services
for solar power facilities, and the design and production of films.

(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 relatedareas.
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.
Year ended December 31, 2019Technology Information
IRI
BBT
Segment
revenue fromexternalcustomers
Inter-segment
revenues
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
Other segment
items
Finance income
Finance expense
Depreciation andamortization
Capitalexpenditure

IOT

NOM

Other

Sub total

Adjustments

Total

139

130,990

1,031

10,830-;-142,990(130,870)

12,120

-;-

11

123

11

-;-

145

(145)

-;-

139

131,001

1,154

10,841-;-

143,135(131,015)

12,120(3,314)(11,224)(3,022)823-;-(16,737)(11,224)(5,513)(2,810)

-;-

-;-

-;-

19

(2,791)-;-(2,791)

1,849

-;-

-;-

-;-

-;-

1,849

-;-

1,849

(6,886)(11,630)(3,067)774

19(20,790)

14,296(6,495)8(2,241)

(6)

(481)

(10)

(2,729)

2,241

(448)

(6,877)(13,871)(3,073)293

9(23,520)

16,538(6,983)123(2,716)

1,672(2,078)-;(45)-;(49)

-;-;-

1,795
(4,888)(1,624)
4,781

(87)
(107)

(1,060)(11,395)

(160)

(81)

-;-

(12,696)(11,395)(1,301)

7

35,139

5

282

-;-

35,433(35,159)

292*Reclassified.
**Discontinued operation in a year ended on December 31, 2017 refers to the partial sale of BBT subsidiary BBF, Inc. on June 30, 2017,
the sale of BBT subsidiary IoT on January 4, 2019.

51

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Year ended December 31, 2020
Technology Information
IRI
Segment
revenue fromexternalcustomers
Inter-segment
revenues
Segment
revenues
Operating profit(loss)
Loss on sale ofthe investment
in subsidiaries
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
Other segment
items
Finance income
Finance expense
Depreciation andamortization
Capitalexpenditure

BBT

IOT

NOM

Other

Sub
total

Adjustments

Total

362

145,896

196

4,580

24

151,058(145,786)

5,272

-;-

12

203

-;-

-;-

216

(216)

-;-

362

145,909

399

4,580

24

151,274(146,002)

5,272(1,958)2,491(3,198)(2,158)(184)(5,007)(2,491)(7,498)

(40)

-;-

-;-

-;-

-;-

(40)

-;-

(40)

127

6

-;-

-;-

541

674

(6)

668

479

-;-

-;-

-;-

-;-

479

-;-

479

(2,445)

1,389(3,270)(2,208)355(6,179)(535)(6,714)103(1,356)

(6)

(103)

20

(1,342)

1,356

14(2,342)33(3,276)(2,311)375(7,521)821(6,700)55(1,109)467(1,576)-;(72)-;(50)-;-;-

522(2,807)

(519)
2,480

3
(327)

(99o)

(30,356)

(166)

(121)

-;-

(31,633)

30,356(1,277)

-;-

5,779

-;-

7

-;-

5,786

(5,779)7

Year ended December 31, 2019
Information technology
IRI
BBT
Segment
assets

18,748378,214

IOT

NOM

986

9,288

Other

Adjustments

2,319(378,637)

Total
30,918Year ended December 31, 2020
Information technology
IRI
BBT
Segment
assets

16,241

376,859

IOT

NOM

1,800

9,790

Other
3,063

NOTE 30 – PRINCIPAL SUBSIDIARIES(1) General information
The Group has 3 consolidated subsidiaries as of December 31, 2020 as follows.

52

Adjustments(377,313)

Total
30,440INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Name
Nano-opt Media Inc.
Fintech A-Eye
ventures Inc.
ECBOsquare, Inc. (*)% of ownership interest
December 31
2019
2020

Main business
Refer to Note 31
Operating venture fundbusiness as GP
Refer to Note 31

100%
100%

100%
100%

77%

71%

(*) ECBO (which was renamed from IoT Square Inc. in October 2020) has become a subsidiary of theCompany on January 4, 2019. During the year ended December 31, 2019, ECBO issued new commonshares through a third-party allotment. As a result, the Group’s ownership interest in ECBO decreased
from 100% to 77% and recorded 1,300 thousand USD of Capital surplus and 327 thousand USD of NonControlling interest, respectively.
In addition, during the year ended December 31, 2020, ECBO additionally issued new common sharesthrough a third-party allotment. As a result, the Group’s ownership interest in ECBO decreased from
77% to 71% and recorded 461 thousand USD of Capital surplus and 38 thousand USD of NonControlling interest, respectively.
On April 10, 2020, an investment agreement has been signed between SBI Holdings ("SBI"), a Japanesefinancial services company that deals, inter alia, in the card field, and ECBO as a subsidiary of the Group.
Based on the agreement, SBI invested a total sum of JPY 200 million (which is equivalent to 1,836
thousand USD) in consideration to 5,000 A Preferred shares newly issued by ECBO. Considering theterm and conditions of the A Preferred shares, the Group determined to classify it into “Equity
instruments” and recorded as “Non-controlling interests” in the interim condensed consolidated
financial position. The A preferred shares can be converted to ordinary shares at any time when SBI
exercises the conversion right. If the whole A preferred shares are converted to ordinary shares as ofDecember 31, 2020, the Group ownership interest ratio decreased to 51%.

(2) The summarized financial information for the subsidiary which the Group recognize noncontrolling interest is as follows.

Current assets
Non-current assets
Current liabilities
Non-current liabilities
EquityAccumulated non-controlling interest
Proportionate share of non-controlling interest

Revenue
Loss for the year
Other comprehensive income
Total comprehensive income for the year
Profit attribute to non-controlling interest
Dividend paid to non-controlling interest

53

ECBOsquare, Inc.
USD thousand
December 31, 2019
387
600
1,855
1,155
(2,025)(460)
23%

ECBOsquare, Inc.
USD thousand
December 31, 2020
1,356
444
1,965
3,057
(3,222)808
29%

ECBOsquare, Inc.
USD thousand
December 31, 2019
1,154
(3,073)

ECBOsquare, Inc.
USD thousand
December 31, 2020
399
(3,276)-;--;-(3,073)(133)(3,276)
(641)

-;-

-;-

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS
ECBOsquare, Inc.
USD thousand
December 31, 2019(3,219)
(9)
3,094
(134)

Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net decrease in cash and cash equivalent

ECBOsquare, Inc.
USD thousand
December 31, 2020
(2,882)
(2)
3,910
1,026

NOTE 31 – SUBSEQUENT EVENTS
Application of a special loan from JFC by ECBO square, Inc.
As discussed in Note 22, the special loan funded by Japan Finance Corporation (“JFC”) is awarded tocompanies whose operations have been significantly damaged by the Corona virus impact. Since ECBO
is awarded to the special loan, ECBO applied the special loan on 22 February 2021 and the loan amountis 20,000 thousand JPY (which is equivalent to 194 thousand USD based on using currency exchange
ratio as of December 31, 2020). A partial repayment of the loan is required from after three years fromthe borrowing date.

NOTE 32 – RECONCILIATION of BBT's FINANCIAL STATEMENTS FROM J-GAAP TOIFRSBelow is transition from Japanese GAAP to IFRS at BBT as of and for the 12 months ended December
31, 2019 and 2020. 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 thousand)As of December 31, 2019
Presentation
under

Note

J-GAAP
Current assets
Cash and cash
equivalents
Notes and accounts
receivable - trade
Inventories
Current assets Others
Allowance for
doubtful accounts
Total current
assetsNon-current
assetsProperty, plant andequipment

J

J

G,H

Reported
underJapanese
GAAP

Effect oftransition to
IFRS

Presentation
under IFRS

IFRS

5,914,296-;-

5,914,296

2,121,401(5,499)2,115,902

306,760-;-

306,760

607,364(146,158)

461,206(5,499)

5,499

-;-

8,944,322(146,158)

8,798,164

8,458,443(428,990)

54

8,029,453

Current assets
Cash and cash
equivalents
Notes and accounts
receivable - trade
Inventories
Current assets –OthersAllowance for
doubtful accounts
Total current
assetsNon-current
assetsProperty, plant andequipment

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS-;Intangible assets
GoodwillGB-;2,395,199
605,672

15,694,574
7,386
75,37015,694,574
2,402,585
681,042

Investment securities

E,J

2,378,706(2,362,464)

16,242

-;-

E

-;-

3,119,187

3,119,187

-;-

E

-;-

197,910

197,910Deferred tax assets

C

101,282

298,922400,204

1,335,438-;-

1,335,438

163,956

204,543

368,499

15,438,696

16,806,438

32,245,134

24,383,018

16,660,280

41,043,298

Lease and guarantee
deposits
Non-current assets Others
Total non-current
assetsTotal assets

Right-of-use assets
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 andguarantee deposits
Non-current assets– Others
Total noncurrent assets
Total assets

JPY (in thousand)As of December 31, 2019
Presentation
under

Note

J-GAAP

Reported
underJapanese
GAAP

Effect oftransition to
IFRS

IFRS

Current
liabilities

Current liabilities
Accounts payabletrade
Short-termborrowings

983,528-;-

983,528

1,820,736-;-

1,820,736

12,6303,018,192

3,030,822

Accounts payableother

322,018-;-

322,018

Income taxes payable

108,662-;-

108,662

Lease obligations - current

G

-;-

F

-;-

559,154559,154

OthersD

922,730(541,848)

380,882

4,170,304

3,035,498

7,205,802

Total current
liabilities
Non-current
liabilities
Lease obligations

Presentation
under IFRS

G

29,714

14,489,683

55

14,519,397

Trade payable
Short-termborrowings
Obligation underfinance leases –current
Accruals,
provisions andother payables
Income taxes
payableContract liabilities
Other current
liabilities
Total current
liabilities
Non-current
liabilities
Obligation underfinance leases

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS
Long-term
borrowings
Asset retirement
obligations

I

5,893,430(68,328)

5,825,102

1,704,982-;-

1,704,982

Deferred tax
liabilities

C592,369

113,140

705,509

-;-

F

-;-

306,589

306,589

323,973

37,318361,291

Total non-current
liabilities

8,544,468

14,878,402

23,422,870

Total liabilities

12,714,772

17,913,900

30,628,672

Non-current
liabilities - Others

EquityShareholders’equityCapital stock
Capital surplus
Retained earnings
Treasury shares
Total
shareholders’equityOther
comprehensive
incomeValuation differencesof available-for-saleinvestments

K

E

Foreign currencytranslation
adjustment
Total othercomprehensive
incomeNon-controllinginterests
Total equity
Total liabilities
and equity

3,322,421
3,809,480
1,226,728(87,662)-;12,777(1,646,907)-;-

3,322,421
3,822,257(420,179)(87,662)

8,270,967(1,634,130)

6,636,837(5,235)62,93557,700(22,598)-;-(22,598)(27,833)

62,93535,102

3,425,112

317,575

3,742,687

11,668,246(1,253,620)

10,414,626

24,383,018

16,660,280

41,043,298

Long-term
borrowings
Asset retirement
obligations
Deferred tax
liabilities – noncurrent
Contract liabilities– non-current
Other non-current
liabilities
Total noncurrent
liabilities
Total liabilities
EquityShareholders’equityCapital stock
Capital surplus
Retained earnings
Treasury shares
Total
shareholders’equityOther
comprehensive
incomeValuationdifferences ofavailable-for-saleinvestments
Foreign currencytranslation
adjustment
Total othercomprehensive
incomeNon-controllinginterests
Total equity
Total liabilities
and equity

JPY (in thousand)As of December 31, 202o
Presentation
under
J-GAAP

Note

Reported
underJapanese
GAAP

Effect oftransition to
IFRS

Current assets

IFRS

Presentation
under IFRSCurrent assets

56

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS
Cash and cash
equivalents
Notes and accounts
receivable - trade
Inventories
Current assets Others
Allowance for
doubtful accounts
Total current
assetsNon-current
assetsProperty, plant andequipment-;Intangible assets
Goodwill

JJ

6,127,521-;-

6,127,521

1,977,243(6,971)

1,970,272

266,472-;-

266,472

573,853(54,549)

519,304(6,971)

6,971

-;-

8,938,118(54,549)

8,883,569

G,H

7,819,064(424,461)

7,394,603

GB-;2,045,487
558,168

13,738,059
5,016
122,874

13,738,059
2,050,503
681,042

Investment securities

E,J

2,567,578(2,550,700)

16,878

-;-

E

-;-

3,690,230

3,690,230

-;-

E

-;-

220,083

220,083

Deferred tax assets

C

54,632279,782

334,4141,300,352-;-

1,300,352

76,466458,438

534,904

14,421,747

15,539,321

29,961,068

23,359,865

15,484,772

38,844,637

Lease and guarantee
deposits
Non-current assets Others
Total non-current
assetsTotal assets

Cash and cash
equivalents
Notes and accounts
receivable - trade
Inventories
Current assets –OthersAllowance for
doubtful accounts
Total current
assetsNon-current
assetsProperty, plant andequipment
Right-of-use assets
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 andguarantee deposits
Non-current assets– Others
Total noncurrent assets
Total assets

JPY (in thousand)As of December 31, 2020
Presentation
under

Note

J-GAAP

Reported
underJapanese
GAAP

Effect oftransition to
IFRS

IFRS

Current
liabilities

Current liabilities
Accounts payabletrade
Short-termborrowings
Lease obligations - current

Presentation
under IFRS

G

750,259-;-

750,259

1,840,736-;-

1,840,736

12,3513,031,755

3,044,10657

Trade payable
Short-termborrowings
Obligation underfinance leases –current

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Accounts payableother294,473-;-294,473

Income taxes payable

141,086-;-

141,086

-;-

F

-;-

717,844717,844

OthersD

1,136,488(485,071)

651,4174,175,393

3,264,528

7,439,921

Total current
liabilities
Non-current
liabilities
Lease obligations
Long-term
borrowings
Asset retirement
obligations

G

17,363

12,677,049

12,694,412

I

4,552,694(50,649)

4,502,045

1,705,000-;-

1,705,000

Deferred tax
liabilities

C

524,148

216,157

740,305

-;-

F

-;-

628,315

628,315

Non-current
liabilities - Others

318,710

31,629350,339

Total non-current
liabilities

7,117,915

13,502,501

20,620,416

11,293,308

16,767,029

28,060,337

Total liabilities
EquityShareholders’equityCapital stock
Capital surplus
Retained earnings
Treasury shares
Total
shareholders’equityOther
comprehensive
incomeValuation differencesof available-for-saleinvestments
Foreign currencytranslation
adjustment
Total othercomprehensive
incomeKE3,331,331
3,827,201
1,449,703(87,677)

12,968(1,931,876)-

3,331,331
3,840,169(482,173)(87,677)

8,520,558(1,918,908)

6,601,650(25,473)

302,344276,871(31,122)-(31,122)(56,595)

302,344245,749

58

Accruals,
provisions andother payables
Income taxes
payableContract liabilities
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 noncurrent
liabilities
Total liabilities
EquityShareholders’equityCapital stock
Capital surplus
Retained earnings
Treasury shares
Total
shareholders’equityOther
comprehensive
incomeValuationdifferences ofavailable-for-saleinvestments
Foreign currencytranslation
adjustment
Total othercomprehensive
incomeINTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Non-controllinginterests
Total equity
Total liabilities
and equity

3,602,594

334,3073,936,901

12,066,557(1,282,257)

10,784,300

23,359,865

15,484,772

38,844,637

Non-controllinginterests
Total equity
Total liabilities
and equity

Consolidated statement of income
JPY (in thousand)Year ended December 31, 2019
Presentation
under
J-GAAPNet revenue
Cost ofrevenue
Gross profit
Selling, generalandadministrative
expenses-;-;Operating
profit(Loss)
Non-operating
incomeNon-operating
expenses-;-;-;Ordinary profit
Extraordinary
incomeExtraordinaryloss
Profit before
income taxes
Income taxes
Profit after
income taxes
Minority
interestProfit (loss)
attributableto owners ofparent

Note
F
F,G,
H

Reported
underJapanese
GAAP

Effect oftransition
to IFRS

Presentation under
IFRS

IFRS

14,660,370(379,198)

14,281,172(11,133,347)(732,932)(11,866,279)

Cost of sales

3,527,023(1,112,130)

2,414,893

Gross profit(3,830,742)

143,077(3,687,665)

Selling, general andadministrative expenses-;-;-

63,859(14,647)

63,859(14,647)(303,719)(919,841)(1,223,560)

J

63,015(63,015)

-;-

-;-

J

(111,555)

111,555

-;-

-;-

J
J

-;-;-

182,328(226,579)

182,328(226,579)

J

-;-

(16)

(16)

(352,259)(915,568)(1,267,827)

J

-;-

-;-

-;-

-;-

J

(308,382)

308,382-;--;-(660,641)(607,186)(1,267,827)(297,524)

53,131(244,393)(958,165)(554,055)(1,512,220)

45,312(144,130)(98,818)(912,853)(698,185)(1,611,038)

B,D,
G
J
J

C

59

Revenue

Other income
Other expense
Operatingprofit/(Loss)

Finance income
Finance expense
Share of loss ofinvestments accounted forusing the equity method-;-

Profit/(Loss) before
income taxes
Income taxes expense
Profit for the period
from continuing
operations
Minority interest
Profit (loss)
attributable to ownersof parent

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Profit after
income taxes
Other
comprehensive
income (loss),
net of tax:
Valuationdifference on
available-forsale
investment
Foreigncurrencytranslation
adjustment
Total othercomprehensi
ve income(loss), net oftax
Comprehens
ive income
Comprehensiv
e income
attributable to
Owners ofparentNoncontrollinginterests(958,165)(554,055)(1,512,220)

Profit/(Loss) for theperiod fromcontinuing operations
Other comprehensive
income (loss), net of tax:

E

(14,112)

159,402145,290

Change in fair value ofavailable-for-sale financial
assets(2,767)-;-(2,767)

Foreign currencytranslation adjustment(16,879)

159,402

142,523

Total othercomprehensive
income, net of tax(975,044)(394,653)(1,369,697)

Comprehensive
incomeComprehensive income
attributable to(919,195)(637,167)(1,556,362)(55,849)

242,514

186,665

Owners of parent
Non-controlling interests

JPY (in thousand)Year ended December 31, 2020
Presentation
under
J-GAAPNet revenue
Cost ofrevenue
Gross profit
Selling, generalandadministrative
expenses-;-;Operating
profit(Loss)
Non-operating
income

Note
F
F,G,
H

B,D,
G
J
J

J

Reported
underJapanese
GAAP

Effect oftransition
to IFRS

Presentation under
IFRS

IFRS

16,077,000(493,833)

15,583,167(12,109,799)

90,879(12,018,920)

Cost of sales

3,967,201(402,954)

3,564,247

Gross profit(3,442,319)

89,547(3,352,772)

Selling, general andadministrative expenses-;-;-

62,088(7,480)62,088(7,480)524,882(258,799)

266,083

71,332(71,332)-;-

60

Revenue

Other income
Other expense
Operating profit(Loss)-;-INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS
Non-operating
expenses-;-;-;Ordinary profit
Extraordinary
incomeExtraordinaryloss
Profit before
income taxes
Income taxesJ(65,886)

65,886

-;-

J
J

-;-;-

49,873(168,293)

49,873(168,293)

J

-;-

637

637

530,328(382,028)

148,300

J

24,236(24,236)

-;-

-;-

J

(162,802)

162,802-;--;-391,762(243,462)

148,300(127,328)(17,487)(144,815)

264,434(260,949)

3,485

78,073(24,019)54,054

Minority interest

342,507(284,968)

57,539Profit (loss)
attributable to ownersof parent

264,434(260,949)

3,485

Profit(Loss) for theperiod fromcontinuing operations

C

Profit after
income taxes
Minority
interestProfit (loss)
attributableto owners ofparentProfit after
income taxes
Other
comprehensive
income (loss),
net of tax:
Valuationdifference on
available-forsale
investment
Foreigncurrencytranslation
adjustment
Total othercomprehensi
ve income(loss), net oftax
Comprehens
ive income
Comprehensiv
e income
attributable to
Owners ofparentNoncontrollinginterests-;Finance income
Finance expense
Share of loss ofinvestments accounted forusing the equity method-;-

Profit(Loss) before
income taxes
Income taxes expense
Profit for the period
from continuing
operations

Other comprehensive
income (loss), net of tax:E

(130,099)

236,353

106,254

Change in fair value ofavailable-for-sale financial
assets(8,524)-;-(8,524)Foreign currencytranslation adjustment(138,623)

236,353

97,730Total othercomprehensive
income, net of tax

125,811(24,596)

101,215

Comprehensive
incomeComprehensive income
attributable to313,023(49,518)

263,505

Owners of parent(187,212)

24,922(162,290)

Non-controlling interests

61

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

A) Acquisition of TSS LINK, Inc.
Pursuant to the share exchange agreement executed on 21 December 2018, the Company completed ashare exchange 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 share exchange, with the aim of enhancing its computer platform business to increase
competitiveness. As a result of the above, the Company acquired 100% voting rights in TSS and madeit 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 ofacquisition in accordance with IFRS, were as follows:(In thousands of yen)
Fair Value recognizedon 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.
Cash paid
Loss on step acquisition
Ordinary shares issued
Total purchase consideration(In thousands of yen)
10,203(3,785)210,279
216,697

As of end of June 2019, the difference between the net book value and the acquisition price was recorded
as goodwill, but due to the confirmation of accounting, intangible assets were recorded at 171,425
thousand yen and deferred tax liabilities of 52,490 thousand yen. On the other hand, goodwill decreasedby 118,934 thousand yen. From the date of acquisition, TSS had contributed JPY 179,365 thousand to
the revenue of BBT and had increased profit from continuing operations of BBT by JPY 30,278
thousand, for the 12 months ended December 31, 2019. Also, TSS had contributed JPY 127,098
thousand to the revenue of BBT and had increased profit from continuing operations of BBT by JPY
15,047 thousand, for the 12 months ended December 31, 2020. If the business combination had takenplace on 1 January 2019, consolidated pro-forma revenue and loss from continuing operations would
have been JPY 14,291,218 thousand and JPY 1,654,887 thousand for the 12 months ended December
31, 2019.
B) 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 upon occurrence of a trigger event.
As a result, JPY 681,042 thousand of goodwill is recorded under IFRS as of December 31, 2019 andDecember 31, 2020, respectively. Subsequently, JCC, which is a subsidiary of BBT, acquired OCN on 3
October 2018. Goodwill arising from OCN acquisition is newly included as of December 31, 2018 andDecember 31, 2019.
Reconciliation of goodwill between Japanese GAAP and IFRS December 31, 2019 and December 31,
2020 are as follow.
62

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Goodwill under Japanese GAAP
Reversal of amortization expenseof goodwill under Japanese GAAPGAAP adjustment from Japanese
GAAP to IFRS related to JCC and
OCN as of the date of initialacquisition
Goodwill under IFRS

December 31, 2019605,672

JPY (In thousands)
December 31, 2020
558,168

47,504

97,13827,86625,736

681,042

681,042

The Company tests whether goodwill has suffered any impairment on an annual basis at every
December 31 under IFRS. The recoverable amount of a cash generating unit (CGU) is determinedbased on the value-in-use calculations which require the use of the assumptions. The calculations
use cash flow projections based on the financial budget covering a five-year period for JCC and athree-year period for OCN. Cash flows beyond each covering period are extrapolated using theestimated growth rates stated below. These growth rates are consistent with forecasts included in
the industry reports specific to the industry in which each CGU operates.
When the recoverable amount of the CGU which includes goodwill is lower than the carrying amountof such CGU, an impairment loss is recognized.

Budgeted
operating profit
margin (%)
Long-term
growth rate (%)
Pre-tax discountrate (%)

JCC
Year ended
December 31,
2020
3.3%

OCN
Year ended
December 31,
2020
4.1%

0%

0%

7.45%

7.33%

The Company’s management has determined the values assigned to each of the above key
assumptions as follows:
Assumption
Budgeted
operating profit
margin (%)
Long-term
growth rate (%)
Pre-tax discountrate (%)

Approach used to determine values
Based on past performance and management’s expectations
for the future.
This is the weighted average growth rate used to extrapol
ate cash flows beyond the budgeted period. The rates are
consistent with
forecasts included in the industry report.
Reflect specific risks relating to the relevant CGU.

The Company tests whether goodwill has suffered any impairment on an annual basis at every
December 31 under IFRS. The Company did not perform the impairment test, because there was no
indication of potential impairment as of December 31, 2020.
C) 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 determined by such categories, and the scheduling of estimated future taxable income and the63INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

amounts thereof is taken into account in recording deferred tax assets by assessing the recoverabilityof assets in terms of the sufficiency of taxable income based on profitability, existence of tax planningand sufficiency of taxable temporary differences.
Under IFRS, the recoverability of deferred tax assets is assessed as they are recognized in terms ofwhether 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, JPY 298,922 thousand and JPY 279,781 thousand of deferred tax assets are adjusted as
the 1) 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 and 3) off set thedeferred tax assets with the liabilities, as of December 31, 2019 and 2020, respectively.
D) 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. Additionally, obligations associated withspecial leave and remuneration that are granted based on specified years of service and which do not
require recognition under Japanese GAAP are recognized and included in other non-current liabilities
under IFRS.
For the 12 months ended December 31, 2019 and 2020, the expense relating to the unused paidabsence at JPY 4,969(profit) thousand and JPY 10,361(expense) thousand are included as theadjustment from Japanese GAAP to IFRS, respectively. In addition, others in the current liability
are increased by JPY 48,799 thousand and JPY 59,159 thousand, respectively, due to the adjustment
from Japanese GAAP to IFRS.
E) Fair value measurement
Under Japanese GAAP, if a financial asset does not have a quoted market value, then where an entity isable 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 pricecalculated using 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
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.
– 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 December 31, 2019 and2020 are as follows:

As of December31, 2019
AssetsFinancial assets at fair value
through other comprehensive
incomeFinancial assets at fair value
through profit or loss

JPY (In thousands)
Level 3
Total

Level 1

Level 2-;--;-

3,119,187

3,119,187

-;-

-;-

197,910

197,91064

INTERNET RESEARCH INSTITUTE, LTD.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Total

-;-

-;-

Level 1

Level 2-;--;-

3,690,230

3,690,230

-;-

-;-

220,083

220,083-;--;-

3,910,313

3,910,313

As of December 31, 2020
AssetsFinancial assets at fair value
through other comprehensive
incomeFinancial assets at fair value
through profit or loss
Total

3,317,097

3,317,097

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 2019
Additions of financial assets
Disposal of financial assets
Transfer to investment in subsidiary
Fair value gain/(loss) on valuation
carried to other comprehensive income
Fair value gain/(loss) through profit orloss
Loss on valuation of financial assets
OthersBalance on December 31,2019

2,498,769
686,740(222,000)-;237,624

Balance on January 1, 2020
Additions of financial assets
Disposal of financial assets
Transfer to investment in subsidiary
Fair value gain/(loss) on valuation
carried to other comprehensive income
Fair value gain/(loss) through profit orloss
Loss on valuation of financial assets
OthersBalance on December 31, 2020

3,317,097
353,577-;-;265,637

158,112(44,491)
2,343
3,317,097

24,746(50,744)-;3,910,313

There were no transfers between levels 1, 2 and 3 during the relevant periods.
F) 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 of1) 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 the65

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revenue accounting guidance under IFRS15, revenues are recognized when control of these products
and services is transferred to its customers, in an amount that reflects the consideration it expects tobe entitled to in exchange 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 tothree years for data center customers. Non-recurring installation fees, although generally paid
upfront upon installation, are deferred and recognized 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
the consideration it expects to be entitled to in exchange for the services. Revenue from theservices is recognized in the period when the services were provided.
3) Media solution businessMedia solution business provides the telecommunications network business for cable television
operators and program suppliers throughout Japan. The remainder of the revenues are from nonrecurring revenue streams, such as installation revenues, professional services and equipment sales.
Under the revenue accounting guidance under IFRS15, revenues are recognized when control ofthese products and services is transferred to its customers, in an amount that reflects theconsideration it expects to be entitled to in exchange for the products and services. Revenues fromrecurring revenue streams are generally billed monthly and recognized ratably over the term of thecontract, generally one to three years for cable television operators and program suppliers. Nonrecurring 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
at the 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.
an asset) 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 underJapanese GAAP are in accordance with both IFRS 15 and former IAS18, with the exception of
installation services. Under both IFRS 15 and former IAS18, the initial installation services isrecognized over the period of the expected period of the customer relationship.
As a result of the adjustment at revenue recognition, the revenue for the 12 months ended December 31,
2019 decreased by JPY 379,198 thousand and the revenue for the 12 months ended December 31, 2020
decreased by JPY 493,833 thousand, and also the cost of sales for the 12 months ended December 31,
2019 decreased by JPY 307,715 thousand and the cost of sales for the 12 months ended December 31
2020 decreased by JPY 359,752 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 3,643,106 thousand and JPY 3,239,335 thousand for the 12 months ended
December 2019 and December 2020, respectively.
G) Lease
BBT 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 theamounts in the comparative 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
date of 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).
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Subsequently, lessees are required to recognize separately the interest expense on the lease liability andthe depreciation expense on the right-of-use assets. The right-of-use assets are depreciated on a straightline basis over the shorter of the estimated useful life of the assets 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 previously classified as
operating lease under IAS 17. The lease liabilities were measured at the present value of the remaining
lease payments, discounted at the incremental borrowing rate as of 1 January 2019. The weighted averageincremental borrowing rate used for the lease liabilities as of January 1, 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 January 1, 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 IFRS 4 Determining whether an Arrangement contains a Lease.
JPY (in thousands)
Commitments for operating lease as of December 31, 2018 as disclosed in the
18,057,304
Group’s consolidated financial statements
Discounted using the group’s incremental borrowing rate of o.51%(713,862)
Add: finance lease liabilities recognized as of December 31, 2018296,975(Less): short term leases and low value leases recognized on straight-line basis as(26,239)
expenseAdd: adjustments as a result of different treatment of extension and termination
17,726
options
Lease liabilities recognized on 1 January 201917,631,904
Current lease liabilities
3,019,815
Non-current lease liabilities
14,612,089
As a result of above, the Group recognized JPY 15,678,935 thousand for the right-of-use assets, the amountof impairment was JPY 1,476,841 thousand, and JPY 17,334,928 thousand for the lease liabilities, in theannual condensed consolidated financial position as of January 1, 2019. As of December 31, 2019 and2020, the Group’s right-of-use assets consist almost entirely of Buildings.
Due to the adoption of IFRS 16, cost of revenue and rent expense which included operating lease expenses
decreased by JPY 2,693,264 thousand and 421,729 thousand, respectively for the period ended December
31, 2020. The depreciation and amortization expenses which included the depreciation expenses of rightof-use assets, and finance costs which included interest expenses for lease liabilities increased by JPY
1,979,368 thousand and JPY 94,675 thousand, respectively for the period ended December 31, 2020.
The accounting policies applied by the Group in accordance with the IFRS 16 as of January 1, 2019 are as
follows:
The Group, as a lessee, mainly leases properties. Lease contracts are normally entered into the fixed termfrom 1 years to 15 years.
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 leaseliability and finance costs. The finance costs are accounted for as expenses over the lease term andcalculated based on constant periodic rate of interest on the remaining balance of the lease liability. The
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right-of-use assets are depreciated over the shorter of the estimated useful life of the asset or the leaseterm.
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 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 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 Group’s incremental borrowing rate, since the implicit rate in
the lease cannot 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 leaseof low-value asset, for example, comprises low value assets such as office furniture and fixture.
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.
For the year ended December 31, 2020(i) The expenses relating to leases are as follows.
JPY (In thousands)
For the year ended
December 31, 2020
Depreciation of right-of-use assets
Buildings
Equipment
Total depreciation expenses(1,599,957)(379,411)(1,979,368)

Interest expenses relating to lease liabilities
Expenses relating to leases of low-value
assets(94,675)(18,752)(ii) The carrying amounts of the right-of-use assets are as follows.
JPY (In thousands)
December 31, 2020
Right-of-use assets
Buildings
Equipment
Total

13,597,339
140,720
13,738,059

Lease liabilities
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Current
Non-current
Total(3,044,106)(12,694,412)(15,738,518)(iii) The changes in the carrying amounts of the right-of-use assets are as follows:
JPY (In thousands)
December 31, 2020
Balance on January 1, 2020 under financelease transactions
Adjustments on adoption of IFRS16
Balance on January 1, 2020 (adjusted)
New lease transactions
Depreciation
Impairment loss (*)
OthersBalance on December 31, 2020

468,672
15,225,903
15,694,575
1,227,838(1,979,368)(1,240,791)
35,805
13,738,059(*) The Group determined that there were indications of impairment on right-of-use assets, mainly inconnection with the first site, the third site, and the fifth site. As a result, impairment of right-of-use
assets in the amounts of 1,240,790 thousand yen was recognized for the year ended December 31, 2020.
(iv) The changes in the carrying amounts of the right-of-use liabilities are as follows:
JPY (In thousands)
December 31, 2020
Balance on January 1, 2020 under financelease transactions
Adjustments on adoption of IFRS16
Balance on January 1, 2020 (adjusted)
New lease transactions
Repayment
Balance on December 31, 2020

42,34517,507,875
17,550,220
1,227,838(3,039,539)
15,738,519

H) 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.
I) Loan covenants
To raise funds flexibly for investment demand in the new data center established in August 2018, BBT
has signed a commitment-type syndicated loan agreement of 4.0 billion yen in total with five banks
including our counterparties arranged by Sumitomo Mitsui Banking Corporation in March 2018 and theagreement was updated in December 2018. This agreement includes financial conditions as follows.
1) At the end of the fiscal year ended June 30, 2018 and every subsequent fiscal year-end, the total
amount of net assets on the consolidated balance sheet shall not be less than the higher of either: anamount equivalent to 80% of total net assets on the consolidated balance sheet at the end of the fiscal
year ended June 30, 2017; or an amount equivalent to 80% of total net assets on the consolidatedbalance sheet at the end of the most recent fiscal year.
2) The ordinary loss recorded in the consolidated statement of income at the end of the fiscal year ended
December 31, 2020 and every subsequent fiscal year-end thereafter shall not be recorded for the second69

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consecutive year.
3) At the second quarter end of the fiscal year ended December 31, 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.
J) 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 5,499 and JPY 6,971 thousand included in the account of the allowance for doubtful
accounts are transferred to Notes and accounts receivables – trade as of December 31, 2019 and 2020,
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.
As a result, the investment accounted for using the equity method of JPY 16,242 thousand and JPY 16,878
thousand included in the account of the investment securities are independently presented as of December
31, 2019 and 2020, 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) underequity method investment and others. In addition, exceptional items are required to be presented as“Extraordinary income and loss” on the face of the income statement. The definition of “special” isbroader 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 the notes)
when it is necessary to allow an entity to explain its performance for the period as a result of the size,
nature or incidence of certain items of income and expense. It is prohibited to present any items as“Extraordinary” under IFRS.
K) Retained earnings
Reconciliation of retained earnings under Japanese GAAP and IFRS is belowDecember 31, 2019
December 31, 2020
JPY (in thousand)
JPY (in thousand)Reported under Japanese GAAP
1,226,728
1,449,703
Reversal of amortization of goodwill
101,470
140,311
Deferred taxes
364,404
346,586
Unused paid absences(28,612)(38,972)
Impairment of Property, Plant &Equipment (include effect of(2,335,102)(2,542,158)
application of IFRS 16)
Revenue recognition(120,951)(255,032)
Impairment of investment securities(11,828)(11,828)
Non-controlling interests(141,474)(144,919)
Adjustment for application of
69,98654,300Effective interest method
Effect of application of IFRS 9452,202463,209
Others2,998
56,627
Reported under IFRS
(420,179)(482,173)70