INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019

TABLE OF CONTENTS

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

3

Consolidated Statements of Income

4-5

Consolidated Statements of Changes in Equity

6-7

Consolidated Statements of Cash Flow

8-9

Notes to the financial statements

9-83

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Note

ASSET
CURRENT ASSETS
Cash and cash equivalents
Trade receivables
Contract assets
Related parties
Income tax receivables
Other current assets
TOTAL CURRENT ASSETSNON-CURRENT ASSETS
Right-of-use assets
Investments accounted for using the equity
methodOther financial assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Other non – current assets
TOTAL NON-CURRENT ASSETSTOTAL ASSETS

11,282
21
267
50
511
567
12,698

7,251
360
332
17
32
844
8,836

-;-

5,997

26

17,531

13,894

15
17

1,087
724
15
147
-;19,503
32,202

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

147
-;-

487
230

5
21
26
28

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

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

26
24

65
209
275
4,886

5,055
412
5,467
12,09420-;14,845
352-;14,845
1,707
1,693

19
5
28
18

25

LIABILITIES 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
TOTAL NON-CURRENT LIABILITIESTOTAL LIABILITIESEQUITY
Share capital
Capital surplus
Accumulated other comprehensive income
Exchange differences on translation fromfunctional currency to presentation currency
Retained earnings
Non- controlling interests
TOTAL EQUITYTOTAL LIABILITIES AND EQUITY

USD (In thousands)
31 December
2018
2019

23

1,495
10,62427,31632,202

Date of approval of the financial statements: April 23, 2020.

-3-

1,039
(460)
18,82430,918INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF INCOME

2017

USD (In thousands)
Year ended
31 December
2018

2019

9,121

10,455

12,120

6(3,100)(3,455)(4,538)

7(8,942(9,771)(11,569)

(130)

(33)

(1,743)

(23)

16

216

(12,195)(3,074)-;2(1)
1(13,243)(2,788)
(955)
90
(8)
82

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

1,457

993

(2,791)

123

112

1,849

(1,493)(330)(1,823)(2,556)(259)(2,815)(6,494)(489)(6,983)(1,823)-;(1,823)(2,815)-;(2,815)(6,850)(133)(6,983)

578

657

270

133

34

1

(9)

-;-

-;-

-;-

(13)

(72)

Note
Revenue
Operating costs and expenses:
Cost of sales
Selling, general andadministrative
Research and Development
expenses
Other operational incomes(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.a

8.b
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
Differences from translation offinancial statements fromfunctional currency topresentation currency
Share of other comprehensive
income of investments accounted
15
for using equity method, net oftax
Change in fair value of availablefor-sale financial assets
Items that will not be classified to profit orloss
Differences from translation offinancial statements from-4-

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF INCOME
functional currency topresentation currency
Change in fair value of equity
securities at FVOCI
Share of other comprehensive
income (loss) of investments
accounted for using equity
method, net of tax

-;-

5

10

-;-

394

44

702

1,077

253

(1,121)(1,738)(6,730)

-;-;-

-;-;-

(6,597)(133)(6,730)(0.057)(0.057)(0.071)(0.071)(0.147)(0.147)15

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)
12-5-

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

NoteBalance as of 31 December,2018
Adjustment on adoption of new
accounting standard
Balance as of 1 January,2019 (restated)
Loss for the year
Other comprehensive income, netof taxChange in interest in subsidiaries
Balance as of 31 December,2019-;-

Exchangedifferences ontranslation fromfunctional
currency topresentation
currency
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

SharecapitalCapitalsurplus

Accumulated
othercomprehensive
incomeRetainedearnings-;-

14,845

10,624

352

-;-

-;-

(2,735)-;--;-

14,845

7,889

-;-

-;-

-;-

14,845-6-

NonControllinginterest

Total equity

27,316

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

NoteBalance as of 1 January, 2018
Loss for the year
Other comprehensive income, netof taxTotal comprehensive income (loss) for theperiodTransaction with owners and other
Shares IPO, net of IPO expenses
20.aTransfer to capital from retained
20.aearnings
Total transaction with owners and other
Balance as of 31 December,2018

SharecapitalRetainedearnings

Capitalsurplus

USD (In thousands)
Equity attributable to owners of the parent
Exchangedifferences on
Accumulatedtranslation from
Other
other
functional
reservecomprehensive
currency to
incomepresentation
currency(81)
851

Total equity

-;-

9,604

14,313-;--;-(2,815)

-;-

-;-

-;-

(2,815)

-;-

-;-

-;-

433

-;-

644

1,077

-;-

-;-

(2,815)

433

-;-

644

(1,738)

-;-

4,367

-;-

-;-

-;-

-;-

4,367

-;-

874

(874)

-;-

-;-

-;-

-;-

-;-

5,241
14,845(874)
10,624

-;352

-;-;-

-;1,495

4,367
27,316-;--7-

24,687

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

USD (In thousands)
Year Ended 31 December
Note
Cash flows from operating activities:
Profit (loss) before income taxes
Depreciation and amortization
Impairment loss of right-of-use assets
Share of profit of investments
accounted for using equity method
Gain on change in share ofinvestments accounted for using
equity method
Finance income and finance expense,net
Share-based compensation expenses
IPO related costs with regards toissuance cost
Change in assets and liabilities
Trade receivables
Contract assets
Trade payable
Accruals and other payables
Contract liabilities
Provisions
OthersDividends received
Interest received
Interest paid
Income taxes paid
Net cash provided by operating
activities

2017

2018

2019

(1,493)35-;-(2,556)117-;-(6,494)
1,301
345(1,457)

(993)

2,791

(123)

(112)

(1,849)

(1)

1

22

10

9

-;-

-;-

22

175

-;-

-;-

-;-;1091,687-;-;(406)
1,101
7
(1)
(303)

412
(81)
(38)
(283)
184
-;(372)
2,540
-;(1)
(352)

(299)
(61)
319
(267)
(199)
297
(343)
206
4
(108)
270

(661)

(1,534)(4,065)

(51)

(486)

(8)
-;-;-

(7)
-;(282)

288

-;-

(757)

-;-

-;-

-;-

96

-;-

(2)
(530)

(2)
(681)

(7)
(166)

(62)
-;-

-;-;-

-;230

8,488

4,367

-;-

(350)
(12)

-;(46)-;(1,110)

-;-

-;-

973

8,064

4,321

93

15

5
21
5
24
15

Cash flows from investing activities:
Acquisitions of property, plant andequipment
Acquisitions of intangible assets
Acquisition of IOT
Acquisition of Investment Securities
Proceeds from collection of loan torelated parties
Payments for restricted deposits
Proceeds from collection of restricted
deposits
Acquisition of other financial assets
Net cash used in investing activities
Cash flows from financing activities:
Repayments of long-term financing liabilities
Proceeds from short-term loans
23
Proceeds from issuance of commonshares
20
Payment for IPO related cost
Repayments of obligations under finance leases
Capital contribution from non-controllinginterests
Net cash provided by financing activities
8

(12)
(282)
142
(7)
-;-

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

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

6,873
2,095
(19)
8,949

2,106
8,949
227
11,282(4,138)
11,282107
7,251

Regarding the acquisition of NOM through the exchange of shares, see Note 2b (4).
NOTE 1 – GENERAL
1.1 General Information
Internet Research Institute Ltd (hereinafter - the Company) was incorporated and registered in
Israel as a private company on August 8, 2017. The Company listed shares of its common stockon the Tel-Aviv Stock Exchange on August 9, 2018. The Company wholly holds in Internet
Research Institute, Inc. (hereinafter – IRI Japan), a private company that was incorporated in Japanon December 9, 1996. IRI Japan registered address is in Tokyo, Japan.
The Company’s operations, via IRI Japan and its subsidiaries (hereinafter – the Group), are focusedon Internet technologies (and, in particular, IoT), cyber security and AI (see the definitions of theseterms above), and include consultation, research, investments, and production of conferences andevents in these fields.
Upon its incorporation in Israel, the Company was wholly owned by Dr. Hiroshi Fujiwara. After theCompany’s incorporation, Dr. Fujiwara set up a company that was wholly owned by him, which wasincorporated under Japanese law (the “New IRI Japan”) the entire issued capital of which wastransferred by Dr. Fujiwara to the Company immediately following its incorporation. Just prior to
the date of the incorporation, a merger transaction (under Japanese law, hereinafter: the “Merger”)
was effected, in which the following actions were performed at the same time: (i) Dr. Fujiwaratransferred 34,786 shares of the Company (out of the 34,787 shares existing in the issued capital of
the Company) to the New IRI Japan; (ii) the operations of (the original) IRI Japan were merged into
the New IRI Japan; and (iii) the New IRI Japan transferred the shares of the Company to theshareholders of (the original) IRI Japan at a ratio of 1:2 (i.e., two shares of the Company for eachshare of the original IRI Japan). For the purpose of the merger, 756 ordinary A shares of (theoriginal) IRI Japan were converted for ordinary shares of (the original) IRI Japan, at a ratio of 1:1.
As a result of the above, after the completion of the above mentioned merger, the shareholders of
the Company were the persons who were the shareholders of (the original) IRI Japan.
Pursuant to the law that is applicable in Japan, on the date of the merger, the New IRI Japan, as therecipient corporation in the merger, accepted all of the assets and liabilities of the original IRI Japan
as such had been on the date of the merger. Therefore, in this financial statements, the term “IRIJapan” shall refer to the original IRI Japan and to the New IRI Japan, without distinction.
After completing the foregoing merger, the Company allotted bonus shares to its shareholders, sothat an additional 999 shares were allotted for each share of the Company.

1.2 Covid-19 implications:
The outbreak of the COVID-19 virus (hereafter, the "Corona virus") in the world in the first quarter of 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 to takeplace in Japan as part of NOM's activities in planning, organizing, producing and conducting conferences,9

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS
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 thisregard.
As a result, based on the Company's management opinion and on the existing information, a material
negative effect on NOM's revenue is expected in the first half of 2020, compared with the corresponding
half in 2019. However, the impact on NOM's cash flow is smaller than the effect on its revenue, sinceadvances paid for attending the conferences will not be refunded by NOM and clients will be credited withinvitations 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 the Company's management cannot
estimate at this time.
According to the Company's management, BBT's operations were not significantly affected by the Corona
virus.
In light of the above, the Board of Directors and the Company's management have approved a streamlining
plan (hereinafter, the "Management Plan"), as follows:
1. Given the fact that IoT has operating losses (see Note 29), the Company will not continue financing IoT's
activities from the Group's resources and will take actions to achieve external financing such as equity
investment or loan to IoT. 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 to companies 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, the Company isable to meet its liabilities and the expected cash flow will enable the Company to finance its activities for the
coming year.

1.3 Terms
In these financial statements:
The Company, IRI Israel –Internet Research Institute Ltd.
The Group – the Company and its subsidiaries and its affiliates.
IRI Japan – Internet Research Institute, Inc., a private company that is wholly owned by theCompany, and that was incorporated in Japan.
NOM – Nano-Opt Media, Inc., a private company that is wholly owned by IRI Japan, which wasincorporated in Japan.
IOT – IoT square, Inc., a private company in which IRI Japan holds 77% of the issued and paid up
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 paid
up 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

10

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 2 – SIGNIFICANT ACCOUNTING POLICIESThe principal accounting policies applied in the preparation of the consolidated financial
statements are set out below. These policies have been consistently applied through the years
ended 31 December 2018 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 arepresented 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, Elchanan Harel, on April 23, 2019.
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 2018 were
presented in this financial statements, which were prepared at IRI Israel’s consolidated basis,
whereas all current financial information for the year ended December 31 2019 were preparedat IRI Japan’s sub consolidated basis.

2.1.1. New and amended standards adopted by the GroupThe group has applied the following standards and amendments for the first time for theirannual reporting period commencing 1 January 2019: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 1 Janualy 2019. This is disclosed in Note2.20.
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 31 December 2019 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
11

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS(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 beclearly 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.
(d) Business combinations under common control
1.

On 18 October, 2017, Internet Research Institute, Inc. (“original IRI Japan”) which was established
as a limited company in Japan under the Japanese Companies Ordinance on 9 December 1996,
entered into a merger agreement with IRI Japan.
The merger is Absorption-Type Merger under the Japanese law and IRI Japan is a surviving
company and original IRI Japan is a merging company, and IRI Japan succeeded to all rights
and obligation of old IRI Japan and continue to exist while original IRI Japan dissolved on 20
November, 2017 in accordance with the agreement.
In advance of the merger, 34,786 shares of IRI Israel was transferred from Hiroshi Fujiwara to
IRI Japan on 11 October, 2017. Also, original IRI Japan acquired its 756 ordinary A sharesfrom its shareholders and issued 756 ordinary shares to them as a compensation for theacquisition on 19 November, 2017, and then original IRI Japan retired 756 ordinary A shareson the same date.
Through this merger, IRI Japan transferred 34,786 shares of IRI Israel to the shareholders oforiginal IRI Japan at ratio of 1:2 (i.e., two shares of the Company for each share of original IRI
Japan) as a compensation for the merger. Also, IRI Japan delivered to the holders of original
IRI Japan’s Series 1 Share Options, in exchange for their Series 1 Share Options at ratio of 1:1
on the merger date. After that, IRI Japan entered into the waiver letter with the holders of
their Series 1 Share Options on 24 November, 2017 and it resulted that the Options were

12

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

cancelled.
As a result of these transactions, IRI Japan became a wholly subsidiary of IRI Israel and theprior shareholders of original IRI Japan became the shareholders of IRI Israel as well.
A business combination involving entities or businesses under common control is a businesscombination in which all of the combining entities or businesses are ultimately controlled by
the same party or parties both before and after the business combination, and in which control
is not transitory. Accordingly, the triangle merger was accounted for as business combinations
under common control. The Group has accounted for the acquisition of IRI, Inc. based on the
carrying amounts recorded in the stand alone financial statements of IRI, Inc.
2. On 21 December 2018, Internet Research Institute, Inc. (“original IRI Japan”) which wasestablished as a limited company in Japan engaged with IOT in an agreement to purchase 100% of
its common shares. According the agreement terms, the purchase accomplished on 4 January, 2019,accordingly, IOT is consolidated in the Company reports from this day onward. Over 2019, and until
31 December 2019, IOT issued new shares to a third party. Accordingly, IRI holding decreased to77% 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
13

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

around the world, under which UBM granted an exclusive license to NOM to use three
registered trade marks for Interop events in Japan. In consideration for the right of use of the
trade marks as aforesaid, NOM shall provide UBM with royalties in the sum of 5% of the net
revenues of more than JPY 500 million, which may be received from any event. If the net
revenues from the event 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.
2.6 Impairment of non-financial assets
Assets that are subject to amortization are reviewed for impairment whenever events orchanges 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 todisposal and value in use. For the purposes of assessing impairment, assets are grouped at thelowest 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 theimpairment at each reporting date.
2.7

Government grants
IoT as a new subsidiary of the Company received USD 66 thousand of govement grants and it
was recorded as “other incomes” in the consolidated statements of profit or loss for the period
ended 31 December 2019. As of 31 december 2019, there are no unfulfilled conditions or othercontengencies attaching to this grants. IoT did not benefit directly from any other forms ofgovernment 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
14

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

Initial measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case ofa financial 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.
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 the15

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

effective interest method.
The Group derecognizes a 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
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 the16INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

tax 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 temporary
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 thetemporary 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 beavailable 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) Employee 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
17

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

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
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 arecalculated according to best estimate of future expected payments discounted at a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks
specific to the liability. 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 a non-current liabilities.
2.16 Revenue recognition
The accounting policies for the group’s revenue from contracts with customers are explainedin Note 5.
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 31 December 2018 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 31 December 2018, leases of property, plant and equipment where the group, as lessee,
18

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

had substantially all the risks and rewards of ownership were 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.
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 ofinterest on the remaining balance of the liability for each period. The property, plant andequipment acquired under finance leases was depreciated over the asset’s useful life, or overthe shorter of the asset’s useful life and the lease term if there is no reasonable certainly thatthe group will obtain 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.
2.21 Changes in accounting policies
The Group has adopted IFRS 16 Leases from the fiscal year beginning 1 January 2019. The
Group has applied the modified retrospective method permitted by IFRS 16 and recognized thecumulative amount of the impact as of 1 January 2019 upon adoption of the standard. As aresult, the Group has not restated the amounts in the comparative reporting period prior to
adoption of IFRS 16.
IFRS 16 sets out the principal for the recognition, measurement, presentation and disclosureof lease contracts for lessees and lessors. Under IFRS 16, lessees no longer make a distinction
between finance and operating leases as required under IAS 17, and apply a single accounting
model. At 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). Subsequently, lessees are required torecognize separately the interest expense on the lease liability and the depreciation expense on
the right-of-use assets. The right-of-use assets are depreciated on a straight-line basis over the
shorter of the estimated useful life of the assets or the lease term. Lessors accounting under
IFRS 16 remains substantially unchanged from IAS 17.
19

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

Upon the adoption of IFRS 16, the Group recognized lease liabilities for its leases previouslyclassified as operating lease under IAS 17. The lease liabilities were measured at the present
value of the remaining lease payments, discounted at the incremental borrowing rate as of 1
January 2019. The weighted average incremental borrowing rate used for the lease liabilities
as of 1 January 2019 was 1.64%.
The Group applied the following practical expedients permitted by IFRS 16 when applying IFRS
16:
- Accounted operating leases with both of less than 12 months of of lease term
remaining as of 1 January, 2019 for short-term leases and low value leases.
- Used hindsight when determining the lease term where the contract containes options
to extend or terminate the lease.
- By class of underlying asset, not to separate non-lease components from lease
components, and instead accounts for each lease component and any associated nonlease components as a single lease component.
The Group elected not to apply IFRS 16 to the agreements that were not identified as containing
a lease component applying IAS 17 and IFRIC 4 Determining whether an Arrangement
contains a Lease.
USD(in thousands)
Commitments for operating lease as of 31 December 2018 as disclosed in the Group’s
479
consolidated financial statements
Discounted using the group’s incremental borrowing rate of 1.64%(7)
Add: finance lease liabilities recognized as at 31 December 201877
(Less): short term leases and low value leases recognized on straight‐line basis as(8)
expenseAdd: adjustments as a result of different treatment of extension and termination
5,691
options
Lease liabilities recognized at 1 January 2019
6,232
Current lease liabilities
849
Non‐current lease leabilities
5,383
As a result of above, the Group recognized 6,232 thousand USD for the right-of-use assets and6,155 for the lease liabilities for former operating leases, in the annual condensed consolidated
financial position as of 1 January 2019. As at 1 January and 31 December 2019, the Group’s
right-of-use assets consist almost entirely of Buildings. The Group’s right-of-use assets and thelease liabilities comprise of two segments as Information technology segment and Information
service business segment, respectively, and the ending balances of right-of-use assets and leaseliabilities as of 31 December 2019 are 3,224 thousand USD and 3,518 thousand USD associatedwith Information technology segment, and 2,773 thousand USD and 2,758 thousand USD
associated with Information service business segment, respectively.
In addition, BBT and Mobile Internet Capital, Inc. (“MIC”) as affiliates of the Group have also
adopted IFRS 16 from the fiscal year beginning 1 January 2019. As a result of adoption of IFRS
16 by each affiliate in accordance with the Group’s accounting policies discussed above, thefollowing impacts were identified.
1. BBT
Please refer to Note 29.
2. MICMIC recognized 709 thousand USD and 741 thousand USD for the right-of-use assets and lease20

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

liabilities, respectively at their financial statements as of 1 January 2019As a result of the adjustments in each affiliate, related cumulative loss profit investments
accounted for using equity method and its tax effects of 2,735 thousand USD was adjusted toretained earnings through applying the equity method by the Group.
Due to the adoption of IFRS 16, the rent expense which included operating lease expenses
decreased by 1,177 thousand USD for the period ended 31 December 2019. The depreciation
and amortization expenses which included the depreciation expenses of right-of-use assets,
and finance costs which included interest expenses for lease liabilities increased by 1,122
thousand USD and 108 thousand USD , respectively for the period ended 31 December 2019.
In addition, cash out flow by operating activities decreased by 1,096 thousand USD and cashout flow by financing activities increased by 1,096 thousand USD compared to those under IAS
17, due to cash payments for the principal of the lease liabilities being classified to the cash
flows from financial activities.
The accounting policies applied by the Group in accordance with the IFRS 16 as of 1 January
2019 are as follows:
The Group, as a lessee, mainly leases properties. Lease contracts are normally entered into the
fixed term from 2 years to 8 years.
Leases are recognized as right-of-use assets and the corresponding liabilities when the leaseassets become available for use by the Group. Each lease payment is apportioned between
repayments of the lease liability and finance costs. The finance costs are accounted for as
expenses over the lease term and calculated based on constant periodic rate of interest on theremaining balance of the lease liability. The right-of-use assets are depreciated over the shorterof the estimated useful life of the asset or the lease term.
The assets and liabilities arising from leases are measured at the present value ofthe lease at
the commencement 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 exercisethat 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 theimplicit rate in the lease cannot be readily determined.
The right-of-use assets are 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 arerecognized 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 orless. A lease of low-value asset, for example, comprises low value assets such as office furnitureand 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 to21

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

exercise that option.
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.

(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 31 December,
2018 and 2019 are as follows;
31 December,
2018
Book value(In thousands)
Cash at bank (1)Trade receivable (1)(2)
Advance paid (1)Other receivables (1)(2)
Related parties (2)Office security deposits (1)Total

11,28221(*)-;4050
783
12,17631 December,
2019
Book value(In thousands)
7,248
360
0
8
21
889
8,526

(*) 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.
22

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSManagement 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 at 31 December 2017
Provision for the year
Translation differences
Balance at 31 December 2018
Allowance for bad debt
ReversalUtilized
Translation difference
Balance at 31 December 201977(*)-;(*)-;77
-;(3)
(43)
4
35

(*) 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.
Within 1
Between 1
Over 2 years
Total
year
and 2 years
USD
USD
USD
USD
thousands
thousands
thousands
thousands
23

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

As at 31 December 2018
Trade payables
Other payables (excluding accruals
and provisions)
Obligation under finance lease
Amounts due to related parties

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

147

-;-

-;-

147

344

-;-

-;-

344

12
6
509

12
-;12

53
-;53

77
6
574

487
728

-;-;-

-;-;-

487
728

1,221
230
2,720

1,152
-;1,152

3,904-;3,904

6,277
230
7,776

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 amount 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
three levels 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 at 31 December 2018
AssetsFinancial assets at Fair value
through profit and loss –equity securities
Financial assets available forsale for equity securities
As at 31 December 2019
Assets24

Level 3USD
thousands

Total
USD
thousands

80

80

224

224

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

Financial assets at Fair value
through profit and loss –equity securities
Financial assets available forsale for equity securities

87

87

252

252

(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 included in level 1 represent listed equity investments classified as fair value
through other comprehensive 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 instruments.

The table below presents the changes in level 3 instruments for the relevant periods:
Available for salefinancial assets
USD (In thousands)
Balance at 1 January 2018
Purchases
Fair value gain/(loss) on
valuation

15
282

Translation differences

16

(9)

Balance at 31 December 2018304

Balance at 1 January 2019
Purchases (*)

304
21
25

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

Fair value gain/(loss) on
valuation
Translation differences
Balance at 31 December 2019(*) less than thousand US dollars.

10
4
339

There were no transfers between levels 1, 2 and 3 during the relevant periods.
3.4 Offsetting financial assets and financial liabilities
As at 31 December, 2018 and 2019, there were no financial assets or financial liabilities whichwere subject to offsetting, enforceable master netting or similar agreements.

NOTE 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 ofa change in estimates and assumptions are recognized in the period of the change or in the
period of 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 recognizedin 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 Groupestimates the future cash flows, the management considers the probability of failure of credit,
time of recovery and past trend 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 amountof an impairment loss for the financial 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
26

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

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 besignificant 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
The Group recognizes asset retirement obligations related to assets leased under operatingleases in the consolidated statements of financial position. These provisions are recognizedbased 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 28).
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)Contract liabilities (2)31
December,
2018
267
2,947

31
December,
2019
332
2,784

(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 31 December, 2019.
The balance of contract liabilities at 1 January, 2019 as shown in the above table, which were
fully satisfied over the year ended 31 December, 2019, and accordingly, the Group recognized
it as the revenues.
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 2.14 and 2.20.

27

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 6 – COST OF SALES
USD thousand
31 December
2018
Labor costs
Outsourcing expenses
Rental expenses for exhibition space etc.
Other
Total

2019
-;1,458
1,698
300
3,455

442
2,021
1,701
374
4,538

NOTE 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
IPO related costs with regards to issuance cost
DonationEntertainment
Bad debt expense
Other
Total

USD thousand
Year Ended 31 December
2017
2018
1,203
1,534
3,152
3,167
9
-;501
468
252
940
35
117
-;-;2,255
2,311
430
-;200
419
204
133
50
-;651
682
8,942
9,771

2019
1,330
4,381
-;637
-;1,301
345
1,821
-;407
184
297
864
11,567

NOTE 8 – OTHER INCOME AND OTHER EXPENSES
8.1 Other incomes

Other incomes
Other expenses:
Loss on retirement of property, plant and equipment
Miscellaneous (loss)/Income

8.2 Other expenses

USD thousand
Year Ended 31 December
2017
2018
2019
7
18
216
(24)
(6)
(23)

(2)
-;16

-;216

USD thousand
Year Ended 31 December
2017
2018
2019

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

28

-

(945)
(10)
(955)

(19)
1
(18)

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 9 – EMPLOYEE BENEFITS EXPENSE (INCLUDING DIRECTORS’EMOLUMENTS)
USD thousand
Year Ended 31 December
2017
2018
2019
4,601
2,865
2,830
564
287
337
5,165
3,152
3,167

Salaries, bonuses and allowances
Other employee benefits
Total

NOTE 10 – FINANCE INCOME (EXPENSE), NET
USD thousand
Year Ended 31 December
2017
Finance income –Interest income and exchange rate differences

2018
2

2019
90

88

Finance expense

Bad debt loss
Interest expense-;-

Finance income (expense), net

-;-

-;-

(1)

(8)

(108)

1

82

(20)

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:

USD ( In thousands)
Year Ended 31 December
2017
2018
2019
Current income tax- Japan corporate income tax for the year
Deferred income tax expenses (Note 24)

189
141
330

164
95
259

454
35
489

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:29

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

USD (In thousand)
31-December
2018

2017

Loss before income tax
Tax Calculated at applicable Israel
and Japan corporate income tax(1,493)(358)

Increase (decrease) regarding tax
rates differences of subsidiaries in
Japan

(146)

Permanent non-deductible
expenses
Permanent exempt income
Equity method investment gain
Gains over changes in equity
Assessment of the recoverability ofdeferred tax assets
Other
Tax expense

261
(186)
(379)

1,144
(6)
330

2019

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

(50)

(773)

232

217

(429)
(373)
-;-

(35)
317
-;-

1,456

2,032

11
259

11
275

The Group is subject to national corporate income tax, inhabitants’ tax, and enterprise tax inJapan, which, in aggregate, resulted in effective tax rates approximately 33.80% for the years
ended 31 December 2018, respectively. Amendments to the Japanese tax regulations wereenacted into law on 29 March, 2016 and it resulted that the effective tax rate are scheduled tobe reduced to approximately 33.59% effective from the year ending 31 December, 2019.
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 April, 2016. As a result of the tax
inspection, Nano-opt Media Inc. did not amend its tax return.
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.

2017

31-December
2018

23.4%
4.4%
12.90%

23.40%
4.4%
12.90%

23.20%
4.4%
12.90%

6.70%
43.20%
33.80%

6.70%
43.20%
33.80%

6.70%
43.20%
33.59%

2019

Corporate tax rate is imposed on a corporation’s taxable income. Amendments to the30

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

Japanese tax regulations were enacted into law on 29 March, 2016 and it resulted that thecorporate tax rate has been reduced to 23.40% effective from the year ended 31 December,2017 and 23.20% effective from the year ending 31 December, 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 28 November,2016 and it resulted that the local corporate tax rate is scheduled to be increased to 10.30%
effective from the year ending 31 December, 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 basisof 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 28 November, 2016 and it resulted that the inhabitants’ tax rate is scheduled to be
reduced to 7.00% effective from the year ending 31 December, 2020.
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 28 November, 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 31 December, 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 31 December, 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 31 December 2017,2018 and 2019 are calculated based on the following information.

Basic
Diluted Earnings (losses) per
share attributable to owners of
the parent (USD)
Numerator (thousands of USD)

31

2017

2018

(0.057)(0.071)(0.147)(0.057)(0.071)(0.147)2019

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

Profit (loss) for the year
attributable to owners of theparentDenominator (Shares)
Weighted average number ofcommon shares outstanding, basic
Effect of dilutive securities:
Weighted average number ofcommonsharesoutstanding,diluted

(1,823)(2,815)(6,850)31,857,759

39,537,516

46,502,800‐;‐
31,857,759

39,537,516

46,502,800

NOTE 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 818,072 thousand, equal
to USD 7,539 thousand, translated according to the exchange rate as of December 31, 2019,can be distributed in IRI Japan in the year ended December 31, 201

32

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 14 – PROPERTY, PLANT AND EQUIPMENT
Leaseholdimprovement

Constructionin progress

Equipment

Total
USD
thousandYear ended 31 December 2018
Opening net book amount
Additions
Depreciation
Retirement
Translation differences
Closing net book amount

-;546
(65)
-;2
483

66
224
(51)
-;2
241

196
(200)
-;-;4
-;-

262
570
(116)
-;8
724

At 31 December 2018
Acquisition cost
Accumulated depreciation
Net book amount

548
(65)
483

337
(96)
241

-;-;-;-

885
(161)
724

483

241

-;-

724

-;-

(80)

-;-

(80)

-;-

3

-;-

3

-;-

12

-;-

12

33

49

-;-

82

(4)

(25)

-;-

(29)

(72)
-;6
446

(51)
-;2
151

-;-;-;-;-

(123)
-;8
597

587
(141)
446

320
(169)
151

-;-;-;-

907
(310)
597

Year ended 31 December 2019
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 amountAt 31 December 2019
Acquisition cost
Accumulated depreciation
Net book amount

Depreciation expenses of 123 thousand of USD and 116 thousand of USD have been charged in
Selling, general and administrative for the years ended 31 December 2019 and 2018.
NOTE 15 – INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
1.

General Information
Set out below are the associates of the Group as at 31 December 2018 and 31 2019. 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 placeof business, and the proportion of ownership interest is the same as the proportion of voting
rights held.
33

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS% of ownershipinterest (3)31 December
Name ofCompany
BroadBand
Tower, Inc.
Mobile Internet
Capital, Inc.

Main Business・Computer plat form
・AI solutions
business
・Media solutions
business
Investment
management

2019

Nature ofrelationship

Place ofbusiness

22%

19%

Associate (1)

Tokyo
Japan

30%

30%

Associate (2)

Tokyo
Japan

2018

Carrying amount of each investment as at 31 December 2018 and 2019, and dividend received fromeach affiliate are as follows.

Name of Company

USD (In thousands)
Dividend received
Carrying amount
31 December
31 December
2018
2019
2018
2019

BroadBand Tower, Inc.

15,23011,573

203

206

Mobile Internet Capital,
Inc.

2,301

2,319

2,337

-;-

Quoted fair value of BroadBand Tower, Inc. as at 31 December 2018 and 2019, are USD 28,822
thousand and USD 26,905 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.
As shown in the table above, during the twelve-month period ended 31 December 2019, theCompany’s ownership interest ratio has decreased due to the following transactions.
a) Acquisition of TSS LINK, Inc by BBT through share exchange
As discussed in Note 30, BBT acquired TSS LINK, Inc through share exchange on 31 January
2019 and it led to o.3% of decrease in the Company’s ownership interest ratio.
b) Issuance of common shares and 10th Series of Stock Acquisition Rights
On 22 April 2019, BBT issued its common shares and 10th series of stock acquisition rights
through third party allotment to Macquaire Bank Limited (the “Allottee”), pursuant to a
resolution of a meeting of the Board of Directors on 5 April 2019. From 23 April to 31
December 2019, the Allottee fully exercised the rights owned by them and BBT issued commonshares to the Allotee. Those transactions led to 3% of decrease in the Company’s ownershipinterest ratio.
As of 31 December 2019, the Company holds 19% of the voting rights, two directors of the Company
are also designated as directors of this entity and they participate in all significant financial and34

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

operating decisions of the entity. The Group has therefore determined that it has significant
influence over this entity. BBT’s common stock is listed and traded in the Tokyo Stock Exchange,
and above BBT’s quoted fair value is categorized as level 1 under IFRS 13, which is quoted prices in
active markets.
(2) Mobile Internet Capital, Inc. is a venture capital investing in ICT related venture companies.
The Company holds 30% of the voting rights, therefore the Company has determined that it has
significant influence over this entity.
(3) Impact from the change in ownership interest at BBT recorded as a gain on change in share ofinvestments accounted for using the equity method in statement of income, due to the following
contributions: (a) Gain on sale on owner dilution in the holding percentage of BBT; (b)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

USD (In thousands)
31 December 201831 December 201993,031
81,075125,281
297,139
218,312378,214

Current liabilities
Non-current liabilities
Total liabilities* 39,046* 81,602
120,648

66,401
215,842
282,243

Total Net assets

97,664

95,971

Group’s share in %Carrying amount22%
15,23019%
11,573

Year ended
31 December 2018110,313
115,198

Year ended
31 December 2019
131,001
144,872(4,885)(13,871)(3,400)-;-(8,285)(13,871)(7,587)(14,778)

(698)

907

1,146

1,307

(7,139)(12,564)(6,384)(14,277)* Reclassified

Revenue
ExpenseProfit (loss) from continuing
operations
Gain (loss) from discontinued
operations
Profit (loss)
Profit attributable to:
Owners of the parent of thecompany
Non-controlling interests
Other comprehensive income(loss)
Total comprehensive income
Total comprehensive income
attributable to:
Owners of the parent of thecompany35

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

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

(755)

1,713

(7,587)(14,777)

22%

19%(1,668)(2,810)* Discontinued operations for the year ended 31 December 2018 is relating to the sale of IoT Square,Inc. as a wholly subsidiary and lost its control on 4 January 2019. Further details is discussed in Note30.
Individually immaterial associates*
31 December
2018
2019
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

7,670

7,730

2,301

2,319

8,870

63

1,292
10,162(93)(30)(*) As shown in the table above, during the year ended 31 December, 2018 the amount of theinvestments in MIC has significantly increased compared to the previous period.
It caused by the fact that MIC gained an outstanding performance in the period by three IPOs fromtheir operating funds, one of which investments is a smash success by HEROZ, Inc. After their
IPO in April, the MIC’s fund sold off all their holdings in HEROZ through the stock exchange. The
total gain on sale of securities that MIC recognized amounts to 18 million USD before tax effect,
while no success fee was paid in the previous financial year. As a result, IRI assumed profit ofinvestments accounted for using the equity method from MIC in its annual financial statements
as approximately USD 3M.
MIC is a fund management company described above, and it will not continuously secure the good
performance like MIC’s the result in this period. In fact, the success fee still gross amount before
any payment of performance incentives to fund managers, dividend distribution, and so on.
Therefore, the Group determined that the reporting good results is a temporary, and accordingly
MIC is still determined as individually immaterial associate.
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
31 December
31 December
31 December
2017
2018
2019
USD (In thousands)
Profit (loss) attributable toowners of BBT
5,269(7,587)(14,778)
22%
22%
19%
Group’s share in BBT %
1,159(1,668)(2,810)Share of profit (loss)of BBT
Profit attributable to ownersof MICGroup’s share in MIC %

992
30%

8,870
30%
36

63
30%

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

Share of profit of MIC
Share of profit ofinvestments accounted
for using the equity
method

298

2,661

19

1,457

993

(2,791)(b) Share of other comprehensive income (loss) of investments accounted for using equity
methodSix months ended
Year ended
31 December
31 December
2018
2019
USD (In thousands)
Other comprehensive
income (loss) attributableto owners of BBT
184
1,146
471
22%
19%
22%
Group’s share in BBT %Share of othercomprehensive income
175
63
41
(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) of investments
accounted for using theequity method

304
30%

1,292
30%

(93)
30%

92

253

(18)

133

428

45

37

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 16 – FINANCIAL INSTRUMENTS BY CATEGORY
USD thousand
31 December
2018
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

80

889

783
1,087

1,228

21

360

172

29

11,282
11,475
12,562

7,251
7,640
8,868

147
1,066
6
77
-;1,296

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

Deposits and other receivables (including
amounts due from related parties)

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

252
87

-;224

Financial assets at amortized cost:
Trade receivables

Cash and cash equivalents

2019

NOTE 17 –OTHER FINANCIAL ASSETS:
USD thousand
31 December
2018
2019
Current
Office security deposits

Non-current
Available-for-sale for equity securities
Financial assets at Fair value through
OCI
Financial assets at Fair value throughprofit and loss
Other financial assets at amortized cost,
mainly office security deposits

-;-

-;-

-;-

-;-

-;-

-;252

224
80
783
1,087

87
889
1,228


Hereby details regarding investments in financial assets as of December 31, 2019:38

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS(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,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
partially compensate the Company for the loss the Company suffered from depreciating theseinvestments.
39

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 18 – OTHER CURRENT ASSETS
USD thousand
31 December
2018
Prepaid expense
Consumption tax receivable
Other receivables

2019
371
156
40
567

646
180
17
844

NOTE 19 – CASH AND CASH EQUIVALENTS
USD thousand
31 December
2018
2019
3
5
7,248
11,277
11,282
7,251

Cash in handBank deposits

NOTE 20 – EQUITY
a. Share Capital
The Company’s total number of shares authorized and issued for the years ended 31 December
2018 and 2019 are as follows:
31 December
2018
2019
Total number of common shares, no par value:
10,000,000,000
Authorized shares
10,000,000,000
46,502,000
Issued shares
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, 2019 and 2018 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 thousands, 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.

40

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

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(b) At the annual extraordinary general meeting of shareholders held on 12 January 2017, IRI
Japan resolved toissue 30,000 common stock to a director of the company, 20,000 ordinary
stocks to employee and 600,000 ordinary stocks to general investors and to authorize the boardof 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 stock
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.
(c) 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
Under the Companies act of Japan, at least 50% of the proceeds of
The share capital and capital
certain issuances of share capital shall be credited to share capital.
reserve to be increase
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 31 December, 2017 and 2018.
c. Incorporation of accumulated earnings into share capital in a subsidiary
IRI Japan’s general meeting of shareholders held on 15 March, 2018, resolved the incorporationof 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
thousands, equal to USD 874 thousands.

41

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 21 – ACCRUALS AND OTHER PAYABLES

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

USD thousand
31 December
2018
2019
288
258
658
673
93
176
395
165
141
86
115
89
46
49
4
4
1,740
1,500

NOTE 22 – SHARE-BASED PAYMENTS
IRI Japan adopted the stock option plan by the subscription rights to shares.
On 15 Jan 2016, the stock option for free of charge have been issued to directors and employees basedon the resolution of the general meeting of shareholders.
On 24 Nov 2017, all of the subscription rights to shares have lapsed. All of the stock acquisition rights
outstanding have been transferred to capital surplus.
The terms of contract about the stock option are as follows. All the stock option will be settled with
common stocks:
Issue
The validity of the stock
Issue dateamountVesting conditions
option contract
Directors
Exercising stock option is200
10 yearspossible from the issue date.
15-Jan-16
Employees
15-Jan-16

40

Exercising stock option ispossible from the issue date.

10 years

The expenses recognized in connection with share-based payments during the years ended 31
December 2017 and 2018 are shown in the following table:
Year Ended December 31
2017
2018
2019
USD thousand
Total expenses arising from equitysettled share-based payment*9-;-;transactions* See note 20a(a).

NOTE 23 – BORROWINGSThe Group’s borrowings as 31 December 2019 is comprised of the short term borrowings by IoT andrelevant interest ratio is 0%.
IoT entered into loan agreements with its four directors on 18 December and 23 December 2019,respectively. The maturity date of each borrowing is 31 December 2020.
In the agreements, the borrowings should be repaid by cash, but in the case where IoT executes thirdparty allotments before the maturity date of borrowings, the directors as lender can select an optionthat they can acquire IoT’s common shares which is equivalent to the amounts of borrowings as
42

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

alternative method of settlement of the borrowings. The Group determined the borrowing as financial
liabilities under IAS 32.

NOTE 24 – Asset Retirement Obligations
Changes in Asset Retirement Obligation

USD thousand
Asset Retirement
Obligations
196

At December 31, 2017
Arising during the year
Utilized
Unwinding of discount and changes in the discount
rate

9
-;-;4
209

At December 31, 2018
Arising during the year
Utilized
Unwinding of discount and changes in the discount
rate

20
-;-;3
232

At December 31, 2019

The Group records provisions for Asset Retirement Obligations related to its properties as the Groupis required to restore these properties upon termination of its properties to the state specified in therental agreement.
Changes in provision for onerous contract in relation to Cybergym business
USD thousand
For the year ended
31 December, 2019
-;297
2
299

Balance at 31 December 2018
Arising during the year
Translation differences
Balance at 31 December 2019

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 25 – DEFERRED TAX BALANCES

Deferred tax assets
The balance comprises temporary
differences attributable to:

USD thousand
31-December
2018
2019

Tax losses

1,467
43

1,078

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

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

25
20
17
23
-;-;14
1,566

35
18
16
7
5
931
32
2,122

(1,403)(1,070)(10)-;(6)(1,419)

(15)
(937)
(8)
(2,030)

147

92

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
Net deferred tax assets
Deferred income tax assets
Movements

Balances at 31
December 2017
Adjustments
due to new
accounting
standards
implementation
Credited/(charged) to profit or
loss
Translationdifference
Balances at 31
December
2018
Adjustments
due to new
accounting
standards
implementationCredited/(charged) to profit or
loss
Translationdifference
Balances at 31
December2019

Taxlosses

PrepaidExpenseAllowan
ce
for
paid
leave

1,335

62

12

-;-

-;-

(58)

-;-

99

19

33

lease
liabilities

USD thousand
Depreciati
Allowan
on
ce
for
bonus

Bad debt
allowance

Other
s

Total

10

23

-;-

1,442

-;-

-;-

-;-

-;-

(58)

8

-;-

7

(1)

14

146

2

-;-

-;-

-;-

1

-;-

36

1,467

25

20

-;-

17

23

14

1,566

-;-

-;-

-;-

1,073

-;-

-;-

-;-

-;-

(405)

10

(2)

(146)

5

(1)

(16)

18

16

-;-

-;-

4

-;-

-;-

-;-

-;-

1,078

35

18

931

16

7

32

-;-

1,073
(539)
22

5

44

2,122

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

Deferred income tax liabilities
Movements

Balances at 31 December 2018
Charged to other comprehensive
incomeCredited/(charged) to profit or loss
Translation difference
Balances at 31 December 2018

USD (In thousands)
Other
comprehensiv
e income

Undistributed
earnings relating
to investments inaffiliate(915)

Depreciati
on

(227)

-;-

(236)
(25)
(1,403)7-;(10)

-;-

-;-

-;-

-;-

349
(16)
(1,070)

(4)

153

(14)

(4)
(937)

Adjustment following
implementation of new
international financial reporting
standards
Charged to other comprehensive
incomeCredited/(charged) to profit or loss
Translation difference
Balances at 31 December 2019

Right-of-use
assets(3)-;-;-;-;-;-(1,086)
-;-

Total

-;-

(918)

(6)

(233)

-;-;(6)(243)(25)(1,419)-;-(1,086)

(2)

(2)

(8)

498
(20)
(2,029)The Group takes into account the probability that deductible temporary differences or tax
losses carried forward can be utilised against future taxable profits on recognition of deferredincome tax assets. In assessing recoverability of deferred income tax assets, the Group takes
into account scheduled reversal of deferred income tax liabilities, projected future taxable profit
and tax planning.
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
not recognise deferred income tax assets for a portion of deductible temporary differences or
tax losses carried forward as of 31 December 2018 and 2019. The amounts of deductible
temporary differences and tax losses carried forward for which deferred income tax assets thatare not recognised as of 31 December 2018 and 2019 are as follows:

Deductible temporary differences
Losses carried forward
Total

USD thousand
31-December
2018
2019
46
826
14,65023,24914,69624,057The expiration of tax losses carried forward for which deferred income tax assets are notrecognised is as follows:
USD thousand
45

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

31-December
2018
2019
Grand total
1st Year
2nd Year
3rd Year
4th Year
5th Year and thereafter or no
expiration date
Total-;6,755
1,225
388
6,282

7,246
1,241
393
862
13,507

14,65023,249The above mentioned amount of tax losses carried forward related to the Company and IRI Japan.

NOTE 26 – 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 31 December, 2018 is disclosed based on IAS 17 Leases.
For the year ended 31 December, 2018
USD thousand
31 December
2018

No later than 1 year
Later than 1 year and no later than
5yearsLater than 5years
Total

16
82

Future finance charges on finance leases
Present values of finance lease liabilities

577

No later than 1 year
Later than 1 year and no later than 5
years
Later than 5years
Total finance lease liabilities

1353

USD thousand
31 December
2018
12
50
15
77

Less: Amount included in current
liabilities
Non-current portion

(12)
65

For the year ended 31 December, 2019(i) The expenses relating to leases are as follows.

46

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

USD thousand
For the year ended
31 December, 2019
Depreciation of right-of-use assets
Buildings
Equipment
Total depreciation expenses(1,028)(107)(1,135)Interest expenses relating to lease liabilities
Expenses relating to leases of low-value assets

(108)
(4)

(ii) The carrying amounts of the right-of-use assets are as follows.
USD thousand
31 December, 2019
Right-of-use assets
Buildings
Equipment

1,221
5,055
6,276

Total

(iii) The changes in the carrying amounts of the right-of-use assets are as follows:
USD thousand
31 December, 2019
Balance at 1 January, 2019 under finance leasetransactions
Adjustments on adoption of IFRS16
Balance at 1 January, 2019 (adjusted)
New lease transactions
Acquisition of subsidiary
Depreciation
Impairment loss (*)
Translation differences
Balance at 31 December, 2019

80
6,232
6,312
599
537
(1,135)
(345)
31
5,997

(*) 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 carrying amounts of the right-of-use assets are as follows:
USD thousand
31 December, 2019
Balance at 1 January, 2019 under finance leasetransactions
Adjustments on adoption of IFRS16
Balance at 1 January, 2019 (adjusted)
New lease transactions
Acquisition of subsidiary
Repayment
Translation differences

78
6,155
6,233
599
516
(1,110)38

47

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

Balance at 31 December, 2019

6,276

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

NOTE 27 – CONTINGENCIES AND COMMITMENTS
a. As at 31 December 2018 and 2019, the Group and the Company did not have any significant
contingent liabilities.

As at 31 December 2018 the Group’s future aggregate minimum lease payments under noncancellable operating leases are as follows:

No later than one year
Later than one year and no later
than five years
Over five years

USD thousand
31 December
2018
471
8

-;479
479 USD thousand Lease expenses have been charged in Selling, general and administrative forthe years ended 31 December 2018.
b. 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
research and development operations of the Cyber Security Research Center at the Technion from 1
July, 2017 to 30 June, 2027, which would be called the Hiroshi Fujiwara Cyber Security ResearchCenter.
The agreement is treated as an executory contract in accordance with IAS 39 and accordingly, an
expense is recognized over the 10-year agreement period, starting 1 July, 2017.
c. On 8 September, 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 developmentin the fields of medicine, life sciences, biology, food and hygiene.

NOTE 28 – RELATED PARTY TRANSACTIONS AND BALANCESFor the purposes of this Financial Information, parties are considered to be related to theGroup if the party has the ability, directly or indirectly, to exercise significant influence overthe Group in making financial and operating decisions. Related parties may be individuals(being members of key management personnel, significant shareholders and/or their closefamily members) or other entities and include entities which are under the significant influenceof 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 31 December
2018 and 2019, are as follows. Please note that the scope of related parties has been changed
due to the change in reporting entity with regards to the triangle merger discussed in Note 2.2
etc.
48

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

Mirei Kuroda
Elchanan Harel

Relationship with theCompany/Group
Director of the Company, Chairman of
the board of directors and CEO, andRepresentative director of IRI Japan,
President and CEO
Director of the Company, andDirector of IRI Japan, COO
CFO of the Group
Director of the Company

Kazuto Sasaki

Director of IRI Japan

Osamu Nakamura

Independent Director of IRI Japan

Yasushi Fujita

Independent Director of IRI Japan

Hidehiko Suzuki

Corporate Auditor of IRI Japan,QWHUQHW5HVHDUFK,QVWLWXWH
,QF

Subsidiary

From 9 August, 2017

NANO Opt Media, Inc.
BroadBand Tower, Inc.
Unimo, Inc.
IoT Square, Inc.
Remote Sensing Technology
Center of Japan
Internet Association Japan
Astro Aerospace

Subsidiary
Affiliate
Company owned by director
Subsidiary of BroadBand Tower, Inc.

From 1 January, 2017
From 1 January, 2017
From 1 January, 2017
From 2 October, 2017

Company owned by director

From 1 January, 2017

Company owned by director
Company owned by director

From 1 January, 2017
From 1 January, 2017

Name of related parties
Hiroshi Fujiwara
Mieko Nakagawa

Period subject to relatedparties
From 1 January, 2017
From 1 January, 2017
From 20 November, 2017
From 20 November, 2017
From 1 January, 2017 to 19
November, 2017
From 1 January, 2017 to 19
November, 2017
From 1 June, 2017 to 19
November, 2017
From 1 January, 2017 to 19
November, 2017(a) Balances classified as related parties:
The following balances were financial assets and liabilities attributed to related parties:
USD thousand
31 December
2018
2019
Current assets
Booked in IRI Japan:
Trade Receivable to a company own by director
60
10Trade Receivable to IoT Square, Inc.
-;Allowance for Doubtful accounts to a company own
(10)
(10)
by director
Booked in NOM:
Other receivable to a company own by director
Allowance for Doubtful accounts to a company own
by director

21

21

(21)

(21)

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

50

8
9
17

Current liabilities
Booked in the Company –Account payable to BroadBand Tower, Inc.
Account payable for Hiroshi Fujiwara

-;-

4
15

49

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS
Account payable for Directors of the Company
Account payable for the Group's CFO-

9
8Booked in NOM –Account payable to BroadBand Tower, Inc.

3

3

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

6

4
3
46

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
Year ended 31 December

Transaction with Management Executives in
the Company –Account payable for Hiroshi Fujiwara
Loan collection from Hiroshi Fujiwara
Loan to Hiroshi Fujiwara
Interest Income from Loan to Hiroshi Fujiwara
Transaction with Other Related Parties in IRI
Japan:
Purchse of common shares of IoT Square, Inc. from
BroadBand Tower, Inc.
Outsourcing cost to BBTSales to BBTSales to IoT 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

2017

2018

37
288
-;2

-;-;-;-;-

-;-

-;-

71

(21)
143
3
-;-

(14)
-;13
136

(11)

2019

(50)
-;-

(1)

(2)

18
19
-;(9)
-;-

-;-;(181)
(2)
-;-

11
1

Transaction with Management Executives in
NOM:

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
Payment on behalf of a company own by director
Booked in IoT Square, Inc.:-Sales to BroadBand Tower, Inc.

108
50

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS-Sales to Remote Sensing Technology Center ofJapan-Outsourcing cost to BroadBand Tower, Inc.
Total

9
480

(49)

(63)
74

(C) Key management compensation
As discussed in the above, until the change in reporting entity occurred on 20 November 2017,
key management personal includes 5 directors and 1 corporate auditors of IRI Japan. After 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 31
December 2018 and 2019 are respectively shown below:
USD thousand
Year ended 31 December
2017
2018
2019
Executive compensation
265
323
236
Share-based payment
5-;Total
270
323
236

(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 to bank 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 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 two 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.
(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 froma single external customer were approximately 29,028 thousands USD for the year
ended December 31, 2018 and 33,418 thousands USD for the year ended December 31,
2019, respectively.

51

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS(iii) IoT- as discussed in Note 8, IoT becomes a subsidiary of the Company from the six-month
periods ended 30 June 2019 and. The subsidiary mainly provides IOT solutions andconsultation services in the field of data security, and the design and production of films
and production services, and the business is determined as operating segment. In relation
to idenfitication of new operating segment, the comparative information for the six-month
period ended 30 June 2018 and the year ended 31 December 2018 as shown in table below
are reclassified.

(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 fundthat mainly 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), andInterest expenses and incomes, Tax, Depreciation and Assets.

Year ended 31 December,2017
USD thousand
Technology Information
IRI
Segment revenues
from externalcustomers
Operating profit(loss)
Share of profit(loss) ofinvestments
accounted forusing the equity
methodGain on change inshare ofinvestments
accounted forusing equity
methodProfit (loss) before
income tax
Income tax expenses(benefit)
Profit (loss) fromcontinued
operations
Profit (loss) fromdiscontinued
operation **Profit (loss) for
the year
Other segment
items
Finance income
Finance expense
Depreciation andamortization
Capitalexpenditure

BBT

NOM

278

77,655

8,843(3,817)

3,564

1,159

Other

Sub total

Adjustments-

86,776(77,655)

9,121

743

-

490

(3,564)(3,074))(1,650)

-

298

(193)

1,650

1,457

123

-

-

-

123

-

123

(2,533)

2,242

742

298

749

(2,242)(1,493)-(9,684)(330)-(10,014)

9,684

(330)

(2,533)(7,439)412

298(9,262)

7,439(1,823)-(14,036)--

14,036(14,036)-(2,533)

6,597

412

298

4,774

(6,592)(1,823)

2-

1,615(1,286)

(1)

-

1,617
(1,287)(1,615)
1,286

2
(1)

-

(5,844)(35)-(5,879)

5,844

(35)

-

11,865247-

12,112(11,865)

247

52

Total

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

Year ended 31 December, 2018
USD thousand

Segment revenues
from externalcustomers
Operating profit(loss)
Share of profit(loss) ofinvestments
accounted for using
the equity method
Gain on change inshare ofinvestments
accounted for using
equity method
Profit (loss) before
income tax
Income tax expenses(benefit)
Profit (loss) fromcontinued
operations
Profit (loss) fromdiscontinued
operation **Profit (loss) for theyear
Other segment
items
Finance income
Finance expense
Depreciation andamortization
Capital expenditureTechnology Information
IRI
BBT
IoT

NOM

281

110,313727

10,188*(3,923)(6,002)(3,396)(1,668)

442

112

Other

Sub total

Adjustments

Total

-

121,509(111,054)

10,4551,135-(12,186)*9,398(2,788)

-

-

2,661

1,435

(442)

993

-

-

-

-

112

-

112

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

1,135

2,661

(11,684)*9,128(2,556)

224

848

(5)

(483)

-

589

(843)

(259)

*(6,128)(4,885)(3,400)

652

2,661

(11,100)*8,285(2,815)-(3,400)

3,400

-

-

-

-

-

*(6,128)(8,285)

-

652

2,661

(11,100)

8,285(2,815)

*90
*8

317
(489)

-

(1)

-

407
(498)

(317)
490

90
(8)

(73)

(10,473)

-

(43)

-

(10,589)

10,473(116)

427

46,066-65-

46,558(46,066)

492

Year ended 31 December, 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)

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)

53

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS
Profit (loss) fromcontinued
operations
Other segment
items
Finanse income
Finanse expense
Depreciation andamortization
Capitalexpenditure(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 31 December 2017 refers to the partial sale of BBT
subsidiary BBF, Inc. on 30 June 2017, the sale of BBT subsidiary IoT on 4 January, 2019.

Year ended 31 December, 2018
Information technology
IRI
Segment
assets

24,351

BBT
217,161

IOT

NOM

499

Other

5,550

Adjustments

2,301(217,660)

Total
32,202

Year ended 31 December, 2019
Information technology
IRI
Segment
assets

18,748BBT
378,214

IOT

NOM

986

Other

9,288

2,319

Adjustments(378,637)

Total
30,918NOTE 30 – BUSINESS COMBINATION
Acquisition of IoT Square, Inc.
On 20 December 2018, the Company’s board of director meeting resolved to acquire of IoT Square, Inc.
(“IoT”), accompany incorporated in Japan and as a wholly subsidiary of BBT.
Based on the resolution, the Company entered into the share purchase agreement with BBT on 21
December 2018. According to the terms and conditions of the agreement, the acquisition wascompleted on 4 January 2019 and it resulted that IoT becomes a wholly subsidiary of the Company.
IoT is an R&D company which operates in a number of fields of operations, the principal ones being
the development of systems for the management and sale of digital tickets to events, management andoperation services to solar power plants, the development of solutions and consultation services in thefield of date security, and the design and production of films and production services.
Assets acquired and liabilities assumed
The identifiable assets and liabilities of IoT, which are measured at fair value as of the date ofacquisition except for limited exceptions in accordance with IFRS, were as follows:

54

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS(USD in thousands)
Fair value
recognizedonacquisition
AssetsCash and cash equivalents
Trade receivables
Related parties
Other current assets
Other financial assets
Property and equipment
Right-of-use assets
Intangible assets
Other non-current assets
Total
Liabilities
Accruals and other payables
Related parties
Other liabilities
Lease liabilities
Asset Retirement Obligations
Total
Total identifiable net assets at fair value
Negative goodwill
Total consideration

213
29
10
83
105
53
537
4
10
1,044
(271)
(59)
(15)
(516)
(21)
(882)
162
(91)
71

All consideration was paid in cash and the amount is USD 71 thousand. The fair value of the tradereceivables was USD 29 thousand. The gross contractual amounts of the trade receivables were notmaterially different from the fair value determined as part of the purchase price allocation.
Negative goodwill of USD 91 thousand represented the value of expected synergies decreasing fromthe acquisition and was allocated entirely to the IRI segment. None of the goodwill recognized was
expected to be deductible for income tax purposes.
(USD in thousands)
Analysis of cash flows on acquisition:
Total consideration related to the acqusition
Net cash and cash equivalents acquired at
the acquisition date
Net cash flows on acquisition (incudedin cash flows from investing activities)

(71)
213
142

The Pro Forma Statement of Financial Positions as of 31 December 2017 and 31 December 2018, and
the Pro Forma Statement of Income of the Group for the six-month period ended 31 December 2018
and the year ended 31 December 2018 which the profit or loss of IoT have been retrospectively
consolidated as part of Group’s consolidated financial statements as if the acquisition of IoT had
occurred on 1 January 2017 were as followed:
Pro Forma Statement of Financial Positions
55

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

USD(In thousands)
31 December
2018
ASSET
CURRENT ASSETS
Cash and cash equivalents
Trade receivables
Contract assets
Related parties
Income tax receivables
Other current assets
TOTAL CURRENT ASSETSNON-CURRENT ASSETS
Other financial assets
Investments accounted for using the equity
methodProperty, plant and equipment
Intangible assets
Deferred tax assets
Other non-current assets
TOTAL NON-CURRENT ASSETSTOTAL ASSETSLIABILITIES AND EQUITYCURRENT LIABILITIES
Trade payable
Accruals and other payables
Contract liabilities
Income taxes payables
Obligations under finance leases
Related parties
TOTAL CURRENT LIABILITIESNON-CURRENT LIABILITIES
Obligations under finance leases
Asset Retirement Obligations
TOTAL NON-CURRENT LIABILITIESTOTAL LIABILITIESEQUITY
Share capital
Capital surplus
Retained earnings
Accumulated other comprehensive income
Exchange differences on translation fromfunctional currency to presentation currency
TOTAL EQUITYTOTAL LIABILITIES AND EQUITY

11,495
50
267
60
511
651
13,034
1,192
17,531777
19147
919,67932,702

147
1,766
2,947
16
12
62
4,950
65
209
274
5,224
-;14,845
10,786352
1,495
27,42832,702

Pro Forma Statement of Income
USD (In thousands)
56

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

Revenue
Operating costs and expenses:
Cost of sales
Selling, general andadministrative
Research and Development
expenses
Other incomes/(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
the equity method
Profit (loss) before income taxes
Income tax benefit
Profit (loss) for the year
Profit (loss) for the period attributableto:
Items that may be reclassified to
profit or loss
Differences from translation offinancial statements fromfunctional currency topresentation currency
Share of other comprehensive
income of investments accounted
for using equity method
Change in fair value of availablefor-sale financial assets
Items that will not be classified
to profit or loss
Differences from translation offinancial statements fromfunctional currency topresentation currency
Change in fair value of equity
securities at FVOCI
Share of other comprehensive
income (loss) of investments
accounted for using equity
methodTotal other comprehensive
income, net of tax
Comprehensive loss for the year57

31 December
2017

31 December
2018

11,003

11,169(4,274)(13,653)(4,281)(11,898)(1,624)(1,202)(152)(19,721)(8,718)
0
2
(1)
(1)
3,355

29
(17,352)(6,153)
(955)
90
(9)
81
1,739

201

162

(6,309)(336)(6,645)(5,156)(264)(5,420)

564

657

(133)

34

(9)

-;-

-;-

(13)

-;-

5

-;-

394

688

1,077

(5,957)(4,343)

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 31 – PRINCIPAL SUBSIDIARIES(1) General information
The Group has 3 consolidated subsidiaries as of 31 December 31, 2019 as follows.

Name
Nano-opt Media Inc.
Fintech A-Eye
ventures Inc.
IoT Square, Inc. (*)% of ownership interest
31 December
2018
2019

Main business
Refer to Note 30
Operating venture fundbusiness as GP
Refer to Note 30

100%
100%

100%
100%

-

77%

(*) As discussed in Note 29. BUSINESS COMBINATION, IoT has become a subsidiary of the Company
on 4 January 2019. During the year ended 31 December, 2019, IoT issued new common shares througha third-party allotment. As a results, the Group’s ownership interest in IoT decreased from 100% to
77% and recorded 1,300 thousands USD of Capital surplus and 327 thousand USD of Non-Controllinginterest, respectively.
(2) The summarized financial information for the subsidiary which the Group recognize noncontrolling interest is as follows.
IoT Square Inc.
USD thousand
31 December, 2019
387
600
1,855
1,155
(2,023)Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity(3) Condensed financial information on the overall profit for an IRI Japan subsidiary for non-controllinginterests:
IoT Square Inc.
USD thousand
31 December, 2019
1,154
(3,073)

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-;-(3,073)(132)-;-

IoT Square Inc.
USD thousand
31 December, 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 equivalent58

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 32 – SUBSEQUENT EVENTS
Directorate plan
On August 28, 2019 the Company's Board of Directors has approved the efficiency plan that was developedby the Management, as follows:(a) The acquisition of Digit Inc.
On 10 March 2020, the Company entered into an investment agreement with Digit Inc. ("Digit")
according to which the Company will invest an amount of JPY 25.26 million ( approximately 240
thousands USD) for 51% of authorized and issued share of Digit.
Digit is a development and research company which provides consulting services to enterprises inJapan in HR field especially in business behavior assessment, skills management and organizationand strategic consulting.
With Digit acquisition, the company is interested to integrate in its activity technologies developed
by Israeli companies in IoT and AI filed which will assist Digit to enter the reduction of employee
stress and improvement productivity field, while utilizing the access of the company to the Israeli
technologies.
The investment was completed on 31 March 2020. Therefore, the Company acquired control over
Digit and the entity becomes a subsidiary of the Company on that date.
(b) New third-party allotment by IoT
On April 10, 2020, an investment agreement has been signed between SBI Holdings ("SBI"), aJapanese financial services company that deals, inter alia, in the card field, and IoT as a subsidiaryof the Group.
At the time of signing the Agreement, SBI invested a total sum of JPY 200 million (approximately
USD 1.85 million) in consideration to 5,000 ordinary shares of IoT, constituting approximately
29.9% of its shares, so that after such investment (and following further investments in nonmaterial amounts in IoT's shares), the Group's holdings in IoT decreased to approximately 53.7%of the issued and paid-up share capital of IoT.
(c) The effects of the spread of the "Corona" virus – Please see note 1.

(d) On April 23, 2020, the Company's Board of Directors approved the Management Plan as set out in
Note B1.

NOTE 33 – RECONCILIATION of BBT's FINANCIAL STATEMENTS FROM J-GAAP TOIFRSOn August 6, 2017, the Company submitted an application to the Securities Authority for
approval of relief in attaching the reports of the affiliate BBT, whose securities are listed for
trading on the Tokyo Stock Exchange in Japan, mainly approval to attach to the Company's
reports BBT's financial statements prepared according to the accepted accounting principles
in Japan (J-GAAP), as published for the public in Japan, translated into to English, together
with a reconciliation note setting out the relevant differences in the BBT financial statements
between the J-GAAP and the IFRS. Moreover, in view of the fact that BBT's annual financial
statements are published in Japan at the end of the second quarter of the calendar year
(meaning June 30,), the Securities Authority staff approves the Company's requested toattach BBT’s reports according to its reporting cycle, i.e. BBT's financial statements as atJune 30, 2017, which are the audited annual report for the year ending on that date, wereattached to the Company's interim reports as at that date.
59

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

To the financial statements of the Company for the year ended on December 31, 2018,attached is the audited quarterly reports of BBT, since BBT informed the Company that as ofDecember 31, 2018, it has updated its reporting period in order to have the annual financial
statements of BBT published together with the annual financial statements of the Company.
Below is transition from Japanese GAAP to IFRS at BBT as of and for the 12 months ended
31 December 2018 and 2019. Since BBT’s financial information under Japanese GAAP isdenominated in JPY, the reconciliation below is presented in thousands of JPY.
Consolidated statement of financial position
As of 31 December 2017
Presentation under

J-GAAP

Current assets
Cash and cash
equivalents
Notes and accounts
receivable - trade

Note

Reported
underJapaneseGAAP
JPY(inthousand)Effect oftransition to
IFRS
JPY(inthousand)IFRS
JPY(inthousand)Presentation
under IFRS

C6,346,851-

6,346,851

C,N

1,458,475(6,941)

1,478,475

Investment securities

300,000(300,000)

Marketable securities

1,040,741

1,040,741-;-

Inventories
Deferred tax assets

268,953
19,598-;(19,598)

269,953
-;-

-;-

C

-;-

657,887

657,887

Current assets - OthersC675,694

17,813

693,507

Allowance for doubtful
accounts

N(6,941)

6,941

-;-

9,089,568

1,396,846

10,486,414

Total current assets

Non-current assets
Property, plant andequipment
Intangible assets
Goodwill
Investment securities

C,K

5,141,514(654,960)

4,486,554

AD

204,364
1,094,719

1,318,547(490,675)

1,522,911
604,044

H,I

1,178,112

221,761

1,399,874-;-

34,774

34,774

201,054

201,054-;-876,475-;-

Deferred tax assets

F

Lease and guarantee
deposits

C876,475

60

Current assets
Cash and cash
equivalents
Notes and accounts
receivable - trade
Investment securities
Investment securities
at fair value (Current)
Inventories
Deferred tax assets
Assets classified asheld for sale
Current assets Others
Allowance for
doubtful accounts
Total current
assetsNon-current
assetsProperty, plant andequipment
Intangible assets
Goodwill
Investments
accounted for using
the equity method
Financial assets atfair value throughcomprehensive
incomeDeferred tax assets non current
Lease and guarantee
depositsINTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Non-current assets Others
Total non-current
assetsC

Total assets

138,348

20,943

159,291

8,633,533

651,4449,284,977

17,723,101

2,048,290

19,771,391

Non-current assets Others
Total non-current
assetsTotal assets

As of 31 December 2017
Presentation under

J-GAAP

Note

Reported
underJapaneseGAAP
JPY(inthousand)Effect oftransition to
IFRS
JPY(inthousand)IFRS
JPY(inthousand)Current liabilities

Current liabilities

Accounts payable-trade495,988-;-495,988

Short-term borrowings

1,899,980-;-

1,899,980

32,703-;-32,703

Lease obligations - current
Accounts payable-otherC

1,362,626-;-

1,362,626

Income taxes payable
-;-

C
J

590,727-;--;436,644

590,727
436,644

OthersJ

476,264(303,430)

172,834

4,858,288

133,214

4,991,502

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

F,N-;Non-current liabilities Others
Total non-current
liabilities
Total liabilities

Presentation
under IFRS

G

294,931-;-294,9312,728,610-;-

2,728,610

794,247-;-

794,247

87,159393,457

480,616-;-

100,789

100,789

107,485

64,822

172,307

4,012,432

559,068

4,571,500

8,870,720

692,282

9,563,002

EquityShareholders’equityTrade payable
Short-termborrowings
Obligation underfinance leases current
Accruals, provisions
and other payables
Income taxes payable
Contract liabilities
Other current
liabilities
Total current
liabilities
Non-current
liabilities
Obligation underfinance leases
Long-term
borrowings
Asset retirement
obligations
Deferred tax
liabilities - noncurrent
Contract liabilities non current
Other non-current
liabilities
Total non-current
liabilities
Total liabilities
EquityShareholders’equity61

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

Capital stock
Capital surplus
Retained earnings
Treasury shares
Total shareholders’equityO

2,381,163
2,776,297
2,683,324

613,756

2,381,163
2,776,297
3,297,080(259,690)-(259,690)

Capital stock
Capital surplus
Retained earnings
Treasury shares
Total
shareholders’equityOther
comprehensive
incomeValuation differencesof available-for-saleinvestments
Foreign currencytranslation
adjustment
Share- based
payment
Total othercomprehensive
income7,581,094

613,756

8,194,850

-;-

-;-

-;-

32

222,332

222,364

Foreign currencytranslation adjustment(45,833)(415)(46,248)

Share- based payment

13,345

14,41527,760Total othercomprehensive
income(32,456)

236,332

203,876

Non-controllinginterests

1,303,742

505,920

1,809,662

Non-controllinginterests

Total equity

8,852,381

1,356,008

10,208,389

Total equity

Total liabilities andequity17,723,101

2.048,290

19,771,391

Total liabilities
and equity

Other
comprehensive
incomeValuation differences ofavailable-for-saleinvestments

62

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

As of 31 December 2018
Presentation under

J-GAAP

Current assets
Cash and cash
equivalents
Notes and accounts
receivable - trade

Note

Reported
underJapaneseGAAP
JPY(inthousand)Effect oftransition to
IFRS
JPY(inthousand)IFRS
JPY(inthousand)Presentation
under IFRS

C

7,250,975(22,983)

7,227,993

C,N

1,717,958(19,638)

1,698,320

Marketable securities

221,964-;-

221,964

Inventories

282,482-;-

282,482

-;-

C

-;-

48,727

48,727

Current assets - OthersC744,718(3,231)

741,487

Allowance for doubtful
accounts

N(15,393)

15,393-;-

10,202,704

18,268

10,220,972

Total current assets

Non-current assets
Property, plant andequipment
Intangible assets
Goodwill

C,K

6,643,234

78,364

6,721,598

BD

1,960,730
663,584

17,477
17,457

1,978,207
681,042H,I

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

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

2,105,616

-;-

-;-

171,190

171,190F

209,959

253,047

463,007C

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

C

158,947(26,522)

132,429

12,947,382

818,184

13,765,574

23,150,094

836,452

23,986,546

Investment securities

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

As of 31 December 201863

Current assets
Cash and cash
equivalents
Notes and accounts
receivable - trade
Investment securities
at fair value (Current)
Inventories
Assets classified asheld for sale
Current assets Others
Allowance for
doubtful accounts
Total current
assetsNon-current
assetsProperty, plant andequipment
Intangible assets
Goodwill
Investments
accounted for using
the equity method
Financial assets atfair value throughcomprehensive
incomeFinancial assets atfair value throughprofit or loss
Deferred tax assets non current
Lease and guarantee
deposits
Non-current assets Others
Total non-current
assetsTotal assets

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

Presentation under

J-GAAP

Note

Reported
underJapaneseGAAP
JPY(inthousand)Effect oftransition to
IFRS
JPY(inthousand)IFRS
JPY(inthousand)Current liabilities

Current liabilities

Accounts payable-trade607,430-;-

607,430

Short-term borrowings

1,831,952-;-

1,831,952

Lease obligations - current

25,867-;-25,867

Accounts payable-otherC779,207(25,501)

753,706

Income taxes payable

C

-;-

J

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

43,367366,324

-;-

C

-;-

41,07941,079OthersJ

795,193(125,707)

669,486

4,084,792

254,419

4,339,211

Total current
liabilities

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

K

-;-

H

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

1,537,158-;-

1,537,158

468,985

60,530529,515-;-

10,716

10,716

277,735

36,347314,082

8,894,151

21,6908,915,841

12,978,943

276,10913,255,052

E

Non-current
liabilities - Others
Total non-current
liabilities
Total liabilities
EquityShareholders’ equity
Capital stock
Capital surplus
Retained earnings
Treasury shares
Total shareholders’equityPresentation
under IFRS

M

2,404,404
2,841,553
2,247,961(259,690)-;5,260
424,720-;-

2,404,404
2,846,813
2,672,681(259,690)

7,234,228

429,980

7,664,20864

Trade payable
Short-termborrowings
Obligation underfinance leases current
Accruals, provisions
and other payables
Income taxes payable
Contract liabilities
Liabilities directly
associated with assets
classified as held for
sale
Other current
liabilities
Total current
liabilities

Non-current
liabilities
Obligation underfinance leases
Long-term
borrowings
Asset retirement
obligations
Deferred tax
liabilities - noncurrent
Contract liabilities- non current
Other non-current
liabilities
Total non-current
liabilities
Total liabilities
EquityShareholders’equityCapital stock
Capital surplus
Retained earnings
Treasury shares
Total
shareholders’equityINTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Other
comprehensive
incomeValuationdifferences ofavailable-for-saleinvestments
Foreign currencytranslation
adjustment
Total othercomprehensive
incomeNon-controllinginterests
Total equity

G

Total liabilities andequityEquity

-;-

-;-

-;-

(3,313)

6,864

3,551

(19,830)-;-(19,830)(23,143)

6,864(16,279)2,960,066

123,499

3,083,565

10,171,151

560,343

10,731,494

23,150,094

836,452

23,986,546

Othercomprehensive
incomeValuationdifferences ofavailable-for-saleinvestments
Foreign currencytranslation
adjustment
Total othercomprehensive
incomeNon-controllinginterests
Total equity
Total liabilities
and equity
EquityJPY(in thousand)As of 31 December 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
assetsL

L

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

Non-current
assetsProperty, plant andequipment
Use rights assets
Intangible assets
Goodwill

I,J

8,458,443(428,990)

8,029,453

J
A,B
D-;2,395,199
605,672

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

Investment securities

G,L

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

16,242-;-

3,119,187

3,119,187-;-

65

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
Intangible assets
Goodwill
Investments
accounted for using
the equity method
Financial assets atfair value throughINTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS-;Deferred tax assets
Lease and guarantee
deposits
Non-current assets Others
Total non-current
assetsE

H

Total assets-;-

197,910

197,910

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

comprehensive
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 31 December 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-;-

559,154559,154922,730(541,848)

380,882

4,170,304

3,035,498

7,205,802

Lease obligations - current

-;-

J

H

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

Presentation
under IFRS

J

29,714

14,489,683

14,519,397

K

5,893,430(68,328)

5,825,102

1,704,982-;-

1,704,982

592,369

113,140

705,509-;-306,589

306,589

E

66

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
Long-term
borrowings
Asset retirement
obligations
Deferred tax
liabilities - noncurrent
Contract liabilities- non current

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS
Non-current
liabilities - OthersH323,973

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

EquityShareholders’ equity
Capital stock
Capital surplus
Retained earnings
Treasury shares
Total shareholders’equityM

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

Othercomprehensive
incomeValuation differencesof available-for-saleinvestments

G

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

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

Consolidated statement of income

For the six months ended 31 December 2017
Effect oftransition
to IFRS
JPY(inthousand)Reclassificat
ion into
Discontinue
d Operations
JPY (In
thousands)

IFRS
JPY(inthousand)(45,663)(52,847)

4,735,337

Presentation
under
J-GAAP

Note

Reported
underJapaneseGAAP
JPY(inthousand)Net revenue

C,J

4,833,846

Cost of revenueC(3,366,122)(13,883)

32,929(3,347,076)

Cost of sales

1,467,724(59,546)(19,918)

1,388,261(1,410,180)

66,598111,739(1,231,852)

Gross profit
Selling, generalandGross profit
Selling, general
and

C,D,E

67

Presentation
under IFRSRevenueINTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

administrative
expenses-;-;Operating
profit(Loss)
Non-operating
incomeNon-operating
expensesFinance income
Finance expense
Profit underequity method
Extraordinary
incomeExtraordinary loss

C,N
C,N

-;-;-

224,154(63,191)(2)-;-

224,152(63,191)

57,544

168,006

91,819317,370

N

85,747(85,747)

-;-

-;-

-;-

N

(13,833)

13,833

-;-

-;-

-;-

N
N

-;-;-

154,728(11,035)-;-;-

154,728(11,035)

N-;-

83,749-;-83,749N

687,323(687,323)

-;-

-;-

-;-

N

(59,900)

59,900-;--;-756,881(303,889)

91,819544,811(564,641)

146,644190(417,807)

192,240(157,245)

92,009127,004-;--;-(92,009)(92,009)-;Profit(Loss)before income
taxes
Income taxes
expenseProfit for theperiod fromcontinuing
operations
Grain fromdiscontinued
operations, net oftaxes

192,240(157,245)-;-

34,995

Profit before
income taxes
Income taxes

C,F

Profit after
income taxes-;Profit for theperiodProfit (loss)
attributable toowners ofparentNoncontrollinginterests
Other
comprehensive
income (loss), netof tax:Valuationdifference on
available-for-saleinvestment
Foreign currencytranslation
adjustment
Share of othercomprehensive
income of entities
accounted foradministrative
expenses
Other income
Other expense
Operatingprofit(Loss)

I

167,002(167,087)

-;-

(85)

25,2389,842-;-

35,08032

125,229-;-

125,261

5,764

-;-

-;-

5,764

552

-;-

-;-

552

68

Finance income
Finance expense
Share of loss ofinvestments
accounted forusing the equity
methodProfit (loss)
attributable toowners ofparentOther
comprehensive
income (loss), netof tax:Change in fairvalue of availablefor-sale financial
assetsForeign currencytranslation
adjustment
Share of othercomprehensive
income ofINTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

using equity
methodTotal othercomprehensive
income (loss),
net of tax
Comprehensive
incomeComprehensive
incomeattributable to :Owners of parent
Non-controllinginterests

198,588(32,016)-;-

166,572

173,350(41,858)-;-

131,492

25,2389,842-;-

35,08039,984(278,138)(238,154)(16,282)
26,712
10,4306,320,352(5,276,073)
1,044,279

C,D,E(1,873,504)

54,173

192,772(1,626,559)

C,N
C,N

-;-;-

219,216(17,841)

(922)
-;-

218,294(17,841)(601,501)

17,394202,280(381,827)

N

20,995(20,995)

-;-

-;-

-;-

N

(82,685)

82,685

-;-

-;-

-;-

N
N

-;-;-

13,149(36,016)-;-;-

13,149(36,016)

N

-;-

(482)

-;-

(482)

(663,190)

55,735202,280(405,176)

N

930,145(930,145)

-;-

-;-

-;-

N

(228,092)

228,092-;--;-

38,862(646,318)

202,280(405,176)

50,139(16,982)309

33,466-;Profit(Loss)before income
taxes
Income taxes
expenseC,JC

Profit before
income taxes
Income taxes

131,577

6,296,650(5,024,647)
1,272,003

Net revenue
Cost of revenue

Ordinary profit
Extraordinary
incomeExtraordinary loss-;-

For the six months ended 31 December 2018
Reclassificat
Effect ofion into
IFRS
transition
Discontinue
JPY(into IFRSd Operations
thousand)JPY(in
JPY (In
thousand)thousands)

Note

Loss under equity
method125,229

Reported
underJapaneseGAAP
JPY(inthousand)Presentation
under
J-GAAP

Gross profit
Selling, generalandadministrative
expenses-;-;Operating
profit(Loss)
Non-operating
incomeNon-operating
expensesFinance income
Finance expense

6,348

investments using
the equity method
Total othercomprehensive
income (loss),
net of tax
Comprehensive
incomeComprehensive
incomeattributable to :Owners of parent
Non-controllinginterests

C,F

69

Presentation
under IFRSRevenue
Cost of sales
Gross profit
Selling, generalandadministrative
expenses
Other income
Other expense
Operatingprofit(Loss)

Finance income
Finance expense
Share of loss ofinvestments
accounted forusing the equity
method-;-INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Profit after
income taxes

89,001(663,300)

202,589(371,710)

Minority interest

76,167(14,149)-;-

61,304-;Profit (loss)
attributable toowners ofparentProfit after
income taxes
Reclassificationof loss fromdiscontinued
operations
Profit after
income taxes
Other
comprehensive
income (loss), netof tax:Valuationdifference on
available-for-saleinvestment
Foreign currencytranslation
adjustment
Share of othercomprehensive
income of entities
accounted forusing equity
methodTotal othercomprehensive
income (loss),
net of tax
Comprehensive
incomeComprehensive
incomeattributable to :Owners of parent
Non-controllinginterests

C

I

-;-

-;-

(202,589)(202,589)

165,168(678,163)-;-(512,995)

89,001(664,737)

202,589

89,001-;--;-(202,589)(202,589)

89,001(663,300)-;-(574,299)(13,676)

75,164-;-

61,48839,126-;--;-

39,126

-;-

-;-

-;-

-;-

25,45075,164-;-

100,614

114,451(588,136)-;-(473,685)

200,982(608,207)-;-(407,225)(86,531)

20,071-;-(66,460)

70

Profit for theperiod fromcontinuing
operations
Minority interest
Grain fromdiscontinued
operations, net oftaxes
Profit (loss)
attributable toowners ofparent(663,300)
Reclassificationof loss fromdiscontinued
operations
Profit(Loss) forthe period
Other
comprehensive
income (loss), netof tax:Change in fairvalue of availablefor-sale financial
assetsForeign currencytranslation
adjustment
Share of othercomprehensive
income ofinvestments using
the equity method
Total othercomprehensive
income (loss),
net of tax
Comprehensive
incomeComprehensive
incomeattributable to :Owners of parent
Non-controllinginterests

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

JPY(in thousand)Year ended 31 December 2019
Presentation under
J-GAAPNet revenue
Cost ofrevenue
Gross profit
Selling,
general andadministrative
expenses-;-;Operating
profit(Loss)
Non-operating
incomeNon-operating
expensesFinance
incomeFinancialexpenseLoss underequity method
Ordinary
profitExtraordinary
incomeExtraordinaryloss
Profit before
incometaxes
Income taxes
Profit after
incometaxes
Profit (loss)
attributableto owners ofparentNoncontrollinginterests
Valuationdifference on
available-for-

Note

Reported
underJapanese
GAAP

Effect oftransition
to IFRS

IFRS

Presentation under
IFRS

H

14,660,370(379,198)

14,218,172

RevenueJ(11,133,347)(732,932)(11,866,279)

Cost of sales

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

2,414,893

Gross profit

D,F(3,830,742)

143,077(3,687,665)

Selling, general andadministrative expenses

L
L

-;-;-

63,859(14,647)(303,719)(919,841)

63,859(14,647)(1,223,560)

Other income
Other expense
Operatingprofit(Loss)

L

63,015(63,015)

-;-

-;-

L

(111,555)

111,555

-;-

-;-

L

-;-

182,328

182,328

Finance incomeL-;-(226,579)(226,579)

Finance expenseL

Share of loss ofinvestments accounted
for using the equity
method

-;-

(16)

(16)

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

-;-

L

-;-

-;-

-;-

-;-

L

(308,382)

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

Profit(Loss) before
income taxes(297,524)

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

Income taxes expense
Profit for the period
from continuing
operations(912,853)(698,185)(1,611,038)

Profit (loss)
attributable toowners of parent(144,130)(98,818)

Non-controllinginterests

E45,312
G(14,112)

159,40271

145,290

Change in fair value ofavailable-for-salefinancial assets

INTERNET RESEARCH INSTITUTE, INC.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS
sale
investment
Foreigncurrencytranslation
adjustment
Share of othercomprehensiv
e income ofentities
accounted forusing equity
methodTotal othercomprehens
ive income(loss), net oftax
Comprehens
ive income
Comprehensiv
e income
attributable to
Owners ofparentNoncontrollinginterests(2,767)-;-(2,767)

Foreign currencytranslation adjustment

Share of othercomprehensive incomeof investments using theequity method

-;-

-;-

-;-

(16,879)

159,402

142,523(975,044)(394,653)(1,369,697)

Total othercomprehensive
income, net of tax
Comprehensive
incomeComprehensive income
attributable to(919,195)(637,167)(1,556,362)

Owners of parent(55,849)

242,514

186,665

Non-controllinginterests

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 Valuerecognizedon acquisition
AssetsCurrent asset
Non-current asset
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Total identifiable net assets at fair value
Total consideration

140,069
178,955
319,024(49,837)(52,490)(102,327)
216,697
216,69772

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

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 wasrecorded 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
decreased by 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. If the business combination had taken place on 1 January 2019, consolidated proforma 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 31 December 2019.
B) Acquisition of Okinawa Cable Network Inc.
On 3 October 2018, Japan Cable Cast Inc. (“JCC”), which is BBT’s consolidated subsidiary, acquired
100% of the voting shares of Okinawa Cable Network Inc. (“OCN”), an unlisted company based in
Okinawa, Japan, specializing in providing dedicated cable television service. As a result of theacquisition, JCC obtained control, and OCN became consolidated subsidiaries of BBT. JCC acquired
OCN for the purpose of proposing cable television operators to make progress of innovation of IP
business by providing data broadcasting services with IP video distribution service, mutual smart TV
service and hybrid cast technology.
Assets acquired and liabilities assumed
The identifiable assets and liabilities of OCN, which are measured at fair value as of the date ofacquisition except for limited exceptions in accordance with IFRS, were as follows:(In thousands of yen)
Fair Valuerecognizedon acquisition
AssetsCash and cash equivalents
Trade receivables
Inventories
OthersProperty and equipment
Customer relationship assets
Other intangible assets
Deferred tax assets
Other non-current asset
Total assets
Liabilities
Trade payables
Accruals and other payables
Income taxes payables
Asset Retirement Obligations
Other current liabilities
Other non-current liabilities
Total liabilities
Total identifiable net assets at fair value

387,560
185,701
18,05853,747
380,588
16,00010,289203,717
4,071
1,259,731(36,723)(152,172)(78,222)(762,518)(8,899)(198,195)(1,236,729)
23,00373

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

Goodwill
Total consideration

76,997100,000

All consideration was paid in cash. The fair value of the trade receivables was JPY 185,701 thousand.
The gross contractual amounts of the trade receivables were not materially different from the fair value
determined as part of the purchase price allocation.
Goodwill of JPY 76,997 thousand represented the value of expected synergies arising from theacquisition and was allocated entirely to the BBT segment. None of the goodwill recognized was
expected to be deductible for income tax purposes.
As the purchase price allocation is incomplete as of issuance date of the consolidated financial
statements, BBT reports provisional amounts at the acquisition as of 31 December 2018 and 30 June2019 , but have been confirmed during the current fiscal year. As a result of the allocation of 16,000
thousand yen to customer-related assets, which are mainly intangible assets, and 5,032 thousand yen
to deferred tax liabilities, the amount of goodwill is 76,997 thousand yen.
C) Presentation of discontinued operations
Under Japanese GAAP, there is no specific requirements for the presentation of discontinued
operations and reclassification of assets and liabilities as assets and liabilities held for sale.
Under IFRS, an operation which meets certain criteria is classified as a discontinued operation and its
results should be presented separately from continuing operations.
The Company engaged to sell whole share of its 100% investment in IoT square, Inc. on 21, December
2018. Due to this, the assets and liabilities of IoT square, Inc. as at 31 December 2018 are reclassified
as assets classified as held for sale and liabilities directly associated with assets classified as held forsale and income from discontinued operations for the 6 months ended 31 December 2018 and 2017 areseparately presented retrospectively.
D) Goodwill and intangibles
As allowed under Japanese GAAP, goodwill is amortized for a period of less than 20 years. Under
IFRS, goodwill is not amortized and the impairment test is performed at least annually, or more
frequently upon occurrence of a trigger event.
As a result, JPY 681,042 thousand of goodwill is recorded under IFRS as at 31 December 2018 and 31
December 2019, respectively. Subsequently, JCC, which is a subsidiary of BBT, acquired OCN on 3
October 2018. Goodwill arising from OCN acquisition is newly included as at 31 December 2018 and
31 December 2019.
Reconciliation of goodwill between Japanese GAAP and IFRS 31 December 2018 and 31 December
2019 are as follow.

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

31 December 2018
663,584

JPY (In thousands)
31 December 2019605,672

55,23847,504(37,780)

27,866

681,042

681,042

The Company tests whether goodwill has suffered any impairment on an annual basis at every 31
December under IFRS. The recoverable amount of a cash generating unit (CGU) is determined basedon 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 a three-year
period for OCN. Cash flows beyond each covering period are extrapolated using the estimatedgrowth rates stated below. These growth rates are consistent with forecasts included in the industry
reports specific to the industry in which each CGU operates.
74

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

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
31 December
2019
2.9%

OCN
Year ended
31 December
2019
5.7%

0%

0%

6.69%

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 determining 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 ar
e 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 31
December under IFRS. The Company did not perform the impairment test, because there was no
indication of potential impairment as at 31 December 2019.
E) Deferred tax assets and deferred tax liabilities
Japanese GAAP provides detailed guidance on assessing the recoverability of deferred tax assets. An
entity is classified into 5 categories by its profitability and the extent of the recoverability of deferred
tax assets and the length of estimated future periods to assess the recoverability of deferred tax assets
are determined by such categories, and the scheduling of estimated future taxable income and theamounts 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 243,247 thousand and JPY 298,922 thousand of deferred tax assets are 1) adjusted as
the differences of the treatment of recoverability of deferred taxes under Japanese GAAP and IFRS,
2) recorded from the adjustment accounting entries from Japanese GAAP to IFRS and 3) reclassified
from the tax assets at current assets to non-current assets, also off set the deferred tax assets with theliabilities, as at 31 December 2018 and 2019, respectively.
F) Unused paid absences
Under Japanese GAAP, no provision is made for employees’ unused rights to paid absences. Under
IFRS, they are recognized in other current liabilities. 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.
75

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

For the 12 month ended December 31, 2018 and 2019, the expense relating to the unused paidabsence at JPY 30,523(profit) thousand and JPY 4,969(profit) thousand are included as theadjustment from Japanese GAAP to IFRS, respectively. In addition, others in the non-current
liability are increased by JPY 49,429 thousand and JPY 48,799 thousand, respectively, due to theadjustment from Japanese GAAP to IFRS.
G) Fair value measurement
Under Japanese GAAP, if a financial asset does not have a quoted market value, then where an entity
is able to reasonably calculate a price which can be considered to be a quasi-quoted price, such price
may be used for that financial asset as a market value. The “reasonably calculated price” represents, aprice calculated 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 orvalue drivers are unobservable, which reflect the reporting entity’s own assumptions that market
participants would use in establishing a price.
(1) Fair value measurements by fair value hierarchy
Assets measured at fair values on a recurring basis in the reconciliation as of 31 December 2018 and2019 are as follows:

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

As at 31 December 2019
AssetsFinancial assets at fair value
through other comprehensive
incomeFinancial assets at fair value
through profit or loss
Total

JPY (In thousands)
Level 3
Total

Level 1

Level 2-;--;-

2,327,579

2,327,579

-;-

-;-

171,190

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

2,498,769

Level 1

Level 2-;--;-

3,119,187

3,119187-;--;-

197,911

197,911-;--;-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 376

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CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

JPY (In thousands)
1,900,106
574,972(50,000)-;73,374

Balance at 1 July 2018
Additions of financial assets
Disposal of financial assets
Transfer to investment in subsidiary
Fair value gain/(loss) on valuation
carried to other comprehensive income
OthersBalance at 31 December 2018

317
2,498,769
2,498,769
686,740(222,000)-;-

Balance at 1 July 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 at 31 December 2019

193,097
158,1122,343-;3,317,097

There were no transfers between levels 1, 2 and 3 during the relevant periods.
H) Revenue recognition
BBT derives more than 90% of its revenues from recurring revenue streams, consisting primarily of1) 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 primarilyof 1) colocation, which includes the licensing of cabinet space and power; (2) interconnection
offerings; (3) managed infrastructure solutions. The remainder of the revenues are from nonrecurring revenue streams, such as installation revenues, professional services and equipment
sales. Under the revenue accounting guidance under IFRS15, revenues are recognized whencontrol of these products and services is transferred to its customers, in an amount that reflects
the consideration it expects to be entitled to in exchange for the products and services. Revenues
from recurring revenue streams are generally billed monthly and recognized ratably over theterm of the contract, generally one to three 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 the services
are recognized in the period when the services were provided.

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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
non-recurring revenue streams, such as installation revenues, professional services andequipment sales. Under the revenue accounting guidance under IFRS15, revenues arerecognized when control of these products and services is transferred to its customers, in an
amount that reflects the consideration it expects to be entitled to in exchange for the products
and services. Revenues from recurring revenue streams are generally billed monthly andrecognized ratably over the term of the contract, generally one to three years for cable television
operators and program suppliers. Non-recurring installation fees are recognized in the period
when the services were provided.
Under Japanese GAAP, revenue is recognized when each good is accepted by the Company’s
customer or for the contractual period when each service is provided. The revenue from initialinstallation 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 orservice (i.e. an asset) to a customer. An asset is transferred when (or as) the customer obtains controlof that asset. The Company has concluded that the current methods of revenue recognition andmeasurement under Japanese 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 is recognized over the period of the expected period of the customer relationship.
As a result of the adjustment at revenue recognition, the revenue for the 6 month ended 31 December
2018 increased by JPY 39,984 thousand and the revenue for the 12 month ended 31 December 2019
decreased by JPY 379,198 thousand, and also the cost of sales for the 6 month ended 31 December
2018 increased by JPY 2,081 thousand and the cost of sales for the 12 month ended 31 December
2019 decreased by JPY 307,715 thousand.
The Company has provided the services to various customers. In the computer platform business of
BBT, Yahoo Japan Corporation is the largest customer for more than 10 percent of total segment
revenue under J-GAAP at JPY 1,633,139 thousand and JPY 1,212,866 thousand for the 6 month
ended December 2018 and the 12 month ended December 2019, respectively.
I) Impairment of plant, property and equipment
Under Japanese GAAP, an impairment loss is recognized when there is an indicator of impairmentand (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 forrecognition of an impairment loss.
Under IFRS, an impairment loss is recognized when there is an indication of impairment and when
the recoverable amount of an asset is below its carrying amount. Step 1 under Japanese GAAP is not
required under IFRS.
J) 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 financeand operating leases as required under IAS 17, and apply a single accounting model. At thecommencement date of a lease, lessees recognize a liability to make lease payments (i.e., the leaseliability) and an asset representing the right to use the underlying asset during the lease term (i.e., theright-of-use assets). Subsequently, lessees are required to recognize separately the interest expense on
the lease liability and the depreciation expense on the right-of-use assets. The right-of-use assets are78

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depreciated on a straight-line 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 theremaining lease payments, discounted at the incremental borrowing rate as of 1 January 2019. The
weighted average incremental borrowing rate used for the lease liabilities as of 1 January 2019 was
0.51%.
BBT applied the following practical expedients permitted by IFRS 16 when applying IFRS 16:- Accounted operating leases with less than 12 months of lease term remaining as of 1 January
2019 for as short-term leases and low value leases.
- Used hindsight when determining the lease term of contract including extension options and/or
termination options.
- By class of underlying asset, not to separate non-lease components from lease components, andinstead accounts for each lease component and any associated non-lease components as a single
lease component.
BBT elected not to apply IFRS 16 to the agreements that were not identified as containing a lease
component applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease.
JPY(in thousands)
Commitments for operating lease as of 31 December 2018 as disclosed in the Group’s
18,057,304
consolidated financial statements
Discounted using the group’s incremental borrowing rate of o.51%(713,862)
Add: finance lease liabilities recognized as at 31 December 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 at 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, theamount of impairment was JPY 1,476,841 thousand, and JPY 17,334,928 thousand for the leaseliabilities, in the annual condensed consolidated financial position as of 1 January 2019. As at 1 January
and 31 December 2019, 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 2,484,382 thousand and 425,133 thousand, respectively for the period
ended 31 December 2019. The depreciation and amortization expenses which included thedepreciation expenses of right-of-use assets, and finance costs which included interest expenses forlease liabilities increased by JPY 1,744,715 thousand and JPY 101,381 thousand, respectively for theperiod ended 31 December 2019.
The accounting policies applied by the Group in accordance with the IFRS 16 as of 1 January 2019 are
as follows:
The Group, as a lessee, mainly leases properties. Lease contracts are normally entered into the fixed
term from 1 years to 15 years.
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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 thelease liability and finance costs. The finance costs are accounted for as expenses over the lease term
and calculated based on constant periodic rate of interest on the remaining balance of the lease liability.
The right-of-use assets are depreciated over the shorter of the estimated useful life of the asset or thelease term.
The assets and liabilities arising from leases are measured at the present value ofthe lease at thecommencement date. The lease liability includes the net present value of the following lease payments:- fixed payments less any lease incentives- the exercise price of a purchase option if the lessee is reasonably certain to exercise that 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 ratein the lease can not be readily determined.
The right-of-use assets is measured at cost shall comprise:- the amount of the initial measurement of the lease liability- any lease payments made at or before the commencement date, less any lease incentives received- any initial direct cost
- cost of restoring the underlying asset to the original condition
The lease payments associated with short-term lease and leases of low-value assets are recognized as
expenses on a straight-line basis.
A short-term lease is a lease that, at the commencement date, has a lease term of 12 months or less. A
lease of low-value asset, for example, comprises low value assets such as office furniture 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 exercisethat option.
For the year ended 31 December, 2018
JPY (In thousands)
31 December
2018

No later than 1 year
Later than 1 year and no later than 5years
Later than 5years
Total

32,707
123,923
188,185
344,814

Future finance charges on finance leases
Present values of finance lease liabilities

47,839296,975
JPY (In thousands)
31 December
80INTERNET RESEARCH INSTITUTE, LTD.
CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS2018
No later than 1 year
Later than 1 year and no later than 5 years
Later than 5years
Total finance lease liabilities

25,86699,237
171,872
296,975

Less: Amount included in current liabilities
Non-current portion(25,866)
271,109

For the year ended 31 December, 2019(v) The expenses relating to leases are as follows.

JPY (In thousands)
For the year ended
31 December, 2019
Depreciation of right-of-use assets
Buildings
Equipment
Total depreciation expenses(1,445,745)(311,397)(1,757,142)

Interest expenses relating to lease liabilities
Expenses relating to leases of low-value assets(101,877)(15,089)(vi) The carrying amounts of the right-of-use assets are as follows.

JPY (In thousands)
31 December, 2019
Right-of-use assets
Buildings
Equipment

14,839,826
854,749
15,694,575

Total(vii) The changes in the carrying amounts of the right-of-use assets are as follows:

JPY (In thousands)
31 December, 2019
Balance at 1 January, 2019 under finance leasetransactions
Adjustments on adoption of IFRS16
Balance at 1 January, 2019 (adjusted)
New lease transactions
Depreciation
Impairment loss (*)
OthersBalance at 31 December, 2019

286,306
15,678,539
15,964,845
3,181,214(1,757,142)(1,925,016)
230,673
15,694,575(*) 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
81

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CONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

assets in the amounts of 1,925,016 thousand yen was recognized for the year ended December 31, 2019.
(viii) The changes in the carrying amounts of the right-of-use liabilities are as follows:

JPY (In thousands)
31 December, 2019
Balance at 1 January, 2019 under finance leasetransactions
Adjustments on adoption of IFRS16
Balance at 1 January, 2019 (adjusted)
New lease transactions
Repayment
Balance at 31 December, 2019296,975
17,334,929
17,631,904
3,181,214(3,262,899)
17,550,219

K) 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 in total with five banks
including our counterparties arranged by Sumitomo Mitsui Banking Corporation in March 2018 andthe agreement was updated in December 2018. This agreement includes financial conditions asfollows.
1) At the end of the fiscal year ended 30 June 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 30 June 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) At the end of the fiscal year ended 31 December 2020 and every subsequent fiscal year-end, anordinary loss on the consolidated statement of income shall not be recorded for two consecutive fiscal
years.
3) At the second quarter end of the fiscal year ended 31 December 2020, an ordinary loss on the
consolidated statement of income shall not be recorded.
The Company has complied with these covenants throughout the reporting period.
L) 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 15,394 and JPY 5,499 thousand included in the account of the allowance for doubtful
accounts are transferred to Notes and accounts receivables – trade as at 31 December 2018 and 2019,respectively.
b) Investment securities
Under Japanese GAAP, investments accounted for using the equity method are presented as a part ofinvestment securities with the investment securities, however, under IFRS, it’s independently
presented as the investment accounted for using the equity method.
As a result, the investment accounted for using the equity method of JPY 16,259 thousand and JPY
16,242 thousand included in the account of the investment securities are independently presented as
at 31 December 2018 and 2019, respectively.

c)

Non-operating income & expense and Extraordinary income & loss82

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Under Japanese GAAP, non-operating income and expense are presented below operating profit.
These accounts consist of financial income and expense, foreign exchange gain (loss), profit (loss)
under equity method investment and others. In addition, exceptional items are required to bepresented as “Extraordinary income and loss” on the face of the income statement. The definition of“special” is broader compared to IFRS and includes some extraordinary items.
Under IFRS, financial income, financial expense and profit (loss) under equity method investment isusually shown below operating profit. The term exceptional items is not used or defined, however,separate disclosure is required (either on the face of the comprehensive income statement or in thenotes) when it is necessary to allow an entity to explain its performance for the period as a result of thesize, nature or incidence of certain items of income and expense. It is prohibited to present any items
as “Extraordinary” under IFRS.
M) Retained earnings
Reconciliation of retained earnings under Japanese GAAP and IFRS is below31 December
31 December
2018
2019
JPY (in
JPY (inthousand)thousand)Reported under Japanese GAAP
2,247,961
1,226,728
Reversal of amortization of goodwill
55,237
101,470
Amortization of customer(2,463)-;relationship asset
Deferred taxes
237,848
364,404
Unused paid absences(39,469)(28,612)
Impairment of Property, Plant &(35,153)
3,398,521
Equipment
Revenue recognition(49,467)(120,951)
Impairment of investment securities(11,827)(11,828)
Non-controlling interests(35,916)(141,474)
Adjustment for application of
85,56969,986
Effective interest method
Effect of application of IFRS 9340,136452,202
Provision for unfavorable contract(161,900)(161,900)
Effect of application of IFRS 16
1,063,419
Others41,124
2,998
Reported under IFRS
2,672,681(420,179)
The company identifies contracts in which the unavoidable costs of meeting the obligations under thecontract exceed the economic benefits expected to be received under it in its datacenter business, thus
the company makes provision for such onerous contracts.

83