INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018

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

6-8

Consolidated Statements of Cash Flow

9

Notes to the financial statements

10-81

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 financial assets
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
TOTAL NON-CURRENT ASSETSTOTAL ASSETSLIABILITIES AND EQUITYCURRENT LIABILITIES
Trade payable
Accruals and other payables
Contract liabilities
Obligations under finance leases
Related parties
TOTAL CURRENT LIABILITIESNON-CURRENT LIABILITIES
Obligations under finance leases
Provisions
Contingencies and commitments
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

USD (In thousands)
31 December
2017
2018

8,949
10
-;1
153
94
802
10,00911,282
21
267
50
511
-;567
12,698

3,15

777

1,087

14

17,87817,531

13

262
11
524
19,452
29,461724
15
147
19,50432,202

3,15
2,20
2,5
3,23
2,3,15,16

180
4,446
-;12
38
4,676

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

3,23
22
25

8
196
-;204
4,880

65
209
-;275
4,886

3,19
3,19
19
19

-;9,604
13,752373-;14,845
10,624
352

19

852

1,495

24,581
29,461

27,31632,202

3,15,183,15
2,52,3,15,16
3,15
2,3,15,16,17

2,24

-3-

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF INCOME

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

USD (In thousands)
Year ended
31 December
2017

2016

2018

2,5

7,959

9,121

10,4552(2,727)(3,100)(3,455)(8,942)(9,771)

(130)

(33)

6
(8,038)
(79)
-;2
(8)
(6)

(23)
(12,195)(3,074)
-;2
(1)
1

16
(13,243)(2,788)
(955)
90
(8)
82

14

1,455

1,457

993

14

453

123

112

10

1,823
(443)
1,380

(1,493)(330)(1,823)(2,556)(259)(2,815)1,380(1,823)(2,815)

373

578

657

(491)

133

34

8

(9)

-;-

-;-

-;-

(13)

2,7

(5,301)

7
6

6
9
9

(16)

Loss for the period attributable to:
Owners of the parent
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
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 fromfunctional currency topresentation currency-4-

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF INCOME
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
Total other comprehensive income,net of tax
Comprehensive income (loss) for theyear
Earnings per share attributable to owners of theparentBasic (USD)
11
Diluted (USD)
11

-5-

-;-

-;-

5

-;-

-;-

394

(110)

702

1,077

1,270

(1,121)(1,738)

0.051
0.051

(0.057)(0.057)(0.071)(0.071)INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

NoteBalance as of 31 December,2017
Adjustment on adoption of new
accounting standards
Balance as of 1 January,2018 (restated)

2

Loss for the year
Other comprehensive loss, net of tax
Total comprehensive income (loss) for the period
Shares IPO, net of IPO expenses
Transfer to capital from retained
19
earnings
Total transaction with owners and other
Balance as of 31 December,2018

SharecapitalCapitalsurplusRetainedearnings

Accumulated
othercomprehensive
income (loss)

Exchangedifferencesontranslation
fromfunctional
currency topresentation
currency

Total equity

-;-

9,604

13,752373

852

24,581

-;-

-;-

561

(454)

(1)

106

-;-

9,604

14,313(81)851

24,687

-;-;-

-;-;-

(2,815)
-;-

-;433

-;644

(2,815)
1,077

-;-

-;-

(2,815)433

644(1,738)

-;-

4,367

-;-

-;-

-;-

4,367

-;-

874

(874)

-;-

-;-

-;-

-;-

5,241

(874)

-;-

-;-

4,367

-;-

14,845

10,624352

1,495

27,316-6-

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

NoteBalance as of 1 January, 2017
Loss for the year
Other comprehensive income, netof taxTotal comprehensive income (loss) for theperiodTransaction with owners and other
Issuance of common shares
17
Share based expenses related to20
issuance of common shares
Decrease by merger
Lapse of subscription rights to
17,19
sharesTotal transaction with owners and other
Balance as of 31 December,2017

SharecapitalCapitalsurplusRetainedearnings

USD (In thousands)
Equity attributable to owners of the parent
Exchange
Accumulateddifferences on
Other
other
translation fromreservecomprehensivefunctional currency
incometo presentation
currency
274
249
270

Total
equity837-;-

15,575-;--;-(1,823)

-;-

-;-

-;-

(1,823)

-;-

-;-

-;-

124

-;-

578

702

-;-

-;-

(1,823)

124

-;-

578

(1,121)

4,244

4,244

-;-

-;-

-;-

-;-

8,488

-;-

9

-;-

-;-

-;-

-;-

9

(5,081)

5,081

-;-

-;-

-;-

-;-

-;-

-;-

270

-;-

-;-

(270)

-;-

-;-

(837)
-;-

9,604
9,604

-;13,752

-;373

(270)
-;-

-;852

8,497
24,581-7-

17,205INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

NoteBalance as of 1 January, 2016
Profit for the year
Other comprehensive income, netof taxTotal comprehensive income (loss) for theperiodTransaction with owners and otherAcquisition of NOM
Lapse of subscription rights to
17,19
sharesTotal transaction with owners and other
Balance as of 31 December,2016

SharecapitalCapitalsurplusRetainedearnings

USD (In thousands)
Equity attributable to owners of the parent
Exchange
Accumulateddifferences on
Other
other
translation fromreservecomprehensivefunctional currency
incometo presentation
currency
(99)
732
-;-

Total
equity837-;-

14,732

-;-

-;-

1,380

-;-

-;-

-;-

1,380

-;-

-;-

-;-

(483)

-;-

373

(110)

-;-

-;-

1,380

(483)

-;-

373

1,270

-;-

-;-

(537)

-;-

-;-

-;-

(537)

-;-

-;-

-;-

270

-;-

270

-;837

-;-;-

15,575

270
270

-;274

17,205

(537)

-8-

-;249

16,202(267)

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED 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
Share of profit of investments
accounted for using equity method
Gain on change in share of investments
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
OthersDividends received
Interest received
Interest paid
Income taxes paid
Net cash provided by operating activities

2016

Cash flows from investing activities:
Acquisitions of property, plant andequipment
Acquisitions of intangible assets
Acquisition of NOM, net
Acquisition of Investment Securities
Proceeds from collection of loan to26
related parties
Loans to related parties
Payments for restricted deposits
Acquisition of other financial assets
Proceeds from collection of restricted
deposits
Net cash used in investing activities

2017

1,823
36

(1,493)35(2,556)117(1,455)(1,457)

(993)

(453)

(123)

(112)

6

(1)

1

270

9

-;-

-;-

175

-;-

2
-;31
1,008
-;(2)
310
-;(134)(20)
1,422-;-;1091,687-;(406)
1,101
7
(1)
(303)
(661)

412
(81)
(38)
(283)
184
(372)
2,540
-;(1)
(352)
(1,534)

(3)

(51)

(486)

(3)
730
-;-

(8)
-;-;-

(7)
(282)

288

-;-

-;(757)(2)-;-;(2)

-;-

96

447

(530)

(681)

(549)
(111)

(62)

-;-

8,488

4,367

(12)
(672)

(350)
(12)
8,064

-;(46)
4,321

1,197
885
13
2,095

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

2,106
8,949
227
11,282

(276)

(1 )

Cash flows from financing activities:
Short-term financing liabilities, net
Repayments of long-term financing liabilities
Proceeds from issuance of commonsharesPayment for IPO related cost
Repayments of obligations under finance leases
Net cash provided by financing activities
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
92018

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 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 inJapan on December 9, 1996. IRI Japan registered address is in Tokyo, Japan.
The Company’s operations, via IRI Japan and its subsidiaries (hereinafter – the Group), are focusedon Internet technologies (and, in particular, IoT), cyber security and AI (see the definitions of theseterms above), and include consultation, research, investments, and production of conferences andevents in these fields.
Upon its incorporation in Israel, the Company was wholly owned by Dr. Hiroshi Fujiwara. After theCompany’s incorporation, Dr. Fujiwara set up a company that was wholly owned by him, which wasincorporated under Japanese law (the “New IRI Japan”) the entire issued capital of which wastransferred by Dr. Fujiwara to the Company immediately following its incorporation. Just prior to
the date of the incorporation, a merger transaction (under Japanese law, hereinafter: the “Merger”)
was effected, in which the following actions were performed at the same time: (i) Dr. Fujiwaratransferred 34,786 shares of the Company (out of the 34,787 shares existing in the issued capital of
the Company) to the New IRI Japan; (ii) the operations of (the original) IRI Japan were merged
into the New IRI Japan; and (iii) the New IRI Japan transferred the shares of the Company to theshareholders of (the original) IRI Japan at a ratio of 1:2 (i.e., two shares of the Company for eachshare of the original IRI Japan). For the purpose of the merger, 756 ordinary A shares of (theoriginal) IRI Japan were converted for ordinary shares of (the original) IRI Japan, at a ratio of 1:1.
As a result of the above, after the completion of the above mentioned merger, the shareholders of
the Company were the persons who were the shareholders of (the original) IRI Japan.
Pursuant to the law that is applicable in Japan, on the date of the merger, the New IRI Japan, as therecipient corporation in the merger, accepted all of the assets and liabilities of the original IRI Japan
as such had been on the date of the merger. Therefore, in this financial statements, the term “IRIJapan” shall refer to the original IRI Japan and to the New IRI Japan, without distinction.
After completing the foregoing merger, the Company allotted bonus shares to its shareholders, sothat an additional 999 shares were allotted for each share of the Company.
All references in the financial statements to the number of shares outstanding of the Company havebeen adjusted to reflect the effect of the triangle merger and allotted bonus shares.
1.2 Terms
In this financial statements:
The Company, IRI Israel –Internet Research Institute Ltd.
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.
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 21.86% of the issued andpaid up share capital.

10

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

MIC – Mobile Internet Capital, Inc., a private company incorporated in Japan in which IRI Japan
holds 30% of the issued and paid up share capital.
The Group – the Company and its subsidiaries and its affiliates.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIESThe principal accounting policies applied in the preparation of the consolidated financial
statements are set out below. These policies have been consistently applied through the years
ended 31 December 2017 and 2018, 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 March 31, 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 2017 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 2018 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 2018:


IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with Customers
Interpretation 22 Foreign Currency Transactions and Advance Consideration

The group also elected to adopt the following amendments early:
The Group had to change its accounting policies and make certain retrospective adjustments
following the adoption of IFRS 9 and IFRS 15. Those are disclosed in Note 2.19. Most of theother amendments listed above did not have any impact on the amounts recognized in priorperiods and are not expected to significantly affect the current or future periods.

11

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

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 2018 reporting periods and have not been early adopted by thegroup. The Group’s assessment of the impact of these new standards and interpretations arestill in-progress, however, the Group assessed the impact by adoption of IFRS 16 Leases asfollows.
IFRS 16 Leases
IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC4 Determining
whether an Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27
Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
The standard is effective for annual periods beginning on or after 1 January 2019. Early
adoption is permitted. IFRS 16 introduces a single, on-balance sheet lease accounting model
for lessees. A lessee recognizes a right-of-use asset representing its right to use the underlying
asset and a lease liability representing its obligation to make lease payments. There arerecognition exemptions for short-term leases and leases of low-value items.
IFRS 16 is effective for annual periods beginning on or after 1 January 2019, although early
adoption is permitted if IFRS 16 is also applied. Even though, the Group determined not toearly adopt the standard for this year ended 31 December 2018, the Group has started anassessment of the potential impact on its financial statements.
The Group assessed that the new standard will result in a change to the accounting treatment
over the office lease transaction in IRI Japan and NOM mainly.
Under the previous standard, the lease transaction is classified as “Operating lease” andrelevant rent fees are recognized as operating expenses over the lease period. On the other hand,under IFRS 16, the Group will recognize a right-of-use asset and corresponding liability. The
liability will be measured at the present value of the remaining lease payments. Each lease
payment will be allocated between the liability and finance cost, and the finance cost will becharged 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 associated right-of-use
asset will be measured at the amount equal to the lease liability and amortized over theestimated lease term on a straight-line basis.
The Group plans to use the modified retrospective method as the simplified transition
approach which is to record cumulative amount of the impact at the beginning balance of theretained earnings upon adoption.
As a result of the change, the Group estimated the tentative impact as increase of right-of-use
assets of 6,153 thousand USD and increase of lease liabilities of USD 6,153 thousand USD in
the balance sheet on 1 January, 2019.
In terms of impact of adoption of the new standard by each affiliate, especially BBT group will
have an impact by considering the nature of the services provided by them such as data center
business and dedicated platform services. The assessment on the impacts is disclosed in Note.
30. The affiliates’ assessment of the impact of these new standards and interpretations are stillin-progress, however, they assessed the impact by adoption of IFRS 16 Leases in Note 29.
There are no other standards that are not yet effective and that would be expected to have amaterial impact on the Group in the current or future reporting periods and on foreseeable
future transactions.
Others
2.2 Basis of consolidation(a) Subsidiaries
A subsidiary is an entity (including a structured entity) over which the Group has control. The
Group controls an entity when the Group is exposed to, or has rights to, variable returns fromits involvement with the entity and has the ability to affect those returns through its power over12

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

the entity. Subsidiaries are consolidated from the date on which control is transferred to theGroup. 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
are recognized 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)Business combinations under common control
On 18 October, 2017, Internet Research Institute, Inc. (“original IRI Japan”) which wasestablished 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 werecancelled.
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.
2.3 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided
13

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

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

8 years
4 to 8 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.

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 Financial assets
The IASB issued the final version of IFRS 9 Financial Instruments which sets out therequirements for recognizing and measuring financial assets, financial liabilities and some
contracts to buy or sell non-financial items to replace IAS 39 Financial Instruments:
Recognition and Measurement. IFRS 9 is the new standard for the financial reporting offinancial instruments that is principles-based and brings together the classification andmeasurement, impairment and hedge accounting phases of the IASB's project. IFRS 9 is built
on a single classification and measurement approach for financial assets that reflects thebusiness model in which they are managed and their cash flow characteristics including new
impairment requirements that are based on a more forward-looking expected credit loss modelthat will result in more timely recognition of loan losses and is a single model that is applicable
to all financial instruments subject to impairment accounting. The Group has applied thefollowing accounting policies in accordance with IFRS 9 commencing on 1 January, 2018.
(a) Classification of financial assets
14

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Based on the Group’s business model for managing the financial assets and the characteristics
of contractual cash flow of the financial assets, the Group classifies the financial assets byfollowing categories. Gains and losses arising from assets measured at fair value are either
recorded in profit or loss or other comprehensive income, depending on the Group’s intention.
i. Financial assets as amortized cost
Financial assets measured at amortized cost are debt instruments held for collection ofcontractual cash flows and those cash flows represent solely payments of principal and interest.
ii. Financial assets at fair value through other comprehensive income
Financial assets measured at fair value through other comprehensive income are debt
instruments whose contractual cash flows represent solely payments of principal and intereston the principal amount outstanding and which are held within a business model both to collectcontractual cash flows and sell and equity instruments which the Group has made anirrevocable election at the time of initial recognition to account for the equity investment at fairvalue through other comprehensive income.
iii. Financial assets at fair value through profit or loss
Subsequent to initial recognition, financial assets are measured at fair value. A gain or loss on
debt instruments which is not part of a hedging relationship is recognized in profit or loss.
(b) Measurement of financial assets
Initial measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case 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
15

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

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 fromthe asset 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 thefinancial asset are transferred. Any interest in transferred financial assets that is created orretained by the Group is recognized as a separate asset or liability. If the Group retains
substantially all the risks and rewards of ownership of the transferred financial assets, theGroup continues to recognize the transferred financial assets and recognizes financial liabilities
for the consideration 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 costusing the 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.
2.8 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.
16

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

2.9 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(or in 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.
2.10 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.
2.11 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognized in profit
or loss, except to the extent that it relates to items recognized in other comprehensive income
or directly in equity. In this case, the tax is also recognized in other comprehensive income or
directly in equity, respectively.
(a) Current income tax
The current income tax charge is calculated on the basis of the tax laws enacted or substantively
enacted at the statements of financial position date in the countries where the Group operates
and generates taxable income. Management periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax regulation is subject to interpretation.
It establishes provisions where appropriate on the basis of amounts expected to be paid to thetax authorities.
(b) Deferred income tax
Deferred tax is recognized using the asset-liability method in respect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting purpose and theamounts used for taxation purposes. A deferred tax liabilities 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 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 difference and it is probable that thetemporary difference 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 difference 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 inthe period when the asset is realized or the liability is settled, based on tax rates and tax lawsthat have been enacted or substantively enacted by the end of the reporting period. The
17

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

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.
2.12 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
the valuation methodology of stock options and the assumptions used in such valuation
2.13 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).
2.14 Revenue recognition
As discussed in Note 27 Segment Reporting, the Group mainly provides the following two
business.
Information technology
The business is mainly to provide consultancy services, research services and the reviewing ofmarket trends in the field of internet technologies for companies, organizations andgovernment institutions in Japan. The business mainly consists of a) providing research reportto the customer and b) providing consulting/lecture service to the customer, and the Group18

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

recognizes the revenues as follows.
a) Providing research report to the customer
Based on the contracts with the customer, the Group has an obligation to provide theresearch report to their customer in such a field of internet technologies in Japan etc.
The obligation is satisfied at a point in time when the research report was delivered to thecustomer or accepted by them, and accordingly, the Group recognizes its revenues at thetime.
b) Providing consulting/lecture service to the customer
Based on the contracts with the customer, the Group has an obligation to provide theconsulting/lecture service to the customer over the contract period.
The obligation satisfied over time, and the customer equally receives the benefit from theservice over the contract period.
Accordingly, the Group recognizes its revenues based on the straight line method over thecontract period.

Information service business
The business is mainly to provide planning, organization, production and management ofconferences, exhibitions, seminars and other business in the fields of internet technology, hitech, cyber security etc. The business mainly consists of a) host event business and b) private
event support service, and the Group recognizes the revenues as follows.
a) Host event business
The business is to plan, hold, operate and manage conferences, exhibitions and seminars(hereafter “host event”) by the Group as an organizer entirely, and it is the performanceobligation of the Group.
The customer of the business are mainly exhibitors and sponsors of the host events, andthey receive the benefit of the business provided by the Group over the event period.
Therefore, the Group’s performance obligation is evenly satisfied over time and assessedthat a straight-line method over event period.
Accordingly, the Group recognizes its revenues based on the straight line method over the
event period.
b) Private event support service
The service is to provide support service for the private event held by the customer who isan organizer of the event. The support service are mainly providing the promotion activities
and the reception of the private event etc. behalf of the customer, and the content of theservice depends on each contract and accordingly, the performance obligation is different
in each contract. Based on the performance obligation in each contract, the Group mainly
recognizes its revenue based on the method as “At a point in time when the event has been
totally completed.” or “Over the contract period on a cost method due to the facts thatoutcome of its performance obligation will be clear in the late stage of the services onaround relevant event date.”
There are no significant financing components (i.e. payment terms exceeding one year) within
the services provided to the customer by the Group.
2.15 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 foruse or sales.
(b) Its intention to complete the intangible asset and use or sell it.
19

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS(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 2017 and 2018, the above criteria for capitalization have not been met.
2.16 Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by thelessor are classified as operating leases. Payments made under operating leases (net of any
incentives received from the lessor) are charged to profit or loss on a straight-line basis overthe period of the lease.
The Group leases certain property, plant and equipment. Leases of property, plant andequipment where the Group has substantially all the risks and rewards of ownership areclassified as finance leases. Finance leases are capitalized at the lease’s commencement at thelower of the fair value of the leased property and the present value of the minimum lease
payments.
Each lease payment is allocated between the liability and finance charges. The corresponding
rental obligations, net of finance charges, are included in other long-term payables. Theinterest element of the finance cost is charged to profit or loss over the lease period so as toproduce a constant periodic rate of interest on the remaining balance of the liability for eachperiod. The property, plant and equipment acquired under finance leases is depreciated overthe shorter of the useful life of the asset and the lease term.
2.17 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.
2.18 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.
2.19 Changes in accounting policies
20

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

As discussed in Note 2.1, the Group has applied IFRS 9 Financial Instruments and IFRS 15
Revenue from Contracts with Customer on the group’s financial statements from the fiscal year
2018.
The impacts on the Group’s financial statements by adoption of IFRS 9 and IFRS 15, are as
follows.
IFRS 9 Financial Instruments
The IASB issued the final version of IFRS 9 Financial Instruments which sets out therequirements for recognizing and measuring financial assets, financial liabilities and some
contracts to buy or sell non-financial items to replace IAS 39 Financial Instruments:
Recognition and Measurement. IFRS 9 is the new standard for the financial reporting offinancial instruments that is principles-based and brings together the classification andmeasurement, impairment and hedge accounting phases of the IASB's project. IFRS 9 is built
on a single classification and measurement approach for financial assets that reflects thebusiness model in which they are managed and their cash flow characteristics including new
impairment requirements that are based on a more forward-looking expected credit loss modelthat will result in more timely recognition of loan losses and is a single model that is applicable
to all financial instruments subject to impairment accounting.
The Group has applied IFRS 9 retrospectively and has determined not to restate thecomparative information for the year ended 31 December, 2017. As a result, the comparative
information is prepared based on the Group’s pervious accounting policies. On 1 January, 2018,
the Group has assessed which business models to apply to its financial assets and liabilities andclassified such financial assets and liabilities in to appropriate classification under IFRS 9. The
impacts of these classifications are as follows.

21

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Balance as of 1 January,2018 under IFRS 9

Impact by adoption of IFRS9Balance atJanuary 1,
2018 under
IAS 39 andothersFinancialassets/liabilities
s at fair value
through profit
or loss

Financialassets/liabilities
at FVOCI

Financialassets/liabilities
at amortized cost

Total financial
assets/liabilities

Fair value
measurement
at January 1,
2018

ProvisionatJanuary 1,
2018

10
10

-;-;-

-;-;-

10
10

10
10

-;-;-

-;-;-

-;-;-

94

-;-

-;-

94

94

-;-

-;-

-;-

94

-;-

-;-

94

94

-;-

-;-

-;-

Available-for-salefor equity securities

15

-;-

15

-;-

15

-;-

-;-

-;-

Other financial
assets at amortized
cost, mainly officesecurity deposits

762

-;-

-;-

762

762

-;-

-;-

-;-

777

-;-

15

762

777

-;-

-;-

-;-

180
1,592

-;-;-

-;-;-

180
1,592

180
1,592

-;-;-

-;-;-

-;-;-

Amounts due torelated parties

38

-;-

-;-

38

38

-;-

-;-

-;-

Obligations underfinance lease

12

-;-

-;-

12

12

-;-

-;-

-;-

1,822

-;-

-;-

1,822

1,822

-;-

-;-

-;-

8

-;-

-;-

8

8

-;-

-;-

-;-

8

-;-

-;-

8

8

-;-

-;-

-;-

Financial assets :Trade receivables
Trade receivables
Total

Total
impacts

Other current financial
assets
Office security
deposits
Total
Other financial assets, noncurrent

Total
Financial liabilities :Current
Trade payables
Other payables

Total
Non-current
Obligations underfinance lease
Total

22

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Following are the impacts on accumulated deficit and accumulated other comprehensive
income by classification and measurement of financial assets at 1 January, 2018.
USD (In thousands)
Financialassets at
Retained
FVOCI
earnings
Balance of retained earnings and accumulated OCI as of 1
January,2018 under IAS 39

13,752373(1) Reclassification from available-for-sale financial
assets to financial assets at FVOCI

27

(27)

(2) Impact of IFRS 9 adoption by associate companies

427

(427)

454

(454)

14,206(81)

Adjustment to shareholders’ equity from adoption of
IFRS 9Balance of retained earnings and accumulated OCI as of 1
January, 2018 under IFRS 9(a) Reclassification from available-for-sale financial assets to financial assets at
FVOCI
The investments in equity securities of 15 thousand USD as of 1 January, 2018, was reclassified
from available-for-sale financial assets to financial assets at FVOCI as the cash flows from theseinvestments did not represent solely payments of principal and interest on the principal
amount outstanding and as the Group has determined to measure such investments at FVOCI.
Also, related cumulative impairment loss and its tax effects of 27 thousand USD wasreclassified from retained earnings to accumulated other comprehensive income.
(b) Impact of IFRS 9 adoption by associate companies
Broad Band Tower, Inc. (“BBT”) and Mobile Internet Capital, Inc. (“MIC”) as affiliates of theGroup have financial assets and liabilities. As a result of adoption of IFRS 9 by each affiliate
in accordance with the Group’s accounting policies discussed above, the following impacts
were identified.
1. BBT
Please refer to Note 29.
2. MICAs discussed in Note 14, MIC is a venture capital investing in in startups in the technology andservices industry, which focus on next generation ICT (information and communications
technology) companies and in related areas, and the investing are executed by three private
funds in which MIC involves as a general partner.
Some of investments held by three private funds are classified as “invests in equity instruments”
under IFRS 9, and the Group made election to present other comprehensive income
subsequent changes in the fair value of the investments.
In connection with this, as of 1 January, 2018, MIC reclassified related cumulative impairment
loss and its tax effects of 57 thousand USD from retained earnings to accumulated othercomprehensive income at their financial statements. Except for this adjustment, the Group
determined that there is no impact in MIC.

23

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

As a result of the adjustments in each affiliate, related cumulative loss profit investments
accounted for using equity method and its tax effects of 427 thousand USD was reclassified
from retained earnings to accumulated other comprehensive income through applying theequity method by the Group.
Revenue recognition
The IASB issued IFRS 15 Revenue from Contracts with Customers for recognizing revenue.
IFRS 15 establishes a five-step model that will apply to all revenue arising from contracts withcustomers, regardless of the type of transaction or industry, with limited exceptions.
The Group has concluded that the current methods of revenue recognition and measurement
over each business are in accordance with IFRS 15, with the exception of the following business.
The Group has adopted IFRS 15 from the fiscal year 2018. The Group has used the modified
retrospective method which is to record cumulative amount of the impact at the beginningbalance of the retained earnings upon adoption.
Information service businessAs discussed in Note 27 Segment Reporting, the Group provides “Information service business”
that provides planning, organization, production and management of conferences, exhibitions,seminars and other business in the fields of internet technology, hi-tech, cyber security etc.
The business mainly consists of a) host event business and b) private event support service asfollows.
c) Host event business
The business is to plan, hold, operate and manage conferences, exhibitions and seminars(hereafter “host event”) by the Group as an organizer entirely, and it is the performanceobligation.
Under the previous standard, the Group recognized the revenue of the business at a time
when the host event has been totally completed.
On the other hand, under IFRS 15, the definition of “Satisfaction of performance obligation”
is clarified, and the performance obligation is categorized as “Performance obligations
satisfied over time” or “Performance obligations satisfied at a point in time”. Furthermore,
IFRS 15 defines as “if an entity does not satisfy a performance obligations over time, theperformance obligation is satisfied at a point in time”.
The customer of the business are mainly exhibitors and sponsors of the host events, andthey receive the benefit of the business provided by the Group over the event period.
Therefore, the Group determines that its performance obligation is evenly satisfied overtime and assessed that a straight-line method over event period is the best method tomeasure the progress towards complete satisfaction of the performance obligation.
Accordingly, the new standard resulted in a change to the timing of revenue recognition,
whereby revenue is recognized over the event period on a straight-line method rather thanthe previous method, which was at a time when the event has been totally completed.
Even though the timing of revenue recognition is changed by adoption of IFRS 15, there
were no host events that its event period crossed the finance closing date as of 1 January
and 31 December, 2018, respectively. Accordingly, there is no effect on the opening
balance of retained earnings and the revenue for the twelve-month ended 31 December,
2018.
d) Private event support service
The service is to provide support service for the private event held by the customer who isan organizer of the event. The support service are mainly providing the promotion activities
and the reception of the private event etc. behalf of the customer, and the content of the24INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

service depends on each contract, and accordingly, the performance obligation is different
in each contract.
Under the previous standard, the Group recognized the revenue of the service at a time
when the service was fully completed (at the end of contract period).
On the other hand, under IFRS 15, the definition of “Satisfaction of performance obligation”
is clarified as discussed above, the Group examined each contract and determined thatsome contracts meet the criteria of “Performance obligations satisfied over time” byconsidering its terms and conditions.
In terms of the contracts, the Group determined that they recognize its revenue only to theextent of the costs incurred, by considering the nature of the service that outcome of its
performance obligation will be clear in the late stage of the services on around relevant
event date.
Accordingly, the new standard resulted in a change to the revenue recognition method,whereby revenue is recognized over the event period on a cost method rather than theprevious method, which was at a time when the service has been totally completed.
In addition to the above, under IFRS 15, a definition of a “Contract costs” is clarified. In
terms of information services business as discussed above, the Group determined thatcertain costs attributed to the host or the customers’ events which will be held in nearly
future, meet the criteria of “Costs to fulfil a contract” under IFRS 15.
Accordingly, the new standard resulted in a change to accounting treatment over certain
costs, whereby certain costs are capitalized and amortized until the end of the service rather
than the previous method, which those costs were recorded as expenses in the income
statements as incurred.
As a result, compared to the previous method, the amount of cost of sales recorded by theGroup decreased by 31 thousand USD, and selling, general and administrative increasedby 6 thousand USD for the year ended 31 December, 2018, respectively.
As a result of those changes as discussed above, the opening balance of retained earnings
is adjusted as follows.
USD (In thousands)
January 1 2018
Private event support service
Costs to fulfil a contract
Total

10
96
106

The adjustments made to line items presented on the financial statements due to thechange from IAS 18 Revenue and other standards applied previously (collectively, the IAS
18 and other) to IFRS 15 are as follows. Reclassifications are made to reflect the terms
used under IFRS 15. Certain amounts previously presented in trade and otherreceivables related to private event support service are reclassified into contract assets,
and certain amounts previously presented in other current assets related to prepaid
expenses arising from host event business and private event support service, arereclassified into contract assets. Furthermore, certain amounts previously presented in
accruals and other payables regarding the advance received associated with host event
business are reclassified into contract liabilities.

25

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

USD (In thousands)

Contract assets
Other current assets
Investments accounted for using
the equity method (*)
Deferred tax assets
Accruals and other payables
Contract liabilities
Retained earnings
Exchange differences ontranslation from functional
currency to presentation
currency

1 January,2018(under IAS18
and others)-;802

1 January,2018
Reclassification

Remeasurement

33
(33)

163
-;-

196
769

17,878-;--;-17,878524
4,446-;13,752-;(2,696)
2,696
-;-

(57)
-;-;106

467
1,750
2,696
13,858

852

-;-

(1)

851

(under IFRS 15)

USD (In thousands)

Contract assets
Other current assets
Investments accounted for using
the equity method (*)
Deferred tax assets
Accruals and other payables
Contract liabilities
Retained earnings
Exchange differences ontranslation from functional
currency to presentation
currency

31 December
2018(under IAS18
and others)-;657

Reclassification

31 December
2018

Remeasurement(under IFRS 15)
90
(90)

177
-;-

267
567

17,531-;--;-

17,531

212
4,456-;10,506-;(2,947)
2,947
-;-

(65)
(9)
-;118

147
1,500
2,947
10,624

1,492

-;-

3

1,495

(*) Even though each affiliate has also applied IFRS 15 from 1 January 2018, there is no effect on their
opening retained earnings and the profit (loss) as of and for the year ended 31 December 2018.
Accordingly, there is no effect on the investments accounted for using the equity method by adoptionof IFRS 15 as well.

26

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

USD (In thousands)
2018(under IAS
18 )Reclassifica
tion

Remeasure
ment

2018
(under IFRS
15)

10,462-;-(6)

10,455(3,486)-;-31(3,455)(9,765)-;-(6)(9,771)

(33)

-;-

-;-

(33)

18
(2)
(13,268)(2,807)
(955)
90
(8)
82

-;-;-;-;-;-;-;-;--;-;2519-;-;-;-;-

18(2)(13,243)(2,788)
(955)
90
(8)
82

993

-;-

-;-

993

112

-;-

-;-

112

Profit before income taxes
Income tax expense
Profit for the year

(2,575)(252)(2,827)-;-;-;-

19(7)
12(2,556)(259)(2,815)

Profit for the period attributable to:
Owners of the parent(2,827)-;-

12(2,815)

Earnings per share attributable to owners of theparentBasic (USD)(0.072)
Diluted (USD)(0.072)

-;-;-

0.001
0.001

(0.071)(0.071)

Revenue
Operating costs and expenses:
Cost of sales
Selling, general andadministrative
Research and Development
expenses
Other incomes
Other expenses
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 forusing equity method(*) less than thousand US dollars.

27

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 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,2017 and 2018 are as follows;
31 December,
2017
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

8,946
10
3
10
1
856
9,826

31 December,
2018
Book value(In thousands)
11,28221(*)-;4050
783
12,176(*) 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
of each customer. The Group regularly performs credit assessments on customers andcounterparties considering their financial position and historical data in order to manage
the credit risk.
28

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED 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 2016
Provision for the year
Translation differences
Balance at 31 December 2017
Provision for the year
Translation difference
Balance at 31 December 2018

29
47
1
77
(*)-;(*)-;77(*) 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.

29

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

As at 31 December 2017
Trade payables
Other payables (excluding accruals
and provisions)
Obligation under finance lease
Amounts due to related parties

Within 1
year
USD
thousands

Between 1
and 2 years
USD
thousands

Over 2 years

Total

USD
thousands

USD
thousands

180

-;-

-;-

180

1,346

-;-

-;-

1,346

12
38
1,576

8
-;8

-;-;-;-

20
38
1,584

147

-;-

-;-

147

344

-;-

-;-

344

12
6
509

12
-;12

53
-;53

77
6
574

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

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).

As at 31 December 2017
AssetsFinancial assets available forsale for equity securities

Level 1
USD
thousands

Level 2
USD
thousands

Level 3USD
thousands

Total
USD
thousands

-;-

-;-

15

15

30

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

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

-;-

-;-

80

80

224

224

(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 2017
Fair value gain/(loss) on
valuation
Translation differences

23(8)(*)-;-

Balance at 31 December 201715
31

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Balance at 1 January 2018
Purchases
Fair value gain/(loss) on
valuation

15
282

Translation differences

16

(9)

Balance at 31 December 2018(*) less than thousand US dollars.

304

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, 2017 and 2018, 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.
32

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS(b) Recoverability of deferred tax assets
Deferred tax assets are recognized for all deductible temporary differences, unused tax losses
carryforward and unused tax credits carryforward to the extent that it is probable that taxable
income will be available. The elimination of future taxable income is calculated based on
financial budgets approved by management of the Group, and it is based on management’s
subjective judgements and assumptions. The Group considers these estimates to 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 27).
5.2 Assets and liabilities related to contracts with customers
The Group has recognized the following revenue-related contract assets and liabilities.
USD thousand

196

31
December,
2018
267

2,696

2,947

1 January,
2018
Contract assets (1)Contract liabilities (2)(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, 2018.
The balance of contract liabilities at 1 January, 2018 as shown in the above table, which were
fully satisfied over the year ended 31 December, 2018, and accordingly, the Group recognized
it as the revenues.
33

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 6 – OTHER INCOME AND OTHER EXPENSES
6.1 Other operational incomes (expenses), net

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

6.2 Other expenses

USD thousand
Year Ended 31 December
2016
2017
2018
8
7
18
(2)
6

(24)
(6)
(23)

(2)
-;16

USD thousand
Year Ended 31 December
2016
2017
2018

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

-

-

(945)
(10)
(955)

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

USD thousand
Year Ended 31 December
2016
2017
2018
1,119
1,203
1,534
2,528
3,152
3,167
270
9
-;321
501
468
211
252
940
36
35
117
157
2,255
2,311
-;430
-;78
200
419
216
204
133
-;50
-;365
651
682
5,301
8,942
9,771

NOTE 8– EMPLOYEE BENEFITS EXPENSE (INCLUDING DIRECTORS’EMOLUMENTS)
USD thousand
Year Ended 31 December
2016
2017
2018
2,265
2,865
2,830
263
287
337
2,528
3,152
3,167

Salaries, bonuses and allowances
Other employee benefits
Total

34

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 9 – FINANCE INCOME (EXPENSE), NET
USD thousand
Year Ended 31 December
2016
Finance income –Interest income and exchange rate differences

2017

2018

2

2

90

(8)

(1)

(8)

(6)

1

82

Finance expense

Interest expense
Finance income (expense), net

NOTE 10 – INCOME TAX EXPENSES
10.1 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.
10.2 Income tax expenses in statements of income:1) As follows:

USD ( In thousands)
Year Ended 31 December
2016
2017
2018
Current income tax- Japan corporate income tax for the year
Deferred income tax expenses (Note 24)

5
438
443

189
141
330

164
95
259

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.
2) Tax rates in Japan:
The Group is subject to national corporate income tax, inhabitants’ tax, and enterprise tax inJapan, which, in aggregate, resulted in effective tax rates approximately 34.33% for the year
ended December 31, 2016. Amendments to the Japanese tax regulations were enacted into
law on March 29, 2016 and it resulted that the effective tax rate are scheduled to be reduced
to approximately 33.80% effective from the year ending December 31, 2017, and 33.59%
effective from the year ending December 31, 2019.

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:
35

2016

31-December
2017

23.90%
4.40%

23.40%
4.40%

2018
23.40%
4.4%

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

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.

12.90%

12.90%

12.90%

6.70%
43.20%
34.33%

6.70%
43.20%
33.80%

6.70%
43.20%
33.80%

Corporate tax rate is imposed on a corporation’s taxable income. Amendments to theJapanese 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 corporatetax, which is rate multiplied by the income portion of enterprise tax, is scheduled to beabolished from the year ending 31 December, 2020 and replaced by enterprise tax.
3) Theoretical tax:
The tax on the Group’s profit before income tax differs from the theoretical amount that would
arise using the income tax rate of Israel as follows:

USD (In thousand)Year Ended 31 December
2016
2017
Profit (loss) before income tax
Tax Calculated at applicable Israel andJapan corporate income tax
Increase (decrease) regarding tax rates
differences of subsidiaries in Japan
Permanent non-deductible expenses
Permanent exempt income
Equity method investment gain
Assessment of the recoverability of deferred
tax assets
Other
Income tax expense
36

2018

1,823

(1,493)(2,556)

456

(358)

(558)

170

(146)

(50)

54
(53)
(549)

261
(186)
(379)

232
(429)
(373)

367

1,144

1,456

(2)
443

(6)
330

11
259

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

10.3 Tax return
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.

NOTE 11 – EARNING PER SHARE
Earnings per share attributable to owners of the parent for the years ended 31 December 2016,2017 and 2018 are calculated based on the following information.
2016

2017

2018

0.051
0.051

(0.057)(0.057)(0.071)(0.071)

1,380(1,823)(2,815)

27,136,000

31,857,759

39,537,516

40

-;-

-;-

27,136,040

31,857,759

39,537,516

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

NOTE 12 – 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 1,261,166 thousand,equal to USD 11,479 thousand, translated according to the exchange rate as of December 31,
2018, can be distributed in IRI Japan in the year ended December 31, 2018.

37

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 13 – PROPERTY, PLANT AND EQUIPMENT

Year ended 31
December 2017
Opening net bookamountAdditions
Depreciation
Retirement
Translationdifferences
Closing net bookamountAt 31 December 2017
Acquisition cost
Accumulated
depreciation
Net book amountYear ended 31
December 2018
Opening net bookamountAdditions
Depreciation
Translationdifferences
Closing net bookamountAt 31 December 2018
Acquisition cost
Accumulated
depreciation
Net book amount

Leaseholdimprovement

Equipment

Constructionin progress

Total
USD
thousand

36

51

-;-

87

-;(5)
(32)

51
(28)
(10)

196
-;-;-

247
(33)
(42)

1

2

(0)

3

-;-

66

196

262

-;-

182

196

378

-;-

(116)

-;-

(116)

-;-

66

196

262

-;-

66

196

262

546
(65)

224
(51)

(200)
-;-

570
(116)

2

2

4

8

483

241

-;-

724

548

337

-;-

885

(65)

(96)

-;-

(161)

483

241

-;-

724

Depreciation expenses of 33 and 116 thousand USD have been charged in Selling, general andadministrative for the years ended 31 December 2017 and 2018.
The Group’s property, plant and equipment held under financial leases included in the total
amount of equipment were as follows:
USD thousand
31 December
2017
Cost - capitalized financeleases
Accumulated depreciation

2018
67

80

(48)
19

(3)
77

38

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 14 – INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
1.

General Information

Set out below are the associates of the Group as at 31 December 2017 and 31 2018. The entities
listed below have share capital consisting solely of ordinary shares, which are held directly by theGroup. The country of incorporation or registration is also their principal place of business, andthe proportion of ownership interest is the same as the proportion of voting rights held.
% of ownershipinterest (3)31 December
Name ofCompany

Main BusinessBroadBand
Tower, Inc.

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

22%

MobileInternet
Capital, Inc.

Investment
management

30%

2017

Nature ofrelationship

Place ofbusiness

22%

Associate (1)

Tokyo
Japan

30%

Associate (2)

Tokyo
Japan

2018

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) IRI
Japan's share in equity movement in BBT not resulting from its comprehensive income.
Carrying amount of each investment as at 31 December 2017 and 2018, and dividend received from eachaffiliate are as follows.
USD (In thousands)
Name of Company

Carrying amount
31 December
2017
2018

Dividend received
31 December
2016
2017
2018
USD (In thousands)

BBT (1)

16,33015,230

310

1,101

203

MIC (2)

1,548

2,301

-;-

-;-

2,337

Quoted fair value of BroadBand Tower, Inc. as at 31 December 2017 and 2018, are USD 18,857 thousand
and USD 28,822 thousand, respectively.
(1) BroadBand Tower, Inc. is a trailblazer in the specialty Internet data center business, as a service evolved
from ICT for modern businesses, through its advanced technological capabilities, experienced staff, andhigh-grade facilities and services. BroadBand Tower, Inc. has subsidiaries and affiliates, and they
provide planning, construction, and providing dedicated platform services (video, voice, data delivery)and support of VNO setup/operation services to cable television operators.
IRI Japan holds 22% of the voting rights, two directors of IRI Japan are also designated as directors of
this entity and they participate in all significant financial and 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 aslevel 1 under IFRS 13, which is quoted prices in active markets.

39

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS(2) Mobile Internet Capital, Inc. is a venture capital investing in ICT related venture companies.
IRI Japan holds 30% of the voting rights, therefore IRI Japan has determined that it has significant
influence over this entity.
2.

The summary financial statement of BroadBand Tower, Inc. adjusted to IFRS is asfollows:
USD (In thousands)
31 December
2017

2018

Current assets
Non-current assets
Total assets

93,16882,494
175,662

93,031
125,281
218,312Current liabilities
Non-current liabilities
Total liabilities

44,34840,616
84,96439,046
81,602
120,648

Total Net assets

90,69897,664

2016

Revenue
ExpenseProfit (loss) from continuing
operations
Gain (loss) from discontinued
operations *Profit (loss)

Year Ended
2017
USD (In thousands)

2018

66,02869,91877,65585,094

110,313
115,198

3,890(7,439)(4,885)

12,53014,036(3,400)

8,640

6,597

(8,285)

Other comprehensive income (loss)(2,205)

184

1,146

Total comprehensive income (loss)

6,435

6,781

(7,139)Profit (loss) attributable to:
Owners of the parent of the company
Non-controlling interests

5,685
2,955

5,269
1,328

(7,587)(698)

Total comprehensive income (loss)
attributable to:
Owners of the parent of the company 3,511
5,451(6,384)Non-controlling interests
2,924
1,330
(755)
* Discontinued operations for the year ended December 31, 2018 is relating to the sale of IoT Square,Inc. as a wholly subsidiary and lost its control on January 4, 2019. Further details is discussed in Note
28.
Discontinued operations for the year ended December 31, 2017 is relating to the partial sale of BBT’s
shareholding in its subsidiary BBF, Inc. and lost its control on June 30, 2017, and to the sale of IoTSquare, Inc. as a wholly subsidiary, as mentioned above.
Discontinued operations for the year ended December 31, 2016 is relating to the partial sale of BBT’s
shareholding in its subsidiary Ingenico Japan Co., Ltd (former Lyudia Co., Ltd.) on 26 April 2016, and to
the partial sale of BBT’s shareholding in its subsidiary BBF, Inc., as mentioned above.

40

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

3.

Individually immaterial associates*
December 31
2017
2018
USD (In thousands)
Aggregate carrying amountof individually immaterial
5,160
7,670
associates
The investments in Mobile
1,548
2,301
Internet Capital Inc.

2016
Profit from continuing operations
Other comprehensive income
Total comprehensive income

Year Ended 31 December
2017
2018
USD (In thousands)
676
992
8,870
304
1,292
676
1,296
10,162(*) 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 gainon sale of securities that MIC recognized amounts to 18 million USD before tax effect, while no successfee was paid in the previous financial year. As a result, IRI assumed profit of investments accounted
for using the equity method from MIC in its annual financial statements as approximately USD 2.7M.
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.
4.

Share of profit and of other comprehensive income (loss) of investments accounted forusing the equity method(a) Share of profit of investments accounted for using equity method:

2016
Profit (loss) attributable toowners of BBTGroup’s share in BBT %Share of profit (loss)of BBT
Profit attributable to ownersof MICGroup’s share in MIC %Share of profit of MIC
Share of profit ofinvestments accounted
for using the equity
methodYear Ended 31 December
2017
USD (In thousands)

2018

5,685
22%
1,252

5,269
22%
1,159

(7,587)22%(1,668)

676
30%
203

992
30%
298

8,870
30%
2,661

1,455

1,457

993

41

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS(b) Share of other comprehensive income (loss) of investments accounted for using equity method:Year Ended 31 December
2017
USD (In thousands)

2016
Other comprehensive income (loss)
attributable to owners of BBTGroup’s share in BBT %Share of other comprehensive income(loss) of BBT, net of tax *2018(2,205)
22%

184
22%

1,146
22%

(491)

41

175

Other comprehensive income (loss)
attributable to owners of MIC
304
1,292
30%
30%
30%
Group’s share in MIC %Share of Other comprehensive income
92
253(loss) of MIC, net of tax *Share of other comprehensive
income (loss) of investments
accounted for using the equity
(491)
133
428
method* After deducting deferred taxes which were included in other comprehensive income of investment
accounted for using the equity method, see note 24.

NOTE 15 – FINANCIAL INSTRUMENTS BY CATEGORY
USD thousand
31 December
2017
Financial assets:
Available-for-sale for equity securities
Financial assets at FVOCI –equity securities
Financial assets at Fair value through profit
and loss –equity securities
Other financial assets at amortized cost,
mainly office security deposits
Financial assets at amortized cost:
Trade receivables
Deposits and other receivables (including
amounts due from related parties)
Cash and cash equivalents

Financial liabilities:
Financial liabilities at amortized cost
Trade payables
Other payables
Amounts due to related parties
Obligations under finance lease
42

2018
15
-;-

-;224

-

80

856

783

871

1,087

10

21

11

172

8,949
8,970
9,841

11,282
11,475
12,562

180
1,592
38
20
1,830

147
1,066
6
77
1,296

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 16 – OTHER FINANCIAL ASSETS
USD thousand
31 December
2017
2018
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

94

-;-

94

-;-

15

-;-

-;-

224

-;-

80

762

783

777

1,087

Hereby details regarding investments in financial assets as of December 31, 2018:(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 80 thousands, andtherefore recognized impairment in amount of USD 270 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.

43

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 17 – OTHER CURRENT ASSETS
USD thousand
31 December
2017
Prepaid expense
Consumption tax receivable
Other receivables

2018
615
177
10
802

371
156
40
567

NOTE 18 – CASH AND CASH EQUIVALENTS
USD thousand
31 December
2017
2018
3
5
8,946
11,277
8,949
11,282

Cash in handBank deposits

NOTE 19 – EQUITY
a. Share Capital
The Company’s total number of shares authorized and issued for the years ended 31 December
2017 and 2018 are as follows:
31 December
2017
2018
Total number of common shares, no par value:
Authorized shares
10,000,000,000
10,000,000,000
Issued shares
34,787,000
46,502,800
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, 2018 and 2017 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.

44

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED 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
At the annual extraordinary general meeting of shareholders held on 12 January 2017, IRI
Japan resolved to issue common stock to a director of the company and general investors andto authorize the board of directors to determine the subscription requirements. The details of
the common stock are as follows:

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

45

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 20 – ACCRUALS AND OTHER PAYABLES
USD thousand
31 December
2017
2018
1,274
258
219
367
51
176
-;165
2,731
-;72
86
59
89
27
49
13
4
4,446
1,500

Accounts payable
Accrued expenses
Accrued consumption taxes
Income tax payable
Advances received
Deposits received
Accrued vacation payable
Accrued bonuses
Other

NOTE 21 – 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
2016
2017
2018
USD thousand
Total expenses arising from equitysettled share-based payment
270*9-;transactions* See note 19a(a).
The fair value of the stock option is measured by Black-Sholes Model. Performance terms other thanthe employment condition and market conditions related to these contracts are not taken into
account in calculating fair value.
The fair value of the stock option is measured by Black-Sholes Model. Performance terms other thanthe employment condition and market conditions related to these contracts are not taken into accountin calculating fair value.
46

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

USD thousand
31 December
2016
2017
270
-;210
-;210
-;72.37-;5 years-;-;-;-

The fair value on issue date
The Stock price on issue date
Exercise price
Expected volatility (Weighted average)
Estimated period (Weighted average)
Estimated dividend
Risk free rate (Based on government
bonds)

0.017%

2018-;-;-;-;-;-;-

-;-

-;-

The expected volatility is based on the actual volatility of BroadBand Tower's stock price over theperiod corresponding to the expected remaining period.
Due to the complexities involved in the valuation and its long-term nature, the fair value of the stock
option are highly sensitive to change in these assumptions. If the volatility as a key assumption had
been increased or decreased by 5% with all other receivable held constant, the impact on the fair valueof stock option at the issuance date would have been as follows:
USD thousand
Increase by 5%
Decrease by 5%
Total expenses
arising from equitysettled share-based
payment transactions

11

(11)

NOTE 22 – Provisions
Changes in provisions:
USD thousand
Provisions
29

At January 1, 2017
Arising during the year
Utilized

196(30)

Translation differences
At December 31, 2017

1
196

Arising during the year
Utilized

9-;-

Translation differences
At December 31, 2018

4
209

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.

47

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 23 – OBLIGATIONS UNDER FINANCE LEASESAs at 31 December, 2017 and 2018 the Group's future aggregate minimum lease expenses under
non-cancellable financial leases are as follows:
USD thousand
31 December
2017
2018
Gross finance lease liabilities minimum lease payments
No later than 1 year
Later than 1 year and no later than
5yearsLater than 5years
Total
Future finance charges on finance leases
Present values of finance lease liabilities

12

13

8

53

-;20

16
82

-;20

5
77

The present values of finance lease liabilities are as follows:
USD thousand
31 December
2017
2018
No later than 1 year
1212
Later than 1 year and no later than 5
8
50
years
Later than 5years-;15
Total finance lease liabilities
20
77
Less: Amount included in current
liabilities
Non-current portion

(12)

(12)

8

65

NOTE 24 – DEFERRED TAX BALANCES

Deferred tax assets
The balance comprises temporary
differences attributable to:

USD thousand
31-December
2017
2018

Tax losses
Prepaid expense
Allowance for paid leave
Allowance for bonus
Bad debt allowance
OthersTotal deferred income tax assets

1,335
62
12
10
23
-;1,442

48

1,467
25
20
17
23
14
1,566

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Deferred income tax liabilities
The balance comprises temporary
differences attributable to:Undistributed earnings relating toinvestments in affiliate
Depreciation
Other comprehensive income
Total deferred income tax liabilities(915)(1,403)(3)-;(918)(10)(6)(1,419)Net deferred tax assets

524

147

Deferred income tax assets
USD thousand
Movements
Balances at 31
December 2016
Credited/(charged)
to profit or loss
Translationdifference
Balances at 31
December 2017
Adjustments due to
new accounting
standards
implementation
Credited/(charged)
to profit or loss
Translationdifference
Balances at 31
December 2018

Tax
losses

Prepaid
ExpenseAllowancefor paid
leave

1,759

64

11

9

8

(495)

(5)

-;-

(9)

71

3

1

1,335

62

-;-

Provisions

Allowance
for bonus

Bad debt
allowance

Others

Total

-;-

-;-

1,851

2

23

-

(484)

-;-

-;-

-;-

-;-

75

12

-;-

10

23

-;-

1,442

(58)

-;-

-;-

-;-

-;-

-;-

(58)

99

19

8

-;-

7

(1)

14

146

33

2

-;-

-;-

-;-

1

-;-

36

1,467

25

20

-;-

17

23

14

1,566

Deferred income tax liabilities
Movements

Balances at 31 December 2016
Credited/(charged) to profit or loss
Translation difference
Balances at 31 December 2017
Charged to other comprehensive income
Credited/(charged) to profit or loss
Translation difference
Balances at 31 December 2018

Undistributed
earnings relating toinvestments inaffiliate(1,202)
336
(49)
(915)
(227)
(236)
(25)
(1,403)

USD (In thousands)
Depreciation
Other
comprehensive
income

Total

(10)
8
(1)
(3)
-;7
-;-

-;-;-;-;(6)-;-;-(1,212)
344
(50)
(918)
(233)
(243)
(25)

(10)

(6)

(1,419)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
49

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

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 2017 and 2018. The amounts of deductible
temporary differences and tax losses carried forward for which deferred income tax assets thatare not recognised as of 31 December 2017 and 2018 are as follows:

Deductible temporary differences
Losses carried forward
Total

USD thousand
31-December
2017
2018
8,727
46
19,166
14,65027,893
14,696The expiration of tax losses carried forward for which deferred income tax assets are notrecognised is as follows:
USD thousand
31-December
2017
2018
Grand total
1st Year
2nd Year
3rd Year
4th Year
5th Year and thereafter or no
expiration date
Total

3,797
8,027
1,196
379
5,767

-;6,755
1,225
388
6,282

19,166

14,650

The above mentioned amount of tax losses carried forward related to the Company and IRI Japan.
NOTE 25 – CONTINGENCIES AND COMMITMENTS
a. As at 31 December 2017 and 2018, the Group and the Company did not have any significant
contingent liabilities.

As at 31 December 2017 and 2018 the Group’s future aggregate minimum lease receipts under
non-cancellable 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
2017
2018
1
471
4

8

5

-;479

-;-

50

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Lease expenses have been charged in Selling, general and administrative for the years ended 31
December 2017 and 2018.
b. 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.
c. 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.

NOTE 26 – RELATED PARTY TRANSACTIONS AND BALANCES(a) Balances classified as related parties:
The following balances were financial assets and liabilities attributed to related parties:
USD thousand
31 December
2017
2018
Current assets
Booked in IRI Japan:
Trade Receivable to a company own by director
60
10Trade Receivable to IoT Square, Inc.
-;1
Allowance for Doubtful accounts to a company own
by director
(10)
(10)
Booked in NOM:
Other receivable to a company own by director
Allowance for Doubtful accounts to a company own
by director
Total
Current liabilities
Booked in the Company –Account payable for Hiroshi Fujiwara
Booked in IRI Japan –Account payable to BBT
Booked in NOM –Account payable to BBT
Total

20

21

(20)
1

(21)
50

37

-;-

1

3

-;38

3
6

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.

51

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS(b) Transactions with related parties:

USD thousand
Year ended 31 December
2016

2017

2018

-

37

-;-

-;(276)2

288-;2-;-;-;-

119(12)-;-;-;--;(21)
143
3-;--;(14)-;13
136

Transaction with Management Executives in
the Company –Account payable for Hiroshi Fujiwara
Transaction with Management Executives in
IRI Japan:
Loan collection from Hiroshi Fujiwara
Loan to Hiroshi Fujiwara
Interest Income from Loan to Hiroshi Fujiwara
Transaction with Other Related Parties in IRI
Japan:
Prepayments from BBT
Outsourcing cost to BBTSales to BBTSales to IoT Square, Inc.
Sales to a company own by director
Payment of membership fee to a company own by
director
Transaction with Management Executives in
NOM:
Repayment of Loan from Hiroshi Fujiwara
Interest Expense Paid to Hiroshi Fujiwara
Interest Expense Accrual for Hiroshi Fujiwara

-;-

-;-

(1)

(613)
(132)
1

-;-;-;--;-;-;-

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
Total

23
-;-;-;(5)
(893)

18
19
-;(9)
-;480

-;-;(181)(2)-;(49)

NOM had a loan as at 31 December 2016 for ordinary purpose. These loans were unsecured,interest-bearing at 0.6%-3% per annum and repayable on demand. As at 31 2016, there was no
impairment for the amount due from a director as the amount have not past due and they haveno history of default in payment. On November 9, 2017, the Group collected all outstandingloans from Hiroshi Fujiwara.
Other transactions were conducted in the ordinary course of the business of the Group basedon the terms mutually agreed between the relevant parties.
(C) Key management compensation
The compensation paid or payable to key management for employee services for the year ended
31 December 2018, 2017 and 2016 are respectively shown below:
USD thousand
Year ended 31 December
2016
2017
2018
209
Executive compensation
265
323
169
Share-based payment
5
-;378
Total
270
323
52

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS(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 27 –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 customers were approximately 29,521 thousands USD for the year
ended December 31, 2016 and 28,240 thousands USD for the year ended December 31,
2017 and 29,028 thousands USD for the year ended December 31, 2018, respectively.
(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), and Interest expenses and incomes, Tax, Depreciation and Assets.

53

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Year ended 31 December 2016
Information technology
BBT

NOM

Other

Sub total

Adjustments

22

66,028

7,937-;-

73,987(66,028)

7,959(1,280)(2,634)

1,201

-;-

(2,713)

2,634

(79)

Share of profit (loss) ofinvestments accounted forusing the equity method

1,252(1,235)

-;-

203

220

1,235

1,455

Gain on change in share ofinvestments accounted forusing equity method

453

-;-

-;-

-

453

-;-

453

Profit (loss) before income tax

427(4,054)

1,193

203

(2,231)

4,054

1,823

Income tax expenses (benefit)

(2)

163

(441)

-;-

(280)

(163)

(443)

425

(3,891)752

203(2,511)

3,891

1,380

-;-

12,530-;--;-12,530(12,530)

-

425

8,640

752

203

10,020(8,640)1,380

Finance income

2

165

0

-;-

167

(165)

2

Finance expense

-;-

(349)

(8)

-;-

(357)

349

( 8)

Depreciation and amortization-;-(3,042)(37)-;-(3,079)

3,042

(37)

Capital expenditure

-;-

6,055

6

-;-

6,061

(6,055)

6

IRI
Segment revenue fromexternal customers
Operating profit (loss)

Profit (loss) from continued
operations
Profit (loss) from discontinued
operation**
Profit for the year

Total

Other segment items**Discontinued operation in a year ended on 31 December 2016 refers to the partial sale of BBT
subsidiary Ingenico Japan CO. Ltd on 26 April 2016, as to a partial sale of BBT subsidiary BBF.
Year ended 31 December 2017
Information technology
IRI

BBT

NOM

Other

Sub total

Adjustments

278

77,655

8,843-;-

86,776(77,655)

9,121(3,817)

3,564

743

-;-

490

(3,564)(3,074)

Share of profit (loss) ofinvestments accounted forusing the equity method

1,159(1,650)

-;-

298

(193)

1,650

1,457

Gain on change in share ofinvestments accounted forusing equity method

123

-;-

-;-

-

123

-;-

123

Profit (loss) before income tax(2,533)

2,242

742

298

749

(2,242)(1,493)

Income tax expenses (benefit)-;-(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

(6,597)(1,823)Finance income

2

1,615

0

-;-

1,617

(1,615)2

Finance expense-;-(1,286)(1)-;-(1,287)

1,286

(1)

Depreciation and amortization-;-(5,844)(35)-;-(5,879)

5,844

(35)

Capital expenditure-;-

11,865247-;-

12,112(11,865)

247

Segment revenue fromexternal customers
Operating profit (loss)

Profit (loss) from continued
operations
Profit (loss) from discontinued
operation
Profit for the year

Total

Other segment items

54

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS**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

Segment revenue
from externalcustomers
Operating profit(loss)
Share of profit (loss)of investments
accounted for using
the equity method
Gain on change inshare of investments
accounted for using
equity method
Profit (loss) before
income tax
Income tax expenses(benefit)
Profit (loss) fromcontinued operations
Profit (loss) fromdiscontinued
operation**
Profit for the year
Other segment
items
Finance income
Finance expense
Depreciation andamortization
Capital expenditure

Information technology
IRI
BBT
281
110,313NOM
10,188Other-;-

Sub total
120,782

Adjustments(110,327)

Total
10,455(2,754)(6,002)

1,135

-;-

(7,621)

4,833(2,788)(1,668)

442

-;-

2,661

1,435

(442)

993

112

-;-

-;-

-;-

112

-;-

112

(5,733)

1,135(6,247)

3,691(2,556)

848

(483)

589

(848)

(259)

(4,885)652(5,658)2,843(2,815)-;-(3,400)-;--;-(3,400)

3,400

-;-

(4,086)(8,285)

652

2,661

(9,058)6,243(2,815)0-;(73)

317(489)(10,473)

0
(1)
(43)

-;-;-;-

317(490)(10,589)(227)
482
10,473

90
(8)
(116)

427

46,06665-;-

46,558(46,066)492(4,310)224(4,086)

2,661-;2,661**Discontinued operation in a year ended on 31 December 2018 refers to the sale of BBT subsidiary
IoT on 4 January 2019, see note 28.
Year ended 31 December, 2017
Information technology
IRI
Segment assets

23,779BBT
175,661

NOM
4,134

Other
1,548

Adjustments(175,661)

Total
29,461

Year ended 31 December, 2018
Information technology
IRI
Segment assets

23,968BBT
217,660

NOM
5,550

55

Other
2,301

Adjustments(217,277)

Total
32,202INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 28 – SUBSEQUENT EVENTS
Acquisition of IoT Square, Inc.
On 20 December 2018, IRI Japan's board of director meeting resolved to acquire of IoT Square, Inc.
(“IoT”), accompany incorporated in Japan and on October 2, 2017, as a wholly subsidiary of BBT.
Based on the resolution, IRI Japan 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 IRI Japan.
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.
Being an R&D company that is in the initial stages of development, IoT has not yet developed a productthat produces it substantial revenues. IoT has revenues from the management and operations services
to BBT’s solar plants, which shall continue after the closing of the transaction as well. Following theclosing, until IoT develops its products and provided there are no third party investments in IoT, IRI
Japan will fund the majority of IoT’s operations.
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:(USD in thousands)
Fair value
recognizedon acquisition
AssetsCash and cash equivalents
Trade receivables
Related parties
Other current assets
Other financial assets
Property and equipment
Right-of-use assets
Intangible assets
Other non-current assets
Total
Liabilities
Accruals, provisions 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
84
105
74
514
4
9
1,042
(271)
(59)
(16)
(514)
(20)
(880)
162
(91)
71

All consideration was paid in cash and the amount is USD 71 thousand.

56

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

The Pro Forma Statement of Profit or Loss of the Group for the year ended 31 December 2017 and2018 which the profit or loss of IoT have been retrospectively consolidated as part of Group’s
consolidated financial statements as if the acquisition of IoT had occurred on 1 January 2017 were as
followed:
Pro Forma Statement of Financial Positions
USD (In thousands)
2018
ASSET
CURRENT ASSETS
Cash and cash equivalents
11,495Trade receivables
50
Contract assets
267
Related parties
60
Income tax receivables
511
Other current assets
651
TOTAL CURRENT ASSETS
13,034
NON-CURRENT ASSETS
Other financial assets
1,192
Investments accounted for using the equity
17,531
methodProperty, plant and equipment
777
Intangible assets
19
Deferred tax assets
147
Other non-current assets
9
TOTAL NON-CURRENT ASSETS
19,675TOTAL ASSETS
32,702
LIABILITIES AND EQUITYCURRENT LIABILITIES
Trade payable
Accruals and other payables
Contract liabilities
Obligations under finance leases
Related parties
Income taxes payables
TOTAL CURRENT LIABILITIESNON-CURRENT LIABILITIES
Obligations under finance leases
Provisions
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

57

147
1,766
2,947
12
62
16
4,950
65
209
274
5,224
-;14,845
10,786352
1,495
27,47832,702INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Pro Forma Statement of Profit or Loss
USD thousand
Year ended 31
Year ended 31
December, 2017
December, 2018
11,003
11,169

Revenue
Operating costs and expenses:
Cost of sales
Selling, general and administrative
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 theequity method
Loss before income taxes
Income tax benefit
Loss for the year
Loss for the period attributable to:
Owners of the parent
Other comprehensive income, net of tax:
Items that may be reclassified to profit orloss:
Differences from translation of financial
statements from functional currency topresentation currency
Share of other comprehensive income ofinvestments accounted for using equity
methodChange in fair value of available-for-salefinancial assets
Items that will not be classified to profit orloss:
Differences from translation of financial
statements from functional currency topresentation currency
Change in fair value of available-forsale financial assets
Share of other comprehensive income(loss) of investments accounted forusing equity method
Total other comprehensive income, net oftax
Comprehensive income(loss) for the year

58

(4,274)(13,653)(1,642)(152)(4,281)(11,898)(1,202)
29(19,721)(8,718)-(17,352)(6,183)
(955)

2
(1)
1

90
(9)
81

2,207

1,739

201

162

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

564

657

133

34

(9)

-;-

-;-

(13)

-;-

5

-;-

394

688

1,077

(5,957)(4,343)

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSNOTE 29 – 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 affiliateBBT, 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.
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.

59

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Below is transition from Japanese GAAP to IFRS at BBT as of and for the 6 months ended 31 December
2017 and 2018. Since BBT’s financial information under Japanese GAAP is denominated in JPY, thereconciliation 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-tradeMarketable securities
-;-

Note

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

C6,346,851-;-

6,346,851,J,N

1,485,416(6,941)

1,478,475I

300,000(300,000)

-;-

E

-;-

1,040,741

1,040,741

268,953-;-

268,953

Inventories
Deferred tax assets

N

19,595(19,595)

-;-

-;-

C

-;-

657,887

657,887

OthersC

675,694

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

C, K

5,141,514(654,960)

4,486,554

A

204,364

1,318,547

1,522,911

GoodwillA

1,094,719(490,675)

604,044

Investment securities

I

1,178,113

221,761

1,399,874

-;-

N

-;-

34,774

34,774

Deferred tax assets

F,N

-;-

201,054

201,054876,475-;-

876,475

138,348

20,943

159,291

8,633,533

651,4449,284,977

17,723,101

2,048,290

19,771,391

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

60

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

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

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

Short-term borrowings

1,899,980-;-

1,899,980

32,703-;-32,703

Lease obligations
Accounts payable-otherC

1,362,626-;-

1,362,626

Income taxes payableC590,727

Advances receivedJ-;--;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
Long-term borrowings

2,728,610-;-

2,728,610

Lease obligations

294,931-;-294,931

Asset retirement
obligations

794,247-;-

794,247

87,159393,457

480,616

Deferred tax liabilities

A,F,N

Presentation
under IFRSCurrent liabilities
Trade payable
Short-termborrowings
Obligation underfinance leases
Accruals and otherpayablesIncome taxes payable
Deferred revenue
Other current
liabilities
Total current
liabilities
Non-current
liabilities
Long-term
borrowings
Obligation underfinance lease
Asset retirement
obligations
Deferred tax
liabilities
Deferred revenue
Other non-current
liabilities
Total non-current
liabilities

Deferred revenueJ-;-

100,789

100,789

OthersG

107,485

64,822

172,307

Total non-current
liabilities

4,012,432

559,068

4,571,501

Total liabilities

8,870,720

692,282

9,563,002

Total liabilities

EquityShareholders’equityCapital stock

2,381,163

Capital surplus
Retained earnings

2,776,297
2,683,324-;-;613,756

2,381,163
2,776,297
3,297,080

EquityShareholders’equityCapital stock
Capital surplus
Retained earnings

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

Treasury shares

Total shareholders’equity7,581,095

613,756

8,194,851

O

Othercomprehensive
income61

Totalshareholders’equityOther
comprehensive
incomeINTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Valuation differences ofavailable-for-saleinvestments

I

Valuation differencesof available-for-saleinvestments
Foreign currencytranslation
adjustment
Total othercomprehensive
incomeStock compensation
Non-controllinginterests

32

222,332

222,364(45,833)(415)(46,248)(45,801)

221,917

176,116

13,345

14,41527,7601,303,742

505,920

1,809,662

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

Foreign currencytranslation adjustment
Total othercomprehensive
incomeStock compensation
Non-controllinginterests

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

10,220,973

Total current assets

Non-current assets
Property, plant andequipment
Intangible assets

C,K

6,643,234

78,364

6,721,598

B

1,960,730

GoodwillD

663,584

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

Investment securities

H,I

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

33,929-;-2,105,616

2,105,616-;-

62

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 throughINTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS-;Deferred tax assets
Lease and guarantee
deposits
Non-current assets Others
Total non-current
assets-;-

171,190

171,190F

209,959

243,247

453,206

C

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

C

158,952(26,523)

132,429

12,947,389

816,746

13,764,135

23,150,094

835,015

23,985,109

Total assets

comprehensive
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

As of 31 December 2018
Presentation under

J-GAAP

Note

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

Presentation
under IFRSCurrent liabilities

Accounts payable-trade607,439-;-

607,439

Short-term borrowings

1,831,952-;-

1,831,952

Lease obligations - current

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

753,706

Trade payable
Short-termborrowings
Obligation underfinance leases current
Accruals, provisions
and other payables

Accounts payable-otherC779,207

Income taxes payableC45,143(1,776)45,143

Income taxes payable

-;-

J

-;-

366,324

366,324

-;-

C

-;-

41,07941,079OthersJ

795,191(175,135)

620,056

4,084,791

204,991

4,289,782

Contract liabilities
Liabilities directly
associated with assets
classified as held for
sale
Other current
liabilities
Total current
liabilities

Total current
liabilities
Non-current
liabilities
Lease obligations

271,109-;-271,109

Long-term borrowings

6,339,164(85,903)6,253,261

Asset retirement
obligations

1,537,157-;-

1,537,157

63

Non-current
liabilities
Obligation underfinance leases
Long-term
borrowings
Asset retirement
obligations

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Deferred tax liabilities

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

G

Total liabilities

Deferred tax
liabilities - noncurrent
Contract liabilities non current
Other non-current
liabilities
Total non-current
liabilities

468,984

60,530529,515-;-

10,716

10,716

277,735

85,775363,510

8,894,151

71,118

8,965,269

12,978,943

276,10913,255,052

Total liabilities

EquityShareholders’equityCapital stock

2,404,404

Capital surplus
Retained earnings

2,841,553
2,247,960

5,260
423,994

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

EquityShareholders’equityCapital stock
Capital surplus
Retained earnings

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

Treasury shares

Total shareholders’equity7,234,230

429,254

7,663,484

-;-

-;-

-;-

(3,313)

6,864

3,551

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

Total othercomprehensive
income(23,143)

6,864(16,279)

Non-controllinginterests

2,960,066

122,785

3,082,851

Non-controllinginterests

Total equity

10,171,151

558,903

10,730,054

Total equity

23,150,094

835,01223,985,106

Total liabilities
and equity

Other
comprehensive
incomeValuation differences ofavailable-for-saleinvestments

Total liabilities andequity

O

64

Total
shareholders’equityOther
comprehensive
incomeValuation differencesof available-for-saleinvestments
Foreign currencytranslation
adjustment
Total othercomprehensive
incomeINTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Consolidated statement of income
For the six months ended 31 December 2016

(6,866,803)
6,821,602

Reclassificat
ion into
Discontinue
d Operations
JPY (In
thousands)(8,325,118)
5,844,289

3,289,202(45,201)

C,D,E(2,766,404)

C,N
C,N

Presentation
under
J-GAAPNote

Net revenue
Cost of revenue

C,JC

Gross profit
Selling, generalandadministrative
expenses-;-;Operating
profitNon-operating
incomeNon-operating
expensesFinance income
Finance expense

Reported
underJapaneseGAAP
JPY(inthousand)
18,717,617(15,428,415)

N

Effect oftransition
to IFRS
JPY(inthousand)IFRS
JPY(inthousand)
3,525,696(2,762,524)

Revenue
Cost of sales(2,480,829)

763,172

81,093

1,793,029(892,282)-;-;-

28,836(9,275)(1,052)372

27,784(8,903)522,798

55,453(688,480)(110,229)

Gross profit
Selling, generalandadministrative
expenses
Other income
Other expense
Operatingprofit(33,377)

-;-

-;-

-;-;-

33,377

N(93,597)(93,597)

-;-

-;-

N
N

-;-;-

5,205
(36,891)

(82)
6,233

5,123
(30,658)

N-;-(90,565)-;-(90,565)

462,578(6,578)(682,329)(226,329)(236,613)

7

225,885(10,721)

Profit after
income taxes

225,965(6,571)(456,444)(237,050)

Minority interest

136,913

50,129-;-187,042

Loss under equity
methodProfit before
income taxes
Income taxes-;Profit (loss)
attributable toowners ofparentProfit after
income taxes

C,FPresentation
under IFRS

-;-

-;-

456,444456,444(56,700)-;-

32,352

89,052225,965(6,571)-;-

65

219,394

Finance income
Finance expense
Share of loss ofinvestments
accounted forusing the equity
methodProfit before
income taxes
Income taxes
expenseProfit for theperiod fromcontinuing
operations
Minority interest
Profit fromdiscontinued
operations, net oftaxes
Profit (loss)
attributable toowners ofparentProfit for theperiod fromcontinuing
operations

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

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

I

225,965(6,571)-;-

219,394

6,937

8,368

-;-

15,30576,017-;--;-76,017

(291)

-;-

-;-

(291)

82,664

8,368-;-

91,031

308,629

1,797

-;-

310,425

171,777(48,332)-;-

123,445

136,852

50,128-;-

186,980

66

Profit for theperiodOther
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 LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

For the six months ended 31 December 2017
Reported
underJapaneseGAAP
JPY(inthousand)
4,833,846(3,366,122)(45,663)(13,883)

Reclassificat
ion into
Discontinue
d Operations
JPY (In
thousands)(52,847)
32,9291,467,724(59,546)

C,D,E(1,410,180)

C,N
C,N

Presentation
under
J-GAAPNote

Net revenue
Cost of revenue

C,JC

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

4,735,337(3,347,076)

Revenue
Cost of sales(19,918)

1,388,261

66,589111,739(1,231,852)-;-;-

224,154(63,191)(2)
0224,152(63,191)

57,544

168,006

91,820317,370

Gross profit
Selling, generalandadministrative
expenses
Other income
Other expense
OperatingprofitN

85,747(85,747)

-;-

-;-

-;-

N

(13,833)

13,833

-;-

-;-

-;-

N
N

-;-;-

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

154,728(11,035)

N-;-

83,749-;-83,749129,458

323,534

91,820544,811N

687,323(687,323)

-;-

-;-

-;-

N

(59,900)

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

91,820544,811(564,641)

146,644190(417,807)

Profit after
income taxes

192,240(157,245)

92,009127,005-;Profit before
income taxes
Income taxes
expenseProfit for theperiod fromcontinuing
operations

Minority interest(25,238)(9,842)-;-(35,080)

Gross profit
Selling, generalandadministrative
expenses-;-;Operating
profitNon-operating
incomeNon-operating
expensesFinance income
Finance expense
Loss under equity
methodOrdinary profit
Extraordinary
incomeExtraordinary loss
Profit before
income taxes
Income taxes

C,F

-;-

-;-

(92,009)(92,009)

Profit (loss)
attributable toowners ofparent167,002(167,087)

-;-

(85)

Profit after
income taxes

192,240(157,245)

92,009127,004-;-

67

Finance income
Finance expense
Share of loss ofinvestments
accounted forusing the equity
method-;-Minority interest
Loss fromdiscontinued
operations, net oftaxes
Profit (loss)
attributable toowners ofparentProfit for theperiod from

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

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

-;-

-;-

(92,009)(92,009)

192,240(157,245)-;-

34,99532

125,229-;-

125,261

5,764

-;-

-;-

5,764

552

-;-

-;-

552

6,348

125,229-;-

131,577

198,588(32,016)-;-

166,572

173,350(41,858)-;-

131,492

25,2389,842-;-

35,080continuing
operations
Reclassificationof loss fromdiscontinued
operations
Profit for theperiodOther
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

For the six months ended 31 December 2018
Presentation
under
J-GAAPNote

Net revenue
Cost of revenue

C,JC

Gross profit
Selling, generalandadministrative
expenses

C,D,E

Reported
underJapaneseGAAP
JPY(inthousand)
6,296,650(5,024,647)

Effect oftransition to
IFRS
JPY(inthousand)Reclassificat
ion into
Discontinue
d Operations

IFRS
JPY (In
thousands)(16,282)
26,712

6,320,352(5,276,073)

Revenue
Cost of sales

1,272,002

39,984(278,138)(238,154)

10,4301,044,278(1,873,502)

52,074

192,772(1,628,656)

Gross profit
Selling, generalandadministrative
expenses

68

Presentation
under IFRSINTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS-;-;Operating
profit(Loss)
Non-operating
incomeNon-operating
expensesFinance income
Financial expense-;-;-

219,216(17,841)

(922)
-;-

218,294(17,841)(601,500)

15,295202,280(383,925)

N

20,995(20,995)

-;-

-;-

-;-

N

(82,685)

82,685

-;-

-;-

-;-

N
N

-;-;-

13,149(36,015)-;-;-

13,149(36,015)

N

-;-

(482)

-;-

(482)

(663,190)

53,637202,280(407,273)

N

930,145(930,145)

-;-

-;-

-;-

N

(228,092)

228,092

-;-

-;-

-;-

38,862(648,415)

202,280(407,274)

50,139(16,322)309

34,126

Profit after
income taxes

89,001(664,737)

202,589(373,147)

Minority interest

76,167(14,149)-;-

62,018Loss under equity
methodOrdinary profit
Extraordinary
incomeExtraordinary
loss

C,N
C,N

Profit before
income taxes
Income taxes

C,F-;Profit (loss)
attributable toowners ofparentProfit after
income taxes
Reclassification of loss fromdiscontinued
operations
Profit after
income taxes
Other
comprehensive
income (loss), netof tax:

C

-;-

-;-

(202,589)(202,589)

165,168(678,888)-;-(513,720)

89,001(664,737)

202,589(373,147)

-;-

-;-

(202,589)(202,589)

89,001(664,737)-;-(575,736)

69

Other income
Other expense
Operatingprofit(Loss)

Finance income
Finance expense
Share of loss ofinvestments
accounted forusing the equity
method-;-Profit(Loss)before income
taxes
Income taxes
expenseProfit for theperiod fromcontinuing
operations
Minority interest
Grain fromdiscontinued
operations, net oftaxes
Profit (loss)
attributable toowners ofparentProfit(Loss)for the period
fromcontinuing
operations
Reclassification of loss fromdiscontinued
operations
Profit(Loss)for the period
Other
comprehensive
income (loss), netof tax:INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Valuationdifference on
available-for-saleinvestment
Foreign currencytranslation
adjustment
Share of othercomprehensive
income of entities
accounted forusing equity
methodTotal othercomprehensive
income (loss),
net of tax
Comprehensiv
e income
Comprehensive
incomeattributable to
Owners of parent
Non-controllinginterests

I(13,676)

75,164-;-

61,48839,126-;--;-

39,126

-;-

-;-

-;-

-;-

25,4449

75,164-;-

100,613

114,451(589,574)-;-

475,123

200,982(608,932)-;-(407,950)(86,531)

19,357-;-(67,174)

Change in fairvalue of availablefor-sale financial
assetsForeign currencytranslation
adjustment
Share of othercomprehensive
income ofinvestments
using the equity
methodTotal othercomprehensive
income, net oftax
Comprehensiv
e income
Comprehensive
incomeattributable to
Owners of parent
Non-controllinginterests

A) Acquisition of JapanCableCast Inc.
On 10 October 2017, BBT acquired 50.4% of the voting shares of JapanCableCast Inc. (“JCC”), an unlisted company
based in Tokyo, Japan, specializing in providing dedicated platform services (video, voice, data delivery) and support
of VNO setup/operation services to cable television operators. As a result of the acquisition, BBT obtained control,and JCC became consolidated subsidiaries of BBT. Before this transaction, JCC was treated as the investment
accounted for using the equity method. BBT acquired JCC for the purpose of tightening the relationship with cable
television industry in which the growth was expected as a critical social infrastructure in the era of the market changeby accelerating next generation broadcasting and video delivery services such as a diffusion of 4K/8K high definition
television services. The fair value of the assets and liabilities acquired was completed during the first half of 2018, andremained unchanged from the initial valuation at the date of acquisition..
Assets acquired and liabilities assumed
The identifiable assets and liabilities of JCC, which are measured at fair value as of the date of acquisition except forlimited exceptions in accordance with IFRS, were as follows:(In thousands of yen)
Fair value
recognizedon acquisition
AssetsCash and cash equivalents
Trade receivables
Inventories
OthersProperty and equipment
Customer relationship assets
Other intangible assets
Other non-current asset
Total assets
Liabilities
Trade payables

2,858,439
350,253
70,48566,001
947,108
1,332,000
140,267
217,593
5,982,146(173,460)

70

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Other financial liabilities, current(461,710)
Other financial liabilities, non-current(1,141,620)(188,631)
Deferred tax liabilities
Other liabilities(704,319)
Total liabilities(2,669,740)
Total identifiable net assets at fair value
3,312,406
Non-controlling interests(1,646,683)
Goodwill
604,044
Total consideration
2,269,767
All consideration was paid in cash. The fair value of the trade receivables was JPY 350,253 thousand. The grosscontractual amounts of the trade receivables were not materially different from the fair value determined as part of thepurchase price allocation.
Goodwill of JPY 604,044 thousand represented the value of expected synergies arising from the acquisition and wasallocated entirely to the BBT segment. None of the goodwill recognized was expected to be deductible for income tax
purposes.
From the date of acquisition, JCC had contributed JPY 826,184 thousand to the revenue of BBT and had increased profit
from continuing operations of BBT by JPY 75,304 thousand. If the business combination had taken place on 1 July
2017, revenue for BBT would have been JPY 5,840,322 thousand and the profit (loss) from continuing operations for
BBT would have been JPY (33,785) thousand for the six months ended 31 December 2017.
B) Acquisition of Okinawa Cable Network Inc.
On 3 October 2018, JapanCableCast Inc. (“JCC”), which is BBT’s consolidated subsidiary, acquired 100% of the voting
shares of Okinawa Cable Network Inc. (“OCN”), an unlisted company based in Okinawa, Japan, specializing in providing
dedicated cable television service. As a result of the acquisition, JCC obtained control, and OCN became consolidated
subsidiaries of BBT. JCC acquired OCN for the purpose of proposing cable television operators to make progress ofinnovation of IP business by providing data broadcasting services with IP video distribution service, mutual smart TV
service and hybrid cast technology.
As the purchase price allocation is incomplete as of issuance date of the consolidated financial statements, BBT reports
provisional amounts at the acquisition as of and for the year ended 31 December 2018.
Assets acquired and liabilities assumed
The identifiable assets and liabilities of OCN, which are measured at fair value as of the date of acquisition except forlimited exceptions in accordance with IFRS, were as follows:(In thousands of yen)
Fair value
recognizedon 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
Goodwill
Total consideration

387,560
185,701
18,05853,747
380,588
49,261
10,289193,257
4,071
1,282,532(36,723)(152,172)(78,222)(762,518)(8,899)(198,195)(1,236,729)
45,80354,197100,000

71

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

All consideration was paid in cash. The fair value of the trade receivables was JPY 185,701 thousand. The grosscontractual amounts of the trade receivables were not materially different from the fair value determined as part of thepurchase price allocation.
Goodwill of JPY 54,198 thousand represented the value of expected synergies arising from the acquisition and wasallocated entirely to the BBT segment. None of the goodwill recognized was expected to be deductible for income tax
purposes.
From the date of acquisition, OCN had contributed JPY 450,712 thousand to the revenue of BBT and had increased
profit from continuing operations of BBT by JPY 51,485 thousand. If the business combination had taken place on 1
July 2018, revenue for BBT would have been JPY 902,359 thousand and the profit from continuing operations for BBT
would have been JPY 113,058 thousand for the year ended 31 December 2018.
C) Presentation of discontinued operations
Under Japanese GAAP, there is no specific requirements for the presentation of discontinued operations andreclassification of assets and liabilities as held for sale.
Under IFRS, an operation which meets certain criteria is classified as a discontinued operation and its results should bepresented separately from continuing operations.
BBT engaged to sell whole share of its 100% investment in IoT square, Inc. on 21, December 2018. Due to this, theassets and liabilities of IoT square, Inc. as at 31 December 2017 and 2018 are reclassified as assets classified as held
for sale and liabilities directly associated with assets classified as held for sale and income from discontinued
operations are separately presented retrospectively.
In addition to above, since BBT entered into agreement in January 2018 to sell a part of solar power facilities to third
party, as a result, BBT presents JPY 657,887 thousand as held for sale as at 31 December 2017, which is solar power
facilities.
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 604,044 thousand and JPY 658,241 thousand of goodwill are recorded under IFRS as at 31 December
2017 and 2018, respectively. Goodwill as at 31 December 2017 was caused from the acquisition of JCC on 10 October
2017. Goodwill as at 31 December 2018 was caused from the acquisition of JCC on 10 October 2017 and OCN on 3
October 2018. Reconciliation of goodwill between Japanese GAAP and IFRS as at 31 December 2018 is as follow.

Goodwill under Japanese GAAP
Reversal of amortization expense of
goodwill under Japanese GAAPGAAP adjustment from Japanese GAAP
to IFRS related to JCC and OCN as at thedate of initial acquisition
Goodwill under IFRS

31 December 2017
1,094,719
18,554

JPY (In thousands)
31 December 2018
663,584
55,238(509,229)(60,581)604,044658,241

BBT 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 based on the value-in-use calculations which
require the use of the assumptions. The calculations use cash flow projections based on the financial budget covering
a five-year period for JCC and a three-year period for OCN. Cash flows beyond each covering period are extrapolatedusing the estimated growth rates stated below. These growth rates are consistent with forecasts included in theindustry reports specific to the industry in which each CGU operates.

72

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

When the recoverable amount of the CGU which includes goodwill is lower than the carrying amount of such CGU, an
impairment loss is recognized.

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

JCC
Year ended
31 December 201812.30%

OCN
Year ended
31 December 2018
7.08%

0%

0%

6.69%

7.33%

BBT’s management has determined the values assigned to each of the above key assumptions as follows:
Assumption
Budgeted operating
profit margin (%)
Long-term growthrate (%)
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 extrapolate cash
flows beyond the budgeted period. The rates are consistent with
forecasts included in the industry report.
Reflect specific risks relating to the relevant CGU.

The recoverable amounts of the CGU to which goodwill has been allocated exceed its carrying amounts significantly
for both of JCC and OCN for the year ended December 31 2018.

E) Discontinuing the use of the equity method
Under Japanese GAAP, an entity shall discontinue the use of the equity method from the date when its investmentceases to be an associate, and the entity measures the retained interest in the former associate at its costs in the
consolidated financial statements.
Under IFRS, when an entity shall discontinue the use of the equity method, any investment retained in the former
associate is re-measured at its fair value with any gain or loss recognized in profit or loss.
BBT sold a partial share of its 13.5% investment in BBF, Inc. on 14 December 2017. As a result, BBT’s ratio of voting
rights was dropped to 10.0% and was accounted for as available for sales for equity securities. BBT recorded gain as aresult of discontinuation of equity method which result in financial income in the amount of JPY 133,337 thousand forthe 6 months ended 31 December 2017 under IFRS. Following this transaction, JPY 740,741 thousand of BBF
shares, which is measured at fair value, is classified to financial assets held for sale as at 31 December 2017.
Subsequently, the remaining 10.0% investment in BBF, Inc. was transferred to 3rd party on 2 July 2018, and BBT does
not hold any BBF shares as at 31 December 2018.
F) Deferred tax assets and deferred tax liabilities
Japanese GAAP provides detailed guidance on assessing the recoverability of deferred tax assets. An entity isclassified into 5 categories by its profitability and the extent of the recoverability of deferred tax assets and the lengthof estimated future periods to assess the recoverability of deferred tax assets are determined by such categories, andthe scheduling of estimated future taxable income and the amounts thereof is taken into account in recording deferred
tax assets by assessing the recoverability of assets in terms of the sufficiency of taxable income based on profitability,
existence of tax planning and sufficiency of taxable temporary differences.
Under IFRS, the recoverability of deferred tax assets is assessed as they are recognized in terms of whether it isprobable that taxable profits will be available against which the assets can be utilized. Deferred taxes recognized forother temporary differences arising from adjustments related to IFRS are also adjusted.
As a result, JPY 181,459 thousand and JPY 243,247 thousand of deferred tax assets are 1) adjusted as the differencesof 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 noncurrent assets, also off set the deferred tax assets with the liabilities, as at 31 December 2017 and 2018, respectively.

73

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

G) Unused paid absences
Under Japanese GAAP, no provision is made for employees’ unused rights to paid absences. Under IFRS, they arerecognized in other current liabilities. Additionally, obligations associated with special leave and remuneration thatare granted based on specified years of service and which do not require recognition under Japanese GAAP arerecognized and included in other non-current liabilities under IFRS.
For the 6 month ended December 31, 2017 and 2018, the expense relating to the unused paid absence at JPY
32,566(profit) thousand and JPY 30,523(profit) thousand are included as the adjustment from Japanese GAAP to
IFRS, respectively. In addition, others in the non-current liability are increased by JPY 48,722 thousand and JPY
49,429 thousand, respectively, due to the adjustment from Japanese GAAP to IFRS.
H) IFRS 9 Financial Instruments
As discussed in Note 2.20, BBT has applied IFRS 9 retrospectively and has determined not to restate the comparative
information for the period beginning 1 January 2017. As a result, the comparative information is prepared based on
BBT’s pervious accounting policies. On 1 January 2018, BBT has assessed which business models to apply to its financial
assets and liabilities and classified such financial assets and liabilities in to appropriate classification under IFRS 9. The
impacts of these classifications are as follows.

74

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

JPY (In thousands)
Balance as of 1 January 2018 under IFRS 9
Balance at 1
January
2018 under
IAS 39Financialassets/lia
bilities atfair value
through
profitor loss

1,478,475

Impact by adoption of IFRS9

Total
financialassets/li
abilities

Fair
value
measurement
at 1
January
2018

Provision at
1
January2018

Total
impacts

1,478,475

1,478,475

-;-

-;-

-;-

1,040,741-;-

1,040,741

-;-

-;-

-;-

72,041

1,102,057

225,776

1,399,874

-;-

-;-

-;-

876,474-;--;-

876,474

876,474

-;-

-;-

-;-

2,276,348

72,041

1,102,057

1,102,250

2,276,348

-;-

-;-

-;-

Financialassets/liab
ilities
at FVOCI

Financialassets/liab
ilities
atamortized
cost

-;-

-;-

1,040,741-;-

1,399,874

Financial assets
Trade and other receivables
Notes and accounts receivable - trade
Other financial assets, current
Available-for-sales for equity securities
Other financial assets, non-current
Available-for-sales for equity securities
Other financial assets at amortised cost
（Lease and guarantee deposits）
Total

75

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

JPY (In thousands)
Impact by adoption of IFRS9Balance as of 1 January 2018 under IFRS 9
Balance at 1
January
2018 under
IAS 39Financialassets/liabi
lities at fairvaluethrough
profitor loss

Trade and other payables
Financial liabilities measured at amortized
cost
Trade payable

495,988

Other financial liabilities, current
Financial liabilities measured at amortized
cost
Short-term borrowings
Other financial liabilities non-current
Financial liabilities measured at amortizedcostLong-term borrowings

Total
financialassets/li
abilities

Fair
value
measurement
at 1
January
2018

Provision at
1
January2018

Total
impacts

495,988495,988

-;-

-;-

-;-

-;-

1,899,980

1,899,980

-;-

-;-

-;-

-;-

2,728,610

2,728,610

-;-

-;-

-;-

Financialassets/liab
ilities
at FVOCI

Financialassets/liab
ilities
atamortized
cost

-;-

-;-

1,899,980-;-

2,728,610-;-

Financial liabilities

76

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

Following are the impacts on accumulated earnings and accumulated other comprehensive income by classification andmeasurement of financial assets at 1 January 2018.
JPY (In thousands)
Financial assets
at FVOCI

Retained earnings
Balance of accumulated earnings and accumulated OCI asof 1 January 2018 under IAS 39

3,297,080

222,364

Reclassification from available-for-sale financial assets
to financial assets at FVOCI

326,657(326,657)

Adjustment to shareholders’ equity from adoption of IFRS
9

326,657(326,657)

Balance of accumulated earnings and accumulated OCI asof 1 January 2018 under IFRS 9

3,623,737(104,293)

I) Fair value measurement
Under Japanese GAAP, if a financial asset does not have a quoted market value, then where an entity is able toreasonably calculate a price which can be considered to be a quasi-quoted price, such price may be used for that
financial asset as a market value. The “reasonably calculated price” represents, a price calculated using reasonableestimates of management.
Under IFRS, BBT 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 orsimilar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable, andinputs that are derived principally from or corroborated by observable market data by correlation or other means.
– Level 3 inputs are derived from valuation techniques in which one or more significant inputs or value drivers areunobservable, which reflect the reporting entity’s own assumptions that market participants would use in establishinga 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 2017 and 2018 are as
follows:

Level 1

Level 2

Level 3

JPY (In thousands)
Total

-

740,741

1,699,874

2,440,615

Level 1

Level 2

Level 3

JPY (In thousands)
Total

-;-

-;-

2,327,579

2,327,579

-;-

-;-

171,190

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

2,498,769

As at 31 December 2017
AssetsFinancial assets available for salefor equity securities

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

77

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

The table below presents the changes in level 3 instruments for the relevant periods:
Level 3
JPY (In thousands)
Balance at 1 July 2017
Additions of financial assets
Disposal of financial assets
Transfer to investment in subsidiary
Fair value gain/(loss) on valuation – carried
to other comprehensive income
Balance at 31 December 2017

1,375,227
584,508(100,000)(195,850)
35,989Balance at 1 July 2018
Additions of financial assets
Disposal of financial assets
Transfer to investment in subsidiary
Fair value gain/(loss) on valuation carried toother comprehensive income
OthersBalance at 31 December 2018

1,900,106

1,699,874

574,972(50,000)-;73,374
317
2,498,769

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

Revenue recognition

BBT derives more than 90% of its revenues from recurring revenue streams, consisting primarily of 1) Computer
platform business; 2) IoT/AI solution business; 3) Media solution business.
1)

Computer platform business
Main component in the computer platform business is data center business, consisting primarily of 1) colocation,
which includes the licensing of cabinet space and power; (2) interconnection offerings; (3) managed
infrastructure solutions. The remainder of the revenues are from non-recurring revenue streams, such as
installation revenues, professional services and equipment sales. Under the revenue accounting guidance under
IFRS 15, revenues are recognized when control of these products and services is transferred to its customers, inan 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 the term of
the contract, generally one to three years for data center customers. Non-recurring installation fees, althoughgenerally 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 theservices 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 IFRS 15, revenues are recognized whencontrol of these services is transferred to its customers, in an amount that reflects the consideration it expects tobe entitled to in exchange for the services. Revenue from the services are recognized in the period when theservices were provided.

3)

Media solution business78

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTSMedia solution business provides the telecommunications network business for cable television operators andprogram suppliers throughout Japan. The remainder of the revenues are from non-recurring revenue streams,
such as installation revenues, professional services and equipment sales. Under the revenue accounting guidance
under IFRS 15, revenues are recognized when control of these products and services 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 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 BBT’s customer or for the contractual
period when each service is provided. The revenue from initial installation services at the datacenter business isrecognized at the time of installation.
However, under IFRS 15, which has been adopted from 1 January 2018, BBT recognize revenue when (or as) the entity
satisfies a performance obligation by transferring a promised good or service (i.e. an asset) to a customer. An asset istransferred when (or as) the customer obtains control of that asset. BBT has concluded that the current methods ofrevenue recognition and measurement 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 isrecognized over the period of the expected period of the customer relationship.
As a result of the adjustment at revenue recognition, the revenue for the 6 month ended 31 December 2017 and 2018
at JPY 62,394 thousand and JPY 39,984 thousand, respectively, increased, and also the cost of sales for the 6 month
ended 31 December, 2017 and 2018 increased by JPY 921 thousand and JPY 2,081 thousand, respectively.
BBT 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
1,594,065 thousand and JPY 1,633,139 thousand for the 6 month ended December 2017 and 2018, respectively.
K) Impairment of plant, property and equipment
Under Japanese GAAP, an impairment loss is recognized when there is an indicator of impairment and (1) The
undiscounted value of total future cash flows is below the asset’s carrying amount; then (2) The recoverable amount ofan asset is below its carrying amount. There are two steps for recognition of an impairment loss.
Under IFRS, an impairment loss is recognized when there is an indication of impairment and when the recoverable
amount of an asset is below its carrying amount. Step 1 under Japanese GAAP is not required under IFRS.
L) Subsequent event - Transfer of IoT Square Inca) Transfer of whole share of IoT Square, Inc.
Refer to NOTE 28 – SUBSEQUENT EVENTS.
b) Acquisition of TSS LINK, Inc.
Pursuant to the share exchange agreement executed on 21 December 2018, BBT completed a share exchange on 31
January 2019, whereby BBT became a wholly owning parent company resulting from share exchange, and TSS LINK,
Inc. 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, BBT acquired 100% voting rights in TSS LINK,
Inc. and made it a consolidated subsidiary.
Outline of the share exchange
Name of the acquired company
Business
Capital amount
Date of concluding the share exchange
agreement
Date of Extraordinary General Meetingof Shareholders concerning approval of

TSS LINK, Inc.
Development and sales of information leakage prevention software
products, ASP data backup services, data center monitoring service, etc.
JPY 25 million (as of 31 March 2018)21 December 201826 January 201979

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

share exchange agreement (acquiredcompany)
Date on which the share exchange takes
effect31 January 2019

Share exchange ratio

1.68 shares of TSS LINK, Inc. per share of BBT

Number of shares to be delivered

Common shares of BBT: 616,655 shares

Number of shares to be acquired

367,056.9 shares

Voting right ratio of BBT before andafter the acquisition

Before acquisition: 3.1%

Acquisition Cost

Market price of issuing BBT’s ordinary shares - JPY214,279 thousand

Goodwill amount, reasons of arising,amortization method/terms

Undetermined at this point as the specification of identifiable assets andliabilities and the calculation of market value are incomplete

Amount of assets acquired andliabilities assumed at the date ofacquisition

Undetermined at this point as the specification of identifiable assets andliabilities and the calculation of market value are incomplete

After acquisition: 100.0%

M) Loan covenants
To raise funds flexibly for investment demand in the new data center established in August 2018, BBT has signed acommitment-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 and the agreement was updated in December
2018. This agreement includes financial conditions as follows.
1) At the end of the fiscal year ended 30 June 2018 and every subsequent fiscal year-end, the total amount of net
assets on the consolidated balance sheet shall not be less than the higher of either: an amount 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 amountequivalent to 80% of total net assets on the consolidated balance 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, an ordinary loss on the
consolidated statement of income shall not be recorded for two consecutive fiscal years.
3) At the second quarter end of the fiscal year ended 31 December 2020, an ordinary loss on the consolidated
statement of income shall not be recorded.
N)

Reclassificationa) Deferred tax assets and liabilities

Under Japanese GAAP, deferred tax assets and liabilities are presented as current or non-current on the balance sheet
determined based on the manner of generation. Under IFRS, all deferred taxes are presented as non-current
assets/liabilities on the balance sheet.
As a result, JPY19,595 thousand included in the account of the deferred tax asset presented as current assets underJapanese GAAP is transferred into one at non-current assets as at 31 December 2017. Subsequently, presentation
under Japanese GAAP is changed during this year, and presentation under both Japanese GAAP and IFRS as at 31
December 2018 is exactly same, thus no reclassification is made as at 31 December 2018.
b) Allowance for doubtful accounts
Under Japanese GAAP, the allowance for doubtful accounts is separately presented on the balance sheet. Under IFRS,
allowances for doubtful accounts are offset against the applicable accounts (i.e. accounts receivable).
As a result, JPY 6,942 and JPY 15,394 thousand included in the account of the allowance for doubtful accounts aretransferred to Notes and accounts receivables – trade as at 31 December 2017 and 2018, respectively.
c) Investment securities
Under Japanese GAAP, investments accounted for using the equity method are presented as a part of investment
securities with the investment securities, however, under IFRS, it’s independently presented as the investment
accounted for using the equity method.

80

INTERNET RESEARCH INSTITUTE LTDCONSOLIDATED STATEMENTS OF NOTES TO THE FINANCIAL STATEMENTS

As a result, the investment accounted for using the equity method of JPY 34,774 thousand and JPY 16,259 thousand
included in the account of the investment securities are independently presented as at 31 December 2017 and 2018,
respectively.
d) Non-operating income & expense and Extraordinary income & loss
Under Japanese GAAP, non-operating income and expense are presented below operating profit. These accounts
consist of financial income and expense, foreign exchange gain (loss), profit (loss) under equity method investment
and others. In addition, exceptional items are required to be presented as “Extraordinary income and loss” on theface of the income statement. The definition of “special” is broader compared to IFRS and includes someextraordinary items.
Under IFRS, financial income, financial expense and profit (loss) under equity method investment is usually shown
below operating profit. The term exceptional items is not used or defined, however, separate disclosure is required(either on the face of the comprehensive income statement or in the notes) when it is necessary to allow an entity to
explain its performance for the period as a result of the size, nature or incidence of certain items of income and expense.
It is prohibited to present any items as “Extraordinary” under IFRS.
O)Retained earnings
Reconciliation of retained earnings under Japanese GAAP and IFRS is below31 December 2017
JPY (in thousand)
2,683,323
18,55331 December 2018
JPY (in thousand)
2,247,961
55,237

Amortization of customer relationship
asset
Deferred taxes(19,950)(2,463)135,028

237,848

Unused paid absences(33,865)(39,469)

Impairment of Property, Plant &Equipment
Revenue recognition(11,056)(35,153)(138,745)(49,467)

Impairment of investment securities(11,827)(11,827)

Non-controlling interests(9,841)(35,916)

Discontinuing the use of the equity method

688,617-;--;-85,569-;-;(3,159)
3,297,078

347,932(161,900)
41,3982,679,750

Reported under Japanese GAAP
Reversal of amortization of goodwill

Adjustment for application of Effective
interest method
Effect of application of IFRS 9
Provision for unfavorable contract
OthersReported under IFRSBBT recognizes a provision for a contract deficit due to data centre services contracts in respect of which the costs todischarge the provision exceed the total economic benefits expected to be received under the contract.
P)

New standards and amendments to existing standards not yet adopted by the GroupAs described in Note 2.1.2, certain new accounting standards and interpretations have been published that are notmandatory for 31 December 2018 reporting periods and have not been early adopted by the group. BBT's assessmentof the impact of these new standards and interpretations are still in-progress, however, BBT tentatively assessed theimpact by adoption of IFRS 16 Leases as follows.
IFRS 16 Leases
As a result of the change, BBT estimated the tentative impact as increase of right-of-use assets of 8,091,312 thousand
JPY, increase of lease liabilities of 8,091,312 thousand JPY in the balance sheet on 1 January, 2019.
There are no other standards that are not yet effective and that would be expected to have a material impact on theGroup in the current or future reporting periods and on foreseeable future transactions.

81