INTERNET RESEARCH INSTITUTE LTD Interim Financial Reporting


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

4
INTERNET RESEARCH INSTITUTE LTD
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGE IN EQUITY

5
INTERNET RESEARCH INSTITUTE LTD
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGE IN EQUITY

6

NOTE 1  – GNERAL INFORMATION, REORGANIZATION AND BASIS OF PRESENTATION
1.1
General Information
Internet Research Institute Ltd (the "Company") was established as a limited company in Israel under the Israel Companies Ordinance on 8 August 2017. The Company listed shares of its common stock on the Tel-Aviv Stock Exchange on August 9, 2018. The Company wholly owns Internet Research Institute, Inc. (collectively "IRI Japan" at pre/post- merger or "New IRI Japan") which was established as a limited company in Japan under the Japanese Companies Ordinance on 5 October 2017 and named IRI Inc. at the time of establishment. IRI Japan has been playing a key role in the development of Internet technologies and services in Japan and it became a wholly subsidiary of the Company as a result of triangular merger discussed in Note 2.2 to the annual consolidated financial statements for the year ended 31 December, 2017. The registered address of the company is Abba Hiller Rd. 16, Ramat Gan, Israel 5250608. The Company provides an Internet related research and development services and acts as an investment holding company as well. The Company and its subsidiaries (the “Group”) are principally engaged in Internet service (the “Listing Business”) in Japan.
1.2 Non-inclusion of separate financial information
Under regulation 4 of the Periodic and Immediate Reports regulations, the Company did not include separate financial statements under regulation 9c and 38d of the Israel Securities Regulations (Periodic and Immediate Reports), 1970. The reason that the Company did not include separate financial information is in light of the negligible effect that the Company's condensed financial statements have on the condensed consolidated financial statements.
1.3
Basis of Preparation
The unaudited interim condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. The unaudited interim condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements and should be read in conjunction with the Group's annual consolidated financial statements as of 31 December, 2017. The unaudited interim condensed consolidated financial statements were approved by Hiroshi Fujiwara, Chairman and Chief Executive Officer and Mirei Kuroda, Chief Financial Officer on 29 August 2018. The preparation of the unaudited interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent amounts at the date of the unaudited interim condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates and assumptions are reviewed by management on a regular basis. The effects of a change in estimates and assumptions are recognized in the period of the change or in the period of the change and future periods.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of the consolidated financial statements are set out below. These policies have been consistently applied throughout the year ended 31 December 2017, unless otherwise stated. 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”). The preparation of the financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Financial Statements are identical to those disclosed in Note 4 to the annual consolidated financial statements for the year ended 31 December 2017. The adoption of new and revised IFRS issued by IASB that are mandatorily effective for an accounting period that begins on or after 1 January 2018 had no impact on the Group's unaudited interim condensed consolidated financial statements as of and for the six-month periods ended 30 June 2017 and 2018 and annual consolidated financial statements as of 31 December 2017, except for the following standards.
2.1
IFRS15 Revenue from Contracts with Customers
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 with customers, 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 beginning balance of the retained earnings upon adoption.
Information service business
As discussed in Note 9 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 is mainly comprised of a) Host event business and b) Private event support service 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 performance obligation. 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, the performance obligation is satisfied at a point in time". The customer of the business are mainly exhibitors and sponsors of the host events, and they 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 over time and assessed that a straight-line method over event period is the best method to measure 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 than the 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 30 June, 2018, respectively.  Accordingly, there is no effect on the opening balance of retained earnings and the revenue for the six-month ended 30 June, 2018. b) Private event support service The service is to provide support service for the private event held by the customer who is an 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 the service depends on 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 that some contracts meet the criteria of "Performance obligations satisfied over time" by considering its terms and conditions. In terms of the contracts, the Group determined that they recognize its revenue only to the extent 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 the previous method, which was at a time when the service has been totally completed. As a result, compared to the previous method, the amount of revenue recognized by the Group increased by 132 thousand USD for the six-month ended 30 June, 2018. 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 that certain 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 the Group increased by 50 thousand USD, and selling, general and administrative increased by 78 thousand USD for the six-month ended 30 June, 2018, respectively.
As a result of those changes as discussed above, the opening balance of retained earnings is adjusted as follows. The adjustments made to line items presented on the financial statements due to the change 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 other receivables 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 information service business are reclassified 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.
(*) 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 six-month period ended 30 June 2018. Accordingly, there is no effect on the investments accounted for using the equity method by adoption of IFRS 15 as well.

2.2
IFRS 9 Financial Instruments
The IASB issued the final version of IFRS 9 Financial Instruments which sets out the requirements 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 of financial instruments that is principles-based and brings together the classification and measurement, 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 the business 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 model that 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 the following accounting policies in accordance with IFRS 9 commencing on 1 January, 2018. (1) Classification of financial assets Based on the Group's business model for managing the financial assets and the characteristics of contractual cash flow of the financial assets, the Group classifies the financial assets by following 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. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. i. Financial assets as amortized cost Financial assets measured at amortized cost are debt instruments held for collection of contractual 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 interest on the principal amount outstanding and  which are held within a business model both to collect contractual cash flows and sell and equity instruments which the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value 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. (2) Measurement of financial assets Initial measurement At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not 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 is derecognized or impaired, a gain or loss on a debt investment is recognized in profit or loss. ii. Fair value through other comprehensive income (FVOCI) Subsequent to initial recognition, financial assets are measured at fair value and gains or losses arising from changes in the fair value are recorded in other comprehensive income, except for the recognition of interest revenue, foreign exchange gains or losses and expected credit losses which are recognized in profit or loss. iii. Fair value through profit or loss Subsequent to initial recognition, financial assets are measured at fair value. A gain or loss on debt instruments which is not part of a hedging relationship is recognized in profit or loss.
Equity instruments:
Where the Group has irrevocably elected to designate equity instruments as financial assets measured at fair value through other comprehensive income, movements in the carrying amount by fair value measurement are recognized as other comprehensive income. There is no subsequent reclassification of cumulative gains or losses previously recognized in other comprehensive income to profit or loss. Where the Group has not 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 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.
(3) Impairment of financial assets
The Group assesses the expected credit losses associated with its assets carried at amortized cost and FVOCI. The impairment methodology applied depends on whether there has been a significant 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 the receivables. The Group 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 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 and classified such financial assets and liabilities in to appropriate classification under IFRS 9. The impacts of these classifications are as follows.

INTERNET RESEARCH INSTITUTE LTD
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
15 Following are the impacts on accumulated deficit and accumulated other comprehensive income by classification and measurement of financial assets at 1 January, 2018.
(1) Reclassification from available-for-sale financial assets to financial assets at FVOCI The investments in private 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 these investments 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 was reclassified from retained earnings to accumulated other comprehensive income. (2) Impact of IFRS 9 adoption by associate companies Broad Band Tower, Inc. (“BBT”) and Mobile Internet Capital, Inc. (“MIC”) as affiliates of the Group 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. BBT 1. Please refer to Note 11.
MIC
2.
As discussed in Note 6, MIC is a venture capital investing in ICT related venture companies, 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 other comprehensive income at their financial statements.  Except for this adjustment, the Group determined that there is no impact in MIC. As a result of the adjustments in each affiliate, related cumulative loss profit investments accounted for using equity method and its tax effects of 654 thousand USD was reclassified from retained earnings to accumulated other comprehensive income through applying the equity method by the Group.

2.3
The group does not early adopt standards, interpretations and amendments which
are issued but not yet effective.
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 are recognition 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.  The Group does not intend to early adopt the standard as it plans to apply from 1 January 2019. Also, the Group plans to use the modified retrospective method which is to record cumulative amount of the impact at the beginning balance of the retained earnings upon adoption. As of and for the period ended 30 June 2018,  the Group is yet to assess the full impact of the standard. However, the Group tentatively assessed that the new standard will result in a change to the accounting treatment over the office lease transaction only in IRI Japan and NOM. Under the previous standard, the lease transaction is classified as "Operating lease" and relevant 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 be charged to profit or loss over the lease period so as to produce a constant periodic rate of interest 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 the estimated lease term on a straight-line basis. As a result of the change, the Group estimated the tentative impact as increase of right-of-use assets of 4,907 thousand USD, increase of lease liabilities of USD 5,069 thousand USD and decrease of retained earnings of 134 thousand USD (net of tax) 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 a material impact by considering the nature of the services provided by them such as data center business and dedicated platform services.  However, the Group is yet to assess the impact and accordingly, the Group has not yet estimated the impact attributed to each affiliate at this reporting.

NOTE 3 – ISSUED CAPITAL AND RESERVES
Issuance of common stock At the annual extraordinary general meeting of shareholders held on 12 January 2017 and 17  May 2017, the Company resolved to issue common stock to a director of the company and general investors and to authorize the board of directors to determine the subscription requirements. The details of the common stock are as follows:
(*) The fair value of the Company's share on 12 January 2017 is estimated at 125 yen per share which is based on the issue-price of 17 May 2017 of 125 yen per share, therefore, the share-based compensation expenses of 9,000 USD have been charged in the second quarter of 2017.

NOTE 4 – FAIR VALUE MEASUREMENTS
Fair value hierarchy The Group referred to the levels of the fair value hierarchy for financial instruments measured at fair value on the interim condensed consolidated financial statements based on the following inputs: – Level 1 inputs are quoted prices in active markets for identical assets or liabilities. – Level 2 inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data by correlation or other means. – Level 3 inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable, which reflect the reporting entity's own assumptions that market participants would use in establishing a price. Transfers between levels of the fair value hierarchy are recognized as if they have occurred at the beginning of the reporting period. (1) Fair value measurements by fair value hierarchy Financial assets of the group that measured at FV composed of financial assets at FVOCI in amount  of USD 33 thousands as of June 30, 2018, (and of financial assets available for sale for equity securities  in  amount of 15 thousands as of June 30 and December 31, 2017) that measured at level 3. (2) Reconciliations from the opening balance to the closing balance of financial instruments categorized within Level 3 are as follows:
As at 30 June 2018, 30 June 2017 and 31 December 2017, financial assets at FVOCI and financial assets for available for sale comprise of equity instruments.
NOTE 5– Revenue from contracts with customers
The Group's operations and main revenue streams are those described in the last annual financial statements. The Group's revenue is derived from contracts with customers. The nature and effect of initially applying IFRS 15 on the Group's interim financial statements are disclosed in Note 2. Also, details regarding disaggregated revenue included at segments reporting note (see Note 9). The full amount of USD 2,696 thousand recognized in contract liabilities at the beginning of the period has been recognized as revenue for the six months ended 30 June 2018.
1.
General Information
Set out below are the associates of the Group as at 30 June 2018, 30 June 2017 and 31 December 2018. The entities listed below have share capital consisting solely of ordinary shares, which are held directly by the Group. The country of incorporation or registration is also their principal place of business, and the proportion of ownership interest is the same as the proportion of voting rights
Carrying amount of each investment as at 30 June 2018, 30 June 2017 and 31 December 2018 and dividend
received from each affiliate are as follows. Quoted fair value of BroadBand Tower, Inc. as at 30 June, 2018, 30 June, 2017 and 31 December, 2017, are USD 17,140 thousand, USD 25,388 thousand and USD 18,857 thousand, respectively. (1) BroadBand Tower, Inc. is a trailblazer in the specialty Internet data center business, BroadBand Tower supports IoT, as a service evolved from ICT for modern businesses, through its advanced technological capabilities, experienced staff, and high-grade facilities and services. BroadBand Tower, Inc. has subsidiaries and affiliates, and they provide planning, construction, and providing dedicated platform services (video, voice, data delivery) and support of VNO setup/operation services to cable television operators. The Company holds 22% of the voting rights, two directors of the Company are also designated as directors of this entity and they participate in all significant financial and operating decisions of the entity. The Company has therefore determined that it has significant influence over this entity. (2) Mobile Internet Capital, Inc. is a venture capital investing in ICT related venture companies. The Company holds 30% of the voting rights, therefore the Company has determined that it has significant influence over this entity. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The summary financial statement of BroadBand Tower, Inc. adjusted to IFRS is as
2.
follows:

* Discontinued operations for the six months ended 30 June 2017 and for the year ended 31 December 2017 is relating to the partial sale of BBT's shareholding in its subsidiary BBF, Inc. and lost its control on 30 June 2017.
Individually immaterial associates* (*) As shown in the table above, during the six month period ended 30 June, 2018 the amount of the investments 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 from their operating funds, one of which investments is a smash success by HEROZ, Inc.  After their IPO in April, the MIC's fund sold off all their holdings in HEROZ through the stock exchange. The total gain on sale of securities that MIC recognized amounts to 18 million USD before tax effect, while no success fee was paid in the previous financial year. As a result, IRI assumed profit of investments accounted for using the equity method from MIC in its H1 financial statements as approximately USD 4M. MIC is a fund management company described above, and it will not continuously secure the good performance like MIČ'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.
3. Share of profit and of other comprehensive income (loss) of investments accounted for
using the equity method

(a)  Share of profit of investments accounted for using equity method (b)  Share of other comprehensive income (loss) of investments accounted for using equity method Six months ended 30 June 31 December

NOTE 7 – SEASONAL OPERATIONS
Due to the seasonal nature of the NOM segment, higher revenues and operating profits are usually expected in the six-month period ended 30 June than other half of the year. This is mainly due to the fact that the Interop Tokyo, Email Security Expo & Conference as a biggest event operated by NANO OPT Media Inc. which is held in June every year. In the fiscal year ended 31 December 2017, 64% of revenues in the six-period ended 30 June was recorded in the NOM segment.
NOTE 8 – RELATED PARTY TRANSACTIONS
For the purposes of this Interim Financial Information, parties are considered to be related to the Group if the party has the ability, directly or indirectly, to exercise significant influence over the Group in making financial and operating decisions. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the Group where those parties are individuals. Parties are also considered to be related if they are subject to common control. The directors are of the view that the following individuals and companies were related parties that had transactions or balances with the Group for the six-month periods ended 30 June 2017 and 2018, and the year ended 31 December 2017. Please note that the scope of related parties has been changed due to the change in reporting entity with regards to the triangle merger.

(a)   BALANCES classified as related parties
INTERNET RESEARCH INSTITUTE LTD

All of the above transactions with related parties were conducted in the ordinary course of the business of the Group based on the terms mutually agreed between the relevant parties.
Loan as at 30 June 2017 was for ordinary purpose. These loans were unsecured, interest-bearing at 0.6%-3% per annum and repayable on demand. As at 30 June 2017, there was no impairment for the amount due from a director as the amount have not past due and they have no history of default in payment. On November 9, 2017, the Group collected all outstanding loans from Hiroshi Fujiwara. Other transactions were conducted in the ordinary course of the business of the Group based on the terms mutually agreed between the relevant parties.
Key management compensation
(c)
As discussed in the above, until the change in reporting entity occurred on 20 November 2017, key management personal includes 5 directors and 1 corporate auditors of IRI Japan. After the date, key management has been changed to 3 directors and 1 CFO of the Company. The compensation paid or payable to key management for employee services is shown below:

Guarantees by directors and shareholders
(d)
As at 30 June 2017, USD 42 thousands of the Group's banking facilities were secured by personal guarantee provided by the director of the Company, Hiroshi Fujiwara. The guarantee was related to the borrowings from the banking facilities in Nano-opt Media and it is limited to the outstanding of the borrowings. Nano-opt Media completed early repayment for all outstanding of their borrowings on 15 November 2017 and it resulted that the personal guarantee provided by Hiroshi Fujiwara was cancelled as well.

NOTE 9 – SEGMENT REPORTING
Operating segments were determined based on the reports reviewed by the Chief Executive Officer (CEO) who is responsible for allocating resources and assessing performance of the operating segments, who is the Chief Operating Decision Maker ("CODM"). An operating segment of the Group is a component for which discrete financial information is available. 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 of market trends in the field of internet technologies for companies, organizations and government 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 in renewable energy and is the owner of a number of solar power stations. (b)  Information service business (i) NOM – it mainly provides planning, organization, production and management of conferences, exhibitions, seminars and other business events in the fields of internet technology, hi-tech, cyber security, etc.
(c) Other
Other comprise of the investments in MIC. It is a general partner in an investment fund that mainly invests in startups in the technology and services industry, which focus on next generation ICT (information and communications technology) companies and in related areas. Each segment is divided to services and equipment relating to revenues and cost of revenues. The reportable operating segments include the following measures: Revenues, Operating profit (loss), and Interest expenses and incomes, Tax, Depreciation and Assets.

NOTE 10 – SUBSEQUENT EVENTS
Initial public offering by issuance of new shares In August 2018, the Company completed a first initial public offering ("IPO") and listing of its shares for trade on the Tel Aviv Stock Exchange Ltd. ("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 20,268 thousands. Net amounts received at the Company's bank account at subsequent events. NOTE 11 – RECONCILIATION of BBT's FINANCIAL STATEMENTS FROM J-GAAP TO IFRS Below is transition from Japanese GAAP to IFRS at BBT as of and for the year ended 30 June 2017 and 2018. Since BBT's financial information under Japanese GAAP is denominated in JPY, the reconciliation below is presented in thousands of JPY.
JPY (In thousands) INTERNET RESEARCH INSTITUTE LTD
34
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 change by accelerating next generation broadcasting and video delivery services such as a diffusion of 4K/8K high definition television services. The valuation of the fair values of the assets acquired and the liabilities assumed was completed in this quarter and remained unchanged as compared the preliminary assessment at the time 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 for limited exceptions in accordance with IFRS, were as follows:
All consideration was paid in cash. The fair value of the trade receivables was JPY 350,253 thousand.  The gross contractual amounts of the trade receivables were not materially different from the fair value determined as part of the purchase price allocation. Goodwill of JPY 604,044 thousand represented the value of expected synergies arising from the acquisition and was allocated entirely to the BBT segment. None of the goodwill recognized was expected to be deductible for income tax purposes. From the date of acquisition, JCC had contributed JPY 2,653,402 thousand to the revenue of BBT and had increased profit from continuing operations of BBT by JPY 151,452 thousand.  If the business combination had taken place on 1 July 2017, revenue for BBT would have been JPY 11,539,210 thousand and the  loss from continuing operations for BBT would have been JPY (206,884) thousand for the year ended 30 June 2018.
A)   Presentation of discontinued operations
Under Japanese GAAP, there is no specific requirements for the presentation of discontinued operations and reclassification of assets and liabilities as assets and liabilities held for sale. Under IFRS, an operation which meets certain criteria is classified as a discontinued operation and its results should be presented separately from continuing operations.  The reclassification as discontinued operations for the period ended 30 June 2017 is relating to the partial sale of the Company's shareholding in its subsidiary BBF, Inc. on 30 June 2017.
B)   Goodwill and intangibles
As allowed under Japanese GAAP, goodwill is amortized for a period of less than 20 years.  Under IFRS, goodwill is not amortized and the impairment test is performed at least annually, or more frequently upon occurrence of a trigger event. No goodwill is recorded as at 30 June 2017 under both Japanese GAAP and IFRS due to the partial sale of the Company’s shareholding in its subsidiary BBF, Inc, and JPY 604,044 thousand of goodwill is recorded under IFRS as at 30 June 2018. Goodwill as at 30 June 2018 is caused from the acquisition of JCC on 10 October 2017.  Reconciliation of goodwill between Japanese GAAP and IFRS as at 30 June is as follow.
The Company tests whether goodwill has suffered any impairment on an annual basis at every 31 December under IFRS.  The Company did not perform the impairment test, because there was no indication of potential impairment as at 30 June 2018.
C)   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 investment ceases 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. The Company sold a partial share of its 13.5% investment in BBF, Inc. on 14 December 2017.  As a result, the Company’s ratio of voting rights was dropped to 10.0% and was accounted for as available for sales for equity securities.  The Company recorded gain as a result of discontinuation of equity method which result in financial income in the amount of JPY 133,337 thousand for the year ended 30 June 2018 under IFRS. Following this transaction, JPY 740,741 thousand of BBF shares, which is measured at fair value, is classified to financial assets at fair value through other comprehensive income-current. On 2 July 2018, the transfer of remaining 10.0% investment in BBF, Inc. was completed.
D)  Deferred tax assets and deferred tax liabilities
Japanese GAAP provides detailed guidance on assessing the recoverability of deferred tax assets.  An entity is classified into 5 categories by its profitability and the extent of the recoverability of deferred tax assets and the length of estimated future periods to assess the recoverability of deferred tax assets are determined by such categories, and the scheduling of estimated future taxable income and 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 is probable that taxable profits will be available against which the assets can be utilized. Deferred taxes recognized for other temporary differences arising from adjustments related to IFRS are also adjusted. As a result, nil and JPY 248,263 thousand of deferred tax assets are 1) adjusted as the differences of the treatment of recoverability of deferred taxes under Japanese GAAP and IFRS, 2) recorded from the adjustment accounting entries from Japanese GAAP to IFRS and 3) reclassified from the tax assets at current assets to non-current assets, also off set the deferred tax assets with the liabilities, as at 30 June 2017 and 2018, respectively.
E)  Unused paid absences
Under Japanese GAAP, no provision is made for employees' unused rights to paid absences. Under IFRS, they are recognized in other current liabilities. Additionally, obligations associated with special leave and remuneration that are granted based on specified years of service and which do not require recognition under Japanese GAAP are recognized and included in other non-current liabilities under IFRS. For the year ended 30 June 30 2017 and 2018, the expense relating to the unused paid absence at JPY 1,925 thousand and JPY 4,834 thousand are included as the adjustment from Japanese GAAP to IFRS, respectively.  In addition, other non-current liabilities is increased by JPY 66,432 thousand and JPY 77,023 thousand, respectively, due to the adjustment from Japanese GAAP to IFRS.
F)   IFRS 9 Financial Instruments
As discussed in Note 2.2, the Company 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 the Company's pervious accounting policies. On 1 January 2018, the Company 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 impa these classifications are as follows.

INTERNET RESEARCH INSTITUTE LTD
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Following are the impacts on accumulated earnings and accumulated other comprehensive income by classification and measurement of financial assets at 1 January 2018.

G)  Fair value measurement
Under Japanese GAAP, if a financial asset does not have a quoted market value, then where an entity is able to reasonably calculate a price which can be considered to be a quasi-quoted price, such price may be used for that financial asset as a market value. The “reasonably calculated price” represents, a price calculated using reasonable estimates of management. Under IFRS, the Company referred to the levels of the fair value hierarchy for financial instruments measured at fair value on the reconciliation based on the following inputs: – Level 1 inputs are quoted prices in active markets for identical assets or liabilities. – Level 2 inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data by correlation or other means. – Level 3 inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable, which reflect the reporting entity's own assumptions that market participants would use in establishing a price. (1) Fair value measurements by fair value hierarchy Assets measured at fair values on a recurring basis in the reconciliation as of 30 June 2017 and 2018 are as follows:
The table below presents the changes in level 3 instruments for the relevant periods:
There were no transfers between levels 1, 2 and 3 during the relevant periods.
H)  Revenue recognition
Under Japanese GAAP, revenue is recognized when each good is accepted by the Company’s customer or for the contractual period when each service is provided. The revenue from initial installation services at the datacenter business is recognized at the time of installation. However, under IFRS 15, which has been adopted from 1 January 2018, the Company recognize revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service (i.e. an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset. The Company has concluded that the current methods of revenue recognition and measurement under Japanese GAAP are in accordance with both IFRS 15 and former IAS18, with the exception of installation services. Under both IFRS 15 and former IAS18, the initial installation services is recognized over the period of the expected period of the customer relationship. As a result of the adjustment at revenue recognition, the revenue for the year ended 30 June 2017 and 2018 at JPY 12,970 thousand and JPY 18,504 thousand, respectively, decrease, and also the cost of sales for the year ended 30 June 2017 and 2018 decreased by JPY 65,955thousand and JPY 76,761 thousand, respectively. The Company has provided the services to various customers.  In the computer platform business of BBT, Yahoo Japan Corporation is the largest customer for more than 10 percent of total segment revenue under J-GAAP at JPY3,140,973 thousand and JPY3,166,179 thousand for the year ended 30 June 2017 and 2018, respectively.
I)    Impairment of plant, property and equipment
Under Japanese GAAP, an impairment loss is recognized when there is an indicator of impairment and (1) The undiscounted value of total future cash flows is below the asset's carrying amount; then (2) The recoverable amount of an asset is below its carrying amount.  There are two steps for recognition of an impairment loss. Under IFRS, an impairment loss is recognized when there is an indication of impairment and when the recoverable amount of an asset is below its carrying amount. Step 1 under Japanese GAAP is not required under IFRS.
J)   Subsequent event - Transfer of facilities of solar power plant in Hofu City, Yamaguchi
Prefecture.
At the board of directors meeting held on 8 August 2018, a resolution was adopted to sell facilities of solar power plant in Hofu City, Yamaguchi Prefecture. Transfer Considerations amounted JPY 600,000 thousand.

K)  Loan covenants
Under the terms of the major borrowing, the Company is required to comply with certain financial covenants, and the Company has complied with these covenants throughout the reporting period.
L)   Reclassification
a)   Presentation of cash and cash equivalents
Under Japanese GAAP, cash and deposits and short-term marketable securities are separately presented on the balance sheet in accordance with the nature of the financial instrument.  However, under IFRS, all of the financial instruments which meet the definition of cash and cash equivalents, are presented as cash and cash equivalents. As a result, JPY 1,599,986 thousand included in the account of the marketable securities under Japanese GAAP is transferred into the cash and cash equivalent as at 30 June 2017, and no same adjustment is made as at 30 June 2018 since the Company does not have marketable securities under Japanese GAAP.
b)   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, nil and JPY 27,244 thousand of the deferred tax liabilities presented as Current liabilities – Others under Japanese GAAP is transferred to Deferred tax liabilities (Non-current), as at 30 June 2017 and 2018, respectively.
c)   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 2,369 and JPY 6,702 thousand included in the account of the allowance for doubtful accounts are transferred to Notes and accounts receivables – trade as at 30 June 2017 and 2018, respectively.
d)   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. As a result, the investment accounted for using the equity method of JPY 1,375,454 and JPY 33,111 thousand included in the account of the investment securities are independently presented as at 30 June 2017 and 2018, respectively.
e)   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 the face of the income statement. The definition of "special" is broader compared to IFRS and includes some extraordinary items. Under IFRS, financial income, financial expense and profit (loss) under equity method investment 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. M)  Retained earnings Reconciliation of retained earnings under Japanese GAAP and IFRS is below-

INTERNET RESEARCH INSTITUTE LTD
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS