ALB.L Regulatory News (ALB)

26 March 2019

Albert Technologies Ltd.

("Albert Technologies", the "Company" or the "Group")

Full Year Results for the year ended 31 December 2018

Albert Technologies (AIM: ALB.L) today announces its audited results for the year ended 31 December 2018. The Company has made continued progress in deploying Albert, the world's first and only fully autonomous Artificial Intelligence (AI) Marketing Platform, as a SaaS product for brands and agencies, underlining the potential of this ground-breaking proprietary technology. Supported by a growing number of enterprise clients and increased activity with top global agencies, the company expects continued growth in the coming year.

Financial Highlights:

· The Board is pleased to report 2018 financial results met its budget expectations

· Revenues increased to $4.6m, an almost threefold increase on the $1.7m achieved in 2017

· 50% increase in average monthly revenue per customer, year on year

· Adjusted EBITDA* loss of $12.2m (2017: $11.4m)

· Operating loss of $12.7m (2017: $11.8m)

· Net cash of $15.4m at year end (2017: $11.1m), following successful fundraise of $16.8m, net, in June 2018

* Non-IFRS and unaudited, excludes share based compensation expenses of $434K (Cost of revenues-7K, R&D-$303K, S&M-$51K and G&A-$73K) and $361K (Cost of revenues-$10K, R&D-$197K, S&M-$99K and G&A-55K) in 2018 and 2017, respectively, and depreciation expenses of $106K (R&D-$78K, S&M-$21K and G&A-$7K) and $80K (Cost of revenues-$1K, R&D-$66K, S&M-$5K and G&A-$8K) in 2018 and 2017, respectively.

Operational Highlights:

Significant progress with enterprise clients and agencies in the period:

· Fourfold increase in the number of enterprise clients

· Progress in direct activity with top global agencies

· Continued expansion of activity with existing enterprise clients

· Headcount increased to 114, mainly in connection with account management functions, to support enterprise client activity

· Transition from a tech-centric focus to a broader sales and marketing culture to provide enterprise-grade service to our customers

Current Trading:

· Strong enterprise pipeline to support continued growth

· Industry recognition for Albert - recent Forrester and Gartner reports include Albert as one of the top AI transformational solutions in the advertising industry

· Continued strict cash control and focus on key areas of investment

Or Shani, Chief Executive Officer, said:

"2018 was an important year of progress for Albert Technologies. During 2018 we began working with a significant number of new enterprise clients, each of which have meaningful growth potential. The performance data from early client campaigns has clearly demonstrated to our customers how Artificial Intelligence can drive significant improvement in results while also providing previously undiscovered insights, compared to manual execution.

Our progress in 2019 will be determined by our success in securing new enterprise clients and our strategy is geared towards achieving that aim. Pleasingly, we start 2019 with a dozen active enterprise clients and an additional dozen in the current pipeline, in various stages of discussion. Our experience to date reinforces our belief in our strategic goal of building towards a critical mass of active clients during 2019 and 2020.

In addition to progress with enterprise brands, we made significant steps forward on the agency front. Recent engagement with some of the top global agencies has successfully demonstrated how autonomous, cross channel marketing AI can create more efficient and productive operations and deliver increased returns on digital marketing spend for customers.

During the second half of 2018 we strengthened our market-facing presence by building out our customer support and success functions, in order to be able to better support the needs of our enterprise clients and also facilitate expansion. We have created dedicated account management and professional services teams to enable smooth onboarding processes and enterprise-grade services. With this team in place, we believe we have the right talent and resource to meet our key strategic goal of growing our enterprise footprint and the current pipeline reinforces our optimism.

As part of this transition we launched a new brand identity, emphasizing Albert's unparalleled impact on the complex digital landscape by processing, analysing and acting on audience and tactic data at scale, across omni-channels (paid search, social and programmatic).

With our current enterprise client base and pipeline of opportunities, coupled with our strong and focused team, the Board is confident about the future. By the very nature of a new emerging technology, it is difficult to accurately predict short term revenue outcomes, but Albert's proven effectiveness coupled with growing and tangible interest from large enterprises, give us growing confidence about the market opportunity for Albert and our Company's future prospects.

For further information, please contact:

The Nisse Consultancy

Jason Nisse +44 (0)7769 688618

This announcement has been released by Yoram Freund, CFO, on behalf of the Company.

About Albert Technologies Ltd.

Founded in 2010, Albert Technologies Ltd. (AIM: ALB.L), a global software company, is the creator of Albert - the first-ever fully autonomous cross-channel artificial intelligence marketing platform. Albert is a cloud-based artificial intelligence platform that plugs into a digital marketer's existing tech stack and operates it. An intelligent collection of over 200 different skills, Albert is the self-learning digital marketing ally for marketers: a thinker, a doer, and a support system; automating, orchestrating and evolving campaigns. Always aware of the entire landscape, Albert analyzes the previously unanalyzable, taking purposeful action and flexibly optimizing against business goals. The result: better allocation of budget against channels, audiences and tactics in search, social and programmatic channels. Brands such as The Big Red Group and Dole Asia, and global advertising agencies, credit Albert with significantly increased sales, an accelerated path to revenue, the ability to make more informed investment decisions, and reduce operational costs.

About Albert

Albert is integrated with Google's search and programmatic channels, as well as Facebook, Instagram, YouTube and Bing, delivering access to 90% of biddable inventory that drives the market.

Unlike AI technology that makes recommendations but leaves taking action up to humans, Albert is the world's first autonomous AI for digital marketers. Albert takes action on behalf of marketers, making adjustments and improvements every moment of every day without delay. Albert enables true agile cross channel management: the typical approach of setting channel budgets up front based on past performance and optimizing towards channel-specific metrics as proxies for business outcomes is an inexact science. Albert manages budgets flexibly in response to market conditions and autonomously optimizes against the business goal brands set, resulting in better allocation of budget against channels, audiences, tactics - all within the guardrails specified.

For example, in search campaigns, Albert continuously adjusts bids on audiences / schedule / devices / ads according to real-time data while shifting budget according to performance / engagement to ensure ads get in front of the right customers - all while avoiding over-bidding. In paid social, Albert gets detailed, machine-level reporting on how interests perform and uses that to optimize audiences, ad sets and lookalikes. This is an approach only an autonomous AI can do. In programmatic, Albert leverages real-time engagement of display, cross-channel learning, and smart look-alike modeling. In each channel Albert expands cautiously, spending budget only after understanding what's working, without limiting campaign reach by just eliminating sources.

In addition, everything Albert does happens in clients' Google and Facebook accounts, so there is full transparency of cost and actions.

Albert is designed to learn, evolve, and improve performance over time, getting results for brands through a constant balancing act between spend vs. performance vs. creative fatigue vs. organic impact, retargeting vs. prospecting, branding vs. lower funnel activity and cross-channel budget allocations. These complex multivariate calculations deliver unprecedented impact for marketers.

Chief Executive's Report

I am pleased to report a period of significant progress for the Company. Revenues for 2018 amounted to $4.6m, representing an almost threefold increase over the prior period. Our current customer base carries significant growth potential with 12 diversified enterprise organisations currently contributing to our revenues, some of which are among the largest advertisers in the world.

Enterprise clients carry huge potential for scalable growth, albeit the sales process, onboarding and expansion of these accounts takes longer than for our previous roster of midsize and small businesses. This does make forecasting near term outcomes more difficult at this point in the Company's growth cycle but there is no doubt that our technology is highly regarded, as detailed below. Initial "proof of concept" activity with enterprise clients has already contributed to a 50% increase in our average monthly revenue per customer at year end, compared to last year. At the year end, monthly recurring revenues were US$0.45 million.

In line with our stated strategy, and as also referred to above, during 2018 we increased our investment in Sales and Marketing, mainly in Account Management infrastructure and this contributed in part to the operating loss in 2018 that increased to $12.7m (2017: loss $11.8m).

We started 2019 with an enterprise-ready, dedicated team which will enable us to meet the ever-increasing demands of working with large, global customers, to expand their activity with us and to gain additional enterprise clients throughout the year.

Market overview

During 2018 our market continued to evolve, resulting in increased interest and demand for AI technologies in the marketing space. According to the Salesforce '2019 State of Marketing Report', only 28% of marketers are completely satisfied with their ability to engage customers across channels at scale. Marketers' ability to engage dynamically across channels - or evolve from channel to channel based on customer actions - is nascent. When marketers deploy AI to get this right, the opportunity is enormous, as highlighted in a September 2018 report from the McKinsey Global Institute which estimates that AI has the potential to create $200bn-$300bn annual incremental value in marketing and budget allocation and customer acquisition/lead generation.

The two major analyst firms covering our sector, Gartner Inc., and Forrester Research, took notice of Albert in 2018. In October 2018, Albert was the only company of its size listed in Gartner Inc.'s 2018 "Magic Quadrant for Ad Tech" research report. In a Notable Mention, Gartner wrote, "Brands comfortable with a disruptive, AI‐based autonomous system that leap‐frogs conventional approaches to ad management should consider Albert for their next campaign. "

(Gartner, Inc., Magic Quadrant for Ad Tech, 2018, Andrew Frank, Lizzy Foo Kune, James Meyers, Eric Schmitt, October 11, 2018.)

Forrester Research made multiple mentions of Albert. First in an August 2018 report titled, "Leverage AI To Improve Marketing Efficiency" and then in a January 2019 report titled "How AI Is Transforming Advertising And What You Should Do About It." Last month, Forrester invited Albert to participate in an upcoming report, Now Tech: Omnichannel Media Management, Q2 2019, which will place Albert alongside many established players.

Operational review

During 2018 our Enterprise customer base grew significantly from 3 in the beginning of 2018 to 12 Global Fortune 2000 companies by the year end.

Notable client wins during the year include:

· February 2018 - we announced initial activity with one of the top 5 global advertising agencies for a pilot project, which began in April 2018 and still rolls out;

· March 2018 - we announced a pilot project with one of the world's biggest insurance companies. The activity with this insurance company grew materially throughout the year and is now spread over 6 territories in Asia-Pacific and expected to expand into additional territories in the coming months;

· March 2018 - we announced an initial pilot project with one of Europe's leading telecommunications companies. The activity with this telecommunications company has continued consistently since then;

· April 2018 - we announced a pilot project in Latin America with a Fortune 50 consumer goods corporation. In the past few months the activity with this consumer goods corporation expanded from a single territory to additional territories in Latin America and to additional brands;

· July 2018 - we announced an agreement with one of the largest US retailing chains. Pilot activity with this large US retailing company started during the second half of 2018 and we are now in discussions for expansion of the activity;

· July 2018 - we announced an agreement with one of the largest telecommunications companies in Australia (signed through our Australian partnership). Activity with this customer started in August 2018 and is overachieving past performance results of this customer since then;

· November 2018 - we started initial activity with one of the largest American multinational food and beverage corporations. Following very promising early performance results, activity with this customer is expected to expand in the second half of 2019;

· December 2018 - we started initial activity with a multinational telecommunications company, which is one of the largest telephone operating companies in the world, for one of its brands; and

· January 2019 - we started an initial project with an additional top 5 advertising agency network in the world, for one of its customers, in order to evaluate our technology. Following successful results, we are now in discussions for expansion of this activity into additional brands.

Team

During the year, we added expertise to drive the important transition from a tech-centric culture to a sales and marketing mindset. As part of our efforts to penetrate the Enterprise market and better understand the Agency model, we appointed Rob Norman as a Non-Executive Director at the 2018 AGM. Rob has worked for companies within the WPP media agency network for over three decades, most recently as Global Chief Digital Officer of GroupM, and brings significant knowledge, expertise and industry relationships to the Board.

During the year, we also made two key appointments to the US team. Mark Kirschner, formerly The Trade Desk, eBay Enterprise and Rakuten, has been appointed CMO and brings over 25 years of experience in marketing technology, e-commerce and product management with technology and media companies. In addition, we widened our Enterprise suite by adding Jasmine Presson, SVP, Strategic Client Services, formerly Managing Partner, Strategic Group Account Lead at MediaCom.

Our total number of employees at year end was 114 employees (Dec 2017: 100), of which 68 are in R&D, 17 in Sales, Business Development and Marketing, 19 Account Management and Professional Services and 10 in G&A.

Summary and outlook

The past year marked an important period in our Company's evolution as we started to gain an increasing number of enterprise clients, enabling us to demonstrate the huge benefit and unique value proposition of our technology. At this stage in our market's maturity it is difficult to pinpoint exact predictions of the rate of revenue growth by the end of the current year, but the growth trend is clear. Following successful projects, there is increasing take-up of our solutions by brands (as evidenced by the increased spend per customer) and this is coupled with growing interest from agencies. Our pipeline is encouraging and we therefore expect continued growth in 2019.

The Board is focused on delivering shareholder value and is confident about the Company's continued prospects.

Financial review

Introduction

During 2018 the Company continued to make significant progress in growing its revenues. In line with our stated strategy, we have continued to invest in our infrastructure throughout the year, mainly in the account management functions to enable our current and future growth. In May 2018 the Company raised $16.8m (net) from new and existing shareholders.

Revenues

Revenues for 2018 amounted to $4.6m, an increase of 2.7x compared to revenues of $1.7m in 2017. Monthly recurring revenues increased 1.5x and reached $0.45m in December 2018, compared to $0.3m in December 2017.

The increase in revenues was achieved due to a shift in our customer base, while focusing on large-scale enterprise clients. Average monthly revenue per customer increased 1.5x during the period December 2017 to December 2018.

Gross Profit

Gross margin remained 84%, as in the previous year, resulting in gross profit of $3.9m in 2018, compared to $1.4m in 2017.

Operating Loss

Operating loss for 2018 totalled $12.7m, compared to $11.8m in 2017.

Excluding share-based compensation expenses of $0.4m and depreciation expenses of $0.1m, adjusted operating loss totalled $12.2m, compared to $11.4m loss in 2017 (excluding share-based compensation expenses of $0.3m and depreciation expenses of $0.1m).

The increase in our operating loss is attributed mainly to the increase in our R&D and S&M expenses, mainly due to increase in our average head-count throughout 2018 compared to the previous year.

Adjusted* Financial Review 

* Non-IFRS and unaudited, excludes share based compensation expenses of $434K (Cost of revenues-7K, R&D-$303K, S&M-$51K and G&A-$73K) and $361K (Cost of revenues-$10K, R&D-$197K, S&M-$99K and G&A-55K) in 2018 and 2017, respectively, and depreciation expenses of $106K (R&D-$78K, S&M-$21K and G&A-$7K) and $80K (Cost of revenues-$1K, R&D-$66K, S&M-$5K and G&A-$8K) in 2018 and 2017, respectively.

Cash flows

Cash, cash equivalents and short-term bank deposits at 31 December 2018 were $15.4m (31 December 2017: $11.1m). The change in our cash position is attributed mainly to $16.8m, net, fundraise completed in June 2018, offset by funds used for our operating activities. We continue to maintain close cash control.

FORWARD LOOKING STATEMENT

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". By their nature, forward-looking statements involve risk and uncertainty since they relate to future events and circumstances. Actual results may, and often do, differ materially from any forward-looking statements. Any forward-looking statements in this announcement reflect Albert Technologies' view with respect to future events as at the date of this announcement. Save as required by law or by the AIM Rules for Companies, Albert Technologies undertakes no obligation to publicly revise any forward-looking statements in this announcement following any change in its expectations or to reflect events or circumstances after the date of this announcement. 

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

NOTE 1:- GENERAL

a. Company description:

Albert Technologies Ltd. ("the Company") was incorporated under the laws of Israel and commenced operations in September 2010. The Company's registered address is 20 Lincoln Street, Tel-Aviv, Israel.

The Company offers Artificial Intelligence-based software ("Albert") to brands and advertising agencies using a SaaS model. The Company develops and deploys algorithmic solutions to provide marketers with a self-driving solution for cross-channel campaign execution, testing, optimization, analysis, and insights.

The Company's shares are admitted for trading on AIM, commencing June 2015, under the symbol "ALB".

In May 2018 the Company completed an additional placing of 36,756,757 Ordinary shares at a price of £0.37 per share ($0.49), with new and existing institutional shareholders for total consideration of £12,645 ($16,818), net of issuance expenses of $1,099.

b. In March 2014, the Company established a wholly-owned subsidiary in the United States, Albert Technologies Inc., which is engaged in the distribution of the Company's products and services in the United States, as well as provides the Company with advisory and management services.

In August 2016, the Company established a wholly-owned subsidiary in Israel, AA Digital Media (All Aspect) Ltd. which commenced operating in November 2016. All Aspect was engaged in trading media in various strategies with an array of participants in the online advertising value chain ("In-direct activity" or "In-direct business"). On 5 December 2017, the Company publicly announced the decision of its Board of Directors to cease the In-direct business by the end of 2017.

The In-direct activity is presented in the statements of operations and other comprehensive loss as "discontinued operations", including comparative data. For further information please refer to Note 9.

In May 2017, the Company established a wholly-owned subsidiary in Brasil, Albert Technologies Brasil Ltda, which is engaged in the distribution of the Company's products and services in Brasil. (Albert Technologies Inc., AA Digital Media and Albert Technologies Brasil Ltda, collectively, "the Subsidiaries").

c. The consolidated financial statements were approved for issuance by the Board of Directors on 25 March 2019.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

The following accounting policies have been applied consistently in the consolidated financial statements for all periods presented, unless otherwise stated.

a. Basis of presentation:

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS as adopted by the EU").

The consolidated financial statements have been prepared on a cost basis.

b. Consolidated financial statements:

The consolidated financial statements comprise the financial statements of the Company and subsidiaries that are controlled by the Company. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

The financial statements of the Company and the Subsidiaries are prepared as of the same dates and periods. The consolidated financial statements are prepared using uniform accounting policies by the Company and the Subsidiaries. Significant intracompany balances and transactions and gains or losses resulting from intracompany transactions are eliminated in full in the consolidated financial statements.

c. Significant accounting judgments, estimates and assumptions used in the preparation of the consolidated financial statements:

The preparation of the consolidated financial statements requires the management of the Company to make estimates and assumptions that have an effect on the application of accounting policies and on the reported amounts of assets, liabilities, revenues and expenses. Changes in accounting estimates are reported in the period of the change in estimate.

In the process of applying the significant accounting policies, the Company has made the following judgments which have a significant effect on the amounts recognised in the consolidated financial statements:

Development costs

The Company evaluates project development costs for capitalisation in accordance with its accounting policy. Before such costs can be capitalised, the Company needs to demonstrate that "the intangible asset will generate probable future economic benefits", among other factors. The Company does not meet the threshold requirements for capitalisation of project development costs and therefore expenses all such costs.

d. Functional currency and foreign currency:

1. Functional currency and presentation currency:

The consolidated financial statements are presented in U.S. dollars, the Company's and its Subsidiaries` functional currency, and are rounded to the nearest thousand, unless stated otherwise. The functional currency best reflects the economic environment in which the Company operates and conducts its transactions.

2. Transactions in foreign currency:

Transactions denominated in foreign currency are recorded based on the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currency as of the reporting date are translated into the functional currency based on the exchange rate at each reporting date. Exchange rate differences are recorded in profit or loss.

Non-monetary assets and liabilities that are measured in terms of historical cost in foreign currency are translated into the Company's functional currency using the exchange rate as of the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated into the functional currency based on the exchange rate as of the date that the fair value was determined.

e. Cash and cash equivalents:

Cash includes cash balances available for immediate use. Cash equivalents include short-term highly liquid deposits in banks (with original maturities of three months or less) that are readily convertible into known amounts of cash and are part of the Company's cash management.

f. Restricted cash:

Restricted cash is primarily invested in deposits used as security for office leases, credit line limit and letter of credit to service providers.

g. Short-term bank deposit:

Bank deposits with maturities of more than three months but less than one year are included in short-term deposits.

h. Allowance for doubtful accounts:

Commencing from January 1, 2018, the Company evaluates the allowance for doubtful accounts in respect of trade receivables at the end of each reporting period. The Company applies a simplified approach and measures the allowance in an amount equal to the lifetime expected credit loss.

i. Property and equipment, net:

Items of property and equipment are measured at cost, including direct acquisition costs, less accumulated depreciation, accumulated impairment losses, if any, and excluding day-to-day servicing expenses.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful life of the property and equipment (generally 3-14 years).

j. Impairment of non-financial assets:

The Company evaluates the need to record an impairment of the carrying amount of non-financial assets whenever events or changes in circumstances indicate that the carrying amount is not recoverable. If the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable amount of an asset that does not generate independent cash flows is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognised in profit or loss.

An impairment loss of an asset, other than goodwill, is reversed only if there have been changes in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. Reversal of an impairment loss, as above, shall not be increased above the lower of the carrying amount that would have been determined (less depreciation or amortisation) had no impairment loss been recognised for the asset in prior years and its recoverable amount. The reversal of the impairment loss is carried to profit or loss.

k. Employee benefits:

1. Post-employment benefits:

The Company has a defined benefit plan in respect of severance pay pursuant to the Severance Pay Law in Israel. According to the Law, employees are entitled to severance pay upon dismissal or retirement.

In respect of its severance pay obligation to certain of its employees, the Company makes current deposits in pension funds and insurance companies ("the plan assets").

Plan assets are comprised from assets held by a long-term employee benefit funds or qualifying insurance policies. Plan assets are not available to the Company's own creditors and cannot be returned directly to the Company.

Remeasurements of the net liability in respect of the defined benefit plan are recognised in other comprehensive income in the period in which they occur.

On 1 January 2015 the Company agreed to adopt Section 14 to the Severance Pay Law under which the Company pays fixed contributions and will have no legal or constructive obligation to pay further contributions only for the period commencing from1 January 2015. Contributions in respect of severance pay are recognised as an expense when contributed simultaneously with receiving the employee's services and no additional provision is required in the financial statements.

2. Short-term benefits:

Short-term employee benefits are benefits that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related services. These benefits include salaries, paid annual leave, recreation and social security contributions and are recognised as expenses as the services are rendered. A liability in respect of a cash bonus or a profit-sharing plan is recognised when the Company has a legal or constructive obligation to make such payment as a result of past service rendered by an employee and a reliable estimate of the amount can be made.

l. Share-based payment transactions:

The cost of equity-settled transactions with employees and others is measured at the fair value of the equity instruments granted at grant date.

The cost of share-based payments is recognised in profit or loss, with a corresponding increase in equity, over the period in which the relevant employees become fully entitled to the award. The amount recognised in profit or loss, taking the vesting conditions into account, consisting of service and performance conditions other than market conditions, is adjusted to reflect the actual number of equity instruments that are expected to ultimately vest.

m. Provisions:

A provision is recognised when there is a present obligation, legal or constructive, as a result of a past event and a reliable estimate can be made of the amount of the obligation and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.

n. Revenues:

The Company derives its revenues from campaign management SaaS ("Software as a Service") platform and until the end of 2017 the Company also derived part of its revenues from sales through bids for advertising spaces on advertising exchanges ("In-direct"). The In-direct activity is presented as discontinued operations.

IFRS 15, "Revenue from Contracts with Customers":

The IASB issued IFRS 15, "Revenue from Contracts with Customers" ("the new Standard") in May 2014. The new Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15, "Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC-31, "Revenue - Barter Transactions Involving Advertising Services".

Under IFRS 15, revenue is recognised to reflect the transfer of promised goods and services to customers for amounts that reflect the consideration to which an entity expects to be entitled in exchange for those goods and services.

The new Standard introduces a five-step model that applies to revenue earned from contracts with customers:

Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.

Step 2: Identify the distinct performance obligations in the contract.

Step 3: Determine the transaction price, including reference to variable consideration, significant financing components, non-cash consideration and any consideration payable to the customer.

Step 4: Allocate the transaction price to the distinct performance obligations on a relative stand-alone selling price basis using observable prices, if available, or using estimates and assessments.

Step 5: Recognise revenue when a performance obligation is satisfied, either at a point in time or over time.

The new Standard has been applied for the first time in these financial statements. The Company elected to adopt the provisions of the new Standard using the modified retrospective method with the application of certain practical expedients and without restatement of comparative data.

Per the Company's management analysis, the new Standard had no effect on uncompleted contracts as of 1 January 2018 and therefore no cumulative adjustment was necessary to be made to the opening balance of retained earnings as of that date.

The effect of adopting IFRS 15 moving forward is, as follows:

1. Sale of services:

The Company's contracts with customers for the sale of its services generally include one performance obligation. The Company has concluded that revenue from sale of services should be recognised over the course of the period in which the services are provided to the customer. Therefore, the adoption of IFRS 15 did not have an impact on the timing of revenue recognition.

2. Variable consideration:

Certain of the Company's contracts define thresholds upon the basis of which the customers are being charged. Prior to the adoption of IFRS 15, the Company recognised revenue from its SaaS platform measured at the fair value of the consideration received or receivable, net of discounts. If revenue could not be reliably measured, the Company deferred revenue recognition until the uncertainty was resolved. Under IFRS 15, those thresholds give rise to variable consideration, as the consideration received from the customer may change based on the threshold applied. The Company applies the requirements in IFRS 15 on constraining estimates of variable consideration to determine the amount of variable consideration that can be included in the transaction price. The variable consideration is estimated at contract inception and constrained until the associated uncertainty is subsequently resolved. The Company uses the expected value method to estimate the consideration that will be received because this method best predicts the amount of variable consideration to which the Company will be entitled.

3. Incremental costs of obtaining a contract:

In order to obtain certain contracts with customers, the Company incurs incremental costs in obtaining the contract (such as sales commissions which are contingent on making binding sales). Before the initial application of the new Standard, the Company recognised these costs in selling and marketing expenses when incurred.

Upon application of the provisions of the new Standard, costs incurred in obtaining the contract with the customer which would not have been incurred if the contract had not been obtained and which the Company expects to recover should be recognised as an asset and amortised over the service period as defined in the specific contract.

Although the Company pays commissions per its customer contracts, in 2018 it had no contracts for which the period of amortisation exceeds one year. The Company elected to apply the practical expedient in the new Standard according to which such commissions are recognised as an expense.

4. Principal-agent considerations:

When another party is involved in providing goods or services to a customer, the Company determines whether it is a principal or an agent in these transactions by evaluating the nature of its promise to the customer. The Company is a principal and records revenue on a gross basis if it controls the promised goods or services before transferring them to the customer. However, if the Company's role is only to arrange for another entity to provide the goods or services, then the Company is an agent and will record revenue at the net amount that it retains for its agency services.

With respect to its SaaS revenues, the Company evaluated that it acts as an agent and therefore reports its revenues on a net basis.

The adoption of IFRS 15 had no effect on the Company revenue recognition with respect to the above.

Contract liabilities

A contract liability is an entity's obligation to transfer goods or services to a customer for which the entity has received consideration (or an amount of consideration is due) from the customer.

The Company has elected to apply the practical expedient in IFRS 15 and does not provide disclosure of the remaining unsatisfied performance obligations which are part of contracts that have a term of up to one year.

Contract assets

If an entity performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, the entity shall present the contract as a contract asset, excluding any amounts presented as a receivable.

o. Research and development costs:

Research expenditures are recognised in profit or loss when incurred. Development costs are also recognised in profit or loss unless they can be capitalised as an intangible asset because the Company can demonstrate: the technical feasibility of completing the development of the intangible asset so that it will be available for use or sale; the Company's intention to complete the development of the intangible asset and use or sell it; the ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability of adequate technical, financial and other resources to complete the intangible asset; and the ability to measure reliably the respective expenditure asset during its development period.

p. Taxes on income:

Taxes on income in the consolidated statements of operations are comprised from current and deferred taxes. Taxes in respect of current or deferred taxes are carried to the consolidated statements of operations except to the extent that the taxes arise from items which are recognised directly in equity or in other comprehensive income.

The current tax liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the reporting date as well as adjustments required in connection with the tax liability in respect of previous years. 

Deferred tax balances are measured at the tax rates that are expected to apply when the asset is realised or the liability is settled, based on tax laws that have been enacted or substantively enacted by the reporting date.

 q. Earnings (loss) per share:

Earnings (loss) per share are calculated by dividing the net income (loss) attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the period. Basic earnings (loss) per share only include shares that were actually outstanding during the period. Potential ordinary shares are included in the computation of diluted earnings (loss) per share only when their conversion has a dilutive effect on the earnings (loss) per share. Further, potential ordinary shares that are converted during the period are included in diluted earnings (loss) per share only until the conversion date and from that date in basic earnings (loss) per share.

If the number of ordinary or potential ordinary shares outstanding changes as a result of a bonus issue or share split during the reported periods or after the reporting period but before the financial statements are authorised for issue, the calculations of basic and diluted earnings per share are adjusted retrospectively for all periods presented.

r. New standards, interpretations and amendments adopted:

IFRS 9, "Financial Instruments":

In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("the new Standard"), which replaces IAS 39, "Financial Instruments: Recognition and Measurement". The new Standard mainly focuses on the classification and measurement of financial assets and it applies to all assets within the scope of IAS 39.

The new Standard has been applied for the first time in these financial statements retrospectively without restatement of comparative data.

The adoption of IFRS 9 did not have a material impact on the Company's consolidated financial statements.

IFRS 15, "Revenue from Contracts with Customers" - see Note 2n.

s. Disclosure of new standards in the period prior to their adoption:

IFRS 16, "Leases":

In January 2016, the IASB issued IFRS 16, "Leases" ("IFRS 16"). According to IFRS 16---, a lease is a contract, or part of a contract, that conveys the right to use an asset for a period of time in exchange for consideration.

The effects of the adoption of IFRS 16 are as follows:

· According to IFRS 16, lessees are required to recognise all leases in the statement of financial position (excluding certain exceptions, see below). Lessees will recognise a liability for lease payments with a corresponding right-of-use asset, similar to the accounting treatment for finance leases under the existing standard, IAS 17, "Leases". Lessees will also recognise interest expense and depreciation expense separately.

· Variable lease payments that are not dependent on changes in the Consumer Price Index ("CPI") or interest rates, but are based on performance or use are recognised as an expense by the lessees as incurred and recognised as income by the lessors as earned.

· In the event of change in variable lease payments that are CPI-linked, lessees are required to remeasure the lease liability and record the effect of the remeasurement as an adjustment to the carrying amount of the right-of-use asset.

· The accounting treatment by lessors remains substantially unchanged from the existing standard, namely classification of a lease as a finance lease or an operating lease.

· IFRS 16 includes two exceptions which allow lessees to account for leases based on the existing accounting treatment for operating leases - leases for which the underlying asset is of low financial value and short-term leases (up to one year).

IFRS 16 is effective for annual periods beginning on or after 1 January 2019.

For leases existing at the date of transition, the new Standard permits lessees to use either a full retrospective approach or a modified retrospective approach, with certain transition relief whereby restatement of comparative data is not required.

Per the exceptions mentioned above, a lessee may elect to account for lease payments as an expense on a straight-line basis over the lease term or another systematic basis if the lease term is less than a year ("short term lease") and containing no purchase options. This election is made by class of underlying asset.

The IFRS 16 treatment of short-term lease exemption was widened to include those of which it is not 'reasonably certain' that the term will be more than twelve months, when the likelihood of taking up options for extensions and the severity of termination clauses are considered.

The Company's current lease agreements do not exceed one year and are not 'reasonably certain' to be renewed for more than twelve months subsequent to the end of the reporting period.

Due to the abovementioned, the Company believes the adoption of IFRS 16 will have an immaterial effect on the financial statements.

IFRIC 23, "Uncertainty over Income Tax Treatments":

In June 2017, the IASB issued IFRIC 23, "Uncertainty over Income Tax Treatments" ("the Interpretation"). The Interpretation clarifies the accounting for recognition and measurement of assets or liabilities in accordance with the provisions of IAS 12, "Income Taxes", in situations of uncertainty involving income taxes. The Interpretation provides guidance on considering whether some tax treatments should be considered collectively, examination by the tax authorities, measurement of the effects of uncertainty involving income taxes on the financial statements and accounting for changes in facts and circumstances in respect of the uncertainty.

The Interpretation is to be applied in financial statements for annual periods beginning on 1 January 2019. Upon initial adoption, the Company will apply the Interpretation using the full retrospective method, without restating comparative data, by recording the cumulative effect as of the date of initial adoption in the opening balance of retained earnings.

The Company does not expect the Interpretation to have any material effect on the financial statements.

NOTE 3:- TRADE RECEIVABLES, NET AND CONTRACT ASSETS

Trade receivables are non-interest bearing and are in generally in terms of 30 to 90 days.

NOTE 4:- PROPERTY AND EQUIPMENT, NET

NOTE 5:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

NOTE 6:- TAXES ON INCOME

a. Tax rates applicable:

Tax rates in Israel on income other than Preferred Income:

The Israeli corporate income tax rate was 23% in 2018 and 24% in 2017.

In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from 1 January 2017 and to 23% effective from 1 January 2018.

As there were no deferred tax balances as of 1 January 2018, the change in the tax rates had no effect in the financial statements.

Tax rates in the U.S:

A company incorporated in the U.S. - in 2018 and 2017, weighted average tax at the rate of about 25% and 40% (Federal tax, State tax and City tax of the city where the company operates), respectively.

On 22 December 2017, the U.S. enacted the Tax Cuts and Jobs Act (the "Act"), which among other provisions, reduced the U.S. corporate tax rate from 35% to 21%, effective 1 January 2018.

Tax rate in Brasil:

Based on Brasilian laws, for Corporate Income Tax purposes, there are two methods: "Assumed Profit" or "Actual Profit". The Company has chosen the Assumed Profit method for both 2017 and 2018. Under the Assumed Profit method, taxable income is computed by using 34% corporate tax on 32% of the gross revenue.

Additional taxes in this method are ISS, PIS and COFINS, which rates are 2%, 0.65% and 3%, respectively calculated based on the gross revenue.

b. Final tax assessments:

The Israeli parent company received final tax assessments until the year 2014. The Subsidiaries have yet to receive final tax assessments since their incorporation.

c. Carryforward operating tax losses for tax purposes of the Israeli parent company amounted to approximately $29,000 as of 31 December 2018.

Carryforward operating tax losses for tax purposes of the Israeli subsidiary amounted to approximately $1,098, as of 31 December 2018.

Carryforward tax losses in Israel may be set against future taxable income. No deferred tax assets have been recorded in respect of these carryforward tax losses due to the uncertainty of their realisation.

d. The taxes on income in the consolidated statements of operations include only current taxes.

e. Theoretical tax:

NOTE 7:- COMMITMENTS AND CONTINGENCIES

Lease commitments:

The Company leases office facilities under operating leases, which expire in 2019. Future minimum commitments under non-cancelable operating lease agreements as of 31 December 2018 are as follows:

Rental expenses for the years ended 31 December 2018 and 2017 amounted to $ 479 and $ 488 respectively.

Legal contingencies: 

From time to time, the Company is party to various legal proceedings incidental to its business.

On 6 September 2016, a statement of claim was filed with the Magistrate Court of Tel-Aviv, Israel (the "Court") against the Company, the Company's CEO and founder, Mr. Or Shani, and the Company's then CFO, Mr. Ron Stern (the "Defendants") by Mr. Tal Saar (the "Plaintiff"), a former service provider of the Company. The statement claimed, among other things, that the Defendants are liable for certain fees due to such service provider (the "Claim"). The plaintiff claimed he was entitled to a payment of NIS 600 thousand (approximately $ 160, based on the exchange rate as of 31 December 2018).

During March 2019, the Company signed a settlement agreement with the Plaintiff for an immaterial amount (which was accrued as of 31 December 2018), and the legal proceeding ended.

NOTE 8:- EQUITY

a. Composition of share capital:*)

*) See Note 1a.for information regarding the placement of 36,756,757 Ordinary shares in May 2018.

b. Share-based payments:

In October 2013, the Board of Directors of the Company adopted the Company's 2013 Share Option Plan ("Plan"). The Plan provides for the grant of options to purchase Ordinary shares of the Company to employees, officers, directors, consultants and advisors of the Company.

During 2018 and 2017, the Company granted 3,141,466 and 1,778,757 options to its employees and non-employees subject to service vesting conditions, respectively.

Options issued to employees:

Options granted under the Plan expire 10 years from the vesting commencing date. The options granted prior to 2018 generally vest over three years (1/3 at each year), whereas those granted during 2018 generally vest over four years (1/2 at the anniversary of the second year and 1/4 each year later).

In June 2016, the Company granted 1,302,085 options to its employees that in addition to a service condition, require the employees to meet certain non-market performance goals. As of 31 December 2018 the performance goals for 493,590 options were achieved, and the related compensation costs, subject to service vesting conditions, were recorded in the financial statements. The performance goals for 308,495 options were not achieved yet and are not expected to be achieved, and therefore no compensation costs were recognized. The remaining 500,000 options were forfeited.

The following table lists the number of share options, the weighted average exercise prices of share options and change in the number of outstanding options during the year:

The Company estimates the fair value of stock options granted to its employees and non-employees using the Black-Scholes-Merton option-pricing model ("B&S"). The B&S requires a number of assumptions, of which the most significant estimates are as follows:

· Volatility - in 2018 and 2017 the Company's Ordinary shares had not been publicly traded for long enough to accurately evaluate volatility, and therefore the volatility assumption is based on the volatilities of other publicly-traded companies that management considered as comparable to the Company as well as the historical volatility of the Company for the period for which trading activity is available.

· Expected option term - the expected term of the options represents the period of time that the options are expected to be outstanding.

· Risk-free interest -the risk-free interest rate is based on the exercise price currency, based on the US daily treasury yield curve rate with an equivalent term to the expected life of the option.

The following table lists the inputs to the B&S model used for the fair value measurement of equity-settled share options for the above plan:

The options outstanding under the Company's Plans as of December 31, 2018 and 2017 have been separated into ranges of exercise price as follows:

The weighted average fair values of options granted for the years ended 31 December 2018 and 2017, were $ 0.12 and $ 0.28, respectively.

The weighted average remaining contractual life of the outstanding options as of 31 December 2018 and 2017, were 8.21 and 8.41 years, respectively.

For the options exercised during 2018 and 2017, the weighted average market price of the Company's shares at the time of exercise was $0.21 and $0.38, respectively.

Options issued to non-employees:

The Company's outstanding options to non-employees as of 31 December 2018 and 2017 were as follows:

The following table lists the inputs to the B&S model used for the fair value measurement of equity-settled share options for the above plan:

The cost of share-based payments, recognised in profit or loss, for services received from employees and consultants is shown in the following table:

NOTE 9:- DISCONTINUED OPERATIONS

At 31 December 2017, In-direct business was classified as discontinued operations. The results of the In-direct business for the years 2018 and 2017 are presented below:

(*) See Note 14 for the weighted average number of Ordinary shares used in the computation.

NOTE 10:- REVENUES FROM CONTRACTS WITH CUSTOMERS 

a. Based on the management reporting system, the Company operates in a single operating segment as provider of on-line marketing services.

b. Revenues from continuing operations, based on the location of customers, are as follows:

The customer location is based on its legal address per the agreement.

c. The Company's non-current assets are mostly located in Israel.

In the year ended 31 December 2018, the Company's largest customer (a reseller) represented 35% of the Company's revenues. No other single customer represented more than 10% of the Company's revenues.

In the year ended 31 December 2017, the Company's two largest customers represented 20% and 12% of the Company's revenues. No other single customer represented more than 10% of the Company's revenues.

NOTE 11:- FINANCIAL INSTRUMENTS

Financial risk management objectives and policies:

The Company is exposed to market risk and credit risk, as following:

a. Market risk:

Market risk is the risk that the fair value of future cash flows or a financial instrument will fluctuate because of changes in market prices. Market risk is comprised from three types of risks: interest rate risk, currency risk and other price risk. As of 31 December 2018 and 2017, the Company considers the exposure to market risk to be immaterial.

b. Credit risk:

Credit risk is the risk that counterparty will not meet its obligations as a customer or under a financial instrument leading to a loss to the Company.

The Company is exposed to credit risk from its operating activity (primarily trade receivables and contract assets) and from its financing activity, including deposits with banks and other financial institutions and foreign currency transactions.

1. Trade receivables:

Customer credit risk is managed subject to the Company's policies, procedures and controls relating to customer credit risk management. Credit quality of a customer is assessed based on a credit analysis and rating and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored.

The Company's trade receivables are derived from sales to customers located in different countries. The Company performs ongoing credit evaluations for its customers and an impairment analysis is performed at each reporting date on an individual basis for the Company's customers. The maximum exposure to credit risk as of the reporting date is the carrying value of trade receivables (see Note 3).

The Company does not hold collateral as security for these receivables. The Company evaluates the concentration of risk with respect to trade receivables as low.

2. Cash, cash equivalents and restricted deposits:

Credit risk from balances with banks and financial institutions is managed by the Company's management in accordance with the Company's policy.

Cash, cash equivalents and restricted cash are deposited with major banks in Israel and in the US that are of high quality.

NOTE 12:- ADDITIONAL INFORMATION TO THE CONSOLIDATED STATEMENTS FROM CONTINUING OPERATIONS

NOTE 13:- COMPENSATION TO KEY MANAGEMENT PERSONNEL

NOTE 14:- NET LOSS PER SHARE

Details of the number of shares used in the computation of basic and diluted net loss per share:

In 2018 and 2017, all outstanding options have been excluded from the calculation of the diluted net loss per share, as they are anti-dilutive (decrease net loss per share).

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