CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

U.S. dollars in thousands, except share and per share data

 

NOTE 1:-        GENERAL

 

a.         Company description:

 

Adgorithms 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 is engaged in the field of solutions for online advertising including the use of Artificial Intelligence ("AI") technology. The Company develops and deploys algorithmic solutions aiming to maximize return on income ("ROI") for the brand advertiser. The Company operates across the channels of video, display, social, search and e-mail marketing on the platforms of desktop and mobile.

 

In June 2015 the Company completed an Initial Public Offering ("IPO") and was admitted to trading on AIM and issued 16,541,353 Ordinary shares at a price of 1.33 GBP per share, for a total consideration of $34,017 before underwriting and issuance expenses. Total net proceeds from the issuance amounted to $30,326.

 

b.        In March 2014, the Company established a wholly-owned subsidiary in the United States, Adgorithms Inc. ("the Subsidiary"). The Subsidiary, which commenced operating in September 2015, is engaged in the distribution of the Company's products and service solutions in the United States market, and provides the Company with advisory and management services.

 

 

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 a subsidiary that is 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. Potential voting rights are considered when assessing whether an entity has control. The consolidation of the financial statements commences on the date on which control is obtained and ends when such control ceases.

 

The financial statements of the Company and the subsidiary are prepared as of the same dates and periods. The consolidated financial statements are prepared using uniform accounting policies by the Company and the Subsidiary. Significant intragroup balances and transactions and gains or losses resulting from intragroup 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 technological feasibility of completing the project, among other factors, must be demonstrated such that the completed project will be available for use. To date the stage at which technological feasibility has been demonstrated is such that subsequent development costs, if any, are immaterial and accordingly no development costs have been capitalised.

 

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

 

 Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated into the Company's functional currency using the exchange rate on 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 at the exchange rate on 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 highly liquid deposits used as security for office leases.

 

g.         Allowance for doubtful accounts:

 

The allowance for doubtful accounts is determined in respect of specific debts whose collection, in the opinion of Company's management, is doubtful. Impaired debts are derecognised when they are assessed as uncollectible.

 

h.        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 1.5-7 years).

 

i.          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 the 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.

 

j.          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. The liability for termination of employment is measured using the projected unit credit method. The actuarial assumptions include expected salary increases and rates of employee turnover based on the estimated timing of payment. The amounts are presented based on discounted expected future cash flows using a discount rate determined by reference to market yields at the reporting date on high quality corporate bonds that are linked to the Consumer Price Index with a term that is consistent with the estimated term of the severance pay obligation.

 

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

 

The liability for employee benefits shown in the consolidated statement of financial position reflects the present value of the defined benefit obligation less the fair value of the plan assets.

 

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 commencement on 1 January 2015. Contributions in respect of severance pay are recognized 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, paid sick 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.

 

k.         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.

 

l.          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.

 

m.       Revenues:

 

The Company derives its revenues from online advertising, including campaign management for clients ("direct") and indirect sales through bids for advertising spaces on advertising exchanges ("in-direct"). Starting October 2015 the Company is also generating SaaS ("Software as a Service") revenue which is accounted for as part of direct revenue.

 

Revenue is recognised in profit or loss when the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Company and the associated costs can be measured reliably. Revenue is measured at the fair value of the consideration received, net of discounts. Revenue from SaaS is being recognized ratably over the term of the service period.

 

 

When the Company acts as an agent or as a broker without being exposed to the significant risks and rewards associated with the transaction, the amounts collected on behalf of the principal are not revenues, and revenues reflect the amount of the commission. When the Company acts as a principal and is exposed to the significant risks and rewards associated with the transaction, revenues reflect the gross inflows of the economic benefits.

 

In determining whether the Company is acting as the principal or an agent, the Company follows the accounting guidance for principal-agent considerations. While none of the factors identified in this guidance is individually considered presumptive or determinative, because the Company is the primary obligor in the arrangement and is responsible for (i) selecting and contracting with third party suppliers for the purchase of inventory, (ii) having general inventory risk over advertising spaces bought, (iii) establishing the selling price, and (iv) assuming credit risk in the transaction, the Company acts as the principal in both direct and in-direct arrangements and therefore reports all revenues earned and costs incurred on a gross basis.

 

Deferred revenues

 

Payments received from customers, which do not meet the criteria for revenue recognition, are recorded as deferred revenues.

 

n.        Research and development costs:

 

Research expenditures are recognised in profit or loss when incurred. Development costs are also recognized in profit or loss unless they can be capitalized as an intangible asset because the Company can demonstrate: the technical feasibility of completing the intangible asset so that it will be available for use or sale; the Company's intention to complete 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.

 

o.        Taxes on income:

 

Taxes on income in the consolidated statement of income comprise current and deferred taxes. The tax results in respect of current or deferred taxes are carried to the consolidated statement of income except to the extent that the tax arises from items which are recognised directly in equity or in other comprehensive income.

 

 

 

1.         Current taxes:

 

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.

 

2.         Deferred taxes:

 

Deferred taxes are computed in respect of temporary differences between the carrying amounts in the consolidated financial statements and the amounts attributed for tax purposes.

 

Deferred tax balances are measured at the tax rates that are expected to apply in the period when the taxes are recorded in the consolidated statement of income or in equity, based on tax laws that have been enacted or substantively enacted by the end of the reporting period.

 

Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is not probable that they will be utilised. Simultaneously, temporary differences (such as carryforward losses) for which deferred tax assets have not been recognised are reassessed and deferred tax assets are recognised to the extent that their recoverability is probable (see note 7d).

 

p.        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 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 only included in the computation of diluted earnings (loss) per share 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.

 

q.        Reclassification

 

            Certain amounts from prior year have been reclassified to conform the current year's presentation. The reclassification had no effect on previously reported comprehensive income, stockholders' equity or cash flows.

 

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

 

IFRS 15, "Revenue from Contracts with Customers":

 

In May 2014, the IASB issued IFRS 15 ("IFRS 15").

 

IFRS 15 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".

 

The IFRS 15 introduces a five-step model that will apply 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 separate performance obligations in the contract

 

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

 

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

 

Step 5: Recognize revenue when the entity satisfies a performance obligation over time or at a point in time.

 

IFRS 15 is to be applied retrospectively for annual periods beginning on or after 1 January 2018. Early adoption is permitted. IFRS 15 allows an entity to choose to apply a modified retrospective approach, according to which IFRS 15 will only be applied in the current period presented to existing contracts at the date of initial application. No restatement of comparative periods is required.

 

The Company is evaluating the possible impact of IFRS 15 but is presently unable to assess its effect, if any, on the financial statements.

 

 

Amendments to IAS 7, "Statement of Cash Flows", regarding additional disclosures of financial liabilities:

 

In January 2016, the IASB issued amendments to IAS 7, "Statement of Cash Flows", ("the amendments") which require additional disclosures regarding financial liabilities. The amendments require disclosure of the changes between the opening balance and the closing balance of financial liabilities, including changes from cash flows, changes arising from obtaining or losing control of subsidiaries, the effect of changes in foreign exchange rates and changes in fair value.

 

The amendments are effective for annual periods beginning on or after 1 January 2017. Comparative information for periods prior to the effective date of the amendments is not required. Early application is permitted.

 

The Company will include the necessary disclosures in the financial statements when applicable.

 

IFRS 16, "Leases":

 

In January 2016, the IASB issued IFRS 16, "Leases" ("the new Standard"). According to the new Standard, 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.

 

According to the new Standard:

 

Lessees are required to recognize an asset and a corresponding liability in the statement of financial position in respect of all leases (except in certain cases) similar to the accounting treatment of finance leases according to the existing IAS 17, "Leases".

 

Lessees are required to initially recognize a lease liability for the obligation to make lease payments and a corresponding right-of-use asset. Lessees will also recognize interest and depreciation expenses 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 (such as a percentage of revenues) are recognized as an expense by the lessees as incurred and recognized 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 the effect of the remeasurement is an adjustment to the carrying amount of the right-of-use asset.

 

The new Standard includes two exceptions according to which lessees are permitted to elect to apply a method similar to the current accounting treatment for operating leases. These exceptions are leases for which the underlying asset is of low value and leases with a term of up to one year.

 

 

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

 

The new Standard is effective for annual periods beginning on or after 1 January 2019. Earlier application is permitted provided that IFRS 15, "Revenue from Contracts with Customers", is applied concurrently.

 

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.

 

The Company is evaluating the possible effects of the new Standard. At this stage, the Company is unable to quantify the impact on the financial statements.

 

 

NOTE 3:-        TRADE RECEIVABLES

 

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

 

As of 31 December 2015 trade receivables are net of an allowance for doubtful accounts in the amount of $ 6 (2014 - $ 13).

 

 

NOTE 4:-      PROPERTY AND EQUIPMENT, NET

 

 

 

NOTE 5:-        OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

 

 

NOTE 6:-        LOAN FROM RELATED PARTY

 

In May 2014 the Company borrowed approximately $ 50 from its shareholder. The loan was fully repaid in November 2014.

 

 

NOTE 7:-        TAXES ON INCOME

 

a.         The Law for the Encouragement of Capital Investments, 1959:

 

Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 68):

 

In December 2010, the "Knesset" (Israeli Parliament) passed the Law for Economic Policy for 2011 and 2012 (Amended Legislation), 2011 ("the Amendment"), which prescribes, among others, amendments in the Law for the Encouragement of Capital Investments, 1959 ("the Law"). The Amendment became effective as of 1 January 2011. According to the Amendment, the benefit tracks in the Law were modified and a flat tax rate applies to the Company's entire preferred income under its status as a preferred company with a preferred enterprise. Commencing from the 2011 tax year, the Company can elect (without possibility of reversal) to apply the Amendment in a certain tax year and from that year and thereafter, it will be subject to the amended tax rates.

 

Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 71):

 

On 5 August 2013, the "Knesset" (Israeli Parliament) issued the Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets for 2013 and 2014), 2013 which consists of Amendment 71 to the Law for the Encouragement of Capital Investments ("the Amendment"). According to the Amendment, the tax rate on preferred income form a preferred enterprise in 2014 and thereafter will be 16% (in development area A - 9%).

 

The Amendment also prescribes that any dividends distributed to individuals or foreign residents from the preferred enterprise's earnings as above will be subject to tax at a rate of 20%.

In January 2014 the Company applied to the Israeli Tax Authorities for a "Preferred Enterprise" status under which the Company's revenues meet the definition of "Preferred Income" by the above law. In October 2014, the Company received final approval from the Israeli Tax Authorities. According to the approval, starting 2013, the Company's income derived from the right to use software, not including certain services as detailed in the approval, is deemed as "Preferred Income" under the Law for the Encouragement of Capital Investments, 1959. The approval is limited to the period between the tax years 2013 through 2017.

 

The tax benefits under "Preferred Enterprise" status are conditional upon the fulfillment of the conditions stipulated by the above law and the approval received by tax authorities.

 

 

b.        Tax rates applicable:

Tax rates in Israel:

 

The ordinary corporate tax rate in Israel was 26.5% in 2014 and 2015.

 

On 4 January 2016, subsequent to the statement of financial position date, the Israeli Parliament's Plenum approved by a second and third reading the Bill for Amending the Income Tax Ordinance (No. 217) (Reduction of Corporate Tax Rate), 2015, which includes a reduction of the corporate tax rate from 26.5% to 25%.

 

As there are no deferred tax balances as of 31 December 2015, the change in the tax rate will have no effect in the financial statements.
 

Tax rates in the U.S:

 

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

 

c.         Final tax assessments:

 

The Company received final tax assessments until the year 2011.

 

d.        Taxes on income included in the consolidated statements of income:

 

 

 

 

 

*)         As of 31 December 2015, the Company no longer considers it probable that taxable profits will be available against which the deductible temporary Israeli corporate tax differences can be utilized. Therefore, the Company has written-off the deferred tax benefit in the amount of $431.

 

e.        Deferred taxes:

 

 

f.         Theoretical tax:

 

 

 

NOTE 8:-        COMMITMENTS

 

Lease commitments:

 

The Company leases office facilities under operating leases, which expire in 2017. Future minimum commitments under non-cancelable operating lease agreements as of 31 December 2015 are as follows:

 

 

Rental expenses for the years ended 31 December 2015 and 2014 amounted to $ 198 and $ 58, respectively.

 

Legal commitments:

 

From time to time, the Company is party to various legal proceedings incidental to its business. As of December 31 2015 and 2014, the Company did not accrue any amount to cover probable losses from legal proceedings and threatened litigation. The Company's current position is that all allegations are groundless and the probability that any allegations brought against the company will result in a material cost to the Company are extremely low.

 

 

NOTE 9:-        EQUITY

 

a.         Composition of share capital:

 

 

 

On 3 June 2015, the Board of Directors and the shareholders of the Company approved an increase in the authorised share capital of the Company of NIS 900,000, which shall be divided into 90,000,000 Ordinary Shares par value of NIS 0.01 each, such that following such increase, the Company's authorised share capital shall be NIS 1,000,000, divided into 100,000,000 Ordinary Shares.

 

On 3 June 2015, the Board of Directors approved issuing to each Ordinary shareholder 2,499 additional Ordinary shares (stock split), for each issued and outstanding Ordinary share held, so that following such issuance of the Ordinary Bonus Shares each shareholder will hold 2,500 Ordinary shares for each ordinary share held prior to the stock split.

 

 

 

 

All Ordinary shares and per share data included in these financial statements for all periods presented have been retroactively adjusted to reflect the increase in authorised share capital and the issuance of Bonus shares on 3 June 2015.

 

On 3 June 2015, the Board of Directors approved the issuance to the Chief Executive Officer ("CEO") of warrant to purchase 6,837,500 Ordinary shares of the Company at a price per share equal to the par value of the Ordinary shares. The warrant was exercised and all Ordinary Share underlying the warrant were issued on 9 June 2015, at the grant date.

 

The warrant was issued following the grant of option to certain employees of the Company (each an "Option Holder") approved by the board in 2015 ("2015 Grant"), which grant was made based on the understanding by all relevant Option Holders that the above warrant would be issued to the CEO in his capacity as the sole shareholder of the Company to prevent an unintended dilution of his holdings in the Company as a result of the January 2015 Grant.

In June 2015 the Company completed an Initial Public Offering ("IPO") and was admitted to trading on AIM and issued 16,541,353 ordinary shares at a price of 1.33 GBP per share, for a total consideration of $ 34,017 before underwriting and issuance expenses. Total net proceeds from the issuance amounted to $ 30,326.

 

b.        Dividend distribution:

 

On 2 June 2015, the Company paid a dividend in an amount of $ 2.1 million (approximately $ 0.063 per share). The dividend was distributed following a capital reduction approval from the Israeli court.

 

The Company paid dividend in an amount of $ 3.3 million (approximately $ 0.12 per share) during 2014.

 

c.         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 Common shares of the Company to employees, officers, directors, consultants and advisors of the Company.

 

The share-based payments that the Company granted to its employees and non-employees are described below.

 

There have been no modifications to any of the options during 2014 and 2015, other than the acceleration mentioned below.

 

Option issued to employees:

Options granted under the Plan expire 10 years from the vesting commencing date. The options generally vest over three years (1/3 at each year).

 

 

 

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

 

 

*)         The exercise price of the options granted in 2014 was almost nil.

 

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 estimated as follows:

 

·     Volatility - as of grant dates the Company was not public nor the Company's ordinary shares had 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.

·     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 - in 2014 the risk-free interest assumption is based on the USD sovereign curve with an equivalent term to the expected life of the option. In 2015 the risk-free interest rate assumption is based on the yield of GBP sovereign curve, this curve is comprised of British pound-denominated UK government debt 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:

 

 

 

 

 

 

 

 

 

*)         Represents an amount that approximately equals zero.

**)        Grant to employees

***)      Grant to management

 

 

Out of the 4,536,448 options outstanding as of 31 December 2015, the exercise price of 3,220,799 options is $1.97 and the exercise price of 1,315,649 is almost nil.

 

The weighted average fair values of options granted for the years ended 31 December 2015 and 2014, were $ 0.89 and $ 0.32, respectively.

 

The weighted average remaining contractual life of the outstanding options as of 31 December 2015 is 9.46 years.

 

For the options exercised during 2015 and 2014, the weighted average market price of the Company's shares is $2.05 and $1.25, respectively.

 

During 2015, the Board of Directors approved the acceleration of vesting of 5,754,167 options granted to certain employees.

 

Options issued to non-employees:

 

The Company's outstanding options to non-employees as of 31 December 2015 were as follows:

 

 

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 10:-     REPORTABLE SEGMENTS

 

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

 

 

 

 

 

 

 

 

b.        As described in Note 2m, the Company derives revenues from direct and indirect sales as follows:

 

c.         Revenues based on the location of customers, are as follows:

 

 

d.        The Company's non-current assets are all located in Israel.

 

e.        In the fiscal year 2014, the Company's largest customer represented 47% of the Company's revenues and the second largest customer represented 12% of the Company's revenues. The Company's two leading customers are global advertising exchanges.

 

            In the fiscal year 2015, the largest customer represented 41% of the Companies revenues, the second largest customer represented 16% of the Company's revenues and the third largest customer represented 11% of the Company's revenues. All three leading customers are global advertising exchanges.

 

 

NOTE 11:-     FINANCIAL INSTRUMENTS

 

Financial risk management objectives and policies:

 

The Company is exposed to market risk and credit risk. The Company's senior management oversees the management of these risks.

 

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 comprises three types of risk: interest rate risk, currency risk and other price risk. As of 31 December 2015 and 2014, 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 from its financing activity, including deposits with banks and other financial institutions and foreign currency transactions.

 

1.         Trade receivables:

 

Customer credit risk is managed in the Company subject to the Company's policy, procedures and control 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 Europe and in the United States. The Company's 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 OF INCOME

 

 

 

NOTE 13:-     COMPENSATION TO KEY MANAGEMENT PERSONNEL

 

 

NOTE 14:-     NET EARNINGS (LOSS) PER SHARE

 

a.         Basic net earnings (loss) per share:

 

1.         Details of the income (loss) used in the computation of basic and diluted net earnings (loss) per share:

 

 

2.         Details of the number of shares used in the computation of basic and diluted net earnings (loss) per share (2014 - after adjustment for bonus shares - see Note 9a):

 

 

b.        Diluted net earnings per share:

 

In 2014, there were no options that were excluded from the calculation of diluted net earnings per share. In 2015, all outstanding options have been excluded from the calculation of the diluted net loss per share because they are anti-dilutive (decrease net loss per share).