TIDMADGO
RNS Number : 2762B
Adgorithms Limited
03 April 2017
3 April 2017
ADGORITHMS LTD
("Adgorithms" or the "Company" or the "Group")
Full Year Results for the year ended 31 December 2016
Adgorithms (LSE: ADGO), the Artificial Intelligence marketing
platform and creators of Albert, today announces its audited
results for the year ended 31 December 2016.
The Company is pleased to announce significant progress in
launching Albert as a SaaS product, generating early stage SaaS
revenue of $210k in 2016. Boosted by the major contract win
announced last month, the Company expects SaaS to represent an
increasingly meaningful contribution to Group revenue in 2017.
Adjusted* 2016 Financial summary:
-- Total revenue decreased 26% to $16.4m (2015: $22.1m)
-- Adjusted EBITDA* loss of $7.9 million (2015: $2.2 million)
-- Adjusted Rresearch and Development expenses grew to $5.1
million (2015: $2.5 million), supporting the ongoing development of
Adgorithms' SaaS platform
-- Adjusted Sales and Marketing expenses grew to $4.1 million
(2015: $0.95 million) reflecting the Company's expansion of its New
York office to drive SaaS activity
-- Adjusted General and Administrative expenses grew to $1.8
million (2015: $1.1 million) reflecting the Company's first full
fiscal year of operation as a public company
-- Net cash of $22.6 million (2015: $31.2 million) at year end
* Non GAAP and unaudited, excludes share based compensation
expenses of $1,064K (COGS-$20K, R&D-$519K, S&M-$366K and
G&A-$159K) and $7,533K (COGS-$41K, R&D-$5,838K,
S&M-$236K and G&A-$1,418K) in 2016 and 2015, respectively,
depreciation expenses of $85K (COGS-$1K, R&D-$45K, S&M-$9K
and G&A-$30K) and $45K (COGS-$1K, R&D-$29K, S&M-$10K
and G&A-$5K) , respectively, relocation bonus to the CTO in the
amount of $50K in 2016, IPO bonuses in 2015 in the amount of
$1,191K and relocation bonus to CEO in the amount of $50K in
2015.
Operational highlights
-- SaaS business summary:
o At the end of 2016, the Company's SaaS offering had 21 paying
clients, and 20 clients that are in various stages of integration
or piloting. There has been a strategic focus on the key verticals
of retail and apparel, consumer packaged goods, automotive and
furniture to drive market awareness of Albert.We see very
encouraging results for the beginning of the 2017 financial year
with a growing pipeline of customers. This includes a major global
consumer brand which recently signed up to Albert, following a
trial to test the effectiveness of Albert's AI technology versus
the results delivered by its incumbent agency
o Adgorithms has been recognised in recent months by some
leading marketing publications and institutions, including Best in
Biz - Best New Product of 2016; Deloitte North America Technology
Fast 500 - #98; DMN Awards - Best Marketing Automation Company; DMN
Awards - Best Retail Campaign of the Year (with Harley Davidson);AI
Awards - Best Application of the Year.
-- Other key events in 2016 include:
o Successful product launch of Albert 2.0 which simplifies the
customer on boarding process and shortens the length of time needed
to see significant ROI improvement
o Establishment of a strong 15 person sales and marketing office
in New York, led by our CRO and CMO
o Increased market acceptance by industry opinion leaders
(Forrester, Gartner)
o Ongoing progress in the development of the Company's sales
strategy through the rollout of our SaaS product
o Successful pilot leading to full deployment with a global
nutrition company, replacing its online media agency with Albert,
in their most significant South American market in 2017
o Structural shift within open Ad-exchanges witnessed in 2016
providing further impetus for market penetration of the Company's
SaaS product
-- In-direct trading remains negatively affected by industry
wide changes which continued to pressure this segment's volumes and
margins
Or Shani, Chief Executive Officer of Adgorithms, commented:
"The Group has made significant progress over the last 12 months
as we shifted momentum from development to deployment of the SaaS
proposition. Central to our growth strategy was the creation of a
15 strong sales and marketing team in New York, led by our CRO and
CMO.
In terms of our commercial rollout, we continue to see an
increased presence of CMOs driving the decision making process,
requiring more transparency and improved ROI from their online
media spend. Supported by initial wins and high profile case
studies, such as Harley Davidson, Made.com and Cosabella, we are
now attracting attention from major global household brands, many
of whom are in various stages of piloting with Albert.
Looking ahead, our plan to deliver a market tested product and
strong sales team is broadly complete and positions the Group well
to deliver ongoing sales momentum. Our SaaS pipeline for 2017 is
developing, reflecting the business benefits of deploying our
technology for digital marketing campaigns. We look forward to an
exciting year for Albert and Adgorithms."
For further information, please contact:
Adgorithms Tel: +972 3537 7137
Or Shani, Chief Executive
Officer
Ron Stern, Chief Financial
Officer
www.adgorithms.com
Liberum (NOMAD and Broker) Tel: +44 20 3100 2000
Neil Patel / Chris Clarke
Vigo Communications Tel: +44 20 7830 9700
Jeremy Garcia adgorithms@vigocomms.com
www.vigocomms.com
About Albert - how it works
Adgorithms' artificial intelligence based software, Albert,
replaces the human campaign manager in managing a brands' online
advertising campaigns. A brand, such as Cosabella or Harley
Davidson for example, provide Albert access to their Google,
Facebook, Bing, Twitter and other online marketing channels. When a
brand manager wishes to launch a new online advertising campaign,
she or he simply logs into Albert and deploys that new campaign
(usually no more than a 15 minute task).
Albert then autonomously creates hundreds of micro campaigns
(strategies) across all relevant online marketing channels (Google,
Facebook, Bing, Twitter, Instagram, Display, Email, etc). Albert
then reviews these hundreds of micro campaigns every few minutes
and optimises each of them as needed. Albert works in very much the
same way that a human campaign manager would, making correlation
and cost / benefit based decisions.
The major advantage of this approach is that where an
experienced campaign manager could possibly make circa 100
decisions per day, Albert can make thousands per minute. Albert's
ability to launch hundreds of micro strategies and review / make
changes to them all every few minutes often brings about a
significant increase in ROI. In addition, all learnings from the
decisions made remain in house, so the brand has full and instant
transparency and can easy scale up marketing activity (larger
budgets, new brands, new geographies), without the requirement to
hire new expert campaign managers.
Operational Review
Overview
We are pleased to report that 2016 has been a year in which we
have achieved significant milestones in our strategy to develop our
Direct Sales channel through the rollout of our SaaS product.
Key strategic milestone during the year include:
Key strategic priorities Delivered in 2016
* To build a market tested state of the art product * Successful product launch of Albert 2.0, which
simplifies customer onboarding process and shortens
the length of time needed to see significant ROI
improvement
* Establish a robust and functioning sales and * Establishment of a fully staffed sales and marketing
marketing team office in New York
* Secure significant customer wins to prove to market * Full deployment with a global nutrition company,
opportunity for "Albert" replacing its online media agency with Albert, in
their most significant South American market
* Control cash to enable further investment in this * Measured deployment of capital to enhance long term
platform revenue and EBITDA growth
---------------------------------------------------------- -----------------------------------------------------------
A significant milestone was reached with the announcement that,
following a successful pilot programme, a global nutrition company
chose to replace its online media agency with Albert, in their most
significant South American market. The impact of this endorsement
by a major global consumer brand is already being felt, not only to
the benefit of Adgorithms, but as representing a leap forwards for
the Artificial Intelligence (AI) marketing technology industry.
Our Indirect Sales channel continues to be extremely volatile
and the Group has taken steps to ensure its indirect revenue
business, which represented the vast majority of the Company's
total revenue in 2016, continues to make a positive cashflow
contribution to the Group. The Board believes the structural shift
from open exchanges witnessed in 2016 will provide further impetus
to market penetration of our SaaS product, enabling brands to take
direct control of their online marketing activity.
We continue to invest in enhancing Albert to ensure it continues
to be one of the most efficient, cost effective and scalable
software platforms in the online advertising market. In the period,
we have continued to develop Albert enabling it to operate across
the leading digital marketing channels, including Facebook, Google,
Bing and Twitter.
As part of our effort to bring our SaaS offering to market, we
have built a fully staffed sales and marketing team based out of
our New York office. This team is now 15 people strong and includes
the Group CEO, CRO, CMO and CTO. In recent months, we have been
very pleased by the strong support that we are seeing from leading
brands, with the SaaS pipeline growing significantly in recent
months.
Management continues to believe that Albert is well placed to
capitalise on the significant market opportunity that exists within
the online marketing segment.
Adjusted* Financial Review
2016 2015
$'000 $'000 Diff
Revenues 16,403 22,076 (5,673)
Cost of revenues* (13,247) (15,356) (2,109)
gross profit 3,156 6,720 (3,564)
--------- --------- ---------
% of revenues 19% 30%
Research and Development
expenses* (5,096) (2,462) 2,634
Selling and Marketing
expenses* (4,161) (947) 3,214
General and Administrative
expenses* (1,821) (1,146) 675
Total operating expenses (11,078) (4,555) $6,523
--------- --------- ---------
Operating profit (loss)* (7,922) 2,165 (10,087)
--------- --------- ---------
* Non GAAP and unaudited, excludes share based compensation
expenses of $1,064K (COGS-$20K, R&D-$519K, S&M-$366K and
G&A-$159K) and $7,533K (COGS-$41K, R&D-$5,838K,
S&M-$236K and G&A-$1,418K) in 2016 and 2015, respectively,
depreciation expenses of $85K (COGS-$1K, R&D-$45K, S&M-$9K
and G&A-$30K) and $45K (COGS-$1K, R&D-$29K, S&M-$10K
and G&A-$5K) , respectively, relocation bonus to the CTO in the
amount of $50K in 2016, IPO bonuses in 2015 in the amount of
$1,191K and relocation bonus to CEO in the amount of $50K in
2015.
The Group delivered revenues of $16.4m in 2016, down 26% on the
prior year (2015: $22.1m).
Gross profit reduced to $3.1m (2015: $6.7m) due to structural
changes which affected trading volumes in the advertising exchange
and impacted margins in 2016. As a result of the shift within the
Group's Indirect Sales channel, management has accelerated revenue
diversity by connecting to dozens of new supply and demand sources.
This expansion in indirect activity has allowed the Company to
partially mitigate the effect of the market disruption that
occurred during the second half of 2015 and continued during
2016.
Group adjusted EBITDA declined in the period to negative $7.9m
(2015: $2.2m), reflecting the Group's investment in its SaaS
solution, primarily in sales and marketing and in increased
research and development.
Business Summary
Land and Expand growth strategy
Central to Adgorithms' growth has been the adoption of its "Land
and Expand" strategy. The aim is to allow brands to test Albert in
a relatively small, controllable setting. For example, this could
be an initial trial in one channel (e.g. Facebook) or with a
relatively non-core sub brand or in a small geographical market. By
working with Albert in this fashion, a brand manager gets access to
Albert's dashboard and can trial the effectiveness of Albert. A key
advantage of Albert, as opposed to the more established "marketing
clouds" for example, is its ease of implementation. Whereas a brand
would need to invest significant time and financial resource to
implement an established marketing cloud, Albert can be connected
in days, with no external set up costs to the brand.
In the case of nearly all brand managers presented with Albert
in 2016, it was their first interaction with a fully autonomous
campaign management system. Our experience has shown that once
Albert performs in a controlled setting, the brand manager often
wants to expand the use of Albert to further sub brands, additional
channels and more geographies. The rate of expansion varies from
brand to brand.
SaaS sales channel
Over the period, we have successfully implemented our "Land and
Expand" strategy with a number of customers. Customers run
campaigns autonomously through the platform and can view real-time
results and insights through the dashboard, which gives visibility
of the success of all campaigns running simultaneously. The
Company's strategy is sign up a customer for a trial, with a small
proportion of existing online advertising spend spent via Albert,
usually in one channel and one territory. Once the customer is able
to see tangible results from this initial proportion of work,
Adgorithms seeks to increase the proportion of the online
advertising spend that is funnelled through Albert. SaaS revenue is
generated as Adgorithms takes a proportion of the total online
advertising spend.
Last month we signed a contract with a large, global, nutrition
company. This significant contract win follows a four month pilot
with this customer. It is an example of our "Land and Expand"
strategy, whereby we started with one brand in a single media
channel, in one geographical area and Albert has now taken over all
of that brand's activity, across all relevant online channels, in a
territory three times the size of our initial pilot. As a result,
the media spend managed through Albert for this brand has risen
5-fold since the pilot began in November, yet still represents less
than 5% of this global company's online media spend. In addition,
as part of the brand's evaluation process of Albert, it constructed
a like-for-like real time test over several months, between Albert
and the brand's legacy advertising agency. After seeing the real
benefits of Albert, the brand decided to move all of its business
to Albert in its most important market in South America. The agency
in this case, is a subsidiary of a large multinational advertising
agency group, further reinforcing Albert's potential to disrupt the
value chain in the online advertising industry.
Indirect sales channel
Adgorithms' proprietary technology can also be deployed in
advertising exchanges in order to match undervalued inventory with
suitable demand. This allows Adgorithms to provide trading desks
with quality, fraud screened inventory at exact and fair prices. It
also provides managed services for clients on a performance basis,
whereby Adgorithms takes the risk of buying an impression and only
gets paid by the customer on successful conversions.
In 2016 this channel has been impacted mostly by the move of
premium paying brand customers away from exchanges to the
relatively walled platforms of Google and Facebook. Several market
analysts attribute over 100% of the growth of the entire online
advertising market in 2016 to Google and Facebook (and their
controlled inventory). Therefore, the market in which Adgorithms
traditionally acted not only shrunk, but became a lot more
competitive, compressing margins for the ecosystem.
Adgorithms experienced a slowdown in indirect trading activity
in H2 2016. Whilst it expects the indirect channel to remain highly
unpredictable, it expects it to continue to present value
opportunities for the Group and has taken steps to assure its
continued positive contribution to the overall business.
The Trend for Greater Control
Albert is benefiting from a growing trend of CMOs demanding
greater control, transparency and ROI from their online advertising
agencies. In recent months many leading CMOs have publicly stated
that they are putting agency contracts under review and aim to
bring the function of media buying in-house. The Board believes
that Albert will be a market beneficiary of such a strategy as it
gives brands the ability to run campaigns in-house resulting in
greater control and transparency and improved returns on marketing
investment.
Albert can deliver a number of advantages over competing
technologies, including:
-- Automation of campaign management
Successful campaign management requires making decisions based
on dozens of parameters and thousands of parameter combinations,
for which the value of each decision is normally a fraction of one
cent. Such a task is simply not possible for humans. In recent
years, various tools have been developed to assist human campaign
managers in this task. However, all of such tools still require a
human operator. Albert on the other hand, is designed to
continuously optimize advertising purchasing decisions and
repeatedly learns and adjusts from the outcome of each decision
made.
-- Self-learning
With every campaign, Albert is able to analyse data and the
success of previous campaigns. It can then adapt subsequent
campaigns for greater return on investment for customers, whilst
also filtering out non-effective inventory, including fraudulent
activity
-- Cost of media / Improved ROI
Albert can accurately attribute value to each impression,
thereby appraising opportunities and maximizing a client's
advertising budget. It will therefore only place advertisements
where appropriate to maximise the ROI. In the same way, in the case
of the Company's indirect channel, Albert acquires undervalued
opportunities as inventory and sells these through advertising
exchanges for an immediate profit
Outlook
Our main focus in 2016 was to establish the building blocks of
our SaaS business which in our view are:
- Build a market tested state of the art product
- Establish a robust and functioning sales and marketing team
- Secure significant customer wins to prove to market opportunity for "Albert"
- Control cash to enable further investment in this platform.
Given our initial market penetration success, and the growing
list of blue chip potential customers in various stages of our
business pipeline, we feel confident about the adoption of Albert
as a SaaS solution. In the final quarter of the year we've seen an
encouraging number of new clients signing up for Albert.
Our indirect business however has continued to suffer in 2016.
We have streamlined costs in the trading business in recent months
to assure its continued positive contribution to the business and
have launched several new initiatives to diversify revenue
dependencies, which we hope will bear fruit in 2017.
Management believes 2017 will pivotal year for the Company as we
further expand our sales and marketing efforts and building greater
market penetration of our SaaS business. We expect to continue
implementation of our Land and Expand strategy and to reach a much
higher number of brand customers by year end. Whilst SaaS revenue
is expected to grow significantly, it is unlikely to offset the
structural decline in Indirect Revenue in 2017 and therefore we
anticipate that the Company will remain loss making in 2017.
Existing cash reserves are sufficient to support continued
development of the SaaS strategy to capitalise on the market
opportunity that clearly exists and the Board remains positive
about the Group's prospects.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
U.S. dollars in thousands
31 December
---------------
Note 2016 2015
$ $
---- ------ ------
CURRENT ASSETS:
Cash and cash equivalents 22,577 31,189
Restricted cash 187 51
Trade receivables, net 3 3,239 4,740
Other accounts receivable and prepaid
expenses 361 257
------ ------
Total current assets 26,364 36,237
------ ------
NON-CURRENT ASSETS:
Property and equipment, net 4 228 118
Total non-current assets 228 118
------ ------
Total assets 26,592 36,355
====== ======
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
U.S. dollars in thousands
31 December
------------------
Note 2016 2015
$ $
---- -------- -------
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade payables 2,306 3,817
Other accounts payable and accrued
expenses 5 981 1,110
-------- -------
Total current liabilities 3,287 4,927
-------- -------
NON-CURRENT LIABILITIES
Employee benefit liabilities,
net 112 85
-------- -------
EQUITY 8
Share capital -
Ordinary shares 160 160
Share premium 39,146 38,082
Capital reserve (193) (193)
Accumulated deficit (15,920) (6,706)
-------- -------
Total equity 23,193 31,343
-------- -------
Total liabilities and equity 26,592 36,355
======== =======
2 April 2017
-------------------- ---------------- ---------------
Date of approval Or Shani Ron Stern
of the
financial statements CEO and Director Chief Financial
Officer and
Director
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands (except per share data)
Year ended
31 December
-----------------------
2016 2015
Note $ $
------- -------------
Revenues 9 16,403 22,076
Cost of revenues 11a 13,268 15,398
------- -------------
Gross profit 3,135 6,678
------- -------------
Operating expenses:
Research and development 11b 5,710 8,329
Selling and marketing 11c 4,536 1,193
General and administrative 11d 2,010 2,619
Bonus expenses related to the
IPO - 1,191
------- -------------
Total operating expenses 12,256 13,332
------- -------------
Operating loss (9,121) (6,654)
------- -------------
Financial income 105 520
Financial expenses (148) (40)
Loss before taxes on income (9,164) (6,174)
------- -------------
Taxes on income 6e 50 681
------- -------------
Net loss (9,214) (6,855)
------- -------------
Net loss per share attributable
to the Company's shareholders
(in $) 13
Basic and diluted loss per ordinary
share (0.15) (0.15)
======= =============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
U.S. dollars in thousands
Year ended
31 December
-----------------
2016 2015
$ $
------- -------
Net loss (9,214) (6,855)
------- -------
Other comprehensive loss:
Amounts that will not be reclassified
subsequently to profit or loss:
Remeasurement losses on defined benefit
plan - (172)
------- -------
Total other comprehensive loss - (172)
------- -------
Total comprehensive loss (9,214) (7,027)
======= =======
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
U.S. dollars in thousands
Retained
earnings
Share Capital (accumulated Total
Share capital premium reserve deficit) equity
$ $ $ $ $
------------- -------- -------- ------------- --------
Balance as of 1
January 2015 *) - 2,303 (21) 149 2,431
Dividend distributed
to shareholders
(see note 9b) - (2,147) - - (2,147)
Exercise of options
and warrants 18 - - - 18
Issuance of Bonus
shares 99 (99) - - -
Issuance of Ordinary
shares upon public
offering, net of
offering expenses
of $ 3,691 43 30,283 - - 30,326
Tax benefit in
respect of offering
expenses - 209 - - 209
Cost of share-based
payment - 7,533 - - 7,533
Net loss - - - (6,855) (6,855)
Total other comprehensive
loss - - (172) - (172)
------------- -------- -------- ------------- --------
Total comprehensive
loss - - (172) (6,855) (7,027)
------------- -------- -------- ------------- --------
Balance as of 31
December 2015 160 38,082 (193) (6,706) 31,343
Exercise of options *) - - - - *) -
Cost of share-based
payment, net - 1,064 - - 1,064
Total comprehensive
loss - - - (9,214) (9,214)
Balance as of 31
December 2016 $ 160 $ 39,146 $ (193) $ (15,920) $ 23,193
============= ======== ======== ============= ========
*) Represents an amount lower than $ 1.
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Year ended
31 December
-----------------
2016 2015
$ $
------- -------
Cash flows from operating activities:
Net loss (9,214) (6,855)
------- -------
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Adjustments to the profit or loss
items:
Share-based payment 1,064 7,533
Tax expense 50 681
Depreciation 85 45
Financial expense (income) from exchange
rate differences 105 (501)
1,304 7,758
------- -------
Changes in asset and liability items:
Decrease in trade receivables 1,501 1,199
Increase in other accounts receivable
and prepaid expenses (104) (83)
Decrease in deferred taxes - 827
Increase (decrease) in trade payables (1,511) 277
Increase (decrease) in other accounts
payable and accrued expenses 90 (997)
Increase in employee benefit liabilities,
net 27 -
3 1,223
------- -------
Cash paid during the year for:
Taxes (229) (981)
------- -------
Net cash provided by (used in) operating
activities (8,136) 1,145
------- -------
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Year ended
31 December
---------------------
2016 2015
$ $
------- -------
Cash flows from investing activities:
Purchase of property and equipment (195) (51)
Investment in restricted cash (136) -
Net cash used in investing activities (331) (51)
------- -------
Cash flows from financing activities:
Tax withheld on dividend distributed
in 2014 - (607)
Dividend distributed to shareholders - (2,147)
Exercise of options *) - 18
IPO proceeds, net (40) 30,366
Net cash provided by (used in) financing
activities (40) 27,630
------- -------
Exchange rate differences in respect
of cash and cash equivalents (105) 501
------- -------
Increase (decrease) in cash and cash
equivalents (8,612) 29,225
Cash and cash equivalents at the beginning
of the year 31,189 1,964
------- -------
Cash and cash equivalents at the end
of the year 22,577 31,189
======= =======
Significant non-cash transactions:
IPO expenses - 40
======= =======
*) Represents an amount lower than $ 1.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 maximise 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., which commenced
operating in September 2015. Adgorithms Inc. 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.
c. In August 2016, the Company established a wholly-owned
subsidiary in Israel, AA Digital Media Ltd. (Adgorithms Inc. and AA
Digital Media, collectively, "the Subsidiaries"), which commenced
operating in November 2016. AA Digital Media is engaged in trading
media in various strategies with an array of participants in the
online advertising value chain.
d. The consolidated financial statements were approved for
issuance by the Board of Directors on 2 April 2017.
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.
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 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 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 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 the Subsidiary in Israel 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 deposits used as
security for office leases, credit line limit and letter of credit
to customer.
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 1-7 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 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, 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 ("Performance"), sales
through bids for advertising spaces on advertising exchanges
("In-direct") and SaaS ("Software as a Service") 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 recognised based on the percentage
of the actual media purchased by the client.
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
Performance and In-direct arrangements and therefore reports all
revenues earned and costs incurred on a gross basis.
With respect to SaaS revenues, the Company evaluated that it
acts as an agent, based on the accounting guidance for
principal-agent considerations, and therefore reports those
revenues on net 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 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 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 operations
comprise current and deferred taxes. The tax results in respect of
current or deferred taxes are carried to the consolidated statement
of operations 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 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.
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 6d).
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. 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: Recognise 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 still evaluating the possible impact of IFRS 15
but is presently unable to assess its effect, if any, on its
consolidated 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 recognise 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 recognise a lease liability
for the obligation to make lease payments and a corresponding
right-of-use asset. Lessees will also recognise 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
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 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 2016 trade receivables are net of an allowance
for doubtful accounts in the amount of $ 35 (2015 - $ 6).
As of 31 December 2016 there are no past due receivables which
are not impaired.
NOTE 4:- PROPERTY AND EQUIPMENT, NET
31 December
---------------
2016 2015
$ $
----- ----
Cost:
Office furniture and equipment 56 35
Computers and software 118 65
Leasehold improvements 203 82
----- ----
377 182
----- ----
Accumulated depreciation:
Office furniture and equipment 9 4
Computers and software 55 33
Leasehold improvements 85 27
----- ----
149 64
----- ----
Depreciated cost 228 118
===== ====
NOTE 5:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
31 December
-------------
2016 2015
$ $
----- -----
Accrued expenses 324 448
Tax payable 17 100
Other governmental authorities 217 137
Deferred revenues 51 83
Employees and payroll accruals 372 342
981 1,110
===== =====
NOTE 6:- 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 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 from 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 Israeli corporate income tax rate was 25% in 2016 and 26.5%
in 2015.
In January 2016, the Law for Amending the Income Tax Ordinance
(No. 216) (Reduction of Corporate Tax Rate), 2016 was approved,
which includes a reduction of the corporate tax rate from 26.5% to
25%, effective from 1 January 2016.
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 are no deferred tax balances as of 1 January and 31
December 2016, 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. - 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 2014.
The Subsidiaries have yet to receive final tax assessments since
their incorporation.
d. Carryforward operating tax losses for tax purposes of the
Company and the Israeli Subsidiary total approximately $6,913, as
of 31 December 2016.
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.
e. Taxes on income included in the consolidated statements of operations:
Year ended
31 December
--------------
2016 2015
$ $
------ -----
Current taxes 50 272
Deferred taxes *) - 409
50 681
====== =====
*) As of 31 December 2015, the Company no longer considered it
was probable that taxable profits will be available against which
the deductible temporary Israeli corporate tax differences can be
utilised. Therefore, the Company wrote-off the deferred tax benefit
in the amount of $431.
f. Theoretical tax:
Year ended
31 December
------------------
2016 2015
$ $
------- --------
Loss before taxes on income (9,164) (6,174)
------- --------
Statutory tax rate 25% 26.5%
======= ========
Tax computed at the statutory
tax rate (2,291) (1,636)
Increase (decrease) in taxes
on income resulting from
the following factors:
Effect of "Preferred Enterprise"
status 680 632
Effect of non-deductible
expenses 267 1,284
Effect of temporary differences
and losses for which deferred
taxes have not been recognised 1,371 431
Tax adjustment in respect
of different tax rate of
foreign subsidiaries (28) -
Other 51 (30)
------- --------
Taxes on income 50 681
======= ========
NOTE 7:- COMMITMENTS AND CONTINGENCIES
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 2016
are as follows:
2017 $333
====
Rental expenses for the years ended 31 December 2016 and 2015
amounted to $ 403 and $ 198, respectively.
Legal contingencies:
On 6 September 2016, a statement of claim was filed against the
Company, Adgorithms' CEO and founder, Mr. Or Shani, and the
Company's CFO, Mr. Ron Stern (the "Defendants") by Mr. Tal Saar
(the "Plaintiff"), a former service provider of the Company, with
the Magistrate Court of Tel-Aviv, Israel (the "Court") claiming,
among other things, that the Defendants are liable for certain fees
due to such service provider and demanding to receive information
with respect to payments made to Mr. Stern by the Company (the
"Claim"). A statement of defense and a motion to dismiss the Claim
were filed by the Defendants with the Court on 20 November 2016 and
30 December 2016, respectively. A pre-trial hearing was held on 22
March 2017, and a second pre-trial hearing is scheduled for 24
April 2017.
The Plaintiff was ordered by the Court to submit his reply to
the Defendants' motion to dismiss the Claim by the second pre-trial
hearing date. No provision in respect of the Claim was recorded in
the financial statements as of 31 December 2016, as the Company's
current position is that all allegations are groundless and it is
unlikely that any allegations brought against the Company, Mr.
Shani and Mr. Stern will be accepted by the Court. However, due to
the early stages of the proceedings, the Company cannot predict
with certainty as to the final outcome of the Claim.
NOTE 8:- EQUITY
a. Composition of share capital:
31 December 31 December
2016 2015
----------------------------- -----------------------------
Issued Issued
Authorised and outstanding Authorised and outstanding
----------- ---------------- ----------- ----------------
Number of shares
------------------------------------------------------------
Ordinary Share
of NIS 0.01 par
value 100,000,000 61,725,271 100,000,000 61,698,853
=========== ================ =========== ================
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 Shares 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 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.
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
2015 and 2016, other than the acceleration mentioned below.
On 27 May 2015 and on 3 June 2015, the Board of Directors and
the shareholders of the Company approved the acceleration of
vesting of 5,754,167 options granted to certain employees. As a
result of the aforementioned acceleration, the Company recorded in
its consolidated statement of operations an expense amounting to
$3,254.
In June 2016 the CEO and founder, Mr. Or Shani, waived his
rights with respect to all of his existing options over 2,012,999
Ordinary shares.
As a result of the aforementioned waiver, an acceleration was
recognised and accordingly, the Company recorded in its
consolidated statement of operations an expense amounting to
$146.
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).
In June 2016, the Company granted 3,072,981 options to its
employees (the "June 2016 grant"). The June 2016 grant includes
1,302,085 options that in addition to a service condition require
the employees to meet certain non-market performance goals. Of
these options, the performance goals for 826,923 options were
achieved as of 31 December 2016, and the related compensation
costs, subject to service vesting conditions, are being
recorded in the financial statements. For the remaining 475,162
performance-based options the Company management presently
estimates that the performance goals will not be achieved, and
accordingly, no compensation costs in respect of these options are
being recorded in the financial statements.
The following table lists the number of share options, the
weighted average exercise prices of share options and movement in
options during the year:
Year ended 31 December
-----------------------------------------------
2016 2015
---------------------- -----------------------
Weighted Weighted
average average
exercise exercise
Number price Number price
of options $ of options $
----------- --------- ------------ ---------
Outstanding
at beginning
of year 4,536,448 1.399 6,107,500 *) -
Granted 3,072,981 0.219 9,962,039 0.637
Exercised (26,418) 0.003 (11,242,500) *) -
Forfeited **) (2,187,099) 1.504 (290,591) 0.003
----------- --------- ------------ ---------
Outstanding
at end of year 5,395,912 0.489 4,536,448 1.399
=========== ========= ============ =========
Exercisable
at end of year 1,217,125 0.606 - -
=========== ========= ============ =========
*) The exercise price of the options granted in 2014 was almost nil.
**) Includes 2,012,999 options waived by the CEO - see above.
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 - 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 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. In 2016 the
risk-free interest assumption is based on the exercise price
currency, based on the ILS SHAHAR curve/US daily treasury yield
curve rate, the curve is comprised of Israeli/US 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:
January June June June
2015 2015**) 2015 ***) 2016
----------- ----------- -----------
Dividend yield
(%) 1.09 1.09 1.09 -
Expected volatility
of the share
prices (%) 32.63% 32.15% 32.15% 52.35%
Risk-free interest 0.69%-2.21% 0.68%-1.95% 0.94%-1.31%
rate (%) 1.35%
Expected life 0.4-3.1 0.16-3.16 5.83-6.25
of share options
(years) 6
Share price
($) 1.29 2.05 2.05 0.244
Exercise price *) - *) - *)- -
($) 2.05 0.231
*) Represents an amount that approximately equals zero.
**) Grant to employees
***) Grant to management
Out of the 5,395,912 options outstanding as of 31 December 2016,
the exercise price of 1,207,800 options is $1.63, the exercise
price of 2,892,362 is $0.23 and the exercise price of 1,295,750 is
almost nil.
The weighted average fair values of options granted for the
years ended 31 December 2016 and 2015, were $ 0.132 and $ 0.89,
respectively.
The weighted average remaining contractual life of the
outstanding options as of 31 December 2016 and 2015, were 8.77 and
9.46 years, respectively.
For the options exercised during 2016 and 2015, the weighted
average market price of the Company's shares is $0.25 and $2.05,
respectively.
Options issued to non-employees:
The Company's outstanding options to non-employees as of 31
December 2016 were as follows:
Options Options
to purchase Exercise exercisable
Ordinary price At end Expire
Issuance date shares per share of year Date
-------------- ------------ ----------- ------------ ------
4 June
11 June 2015 506,975 0.003 242,801 2025
The cost of share based payments recognised in profit or loss
for services received from employees and consultants is shown in
the following table:
Year ended
31 December
2016 2015
$ $
------ -----
Cost of revenues 20 41
Research and development 519 5,838
Selling and marketing 366 236
General and administrative 159 1,418
------ -----
1,064 7,533
====== =====
NOTE 9:- 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
Performance, In-direct sales and SaaS as follows:
Year ended
31 December
-------------------
2016 2015
$ $
------ ------
In-direct 15,063 20,060
Performance 1,130 2,004
SaaS 210 12
16,403 22,076
====== ======
c. Revenues based on the location of customers, are as follows:
Year ended
31 December
---------------
2016 2015
$ $
------ ------
United States 13,654 16,259
Europe 1,008 3,746
Other 1,741 2,071
16,403 22,076
====== ======
d. The Company's non-current assets are mostly located in Israel.
e. 31 December
2016 2015
------ -----
Customer A 39% 16%
Customer B 12% 41%
Customer C *) 11%
*) Represents a percentage lower than 10%.
The Company's leading customers are global advertising
exchanges.
In the fiscal year 2016, the Company's largest customer
represented 39% (16% in fiscal year 2015) of the Company's revenues
and the second largest customer represented 12% (41% in fiscal year
2015) of the Company's revenues. Due to the nature of operations
and industry in which the Company operates the Company may or
occasionally lose, or discontinue its engagement with major
customers. The loss of a major customer may result in decrease of
revenues and profitability.
During 2016, the Company made efforts to diversify its customer
base in order to adjust to further disruption in the industry in
which it operates. Customer concentration average in the second
half of 2016 was less than the annual average.
NOTE 10:- 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
2016 and 2015, 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 11:- ADDITIONAL INFORMATION TO THE CONSOLIDATED STATEMENTS
OF OPERATIONS
Year ended 31
December
------------------------------
2016 2015
$ $
---------- ------
a. Cost of revenues:
Cost of media 13,152 15,202
Salaries and benefits 89 133
Cost of share-based payment 20 41
Other 7 22
13,268 15,398
========== ======
b. Research and development
expenses:
Salaries and benefits 3,410 1,830
Cost of share-based payment 519 5,838
Subcontractors 1,373 346
Other 408 315
---------- ------
5,710 8,329
========== ======
c. Selling and marketing expenses:
Salaries and benefits 2,693 580
Cost of share-based payment 366 236
Advertising and promotion 755 270
Travel 130 -
Other 592 107
---------- -----
4,536 1,193
========== =====
Year ended 31
December
-----------------
2016 2015
$ $
----- -----
d. General and administrative
expenses:
Salaries and benefits 528 433
Cost of share-based payment 159 1,418
Public company costs 345 244
Consulting 317 126
Other 661 398
----- -----
2,010 2,619
===== =====
NOTE 12:- COMPENSATION TO KEY MANAGEMENT PERSONNEL
Year ended
31 December
--------------
2016 2015
$ $
------ -----
Salaries 1,576 790
Bonus related to the IPO - 835
Relocation Bonus 50 50
Post-employment benefits 50 250
Share-based compensation 324 6,217
2,000 8,142
====== =====
As of 31 December 2016 the Company has an open balance with one
of its shareholders in the amount of $ 55. This amount is recorded
as a current asset as part of the other receivables and prepaid
expenses.
NOTE 13:- NET LOSS PER SHARE
a. Basic net loss per share:
1. Details of the loss used in the computation of basic and diluted net loss per share:
Year ended
31 December
-----------------
2016 2015
$ $
------- -------
Net loss used in computation
of basic and diluted net
loss per share (9,214) (6,855)
======= =======
2. Details of the number of shares used in the computation of
basic and diluted net loss per share:
Year ended
31 December
----------------------
2016 2015
---------- ----------
Denominator for basic net
earnings per share 61,703,256 47,128,959
Effect of dilutive securities:
Options - -
---------- ----------
Weighted average number
of ordinary shares used
in the computation of diluted
net earnings per share 61,703,256 47,128,959
========== ==========
b. Diluted net earnings per share:
In 2015 and 2016, 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).
This information is provided by RNS
The company news service from the London Stock Exchange
END
ACSUUVKRBAASRAR
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