QUANTUM X LABS INC. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 25 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Viewbix Inc. and its subsidiary (the “Company”) as of December 31, 2020 and 2019 and the related consolidated statements of comprehensive loss, stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company’s substantial net losses, shareholders’ deficit and negative cash flows from operations raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of’ these uncertainties Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Brightman Almagor Zohar & Co. Certified Public Accountants A Firm in the Deloitte Global Network Tel Aviv, Israel March 16, 2021 We have served as the Company’s auditor since 2019 26 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Consolidated Balance Sheets U.S. dollars in thousands (except share and per share data) As of December 31, As of December 31 Note 2020 2019 ASSETS CURRENT ASSETS Cash and cash equivalents $ 148 $ 87 Restricted cash - 2 Trade receivables 15 - Other accounts receivable 3 20 119 Prepaid expenses 42 17 Total current assets $ 225 $ 225 NON CURRENT ASSETS Property and equipment, net 4 $ - $ 5 Total assets $ 225 $ 230 LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ DEFICIT CURRENT LIABILITIES Trade payables $ 22 $ 66 Other accounts payable and accrued liabilities 5 177 246 Payable to parent company 6 2,054 1,611 Short term loan 7 50 - Total current liabilities $ 2,303 $ 1,923 Commitments and contingencies 9 STOCKHOLDERS’ DEFICIT 8 Share Capital Common stock, $0.0001 par value; 490,000,000 shares authorized; 34,753,669 shares issued and outstanding at December 31, 2020 and 31,201,669 at December 31, 2019 3 3 Additional paid-in capital 7 13,073 13,015 Accumulated deficit (15,154 ) (14,711 ) Total stockholders’ deficit $ (2,078 ) $ (1,693 ) Total liabilities, temporary equity and stockholders’ deficit $ 225 $ 230 The accompanying notes are an integral part of these consolidated financial statements. 27 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Consolidated Statements of Comprehensive Loss U.S. dollars in thousands (except share and per share data) Year ended Year ended December 31, December 31, Note 2020 2019 Revenues 10 96 208 Cost of revenues 5 2 Gross profit 91 206 Expenses: Research and development 11 108 233 Sales and marketing 12 8 257 General and administrative 13 437 720 Gain from sale of a subsidiary (8 ) - Total operating expenses 545 1,210 Loss from operations (454 ) (1,004 ) Finance income 14 (20 ) (12 ) Finance expense 14 7 110 Loss Before taxes on income (441 ) (1,102 ) Taxes on income 15 2 15 Net Loss (443 ) (1,117 ) Basic and diluted net loss per share: (0.014 ) (0.08 ) Weighted average shares outstanding - basic and diluted 16 31,201,669 13,746,064 The accompanying notes are an integral part of these consolidated financial statements. 28 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Consolidated Statements of Changes in Stockholders’ Deficit U.S. dollars in thousands (except share and per share data) Ordinary shares Additional paid-in Accumulated Total shareholders’ Number Amount capital deficit deficit Balance as of January 1, 2020 31,201,669 3 13,015 (14,711 ) (1,693 ) Issuance of shares 3,552,000 58 58 Net loss for the period (443 ) (443 ) Balance as of December 31, 2020 34,753,669 3 13,073 (15,154 ) (2,078 ) Total Additional Accumulated Preferred A-1 Preferred A-2 Preferred B Preferred C Preferred C-1 Preferred C-2 temporary Ordinary shares paid-in shareholders’ Total Number Amount Number Amount Number Amount Number Amount Number Amount Number Amount equity Number Amount capital deficit d eficit Balance as of January 1, 2019 199,870 * 4,881,654 10 4,556,094 9 7,222,305 15 2,755,706 11 392,407 1 46 279,049 1 12,872 (13,594 ) (721 ) Effect of reverse recapitalization (199,870 ) (*) (4,881,654 ) (10 ) (4,556,094 ) (9 ) (7,222,305 ) (15 ) (2,755,708 ) (11 ) (392,407 ) (1 ) (46 ) 30,928,620 2 143 - 145 Net loss for the period - - - - - - - - - - - - - - - - (1,117 ) (1,117 ) Balance as of December 21, 2019 - - - - - - - - - - - - - 31,201,669 3 13,015 (14,711 ) (1,693 ) *) Represents an amount less than $1. The accompanying notes are an integral part of these consolidated financial statements. 29 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Consolidated Statements of Cash Flows U.S. dollars in thousands (except share and per share data) For the year ended December 31 2020 2019 Cash flows from operating activities Net loss for the period (443 ) (1,117 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Gain from sale of a subsidiary (8 ) - Depreciation 5 1 Changes in operating assets and liabilities: Decrease (Increase) in trade receivables and prepaid expenses (40 ) 5 Decrease (Increase) in other accounts receivable 100 (21 ) Increase (decrease) in trade payables (55 ) 36 Increase in payable to parent company (See Note 6) 443 822 Increase (decrease) in other accounts payables and accrued liabilities (55 ) 139 Net cash used in operating activities (53 ) (135 ) Cash flows from investing activities Cash received from the sale of a subsidiary 13 - Purchase of property and equipment - (2 ) Proceeds from sale of property and equipment - 1 Net cash used in investing activities 13 (1 ) Cash flows from financing activities Cash acquired in connection with the reverse recapitalization - 174 Issuance of shares 49 - Short term loan received 50 - Net cash provided by financing activities 99 174 Increase (decrease) in cash and cash equivalents and restricted cash 59 38 Cash and cash equivalents and restricted cash at the beginning of the period 89 51 Cash and cash equivalents and restricted cash at the end of the period $ 148 $ 89 The accompanying notes are an integral part of these condensed consolidated financial statements. 30 Viewbix Inc. (Formerly known as Virtual Crypto Technologies, Inc.) Condensed Consolidated Statements of Cash Flows U.S. dollars in thousands (except share and per share data) (Unaudited) Supplemental Cash Flow Information: As of February 12, 2020 Current assets excluding cash and cash equivalents 6 Current liabilities (1 ) Gain from sale of a subsidiary 8 Cash received from the sale of a subsidiary 13 Assets acquired (liabilities assumed): As of July 25, 2019 Current assets excluding cash and cash equivalents 20 Current liabilities (95 ) Reverse recapitalization effect on equity (99 ) Cash acquired in connection with Recapitalization Transaction 174 The accompanying notes are an integral part of these consolidated financial statements. 31 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Notes to Consolidated Financial Statements U.S. dollars in thousands (except share and per share data) Note 1. General A. Organizational Background Viewbix Inc. (formerly known as Virtual Crypto Technologies, Inc.) (the “Company”) was incorporated in the State of Ohio in 1989 under a predecessor name, Zaxis International, Inc. (“Zaxis”). On August 25, 1995, Zaxis merged with a subsidiary of The InFerGene Company, a Delaware corporation, which entity changed its name to Zaxis International, Inc. and the Company was reincorporated in Delaware under the name of Zaxis International, Inc. On December 30, 2014, Zaxis entered into an agreement with Emerald Medical Applications Ltd., a private limited liability company organized under the laws of the State of Israel (“Emerald Israel”). B. Emerald Medical Applications Ltd. On March 16, 2015, Zaxis and Emerald Israel executed a share exchange agreement, which closed on July 14, 2015, and Emerald Israel became the Company’s wholly-owned subsidiary. Emerald Israel was engaged in the business of developing Emerald Israel’s DermaCompare technology and the development, sale and service of imaging solutions utilizing its DermaCompare software for use in derma imaging and analytics for the detection of skin cancer. On January 29, 2018, the Company ceased the DermaCompare operations of its former subsidiary. On May 2, 2018, the District Court of Lod, Israel issued a winding-up order for Emerald Israel and appointed an Israeli attorney as special executor for Emerald Israel. C. Virtual Crypto Technologies Ltd. On January 17, 2018, the Company formed a new wholly-owned subsidiary under the laws of the State of Israel, Virtual Crypto Technologies Ltd. (the “VCT Israel”), to develop and market software and hardware products facilitating, allowing and supporting purchase and/or sale of cryptocurrencies through ATMs, tablets, personal computers (“PCs”) and/or mobile devices. VCT Israel ceased its business operation prior to consummation of the Recapitalization Transaction. On January 27, 2020, Virtual Crypto Israel was sold to a third party for NIS 50,000 ($14,459). 32 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Notes to Consolidated Financial Statements U.S. dollars in thousands (except share and per share data) NOTE. 1 GENERAL (Cont.) D. Transaction with Gix Internet Ltd. (formerly known as Algomizer Ltd.), or Gix (the “Recapitalization Transaction”) On June 6, 2020, Algomizer changed its name to Gix Internet Ltd., or Gix. On February 7, 2019, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with Gix Internet Ltd. (TASE:ALMO), a company organized under the laws of the State of Israel (“Gix”), pursuant to which on July 25, 2019 (the “Closing Date”), Gix assigned, transferred and delivered its 99.83% holdings in Viewbix Ltd. (“Viewbix Israel”) to the Company in exchange for shares of restricted common stock of the Company, representing 65% of the issued and outstanding share capital of the Company on a fully diluted basis as of the Closing Date following the conversion of certain convertible notes of the Company and excluding certain warrants to purchase shares of the Common Stock expiring in 2020 and additional warrants as further described below (the “Fully Diluted Share Capital”). In addition, upon the earlier of: (a) the launch of a live video product to an American consumer in the United States by Viewbix Israel, or (b) the launch of an interactive television product to an American consumer in the United States by Viewbix Israel, the Company will issue to Gix an additional 1,642,193 shares of restricted common stock of the Company representing 5% of the Fully Diluted Share Capital immediately following the Closing Date. On July 24, 2019, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of Delaware reflecting its name change from Virtual Crypto Technologies, Inc. to Viewbix Inc. to reflect its new operations and business focus and, effective on August 7, 2019, FINRA approved the Registrant’s name change and its trading symbol was changed from “VRCP” to “VBIX” on the OTCQB. On the Closing Date, the Company (i) issued 20,281,085 shares of its common stock to Gix in exchange for consideration consisting of consideration for its 99.83% holdings in Viewbix Israel, and (ii) 3,434,889 shares of its common stock to holders of convertible notes, which were issued by the Company prior to the Reverse Recapitalization, and which were converted upon the Closing Date. The shares of common stock were issued under Regulation S. The Company also issued a total of 7,298,636 warrants to Gix to purchase the Company’s common stock, whereby (i) 3,649,318 of such warrants were issued with an exercise price of $0.48, and (ii) 3,649,318 of such warrants were issued with an exercise price of $0.80. 33 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Notes to Consolidated Financial Statements U.S. dollars in thousands (except share and per share data) NOTE. 1 GENERAL (Cont.) D. Transaction with Gix Internet Ltd. (formerly known as Algomizer Ltd.), or Gix (the “Recapitalization Transaction”): (Cont.) As a result of the Recapitalization Transaction, Viewbix Israel became a subsidiary of the Company. As the shareholders of Viewbix Israel received the largest ownership interest in the Company, Viewbix Israel was determined to be the “accounting acquirer” in the Recapitalization Transaction. As a result, the historical financial statements of the Company were replaced with the historical financial statements of Viewbix Israel. The number of shares prior to the reverse recapitalization have been retroactively adjusted based on the equivalent number of shares received by the accounting acquirer in the Recapitalization Transaction. The Company and its subsidiaries are collectively referred to as the “Company”. Viewbix Israel was incorporated on February 2006 in Israel. The Company has developed an interactive video platform based on Software as a Service (“SaaS”) business model with interactive elements, and the ability to collect and analyze information about each interactive action performed during the viewing of the video clip. The interactive elements and information gathered, allowing the advertiser to analyze user viewing habits and optimize real-time throughout the campaign while increasing the effectiveness of online and live video advertising. On January 1, 2020, the Company announced certain cost reduction measures due the Company not achieving certain revenues goals. E. Stock Subscription Agreement and Loan Agreement On December 18, 2020, the company entered into a Stock Subscription Agreement (the “Subscription”) with certain investors (the “Investors”) in connection with the sale and issuance of an aggregate of 3,000,000 shares of Common Stock, at a purchase price of $0.01 per share, and for an aggregate purchase price of $30,000. In addition, and on the same date, the company entered into a Loan Agreement (the “Loan”) with the Investors, pursuant to which the Investors lent an aggregate amount of $69,000 (the “Principal Amount”). In accordance with the terms of the Loan, the company repaid the interest on the Principal Amount (8% compounded annually) to the Investors as an issuance of 552,000 shares of Common Stock, at a price per share of $0.01. The shares of Common Stock were issued to the Investors pursuant to Regulation S of the Securities Act of 1933, as amended. 34 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Notes to Consolidated Financial Statements U.S. dollars in thousands (except share and per share data) NOTE. 1 GENERAL (Cont.) F. Going Concern The Company has incurred $ 443 in net loss for the year ended December 31, 2020, has $2,078 stockholders’ deficit as of December 31, 2020 and $1,693 in total stockholders’ deficit as of December 31, 2019 and $61 in negative cash flows from operations for the year ended December 31, 2020. On July 25, 2019, the Company ceased the operations of VCT Israel and since January 2020, the Company has significantly reduced its operations and expenses of Viewbix Israel. Management expects the Company to continue to generate substantial operating losses and to continue to fund its operations primarily through utilization of its current financial resources and through additional raises of capital. Such conditions raise substantial doubts about the Company’s ability to continue as a going concern. Management’s plan includes raising funds from outside potential investors. However, there is no assurance such funding will be available to the Company or that it will be obtained on terms favorable to the Company or will provide the Company with sufficient funds to meet its objectives. These financial statements do not include any adjustments relating to the recoverability and classification of assets, carrying amounts or the amount and classification of liabilities that may be required should the Company be unable to continue as a going concern. NOTE. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies used in the preparation of the financial statements are as follows: Functional currency The functional currency of the Company and its subsidiary is the US dollar, which is the currency of the primary economic environment in which it operates. In accordance with ASC 830, “Foreign Currency Matters” (ASC 830), balances denominated in or linked to foreign currency are stated on the basis of the exchange rates prevailing at the applicable balance sheet date. For foreign currency transactions included in the statement of operations, the exchange rates applicable on the relevant transaction dates are used. Gains or losses arising from changes in the exchange rates used in the translation of such transactions are carried as financing income or expenses. 35 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Notes to Consolidated Financial Statements U.S. dollars in thousands (except share and per share data) NOTE. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) Principles of consolidation The consolidated financial statements include the accounts of the Company and its subsidiary. All intercompany balances and transactions have been eliminated in consolidation. Cash and cash equivalents The Group considers all short-term investments, which are highly liquid investments with original maturities of three months or less at the date of purchase, to be cash equivalents. Property and equipment 1. Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. When an asset is retired or otherwise disposed of, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition is reflected in the statements of operations. 2. Rates of depreciation: % Computers 33 Furniture and office equipment 7-15 Impairment of long-lived assets The Company’s long-lived assets are reviewed for impairment in accordance with ASC 360, “Property, Plant and Equipment”, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. To date the Group did not incur any material impairment losses. 36 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Notes to Consolidated Financial Statements U.S. dollars in thousands (except share and per share data) NOTE. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) Share-based compensation The Company applies ASC 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expenses for all share-based payment awards made to employees and directors (including employee stock options under the Company’s stock plans) based on estimated fair values. ASC 718-10 requires companies to estimate the fair value of equity-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s statement of operations. The Company recognizes compensation expenses for the value of non-employee awards based on the straight-line method over the requisite service period of each award, net of estimated forfeitures. The Company estimates the fair value of stock options granted as equity awards using a Black-Scholes options pricing model. The option-pricing model requires a number of assumptions, of which the most significant are share price, expected volatility and the expected option term (the time from the grant date until the options are exercised or expire). Expected volatility is estimated based on volatility of similar companies in the technology sector. The Company has historically not paid dividends and has no foreseeable plans to issue dividends. The risk-free interest rate is based on the yield from governmental zero-coupon bonds with an equivalent term. The expected option term is calculated for options granted to employees and directors using the “simplified” method. Grants to non-employees are based on the contractual term. Changes in the determination of each of the inputs can affect the fair value of the options granted and the results of operations of the Company. Earnings per Common Share Earnings or loss per share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to ASC 260-10-45. Pursuant to ASC 260-10-45-10 through 260-10-45-16 Basic EPS is computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants. Revenue recognition The Company applies the provisions of Accounting Standards Codification (or “ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). The Company adopted the provisions of ASC 606 effective January 1, 2018 using the modified retrospective application method for all uncompleted contracts as of that date. The adoption of ASC 606 did not have a material impact on the Company’s consolidated financial statements. In addition, the adoption of ASC 606 had no impact on the Company’s trade receivables, deferred revenues and accumulated deficit balances balance as of December 31, 2018 or on the Company’s revenues, cost of revenues or its operating expenses during 2018, compared to ASC 605. The Company generates revenues primarily by granting customers the right to access software products through the Company’s cloud-based SaaS subscription offerings. Under a SaaS subscription agreement, the customer receives a right to access the software for a specified period of time in an environment hosted, supported, and maintained by the Company. SaaS subscription services are a single performance obligation satisfied over time, and associated revenue is generally recognized ratably over the contract term once the software is made available to the customer. The SaaS subscription offerings are typically sold with one year subscription terms, generally invoiced in advance of each annual subscription period, and are non-cancelable during the committed subscription term. Research and development expenses, net: Research and development expenses are charged to the statement of operations as incurred. 37 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Notes to Consolidated Financial Statements U.S. dollars in thousands (except share and per share data) Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) Income Taxes: The Company accounts for income taxes in accordance with ASC 740, “Income Taxes”, and (“ASC 740”). ASC 740 prescribes the use of the asset and liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and for carry forward tax losses. Deferred taxes are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it is more-likely-than-not that some portion or all of the deferred tax asset will not be realized. In addition, ASC 740 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The first step is to evaluate the tax position taken or expected to be taken in a tax return. This is done by determining if the weight of available evidence indicates that it is more-likely-than-not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Contingencies The Company records accruals for loss contingencies arising from claims, litigation and other sources when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. Legal costs incurred in connection with loss contingencies are expensed as incurred. 38 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Notes to Consolidated Financial Statements U.S. dollars in thousands (except share and per share data) Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) Recently issued accounting pronouncements Financial Instruments – Credit Losses In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326).” The guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance will be effective for the Company’s fiscal year beginning January 1, 2023, including interim periods within that year. The Company is currently evaluating the potential effect of the adoption of ASU 2019-10 on our financial position and results of operations. The Company does not expect the adoption of this ASU to have a material impact on the Company’s financial statements. Accounting for Income Taxes In December 2019, the FASB issued a new standard to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard will be effective for us beginning July 1, 2021, with early adoption permitted. Adoption of the standard will not have a material impact on our consolidated financial statements. 39 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Notes to Consolidated Financial Statements U.S. dollars in thousands (except share and per share data) Note 3. Other Accounts receivables Composition: As of December 30 As of December 31 2 0 2 0 2 0 1 9 Government authorities $ 20 $ 118 Other - 1 $ 20 $ 119 Note 4. Property and equipment Composition: As of December 30 As of December 31 2 0 2 0 2 0 1 9 Cost: Computers and related equipment $ 34 $ 34 Office furniture and equipment 9 9 43 43 Accumulated depreciation 43 38 Net book value $ - $ 5 Note 5. Other accounts payable and accrued liabilities Composition: As of December 30 As of December 31 2 0 2 0 2 0 1 9 Other payables and deferred revenues $ 47 $ 91 Accrued liabilities 130 149 Other - 6 $ 177 $ 246 40 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Notes to Consolidated Financial Statements U.S. dollars in thousands (except share and per share data) Note 6. Related Party Transactions. Balances: December 31, December 31, 2 0 2 0 2 0 1 9 Gix – Parent Company Payable $ 2,054 $ 1,611 As part of the agreement with Gix, the parties agreed to have the Company’s operations outsourced to Gix from the agreement date and until the acquisition is consummated. The following term were included in the agreement pursuant to the above: (a) From May 2018 all of the Company’s employees will become employees of Gix. (b) Between the periods of May 2018 to October 2018, Gix will pay the full expenses of the employees as well as other related expenses. (c) From November 2018 until to the Closing Date, the employees transferred from the Company to Gix will dedicate half of their time to the Company’s operations and correspondingly 50% of the costs to be incurred by Gix in respect of these employees are to be charged to the Company. From the closing date, the actual of the expenses incurred by Gix that related to the Company will be charged to the Company. No amounts were paid by the Company to Gix during 2020 and 2019. Note 7. Short term loan and Issues of shares On December 18, 2020, the company entered into a Loan Agreement (the “Loan”) and Stock Subscription Agreement with certain Investors as described in note 1e, pursuant to which the Investors lent an aggregate amount of $69,000 (the “Principal Amount”). In accordance with the terms of the Loan, the company prepaid the interest on the Principal Amount of 8% compounded annually to the Investors as an issuance of 552,000 shares of Common Stock, at a price per share of $0.01. Under the Stock Subscription Agreement, the Investors transferred an amount of $ 30,587 to the company as consideration for the issued shares. The Company allocated the total proceeds in respect of the shares issued and the Loan extended based on its relative fair values. As a result of the allocation, a discount of $19 was recorded on the loan. The discount is amortized over the term of the loan as finance expense. 41 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Notes to Consolidated Financial Statements U.S. dollars in thousands (except share and per share data) Note 7. Short term loan and Issues of shares (Cont.) The allocation of the proceeds to the fair value distribution of the liability and equity components on the transactions date was as follows: Instrument Fair Value % of total fair Allocated amount Loan 55,200 49.45 49,246 Shares 54,000 50.55 50,340 Total 109,200 100 99,586 The composition of short term loan balance as of the transaction is as follows: Principal amount 69 Discount on Short term loan (19 ) Short term loan, Net 50 Note 8. Stockholders’ deficit. Ordinary Shares: Ordinary shares confer the right to participate in the general meetings, to one vote per share for any purpose, to an equal part, on share basis, in distribution of dividends and to equally participate, on share basis, in distribution of excess of assets and funds from the Company and they shall not confer other privileges unless stated hereunder or in the Companies Law otherwise. Some investors have standard anti-dilutive rights, registration rights, and information and representation rights. On December 18, 2020, the company entered into a Stock Subscription Agreement (the “Subscription”) with certain investors (the “Investors”) in connection with the sale and issuance of an aggregate of 3,000,000 shares of Common Stock, at a purchase price of $0.01 per share, and for an aggregate purchase price of $30,000. In addition, and on the same date, the company entered into a Loan Agreement (the “Loan”) with the Investors, pursuant to which the Investors lent an aggregate amount of $69,000 (the “Principal Amount”). In accordance with the terms of the Loan, the company repaid the interest on the Principal Amount of 8% compounded annually to the Investors as an issuance of 552,000 shares of Common Stock, at a price per share of $0.01. The shares of Common Stock were issued to the Investors pursuant to Regulation S of the Securities Act of 1933, as amended. For more details, please see note 1e. 42 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Notes to Consolidated Financial Statements U.S. dollars in thousands (except share and per share data) Note 8. Stockholders’ deficit. (Cont.) Preferred shares (relating to Viewbix Ltd the prior to the Recapitalization Transaction ) : Preferred shares may have been converted into ordinary shares of Viewbix Ltd at any time. The preferred shares would have automatically converted into ordinary shares if (a) the holders of at least (i) 67% (sixty seven percent) of the issued and outstanding Preferred C/C-1 shares, (ii) a majority of the issued and outstanding Preferred B shares, and (iii) a majority of the issued and outstanding Preferred A shares, so agree in writing; or (b) in the event of an IPO. The conversion price for any class or series of preferred would have been subject to adjustment, as follows: at any time, upon each issuance or deemed issuance by the Company of any new securities at a price per share less than the applicable conversion price in effect on the date of and immediately prior to the issuance of such new securities, the conversion price shall be reduced. Preferred shares had priority in the distribution of dividends and upon liquidation in accordance with the Company’s Articles of Association (“AOA”). These rights may be changed if a meeting of the Company’s stockholders gather up and decides on a change of regulations in this context. The preference mechanism for liquidation and the distribution of dividends gave priority to the most recent preferred stockholders. The preferred shares were convertible into 16,199,520 ordinary shares of the Company. Redemption The Company’s AOA do not provide redemption rights to the holders of the preferred shares. In the event of a liquidation event, all the funds and assets of the Company available for distribution among all the stockholders shall be distributed based on a certain mechanism as described in the Company’s AOA. Although the preferred shares are not redeemable, in the event of certain “deemed liquidation events” that are not solely within the Company’s control (including merger, acquisition, or sale of all or substantially all of the Company’s assets), the holders of the preferred shares would be entitled to preference amounts paid before distribution to other stockholders (as explained in the previous paragraph) and hence effectively redeeming the preference amount. In accordance with ASR 268 and ASC 480 “Distinguishing Liabilities from Equity”, the Company’s preferred shares are classified outside of stockholders’ deficit as a result of these in-substance contingent redemption rights. As of December 31, 2019 and 2018, the Company did not adjust the carrying values of the convertible preferred shares to the deemed liquidation values of such shares since a liquidation event was not probable of occurring. Share Exchange As detailed in Note 1, as part of the Recapitalization Transaction in July 2019, the Company issued 30,928,620 common shares in exchange for 99.83% of the issued and outstanding ordinary shares and all the preferred shares of Viewbix Israel. The number of shares prior to the reverse capitalization have been retroactively adjusted based on the equivalent number of shares received by the accounting acquirer in the Recapitalization Transaction. Warrants The following table summarizes information of outstanding warrants as of December 31, 2020: Warrants Warrant Term Exercise Price Exercisable Class J Warrants 3,649,318 July 2029 0.48 3,649,318 Class K Warrants 3,649,318 July 2029 0.80 3,649,318 Additionally, in connection with the Share Exchange Agreement, upon the earlier of: (a) the launch of a live video product to an American consumer in the United States by Viewbix Israel, or (b) the launch of an interactive television product to an American consumer in the United States by Viewbix Israel, the Company will issue to Gix an additional 1,642,193 shares of restricted common stock of the Company. All of the Company’s warrants meet the US GAAP criteria for equity classification. During January and March 2020, 50,000 class H warrants expired. During January 2020, 38,095 class I warrants expired. During April 2020, 142,857 Class G warrants expired. 43 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Notes to Consolidated Financial Statements U.S. dollars in thousands (except share and per share data) Note 9. Commitments and Contingencies During August 2019, a lawsuit was filed against the Company and its parent Company, Gix. The plaintiffs claim that they were entitled to receive shares of the Company as a part of the consideration in Gix’s acquisition of the Company. In management’s opinion, the plaintiffs’ claims are based on incorrect assumptions that relate to the distribution of shares between the plaintiffs and other former shareholders of the Company prior to Gix’s acquisition which would have resulted in the receipt of shares in the acquisition transaction. During September 2020, a settlement was reached between the parties which was later approved by the court. The settlement outlines that in exchange for the voluntary waiver of claims made by the plaintiffs, Gix will issue 63,350 shares of its common stock held in trust in favor of securing the transaction by which Gix acquired shares of ViewBix Ltd. in November 2018. The remaining shares in the trust account will be used to indemnify Gix for any expenses related to the litigation. Since the consideration was paid in Gix’s shares, and as the claims relate to the distribution of shares between the plaintiffs and other former shareholders of the Company, the settlement did not impact on the Company’s financial statements. In June 2017, a lawsuit was filed by a former CEO of the Company with the Tel Aviv District Court (the “Tel Aviv Court”) against the Company claiming certain damages in the total amount of $225, under the assertion of wrongful termination by the Company and Emerald Israel. The Company believes these claims to be unsubstantiated and wholly without merit and accordingly filed its response with the Tel Aviv Court in October of 2017. The dispute was initially heard by the Tel Aviv Court on February 13, 2020. In a supplemental hearing on February 11, 2021 the former CEO provided data regarding his claims and his summaries were filed on that day. The Company’s summaries will be filed within 30 days of receiving the former CEO summaries. As of December 31, 2020, the company’s management, in consultation with its legal advisors, believes that the former CEO’s claims will not be Successful. Note 10. Revenues. Year ended December 31, 2020 2019 Individual Subscriptions 13 17 Enterprise Subscriptions 83 191 96 208 Note 11. Research and development expenses. Year ended December 31, 2020 2019 Salaries and related expense 55 219 Others 53 14 108 233 44 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Notes to Consolidated Financial Statements U.S. dollars in thousands (except share and per share data) Note 12. Seles and marketing expenses. Year ended December 31, 2020 2019 Salaries and related expense 7 110 Others 1 147 8 257 Note 13. General and administrative expenses. Year ended December 31, 2020 2019 Wages, salaries and related expenses 214 276 Professional fees 176 213 Depreciation 5 1 Recapitalization Transaction costs - 112 Other 42 118 437 720 Note 14. Financing (income) expenses, net Year ended December 31, 2020 2019 Bank fees 1 3 Exchange rate differences (14 ) 107 Other financial income - (12 ) (13 ) 98 45 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Notes to Consolidated Financial Statements U.S. dollars in thousands (except share and per share data) Note 15. Income Taxes. The Company is subject to income taxes under the Israeli and U.S. tax laws: Tax rates applicable to the income of the Company: Viewbix Inc. is taxed according to U.S. tax laws. On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which among other provisions, reduced the U.S. corporate tax rate from 35% to 21%, effective January 1, 2018. Viewbix Israel and Israeli subsidiaries are taxed according to Israeli tax laws. The Israeli corporate tax rate is 23% in the years 2020, 2019 and onwards. Deferred income taxes: Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows: As of December 31 As of December 31 2 0 2 0 2 0 1 9 Deferred R&D expenses $ 114 $ 239 Operating loss carryforward 32,256 32,443 $ 32,370 $ 32,682 Net deferred tax asset before valuation allowance $ 7,076 $ 7,149 Valuation allowance (7,076 ) (7,149 ) Net deferred tax asset $ - $ - As of December 31, 2020, the Company has provided valuation allowances of $7,076 in respect of deferred tax assets resulting from tax loss carryforward and other temporary differences. Management currently believes that because the Company has a history of losses, it is more likely than not that the deferred tax regarding the loss carryforward and other temporary differences will not be realized in the foreseeable future. Available carryforward tax losses: As of December 31, 2020, Viewbix Israel incurred operating losses in Israel of approximately $13,804 which may be carried forward and offset against taxable income in the future for an indefinite period. As of December 31, 2020 the Company generated net operating losses in the U.S. of approximately $18,452 Net operating losses in the U.S. are available through 2035. Utilization of U.S. net operating losses may be subject to substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization. 46 VIEWBIX INC. (Formerly known as Virtual Crypto Technologies, Inc.) Notes to Consolidated Financial Statements U.S. dollars in thousands (except share and per share data) Note 15. Income Taxes (cont.) Loss (income) from continuing operations, before taxes on income, consists of the following: For the year ended December 31 2020 2019 USA $ 65 $ 113 Israel 376 989 $ 441 $ 1,102 NOTE 16. LOSS PER SHARE-BASIC AND DILUTED Composition: For the year ended December 31 2 0 2 0 2 0 1 9 Basic and diluted: Net loss attributable to ordinary stockholders 443 1,117 Weighted-average ordinary shares 31,201,669 13,746,064 Loss per share-basic and diluted 0.014 0.08 NOTE 17. - COVID-19 PANDEMIC IMPLICATIONS The COVID-19 pandemic, which originated in China in late 2019, has since spread across the globe and affected the economic condition of most, if not all, countries, including the United States, Israel and many countries in Europe. On March 11, 2020, the World Health Organization declared the outbreak a pandemic. While COVID-19 is still spreading and the final implications of the pandemic are difficult to estimate at this stage, it is clear that it has affected the lives of a large portion of the global population. As of December 31, 2020, the pandemic has caused repeated states of emergency to be declared in various countries, ongoing and extended travel restrictions have been imposed for several months, strict quarantines rules have been established and maintained for an extended period of time in a plethora of jurisdictions and various institutions and companies have been closed and rendered bankrupt. The Company is actively monitoring the pandemic and is taking any necessary measures to respond to the situation in cooperation with the various stakeholders. Due to the uncertainty surrounding the COVID-19 pandemic, the Company will continue to assess the situation, including government-imposed restrictions, market by market. It is not possible at this time to estimate the full impact that the COVID-19 pandemic could have on the Company’s business, the continued spread of COVID-19, and any additional measures taken by governments, health officials or by the Company in response to such spread, could have on the Company’s business, results of operations and financial condition. The COVID-19 pandemic and mitigation measures have also negatively impacted global economic conditions, which, in turn, could adversely affect the Company’s business, results of operations and financial condition. The extent to which the COVID-19 outbreak continues to impact the Company’s financial condition will depend on future developments that are highly uncertain and cannot be predicted, including new government actions or restrictions, new information that may emerge concerning the severity, longevity and impact of the COVID-19 pandemic on economic activity. 47 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.