QUANTUM X LABS INC. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS Special Note Regarding Forward-Looking Statements The following management’s discussion and analysis section should be read in conjunction with the Company’s unaudited financial statements as of September 30, 2022 and 2021, and the related statements of statement operation, statement of changes in shareholders’ equity and statements of cash flows for the nine and three months then ended, and the related notes thereto contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”). Forward-Looking Statements This management discussion and analysis section contains forward-looking statements, such as statements of the Company’s plans, objectives, expectations, and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like, and/or future tense or conditional constructions “will,” “may,” “could,” “should,” etc., or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. Forward-looking statements are based on information we have when those statements are made or our management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to: ● the short-term and long-term implications caused by our recent cost reduction efforts, including, but not limited to, our growing inability to secure and maintain customers on the basis of insufficient capital resources; ● sustained turnover of key management; ● our history of recurring losses and negative cash flows from operating activities, significant future commitments and the uncertainty regarding the adequacy of our liquidity to pursue our complete business objectives; ● our need to raise additional capital to meet our business requirements in the future and such capital raising may be costly or difficult to obtain and could dilute out shareholders’ ownership interests; ● the impact of the COVID-19 pandemic on our business plan and the global economy; ● our ability to adequately protect our intellectual property; ● our ability to successfully integrate the business of Gix Media Ltd. (“Gix Media”), our wholly owned subsidiary; ● Subsidiaries’ future performance; ● entry of new competitors and products and potential technological obsolescence of our products. The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with which may cause our actual results to differ from those anticipated in our forward-looking statements. For a discussion of these and other risks that relate to our business and investing in our common stock, you should carefully review the risks and uncertainties described in this Quarterly Report on Form 10-Q, and those contained in section captioned “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on March 17, 2022 (the “Annual Report”). The Company’s actual results could differ materially from those contemplated in these forward-looking statements as a result of these factors. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report. Overview and background Viewbix Inc. (f/k/a Virtual Crypto Technologies, Inc., f/k/a Emerald Medical Applications Corp.) (the “Registrant” or the “Company”) and its subsidiaries (the “Group”) operate in the field of digital advertising in two main areas of activity: search and digital content. The Group develops and markets a variety of technological software solutions that automate, optimize and monetize online campaigns. The Group, through its subsidiary, Cortex Media Group Ltd. (“Cortex”), also creates, edits and markets content in various languages to different target audiences for the purpose of generating advertising revenue on the content, based on the world’s leading advertising platforms, such as Google, Facebook, Yahoo, Apple and more. The Group’s technological tools enable advertisers and website owners to earn more from their advertising campaigns and generate additional profits from their sites. - 39 - The Company was incorporated in the State of Delaware on August 16, 1985, under a predecessor name, The InFerGene Company (“InFerGene Company”). On August 25, 1995, a wholly owned subsidiary of InFerGene Company merged with Zaxis International, Inc., an Ohio corporation, which following such merger, the surviving entity, InFerGene Company, changed its name to Zaxis International, Inc (“Zaxis”). On March 16, 2015, Zaxis and Emerald Medical Applications Ltd., a private limited liability company (“Emerald Israel”) executed a share exchange agreement, which closed on July 14, 2015, and Emerald Israel became the Company’s wholly-owned subsidiary. Accordingly, on September 14, 2015, the Company changed its name to Emerald Medical Applications Corp. 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. On January 17, 2018, the Company formed a new wholly-owned subsidiary under the laws of the State of Israel, Virtual Crypto Technologies Ltd. (“VCT Israel”). On February 22, 2018, the Company’s name was changed from Emerald Medical Applications Corp. to Virtual Crypto Technologies, Inc. to reflect its new operations and business focus. On January 27, 2020, VCT Israel was sold to a third party for NIS 50,000 ($14,459). On February 7, 2019, the Company entered into a share exchange agreement (the “Recapitalization Transaction”) with Gix Internet Ltd., an company organized under the laws of the State of Israel (“Gix” or “parent company”), pursuant to which, Gix assigned, transferred and delivered 99.83% of its holdings in Viewbix Ltd., a company organized under the laws of the State of Israel (“Viewbix Israel”), to the Company in exchange for shares of restricted common stock, par value $0.0001 per share (“Common Stock”) of the Company, which resulted in Viewbix Israel becoming a subsidiary of the Company. In connection with the Recapitalization Transaction, effective as of July 26, 2019, the Company’s name was changed from Virtual Crypto Technologies, Inc. to Viewbix Inc. On September 19, 2022, the Company consummated the Reorganization Transaction (as further described below), which resulted in Gix Media Ltd. (“Gix Media”) becoming a wholly owned subsidiary of the Company. Following the closing of the Reorganization Transaction, the Company intends to incorporate Gix Media’s technology into its operations while aiming to expand its growth potential in the search and content monetization space. Gix Media’s business operations include both (i) the provision of services to the world’s leading search engines through the development, marketing and distribution of free software to many Internet users, and (ii) editing and marketing of content in different languages to different target markets, for the purpose of monetizing advertisements on digital marketing and advertising platforms. Recent Developments Appointments of Executive Officers and Director On September 19, 2022, in connection with the Reorganization Transaction, the Company’s board of directors appointed Mr. Eliyahu Yoresh, Mr. Amitay Weiss and Mr. Liron Carmel as directors of the Company, as representatives of Gix Media. On June 28, 2022, Mr. Amihay Hadad, the Company’s current chief executive officer, tendered his resignation from his position as chief financial officer, effective June 28, 2022, and concurrent therewith, the Company’s board of directors appointed Mr. Shahar Marom to serve as the Company’s new chief financial officer, effective July 1, 2022. On June 13, 2022, the Company’s board of directors appointed Mr. Yoram Baumann as a director of the Company and as chairman of the board of directors of the Company. - 40 - Reorganization Transaction with Gix Media Ltd. On December 5, 2021, the Company entered into a certain Agreement and Plan of Merger (the “Reorganization Transaction”) with Gix Media, an Israeli company and the majority-owned subsidiary of Gix, the parent company and Vmedia Merger Sub Ltd., an Israeli company and wholly-owned subsidiary of the Company (“Merger Sub”), pursuant to which, following the Reorganization Transaction, and upon satisfaction of additional closing conditions, Merger Sub will merge with and into Gix Media, with Gix Media being the surviving entity and a wholly-owned subsidiary of the Company. Prior to the closing of the Reorganization Transaction, Gix Media was a majority-owned subsidiary of Gix, which held approximately 58% of the Common Stock of the Company, on a fully diluted basis. On September 19, 2022, the Reorganization Transaction, was consummated (the “Closing”) and as a result, all outstanding ordinary shares of Gix Media, having no par value (the “Gix Media Shares”) were exchanged for shares of the Company’s Common Stock. Following the Reorganization Transaction, holders of the Gix Media Shares held 90% of the Company’s Common Stock on a fully diluted basis, with Gix holding 76.67% of the Common Stock on a fully diluted basis. The following illustrates the corporate structure of the Company prior to and following the Reorganization Transaction. Following the Reorganization Transaction, the board of directors of the Company consists of six (6) directors, comprised of the three (3) new directors appointed by Gix Media, Eliyahu Yoresh, Amitay Weiss and Liron Carmel, who joined the Company’s three currently serving directors, Yoram Baumann, Amihay Hadad and Alon Dayan. In connection with the Closing, the Company filed an Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware, effective as of August 31, 2022, pursuant to which the Company, among other things, effected a reverse stock split of its Common Stock at a ratio of 1-for-28. The foregoing description of the Amended and Restated Certificate of Incorporation does not purport to be completed and is qualified in its entirety by reference to the full text of the Amended and Restated Certificate of Incorporation, of which was filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 6, 2022 and is incorporated by reference herein. Additionally, and in connection with the Closing, the Company adopted Amended and Restated Bylaws, a copy of which was filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K and is incorporated by reference herein. Acquisition of Cortex Media Group Ltd. On October 13, 2021, Gix Media acquired 70% (on a fully diluted basis) of the share capital of Cortex Media Group Ltd. (“Cortex” and the “Cortex Acquisition”, respectively), a private company operating in the field of online media and advertising. In consideration for the Cortex Acquisition, Gix Media paid NIS 35 million in cash (approximately $11 million), out of which an amount of $0.5 million was deposited in trust for a period of 12 months from the closing date. The Cortex Acquisition also includes the obligation (and right) of Gix Media to acquire 30% of Cortex’s share capital in three equal stages, each at the beginning of the years 2023, 2024 and 2025 (“Remaining Balance Shares”), such that following the completion of the acquisition of all the Remaining Balance Shares, Gix Media will hold 100% of Cortex’s share capital on a fully diluted basis. In connection with the Cortex Acquisition, at the closing date, Gix Media entered into a financing agreement with Bank Leumi Le Israel Ltd (“Leumi”), for the provision of a line of credit in the total amount of up to $3.5 million and a long-term loan totaling $6 million, which Gix Media used to finance the Cortex Acquisition (the “Financing Agreement”). - 41 - Results of Operations Results of Operations During the Nine Months Ended September 30, 2022 as Compared to the Nine Months Ended September 30, 2021 Our revenues were $66,115 thousand for the nine months ended September 30, 2022, compared to $23,874 thousand during the same period in the prior year. The reason for the increase in the nine months ended September 30, 2022, is due to the Cortex Acquisition on October 13, 2021, therefore, the financial statements of the Company for the nine months ended September 30, 2022, include Cortex’s financial statements as compared to the same period in the prior year which does not include Cortex’s financial statements. Our traffic-acquisition and related costs buy expenses were $56,400 thousand for the nine months ended September 30, 2022, as compared to $19,582 thousand during the same period in the prior year. The reason for the increase in the nine months ended September 30, 2022, is due to the inclusion of Cortex’s financial statements. Our research and development expenses were $2,957 thousand for the nine months ended September 30, 2022, and $1,530 for the nine months ended September 30, 2021. The reason for the increase in the nine months ended September 30, 2022, is due to the inclusion of Cortex’s financial statements. Our selling and marketing expenses were $1,853 thousand for the nine months ended September 30, 2022, as compared to $584 thousand during the same period in the prior year. The reason for the increase in the nine months ended September 30, 2022 is due to the inclusion of Cortex’s financial statements. Our general and administrative expenses were $1,326 thousand for the nine months ended September 30, 2022, as compared to $907 thousand during the same period in the prior year. The reason for the increase in the nine months ended September 30, 2022, is due to the inclusion of the Cortex’s financial statements. Our depreciation and amortization expenses increased to $2,051 thousand for the nine months ended September 30, 2022, as compared to $1,289 thousand during the same period in the prior year. The reason for the increase in the three months ended September 30, 2022, is that the Company recorded depreciation and amortization expenses in connection with the Cortex Acquisition on October 13, 2021. Our other expenses were $121 thousand for the nine months ended September 30, 2022, compared to $26 thousand during the nine months ended September 30, 2021. The reason for the increase during the nine months ended September 30, 2022, is an increase in the expenses in connection with the Reorganization Transaction. Our net financial expenses were $1,374 thousand for the nine months ended September 30, 2022, compared to $91 thousand net financial income during the same period in the prior year. The reason for the increase during the nine months ended September 30, 2022 is mainly due to: (1) financial expenses in connection with the Financing Agreement as part of the Cortex Acquisition on October 13, 2021 and (2) the increase of the USD to NIS exchange rate in the period ended September 30, 2022. Our tax expenses were $63 thousand for the nine months ended September 30, 2022, as compared to $41 thousand income tax during the same period in the prior year. The reason for the increase during the nine months ended September 30, 2022 is due to the inclusion of Cortex’s financial statements. Results of Operations During the Three Months Ended September 30, 2022 as Compared to the Three Months Ended September 30, 2021 Our revenues were $22,778 thousand for the three months ended September 30, 2022, compared to $8,079 thousand during the same period in the prior year. Our traffic-acquisition and related costs were $19,464 thousand for the three months ended September 30, 2022, as compared to $6,738 thousand during the same period in the prior year. The reason for the increase in the three months ended September 30, 2022, is due to the inclusion of the Cortex’s financial statements. - 42 - Our research and development expenses were $987 thousand for the three months ended September 30, 2022, as compared to $474 thousand during the same period in the prior year. The reason for the increase in the three months ended September 30, 2022 is due to the inclusion of Cortex’s financial statements. Our selling and marketing expenses increase to $628 thousand for the three months ended September 30, 2022, as compared to $215 thousand during the same period in the prior year. The reason for the increase in the three months ended September 30, 2022 is due to the inclusion of Cortex’s financial statements. Our general and administrative expenses increased to $450 thousand for the three months ended September 30, 2022, as compared to $313 thousand during the same period in the prior year. The reason for the increase in the three months ended September 30, 2022, is due to the inclusion of Cortex’s financial statements. Our depreciation and amortization expenses increased to $736 thousand for the three months ended September 30, 2022, as compared to $427 thousand during the same period in the prior year. The reason for the increase in the three months ended September 30, 2022, is that the Company recorded depreciation and amortization expenses in connection with the Cortex Acquisition on October 13, 2021. Our other expenses were $86 thousand for the three months ended September 30, 2022, compared to $26 thousand during the three months ended September 30, 2021. The reason for the increase during the three months ended September 30, 2022, is the increase in the expenses in connection with the Reorganization Transaction. Our net financial expenses were $301 thousand for the three months ended September 30, 2022, compared to $121 thousand net financial income during the same period in the prior year. The reason for the increase during the three months ended September 30, 2022, is mainly due to financial expenses in connection with the Financing Agreement as part of the Cortex Acquisition on October 13, 2021, and the increase of the USD to NIS exchange rate in the three months ended September 30, 2022. Our tax expenses were $55 thousand for the three months ended September 30, 2022, as compared to $81 income tax thousand during the same period in the prior year. The reason for the change in the three months ended September 30, 2022, is due to the inclusion of Cortex’s financial statements. - 43 - Liquidity and Capital Resources As of September 30, 2022, we had current assets of $28,140 thousand consisting of $3,609 thousand in cash and cash equivalents, $223 thousand restricted deposit, $16,398 thousand in accounts receivable, $814 thousand in other accounts receivable and $7,096 thousand in loan to parent company. As of September 30, 2022, we had non-current assets of $34,334 thousand consisting of $73 thousand in severance pay funds, $62 thousand in deferred taxes, $505 thousand in operating lease right-of-use assets, $317 thousand in property and equipment net, $15,762 thousand in intangible assets, net and $17,615 thousand in goodwill. As of September 30, 2022, we had $27,126 thousand in current liabilities consisting of $16,144 thousand in accounts payable, $1,862 thousand in other payables, $6,569 thousand in short term loan and current maturities of long-term loan, $93 thousand in operating lease liabilities – short term and $ 2,527 thousand in loan from parent company. As of September 30, 2022, we had $5,687 thousand in non-current liabilities consisting of $176 thousand in accrued severance pay, $3,225 thousand long-term loan, $433 thousand in operating lease liabilities - long term and $1,853 thousand in deferred taxes. As of December 31, 2021, we had current assets of $29,245 thousand consisting of $5,208 thousand in cash and cash equivalents, $16,415 thousand in accounts receivable, $1,004 thousand in other accounts receivable and a $6,384 thousand in loan to the parent company. As of December 31, 2021, we had non-current assets of $22,016 thousand consisting of $83 thousand in severance pay funds, $133 thousand in deferred taxes, $569 thousand in operating lease right-of-use assets, $334 thousand in property and equipment net, $8,414 thousand in intangible assets, net and $12,483 thousand in goodwill. As of December 31, 2021, we had $26,769 thousand in current liabilities consisting of $16,676 thousand in accounts payable, $1,317 thousand in other payables, $6,569 thousand in short term loan and current maturities of long-term loan, $91 thousand in operating lease liabilities – short term and $2,116 thousand loan from parent company. As of December 31, 2021, we had $5,975 thousand in non-current liabilities consisting of $188 thousand in accrued severance pay, $4,270 thousand in long-term loan, $491 thousand in operating lease liabilities - long term and $1,026 thousand in deferred taxes. We had a positive working capital of $1,014 thousand and $2,476 thousand as of September 30, 2022 and December 31, 2021, respectively. During the nine months ended September 30, 2022, we had positive cash flow from operating activities of $2,175 thousand, which was mainly the result of a $30 thousand in net loss, $2,855 thousand from positive adjustments to operating activities, offset by $650 negative changes in assets and liabilities items. During the nine months ended September 30, 2021, we had positive cash flow from operating activities of $1,564 thousand, which was mainly the result of $88 thousand in net income, $1,174 thousand from positive adjustments to operating activities and $302 thousand positive changes in assets and liabilities items. During the three months ended September 30, 2022, we had positive cash flow from operating activities of $1,577 thousand, which was mainly the result of $71 thousand in net income, $733 thousand from positive adjustments to operating activities, and $773 thousands from positive changes in assets and liabilities items. - 44 - During the three months ended September 30, 2021, we had positive cash flow from operating activities of $522 thousand, which was mainly the result of $91 thousand in net income, $450 thousand from positive adjustments to operating activities offset by $19 negative changes in assets and liabilities items. There are no limitations in the Company’s Amended and Restated Certificate of Incorporation on the Company’s ability to borrow funds or raise funds through the issuance of shares of its common stock to affect a business combination. As of September 30, 2022, the Company has provided several liens under Gix Media’s Financing Agreement with Leumi in connection with the Cortex Acquisition, as follows: (1) a guarantee to Bank Leumi of all of Gix Media’s obligations and undertakings to Bank Leumi, unlimited in amount; (2) a subordination letter on behalf of the Company to Leumi Bank; (3) a first ranking asset charge over all of the assets of the Company; and (4) a Deposit Account Control Agreement over the Company’s bank accounts. . Gix Media has provided several liens under the Financing Agreement with Leumi in connection with the Cortex Transaction, as follows: (1) a floating lien on Gix Media’s assets; (2) a lien on Gix Media’s bank account in Leumi; (3) a lien on Gix Media’s rights under the Cortex Transaction; (4) a fixed lien on Gix Media’s intellectual property; and (5) a lien on all of Gix Media’s holdings in Cortex. According to the Financing Agreement, Gix Media undertook to meet financial covenants over the life of the loans as follows: (1) the ratio of debt to EBITDA, based on the Gix Media’s consolidated financial statements in all 4 consecutive quarters, will not exceed 2.4 in the first two years and will not exceed 1.75 in the following two years. As of September 30, 2022, Gix Media is in compliance with the financial covenants in connection with the Financing Agreement. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required for smaller reporting companies.