QUANTUM X LABS INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS VIEWBIX INC. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2024 CONTENTS Page Interim Condensed Consolidated Balance Sheets (unaudited) 4 - 5 Interim Condensed Consolidated Statements of Operations (unaudited) 6 Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited) 7 Interim Condensed Consolidated Statements of Cash Flows (unaudited) 8 - 9 Notes to the Interim Condensed Consolidated Financial Statements (unaudited) 10 - 22 - 3 - VIEWBIX INC. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) U.S. dollars in thousands (except share data) As of March 31 As of December 31 Note 2024 2023 ASSETS CURRENT ASSETS Cash and cash equivalents 1,284 1,774 Restricted deposits 86 149 Accounts receivable 7,004 11,359 Loan to parent company 3 3,808 3,752 Other current assets 623 771 Total current assets 12,805 17,805 NON-CURRENT ASSETS Deferred taxes 144 147 Property and equipment, net 230 245 Operating lease right-of-use asset 4 374 397 Intangible assets, net 5 11,715 12,434 Goodwill 5 12,254 12,254 Total non-current assets 24,717 25,477 Total assets 37,522 43,282 The accompanying notes are an integral part of these Interim Condensed Consolidated financial statements. - 4 - VIEWBIX INC. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Cont.) U.S. dollars in thousands (except share data) As of March 31 As of December 31 Note 2024 2023 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable 8,407 12,359 Short-term loans 6 4,357 5,000 Current maturities of long-term loans 6 2,065 1,440 Other payables 988 889 Operating lease liabilities - short term 4 83 85 Total current liabilities 15,900 19,773 NON-CURRENT LIABILITIES Long-term loans, net of current maturities 6 2,441 3,064 Operating lease liabilities - long term 4 281 304 Deferred taxes 1,433 1,517 Total non-current liabilities 4,155 4,885 Commitments and Contingencies 7 - - SHAREHOLDERS’ EQUITY 8 Common stock of $ 0.0001 par value - Authorized: 490,000,000 shares; Issued and outstanding: 14,920,585 shares as of March 31, 2024, and December 31, 2023. 3 3 Additional paid-in capital 25,482 25,476 Accumulated deficit ( 11,660 ) ( 10,661 ) Equity attributed to shareholders of Viewbix Inc. 13,825 14,818 Non-controlling interests 3,642 3,806 Total equity 17,467 18,624 Total liabilities and shareholders’ equity 37,522 43,282 The accompanying notes are an integral part of these Interim Condensed Consolidated financial statements. - 5 - VIEWBIX INC. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) U.S. dollars in thousands (except share data) 2024 2023 For the three months ended March 31, 2024 2023 Revenues 10,002 20,862 Costs and Expenses: Traffic-acquisition and related costs 8,215 17,981 Research and development 730 796 Selling and marketing 658 723 General and administrative 656 704 Depreciation and amortization 734 734 Other expenses 20 - Operating loss ( 1,011 ) ( 76 ) Financial expense, net 163 185 Loss before income taxes ( 1,174 ) ( 261 ) Income tax expense 1 84 Net loss ( 1,175 ) ( 345 ) Less: net income (loss) attributable to non-controlling interests ( 176 ) 52 Net loss attributable to shareholders of Viewbix Inc. ( 999 ) ( 397 ) Net income per share – Basic and diluted attributed to shareholders: ( 0.07 ) ( 0.03 ) Weighted average number of shares – Basic and diluted: 14,920,585 14,783,964 The accompanying notes are an integral part of these Interim Condensed Consolidated financial statements. - 6 - VIEWBIX INC. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) U.S. dollars in thousands (except share data) Common stock Additional paid-in Accumulated Total Attributed to the company’s Non- Controlling Total Number Amount capital Deficit Shareholders Interests Equity Balance as of January 1, 2024 14,920,585 3 25,476 ( 10,661 ) 14,818 3,806 18,624 Net loss - - - ( 999 ) ( 999 ) ( 176 ) ( 1,175 ) Share-based compensation - - 6 - 6 12 18 Balance as of March 31, 2024 14,920,585 3 25,482 ( 11,660 ) 13,825 3,642 17,467 Common stock Additional paid-in Accumulated Total Attributed to the company’s Non- Controlling Total Number Amount capital Deficit Shareholders Interests Equity Balance as of January 1, 2023 14,783,964 3 25,350 ( 3,338 ) 22,015 7,884 29,899 Balance 14,783,964 3 25,350 ( 3,338 ) 22,015 7,884 29,899 Net income (loss) - - - ( 397 ) ( 397 ) 52 ( 345 ) Share-based compensation - - 24 - 24 6 30 Transaction with the non-controlling interests (see note 1.C) - - - - - ( 2,625 ) ( 2,625 ) Balance as of March 31, 2023 14,783,964 3 25,374 ( 3,735 ) 21,642 5,317 26,959 Balance 14,783,964 3 25,374 ( 3,735 ) 21,642 5,317 26,959 The accompanying notes are an integral part of these Interim Condensed Consolidated financial statements. - 7 - VIEWBIX INC. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) U.S. dollars in thousands (except share data) 2024 2023 For the three months ended March 31, 2024 2023 Cash flows from Operating Activities Net loss ( 1,175 ) ( 345 ) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortizations 734 734 Share-based compensation 18 30 Deferred taxes ( 81 ) ( 58 ) Accrued interest, net 14 ( 6 ) Interest income ( 39 ) ( 21 ) Amortization of loan discount 2 - Changes in assets and liabilities items: Decrease in accounts receivable 4,355 5,386 Decrease in other current assets 148 151 Decrease in operating lease right-of-use asset 23 22 Decrease in severance pay, net - ( 3 ) Decrease in accounts payable ( 3,952 ) ( 5,726 ) Increase (decrease) in other payables 85 ( 122 ) Decrease in operating lease liabilities ( 25 ) ( 30 ) Net cash provided by operating activities 107 12 The accompanying notes are an integral part of these Interim Condensed Consolidated financial statements. - 8 - VIEWBIX INC. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Cont.) U.S. dollars in thousands (except share data) For the three months ended March 31, 2024 2023 Cash flows from Investing Activities Purchase of property and equipment - ( 2 ) Net cash used in investing activities - ( 2 ) Cash flows from Financing Activities Cash paid to non-controlling interests (see note 1.C) - ( 2,625 ) Receipt of short-term bank loan 100 - Repayment of short-term loans ( 743 ) ( 247 ) Receipt of long-term bank loan - 1,500 Repayment of long-term bank loans - ( 417 ) Payment of dividend to non-controlling interests - ( 445 ) Payment of dividend to shareholders - ( 130 ) Increase in loan to parent company ( 17 ) ( 72 ) Net cash used in financing activities ( 660 ) ( 2,436 ) Decrease in cash and cash equivalents and restricted cash ( 553 ) ( 2,426 ) Cash and cash equivalents and restricted cash at beginning of period 1,923 4,381 Cash and cash equivalents and restricted cash at end of period 1,370 1,955 Supplemental Disclosure of Cash Flow Activities: Cash paid during the period Taxes paid 54 185 Interest paid 205 197 Total Cash paid during the period 259 382 The accompanying notes are an integral part of these Interim Condensed Consolidated financial statements. - 9 - VIEWBIX INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) U.S. dollars in thousands (except 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 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”). In 2015 the Company changed its name to Emerald Medical Applications Corp., subsequent to which the Company, through its subsidiarity, was engaged in the development of technology for use in detection of skin cancer. On January 29, 2018, the Company ceased its business operations in this field. 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”), to develop and market software and hardware products facilitating and supporting the purchase and/or sale of cryptocurrencies. Effective as of March 7, 2018, the Company’s name was changed from Emerald Medical Applications Corp. to Virtual Crypto Technologies, Inc. VCT Israel ceased its business operation in 2019 and prior to consummation of the Recapitalization Transaction. On January 27, 2020, VCT Israel was sold to a third party for NIS 50 thousand (approximately $ 13 ). On February 7, 2019, the Company entered into a share exchange agreement (the “Share Exchange Agreement” or the “Recapitalization Transaction”) with Gix Internet Ltd., a company organized under the laws of the State of Israel (“Gix” or “Parent Company’’), pursuant to which, Gix assigned, transferred and delivered its 99.83 % 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 the Company, which resulted in Viewbix Israel becoming a subsidiary of the Company. In connection with the Share Exchange Agreement, effective as of August 7, 2019, the Company’s name was changed from Virtual Crypto Technologies, Inc. to Viewbix Inc. B. Reorganization Transaction On December 5, 2021, the Company entered into a certain Agreement and Plan of Merger with Gix Media Ltd. (“Gix Media”), an Israeli company and the majority-owned ( 77.92 %) 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, Merger Sub merged with and into Gix Media, with Gix Media being the surviving entity and a wholly-owned subsidiary of the Company (the “Reorganization Transaction”). On September 19, 2022, (the “Closing Date”) the Reorganization Transaction was consummated and as a result, all outstanding ordinary shares of Gix Media, having no par value (the “Gix Media Shares”) were delivered to the Company in exchange for the Company’s shares of common stock, par value $ 0.0001 per share (“Common Stock”). As a result of the Reorganization Transaction, the former holders of Gix Media Shares, who previously held approximately 68% of the Company’s Common Stock, hold approximately 97% of the Company’s Common Stock, and Gix Media became a wholly owned subsidiary of the Company. - 10 - VIEWBIX INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) U.S. dollars in thousands (except share data) NOTE 1: GENERAL (Cont.) B. Reorganization Transaction (Cont.) In connection with the Closing of the Reorganization Transaction, the Company filed an Amended and Restated Certificate of Incorporation (the “Amended COI”) with the Secretary of State of Delaware, effective as of August 31, 2022, pursuant to which, concurrently with the effectiveness of the Amended COI, the Company, among other things, effected a reverse stock split of its Common Stock at a ratio of 1-for-28 . As the Company and Gix Media Ltd. were consolidated both by the Parent Company and Medigus Ltd. (the “Ultimate Parent”), before and after the Reorganization Transaction, the Reorganization Transaction was accounted for as a transaction between entities under common control. Accordingly, the financial information of the Company and Gix Media Ltd. is presented in these financial statements, for all periods presented, reflecting the historical cost of the Company and Gix Media Ltd., as it is reflected in the consolidated financial statements of the Parent Company, for all periods preceding March 1, 2022, the date the Ultimate Parent obtained a controlling interest in the Parent Company and as it is reflected in the consolidated financial statements of the Ultimate Parent for all periods subsequent to March 1, 2022. C. Business Overview The Company and its subsidiaries (the “Group”), Gix Media and Cortex Media Group Ltd. (“Cortex”), operate in the field of digital advertising. The Group has two main activities that are reported as separate operating segments: the search segment and the digital content segment. The search segment develops a variety of technological software solutions, which perform automation, optimization, and monetization of internet campaigns, for the purposes of obtaining and routing internet user traffic to its customers. The search segment activity is conducted by Gix Media. The digital content segment is engaged in the creation and editing of content, in different languages, for different target audiences, for the purposes of generating revenues from leading advertising platforms, including Google, Facebook, Yahoo and Apple, by utilizing such content to obtain and route internet user traffic for its customers. The digital content segment activity is conducted by Cortex. On January 23, 2023, Gix Media acquired an additional 10 % of the share capital of Cortex, increasing its holdings to 80 % in consideration for $ 2,625 (the “Subsequent Purchase”). The Subsequent Purchase was financed by Gix Media’s existing cash balances and by a long-term bank loan received on January 17, 2023, in the amount of $ 1,500 (see also note 6.B). The Subsequent Purchase was recorded as a transaction with non-controlling interests in the Company’s statement of changes in shareholders equity for the three months ended March 31, 2023. - 11 - VIEWBIX INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) U.S. dollars in thousands (except share data) NOTE 1: GENERAL (Cont.) D. Impact of the “Iron Swords” War on Israel On October 7, 2023, following the brutal attacks on Israel by Hamas, a terrorist organization located in the Gaza Strip that infiltrated Israel’s southern border and conducted a series of attacks on civilian and military targets, Israel’s security cabinet declared war (the “War”). Following the commencement of the War, hostilities also intensified between Israel and Hezbollah, a terrorist organization located in Lebanon. This may escalate in the future into a greater regional conflict. The War led to a reduction of business activities in Israel, evacuation of residences located in the northern and southern borders of Israel, a significant call up of military reserves and lower availability of work force. The Group’s activities are not directly affected by the War, as its customers are predominantly from the US or Europe, markets that were not influenced by the War. However, as a result of the War, the Group’s operations were affected due to the recruitment of some of the Group’s senior employees to reserves, including the CEO of Gix Media. The absence of senior employees for an extended period affected customer relationship and operational and functional continuity and delayed some of the Company’s plans for the fourth quarter of 2023. These effects indirectly contributed to a decline in the Company’s revenues, profitability, and cash flow. The Company has hired skilled employees to replace those who were recruited to military reserves. however, there is no assurance that future developments of the War will not have any impact for reasons beyond the Company’s control such as expansion of the War to additional regions and the recruitment of more senior employees. The Company has business continuity procedures in place, and will continue to follow developments, assessing potential impact, if any, on the Company’s business, financials and operations. E. Going Concern The Company experienced a decrease in its revenues from the digital content and search segments as a result of a decrease in user traffic acquired from third party advertising platforms, an industry-wide decrease in advertising budget, changes and updates to internet browsers’ technology and other changes in the online advertising industry during the second half of 2023 and the three months ended March 31, 2024. As a result of the foregoing, during the three months ended March 31, 2024, the Company recorded an operating loss of $ 1,011 compared to an operating loss of $ 76 in the same period last year. Additionally, the Company recorded a net loss of $ 1,175 compared to $ 345 in the same period last year. As of March 31, 2024, the Company had cash and cash equivalents of $ 1,284 , bank loans of $ 8,427 and accumulated deficit of $ 11,660 . Additionally, subsequent to the balance sheet date, a significant customer notified Cortex it will stop advertising on Cortex’s websites (see also note 10). While subsequent to the balance sheet date Cortex has successfully taken steps to implement certain adjustments to its business model in response to such conditions, the decline in revenues and other circumstances described above raise substantial doubts about the Company’s ability to continue as a going concern during the 12-month period following the issuance date of these financial statements. Management’s plans in response to these conditions include reducing operating expenses, creating new income sources, seeking additional liquidity opportunities to ensure the Company’s continued operations and raising funds through issuance of debt or equity from various potential investors. However, there is significant uncertainty as to whether the Company will succeed in implementing its plans, or be able to secure sufficient funds when needed. These financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. - 12 - VIEWBIX INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) U.S. dollars in thousands (except share data) NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Unaudited Interim Financial Statements The accompanying unaudited interim condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included (consisting only of normal recurring adjustments except as otherwise discussed). For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Group’s Annual Report on Form 10-K for the year ended December 31, 2023. B. Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. C. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The Company evaluates on an ongoing basis its assumptions, including those related to contingencies, deferred taxes, inventory impairment, stock-based compensation, as well as in estimates used in applying the revenue recognition policy. Actual results may differ from those estimates. D. Significant Accounting Policies The significant accounting policies followed in the preparation of these unaudited interim condensed consolidated financial statements are identical to those applied in the preparation of the latest annual financial statements. E. Recent Accounting Pronouncements Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Group’s interim condensed consolidated financial statements. - 13 - VIEWBIX INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited U.S. dollars in thousands (except share data) NOTE 3: LOAN TO PARENT COMPANY SCHEDULE OF LOAN FROM TO PARENT COMPANY As of March 31 2024 As of December 31 2023 Loan to Parent Company $ 3,808 $ 3,752 The balance with the Parent Company represents a balance of an intercompany loan under a loan agreement signed between Gix Media and the Parent Company on March 22, 2020. The loan bears interest at a rate to be determined from time to time in accordance with Section 3(j) of the Income Tax Ordinance, new version, and the Income Tax Regulations (Determination of Interest Rate for the purposes of Section 3(j), 1986) or according to a market interest rate decision as agreed between the parties. The amount of the loan is in U.S. dollars. On March 20, 2024, the Company’s board of directors approved to extend the loan between Gix Media and the Parent Company by 6 months until July 1, 2024. All other terms and conditions of the loan remained unchanged. For the three months ended March 31, 2024 and 2023, Gix Media recognized interest income in the amount of $ 39 and $ 21 , respectively. NOTE 4: LEASES On February 25, 2021, Gix Media entered into a lease agreement for a new corporate office of 479 square meters in Ramat Gan, Israel, at a monthly rent fee of $ 10 . The lease period is for 36 months (the “initial lease period”) with an option by the Company to extend the lease period for two additional terms of 24 months each. In accordance with the lease agreement, the Company made leasehold improvements in exchange for a rent fee discount of $ 67 which will be spread over the initial lease period. The Company includes renewal options that it is reasonably certain to exercise in the measurement of the lease liabilities. In December 2023, the Company exercised the option to extend the lease period for an additional term of 24 months (from March 1, 2024, to February 28, 2026 ). Weighted-average remaining lease term and discount rate were as follows: SCHEDULE OF WEIGHTED AVERAGE REMAINING LEASE TERMS AND DISCOUNT RATES As of March 31 2024 Operating leases weighted average remaining lease term (in years) 3.92 Operating leases weighted average discount rate 3.10 % As of December 31 2023 Operating leases weighted average remaining lease term (in years) 4.17 Operating leases weighted average discount rate 3.10 % Operating lease expenses amounted to $ 28 and $ 26 for the three months ended March 31, 2024 and 2023, respectively. - 14 - VIEWBIX INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited U.S. dollars in thousands (except share data) NOTE 5: GOODWILL AND INTANGIBLE ASSETS, NET A. Composition: SCHEDULE OF GOODWILL AND INTANGIBLE ASSETS Internal-use Software Customer Relations Technology Goodwill Total Cost: Balance as of January 1, 2024 465 6,234 11,008 12,254 29,961 Additions - - - Balance as of March 31, 2024 465 6,234 11,008 12,254 29,961 Accumulated amortization: Balance as of January 1, 2024 276 1,631 3,366 - 5,273 Amortization recognized during the period 38 222 459 - 719 Balance as of March 31, 2024 314 1,853 3,825 - 5,992 Amortized cost: As of March 31, 2024 151 4,381 7,183 12,254 23,969 Internal-use Software Customer Relations Technology Goodwill (*) Total Cost: Balance as of January 1, 2023 465 6,234 11,008 17,361 35,068 Additions - - - - - Impairment of goodwill - - - ( 5,107 ) ( 5,107 ) Balance as of December 31, 2023 465 6,234 11,008 12,254 29,961 Accumulated amortization: Balance as of January 1, 2023 122 741 1,531 - 2,394 Amortization recognized during the year 154 890 1,835 - 2,879 Balance as of December 31, 2023 276 1,631 3,366 - 5,273 Amortized cost: As of December 31, 2023 189 4,603 7,642 12,254 24,688 (*) As of December 31, 2023, the Company recognized indicators of impairment of the digital content reporting unit. As a result, the Company performed an impairment test which included a quantitative analysis of the fair value of the reporting unit and compared the fair value of the reporting unit to its carrying amount. As the carrying amount exceeded the fair value, the Company recognized an impairment loss of $ 5,107 . The assessment of impairment loss was not impacted by subsequent events that occurred in April 2024 (see note 10), which may result in an additional goodwill impairment loss during the second quarter of 2024. - 15 - VIEWBIX INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited U.S. dollars in thousands (except share data) NOTE 6: LOANS A. Composition of long-term and short-term loans of the Group: SCHEDULE OF COMPOSITION OF BALANCE OF GROUP’S LOANS Interest rate As of March 31, 2024 As of December 31, 2023 Short-term bank loan – Gix Media SOFR + 4.08 % 3,057 3,500 Short-term bank loan – Cortex SOFR + 3.93 % 1,300 1,500 Short-term bank loan SOFR + 3.93 % 1,300 1,500 Long-term bank loan, including current maturity – Gix Media (received on October 13, 2021) SOFR + 4.12 % 2,963 2,963 Long-term bank loan, including current maturity – Gix Media (received on January 17, 2023) SOFR + 5.37 % 1,107 1,107 Long-term loan – Viewbix Israel 9 % 436 434 Long-term loan 9 % 436 434 Bank Loan 8,863 9,504 B. Bank Financing for Cortex’s capital shares additional Purchase: On January 23, 2023, Gix Media acquired an additional 10 % of Cortex’s capital shares which was financed by Gix Media’s existing cash balances and by a long-term bank loan received on January 17, 2023, in the amount of $ 1,500 to be repaid in 42 monthly payments at an annual interest rate of SOFR + 5.37 %. C. Cortex’s Loan Agreement: On September 21, 2022, Cortex and Leumi entered into an addendum to an existing loan agreement between the parties, dated August 15, 2020 (“Cortex Loan Agreement”). As part of the addendum to the Cortex Loan Agreement, Leumi provided Cortex with a monthly renewable credit line of $ 1,500 (the “Cortex Credit Line”). The Cortex Credit Line is determined every month at the level of 70 % of Cortex’s customers’ balance. The amounts that are drawn from the Cortex Credit Line bear an annual interest of SOFR + 3.52 %. On April 27, 2023, Leumi increased the Cortex Credit Line by $ 1,000 . In September 2023, Cortex and Leumi entered into an additional addendum to the Cortex Loan Agreement, in which Leumi extended the Cortex Credit Line of $ 2,500 by one year which will expire on September 20, 2024 . The amounts that are drawn from the Cortex Credit Line bear an annual interest of SOFR + 4.08 %. As of March 31, 2024, Cortex has drawn $ 1,300 of the Cortex Credit Line. - 16 - VIEWBIX INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited U.S. dollars in thousands (except share data) NOTE 6: LOANS (Cont.) D. Long term loan and issuance of warrants: On November 15, 2023, Viewbix Israel entered into a Loan Agreement (the “2023 Loan”) with certain lenders (the “Lenders”) whereby the Lenders provided Viewbix Israel with loans in the aggregate amount of $ 480 , of which, $ 200 was provided by the Ultimate Parent. In accordance with the terms of the 2023 Loan, the principal amount bears an annual interest at a rate of 9 % and will be repaid over the course of two years following January 1, 2024 (the “Repayment Period”). During the Repayment Period, for the first 12 months, Viewbix Israel will repay the interest on a quarterly basis and for the remaining 12 months, Viewbix Israel will repay the principal amount on a quarterly basis (in 4 equal payments) along with the interest. If Viewbix Israel fails to repay all or part of the 2023 Loan amount, the Lenders have the option to convert the outstanding 2023 Loan amount into shares of Common Stock of the Company. In connection with the 2023 Loan, the Company issued to each lender a warrant to purchase shares of Common Stock (the “2023 Warrants”). The 2023 Warrants are exercisable to 480,000 shares, at an exercise price of $ 0.50 per share and will expire and cease to be exercisable on December 31, 2025 . The Company recorded the 2023 Warrants as an equity instrument. The Company allocated the total amount of $ 480 in respect of the warrants issued and the 2023 Loan extended based on their relative fair values. As a result of the allocation, a discount of $ 55 was attributed as the fair value of the 2023 Warrants. The discount is amortized over the term of the Loan as finance expense. The allocation of the total proceeds of $ 480 to the liability and equity components was as follows: SCHEDULE OF FAIR VALUE DISTRIBUTION OF LIABILITY AND EQUITY COMPONENTS Instrument Fair Value % of Fair Value Allocated Amount Loan 428 88.63 425 Warrants 55 11.37 55 Total 483 100.00 480 The composition of long-term loan balance as of the transaction is as follows: SCHEDULE OF COMPOSITION OF LONG TERM LOAN Loan 480 Discount ( 55 ) Long term loan, net 425 For the three months ended March 31, 2024, the Company recorded amortization expenses of $ 2 as financial expenses in the consolidated statements of operations. - 17 - VIEWBIX INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited U.S. dollars in thousands (except share data) NOTE 7: COMMITMENTS AND CONTINGENCIES Liens: On September 19, 2022, as part of the Reorganization Transaction terms, the Company has provided several liens under Gix Media’s Financing Agreement with Leumi in connection with the Cortex Transaction, 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 signed by the company to Leumi Bank; (3) A first ranking all 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 Gix Media’s full holdings in Cortex. Gix Media restricted deposits in the amount of $ 52 as of March 31, 2024, are used as a security in respect of credit cards, bank guaranties, office lease agreement and hedge transactions on the USD exchange rate. Cortex has a restricted deposit in the amount of $ 34 as of March 31, 2024, is used as a security in respect of its leased offices. NOTE 8: SHAREHOLDERS’ EQUITY A. Shares of Common Stock: Shares of Common Stock confer the rights to: (i) participate in the general meetings, to one vote per share for any purpose, to an equal part, on share basis, (ii) in distribution of dividends and (iii) to equally participate, on share basis, in distribution of excess of assets and funds from the Company and will not confer other privileges. On May 18, 2023, the Company’s Board of Directors (the “Board”) approved to issue and grant 111,111 shares of restricted Common Stock (“Equity Grant”) to one of the Company’s directors (the “Director”). The Equity Grant was granted for consulting services provided to the Company by the Director, specifically in connection with securing favorable terms for a bank financing. The Company recorded a share-based compensation expense of $ 34 in general and administrative expenses in connection to the Equity Grant. B. Warrants: The following table summarizes information of outstanding warrants as of March 31, 2024: SCHEDULE OF OUTSTANDING WARRANTS Warrants Warrant Term Exercise Price Exercisable Class J Warrants 130,333 July 2029 13.44 130,333 Class K Warrants 130,333 July 2029 22.40 130,333 2023 Warrants (see note 6.D) 480,000 December 2025 0.50 480,000 - 18 - VIEWBIX INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited U.S. dollars in thousands (except share data) NOTE 8: SHAREHOLDERS’ EQUITY (Cont.) C. Share option plan In 2017, after the completion of Gix Media’s acquisition by the Parent Company, the Parent Company granted options to Gix Media’s employees. These options entitle the employees to purchase ordinary shares of the Parent Company that are traded on Tel-Aviv Stock Exchange. On March 2, 2023, the Board approved the adoption of the 2023 Stock Incentive Plan (the “2023 Plan”). The 2023 Plan permits the issuance of up to (i) 2,500,000 shares of Common Stock, plus (ii) an annual increase equal to the lesser of (A) 5 % of the Company’s outstanding capital stock on the last day of the immediately preceding calendar year; and (B) such smaller amount as determined by the Board, provided that no more than 2,500,000 shares of Common Stock may be issued upon the exercise of Incentive Stock Options. If any outstanding awards expire, are canceled or are forfeited, the underlying shares would be available for future grants under the 2023 Plan. As of the date of approval of the financial statements, the Company had reserved 2,500,000 shares of Common Stock for issuance under the 2023 Plan. The 2023 Plan provides for the grant of stock options, restricted stock, restricted stock units, stock or other stock-based awards, under various tax regimes, including, without limitation, in compliance with Section 102 and Section 3(i) of the Israeli Income Tax Ordinance (New Version) 5271-1961, and for awards granted to United States employees or service providers, including those who are deemed to be residents of the United States for tax purposes, Section 422 and Section 409A of the United States Internal Revenue Code of 1986. In connection with the adoption of the 2023 Plan, on March 7, 2023, the Company entered into certain intercompany reimbursement agreements with two of its subsidiaries, Viewbix Israel and Gix Media (the “Recharge Agreements”). The Recharge Agreements provide for the offer of awards under the 2023 Plan to employees or service providers of Viewbix Israel and Gix Media (the “Affiliates”) under the 2023 Plan. Under the Recharge Agreements, the Affiliates will each bear the costs of awards granted to its employees or its service providers under the 2023 Plan and will reimburse the Company upon the issuance of shares of Common Stock pursuant to an award, for the costs of shares issued, but in any event not prior to the vesting of an award. The reimbursement amount will be equal to the lower of (a) the book expense for such award as recorded on the financial statements of one of the respective Affiliates, determined and calculated according to U.S. GAAP, or any other financial reporting standard that may be applicable in the future, or (b) the fair value of the shares of Common Stock at the time of exercise of an option or at the time of vesting of an RSU, as applicable. On July 20, 2023, the Company granted 51,020 restricted share units (the “RSUs”) under the 2023 Plan to Gix Media’s CEO, as part of his employment terms, (the “Grantee”) under the following terms and conditions: (1) 51,020 of Common Stock underlying the grant of RSUs (2) Vesting Commencement Date: July 1, 2023 (3) vesting schedule: 50% of the RSUs will vest immediately upon the Vesting Commencement Date (the “First Tranche”) and the remaining 50% of the RSUs will vest 12 months after the Vesting Commencement Date, provided, in each case, that the Grantee remains continuously as a Service Provider (as defined under the 2023 Plan) of Gix Media or its affiliates throughout each such vesting date (the “Grant”). - 19 - VIEWBIX INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited U.S. dollars in thousands (except share data) NOTE 8: SHAREHOLDERS’ EQUITY (Cont.) C. Share option plan (Cont.) In July 2023, following the Grant and upon the vesting of the First Tranche, the Company issued 25,510 shares of Common Stock to the Grantee. The Company recorded a share-based compensation expense of $ 25 in general and administrative expenses with connection to the issuance of shares upon the vesting of the First Tranche. D. Dividends : On September 14, 2022, Gix Media declared a dividend to its shareholders prior to the consummation of the Reorganization Transaction in the amount of $ 1,000 , of which an amount of $ 83 was paid as tax to the Israeli Tax Authority. During 2022 Gix Media distributed an amount of $ 787 out of the remaining amount of $ 917 , which an amount of $ 714 that was distributed to the Parent Company, was offset from the loan to Parent Company. The remaining amount of $ 130 was distributed by Gix Media in January 2023. On December 25, 2022, Cortex declared a dividend in the total amount of $ 445 to the non-controlling interests. The amount was distributed by Cortex to non-controlling interests in two payments of $ 219 and $ 226 in February and March 2023, respectively. No dividends were distributed during the three-month period ending March 31, 2024. - 20 - VIEWBIX INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited U.S. dollars in thousands (except share data) NOTE 9: SEGMENT REPORTING The Group operates in two different segments in such a way that each company in the Group operates as a separate business segment. Search segment - the search segment develops a variety of technological software solutions, which perform automation, optimization and monetization of internet campaigns, for the purposes of obtaining and routing internet user traffic to its customers. Digital content segment - the digital content segment is engaged in the creation and editing of content, in different languages, for different target audiences, for the purposes of generating revenues from leading advertising platforms, including Google, Facebook, Yahoo and Apple, by utilizing such content to obtain internet user traffic for its customers. The segments’ results include items that directly serve and/or are used by the segment’s business activity and are directly allocated to the segment. As such they do not include depreciation and amortization expenses for intangible assets created at the time of the purchase of those companies, financing expenses created for loans taken for the purpose of purchasing those companies and therefore these items are not allocated to the various segments. Segments’ assets and liabilities are not reviewed by the Group’s chief operating decision maker and therefore were not reflected in the segment reporting. Segments revenues and operating results: SCHEDULE OF SEGMENTS REVENUES AND OPERATING RESULTS Search segment Digital content segment Adjustments (See below) For the three months ended March 31, 2024 Revenues from external customers 2,472 7,530 - 10,002 Depreciation and amortization - - 734 734 Segment operating income (loss) 462 ( 385 ) ( 1,088 ) ( 1,011 ) Financial (expenses) income, net 1 ( 14 ) ( 150 ) (*) ( 163 ) Segment Income (loss), before income taxes 463 ( 399 ) ( 1,238 ) ( 1,174 ) Search segment Digital content segment Adjustments (See below) For the three months ended March 31, 2023 Revenues from external customers 5,110 15,752 - 20,862 Depreciation and amortization - - 734 734 Segment operating income (loss) 231 796 ( 1,103 ) ( 76 ) Financial (expenses) income, net ( 74 ) 37 ( 148 ) (*) ( 185 ) Segment Income (loss), before income taxes 157 833 ( 1,251 ) ( 261 ) (*) Mainly consist of financial expenses from the Financing Agreement of bank loans taken for business combinations (see note 6). - 21 - VIEWBIX INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited U.S. dollars in thousands (except share data) NOTE 9: SEGMENT REPORTING (Cont.) The “adjustment” column for segment operating income includes unallocated selling, general, and administrative expenses and certain items which management excludes from segment results when evaluating segment performance, as follows: SCHEDULE OF RECONCILIATION BETWEEN SEGMENTS OPERATING RESULTS For the three months ended March 31, 2024 Depreciation and amortization expenses not attributable to segments (**) $ ( 734 ) General and administrative not attributable to the segments (***) $ ( 354 ) $ ( 1,088 ) For the three months ended March 31, 2023 Depreciation and amortization expenses not attributable to segments (**) $ ( 734 ) General and administrative not attributable to the segments (***) $ ( 369 ) $ ( 1,103 ) (*) Mainly consist of financial expenses from the Financing Agreement of bank loans taken for business combinations (see note 6). (**) Mainly consist of technology and customer relations amortization costs from business combinations. (***) Mainly consist of salary and related expenses and professional consulting expenses. NOTE 10: SUBSEQUENT EVENTS In April 2024, the Company was informed by Cortex that a significant customer of Cortex recently notified Cortex it will stop advertising on Cortex’s sites, as part of its policy decision to cease advertising on Made for Advertising (“MFA”) sites (the “Cortex Adverse Effect”). The Cortex Adverse Effect, which has materially affected Cortex’s business and operations, has occurred following certain recent developments relating to publishers that are categorized by a number of on-line advertisers as MFA, including decisions made by leading media on-line advertisers to prioritize different media categories and implement publishing restrictions in connection with MFA. Following the Cortex Adverse Effect, the Company and the bank in which Cortex’s and Gix Media’s accounts, credit facilities, and loans are maintained approved on May 20, 2024 a debt restructuring program pursuant to which, inter alia, the credit lines to Cortex were increased to 80% of the balance of Cortex’s customers (up to a limit of $ 2 million), as opposed to the 70% limitation imposed prior to the restructuring program, Gix Media’s monthly revolving credit lines were increased by an additional $ 300 thousand, the Company committed to perform cost-cutting measures, including a reduction in head count, the Company will raise up to $ 1.25 million by means of issuance of equity or debt, the covenants under the original loan agreements as of March 31, 2024 were waived and a new covenant, measured by reference to EBTIDA, was implemented, and a grace in relation to a portion of the monthly loan repayments was given. The debt restructuring program will be in effect until August 2024, after which it will be renegotiated between the Company and the bank. - 22 -