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 March 31, 2023 and 2022, 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:
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the
continued demand of digital advertising as an integral part of corporate marketing and internal communications plans and the continued
growth and acceptance of digital advertising as effective alternatives to traditional offline marketing products and service; |
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our
ability to generate enough cash flow to meet our debt obligations or fund our other liquidity needs; |
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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; |
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our
ability to adequately protect our intellectual property; |
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our
ability to successfully integrate the business of Gix Media Ltd. (“Gix Media”), our wholly owned subsidiary, and Cortex
Media Group Ltd. (“Cortex”), our majority owned subsidiary; |
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our
subsidiaries’ future performance; and |
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entry
of new competitors and products, the impact of large and established internet and technology companies and potential technological
obsolescence of our offered platforms. |
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, 2022, filed with the Securities and Exchange Commission (the
“SEC”) on March 24, 2023 (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. (the “Registrant”, “Viewbix” or the “Company”) is a digital advertising platform that
develops and markets a variety of technological platforms that automate, optimize and monetize digital online campaigns.
Viewbix’s operations were previously focused on analysis of the video marketing performance of its clients as well as the
effectiveness of their messaging (“Video Advertising Platform”). With the Video Advertising Platform, Viewbix allowed
its clients with digital video properties the ability to use its platforms in a way that allows viewers to engage and interact with
the video. The Video Advertising Platform measures when a viewer performs a specific action while watching a video and collects and
reports the results to the client. However, due to the Company’s failure to meet predetermined sales targets which were set
pursuant to the Recapitalization Transaction (as defined below), in January 2020, the Company determined to reduce its operations and the size of its
sales and R&D team in the Digital Advertising Platform.
The
Company, through its subsidiaries Gix Media and Cortex, expanded its digital advertising operations across two additional main sectors:
ad search and digital content (the “Search Platform” and the “Content Platform”, respectively”). Gix Media
and Cortex develop and market a variety of technological software solutions that automate, optimize and monetize online campaigns. Cortex
also creates, edits and markets content in various languages to different target audiences in order to generate revenues from advertisements
displayed together with the content, which are posted on digital content, marketing and advertising platforms. These technological tools
enable advertisers and website owners to earn more from their advertising campaigns and generate additional profits from their sites.
Viewbix
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 organized under the laws of the State
of Israel (“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. 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.
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 and supporting the purchase and/or
sale of cryptocurrencies through ATMs, tablets, personal computers (“PCs”) and/or mobile devices. 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. (formerly known as Algomizer Ltd.), a company organized under the laws of the State of Israel (“Gix Internet” or “Parent
Company”), pursuant to which Gix Internet 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.
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 Internet, in the field of MarTech (Marketing Technology) solutions,
primarily search and content monetization 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 wholly-owned
subsidiary of the Company. Prior to the closing of the Reorganization Transaction, Gix Media was
a majority-owned subsidiary of Gix Internet, 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 such that Gix Media became a wholly owned subsidiary of the Company. 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 Internet holding 76.67% of the Common Stock
on a fully diluted basis.
The
following diagram illustrates the associated corporate structure of the Company prior to and following the Reorganization Transaction.
Following
the closing of the Reorganization Transaction, the Company
began to integrate Gix Media’s technology into its operations 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.
In
connection with the Closing, effective as of August 31, 2022, the Company adopted an Amended and Restated Certificate of
Incorporation (“Certificate of Incorporation”), 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 “Reverse Split”) and an Amended and Restated Bylaws
(“Bylaws”). All descriptions of our capital stock, including share amounts and per
share amounts in this Quarterly Report, are presented after giving effect to the Reverse Split.
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 (the “Cortex Acquisition”),
an Israeli 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 tranches, each at the beginning of 2023, 2024 and 2025 (“Remaining Balance Shares”), such that
following the acquisition of all of the Remaining Balance Shares, Gix Media will hold 100% of Cortex’s share capital on a fully
diluted basis. On January 23, 2023, Gix Media purchased an additional 10% of Cortex’s share capital.
In
connection with the Cortex Acquisition, on October 13, 2021, 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”). On July 25, 2022, Gix Media
and Leumi entered into an addendum to the Financing Agreement according to which Leumi will provide Gix Media with a loan of up to $1,500,000
to be withdrawn at the discretion of Gix Media by no later than January 31, 2023 (the “Additional Loan”). The Additional
Loan was withdrawn in connection with the purchase of the additional 10% of Cortex’s share capital on January 17, 2023.
Results
of Operations
Results
of Operations During the Three Months Ended March 31, 2023 as Compared to the Three Months Ended March 31, 2022
Our
revenues were $20,862 thousand for the three months ended March 31, 2023, compared to $20,435 thousand during the same period in the
prior year.
Our
revenues from Cortex’s Content Platform were $15,752 thousand for the three months ended March 31, 2023, an increase of $1,353
as compared to $14,399 thousand during the same period in the prior year. The reasons for the increase during the three months ended
March 31, 2023 are due to: (1) operational growth of the advertising platforms used by Cortex for its reader traffic acquisition
process; (2) an increase in the amount of readers exposed to Cortex’s digital content websites (the “Cortex
Websites”) as result of the increase in the content displayed on the Cortex Websites; and (3) the successful increase of
digital content published in Spanish, and launch of digital content published in new languages such as Portuguese and Germany.
Our
revenues from Gix Media’s Search Platform were $5,110 thousand for the three months ended March 31, 2023, a decrease of $926
as compared to $6,036 thousand during the same period in the prior year. The reasons for the decrease during the three months ended
March 31, 2023 are due to the decrease in the amount of search referrals conducted by users, provided by Gix Media
to search engines, caused primarily by a decrease in the amount of searches received from Gix Media’s third party strategic
partners, including a significant strategic partner of Gix Media. In response to this decrease, Gix Media expanded its user traffic resources
during the three months ended March 31, 2023, by engaging with new strategic partners, which in turn mitigated the scope of the
decrease.
Our
traffic-acquisition and related costs were $17,981 thousand for the three months ended March 31, 2023, a slight increase as compared
to $17,615 thousand during the same period in the prior year. The reason for the increase in the three months ended March 31, 2023, is
due to the increase in the Content Platform’s revenues.
Our
research and development expenses were $796 thousand for the three months ended March 31, 2023, as compared to $848 thousand during the
same period in the prior year. The reason for the decrease in the three months ended March 31, 2023, is due to the reduction of expenses
in the Search Platform, primarily in salaries, technological services, and overheads.
Our
selling and marketing expenses increased to $723 thousand for the three months ended March 31, 2023, as compared to $620 thousand during
the same period in the prior year. The reason for the increase in the three months ended March 31, 2023, is due to the increase of the
costs incurred in connection with the increase in the content displayed on the Cortex Websites.
Our
general and administrative expenses increased to $704 thousand for the three months ended March 31, 2023, as compared to $547 thousand
during the same period in the prior year. The reason for the increase in the three months ended March 31, 2023, is due to the increase
in salary and related costs following the Reorganization Transaction with Gix Media on September 19, 2022, which led to the expansion
of the Company’s management team, which included, among other things, the appointment of a chairman in June 2022 and a chief financial
officer in July 2022. In addition, during the three months ended March 31, 2023, there was an increase in professional services and consultant
costs following the Reorganization Transaction, as compared to the three months ended March 31, 2022.
Our
depreciation and amortization expenses increased to $734 thousand for the three months ended March 31, 2023, as compared to $586 thousand
during the same period in the prior year. The reason for the increase in the three months ended March 31, 2023, is due to reflection
of the historical cost and depreciation expenses of all intangible assets as reflected in the consolidated financial statements of Medigus
Ltd., due to the Reorganization Transaction on September 19, 2022. As the Company and Gix Media were Interim Condensed Consolidated both
by Gix Internet 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 (see Note 1b of our consolidated financial statements appearing elsewhere
in this Quarterly Report on Form 10-Q).
Our
net financial expenses were $185 thousand for the three months ended March 31, 2023, compared to $337 thousand net financial expenses
during the same period in the prior year. The reason for the decrease during the three months ended March 31, 2023, is mainly due to
the decrease in the financial expenses relating to the USD to NIS exchange rate, as compared to the three months ended March 31, 2022.
In the three months ended March 31, 2023, the net financial expenses were related to the increased interest on the Company’s bank
loans due to the increases in the market’s interest rates.
Our
tax expenses were $84 thousand for the three months ended March 31, 2023, as compared to $31 income tax thousand during the same period
in the prior year. The reason for the increase during the three months ended March 31, 2023, is due to the increase in Cortex’s
income before tax.
Liquidity
and Capital Resources
As
of March 31, 2023, we had current assets of $21,971 thousand consisting of $1,771 thousand in cash and cash equivalents, $184
thousand restricted deposits, $15,559 thousand in accounts receivable, $822 thousand in other current assets and $3,635 thousand in
loan to our Parent Company.
As
of March 31, 2023, we had non-current assets of $33,016 thousand consisting of $51 thousand in severance pay funds, $257 thousand in
deferred taxes, $464 thousand in operating lease right-of-use asset, $284 thousand in property and equipment net, $14,599 thousand in
intangible assets, net and $17,361 thousand in goodwill.
As
of March 31, 2023, we had $22,223 thousand in current liabilities consisting of $14,056 thousand in accounts payable, $1,381 thousand
in other payables, $6,701 thousand in short term loans and current maturities of long-term loans, $85 thousand in operating lease liabilities
– short term.
As
of March 31, 2023, we had $5,805 thousand in non-current liabilities consisting of $148 thousand in accrued severance pay, $3,585 thousand
long-term loans, $360 thousand in operating lease liabilities - long term and $1,712 thousand in deferred taxes.
As
of December 31, 2022, we had current assets of $29,841 thousand consisting of $4,196 thousand in cash and cash equivalents, $185
thousand restricted deposits, $20,945 thousand in accounts receivable, $973 thousand in other current assets and a $3,542 thousand in
loan to our Parent Company.
As
of December 31, 2022, we had non-current assets of $33,854 thousand consisting of $52 thousand in severance pay funds, $340 thousand
in deferred taxes, $486 thousand in operating lease right-of-use asset, $302 thousand in property and equipment net, $15,313 thousand
in intangible assets, net and $17,361 thousand in goodwill.
As
of December 31, 2022, we had $28,522 thousand in current liabilities consisting of $19,782 thousand in accounts payable, $2,084 thousand
in other payables, $6,569 thousand in short term loans and current maturities of long-term loan, $87 thousand in operating lease liabilities
– short term.
As
of December 31, 2022, we had $5,274 thousand in non-current liabilities consisting of $152 thousand in accrued severance pay, $2,881
thousand in long-term loan, $388 thousand in operating lease liabilities - long term and $1,853 thousand in deferred taxes.
We
had a negative working capital of $252 thousand compared to positive working capital of $1,319 thousand as of March 31, 2023 and December
31, 2022, respectively.
During
the three months ended March 31, 2023, we had positive cash flow from operating activities of $12 thousand, which was mainly the result
of $345 thousand in net loss, $679 thousand from positive adjustments to operating activities, and $322 thousands from negative changes
in assets and liabilities items.
During
the three months ended March 31, 2022, we had negative cash flow from operating activities of $1,950 thousand, which was mainly the result
of $149 thousand in net loss, $694 thousand from positive adjustments to operating activities offset by $2,495 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.
On
December 18, 2020, we entered into a Loan Agreement (the “Loan Agreement”) with certain investors pursuant to which the investors
lent us an aggregate of $69,000 (the “Principal Amount”). In accordance with the terms of the Loan Agreement, we repaid the
interest on the Principal Amount (8% compounded annually) to the investors by issuing 19,715 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.
In January 2023 we agreed to repay the outstanding Principal Amount to the investors in three equal monthly payments. As of the date
of this Quarterly Report, we have fully repaid the outstanding Principal Amount.
Gix
Media has provided several liens under the Financing Agreement with Leumi in connection with the Cortex Transaction, including: (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.
As
of March 31, 2023, the Company has also provided several liens under 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.
According
to the Financing Agreement, Gix Media undertook to meet financial covenants over the life of the loans as follows: 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 March 31, 2023, Gix Media is in compliance with the financial
covenants in connection with the Financing Agreement.