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Matomy Media Group Ltd Annual Financial Report

18/03/2020 2:52pm

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Matomy Media Group Ltd

18 March 2020

Matomy Media Group Ltd 2019 Results

18 March 2020

Matomy Media Group | 2019 Final Results

Results for the year ended 31 December 2019 (Unaudited)

Matomy Media Group Ltd. (the "Company" or "Matomy"), announces its results for the year ended 31 December 2019. During 2019, the Company exited all of its operational activities.

Matomy's domain monetization activity (which was sold on 24 December 2019) recorded revenue of $74.0 million and Adjusted EBITDA of $12.3 million in 2019.

Selected Domain Monetization Activity's Financial Data:

 
  ($ million)                 Year ended 31 December 
                                     Unaudited 
                                2019          2018       Change 
  Revenue                       74.0          75.6       (2.1)% 
  Adjusted gross profit*        20.2          21.4       (5.6)% 
  Adjusted gross margin*       27.3%         28.3%       (3.5)% 
  Adjusted EBITDA**             12.3          14.2       (13.4)% 
 

Matomy sold the mobile advertising platform Mobfox in November 2018, which is classified for accounting purposes as a "discontinued" activity and is excluded from 2018 results below. All other activities that were sold or otherwise closed are referred as "exited" activities and are included in operations and the chart below.

Matomy Non-GAAP Unaudited Financial Highlights:

 
  Overview of results                                               Year ended 31 December 
  ($ million)                                                         2019          2018       Change 
  Revenue - Domain Monetization Activity and Exited Activities        74.0          88.7       (16.6)% 
  Adjusted gross profit*                                              20.2          27.3       (26.0)% 
  Adjusted gross margin*                                             27.3%         30.8%       (11.4)% 
  Adjusted EBITDA **                                                  8.9           7.0         27.1% 
 

*Adjusted gross profit/margin

Adjusted gross profit is a non--GAAP financial measure that Matomy defines as revenues less direct media costs, which are the direct costs associated with the purchase of digital media. These costs include: payments for digital media based on the revenues Matomy generated from its customers on a revenue--sharing basis; payments for digital media on a non--revenue--sharing basis (CPC or CPM); and serving fees for third-party platforms. Adjusted gross margin in a non--GAAP financial measure that Matomy defines as Adjusted gross profit divided by revenue.

Matomy believes that adjusted gross profit and adjusted gross margin are meaningful measures of operating performance because they are frequently used for internal management purposes.

**Adjusted EBITDA

Adjusted EBITDA is a non--GAAP financial measure that Matomy defines as net income (loss) from continuing operations before taxes on income, financial expenses (income), net, bond issuance costs, equity losses of affiliated companies, net, depreciation and amortization, share-based compensation expenses (cash and non-cash) and exceptional items (as described below).

Business and operating highlights

-- In December 2019, the Company sold its subsidiary, Team Internet AG ("Team Internet"), paid its debts to Rainmaker Investments GmbH ("Rainmaker") the minority shareholder in Team Internet, and in January 2020, the Company fully redeemed its Bond. For further details see Note 1b to the financial statements.

-- Following the sale of Team Internet, as detailed above, Matomy further reduced its corporate team and brought its operational overhead to a bare minimum.

Ilan Tamir, Director and CFO of Matomy, said:

"We are glad to have brought Matomy to safe harbors. We were successful in selling Team Internet, which enabled us to redeem the bond, and pay off all of the Company's debts"

A copy of this announcement will be available on the Matomy website:

http://investors.matomy.com/rns.aspx .

About Matomy Media Group Ltd.

Matomy Media Group Ltd. (LSE: MTMY, TASE: MTMY.TA) was founded in 2006 with headquarters in Tel Aviv and offices in Germany, Matomy is dual-listed on the London and Tel Aviv Stock Exchanges.

For more information:

Ilan Tamir

ilan@matomy.com

+972-52-515-6464

Website: http://investors.matomy.com

BOARD OF DIRECTOR'S STATEMENT

Introduction

2019 was a year of conflict resolution. During the year, Matomy conducted discussions with bondholders, Rainmaker and shareholders regarding steps to enable the company to move forward. Just before year-end, the Company was successful in resolving this conflict: sold all its shares in Team Internet, and after year end redeemed the Bonds, and fully repaid its debts to all stakeholders.

Operating Performance

In 2019, Matomy's domain monetization showed a slight increase in both revenue and EBITDA. However, due to Foreign Exchange fluctuations - revenues in group currency (USD) decreased: Revenue was $74.0 million in FY2019 showed a decrease of 2.1% (FY2018 $75.6 million).

Outlook

Matomy will consider its options and scout for new opportunities going forward.

Ilan Tamir

Director

OPERATIONAL REVIEW

Revenues by Media Channel

The following table sets out Matomy's revenues by business unit for the years ended 31 December 2019 and 2018, not including the discontinued Mobfox operations. Mobfox's performance in 2018 is detailed in the financial statements.

 
                                             Year ended 31 December 
                                                    Unaudited 
  ($ millions)                                 2019          2018       Change 
  Domain monetization                          74.0          75.6       (2.1%) 
  Exited activities (Email, Video, etc)         -            13.1       (100%) 
  Total                                        74.0          88.7       (16.6%) 
 

Domain monetization

Domain monetization revenues increased by EUR2.4 in operating currency (Euro), due to an increase in revenue from new customers during the year.

However, revenues in group currency (USD) decreased by $1.6 million, for the year ended 31 December 2019 compared to 2018 due to Foreign Exchange movements.

FINANCIAL REVIEW

GAAP Financial Highlights Including Exited Activities:

This excludes the discontinued Mobfox operations:

 
  Overview of results                                             Year ended 31 December 
                                                                         Unaudited 
  ($ millions, except EPS)                                           2019          2018      Change 
  Revenue                                                            74.0          88.7      (16.6%) 
  Gross profit                                                       16.9          18.9      (10.6%) 
  Operating loss                                                   (7. 1 )        (8.4)      (15.5%) 
  Pre-tax loss                                                     (19. 4 )       (3.3)      487.9% 
  Net loss from continuing operations                               (21.0)        (6.9)      204.3% 
  Net loss from continuing operations attributable to Matomy        (21.0)        (6.8)      208.8% 
  Loss per share from continuing operations                         (0.22)        (0.07)     214.3% 
 

Revenue

As Matomy exited non-core activities revenues in 2019 decreased compared to 2018.

Cost of revenues including exited activities and excluding the discontinued Mobfox operations:

 
                                                 Year ended 31 December 
                                                        Unaudited 
  $ millions, except as otherwise indicated        2019          2018 
  Media costs                                      53.8          61.4 
  Other cost of revenues                           3.3           8.4 
  Cost of revenues                                 57.1          69.8 
  Gross margin (%)                                22.8%         21.3% 
  Adjusted gross margin (non-GAAP) (%)            27.3%         30.8% 
 

Cost of revenues for the Group decreased by $12.8 million, or 18.3%, to $57.1 million (77.2% of total revenues) for the year ended 31 December 2019 from $69.9 million (78.7% of total revenues) last year.

Other cost of revenues, which includes allocated costs, server expenses and amortization of capitalized R&D and intangible assets, also decreased with the closure of activities.

Gross margin remained largely consistent, increased slightly by 1.5%.

Non GAAP Unaudited Operating expenses excluding exceptional items

 
                                                                       Year ended 31 December 
  $ millions                                                             2019          2018 
  Research and development                                               0.6           2.3 
  Sales and marketing                                                    3.6           7.7 
  General and administrative                                             6.4           6.1 
  Non GAAP Total operating expenses of continuing operations             10.6          16.1 
  Total operating expenses as a percentage of revenues (Non-GAAP)       14.3%         18.2% 
 

Operating expenses (Non-GAAP) decreased by $5.5 million, or 34.2%, to $10.6 million (FY2018: $16.1 million). Operating expenses as a percentage of revenues were 14.3% (FY2018: 18.2%).

The decrease in operating expenses is mainly attributable to the sale of exited activities during 2018, which lowered general, administrative, sales and marketing costs. As a result of the sale of Team Internet in late 2019, this trend is expected to continue through the year 2020.

Financial expenses (income)

Net financial expenses, excluding bond issuance costs, increased by $19.0 million to $12.3 million expense for the year ended 31 December 2019 (FY2018: $6.7 million income). The increase is primarily due to financial expense recorded due to change in the fair value of the convertible bond.

Taxes on income

Taxes on income decreased by $2.2 to $1.5 million expense for the year ended 31 December 2019 (-7.8% of loss before taxes), compared to $3.7 million expense last year (-112.1%).

The effective corporate tax rate of (7.8%) in 2019 was mainly affected by lower taxable income for 2019 compared to 2018 and full valuation allowance on our current losses.

Amortization of intangible assets

Amortization expenses of continuing operations were $1.6 million in 2019 and $3.3 million in 2018 with total amortization expenses of $1.6 million in 2019 compared to $4.6 million in 2018. The decrease is a result of the sale of Mobfox activity in late 2018 and intangible assets being fully amortised or impaired in prior years.

Net loss

Net loss from continuing operations was $21.0 million in 2019 (2018: $6.9 million), and total net loss was $21.0 million (2018: $46.6 million).

Exceptional items

Matomy views the following items, which were recorded in profit and loss, either as expense or income, as exceptional items which are material to the financial statements and therefore has excluded them from non-GAAP measures:

-- Impairments of intangible assets, goodwill and capitalized R&D amounting to $16.0 million in 2019 and $7.9 million in 2018.

   --     Earnout adjustments income of $0.4 million in 2018. 

-- Gain from sale of subsidiary of $2.6 million in 2019 and loss from sale of activities of $1.7 million in 2018.

-- Restructuring costs relating to the exited and sold activities amounting to $1.9 million in 2018.

   --     One-off bonus of $1.0 million to Rainmaker in 2019. 

Liquidity and cash flows

The following table sets out selected cash flow information for the years ended 31 December 2019 and 2018.

 
                                                           Year ended 31 December 
                                                                  Unaudited 
  $ millions                                                 2019          2018 
  Net cash provided by (used in) operating activities        3.7          (14.5) 
  Net cash provided by investing activities                  25.2          3.2 
  Net cash used in financing activities                     (5.6)         (7.9) 
  Increase (decrease) in cash and cash equivalents           23.3         (19.2) 
  Cash and cash equivalents at beginning of period           10.3          29.5 
  Cash and cash equivalents at end of period                 33.6          10.3 
 
   (A)          Net cash provided by / used in operating activities 

Matomy's net cash provided by operating activities was $3.7 million (FY2018: $14.5 million used in operations). In 2019, net cash provided by operating activities consisted of a net loss of $20.9 million decreased by $ 0.7 million relating to a net decrease in working capital and $23.9 million relating to noncash expenses. Noncash expenses were primarily goodwill impairment of $ 16 million, depreciation and amortization of $1.7 million, loss from fair value revaluation of the bond of $10.7 million, off-set in part by gain from sale of subsidiary of $ 2.6 million, and a decrease in deferred tax liability of $ 2.3 million.

In comparison, for the year ended 31 December 2018, net cash used in operating activities consisted of a net loss of $46.6 million increased by $ 5.8 million relating to a net increase in working capital and offset by $37.9 million relating to noncash expenses. Noncash expenses were primarily impairment of intangible assets, capitalized R&D and goodwill of $ 38.6 million, depreciation and amortization of $8.6 million and loss from disposal of property and equipment and loss from sale of activity of $ 2.7 million, off-set in part by fair value revaluation of the bond of $11.4 million and a decrease in deferred tax liability of $ 0.7 million.

Net changes in working capital in 2019 were mainly driven by a decrease of $7.0 million in trade payables and other liabilities, mainly attributable to the sale of Mobfox in late 2018, off set mainly by a decrease of $8.7 million in tax receivables as a result of tax refunds received during 2019.

Net changes in working capital in 2018 were mainly driven by a decrease of $22.7 million in trade receivables, which was offset by the effects of a decrease in trade payables ($17.8 million), and a decrease of $10.5 million in withholding tax receivable, employees and payroll accrual and accrued expenses and other liabilities. The decrease in both trade receivables and trade payables was mainly attributable to the sale and closure of the exited activity, and lower scale of activities in the mobile discontinued operation and the domain monetization activity.

   (B)         Net cash provided by investing activities 

Net cash provided by investing activities was $25.2 million (FY2018: $3.2 million inflow). In 2019, net cash provided by investing activities primarily included $ 26.0 million from the sale of activities and subsidiary, off-set by $ 0.6 million capitalized investment in R&D, and $ 0.2 million investment in property and equipment and domains.

For the year ended 31 December 2018, net cash provided by investing activities primarily included $ 6.5 million from the sale of activity, off-set by $ 2.3 million capitalized investment in R&D and $ 1.1 million investment in domains.

   (C)          Net cash used in financing activities 

Net cash used in financing activities was $5.6 million (FY2018 $7.9 million).

In 2019, net cash used in financing activities related to repayments of loans and credit lines.

In 2018, net cash used in financing activities related primarily to $29.9 million inflow due to the bond issuance, which was offset by $ 23.5 million of total payments to non-controlling interests and earnout payments and $ 14.3 million due to repayments of loans and credit lines

Goodwill

Goodwill represented the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. As of 31 December 2019, the Company no longer has a goodwill asset on its balance sheet.

Matomy's goodwill was created mainly through the 2013, 2014 and 2015 acquisitions. The Company performed an annual impairment test during the fourth quarter of each fiscal year, or more frequently if indicators of potential impairment exist, to determine whether the net book value of each reporting unit exceeds its estimated fair value. During the years ended 31 December 2019 and 2018 the Company recorded in its continuing operations a goodwill impairment loss of $16.0 million and $5.0 million, respectively, which is attributable to the domain monetization activity.

Impairment of long-lived assets and intangible assets subject to amortization

During the year ended 31 December 2018, following the changes in the Company's business focus, the Company performed an impairment review of all its long-lived assets and intangible assets which resulted in impairment charge of $2.9. For further information See Note 2h to the financial statements.

Sale of subsidiary

On 15 November 2019, the Company and Rainmaker, a minority shareholder (10%) in Team Internet AG ("Team Internet") signed an agreement with Centralnic Group PLC ("CNIC") to sell all the shares in Team Internet for the total consideration of EUR46.6 million, of which Rainmaker received consideration of EUR19.0 and the Company received consideration of EUR27.6 million.

The consideration of the Company consisted of the following: (1) a cash payment of EUR23.8million; (2) deferred share payment of EUR1.6 million; (3) a Retention amount of EUR0.5 million and; (4) 2,336,341 shares of CNIC in a total value of EUR1.6 million.

On 24 December 2019 the transaction was completed. For further information See Note 1b to the financial statements.

Loss per share

Matomy's loss per share in 2019 was $0.22. In 2018, Matomy's loss per share from continuing activities was $0.07 and the total loss per share was $0.48.

Treasury shares

As of 31 December 2019, Matomy had a total of 9,758,875 treasury shares. As of 31 December 2018 Matomy had a total of 10,970,111 treasury shares of which, 1,211,236 shares were held by Team Internet.

Financial obligations and covenants

As of 31 December 2019, Matomy had a financial obligation to its bondholders of $29.2 million which was fully repaid on 8 January 2020.

Financial reporting

This financial information has been prepared under US GAAP principles and in accordance with Matomy's accounting policies.

Principal risks

The Directors assess and monitor the key risks of the business on an ongoing basis. The principal risks and uncertainties that could have a material effect on the Group's performance include, among other things, the following:

-- Matomy's cash flow in the coming year depends on the financial viability of Centralnic Group PLC.

-- Matomy is currently going through changes in its management team thereby adding further managerial challenges in this transitional period.

   --      Matomy may be subject to third-party claims brought against it 

-- Matomy is an Israeli-domiciled company and as such the rights and obligations of shareholders are governed by Israeli law and differ in some respects from English law

-- The Company has been informed by the London Stock Exchange that it must comply in full with all continuing eligibility requirements under the HGS Rules within six months of the date of the extraordinary general meeting of the Company's shareholders approving the sale of Team Internet which occurred on 24 December 2019 (the "Compliance Period"). If the Company is unable to meet all continuing eligibility requirements within the Compliance Period, the Company's securities will be suspended from admission to trading on the High Growth Segment of the London Stock Exchange's main market for listed securities.

Cautionary statement regarding forward-looking statements

This announcement includes certain forward-looking statements, forecasts, estimates, projections, and opinions. These forward-looking statements may be identified by the fact that they do not relate only to historical or current facts or the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. Forward-looking statements include statements regarding the Proposed Plan, the negotiations with Rainmaker and the bondholders, the business strategy, objectives, financial condition, results of operations and market data of the Company and its subsidiaries (the "Group"), as well as any other statements that are not historical facts. These statements reflect the Company's current view concerning future events and are based on assumptions made by the Company (including, without limitation, assumptions concerning currency exchange rate fluctuations, requirements of additional capital, costs of sale or closure of various operations and changes to regulations) and information currently available to the Company.

Although the Company considers that these views and assumptions are reasonable, by their nature, forward-looking statements involve unknown risks, uncertainties, assumptions and other factors because they relate to events and depend on circumstances that will occur in the future whether or not outside the control of the Group. These factors, risks, uncertainties, and assumptions could cause actual outcomes and results to be materially different from those projected. Past performance cannot be relied upon as a guide to future performance and should not be taken as a representation that trends or activities underlying past performance will continue in the future. No representation is made or will be made that any forward-looking

statements will be achieved or will prove to be correct. These factors, risks, assumptions, and

uncertainties expressly qualify all subsequent oral and written forward-looking statements attributable to the Company or persons acting on its behalf.

The forward-looking statements speak only as of the date of this announcement. Each of the Company and its respective affiliates expressly disclaim any obligation or undertaking to update, review or revise any forward-looking statement and disclaims any obligation to update its view of any risks or uncertainties described herein, or to publicly announce the result of any revisions to the forward-looking statements made in this announcement to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based or otherwise, except as required by law.

No statement in this announcement is intended or is to be construed, as a profit forecast or estimate or to be interpreted to mean that earnings per Company share or overall earnings for the current or future financial years will necessarily match or exceed the historical published earnings per Company share or overall earnings.

Directors' responsibility

The Directors confirm that to the best of their knowledge the condensed set of final audited financial statements, which has been prepared in accordance with US GAAP principles, gives a true and fair view of the assets, liabilities, financial position and profit of the undertakings included in the consolidation as a whole as required by DTR 4.1.

Ilan Tamir

Director and CFO

Reconciliation of GAAP measures to non-GAAP measures

The following table presents a reconciliation of Adjusted gross profit to gross profit and to revenues, the most directly comparable financial measures calculated in accordance with US GAAP, for the periods indicated:

 
                                 Year ended 31 December 
                                        Unaudited 
  $ million                        2019          2018 
  Revenues                         74.0          88.7 
  Direct media costs              (53.8)        (61.4) 
  Adjusted gross profit            20.2          27.3 
  Adjusted gross margin (%)       27.3%         30.8% 
  Other cost of revenues          (3.3)         (8.4) 
  Gross profit                     16.9          18.9 
 

The following table presents a reconciliation of Adjusted EBITDA from continuing operations to net loss from continuing operations, the most directly comparable financial measure calculated in accordance with US GAAP, for the periods indicated:

 
                                                                                               Year ended 31 December 
                                                                                                      Unaudited 
  $ million                                                                                      2019          2018 
  Net loss from continuing operations                                                           (21.0)         (6.9) 
  Taxes on income (benefit)                                                                       1.6           3.7 
  Financial expenses (income) , net                                                              12.3          (6.7) 
  Bond issuance costs                                                                              -            1.6 
  Gain on remeasurement to fair value and equity gains (equity losses) of affiliated 
   companies, 
   net                                                                                             -            0.1 
  Depreciation and amortization                                                                   1.7           4.9 
  Share--based compensation (cash and non-cash) expenses                                         (0.1)         (0.8) 
  Exceptional items                                                                              14.4          11.1 
  Adjusted EBITDA                                                                                 8.9           7.0 
 

MATOMY MEDIA GROUP LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF 31 DECEMBER 2019

IN US DOLLARS IN THOUSANDS

INDEX

 
                                                         Page 
                                                       -------- 
 
 Report of Independent Auditor s                         2 - 3 
 
 Consolidated Balance Sheets                             4 - 5 
 
 Consolidated Statements of Operations                     6 
 
 Consolidated Statements of Changes in Shareholders' 
  Equity                                                   7 
 
 Consolidated Statements of Cash Flows                   8 - 9 
 
 Notes to Consolidated Financial Statements             10 - 35 
 
   -   -   -   -   -   -   -   -   -   -   - 
 
Kost Forer Gabbay      Tel: +972-3-6232525 
 & Kasierer             Fax: +972-3-5622555 
 144 Menachem Begin     ey.com 
 Road, Building A, 
 Tel-Aviv 6492102, 
 Israel 
 

The Board of Directors and shareholders of Matomy Media Group Ltd.

 
 Re:   Report of Independent 
        Auditors 
      ---------------------- 
 

We have audited the accompanying consolidated financial statements of Matomy Media Group Ltd. and its subsidiaries ("the Company"), which comprise the consolidated balance sheets as of 31 December 2019 and 2018, and the related consolidated statements of operations, changes in shareholders` equity and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries at 31 December 2019 and 2018 and the consolidated results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

Sale of all of the Company's activities

As described in Note 1b to the financial statements, in December 2019, the Company completed the sale of all of its activities and in January 2020 fully repaid all of its obligations to the bondholders. Our opinion is not modified with respect to this matter.

 
 Tel-Aviv, Israel     KOST FORER GABBAY & KASIERER 
 March 18, 2020     A Member of Ernst & Young Global 
 

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

 
                                                      31 December 
                                                  -------------------- 
                                                    2019      2018 
                                                  --------  -------- 
ASSETS 
 
 CURRENT ASSETS: 
    Cash and cash equivalents                      $ 4,295  $ 7,167 
    Restricted cash                                      -     3,134 
    Restricted cash for bond payment                29,295         - 
    Trade receivables, net                               -     5,947 
    Government authorities                             281     9,009 
    Other receivables and prepaid expenses           1,911     3,474 
    Discontinued operation                               -     4,634 
                                                  --------  -------- 
 
 Total current assets                               35,782    33,365 
                                                  --------  -------- 
 
 LONG-TERM ASSETS: 
    Property and equipment, net                          -     1,413 
    Domains                                              -    11,904 
    Other intangible assets, net                         -     1,451 
    Goodwill                                             -    42,279 
    Investment in financial assets measured at 
     fair value                                      2,450         - 
    Other assets                                       557        59 
                                                  --------  -------- 
 
 Total long-term assets                              3,007    57,106 
                                                  --------  -------- 
 
 Total assets                                     $ 38,789  $ 90,471 
                                                  ========  ======== 
 

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

 
                                                            31 December 
                                                     -------------------------- 
                                                           2019          2018 
                                                     ----------------  -------- 
LIABILITIES AND SHAREHOLDERS' EQUITY 
 
 CURRENT LIABILITIES: 
    Liability to non-controlling interest                         $ -  $ 19,375 
    Short-term bank credit and current maturities 
     of bank loans                                                  -     5,752 
    Trade payables                                                149     7,498 
    Employees and payroll accrual                                 407     1,813 
    Convertible bond at fair value (principal of 
     ILS 101,000 thousand)                                     29,225    18,540 
    Accrued expenses and other liabilities                      3,448     6,057 
    Discontinued operation                                          -     3,928 
                                                     ----------------  -------- 
 
 Total current liabilities                                     33,229    62,963 
                                                     ----------------  -------- 
 
 LONG-TERM LIABILITIES: 
    Deferred tax liabilities                                        -     2,727 
    Bank loans, net of current maturities                           -     1,116 
    Other liabilities                                             173       318 
                                                     ----------------  -------- 
 
 Total long-term liabilities                                      173     4,161 
                                                     ----------------  -------- 
 
 EQUITY: 
    Matomy Media Group Ltd. shareholders' equity: 
    Ordinary shares                                               254       254 
    Additional paid-in capital                                 80,993    86,031 
    Accumulated other comprehensive loss                            -   (3,174) 
    Accumulated deficit                                      (74,745)  (53,788) 
    Treasury shares                                           (1,115)   (6,231) 
                                                     ----------------  -------- 
 
 Total Matomy Media Group Ltd. shareholders' 
  equity                                                        5,387    23,092 
                                                     ----------------  -------- 
 
 Non-controlling interests                                          -       255 
                                                     ----------------  -------- 
 
 Total equity                                                   5,387    23,347 
                                                     ----------------  -------- 
 
 Total liabilities and equity                                $ 38,789  $ 90,471 
                                                     ================  ======== 
 

The accompanying notes are an integral part of the consolidated financial statements.

 
   March 18, 2020 
--------------------        ---------------- 
Date of approval of 
         the                   Ilan Tamir 
financial statements        Director and CFO 
 

CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands except earnings per share data

 
                                                                   Year ended 
                                                                   31 December 
                                                            ------------------------ 
                                                               2019        2018 
                                                            ----------  ---------- 
 
 Revenues                                                     $ 74,035  $ 88,734 
 Cost of revenues                                               57,128      69,867 
                                                            ----------  ---------- 
 
 Gross profit                                                   16,907      18,867 
                                                            ----------  ---------- 
 
 Operating expenses: 
 
 Research and development                                          601       2,266 
 Selling and marketing                                           3,594       7,694 
 General and administrative                                      6,411       6,125 
 Impairment, net of change in fair value of 
  contingent consideration                                      15,984       7,435 
 Restructuring costs                                                 -       1,923 
 Loss (gain) from sale of activities and subsidiary 
  (Refer to Note 1)                                            (2,575)       1,777 
                                                            ----------  ---------- 
 
 Total operating expenses                                       24,015      27,220 
                                                            ----------  ---------- 
 
 Operating loss from continuing operations                     (7,108)     (8,353) 
                                                            ----------  ---------- 
 
 Convertible bond issuance costs                                     -       1,588 
 Financial expenses (income), net                               12,270     (6,691) 
                                                            ----------  ---------- 
 
 Loss from continuing operations before taxes 
  on income                                                   (19,378)     (3,250) 
 Tax on income                                                   1,579       3,683 
                                                            ----------  ---------- 
 
 Loss from continuing operations before gain 
  from sale of affiliated companies                           (20,957)     (6,933) 
 Gain from sale of affiliated companies                              -          75 
                                                            ----------  ---------- 
 
 Loss from continuing operations                              (20,957)     (6,858) 
 Loss from discontinued operations, net                              -    (39,787) 
                                                            ----------  ---------- 
 
 Net loss                                                     (20,957)    (46,645) 
                                                            ----------  ---------- 
 
 Net loss (income) attributable to other non-controlling 
  interests in subsidiary                                          (1)          53 
                                                            ----------  ---------- 
 
 Net loss attributable to Matomy Media Group 
  Ltd. from continuing operations                           $ (20,958)   $ (6,805) 
 Net loss attributable to Matomy Media Group 
  Ltd. from discontinued operations                                  -    (39,787) 
                                                            ----------  ---------- 
 
 Net loss attributable to Matomy Media Group 
  Ltd.                                                      $ (20,958)  $ (46,592) 
                                                            ==========  ========== 
 
 Basic and diluted loss per ordinary share from 
  continuing operations                                       $ (0.22)  $ (0.07) 
 Basic and diluted loss per ordinary share from 
  discontinued operations                                            -      (0.41) 
                                                            ----------  ---------- 
 
 Basic and diluted loss per ordinary share                    $ (0.22)  $ (0.48) 
                                                            ==========  ========== 
 
 Weighted average number of shares used in computing 
  basic and diluted net loss per share                      97,218,972  96,511,986 
                                                            ==========  ========== 
 

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

U.S. dollars in thousands, except share data

 
                                                                                        Total Matomy 
                                                  Accumulated                            Media Group 
                                     Additional      other                                  Ltd. 
                  Ordinary shares      paid-in   comprehensive  Accumulated  Treasury   shareholders'  Non-controlling   Total 
                 ------------------ 
                   Number    Amount   capital        loss         deficit     shares       equity         interests      equity 
                 ----------  ------  ----------  -------------  -----------  ---------  -------------  ---------------  -------- 
 
 Balance as of 
  1 January 
  2018           97,535,023  $ 252   $ 85,931    $ (3,174)      $ (7,196)    $ (6,231)  $ 69,582       $ 308            $ 69,890 
 
 Stock-based 
  compensation            -       -         102              -            -          -            102                -       102 
 Exercise of 
  options and 
  vesting 
  of restricted 
  share units       837,316       2         (2)              -            -          -              -                -         - 
 Net loss                 -       -           -              -     (46,592)          -       (46,592)             (53)  (46,645) 
                 ----------  ------  ----------  -------------  -----------  ---------  -------------  ---------------  -------- 
 
 Balance as of 
  31 December 
  2018           98,372,339     254      86,031        (3,174)     (53,788)    (6,231)         23,092              255    23,347 
 
 Stock-based 
  compensation            -       -          78              -            -          -             78                -        78 
 Vesting of 
  restricted 
  share 
  units             111,500      *)          *)              -            -          -              -                -         - 
 Sale of 
  subsidiary              -       -     (5,116)          3,277            -      5,116          3,277            (256)     3,021 
 Net loss                 -       -           -          (103)     (20,957)          -       (21,060)                1  (21,059) 
                 ----------  ------  ----------  -------------  -----------  ---------  -------------  ---------------  -------- 
 
 Balance as of 
  31 December 
  2019           98,483,839  $ 254   $ 80,993    $ -            $ (74,745)   $ (1,115)  $ 5,387        $ -              $ 5,387 
                 ==========  ======  ==========  =============  ===========  =========  =============  ===============  ======== 
 
   *)      Represents an amount lower than $ 1. 

The accompanying notes are an integral part of the consolidated financial statements.

   CONSOLIDATED   STATEMENTS OF CASH FLOWS 

U.S. dollars in thousands

 
                                                                 Year ended 
                                                                 31 December 
                                                          ------------------------ 
                                                             2019        2018 
                                                          ----------  ---------- 
 
 Cash flows from operating activities: 
 
 Net loss                                                 $ (20,957)  $ (46,645) 
 Adjustments to reconcile net loss to net cash 
  used in operating activities: 
    Depreciation and amortization                              1,694       8,647 
    Stock-based compensation                                      78         102 
    Impairment of intangible assets, goodwill and 
     capitalized research and development                     15,984      38,580 
    Change in deferred tax, net                              (2,269)       (664) 
    Change in accrued interest and effect of foreign 
     exchange differences on long term loans and 
     leases liability                                          (109)       (167) 
    Gain from sale of affiliated companies                         -        (75) 
    Fair value revaluation - convertible bond                 10,685    (11,390) 
    Decrease (increase) in trade receivables                 (1,086)      22,679 
    Decrease (increase) in other receivables and 
     prepaid expenses                                           18 7       (186) 
    Decrease (increase) in other assets                        (552)          57 
    Decrease in trade payables                               (5,157)    (17,796) 
    Changes in fair value of payment obligation 
     recognized in earnings                                    1,833         260 
    Decrease (increase) in tax receivable                      8,728     (3,399) 
    Decrease in employees and payroll accruals                 (841)     (2,294) 
    Decrease in accrued expenses and other liabilities         (998)     (4,818) 
    Loss (gain) from sale of activities and subsidiary       (2,575)       1,835 
    Change in fair value of investment in financial 
     assets                                                    (863)           - 
    Loss from disposal of property and equipment 
     and domains                                                  35         847 
    Other                                                      (103)        (57) 
                                                          ----------  ---------- 
 
 Net cash provided by (used in) operating activities           3,714    (14,484) 
                                                          ----------  ---------- 
 
 Cash flows from investing activities: 
 
 Sale of activities and subsidiary, net                       26,024       6,510 
 Change in long-term deposit                                       -          66 
 Sale of investment in affiliated company                          -         149 
 Purchase of property and equipment                            (149)       (206) 
 Purchase of domains                                            (73)     (1,134) 
 Proceeds from sale of domains and property 
  and equipment                                                    -          76 
 Capitalization of research and development 
  costs                                                        (646)     (2,258) 
 
 Net cash provided by investing activities                    25,156       3,203 
                                                          ----------  ---------- 
 

The accompanying notes are an integral part of the consolidated financial statements.

   CONSOLIDATED   STATEMENTS OF CASH FLOWS 

U.S. dollars in thousands

 
                                                              Year ended 
                                                              31 December 
                                                         -------------------- 
                                                           2019      2018 
                                                         --------  -------- 
 
 Cash flows from financing activities: 
 
 Short-term bank credit, net                              (3,807)   (4,322) 
 Exercise of options                                            -       (*) 
 Issuance of convertible bond                                   -    29,930 
 Repayment of bank loans                                  (1,774)  (10,019) 
 Additional payments related to previous acquisitions           -     (681) 
 Acquisition of non-controlling interest                        -  (20,146) 
 Dividend paid to non-controlling interest                      -   (2,711) 
                                                         --------  -------- 
 
 Net cash used in financing activities                    (5,581)   (7,949) 
                                                         --------  -------- 
 
 Increase (decrease) in cash, cash equivalents 
  and restricted cash                                      23,289  (19,230) 
 Cash, cash equivalents and restricted cash 
  at beginning of year                                     10,301    29,531 
                                                         --------  -------- 
 
 Cash, cash equivalents and restricted cash 
  at end of year                                         $ 33,590  $ 10,301 
                                                         ========  ======== 
 
 Supplemental disclosure of cash flow activities 
 
 Cash paid during the year for: 
 
 Income taxes, net                                          $ 390   $ 8,210 
 
 Interest paid, net                                         $ 950   $ 2,623 
 
 Non-cash investing activities: 
 
 Receivable in connection with sale of subsidiary 
  and activities                                          $ 2,288  $ 1,839 
                                                         ========  ======== 
 
 Investments in financial assets measured at 
  fair value in connection with sale of subsidiary        $ 1,587  $ - 
                                                         ========  ======== 
 
 
   *)       Represents less than $ 1. 

The accompanying notes are an integral part of the consolidated financial statements.

   NOTE 1:-   GENERAL 

a. Matomy Media Group Ltd. ("Matomy") together with its subsidiaries (collectively - the "Company") offered and provided a portfolio of proprietary programmatic data-driven platforms focusing on two core activities of domain monetization and mobile digital advertising to advertisers, advertising agencies, Apps developers and domain owners, primarily in the United States and Europe .

Matomy was incorporated in 2006. The Company's shares are traded on the London Stock Exchange and on the Tel Aviv Stock Exchange.

In the period spanning from mid-2017 through December 2019, the Company exited all its activities, as further described in Notes 1b and 1c below. In addition, as described in Note 9, on 8 January 2020, the Company fully repaid all its obligations to the bondholders.

   b.       S ale of subsidiary: 

On 15 November 2019, the Company and Rainmaker Investments GmbH (" Rainmaker ") , a minority shareholder (10%) in Team Internet AG ("Team Internet") , signed a binding agreement with Centralnic Group PLC, whose shares are traded on the AIM Market of the London Stock Exchange, (" Purchaser " or " CNIC ") to sell all the shares in Team Internet (the " Transaction ") for total consideration of EUR45,854,332, plus Interest Amount as determined in the agreement, which consisted of the following (the " Purchase Price "):

(a) A cash payment on closing date in an amount of EUR39,554,332 (the "Cash Payment"), plus Interest Amount (EUR764,286), in addition to a retained amount of EUR900,000 (the " Retention Amount "). The Retention Amount will be fully released after 15 months period, less deductions for settled claims or for outstanding claims (which are supported by documents as specified in the agreement). The retention amount (net of deferred cash payment that Rainmaker are entitled to receive - see below) is presented at fair value of $551 upon closing and is included within other assets on the balance sheet ($557 as of 31 December 2019).

(b) 3,911,650 Purchaser shares. The number of shares was determined by dividing EUR2,700,000 by the Purchaser's share price, as determined in the agreement. Such shares are subject to a lock-up period of 12 months, plus an additional 6-month period during which any disposal must be approved by and coordinated with the Purchaser and its broker. The investment in these shares (net of shares paid to Rainmaker - see below), is presented at fair value of $1,587 on the closing date ($2,450 as of 31 December 2019) and is presented as investment in financial assets measured at fair value on the balance sheet. Subsequent to the balance sheet date, the fair value of the investment declined. The fair value of the investment amounted to $1,519 on 17 March 2020.

(c) A deferred cash payment of EUR2,700,000 payable 6 months following the closing. Such payment (net of deferred cash payment that Rainmaker are entitled to receive - see below) is presented at fair value of $1,737 upon closing and is included within other receivables and prepaid expenses on the balance sheet ($1,760 as of 31 December 2019).

   NOTE 1:-   GENERAL (Cont.) 

On 24 December 2019 the Transaction was completed. As a result of the Transaction, the Company recorded a gain of $ 2,575 which is included in statements of operations.

As part of the Transaction, immediately prior to closing date, the Company consummated the purchase of the remaining 10% stake of Rainmaker in Team Internet in accordance with the share purchase agreement dated December 2017 between the Company and Rainmaker , by assigning to Rainmaker a portion of the Purchase Price. Rainmaker received a total sum of EUR19,050,000: (i) a sum of EUR 16,508,190 out of the Cash Payment; (ii) EUR1,087,350 paid in Purchaser shares (1,575,309 shares); (iii) a sum of EUR1,087,350 out of the deferred cash payment; (iv) a sum of EUR 367,110 out of the Retention Amount. Upon the consummation of such purchase of the remaining 10% stake of Rainmaker in Team Internet, the Company and Rainmaker confirmed in writing, that no further claims between Rainmaker and the Company will exist and all alleged obligations of the Company towards Rainmaker will be settled.

The remaining amount of the Cash Payment (EUR23,046,142) plus the Interest Amount of EUR765,286, in total EUR23,810,427 was paid to the trustee of the Bonds (Series A) (the " Bonds " and the " Trustee ", respectively) for a full early redemption of the outstanding Bonds (ILS101,000 thousands) (principal and interest), as approved by the bondholders meeting on 1 December 2019. In order to facilitate the early redemption of the outstanding Bonds in full, the Company transferred to the Trustee a cash amount of EUR2,500,000.

The full redemption of the outstanding Bonds was executed on 8 January 2020 . As of 31 December 2019, the amount of $29,295 transferred to the Trustee is presented as restricted cash for bond repayment on the balance sheet.

   c.       Sale of activities: 

On 29 July 2018, the Company signed an agreement for the sale of "myDSP" activity for a consideration of $850, which was paid in two payments: $600 upon closing and $250 was received during 2019.

On 13 August 2018, the Company signed an agreement for the sale of its White delivery email marketing activity. In addition, the Company signed an agreement with the buyer for data-licensing. The maximum total consideration from the agreements amounts to $8,500, which includes performance-based payments subject to meeting pre-defined milestones. The Company does not expect to collect any material amount from this transaction due to the buyer's financial difficulties.

On 15 November 2018 the Company sold its mobile core-business ("Mobfox") for a total consideration of $7,500, of which a payment of $6,000 was received as of 31 December 2018 and the remaining $1,500 was subject to fulfilment of certain payment requirements. During 2019, the entire amount was received. Accordingly, the results of operations of Mobfox have been classified as discontinued operations in the consolidated statements of operations in accordance with Accounting Standards Codification ("ASC") ASC 205-20 (Presentation of Financial Statements - Discontinued Operations). Additionally, the assets and associated liabilities have been classified as discontinued operations in the consolidated balance sheets.

   NOTE 1:-   GENERAL (Cont.) 
   d.       Loss from sale of subsidiary and activities: 
 
                                              Year ended 
                                              31 December 
                                         --------------------- 
                                            2019       2018 
                                         ----------  --------- 
 
Cash consideration, net                   $ 24,185    $ 6,463 
Deferred consideration                        1,737      1,839 
Retention amount                                551          - 
Investment in CNIC shares                     1,587          - 
                                                     --------- 
Total consideration, net                     28,060      8,302 
 
The book value of the identifiable 
 assets and liabilities of on sale 
 date: 
Property and equipment, including 
 R&D capitalization                         (1,487)    (4,123) 
Operating lease right-of-use asset          (1,766)          - 
Domains                                    (11,874)          - 
Other intangible assets                       (509)      (202) 
Goodwill                                   (26,295)    (5,827) 
Minority interest                               256          - 
Liability to non-controlling interest        21,209          - 
Working capital                             (3,526)         35 
Operating lease liabilities                   1,393          - 
Deferred tax liabilities                        446          2 
Accumulated other comprehensive loss        (3,277)          - 
Other                                          (55)       (22) 
                                         ----------  --------- 
 
Loss (gain) from sale of subsidiary 
 and activities                           $ (2,575)   $ 1,835 
                                         ==========  ========= 
 
   NOTE 2:-   SIGNIFICANT ACCOUNTING POLICIES 

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United Sates ("US GAAP"). The significant accounting policies are applied in the preparation of the consolidated financial statements on a consistent basis, as follows:

   a.       Principles of consolidation: 

The consolidated financial statements include the accounts of Matomy Media Group Ltd and its subsidiaries. Intercompany transactions and balances have been eliminated upon consolidation.

Changes in the parent's ownership interest in a subsidiary with no change of control are treated as equity transactions, with any difference between the amount of consideration paid and the change in the carrying amount of the non-controlling interest recognised in equity.

   NOTE 2:-   SIGNIFICANT ACCOUNTING POLICIES (Cont.) 
   b.       Use of estimates: 

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

On an ongoing basis, the Company's management evaluates estimates, including those related to accounts receivable, fair values of financial instruments, fair values and useful lives of intangible assets, liability to non-controlling interest, fair values of stock-based awards, deferred taxes and income tax uncertainties and contingent liabilities. Such estimates are based on historical experience and on various other assumptions that it believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

   c.       Financial statements in US dollars: 

The US dollar is the currency of the primary economic environment in which Matomy Media Group and its subsidiaries operated. A substantial portion of the revenues and expenses of the Company were generated in US dollars. In addition, financing activities including equity transactions and cash investments are made in US dollars, which is prepared in US dollars. Thus, the functional and reporting currency of the Company is the US dollar.

Accordingly, monetary accounts maintained in currencies other than the US dollar are remeasured into US dollars in accordance with ASC 830, "Foreign Currency Matters". All transaction gains and losses of the remeasured monetary balance sheet items using exchange rates in effect at the balance sheet date are reflected in the statements of income as financial income or expenses, as appropriate.

   d.       Cash and cash equivalents: 

Cash equivalents are short-term highly liquid investments that are readily convertible into cash with original maturities of three months or less at acquisition.

   e.       Accounts receivable and allowance for doubtful accounts: 

Accounts receivable are stated at realisable value, net of an allowance for doubtful accounts. The Company evaluates specific accounts where information indicates the Company's customers may have an inability to meet financial obligations. Allowance for doubtful accounts as of 31 December 2019 and 2018 were $ 0 and $ 3,470, respectively.

   NOTE 2:-   SIGNIFICANT ACCOUNTING POLICIES (Cont.) 

During the years ended 31 December 2019 and 2018 bad debt expenses were $ 850 and $ 3,598, respectively, and the write offs of balances included in allowances for doubtful accounts amounted to $ 3,914 and $ 1,530 in the years ended 31 December 2019 and 2018, respectively. During the years ended 31 December 2019 and 2018 recoveries amounted to $ 27 and $ 246, respectively, of amounts previously included in allowance for doubtful accounts.

   f.       Property and equipment, net: 

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, at the following annual rates:

 
                                                     % 
                                        --------------------------- 
 
Computers and software                              33 
Office furniture and equipment                    6 - 10 
Electronic equipment                              10 - 20 
Capitalized research and development 
 costs                                              33 
Leasehold improvements                  Over the shorter of related 
                                          lease period or the life 
                                             of the improvement 
 
   g.       Impairment of long-lived assets and intangible assets subject to amortization: 

Property and equipment and intangible assets subject to amortization are reviewed for impairment in accordance with ASC 360, "Accounting for the Impairment or Disposal of Long-Lived Assets", and ASC 350, "Intangibles - Goodwill and other" whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The recoverability of these assets is measured by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If property and equipment and intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value.

In determining the fair values of long-lived assets for purpose of measuring impairment, the Company's assumptions include those that market participants will consider in valuations of similar assets.

During the years ended 31 December 2019 and 2018, the Company performed an impairment review of all its long-lived assets and intangible assets which resulted in impairment charge of $ 0 and $ 2,917, respectively.

   NOTE 2:-   SIGNIFICANT ACCOUNTING POLICIES (Cont.) 
   h.       Goodwill and other intangible assets: 

Goodwill reflects the excess of the purchase price of business acquired over the fair value of net identifiable assets acquired. Goodwill and indefinite intangible assets are not amortized but instead are tested for impairment, in accordance with ASC 350, at least annually at 31 December each year, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Goodwill impairment is measured as the amount by which a reporting unit's carrying value exceeds its fair value, with the loss limited to the total amount of goodwill allocated to that reporting unit.

Due to changes in compliance requirements during 2019, a handful of the Company's publishers have been deactivated, which resulted in negative impact on the Company's projected EBIDTA. As a result, the Company recorded during the year ended 31 December 2019, goodwill impairment charges of $15,984 related to its Domain Monetisation reporting unit, using a weighted average cost of capital and a long-term growth rate of 15% and 2%, accordingly. During the year ended 31 December 2018, the Company recorded goodwill impairment charges of $30,648 related to its Mobile reporting unit, which is included in loss from discontinued operations, and $5,014 related to its Domain Monetisation reporting unit.

The majority of the inputs used in the discounted cash flow model to determine the fair value of the reporting units are unobservable and thus are considered to be Level 3 inputs.

   i.        Severance pay: 

Effective September 2007, the Company's agreements with employees in Israel are generally in accordance with section 14 of the Severance Pay Law - 1963 which provide that the Company's contributions to severance pay fund shall cover its entire severance obligation with respect to period of employment subsequent to September 2007. Upon termination, the release of the contributed amounts from the fund to the employee shall relieve the Company from any further severance obligation and no additional payments shall be made by the Company to the employee. As a result, the related obligation and amounts deposited on behalf of such obligation are not stated on the balance sheet, as the Company is legally released from severance obligation to employees once the amounts have been deposited, and the Company has no further legal ownership on the amounts deposited. Severance expenses during the years ended 31 December 2019 and 2018 were $ 77 and $ 927, respectively.

   j.        Revenue recognition: 

The Company provided smart marketing services through customized programmatic solutions supported by internal media capabilities, big data analytics, and optimization technology. Matomy empowered advertising and media partners to meet their evolving growth-driven goals across several media channels, including mobile, domain monetization, email and video, for multiple industry verticals on a wide variety of devices and operating systems. Following the sale of activities and companies (refer to Note 1c), in 2019 the Company generated revenue only from its domain monetization technology.

   NOTE 2:-   SIGNIFICANT ACCOUNTING POLICIES (Cont.) 

Following the sale of Team Internet (refer to Note 1b), the Company does not generate any more revenue.

On 1 January 2018, the Company adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). In addition, the guidance in Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("ASU 2016-08") was considered to the extent that it applies to the Company's revenue arrangements.

The Company elected to apply the modified retrospective method for transition to the new accounting standard. This applies the standard retrospectively without amending comparative figures, with the cumulative effect of initially applying the guidance recognized as an adjustment to retained earnings at the date of initial application. The Company's adoption of the new standard was evaluated on a qualitative basis and did not have any material effect on the financial statements for the year ended 31 December 2018.

The Company recognized revenue once the performance obligations for all transactions are satisfied, and the corresponding revenue is recognized, at a distinct point in time; the Company has no arrangements with multiple performance obligations. The Company considers the following when determining if a contract exists (i) contract approval by all parties, (ii) identification of each party's rights regarding the goods or services to be transferred, (iii) specified payment terms, (iv) commercial substance of the contract, and (v) collectability of substantially all of the consideration is probable.

The Company evaluated whether it acts as the principal to determine whether revenue should be reported on a gross or net basis. The Company has determined that it acts as the principal. In making that evaluation, the Company considered indicators such as whether the Company is: (i) the primarily responsible for fulfilling the promise to provide the specified good or service, (ii) has inventory risk before the specified good or service has been transferred to a customer, or after transfer of control to the customer and (iii) has discretion in establishing the prices for the specified goods or service.

The Company records deferred revenues for unearned amounts received from customers for services that were not recognised as revenues.

   k.       Cost of revenues: 

Cost of revenues consists primarily of direct media costs associated with the purchase of digital media, data centre costs, amortization of technology and internally developed software and allocation of attributable personnel and associated costs.

   l.        Research and development costs: 

Research and development costs are charged to the statement of operations as incurred, except for certain costs relating to internally developed software, which are capitalized and amortized on a straight-line basis over their estimated useful life once the asset is ready for its intended use.

   NOTE 2:-   SIGNIFICANT ACCOUNTING POLICIES (Cont.) 
   m.      Internally developed software: 

The Company capitalized certain internal software development costs, consisting of direct labor associated with creating the internally developed software. Software development projects generally include three stages: the preliminary project stage (all costs expensed as incurred), the application development stage (costs are capitalized) and the post implementation/operation stage (all costs expensed as incurred). The costs capitalized in the application development stage primarily include the costs of designing the application, coding and testing of the system. Capitalized costs are amortized using the straight line method over the estimated useful life of the software, generally 3 years, once it is ready for its intended use. The Company believes the straight-line recognition method best approximates the manner in which the expected benefit will be derived. During 2019 and 2018, the Company capitalized software development costs of $ 646 and $ 2,258, respectively. Amortization expense for the related capitalized internally developed software in 2019 and 2018 totaled $ 539 and $ 3,345, respectively, and is included in cost of revenues in the accompanying consolidated statements of operations. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. As a result of changes in circumstances in the non-core activity during 2018, management decided to abandon certain projects and therefore recorded an impairment charge of $ 0 and $ 790 in 2019 and 2018, respectively.

   n.       Accounting for stock-based compensation: 

The Company accounts for stock-based compensation under ASC 718, "Compensation - Stock Compensation", which requires the measurement and recognition of compensation expense based on estimated grant date fair values for all share-based payment awards made to employees and directors. ASC 718 requires companies to estimate the fair value of equity-based awards on the date of grant, using an option-pricing model. The Company elected to account for forfeitures when they occur and adopted this change on a modified retrospective basis.

The Company recognized compensation expenses for the value of its awards, which have graded vesting based on service conditions, using the accelerated attribution method, over the requisite service period of each of the awards.

1. The Company estimates the fair value of stock options granted to its employees and directors using the Black-Scholes-Merton option-pricing model. The Black-Scholes-Merton model requires a number of assumptions, of which the most significant are the expected stock price volatility and expected option term. The assumptions are estimated as follows:

-- Volatility - the expected share price volatility was based on the Company's historical equity volatility.

-- Expected option term - the expected term of the options represents the period of time that the options are expected to be outstanding and is based on the simplified method, which is the midpoint between the vesting date and the end of the contractual term of the option.

   NOTE 2:-   SIGNIFICANT ACCOUNTING POLICIES (Cont.) 

-- Risk-free interest - the risk-free interest rate assumption is based on the yield from zero-coupon US government Bonds appropriate for the expected term of the Company's employee stock options.

-- Dividend yield - the Company estimates its dividend yield based on historical pattern, however the Company currently intends to invest funds in business development and not to distribute dividends.

The fair value of the Company's stock options granted to employees and directors for the years ended 31 December 2019 and 2018 was estimated using the following weighted average assumptions:

 
                                       Year ended 
                                       31 December 
                                    ---------------- 
                                     2019     2018 
                                    ------   ------- 
 
 Volatility                             -       40% 
 Expected option term (in years)        -       6.2 
 Risk-free interest rate                -      2.65% 
 Dividend yield                         -        0% 
 

2. The Company estimates the fair value of restricted share units ("RSUs") granted to employees according to the fair value of the Company's share at the grant date.

   o.       Income taxes: 

The Company is subject to income taxes in Israel, Germany, the United States and numerous other jurisdictions. The Company accounts for income taxes in accordance with ASC 740, "Income Taxes". This topic prescribes the use of the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to the amount that is more likely than not to be realised. In such determination, the Company considers future reversal of existing temporary differences, future taxable income, tax planning strategies and other available evidence in determining the need for a valuation allowance.

The Company implements a two-step approach to recognise and measure uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return 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% (on a cumulative basis) likely to be realised upon ultimate settlement. The Company classifies interest incurred payable to tax authorities as interest expenses.

   NOTE 2:-   SIGNIFICANT ACCOUNTING POLICIES (Cont.) 
   p.       Concentrations of credit risks: 

Financial instruments that could potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash for bond payment and the deferred consideration amount (refer to Note 1b above). Cash and cash equivalents are managed in major banks, mainly in Israel.

   q.       Fair value of financial instruments: 

The Company applies ASC 820, "Fair Value Measurements and Disclosures". Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximises the use of observable inputs and minimises the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The hierarchy is broken down into three levels, based on the observability of inputs and assumptions, as follows:

-- Level 1 - Observable inputs obtained from independent sources, such as quoted prices for identical assets and liabilities in active markets.

   --        Level 2 - Other inputs that are directly or indirectly observable in the market place. 
   --        Level 3 - Unobservable inputs which are supported by little or no market activity. 
   r.       Basic and diluted earnings per share: 

Basic earnings per share are computed based on the weighted average number of ordinary shares outstanding during each year. Diluted earnings per share are computed based on the weighted average number of ordinary shares outstanding during each year, plus dilutive potential ordinary shares outstanding during the year, in accordance with ASC 260, "Earnings per Share". The total weighted average number of shares related to the outstanding options and RSUs excluded from the calculations of diluted earnings per share, since they would have an anti-dilutive effect, was 87,500 and 1,512,343 for the years 2019 and 2018, respectively.

   s .       Treasury shares: 

In accordance with ASC 505-30, the Company shares held by the Company and/or its subsidiaries are recognized at cost of purchase and presented as a deduction from equity. Any gain or loss arising from a purchase, sale, issue or cancellation of treasury shares is recognized directly in equity.

   NOTE 2:-   SIGNIFICANT ACCOUNTING POLICIES (Cont.) 
   t.       Domains: 

Domains are non-current assets with indefinite useful lives. Since the domains have no expiry date, management believes that these intangible assets have indefinite useful lives. Intangible assets with indefinite useful lives are not amortized and are tested for impairment annually or whenever there is an indication that the intangible asset may be impaired. For the years ended 31 December 2019 and 2018, no impairment losses were recorded.

   u.       Discontinued operations 

For all periods presented, the operating results of our mobile advertising segment have been excluded from continuing operations and reported as income (loss) from discontinued operations, net of tax in the accompanying consolidated financial statements. In addition, the assets and liabilities related to our discontinued mobile advertising segment are reported as assets and liabilities of discontinued operations in the accompanying consolidated balance sheets. Cash flow information of our discontinued operations was not presented. For additional information on the discontinuation of our mobile advertising segment, refer to Note 18.

   NOTE 3:-   PROPERTY AND EQUIPMENT, NET 
   a.       Composition: 
 
                                                      31 December 
                                                    --------------- 
                                                    2019     2018 
                                                    -----   ------- 
 Cost: 
 
 Computers and software                                 $ -  $ 571 
 Office furniture and equipment                           -      878 
 Electronic equipment                                     -       50 
 Capitalized research and development 
  costs                                                   -    2,252 
 Leasehold improvements                                   -      211 
                                                     ------  ------- 
 
 Total cost                                               -    3,962 
 Less: accumulated depreciation and amortization          -  (2,549) 
                                                     ------  ------- 
 
 Property and equipment, net                            $ -  $ 1,413 
                                                     ======  ======= 
 

b. Depreciation and amortization expense amounted to $ 679 and $ 4,031 for the years ended 31 December 2019 and 2018, respectively.

In connection with the restructuring plan, the Company recorded in 2018 an impairment of $905, relating to disposal of certain office furniture and equipment which are included in restructuring charges in the statement of operations.

In 2018, the Company derecognised property and equipment in the amount of $2,771, which were fully depreciated.

   NOTE 4:-   OTHER INTANGIBLE ASSETS, NET 

Other intangible assets comprise of the following:

 
                                     Customer 
                      Technology   relationships  Database   Total 
                      ----------  --------------  --------  ------- 
 
1 January 2018        $ 2,006     $ 3,655         $ 2,736   $ 8,397 
 
Amortization             (1,909)         (2,099)     (608)  (4,616) 
Impairment                     -               -   (2,128)  (2,128) 
Sale of activities             -           (202)         -    (202) 
                      ----------  --------------  --------  ------- 
 
31 December 2018              97           1,354         -    1,451 
 
Additions                     73               -         -       73 
Amortization                (65)           (950)         -  (1,015) 
Sale of subsidiary         (105)           (404)         -    (509) 
                      ----------  --------------  --------  ------- 
 
31 December 2019               -               -         -        - 
                      ==========  ==============  ========  ======= 
 
   NOTE 5:-   GOODWILL 

Changes in goodwill for the years ended 31 December 2019 and 2018 are as follows:

 
                                         31 December 
                                      ------------------ 
                                        2019      2018 
                                      --------  -------- 
 
 Goodwill at beginning of year        $ 42,279  $ 83,768 
 
 Sale of subsidiary and activities    (26,295)   (5,827) 
 Impairment                           (15,984)  (35,662) 
 
                                      $ -       $ 42,279 
                                      ========  ======== 
 
   NOTE 6:-   Fair value of financial instruments 

The following table present assets and liabilities measured at fair value on a recurring basis as of 31 December 2019 and 2018:

 
                                               31 December 2019 
                                --------------------------------------------- 
                                     Fair value measurements using input 
                                                     type 
                                --------------------------------------------- 
                                 Level 1     Level 2     Level 3     Total 
                                ---------  -----------  --------  ----------- 
 Assets: 
 Investment in financial 
  assets measured at fair 
  value                               $ -   *) $ 2,450       $ -   *) $ 2,450 
                                ---------  -----------  --------  ----------- 
 Total financial assets               $ -   *) $ 2,450         $   *) $ 2,450 
                                =========  ===========  ========  =========== 
 
 Liabilities: 
 Bonds                           $ 29,225          $ -       $ -     $ 29,225 
 
 Total financial liabilities     $ 29,225   $ -          $ -       $ 29,225 
                                =========  ===========  ========  =========== 
 
   NOTE 6:-   Fair value of financial instruments (Cont.) 

*) Investment in financial assets measured at fair value:

 
                                                    Year ended 
                                                    31 December 
                                                       2019 
                                                   ------------ 
 
 Quoted price                                      $ 2,758 
 Discount for lock up period (refer to Note 1b)           (308) 
 
 Total fair value at the end of year               $ 2,450 
                                                   ============ 
 
 
                                             31 December 2018 
                                ------------------------------------------ 
                                    Fair value measurements using input 
                                                    type 
                                ------------------------------------------ 
                                  Level 1    Level 2    Level 3    Total 
                                ----------  ---------  --------  --------- 
 Liabilities: 
 Bonds                           $ 18,540    $ -        $ -       $ 18,540 
 Derivative                              -        933         -        933 
 
 Total financial liabilities     $ 18,540    $ 933      $ -       $ 19,473 
                                ==========  =========  ========  ========= 
 

The following table summarizes the changes in the Company's liabilities measured at fair value using significant unobservable inputs (Level 3), during the year ended 31 December 2018:

 
                                                           Year ended 
                                                           31 December 
                                                              2018 
                                                          ------------ 
 
 Total fair value at the beginning of the year            $ 43,263 
 Classification of liability to non-controlling 
  interest to current liabilities (*)                         (19,488) 
 Changes in fair value of liability to non-controlling 
  interest                                                         798 
 Changes in fair value of payment obligation related 
  to acquisitions recognized in earnings                         (538) 
 Payment of contingent consideration during the 
  period                                                         (110) 
 Classification of contingent obligation into current 
  liabilities                                                    (976) 
 Payment of liability non-controlling interests               (20,146) 
 Dividend to non-controlling interests                         (2,711) 
 Other adjustments                                                (92) 
                                                          ------------ 
 
 Total fair value at the end of year                      $ - 
                                                          ============ 
 

(*) As 31 December 2018 the total aggregate liability to non-controlling interest was set on an amount of EUR16,921 thousand ($19,375 based on the exchange rate on 31 December 2018). For additional information refer to Note 1b.

   NOTE 8:-   BANK LOANS, CREDIT LINES AND OTHER LIABILITIES 

a. On 16 June 2014, the Company signed a loan agreement with an Israeli bank in an amount of $21,600. The loan agreement requires repayment of 85% of the principal in 12 equal payments every three months commencing 16 September 2014, and 15% of the principal in 4 equal payments every three months commencing 16 September 2017. The loan bore interest of three months USD LIBOR plus 3.5% to be paid together with the relevant portion of the principal. The loan was repaid in full on 16 June 2018.

b. On 3 January 2017, the Company signed a term loan agreement with an Israeli bank in an amount of $ 2,000. In accordance with the loan agreement, repayment of the principal and the interest shall be made in 12 equal quarterly payments, commencing 10 April 2017. The loan bears annual interest of three months USD LIBOR plus 4.6%. The remaining principal as of 31 December 2018 was $ 893. As of 31 December 2018, the Company presented the entire loan amount in current liabilities. On 5 February 2019, the loan was repaid in full.

c. On 20 August 2015, the Company's subsidiary Team Internet signed a term loan agreement with a German bank in an amount of EUR1,192 thousands ($ 1,365 based on the exchange rate on 31 December 2018). In accordance with the loan agreement, repayment of the principal shall be made in 54 equal monthly payments, commencing 31 March 2016. The loan is indexed to the Euro and bears interest of 1.8% to be paid on a monthly basis, commencing 31 August 2015. The remaining principal as of 31 December 2018 was $ 505.

d. On 28 April 2016, Team Internet signed a loan agreement with a German bank in an amount of EUR 2,660 thousand ($ 3,046 based on the exchange rate on 31 December 2018). In accordance with the loan agreement, repayment of the principal shall be made in 20 equal quarterly payments, commencing 30 September 2016. The loan is indexed to the Euro and bears interest of 1.1% to be paid on a quarterly basis, commencing 30 June 2016. The remaining principal as of 31 December 2018 was $ 1,523.

e. On 28 September 2016, the Company's subsidiary in the US ("Matomy US") signed a loan agreement with a bank in the US in an amount of $ 4,000. The term loan agreement required repayment of principal and interest every 3 months commencing 28 December 2016. The loan bore interest of three months USD LIBOR plus 3.65%. In December 2017 the Company signed an addendum to the loan agreement, and repaid loan principal of $ 500. The remaining principal of $ 1,834 was paid in full in February 2018.

f. On 10 January 2017, the Company's subsidiary in the US signed a secured line of credit in the amount of $ 5,000, all was utilized with a bank in the US. The line of credit bore an interest rate of LIBOR plus 3.25%, and an interest of 0.35% on the unused credit line. The credit line was repaid in full in May 2018.

g. On 16 May 2018, Team Internet signed a secured line of credit in the amount of EUR 6,000 thousands ($6,870 based on the exchange rate on 31 December 2018), with a German bank, out of which it utilized $3,947 as of 31 December 2018. The line of credit bears an interest rate of 2%, and an interest of 0.5% on the unused credit line.

   NOTE 8:-   BANK LOANS, CREDIT LINES AND OTHER LIABILITIES (Cont.) 

h. In connection with the Company's acquisition of Optimatic which was completed on 13 November 2015, the Company has an outstanding liability in the amount of $2,971, which is included within accrued expenses and other liabilities on the balance sheets as of 31 December 2019 and 2018. The Company has made repeated efforts to locate certain former shareholders of Optimatic in order to pay such debt, with no success. As a result, the Company cannot determine when, if at all, such amount will be paid.

   NOTE 9:-   CONVERTIBLE BOND 

In February 2018, the Company completed a public offering in Israel of convertible (Series A) bonds (the "Bonds"). On 8 January 2020, the Company fully repaid all of its obligations to the bondholders.

The terms of the Bond were as following: The Company raised a total gross consideration of ILS 103 million (approximately $29,930 as of issuance date), issued a total of 101,000 units of Bond, which was to bear a coupon of 5.5% per annum, payable semi-annually on June 30 and December 31 of each of the years 2018 to 2021 (inclusive). The interest was to be paid on a semi-annual basis.

The Company elected to apply the fair value option in accordance with ASC 825, "Financial Instruments", to the convertible bond and therefore all unrealized gains and losses are recognized in earnings.

The changes of the convertible bond in the year ended 31 December 2019 were as follows:

 
 Balance 1 January 2019            $ 18,540 
 
 Change in fair value                10,685 
 
 Balance as of 31 December 2019    $ 29,225 
                                   ======== 
 

NOTE 10:- COMMITMENTS AND CONTINGENT LIABILITIES

From time to time, the Company is party to ordinary and routine litigation incidental to its business. As of 31 December 2019 the Company does do not expect the outcome of any such litigation to have a material effect on its consolidated financial position, results of operations, or cash flows.

NOTE 11:- EQUITY

   a.       The Company's equity is composed of shares of NIS 0.01 par value each, as follows: 
 
                          31 December 2019                       31 December 2018 
                Authorised     Issued     Outstanding  Authorised     Issued     Outstanding 
                -----------  -----------  -----------  -----------  -----------  ----------- 
                                              Number of shares 
                ---------------------------------------------------------------------------- 
 
    Ordinary 
     shares     430,500,000  108,242,714   98,483,839  430,500,000  108,131,214   98,372,339 
                ===========  ===========  ===========  ===========  ===========  =========== 
 

NOTE 11:- EQUITY (Cont.)

The Ordinary Shares confer upon the holders thereof the right to receive notices and to attend general meetings of the Company, to be present thereat and to participate in and vote at such meetings, the right to participate in all distributions of dividends (whether of cash, assets or in any other lawful way) made by the Company and the right to participate with the other shareholders in the distribution of the surplus of assets of the Company which remains available for distribution on winding-up.

   b.       Options issued to employees and directors: 

Under the global share plan as approved in 2012 options and Restricted S hare Unit ("RSU") may be granted to employees, directors, officers and consultants of the Company. Each option granted under the Plans is fully exercisable up to 4 years and expires in between 7 to 10 years from the date of grant. As of 31 December 2019, there were 8,351,334 options available for future grants under the plan.

Any options, which are forfeited or not exercised before expiration, become available for future grants.

   A summary of the activity in options granted to employees   and directors is as follows: 
 
                                                                 Weighted- 
                                                              average remaining 
                                           Weighted-average      contractual     Aggregate 
                                Number of      exercise             term          intrinsic 
                                 options         price           (in years)         value 
                                ---------  ----------------  ------------------  ---------- 
 
 Outstanding at 1 
  January 2019                  1,473,843  $ 1.45                          3.50  $ 0 
 
 Granted                                -  $ 0 
 Exercised                              -  $ 0 
 Forfeited                      1,386,343  $ 1.35 
                                --------- 
 
 Outstanding and exercisable 
  at 31 December 2019              87,500  $ 1.49                          2.94  $ 0 
                                =========  ================  ==================  ========== 
 
 

As of 31 December 2019, the total compensation cost related to options granted to employees and directors, not yet recognized amounted to $ 0.

The aggregate intrinsic value of all stock options at 31 December 2019 and 2018 amounted to zero since all options were out-of-the-money as of such dates.

The weighted average grant date fair values of options granted for the years ended 31 December 2019 and 2018 were $ 0 and $ 0.37, respectively.

NOTE 11:- EQUITY (Cont.)

   c.       Restricted Share Units ("RSU") issued to employees and directors: 
 
                                 Number of 
                                   RSU's 
                                 --------- 
 
 Unvested at 1 January 2019         38,500 
                                 ========= 
 
 Granted                           106,000 
 Vested                          (111,500) 
 Forfeited                        (33,000) 
 
 Unvested at 31 December 2019            - 
                                 ========= 
 

The weighted average grant date fair value per share for the year ended 31 December 2019 $ 0.03 . There were no grants during 2018.

As of 31 December 2019, the total compensation cost related to RSUs granted to employees, not yet recognized amounted to $ 0.

   d.       Treasury shares 

As of 31 December 2019, treasury shares amounted to 9,758,875 shares. As of 31 December 2018, treasury shares amounted to 10,970,111 shares of which 1,211,236 shares are held by Team Internet and were considered outstanding.

   NOTE 12:-   TAXES ON INCOME 
   a.       Israeli taxation: 
   1.       Corporate tax rates in Israel: 

The Israeli corporate income tax rate was 23% in 2019 and 2018.

2. Carryforward operating tax losses of the Israeli parent amounted to $ 55,400 as of 31 December 2019 and may be used indefinitely. These losses may be subject to limitations on their utilization.

   b.       Income taxes on non-Israeli subsidiaries: 

Non-Israeli subsidiaries are taxed according to the tax laws in their respective country of residence. The Company's main non-Israeli subsidiaries were located in Germany and in the United States, and were subject to tax rate of 33% and 27%, respectively in 2019 and 2018.

c. As of 31 December 2019, all the Company subsidiaries were dissolved or initiated the process of dissolution.

NOTE 12:- TAXES ON INCOME (Cont.)

   d.       Deferred tax assets and liabilities: 

Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts recorded for tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:

 
 
                                           31 December 
                                      ------------------- 
                                        2019      2018 
                                      --------  --------- 
 Deferred tax assets: 
 
 Carry forward losses                 $ 12,722  $ 10,297 
 Research and development expenses         558      1,991 
 Allowance for doubtful debts                -        766 
 Intangible assets                           -        891 
 Other                                       -      1,765 
                                      --------  --------- 
 
 Gross deferred tax assets              13,280     15,710 
 Valuation allowance                  (13,280)   (15,618) 
                                      --------  --------- 
 
 Total deferred tax assets                   -         92 
                                      --------  --------- 
 
 Deferred tax liabilities: 
 
 Intangible assets                           -        757 
 Gain on achieving control                   -      2,022 
 Other                                       -         40 
                                      --------  --------- 
 
 Deferred tax liabilities                    -      2,819 
                                      --------  --------- 
 
 
 Deferred tax liabilities, net        $ -       $ (2,727) 
                                      ========  ========= 
 

The net change in the valuation allowance primarily reflects a decrease in deferred tax assets on net operating losses and other temporary differences due to sale of subsidiary and dissolution of other subsidiaries.

   e.       Income (loss) before taxes on income is comprised as follows: 
 
                 Year ended 
                 31 December 
            --------------------- 
               2019       2018 
            ----------  --------- 
 
Domestic    $ (24,736)  $ (1,631) 
Foreign          5,358    (1,619) 
            ----------  --------- 
 
            $ (19,378)  $ (3,250) 
            ==========  ========= 
 
   NOTE 12:-   TAXES ON INCOME (Cont.) 
   f.       Taxes on income (tax benefit) are comprised as follows: 
 
                Year ended 
                31 December 
             ---------------- 
              2019     2018 
             -------  ------- 
Current: 
 
Domestic     $ 175    $ (11) 
Foreign        3,673    4,358 
             -------  ------- 
 
               3,848    4,347 
             -------  ------- 
Deferred: 
 
Domestic           -        2 
Foreign      (2,269)    (666) 
             ------- 
 
             (2,269)    (664) 
 
             $ 1,579  $ 3,683 
             =======  ======= 
 

g. A reconciliation of the beginning and ending amount of unrecognised tax benefits related to uncertain tax positions is as follows:

 
                                               31 December 
                                              ------------- 
                                               2019   2018 
                                              ------  ----- 
 
 Beginning balance                            $ 183   $ 193 
 Reductions to unrecognized tax 
  benefits as a result of a lapse 
  of the applicable statute of limitations      (10)   (10) 
                                              ------  ----- 
 
 Ending balance                               $ 173   $ 183 
                                              ======  ===== 
 

The entire amount of unrecognised tax benefits as of 31 December 2019, if recognised, would reduce the Company's annual effective tax rate.

The Company does not expect uncertain tax positions to change significantly over the next 12 months, except in the case of settlements with tax authorities, the likelihood and timing of which is difficult to estimate.

During the years ended 31 December 2019 and 2018, the Company did not record any interest and exchange rate differences expenses related to prior years' uncertain tax positions, since the amount was immaterial.

The Company believes that it has adequately provided for any reasonably foreseeable outcome related to tax audits and settlement. The final tax outcome of its tax audits could be different from that which is reflected in the Company's income tax provisions and accruals. Such differences could have a material effect on the Company's income tax provision and net loss in the period in which such determination is made.

   NOTE 12:-   TAXES ON INCOME (Cont.) 

As of 31 December 2019, the Company and its subsidiaries in Israel besides one subsidiary in Israel received final, or considered final, tax assessments through 2014.

As of 31 December 2019, Team Internet and the Company subsidiaries in the US received final, or considered final, tax assessments through 2014.

h. Reconciliation between the theoretical tax expenses, assuming all income is taxed at the statutory rate in Israel and the actual income tax as reported in the statements of operations is as follows:

 
                                                  Year ended 
                                                  31 December 
                                             --------------------- 
                                                2019       2018 
                                             ----------  --------- 
 
 Loss from continuing operations 
  before taxes as reported in the 
  statements of income                       $ (19,378)  $ (3,250) 
                                             ==========  ========= 
 
 Statutory tax rate in Israel                       23%        23% 
                                             ==========  ========= 
 
 Theoretical income tax benefit              $ (4,457)   $ (747) 
 
 Increase in taxes resulting from: 
 Deferred taxes on losses and other 
  temporary charges for which a valuation 
  allowance was provided, net                     1,086      2,731 
 Tax adjustment in respect of different 
  tax rate of foreign subsidiaries                  838        277 
 Non-deductible expense including 
  impairment charge, net                          4,533      1,153 
 Effect of foreign exchange rate 
  *)                                              (460)        342 
 Others                                              39       (73) 
                                             ----------  --------- 
 
                                             $ 1,579     $ 3,683 
                                             ==========  ========= 
 

*) Results for tax purposes are measured under, Measurement of results for tax purposes under the Income Tax (Inflationary Adjustments) Law, 1985, in terms of earnings in NIS. As explained in Note 2c, the financial statements are measured in U.S. dollars. The difference between the annual changes in the NIS/dollar exchange rate causes a difference between taxable income and the income before taxes shown in the financial statements. In accordance with ASC 740-10-25-3(F), the Company has not provided deferred income taxes in respect of the difference between the functional currency and the tax bases of assets and liabilities.

NOTE 13:- LEASES

In February 2016, the Financial Accounting Standards Board (the "FASB") issued Topic 842, which requires the recognition of right-of-use ("ROU") assets and lease liabilities for operating leases on the consolidated balance sheet. The Company adopted Topic 842 and its related amendments as of January 1, 2019 using a modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. The Company elected the package of practical expedients permitted under the transition guidance, which allowed the Company to not reassess whether arrangements contain leases, not reassess lease classification and not reassess initial direct costs.

Under the new guidance, the Company determined if an arrangement contains a lease and the classification of that lease, if applicable, at inception or upon modification of a contract. The Company elected to not recognize a lease liability or ROU asset for short-term leases (leases with a term of twelve months or less and does not include an option to purchase the underlying asset that the Company is reasonably certain to exercise). Lease liabilities represent its obligation to make lease payments under the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

Some leases include one or more options to renew. The exercise of lease renewal options is typically at the Company's sole discretion; therefore, the majority of renewals to extend the lease terms are not included in our right of use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options, and, when it is reasonably certain of exercise, it will include the renewal period in its lease term. Lease modifications result in remeasurement of the lease liability.

The right-of-use asset and lease liability are initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate based on the information available at the date of adoption in determining the present value of the lease payments. The determination of its incremental borrowing rate requires judgment

The Company had operating leases for office space, that expire through 2025. Below is a summary of operating right-of-use assets and operating lease liabilities as of the adoption date:

 
                                           $ 
                                         ----- 
 
Operating right-of-use assets            2,084 
 
Operating lease liabilities, current       326 
Operating lease liabilities long-term    1,758 
 
Total operating lease liabilities        2,084 
                                         ===== 
 

The weighted average remaining lease terms and discount rates for all of operating leases as of the adoption date were as follows:

NOTE 13:- LEASES (Cont.)

Weighted average remaining lease term (years) 3.3

Weighted average discount rate 1.90%

Following the sale of a subsidiary (refer to Note 1b), the Company no longer have leases within the scope of ASC 842.

NOTE 14:- REPORTABLE SEGMENTS

   a.       General 

In 2018, the Company was organized into operating segments based on the products and services, that existed at the time and had operating segments as follows:

-- Mobile Advertising ("Mobfox") - Mobfox was a data-driven, supply-side platform (SSP) and exchange for mobile in-app advertising. Connected to developers and publishers, along with quality demand sources, Mobfox offered comprehensive support for all major mobile ad formats. Mobfox also offered media buying services on its myDSP demand-side platform (DSP). Following the sale of the Mobfox activity in November 2018 this operating segment ceased to exist. This segment is reported as Discounted Operations in accordance with ASC 205-20.

-- Domain Monetization - Team Internet serves the domain monetisation market and includes two brands which work seamlessly together to provide a complete offering. Parking Crew is a domain parking platform which integrates with many third-party applications. Tonic, the second platform, is a traffic marketplace that allows users to monetize traffic and target audiences with a variety of ad types. On 24 December 2019 Team Internet was sold, as further described in Note 1b above.

-- Non-core Activities - Matomy's non-core activities included email marketing under the Whitedelivery brand and video advertising services under the Video from Matomy and Optimatic Media Inc. ("Optimatic") brands. Following the sale of these activities and the restructuring of the remaining non-core activities, this operating segment ceased to exist.

Following the sale of Team Internet, the Company has ceased its operations in all segments.

   b.       Segments information: 
 
                            Year ended 
                            31 December 
                        ------------------ 
                          2019      2018 
                        --------  -------- 
 Revenues: 
 
 Domain monetisation    $ 74,035  $ 75,636 
 Other                         -    13,098 
                        --------  -------- 
 
 Total revenues         $ 74,035  $ 88,734 
                        ========  ======== 
 

NOTE 14:- REPORTABLE SEGMENTS (Cont.)

 
                                               Year ended 
                                               31 December 
                                          -------------------- 
                                            2019       2018 
                                          ---------  --------- 
 Operating loss: 
 
 Domain monetisation                       $ 11,337  $ 14,181 
 Other                                                 (4,089) 
 Reconciling items (1)                     (18,445)   (18,445) 
                                          ---------  --------- 
 
 Total loss from continuing operations    $ (7,108)  $ (8,353) 
                                          =========  ========= 
 

(1) Reconciling items are primarily related to impairment loss and depreciation and amortization costs for the year ended 31 December, 2019 and 2018, as well as corporate administrative costs and other miscellaneous items that are not allocated to individual segments.

The following includes the information of operations of the domain monetization:

 
                                         Year ended 
                                         31 December 
                                     ------------------- 
                                       2019       2018 
                                     ---------  -------- 
 
 Revenues                             $ 74,035  $ 75,636 
 Cost of revenues                       57,128    58,089 
                                     ---------  -------- 
 
 Gross profit                           16,907    17,547 
                                     ---------  -------- 
 
 Operating expenses: 
 
 Research and development                  601       455 
 Selling and marketing                   3,594     3,792 
 General and administrative              1,914     1,775 
 Goodwill Impairment                    15,984     5,014 
                                     ---------  -------- 
 
 Total operating expenses               22,093    11,036 
                                     ---------  -------- 
 
 Operating income (loss)               (5,186)     6,511 
 Financial expenses (income), net          161      (70) 
                                     ---------  -------- 
 
 Income (loss) before taxes on 
  income                               (5,347)     6,581 
 Tax on income                           3,667     3,658 
                                     ---------  -------- 
 
 Net income (loss)                     (9,014)     2,923 
 Net loss (income) attributable 
  to non-controlling interests in 
  subsidiaries                             (1)        53 
                                     ---------  -------- 
 
 Net income (loss)                   $ (9,015)  $ 2,976 
                                     =========  ======== 
 

NOTE 14:- REPORTABLE SEGMENTS (Cont.)

   c.       Geographical information: 

Revenues by geography are classified based on the location where the consumer completed the action that generated the relevant revenues.

   1.       Revenues from external customers: 
 
                      Year ended 
                      31 December 
                  ------------------ 
                    2019      2018 
                  --------  -------- 
 
 United States    $ 39,883  $ 55,665 
 Europe             24,092    22,709 
 Asia                3,476     3,483 
 Other               6,584     6,877 
                  --------  -------- 
 
                  $ 74,035  $ 88,734 
                  ========  ======== 
 
   2.       Property and equipment, net: 
 
              31 December 
            --------------- 
            2019     2018 
            -----   ------- 
 
 Israel         $ -  $ 53 
 Germany          -    1,360 
             ------  ------- 
 
     $ -            $ 1,413 
  ======            ======= 
 

d. In the years ended 31 December 2019 and 2018, one customer contributed 87% and 72% of the Company's revenues, while no other customer contributed more than 10%.

NOTE 15:- FINANCIAL EXPENSES, NET

 
                                               Year ended 
                                               31 December 
                                           ------------------- 
                                              2019      2018 
                                           ----------  ------- 
 Financial income: 
 
 Interest income                           $ 167       $ 45 
 Change in fair value of convertible 
  Bonds                                             -   11,390 
 Hedging transactions                              77        - 
 Foreign currency remesurement.net                156        - 
 Revaluation of investment in financial 
  assets measured at fair value (Refer 
  to Note 1b)                                     863        - 
 
                                                1,263   11,435 
                                           ----------  ------- 
 Financial expenses: 
 
 Bank fees                                      (179)    (387) 
 Interest expense                             (1,939)  (2,042) 
 Foreign currency remesurement.net                  -    (718) 
 Hedging transactions                               -    (899) 
 Change in fair value of convertible 
  Bonds                                      (10,685)        - 
 Other                                          (730)    (698) 
                                           ----------  ------- 
 
                                             (13,533)  (4,744) 
                                           ----------  ------- 
 
                                           $ (12,270)  $ 6,691 
                                           ==========  ======= 
 

NOTE 16:- RELATED PARTIES

The Company has activity with related parties as part of its ordinary business. The majority of the related parties' transactions include domain monetization activity with the non-controlling interest of Team Internet.

Cost of revenues to related parties amounted to $ 2,882 and $ 5,009 for the years ended 31 December 2019 and 2018, respectively.

As a result of the sale of Team Internet, as described in Note 1b, trade payables to related parties amounted to $ 0 and $ 255 as of 31 December 2019 and 2018, respectively.

NOTE 17:- RESTRUCTURING COSTS

Following the sale of certain activities in 2018 (refer to Note 1c), the Company has incurred in 2018 cumulative restructuring costs of $ 2,865 as follows:

 
                                           Year ended 
                                           31 December 
                                              2018 
                                          ------------ 
 
 Payroll and related expenses             $ 401 
 Lease facilities and related expenses             926 
 Property and equipment impairment                 847 
 Servers and related                               212 
 Other expenses                                    479 
 
                                          $ 2,865 
                                          ============ 
 

Restructuring costs in the amount of $942 are related to the discontinued operation. As of 31 December 2018 the Company restructuring liability amounted to $ 464 and is included within accrued expenses in the balance sheet and was fully paid in 2019.

NOTE 18:- DISCONTINUED OPERATIONS

As a result of the sale of the Mobfox business in November 2018, as detailed in Note 1c, the operating results from the Mobfox mobile-core segment and the related assets and liabilities have been presented as discontinued operations in the consolidated financial information for all periods presented. The results of operations from discontinued operations presented below include certain allocations that management believes fairly reflect the utilization of services provided to the former Mobfox segment. The allocations do not include amounts related to general corporate administrative expenses or interest expense. Therefore, the results of operations from the Mobfox segment do not necessarily reflect what the results of operations would have been had the former Mobfox segment operated as a stand-alone segment.

NOTE 18:- DISCONTINUED OPERATIONS (Cont.)

The following table summarizes the results of discontinued operations for the year ended 31 December 2018:

 
                                                           Year ended 
                                                           31 December 
                                                              2018 
                                                          ------------ 
 
 Revenues                                                 $ 34,774 
 Cost of revenues                                               31,422 
                                                          ------------ 
 
 Gross profit                                                    3,352 
                                                          ------------ 
 
 Operating expenses: 
 
 Research and development                                        4,774 
 Selling and marketing                                           3,076 
 General and administrative                                      3,344 
 Impairment, net of change in fair value of contingent 
  consideration                                                 30,607 
 Other                                                           1,000 
 
 Total operating expenses                                       42,801 
                                                          ------------ 
 
 Operating loss                                               (39,449) 
 Tax on income                                                     338 
                                                          ------------ 
 
 Loss from discontinued operations                        $ (39,787) 
                                                          ============ 
 

The following table summarizes the assets and liabilities of discontinued operations as of 31 December 2018:

 
                                                         Year ended 
                                                         31 December 
                                                            2018 
                                                        ------------ 
ASSETS 
 CURRENT ASSETS: 
    Trade receivables, net                              $ 4,634 
                                                        ------------ 
 
 Total current assets of discontinued operation                4,634 
                                                        ------------ 
 
 Total assets                                           $ 4,634 
                                                        ============ 
 
LIABILITIES 
 CURRENT LIABILITIES: 
    Trade payables                                      $ 3,928 
                                                        ------------ 
 
 Total current liabilities of discontinued operation           3,928 
                                                        ------------ 
 
 Total liabilities                                      $ 3,928 
                                                        ============ 
 
   -   -   -   -   -   -   -   -   -   -   - 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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March 18, 2020 10:52 ET (14:52 GMT)

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