Matomy Media : 2017 Interim Results

HOLD FOR RELEASE

28September 2017

Matomy Media Group | 2017 Interim Results

Interim results for six-month period ended 30 June 2017

Matomy's core growth engines, programmatic mobile in-app (Mobfox), and domain monetisation (Team Internet) recorded strong revenue growth of 104% and 69%, respectively. GroupAdjusted EBITDA and revenue for the first half-year increased by 59% and 13%, respectively, outperforming expectations.

Matomy Media Group Ltd., a global media company with a portfolio of data-driven platforms for mobile, domain, video, and email advertisingannounces its interim results for the six-month period ended 30 June 2017.

Non-GAAP Financial Highlights

Non-GAAP Financial Highlights, excluding the exited activities on a pro-formabasis

GAAP Financial Highlights

** The H1 2017 and H1 2016 results include non-recurring charges of $8.4 and $0.3million, respectively. See 'exceptional items' below for further details.*** The H1 2017 and H1 2016 results include non-recurring charges, including tax effect of $3.6and $0.3million, respectively. See 'exceptional items' below for further details.

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 generates 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.

Matomy believes that adjusted gross profit is a meaningful measure of operating performance because it is frequently used for internal management purposes, indicates the performance of Matomy's solutions in balancing the goals of delivering results to its customers whilst meeting margin objectives, and facilitates a more complete understanding of factors and trends affecting Matomy's underlying revenues performance.

Adjusted EBITDA

Adjusted EBITDA is a non‑GAAP financial measure that Matomy defines as net income before taxes on income, financial expenses (income), net, equity losses of affiliated companies, net, depreciation and amortisation, share‑based compensation expenses and exceptional items (as described below). Adjusted EBITDA is a key measure Matomy uses to understand and evaluate its core operating performance and trends, to prepare and approve its annual budget, to develop short‑ and long‑term operating plans and to determine bonus payments to management. In particular, Matomy believes that by excluding share‑based compensation expenses, adjusted EBITDA provides a useful measure for period‑to‑period comparisons of Matomy's core business.

Adjusted net income

Adjusted net income is a non GAAP financial measure that Matomy defines as net income before share-based compensation expenses and any exceptional items.

Business and Operating Highlights

§ Revenues increased by 13% to $141.0million (H1 2016: $124.4 million)

o Programmatic mobile in-app (Mobfox) revenue increased 104% to $25.0 million (H1 2016: $12.3 million)

o Domain monetisation (Team Internet) revenue increased 69% to $51.7 million (H1 2016: $30.6 million)

§ Adjusted EBITDA increased by 59% to $9.2 million (H1 2016: $5.8 million)resulting in higher level of cash generation. The improvement in adjusted EBITDA would be notably higherif the effects of exchange rate fluctuations and the decreased level of R&D capitalization are neutralized.

§ Adjusted gross profit grew by 25% to $43.1 million (H1 2016: $34.6 million), with improvement in adjusted gross margin to 30.6% (H1 2016: 27.8%)

§ Adjusted net loss reduced by 50% to $2.0 million loss (H1 2016: $4.0 million loss)

§ The company announced on 8 May 2017 arestructuringto focus on its core activities of programmatic mobile, domain monetisation, and video, while significantly reducing operational costs moving forward.

o The company exited non-core activities, such as legacy web display, social, search, and virtual currency media channels

o The financial effects of the divestiture will positively impact H2 2017, with the full effect showing in 2018

o Matomy now has a smaller corporate team, resulting in lower operational overhead

o R&D and technical employees now amount to approximately 45% of the staff overall, reflecting the stronger focus on proprietary technology and product development

§ US continued to be the largest geography by revenue generation, accounting for $95.1million (H1 2016: $80.0 million)

Sagi Niri, Chief Executive Officer of Matomy, said:

'At Matomy, one of our primary values is to constantly challenge ourselves, set high goals, and embrace change when necessary, and we realized these values as we embarked on the strategic restructuring this year. The financial results reported here reflect our proactive strategic decisions and strong performance in the core growth activities of Mobfox and Team Internet. We are looking forward to continued growth following the operational changes we have made and constantly monitor the best way to create long-term value for all stakeholders.'

Harel Beit-On, Matomy Non-Executive Chairman of the Board, commented:

'Matomy made great strides in the first half of 2017, realizing its new focus on core growth areas, such as mobile in-app advertising technology and domain monetisation. Today, Matomy is well-positioned to be a leading innovative force in the in-app, mobile, and domain monetisation advertising marketplaces.'

Matomy Media GroupPamela Becker, VP Global Marketing
pamela.b@matomy.com +972-74-7161971

Press Contact Information:

Justine Rosin

justine@headline-media.com

UK: +44 20 3769 5656 | USA:  +1 (917) 724-2176

Investor Relations:

Daniel Polad

danielp@pr-ir.co.il

+972-505560216

A copy of this announcement will be available on the Matomy website: http://investors.matomy.com/rns.aspx.

Matomy will host an analyst conference call at 10:00am BST / 12:00pm IST Tuesday 19 September 2017 to discuss these results. Matomy CEO Sagi Niri, and CFO Keren Farag Krygier will host the call. The conference call can be accessed at +44 (0) 808 238 9856 (UK), +1 (866) 868-1282 (US) or +972 1809 212 583 (Israel), Audience Passcode: 6705 305.

About Matomy Media Group Ltd.

Matomy Media Group Ltd. (LSE: MTMY, TASE: MTMY.TA) is a global media company with a portfolio of superior data-driven platforms for mobile, video, domain, and email advertising. By providing customized performance and programmatic solutions supported by internal media capabilities, data analytics, and optimization technology, Matomy empowers advertising and media partners to meet their evolving growth-driven goals. Matomy's programmatic platforms include the MobFoxSSP, the mobile demand side platform myDSP, and the video advertising platform Optimatic. Founded in 2007 with headquarters in Tel Aviv and 7 offices around the world, Matomy is dual-listed on the London and Tel Aviv Stock Exchanges.

For more information:

Website:http://investors.matomy.com LinkedIn: www.linkedin.com/company/matomy-media-group

Twitter: @MatomyGroup

Facebook: www.facebook.com/MatomyMediaGroup

CHAIRMAN and CHIEF EXECUTIVE OFFICER's STATEMENT

Introduction

2017 is a year of transition for Matomy. The company announced on 8 May 2017 arestructuringto focus on core activities while significantly reducing operational costs moving forward. Thesale of non-core activitieswas completed, and the company has started seeing results that validate the strategic decision-making, including significant improvement in its financial results with our expectation that this positive trend will continue and grow.

Market Overview

Matomy is a global media company with a portfolio of data-driven platforms for programmatic mobile, domain monetisation, video and email advertising.

Programmatic ad spending is rising, particularly in the United States, a key market for Matomy. Growth in the digital marketing space continues to be driven by the growing proliferation of mobile devices as the leading and preferred digital channel for online distribution. The trend of increasing mobile app use, supports huge potential for cross platform advertising. Continuous improvements around consumer-targeting and sophisticated measurement techniques support the ever-growing number of advertisers who incorporate digital advertising into their advertising budgets and view the digital space as the key environment for interacting with consumers.

Operating Performance

In the first half of 2017, Matomy has seen a 13% rise in revenue, a 59% increase in adjusted EBITDA, and a 25% improvement in adjusted gross margin, resulting in higher level of cash generation for H1 2017 compared to H1 2016. Net loss (non-GAAP) decreased dramatically by 50% to ($ 2million). Matomy believes this positive trend to continue as the reduction of operating costs that begun in May continue to be realized till the end of the year and onwards.

The company's core activities in programmatic mobile advertising and domain monetisation have demonstrated particularly strong financial and operational growth.Programmatic mobile (Mobfox) revenue increased 104% to $25.0 million (H1 2016: $12.3 million) and domain monetisation (Team Internet) revenue increased 69% to $51.7 million (H1 2016: $30.6 million).

Outlook

The first half of 2017 was a period of strong performance by the core activities, and a period of transition as the company exited non-core activities and reduced operational costs. Traditionally, Matomy's first half results are more moderate than the second half results, and the Board and Management are confident of growth prospects through the end of 2017 and beyond.

Harel Beit-On Sagi Niri
Non-Executive Chairman Chief Executive Officer

OPERATING REVIEW

Revenues by Media Channel

The following table sets out Matomy's revenues by media channel for the six-month period ended 30 June 2017 and 2016.

Mobile In-App

Mobile in-app (Mobfox) media channel revenues increased 104%to $25.0 million for the six-month period ended 30 June 2017 from $12.3 million in the same period last year. This increase was driven by strong growth in the recruitment and retention of new media suppliersand buyers with a low churn rate, as well asimprovements to Mobfox's auction mechanism with the establishment of new methodologies for its demand-side platform and supply-side platform. We also saw compelling growth in the in-app video activity, and positive response to our investment in APAC as a new business region for the product.

Domain Monetisation

Domain monetisation revenues increased by $21.1 million, or 69%, to $51.7 million for the six-month period ended 30 June 2017 from $30.6 million in the same period last year. The introduction of a suite of technologicalimprovementsacross Team Internet's various platforms resulted in enhanced performance in comparison to peersand led to increased recruitment of new clients and higher market share.

Email

Emailmedia channel revenues decreasedby $1.5million, or 17%, to $7.5million for the six-month period ended 30 June 2017 from $9million in the same period last year. This decrease was mainly attributable to two temporary processes. The first was the temporary diversion in resource allocation during the restructure and consolidation of Matomy's two emailplatforms into one comprehensive platform - a process that is now completed. The second was the integration of several new features and tools intended to ensure compliance with the periodic new requirements by certain ISPs that the company uses in its email activity. Email revenues for the same period last year, have been reclassified to exclude revenues in the sum of $4.3 million from cross affiliate activity which was included as part of the exited activities

Video

Videomedia channel revenues decreased by $14.1million, or 29%, to $35.1million for the six-month period ended 30 June 2017 from $49.2 million in the same period last year. The decrease in the videochannel was driven by changes across the entire video industry reducing the amount and price of available video advertising inventory from sellers together with much stricter quality requirements by videoadvertisers.

ExitedMedia Channels

Revenues from the exited media channels decreasedby $1.6 million, or 7%, to $21.7 million for the six-month period ended 30 June 2017 from $23.3 million in the same period last year. The exited media channels include legacy display, social and search andvirtual currency media channelsand represent activities that have a continued downward trend.

These media channels are no longer part of Matomy's activity and will not be included in results for the periods going forward.

Revenues by Geography

The following table sets out Matomy's revenues by geographical location for the six-month period ended 30 June 2017 and 2016.

Americas

Revenues generated in the Americas increased by $21.3million, or 25%, to $107.7million for the six-month period ended 30 June 2017 from $86.4 million in the same period last year, due to continued growth focused particularly in the mobile and programmatic-based activities, which are strongly centered on the US market.

Europe

Revenues generated in the European market decreased by $8.2million, or 36%, to $14.3million for the six-month period ended 30 June 2017 from $22.5 million in the same period last year due to the continuing shift of client focus to the Americas.

Asia

Revenues generated in Asian markets increased by $7.7million, or 151%, to $12.8 million for the six-month period ended 30 June 2017 from $5.1 million in the same period last year due to the penetrationin our key growth market of China, which also reflects activity which was sold as part of the exited activity.

Following higher investment in our local mobile activity, the growth in Asia without the exited activity, increased by $1.1 million, or 61%, to $2.9 million for the six-month period ended 30 June 2017 from $1.8 million in the same period last year.

FINANCIAL REVIEW

Revenue

In the first half of 2017, Matomy's revenue increased by $16.6million, or 13%, to $141.0million (H1 2016: $124.4 million). The growth in revenuereflects the continued strength of the mobile media channel, a key growth engine for Matomy, together with a strong growthin domain monetisation revenue. Excluding the revenues from the exited activities, which will cease to be part of the reported activities going forward, the increase in revenues is even higher, representing 18% growth.

Cost of Revenueand Other Expenses

Cost of revenuefor the Group increased by $11.3 million, or 11%, to $110.8 million (78.6% of total revenues) for the six-month period ended 30 June 2017 from $99.5 million (80.0% of total revenues) in the same period last year.

Adjusted gross margin, which reflects only direct media costs, increased by 3 percentage points. This change was driven by significant improvements in margins and scales of activities in Matomy's core growth engines - mobile and domain monetisation.

The exited activities reflect low margin with high operational costs, excluding the margin attributable to the exited activities, the increase in the gross margin would have been even higher.

Other cost of revenue, including allocated costs, server expenses, and amortisation of capitalised R&D and intangible assets, increased in part from higher server expenses on the fast growing mobile and domain monetisation activities.

Operating Expenses, excluding exceptional items

Operating expenses increased by $0.9million, or 3%, to $30.1million (H1 2016: $29.2 million). Operating expenses as a percentage of revenues were 21% (H1 2016: 23%).

The increase in operating expenses is mainly attributable to increased investment in R&Dof $1.7 million, which were offset by a reduction in general and administrative costs of$1.1 million, reflecting the restructuring steps taken during 2017, which are expected to show their full effect in 2018.

Research and development expenses increased by $1.7million, or 33%, to $6.7million (H1 2016: $5.0 million), based on continued investment in R&D across the group, reflecting our commitment to strengthening our proprietary technological offerings, as well as reduction in capitalization of expenses.

Sales and marketing expenses increased 1.7% to $15.6 million (H1 2016: $15.3 million). This increase is mainly a result of investment in sales teams, especially in the mobile and APAC activities, which is partly offset by slightly decreased amortisation expenses recorded in sales and marketing (reduced in H1 2017 by $0.6 million).

General and administrative expenses decreased 12% to $7.8 million (H1 2016: $8.9 million), due to continued success in introducing efficiencies at corporate level, streamlining and reducing overheads. This change is aligned with the restructuring plan announced on 8 May, 2017 and is expected to continue to show through the second half of 2017 and 2018.

Financial Expenses

Financial expenses, net increased by $0.5 million, or 72%, to $1.2 million (H1 2016: $0.7 million). This increase is mainly due to higher interest expenses due to additional outstanding loans and credit lines in H1 2017 compared to H1 2016, as well as higher expenses from foreign exchange rate fluctuations, net of hedging transactions, due to the weakening of the dollar vs. the shekel during H1 2017.

Taxes on Income

Taxes on income shiftedto $2.9 million income for the six-month period ended 30 June 2017 (31% of loss before taxes), compared to $0.3 millionexpense in the same period last year (-5%). The change in effective tax rate was primarily due to reversalof deferredtax liability resulted from impairment of intangible assets.

Earnings per Share

Matomy's basic earnings per share decreased by $0.09to $0.15 loss per share for the six-month period ended 30 June 2017 (H1 2016: $0.06 loss per share). This primarily reflected the increased GAAP net loss (which does not exclude the exceptional items), in particular the effect of the increase in redeemable non-controlling interest payable, due to the gain in value of the minority share of Team Internet. In addition, during H1 2017, Matomy's average share capital increased by 1.6% due to option exercises, resulting in a lower denominator for the earnings per share calculation, affecting the loss per share accordingly.

Amortisation of Intangible Assets

Amortisation expenses amounted to $7.5 million for the six-month period ended 30 June 2017, a decrease of $0.6 million from amortisation expenses of $8.1 million for the same period last year. This reflected an increase in amortisation of capitalized R&D assets, offset by the decreasing amortisation rate in connection withprevious acquisitions.

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 non-recurring, and therefore were excluded from non-GAAP measures:

· Impairments of intangible assets amounting to $14.2 million in H1 2017, as detailed herein below

· Earnout adjustments income of $5.5 million in H1 2017, as detailed herein below

· Gain from sale of an activity of $0.9 million in H1 2017

· Restructuring costs relating to the exited activities amounting to $0.6 million in H1 2017

· Transaction costs associated with M&A activity amounting to $0.3 million in H1 2016

The company recorded an impairment of intangible assets and capitalised R&D of $14.2 million, out of which $2.0 million is due to consolidation of its email business units in order to gain efficiency and reduction of duplicate operational costs. Additional amount of $12.2 million is mainly due to changes in the quality requirements of video advertisers and as a result, a further adjustment of ($5.5 million) with relation to the post acquisition performance.

Liquidity and Cash Flows

The following table sets out selected cash flow information for Matomy for the six-month periods ended 30 June 2017 and 2016.

Cash and cash equivalents decreased by $5.5 million, or 21%, to $20.8 millionas at 30 June 2017, compared to $26.3 million as at 30 June 2016.

Cash flows provided by operating activities were $6.6 million in H1 2017 compared to a net outflow of $0.3 million in H1 2016. This was primarily influenced by improvementsto underlying profitability of ongoing activities, and the resulting improvement to net income - after offsetting the effect of exceptional (non-cash) items, including impairment charges and adjustments to the fair value of contingentpayments on net income.

Net cash used in investing activities of $2.9million (H1 2016: $3.3 million) was mainly related to capitalisation of R&D costs and fixed asset investments, reflecting an aggregate decrease of $1.0 millioncompared to H1 2016. As well as purchasing of domains amounting to $1.0 million.

Cash flows used in financing activities increased to $4.5million (H1 2016: $2.6 million inflow), primarily due to payments made in connection with acquiring additional shares in Team Internet ($10.4 million) and repayment of bank loans ($2.3 million net of new loans), funded by an increase of $14.5 million in short-term bank credit. As at 30 June 2017, Matomy had $11.5 million in term loans. Of those, $6.2 million were due within one year.

Financial Reporting

This financial information has been prepared under US GAAP principles and in accordance with Matomy's accounting policies. There have been no changes to Matomy's accounting policies and reporting during the six-month period ended 30 June 2017 except for the following:

(i) presenting the excess of the redemption amount over the non-controlling interest in the notes and not as part of the consolidated statements of operations below the net losses; and

(ii) reclassifying the domain from 'held for sale' in the short term to part of the intangible assets in Long-term assets, in line with its long term strategy.

Going Concern-

The Directors confirm that, after making an assessment, they have reasonable expectation that the group has adequate resources to meet its obligations for the foreseeable future, based, inter alia, upon confirmations provided by the company's principal shareholders regarding their intention to provide appropriate funding, if necessary.

The group's business activities are set out in the Operational Review and the Financial Review. As set out in the Principal Risk Factors, a number of risks affect the group's results and financial position.

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 are set out in detail in the section entitled 'Risk Factors' of the Group's IPO prospectus (the 'Prospectus') dated 9 July 2014 and below. These include, among other things, the following:

· Certain internet and technology companies may intentionally or unintentionally adversely affect Matomy's operations, mainly due to announced or unannounced changes and restrictions by such companies.

· The delivery of digital ads and the recording of the performance of digital ads are subject to complex regulations, legal requirements and industry standards.

· Matomy's revenue and operating results are highly dependent on the overall demand for advertising. Factors that affect the amount of advertising spending, such as economic downturns, particularly in the fourth quarter, can make it difficult to predict our revenue and could adversely affect our business.

· Seasonal fluctuations in digital advertising activity, which may historically have been less apparent due to our historical core activities and growth, could adversely affect our cash flows and operating results.

· In order to meet our growth objectives, we will need to rely upon our ability to innovate, the continued adoption of our solution by buyers and sellers for higher value advertising inventory, the extension of the reach of our solution into evolving digital media, and growth into new geographic markets.

· Matomy operates in an intensely competitive market that includes companies that have greater financial, technical, and marketing resources than we do.

· The digital advertising industry is highly competitive and fragmented and currently experiencing consolidation, resulting in increasing competition.

· In order to meet our growth objectives, we may need to rely on our ability to raise debt or utilize credit lines, which may not be sufficiently available to meet our ongoing financial needs

· Matomy is dependent on relationships with certain third parties with significant market positions.

· Matomy relies on the continued compatibility of its technological platforms with third-party operating systems, software and content distribution channels, as well as newly-acquired systems.

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

· Matomy has historically derived the majority of its revenues from customers that use its solutions for display marketing campaigns, which are now rapidly declining.

· A key part of Matomy's strategy relates to acquisitions and the ability to effectively finance, integrate, and manage them.

· The digital advertising industry remains susceptible to fraud.

· 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.

· As a result of the announcement of Brexit, the British government has begun negotiating the terms of the U.K.'s future relationship with the E.U. Although it is unknown what those terms will be, it is possible that these changes may affect our operations and financial results.

Forward-Looking Statements

Certain statements in this interim results report are forward looking. Although the company believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will be fulfilled. Because these statements contain risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Directors' Responsibility

The Directors confirm that to the best of their knowledge that the condensed set of reviewed financial statements, which has been prepared in accordance with US GAAP, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the undertakings included in the consolidated financial statements as a whole as required by DTR 4.2.4.

By order of the Board:

Sagi Niri Keren Farag KrygierChief Executive Officer Chief Financial Officer

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:

The following table presents a reconciliation of adjusted EBITDA to net income / (loss), the most directly comparable financial measure calculated in accordance with US GAAP, for the periods indicated:

The following table presents a reconciliation of adjusted net income to net income / (loss), the most directly comparable financial measure calculated in accordance with US GAAP, for the periods indicated:

Financial statements on following pages

INTERIM CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

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

INTERIM CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

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

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousandsexcept per share data

The accompanying notes are an integral part of the interim consolidated financial statement

NOTE 1:- GENERAL

a. Matomy Media Group Ltd together with its subsidiaries (collectively - 'the Company') offers and provides a portfolio of proprietary programmaticdata-driven platforms for mobile, video, domain and email digital advertising to advertisers, advertising agencies, Apps developers, domain owners through access to digital media, via a vast chain of direct and indirect media partners, such as websites, mobile apps and video.

The Company through its proprietary programmatic technological platforms providesits customers with access to a wide range of digital media channels, and enablescustomized performance and programmatic solutions supported by big data analytics, optimization technology, business intelligence, programmatic media buying and Real-Time-Bidding (RTB) on mobile, video and web, empoweringadvertising and media partners to meet their digital goals, which includeuser acquisition and revenue results for both advertisers and media partners. The Company also provides a media management platform (SSP) and demand management platform (DSP) offering publishers or advertisers end to end solutions.

Matomy Media Group Ltd. was incorporated in 2006. The Company's markets are located primarily in the United States and Europe.

Since July 2014 the Company's shares are traded in the 'London Stock Exchange'. On July 2016, the Company's shares commenced trading also on the Tel Aviv Stock Exchange ('TASE') in accordance with the Company's TASE Dual Listing Application pursuant to the Israeli Dual-Listing Law.

b. Sale of an activity:

On 29 June 2017 the Company entered into an agreement for the sale of its intangible assets and transfer of all employees related to its non-core business, for a total consideration of up to $ 10,892, comprised of $5,642 in cash (included in 'receivables on account of sale of activity' as of 30 June 2017) and a contingent consideration up to $5,250 based on future business performance. Additional cash consideration of $358 is paid for certain post-closing transitional services to be provided by the Company, all as defined in the selling agreement. The cash considerations were received in July 2017.

The sale resulted in a gain of $913, which is included in operating resultsfor the 6 months ended in 30 June 2017.

Following the consummation of this transaction, the Company has exited from the legacy web display, social and search and virtual currency media channels, which are deemed non-core activities. Going forward these media channels will cease to be part of the Company's activity.

The Company elected to recognize the future proceeds when the contingency is resolved and therefore the contingent consideration amount was not accounted for as part of the gain.

NOTE 1:- GENERAL (Cont.)

c. The Company may require additional capital in order to fund future liabilities (such liabilities include, among others, bank loans, contingent payment obligation related to acquisitions and redeemable non-controlling interest). In September 2017, major shareholders of the Company agreed to provide funding, to the extent needed. The Company and the Board expects that its existing capital resources and other future measures that may be implemented, to the extent required, will be adequate to satisfy the expected liquidity needs of the Company, in the foreseeable future. Clearly, there is no assurance regarding raising additional capital in the future, if needed.

d. During the six-month period ended 30 June 2017, the Company changed its long-term strategy regarding the manner it relates to domains for sale and accordingly reclassified the domains from current assets to non-current assets with indefinite useful lives. As of the date of reclassification, no impairment losses were recorded in accordance with ASC 350, 'Intangibles - Goodwill and other'.

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.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

a. Unaudited interim financial statements

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ('US GAAP') for interim financial information. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results for the six-month period ended 30 June 2017 are not necessarily indicative of the results that may be expected for the year ended 31 December 2017.

In the preparation of the consolidated financial information, it applied the significant accounting policies, on a consistent basis to the annual financial statements of the Company as of 31 December 2016, except for the change in accounting policy regarding the presentation of the redeemable non-controlling interest accretion and the initial application of ASU 2016-09 (see Note 2b).

The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's financial statements ('the Annual Report') for the year ended 31 December 2016.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

b. Change in accounting policies:

1. The Company changed its accounting policy regarding the presentation of the adjustment to the net income attributable to Matomy Media Group Ltd as a result of accretion of redeemable non-controlling interest. According to the new accounting policy, the Company presents the accretion amount in the calculation of the loss per share in the notes of the financial statements, compared to the previous presentation on the face of the consolidated statements of operations, since Company's management believes that reflecting the effects of the accretion as an adjustment to income available to Matomy Media Group Ltd in the loss per share note is a more appropriate presentation. The presentation of prior years was changed to conform to current year's presentation. The reclassification had no effect on previously reported net loss or shareholders' equity.

2. In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ('ASU 2016- 09'). The update simplifies several aspects of accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The ASU is effective for annual reporting periods beginning after 15 December 2016, including interim periods within those annual reporting periods, early adoption is permitted. The Company adopted the standard commencing 1 January 2017. The impact of the adoption was to reduce retained earnings and to increase additional paid-in capital by $ 68 as of 1 January 2017.

c. Use of estimates:

The preparation of the consolidated financial information in conformity with US GAAP requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions it uses 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 information, 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, 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.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

d. 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.

In June 2017, following the recent strategic restructuring, consolidation of certain business units and adjustment to current market terms, including adequacy of certain technological products, the Company performed an impairment review of intangible assets that were recognized in connection with the acquisition of Optimatic and Avenlo, which resulted in impairments of $13,793 (see Note 6). The impairment amount is included in impairment, net of change in fair value of contingent consideration, in the statement of operations for the six months ended 30 June 2017. The related deferred tax liability in the amount of $4,800 has also been written off and is included in taxes on income, as tax benefit, for the six months ended 30 June 2017.

e. Goodwill and other intangible assets:

Goodwill reflects the excess of the purchase price of business acquired over the fair value of net 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 December 31 each year, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The first step, identifying a potential impairment, compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds its fair value, the second step would need to be performed; otherwise, no further step is required. The second step, measuring the impairment loss, compares the implied fair value of the goodwill with the carrying amount of the goodwill. Any excess of the carrying amount over the applied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value. Following the sale of the non-core activity and the restructuring to focus on the Company's core activity, the Company conducted a goodwill impairment review and determined that no impairment is required.

Following the acquisition of Team Internet, the Company operates in one operating segment, comprised of two reporting units - Matomy and Domain Monetisation.

Intangible assets that are not considered to have an indefinite useful life are amortized over their estimated useful lives. Customer relationships and trade name are amortized over their estimated useful lives in proportion to the economic benefits realized. This accounting policy results in accelerated amortization of such intangible assets as compared to the straight-line method. Technology and database are amortised over their useful lives on a straight-line basis.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

f. 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 amounted to $ 3,005 and $ 1,704 as of 30 June 2017 and 31 December 2016, respectively.

g. Internal-use Software Development:

Costs incurred to develop software for internal use are capitalized and amortized over the estimated useful life of the software. Costs related to design or maintenance of internal-use software are expensed as incurred. For the six months ended June 30 2017 and 2016, the Company capitalized $1,858 and $2,510, respectively.In June 2017, following the recent strategic restructuring, consolidation of certain business units and adjustment to current market terms, including adequacy of certain technological products, the Company abandon certain projects, which resulted in impairments of $445. The impairment amount is included in impairment, net of change in fair value of contingent consideration, in the statement of operations for the six months ended 30 June 2017.

h. Standards issued but not yet effective:

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09) 'Revenue from Contracts with Customers.' ASU 2014-09 supersedes the revenue recognition requirements in 'Revenue Recognition (Topic 605)', and requires entities to recognize revenue when they transfer promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. As currently issued and amended, ASU 2014-09 is effective for annual reporting periods beginning after 15 December 2017, including interim periods within that reporting period, though early adoption is permitted for annual reporting periods beginning after 15 December 2016. We are currently in the process of evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements, and considering additional disclosure requirements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02) which amends the FASB Accounting Standards Codification and created Topic 842, 'Leases.' Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provides for enhanced disclosures. Leases will continue to be classified as either finance or operating. ASU 2016-02 is effective for annual reporting periods, and interim periods within those years beginning after 15 December 2018. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements.

Full retrospective application is prohibited and early adoption by public entities is permitted. We are currently in the process of evaluating the impact of the adoption of this standard on our consolidated financial statements.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting ('ASU 2017-09'). ASU 2017-09 provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. The Company is currently evaluating the impact that adopting this new accounting standard will have on its consolidated financial statements.

NOTE 3:- Fair value of financial instruments

The carrying amount of cash and cash equivalents, receivables, payables and short-term bank credit approximate their carrying amount.

The following table present liabilities measured at fair value on a recurring basis as of 30 June 2017:

The following table summarizes the changes in the Company's liabilities measured at fair value using significant unobservable inputs (Level 3), during the six months ended 30 June 2017:

NOTE 4:- DERIVATIVE INSTRUMENTS

The Company uses derivative instruments to hedgeforeign currency fluctuations and to hedge against the risk of overall changes in future cash flow from payments of payroll and related expenses denominated in new Israeli shekels.

These instruments do not qualify and were not designated as cash flow hedges as defined by ASC 815, 'Derivative and Hedging', and therefore the Company recognises the changes in fair value of these instruments in the statements of operations as financial income or expense, as incurred.

The Company had forward and options contracts that do not qualify and was not designated as a cash flow hedge under ASC 815.

The notional value of the Company's derivative instruments as of 30 June 2017 and 2016, amounted to $ 2,228 and $ 7,321, respectively. Notional values in USD are translated and calculated based on the spot rates for options. Gross notional amounts do not quantify risk or represent assets or liabilities of the Company, however, they are used in the calculation of settlements under the contracts.

The net gains (losses) recognized in 'financial expenses, net' during the six months period ended 30 June 2017 and 2016 were $342and ($258), respectively.

NOTE 5:- DOMAINS

Changes in domains are as follows:

NOTE 6:- OTHER INTANGIBLE ASSETS, NET

a. Other intangible assets as of 30 June 2017:

NOTE 6:- OTHER INTANGIBLE ASSETS, NET (Cont.)

b.The estimated future amortisation expense of other intangible assets as of 30 June 2017 is as follows:

NOTE 7:- GOODWILL

Changes in goodwill for the period ended 30 June 2017 are as follows:

NOTE 8:- NON CONTROLLING INTERESTS

a. Redeemable non-controlling interests are classified as mezzanine equity, separate from permanent equity, on the consolidated balance sheets and measured at each reporting period at the higher of their redemption amount or the non-controlling interest book value, in accordance with the requirements of Accounting Standards Codification ('ASC') 810 'Consolidation' and ASC 480-10-S99-3A, 'Distinguishing Liabilities from Equity'.

The following table summarises the movements in the redeemable non-controlling interests:

NOTE 8:- REDEEMABLE NON CONTROLLING INTERESTS (Cont.)

b. The following table summarises the effect on the Company's shareholders:

Out of the closing balance as of 30 June 2017, an amount of $16,468 is exercisable during the twelve months ending 30 June 2018.

NOTE 9:- COMMITMENTS AND CONTINGENT LIABILITIES

The Company rents its facilities under operating lease agreements with an initial term expiring in 2021. As of 30 June 2017, the Company's total future minimum lease commitments under non-cancellable operating leases were $ 7,161.

Rent expenses for the six months period ended 30 June 2017 and 2016, were $ 1,244 and $ 1,011, respectively.

The Company leases its motor vehicles under cancellable operating lease agreements until February 2020. The minimum payment under these operating leases, upon cancellation of these lease agreements, was $ 8 as of 30 June 2017.

The Company has provided guarantees for rent expenses in the amount of $ 1,091.

NOTE 10:- BANK LOANS AND CREDIT LINE

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 an initial interest of three months USD LIBOR plus 4.5%, which was reduced to USD LIBOR plus 3.5% to be paid together with the relevant portion of the principal. In relation to this loan, the Company is required to comply with certain covenants, as defined in the loan agreement and its amendments. As of 30 June 2017, the Company was in full compliance with the financial covenants.

NOTE 10:- BANK LOANS AND CREDIT LINE (Cont.)

b. As of June 30, 2017, the Company has line of credit with Israeli banks for total borrowings of up to $13,000, out of which, it utilized $ 11,715. The Company presented the bank credit, net of cash deposits in the amount of $ 1,116, at the same bank account.

$6,000 of the line of credit is secured, and the remaining $7,000 is unsecured and available to the Company based on meeting certain account receivable conditions. Interest rate of the credit line is USD LIBOR plus 3.25% as of 30 June 2017. The Company is in full compliance with the agreed account receivable conditions. In July 2017, the Company repaid $5,642 out of the utilized balance, and the line of credit was amended to $8,700.

The line of credit and the loan describes in (a) above secured by way of: (i) a fixed charge over the unpaid equity of the Company; and (ii) a floating charge over all the assets of the Company; and (iii) mutual guarantees between the Israeli companies.

c. On 20 August 2015, the Company's subsidiary Team Internet signed a term loan agreement with a German bank in an amount of $1,360 (EUR 1,192 thousand). 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 an interest of 1.8% to be paid on a monthly basis, commencing 31 August 2015.

d. On 28 April 2016, Team Internet signed a loan agreement with a German bank in an amount of $ 3,036(EUR 2,660 thousand). 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 an interest of 1.1% to be paid on a quarterly basis, commencing 30 June 2016.

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, and an unsecured line of credit in the amount of $ 1,000. During March 2017 the Company updated its credit line facility agreement with the bank in the US, securing the $ 1,000 credit line. The line of credit bears an unused credit line interest rate of 0.35%. The term loan agreement requires repayment of principal and interest every 3 months commencing 28 December 2016.The loan bears an initial interest of three months USD LIBOR plus 3.65% and the line of credit bears a monthly interest of LIBOR plus 3.25%. As security, Matomy US and its subsidiary have granted a first priority lien on and security interest in all of the assets of Matomy US, and provided cross guaranties.

f. On 10 January 2017, the Company's subsidiary ('Optimatic') signed a secured line of credit in the amount of $ 5,000, all is utilized with a bank in the USA. The line of credit bears an interest rate of LIBOR plus 3.25%, and an interest of 0.35% on the unused creditline.

Matomy US and Optimatic, are required to comply with certain covenants, as defined in the term loan and line of credit agreement and its amendments. As of 30 June 2017, the Company was not in full compliance with the financial covenants, but obtained the bank's waiver in respect of the non-compliance.

NOTE 10:- BANK LOANS AND CREDIT LINE (Cont.)

g. 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 an annual initial interest of three months USD LIBOR plus 4.6%.

NOTE 11:- EQUITY

a. A summary of the activity in options granted to employees and directors in the six months period ended 30 June 2017 is as follows:

As of 30 June 2017, the Company's total compensation cost relating to options granted to employees and directors and not yet recognised amounted to $ 749.

The weighted average grant date fair values of options granted for the six months period ended 30 June 2017 was $ 0.57.

b. Options issued to non-employees:

The Company's outstanding options to non-employees as of 30 June 2017 were as follows:

NOTE 11:- EQUITY (Cont.)

c. Restricted Stock Units ('RSU') issued to employees and directors:

The following table summarizes RSU activity in the six months period ended 30 June 2017:

As of 30 June 2017, the total compensation cost related to RSUs granted to employees, not yet recognized amounted to $ 564.

NOTE 12:- TAXES ON INCOME

Taxable income of Israeli companies is generally subject to corporate tax at the rate of 24% in 2017 (2016 - 25%).

Non-Israeli subsidiaries are taxed according to the tax laws in their respective countries of residence.

For the six month period ended 30 June 2017 the Company had tax benefitmainly due to reversal of deferred tax liability resulted from impairment of intangible assets. The Company's effective tax rate in the future will depend on the portion of our profits earned in Israel and outside of Israel.

Taxes on income (tax benefit) are comprised as follows:

NOTE 13:- LOSS PER SHARE

The following table sets forth the computation of basic and diluted loss per share:

The total weighted average number of shares related to the outstanding options excluded from the calculations of diluted earnings per share, since they would have an anti-dilutive effect, was 9,170,748 and 9,485,495 for the six months period ended 30 June 2017 and 30 June 2016, respectively.

NOTE 14:- RESTRUCTURING COSTS

During May 2017, the Company initiated a restructuringplan in order to focus on core activities of programmatic mobile, video and domain monetization, while significantly reducing operational costs moving forward, as well as other cost saving measures.

Pursuant to the restructuring plan, the Company has incurred cumulative charges of $ 574 (net of expense reimbursement of $358), as follows:

NOTE 15:- SUBSEQUENT EVENTS

On 11 July 2017, Team Internet acquired an additional 26% of the issued and outstanding shares of InterNexum GmbH ('InterNexum') for a consideration of $148 (EUR 125 thousand). Following the acquisition, the Company's subsidiary holds 51% from the issued and outstanding shares of InterNexum.

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