MTMY.L Regulatory News (MTMY)

Matomy Media Group Ltd 2018 Results

31 March 2019

Matomy Media Group | 2018 Final Results 

Final results for the year ended 31 December 2018

Matomy Media Group Ltd. (the "Company" or "Matomy"), a global advertising technology company, announces its final results for the year ended 31 December 2018. In the period spanning from mid-2017 through November 2018, the Company exited all of its data-driven advertising platforms with the exception of Team Internet, a market leading domain advertising and monetization platform. 

Matomy's domain monetization activity recorded revenue of $75.6 million and Adjusted EBITDA of $14.2 million in 2018. 

Selected Domain Monetization Activity's Financial Data:

In 2017, Matomy's domain monetization activity's revenue and Adjusted EBITDA enjoyed a substantial increase following the closing of a competitor and the transfer of business. However, in 2018, in response to a key partner's more stringent compliance requirements, some of the new business was rejected. When comparing 2018 to 2016 figures instead of comparing 2018 to 2017 figures, Matomy's domain monetization activity shows a substantial increase in revenue (FY2016: $63.3 million).

Matomy sold the mobile advertising platform Mobfox in November 2018, which is classified for accounting purposes as a "discontinued" activity and is excluded from 2017 and 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:

Selected Mobfox (Programmatic Mobile Advertising) Financial Data

Mobfox was sold in November 2018. Therefore Mobfox 2018 figures below do not represent a full year.

 *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. 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, 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 (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). Adjusted EBITDA is a key measure Matomy uses to understand and evaluate its operating performance and trends.

Business and operating highlights

· Liam Galin succeeded Sagi Niri as Matomy's President and Chief Executive Officer in January 2018 and announced his resignation in March 2019.

· The Company remains focused on its domain monetization activity, in which it has a competitive edge, and exited all other activities.

· According to the Company's focused strategy, and following the decrease in revenues of the other activities, the Company: 

o Closed the Optimatic video programmatic platform in June 2018

o Sold myDSP media buying platform in July 2018

o Sold Whitedelivery email marketing platform in August 2018

o Sold Mobfox supply side mobile advertising platform in November 2018

· In 2018, Matomy's domain monetization activity, now the Company's single activity, generated revenues of $75.6 million, (FY2017: $105.4 million) and Adjusted EBITDA of $14.2 million (FY2017: $24.5 million).

· In February 2018, the Company raised 103 million NIS (approx. $30 million as of the issuance date) in convertible bonds. The Company is in negotiations with bondholders in order to reach an agreement to amend certain terms of the bonds, as part of the Company's Proposed Plan, as noted in the Going Concern section below.

· In March 2018, the Company increased its holding in Team Internet to 90%. The Company is in negotiations with Team Internet's minority shareholder as noted in the Liability to Non-controlling Interests section below.

· The Company's platforms took all required steps to be compliant with the new regulation of General Data Protection Regulation (GDPR) that came into effect on May 25, 2018.

· Matomy took aggressive measures to ascertain high quality, sustainable, and "clean" revenue. Non-compliant traffic sources were expunged from its platforms, affecting revenues in the short-term, while strengthening the Company's long-term position.

· Following the sale of certain activities, as detailed above, Matomy reduced the corporate team and significantly decreased operational overhead.

Sami Totah, Chairman of the Board of Matomy, said:

"Matomy underwent a number of changes in 2018, including a shift in focus and management. Under the leadership of Liam Galin, the Company exited all activities that were sapping resources from the profitable domain monetization activity. The results published in this report validate these steps and today Matomy is well positioned to move forward as the leading innovative force in the domain monetization marketplace."

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) is a global advertising technology company. 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:

Press / Investor Relations: 

Noam Yellin

Noam@smartteam.co.il

+972544246720

Website: http://investors.matomy.com 

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

Twitter: @MatomyGroup

Facebook: www.facebook.com/MatomyMediaGroup

CHAIRMAN'S STATEMENT

Introduction

2018 was a year of restructuring. Matomy focused on the core activity of domain monetization, and exited activities where we believed we no longer had a clear competitive advantage. This transformation has allowed us to streamline our corporate team - and is, we believe, a natural and encouraging mark of organizational maturity. Matomy is conducting discussions with bondholders, Rainmaker and shareholders regarding steps to enable the company to move forward.

Operating Performance

Now the results of Matomy's domain monetization activity, the sole activity of Matomy, are the clearest indicators of Matomy's operating performance moving forward.

In 2018, Matomy showed a decrease in both revenue and EBITDA as it closed all activities outside of domain monetization activity and took aggressive measures to ascertain high quality, sustainable, and "clean" revenue. Non-compliant traffic sources were expunged from its platforms, affecting revenues in the short-term, while strengthening the Company's long-term position. Compared to 2016, before the one-off spike of traffic following the closure of a competitor, Matomy's domain monetization activity's revenue of $75.6 million in FY2018 showed growth of 19.4% (FY2016 $63.3 million).

Outlook

Matomy's domain monetization activity is in a burgeoning industry with a great deal of opportunity. To keep pace with industry changes, we invest carefully in technology and R&D to ensure product excellence and are dedicated to providing features and services that keep advertisers and publishers exceeding their goals. We maintain a small and nimble, forward-thinking executive team and we take bold strides to succeed.

Sami Totah

Chairman

OPERATIONAL REVIEW

Revenues by Media Channel

The following table sets out Matomy's revenues by business unit for the years ended 31 December 2018 and 2017, not including the discontinued Mobfox operations. Mobfox's performance in 2018 is detailed in the financial statements.

Domain monetization

Domain monetization revenues decreased by $29.8 million, for the year ended 31 December 2018 compared to 2017, as the Company removed non-compliant traffic sources. 

In 2018, Team Internet's proprietary ad delivery engines served semantically relevant ads to approximately 2 billion monthly visitors across about 145 million websites, generating more than 100 million paid clicks per month.

Team Internet's performance is mainly attributable to its leading technology across its various platforms. The technology yields enhanced performance in comparison to peers and has led to increased recruitment of new clients and higher market share.

Exited activities

At the time of closure or sale, the exited activities showed a consistently decreasing trend in both revenue and profitability and required resources which caused Matomy to deviate from its core growth activities. The activities exited in 2017 include legacy display, social and search and virtual currency media channels. The activities exited or sold in 2018 include email, video, and mobile advertising platforms. Exited or sold activities will not be included in the results for periods going forward. 

FINANCIAL REVIEW

GAAP Financial Highlights Including Exited Activities:

This excludes the discontinued Mobfox operations:

Revenue

As Matomy exited non-core activities and removed revenue sources no longer compliant with key partners' requirements, revenues in 2018 decreased compared to 2017. 

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

Cost of revenues for the Group decreased by $79.7 million, or 53.3%, to $69.9 million (78.7% of total revenues) for the year ended 31 December 2018 from $149.6 million (76.9% 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 non-core activities.

Gross margin remained largely consistent, dropping slightly by 1.7%.

Non GAAP Operating expenses excluding exceptional items

Operating expenses (Non-GAAP) decreased by $23.9 million, or 59.8%, to $16.1 million (FY2017: $40.0 million). Operating expenses as a percentage of revenues were 18.2% (FY2017: 20.6%).

The decrease in operating expenses is mainly attributable to the sale of exited activities throughout the year, which lowered general, administrative, sales and marketing costs. This trend is expected to continue through the year 2019.

Financial expenses (income)

Net financial expenses, excluding bond issuance costs, decreased by $9.2 million to $6.7 million in income for the year ended 31 December 2018 (FY2017: $2.5 million expense). The decrease is primarily due to financial income recorded due to change in the fair value of the convertible bond, off-set in part by an increase in interest expenses on credit facilities and foreign exchange rate fluctuations.

Taxes on income

Taxes on income shifted to $3.7 million expense for the year ended 31 December 2018 (-113.3% of loss before taxes), compared to $2.3 million benefit last year (14.1%).

The effective corporate tax rate of (113.3%) in 2018 was mainly affected by tax expenses with a tax rate of 33% on Team Internet profit without recording deferred tax on its loss from the exited activities, as there is no future expected profit in the relevant Company's subsidiaries.

The effective corporate tax rate of 14.1% in 2017 was mainly due to (1) reversal of deferred tax liability resulting from impairment of intangible assets and (2) income from changes in fair value of contingent payment obligation related to acquisitions which are non-deductable for tax purposes, off-set by (a) tax rate of 33% on Team Internet profit, and (b) record of full valuation allowances on current year and carry forward losses in the parent company and most of its subsidiaries.

Matomy is subject to corporate tax on its income, principally in Israel, the United States and Germany. Matomy may also be subject to corporate tax on its income in other jurisdictions in which Matomy has operations.

Amortization of intangible assets

Amortization expenses of continuing operations were $3.3 million in 2018 and $9.1 million in 2017 with total amortization expenses at $4.6 million in 2018 compared to $10.6 million in 2017. The decrease is a result of intangible assets being fully amortised or impaired in prior years and during 2018.

Net loss

Net loss from continuing operations was $6.9 million in 2018 (2017: $13.9 million), and total net loss was $46.6 million (2017: $14.4 million). The net loss attributable to Matomy Media Group's shareholders from continuing operations was $6.8 million in 2018 (2017: $15.3 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 $7.9 million in 2018 and $27.2 million in 2017.

· Earnout adjustments income of $0.4 million in 2019 and $8.5 million in 2017.

· Loss from sale of an activity of $1.7 million in 2018 and gain of $0.9 million in 2017.

· Restructuring costs relating to the exited and sold activities amounting to $1.9 million in 2018 and $0.9 million in 2017.

Liquidity and cash flows

The following table sets out selected cash flow information for the Group for the years ended 31 December 2018 and 2017.

 (A) Net cash provided by / used in operating activities

Matomy's net cash used in operating activities was $14.5 million (FY2017: $17.5 million inflow). In 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 assets of $0.7 million.

In comparison, for the year ended 31 December 2017, net cash provided by operating activities consisted of a net loss of $14.4 million which was offset by $7.4 million relating to a net decrease in working capital, and $24.5 million relating to noncash expenses. Noncash expenses were primarily impairment of intangible assets, capitalized R&D and goodwill of $27.1 million, depreciation and amortization of $14.4 million and stock-based compensation expense of $1.4 million, off-set in part by earnout adjustments income of $10.0 million, a decrease in deferred tax assets of $7.8 million and gain from sale of activity of $0.9 million.

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 / used in investing activities

Net cash provided by investing activities was $0.2 million (FY2017: $2.2 million inflow). In 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, $1.1 million investment in domains and $3.0 million restricted cash.

For the year ended 31 December 2017, net cash provided by investing activities primarily included $5.6 million from the sale of activity, $1.8 million from the sale of investment in the affiliated company, off-set in part by $3.9 million of capitalized investment in R&D and $1.0 million of investment in domains.

(C) Net cash used in / provided by financing activities

Net cash used in financing activities decreased was $7.9 million (FY2017 $12 million outflow).

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.

In 2017, net cash used in financing activities related primarily to $17.7 million of total payments to non-controlling interests and earnout payments, less $5.2 million net increase in outstanding term loans and utilization of credit lines and $0.5 million of proceeds from the exercise of stock-based compensation during the year.

As of 31 December 2018, Matomy had $2.9 million in term loans. Of those, $1.8 million are due within one year. As of that date Matomy also had a revolving credit line amounting to $3.9 million.

NOTES TO FINANCIAL STATEMENTS

Goodwill

Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired.

Matomy's goodwill was created mainly through the 2013, 2014 and 2015 acquisitions. The Company performs 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 year ended 31 December 2018 the Company recorded in its continuing operations a goodwill impairment loss of $5.0 million which is attributable to the domain monetization activity. During the year ended 31 December 2017, the Company recorded a goodwill impairment loss of $9.0 related to the exited activities. In addition, the Company recorded in 2018 a goodwill impairment related to its discontinued operation in the amount of $30.6 million. For further information See Note 2h to the financial statements.

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

During the years ended 31 December 2018 and 2017, 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 and $18.1, respectively. For further information See Note 2g to the financial statements.

Liability to non-controlling interests

In accordance with the share purchase agreement dated December 2017 (the "2017 SPA") with the minority shareholders of Team Internet, Rainmaker Investments GmbH ("Rainmaker"), in which the Company, through its UK and German subsidiaries, currently holds 90% of the share capital, the Company was required to buy the remaining 10% stake in Team Internet (the "Third Sale Exit") from Rainmaker on November 30, 2018. The Company failed to pay the amount due on 30 November 2018, which is claimed by Rainmaker to be equal to EUR 16,015 thousand. Failure by the Company to pay the consideration for the Third Sale Exit, triggers certain rights of Rainmaker, among other remedies, such as interest on late payment and a right to repurchase some or all of the Company's shares in Team Internet, at Rainmaker's discretion, at a price of 60% of the original purchase price paid by the Company on such shares. Such price, after giving effect to the foregoing discount and assuming all shares are purchased is approximately EUR 31,688 thousand. The agreement with Rainmaker also provides that in the event that it can be demonstrated that the failure by the Company, through its UK and German subsidiaries, to make the payment is due to lack of funds despite any and all necessary efforts of the Company to obtain such funds (including by taking loans and selling assets), then the sole remedy available to Rainmaker is the exercise of the repurchase option. If the failure to pay is not as specified above, then Rainmaker is not limited in the legal remedies that it may pursue

The Company is conducting discussions with Rainmaker regarding the terms of the purchase by the Company of the shares held by Rainmaker in Team Internet. In preliminary discussions held between the parties, and as part of the Proposed Plan of the Company (as further described below), the understanding is that the payment to Rainmaker will be in the amount of $13,500 and that Rainmaker will be allowed to retain a certain portion of the shares of Team Internet that were originally required to be sold by Rainmaker. As of the date of the approval for the issuance of these financial statements there is no new agreement regarding the terms for the purchase of the shares held by Rainmaker and no legal remedies have been waived or exercised.

Sale of exited activities

On 29 July 2018, the Company signed an agreement for the sale of "myDSP" activity for a consideration of $850, which would be paid in two payments: $600 upon closing and $250 deferred to be received on 1 December 2018. The first payment in the amount of $600 was received in September 2018. The second payment in the amount of $250 has yet to be received.

On 13 August 2018, the Company signed an agreement for the sale of its Whitedelivery email marketing activity. The Company also 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 fulfillment of certain payment requirements to publishers that were transferred with the framework of the sale. In January 2019 $1,000 was received. As a result of the sale of the Mobfox business, 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 statements for all periods presented.

Loss per share

Matomy's loss per share for continuing activities in 2018 was $0.07 (2017: $0.34). The total loss per share was $0.48 in 2018 (2017: $0.35). 

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

Matomy's financial obligations and commitments as at 31 December 2018

Details regarding these main obligations and financial covenants may be found in notes 1B, 8, 9 and 10 in the financial statements.

* In respect of the Company's convertible bonds, as described in Note 1B, noncompliance with certain covenants during two consecutive quarters constitutes an event of default, which under certain circumstances, as detailed in the bond, entitles the holders to claim immediate repayment of the Bonds. As of 31 December 2018, the Company was not in compliance for two consecutive quarters with certain covenants, therefore, the convertible bond in the amount of $18,540, (principal of $26,948 as of 31 December 2018) was classified to short term liabilities as of 31 December 2018. The Company is holding discussions with the trustee of the bonds and with the representatives and legal counsel of the bondholders in order to reach an agreement to amend certain terms of the Bonds. Further details are described in the Going Concern section below.

Financial reporting

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

The Company changed its accounting policy regarding the offsetting of bank overdraft and cash balances in the same bank account. According to the new accounting policy, the Company presents overdraft and cash balance in the same account on gross basis compared to previous presentation which was presented net. Management believes presenting on gross basis the overdraft and cash balances in the same bank account is a more appropriate presentation. Prior year's amounts were reclassified to conform to current year's presentation. 

Going concern

The Company requires additional capital in order to fund its liabilities (such liabilities include, among others, liability to non-controlling interest, bank loans and convertible bond liability). There is no assurance that the Company will be able to obtain such required additional capital. The Company believes that these conditions raise substantial doubt regarding the Company's ability to continue as a going concern. For further details, refer to Note 1b to the Company's financial statements and to the Auditors' Report.

In order for the Company to act in a manner that is intended to address the interests of all stakeholders, the Company proposed comprehensive plan that will enable it to raise funds, adjust the terms of the bonds to the Company's current and anticipated financial position and planned future activity, and fund the purchase of Rainmaker's shares in Team Internet from Rainmaker (the "Proposed Plan"). The main updated key features of the Proposed Plan are detailed below in Note 1B.

Projected Sources and Expected Uses of Funds Statement through December 2020

Pursuant to the requirements of the Hybrid Disclosure Model which apply only to dual listed companies that issue bonds on TASE, this announcement includes a special statement of projected sources and expected uses of funds statement through December 2020 (the "Projected Statement"). The Projected Statement is not intended to create any continuous on-going disclosure obligation for the Company. See Appendix A. See also "Cautionary statement regarding forward-looking statements" below.

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:

· As a result of recent dispositions, reflecting Matomy's recently-adopted strategy, Matomy's operations are currently focused exclusively on the domain monetization business through its subsidiary Team Internet. Such a focus creates a significant dependence on a single Group entity, which scope of business is much narrower and less diverse than the business that the Group as a whole used to operate until recently.

· If Matomy fails to comply with the terms or covenants of its debt obligations, our financial position may be adversely affected (and see Note 1b of the financial statements for details about Matomy's noncompliance with certain covenants under its publicly listed bonds and about its negotiations with the bondholders in that regard).

· Matomy is currently negotiating with Team Internet's minority shareholder, Rainmaker and the holders of its publicly-traded bonds (for description of disputes and negotiations with Rainmaker and the bondholders, see Note 1b of the financial statements). There is no assurance that the negotiations with either Rainmaker and/or the bondholders will be successfully concluded, or as to the ability of the Company to execute the Proposed Plan, or as to the full implications of not reaching an agreement, or delay in reaching an agreement, with respect to any (or both) of these two main stakeholders.

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

· Matomy is dependent on relationships with certain third parties with significant market positions; Specifically, the Group's current mode of operation in the domain monetization business is significantly based on the relationship with significant costumer, the continuation of which cannot be guaranteed.

· 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

· 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 

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

· 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

· 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.

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.

 Sami Totah Ilan Tamir

Chairman COO

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 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:

Appendix A

MATOMY MEDIA GROUP LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF 31 DECEMBER 2018

IN US DOLLARS IN THOUSANDS

INDEX

- - - - - - - - - - - - - - - - - - -

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

We have audited the accompanying consolidated financial statements of Matomy Media Group Ltd. ("the Company") and its subsidiaries, which comprise the consolidated balance sheets as of 31 December 2018 and 2017, 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 2018 and 2017 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.

Matomy Media Group Ltd. Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1b to the consolidated financial statements, the Company has recurring losses from operations, has a working capital deficiency, and has stated that substantial doubt exists about the Company's ability to continue as a going concern. Management's evaluation of the events and conditions and management's plans regarding these matters are also described in Note 1b. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

US dollars in thousands

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

US dollars in thousands

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

US dollars in thousands except earnings per share data

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

US dollars in thousands, except share data

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

US dollars in thousands

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

US dollars in thousands

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, domain owners.

In the period spanning from mid-2017 through November 2018, the Company exited all of its data-driven advertising platforms with the exception of Team Internet, a market leading domain advertising and monetization platform, with two key activities: (i) a proprietary domain parking platform that enables customers to monetize their domain portfolios; and (ii) a proprietary self-serve platform that allows publishers and advertisers to buy and sell traffic on a smart programmatic real time bidding model. 

Matomy was incorporated in 2006. The Company's markets are located primarily in the United States and Europe. The Company's shares are traded on the London Stock Exchange and also on the Tel Aviv Stock Exchange.

b. In 2018, the Company incurred a net loss of $ 46,645 and had negative cash flows from its operating activities of $ 14,484. In addition, the Company's working capital deficiency amounted to $ 29,598 as of 31 December 2018.  

In accordance with the share purchase agreement dated December 2017 (the "2017 SPA") with the minority shareholders of Team Internet, Rainmaker Investments GmbH ("Rainmaker"), in which the Company, through its UK and German subsidiaries, currently holds 90% of the share capital, the Company was required to buy the remaining 10% stake in Team Internet (the "Third Sale Exit") from Rainmaker on November 30, 2018. The Company failed to pay the amount due on 30 November 2018, which is claimed by Rainmaker to be equal to EUR 16,015 thousand. Failure by the Company to pay the consideration for the Third Sale Exit, triggers certain rights of Rainmaker, among other remedies, such as interest on late payment and a right to repurchase some or all of the Company's shares in Team Internet, at Rainmaker's discretion, at a price of 60% of the original purchase price paid by the Company on such shares. Such price, after giving effect to the foregoing discount and assuming all shares are purchased is approximately EUR 31,688 thousand. The agreement with Rainmaker also provides that in the event that it can be demonstrated that the failure by the Company, through its UK and German subsidiaries, to make the payment is due to lack of funds despite any and all necessary efforts of the Company to obtain such funds (including by taking loans and selling assets), then the sole remedy available to Rainmaker is the exercise of the repurchase option. If the failure to pay is not as specified above, then Rainmaker is not limited in the legal remedies that it may pursue.

NOTE 1:- GENERAL (Cont.)

The shares purchased by the Company are detailed below:

The Company is conducting discussions with Rainmaker regarding the terms of the purchase by the Company of the shares held by Rainmaker in Team Internet. In preliminary discussions held between the parties, and as part of the Proposed Plan of the Company (as further described below), the understanding is that the payment to Rainmaker will be in the amount of $13,500 and that Rainmaker will be allowed to retain a certain portion of the shares of Team Internet that were originally required to be sold by Rainmaker. As of the date of the approval for the issuance of these financial statements there is no new agreement regarding the terms for the purchase of the shares held by Rainmaker and no legal remedies have been waived or exercised.

In respect of the Company's convertible bond, as described in Note 9 herein, noncompliance with certain covenants during two consecutive quarters constitutes a default event, which under certain circumstances, as detailed in the bond, entitles the holders to claim immediate repayment of the Bonds. The following includes summary of the bond financial covenants:

As of 31 December 2018, the Company was not in compliance for two consecutive quarters with its Minimum Equity covenant and was not in compliance for one quarter with its Adjusted EBITDA and Net Debt to Adjusted EBITDA covenants. Therefore, under ASC 470, Debt, the convertible bond in the amount of $18,540, (principal of $26,948 as of 31 December 2018) was classified to short term liabilities as of 31 December 2018.

Noncompliance with certain covenants in the bonds triggers an increase of interest. As a result of the Company's Shareholders' Equity being lower than $50,000, the interest rate on the outstanding balance of the principal of the Bonds was increased by 0.5% as of October 1, 2018.

Beginning in the fourth quarter of 2018, the Company has been holding discussions with the trustee of the outstanding Bonds (the "Trustee") and with the representatives and legal counsel of the bondholders in order to reach an agreement to adjust certain terms of the Bonds. 

NOTE 1:- GENERAL (Cont.)

The bondholders have, among other things, made a claim that they are entitled, at the fourth quarter of 2018, to call the Bonds for immediate repayment based on the "material adverse effect on the Company's business" clause, comparing the then current Company's business conditions and the Company's business conditions as of the bond's issuance date. The Company rejected this claim.

During January 2019, The Trustee issued a voting proxy, according to which the bondholders are requested to either vote in favor of an indicative non-binding approval of the Company's Proposed Plan (as further described below) or demand immediate repayment of the Bonds. On 29 January 2019, the majority of the bondholders voted in favor of the Proposed Plan of the Company and resolved not to require immediate repayment of the Bonds pursuant to that voting proxy. To date no agreement was reached.

On 28 December 2017, major shareholders of the Company holding in the aggregate approximately 30% of the Company's voting share capital, provided letters of support addressed to the Company stating that such shareholders agreed to provide sufficient financial support, if necessary, to the Company to ensure that the Company can continue its operations for at least twelve months from 27 December 2017. Under such letters, all eligible shareholders will have the right to participate under the same terms, which will be determined by the Board, subject to receipt of any applicable shareholder approvals (the "Letters of Support").

With respect to such Letters of Support, the Company received two letters, the first letter from legal counsel to the minority shareholder in Team Internet, Rainmaker, claiming, among other things, that the Letters of Support impose a liability upon such major shareholders to inject funds into the Company in order to enable it to pay the consideration for the Third Sale Exit.  The second letter from legal counsel to the major shareholders, who provided the Letters of Support, which include, inter alia, claims that the obligation under the Letters of Support is intended to cover funding relating to the Company's on-going operations, that is, salaries payments and other on-going expenses etc., but does not cover the consideration for the Third Sale Exit or discharge the Company's liabilities. The bondholders have also raised claims that based on their interpretation, the Letters of Support are intended to cover the payments due to them.

On 20 December 2018, the Company received a letter from legal counsel to the shareholders who provided the Letters of Support, confirming that in support of the current discussions among the Company and various stakeholders, including the bondholders, the aforementioned shareholders agree not to claim that the Letters of Support expire with respect to the period up to 10 January 2019. This extension further states that the foregoing extension relates only to the extent of the circumstances under which the major shareholders would have been required to provide support pursuant to the terms of the original Letters of Support until 27 December 2018. The Company received several additional letters from legal counsel to the shareholders who provided the Letters of Support, further extending the Letters of Support as described above up to April 30, 2019. 

NOTE 1:- GENERAL (Cont.)

It should be noted that the Company engaged independent legal experts in order to advise about the appropriate measures and actions it should take in connection with the Letter of Support. In light of the indicative approval of the Proposed Plan (as described below) by the majority of the bondholders, the continued negotiations regarding Proposed Plan, and the extension of the Letters of Support as described above, the Company is of the opinion that it is not necessary, at this stage, to reach a conclusion regarding the above disputed interpretation of the Letters of Support.

The Company requires additional capital in order to fund its liabilities (such liabilities include, among others, liability to non-controlling interest, bank loans and convertible bond liability). There is no assurance that the Company will be able to obtain such require additional capital.

In order for the Company to act in a manner that is intended to address the interests of all stakeholders, the Company proposed comprehensive plan that will enable it to raise funds, adjust the terms of the Bonds to the Company's current and anticipated financial position and planned future activity, and fund the purchase of Rainmaker's shares in Team Internet from Rainmaker (the "Proposed Plan"). The main key features of the Proposed Plan are as follows:

(i) A fund raising by the Company of not less than $12,000, in which key shareholders holding in the aggregate approximately 55% of the voting share capital of the Company would commit to secure an amount of $10,000 through a capital raising and an additional amount of up to $2,000 through the issuance of additional Bonds, at a market price (the "Additional Amount"). The commitment for the Additional Amount will enter into effect only in the event that no additional amounts are raised beyond the commitment by the key shareholders of $10,000. Therefore, any consideration received by the Company in excess of the original commitment by the key shareholders of $10,000, will proportionately reduce the liability of the key shareholders for the Additional Amount accordingly (the specific terms of the fundraising have not been finalized);

(ii) Discussions with Rainmaker regarding the terms of the purchase of the shares held by it in Team Internet with the intention of modifying the existing terms (for further details see above);

(iii) Adjustment of the payment schedule of the principal amount and the financial covenants of the Bonds as follows:

· A waiver on the measurement of the covenants until the end of 2019.

· Adjusting the minimum shareholder equity covenant to $5,000.

· Adjusting the minimum Adjusted EBITDA covenant to $9,000.

· Adjusting the payment schedule of the principal amount of the Bonds, by advancing a partial repayment of a minimum amount of $6,100 during 2019 (depending on the success of the fund-raising exceeding $10,000), together with extending the overall payment period.

· Ability to make prepayment at par

The Company is proposing to the bondholders:

· Increased interest of 7% per annum

NOTE 1:- GENERAL (Cont.)

· Issuance of warrants to purchase up to 10% of the Company's share capital, after the proposed fundraising, for a period of 3 years at an exercise price equal to 150% of the share price of the fundraising. These warrants will replace the conversion mechanism of the Bonds.

· Any additional sum to be received by the Company (excess fundraising, over performance in the business activity etc.) will be used to advance/increase the repayments of the Bonds.

· The Company will grant a security interest in the tax refunds due to be received in 2019 and its shares in Team Internet for the benefit of the Bonds (subject to consent of a bank, which is currently holding a security).

As noted above, the majority of the bondholders voted in favor of the Proposed Plan. To date no agreement has been signed and there can be no assurance with respect to the outcome of such discussions between the Company and the various stakeholders, including the bondholders, or with respect to the actual implementations of the Proposed Plan.

It is noted that the adoption of any proposal and/or amendments to the existing agreements are subject to receipt of all required approvals, including the approval of key shareholders, the Company's Board of Directors, the bondholders, Rainmaker, the competent Israeli court and any other body or authority whose approval may be required. As of the date hereof, such required approvals have not yet been received and there is no certainty that they will be obtained.

These conditions raise, as described above, substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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 would be paid in two payments: $600 upon closing and $250 is deferred and was supposed to be received on 1 December 2018. The first payment in the amount of $600 was received in September 2018. The second payment in the amount of $250 has yet to be received.

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.

NOTE 1:- GENERAL (Cont.)

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 requirement to publishers that were transferred with the framework of the sale. In January 2019 $ 1,000 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.

On 29 June 2017, the Company entered into an agreement for the sale of its intangible assets and transfer of all employees related to part of its non-core business, for a total consideration of up to $10,892, comprised of $5,642 in cash and a contingent consideration up to $5,250 based on future business performance.

The sale resulted in a gain of $913, which is included in operating results for the year ended 31 December 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, and these media channels ceased to be part of the Company's activity.

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

Loss (gain) from sale of activities:

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.

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 operate. A substantial portion of the revenues and expenses of the Company are 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.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

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 2018 and 2017 were $ 3,470 and $ 1,648, respectively.

During the years ended 31 December 2018 and 2017 bad debt expenses were $3,598 and $ 1,958, respectively, and the write offs of balances included in allowances for doubtful accounts amounted to $1,530 and $ 1,884 in the years ended 31 December 2018 and 2017, respectively. During the years ended 31 December 2018 and 2017 recoveries amounted to $246 and $130, respectively, of amounts previously included 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: