----

|  | ☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--|---------|------------------------------------------------------------------------------------------------|

|  | ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--|---------|--------------------------------------------------------------------------------------|

|  | ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--|---------|------------------------------------------------------------------------------------------|

|  | ☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--|---------|---------------------------------------------------------------------------------------------|

| Title of each class                 | Name of each exchange on which registered |
|-------------------------------------|-------------------------------------------|
| Ordinary Shares, NIS 0.01 Par Value | NASDAQ Capital Market                     |

----

| Large accelerated filer ☐ | Accelerated filer ☐     |
|---------------------------------|-------------------------------|
| Emerging growth company ☐ | Non-accelerated filer ☒ |
|              |                                                                                                          |          |
|-------------------|---------------------------------------------------------------------------------------------------------------|---------------|
| U.S. GAAP ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ | Other ☐ |

----

----

| Index to Consolidated Financial Statements                       | F-1         |
|------------------------------------------------------------------|-------------|
| Report of Independent Registered Public Accounting Firm          | F-2         |
| Consolidated Balance Sheets                                      | F-3 -F-4    |
| Consolidated Statements of Operations                            | F-5         |
| Consolidated Statements of Comprehensive Income                  | F-6         |
| Consolidated Statements of Changes in Shareholders’ Equity | F-7 - F-8   |
| Consolidated Statements of Cash Flows                            | F-9 - F-10  |
| Notes to Consolidated Financial Statements                       | F-11 - F-47 |

|  | 1.1 | Memorandum of Association of the Registrant(1) |
|--|-----|------------------------------------------------|

|  | 1.2 | Articles of Association of the Registrant(1) |
|--|-----|----------------------------------------------|

|  | 4.2 | 2006 Stock Option Plan (4) |
|--|-----|----------------------------|

|  | 4.3 | Share Purchase Agreement by and among the Registrant, Vexigo Ltd., FPSV Holdings Ltd. and the shareholders of Vexigo Ltd. and of FPSV Holdings Ltd., dated as of February 3, 2015 (5) |
|--|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                 4.4 | Purchase Agreement by and among the Registrant and Messrs. Haim Mer, Lior Salansky and Adi Orzel, dated as of May 11, 2015 (6) |
|------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------|

|                 4.5 | Payment Rescheduling Letter Agreement by and among the Registrant, FPSV, Vexigo and the former Vexigo shareholders, dated as of February 18, 2016 (7) |
|------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|                 4.6 | Purchase Agreement by and among the Registrant and investors consisting of all of the shareholders of Vexigo as of March 31, 2015 and all of the shareholders of FPSV as of March 31, 2015; and Messrs. Haim Mer, Roger Challen and Lior Salansky, dated as of February 18, 2016 (8) |
|------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 12.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended |
|--|------|---------------------------------------------------------------------------------------------------------------------------|

|  | 12.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. |
|--|------|----------------------------------------------------------------------------------------------------------------------------|

----

|  | 13.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|--|------|---------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 13.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|--|------|---------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 15.1 | Consent of Kost Forer Gabbay & Kasierer, a Member of Ernst & Young Global |
|--|------|-----------------------------------------------------------------------------------|

|  | 101.INS* | XBRL Instance Document(+) |
|--|----------|---------------------------|

|  | 101.SCH* | XBRL Taxonomy Extension Schema Document(+) |
|--|----------|--------------------------------------------|

|  | 101.CAL* | XBRL Taxonomy Calculation Linkbase Document(+) |
|--|----------|------------------------------------------------|

|  | 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document(+) |
|--|----------|---------------------------------------------------------|

|  | 101.LAB* | XBRL Taxonomy Label Linkbase Document(+) |
|--|----------|------------------------------------------|

|  | 101.PRE* | XBRL Taxonomy Presentation Linkbase Document(+) |
|--|----------|-------------------------------------------------|

|  | (+) | Previously filed. |
|--|-----|-------------------|

|  | * | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for the purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
|--|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (1) | Filed as an exhibit to the Registrant’s Form 20-F for the fiscal year ended December 31, 2014, and incorporated herein by reference. |
|--|-----|--------------------------------------------------------------------------------------------------------------------------------------------|

|  | (2) | Filed as an exhibit to the Registrant’s Registration Statement on Form F-1, registration number 333-05814, filed with the Securities and Exchange Commission, and incorporated herein by reference. |
|--|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (3) | Filed as Exhibit B to Item IV of Exhibit 99.1 of the Registrant’s Report on Form 6-K for the month of July 2013 submitted on July 2, 2013, and incorporated herein by reference. |
|--|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (4) | Filed as Appendix B to Item 1 of the Registrant’s Report on Form 6-K for the month of June 2006 submitted on June 23, 2006, and incorporated herein by reference. |
|--|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (5) | Filed as Exhibit A to Item I of Exhibit 99.2 of the Registrant’s Report on Form 6-K for the month of February 2015 submitted on February 18, 2015, and incorporated herein by reference. |
|--|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (6) | Filed as Exhibit 99.1 to the Registrant’s Report on Form 6-K for the month of May 2015 submitted on May 27, 2015, and incorporated herein by reference. |
|--|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (7) | Filed as an exhibit to the Registrant’s Form 20-F for the fiscal year ended December 31, 2015, and incorporated herein by reference. |
|--|-----|--------------------------------------------------------------------------------------------------------------------------------------------|

|  | (8) | Filed as Exhibit A to the Registrant’s Report on Form 6-K for the month of April 2016 submitted on April 1, 2016, and incorporated herein by reference. |
|--|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (9) | Filed as Exhibit A to the Registrant’s Report on Form 6-K for the month of June 2016 submitted on June 23, 2016, and incorporated herein by reference. |
|--|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                       | Page            |
|------------------------------------------------------------|-----------------|
|                                                       |            |
| Report of Independent Registered Public Accounting Firm    | F - 2           |
|                                                       |            |
| Consolidated Balance Sheets                                | F - 3 - F - 4   |
|                                                       |            |
| Consolidated Statements of Operations                      | F - 5           |
|                                                       |            |
| Consolidated Statements of Comprehensive Income (Loss)     | F - 6           |
|                                                       |            |
| Consolidated Statements of Changes in Shareholders' Equity | F - 7 - F - 8   |
|                                                       |            |
| Consolidated Statements of Cash Flows                      | F - 9 - F - 10  |
|                                                       |            |
| Notes to Consolidated Financial Statements                 | F - 11 - F - 47 |

----

|   |   Kost Forer Gabbay & Kasierer3 Aminadav St.Tel-Aviv 6706703, Israel  |   |   Tel: +972-3-6232525Fax: +972-3-5622555ey.com |
|--------|------------------------------------------------------------------------------------------|--------|----------------------------------------------------------|
| Tel-Aviv, Israel | /s/ Kost Forer Gabbay & KasiererKOST FORER GABBAY & KASIERER |
|------------------|----------------------------------------------------------------------|
| March 28, 2017   | A Member of Ernst & Young Global                                 |

----

----

|                                                                                                                                                                                                                                                                                                                                                                                                                   |   | December 31, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 2016         |   |   | 2015 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                   |   |         |   |   |   |   |
| ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                 |   |         |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                   |   |         |   |   |   |   |
| CURRENT ASSETS:                                                                                                                                                                                                                                                                                                                                                                                                        |   |         |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                              |   | $            | 1,508  |   |   | $ | 3,444 |   |
| Restricted cash                                                                                                                                                                                                                                                                                                                                                                                                        |   |         | 504    |   |   |   | 231 |   |
| Restricted marketable securities (Note 4)                                                                                                                                                                                                                                                                                                                                                                              |   |         | 136    |   |   |   | 134 |   |
| Trade receivables (net of allowance for doubtful accounts of $ 44 and $ 49 at December 31, 2016 and 2015)                                                                                                                                                                                                                                                                                                         |   |         | 5,305  |   |   |   | 4,485 |   |
| Deferred tax asset (Note 11)                                                                |   |         | -      |   |   |   | 40 |   |
| Other accounts receivable and prepaid expenses (Note 5)                                                                                                                                                                                                                                                                                                                                                                |   |         | 343    |   |   |   | 103 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                   |   |         |   |   |   |   |   |   |
| Totalcurrent assets                                                                                                                                                                                                                                                                                                                                                                                                    |   |         | 7,796  |   |   |   | 8,437 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                   |   |         |   |   |   |   |   |   |
| LONG-TERM ASSETS:                                                                                                                                                                                                                                                                                                                                                                                                      |   |         |   |   |   |   |   |   |
| Severance pay fund                                                                                                                                                                                                                                                                                                                                                                                                     |   |         | 752    |   |   |   | 668 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                   |   |         |   |   |   |   |   |   |
| PROPERTY AND EQUIPMENT, NET (Note 6)                                                                                                                                                                                                                                                                                                                                                                                   |   |         | 198    |   |   |   | 160 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                   |   |         |   |   |   |   |   |   |
| OTHER ASSETS:                                                                                                                                                                                                                                                                                                                                                                                                          |   |         |   |   |   |   |   |   |
| Intangible assets, net (Note 7)                                                                                                                                                                                                                                                                                                                                                                                        |   |         | 63     |   |   |   | 4,461 |   |
| Goodwill (Note 8)                                                                                                                                                                                                                                                                                                                                                                                                      |   |         | 3,479  |   |   |   | 8,298 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                   |   |         |   |   |   |   |   |   |
| Totalother assets                                                                                                                                                                                                                                                                                                                                                                                                      |   |         | 3,542  |   |   |   | 12,759 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                   |   |         |   |   |   |   |   |   |
| Totalassets                                                                                                                                                                                                                                                                                                                                                                                                            |   | $            | 12,288 |   |   | $ | 22,024 |   |

----

----

|                                                                                                                                                                                                                                                                             |   | December 31, |    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|---------|
|                                                                                                                                                                                                                                                                             |   | 2016         |    |   | 2015 |   |
|                                                                                                                                                                                                                                                                             |   |         |    |   |   |   |
| LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                                                                                                                             |   |         |    |   |   |   |
|                                                                                                                                                                                                                                                                             |   |         |    |   |   |   |
| CURRENT LIABILITIES:                                                                                                                                                                                                                                                             |   |         |    |   |   |   |
| Trade payables                                                                                                                                                                                                                                                                   |   | $            | 4,086   |   |   | $ | 3,297 |   |
| Deferred revenues                                                                                                                                                                                                                                                                |   |         | 1,374   |   |   |   | 1,826 |   |
| Deferred tax liability (Note 11)                                                                                                                                                                                                                                                 |   |         | -       |   |   |   | 142 |   |
| Accrued expenses and other liabilities (Note 9)                                                                                                                                                                                                                                  |   |         | 3,756   |   |   |   | 3,505 |   |
| Liabilities of discontinued operations (Note 1b)                                                                                                                                                                                                                                 |   |         | 132     |   |   |   | 105 |   |
|                                                                                                                                                                                                                                                                             |   |         |    |   |   |   |   |   |
| Totalcurrent liabilities                                                                                                                                                                                                                                                         |   |         | 9,348   |   |   |   | 8,875 |   |
|                                                                                                                                                                                                                                                                             |   |         |    |   |   |   |   |   |
| LONG-TERM LIABILITIES:                                                                                                                                                                                                                                                           |   |         |    |   |   |   |   |   |
| Liabilities related to Vexigo acquisition (Note 3)                                                                                                                                                                                                                               |   |         | -       |   |   |   | 5,624 |   |
| Accrued severance pay                                                                                                                                                                                                                                                            |   |         | 914     |   |   |   | 798 |   |
| Deferred tax liability (Note 11)                                                                                                                                                                                                                                                 |   |         | 166     |   |   |   | 578 |   |
|                                                                                                                                                                                                                                                                             |   |         |    |   |   |   |   |   |
| Totallong-term liabilities                                                                                                                                                                                                                                                       |   |         | 1,080   |   |   |   | 7,000 |   |
|                                                                                                                                                                                                                                                                             |   |         |    |   |   |   |   |   |
| COMMITMENTS AND CONTINGENT LIABILITIES (Note 10)                                                                                                                                                                                                                                 |   |         |    |   |   |   |   |   |
|                                                                                                                                                                                                                                                                             |   |         |    |   |   |   |   |   |
| SHAREHOLDERS' EQUITY (Note 13):                                                                                                                                                                                                                                                  |   |         |    |   |   |   |   |   |
| Share capital -                                                                                                                                                                                                                                                                  |   |         |    |   |   |   |   |   |
| Ordinary shares of NIS 0.01 par value - Authorized: 20,000,000 shares at December 31, 2016 and 2015; Issued: 8,697,255 and 8,048,780 shares at December 31, 2016 and 2015, respectively; Outstanding: 8,691,855 and 8,043,380 shares at December 31, 2016 and 2015, respectively |   |         | 23      |   |   |   | 21 |   |
| Additional paid-in capital                                                                                                                                                                                                                                                       |   |         | 26,569  |   |   |   | 25,648 |   |
|  Treasury shares at cost (5,400 Ordinary shares at December 31, 2015 and 2016)                                                                                                                                                                                              |   |         | (29     | ) |   |   | (29 | ) |
| Accumulated other comprehensive income (loss)                                                                                                                                                                                                                                    |   |         | 1       |   |   |   | (8 | ) |
| Accumulated deficit                                                                                                                                                                                                                                                              |   |         | (24,704 | ) |   |   | (19,483 | ) |
|                                                                                                                                                                                                                                                                             |   |         |    |   |   |   |   |   |
| Totalshareholders' equity                                                                                                                                                                                                                                                        |   |         | 1,860   |   |   |   | 6,149 |   |
|                                                                                                                                                                                                                                                                             |   |         |    |   |   |   |   |   |
| Totalliabilities and shareholders' equity                                                                                                                                                                                                                                        |   | $            | 12,288  |   |   | $ | 22,024 |   |

----

----

|                                                                                              |   | Year ended December 31, |      |
|---------------------------------------------------------------------------------------------------|--------|-------------------------|-----------|
|                                                                                              |   | 2016                    |      |   | 2015 |   |   | 2014 |   |
| Revenues (Note 2.l)                                                                               |   |                    |      |   |   |   |   |   |   |
| Telecom services                                                                                  |   | $                       | 5,985     |   |   | $ | 6,018 |   |   | $ | 5,674 |   |
| Telecom product sales                                                                             |   |                    | 1,566     |   |   |   | 1,677 |   |   |   | 1,392 |   |
| Video advertising                                                                                 |   |                    | 6,501     |   |   |   | 7,017 |   |   |   | - |   |
|                                                                                              |   |                    |      |   |   |   |   |   |   |   |   |   |
| Totalrevenues                                                                                     |   |                    | 14,052    |   |   |   | 14,712 |   |   |   | 7,066 |   |
|                                                                                              |   |                    |      |   |   |   |   |   |   |   |   |   |
| Cost of revenues                                                                                  |   |                    |      |   |   |   |   |   |   |   |   |   |
| Telecom services                                                                                  |   |                    | 2,248     |   |   |   | 2,546 |   |   |   | 2,384 |   |
| Telecom product sales                                                                             |   |                    | 460       |   |   |   | 522 |   |   |   | 509 |   |
| Video advertising                                                                                 |   |                    | 4,205     |   |   |   | 5,346 |   |   |   | - |   |
|                                                                                              |   |                    |      |   |   |   |   |   |   |   |   |   |
| Totalcost of revenues                                                                             |   |                    | 6,913     |   |   |   | 8,414 |   |   |   | 2,893 |   |
|                                                                                              |   |                    |      |   |   |   |   |   |   |   |   |   |
| Gross profit                                                                                      |   |                    | 7,139     |   |   |   | 6,298 |   |   |   | 4,173 |   |
|                                                                                              |   |                    |      |   |   |   |   |   |   |   |   |   |
| Operating expenses                                                                                |   |                    |      |   |   |   |   |   |   |   |   |   |
| Research and development                                                                          |   |                    | 2,763     |   |   |   | 1,805 |   |   |   | 1,387 |   |
| Selling and marketing                                                                             |   |                    | 2,343     |   |   |   | 2,225 |   |   |   | 1,868 |   |
| General and administrative                                                                        |   |                    | 3,472     |   |   |   | 3,459 |   |   |   | 2,459 |   |
| Goodwill and technology impairments, net of change in contingent earn-out consideration           |   |                    | 4,245     |   |   |   | 3,514 |   |   |   | - |   |
|                                                                                              |   |                    |      |   |   |   |   |   |   |   |   |   |
| Totaloperating expenses                                                                           |   |                    | 12,823    |   |   |   | 11,003 |   |   |   | 5,714 |   |
|                                                                                              |   |                    |      |   |   |   |   |   |   |   |   |   |
|                                                                                              |   |                    |      |   |   |   |   |   |   |   |   |   |
| Operating loss                                                                                    |   |                    | (5,684    | ) |   |   | (4,705 | ) |   |   | (1,541 | ) |
|                                                                                              |   |                    |      |   |   |   |   |   |   |   |   |   |
| Financial expense, net                                                                            |   |                    | (17       | ) |   |   | (17 | ) |   |   | (95 | ) |
|                                                                                              |   |                    |      |   |   |   |   |   |   |   |   |   |
| Loss before taxes on income                                                                       |   |                    | (5,701    | ) |   |   | (4,722 | ) |   |   | (1,636 | ) |
|                                                                                              |   |                    |      |   |   |   |   |   |   |   |   |   |
| Taxes on income (tax benefit), net (Note 11)                                                      |   |                    | (507      | ) |   |   | 194 |   |   |   | 54 |   |
|                                                                                              |   |                    |      |   |   |   |   |   |   |   |   |   |
| Net loss from continuing operations                                                               |   |                    | (5,194    | ) |   |   | (4,916 | ) |   |   | (1,690 | ) |
|                                                                                              |   |                    |      |   |   |   |   |   |   |   |   |   |
|  Income (loss) from discontinued operations                                                  |   |                    | (27       | ) |   |   | 177 |   |   |   | 80 |   |
|                                                                                              |   |                    |      |   |   |   |   |   |   |   |   |   |
| Net loss                                                                                          |   | $                       | (5,221    | ) |   | $ | (4,739 | ) |   | $ | (1,610 | ) |
|                                                                                              |   |                    |      |   |   |   |   |   |   |   |   |   |
|                                                                                              |   |                    |      |   |   |   |   |   |   |   |   |   |
| Net loss per share:                                                                               |   |                    |      |   |   |   |   |   |   |   |   |   |
| Basic and diluted net loss per ordinary share from continuing operations                          |   | $                       | (0.62     | ) |   | $ | (0.68 | ) |   | $ | (0.36 | ) |
| Basic and diluted net earnings per ordinary share from discontinued operations                    |   |                    | 0.00      |   |   |   | 0.02 |   |   |   | 0.02 |   |
|                                                                                              |   |                    |      |   |   |   |   |   |   |   |   |   |
| Basic and diluted net loss per share                                                              |   | $                       | (0.62     | ) |   | $ | (0.66 | ) |   | $ | (0.34 | ) |
|                                                                                              |   |                    |      |   |   |   |   |   |   |   |   |   |
| Weighted average number of Ordinary shares used in computing basic and diluted net loss per share |   |                    | 8,452,280 |   |   |   | 7,174,991 |   |   |   | 4,670,964 |   |

----

----

|                                               |   | Year ended December 31, |   |
|----------------------------------------------------|--------|-------------------------|--------|
|                                               |   | 2016                    |   |   | 2015 |   |   | 2014 |   |
|                                               |   |                    |   |   |   |   |   |   |   |
| Net loss                                           |   | $                       | (5,221 | ) |   | $ | (4,739 | ) |   | $ | (1,610 | ) |
|                                               |   |                    |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive income (loss):                 |   |                    |   |   |   |   |   |   |   |   |   |   |
| Change in foreign currency translation adjustments |   |                    | 5      |   |   |   | - |   |   |   | 21 |   |
|                                               |   |                    |   |   |   |   |   |   |   |   |   |   |
| Available-for-sale investments:                    |   |                    |   |   |   |   |   |   |   |   |   |   |
| Change in net unrealized gains (loss)              |   |                    | 4      |   |   |   | *) - |   |   |   | (23 | ) |
|                                               |   |                    |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive income (loss)                  |   |                    | 9      |   |   |   | - |   |   |   | (2 | ) |
|                                               |   |                    |   |   |   |   |   |   |   |   |   |   |
| Comprehensive loss                                 |   | $                       | (5,212 | ) |   | $ | (4,739 | ) |   | $ | (1,612 | ) |

----

----

|                                                                                                         |   |          |      |   |    |   |   | Additional         |   |   |          |   |   | Accumulated other |   |   |          |   |   | Total        |   |
|--------------------------------------------------------------------------------------------------------------|--------|---------------|-----------|--------|---------|--------|--------|--------------------|--------|--------|---------------|--------|--------|-------------------|--------|--------|---------------|--------|--------|--------------|--------|
|                                                                                                         |   | Share capital |      |   | paid-in |   |   | Treasury           |   |   | comprehensive |   |   | Accumulated       |   |   | shareholders' |   |
|                                                                                                         |   | Number        |      |   | Amount  |   |   | capital            |   |   | shares        |   |   | income (loss)     |   |   | deficit       |   |   | equity       |   |
|                                                                                                         |   |          |      |   |    |   |   |               |   |   |          |   |   |              |   |   |          |   |   |         |   |
| Balance as of January 1, 2014                                                                                |   |          | 4,665,586 |   |    | $      | 13     |               |   | $      | 20,317        |   |   | $                 | (29    | )      |          | $      | (6     | )            |   | $ | (13,134 | ) |   | $ | 7,161 |   |
|                                                                                                         |   |          |      |   |    |   |   |               |   |   |          |   |   |              |   |   |          |   |   |         |   |   |   |   |   |   |   |   |
| Stock-based compensation related to options issued to employees                                              |   |          | -         |   |    |   | -      |               |   |   | 84            |   |   |              | -      |   |          |   | -      |         |   |   | - |   |   |   | 84 |   |
| Stock-based compensation related to options issued to non-employees                                          |   |          | -         |   |    |   | -      |               |   |   | (15           | )      |   |              | -      |   |          |   | -      |         |   |   | - |   |   |   | (15 | ) |
| Exercise of stock options                                                                                    |   |          | 7,078     |   |    |   | *) -   |     |   |   | 14            |   |   |              | -      |   |          |   | -      |         |   |   | - |   |   |   | 14 |   |
| Other comprehensive income (loss):                                                                           |   |          |      |   |    |   |   |               |   |   |          |   |   |              |   |   |          |   |   |         |   |   |   |   |   |   |   |   |
| Unrealized gains of available-for-sale marketable securities, net                                            |   |          | -         |   |    |   | -      |               |   |   | -             |   |   |              | -      |   |          |   | (23    | )            |   |   | - |   |   |   | (23 | ) |
| Foreign currency translation adjustments                                                                     |   |          | -         |   |    |   | -      |               |   |   | -             |   |   |              | -      |   |          |   | 21     |         |   |   | - |   |   |   | 21 |   |
| Net loss                                                                                                     |   |          | -         |   |    |   | -      |               |   |   | -             |   |   |              | -      |   |          |   | -      |         |   |   | (1,610 | ) |   |   | (1,610 | ) |
|                                                                                                         |   |          |      |   |    |   |   |               |   |   |          |   |   |              |   |   |          |   |   |         |   |   |   |   |   |   |   |   |
| Balance as of December 31, 2014                                                                              |   |          | 4,672,664 |   |    |   | 13     |               |   |   | 20,400        |   |   |              | (29    | )      |          |   | (8     | )            |   |   | (14,744 | ) |   |   | 5,632 |   |
|                                                                                                         |   |          |      |   |    |   |   |               |   |   |          |   |   |              |   |   |          |   |   |         |   |   |   |   |   |   |   |   |
| Issuance of shares related to Vexigo acquisition                                                             |   |          | 3,115,090 |   |    |   | 8      |               |   |   | 4,507         |   |   |              | -      |   |          |   | -      |         |   |   | - |   |   |   | 4,515 |   |
| Stock-based compensation related to options issued to employees                                              |   |          | -         |   |    |   | -      |               |   |   | 170           |   |   |              | -      |   |          |   | -      |         |   |   | - |   |   |   | 170 |   |
| May 2015 equity investment                                                                                   |   |          | 227,271   |   |    |   | -      |               |   |   | 500           |   |   |              | -      |   |          |   | -      |         |   |   | - |   |   |   | 500 |   |
| Contribution from shareholders with regards to payment deferral agreement with former shareholders of Vexigo |   |          | -         |   |    |   |   |               |   |   | 20            |   |   |              | -      |   |          |   | -      |         |   |   | - |   |   |   | 20 |   |
| Exercise of stock options                                                                                    |   |          | 28,355    |   |    |   | *) -   |     |   |   | 51            |   |   |              | -      |   |          |   | -      |         |   |   | - |   |   |   | 51 |   |
| Other comprehensive income (loss):                                                                           |   |          |      |   |    |   |   |               |   |   |          |   |   |              |   |   |          |   |   |         |   |   |   |   |   |   |   |   |
| Unrealized gains of available-for-sale marketable securities, net                                            |   |          | -         |   |    |   | -      |               |   |   | -             |   |   |              | -      |   |          |   | *) -   |    |   |   | - |   |   |   | *) - |    |
| Net loss                                                                                                     |   |          | -         |   |    |   | -      |               |   |   | -             |   |   |              | -      |   |          |   | -      |         |   |   | (4,739 | ) |   |   | (4,739 | ) |
|                                                                                                         |   |          |      |   |    |   |   |               |   |   |          |   |   |              |   |   |          |   |   |         |   |   |   |   |   |   |   |   |
| Balance as of December 31, 2015                                                                              |   |          | 8,043,380 |   |    | $      | 21     |               |   | $      | 25,648        |   |   | $                 | (29    | )      |          | $      | (8     | )            |   | $ | (19,483 | ) |   | $ | 6,149 |   |

----

----

|                                                             |   |          |      |   |    |   |   | Additional               |   |   |          |   |   | Accumulated other |   |   |          |   |   | Total  |   |
|------------------------------------------------------------------|--------|---------------|-----------|--------|---------|--------|--------|--------------------------|--------|--------|---------------|--------|--------|-------------------|--------|--------|---------------|--------|--------|--------|--------|
|                                                             |   | Share capital |      |   | paid-in |   |   | Treasury                 |   |   | comprehensive |   |   | Accumulated       |   |   | shareholders' |   |
|                                                             |   | Number        |      |   | Amount  |   |   | capital                  |   |   | shares        |   |   | income (loss)     |   |   | deficit       |   |   | equity |   |
|                                                             |   |          |      |   |    |   |   |                     |   |   |          |   |   |              |   |   |          |   |   |   |   |
| Balance as of January 1, 2016                                    |   |          | 8,043,380 |   |    | $      | 21     |                     |   | $      | 25,648        |   |   | $                 | (29    | )      |          | $      | (8     | )      |   | $ | (19,483 | ) |   | $ | 6,149 |   |
|                                                             |   |          |      |   |    |   |   |                     |   |   |          |   |   |              |   |   |          |   |   |   |   |   |   |   |   |   |   |   |
| Stock-based compensation related to options issued to employees  |   |          | -         |   |    |   | *) -   |      |   |   | 223           |   |   |              | -      |   |          |   | -      |   |   |   | - |   |   |   | 223 |   |
| Issuance of shares                                               |   |          | 648,475   |   |    |   | 2      |                     |   |   | 698           |   |   |              | -      |   |          |   | -      |   |   |   | - |   |   |   | 700 |   |
| Other comprehensive income (loss):                               |   |          |      |   |    |   |   |                     |   |   |          |   |   |              |   |   |          |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized gain of available-for-sale marketable securities, net |   |          | -         |   |    |   | -      |                     |   |   | -             |   |   |              | -      |   |          |   | 4      |   |   |   | - |   |   |   | 4 |   |
| Foreign currency translation adjustments                         |   |          | -         |   |    |   | -      |                     |   |   | -             |   |   |              | -      |   |          |   | 5      |   |   |   | - |   |   |   | 5 |   |
| Net loss                                                         |   |          | -         |   |    |   | -      |                     |   |   | -             |   |   |              | -      |   |          |   | -      |   |   |   | (5,221 | ) |   |   | (5,221 | ) |
|                                                             |   |          |      |   |    |   |   |                     |   |   |          |   |   |              |   |   |          |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of December 31, 2016                                  |   |          | 8,691,855 |   |    | $      | 23     |                     |   | $      | 26,569        |   |   | $                 | (29    | )      |          | $      | 1      |   |   | $ | (24,704 | ) |   | $ | 1,860 |   |

----

----

|                                                                                                                          |   | Year ended December 31, |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                                          |   | 2016                    |   |   | 2015 |   |   | 2014 |   |
| Cash flows from operating activities                                                                                          |   |                    |   |   |   |   |   |   |   |
|                                                                                                                          |   |                    |   |   |   |   |   |   |   |
| Net loss                                                                                                                      |   | $                       | (5,221 | ) |   | $ | (4,739 | ) |   | $ | (1,610 | ) |
| Loss (Income) loss from discontinued operations                                                                               |   |                    | 27     |   |   |   | (177 | ) |   |   | (80 | ) |
|                                                                                                                          |   |                    |   |   |   |   |   |   |   |   |   |   |
| Net loss from continuing operations                                                                                           |   |                    | (5,194 | ) |   |   | (4,916 | ) |   |   | (1,690 | ) |
|                                                                                                                          |   |                    |   |   |   |   |   |   |   |   |   |   |
| Adjustments required to reconcile net loss from continuing operations to net cash provided by (used in) operating activities: |   |                    |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                          |   |                    |   |   |   |   |   |   |   |   |   |   |
| Loss (gain)  on sale of available-for-sale marketable securities                                                         |   |                    | 4      |   |   |   | 8 |   |   |   | (10 | ) |
| Depreciation and amortization                                                                                                 |   |                    | 1,106  |   |   |   | 868 |   |   |   | 284 |   |
| Impairment of goodwill                                                                                                        |   |                    | 4,819  |   |   |   | 6,288 |   |   |   | - |   |
| Change in payment obligation related to acquisition                                                                           |   |                    | (4,337 | ) |   |   | (2,774 | ) |   |   | - |   |
| Impairment of technology                                                                                                      |   |                    | 3,763  |   |   |   | - |   |   |   | - |   |
| Increase (decrease) in deferred tax, net                                                                                      |   |                    | (514   | ) |   |   | 41 |   |   |   | 25 |   |
| Employees and non-employees stock-based compensation and contribution from shareholders                                       |   |                    | 223    |   |   |   | 190 |   |   |   | 69 |   |
| Increase (decrease) in accrued severance pay, net                                                                             |   |                    | 32     |   |   |   | (16 | ) |   |   | (24 | ) |
| Decrease (increase) in trade receivables, net                                                                                 |   |                    | (820   | ) |   |   | 387 |   |   |   | 364 |   |
| Decrease (increase) in other accounts receivable and prepaid expenses                                                         |   |                    | (240   | ) |   |   | 43 |   |   |   | 72 |   |
| Increase in trade payables                                                                                                    |   |                    | 789    |   |   |   | 1,676 |   |   |   | - |   |
| Increase (decrease) in accrued expenses and other liabilities                                                                 |   |                    | 368    |   |   |   | (1,514 | ) |   |   | 73 |   |
| Increase (decrease) in deferred revenues                                                                                      |   |                    | (452   | ) |   |   | 120 |   |   |   | (60 | ) |
| Decrease (increase) in restricted cash                                                                                        |   |                    | (273   | ) |   |   | 417 |   |   |   | (585 | ) |
|                                                                                                                          |   |                    |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by (used in) operating activities from continuing operations                                                |   |                    | (726   | ) |   |   | 818 |   |   |   | (1,482 | ) |
|                                                                                                                          |   |                    |   |   |   |   |   |   |   |   |   |   |
| Cash flows from investing activities                                                                                          |   |                    |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                          |   |                    |   |   |   |   |   |   |   |   |   |   |
| Purchase of property and equipment                                                                                            |   |                    | (129   | ) |   |   | (108 | ) |   |   | (41 | ) |
| Cash paid in connection with acquisition of Vexigo Ltd., net of cash acquired (a)                                             |   |                    | (1400  | ) |   |   | (2,264 | ) |   |   | - |   |
| Capitalization of software development costs                                                                                  |   |                    | (380   | ) |   |   | (411 | ) |   |   | - |   |
| Investment in available-for-sale marketable securities                                                                        |   |                    | (86    | ) |   |   | (104 | ) |   |   | (153 | ) |
| Proceeds from sale of available-for-sale marketable securities                                                                |   |                    | 85     |   |   |   | 98 |   |   |   | 157 |   |
|                                                                                                                          |   |                    |   |   |   |   |   |   |   |   |   |   |
| Net cash used in investing activities                                                                                         |   |                    | (1,910 | ) |   |   | (2,789 | ) |   |   | (37 | ) |

----

----

|                                                   |   | Year ended December 31, |   |
|--------------------------------------------------------|--------|-------------------------|--------|
|                                                   |   | 2016                    |   |   | 2015 |   |   | 2014 |   |
|  Cash flows from financing activities             |   |                    |   |   |   |   |   |   |   |
|                                                   |   |                    |   |   |   |   |   |   |   |
|  Proceeds from issuance of shares                 |   |                    | 700    |   |   |   | 500 |   |   |   | - |   |
|  Proceeds from exercise of stock options          |   |                    | -      |   |   |   | 51 |   |   |   | 14 |   |
|                                                   |   |                    |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by financing activities              |   |                    | 700    |   |   |   | 551 |   |   |   | 14 |   |
|                                                   |   |                    |   |   |   |   |   |   |   |   |   |   |
| Decrease in cash and cash equivalents                  |   |                    | (1,936 | ) |   |   | (1,420 | ) |   |   | (1,505 | ) |
| Cash and cash equivalents at the beginning of the year |   |                    | 3,444  |   |   |   | 4,864 |   |   |   | 6,369 |   |
|                                                   |   |                    |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents at the end of the year       |   | $                       | 1,508  |   |   | $ | 3,444 |   |   | $ | 4,864 |   |
|                                                   |   |                    |   |   |   |   |   |   |   |   |   |   |
| Supplemental disclosure of cash flows activities       |   |                    |   |   |   |   |   |   |   |   |   |   |
|                                                   |   |                    |   |   |   |   |   |   |   |   |   |   |
| Cash paid during the year for income taxes             |   | $                       | 5      |   |   | $ | 7 |   |   | $ | 16 |   |

|                                               |   | Year ended December 31 |   |
|----------------------------------------------------|--------|------------------------|--------|
|                                               |   | 2016                   |   |   | 2015 |   |   | 2014 |   |
| Total assets, net of cash                          |   | $                      | -      |   |   | $ | 4,691 |   |   | $ | - |   |
| Total liabilities                                  |   |                   | -      |   |   |   | (4,512 | ) |   |   | - |   |
| Technology                                         |   |                   | -      |   |   |   | 4,433 |   |   |   | - |   |
| Deferred tax liability                             |   |                   | -      |   |   |   | (709 | ) |   |   | - |   |
| Goodwill                                           |   |                   | -      |   |   |   | 11,107 |   |   |   | - |   |
| Issuance of shares                                 |   |                   | -      |   |   |   | (4,369 | ) |   |   | - |   |
| Payment obligations in connection with acquisition |   |                   | -      |   |   |   | (1,845 | ) |   |   | - |   |
| Contingent earn-out consideration, net             |   |                   | -      |   |   |   | (6,532 | ) |   |   | - |   |
|                                               |   |                   |   |   |   |   |   |   |   |   |   |   |
| Total cash paid during the year                    |   | $                      | -      |   |   | $ | 2,264 |   |   | $ | - |   |

----

----

|  | a. | Mer Telemanagement Solutions Ltd. (the "Company" or "MTS") was incorporated on December 27, 1995. MTS and its subsidiaries (the "Group") is a worldwide provider of telecom expense management ("TEM"), mobile virtual network enabler ("MVNE"), mobile money solutions and online video advertising solutions and services. |
|--|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | b. | In March 2009, the Company discontinued the operations of TABS Brazil Ltda. its wholly owned subsidiary in Brazil. The results of operations of such subsidiary, which is inactive, are classified as discontinued operations in the statement of operations. |
|--|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                         |   | Year ended December 31, |   |
|------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                         |   | 2016                    |   |   | 2015 |   |   | 2014 |   |
|                                                                         |   |                    |   |   |   |   |   |   |   |
| Net income (loss) from discontinued operations                               |   | $                       | (27    | ) |   | $ | 177 |   |   | $ | 80 |   |
|                                                                         |   |                    |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted net income per Ordinary share from discontinued operations |   | $                       | 0.00   |   |   | $ | 0.02 |   |   | $ | 0.02 |   |

----

----

|  | c. | The Company has incurred an accumulated deficit of approximately $24,704 since inception. As of December 31, 2016, the Company's total shareholders' equity amounted to $1,860. During the year ended December 31, 2016, the Company incurred an operating loss of $5,684 and its cash flows used in operating activities amounted to $726. |
|--|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|  | a. | Use of estimates |
|--|----|------------------|

|  | b. | Financial statements in United States dollars |
|--|----|-----------------------------------------------|

|  | c. | Principles of consolidation |
|--|----|-----------------------------|

----

----

|  | d. | Cash equivalents |
|--|----|------------------|

|  | e. | Restricted cash |
|--|----|-----------------|

|  | f. | Marketable securities |
|--|----|-----------------------|

----

----

|  | g. | Property and equipment, net |
|--|----|-----------------------------|

|                               |   | %                                                          |   |
|------------------------------------|--------|------------------------------------------------------------|--------|
| Computers and peripheral equipment |   | 33                                                         |   |
| Office furniture and equipment     |   | 3 - 20 (mainly 7)                                          |   |
| Leasehold improvements             |   | Over the shorter of the lease term or useful economic life |   |

|  | h. | Impairment of long-lived assets |
|--|----|---------------------------------|

|  | i. | Intangible assets: |
|--|----|--------------------|

|  | j. | Goodwill |
|--|----|----------|

----

----

|  | k. | Severance pay: |
|--|----|----------------|

|  | l. | Revenue recognition: |
|--|----|----------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (CONT.) |
|----------|-----------------------------------------|

|  | m. | Research and development expenses: |
|--|----|------------------------------------|

|  | n. | Capitalized development costs: |
|--|----|--------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|  | o. | Income taxes: |
|--|----|---------------|

|  | p. | Accounting for share-based compensation ("ASC 718"): |
|--|----|------------------------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|                      |   | Year ended December 31, |   |
|---------------------------|--------|-------------------------|--------|
| Stock options             |   | 2016                    |   |   | 2015 |   |
|                      |   |                    |   |   |   |   |
| Expected volatility (1)   |   | 87.59%-90.62%           |   |   | 81.57%-85.95% |   |
| Risk-free interest (2)    |   | 0.95%-1.29              |   |   | 1.08%-1.09% |   |
| Dividend yield (3)        |   | 0%                      |   |   | 0% |   |
| Expected life (years) (4) |   | 3.75-6.25               |   |   | 3.75 |   |

|  | (1) | The computation of expected volatility is based on realized historical share price volatility of the Company's stock. |
|--|-----|-----------------------------------------------------------------------------------------------------------------------|

|  | (2) | The risk-free interest rate is based on the yield from U.S. Treasury Bonds with an equivalent term; |
|--|-----|-----------------------------------------------------------------------------------------------------|

|  | (3) | The dividend yield assumption is based on the Company's historical experience and expectation of future dividend payouts. The Company has historically not paid dividends and has no foreseeable plans to pay cash dividends in the future. |
|--|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (4) | Expected term of options granted represents the period of time that options granted are expected to be outstanding, and is estimated based on the Company's history. |
|--|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | q. | Fair value of financial instruments: |
|--|----|--------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|  | Level 1 - | quoted prices in active markets for identical assets or liabilities. |
|--|----------------|----------------------------------------------------------------------|

|  | Level 2 - | inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
|--|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | Level 3 - | unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
|--|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------|

|  | r. | Concentrations of credit risk: |
|--|----|--------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|  | s. | Basic and diluted net earnings (loss) per share: |
|--|----|--------------------------------------------------|

|  | t. | Derivatives instruments: |
|--|----|--------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|  | u. | Comprehensive income (loss): |
|--|----|------------------------------|

|  | v. | Treasury shares: |
|--|----|------------------|

|  | w. | Impact of recently issued accounting standards |
|--|----|------------------------------------------------|

|  | 1. | In February 2016, the FASB issued ASU 2016‐02—Leases (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right‐of‐use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales‐type leases, direct financing leases and operating leases. The ASU is expected to impact our consolidated financial statements as we have certain operating lease arrangements. ASC 842 supersedes the previous leases standard, ASC 840 Leases. The standard is effective on January 1, 2019, with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements. |
|--|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 2. | In March 2016, the FASB issued ASU 2016-09 "Improvements to Employee Share-Based Payment Accounting". This ASU affects entities that issue share-based payment awards to their employees. The ASU is designed to simplify several aspects of accounting for share-based payment award transactions which include the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. ASU 2016-09 will become effective for the Company in the annual period ending August 31, 2018. Early adoption is permitted in any interim or annual period. The Company is currently in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements. |
|--|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|  | 3. | On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. |
|--|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 4. | In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for some of the amendments, in which case those amendments would be prospectively as of the earliest date practicable. The standard is effective on January 1, 2019. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements and footnote disclosures. |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 3:- | BUSINESS COMBINATION |
|----------|----------------------|

|  | · | Cash consideration of $4,000, was to be paid in three instalments as follows: (a) at Closing Date $3,000 and, (b) two additional instalments of $500 each, three and six months following the Closing Date. Such payments were further extended as described below. |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | 3,115,090 ordinary shares of the Company issued at Closing Date having a total value of $ 4,368, which considered the market restrictions on these shares. |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | Milestone-based contingent cash payments based on Vexigo's product line EBITDA post acquisition, of up to $16,000 payable over 5.5 years. The fair value of the contingent consideration amounted to approximately $6,532, net of termination fees. At Closing Date the Company recorded a related liability. |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | The SPA assumed zero working capital and included customary net working capital adjustments to the purchase price as defined in the SPA. |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 3:- | BUSINESS COMBINATION (Cont.) |
|----------|------------------------------|

|                         |   | Closing DateApril 1, 2015 |   |
|------------------------------|--------|---------------------------|--------|
|                         |   |                      |   |
| Total assets                 |   | $                         | 204    |   |
| Total liabilities            |   |                      | (148   | ) |
| Technology                   |   |                      | 4,433  |   |
| Goodwill                     |   |                      | 11,107 |   |
|  Deferred tax liability |   |                      | (709   | ) |
|                         |   |                      |   |   |
| Total consideration          |   | $                         | 14,887 |   |

----

----

| NOTE 3:- | BUSINESS COMBINATION (Cont.) |
|----------|------------------------------|

|                                        |   | Year ended December 31, |    |
|---------------------------------------------|--------|-------------------------|---------|
|                                        |   | 2015                    |    |   | 2014 |   |
|                                        |   | Unaudited               |    |
|                                        |   |                    |    |   |   |   |
| Revenues                                    |   | $                       | 18,964  |   |   | $ | 17,319 |   |
| Net income (loss)                           |   |                    | (3, 923 | ) |   |   | 251 |   |
| Basic and diluted earnings (loss) per share |   | $                       | (0.55   | ) |   | $ | 0.03 |   |

|                    |   | December 31, 2016 |   |   | December 31, 2015 |   |
|-------------------------|--------|-------------------|--------|--------|-------------------|--------|
|                    |   | Amortized         |   |   | Gross unrealized  |   |   | Gross unrealized |   |   | Fairmarket |   |   | Amortized |   |   | Gross unrealized |   |   | Gross unrealized |   |   | Fairmarket |   |
|                    |   | cost              |   |   | gains             |   |   | losses |   |   | value |   |   | Cost |   |   | gains |   |   | losses |   |   | value |   |
| Available-for-sale:     |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                    |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity securities       |   | $                 | 77     |   |              | $      | - |   |   | $ | - |   |   | $ | 77 |   |   | $ | 87 |   |   | $ | - |   |   | $ | (2 | ) |   | $ | 85 |   |
| Corporate bonds         |   |              | 41     |   |              |   | *) - |   |   |   | - |   |   |   | 41 |   |   |   | 16 |   |   |   | *) - |   |   |   | - |   |   |   | 16 |   |
| Israeli Government debt |   |              | 18     |   |              |   | - |   |   |   | *) - |   |   |   | 18 |   |   |   | 36 |   |   |   | - |   |   |   | (3 | ) |   |   | 33 |   |
|                    |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                    |   | $                 | 136    |   |              | $      | - |   |   | $ | - |   |   | $ | 136 |   |   | $ | 139 |   |   | $ | - |   |   | $ | (5 | ) |   | $ | 134 |   |

----

----

|                                      |   | December 31, 2016 |   |   | December 31, 2015 |   |
|-------------------------------------------|--------|-------------------|--------|--------|-------------------|--------|
|                                      |   | Amortized cost    |   |   | Fair market value |   |   | Amortized cost |   |   | Fair market value |   |
|                                      |   |              |   |   |              |   |   |   |   |   |   |   |
| Matures up to one year                    |   | $                 | 94     |   |              | $      | 94 |   |   | $ | 126 |   |   | $ | 121 |   |
| Matures after one year through five years |   |              | 34     |   |              |   | 34 |   |   |   | 12 |   |   |   | 13 |   |
| Matures after five years                  |   |              | 8      |   |              |   | 8 |   |   |   | - |   |   |   | - |   |
|                                      |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Total                                     |   | $                 | 136    |   |              | $      | 136 |   |   | $ | 138 |   |   | $ | 134 |   |

| NOTE 5:- | OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES |
|----------|------------------------------------------------|

|                   |   | December 31, |   |
|------------------------|--------|--------------|--------|
|                   |   | 2016         |   |   | 2015 |   |
|                   |   |         |   |   |   |   |
| Government authorities |   | $            | 278    |   |   | $ | 58 |   |
| Prepaid expenses       |   |         | 37     |   |   |   | 21 |   |
| Lease deposits         |   |         | 4      |   |   |   | 6 |   |
| Others                 |   |         | 24     |   |   |   | 18 |   |
|                   |   |         |   |   |   |   |   |   |
|                   |   | $            | 343    |   |   | $ | 103 |   |

----

----

| NOTE 6:- | PROPERTY AND EQUIPMENT |
|----------|------------------------|

|                               |   | December 31, |   |
|------------------------------------|--------|--------------|--------|
|                               |   | 2016         |   |   | 2015 |   |
| Cost:                              |   |         |   |   |   |   |
|                               |   |         |   |   |   |   |
| Computers and peripheral equipment |   | $            | 1,094  |   |   | $ | 987 |   |
| Office furniture and equipment     |   |         | 216    |   |   |   | 200 |   |
| Leasehold improvements             |   |         | 36     |   |   |   | 30 |   |
|                               |   |         |   |   |   |   |   |   |
|                               |   |         | 1,346  |   |   |   | 1,217 |   |
| Accumulated depreciation:          |   |         |   |   |   |   |   |   |
|                               |   |         |   |   |   |   |   |   |
| Computers and peripheral equipment |   |         | 961    |   |   |   | 877 |   |
| Office furniture and equipment     |   |         | 170    |   |   |   | 164 |   |
| Leasehold improvements             |   |         | 17     |   |   |   | 16 |   |
|                               |   |         |   |   |   |   |   |   |
| Accumulated depreciation           |   |         | 1,148  |   |   |   | 1,057 |   |
|                               |   |         |   |   |   |   |   |   |
| Depreciated cost                   |   | $            | 198    |   |   | $ | 160 |   |

| NOTE 7:- | INTANGIBLE ASSETS, NET |
|----------|------------------------|

|  | a. | Intangibles consist of the following: |
|--|----|---------------------------------------|

|                                                       |   | December 31, |   |
|------------------------------------------------------------|--------|--------------|--------|
|                                                       |   | 2016         |   |   | 2015 |   |
| Cost:                                                      |   |         |   |   |   |   |
|                                                       |   |         |   |   |   |   |
| Developed technology                                       |   | $            | 2,170  |   |   | $ | 2,170 |   |
| Customer relationships                                     |   |         | 1,015  |   |   |   | 1,015 |   |
| Brand name                                                 |   |         | 229    |   |   |   | 229 |   |
| Capitalized developed costs                                |   |         | 791    |   |   |   | 411 |   |
| Video technology                                           |   |         | 4,433  |   |   |   | 4,433 |   |
| Video technology and capitalized developed cost impairment |   |         | (3,763 | ) |   |   | - |   |
|                                                       |   |         |   |   |   |   |   |   |
|                                                       |   |         | 4,875  |   |   |   | 8,258 |   |
| Accumulated amortization:                                  |   |         |   |   |   |   |   |   |
|                                                       |   |         |   |   |   |   |   |   |
| Developed technology                                       |   |         | 2,170  |   |   |   | 2,045 |   |
| Customer relationships                                     |   |         | 1,015  |   |   |   | 1,001 |   |
| Brand name                                                 |   |         | 166    |   |   |   | 146 |   |
| Video technology                                           |   |         | 1,461  |   |   |   | 605 |   |
|                                                       |   |         |   |   |   |   |   |   |
|                                                       |   |         | 4,812  |   |   |   | 3,797 |   |
|                                                       |   |         |   |   |   |   |   |   |
| Amortized cost                                             |   | $            | 63     |   |   | $ | 4,461 |   |

----

----

| NOTE 7:- | INTANGIBLE ASSETS, NET (Cont.) |
|----------|--------------------------------|

|  | b. | Amortization expense amounted to $ 1,015, $ 772 and $ 1,782 for the years ended December 31, 2016, 2015 and 2014, respectively. |
|--|----|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|  | c. | Estimated amortization expense for: |
|--|----|-------------------------------------|

| Year ended December 31, |   |   |   |
|-------------------------|--------|--------|--------|
|                    |   |   |   |
| 2017                    |   | $      | 21     |   |
| 2018                    |   |   | 21     |   |
| 2019                    |   |   | 21     |   |
|                    |   |   |   |   |
|                    |   | $      | 63     |   |

| NOTE 8:- | GOODWILL |
|----------|----------|

|                                                                    |   |  December 31, 2016 |   |
|-------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                    |   |                    |   |
| January 1, 2014 and December 31, 2014  (Enterprise reporting unit) |   | $                       | 3,479  |   |
|                                                                    |   |                    |   |   |
| Acquisition of Video Advertising business (Note 3)                      |   |                    | 11,107 |   |
| Goodwill impairment in 2015 (Note 1)                               |   |                    | (6,288 | ) |
| Goodwill impairment in 2016 (Note 1)                               |   |                    | (4,819 | ) |
|                                                                    |   |                    |   |   |
| December 31, 2016                                                       |   | $                       | 3,479  |   |

| NOTE 9:- | ACCRUED EXPENSES AND OTHER LIABILITIES |
|----------|----------------------------------------|

|                                |   | December 31, |   |
|-------------------------------------|--------|--------------|--------|
|                                |   | 2016         |   |   | 2015 |   |
|                                |   |         |   |   |   |   |
| Employees and payroll accruals      |   | $            | 969    |   |   | $ | 759 |   |
| Institutions and income tax payable |   |         | 177    |   |   |   | 303 |   |
| Accrued expenses                    |   |         | 1,390  |   |   |   | 1,152 |   |
| Related parties                     |   |         | 1,220  |   |   |   | 1,291 |   |
|                                |   |         |   |   |   |   |   |   |
|                                |   | $            | 3,756  |   |   | $ | 3,505 |   |

----

----

| NOTE 10:- | COMMITMENTS AND CONTINGENT LIABILITIES |
|-----------|----------------------------------------|

|  | a. | Lease commitments: |
|--|----|--------------------|

| Year ended December 31, |   |   |   |
|-------------------------|--------|--------|--------|
|                    |   |   |   |
| 2017                    |   | $      | 176    |   |
| 2018                    |   |   | 116    |   |
| 2019                    |   |   | 10     |   |
|                    |   |   |   |   |
|                    |   | $      | 302    |   |

|  | b. | Royalty commitments: |
|--|----|----------------------|

----

----

|  | c. | Claims and demands: |
|--|----|---------------------|

|  | 1. | Claims related to discontinued operations: |
|--|----|--------------------------------------------|

|  | 2. | The Israeli Government, through the Fund for Encouragement of Marketing Activities, awarded C. Mer Industries Ltd. (“C. Mer”), a related party of the Company grants for participation in foreign marketing expenses, partially related to the Company's marketing activities for the years 1996 - 1998. During 2012, the Company received through an affiliated company a demand with respect to the reimbursement of above-mentioned grants. As of December 31, 2016 and 2015, the Company provided a provision in the amount that was considered probable. |
|--|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | d. | Guarantees: |
|--|----|-------------|

|  | a. | Israeli taxation: |
|--|----|-------------------|

|  | 1. | Corporate tax rates: |
|--|----|----------------------|

----

----

|  | 2. | Tax benefits under the Law for the Encouragement of Capital Investments, 1959 ("the Law"): |
|--|----|--------------------------------------------------------------------------------------------|

----

----

----

----

|  | 3. | The Law for the Encouragement of Industry (Taxation), 1969: |
|--|----|-------------------------------------------------------------|

----

----

|  | 4. | Tax Benefits for Research and Development: |
|--|----|--------------------------------------------|

|  | 5. | Tax assessments: |
|--|----|------------------|

----

----

|  | b. | Income taxes on non-Israeli subsidiaries: |
|--|----|-------------------------------------------|

|  | c. | Net operating loss carry-forwards: |
|--|----|------------------------------------|

----

----

|  | d. | Deferred income taxes: |
|--|----|------------------------|

|                                                                |   | December 31, |   |
|---------------------------------------------------------------------|--------|--------------|--------|
|                                                                |   | 2016         |   |   | 2015 |   |
| Deferred tax asset (liability):                                     |   |         |   |   |   |   |
|                                                                |   |         |   |   |   |   |
| Tax loss carry-forwards                                             |   | $            | 5,492  |   |   | $ | 5,593 |   |
| Allowances for doubtful accounts and accruals for employee benefits |   |         | 111    |   |   |   | 103 |   |
| Intangible assets                                                   |   |         | 67     |   |   |   | 81 |   |
| Depreciation, accruals for interest and other                       |   |         | 808    |   |   |   | 746 |   |
|                                                                |   |         |   |   |   |   |   |   |
| Deferred tax asset before valuation allowance                       |   |         | 6,478  |   |   |   | 6,523 |   |
| Goodwill and deferred tax                                           |   |         | (989   | ) |   |   | (834 | ) |
| Valuation allowance                                                 |   |         | (5,323 | ) |   |   | (6,369 | ) |
|                                                                |   |         |   |   |   |   |   |   |
| Deferred tax liability, net                                         |   | $            | (166   | ) |   | $ | (680 | ) |

----

----

|  | e. | A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company and the actual tax expense as reported in the statements of operations is as follows: |
|--|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                     |   | Year ended December 31, |   |
|----------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                     |   | 2016                    |   |   | 2015 |   |   | 2014 |   |
|                                                                                                     |   |                    |   |   |   |   |   |   |   |
| Loss before taxes on income, net, as reported in the statements of operations from continuing operations |   | $                       | (5,701 | ) |   | $ | (4,722 | ) |   | $ | (1,636 | ) |
|                                                                                                     |   |                    |   |   |   |   |   |   |   |   |   |   |
| Tax rates                                                                                                |   |                    | 25     | % |   |   | 26.5 | % |   |   | 26.5 | % |
|                                                                                                     |   |                    |   |   |   |   |   |   |   |   |   |   |
| Theoretical tax benefit                                                                                  |   | $                       | (1,425 | ) |   | $ | (1,251 | ) |   | $ | (434 | ) |
|                                                                                                     |   |                    |   |   |   |   |   |   |   |   |   |   |
| Decrease in taxes resulting from:                                                                        |   |                    |   |   |   |   |   |   |   |   |   |   |
|                                                                                                     |   |                    |   |   |   |   |   |   |   |   |   |   |
| Non – deductible expenses                                                                          |   |                    | 1,175  |   |   |   | 1,255 |   |   |   | 156 |   |
| Loss and timing differences for which no deferred tax was provided                                       |   |                    | (334   | ) |   |   | 209 |   |   |   | 297 |   |
| Tax adjustment in respect of different tax rate of subsidiaries                                          |   |                    | 75     |   |   |   | (49 | ) |   |   | 34 |   |
| Changes in provision for uncertain tax positions                                                         |   |                    | 2      |   |   |   | 30 |   |   |   | 1 |   |
|                                                                                                     |   |                    |   |   |   |   |   |   |   |   |   |   |
| Taxes on income, net, as reported in the statements of operations                                        |   | $                       | (507   | ) |   | $ | 194 |   |   | $ | 54 |   |

|  | f. | Loss before income taxes is comprised as follows: |
|--|----|---------------------------------------------------|

|     |   | Year ended December 31, |   |
|----------|--------|-------------------------|--------|
|     |   | 2016                    |   |   | 2015 |   |   | 2014 |   |
|     |   |                    |   |   |   |   |   |   |   |
| Domestic |   | $                       | (5,743 | ) |   | $ | (4,855 | ) |   | $ | (1,785 | ) |
| Foreign  |   |                    | 42     |   |   |   | 133 |   |   |   | 149 |   |
|     |   |                    |   |   |   |   |   |   |   |   |   |   |
|     |   | $                       | (5,701 | ) |   | $ | (4,722 | ) |   | $ | (1,636 | ) |

----

----

|  | g. | Taxes on income are comprised as follows: |
|--|----|-------------------------------------------|

|           |   | Year ended December 31, |   |
|----------------|--------|-------------------------|--------|
|           |   | 2016                    |   |   | 2015 |   |   | 2014 |   |
|           |   |                    |   |   |   |   |   |   |   |
| Current taxes  |   | $                       | 7      |   |   | $ | 153 |   |   | $ | 29 |   |
| Deferred taxes |   |                    | (514   | ) |   |   | 41 |   |   |   | 25 |   |
|           |   |                    |   |   |   |   |   |   |   |   |   |   |
|           |   | $                       | (507   | ) |   | $ | 194 |   |   | $ | 54 |   |
|           |   |                    |   |   |   |   |   |   |   |   |   |   |
| Foreign        |   | $                       | 63     |   |   | $ | 57 |   |   | $ | 45 |   |
| Domestic       |   | $                       | (570   | ) |   | $ | 137 |   |   | $ | 9 |   |
|           |   | $                       | (507   | ) |   | $ | 194 |   |   | $ | 54 |   |

|  | h. | As of December 31, 2016, the Company recorded a liability for unrecognized tax benefits of $135. A reconciliation of the opening and closing amounts of unrecognized tax benefits is as follows: |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                             |   | December 31, |   |
|------------------------------------------------------------------|--------|--------------|--------|
|                                                             |   | 2016         |   |   | 2015 |   |
|                                                             |   |         |   |   |   |   |
| Balance as of beginning of the year                              |   | $            | 132    |   |   | $ | 102 |   |
| Additions based on tax positions taken during the current period |   |         | 3      |   |   |   | 30 |   |
|                                                             |   |         |   |   |   |   |   |   |
| Balance at the end of the year                                   |   | $            | 135    |   |   | $ | 132 |   |

|  | a. | The Company receives certain services from C. Mer, a publicly traded company. Mr. Chaim Mer, the Company's chairman of the board and Mr. Isaac Ben Bassat, a former director of the Company, are members of the controlling group of C. Mer. These services include reimbursement for shared expenses related to a commercial insurance policy. For the years ended December 31, 2016, 2015 and 2014, the Company paid or accrued $12, $11 and $11, respectively, with respect to the above mentioned expenses. In 2012 MTS Ltd. engaged with Mer Telecom Ltd., a subsidiary of C. Mer, in a deployment of its mobile financial services ("MFS") solution for a customer in Africa and completed the deployment in 2013. The Company recorded revenue in the amount of $ 14, $ 33 and $ 33 in 2016, 2015 and 2014, respectively. As of December 31, 2016 the solution was implemented, but the customer has not yet activated the solution. |
|--|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|  | b. | Balances and transactions with related parties were as follows: |
|--|----|-----------------------------------------------------------------|

|                                                    |   | December 31, |   |
|---------------------------------------------------------|--------|--------------|--------|
|                                                    |   | 2016         |   |   | 2015 |   |
|                                                    |   |         |   |   |   |   |
| Other accounts receivable and prepaid expenses (Note 5) |   | $            | 10     |   |   | $ | 10 |   |
|                                                    |   |         |   |   |   |   |   |   |
| Other accounts payable and accrued expenses (Note 9)    |   | $            | 1,220  |   |   | $ | 1,291 |   |

----

----

|                                  |   | Year ended December 31, |   |
|---------------------------------------|--------|-------------------------|--------|
|                                  |   | 2016                    |   |   | 2015 |   |   | 2014 |   |
|                                  |   |                    |   |   |   |   |   |   |   |
| Revenues derived from a related party |   | $                       | 14     |   |   | $ | 33 |   |   | $ | 37 |   |
|                                  |   |                    |   |   |   |   |   |   |   |   |   |   |
| Amounts charged by related parties:   |   |                    |   |   |   |   |   |   |   |   |   |   |
|                                  |   |                    |   |   |   |   |   |   |   |   |   |   |
| Cost of revenues                      |   | $                       | 36     |   |   | $ | 37 |   |   | $ | 83 |   |
| Operating expenses                    |   |                    | 142    |   |   |   | 139 |   |   |   | 180 |   |
|                                  |   |                    |   |   |   |   |   |   |   |   |   |   |
|                                  |   | $                       | 178    |   |   | $ | 176 |   |   | $ | 263 |   |

|  | a. | Share capital: |
|--|----|----------------|

----

----

----

----

|  | c. | A summary of option activity under the Company's stock option plans to its employees as of December 31, 2016 and changes during the year ended December 31, 2016 are as follows: |
|--|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                  |   | Number of options |    |   | Weighted-average exercise price |   |   | Weighted- average remaining contractual term (in years) |   |   | Aggregate intrinsic value |   |
|---------------------------------------|--------|-------------------|---------|--------|---------------------------------|--------|--------|---------------------------------------------------------|--------|--------|---------------------------|--------|
|                                  |   |              |    |   |                            |   |   |                                                    |   |   |                      |   |
| Outstanding at January 1, 2016   |   |              | 566,145 |   |                            | $      | 1.45   |                                                    |   |   | -                         |   |   |   | - |   |
| Granted                               |   |              | 397,674 |   |                            | $      | 1.15   |                                                    |   |   | 9.58                      |   |   |   | - |   |
| Exercised                             |   |              | -       |   |                            | $      | -      |                                                    |   |   | -                         |   |   |   | - |   |
| Expired and forfeited                 |   |              | 12,000  |   |                            | $      | 1.07   |                                                    |   |   | -                         |   |   |   | - |   |
|                                  |   |              |    |   |                            |   |   |                                                    |   |   |                      |   |   |   |   |   |
| Outstanding at December 31, 2016 |   |              | 951,819 |   |                            | $      | 1.45   |                                                    |   |   | 4.90                      |   |   | $ | - |   |
|                                  |   |              |    |   |                            |   |   |                                                    |   |   |                      |   |   |   |   |   |
| Vested and expected to vest           |   |              | 851,980 |   |                            | $      | 1.38   |                                                    |   |   | 5.22                      |   |   | $ | - |  |
|                                  |   |              |    |   |                            |   |   |                                                    |   |   |                      |   |   |   |   |   |
| Exercisable at December 31, 2016 |   |              | 302,750 |   |                            | $      | 1.63   |                                                    |   |   | 0.80                      |   |   | $ | - |   |

----

----

| NOTE 13:- | SHAREHOLDERS' EQUITY (Cont.) |
|-----------|------------------------------|

|  | d. | Total stock-based compensation expenses recognized in 2015 and 2016: |
|--|----|----------------------------------------------------------------------|

|                       |   | Year ended December 31, |   |
|----------------------------|--------|-------------------------|--------|
|                       |   | 2016                    |   |   | 2015 |   |   | 2014 |   |
|                       |   |                    |   |   |   |   |   |   |   |
| Cost of revenues           |   | $                       | 8      |   |   | $ | 17 |   |   | $ | 11 |   |
| Research and development   |   |                    | 30     |   |   |   | 45 |   |   |   | 13 |   |
| Selling and marketing      |   |                    | 12     |   |   |   | 12 |   |   |   | 1 |   |
| General and administrative |   |                    | 155    |   |   |   | 96 |   |   |   | 59 |   |
|                       |   |                    |   |   |   |   |   |   |   |   |   |   |
|                       |   | $                       | 205    |   |   | $ | 170 |   |   | $ | 84 |   |

|  | e. | Options to non-employees: |
|--|----|---------------------------|

| Issuance date |   | In connection with |   | Number of options granted |   |   | Options exercisable |   |   | Exercise price per share |   | Exercisable through                                                |
|---------------|--------|--------------------|--------|---------------------------|--------|--------|---------------------|--------|--------|--------------------------|--------|--------------------------------------------------------------------|
|          |   |               |   |                      |   |   |                |   |   |                     |   |             |
| April 1, 2015 |   | consultant         |   | 80,000                    |   |   | -                   |   |   | 0.88                     |   | April 2020                                                         |

|  | a. | Reportable segments: |
|--|----|----------------------|

----

----

|                        |   | Year ended December 31, |   |
|-----------------------------|--------|-------------------------|--------|
|                        |   | 2016                    |   |   | 2015 |   |   | 2014 |   |
|                        |   |                    |   |   |   |   |   |   |   |
| Enterprise                  |   |                    |   |   |   |   |   |   |   |
|                        |   |                    |   |   |   |   |   |   |   |
| Revenue                     |   | $                       | 6,663  |   |   | $ | 6,860 |   |   | $ | 6,601 |   |
| Adjusted EBITDA (unaudited) |   | $                       | 513    |   |   | $ | 676 |   |   | $ | 512 |   |
|                        |   |                    |   |   |   |   |   |   |   |   |   |   |
|                        |   |                    |   |   |   |   |   |   |   |   |   |   |
| Video Advertising           |   |                    |   |   |   |   |   |   |   |   |   |   |
|                        |   |                    |   |   |   |   |   |   |   |   |   |   |
| Telecom revenue             |   | $                       | 6,502  |   |   | $ | 7,017 |  (*) |   | $ | - |   |
| Adjusted EBITDA (unaudited) |   | $                       | (327   | ) |   | $ | (273 | )(*) |   | $ | - |   |
|                        |   |                    |   |   |   |   |   |   |   |   |   |   |
| Service Providers           |   |                    |   |   |   |   |   |   |   |   |   |   |
|                        |   |                    |   |   |   |   |   |   |   |   |   |   |
| Telecom revenue             |   | $                       | 887    |   |   | $ | 835 |   |   | $ | 465 |   |
| Adjusted EBITDA (unaudited) |   | $                       | (296   | ) |   | $ | (556 | ) |   | $ | (1,700 | ) |
|                        |   |                    |   |   |   |   |   |   |   |   |   |   |
| Total                       |   |                    |   |   |   |   |   |   |   |   |   |   |
|                        |   |                    |   |   |   |   |   |   |   |   |   |   |
| Revenue                     |   | $                       | 14,052 |   |   | $ | 14,712 |   |   | $ | 7,066 |   |
| Adjusted EBITDA (unaudited) |   | $                       | (110   | ) |   | $ | (153 | ) |   | $ | (1,188 | ) |

|                                                 |   | Year ended December 31, |   |
|------------------------------------------------------|--------|-------------------------|--------|
|                                                 |   | 2016                    |   |   | 2015 |   |   | 2014 |   |
|                                                 |   |                    |   |   |   |   |   |   |   |
| Adjusted EBITDA (unaudited)                          |   | $                       | (110   | ) |   | $ | (153 | ) |   | $ | (1,188 | ) |
| Depreciation and amortization expenses               |   |                    | (1,106 | ) |   |   | (868 | ) |   |   | (284 | ) |
| Stock-based compensation                             |   |                    | (223   | ) |   |   | (170 | ) |   |   | (69 | ) |
| Financial expense (income), net                      |   |                    | (17    | ) |   |   | (17 | ) |   |   | (95 | ) |
| Goodwill impairment, net of contingent consideration |   |                    | (482   | ) |   |   | (3,514 | ) |   |   | - |   |
| Video advertising technology impairment              |   |                    | (3,763 | ) |   |   | - |   |   |   | - |   |
| Income tax effect                                    |   |                    | 507    |   |   |   | (194 | ) |   |   | (54 | ) |
|                                                 |   |                    |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) from continuing operations         |   | $                       | (5,194 | ) |   | $ | (4,916 | ) |   | $ | (1,690 | ) |

----

----

|          |   | Year ended December 31, |   |
|---------------|--------|-------------------------|--------|
|          |   | 2016                    |   |   | 2015 |   |   | 2014 |   |
|          |   |                    |   |   |   |   |   |   |   |
| United States |   | $                       | 6,860  |   |   | $ | 11,450 |   |   | $ | 5,642 |   |
| Asia          |   |                    | 1,984  |   |   |   | 1,493 |   |   |   | 300 |   |
| Israel        |   |                    | 3,178  |   |   |   | 571 |   |   |   | 440 |   |
| Europe        |   |                    | 1,147  |   |   |   | 923 |   |   |   | 376 |   |
| Other         |   |                    | 883    |   |   |   | 275 |   |   |   | 308 |   |
|          |   |                    |   |   |   |   |   |   |   |   |   |   |
|          |   | $                       | 14,052 |   |   | $ | 14,712 |   |   | $ | 7,066 |   |

----

|   | MER TELEMANAGEMENT SOLUTIONS LTD. |                                                        |
|--------|-----------------------------------|-------------------------------------------------------------|
|   |                              |                                                        |   |
|        | By:                               | /s/ Alon Mualem                                        |   |
|   |                              | Alon Mualem                                                 |   |
|   |                              | Interim Chief Executive Officer and Chief Financial Officer |   |
|   |                              |                                                        |   |

----