UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-K (Mark one) xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2016 OR oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_____ to____Commission File Number: 001-36894 SOLAREDGE TECHNOLOGIES, INC.(Exact name of registrant as specified in its charter)Delaware 20-5338862(State or other jurisdiction ofincorporation or organization) (IRS EmployerIdentification No.) 1 HaMada Street Herziliya Pituach, Israel 4673335(Address of Principal Executive Offices) (Zip Code) 972 (9) 957-6620Registrant’s telephone number, including area codeSecurities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon stock, par value $0.0001 per share NASDAQ (Global Select Market) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes o No x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files). Yes x No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein,and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one): x Large accelerated filer o Accelerated filer o Non-accelerated filer(do not check if asmaller reportingcompany) o Smaller reporting companyIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x The aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates of the registrant on December 31, 2015,the last business day of the registrant’s most recently completed second fiscal quarter was approximately $788,988,346 (assuming that the registrant’s onlyaffiliates are its officers, directors and non-institutional 10% stockholders) based upon the closing market price on that date of $28.17 per share as reported onthe Nasdaq Global Select Market. As of August 11, 2016, there were 40,898,197 shares of the registrant’s common stock, par value of $0.0001 per share, outstanding. DOCUMENTS INCORPORATED BY REFERENCE None. TABLE OF CONTENTSPage PART I ITEM 1.Business3ITEM 1A.Risk Factors14ITEM 1B.Unresolved Staff Comments29ITEM 2.Properties29ITEM 3.Legal Proceedings29ITEM 4.Mine Safety Disclosures29 PART II ITEM 5.Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities30ITEM 6.Selected Financial Data32ITEM 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations34ITEM 7A.Quantitative and Qualitative Disclosures About Market Risk51ITEM 8.Financial Statements and Supplementary Data.52ITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure52ITEM 9A.Controls and Procedures53ITEM 9B.Other Information53 PART III ITEM 10.Directors, Executive Officers and Corporate Governance54ITEM 11.Executive Compensation61ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters74ITEM 13.Certain Relationships and Related Transactions, and Director Independence77ITEM 14.Principal Accounting Fees and Services78 PART IV ITEM 15.Exhibits, Financial Statement Schedules79SIGNATURES 80EXHIBIT INDEX81 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This annual report on Form 10-K contains forward-looking statements that are based on our management’s expectations, estimates, projections,beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in “Item 1.Business,” “Item 1A. Risk Factors” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” and “Item 7A.Quantitative and Qualitative Disclosures About Market Risk”. Forward looking statements include information concerning our possible or assumed futureresults of operations, business strategies, technology developments, new product developments, financing and investment plans, dividend policy,competitive position, industry and regulatory environment, potential growth opportunities and the effects of competition. Forward looking statementsinclude statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “could,” “seek,” “estimate,” “expect,” “intend,”“may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Forward looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance orachievements to be materially different from any future results, performance or achievements expressed or implied by the forward looking statements. Giventhese uncertainties, you should not place undue reliance on forward looking statements. Also, forward looking statements represent our management’s beliefsand assumptions only as of the date of this filing. Important factors that could cause actual results to differ materially from our expectations include: ·our limited history of profitability, which may not continue in the future; ·our limited operating history, which makes it difficult to predict future results; ·future demand for solar energy solutions; ·changes to net metering policies or the reduction, elimination or expiration of government subsidies and economic incentives for on-grid solarenergy applications; ·federal, state and local regulations governing the electric utility industry with respect to solar energy; ·the retail price of electricity derived from the utility grid or alternative energy sources; ·interest rates and supply of capital in the global financial markets in general and in the solar market specifically; ·competition, including introductions of power optimizer, inverter and solar photovoltaic (“PV”) system monitoring products by ourcompetitors; ·developments in alternative technologies or improvements in distributed solar energy generation; ·historic cyclicality of the solar industry and periodic downturns; ·defects or performance problems in our products; ·our ability to forecast demand for our products accurately and to match production with demand; ·our dependence on ocean transportation to deliver our products in a cost effective manner; ·our dependence upon a small number of outside contract manufacturers; ·capacity constraints, delivery schedules, manufacturing yields and costs of our contract manufacturers and availability of components; ·delays, disruptions and quality control problems in manufacturing; ·shortages, delays, price changes or cessation of operations or production affecting our suppliers of key components; 1 ·business practices and regulatory compliance of our raw material suppliers; ·performance of distributors and large installers in selling our products; ·our customer’s financial stability, creditworthiness and debt leverage ratio; ·our ability to retain key personnel and attract additional qualified personnel; ·our ability to effectively design, launch, market and sell new generations of our products and services; ·our ability to maintain our brand and to protect and defend our intellectual property; ·our ability to retain, and events affecting, our major customers; ·our ability to manage effectively the growth of our organization and expansion into new markets; ·fluctuations in currency exchange rates; ·unrest, terrorism or armed conflict in Israel; ·general economic conditions in our domestic and international markets; ·consolidation in the solar industry among our customers and distributors; and ·the other factors set forth under “Risk Factors.” Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differmaterially from those anticipated in these forward-looking statements, even if new information becomes available in the future. 2 PART I ITEM 1. BUSINESS Introduction We have invented an intelligent inverter solution that has changed the way power is harvested and managed in a solar PV system. Our direct current(“DC”) optimized inverter system maximizes power generation at the individual PV module level while lowering the cost of energy produced by the solar PVsystem and providing comprehensive and advanced safety features. Our system consists of our power optimizers, inverters and cloud-based monitoringplatform and addresses a broad range of solar market segments, from residential solar installations to commercial and small utility-scale solar installations.Since we began commercial shipments in 2010, we have shipped approximately 3.4 gigawatts (“GW”) of our DC optimized inverter systems and our productshave been installed in solar PV systems in 96 countries. Historically, the solar PV industry used traditional string and central inverter architectures to harvest PV solar power. However, traditional inverterarchitectures result in energy losses as well as systemic challenges in design flexibility, safety and monitoring. More recently, microinverter technology wasintroduced in an attempt to resolve these challenges, but this technology has certain inherent limitations. We believe that our DC optimized inverter system,consisting of an inverter and distributed power optimizers, best addresses all of these challenges. Our system allows for superior power harvesting and module management relative to traditional inverter systems by deploying power optimizers ateach PV module while maintaining a competitive system cost by keeping the AC inversion and grid interaction centralized using a simplified DC-ACinverter. The entire system is monitored through our cloud-based monitoring platform that enables reduced system operation and maintenance (“O&M”)costs. Our system enables each PV module to operate at its own maximum power point (“MPP”), rather than a system-wide average, enabling dynamicresponse to real-world conditions, such as atmospheric conditions, PV module aging, soiling and shading and offering improved energy yield relative totraditional inverter systems. In addition to higher efficiency, our system’s installed cost per watt is competitive with traditional inverter systems of leadingmanufacturers and generally lower than comparable microinverter systems of leading manufacturers. Furthermore, our architecture allows for complex rooftopsystem designs and enhanced safety and reliability. Our technology and system architecture are protected by 72 awarded patents and 114 patent applicationsfiled worldwide as of June 30, 2016. We primarily sell our products directly to large solar installers and engineering, procurement and construction firms (“EPCs”) and indirectly tothousands of smaller solar installers through large distributors and electrical equipment wholesalers. Our customers include leading providers of solar PVsystems to residential and commercial end users, key solar distributors and electrical equipment wholesalers as well as several PV module manufacturers thatoffer PV modules with our power optimizer physically embedded into their modules. We were founded in 2006 and began commercial shipments in 2010. As of June 30, 2016, we have shipped approximately 12.5 million poweroptimizers and 513,000 inverters. More than 265,000 installations, many of which may include multiple inverters, are currently connected to, and monitoredthrough, our cloud-based monitoring platform. Limitations of Existing Technologies A solar PV system consists of PV modules, which produce direct current (“DC”) power when exposed to sunlight; an inverter, which transforms theDC power into alternating current (“AC”) power that is required by the electricity grid; and associated cabling, fuse boxes and mounting hardware.Traditionally, solar PV systems connected strings of solar PV modules to one or more inverters for this energy conversion. Traditional inverter architecture still constitutes the vast majority of the PV inverter market, especially for larger commercial and utilityinstallations. However, traditional inverter architecture suffers from significant inefficiencies leading to suboptimal power generation. These challengesinclude: •Module mismatch. Traditional inverter systems are unable to consistently produce maximum energy from PV modules. Each PV module in asystem has a unique power production profile driven by differences in manufacturing and installation parameters. The architecture of traditionalinverter systems does not allow each PV module to operate at its unique MPP. When PV modules are wired in series in a traditional inverterarchitecture, the entire string’s output is reduced, sometimes correlated directly to the output of the lowest-performing PV module on the string.Output reduction can result from subtle variations in PV module composition, atmospheric conditions, soiling, individual PV module locationsand orientations, or varying levels of PV module degradation over time. 3 •Partial shading. Many real-world factors can cause a subset of the PV modules in a system to be partially shaded, which can significantly affectthe power output of the entire string. For instance, electric wires, a chimney or even adjacent solar panels may cast a shadow during particularhours of the day, or debris may accumulate. This partial shading reduces the yield of a traditional solar PV system by decreasing, or in extremecases eliminating, power output from the shaded modules. Overall losses to system production from such partial shading can range from small tosubstantial. •Dynamic maximum power point tracking loss. The MPP of a PV module shifts constantly throughout the day as a result of atmosphericconditions. A traditional inverter system’s inability to coordinate output on a module-by-module basis makes it difficult for the system torespond dynamically to the shifting MPP. This inability to respond to the shifting MPP can reduce the potential power output of a traditionalsolar PV system by 3-10%. In addition to power losses, the traditional inverter architecture also has system design, installation and operational challenges, including: •Rooftop system design complexities. A traditional inverter system requires each string to be of the same length, use the same type of PVmodules and be positioned at the same angle toward the sun. Consequently, rooftop asymmetries and obstructions result in either wasted roofspace or inefficient duplication of system components. •Safety hazards. Traditional inverter systems cannot shut down the DC output voltage at the PV module level. The DC cables from thesemodules carry high voltages as long as the sun is shining, even when the traditional inverter or the grid connection has been shut down. Thisposes serious risks to installers, fire fighters and anyone else who performs work on or around the installation. Such safety hazards have recentlyprompted heightened safety installation and operation procedures and regulations in a growing number of geographies, compliance with whichincreases the cost of traditional PV systems. •No module level monitoring. A traditional inverter system cannot track power output, temperature or any other attribute of a single PV module.Consequently, a system operator cannot perform remote diagnostics, track performance of PV system components or receive alerts aboutindividual PV module status, and may be unaware of specific module-level problems or breakdowns. The first generation of module level power electronics (“MLPE”) was the microinverter. This technology scaled down the traditional inverter toa size and power appropriate to a single PV module. By creating control and monitoring at the module level, microinverters solved certainchallenges of the traditional inverter system architecture. However, microinverter architecture has its own limitations, such as: •Higher initial cost per watt and limited economies of scale. Microinverters perform all the functionality of the traditional inverter, but at eachPV module, and consequently a microinverter system has a higher initial upfront cost of components relative to traditional inverter architecture.In addition, as every PV module must have its own microinverter, the cost per watt of a microinverter system does not decrease with scale. Assuch, microinverters are generally more expensive than traditional inverter systems on a cost per watt basis for residential installations and noteconomically viable relative to traditional inverter systems for large commercial and utility installations. •Grid Code Compliance. With the growing penetration of solar energy, many utilities in individual U.S. states and Europe have adopted newsets of grid codes to preserve the stability of the electric grid. These grid codes require solar PV inverters to respond dynamically to variances ingrid-wide voltage, which typically requires inverter hardware and software to be reengineered. The microinverter faces significantimplementation challenges in complying with many of these new grid codes primarily due to its small size. In most cases, adaptation to thesenew grid codes would require added costs and complexities, limiting the ability of microinverters to address some markets. 4 The SolarEdge Solution Our DC optimized inverter system maximizes power generation at the individual PV module level while lowering the cost of energy produced by thesolar PV system and providing comprehensive and advanced safety features. Our solution consists of our power optimizers, inverters and cloud-basedmonitoring platform and addresses a broad range of solar market segments, from residential solar installations to commercial and small utility-scale solarinstallations. The key advantages of our solution include: •Maximized PV module power output. Our power optimizers provide module-level MPP tracking and real-time adjustments of current andvoltage to the optimal working point of each individual PV module. This enables each PV module to continuously produce its maximum powerpotential independent of other modules in the same string, thus minimizing module mismatch and partial shading losses. By performing theseadjustments at a very high rate, our power optimizers also solve the dynamic MPP losses associated with traditional inverters. Independenttesting from Photon Laboratories as well as tests performed by PV Evolution Labs according to the National Renewable Energy Laboratoryshade test have confirmed that our technology provides power harvesting that is superior to traditional inverter systems. •Optimized architecture with economies of scale. Our system shifts certain functions of the traditional inverter to our power optimizers whilekeeping the DC to AC function and grid interaction in our inverter. As a result, our inverter is smaller, more efficient, more reliable and lessexpensive than inverters used in traditional inverter systems. The cost savings that we have achieved on the inverter enable our system to bepriced at a cost per watt that is comparable with traditional inverter systems of leading manufacturers. As a PV system grows in size, our inverterbenefits from economies of scale, making our technology viable for large commercial and utility-scale applications. •Enhanced system design flexibility. Unlike a traditional inverter system that requires each string to be the same length, use the same type of PVmodules and be positioned at the same angle toward the sun, our system allows significant design flexibility by enabling the installer to placePV modules in uneven string lengths and on multiple roof facets. This design flexibility: •increases the amount of the available roof that can be utilized for power production. Unlike traditional inverter systems, our systemdoes not require each string to be the same length, use the same type of PV modules or be positioned at the same angle toward the sun.As a result, our system is significantly less prone to wasted roof space resulting from rooftop asymmetries and obstructions. •reduces the number of field change orders. For example, some installers use remote tools to estimate the size and configuration of aninstallation in connection with the customer acquisition process. This is especially common for high-volume residential arrays, wherean exhaustive survey of rooftop obstructions would be uneconomical. In some cases, installers discover that their preliminary design,based on remote tools, cannot be implemented due to unexpected shading or other obstructions. With traditional inverter systemdesigns, an obstructed module may require a significant system redesign and a modification of the customer contract to take intoaccount the changed system design. Our DC optimized inverter solution enables an installer to compensate or adjust for mostobstructions without materially changing the original design or requiring a modification to the customer contract. •Reduced balance of system costs. Our DC optimized inverter system allows significantly longer strings to be connected to the same inverter (ascompared to a traditional inverter system). This minimizes the cost of cabling, fuse boxes and other ancillary electric components. These factorstogether result in easier installation with shorter design times and a lower initial cost per watt, while enabling larger installations per rooftop. •Continuous monitoring and control to reduce operation and maintenance costs. Our cloud-based monitoring platform provides full datavisibility at the module level, string level, inverter level and system level. The data can be accessed remotely by any web-enabled device,allowing comprehensive analysis, immediate fault detection and alerts. These monitoring features reduce O&M costs for the system owner byidentifying and locating faults, enabling remote testing and reducing field visits. 5 •Enhanced safety. We have incorporated module-level safety mechanisms in our system to protect installers, electricians and firefighters. Eachpower optimizer is configured to reduce output to 1 volt unless the power optimizer receives a fail-safe signal from a functioning inverter. As aresult, if the inverter is shut down (e.g., for system maintenance, due to malfunction, in the event of a fire or otherwise), the DC voltagethroughout the system is reduced to a safe level. In recent years, new safety standards have been introduced in the U.S. and in Europe thatrequire or encourage the installation of safety measures such as these. Our DC optimized inverters comply with the applicable safetyrequirements of the areas in which they are sold, providing incremental cost savings to installers by eliminating the need for additionalhardware such as DC breakers, switches or fire-proof ducts required by traditional inverter systems. •High reliability. Solar PV systems are typically expected to operate for at least 25 years under harsh outdoor conditions. High reliability iscritical and is facilitated by systems and components that have low heat generation, solid and stable materials, and an absence of moving parts.We have designed our system to meet these stringent requirements. Our power optimizers dissipate much less heat than microinverters becauseno DC-AC inversion occurs at the module level. As a result, less heat is dissipated beneath the PV module, which improves lifetime expectancyand reliability of our power optimizers. Our power optimizers’ high switching frequency allows the use of ceramic capacitors with a low, fixedrate of aging and a proven life expectancy in excess of 25 years. Further, we use automotive-grade application specific integrated circuits(“ASICs”) that embed many of the required electronics into the ASIC. This reduces the number of components and consequently the potentialpoints of failure. Our Products Our solution consists of a DC power optimizer, an inverter and a cloud-based monitoring platform that operate as a single integrated system: SolarEdge Power Optimizer. Our DC power optimizer is a highly reliable and efficient DC-to-DC converter which is connected by installers toeach PV module or embedded by PV module manufacturers into their modules as part of the manufacturing process. Our power optimizer increases energyoutput from the PV module to which it is connected by continuously tracking the MPP of each module and controlling its working point. The poweroptimizer’s ability to track the MPP of each PV module and its ability to increase or decrease its output voltage, enables the inverter’s input voltage to remainfixed under a large variety of string configurations. This feature enhances flexibility in PV system designs, enabling use of different string lengths in a singlePV system connected to the same inverter, use of PV panels situated on multiple orientations connected to the same inverter and using varied PV moduletypes in the same string. In addition, our power optimizers monitor the performance of each PV module and communicates this data to our inverter using ourproprietary power line communication. In turn, the inverter transmits this information to our monitoring server. Each power optimizer is equipped with ourproprietary safety mechanism which automatically reduces the output voltage of each power optimizer to 1V unless the power optimizer receives a fail-safesignal from a functioning inverter. As a result, if the inverter is shut down (e.g., for system maintenance, due to malfunction, in the event of a fire orotherwise), the DC voltage throughout the system is reduced to a safe level. Our power optimizers are designed to withstand high temperatures and harsh environmental conditions, and contain multiple bypass features thatlocalize failures and enable continued system operation in the vast majority of cases of power optimizer failure. Our power optimizers are compatible with thevast majority of modules on the market today and carry a 25-year product warranty. Our power optimizers are designed to be used with our inverters as well asthird party inverters to provide power optimization. Monitoring and safety features can also be achieved with third party inverters by adding supplementalcommunications hardware. During fiscal 2014, 2015 and 2016 revenues derived from the sale of power optimizers represented 48.8%, 48.8% and 50.0% oftotal revenues, respectively. SolarEdge Inverter. Our DC-to-AC inverters contain sophisticated digital control technology with efficient power conversion architectureresulting in superior solar power harvesting and high reliability and are designed to work exclusively with our DC power optimizers. A proprietary power linecommunication receiver is integrated into each inverter, receiving data from our power optimizers, storing this data and transmitting it to our monitoringserver when an internet connection exists. Since each string which is equipped with our power optimizers provides fixed input voltage to our inverter, theinverter is able to operate at its highest efficiency at all times and therefore is more cost-efficient, energy efficient and reliable. Like our power optimizers, ourinverters are designed to withstand harsh environmental conditions. Since the power rating of an inverter determines how many PV modules it can serve,larger installations require inverters with higher power ratings. We currently offer our second generation of inverters which come in two models: a one-phaseinverter designed to address the residential market (2.2 kilowatts (“kW”) to 11.4 kW) and a three-phase inverter designed to address the residential market incertain European countries and the commercial market (4 kW to 33.3 kW). In June 2016, we introduced an extended commercial solution that consists ofvarious inverters, sized 25kW, 27.6kW, and 33.3kW for the Europe, Middle East, Africa and Asia Pacific markets and 14.4kW and 33.3kW for the NorthAmerican market. These inverters which are identical in size and enclosure as other SolarEdge inverters are designed for commercial installations, reduce thenumber of required inverters and increase the system return on investment. The vast majority of our inverters are sold with a 12-year warranty that isextendable to 20 or 25 years for an additional cost. During fiscal 2014, 2015 and 2016, revenues derived from the sale of inverters represented 46.6%, 48.3 %and 45.7% of total revenues, respectively. 6 We have completed the development of and are currently ramping up shipments of our HD-Wave technology inverter. The HD-Wave invertertechnology provides significant improvements in efficiency, while decreasing the magnetics and cooling components in order to reduce inverter size andcost.StorEdge Solutions. Our StorEdge solution is a DC coupled solution that is used to increase energy independence and maximize self-consumptionfor homeowners by utilizing a battery which is sold separately by third party manufacturers, to store and supply power as needed. The solution is based on asingle inverter for both solar PV and storage. Our StorEdge solution is designed to provide smart energy functions such as maximizing self-consumption,Time-of-Use programming for desired hours of the day, and home energy backup solutions. To optimize self-consumption, the battery is charged anddischarged to meet consumption needs and reduce the amount of power purchased from the grid. With a backup solution, unused solar PV power is stored in abattery and used during a power outage or when solar PV production is insufficient. When there is a power outage, a combination of solar PV power andbattery is used to power important sources such as the refrigerator, communication devices, lighting, and AC outlets. Our proprietary monitoring platformprovides visibility into battery status, solar PV production, and self-consumption, while offering easy maintenance with remote access to inverter and batterysoftware. Existing SolarEdge systems can be upgraded to our StorEdge solution. SolarEdge Monitoring Software. Our cloud-based monitoring platform collects power, voltage, current and system data sent from our inverters andpower optimizers and allows users to view the data at the module level, string level, inverter level and system level from any browser or from most smartphones and tablets. The monitoring software continuously analyzes data and flags potential problems. The monitoring software includes features which areused on a routine basis by integrators, installers, maintenance staff, and system owners to improve a solar PV system’s performance by maximizing solarpower harvesting and reducing O&M costs by increasing system up-time and detecting PV module performance issues more effectively. Connection to themonitoring server is completed during installation by the installer. The installer then receives full access to system data through the monitoring software andcan select the amount of data to be shared with the system owner. Product Roadmap Our products reflect the innovation focus and capabilities of our technology departments. Our product roadmap is divided into five categories:power optimizers, inverters, monitoring services, energy storage and smart energy management Power Optimizers. We currently sell our third generation power optimizer which was designed for fully automated assembly and which is based onour third generation ASIC. A key element of our reliability strategy, and a significant differentiator relative to our competitors, is our use of proprietary ASICsto control, among other things, our power optimizer’s power conversion, safety features, and PV module monitoring. Instead of using large numbers ofdiscrete components, our power optimizer uses a single proprietary ASIC, thus reducing the total number of components in an electrical circuit and therebyimproving reliability. We are in the final stages of testing our fourth generation ASIC and we expect to begin commercial shipments of our fourth generationpower optimizers in the first half of calendar 2017. In addition, we are also continuing to develop the necessary subsystems for the fifth generation ASICwhich will be used in our fifth generation power optimizer. Each new ASIC generation has reduced the number of components required and meaningfullyimproved the efficiency of the power optimizer. The efficiency improvement reduces the energy losses which in turn reduces the amount of heat dissipation.This enables design of a more cost effective and usually smaller enclosure and also keeps the electronics cooler, thereby improving the power optimizer’sreliability. Inverters. Our inverter roadmap is intended to serve three purposes: (i) expand addressable market by developing new and larger inverters designedspecifically for larger commercial installations and utility-scale projects; (ii) improve the electronics to increase the total power throughput without changingthe existing enclosure, thereby reducing the actual cost per watt and increasing economies of scale and (iii) improve ease of installation by integratingadditional functionality required in certain installations in order to reduce costs of additional hardware and labor costs. As part of our inverter roadmap, weplan to apply our HD-Wave technology to three-phase inverters and we are in the development process for doing so. 7 Monitoring Services. Our cloud-based monitoring platform is continuously growing by the amount of data aggregated. We are continuouslydeveloping tools to accommodate our growth and further enhance our service offering. Specifically, we plan to increase data compression in order to enablesupport for a rapidly increasing number of field systems while using low-cost equipment. In addition, we plan to improve our reporting systems and enableusers to obtain self-generated customized reports. We also expect to expand algorithms that detect and pinpoint problems that can affect power production infield systems. We further plan to add more capabilities through our public application program interface to allow users to build and integrate our system intotheir own systems and to allow users to build and share useful applications based on monitoring data gathered by our software. Energy Storage and Shifting. SolarEdge is working to continue to expand its third-party battery compatibility for the residential market. For thecommercial market, we plan to expand our StorEdge product offering to the commercial and industrial sector. Smart Energy Management. There are currently two separate energy technology industries that exist today, solar energy production and buildingautomation technology. We believe that inverters will be taking on an expanded role in energy management and automation, and in conjunction with thisassumption we are developing building automation products that can combine both of these industries. This line of products, when used with the SolarEdgesolution, will be designed to allow system owners to increase self-consumption by shifting energy usage to match peak solar PV production as well as offer aconvenient, wireless control option over various building and home devices. An example of this solution, would be using excess solar PV energy to heatwater or the ability to remotely turn on or off certain power sources such as lighting or electrical appliances. The introduction of these products is dependentupon certification and region specific needs and as such, cannot yet be specified. Sales and Marketing Strategy Since commencing sales activities in early 2010, our strategy has been to focus on markets where electricity prices, irradiance and governmentpolicies make solar PV installations economically viable. Today, our products have been installed in 96 countries, including the U.S., Canada, Belgium,France, Germany, Italy, the Netherlands, the United Kingdom, Israel, Australia Japan, Singapore and China. We target our sales and marketing efforts to the largest distributors, electrical equipment wholesalers, EPC contractors and installers in each of thecountries where we operate. In the U.S., Germany, Italy, the United Kingdom and Australia, our products are carried and actively sold by most of the top solarPV distributors as well as the largest electrical distribution companies that are active in solar PV. We anticipate that an increasing percentage of solar PVequipment sales will also occur through electrical equipment wholesalers who sell to a broad range of electrical contractors, and we are focused oncultivating these global relationships. As of June 30, 2016, according to the data available on our monitoring portal, approximately 13,009 installers aroundthe world have installed SolarEdge solar PV systems, including an average of approximately 330 new installers per month since the beginning of fiscal 2016.We also sell our power optimizers to several PV module manufacturers that offer PV modules with our power optimizer physically embedded into theirmodules. Additionally, we have a number of programs focused on educating installers and other industry professionals about our technology, and we use acombination of road shows, webinars and partner trainings to show them how best to design, sell and implement our technology in their projects. Our Customers We derive a significant portion of our revenues from key solar distributors, electrical equipment wholesalers and large installers in the U.S. andworldwide. In fiscal 2016, three of our customers (two distributors and one large installer) represented32.5% of our revenues. We fill orders primarily as theyare received and as such, do not have significant backlog. 8 Training and Customer Support We offer our installer base a comprehensive package of customer support and training services which include pre-sales support, ongoing trainings,and technical support before, during, and after installation. We also provide customized support programs to PV module manufacturers, large installers anddistributors to help prioritize and track support issues, thereby enabling short cycle times for issue resolution. In 2016, we conducted approximately 281training events in 20 countries, with an aggregate of approximately 7,003 attendees. We offer a wide variety of training, including hands-on and on-demand video sessions and online product and training materials. We support ourcommercial system customers with design consulting throughout their sales process and installation. Our technical support organization includes local expertteams, call centers in the USA, Germany, Australia, Netherlands and Israel, and an online service portal. Our toll-free call centers are open Monday throughFriday from 9:00 a.m. to 8:00 p.m. in every region in which we sell our products. In addition, customers can open and track support cases 24/7 utilizing ouronline portal. All support cases are monitored via a customer relationship management system in order to ensure service, track closure of all customer issuesand further improve our customer service. Our call centers have access to our cloud-based monitoring platform database, which enables real-time remotediagnostics. Customer service and satisfaction has been a key component of our business and we expect it to continue to be integral to our success in the future.We maintain high levels of customer engagement through our call centers in California, Germany and Israel. In addition to our call centers, we have fieldservice engineers located in the geographies where we are active, and support our customers with commissioning of large projects, introduction of newtechnologies and features and on-the-job training of new installers. As of June 30, 2016, our customer support and training organization consisted of 91employees worldwide. Our Technology We have drawn on our expertise in the fields of power electronics, magnetic design, mechanical and heat dissipation capabilities, control loops andalgorithms and power line communications to design and develop what we believe to be the most advanced commercial solutions for harvesting power fromsolar PV systems. Our advanced technologies are explained in more detail below. Power optimizers Our power optimizers are DC/DC step up/step down (buck-boost) converters designed and developed to operate in harsh outdoor environments atvery high conversion efficiency. Our power optimizers include proprietary power electronics customized to efficiently convert power from the PV module tothe inverter. The conversion topology and components are all designed for the power optimizer specifications and verified for consistent performance andreliability in numerous lab tests and simulations. A key factor in the performance of our power optimizer is determined by the digital control algorithms and closed-loop mechanism. The poweroptimizer’s control is built into our advanced ASIC which is responsible for all critical digital control functions of the power optimizer, including detailedpower analysis, digital control of the power conversion subsystem and power line communications and networking. Since each power optimizer handles thepower and voltage of a single module, we are able to reach a high degree of semiconductor integration by leveraging low cost silicon in standardsemiconductor packages. As a result, much of the functionality of our power optimizer can be integrated into a standard ASIC instead of discrete electroniccomponents, resulting in lower costs and higher reliability. The ASIC performs the critical power analysis and power conversion control functions of the power optimizer. The power analysis functionprocesses the status and working parameters at the power optimizer’s input and output and together with advanced digital control and state machine logic,controls the power conversion function. In addition, our digital control system uses technology that allows the solar PV installation to anticipate and adapt tochanging operating conditions and protect against system anomalies. Each power optimizer in the array is connected to the inverter by a power line communications networking link. Our power line communicationslink uses a proprietary networking technology that we developed utilizing the existing DC wiring between the power optimizers and the inverter to transmitand receive data between these devices. 9 Inverters Our inverter is designed for single-stage DC/AC conversion. Using our inverter in combination with the power optimizers will allow the control loopto maintain a fixed DC voltage level at its input thereby allowing for longer, uneven and multi-faceted strings while also enabling custom, cost efficient andreliable inverter design and component selection. All of the power components, as well as the main magnetic components for our inverters, can then beoptimized for DC/AC inversion at high efficiency. The digital control algorithms of our inverters are implemented using programmable digital signal processors which allow for flexibility andadaptation of control loops for various grids and for the requirements and standards of various grid operators across geographies. We have alreadyimplemented the control mechanisms necessary to support advanced grid codes and standards that are required to support high penetration of solar energyinto the grid. Manufacturing We have designed our manufacturing processes to produce high quality products at competitive costs. The strategy is threefold: outsource, automateand localize. We have entered into outsourcing contracts with two of the world’s leading global electronics manufacturing service providers, JabilCircuit, Inc. and Flextronics Industrial Ltd. By using these contract manufacturers rather than building our own manufacturing infrastructure, we are able toaccess advanced manufacturing equipment, processes, skills and capacity on a “capital light” budget. Our contract manufacturers are responsible for fundingthe capital expenses incurred in connection with the manufacture of our products, except with regard to end of line testing equipment and other specificmanufacturing equipment utilized in assembling our products or sub-components. We expect to continue this funding arrangement in the future, with respectto any expansions to such existing lines. Further, contracting with global providers such as Jabil and Flextronics gives us added flexibility to manufacturecertain products in China, closer to target markets in Asia and the North American west coast and other products in Hungary, closer to target markets inEurope and the North American east coast, potentially increasing responsiveness to customers while reducing costs and delivery times. We have completed the development of our first proprietary automated assembly line for use at the Hungary Flextronics manufacturing plant and itis in operation and manufacturing approximately 4,000 power optimizers per day. This automated assembly line can also be replicated and deployed toadditional production facilities. We are investing resources in additional automated assembly lines as well as in automated machinery for subassembly ofcertain components used in our products, and we will own and be responsible for funding all of the capital expenses related thereto. The current and expectedcapital expenses associated with these automated assembly lines and other machinery are not significant and will be funded out of our cash flows. Inaddition, we are in the process of designing an automatic assembly line for the production of embedded optimizers. We source our raw materials through various component manufacturers and invest resources in continued cost reduction efforts as well as verifyingsecond and third sources so as to limit dependence on sole suppliers. Reliability and Quality Control Our power optimizers are either connected to each PV module by installers, or embedded in each PV module by PV module manufacturers. Ourpower optimizers are designed to be as reliable as the PV module itself and capable of withstanding the same operating and environmental conditions. Our reliability methodology includes a multi-level plan with design analysis, sub-system testing of critical components by Accelerated Life Testing,and integrative testing of design prototypes by Highly Accelerated Life Testing and large sample groups. As part of our reliability efforts, we subjectcomponents to industry standard conditions and tests including in accelerated life chambers that simulate burn-in, thermal cycling, damp-heat and otherstresses. We also test complete products in stress tests and in the field. Our rigorous testing processes have helped us to develop highly reliable products. In order to verify the quality of each of our products when it leaves the manufacturing plant, each component, sub-assembly, and final product aretested multiple times during production. These tests include Automatic Optical Inspection, In-Circuit Testing, Board- and Component-Level FunctionalTesting, Safety Testing and Integrative Stress Testing. We employ a serial number-driven manufacturing process auditing and traceability system that allowsus to control production line activities, verify correct manufacturing processes and to achieve item-specific traceability. As a part of our quality and reliability approach, failed products from the field are returned and subjected to root cause analysis, the results of whichare used to improve our product and manufacturing processes and further reduce our field failure rate. 10 Certifications Our products and systems comply with the applicable regulatory requirements of the jurisdictions in which they are sold as well as all other majormarkets around the world, collectively covering approximately 80% of the global solar PV market as measured by MW capacity shipped. These includesafety regulations, electromagnetic compatibility standards and grid compliance. Research and Development We devote substantial resources to research and development with the objective of developing new products and systems, adding new features toexisting products and systems and reducing unit costs of our products and systems. Our development strategy is to identify features, products and systems forboth software and hardware that reduce the cost and improve the effectiveness of our solutions for our customers. We measure the effectiveness of our researchand development by metrics including product unit cost, efficiency, reliability, power output and ease of use. We have a strong research and development team with wide-ranging experience in power electronics, semiconductors, power line communicationsand networking, and software engineering. In addition, many members of our team have expertise in solar technologies. As of June 30, 2016, our research anddevelopment organization had a headcount of 244 people. Our research and development expense, net totaled, $18.3 million $22.0 million and $33.2million for fiscal 2014, 2015 and 2016, respectively. Intellectual Property The success of our business depends, in part, on our ability to maintain and protect our proprietary technologies, information, processes and know-how. We rely primarily on patent, trademark, copyright and trade secrets laws in the U.S. and similar laws in other countries, confidentiality agreements andprocedures and other contractual arrangements to protect our technology. As of June 30, 2016, we had 53 issued U.S. patents, 19 issued non-U.S. patents, 57patent applications pending for examination in the U.S. and 57 patent applications pending for examination in other countries, all of which are related to U.S.applications. A majority of our patents relate to DC power optimization and DC to AC conversion for alternative energy power systems, power systemmonitoring and control and management systems. Our issued patents are scheduled to expire between 2027 and 2036. We continually assess opportunities toseek patent protection for those aspects of our technology, designs and methodologies and processes that we believe provide significant competitiveadvantages. We rely on trade secret protection and confidentiality agreements to safeguard our interests with respect to proprietary know-how that is notpatentable and processes for which patents are difficult to enforce. We believe that many elements of our manufacturing processes involve proprietary know-how, technology or data that are not covered by patents or patent applications, including technical processes, test equipment designs, algorithms andprocedures. All of our research and development personnel are required to enter into confidentiality and proprietary information agreements with us. Theseagreements address intellectual property protection issues and require our employees to assign to us all of the inventions, designs and technologies theydevelop during the course of employment with us. Our customers and business partners are required to enter into confidentiality agreements before we disclose any sensitive aspects of our technologyor business plans. Competition The markets for our products are competitive, and we compete with manufacturers of traditional inverters and manufacturers of other MLPE. Theprincipal areas in which we compete with other companies include: •product and system performance and features; •total cost of ownership; 11 •PV module compatibility and interoperability; •reliability and duration of product warranty; •customer service and support; •breadth of product line; •local sales and distribution capabilities; •compliance with applicable certifications and grid codes; •size and financial stability of operations; and •size of installed base. Our DC optimized inverter system competes principally with products from traditional inverter manufacturers, such as SMA Solar Technology AG,ABB Ltd. and Huawei Technologies Co. Ltd. as well as from new Chinese inverter manufacturers. In the North American residential market, we compete withtraditional inverter manufacturers, as well, as microinverter manufacturers such as Enphase Energy, Inc. In addition, several new entrants to the MLPE market,including low-cost Asian manufacturers, have recently announced plans to ship or have already shipped similar products. We believe that our DC optimizedinverter system offers significant technology and cost advantages that reflect a competitive differentiation over traditional inverter systems and microinvertertechnologies. Government Incentives U.S. federal, state, and local government bodies, as well as non-U.S. government bodies, provide incentives to owners, end users, distributors andmanufacturers of solar PV systems to promote solar electricity in the form of rebates, tax credits and other financial incentives such as system performancepayments, payments for renewable energy credits associated with renewable energy generation and exclusion of solar PV systems from property taxassessments. The market for on-grid applications, where solar power is used to supplement a customer’s electricity purchased from the utility network or soldto a utility under tariff, often depends in large part on the availability and size of these government subsidies and economic incentives, which vary bygeographic market and from time to time. In general, the amount and availability of these incentives and subsidies to encourage the development of solar PVenergy have been declining and are expected to continue to decline. Seasonality The solar energy market is subject to seasonal and quarterly fluctuations affected by weather. For example, during the winter months in Europe andthe northeastern U.S. where the climate is particularly cold and snowy, it is typical to see a decline in PV installations and this decline can impact the timingof orders for our products. Employees As of June 30, 2016, we had 608 full-time employees. Of these full-time employees, 244 were engaged in research and development, 143 in sales andmarketing, 175 in operations and support and 46 in general and administrative capacities. Of our employees, 376 were based in Israel, 94 were based in theU.S., 47 were based in China, 33 were based in Germany and an additional 58 were based elsewhere. None of our employees are represented by a labor union. We have not experienced any employment related work stoppages, and we considerrelations with our employees to be good. Corporate Information We were incorporated in Delaware in 2006. Our principal executive offices are located at 1 HaMada Street, Herziliya Pituach 4673335, Israel and ourtelephone number at this address is 972 (9) 957-6620. Our website is www.solaredge.com. 12 We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (the “SEC”),pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”). You may read and copy any materials that we file with the SEC at the SEC’s PublicReference Room at 100 F Street N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling theSEC at 1-800-732-0330. Our reports, proxy statements and other documents filed electronically with the SEC are available at the website maintained by theSEC at www.sec.gov. We also make available, free of charge on the Investor Relations portion of our website at www.solaredge.com, our annual, quarterly, and currentreports, and, if applicable, amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonablypracticable after we electronically file such reports with, or furnish them to, the SEC. We also make available on the Investor Relations portion of our websiteat www.solaredge.com our earnings presentation and other important information, which we encourage you to review.13 ITEM 1A. RISK FACTORS Risk factors which could cause actual results to differ from our expectations and which could negatively impact our financial condition and resultsof operations are discussed below and elsewhere in this annual report. The risks and uncertainties described below are not the only ones we face. If any ofthe risks or uncertainties described below or any additional risks and uncertainties actually occur, our business, results of operations and financialcondition could be materially and adversely affected. In particular, forward-looking statements are inherently subject to risks and uncertainties, some ofwhich cannot be predicted or quantified. See “Special Note Regarding Forward-Looking Statements.” Risks Related to Our Business and Our Industry We cannot be certain that we will sustain profitability in the future. We incurred net losses of $21.4 million for fiscal 2014, and we achieved a net profit of $21.1 million and $76.6 million in fiscal 2015 and 2016,respectively. We expect to incur additional costs and expenses related to the continued development and expansion of our business, including in connectionwith marketing and developing our products, expanding into new product markets and geographies, maintaining and enhancing our research anddevelopment operations and hiring additional personnel. In addition, as a public company, we incur significant additional legal, accounting and otherexpenses that we did not incur as a private company. We do not know whether our revenues will grow rapidly enough to absorb these costs, and our limitedoperating history makes it difficult to assess the extent of these expenses or their impact on our results of operations. Further, revenue growth may slow or revenue may decline for a number of possible reasons, many of which are outside our control, including adecline in demand for our products, increased competition, a decrease in the growth of the solar industry or our market share, or our failure to continue tocapitalize on growth opportunities. If we fail to maintain sufficient revenue to support our operations, we may not be able to sustain profitability. Our limited operating history makes it difficult to evaluate our current business and future prospects. We have only been in existence since 2006 and our first full fiscal year of commercial shipments was 2011. Much of our growth has occurred inrecent periods. Our limited operating history, combined with the rapidly evolving and competitive nature of our industry, makes it difficult to evaluate ourcurrent business and future prospects. In addition, we have limited insight into emerging trends that may adversely affect our business, financial condition,results of operations and prospects. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companiesin rapidly changing industries, including unpredictable and volatile revenues and increased expenses as we continue to grow our business. The viability anddemand for solar energy solutions, and in turn, our products, may be affected by many factors outside of our control, including: •cost competitiveness, reliability and performance of solar PV systems compared to conventional and non-solar renewable energy sourcesand products; •availability and amount of government subsidies and incentives to support the development and deployment of solar energy solutions; •the extent to which the electric power industry and broader energy industries are deregulated to permit broader adoption of solarelectricity generation; •prices of traditional carbon-based energy sources; •levels of investment by end-users of solar energy products, which tend to decrease when economic growth slows; and •the emergence, continuance or success of, or increased government support for, other alternative energy generation technologies andproducts. 14 If we do not manage these risks and overcome these difficulties successfully, our business will suffer. If demand for solar energy solutions does not continue to grow or grows at a slower rate than we anticipate, our business will suffer. Our solution is utilized in solar PV installations. As a result, our future success depends on continued demand for solar energy solutions and theability of solar equipment vendors to meet this demand. The solar industry is an evolving industry that has experienced substantial changes in recent years,and we cannot be certain that consumers and businesses, with respect to distributed solar solutions, or utilities, with respect to utility-scale solar projects, willadopt solar PV systems as an alternative energy source at levels sufficient to grow our business. If demand for solar energy solutions fails to developsufficiently, demand for our products will decrease, which would have an adverse impact on our ability to increase our revenue and grow our business. The reduction, elimination or expiration of government subsidies and economic incentives for on-grid solar electricity applications could reduce demandfor solar PV systems and harm our business. Federal, state, local and foreign government bodies provide incentives to owners, end users, distributors, system integrators and manufacturers ofsolar PV systems to promote solar electricity in the form of rebates, tax credits and other financial incentives such as system performance payments, paymentsof renewable energy credits associated with renewable energy generation and exclusion of solar PV systems from property tax assessments. The market for on-grid applications, where solar power is used to supplement a customer’s electricity purchased from the utility network or sold to a utility under tariff, oftendepends in large part on the availability and size of government and economic incentives that vary by geographic market. Because our customers’ sales aretypically into the on-grid market, the reduction, elimination or expiration of government subsidies and economic incentives for on-grid solar electricity maynegatively affect the competitiveness of solar electricity relative to conventional and non-solar renewable sources of electricity, and could harm or halt thegrowth of the solar electricity industry and our business. These subsidies and incentives may expire on a particular date, end when the allocated funding isexhausted or be reduced or terminated as solar energy adoption rates increase or as a result of legal challenges, the adoption of new statutes or regulations orthe passage of time. These reductions or terminations often occur without warning. In addition, several jurisdictions have adopted renewable portfolio standards, which mandate that a certain portion of electricity delivered byutilities to customers come from a set of eligible renewable energy resources by a certain compliance date. Some programs further specify that a portion of therenewable energy quota must be from solar electricity. Under some programs, a utility can receive a “credit” for renewable energy produced by a third partyby either purchasing the electricity directly from the producer or paying a fee to obtain the right to renewable energy generated but used by the generator orsold to another party. A renewable energy credit allows the utility to add this electricity to its renewable portfolio requirement total without actuallyexpending the capital for generating facilities. However, there can be no assurances that such policies will continue. For example, in May 2014, Ohio frozerenewable portfolio requirements at current levels. Proposals to extend compliance deadlines, reduce targets or repeal standards have also been introduced ina number of states. Reduction or elimination of renewable portfolio standards or successful efforts to meet current standards could harm or halt the growth ofthe solar PV industry and our business. Changes to net metering policies may significantly reduce demand for electricity from solar PV systems and harm our business. Our business benefits from favorable net metering policies in several U.S. states, Canadian provinces and European countries in which our customersoperate. Net metering allows a solar PV system owner to pay his or her local electric utility only for power usage net of production from the solar PV system,transforming the conventional relationship between customers and traditional utilities. System owners receive credit for the energy that the solar installationgenerates to offset energy usage at times when the solar installation is not generating energy. Under a net metering program, the customer typically pays forthe net energy used or receives a credit against future bills at the retail rate if more energy is produced than consumed. In some locations, customers are alsoreimbursed by the electric utility for net excess generation on a periodic basis. Most U.S. states have adopted some form of net metering. However, net metering programs have recently come under regulatory scrutiny in someU.S. states due to challenges alleging that net metering policies inequitably shift costs onto non-solar ratepayers by allowing solar ratepayers to sellelectricity at rates that are too high for utilities to recoup their fixed costs. We cannot assure you that the programs will not be significantly modified goingforward. 15 If the value of the credit that customers receive for net metering is significantly reduced, end-users may be unable to recognize the same level of costsavings associated with net metering that current end-users enjoy. The absence of favorable net metering policies or of net metering entirely, or theimposition of new charges that only or disproportionately affect end-users that use net metering would significantly limit demand for solar PV systems thatare sold by our customers and could have a material adverse effect on our business, financial condition, results of operations and future growth. Existing electric utility industry regulations, and changes to regulations, may present technical, regulatory and economic barriers to the purchase and useof solar PV systems that may significantly reduce demand for our products or harm our ability to compete. Federal, state, local and foreign government regulations and policies concerning the electric utility industry, and internal policies and regulationspromulgated by electric utilities, heavily influence the market for electricity generation products and services. These regulations and policies often relate toelectricity pricing and the interconnection of customer-owned electricity generation, and governments and utilities continuously modify these regulationsand policies. These regulations and policies could deter purchases of renewable energy products, including solar PV systems sold by our customers. Thiscould result in a significant reduction in the potential demand for our products. For example, utilities commonly charge fees to larger, industrial customers fordisconnecting from the electric grid or for having the capacity to use power from the electric grid for back-up purposes. These fees could increase the cost touse solar PV systems sold by our customers and make them less desirable, thereby harming our business, prospects, financial condition and results ofoperations. In addition, depending on the region, electricity generated by solar PV systems competes most effectively with expensive peak-hour electricityfrom the electric grid, rather than the less expensive average price of electricity. Modifications to the utilities’ peak hour pricing policies or rate design, suchas to a flat rate, could require the price of solar PV systems and their component parts to be lower in order to compete with the price of electricity from theelectric grid. Changes in current laws or regulations applicable to us or the imposition of new laws and regulations in the U.S., Europe or other jurisdictions inwhich we do business could have a material adverse effect on our business, financial condition and results of operations. Any changes to government orinternal utility regulations and policies that favor electric utilities could reduce the competitiveness of solar PV systems sold by our customers and cause asignificant reduction in demand for our products and services. For example, regulators in certain U.S. states have been asked to consider proposals to assessfees on consumers purchasing energy from solar PV systems or imposing a new charge that would disproportionately impact solar PV system owners whoutilize net metering, either of which would increase the cost of solar PV energy to those consumers and could reduce demand for our products. Any similargovernment or utility policies adopted in the future that discourage the growth of solar PV systems could reduce demand for our products and services andadversely impact our growth. In addition, changes in our products or changes in export and import laws and implementing regulations may create delays inthe introduction of new products in international markets, prevent our customers from deploying our products internationally or, in some cases, prevent theexport or import of our products to certain countries altogether. Any such event could have a material adverse effect on our business, financial condition andresults of operations. A drop in the retail price of electricity derived from the utility grid or from alternative energy sources may harm our business, financial condition, resultsof operations and prospects. Decreases in the retail prices of electricity from the utility grid would make the purchase of solar PV systems less economically attractive and wouldlikely lower sales of our products. The price of electricity derived from the utility grid could decrease as a result of: • construction of a significant number of new power generation plants, including plants utilizing natural gas, nuclear, coal, renewable energy or othergeneration technologies;• relief of transmission constraints that enable local centers to generate energy less expensively; • reductions in the price of natural gas; • utility rate adjustment and customer class cost reallocation; • energy conservation technologies and public initiatives to reduce electricity consumption; • development of smart-grid technologies that lower the peak energy requirements of a utility generation facility; • development of new or lower-cost energy storage technologies that have the ability to reduce a customer’s average 16 • cost of electricity by shifting load to off-peak times; and • development of new energy generation technologies that provide less expensive energy.Moreover, technological developments in the solar components industry could allow our competitors and their customers to offer electricity at costslower than those that can be achieved by us and our customers, which could result in reduced demand for our products. If the cost of electricity generated by solar PV installations incorporating our systems is high relative to the cost of electricity from other sources, ourbusiness, financial condition and results of operations may be harmed. An increase in interest rates or tightening of the supply of capital in the global financial markets could make it difficult for end-users to finance the cost ofa solar PV system and could reduce the demand for solar systems and thus demand for our products. Many end-users depend on financing to fund the initial capital expenditure required to develop, build or purchase a solar PV system. As a result, anincrease in interest rates, or a reduction in the supply of project debt financing or tax equity investments, could reduce the number of solar projects thatreceive financing or otherwise make it difficult for our customers or their customers, the end-users to secure the financing necessary to develop, build,purchase or install a solar PV system on favorable terms, or at all, and thus lower demand for our products which could limit our growth or reduce our netsales. In addition, we believe that a significant percentage of end-users install solar PV systems as an investment, funding the initial capital expenditurethrough financing. An increase in interest rates could lower such end-user’s return on investment on a solar PV system, increase equity return requirements ormake alternative investments more attractive relative to solar PV systems, and, in each case, could cause such end-users to seek alternative investments. The market for our products is highly competitive and we expect to face increased competition as new and existing competitors introduce power optimizer,inverter and solar PV system monitoring products, which could negatively affect our results of operations and market share. The market for solar PV solutions is highly competitive. We principally compete with traditional inverter manufacturers as well as microinvertermanufacturers. Currently, our DC optimized inverter system competes with products from traditional inverter manufacturers, and microinverter manufacturers,as well as emerging technology companies offering alternative optimizer, or other MLPE products. Several new entrants to the inverter and MLPE marketincluding low-cost Asian manufacturers, have recently announced plans to ship or have already shipped products in markets in which we sell our products.We expect competition to intensify as new and existing competitors enter the market. Several of our existing and potential competitors are significantly larger, have greater financial, marketing, distribution, customer support and otherresources, are longer established, and have better brand recognition. Further, certain competitors may be able to develop new products more quickly than us,may partner with other competitors to provide combined technologies and competing solutions and may be able to develop products that are more reliable orthat provide more functionality than ours. In addition, some of our competitors have the financial resources to offer competitive products at aggressive orbelow-market pricing levels, which could cause us to lose sales or market share or require us to lower prices for our products in order to compete effectively. Ifwe have to reduce our prices by more than we anticipated, or if we are unable to offset any future reductions in our average selling prices by increasing oursales volume, reducing our costs and expenses or introducing new products, our revenues and gross profit would suffer. Developments in alternative technologies or improvements in distributed solar energy generation may have a material adverse effect on demand for ourofferings. Significant developments in alternative technologies, such as advances in other forms of distributed solar PV power generation, storage solutions,such as batteries, the widespread use or adoption of fuel cells for residential or commercial properties or improvements in other forms of centralized powerproduction, may have a material adverse effect on our business and prospects. Any failure by us to adopt new or enhanced technologies or processes, or toreact to changes in existing technologies, could result in product obsolescence, the loss of competitiveness of our products, decreased revenue and a loss ofmarket share to competitors. Our industry has historically been cyclical and experienced periodic downturns. Our future success partly depends on continued demand for solar PV systems in the end-markets we serve, including the residential and commercialsectors in the United States and Europe. The solar industry has historically been cyclical and has experienced periodic downturns which may affect thedemand for equipment that we manufacture. The solar industry has undergone challenging business conditions in recent years, including downward pricingpressure for PV modules, mainly as a result of overproduction, and reductions in applicable governmental subsidies, contributing to demand decreases.Although the solar industry is experiencing a slow recovery, there is no assurance that the solar industry will not suffer significant downturns in the future,which will adversely affect demand for our solar products and our results of operations. 17 Defects or performance problems in our products could result in loss of customers, reputational damage and decreased revenue, and we may face warranty,indemnity and product liability claims arising from defective products. Although our products meet our stringent quality requirements, they may contain undetected errors or defects, especially when first introduced orwhen new generations are released. Errors, defects or poor performance can arise due to design flaws, defects in raw materials or components or manufacturingdifficulties, which can affect both the quality and the yield of the product. Any actual or perceived errors, defects or poor performance in our products couldresult in the replacement or recall of our products, shipment delays, rejection of our products, damage to our reputation, lost revenue, diversion of ourengineering personnel from our product development efforts and increases in customer service and support costs, all of which could have a material adverseeffect on our business, financial condition and results of operations. Furthermore, defective components may give rise to warranty, indemnity or product liability claims against us that exceed any revenue or profit wereceive from the affected products. We offer a minimum 12-year limited warranty for our inverters and a 25-year limited warranty for our power optimizers.Our limited warranties cover defects in materials and workmanship of our products under normal use and service conditions. As a result, we bear the risk ofwarranty claims long after we have sold products and recognized revenue. While we do have accrued reserves for warranty claims, our estimated warrantycosts for previously sold products may change to the extent future products are not compatible with earlier generation products under warranty. Our warrantyaccruals are based on our assumptions and we do not have a long history of making such assumptions. As a result, these assumptions could prove to bematerially different from the actual performance of our systems, causing us to incur substantial unanticipated expense to repair or replace defective productsin the future or to compensate customers for defective products. Our failure to accurately predict future claims could result in unexpected volatility in, andhave a material adverse effect on, our financial condition. If one of our products were to cause injury to someone or cause property damage, including as a result of product malfunctions, defects or improperinstallation, then we could be exposed to product liability claims. We could incur significant costs and liabilities if we are sued and if damages are awardedagainst us. Further, any product liability claim we face could be expensive to defend and could divert management’s attention. The successful assertion of aproduct liability claim against us could result in potentially significant monetary damages, penalties or fines, subject us to adverse publicity, damage ourreputation and competitive position and adversely affect sales of our products. In addition, product liability claims, injuries, defects or other problemsexperienced by other companies in the residential solar industry could lead to unfavorable market conditions for the industry as a whole, and may have anadverse effect on our ability to attract new customers, thus harming our growth and financial performance. If we do not forecast demand for our products accurately, we may experience product shortages, delays in product shipment, excess product inventory, ordifficulties in planning expenses, which will adversely affect our business and financial condition. Our products are manufactured according to our estimates of customer demand, which requires us to make multiple forecasts and assumptionsrelating to demand from solar PV installers and distributors, their end customers and general market conditions. Because we sell a large portion of ourproducts to larger solar installers and various distributors, who in turn sell to local installers, who in turn sell to their end customers, the system owner, wehave limited visibility as to end customer demand and it is difficult to forecast future end-user demand to plan our operations. If we overestimate demand forour products, or if purchase orders are cancelled or shipments are delayed, we may have excess inventory that we cannot sell. Conversely, if we underestimatedemand, we may not have sufficient inventory to meet end customer demand or to ramp up production at our contract manufacturers in a timely manner, orwe could incur additional costs, lose market share, damage relationships with our distributors and end customers and forego potential revenue opportunities.For example, in fiscal 2014, unexpectedly high customer demand forced us to shorten transportation time from our factories in China and Hungary by usingair freight rather than less expensive ocean freight.18 We are dependent on ocean transportation to deliver our products in a cost efficient manner. If we are unable to use ocean transportation to deliver ourproducts, our business and financial condition could be materially and adversely impacted. We rely on commercial ocean transportation for the delivery of a large percentage of our products to our customers in North America. We also relyon more expensive air transportation when ocean transportation is not available or compatible with the delivery time requirements of our customers. Ourability to deliver our products via ocean transportation could be adversely impacted by shortages in available cargo capacity, changes by carriers andtransportation companies in policies and practices, such as scheduling, pricing, payment terms and frequency of service or increases in the cost of fuel, taxesand labor, and other factors, such as labor strikes and work stoppages, not within our control. If we are unable to use ocean transportation and are required tosubstitute more expensive air transportation, our financial condition and results of operations could be materially and adversely impacted. In the firstcalendar quarter of 2015, contentious negotiations between the Pacific Maritime Association and the International Longshore & Warehouse Union resultedin port slowdowns caused port congestion and major delays in the transfer of cargo in the United States West Coast. Accordingly, in the quarter ended March31, 2015 we shipped a higher percentage of our products to our customers in North America via air transportation. Material interruptions in service orstoppages in transportation, such as the aforementioned dispute, whether caused by strike, work stoppage, lock-out, slowdown or otherwise, could materiallyand adversely impact our business, results of operations and financial condition. We depend upon a small number of outside contract manufacturers. Our operations could be disrupted if we encounter problems with these contractmanufacturers. We do not have internal manufacturing capabilities, and currently rely upon two contract manufacturers to build all of our products. Our reliance ona small number of contract manufacturers makes us vulnerable to possible capacity constraints and reduced control over component availability, deliveryschedules, manufacturing yields and costs. The revenues that our contract manufacturers generate from our orders represent a relatively small percentage of their overall revenues. As a result,fulfilling our orders may not be considered a priority in the event of constrained ability to fulfill all of their customer obligations in a timely manner. Inaddition, the facilities in which our products are manufactured are located outside of the U.S., currently in China and Hungary. The location of these facilitiesoutside of key markets such as the U.S. increases shipping time, thereby causing a long lead time between manufacturing and delivery. If any of our contract manufacturers were unable or unwilling to manufacture our products in required volumes and at high quality levels or renewexisting terms under supply agreements, we would have to identify, qualify and select acceptable alternative contract manufacturers. An alternative contractmanufacturer may not be available to us when needed or may not be in a position to satisfy our quality or production requirements on commerciallyreasonable terms, including price. Any significant interruption in manufacturing would require us to reduce our supply of products to our customers orincrease our shipping costs to make up for delays in manufacturing, which in turn could reduce our revenues, harm our relationships with our customers anddamage our reputation with local installers and potential end-users and cause us to forego potential revenue opportunities. We may experience delays, disruptions or quality control problems in our manufacturing operations. Our product development, manufacturing and testing processes are complex and require significant technological and production process expertise.Such processes involve a number of precise steps from design to production. Any change in our processes could cause one or more production errors,requiring a temporary suspension or delay in our production line until the errors can be researched, identified and properly addressed and rectified. This mayoccur particularly as we introduce new products, modify our engineering and production techniques, and/or expand our capacity. In addition, our failure tomaintain appropriate quality assurance processes could result in increased product failures, loss of customers, increased warranty reserve, increasedproduction and logistics costs and delays. Any of these developments could have a material adverse effect on our business, financial condition, and results ofoperations. We depend on a limited number of suppliers for key components and raw materials in our products to adequately meet anticipated demand. Due to thelimited number of such suppliers, any cessation of operations or production or any shortage, delay, price change, imposition of tariffs or duties or otherlimitation on our ability to obtain the components and raw materials we use could result in sales delays, cancellations and loss of market share. We depend on limited or single source suppliers for certain key components and raw materials used to manufacture our products, making ussusceptible to quality issues, shortages and price changes. Any of these limited or single source suppliers could stop producing our components or supplyingour raw materials, cease operations or be acquired by, or enter into exclusive arrangements with, one or more of our competitors. As a result, these supplierscould stop selling to us at commercially reasonable prices, or at all. Because there are a limited number of suppliers of solar PV system components and rawmaterials used to manufacture our products, it may be difficult to quickly identify alternate suppliers or to qualify alternative components or raw materials oncommercially reasonable terms, and our ability to satisfy customer demand may be adversely affected. Transitioning to a new supplier or redesigning aproduct to accommodate a new component manufacturer would result in additional costs and delays. These outcomes could harm our business or financialperformance. 19 Any interruption in the supply of limited source components or raw materials for our products would adversely affect our ability to meet scheduledproduct deliveries to our customers, could result in lost revenue or higher expenses and would harm our business. Failure by our contract manufacturers or our component or raw material suppliers to use ethical business practices and comply with applicable laws andregulations may adversely affect our business. We do not control our contract manufacturers or suppliers or their business practices. Accordingly, we cannot guarantee that they follow ethicalbusiness practices such as fair wage practices and compliance with environmental, safety and other local laws. A lack of demonstrated compliance could leadus to seek alternative manufacturers or suppliers, which could increase our costs and result in delayed delivery of our products, product shortages or otherdisruptions of our operations. Violation of labor or other laws by our manufacturers or suppliers or the divergence of a supplier’s labor or other practices fromthose generally accepted as ethical in the U.S. or other markets in which we do business could also attract negative publicity for us and harm our business. Our results of operations may fluctuate from quarter to quarter, which could make our future performance difficult to predict and could cause our resultsof operations for a particular period to fall below expectations, resulting in a decline in the price of our common stock. Our quarterly results of operations are difficult to predict and may fluctuate significantly in the future. We have experienced seasonal and quarterlyfluctuations in the past as a result of seasonal fluctuations in our customers’ business. For example, our customers’ and end-users’ ability to install solarenergy systems is affected by weather, as for example during the winter months in Europe and the northeastern U.S. Such installation delays can impact thetiming of orders for our products. Further, given that we are an early-stage company operating in a rapidly growing industry, the true extent of thesefluctuations may have been masked by our recent growth rates and consequently may not be readily apparent from our historical results of operations andmay be difficult to predict. Our financial performance, sales, working capital requirements and cash flow may fluctuate, and our past quarterly results ofoperations may not be good indicators of future performance. Any substantial decrease in revenues would have an adverse effect on our financial condition,results of operations, cash flows and stock price. We rely on distributors and large installers to assist in selling our products, and the failure of these customers to perform as expected could reduce ourfuture revenue. We currently sell a substantial percentage of our products through distributors, who in turn sell to local installers, and through direct sales to largeinstallers. We do not have exclusive arrangements with these third party distributors and large installers. Many of our distributors also market and sellproducts from our competitors, and all of our large installer customers also use products from our competitors. These distributors and large installers mayterminate their relationships with us at any time and with little or no notice. Further, these distributors and large installers may fail to devote resourcesnecessary to sell our products at the prices, in the volumes and within the time frames that we expect, or may focus their marketing and sales efforts onproducts of our competitors. Termination of agreements with current distributors or large installers, failure by these distributors or large installers to performas expected, or failure by us to cultivate new distributor or large installer relationships, could hinder our ability to expand our operations and harm ourrevenue and results of operations.If we fail to retain our key personnel or if we fail to attract additional qualified personnel, we may not be able to achieve our anticipated level of growthand our business could suffer. Our future success and ability to implement our business strategy depends, in part, on our ability to attract and retain key personnel, and on thecontinued contributions of members of our senior management team and key technical personnel, each of whom would be difficult to replace. All of ouremployees, including our senior management, are free to terminate their employment relationships with us at any time. Competition for highly skilledindividuals with technical expertise is extremely intense, and we face challenges identifying, hiring and retaining qualified personnel in many areas of ourbusiness. Integrating new employees into our team could prove disruptive to our operations, require substantial resources and management attention andultimately prove unsuccessful. An inability to retain our senior management and other key personnel or to attract additional qualified personnel could limitor delay our strategic efforts, which could have a material adverse effect on our business, financial condition, results of operations and prospects. 20 The requirements of being a public company may strain our resources and divert management’s attention As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), thelisting requirements of the NASDAQ Global Select Market, and other applicable securities rules and regulations. Compliance with these rules and regulationsrequires significant legal and financial compliance and demands on our systems and resources and makes some activities more difficult, time-consuming orcostly than if we were a private company. As certain additional securities rules and regulations become applicable to us, our legal and financial compliancecosts may increase. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and resultsof operations and maintain effective disclosure controls and procedures and internal control over financial reporting. To maintain and, if required, improveour disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight arerequired. As a result, management’s attention may be diverted from other business concerns, which could harm our business and results of operations. We mayneed to hire more employees in the future which would increase our costs and expenses. If we fail to protect, or incur significant costs in defending, our intellectual property and other proprietary rights, our business and results of operationscould be materially harmed. Our success depends to a significant degree on our ability to protect our intellectual property and other proprietary rights. We rely on a combinationof patent, trademark, copyright, trade secret and unfair competition laws, as well as confidentiality and license agreements and other contractual provisions,to establish and protect our intellectual property and other proprietary rights. We have applied for patents in the U.S., Europe and China, some of which havebeen issued. We cannot guarantee that any of our pending applications will be approved or that our existing and future intellectual property rights will besufficiently broad to protect our proprietary technology, and any failure to obtain such approvals or finding that our intellectual property rights are invalid orunenforceable could force us to, among other things, rebrand or re-design our affected products. In countries where we have not applied for patent protectionor where effective intellectual property protection is not available to the same extent as in the U.S., we may be at greater risk that our proprietary rights will bemisappropriated, infringed or otherwise violated. Third parties may assert that we are infringing upon their intellectual property rights, which could divert management’s attention, cause us to incursignificant costs and prevent us from selling or using the technology to which such rights relate. Our competitors and other third parties hold numerous patents related to technology used in our industry. From time to time we may also be subjectto claims of intellectual property right infringement and related litigation, and, if we gain greater recognition in the market, we face a higher risk of being thesubject of claims that we have violated others’ intellectual property rights. Regardless of their merit, responding to such claims can be time consuming, candivert management’s attention and resources and may cause us to incur significant expenses in litigation or settlement. While we believe that our productsand technology do not infringe in any material respect upon any valid intellectual property rights of third parties, we cannot be certain that we would besuccessful in defending against any such claims. If we do not successfully defend or settle an intellectual property claim, we could be liable for significantmonetary damages and could be prohibited from continuing to use certain technology, business methods, content or brands. To avoid a prohibition, we couldseek a license from the applicable third party, which could require us to pay significant royalties, increasing our operating expenses. If a license is notavailable at all or not available on reasonable terms, we may be required to develop or license a non-violating alternative, either of which could requiresignificant effort and expense. If we cannot license or develop a non-violating alternative, we would be forced to limit or stop sales of our offerings and maybe unable to effectively compete. Any of these results would adversely affect our business, financial condition and results of operations. We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation andadversely affect our business. We enter into agreements with our employees pursuant to which they agree that any inventions created in the scope of their employment orengagement are assigned to us or owned exclusively by us, depending on the jurisdiction, without the employee retaining any rights. A significant portion ofour intellectual property has been developed by our employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967 (the “PatentLaw”), inventions conceived by an employee during the scope of his or her employment with a company are regarded as “service inventions,” which belongto the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Patent Law alsoprovides that if there is no such agreement between an employer and an employee, the Israeli Compensation and Royalties Committee (the “Committee”), abody constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for his or her inventions. Recent decisions by theCommittee and the Israeli Supreme Court have created uncertainty in this area, as the Israeli Supreme Court held that employees may be entitled toremuneration for their service inventions despite having specifically waived any such rights. Further, the Committee has not yet determined the method forcalculating this Committee-enforced remuneration. Although our employees have agreed that any rights related to their inventions are owned exclusively byus, we may face claims demanding remuneration in consideration for such acknowledgement. As a consequence of such claims, we could be required to payadditional remuneration or royalties to our current and/or former employees, or be forced to litigate such claims, which could negatively affect our business. 21 The loss of, or events affecting, one of our major customers could reduce our sales and have a material adverse effect on our business, financial conditionand results of operations. For fiscal 2016, three of our major customers in the U.S. together, accounted for 32.5% of our revenues. Our next five largest customers for fiscal2016, together, accounted for 22 % of our revenues. Our customers’ decisions to purchase our products are influenced by a number of factors outside of ourcontrol, including retail energy prices and government regulation and incentives, among others. In addition, these customers may decide to no longer use ourproducts and services for other reasons which may be out of our control. Although we have agreements with some of our largest customers, these agreementsdo not have long-term purchase commitments and are generally terminable by either party after a relatively short notice period. The loss of, or eventsaffecting, one or more of these customers could have a material adverse effect on our business, financial condition and results of operations. For example, inApril 2016 one of our customers, SunEdison (SUNEQ), filed for reorganization under Chapter 11 of the U.S. bankruptcy laws.Consolidations in the solar industry among our current or potential customers or distributors may adversely affect our competitive position. There has been an increase in consolidation activity among distributors, large installers and other strategic partners in the solar industry. Forexample, in July 2016 SunEdison (SUNEQ) announced its intention to purchase Vivint Solar for $2 billion, in March 2016 Vivint Solar announced it isterminating the merger due to SunEdison’s “willful breach of the merger agreement”. In June 2016, Tesla Motors (TSLA) announced that it has submitted aproposal to acquire all of the outstanding shares of common stock of SolarCity Corporation (SCTY). This trend could further increase our reliance on a smallnumber of customers for a significant portion of our sales and may negatively impact our competitive position in the solar market.Our planned expansion into new markets could subject us to additional business, financial and competitive risks. In fiscal 2016, we sold our products to approximately 220 direct customers in 45 countries, including the U.S., Canada, Belgium, France, Germany,Israel, Italy, the Netherlands, the United Kingdom, Australia, Japan and China. We intend to introduce new products targeted at large commercial and utility-scale installations and to expand into other international markets. Our success in these new product and geographic markets will depend on a number offactors, including our ability to develop solutions to address the requirements of the large commercial and utility-scale solar PV markets, timely qualificationand certification of new products for large commercial and utility-scale solar PV installations, acceptance of power optimizers in solar PV markets in whichthey have not traditionally been used and our ability to manage increased manufacturing capacity and production. Further, these solar PV markets have different characteristics from the markets in which we currently sell products, and our success will depend onour ability to adapt properly to these differences. These differences may include differing regulatory requirements, including tax laws, trade laws, laborregulations, tariffs, export quotas, customs duties or other trade restrictions, limited or unfavorable intellectual property protection, international political oreconomic conditions, restrictions on the repatriation of earnings, longer sales cycles, warranty expectations, product return policies and cost, performanceand compatibility requirements. In addition, expanding into new geographic markets will increase our exposure to presently existing risks, such asfluctuations in the value of foreign currencies and difficulties and increased expenses in complying with U.S. and foreign laws, regulations and tradestandards, including the Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”). Failure to develop and introduce these new products successfully or to otherwise manage the risks and challenges associated with our potentialexpansion into new product and geographic markets could adversely affect our revenues and our ability to sustain profitability. 22 If we fail to manage our recent and future growth effectively, we may be unable to execute our business plan, maintain high levels of customer service oradequately address competitive challenges. We have experienced significant growth in recent periods with our annual product sales growing rapidly from approximately 8,400 inverters andapproximately 181,000 power optimizers in fiscal 2011, our first full fiscal year of commercial shipments, to annual product sales exceeding 224,000inverters and 5.7 million power optimizers in fiscal 2016. We intend to continue to expand our business significantly within existing and new markets. Thisgrowth has placed, and any future growth may place, a significant strain on our management, operational and financial infrastructure. In particular, we will berequired to expand, train and manage our growing employee base and scale and otherwise improve our IT infrastructure in tandem with that headcountgrowth. Our management will also be required to maintain and expand our relationships with customers, suppliers and other third parties and attract newcustomers and suppliers, as well as manage multiple geographic locations. Our current and planned operations, personnel, IT and other systems and procedures might be inadequate to support our future growth and mayrequire us to make additional unanticipated investment in our infrastructure. Our success and ability to further scale our business will depend, in part, on ourability to manage these changes in a cost-effective and efficient manner. If we cannot manage our growth, we may be unable to take advantage of marketopportunities, execute our business strategies or respond to competitive pressures. This could also result in declines in quality or customer satisfaction,increased costs, difficulties in introducing new offerings or other operational difficulties. Any failure to effectively manage growth could adversely impactour business and reputation. Covenants in our credit facility may limit our flexibility in responding to business opportunities and competitive developments and increase ourvulnerability to adverse economic or industry conditions. We have a revolving line of credit from Silicon Valley Bank (“SVB”). The SVB credit facility restricts our ability to take certain actions such asborrow money, grant liens, pay dividends, dispose of assets, or engage in certain transactions. Our credit agreement with SVB also requires us to maintaincertain EBITDA and liquidity levels. These restrictions may limit our flexibility in responding to business opportunities, competitive developments andadverse economic or industry conditions. In addition, our obligations under the credit facility are secured by substantially all of our assets, including all ofour intellectual property, which limits our ability to provide collateral for additional financing. Nevertheless, we and our subsidiaries may incur substantialadditional debt in the future and any debt instrument we enter into in the future may contain similar restrictions or collateral packages. A breach of any ofthese covenants, or a failure to pay principal or interest when due, could result in a variety of adverse consequences, including the acceleration of ourindebtedness. Our assets and cash flow may not be sufficient to fully repay borrowings if some or all of our indebtedness is accelerated. Acceleration couldresult in the foreclosure by the lenders on our assets that secure the credit facility. Furthermore, there can be no assurance that we will be able to enter into new debt instruments on acceptable terms. If we are unable to satisfyfinancial covenants and other terms under existing or new credit arrangements or obtain waivers or forbearance from our lenders or if we are unable to obtainrefinancing or new financings for our working capital, equipment and other needs on acceptable terms if and when needed, our business would be adverselyaffected. Fluctuations in currency exchange rates may negatively impact our financial condition and results of operations. Although our financial results are reported in U.S. dollars, U.S. dollar revenues accounted for 76.0 % of our revenues in fiscal 2016. In addition, asignificant portion of our operating expenses are accrued in New Israeli Shekels (primarily related to payroll) and, to a lesser extent, the Euro and othercurrencies. Our profitability is affected by movements of the U.S. dollar against the Euro, and, to a lesser extent, the New Israeli Shekel and other currencies inwhich we generate revenues, incur expenses and maintain cash balances. Foreign currency fluctuations may also affect the prices of our products. Our pricesare denominated primarily in U.S. dollars. If there is a significant devaluation of a particular currency, the prices of our products will increase relative to thelocal currency and may be less competitive. Despite our efforts to minimize foreign currency risks, primarily by entering into forward hedging transactions tosell Euro for U.S. dollars at a predefined rate, and maintaining cash balances in New Israeli Shekels, significant long-term fluctuations in relative currencyvalues, in particular a significant change in the relative values of the Euro and, to a lesser extent, the New Israeli Shekel and other currencies, against the U.S.dollar could have an adverse effect on our profitability and financial condition. 23 Any unauthorized access to, or disclosure or theft of personal information we gather, store or use could harm our reputation and subject us to claims orlitigation. We receive, store and use certain personal information of our customers, and the end-users of our customers’ solar PV systems, including names,addresses, e-mail addresses, credit information and energy production statistics. We also store and use personal information of our employees. We take stepsto protect the security, integrity and confidentiality of the personal information we collect, store and transmit, but there is no guarantee that inadvertent orunauthorized use or disclosure will not occur or that third parties will not gain unauthorized access to this information despite our efforts. Because techniquesused to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we andour suppliers or vendors may be unable to anticipate these techniques or to implement adequate preventative or mitigation measures. Unauthorized use or disclosure of, or access to, any personal information maintained by us or on our behalf, whether through breach of our systems,breach of the systems of our suppliers or vendors by an unauthorized party, or through employee or contractor error, theft or misuse, or otherwise, could harmour business. If any such unauthorized use or disclosure of, or access to, such personal information were to occur, our operations could be seriously disruptedand we could be subject to demands, claims and litigation by private parties, and investigations, related actions, and penalties by regulatory authorities. Inaddition, we could incur significant costs in notifying affected persons and entities and otherwise complying with the multitude of foreign, federal, state andlocal laws and regulations relating to the unauthorized access to, or use or disclosure of, personal information. Finally, any perceived or actual unauthorizedaccess to, or use or disclosure of, such information could harm our reputation, substantially impair our ability to attract and retain customers and have anadverse impact on our business, financial condition and results of operations. We could be adversely affected by any violations of the FCPA, the U.K. Bribery Act and other foreign anti-bribery laws. The FCPA generally prohibits companies and their intermediaries from making improper payments to foreign government officials for the purpose ofobtaining or retaining business. Other countries in which we operate also have anti-bribery laws, some of which prohibit improper payments to governmentand non-government persons and entities. Our policies mandate compliance with these anti-bribery laws. However, we currently operate in and intend tofurther expand into, many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliancewith anti-bribery laws may conflict with local customs and practices. In addition, due to the level of regulation in our industry, our entry into certainjurisdictions requires substantial government contact where norms can differ from U.S. standards. It is possible that our employees, subcontractors, agents andpartners may take actions in violation of our policies and anti-bribery laws. Any such violation, even if prohibited by our policies, could subject us tocriminal or civil penalties or other sanctions, which could have a material adverse effect on our business, financial condition, cash flows and reputation. Risks Related to Operations in Israel Conditions in Israel affect our operations and may limit our ability to develop, produce and sell our products. Although we are incorporated in Delaware, our headquarters and research and development center are located in Israel. Accordingly, political,economic and military conditions in Israel directly affect us. Israel has been involved in a number of armed conflicts and has been the target of terroristactivity. Ongoing state of hostility, varying in degree such as rocket fire from the Gaza Strip, including against civilian targets, has occurred on an irregularbasis, disrupting day-to-day civilian activity and negatively affecting business conditions. Israel also faces threats from Hezbollah militants in Lebanon, andothers. We cannot predict whether or when such armed conflicts or attacks may occur or the extent to which such events may impact us. Any future armedconflict, political instability or violence in the region may impede our ability to manage our business effectively or to engage in research and development,or may otherwise adversely affect our business or operations. In the event of war, we and our Israeli subcontractors and suppliers may cease operations, whichmay cause delays in the distribution and sale of our products. Some of our directors, executive officers and employees in Israel are obligated to performannual reserve duty in the Israeli military and are subject to being called for additional active duty under emergency circumstances. In the event that ourprincipal executive office is damaged as a result of hostile action, or hostilities otherwise disrupting the ongoing operation of our offices, our ability tooperate could be materially adversely affected. Additionally, several countries, principally in the Middle East, restrict doing business with Israeli companies, and additional countries and groupsmay impose similar restrictions if hostilities in Israel or political instability in the region continue or increase. If recent regime changes and civil wars inneighboring states result in the establishment of fundamentalist Islamic regimes or governments more hostile to Israel, or if Egypt or Jordan abrogates itsrespective peace treaty with Israel, Israel could be subject to additional political, economic and military confines, and our operations and ability to sell ourproducts to countries in the region could be materially adversely affected. These restrictions may limit materially our ability to obtain manufacturedcomponents and raw materials or to sell our products. 24 Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or significant downturn inthe economic or financial condition of Israel, could have a material adverse effect on our business, financial condition and results of operations. The tax benefits that are available to us under Israeli law require us to meet various conditions and may be terminated or reduced in the future, whichcould increase our costs and taxes. Our Israeli subsidiary is eligible for certain tax benefits provided to “Benefited Enterprises” under the Israeli Law for the Encouragement of CapitalInvestments, 1959 (the “Investment Law”.) In order to remain eligible for the tax benefits for “Benefited Enterprises” we must continue to meet certainconditions stipulated in the Investment Law and its regulations, as amended. If these tax benefits are reduced, cancelled or discontinued, our Israeli taxableincome would be subject to regular Israeli corporate tax rates and we may be required to refund any tax benefits that we have already received, plus interestand penalties thereon. The standard corporate tax rate for Israeli companies was increased to 26.5% in 2014 and 2015 and decreased back to 25% in 2016 andthereafter. Additionally, if we increase our activities outside of Israel through acquisitions, for example, our expanded activities might not be eligible forinclusion in future Israeli tax benefit programs. The Israeli government may furthermore independently determine to reduce, phase out or eliminate entirelythe benefit programs under the Investment Law, regardless of whether we then qualify for benefits under those programs at the time, which would alsoadversely affect our global tax rate and our results of operations. The terms of Israeli government grants that we have received restrict our ability to transfer technologies outside of Israel, and we may be required to paypenalties in such a case or upon the sale of our Company. In fiscal 2016, we received a total of $0.2 million from the Office of the Chief Scientist in the Israel Ministry of Economy (“OCS”). We do not expectto receive additional grants from the OCS in fiscal 2016. The terms of the previous grants require us to pay royalties at a rate of 4% to 4.5% on sales ofproducts developed under these grants, up to the total grant amount, linked to the U.S. dollar and bearing interest at an annual rate of LIBOR applicable todollar deposits. Even after payment in full, we will still be required to comply with the requirements of the Israeli Encouragement of Industrial Research andDevelopment Law, 1984 (the “R&D Law”), and related regulations, with respect to those past grants. When a company develops know-how, technology orproducts under an OCS grant, the grant terms and the R&D Law restrict the transfer outside of Israel of such know-how without the prior approval of the OCS.Consequently, if aspects of our technologies are deemed to have been developed with OCS funding, the discretionary approval of an OCS committee wouldbe required for any transfer to third parties outside of Israel of know-how related to those aspects of our technologies. The OCS may impose conditions on anyarrangement under which it permits us to transfer technology or development out of Israel or may not grant such approval at all. Any transfer of OCS-supported technology or know-how outside of Israel may require payment of significant amounts to the OCS, depending on thevalue of the transferred technology or know-how, the amount of OCS support, the time of completion of the OCS-supported research project and other factors.These restrictions and requirements for payment may impair our ability to sell our technology assets outside of Israel. Furthermore, the considerationavailable to our shareholders in a transaction involving the transfer outside of Israel of technology or know-how developed with OCS funding (such as amerger or similar transaction) would be reduced by any amounts that we are required to pay to the OCS. It may be difficult to enforce a judgment of a U.S. court against our officers and directors, to assert U.S. securities laws claims in Israel or to serve processon our officers and directors. The majority of our directors and executive officers reside outside of the U.S., and most of our assets and most of the assets of these persons arelocated outside of the U.S. Consequently, a judgment obtained against any of these persons, including a judgment based on the civil liability provisions ofthe U.S. federal securities laws, may not be collectible in the U.S. It also may be difficult for you to effect service of process on these persons in the U.S. or toassert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securitieslaws on the grounds that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court hears a claim, it maydetermine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be provenas a fact by expert witnesses, which can be a time consuming and costly process. Further, an Israeli court may not enforce a judgment awarded by a U.S. orother non-Israeli court. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses these matters.As a result of the difficulty associated with enforcing a judgment against any of these persons in Israel, you may not be able to obtain or enforce a judgmentagainst many of our directors and executive officers. 25 Risks Related to the Ownership of Our Common Stock We cannot assure you that our stock price will not decline or not be subject to significant volatility. The trading price of our common stock has been volatile since our initial public offering. Since shares of our common stock were sold in our initialpublic offering in March 2015 at a price of $18.00 per share, during fiscal year 2016, the reported high and low prices of our common stock has ranged from$15.02 to $38.11 per share. The price of our stock may change in response to fluctuations in our results of operations in future periods and also may changein response to other factors, including factors specific to companies in our industry, many of which are beyond our control. As a result, our share price mayexperience significant volatility and may not necessarily reflect the value of our expected performance. Among other factors that could affect our stock priceare: ·the addition or loss of significant customers;·changes in laws or regulations applicable to our industry, products or services;·speculation about our business in the press or the investment community;·price and volume fluctuations in the overall stock market;·volatility in the market price and trading volume of companies in our industry or companies that investors consider comparable;·share price and volume fluctuations attributable to inconsistent trading levels of our shares;·our ability to protect our intellectual property and other proprietary rights;·sales of our common stock by us or our significant stockholders, officers and directors;·the expiration of contractual lock-up agreements;·the development and sustainability of an active trading market for our common stock;·success of competitive products or services;·the public’s response to press releases or other public announcements by us or others, including our filings with the Securities and ExchangeCommission (the “SEC”), announcements relating to litigation or significant changes to our key personnel;·the effectiveness of our internal controls over financial reporting;·changes in our capital structure, such as future issuances of debt or equity securities;·our entry into new markets;·tax developments in the U.S., Europe or other markets;·strategic actions by us or our competitors, such as acquisitions or restructurings; and·changes in accounting principles. Further, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices ofequity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. Inaddition, the stock prices of many renewable energy companies have experienced wide fluctuations that have often been unrelated to the operatingperformance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such asrecessions, interest rate changes or international currency fluctuations, may cause the market price of our common stock to decline. In the past, manycompanies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target ofthis type of litigation in the future. Securities litigation against us could result in substantial cost and divert our management’s attention from other businessconcerns, which could seriously harm our business. 26 The price of our common stock could decline if securities analysts or other third parties publish inaccurate or unfavorable research about us or if one ormore of our analysts ceases to cover us or to regularly publish reports about us. The trading of our common stock is likely to be influenced by the reports and research that industry or securities analysts publish about us, ourbusiness, our market or our competitors. If one or more securities or industry analysts downgrades our common stock or publishes inaccurate or unfavorableresearch about our business, our stock price would likely decline. If one or more securities or industry analysts ceases to cover the Company or fails toregularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Provisions in our certificate of incorporation and by-laws may have the effect of delaying or preventing a change of control or changes in ourmanagement. Our certificate of incorporation and by-laws contain provisions that could depress the trading price of our common stock by discouraging, delayingor preventing a change of control of our Company or changes in our management that the stockholders of our Company may believe advantageous. Theseprovisions include: ·authorizing “blank check” preferred stock that our board of directors could issue to increase the number of outstanding shares to discourage a takeoverattempt;·providing for a classified board of directors with staggered, three-year terms, which could delay the ability of stockholders to change the membership of amajority of our board of directors;·not providing for cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;·limiting the ability of stockholders to call a special stockholder meeting;·prohibiting stockholders from acting by written consent;·establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon bystockholders at stockholder meetings;·the removal of directors only for cause and only upon the affirmative vote of the holders of at least 662/3% in voting power of all the then-outstandingshares of common stock of the Company entitled to vote thereon, voting together as a single class;·providing that our board of directors is expressly authorized to amend, alter, rescind or repeal our by-laws; and·requiring the affirmative vote of holders of at least 662/3% of the voting power of all of the then outstanding shares of common stock, voting as a singleclass, to amend provisions of our certificate of incorporation relating to the management of our business, our board of directors, stockholder action bywritten consent, advance notification of stockholder nominations and proposals, calling special meetings of stockholders, forum selection and theliability of our directors, or to amend, alter, rescind or repeal our by-laws.In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law (“DGCL”), which generally prohibits aDelaware corporation from engaging in a broad range of business combinations with any “interested” stockholder for a period of three years following thedate on which the stockholder becomes an “interested” stockholder. 27 Our certificate of incorporation includes a forum selection clause, which could limit our stockholders’ ability to obtain a favorable judicial forum fordisputes with us. Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum forany stockholder (including any beneficial owner) to bring (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim ofbreach of a fiduciary duty owed by any of our directors, officers, or employees to us or to our stockholders, (iii) any action asserting a claim arising pursuantto any provision of the DGCL or our certificate of incorporation or by-laws, or (iv) any action asserting a claim governed by the internal affairs doctrine, willbe a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for theDistrict of Delaware); in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. Any person or entitypurchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the foregoing provisions. Thisforum selection provision may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. It is also possible that,notwithstanding the forum selection clause that is included in our certificate of incorporation, a court outside of Delaware could rule that such a provision isinapplicable or unenforceable. We do not intend to pay any cash dividends on our common stock in the foreseeable future. We have never declared or paid any dividends on our common stock. We currently intend to retain any future earnings and do not expect to pay anydividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject toapplicable laws and provisions of our debt instruments and organizational documents, after taking into account our financial condition, results of operations,capital requirements, general business conditions and other factors that our board of directors may deem relevant. As a result, capital appreciation in the priceof our common stock, if any, may be your only source of gain on an investment in our common stock. If we fail to establish and maintain an effective system of integrated internal controls, we may not be able to report our financial results accurately, whichcould have a material adverse effect on our business, financial condition and results of operations. Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financialstatements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Section 404 of the Sarbanes-Oxley Act requirespublic companies to conduct an annual review and evaluation of their internal controls and requires attestations of the effectiveness of internal controls byindependent auditors. We need to implement substantial control systems and procedures in order to satisfy the reporting requirements under the ExchangeAct and applicable NASDAQ Global Select Market requirements, among other items. Establishing these internal controls will be costly and may divertmanagement’s attention. Evaluation by us of our internal controls over financial reporting may identify material weaknesses that may cause us to be unable to report ourfinancial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of NASDAQGlobal Select Market rules. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of ourfinancial statements. Confidence in the reliability of our financial statements also could suffer if we or our independent registered public accounting firmwere to report a material weakness in our internal controls over financial reporting. This could have a material adverse effect on our business, financialcondition and results of operations and could also lead to a decline in the price of our common stock. 28 ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable.ITEM 2. PROPERTIES Our corporate headquarters are located in Herziliya Pituach, Israel, in an office consisting of approximately 56,000 square feet of office, testing andproduct design space. We have a ten-year lease on our corporate headquarters, which expires on December 31, 2024. In addition to our corporate headquarters, we lease approximately 27,000 square feet of general office space in Fremont, California, under a leasethat will expire on March 31, 2020. We also lease sales and support office space in China, Germany, Netherlands, Italy, France, Australia, UK, Japan, andBulgaria. We outsource all manufacturing to manufacturing partners, and currently do not own or lease any manufacturing facilities. We believe that our existing properties are in good condition and are sufficient and suitable for the conduct of our business for the foreseeablefuture. To the extent our needs change as our business grows, we expect that additional space and facilities will be available on commercially reasonableterms. ITEM 3. LEGAL PROCEEDINGS In the normal course of business, we may from time to time be named as a party to various legal claims, actions and complaints. It is impossible topredict with certainty whether any resulting liability would have a material adverse effect on our financial position, results of operations or cash flows. On January 9, 2015, a patent infringement lawsuit was filed by Beacon Power LLC, a Delaware limited liability company (“Beacon”), against theCompany and a third party in the United States District Court for the Western District of Texas, San Antonio Division which alleges infringement by theCompany of two U.S. patents. On March 9, 2015, the Company and Beacon entered into a patent purchase agreement under which the Company agreed topurchase all rights in the aforementioned patents and Beacon agreed to dismiss all outstanding claims against the Company. In July 2015, the Companycompleted the acquisition. ITEM 4.MINE SAFETY DISCLOSURES Not applicable. 29 Price Range High Low Fiscal Year 2015 Third Quarter (March 26 – March 31) $22.50 $19.49 Fourth Quarter (March 31 – June 30) $43.00 $21.71 Fiscal Year 2016 First Quarter (July 1 – September 30) $38.11 $15.60 Second Quarter (October 1 – December 31) $29.50 $15.02 Third Quarter (January 1 – March 31) $30.50 $21.92 Fourth Quarter (March 31 – June 30) $28.80 $17.10 PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES Market Information Our common stock, par value $0.0001 per share, began trading on the NASDAQ Global Select Market on March 26, 2015, where prices are quotedunder the symbol “SEDG”. Holders of Record As of June 30, 2016, there were 57 holders of record of our common stock. Because many of our shares of common stock are held by brokers andother institutions on behalf of stockholders, we are unable to estimate the total number stockholders represented by these record holders. Price Range of Our Common Stock The following table set for the high and low sales prices for our common stock in fiscal year 2016, in each case as regularly on the NASDAQ GlobalSelect Market: Dividend Policy We have never declared or paid any dividends on our capital stock. We currently intend to retain any future earnings and do not expect to pay anydividends in the foreseeable future. In addition, the terms of our debt instruments prohibit us from paying cash dividends on our common stock. Any futuredetermination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws and provisions of our debtinstruments and organizational documents, after taking into account our financial condition, results of operations, capital requirements, general businessconditions and other factors that our board of directors may deem relevant.Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities On March 25, 2015, our registration statement on Form S-1 (No. 333-202159) was declared effective for our initial public offering and on March 31,2015, we consummated the initial public offering consisting of 8,050,000 shares of our common stock at a public offering price of $18.00 per share. Theoffering terminated after the sale of all securities registered in the offering. Goldman, Sachs & Co. and Deustche Bank Securities Inc. acted as joint book-running managers for the offering. Needham & Company, Canaccord Genuity Inc. and Roth Capital Partners acted as co-managers. As a result of the offering,we received total net offering proceeds of $131.2 million, after deducting total expenses of $13.7 million, consisting of underwriting discounts andcommissions of $10.1 million and offering related expenses of $3.6 million. No payments for such expenses were made directly or indirectly to (i) any of ourofficers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities, or (iii) any of our affiliates. 30 We maintain our funds received in cash and cash equivalents and available-for-sale marketable securities. Our principal use of proceeds from theinitial public offering is for general corporate purposes, including working capital and expansion of our business into additional markets. The funds have notbeen used to make payments directly or indirectly to (i) any of the Company’s officers or directors or their associates, (ii) any persons owning 10% or more ofany class of the Company’s equity securities, (iii) any of the Company’s affiliates, or (iv) others. Purchases of Equity Securities by the Issuer and Affiliated Purchases There were no purchases of equity securities by the issuer and affiliated purchases during the fiscal year ended June 30, 2016.Performance Graph The following graph compares the cumulative total shareholder return on our common stock from March 26, 2015 (using the price of which ourshares of common stock were initially sold to the public) to June 30, 2016 to that of the total return of the Nasdaq Composite Index and the MAC GlobalSolar Energy Index. The comparison assumes $100 was invested in our common stock on March 26, 2015 and in each of the forgoing indices on March 26,2015 and assumes the reinvestment of dividends. This graph is furnished and not “filed” with the Securities and Exchange Commission or “solicitingmaterial” under the Securities Exchange Act of 1934 and shall not be incorporated by reference into any such filings, irrespective of any generalincorporation contained in such filing. 31 Fiscal Year Ended June 30, 2012 2013 2014 2015 2016 (In thousands) Consolidated Statements of Operations Data: Revenues $75,351 $79,035 $133,217 $325,078 $489,843 Cost of revenues 76,028 74,626 111,246 243,295 337,887 Gross profit (loss) (677) 4,409 21,971 81,783 151,956 Operating expenses: Research and development, net 13,783 15,823 18,256 22,018 33,231 Sales and marketing 9,926 12,784 17,792 24,973 34,833 General and administrative 3,074 3,262 4,294 6,535 12,133 Total operating expenses 26,783 31,869 40,342 53,526 80,197 Operating income (loss) (27,460) (27,460) (18,371) 28,257 71,759 Financial income (expenses) (287) (612) (2,787) (5,077) 471 Other expenses — — — 104 — Income (loss) before taxes on income (27,747) (28,072) (21,158) 23,076 72,230 Taxes on income (tax benefit) 36 108 220 1,955 (4,379)Net income (loss) $(27,783) $(28,180) $(21,378) $21,121 76,609 Net basic earnings (loss) per share of common stock $(10.30) $(10.28) $(7.64) $0.30 $1.92 Net diluted earnings (loss) per share of common stock $(10.30) $(10.28) $(7.64) $0.27 $1.73 Weighted average number of shares used in computing netbasic earnings (loss) per share of common stock 2,698,093 2,741,370 2,798,894 11,902,911 39,987,935 Weighted average number of shares used in computing netdiluted earnings (loss) per share of common stock 2,698,093 2,741,370 2,798,894 15,269,448 44,376,075 Fiscal Year Ended June 30, 2012 2013 2014 2015 2016 (In thousands) Consolidated Balance Sheet Data: Cash and cash equivalents $19,437 $13,142 $9,754 $144,750 $74,032 Available-for-sale marketable securities 111,609 Total assets 55,894 49,086 74,998 305,658 397,438 Total debt 3,515 12,823 20,244 - - Total stockholders’ equity (deficiency) $(87,990) $(115,014) $(135,294) $166,944 $256,108 ITEM 6. SELECTED FINANCIAL DATA Selected Financial Data The selected consolidated statement of operations data for each of fiscal 2014, 2015 and 2016 and the selected consolidated balance sheet data as ofJune 30, 2015 and 2016 are derived from our audited consolidated financial statements included elsewhere in this annual report. The selected consolidatedstatement of operations data for fiscal 2012 and 2013 and the selected consolidated balance sheet data as of June 30, 2012, 2013 and 2014 are derived fromour audited financial statements not included in this annual report. Our historical results are not necessarily indicative of our results to be expected in anyfuture period. These selected financial data should be read together with our consolidated financial statements and the related notes, as well as the sectioncaptioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this annual report. 32 Key Operating Metrics We regularly review a number of metrics, including the key operating metrics set forth in the table below, to evaluate our business, measure ourperformance, identify trends affecting our business, formulate projections and make strategic decisions. Fiscal Year Ended June 30, 2014 2015 2016 Inverters shipped 61,999 150,428 223,589 Power optimizers shipped 1,357,251 3,533,528 5,738,546 Megawatts shipped(1) 365 920 1,615 (1)Calculated based on the aggregate nameplate capacity of inverters shipped during the applicable period. Nameplate capacity is the maximum ratedpower output capacity of an inverter as specified by the manufacturer. See “Management’s Discussion and Analysis of Financial Condition andResults of Operations—Performance Measures” 33 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with the sections of thisAnnual Report on Form 10-K captioned “Selected Consolidated Financial Data and Other Data” and “Business” and our consolidated financialstatements and the related notes to those statements included elsewhere in this Form 10-K. In addition to historical financial information, the followingdiscussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selectedevents may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under thesections of this annual report captioned “Special Note Regarding Forward-Looking Statements” and “Risk Factors”. Overview We are a leading provider of intelligent inverter solutions that are changing the way power is harvested and managed in solar PV systems. Our DCoptimized inverter solution maximizes power generation at the individual PV module level while lowering the cost of energy produced by the solar PVsystem. Our systems allow for superior power harvesting and module management by deploying power optimizers at each PV module while maintaining acompetitive system cost by using a simplified DC-AC inverter. Our systems are monitored through our cloud-based monitoring platform that enables lowersystem operating and maintenance (“O&M”) costs. We believe that these benefits, along with our comprehensive and advanced safety features, are highlyvalued by our customers. We are a leader in the global module level power electronics (“MLPE”) market according to GTM Research, and as of June 30, 2016, we haveshipped approximately 12.5 million power optimizers and 513,000 inverters. Approximately 265,000 installations, many of which may include multipleinverters, are currently connected to, and monitored through, our cloud-based monitoring platform. As of June 30, 2016, we have shipped approximately 3.4GW of our DC optimized inverter systems. Our products have sold in approximately 55 countries, and are installed in solar PV systems in 96 countries. We primarily sell our products directly to large solar installers, EPCs and indirectly to thousands of smaller solar installers through large distributorsand electrical equipment wholesalers. Our sales strategy focuses on top-tier customers in markets where electricity prices, irradiance (amount of sunlight), andgovernment policies make solar PV installations economically viable. We also sell our power optimizers to several PV module manufacturers that offer PVmodules with our power optimizer physically embedded into their modules. In fiscal 2016, we sold our products to approximately 220 direct customers in 45 countries and as of June 30, 2016, approximately 163,989 indirectcustomers had registered with us through our cloud-based monitoring platform. In fiscal 2016, three customers accounted for revenues of above 10% each,together comprising an aggregate of 32.5% of our sales. Of these customers, two are distributors. We were founded in 2006 with the goal of addressing the lost power generation potential that is inherent in the use of traditional solar PV invertertechnology, thereby increasing the return on investment in solar PV systems. The following is a chronology of some of our key milestones: •In 2010, we commenced commercial shipments of our power optimizers and inverters to Europe after contracting with Flextronics (Israel) Ltd.(with its affiliates, “Flextronics”) to initiate production in Israel. •In 2011, we commenced sales in the U.S. and expanded our manufacturing capacity by contracting with Jabil Circuit, Inc. to open a largermanufacturing site in Guangzhou, China. •In 2011, we introduced our second generation power optimizer, based on our second generation ASIC, with a power rating of up to 500 wattsand a substantially reduced number of components. •In 2012, we shipped our millionth power optimizer and increased our sales personnel presence in the U.S. market. •In 2013, we opened an additional manufacturing site with Flextronics in Hungary to accommodate our accelerated growth, replacing theFlextronics manufacturing site in Israel. 34 •In 2013, we introduced our third generation power optimizer, based on our third generation ASIC, with a power rating of up to 700 watts andimproved heat dissipation capabilities for high reliability and lower cost. •In March 2015, we completed our initial public offering and started to trade on the NASDAQ Global Select Market under the ticker SEDG. •In September 2015, we released information about the development of our new HD-Wave inverter technology. •In January 2016, we announced the immediate international availability of our StorEdge™ solution •In February 2016, we shipped our ten millionth power optimizer. •In June 2016, we received the Intersolar Award in the Photovoltaics category for our HD-Wave technology inverter and began shipments of ourHD-Wave inverter. We have achieved substantial growth since we commenced commercial shipments in fiscal 2010. Our revenues were $133.2 million, $325.1 millionand 489.8 million for fiscal 2014, 2015 and 2016, respectively. Gross margins were 16.5%, 25.2% and 31.0%, for fiscal 2014, 2015 and 2016, respectively.Net loss was $ $21.4 million for fiscal 2014, and net profits were $21.1 million and $76.6 million for fiscal 2015 and 2016, respectively. We continue to focus on our long-term growth. We believe that our market opportunity is large and that the transition from traditional inverterarchitecture to DC optimized inverter architecture as the architecture of choice for distributed solar installations globally will continue. We believe that weare well positioned to benefit from this market trend. We intend to continue to invest in sales and marketing to acquire new customers in our existing markets,grow internationally and drive additional revenue. We also plan to expand our product offerings to further penetrate the large commercial and utilitysegments. We expect to continue to invest in research and development to enhance our product offerings and develop new, cost effective solutions. We believe that our strategy results in a lean operating base with low expenses that will enable profitability on lower revenues relative to ourcompetitors. We believe that our sales and marketing, research and development and general and administrative costs will decrease as a percentage ofrevenue in the long-term as we continue to grow due to economies of scale. With this increased operating leverage, we expect our gross and operatingmargins to increase in the long-term. Performance Measures In managing our business and assessing financial performance, we supplement the information provided by the financial statements with otheroperating metrics. These operating metrics are utilized by our management to evaluate our business, measure our performance, identify trends affecting ourbusiness and formulate projections. We use metrics relating to yearly shipments (inverters shipped, power optimizers shipped and megawatts shipped) toevaluate our sales performance and to track market acceptance of our products from year to year. We use metrics relating to monitoring (systems monitoredand megawatts monitored) to evaluate market acceptance of our products and usage of our solution. We provide the “megawatts shipped” metric, which is calculated based on nameplate capacity shipped, to show adoption of our system on anameplate capacity basis. Nameplate capacity shipped is the maximum rated power output capacity of an inverter and corresponds to our financial results inthat higher total capacities shipped are generally associated with higher total revenues. However, revenues increase with each additional unit, not necessarilyeach additional MW of capacity, sold. Accordingly, we also provide the “inverters shipped” and “power optimizers shipped” operating metrics. Key Components of Our Results of Operations The following discussion describes certain line items in our Consolidated Statements of Operations. 35 Revenues We generate revenues from the sale of DC optimized inverter systems for solar PV installations which include power optimizers, inverters and ourcloud-based monitoring platform. Our customer base includes large solar installers, distributors, wholesalers, EPCs and PV module manufacturers. Our revenues are affected by changes in the volume and average selling prices of our DC optimized inverter systems. The volume and averageselling price of our systems is driven by the supply and demand for our products, changes in the product mix between our residential and commercialproducts, the customer mix between large and small customers, the geographical mix of our sales, sales incentives, end-user government incentives,seasonality and competitive product offerings. Our revenue growth is dependent on our ability to expand our market share in each of the geographies in which we compete, expand our globalfootprint to new evolving markets, grow our production capabilities to meet demand and to continue to develop and introduce new and innovative productsthat address the changing technology and performance requirements of our customers. Cost of Revenues and Gross Profit Cost of revenues consists primarily of product costs, including purchases from our contract manufacturers and other suppliers as well as costs relatedto shipping, customer support, product warranty, personnel, depreciation of test and manufacturing equipment, hosting services for our cloud-basedmonitoring platform and other logistics services. Our product costs are affected by technological innovations, such as advances in semiconductor integrationand new product introductions, economies of scale resulting in lower component costs, and improvements in production processes and automation. Some ofthese costs, primarily personnel and depreciation of test and manufacturing equipment, are not directly affected by sales volume. We outsource our manufacturing to third-party manufacturers and negotiate product pricing on a quarterly basis. Our third-party manufacturers areresponsible for funding the capital expenses incurred in connection with the manufacture of our products, except with regard to end of line testing equipmentand the automated assembly lines for our power optimizers, as further described below (which resulted in capital expenditures of $2.8 million and$5.2 million for fiscal 2015 and 2016, respectively). We expect to continue this funding arrangement in the future, with respect to any expansions to suchexisting lines. We also procure strategic and critical components from various approved vendors on behalf of our contract manufacturers. At times, higherthan anticipated demand has exceeded the production capacities of these manufacturers. In 2014 and early 2015, for example, such production shortfalls, aswell as shortages in the supply of certain raw materials, required us to use air freight, rather than less expensive ocean freight, to deliver the majority of ourproducts. The expansion of current manufacturing sites by our contract manufacturers allowed us to reduce these expenses in fiscal 2015 as well as to buildsufficient inventory to continue our growth without the need to ship substantial amounts of products by air. In 2016 we managed to continuously increasethe efficiency of our supply chain, reduce our reliance on air freight to a minimum and use ocean freight for the majority of our shipments. We believe thatcontinued expansion of the current manufacturing sites by our contract manufacturers, and the development and deployment of our proprietary automatedassembly line (described below), will provide sufficient manufacturing capacity to meet our forecasted demands with minimal shipment of products by airfreight. We completed development of our first proprietary automated assembly line for our power optimizers and have ordered an additional four lines forthe automated manufacturing of our power optimizers. We expect to continue to invest in additional automated assembly lines in the future. We havedesigned and are responsible for funding all of the capital expenses associated with existing and future automated assembly lines. The current and expectedcapital expenses associated with these automated assembly lines will be funded out of our cash flows. Key components of our logistics supply channel consist of third party distribution centers in the U.S and Europe. Finished goods are either shippedto our customers directly from our contract manufacturers or shipped to third party distribution centers and then finally shipped to our customers. Cost of revenues also includes our operations and support departments’ costs. The operations department is responsible for production managementsuch as planning, procurement, supply chain, production methodologies and machinery planning, logistics management and manufacturing support to ourcontract manufacturers as well as the quality assurance of our products. Our support department provides customer and technical support at various levelsthrough our call centers around the world as well as second and third level support services which are provided by support personnel located in ourheadquarters. Our full-time employee headcount in our operations and support departments has grown from 57 as of June 30, 2014 to 106 as of June 30, 2015to 175 as of June 30, 2016. Gross profit may vary from quarter to quarter and is primarily affected by our average selling prices, product costs, product mix, customer mix,geographical mix, shipping method, warranty costs and seasonality. 36 Operating Expenses Operating expenses consist of research and development, sales and marketing and general and administrative expenses. Personnel-related costs arethe most significant component of each of these expense categories and include salaries, benefits, payroll taxes, commissions and stock-based compensation.Our full-time employee headcount in our research and development, sales and marketing and general and administrative departments has grown from 239 asof June 30, 2014 to 334 as of June 30, 2015 to 434 as of June 30, 2016. We expect to continue to hire significant numbers of new employees to support ourgrowth. The timing of these additional hires could materially affect our operating expenses in any particular period, both in absolute dollars and as apercentage of revenue. We expect to continue to invest substantial resources to support our growth and anticipate that each of the following categories ofoperating expenses will increase in absolute dollar amounts for the foreseeable future. Research and development expenses, net Research and development expenses, net include personnel-related expenses such as salaries, benefits, stock-based compensation and payroll taxes.Our research and development employees are engaged in the design and development of power electronics, semiconductors, software and power linecommunications and networking. Our research and development expenses also include third-party design and consulting costs, materials for testing andevaluation, ASIC development and licensing costs, depreciation expense and other indirect costs. We devote substantial resources to ongoing research anddevelopment programs that focus on enhancements to and cost efficiencies in our existing products and timely development of new products that utilizetechnological innovation, thereby maintaining our competitive position. Research and development expenses are presented net of the amount of any grants we receive for research and development in the period in whichwe receive the grant. We previously received grants and other funding from the Binational Industrial Research and Development Foundation and the OCS.Certain of those grants require us to pay royalties on sales of certain of our products, which are recorded as cost of revenues. Sales and marketing expenses Sales and marketing expenses consist primarily of personnel-related expenses such as salaries, sales commissions, benefits, payroll taxes and stock-based compensation. These expenses also include travel, fees of independent consultants, trade shows, marketing, costs associated with the operation of oursales offices and other indirect costs. The expected increase in sales and marketing expenses is due to an expected increase in the number of sales andmarketing personnel and the expansion of our global sales and marketing footprint, enabling us to increase our penetration of new markets. While most of oursales in fiscal 2012 were in Europe, sales in the U.S. have grown steadily since fiscal 2012. Revenues generated in the U.S. represented 73.3% and 68.2% ofour revenues in fiscal 2015 and 2016, respectively. Sales in Europe, which represented most of our sales until fiscal 2013 also increased in absolute numbersin fiscal 2015 and 2016 and represented 20.1% and 22.7 % of our revenues in fiscal 2015 and 2016, respectively. We currently have a sales presence in theU.S., Canada, France, Germany, Italy, the Netherlands, the United Kingdom, Israel, Turkey Japan, Australia and China. We intend to continue to expand oursales presence to additional countries. General and administrative expenses General and administrative expenses consist primarily of salaries, employee benefits, payroll taxes and stock-based compensation related to ourexecutives, finance, human resources, information technology and legal organizations, travel expenses, facilities costs fees for professional services andregistration fees related to being a publicly traded company. Professional services consist of audit, legal, remuneration to board members, tax, insurance,information technology and other costs. 37 Non-Operating Expenses Financial income (expenses) Financial income (expenses) consist primarily of interest income, interest expense, gains or losses from foreign currency fluctuations and hedgingtransactions and gains or losses related to re-measurement of warrants granted in relation to long-term debt incurred by the Company in December 2012. Interest income consists of interest from our investment in available for sale marketable securities. Interest expense consists of interest and other charges paid to SVB in connection with our revolving line of credit, and interest on our term loan fromKreos, which was fully repaid on January 26, 2015. Gains or losses related to re-measurement of warrants granted in relation to long-term debt incurred by the Company in December 2012 are notexpected to occur in the future as the warrants were fully exercised on June 18, 2015. Our functional currency is the U.S. Dollar. With respect to our subsidiaries, other than our Israeli subsidiary, the functional currency is the applicablelocal currency. Financial expenses, net is net of financial income which consists primarily of the effect of foreign exchange differences between the U.S.Dollar and the New Israeli Shekel, the Euro and other currencies, related to our monetary assets and liabilities, and the realization of gain from hedgingtransactions. Taxes on income We are subject to income taxes in the countries where we operate. From incorporation through the end of fiscal 2014, we experienced operating losses and consequently accumulated a significant amount ofoperating loss carryforwards in several jurisdictions. By the end of fiscal 2015, we fully utilized our unused operating loss carryforwards with respect to U.S.federal tax obligations. In fiscal 2015, we recorded an income tax expense of $1.7 million for federal and state taxes in the U.S. In fiscal 2016, we recorded anet income tax expenses of $0.4 million for federal and state tax in the U.S, which consist $1.8 million current income tax expenses and $1.4 million deferredtax asset. SolarEdge Technologies Ltd., our Israeli subsidiary, is taxed under Israeli law. Income not eligible for benefits under the Investment Law is taxed atthe corporate tax rate. The corporate tax rate in Israel was 26.5% in fiscal 2014 and 2015. A recent amendment of the Israeli Income Tax Ordinance decreasedthe corporate tax rate to 25% commencing on January 1, 2016. However, the effective tax rate payable by a company that derives income from a “BenefitedEnterprise” or a “Preferred Enterprise”, as defined under the Investment Law, may be considerably less. Capital gains derived by an Israeli company aresubject to tax at the prevailing corporate tax rate. Our subsidiaries are subject to taxes in each of the countries in which they operate. All of our products are developed and manufactured by oursubsidiary, SolarEdge Technologies Ltd., which sells our products to its customers as well as to other entities in the SolarEdge group, which then sell them totheir customers. All intercompany sales of products and services are paid for or reimbursed pursuant to transfer price policies established for each of thecountries in which we operate, consistent with arm’s length profit levels. Due to our history of losses from inception through the end of fiscal 2014, we have recorded a full valuation allowance on our deferred tax assets. Infiscal 2015, the first fiscal year in which we were profitable, we used a portion of our carryforward losses from previous years in Israel and California. In fiscal2016, we continued being profitable, stopped recording valuation allowances and started recording deferred tax assets in the amount of $5.0 million in Israel,most of which is related to operating loss carryforward. Results of Operations The following tables set forth our consolidated statement of operations for fiscal 2014, 2015 and 2016. We have derived this data from ourconsolidated financial statements included elsewhere in this annual report. This information should be read in conjunction with our consolidated financialstatements and related notes included elsewhere in this this annual report. The results of historical periods are not necessarily indicative of the results ofoperations for any future period. 38 Fiscal Year Ended June 30, 2014 to 2015 2015 to 2016 2014 2015 2016 Change Change (In thousands) Revenues $133,217 $325,078 $489,843 $191,861 144.0% $164,765 50.7%Cost of revenues 111,246 243,295 337,887 132,049 118.7% 94,592 38.9%Gross profit 21,971 81,783 151,956 59,812 272.2% 70,173 85.8%Operating expenses: Research anddevelopment, net 18,256 22,018 33,231 3,762 20.6% 11,213 50.9%Sales and marketing 17,792 24,973 34,833 7,181 40.4% 9,860 39.5%General andadministrative 4,294 6,535 12,133 2,241 52.2% 5,598 85.7%Total operating expenses 40,342 53,526 80,197 13,184 32.7% 26,671 49.8%Operating income (loss) (18,371) 28,257 71,759 46,628 N/A 43,502 154.0%Financial income(expenses) (2,787) (5,077) 471 (2,290) 82.2% 5,548 N/A Other expenses - 104 - 104 N/A (104) N/A Income (loss) beforetaxes on income (21,158) 23,076 72,230 44,234 N/A 49,154 213.0%Taxes on income (taxbenefit) 220 1,955 (4,379) 1,735 788.6% (6,334) N/A Net income (loss) $(21,378) $21,121 $76,609 $42,499 N/A $55,488 262.7% Fiscal Year EndedJune 30, 2015 to 2016 2015 2016 Change (In thousands) Revenues $325,078 $489,843 $164,765 50.7% Comparison of fiscal year 2015 and 2016 Revenues Revenues increased by $164.8 million, or 50.7%, in fiscal 2016 as compared to fiscal 2015, primarily due to an increase in the number of systemssold worldwide with the U.S. being the largest market. The number of power optimizers sold increased by approximately 2.2 million units, or 62.1%, fromapproximately 3.5 million units in fiscal 2015 to approximately 5.7 million units in fiscal 2016. The number of inverters sold increased by approximately72,000 units, or 47.4%, from approximately 152,000 units in fiscal 2015 to approximately 224,000 units in fiscal 2016. The increase in the number of unitssold was mainly attributable to an increase in the number of systems sold in the U.S. market and certain countries in Europe. In general, our increase inrevenues in fiscal 2016 was attributable to rapid expansion in the U.S. market. Our blended average selling price per watt for units shipped decreased by$0.048, or 13.5%, in fiscal 2016 as compared to fiscal 2015, primarily due to increased sales of our commercial products which are characterized with loweraverage selling price per watt and a change in our customer mix, which included larger portion of sales to distribution channels and large customers to whomwe provide volume discounts. 39 Fiscal Year EndedJune 30, 2015 to 2016 2015 2016 Change (In thousands) Cost of revenues $243,295 $337,887 $94,592 38.9%Gross profit $81,783 $151,956 $70,173 85.8% Fiscal Year EndedJune 30, 2015 to 2016 2015 2016 Change (In thousands) Research and development, net $22,018 $33,231 $11,213 50.9% Fiscal Year EndedJune 30, 2015 to 2016 2015 2016 Change (In thousands) Sales and marketing $24,973 $34,833 $9,860 39.5% Cost of Revenues and Gross Profit Cost of revenues increased by $94.6 million, or 38.9%, in fiscal 2016 as compared to fiscal 2015, primarily due to (i) an increase in the volume ofproducts sold; (ii) an increase in personnel-related costs resulting from an increase in our operations and support headcount; (iii) increased warranty expenses-associated with the increase in our install base; and (iv) an inventory write off of $1.0 million related to unrecognized revenues from a customer that filed forbankruptcy. These increases were offset by reductions derived from increased efficiency in our supply chain including a decrease in shipping costs associatedwith the minimal use of air freight. Gross profit as a percentage of revenue increased from 25.2% fiscal 2015 to 31.0% in fiscal 2016 primarily due toreductions in per unit production costs, cost increased efficiency in our supply chain including the use of more ocean freight shipments rather than airshipments, lower costs associated with warranty product replacements, and general economies of scale in our personnel-related costs and other costsassociated with our support and operations departments. Operating Expenses: Research and Development, Net Research and development, net increased by $11.2 million, or 50.9%, in fiscal 2016 as compared to fiscal 2015, primarily due to an increase inpersonnel related costs of $8.0 million as a result of an increased headcount of engineers. The increase in headcount reflects our continuing investment inenhancements of existing products as well as development associated with bringing new products to market. Expenses related to consultants and sub-contractors, other directly related overhead costs, depreciation related to lab equipment and materials consumption for development increased by, $0.7million, $0.7 million, $0.6 million and $0.4 million, respectively, in fiscal 2016 as compared to fiscal 2015. In addition, grants received from the OCSdecreased by $0.8 million in fiscal 2016 as compared to fiscal 2015. Sales and Marketing Sales and marketing expenses increased by $9.9 million, or 39.5%, in fiscal 2016 as compared to fiscal 2015, primarily due to an increase inpersonnel related costs of $7.3 million as a result of an increase in headcount supporting our growth in the U.S. and Europe. In addition, expenses associatedwith our worldwide sales offices, travel and other directly related overhead costs, costs related to trade shows and marketing activities and the use of thirdparty vendors, increased by $1.5 million, $0.9 million and $0.2 million, respectively, in fiscal 2016 as compared to fiscal 2015. 40 Fiscal Year EndedJune 30, 2015 to 2016 2015 2016 Change (In thousands) General and administrative $6,535 $12,133 $5,598 85.7% Fiscal Year EndedJune 30, 2015 to 2016 2015 2016 Change (In thousands) Financial Income (Expenses) $(5,077) $471 $5,548 N/A Fiscal Year EndedJune 30, 2015 to 2016 2015 2016 Change (In thousands) Other expenses $104 - $(104) N/A Fiscal Year EndedJune 30, 2015 to 2016 2015 2016 Change (In thousands) Taxes on income (tax benefit) $1,955 $(4,379) $(6,334) N/A General and Administrative General and administrative expenses increased by $5.6 million, or 85.7%, in fiscal 2016 as compared to fiscal 2015, primarily due to an increase inpersonnel-related costs of $3.3 million related to (i) higher headcount in the legal, finance, human resources, and information technology departmentfunctions required of a fast-growing public company and (ii) increased expenses related to equity-based compensation and changes in managementcompensation. In addition, costs related to accounting, tax, legal and information systems consulting, costs related to being a public company, travel andother directly related overhead costs and costs related to the accrual of doubtful debts increased by $0.9 million, $0.9 million, $0.3 million, and $0.2 million,respectively, in the fiscal 2016 as compared to the fiscal 2015. Financial Income (Expenses) Financial income was $0.5 million in fiscal 2016 as compared to financial expenses of $5.1 million in fiscal 2015, primarily due to $6.7expenses related to re-measurement of certain warrants granted to Kreos in relation to the Kreos Loan in fiscal 2015, and expenses related to interest expenseson a term loan received from Kreos Capital IV (Expert Fund) Limited (“Kreos”) in December 2012 (the “Kreos Loan”) and the revolving line of credit fromSVB (described below) as compared to no such expenses in the fiscal 2016 due to full repayment of the Kreos Loan and exercise of the warrants by Kreos.Additionally, income of $1.9 million generated from hedging transactions and foreign exchange fluctuations between the Euro and the New Israeli Shekelagainst the U.S. Dollar in fiscal 2015 as compared to $0.2 million in fiscal 2016 and $0.7 million interest income, net of accretion (amortization) of discount(premium) on marketable securities and time deposits were generated in fiscal 2016 compared to $0.1 million in fiscal 2015. Other expenses Other expenses of $104 recorded in fiscal 2015 are related to the disposal of furniture and other equipment related to the move to our new offices inIsrael. Taxes on Income (tax benefit) Tax benefits were $4.4 million in fiscal 2016 compared to taxes on income of $2.0 million in fiscal 2015, primarily due to the recognizing of a $6.4million deferred tax asset for the first time in fiscal 2016 and an increase of $0.1 million in current tax expenses for fiscal 2016 as compared to fiscal 2015. 41 Fiscal Year EndedJune 30, 2015 to 2016 2015 2016 Change (In thousands) Net income $21,121 $76,609 $55,488 262.7% Fiscal Year EndedJune 30, 2014 to 2015 2014 2015 Change (In thousands) Revenues $133,217 $325,078 $191,861 144.0% Fiscal Year EndedJune 30, 2014 to 2015 2014 2015 Change (In thousands) Cost of revenues $111,246 $243,295 $132,049 118.7%Gross profit $21,971 $81,783 $59,812 272.2% Net Income Net income was $76.6 million in fiscal 2016 as compared to a net income of $21.1 million in fiscal 2015. Comparison of fiscal 2014 and 2015 Revenues Revenues increased by $191.9 million, or 144.0%, in fiscal 2015 as compared to fiscal 2014, primarily due to an increase in the number of systemssold worldwide with the U.S. being the largest market. The number of power optimizers sold increased by approximately 2.2 million units, or 169.5%, fromapproximately 1.3 million units in fiscal 2014 to approximately 3.5 million units in fiscal 2015. The number of inverters sold increased by approximately91,000 units, or 148.8%, from approximately 61,000 units in fiscal 2014 to approximately 152,000 units in fiscal 2015. The increase in the number of unitssold was mainly attributable to an increase in the number of systems sold in the U.S. market and certain countries in Europe. In general, our increase inrevenues in fiscal 2015 was attributable to rapid expansion in the U.S. market. Our blended average selling price per watt for units shipped decreased by$0.017, or 4.5%, in fiscal 2015 as compared to fiscal 2014, primarily due to a change in our customer mix, which included larger portion of sales to largecustomers to whom we provide volume discounts. Cost of Revenues and Gross Profit Cost of revenues increased by $132.0 million, or 118.7%, in fiscal 2015 as compared to fiscal 2014, primarily due to an increase in the number ofunits sold, an increase in personnel related costs as a result of an increase in our operations and support headcount and an increase in spending on airshipments. Gross profit as a percentage of revenue increased from 16.5% fiscal 2014 to 25.2% in fiscal 2015. Product costs generally decreased at a rateconsistent with our blended selling price. In addition, costs associated with air shipments decreased, as a percentage of revenues, as did costs associated withour warranty expenses, warranty provisions, personnel related costs and other costs associated with our support and operations departments. 42 Fiscal Year EndedJune 30, 2014 to 2015 2014 2015 Change (In thousands) Research and development, net $18,256 $22,018 $3,762 20.6% Fiscal Year EndedJune 30, 2014 to 2015 2014 2015 Change (In thousands) Sales and marketing $17,792 $24,973 $7,181 40.4% Fiscal Year EndedJune 30, 2014 to 2015 2014 2015 Change (In thousands) General and administrative $4,294 $6,535 $2,241 52.2% Operating Expenses: Research and Development, Net Research and development, net increased by $3.8 million, or 20.6%, in fiscal 2015 as compared to fiscal 2014, primarily due to an increase inpersonnel related costs of $2.3 million as a result of an increased headcount of engineers. The increase in headcount reflects our continuing investment inenhancements of existing products as well as development associated with bringing new products to market. In addition, expenses related to materialsconsumption for development, consultants and sub-contractors and other directly related overhead costs increased by $0.9 million, $0.6 million and $0.5million, respectively, in fiscal 2015 as compared to fiscal 2014. These amounts were partially offset by $0.5 million received pursuant to a grant from theOCS during fiscal 2015 as compared to fiscal 2014. Sales and Marketing Sales and marketing expenses increased by $7.2 million, or 40.4%, in fiscal 2015 as compared to fiscal 2014, primarily due to an increase inpersonnel related costs of $5.4 million as a result of an increase in headcount supporting our growth in the U.S. and Europe. In addition, expenses associatedwith our worldwide sales offices, travel and other directly related overhead costs and costs related to trade shows and marketing activities and the use of thirdparty vendors, increased by $0.8 million, $0.7 million and $0.3 million, respectively, in fiscal 2015 as compared to fiscal 2014. General and Administrative General and administrative expenses increased by $2.2 million, or 52.2%, in fiscal 2015 as compared to fiscal 2014, primarily due to an increase inpersonnel related costs of $1.5 million as a result of an increase in headcount as part of our ongoing efforts to enhance the legal, finance, human resources,recruiting and information technology functions required of a growing company and increased expenses related to bonuses and equity-based compensation.In addition, costs related to accounting, tax, legal and information systems consulting and costs related to being a public company increased by $0.4 millionand 0.3 million, respectively, in the fiscal 2015 as compared to fiscal 2014. 43 Fiscal Year EndedJune 30, 2014 to 2015 2014 2015 Change (In thousands) Financial expenses $2,787 $5,077 $2,290 82.2% Fiscal Year EndedJune 30, 2014 to 2015 2014 2015 Change (In thousands) Other expenses - $104 $104 N/A Fiscal Year EndedJune 30, 2014 to 2015 2014 2015 Change (In thousands) Taxes on income $220 $1,955 $1,735 788.6% Fiscal Year EndedJune 30, 2014 to 2015 2014 2015 Change (In thousands) Net income (loss) $(21,378) $21,121 $42,499 N/A Financial Expenses Financial expenses increased by $2.3 million in fiscal 2015 as compared to fiscal 2014, primarily due to increased expenses of $5.4 million relatedto the remeasurement of certain warrants, which were fully exercised on June 18, 2015 and $0.3 million related to an early prepayment fee related to longterm debt. These amounts were partially offset by gains associated with hedging transactions of the U.S. Dollar against the Euro and New Israeli Shekel in theamount of $1.7 million in fiscal 2015, compared to a loss of $0.2 million in fiscal 2014, a decrease of $1.1 million in interest expenses due to the fullrepayment of our borrowings under our revolving line of credit and other long term debt as well as a decrease of $0.4 million in expenses from foreignexchange fluctuations and bank charges. Other expenses Other expenses of $104,000 recorded in fiscal 2015 are related to the disposal of furniture and other equipment related to the move to our newoffices in Israel. Taxes on Income Taxes on income increased by $1.7 million in fiscal 2015 as compared to fiscal 2014, primarily due to tax payments and tax accruals with respect toU.S. federal taxes and taxes in certain U.S. states in which we operate. Net Income (loss) As a result of the factors discussed above, the Company reached profitability in fiscal 2015. Net income was $21.1 million in fiscal 2015 ascompared to a net loss of $21.4 million in fiscal 2014. 44 Fiscal Year Ended June 30, 2014 2015 2016 (In thousands) Net cash provided by (used in) operating activities $(17,845) $12,054 $52,427 Net cash used in investing activities (3,147) (13,937) (125,837)Net cash provided by financing activities 17,676 136,953 2,779 Increase (decrease) in cash and cash equivalents $(3,316) $135,070 $(70,631) Liquidity and Capital Resources The following table shows our cash flows from operating activities, investing activities and financing activities for the stated periods: As of June 30, 2016, our cash and cash equivalents were $74.0 million. This amount does not include $111.6 million invested in available for salemarketable securities and $0.9 million of restricted cash (primarily held to secure letters of credit to vendors and bank guarantees securing office leasepayments). On March 31, 2015, we consummated our initial public offering in which we sold 8,050,000 shares of our common stock at a price of $18.00 pershare, resulting in net proceeds of $131.2 million, after deducting underwriting discounts and commissions and $3.6 million in offering expenses. As of June30, 2016, we maintain the net proceeds received from our initial public offering as well as cash provided by operating activities in cash and cash equivalentsand in available-for-sale marketable securities. Our principal uses of cash are funding our operations and other working capital requirements. We believe thatcash provided by operating activities as well as our cash and cash equivalents, including the net proceeds from our initial public offering will be sufficient tomeet our anticipated cash needs for at least the next 12 months. Operating Activities During fiscal 2016, cash provided by operating activities was $52.4 million derived mainly from a net income of $76.6 million that included $13.5million of non-cash expenses. An increase of $19.3 million in warranty obligations, $8.6 million in deferred revenues and $3.3 million accruals foremployees and a decrease of $10.5 million in prepaid expenses and other receivables was offset by an increase of $37.3 million in trade receivables, $7.4million in inventories, $6.4 million in deferred tax assets and a decrease of $28.3 million in trade payables and other accounts payable. For fiscal 2015, cash provided by operating activities was $12.1 million derived mainly from a net income in the amount of $21.1 million thatincluded $9.7 million of non-cash expenses. An increase of $46.3 million in trade payables and other accounts payable, $13.7 million in warrantyobligations, $4.0 million in deferred revenues and $1.7 million in accruals for employees was offset by an increase of $48.5 million in inventories, $19.6million in prepaid expenses and other receivables and $16.3 million in trade receivables. For fiscal 2014, cash used in operating activities was $17.8 million mainly due to a net loss of $21.4 million that included $3.5 million of non-cashexpenses. Although revenue grew 68.6% during fiscal 2014, we incurred a deficit in working capital while extending payments to our vendors to matchcollections from our customers and inventory management. Increases in fiscal 2014 compared to fiscal 2013 of $9.9 million in trade receivables, $7.4 millionin prepaid expenses and other receivables and $10.7 million in inventories, were offset by an increase of $19.4 million in trade payables, $7.8 millionincrease in warranty obligations and another $1.3 million in accruals for employees and other accounts payable. Investing Activities During fiscal 2016, net cash used in investing activities was $125.8 million, of which $118.5 million was invested in available-for-sale marketablesecurities, $15.7 million related to capital investments in laboratory equipment, end of line testing equipment, automated assembly lines, manufacturingtools and leasehold improvements and $0.8 million related to intangible assets investment. This was offset by $6.4 million from the maturities of available-for-sale marketable securities and a $2.8 million repayment of a security deposit held to secure payments under our previous office lease and the expiration ofa letter of credit, which was issued by us to one of our contract manufacturers. 45 During fiscal 2015, net cash used in investing activities was $13.9 million, of which $11.8 million related to capital investments in laboratoryequipment, end of line testing equipment, manufacturing tools and leasehold improvements, $2.0 million related to security deposits held to secure letters ofcredit to vendors and bank guarantees securing office lease payments, and $0.1 million related to an increase of long term deposits. During fiscal 2014, net cash used in investing activities was $3.1 million, mostly attributed to capital investments in laboratory equipment, end ofline testing equipment and manufacturing tools. Financing Activities For fiscal 2016, net cash provided by financing activities was $2.8 million, of which $3.0 million related to cash received from the exercise ofemployee and non-employee stock options, offset by $0.2 million attributed to issuance costs related to initial public offering. For fiscal 2015, net cash provided by financing activities was $137.0 million, of which $131.4 million was net proceeds from our initial publicoffering, $24.7 million was net proceeds from our Series E convertible preferred stock issuance, $23.0 million was from short-term borrowings under ourrevolving line of credit with SVB and $0.1 million was proceeds from exercise of employee stock options, offset by $36.3 million of repayment of therevolving line of credit with SVB and $5.9 million of repayment of a term loan. For fiscal 2014, net cash provided by financing activities was $17.7 million, of which $10.7 million was net proceeds from our Series D-2 andSeries D-3 convertible preferred stock issuances in fiscal 2014 and $9.4 million was from short-term borrowings under our $20 million revolving line of creditwith SVB, offset by $2.4 million of repayment of the Kreos term loan. Debt Obligations $20 million Revolving Line of Credit. In June 2011, we entered into an agreement with SVB for a revolving line of credit, which permitted borrowings of up to $20 million subject tocertain limitations based on our accounts receivable and inventories. Interest was payable at a prime rate plus margin of 0.75% to 2.75%. The average interestrate on our outstanding borrowings during fiscal 2014 was 4.9%. In October, 2014, we had entirely repaid the revolving line of credit with SVB. $40 Million Revolving Line of Credit In February 2015, we amended and restated an agreement with SVB for a revolving line of credit, which permits aggregate borrowings of up to$40 million in an amount not to exceed 80% of the eligible accounts receivable and bears interest, payable monthly, at SVB’s prime rate plus a margin of0.5% to 2.0%. The revolving line of credit will terminate, and outstanding borrowings will be payable, on December 31, 2016. As of June 30, 2016, we hadno outstanding borrowings under our $40 million revolving line of credit with SVB. In connection with the amended and restated revolving line of credit, we granted SVB security interests in substantially all of our assets, including afirst-priority security interest in our trade receivables, cash and cash equivalents (the “SVB Priority Collateral”). The agreement contains certain financialcovenants requiring us to maintain EBITDA and liquidity at specified levels. Specifically, we are required to maintain negative Adjusted EBITDA (defined inaccordance with US GAAP as (a) net income, plus (b) the extent deducted in the calculation of net income, interest, taxes, depreciation and amortization, plus(c) to the extent deducted in the calculation of net income, non-cash stock-based compensation) of no greater than ($1,500,000) as of March 31, 2015, andpositive Adjusted EBITDA of at least (i) $1,500,000 as of June 30, 2015, (ii) $3,500,000 as of September 30, 2015 and December 31, 2015, (iii) $1,500,000 asof March 31, 2016 and (iv) $3,500,000 for the fiscal year ended June 30, 2016 and for each calendar quarter thereafter. In addition, we are required tomaintain liquidity (defined as our unrestricted and unencumbered cash, plus availability under the revolving line of credit) of $6,750,000. The amended andrestated revolving line of credit also contains covenants that restrict our ability to borrow money, grant liens, pay dividends, dispose of assets or engage inbusiness combinations. As of June 30, 2016, the company met all covenants related to this revolving credit line. 46 Payment Due By Period Total LessThan1 Year 1 – 3Years 4 – 5Years MoreThan5 Years (In thousands) Operating leases(1) 15,144 2,404 4,209 3,314 5,217 Purchase commitments under agreements(2) 83,142 83,142 - - - Total 98,286 85,546 4,209 3,314 5,217 Term Loan On December 28, 2012, we entered into a term loan agreement with Kreos, providing for a term loan of up to $10 million, which was fully drawn onthe closing date. The borrowings under the term loan were primarily used to finance working capital needs. On January 26, 2015, we repaid the entireoutstanding balance of the Kreos term loan. Interest on the term loan was payable monthly at a rate of 11.90% per year, compounded on a monthly basis. Principal is paid in 33 equal monthlyinstallments from September 1, 2013 through May 1, 2016, the last of which was prepaid in advance pursuant to the terms of the term loan. Payments ofprincipal and interest on the term loan were in Euros. In connection with the term loan agreement, we granted Kreos 563,014 D-1 Warrants to purchase Series D-1 convertible preferred shares at anexercise price of $2.309. The D-1 Warrants were exercised on June 18, 2015 and we issued to Kreos 154,768 shares of common stock. We believe that cashprovided by operating activities as well as our cash and cash equivalents, including the net proceeds from our initial public offering and availableborrowings under our currently undrawn revolving credit line with SVB as further described above will be sufficient to meet our anticipated cash needs for atleast the next 12 months. In the future, we expect our operating and capital expenditures to increase as we expand our business and grow our revenue, whichresults in increased accounts receivable and inventory balances, and increased headcount. Our ability to generate cash from operations is subject tosubstantial risks described under the caption “Risk Factors.” If any of these risks materialize, we may be unable to generate or sustain positive cash flow fromoperating activities or raise additional capital. We would then be required to use existing cash and cash equivalents to support our working capital and othercash requirements. If additional sources of liquidity are required to support our working capital requirements or operational expansion, we may seek to raisefunds through debt financing or from other sources in the future, but we can provide no assurance that these transactions could be consummated on termsacceptable to us or at all. Failure to raise sufficient capital when needed could have a material adverse effect on our business, results of operations andfinancial position. Contractual Obligations The following table summarizes our outstanding contractual obligations as of June 30, 2016: (1)Represents future minimum lease commitments under non-cancellable operating lease agreements through which we lease our operating facilities. (2)Represents non-cancelable amounts associated with our manufacturing contracts. Such purchase commitments are based on our forecastedmanufacturing requirements and typically provide for fulfillment within agreed-upon or commercially standard lead-times for the particular part orproduct. The timing and amounts of payments represent our best estimates and may change due to business needs and other factors. Off-Balance Sheet Arrangements In fiscal 2014, 2015 and 2016 we did not have any off-balance sheet arrangements. Critical Accounting Policies and Significant Management Estimates We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”) The preparationof consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costsand expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable underthe circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between ourestimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believethat the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the moresignificant areas involving management’s judgments and estimates. Critical accounting policies and estimates are those that we consider the most importantto the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a resultof the need to make estimates about the effects of matters that are inherently uncertain. 47 Revenue Recognition We generate revenues from the sale of DC optimized inverter systems for solar PV installations which include our power optimizers, inverters andcloud-based monitoring platform. Our worldwide customer base includes large solar installers, distributors, EPCs and PV module manufacturers. Our productsare fully functional at the time of shipment to the customer and do not require production, modification or customization. We recognize revenues when all ofthe following conditions are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred; (iii) the price is fixed or determinable and(iv) collectability is reasonably assured. Provisions for rebates, sales incentives, and discounts to customers are accounted for as reductions in revenue in thesame period that the related sales are recorded. We generally sell our products to our customers pursuant to a customer’s standard purchase order and our customary terms and conditions. We donot offer rights to return our products other than for normal warranty conditions, and as such revenue is recorded upon shipment of products to customers andtransfer of title and risk of loss under standard commercial terms. We evaluate the creditworthiness of our customers to determine that appropriate credit limitsare established prior to the acceptance and shipment of an order. Prior to May 2013, we provided our full web-based monitoring platform free of charge for a limited period of time after which the customer couldelect whether to continue and receive a basic service for free or subscribe for a full line of services. Revenues associated with our web-based monitoringplatform were recognized ratably over the term of 18 to 36 months (the free of charge period) and revenues associated with the basic functionality wererecognized ratably over 25 years. Since May 2013, we have provided our full web-based monitoring platform free of charge and revenues associated with theservice since that date are being recognized ratably over 25 years. In the absence of vendor-specific objective evidence or third party comparable pricing forsuch service, management determines the revenue levels of this service based on the costs associated with providing the service plus appropriate margins thatreflect management’s best estimate of the selling price. Since May 2013, these revenues were minimal and we do not expect this to become a significantsource of revenue in the near future. Product Warranty We provide a standard limited product warranty against defects in materials and workmanship under normal use and service conditions. Our standardwarranty period is 25 years for our power optimizers, 12 years for our inverters and 10 years for our storage interface. In certain cases, customers can purchaseextended warranties for inverters that increase the warranty period to up to 25 years. Our products are designed to meet the warranty periods and our reliability procedures cover component selection, design, accelerated life cycle testsand end of manufacturing line testing. However, since our history in selling power optimizers and inverters is substantially shorter than the warranty period,the calculation of warranty provisions is inherently uncertain. We accrue for estimated warranty costs at the time of sale based on anticipated warranty claims and actual historical warranty claims experience.Warranty provisions are computed on a per-unit sold basis, are based on our best estimate of such costs and are included in our cost of revenues. The warrantyobligation is determined based on actual and predicted failure rates of the products, cost of replacement and service and delivery costs incurred to correct aproduct failure. Our warranty obligation requires management to make assumptions regarding estimated failure rates and replacement costs. In order to predict the failure rate of each of our products, we have established a reliability model based on the estimated mean time between failures(“MTBF”). The MTBF represents the average elapsed time predicted for each product unit between failures during operation. Applying the MTBF failure rateover our install base for each product type and generation allows us to predict the number of failed units over the warranty period and estimates the costsassociated with the product warranty. Predicted failure rates are updated periodically based on data returned from the field and new product versions, as arereplacement costs which are updated to reflect changes in our actual production costs for our products, labor costs and actual logistics costs. 48 Since the MTBF model does not take into account additional non-systematic failures such as failures caused by workmanship or manufacturing ordesign-related issues, and since warranty claims are at times opened for cases in which the error has been triggered by an improper installation, we havedeveloped a supplemental model to predict such cases and recognize the associated expenses ratably over the expected claim period. This model, which isbased on actual root cause analysis of returned products, identification of the causes of claims and time until each identified problem is revealed, allows us tobetter predict actual warranty expenses and is updated periodically based on our experience, taking into account the installed base of approximately12.5 million power optimizers and approximately 513,000 inverters as of June 30, 2016. If actual warranty costs differ significantly from these estimates, adjustments may be required in the future, which could adversely affect our grossprofit and results of operations. Warranty obligations are classified as short term and long term warranty obligations based on the period in which thewarranty is expected to be claimed. The warranty provision (short and long term) was $18.2 million, $31.9 million and $51.2 million in fiscal 2014, 2015 and2016, respectively. Inventory Valuation Our inventories comprise sellable finished goods, raw materials bought on behalf of our contract manufacturers and faulty units returned under ourwarranty policy. Sellable finished goods and raw material inventories are valued at the lower of cost or market, based on the moving average cost method. Certainfactors could affect the realizable value of our inventories, including market and economic conditions, technological changes, existing product changes(mainly due to cost reduction activities) and new product introductions. We consider historic usage, expected demand, anticipated sales price, the effect ofnew product introductions, product obsolescence, product merchantability and other factors when evaluating the value of inventories. Inventory write-downsare equal to the difference between the cost of inventories and their estimated fair market value. Inventory write-downs are recorded as cost of revenues in theaccompanying statements of operations and were, $1.1 million, $1.0 million and $2.5 million in fiscal 2014, 2015 and 2016, respectively. Faulty products returned under our warranty policy are often refurbished and used as replacement units in warranty cases. As we do not yet havesufficient history of refurbish utilization rates, such products are written off upon receipt. We do not believe that there is a reasonable likelihood that there will be a material change in the future estimates or assumptions that we use torecord inventory at the lower of cost or market. However, if estimates regarding customer demand are inaccurate or changes in technology affect demand forcertain products in an unforeseen manner, we may be exposed to losses that could be material. Stock-Based Compensation Expense We account for stock-based compensation granted to employees, non-employee directors and independent contractors in accordance with ASC 718,“Compensation — Stock Compensation” and ASC 505-50, “Equity-Based Payments to Non-Employees,” which require the measurement and recognition ofcompensation expense for all stock-based payment awards based on fair value. The fair value of each option award is estimated on the grant date using the Black-Scholes-Merton option-pricing model. The stock-basedcompensation expense, net of forfeitures, is recognized using a straight-line basis over the requisite service period of the award, which is generally four years.Estimated forfeitures are based on actual historical pre-vesting forfeitures. Key Assumptions The Black-Scholes-Merton option-pricing model requires the input of highly subjective assumptions, including the fair value of the underlyingcommon stock, the expected volatility of the price of our common stock, the expected term of the option, risk-free interest rates and the expected dividendyield of our common stock. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and differentassumptions are used, our stock-based compensation expense could be materially different in the future. These assumptions are estimated as follows: •Fair value of our common stock. Because our stock was not publicly traded prior to March 26, 2015, for periods prior to our initial publicoffering we have estimated the fair value of our common stock by using, among other factors, third party valuations at the time of grant of theoption by considering a number of objective and subjective factors, including data from other comparable companies, issuance of convertiblepreferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of capital stock and general and industryspecific economic outlook. The fair value of the underlying common stock was determined by the management until such time as theCompany’s common stock is listed on an established stock exchange or national market system. Since the completion of our initial publicoffering, we have valued our common stock by reference to the trading price of our common stock in the public market. 49 Fiscal Year Ended June 30, 2014 2015 2016 Expected term (in years) 6.02 – 6.27years 5.50 – 6.27years 5.50 – 6.11years Expected volatility 46.3% - 55.8% 46.5% - 55.1% 55.45% -56.03%Risk-free rate 1.62 – 1.94% 1.39% - 2.06% 1.39% - 1.97%Dividend yield 0.00% 0.00% 0.00% •Expected term. The expected term represents the period that our stock-based awards are expected to be outstanding. For stock option awardsthat were at the money when granted, we have based our expected term on the simplified method available under SAB 110, as we do not havesufficient historical experience for determining the expected term of the stock option awards granted. For stock option awards that were in themoney when granted1 prior to the time that our common stock traded in the public market, we use an expected term that we believe isappropriate under these circumstances, which does not produce a materially different result than determining the expected term for our stockoptions that were granted with an exercise price at least equal to the then current fair market value of our common stock. •Risk-free rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected terms of theoptions for each option group. •Dividend yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.Consequently, we used an expected dividend yield of zero. If any of the assumptions used in the Black-Scholes-Merton model change significantly, future stock-based compensation awards for employees maydiffer materially compared with the awards granted previously. The following table presents the assumptions used to estimate the fair value of options granted to employees during the periods presented: During fiscal 2014, 2015 and 2016, we incurred a non-cash stock-based compensation expense of $1,082,000, $2,956,000 and $9,044,000,respectively. We expect to continue to grant stock options in the future, and to the extent that we do, our actual share-based compensation expense foremployees and consultants recognized will likely increase. 50 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial positiondue to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates,customer concentrations and interest rates. We do not hold or issue financial instruments for trading purposes. Foreign Currency Exchange Risk Approximately 31.8% and 22.0% of our revenues for fiscal 2015 and fiscal 2016, respectively, were earned in non-U.S. dollar denominatedcurrencies, principally the Euro. Our expenses are generally denominated in the currencies in which our operations are located, primarily the U.S. dollar andNew Israeli Shekel, and to a lesser extent the Euro and British pound sterling. Our New Israeli Shekel-denominated expenses consist primarily of personneland overhead costs. Our consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchangerates and may be adversely affected in the future due to changes in foreign exchange rates. A hypothetical 10% change in foreign currency exchange ratesbetween the Euro and the U.S. dollar would increase or decrease our net income by $9.5 million for fiscal 2016. A hypothetical 10% change in foreigncurrency exchange rates between the New Israeli Shekel and the U.S. dollar would increase or decrease our net income by $3.2 million for fiscal 2016. For purposes of our consolidated financial statements, local currency assets and liabilities are translated at the rate of exchange to the U.S. dollar onthe balance sheet date and local currency revenues and expenses are translated at the exchange rate as of the date of the transaction or at the averageexchange rate to the U.S. dollar during the reporting period. To date, we have used derivative financial instruments, specifically foreign currency forward contracts, to manage exposure to foreign currency risksby hedging a portion of our account receivable balances denominated in Euros expected to be paid within six months. Our foreign currency forward contractsare expected to mitigate exchange rate changes related to the hedged assets. We do not use derivative financial instruments for speculative or tradingpurposes. We had cash and cash equivalents of $9.8 million, $144.8 million, and $74.0 million at June 30, 2014, June 30, 2015 and June 30, 2016,respectively, which was held for working capital purposes. In addition, we had available-for-sale marketable securities with an estimated fair value of $111.6million on June 30, 2016. Since most of our investments and cash and cash equivalents are held in U.S. dollar-denominated money market funds, we believethat our cash and cash equivalents do not have any material exposure to changes in exchange rates. Interest Rate Risk As of June 30, 2016, we had no outstanding borrowings. Concentrations of Major Customers Our trade accounts receivables potentially expose us to a concentration of credit risk with our major customers. For fiscal 2016, three majorcustomers accounted for 32.5% of total revenues, and as of June 30, 2016 these same customers accounted for approximately 35.4% of our consolidated tradereceivables balance. We currently do not foresee a credit risk associated with these receivables. In fiscal 2015 and 2014, one major customer accounted for24.6% and 19.1%, of our total revenues, respectively. Inflation We do not believe that inflation had a material effect on our business, financial condition or results of operations in the last three years. If our costswere to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability orfailure to do so could harm our business, financial condition and results of operations. Commodity Price Risk We are subject to risk from fluctuating market prices of certain commodity raw materials, including copper, which are used in our products. Prices ofthese raw materials may be affected by supply restrictions or other market factors from time to time, and we do not enter into hedging arrangements tomitigate commodity risk. Significant price changes for these raw materials could reduce our operating margins if we are unable to recover such increases fromour customers, and could harm our business, financial condition and results of operations. 51 Three Months Ended Sept. 30,2014 Dec. 31,2014 Mar. 31,2015 June 30,2015 Sept. 30,2015 Dec. 31,2015 Mar. 31,2016 June 30,2016 (In thousands, unaudited) Revenues $66,969 $73,290 $86,399 $98,420 $115,054 $124,832 $125,205 $124,752 Cost of revenues 52,939 57,509 62,698 70,149 81,527 86,250 84,471 85,639 Gross profit 14,030 15,781 23,701 28,271 33,527 38,582 40,734 39,113 Operating expense Research and development,net 5,059 4,768 5,490 6,701 6,991 8,299 8,709 9,232 Sales and marketing 5,461 5,658 6,422 7,432 8,244 8,833 8,826 8,930 General and administrative 1,159 1,121 1,990 2,265 3,418 2,188 3,460 3,067 Total operating expenses 11,679 11,547 13,902 16,398 18,653 19,320 20,995 21,229 Operating income 2,351 4,234 9,799 11,873 14,874 19,262 19,739 17,884 Financial income (expenses) 516 (458) (3,436) (1,699) (72) (959) 2,029 (527)Other expenses - - - 104 - - - - Income before taxes on income 2,867 3,776 6,363 10,070 14,802 18,303 21,768 17,357 Taxes on income (tax benefit) 347 401 398 809 370 (5,802) 969 84 Net income $2,520 $3,375 $5,965 $9,261 $14,432 $24,105 $20,799 $17,273 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Financial Statements Reports of Independent Registered Public Accounting FirmF-2Consolidated Balance Sheets as of June 30, 2016 and 2015F-5Consolidated Statements of Operations and Comprehensive Income (loss) for the years ended June 30, 2016, 2015 and 2014F-7Statements of Changes in Stockholders’ Equity (deficiency) for the years ended June 30, 2016, 2015 and 2014F-9Consolidated Statements of Cash Flows for the years ended June 30, 2016, 2015 and 2014F-11Notes to Consolidated Financial StatementsF-13Unaudited Quarterly Results of Operations The following table sets forth our unaudited quarterly consolidated statement of operations data for each of the eight quarters ended June 30, 2016.The data presented below has been prepared on the same basis as the audited consolidated financial statements included elsewhere in this this annual reportand, in the opinion of management, reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data.This information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this this annual report.The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 52 ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosurecontrols and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30, 2016. Indesigning and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and proceduresmust reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controlsand procedures relative to their costs. Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effectiveto provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to ourmanagement, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f)and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation ofconsolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Management assessed our internal control over financial reporting as of June 30, 2016, the end of our 2016 fiscal year. Management based itsassessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (2013 framework). Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financialreporting controls, process documentation, accounting policies, and our overall control environment. Based on this assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal yearto provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reportingpurposes in accordance with U.S. generally accepted accounting principles. We reviewed the results of management’s assessment with the Audit Committeeof our Board of Directors. Our independent registered public accounting firm, Ernst & Young, independently assessed the effectiveness of the company’s internal control overfinancial reporting, as stated in the firm’s attestation report, which is incorporated by reference into Part II, Item 8 of this Form 10-K. Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or ourinternal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, canprovide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact thatthere are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all controlsystems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues andinstances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of futureevents, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of anyevaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditionsor deterioration in the degree of compliance with policies or procedures.Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred duringour most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. 53 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Our Executive Officers Name Age(1) Position(s) HeldGuy Sella 52 Chief Executive Officer and Chairman of the BoardRonen Faier 45 Chief Financial OfficerRachel Prishkolnik 48 Vice President, General Counsel & Corporate SecretaryZvi Lando 51 Vice President, Global SalesLior Handelsman 42 Vice President, Marketing and Product StrategyYoav Galin 43 Vice President, Research & DevelopmentMeir Adest 40 Vice President, Core Technologies (1) As of June 30, 2016. Guy Sella is a co-founder of SolarEdge and has served as Chairman of the board of directors and Chief Executive Officer since 2006. Prior tofounding SolarEdge, Mr. Sella was a partner at Star Ventures, a leading venture capital firm, where he led investments in several startups, includingAeroScout, Inc. (acquired by Stanley Black & Decker, Inc.) and Vidyo, Inc. Previously, Mr. Sella acted as the director of technology for the Israeli NationalSecurity Council and as the secretary for the National Committee for Cyber Protection. Mr. Sella also served as the head of the Electronics ResearchDepartment (“ERD”), one of Israel’s national labs, which is tasked with developing innovative and complex systems. Mr. Sella holds a B.S. in Engineeringfrom the Technion, Israel’s Institute of Technology in Haifa. Mr. Sella brings to our board of directors demonstrated senior leadership skills, expertise fromyears of experience in electronics industries, and historical knowledge of our Company from the time of its founding. Ronen Faier joined SolarEdge in 2011 as our Chief Financial Officer. Prior to joining SolarEdge, Mr. Faier served from 2008 to 2010 as the chieffinancial officer of Modu Ltd, a privately owned Israeli company, which entered into voluntary liquidation proceedings in Israel in December 2010. Between2004 and 2007, Mr. Faier held several senior finance positions, including chief financial officer at M-Systems prior to its acquisition by SanDisk Corporationin 2006. Previously, Mr. Faier served as corporate controller of VocalTec Communications Ltd. Mr. Faier holds a CPA (Israel) license, an MBA (with Honors)from Tel Aviv University and a B.A. in Accounting and Economics from the Hebrew University in Jerusalem. Rachel Prishkolnik joined SolarEdge in 2010 as our Vice President, General Counsel and Corporate Secretary. Prior to joining SolarEdge,Mrs. Prishkolnik served as the vice president, general counsel & corporate secretary of Gilat Satellite Networks Ltd. At Gilat she held various positionsbeginning as legal counsel in 2001 and becoming corporate secretary in 2004 and vice president, general counsel in 2007. Prior to Gilat, she worked at thelaw firm of Jeffer, Mangels, Butler & Marmaro LLP in Los Angeles. Before that, Mrs. Prishkolnik worked at Kleinhendler & Halevy (currently GKH LawOffices.) in Tel Aviv. Mrs. Prishkolnik holds an LLB law degree from the Faculty of Law at the Tel Aviv University and a B.A. from Wesleyan University inConnecticut. She is licensed to practice law and is a member of the Israeli Bar. Zvi Lando joined SolarEdge in 2009 as our Vice President, Global Sales. Mr. Lando had previously spent 16 years at Applied Materials, based inSanta Clara, California, where he held several positions, including process engineer for metal disposition and chemical vapor deposition systems, businessmanager for the Process Diagnostic and Control Group, vice president, and general manager of the Baccini Cell Systems Division in the Applied MaterialsSolar Business Group. Mr. Lando holds a B.S. in Chemical Engineering from the Technion, Israel’s Institute of Technology in Haifa, and is the author ofseveral publications in the field of chemical disposition. Lior Handelsman co-founded SolarEdge in 2006 and currently serves as our Vice President, Marketing and Product Strategy where he isresponsible for SolarEdge’s marketing activities, product management and business development. Previously, Mr. Handelsman served as Vice President,Product Strategy and Business Development, from 2009 through 2013 and Vice President, Product Development, from our founding through 2009.Mr. Handelsman also served as acting Vice President, Operations, from 2008 through 2010. Prior to co-founding SolarEdge, Mr. Handelsman spent 11 yearsat the ERD, where he held several positions including research and development power electronics engineer, head of the ERD’s power electronics group andmanager of several large-scale development projects and he was a branch head in his last position at the ERD. Mr. Handelsman holds a B.S. in ElectricalEngineering (cum laude) and an MBA from the Technion, Israel’s Institute of Technology in Haifa. 54 Yoav Galin co-founded SolarEdge in 2006 and has served since our founding as our Vice President, Research & Development where he isresponsible for leading the execution of our technology strategy, building and managing the technology team and overseeing research and development ofSolarEdge’s innovative PV power harvesting products. Prior to joining SolarEdge, Mr. Galin served for 11 years at the ERD. During this period, Mr. Galinheld various research and development and management positions, including his last position at the ERD where he led a project and its development team ofover 30 hardware and software engineers. He was also responsible for overseeing the research and development of future technologies. Mr. Galin holds a B.S.in Electrical Engineering from Tel Aviv University. Meir Adest co-founded SolarEdge in 2006 and has served since 2007 as our Vice President, Core Technologies where he is responsible forSolarEdge’s certification and long-term reliability of SolarEdge products and research of future technologies. Prior to co-founding SolarEdge, Mr. Adestspent 7 years at the ERD, where he held a number of positions, starting as an embedded software engineer for mission-critical systems, progressing to theposition of a software team leader, managing a large-scale techno-operational project, and finally managing a multi-disciplinary section with approximately25 hardware and software engineers. Mr. Adest holds a B.Sc in mathematics, physics, and computer science from the Hebrew University in Jerusalem. Our Board of DirectorsThe following table sets forth certain information concerning our directors:Name Age (1) Position(s) HeldGuy Sella 52 Chief Executive Officer and Chairman of the BoardDan Avida 52 Director*Yoni Cheifetz 56 Director*Marcel Gani 63 Director*Doron Inbar 66 Director*Avery More 61 Director*Tal Payne 44 Director* (1) As of June 30, 2016 * Our board of directors has determined that this director is independent under the standards of the NASDAQ Global Select Market. Guy Sella. Please see Item 1 of Part I, “ITEM 1. Business—Executive Officers of the Registrant.” Dan Avida has served as a member of our board of directors since 2007. Mr. Avida is a partner at Opus Capital. Before joining Opus Capital in 2005,Mr. Avida served for four years as president and chief executive officer at Decru Inc., a pioneering storage security company that Mr. Avida co-founded in2001. Between 1989 and 1999 Mr. Avida was employed by Electronics for Imaging, Inc. (NASDAQ:EFII), where he held a number of positions and ultimatelyserved as chairman and chief executive officer. Prior to Electronics for Imaging, Mr. Avida served as an officer in the Israel Defense Forces. Mr. Avida holds aB.Sc. in Computer Engineering (summa cum laude) from the Technion, the Israel Institute of Technology. Mr. Avida’s historical knowledge of our companyand years of experience in working with innovative companies in the United States and Israel provide a valuable perspective to the board of directors.Yoni Cheifetz has served as a member of our board of directors since 2010. Since 2006, Mr. Cheifetz has served as a Partner at Lightspeed VenturePartners, where he focuses on investment activity in Israel in areas of interest, including the Internet, general media, mobile, communications, software,semiconductors and cleantech. Prior to joining Lightspeed Venture Partners, Mr. Cheifetz was a partner with Star Ventures from 2003 to 2006. Before joiningStar Ventures, Mr. Cheifetz was a serial entrepreneur and the founder, CEO and Chairman of several privately held software companies most of which havebeen acquired. Mr. Chiefetz holds a B.Sc. in Applied Mathematics from Tel Aviv University and a M.Sc. in Applied Mathematics and Computer Science fromthe Weizmann Institute of Science. Mr. Cheifetz’s historical knowledge of our company and extensive experience in working with technology companiesqualify him to serve as a member of our board of directors. 55 Marcel Gani has served as a member of our board of directors since 2015. From 2005 to 2009, Mr. Gani lectured at Santa Clara University, where hetaught classes on accounting and finance. In 1997, Mr. Gani joined Juniper Networks, Inc. where he served as chief financial officer and executive vicepresident from December 1997 to December 2004, and as chief of staff from January 2005 to March 2006. Prior to joining Juniper, Mr. Gani served as chieffinancial officer at various companies, including NVIDIA Corporation, Grand Junction Networks, Primary Access Corporation and Next Computers. Mr. Ganiserved as corporate controller at Cypress Semiconductor from 1991 to 1992. Prior to joining Cypress Semiconductor, Mr. Gani worked at Intel Corporationfrom 1978 to 1991. Mr. Gani holds a B.A. in Applied Mathematics from Ecole Polytechnique Federal and an M.B.A. from University of Michigan, Ann Arbor.Mr. Gani serves on the board of directors of Infinera, where he is a member of the audit committee and the chairman of the compensation committee. Mr. Ganibrings valuable financial and business experience to our board through his years of experience as a chief financial officer with public companies andexperience as a director of other public companies. Doron Inbar has been a venture partner at Carmel Ventures, an Israeli‑based venture capital firm that invests primarily in early stage companies inthe fields of software, communications, semiconductors, internet, media, and consumer electronics, since 2006. Previously, Mr. Inbar served as the presidentof ECI Telecom Ltd., a global telecom networking infrastructure provider, from November 1999 to December 2005 and its chief executive officer fromFebruary 2000 to December 2005. Mr. Inbar joined ECI Telecom Ltd. in 1983 and during his first eleven years with the company, served in various positionsat its wholly‑owned U.S. subsidiary, ECI Telecom, Inc., in the U.S., including executive vice president and General Manager. In July 1994, Mr. Inbar returnedto Israel to become vice president, corporate budget, control and subsidiaries of ECI Telecom Ltd. In June 1996, Mr. Inbar was appointed senior vicepresident and chief financial officer of ECI Telecom Ltd., and he became executive vice president of ECI Telecom Ltd. in January 1999. Mr. Inbar has servedon the board of directors of Alvarion Ltd. (NASDAQ: ALVR), a company that designs and sells broadband wireless and Wi‑Fi products, since September 2009and is a member of its audit and compensation committees and serves as chairman of its nominating and governance Committee. Mr. Inbar also serves on theboard of directors of SolarEdge Technologies Inc., an innovative start up in the photovoltaic industry, as chairman of the board of Archimedes Global Ltd., acompany which provides health insurance and health provision in East Europe, and on the board of directors of MaccabiDent Ltd., the largest chain of dentalservice clinics in Israel. In 2012, Mr. Inbar joined the board of directors of Comverse Technology Inc. (NASDAQ: CNSI), where he is a member of the auditcommittee and corporate governance committee. Mr. Inbar serves also as a board member and management consultant at Degania Medical Ltd., a medicaldevice designer and manufacturer, and as a board member and management advisor to the board of Tzinorot Ltd. Previously, Mr. Inbar served as chairman ofthe board of C‑nario Ltd., a global provider of digital signage software solutions, chairman of the board of Followap Ltd., which was sold to Neustar, Inc. inNovember 2006, and chairman of the board of Enure Networks Ltd. Mr. Inbar holds a B.A. in Economics and Business Administration from Bar‑IlanUniversity, Israel. Avery More has served as a member of our board of directors since 2006. Mr. More was the sole seed investor in the Company through his fund,ORR Partners I, L.P., and has participated in all successive rounds. Mr. More joined Menlo Ventures in 2013 as a venture partner, and focuses on investmentsin technology companies. Prior to joining Menlo Ventures, Mr. More was the president and chief executive officer of CompuCom Systems Inc. from 1989 to1993. Mr. More currently serves on the board of directors of Vidyo, Inc., QualiSystems Ltd., Takipi BuzzStream, AppDome and Dome9. Mr. More has specificattributes that qualify him to serve as a member of our board of directors, including his historical knowledge of our company and his experience as a directorof other private and public technology companies. Tal Payne has served as a member of our board of directors since 2015. Tal Payne brings over 15 years of financial management experience, servingas Chief Financial Officer in Check Point Software Technologies Ltd. (“Check Point”) since joining in 2008 and as Chief Financial and Operations Officersince 2015. Prior to joining Check Point, Ms. Payne served as Chief Financial Officer at Gilat Satellite Networks, Ltd., where she held the role of VicePresident of Finance for over five years. Ms. Payne began her career as a CPA in public accounting at PricewaterhouseCoopers. Ms. Payne holds a B.A. inEconomics and Accounting and an Executive M.B.A., both from Tel Aviv University. Ms. Payne is a certified public accountant. Ms. Payne brings valuablefinancial and business experience to our board through her years of experience as a chief financial officer with publicly traded companies. Committees of our Board of Directors Our board of directors has established audit, compensation, and nominating and corporate governance committees. The composition, duties andresponsibilities of these committees are set forth below. Our board of directors may from time to time establish certain other committees to facilitate themanagement of the Company. 56 Audit Committee Our board of directors has established an audit committee, which operates under a written charter that is available on our website athttp://investors.solaredge.com and that satisfies the applicable standards of the SEC and the listing requirements of NASDAQ. The audit committee’sresponsibilities include, but are not limited to: (1) appointing, compensating, retaining, evaluating, terminating and overseeing our outside auditor; (2) atleast annually, reviewing the independence of our outside auditor; (3) reviewing with our independent registered public accounting firm the matters requiredto be reviewed by applicable auditing requirements; (4) approving in advance all audit and permissible non‑audit services to be performed by ourindependent registered public accounting firm; (5) meeting to review and discuss with management and the outside auditor the annual audited and quarterlyfinancial statements of the Company and the independent auditor’s reports related to the financial statements; (6) receiving reports from managementregarding, and reviewing and discussing the adequacy and effectiveness of, the Company’s disclosure controls and procedures; (7) establishing andoverseeing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls, auditing and federalsecurities law matters;(8) establishing and periodically reviewing policies and procedures for the review, approval and ratification of related persontransactions; and (9) oversee the preparation of the report of the audit committee that SEC rules require to be included in our annual proxy statement. Our audit committee consists of Marcel Gani, Tal Payne and Doron Inbar, with Marcel Gani serving as chairman. Rule 10A‑3 of the Exchange Actand NASDAQ Global Select Market rules require us to have one independent audit committee member upon the listing of our common stock on the NASDAQGlobal Select Market, a majority of independent directors within 90 days of the date of listing and all independent audit committee members within one yearof the date of listing. We comply with the independence requirements. Our board of directors has determined that Marcel Gani and Tal Payne each qualify asan “audit committee financial expert” as defined by applicable SEC rules and has the requisite financial sophistication as defined under the applicableNASDAQ Global Select Market rules and regulations. Compensation Committee Our board of directors has established a compensation committee, which operates under a written charter that is available on our website athttp://investors.solaredge.com and that satisfies the applicable standards of the SEC and the listing requirements of NASDAQ. The compensation committee’sresponsibilities include, but are not limited to: (1) overseeing our overall compensation philosophy, policies and programs; (2) reviewing and approvingcorporate goals and objectives relevant to the compensation of our Chief Executive Officer, evaluating the Chief Executive Officer’s performance in light ofthose goals and objectives, approving grants of equity awards to the Chief Executive Officer and recommending to the independent directors the ChiefExecutive Officer’s compensation based on this evaluation; (2) overseeing the evaluation of other executive awards and approving equity awards to theseofficers, and setting their compensation based upon the recommendation of the Chief Executive Officer; (3) reviewing and approving the design of otherbenefit plans pertaining to executive officers; (4) reviewing and approving employment agreements and other similar arrangements between us and ourexecutive officers; and (4) overseeing preparation of the report of the compensation committee to the extent required by SEC rules to be included in ourannual meeting proxy statement. Our compensation committee consists of Avery More, Marcel Gani, Dan Avida and Doron Inbar, with Avery More serving as chairman. Thecomposition of our compensation committee meets the requirements for independence under current rules and regulations of the SEC and the NASDAQGlobal Select Market. Each member of the compensation committee is also a non‑employee director, as defined pursuant to Rule 16b‑3 promulgated underthe Exchange Act, and an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended. Nominating and Corporate Governance Committee Our board of directors has established a nominating and corporate governance committee, which operates under a written charter that is available onour website at http://investors.solaredge.com and that satisfies the applicable standards of the SEC and the listing requirements of NASDAQ. The nominatingand corporate governance committee’s responsibilities include, but are not limited to: (1) identifying individuals qualified to become members of our boardof directors, consistent with criteria approved by our board of directors; (2) assessing the contributions and independence of incumbent directors indetermining whether to recommend them for reelection to the board; (3) developing and recommending to our board of directors a set of corporategovernance guidelines and principles; (4) establishing procedures for the consideration of board candidates recommended by the Company’s stockholders;(5) recommending to the board candidates to be elected by the board to fill vacancies and newly created directorships and candidates for election orreelection at each annual stockholders’ meeting; (6) periodically reviewing the board’s leadership structure, size, composition and functioning; (7)overseeing succession planning for positions held by executive offices; (8) overseeing the evaluation of the board and its committees; and (9) annuallyreviewing the compensation of directors for service on the board and its committees and recommend changes in compensation to the board as appropriate. 57 Name FeesEarned orPaid inCash ($)(1) StockAwards ($) OptionAwards ($) Non‑EquityIncentive PlanCompensation($) NonqualifiedDeferredCompensationEarnings ($) All OtherCompensation($) Total ($) Dan Avida (2) 40,000 - — — — — 40,000 Yoni Cheifetz (3) - - — — — — — Marcel Gani (4) 55,000 - — — — — 55,000 Doron Inbar (5) 40,000 - — — — — 40,000 Avery More (6) 50,000 - — — — — 50,000 Tal Payne (7) 35,000 - — — — — 35,000 Our nominating and corporate governance committee consists of Avery More, Yoni Cheifetz and Dan Avida, with Avery More serving as chairman.The composition of our nominating and corporate governance committee meets the requirements for independence under current rules and regulations of theSEC and the NASDAQ Global Select Market. Compensation Committee Interlocks and Insider Participation None of the members of our compensation committee is, or was in fiscal 2016, an officer or employee of the Company. None of our executiveofficers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or moreexecutive officers serving on our board of directors or compensation committee. Director Compensation for Fiscal 2016 Director Compensation Table The following table sets forth the total cash and equity compensation paid to our non‑employee directors for their service on our board of directorsand committees of our board of directors during fiscal 2016. Mr. Sella is not eligible to receive any additional compensation for serving on our board ofdirectors. His compensation for serving as our Chief Executive Officer is disclosed in the “—Summary Compensation Table” below. (1)Amounts in this column reflect the amount of pro-rated annual retainers for board and committee service, as detailed below. See“Director Compensation Program (2)Mr. Avida was granted 11,240 restricted stock units, 4,496 of which were unvested as of June 30, 2016. (3)Mr. Cheifetz was granted 11,240 restricted stock units, 4,496 of which were unvested as of June 30, 2016. (4)Mr. Gani was granted 11,240 restricted stock units, 4,496 of which were unvested as of June 30, 2016. (5)In January 2011, Mr. Inbar was granted an option to purchase 223,333 shares of our common stock at $2.01. As of June 30, 2016, all ofthe 223,333 options are outstanding. In addition, in March 2015, Mr. Inbar was granted 11,240 restricted stock units, 4,496 of whichwere unvested as of June 30, 2016. (6)Mr. More was granted 11,240 restricted stock units, 4,496 of which were unvested as of June 30, 2016. (7)Mrs. Payne was granted 11,240 restricted stock units, 4,496 of which were unvested as of June 30, 2016. 58 Position Retainer ($)Board Member 40,000Audit Committee Chair 20,000Compensation Committee Chair 15,000Nominating and Corporate Governance Committee Chair 10,000Audit Committee Member 10,000Compensation Committee Member 7,500Nominating and Corporate Governance Committee Member 5,000Director Compensation Program Each of our non‑employee directors is eligible to receive compensation for his or her service on our board of directors consisting of annual cashretainers and equity awards. Specifically, as of July 1, 2016, our non‑employee directors are entitled to receive the following annual retainers for their serviceon our board of directors, which are in four equal quarterly installments and prorated for any partial year of service on our board of directors. Directors servingas chair of a committee do not also receive compensation as a general member of such committee. The equity awards for our non‑employee directors consist of (i) an initial equity award in the form of restricted stock units, granted upon theindividual’s initial appointment to our board of directors, with a grant date value of $150,000, and (ii) an annual equity award in the form of restricted stockunits with a grant date value of $100,000, subject to proration, for directors whose commencement of board service is in the midst of a particular year. Theinitial restricted stock unit awards vest in equal annual installments over three years and annual restricted stock unit awards vest in full on the earlier of: (i)after one year after their grant; and (ii) at the annual shareholders meeting following their grant (or the balance of this period in which the award is granted, inthe case of pro‑rated annual awards), subject in each case to continued board service through the applicable vesting date. As of July 1, 2016, all equity awardsgranted to directors will automatically accelerate upon death or disability. Our directors are reimbursed for travel, food, lodging and other expenses directly related to their activities as directors. Our directors are also entitledto the protection provided by the indemnification provisions in our by‑laws. Our board of directors may revise the compensation arrangements for ourdirectors from time to time. Code of Business Conduct and Ethics We have adopted a Code of Business Conduct and Ethics that applies to our directors and an Employee Code of Conduct that applies to our officersand employees, including our principal executive, financial and accounting officers, or persons performing similar functions. These Codes are published onour corporate governance website located at http://investors.solaredge.com/phoenix.zhtml?c=253935&p=irol-govHighlights. We intend to disclose futureamendments to certain provisions of our Code, or waivers of such provisions granted to executive officers and directors, on the website within four businessdays following the date of such amendment or waiver. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 and SEC rules require our directors, executive officers and persons who own more than 10% ofany class of our common stock to file reports of their ownership and changes in ownership of our common stock with the SEC. Statements of Changes ofBeneficial Ownership of Securities on Form 4 are generally required to be filed within two business days of a change in beneficial ownership of securities.Based solely on our review of the reports filed during fiscal 2016, and on written representations from such reporting persons, we determined that all of ourdirectors and reporting officers failed to timely file one Form 4, each with respect to the vesting of RSUs that had been reported as granted. Procedures for Nomination of Directors by Stockholders The Company identifies new director candidates through a variety of sources. The nominating and corporate governance committee will considerdirector candidates recommended by stockholders in the same manner it considers other candidates, as described below. Stockholders seeking to recommendcandidates for consideration by the nominating and corporate governance committee should submit a recommendation in writing describing the candidate’squalifications and other relevant biographical information and provide confirmation of the candidate’s consent to serve as director. Please submit thisinformation to the Corporate Secretary at1 Hamada Street Herziliya Pituach, Israel, 4673335. 59 The Compensation Committee, Avery More, ChairmanDan AvidaMarcel GaniDoron Inbar Stockholders may also propose director nominees by adhering to the advance notice procedure included in our bylaws. In order to be timely underour bylaws, notice of stockholder proposals related to stockholder nominations for the election of directors (or stockholder proposals not related to directornominations) must be received by the Corporate Secretary of the Company in the case of an annual meeting of the stockholders, no later than the close ofbusiness on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary date of the preceding year’s annual meeting ofstockholders. If the next annual meeting is called for a date that is more than 30 days before or more than 30 days after that anniversary date, or if no annualmeeting was held in the preceding year, notice by the stockholder in order to be timely must be received no earlier than the close of business on the 120thday prior to such annual meeting nor later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following thedate on which public announcement is first made by the Company of the date of such meeting. Stockholder nominations for the election of directors at a special meeting of the stockholders must be received by the Corporate Secretary of theCompany no earlier than the close of business on the 120th day prior to such special meeting nor later than the close of business on the later of the 90th dayprior to such special meeting or the 10th day following the day on which public announcement is first made of the date of such special meeting. A stockholder’s notice to the Corporate Secretary of the Company must be in proper written form and must include the information and consentsrequired by our bylaws related to the stockholder giving the notice, the beneficial owner (if any) on whose behalf the nomination or proposal is made andeach person whom the stockholder proposes to nominate for election as a director or the business desired to be brought before the meeting. A copy of the full text of the bylaw provisions discussed above may be obtained by writing to the Corporate Secretary of the Company at 1 HamadaStreet Herziliya Pituach, Israel, 4673335. Director Qualifications The nominating and corporate governance committee and the board believe that candidates for director should have certain minimumqualifications, including, without limitation: ·demonstrated business acumen and leadership, and high levels of accomplishment;·ability to exercise sound business judgment and to provide insight and practical wisdom based on experience;·commitment to understand the Company and its business, industry and strategic objectives;’·integrity and adherence to high personal ethics and values, consistent with our Code of Business Conduct and Ethics;·ability to read and understand financial statements and other financial information pertaining to the Company;·commitment to enhancing stockholder value;·willingness to act in the interest of all stockholders; and·for non-employee directors, independence under NASDAQ listing standards and other applicable rules and regulations. Other requirements, such as industry experience or experience in a particular business discipline, that are expected to contribute to the Board’soverall effectiveness and meet the needs of the board of directors and its committees may be considered. The Company values diversity on a company-widebasis and seeks to achieve a diversity of occupational and personal backgrounds on the board of directors, but has not adopted a specific policy regardingboard diversity. Compensation Committee Report This report shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-Kinto any filing under the Securities Act or under the Exchange Act, except to the extent the Company specifically incorporates this report by reference, andshall not otherwise be deemed filed under such Acts. The compensation committee has reviewed and discussed the below Compensation Discussion and Analysis with management and its independentconsultant and, based on the review and discussions, recommended to our board that this Compensation Discussion and Analysis be included in this AnnualReport on Form 10-K. 60 ITEM 11. EXECUTIVE COMPENSATION COMPENSATION DISCUSSION AND ANALYSIS Compensation Strategy The main objectives of our pay-for-performance compensation program are to: • motivate our executives to maximize stockholder value; • provide compensation that varies based on performance; and • attract and retain managerial talent, without promoting unreasonable risk taking. These guiding principles apply to all of our executive pay practices discussed. Compensation Governance Highlights In addition to aligning pay with performance, our executive compensation program is intended to be consistent with corporate governance bestpractices. This is demonstrated by the following elements in our 2016 executive officer compensation arrangements: • robust selling restrictions; • restrictions on hedging and pledging the Company’s common stock; • use of objective, performance criteria in our short- and long-term incentive plans; • advice from independent compensation consultants retained by the compensation committee; • no specific retirement benefit plans designed solely for senior executives or related entitlements such as executive benefits and perquisites, taxgross-ups, etc. 2016 Results and Key Events and Impact on Compensation The Company’s performance in fiscal 2016 was significantly better than fiscal 2015 in all parameters. Our revenues grew from $325.1 million infiscal 2015 to $489.8 million in fiscal 2016. Gross margins also grew from 25.2% in fiscal 2015 to 31.0% in fiscal 2016. Our net profits were $21.1 million infiscal 2015 and $76.6 million for fiscal 2016. In addition, the Company generated $52.4 million in cash from operating activities for the fiscal year endedJune 30, 2016. In fiscal 2016 we also introduced a new inverter technology, the HD Wave which embodies a new power conversion topology that theCompany believes is one of the most significant leaps in solar technology in the past 20 years. The Company also announced the commercial availability ofproducts for storage solutions that are compatible with leading home battery manufacturers. In line with our emphasis on pay-for-performance and our performance relative to our peers, compensation awarded to our named executive officers(“NEOs”) for 2016 reflected our positive financial results. Named Executive Officers Our named executive officers, or NEOs, for fiscal 2016 are: our Chief Executive Officer and Chairman of the Board, Guy Sella; our Chief FinancialOfficer, Ronen Faier; our Vice President, Global Sales, Zvi Lando; our VP Research and Development, Yoav Galin, and our VP General Counsel andCorporate Secretary, Rachel Prishkolnik. Compensation Objectives and Guiding Principles The primary objectives of our executive compensation program are as follows: • Pay for Performance: Motivate, recognize and reward superior performance and individual contributions. • Alignment of Interests: We seek to align the interests of our senior executives with those of our stockholders. • Attraction, Motivation, and Retention of Talent: Our senior executive compensation programs are designed to help us attract, motivate and retainkey management talent who drive profitability and the creation of stockholder value 61 Elements of Compensation The following table describes each element of our senior executive compensation program and how these elements achieve our compensationobjectives: Compensation Element Form Objective Rationale/Key CharacteristicsBase Salary Cash Attraction Retention Performance • Fixed compensation• Intended to be commensurate with each senior executive’sposition and level of responsibility• Evaluated annually or as necessary in response toorganizational/business changes, individual performance,market data, etc., but are not automatically increased Annual Cash Incentive Compensation Cash Performance Alignment ofInterests Motivation • Tied to Company and, for all NEOs other than the CEO,individual performance• Designed to reward achievement of annual performance goalsthat we consider important contributors to stockholder value• Performance goals and targets are established by thecompensation committee at the beginning of each calendar year• The compensation committee approves annual cash incentiveaward payouts based on the level of achievement of these pre-established goals Long-Term Incentives Options Restricted Stock Units Performance-VestedRestricted Stock Units(“PRSUs”) Performance Alignment ofInterests Performance Alignment ofInterest Retention Motivation • Since options have no value unless the value of our commonstock increases, it aligns the interests with our stockholders. • The multiyear vesting encourages retention since recipientsneed to remain employed in order for vesting to occur. • Variable compensation designed to reward contributions to ourlong-term strategic, financial and operational success, motivatefuture performance, align the interests of senior executives withthose of stockholders and retain key senior executives throughthe term of the awards• PRSUs are at risk through the applicable performance periodand depend upon the achievement of key performance measuresthat drive value for our stockholders thus aligning the interestsof our senior executives with our stockholders and, followingachievement of applicable performance goals, become subjectto service-based vesting restrictions that serve to retain seniorexecutives Other Compensation and Benefits N/A Attraction Retention · NEOs receive benefits that are generally available to allsalaried employees in Israel, where the NEOs are located.This includes contributions to an education fund and to afund known as Manager’s Insurance, which provides acombination of retirement plan, insurance and severancepay benefits to Israeli employees.· NEOs receive benefits that we generally make available toall salaried employees, including participation in theEmployee Stock Purchase Plan. Change in Control Arrangements Equity Attraction Retention • Certain of our NEOs have a clause in their employmentagreement that entitles them to immediate vesting of equity inthe event of a termination within one year following a change incontrol (“double-trigger” equity vesting)• Keep management’s highest priority on stockholder interests inthe face of events that may result in a change-in-control and noton potential individual implications of any such events• Reasonable change-in-control protections for our seniorexecutives are necessary in order for us to attract and retainqualified employees• We periodically review the necessity and design of our seniorexecutive severance and change-in-control arrangements 62 Implementing Compensation Objectives Determining Compensation In making compensation decisions, we review the performance of the Company and each senior executive. We also consider the senior executive’slevel of responsibility, the importance of the senior executive’s role in achieving our corporate objectives, and the senior executive’s long-term potential,while taking into account his or her current target compensation, value of outstanding equity awards and stock ownership levels, and our stock sellingrestrictions for senior executives. Finally, we weigh competitive practices, relevant business and organizational changes, retention needs and internal payequity. In order to attract, retain and motivate the best management talent, we believe that we must provide a target compensation package that iscompetitive relative to our peers. In connection therewith, the compensation committee considers practices of specific companies that we identified as ourpeers for executive compensation in 2016 (the “2016 Peer Group”), as well as size-appropriate technology industry survey data. Each year, the compensation committee reviews the market data with the assistance of its external compensation consultant and makes changes asappropriate in order to ensure it continues to appropriately reflect the Company’s size, industry and scope of operations. For fiscal 2016, working with Frederic W. Cook & Co., Inc. (“FW Cook”), the compensation committee approved the below 2016 Peer Group basedon multiple factors, including business similarities and broadly comparable financial profiles (i.e., revenue, market capitalization, enterprise value andgrowth profiles). The 2016 Peer Group used for establishing 2016 senior executive target compensation was as follows: Generac Holdings Inc., VerintSystems Inc., MKS Instruments Inc., Stratasys Ltd., Powell Industries Inc., Polypore International Inc., Advanced Energy Industries Inc., Ormat TechnologiesLtd., Mellanox Technologies Ltd., Xura Ltd. (formerly Comverse, Inc.), Enphase Energy, Inc., Tessera Technologies Inc., SolarCity Corporation, VicorCorporation and Wix.com Ltd. When the compensation committee evaluated the 2016 Peer Group, our revenues were positioned at approximately the thirty-fifth percentilecompared to the group, our operating income was at approximately the fifty-third percentile and our market capitalization was at approximately the forty-firstpercentile. After reviewing the peer group data described above, we determined the approximate range within which to target total direct compensation (the sumof base salary, target annual incentive and the grant date fair value of long-term incentives) for our senior executives for 2016. Within that range, weincorporated flexibility to respond to and adjust for the evolving business environment and our specific hiring and retention needs. In general for 2016, we set base salary and short- and long-term incentive compensation opportunities for our senior executives, including the NEOs,at or near the median of the peer group proxy and survey data, where applicable. As described below, individual levels varied from the targeted position foreach of the elements of target total direct compensation based on the compensation committee’s overall subjective evaluation of individual performance,senior executive responsibilities relative to benchmark position responsibilities, and individual skill set and experience.63 Role of Compensation Committee and Management The compensation committee has primary responsibility for overseeing the design and implementation of our senior executive compensationprograms. The compensation committee, with input from the other independent directors, evaluates the performance of the CEO. The compensationcommittee then recommends CEO compensation to the independent directors for approval. The CEO and the compensation committee together review theperformance of our other senior executives, and the compensation committee determines their compensation based on recommendations from the CEO. Theexecutives do not play a role in their own individual compensation determinations. Role of Compensation Consultants With respect to decisions for 2016 target compensation of the NEOs, competitive review of senior executive and non-employee directorcompensation programs and peer group review for 2016, the compensation committee retained FW Cook to review market trends and advise thecompensation committee. FW Cook is the sole compensation consultant of the compensation committee.Our compensation committee has concluded that no conflicts of interest exist with respect to FW Cook’s provision of services after considering thefollowing six factors: (i) the provision of other services to us by FW Cook; (ii) the amount of fees FW Cook received from us as a percentage of the totalrevenue of FW Cook; (iii) the policies and procedures of FW Cook that are designed to prevent conflicts of interest; (iv) any business or personal relationshipof the FW Cook consultants with a member of the compensation committee; (v) any of our stock owned by the FW Cook consultants; and (vi) any business orpersonal relationship of the FW Cook consultants or FW Cook with any of our executive officers. The compensation committee is directly responsible for the appointment, compensation and oversight of FW Cook. FW Cook reported directly to thecompensation committee, although the compensation committee instructed FW Cook to work with management to compile information and to gain anunderstanding of the Company and any Company-related issues for consideration by the compensation committee, including market trends. Compensation-Related Governance Policies Stock Ownership and Holding Guidelines Effective March 31, 2015, all of our employees, including the NEOs, are subject to our Insider Trading Policy which forbids employees to trade in theCompany’s stock, or any derivatives thereof, while holding non-public material information or during the Company’s set “black-out periods”. Compensation of the Named Executive Officers In determining target total compensation for our NEOs for 2016, we evaluated the financial and operational performance of the Company andconsidered each senior executive’s contributions to that performance. As part of the annual senior executive compensation review, the compensationcommittee reviewed independent market data as well as then-current pay levels of the Company’s senior executives, the Company’s pay philosophy andcorporate performance, and the individual performance of the Company’s senior executives. For a discussion of the Company’s 2016 performance, see “Executive Summary — 2016 Results and Key Events” above. 64 Name and Principal Position Annual basesalary priorto increase Annual basesalary afterincrease Percentageincrease Guy Sella - Chief Executive Officer and Chairman of the Board 323,077 510,000 58% Ronen Faier - Chief Financial Officer 184,615 300,000 63% Zvi Lando - Vice President, Global Sales 215,385 300,000 39% Yoav Galin - VP Research and Development 184,615 275,000 49% Rachel Prishkolnik - VP General Counsel and Corporate Secretary 169,231 250,000 48% Base Salary The compensation committee (and the independent directors, in the case of the CEO) approved fiscal 2016 base salaries for the NEOs in August2015. The salaries reflected significant increases in base salaries for all of our NEOs, which were made to: (i) align the cash/equity mix of compensation tothat of a publicly–traded, profitable Company following the Company’s recent IPO; and (ii) to fall within the range of the median relative to thebenchmarking market data, consistent with the compensation committee’s stated philosophy, as noted above. The following table sets forth the 2016 basesalaries for the NEOs: Annual Cash Incentive Compensation For calendar year 2015, each NEO was eligible to receive an annual incentive compensation payment based on achievement of pre‑establishedperformance goals. For Mr. Sella, the performance goals were 100% weighted based upon Company‑related financial, operational and strategic objectives,comprised of 70% financial achievement, 10% operations, 10% strategy and 10% scalability. For the remaining NEOs, the performance goals were weightedbased upon 50% Company‑related financial, operational and strategic objectives (the same as for the CEO) and 50% individual performance. The Companyexceeded the financial goals by exceeding revenues, profitability and gross margin targets. Specifically, the financial achievement parameters of the bonuseswere contingent upon the Company meeting its targeted annual calendar revenues of $345 million, a net income of $20 million and achieving a gross marginof above 25%. The Company exceeded all of these parameters by achieving revenues of $424.7 million, a net income of $53.8 million and a gross margin of29.2%. The individual performance goals relate to each NEO’s specific areas of contribution to the Company such as specific goals for the development ofproducts for our Vice President of Research and Development or the penetration of sales in certain new geographic regions for our Vice President of Sales.Each of the NEOs received a bonus under the compensation plan that had been preapproved by the Committee and after review by the Committee of thespecific performance goals and determination of their level of achievement. Specifically, Mr. Sella was awarded $714,528 which represents 140% of his BaseSalary; Mr. Faier was awarded $260,841 which represents 87% of his Base Salary; Mr. Lando was awarded $247,065 which represents 82% of his Base Salary;Mr. Galin was awarded $235,933 which represents 86% of his Base Salary and Ms. Prishkolnik was awarded $202,542 which represents 81% of her BaseSalary. These performance-based cash bonuses were paid in March 2016 for achievement of business objectives established by the Committee for calendaryear 2015. Equity Compensation In August 2015, the Committee evaluated the equity compensation of the CEO and other senior executives as part of the study performed by FWCook. In order to align NEO compensation with the median of the 2016 Peer Group (with adjustments as necessary based on the Committee’s overallsubjective evaluation of individual performance, senior executive responsibilities relative to benchmark position responsibilities, and individual skill setand experience), the Committee approved annual long-term incentive grants for the CEO and other NEOs (as well as the other senior executives) consisting of50% RSUs, 40% options and 10% performance-based RSUs. All of the equity grants have a four-year vesting period. The options were granted at an exerciseprice of $25.09, which was the fair market value of the shares as of the date of the grant. The rationale of granting options to senior executives is to createmore leverage and greater wealth creation opportunity that can materially impact financial and stock price performance, consistent with typical marketpractice and aligning senior executives with the interests of the Company’s shareholders. The options have strong performance orientation since they onlyprovide value if the stock price increases. The time-vested RSUs, which are granted to all of the Company’s employees, offer more certainty in value delivery(while still being shareholder aligned) thereby driving executive retention. The Committee also allocated 10% of the equity grants to the CEO and otherNEOs in the form of performance based RSUs which were linked to the same Company and individual performance goals used in the annual incentiveprogram for calendar 2015. Entitlement to the performance based RSUs was evaluated based on the achievement of the same calendar 2015 bonus criterionvest over a four year period from the date of grant.65 Employment Agreements During fiscal 2016 we were party to employment agreements with Messrs. Sella, Faier, Lando, Galin and Ms. Prishkolnik. Each of these employmentagreements provides for employment of the NEO on an “at‑will” basis and provide for a base salary, vacation, sick leave, payments to a pension andseverance fund as well as an Israeli recreational fund and recuperation pay in accordance with Israeli law. See the section below titled “ExecutiveCompensation Table Narrative--Employment Agreements” for more information. Other CompensationOur CEO and the remaining NEOs receive benefits that we generally make available to all salaried employees in Israel, where the NEOs are located.These include contributions to an education fund and to a fund known as Manager’s Insurance, which provides a combination of retirement plan, insuranceand severance pay benefits to Israeli employees. See the section below titled “Executive Compensation Table Narrative--Employment Agreements” formore information. Executives do not receive any special perquisites not extended to other employees of the Company. Tax Deductibility of Compensation In general, Section 162(m) of the Internal Revenue Code of 1986, as amended, imposes a limit of $1 million on the amount that a publicly heldcorporation may deduct for federal income tax purposes for compensation paid to the company’s “covered employees” (generally, its chief executive officerand three other executive officers (other than its chief financial officer) whose compensation is disclosed). This limitation does not apply to compensationthat meets the requirements under Section 162(m) for “qualifying performance-based” compensation (i.e., compensation paid only if performance meets pre-established, objective goals established by a compensation committee that is comprised solely of two or more “outside directors,” based on criteria approvedby stockholders). With respect to the deductibility limit of Section 162(m) of the Internal Revenue Code of 1986, as amended, we generally try to preservethe federal income tax deductibility of compensation paid when it is appropriate and is in our best interests. However, we reserve the right to authorize thepayment of non-deductible compensation if we deem that it is appropriate to do so under the circumstances.COMPENSATION RISK Our compensation programs are designed to balance risk and reward in relation to the Company’s overall business strategy. Management assessed,and the compensation committee reviewed, our senior executive and broad-based compensation and benefits programs. Based on this assessment, we haveconcluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on us. Among theprogram attributes that discourage inappropriate risk-taking are: • the balance between annual and long-term compensation, including the fact that a significant portion of compensation is delivered in the form ofequity incentives that vest over several years; • the use of multiple financial metrics for performance-based annual and long-term incentive awards and the use of individual goals under our annualcash incentive program; • the compensation committee’s ability to modify annual cash incentives to reflect the quality of earnings, individual performance, and other factorsthat it believes should influence compensation; and • our management stock selling restrictions encourage a longer-term perspective and align the interests of senior executives and the Board, asapplicable, with other stockholders. 66 Name and Principal Position Year Salary($)(1) Bonus($)(1) OptionAwards($)(4) StockAwards($)(4) Non EquityIncentive PlanCompensation($)(1)(5) All OtherCompensation($)(1) Total($) Guy Sella Chief Executive Officer andChairman of the Board 2016 483,192 — 641,051 903,240 714,528 72,435(6) 2,814,446 2015 298,114 243,808(3) 4,650,956 174,348 46,749(7) 5,413,975 2014 273,746 218,150(2) — — 43,732(8) 535,628 Ronen Faier Chief Financial Officer 2016 283,315 — 256,420 361,296 260,841 42,666(9) 1,204,538 2015 180,319 92,879(3) 154,399 59,574 28,720(10) 515,891 2014 188,201 63,991(2) — — 29,850(11) 282,042 Zvi Lando Vice President, Global Sales 2016 288,503 — 256,420 361,296 247,065 46,329(12) 1,199,614 2015 190,260 — 154,399 71,815 31,688(13) 448,162 2014 178,223 79,544(2) — — 26,588(14) 284,355 Yoav Galin VP Research and Development 2016 262,299 — 256,420 361,296 235,933 42,256(15) 1,158,204 Rachel Prishkolnik VP General Counsel andCorporate Secretary 2016 238,690 — 149,579 210,756 202,542 37,148(16) 838,715 EXECUTIVE COMPENSATION TABLES AND DISCUSSION Fiscal 2016 Summary Compensation Table (1)We paid the amounts reported for each named executive officer in New Israeli Shekels. We have translated amounts paid in New Israeli Shekels intoU.S. dollars at the foreign exchange rate published by the Bank of Israel as of the date of payment. (2)Represents discretionary bonuses paid to Mr. Sella, Mr. Faier and Mr. Lando in respect of the Company’s performance in calendar 2014. (3)Represents one time bonuses to Mr. Sella and Mr. Faier in connection with the completion of our initial public offering. (4)The amounts in this column represent the aggregate grant date fair value of the option awards granted to our NEOs, computed in accordance withFASB ASC Topic 718. We provide information regarding the assumptions used to calculate the value of these option awards in Note 2v to theaudited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. There can be no assurance that these awards willvest or will be exercised (in which case no value will be realized by the individual), or that the value upon exercise will approximate the aggregategrant date fair value. (5)Represents the cash bonuses earned pursuant to our Management By Objectives (MBO) program calendar 2015. 67 (6)Includes a $40,250 contribution by the Company to Mr. Sella’s severance fund and $32,185 in aggregate Company contributions to pension andIsraeli recreational funds and a recuperation allowance. (7)Includes a $24,833 contribution by the Company to Mr. Sella’s severance fund and $21,916 in aggregate Company contributions to pension andIsraeli recreational funds and a recuperation allowance. (8)Includes a $22,812 contribution by the Company to Mr. Sella’s severance fund and $20,920 in aggregate Company contributions to pension andIsraeli recreational funds and a recuperation allowance. (9)Includes a $22,772 contribution by the Company to Mr. Faier’s severance fund and $19,894 in aggregate Company contributions to pension andIsraeli recreational funds and a recuperation allowance (10)Includes a $15,021 contribution by the Company to Mr. Faier’s severance fund and $13,699 in aggregate Company contributions to pension andIsraeli recreational funds and a recuperation allowance. (11)Includes a $15,683 contribution by the Company to Mr. Faier’s severance fund and $14,167 in aggregate Company contributions to pension andIsraeli recreational funds and a recuperation allowance. (12)Includes a $24,032 contribution by the Company to Mr. Lando’s severance fund and $22,297 in aggregate Company contributions to pension andIsraeli recreational funds and a recuperation allowance. (13)Includes a $15,849 contribution by the Company to Mr. Lando’s severance fund and $15,839 in aggregate Company contributions to pension andIsraeli recreational funds and a recuperation allowance. (14)Includes a $14,852 contribution by the Company to Mr. Lando’s severance fund and $11,736 in aggregate Company contributions to pension andIsraeli recreational funds and a recuperation allowance. (15)Includes a $21,850 contribution by the Company to Mr. Galin’s severance fund and $20,406 in aggregate Company contributions to pension andIsraeli recreational funds and a recuperation allowance. (16)Includes a $19,107 contribution by the Company to Ms. Prishkolnik’s severance fund and $18,042 in aggregate Company contributions to pensionand Israeli recreational funds and a recuperation allowance. 68 Name Estimated Future Payouts UnderNon-Equity Incentive PlanAwards Estimated Future Payouts UnderEquity Incentive Plan Awards EquityAwardGrant Date Threshold($) Target(5)($) Maximum ($) Threshold($) Target($) Maximum($) All OtherStockAwards:Numberof Sharesof Stockor Units(#) All OtherOptionAwards:Number ofSecuritiesUnderlyingOptions(#) Exerciseor BasePrice ofOptionAwards($/Share) GrantDate FairValue ofStock &OptionAwards($)(1) Guy Sella 510,000 8/19/2015 48,000 $25.09 641,051 8/19/2015 30,000 752,700 8/19/2015 0 6,000(2) 6,000 150,540 Ronen Faier 200,000 8/19/2015 19,200 $25.09 256,420 8/19/2015 12,000 301,080 8/19/2015 0 2,400(3) 2,400 60,216 Zvi Lando 200,000 8/19/2015 19,200 $25.09 256,420 8/19/2015 12,000 301,080 8/19/2015 0 2,400(3) 2,400 60,216 Yoav Galin 183,333 8/19/2015 19,200 $25.09 256,420 8/19/2015 12,000 301,080 8/19/2015 0 2,400(3) 2,400 60,216 RachelPrishkolnik 166,667 8/19/2015 11,200 $25.09 149,579 8/19/2015 7,000 175,630 8/19/2015 0 1,400(4) 1,400 35,126 Fiscal 2016 Grants of Plan-Based Awards (1)The amounts in this column represent the aggregate grant date fair value of the options and RSU awards granted to our NEOs, computed inaccordance with FASB ASC Topic 718. We provide information regarding the assumptions used to calculate the value of these option awards inNote 2v to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. There can be no assurance thatthese awards will vest or will be exercised (in which case no value will be realized by the individual), or that the value upon exercise willapproximate the aggregate grant date fair value. (2)Represents the grant of 6,000 performance-based restricted stock units, of which 100% were achieved based on the performance goal criterion. (3)Represents the grant of 2,400 performance-based restricted stock units, of which 100% were achieved based on the performance goal criterion. (4)Represents the grant of 1,400 performance-based restricted stock units, of which 100% were achieved based on the performance goal criterion. (5)The Non-Equity Incentive Plan does not include any thresholds or a maximum cap for the Non-Equity Awards. Executive Compensation Table Narrative Employment Agreements We are party to an employment agreement with Mr. Sella, pursuant to which he began serving as our (and SolarEdge Technologies Ltd.’s) ChiefExecutive Officer and Chairman of the Board, effective September 1, 2007. In addition, SolarEdge Technologies Ltd. is party to an employment agreementwith (i) Mr. Faier, effective as of January 2, 2011, pursuant to which he began serving as its Chief Financial Officer,; (ii) Mr. Lando effective as of May 17,2009, pursuant to which he began serving as its Global Vice President of Sales; (iii) Mr. Galin effective as of June 1, 2006 pursuant to which he began servingas its Vice President, Research and Development; and (iv) Mrs. Prishkolnik, effective November 1, 2010, pursuant to which she began serving as VP GeneralCounsel and Corporate Secretary. Each of these employment agreements provides for employment of the NEO on an “at‑will” basis. In all cases, either party may terminate theagreement by providing 60 days prior written notice; provided, however, that we may terminate the agreements immediately and without prior notice andmake a payment in lieu of advance notice, in accordance with applicable law. In addition, we may also terminate the agreements immediately upon writtennotice in the event of “cause” (as defined therein). 69 Option Awards Stock Awards Name Number ofSecuritiesUnderlyingUnexercisedOptions (#)Exercisable Number ofSecuritiesUnderlyingUnexercisedOptions (#)Unexercisable OptionExercisePrice($) OptionExpirationDate Number ofShares orUnits ofStock thathave notVested(#) MarketValue ofShares orUnits ofStock thathave notVested($) Guy Sella 73,333 — $1.50 July 1, 2019 — — 76,667 — $2.46 January 26, 2022 — — 27,778 38,888(1) $5.01 October 29, 2024 — — 291,470 485,783(2) $5.01 December 22,2024 — — 9,000 39,000(3) $25.09 August 19, 2025 — — — — — — 29,250(4) $573,300 Ronen Faier 100,000 — $2.01 January 25, 2021 — — 91,666 — $2.46 January 26, 2022 — — 27,778 38,889(1) $5.01 October 29, 2024 — — 3,600 15,600(3) $25.09 August 19, 2025 — — — — — — 11,700(4) $229,320 Zvi Lando 98,333 — $1.50 May 28, 2019 — — 63,333 — $2.01 January 25, 2021 — — 68,333 — $2.46 January 26, 2022 — — 27,778 38,889(1) $5.01 October 29, 2024 — — 3,600 15,600(3) $25.09 August 19, 2025 — — — — — — 11,700(4) $229,320 Yoav Galin 75,000 — $2.46 January 26, 2022 — — 27,778 38,888(1) $5.01 October 29, 2024 — — 3,600 15,600(3) $25.09 August 19, 2025 — — — — — — 11,700(4) $229,320 Rachel Prishkolnik 40,000 — $2.01 January 25, 2021 — — 20,000 — $2.46 January 26, 2022 — — 13,889 19,444(1) $5.01 October 29, 2024 — — 2,100 9,100(3) $25.09 August 19, 2025 — — — — — — 6,826(4) $133,790 The agreements provide for a base salary, vacation, sick leave, payments to a pension and severance fund as well as an Israeli recreational fund andrecuperation pay in accordance with Israeli law. Pursuant to the agreements, we have effected a manager’s insurance policy for each NEO pursuant to whichwe make contributions on behalf of each NEO as well as the required statutory deductions from salary and any other amounts payable under the agreementson behalf of each NEO to the relevant authorities in accordance with the requirements of Israeli law. For all NEOs, we contribute 8.33% of each NEOs basesalary toward the policy for the severance pay component, 5% for the savings and risk component (or 6% in the case of a pension fund, with such amount tobe allocated to a provident fund or pension plan), 7.5% for the educational fund component, up to $4,100 per year and up to 2.5% for disability insurance. Inall cases we deduct 5% of each NEO’s base salary to be paid on behalf of the NEO toward the policy (or 5.5%, in the event an NEO chooses to allocate hispayments to a pension plan) and 2.5% for the educational fund component. On February 5, 2016, Amendment no. 12 of the Supervision of Financial Services (Provident Funds) Law, 5765-2005 and the correspondingIntegrated Extension Order For Compulsory Pension came into effect pursuant to which as of July 1, 2016 employee and employer contribution rates forpension and manager’s insurance funds shall increase for all of our employees including our NEOs. As of July 1, 2016 Employee pension fund contributionsshall increase to 5.75% and employer pension fund contributions shall increase to 6.25%. In the event that an employee has a manager’s insurance fund theemployer shall be required to allocate a portion of its contributions to purchase disability insurance to insure 75% of an employee’s salary which allocationshall not decrease the severance component of the employer’s contributions below 5% or increase total employer contributions above 7.5%. Outstanding Equity Awards as of June 30, 2016 The following table provides information regarding outstanding equity awards held by each of our NEOs as of June 30, 2016, including theapplicable vesting dates. (1)The shares subject to the stock option vest over a four‑year period commencing October 31, 2014, with 1/48 of the shares vesting monthly thereafter. (2)The shares subject to the stock option vest over a four‑year period commencing December 31, 2014, with 1/48 of the shares vesting monthlythereafter. (3)The shares subject to the stock option vest over a four‑year period commencing August 31, 2015, with 1/16 of the shares vesting quarterly thereafter. (4)The shares subject to the RSU vest over a four-year period commencing on August 31, 2015, with 1/16 of the shares vesting quarterly thereafter. 70 Option Awards Stock Awards Name Number ofSharesAcquired onExercise (#) ValueRealizedupon Exercise($)(1) Number ofSharesAcquired onVesting# ValueRealized onVesting($)(2) Guy Sella — — 6,750 $150,375 Ronen Faier 100,000 $2,237,406 2,700 $60,150 Zvi Lando 61,667 $1,492,021 2,700 $60,150 Yoav Galin 75,000 $1,810,095 2,700 $60,150 Rachel Prishkolnik 40,000 $911,491 1,574 $35,068 2016 Option Exercises and Stock Vested Table The following table provides information regarding option exercises and stock vested during the last fiscal year for each named executive officer. (1) The value realized on exercise is calculated as the difference between (A) either (i) the actual sales price of the shares underlying the options exercised ifthe shares were immediately sold upon exercise or (ii) the closing price of the shares underlying options exercised if the shares were not immediately soldafter exercise and (B) the applicable exercise price of the options. (2) The value realized on vesting is calculated by multiplying (A) the closing price of a common share on the vesting date and (B) the number of sharesacquired on vesting before withholding taxes. Potential Payments upon Termination of Employment and Change of Control Severance Pursuant to the terms of the employment agreements with the NEOs, as well as in accordance with Israeli law, upon a termination of the NEO’semployment, the NEO is entitled to the payments we have made on behalf of each NEO to the Manager’s Insurance Policy. 71 Name: Guy Sella Terminationupon Deathof Employee Terminationfor Cause VoluntaryTerminationby EmployeeAfterProvision ofRequisiteNotice Terminationby CompanyAfterProvision ofRequisiteNotice Terminationw/o Cause orfor GoodReason Terminationw/o Cause orfor GoodReason within12 months ofChange inControl Base Salary — — 129,290 129,290 129,290 129,290 Israeli Social Benefits — — 19,107 19,107 19,107 19,107 Vested and Unvested Options/RSUs (1) 8,112,877 8,112,877 8,112,877 8,112,877 8,112,877 15,527,478 Accrued Vacation Pay 322,609 322,609 322,609 322,609 322,609 322,609 TOTAL 8,435,486 8,435,486 8,583,883 8,583,883 8,583,883 15,998,484 Name: Ronen Faier Terminationupon Deathof Employee Terminationfor Cause VoluntaryTerminationby EmployeeAfterProvision ofRequisiteNotice Terminationby CompanyAfterProvision ofRequisiteNotice Terminationw/o Cause orfor GoodReason Terminationw/o Cause orfor GoodReason within12 months ofChange inControl Base Salary — — 50,702 50,702 50,702 50,702 Israeli Social Benefits — — 7,445 7,445 7,445 7,445 Vested and Unvested Options/RSUs (1) 3,793,604 3,793,604 3,793,604 3,793,604 3,793,604 4,532,147 Accrued Vacation Pay 71,258 71,258 71,258 71,258 71,258 71,258 TOTAL 3,864,862 3,864,862 3,923,009 3,923,009 3,923,009 4,661,551 Equity Acceleration Pursuant to the terms of his employment agreement, if within 12 months following the occurrence of a “change in control” Mr. Sella is terminatedwithout “cause or if Mr. Sella terminates his employment due to “justifiable reasons” (each such term as defined in his Mr. Sella’s agreement), he will beentitled to full acceleration of any unvested shares of restricted stock or stock options held by him at the time of such termination. Pursuant to the terms oftheir respective employment agreements, if Mr. Faier or Mr. Lando employment agreements are terminated within 12 months of the date of a “transaction”without “cause” (each term as defined therein), then all outstanding and unvested stock options will become fully vested and exercisable as of the date ofsuch termination. In addition, pursuant to Mr. Faier’s employment agreement if within 12 months following a “transaction”, Mr. Faier terminates hisemployment due to “justifiable reason” (as defined therein) then all outstanding and unvested stock options will become fully vested and exercisable as ofthe date of such termination. Mr. Galin and Mrs. Prishkolnik’s respective employment agreements do not contain similar vesting acceleration provisions. Furthermore, in the event of a “transaction” (as defined in our 2007 Global Incentive Plan (the “2007 Plan”), all outstanding equity held by eachNEO will accelerate to the extent such awards are not assumed or substituted by a successor corporation in connection with such transaction. Potential Payments as of June 30, 2016 The following tables show the value of the potential payments and benefits our named executive officers would receive in various scenariosinvolving a termination of their employment or a change in control or other qualifying corporate transaction, assuming a June 30, 2016 triggering date and,where applicable, using a price per share for our common stock of $19.60 (the closing price of a share of our common stock as of the last day of the fiscalyear). (1)The value realized is based on the difference between the exercise price of the stock options or the base price of the stock appreciation rights and theclosing price of our common stock on June 30, 2016 (the last trading day of fiscal 2016). (1)The value realized is based on the difference between the exercise price of the stock options or the base price of the stock appreciation rights and theclosing price of our common stock on June 30, 2016 (the last trading day of fiscal 2016). 72 Name: Zvi Lando Terminationupon Deathof Employee Terminationfor Cause VoluntaryTerminationby EmployeeAfterProvision ofRequisiteNotice Terminationby CompanyAfterProvision ofRequisiteNotice Terminationw/o Cause orfor GoodReason Terminationw/o Causewithin12 months ofChange inControl(2) Base Salary — — 50,702 50,702 50,702 50,702 Israeli Social Benefits — — 8,005 8,005 8,005 8,005 Vested and Unvested Options/RSUs (1) 4,528,531 4,528,531 4,528,531 4,528,531 4,528,531 5,267,074 Accrued Vacation Pay 105,013 105,013 105,013 105,013 105,013 105,013 TOTAL 4,633,544 4,633,544 4,692,251 4,692,251 4,692,251 5,340,794 Name: Yoav Galin Terminationupon Deathof Employee Terminationfor Cause VoluntaryTerminationby EmployeeAfterProvision ofRequisiteNotice Terminationby CompanyAfterProvision ofRequisiteNotice Terminationw/o Cause orfor GoodReason Terminationw/o Cause orfor GoodReason within12 months ofChange inControl Base Salary — — 69,715 69,715 69,715 69,715 Israeli Social Benefits — — 10,917 10,917 10,917 10,917 Vested and Unvested Options/RSUs (1) 1,769,212 1,769,212 1,769,212 1,769,212 1,769,212 1,769,212 Accrued Vacation Pay 246,967 246,967 246,967 246,967 246,967 246,967 TOTAL 2,015,909 2,015,909 2,096,541 2,096,541 2,096,541 2,096,541 Name: Rachel Prishkolnik Terminationupon Deathof Employee Terminationfor Cause VoluntaryTerminationby EmployeeAfterProvision ofRequisiteNotice Terminationby CompanyAfterProvision ofRequisiteNotice Terminationw/o Cause orfor GoodReason Terminationw/o Cause orfor GoodReason within12 months ofChange inControl Base Salary — — 42,252 42,252 42,252 42,252 Israeli Social Benefits — — 6,385 6,385 6,385 6,385 Vested and Unvested Options/RSUs (1) 1,279,594 1,279,594 1,279,594 1,279,594 1,279,594 1,279,594 Accrued Vacation Pay 36,316 36,316 36,316 36,316 36,316 36,316 TOTAL 1,315,910 1,315,910 1,364,547 1,364,547 1,364,547 1,364,547 (1)The value realized is based on the difference between the exercise price of the stock options or the base price of the stock appreciation rights and theclosing price of our common stock on June 30, 2016 (the last trading day of fiscal 2016). (2)Mr. Lando’s employment agreement entitles him to immediate vesting of all unexercised equity upon termination without cause within twelvemonths of a change of control only. (1)The value realized is based on the difference between the exercise price of the stock options or the base price of the stock appreciation rights and theclosing price of our common stock on June 30, 2016 (the last trading day of fiscal 2016). (1)The value realized is based on the difference between the exercise price of the stock options or the base price of the stock appreciation rights and theclosing price of our common stock on June 30, 2016 (the last trading day of fiscal 2016). 73 Plan Category Number ofsecurities to beissued uponexercise ofoutstandingoptions andwarrants (a) Weighted-averageexercise price ofoutstandingoptions andwarrants(b) Number ofsecuritiesremainingavailable forfuture issuanceunder equitycompensationplans (excludingsecuritiesreflected incolumn (a))(c) Equity compensation plans approved by security holders (1) 5,768,266 $3.80 3,446,260 Equity compensation plans not approved by security holders — — — Total 5,768,266 $3.80 3,446,260 ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Equity Compensation Plan Information The following table summarizes information as of June 30, 2016, about shares of common stock that may be issued under our equity compensationplans. ______________________________(1)Includes in column (a) 1,100,754 shares of common stock issuable upon exercise of options outstanding under the Company’s 2015 GlobalIncentive Plan, 4,667,512 shares of common stock issuable upon exercise of options outstanding under the Company’s 2007 Global Incentive Plan.Includes in column (c) 2,557,691 shares of common stock available for future issuance under the Company’s 2015 Global Incentive Plan and888,569 shares of common stock available for future issuance under the Company’s Employee Stock Purchase Plan. Upon consummation of ourinitial public offering, the Company’s 2007 Global Incentive Plan was terminated and no further awards can be granted under this plan. Employee Stock Purchase Plan We have adopted an employee stock purchase plan (“ESPP”), pursuant to which our eligible employees and eligible employees of our subsidiariesmay elect to have payroll deductions made during the offering period in an amount not exceeding 10% of the compensation which the employees receive oneach pay day during the offering period. In the fourth quarter of 2016, we started granting eligible employees the right to purchase our common stock underthe ESPP. As of June 30, 2016, a total of 888,569 shares were reserved for issuance under the ESPP. The number of shares of common stock reserved forissuance under the ESPP will increase annually on January 1st, for ten years, by the lesser of 1% of the total number of shares of the Company’s commonstock outstanding on December 31st of the preceding calendar year or 487,643 shares. Our board of directors may reduce the number of shares to be added tothe share reserve for the ESPP in any particular year at their discretion. As of June 30, 2016, no shares of our common stock had yet been purchased under theESPP. Security Ownership of Certain Beneficial Owners The following table sets forth certain information regarding the beneficial ownership of our common stock as of June 30, 2016 with respect to: •each person known by us to beneficially own 5% or more of the outstanding shares of our common stock; •each member of our board of directors and each NEO; and •the members of our board of directors and our executive officers as a group. 74 Shares Beneficially Owned Name of Beneficial Owner Shares % 5% Stockholders: Affiliates of Opus Capital Venture Partners V, L.P.(1) 4,000,000 9.78%Genesis Partners III L.P.(2) 3,043,732 7.44%Affiliates of Pacven Walden Ventures VI, L.P.(3) 2,269,632 5.55%FMR LLC (4) 2,458,330 6.01% Directors and Named Executive Officers: Guy Sella (5) 958,743 2.34%Ronen Faier (6) 230,622 * Zvi Lando (7) 268,955 * Yoav Galin (8) 547,288 1.34%Rachel Prishkolnik (9) 80,178 * Dan Avida (10) 4,006,744 9.8%Yoni Cheifetz (11) 27,863 * Marcel Gani (12) 17,854 * Doron Inbar (13) 230,077 * Avery More (14) 688,174 * Tal Payne (15) 6,744 * All directors and executive officers as a group (13 individuals)(16) 15,928,484 38.96% Unless otherwise noted below, the address of each beneficial owner listed in the table below is c/o SolarEdge Technologies, Inc., 1 HaMada Street,Herziliya Pituach 4673335, Israel. We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based onthe information furnished to us, that each person or entity named in the table below has sole voting and investment power with respect to all shares ofcommon stock that he, she or it beneficially owns, subject to applicable community property laws. Applicable percentage of beneficial ownership is based on 40,889,922 shares of common stock that would be outstanding as of June 30, 2016. *Represents beneficial ownership of less than 1%. (1)Opus Capital Venture Partners V, L.P.’s investment committee consists of Carl Showalter, Dan Avida, Gill Cogan and Joseph Cutts. Each of theseindividuals has shared voting and investment power over the shares held by Opus Capital Venture Partners, L.P. The principal business address ofeach of the Opus Capital Venture Partners Funds is 2730 Sand Hill Road, Suite 150, Menlo Park, CA 94025. (2)The investment committee of Genesis Partners III L.P.’s general partner, Genesis Partners III Management Ltd., consists of Eddy Shalev, Dr. EyalKishon, Gary Gannot, Jonathan Saacks and Hadar Kiriati. Each of these individuals has shared voting and investment power over the shares held byGenesis Partners III L.P. The principal business address of Genesis Partners III L.P. is 11B Hamenofim St., Hertzilia Pituach POB 12866 Israel 46733. (3)Consists of 2,105,647 shares held by Pacven Walden Ventures VI, L.P. and 163,985 shares held by Pacven Walden Ventures Parallel VI, L.P.(together with Pacven Walden Ventures VI, L.P., the “Pacven Walden Funds”). The general partner of Pacven Walden Ventures VI, L.P. (“PacvenVI”) and Pacven Walden Ventures VI Parallel VI, L.P. (“Pacven VI Parallel”) is Pacven Walden Management VI Co. Ltd., which is affiliated withWalden International, a venture capital firm. Mr. Lip‑Bu Tan is the sole director and a member of the investment committee of Pacven WaldenManagement VI Co., Ltd. and shares voting and investment power with respect to the shares held by Pacven VI and Pacven VI Parallel with othermembers of the investment committee, i.e., Andrew Kau, and Brian Chiang. The business address of Pacven VI, Pacven VI Parallel and WaldenInternational is One California Street 28th Floor, San Francisco, California 94111. (4)Based solely on a Schedule 13G filed with the SEC on February 12, 2016. The address of FMR LLC is 245 Summer Street, Boston, MA 02210. Theshares are, or may be deemed, beneficially owned by FMR LLC and its subsidiaries and affiliates, including Fidelity Institutional Asset ManagementTrust Company. 75 (5)Consists of 440,083 shares of common stock owned of record by Mr. Sella and 518,660 shares of common stock issuable upon exercise of optionsexercisable within 60 days of June 30, 2016. (6)Consists of 2,700 shares of common stock owned of record by Mr. Faier and 227,922 shares of common stock issuable upon exercise of optionsexercisable within 60 days of June 30, 2016. (7)Consists of 2,700 shares of common stock owned of record by Mr. Lando and 266,255 shares of common stock issuable upon exercise of optionsexercisable within 60 days of June 30, 2016. (8)Consists of 436,033 shares of common stock owned of record by Mr. Galin and 111,255 shares of common stock issuable upon exercise of optionsexercisable within 60 days of June 30, 2016. (9)Consists of 1,574 shares of common stock owned of record by Mrs. Prishkolnik and 78,604 shares of common stock issuable upon exercise ofoptions exercisable within 60 days of June 30, 2016. (10)Consists of shares described in Note (1) above and 6,744 shares of common stock owned of record by Mr. Avida. (11)Consists of 27,863 shares of common stock owned of record by Mr. Cheifetz. (12)Consists of 6,744 shares of common stock owned of record by Mr. Gani, 5,555 shares of common stock held directly by Marcel Gani 2002 LivingTrust and 5,555 shares of common stock held directly by ALGA Partners LLC. Mr. Gani, in his capacity as trustee, has voting and investment powerover the shares owned by the Marcel Gani 2002 Living Trust. Mr. Gani, in his capacity as manager, has voting and investment power over the sharesowned by ALGA Partners LLC. (13)Consists of 6,744 shares of common stock owned of record by Mr. Inbar and 223,333 shares of common stock issuable upon exercise of optionsexercisable within 60 days of June 30, 2015. (14)Consists of 164,572 shares of common stock owned of record by Mr. More, 469,850 shares of common stock held by ORR Partners I GP, LP, alimited partnership controlled by Avery More, 28,752 shares held by Avery More's wife, Jerralyn Smith More, as to which Avery More disclaims anyownership interest and 25,000 shares held by MentorMore Foundation, a private charitable foundation of which Avery More serves as President;Avery More disclaims any ownership interest in such shares. (15)Consists of 6,744 shares of common stock owned of record by Mr. Payne. (16)Consists of 13,968,803 shares of common stock and 1,960,045 shares of common stock issuable upon exercise of options exercisable within 60 daysof June 30, 2015. 76 ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE There have been no transactions since July 1, 2015 to which we were or are a party in which the amount involved exceeded or exceeds $120,000 andin which any of our directors, executive officers, holders of more than 5% of any class of our voting securities or any member of the immediate family of anyof the foregoing persons, had or will have a direct or indirect material interest, other than compensation arrangements with directors and executive officers,which are described under “— Executive Compensation” and “— Director Compensation” above. Review, Approval or Ratification of Transactions with Related Persons The audit committee of our board of directors has primary responsibility for reviewing and approving transactions with related parties. Our auditcommittee charter provides that the audit committee shall review and approve in advance any related party transactions. We adopted a formal written policy providing that our executive officers, directors, nominees for election as directors, beneficial owners of morethan 5% of any class of our voting stock, any member of the immediate family of any of the foregoing persons, and any firm, corporation or other entity inwhich any of the foregoing persons is employed, is a general partner or principal or in a similar position, or in which such person has a 5% or greaterbeneficial ownership interest, are not permitted to enter into a related party transaction with us without the consent of our audit committee, subject to theexceptions described below. In approving or rejecting any such proposal, our audit committee is to consider the relevant facts and circumstances availableand deemed relevant to our audit committee, including whether the transaction is on terms no less favorable than terms generally available to an unaffiliatedthird party under the same or similar circumstances and the extent of the related party’s interest in the transaction. Our audit committee has determined thatcertain transactions will not require audit committee approval, including certain employment arrangements of executive officers, director compensation,transactions with another company at which a related party’s only relationship is as a non‑executive employee or beneficial owner of less than 5% of thatcompany’s shares, transactions where a related party’s interest arises solely from the ownership of our common stock and all holders of our common stockreceived the same benefit on a pro rata basis, and transactions available to all employees generally. Director Independence The Board has determined that each of our directors, other than Mr. Sella, is an “independent director” within the meaning of the applicableNASDAQ rules. In addition, the Board has determined that each of our directors, other than Mr. Sella is an “independent director” as defined by Rule 10A-3of the Securities Exchange Act of 1934, as amended (“Exchange Act”). The board of directors has also determined that pursuant to heightened independencerequirements applicable to compensation committee members as set forth in Rule 10C-1 of the Exchange Act (“Rule 10C-1”) and applicable NASDAQ rules,all of the Board members except for Mr. Sella are independent as defined in these rules. In making its determinations, the board of directors considered,among other things, all transactions and relationships between each director or any member of his or her immediate family and the Company and itssubsidiaries and affiliates. There are no family relationships among any of our executive officers, directors or nominees for director. 77 2016 2015 (in thousands) Audit fees(1) $525 $890 Audit Related fees(2) - 22 Tax fees(3) 27 80 Total audit and related fees $552 $992 ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES Audit and Related Fees The following table sets forth the aggregate fees billed for professional services rendered by Ernst & Young for the audit of our financial statementsfor fiscal 2016 and 2015 and the aggregate fees for other services rendered by Ernst & Young billed in those periods: (1)“Audit fees” are fees for audit services for each of the years shown in this table, including fees associated with the annual audit (including audit ofour internal control over financial reporting in fiscal year 2016), reviews of our quarterly financial results submitted on Form 10-Q, consultations onvarious accounting issues and services rendered for the filing of our Form S-1 and fees related to our initial public offering in fiscal year 2015.(2) Represents accounting consultations regarding financial accounting and reporting standards.(3)Represents professional services rendered for tax compliance, tax advice, tax planning and review our Israeli tax returns. In connection with our initial public offering, the board of directors adopted a written policy for the pre-approval of certain audit and non-auditservices which Ernst & Young provides. The policy balances the need to ensure the independence of Ernst & Young while recognizing that in certainsituations Ernst & Young may possess both the technical expertise and knowledge of the Company to best advise the Company on issues and matters inaddition to accounting and auditing. In general, the Company’s independent registered public accounting firm cannot be engaged to provide any audit ornon-audit services unless the engagement is pre-approved by the audit committee. Certain services may also be pre-approved by the Chairman of the auditcommittee under the policy. All of the fees identified in the table above were approved in accordance with SEC requirements and, following our initial publicoffering, pursuant to the policies and procedures described above. All of the services of Ernst & Young for fiscal 2016 and 2015 described above were pre-approved by the audit committee.78 PART IV ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES 1.Our Consolidated Financial Statements and Notes thereto are included in ITEM 8 of this Annual Report on Form 10-K. See Index to ITEM 8 for moredetail. 2.All financial schedules have been omitted either because they are not applicable or because the required information is provided in our ConsolidatedFinancial Statements and Notes thereto, included in ITEM 8 of this Annual Report on Form 10-K. 3.The Index to Exhibits, which appears immediately following the signature page and is incorporated herein by reference, is filed as part of this AnnualReport on Form 10-K.79 SOLAREDGE TECHNOLOGIES, INC.AND ITS SUBSIDIARIES. CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2016 IN U.S. DOLLARS AUDITED INDEX Page Reports of Independent Registered Public Accounting FirmF-2 Consolidated Balance Sheets as of June 30, 2016 and 2015F-5 Consolidated Statements of Operations for the years ended June 30, 2016, 2015 and 2014F-7 Consolidated Statements of Comprehensive Income (Loss) for the years ended June 30, 2016, 2015 and 2014F-8 Statements of Changes in Stockholders’ Equity (deficiency) for the years ended June 30, 2016, 2015 and 2014F-9 Consolidated Statements of Cash Flows for the years ended June 30, 2016, 2015 and 2014F-11 Notes to Consolidated Financial StatementsF-13 Kost Forer Gabbay & Kasierer3 Aminadav St.Tel-Aviv 6706703, Israel Tel: +972-3-6232525Fax: +972-3-5622555ey.com REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofSOLAREDGE TECHNOLOGIES, INC. We have audited the accompanying consolidated balance sheets of SolarEdge Technologies, Inc. and its subsidiaries (the “Company”) as of June 30,2016 and 2015, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity (deficiency) and cashflows for each of the three years in the period ended June 30, 2016. These consolidated financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit alsoincludes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company atJune 30, 2016 and 2015, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 2016, inconformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internalcontrol over financial reporting as of June 30, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (2013 framework) and our report dated August 17, 2016 expressed an unqualified opinion thereon. Tel-Aviv, Israel /s/ KOST FORER GABBAY & KASIERERAugust 17, 2016 A Member of Ernst & Young GlobalF - 2 SOLAREDGE TECHNOLOGIES, INC. Kost Forer Gabbay & Kasierer3 Aminadav St.Tel-Aviv 6706703, Israel Tel: +972-3-6232525Fax: +972-3-5622555ey.com REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofSOLAREDGE TECHNOLOGIES, INC. We have audited SolarEdge Technologies, Inc. and its subsidiaries (the "Company) internal control over financial reporting as of June 30, 2016, basedon criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013framework) (the COSO criteria). SolarEdge Technologies, Inc.'s management is responsible for maintaining effective internal control over financial reporting,and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on InternalControl Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures aswe considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on thefinancial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate.In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2016, based on theCOSO criteria.F - 3 SOLAREDGE TECHNOLOGIES, INC. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balancesheets of the Company as of June 30, 2016 and 2015, and the related consolidated statements of operations, comprehensive income (loss), changes instockholders’ equity (deficiency) and cash flows for each of the three years in the period ended June 30, 2016 and our report dated August 17, 2016 expressedan unqualified opinion thereon. Tel-Aviv, Israel /s/ KOST FORER GABBAY & KASIERERAugust 17, 2016 A Member of Ernst & Young GlobalF - 4 June 30, 2016 2015 ASSETS CURRENT ASSETS: Cash and cash equivalents $74,032 $144,750 Restricted cash 928 3,639 Marketable Securities 59,163 - Trade receivables, net 72,737 35,428 Prepaid expenses and other accounts receivable 21,340 32,645 Inventories 81,550 73,950 Total current assets 309,750 290,412 PROPERTY AND EQUIPMENT, NET 27,831 14,717 LONG-TERM ASSETS: Marketable securities 52,446 - Prepaid expenses and lease deposits 399 529 Deferred tax assets, net 6,296 - Intangible assets, net 716 - Total assets $397,438 $305,658 SOLAREDGE TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETSU.S. dollars in thousands (except share and per share data)The accompanying notes are an integral part of the consolidated financial statements. F - 5 June 30, 2016 2015 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Trade payables $48,481 $80,684 Employees and payroll accruals 10,092 6,814 Warranty obligations 14,114 9,431 Deferred revenues 3,859 1,676 Accrued expenses and other accounts payable 10,725 6,987 Total current liabilities 87,271 105,592 LONG-TERM LIABILITIES: Warranty obligations 37,078 22,448 Deferred revenues 14,684 8,289 Lease incentive obligation 2,297 2,385 Total long-term liabilities 54,059 33,122 COMMITMENTS AND CONTINGENT LIABILITIES STOCKHOLDERS’ EQUITY: Share capital Common stock of $0.0001 par value - Authorized: 125,000,000 shares as of June 30, 2016 and 2015, respectively; issued and outstanding: 40,889,922 and 39,297,539 shares as of June 30, 2016 and 2015, respectively. 4 4 Additional paid-in capital 299,214 287,152 Accumulated other comprehensive income (loss) 271 (222)Accumulated deficit (43,381) (119,990) Total stockholders’ equity 256,108 166,944 Total liabilities and stockholders’ equity $397,438 $305,658 SOLAREDGE TECHNOLOGIES, INC.CONSOLIDATED BALANCE SHEETSU.S. dollars in thousands (except share and per share data) * Represents an amount less than $1.The accompanying notes are an integral part of the consolidated financial statements. F - 6 Year endedJune 30, 2016 2015 2014 Revenues $489,843 $325,078 $133,217 Cost of revenues 337,887 243,295 111,246 Gross profit 151,956 81,783 21,971 Operating expenses: Research and development, net 33,231 22,018 18,256 Sales and marketing 34,833 24,973 17,792 General and administrative 12,133 6,535 4,294 Total operating expenses 80,197 53,526 40,342 Operating income (loss) 71,759 28,257 (18,371) Other expenses - 104 - Financial income (expenses), net 471 (5,077) (2,787) Income (loss) before taxes on income 72,230 23,076 (21,158) Taxes on income (tax benefit) (4,379) 1,955 220 Net income (loss) $76,609 $21,121 $(21,378) Net basic earnings (loss) per share of common stock $1.92 $0.30 $(7.64) Net diluted earnings (loss) per share of common stock $1.73 $0.27 $(7.64) Weighted average number of shares used in computing net basic earnings (loss) per share ofcommon stock 39,987,935 11,902,911 2,798,894 Weighted average number of shares used in computing net diluted earnings (loss) per share ofcommon stock 44,376,075 15,269,448 2,798,894 Reconciliation of net income (loss) to net income (loss) available to common stock used for netbasic earnings (loss) per share calculations Net income (loss) $76,609 $21,121 $(21,378)Dividends accumulated for the period - (17,550) - Net income (loss) available to shareholders of common stock $76,609 $3,571 $(21,378) Reconciliation of net income (loss) to net income (loss) available to common stock used for netdiluted earnings (loss) per share calculations Net income (loss) $76,609 $21,121 $(21,378)Dividends accumulated for the period - (16,971) - Net income (loss) available to shareholders of common stock $76,609 $4,150 $(21,378)SOLAREDGE TECHNOLOGIES, INC.CONSOLIDATED STATEMENTS OF OPERATIONSU.S. dollars in thousands (except share and per share data) The accompanying notes are an integral part of the consolidated financial statements. F - 7 Year endedJune 30, 2016 2015 2014 Net income (loss) $76,609 $21,121 $(21,378) Other comprehensive income (loss): Available-for-sale securities: Changes in unrealized gains, net of tax benefit 56 - - Reclassification adjustments for losses included in net income 1 - - Net change 57 - - Cash flow hedges: Changes in unrealized gains, net of tax expense 412 - - Reclassification adjustments for gains, net of tax expense included in net income (169) - - Net change 243 - - Foreign currency translation adjustments, net 193 (161) (35) Total other comprehensive income (loss) 493 (161) (35) Comprehensive income (loss) $77,102 $20,960 $(21,413)SOLAREDGE TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)U.S. dollars in thousands (except share and per share data) The accompanying notes are an integral part of the consolidated financial statements. F - 8 ConvertiblePreferred stock Receipt onaccount ofConvertiblePreferred Common stock Additionalpaid in Accumulatedothercomprehensive Accumulated Totalstockholders’equity Number Amount stock Number Amount Capital Income (loss) deficit (deficiency) Balance as of June 30,2013 68,493,373 $100,229 $5,314 2,782,491 $* - $4,745 $(26) $(119,733) $(115,014) Issuance of CommonStock upon exerciseof employee stockoptions - - - 27,459 * - 51 - - 51 Issuance of Series D-2ConvertiblePreferred stock, netof issuance expensesin the amount of $17 2,598,528 5,983 (5,314) - - - - - - Issuance of Series D-3ConvertiblePreferred stock, netof issuance expensesin the amount of $9 4,330,872 9,991 - - - - - - - Equity basedcompensationexpenses toemployees and non-employeeconsultants - - - - - 1,082 - - 1,082 Change inaccumulated othercomprehensive lossrelated to foreigncurrency translationadjustments - - - - - - (35) - (35)Net loss - - - - - - - (21,378) (21,378) Balance as of June 30,2014 75,422,773 $116,203 $- 2,809,950 $* - $5,878 $(61) $(141,111) $(135,294)SOLAREDGE TECHNOLOGIES, INC.CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)U.S. dollars in thousands (except share data) * Represents an amount less than $1.The accompanying notes are an integral part of the consolidated financial statements. F - 9 ConvertiblePreferred stock Receipt onaccount ofConvertiblePreferred Common stock Additionalpaid in AccumulatedOthercomprehensive Accumulated Totalstockholders’equity Number Amount stock Number Amount Capital Income (loss) deficit (deficiency) Balance as of June30, 2014 75,422,773 $116,203 $- 2,809,950 $* - $5,878 $(61) $(141,111) $(135,294) Issuance of CommonStock uponexercise ofemployee and non-employeesconsultants stockoptions - - - 34,898 * - 84 - - 84 Issuance of Series EConvertiblePreferred stock, netof issuanceexpenses in theamount of $288 9,321,019 24,712 - - - - - - - Equity basedcompensationexpenses toemployees andnon-employeeconsultants - - - - - 2,956 - - 2,956 Conversion ofconvertiblepreferred stock intoordinary shares (84,743,792) (140,915) - 28,247,923 3 140,912 - - 140,915 Issuance of commonstock in initialpublic offering, netof issuanceexpenses in anamount of $13,692 - - - 8,050,000 1 131,207 - - 131,208 Exercise of warrantsinto common stock - - - 154,768 * - 6,115 - - 6,115 Change inaccumulated othercomprehensive lossrelated to foreigncurrencytranslationadjustments - - - - - - (161) - (161)Net income - - - - - - - 21,121 21,121 Balance as of June30, 2015 - $- $- 39,297,539 $4 $287,152 $(222) $(119,990) $166,944 Issuance of CommonStock uponexercise ofemployee and non-employees stockoptions - - - 1,592,383 * - 2,973 - - 2,973 Equity basedcompensationexpenses toemployees andnon-employeeconsultants - - - - - 9,089 - - 9,089 SOLAREDGE TECHNOLOGIES, INC.CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY) (Cont.)U.S. dollars in thousands (except share data) Other comprehensiveincomeadjustments - - - - - - 493 - 493 Net income - - - - - - - 76,609 76,609 Balance as of June30, 2016 - $- $- 40,889,922 $4 $299,214 $271 $(43,381) $256,108 * Represents an amount less than $1. The accompanying notes are an integral part of the consolidated financial statements. F - 10 Year endedJune 30, 2016 2015 2014 Cash flows provided by (used in) operating activities: Net income (loss) $76,609 $21,121 $(21,378)Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 3,763 2,253 1,978 Amortization of intangible assets 84 - - Amortization of premiums on available-for-sale marketable securities 532 - - Stock-based compensation 9,089 2,956 1,082 Financial expenses (income), net related to term loan - (992) 431 Remeasurement of warrants to purchase convertible preferred stock - 5,350 (53)Capital loss from disposal of property - 104 - Interest expenses related to short term bank loan - - 44 Changes in assets and liabilities: Inventories (7,356) (48,507) (10,681)Prepaid expenses and other accounts receivable 10,542 (19,563) (7,409)Trade receivables, net (37,271) (16,333) (9,911)Deferred tax assets, net (6,380) - - Trade payables (32,200) 41,111 19,441 Employees and payroll accruals 3,278 1,668 1,726 Warranty obligations 19,313 13,698 7,803 Deferred revenues 8,578 3,989 (500)Accrued expenses and other accounts payable 3,934 2,530 (418)Lease incentive obligation (88) 2,669 - Net cash provided by (used in) operating activities 52,427 12,054 (17,845) Cash flows from investing activities: Purchase of property and equipment (15,690) (11,765) (2,990)Purchase of intangible assets (800) - - Decrease (increase) in restricted cash 2,711 (2,038) (156)Decrease (increase) in long-term lease deposit 103 (134) (1)Investment in available-for-sale marketable securities (118,511) - - Maturities of available-for-sale marketable securities 6,350 - - Net cash used in investing activities (125,837) (13,937) (3,147)SOLAREDGE TECHNOLOGIES, INC.CONSOLIDATED STATEMENTS OF CASH FLOWSU.S. dollars in thousandsThe accompanying notes are an integral part of the consolidated financial statements. F - 11 Year endedJune 30, 2016 2015 2014 Cash flows from financing activities: Proceeds from short term bank loan - 23,000 21,813 Repayment of short term bank loan - (36,326) (12,447)Repayments of term loan - (5,919) (2,401)Proceeds from issuance of Series D-2 Convertible Preferred stock, net - - 669 Proceeds from issuance of Series D-3 Convertible Preferred stock, net - - 9,991 Proceeds from issuance of Series E Convertible Preferred stock, net - 24,712 - Proceeds from initial public offering, net - 131,402 - Issuance costs related to initial public offering (194) - - Proceeds from issuance of shares under stock purchase plan and upon exercise of options 2,973 84 51 Net cash provided by financing activities 2,779 136,953 17,676 Increase (decrease) in cash and cash equivalents (70,631) 135,070 (3,316)Cash and cash equivalents at the beginning of the period 144,750 9,754 13,142 Effect of exchange rate differences on cash and cash equivalents (87) (74) (72) Cash and cash equivalents at the end of the period $74,032 $144,750 $9,754 Supplemental disclosure of non-cash financing activities: Deferred issuance costs related to initial public offering $- $194 $- Cashless exercise of warrants to purchase common stock $- $6,115 $- Supplemental disclosure of cash flow information: Cash paid for interest $- $896 $1,085 Cash paid for income taxes $1,178 $4,040 $92 SOLAREDGE TECHNOLOGIES, INC.CONSOLIDATED STATEMENTS OF CASH FLOWSU.S. dollars in thousandsThe accompanying notes are an integral part of the consolidated financial statements. F - 12 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 1:- GENERALa.SolarEdge Technologies, Inc. (the “Company”) and its subsidiaries design, develop, and sell an intelligent inverter solution designed tomaximize power generation at the individual photovoltaic (“PV”) module level while lowering the cost of energy produced by the solarPV system and providing comprehensive and advanced safety features. The Company’s products consist mainly of (i) power optimizersdesigned to maximize energy throughput from each and every module through constant tracking of Maximum Power Point individuallyper module, (ii) inverters which invert direct current (DC) from the PV module to alternating current (AC) and (iii) a related cloud-basedmonitoring platform, that collects and processes information from the power optimizers and inverters of a solar PV system to enablecustomers and system owners as applicable, to monitor and manage the solar PV systems. In addition, the Company has a storagesolution that is used to increase energy independence and maximize self-consumption for homeowners by utilizing a battery that is soldseparately by third party manufacturers, to store and supply power as needed (the “StorEdge solution”). The StorEdge solution isdesigned to provide smart energy functions such as maximizing self-consumption, Time-of-Use programming for desired hours of theday, and home energy backup solutions.The Company and its subsidiaries sells its products worldwide directly to large solar installers and engineering, procurement andconstruction firms (“EPCs”), as well as through large distributors and electrical equipment wholesalers to smaller solar installers.The Company was incorporated in Delaware in August 2006 and began commercial sale of its products in January 2010.b.Initial Public Offering:On March 31, 2015, the Company closed its initial public offering (“IPO”) whereby 8,050,000 shares of common stock were sold by theCompany to the public (inclusive of 1,050,000 shares of common stock pursuant to the full exercise of an overallotment option grantedto the underwriters). The aggregate net proceeds received by the Company from the offering were approximately $131,208, net ofunderwriting discounts and commissions and offering expenses. Upon the closing of the IPO, all shares of the Company’s outstandingconvertible preferred stock automatically converted into 28,247,923 shares of common stock, and outstanding warrants to purchaseconvertible preferred stock automatically converted into warrants to purchase 187,671 shares of common stock (See Note 18).F - 13 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 1:-GENERAL (Cont.)c.As of June 30, 2016 and 2015, the Company had three and one major customers that accounted for approximately 32.5% and 24.6% ofthe Company’s consolidated revenues, respectively (see Note 20).d.The Company depends on two contract manufacturers and several limited or single source component suppliers. Reliance on thesevendors makes the Company vulnerable to possible capacity constraints and reduced control over component availability, deliveryschedules, manufacturing yields and costs. Two vendors collectively account for 69% and 79% of the Company’s total trade payables asof June 30, 2016 and 2015, respectively. The Company has the right to offset its payables to one of its contract manufacturers against vendor non-trade receivables. As of June 30,2016 a total of $5,874 of these receivables met the criteria for net recognition and were offset against the corresponding accountspayable balances for this contract manufacturer in the accompanying Consolidated Balance Sheets. NOTE 2:-SIGNIFICANT ACCOUNTING POLICIESThe consolidated financial statements are prepared according to United States generally accepted accounting principles (“U.S. GAAP”).a.Use of estimates:The preparation of financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions thataffect the amounts reported in the financial statements and accompanying notes. The Company evaluates on an ongoing basis itsassumptions, including those related to warranty obligation, inventory valuation, contingencies, share-based compensation cost, as wellas in estimates used in applying the revenue recognition policy. The Company’s management believes that the estimates, judgment andassumptions used are reasonable based upon information available at the time they are made. These estimates, judgments andassumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of theconsolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results coulddiffer from those estimates.b.Financial statements in U.S. dollars:The functional currency of the Company and its Israeli subsidiary is the U.S. dollar, as the U.S. dollar is the currency of the primaryeconomic environment in which the Company has operated and expects to continue to operate in the foreseeable future. The Company’sand its Israeli subsidiary’s operations are currently primarily conducted in Israel and a significant portion of its expenses are currentlypaid in U.S. dollars. Financing activities including loans and cash investments, are mainly made in U.S. dollars.Accordingly, monetary accounts maintained in currencies other than the U.S. dollar are translated into U.S. dollars in accordance withFinancial Accounting Standards Board Accounting Standards Codification (“ASC”) 830 (“Foreign Currency Matters”). All transactiongains and losses of the re-measurement of monetary balance sheet items are reflected in the statements of operations as financial incomeor expenses, as appropriate.F - 14 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)The financial statements of the Company’s subsidiaries in Germany, China, Australia, Canada, Netherlands, UK, Japan, France, Italia andBulgaria, whose functional currency is other than the U.S. dollar, have been translated into U.S dollars. Assets and liabilities have beentranslated using the exchange rates in effect on the balance sheet date. Statements of operations amounts have been translated using theaverage exchange rate for the relevant periods.The resulting translation adjustments are reported as a component of stockholders’ equity (deficiency) in accumulated othercomprehensive income (loss).Accumulated other comprehensive loss related to foreign currency translation adjustments, net amounted to $29 and $222 as of June 30,2016 and 2015 , respectively.c.Principles of consolidation:The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions andbalances including profits from intercompany sales not yet realized outside the Company have been eliminated upon consolidation.The Company’s fiscal years 2016, 2015 and 2014 ended on June 30, 2016, 2015 and 2014, respectively. Unless otherwise stated,references to particular years and quarters, refer to the Company’s fiscal years ended in June and the associated quarters of those fiscalyears.d.Basic and Diluted Net Earnings (Loss) Per Share:Basic net earnings (loss) per share is computed by dividing the net earnings (loss) by the weighted-average number of shares of commonstock outstanding during the period.Diluted net earnings (loss) per share is computed by giving effect to all potential shares of common stock, including stock options andconvertible preferred stock, to the extent dilutive, all in accordance with ASC No. 260, "Earnings Per Share."The total weighted average number of shares related to the outstanding stock options, convertible preferred stock and warrants topurchase convertible preferred stock, excluded from the calculation of diluted net earnings (loss) per share due to their anti-dilutiveeffect was 16,208, 20,565,747 and 25,234,818, for the years ended June 30, 2016, 2015 and 2014, respectively.Basic and diluted earnings (loss) per share is presented in conformity with the two-class method for participating securities for theperiods prior to their conversion. Under this method the earnings per share for each class of shares are calculated assuming 100% of theCompany’s earnings are distributed as dividends to each class of shares based on their contractual rights. In addition, since all classesother than common stock do not participate in losses, for the year ended June 30, 2014 these shares are not included in the computationof basic loss per share.F - 15 Year ended June 30, 2016 2015 2014 Net basic earnings (loss) per share of common stock: Numerator: Net income (loss) 76,609 21,121 (21,378)Dividends accumulated for the period - (17,550) - Net income (loss) available to shareholders of common stock 76,609 3,571 (21,378) Denominator: Shares used in computing net earnings (loss) per share of common stock, basic 39,987,935 11,902,911 2,798,894 Net diluted earnings (loss) per share of common stock: Numerator: Net income (loss) 76,609 21,121 (21,378)Dividends accumulated for the period - (16,971) - Net income (loss) available to shareholders of common stock 76,609 4,150 (21,378) Denominator: Shares used in computing net earnings (loss) per share of common stock, diluted 44,376,075 15,269,448 2,798,894 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)For the year ended June 30, 2014, basic and diluted net loss per share was the same for each period presented as the inclusion of allpotential shares of common stock outstanding would have been anti-dilutive.The following table presents the computation of basic and diluted net earnings (loss) per share for the periods presented (in thousands,except per share data):e.Cash and cash equivalents:Cash equivalents are short-term, highly liquid investments that are readily convertible to cash, with original maturities of three monthsor less at the date acquired.f.Marketable Securities:Marketable securities consist of corporate and governmental bonds. The Company determines the appropriate classification ofmarketable securities at the time of purchase and re-evaluates such designation at each balance sheet date. In accordance with FASBASC No. 320 “Investments - Debt and Equity Securities”, the Company classifies marketable securities as available-for-sale. Available-for-sale securities are stated at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), aseparate component of stockholders’ equity, net of taxes.F - 16 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share dataNOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)Realized gains and losses on sales of marketable securities, as determined on a specific identification basis, are included in financialincome (expenses), net. The amortized cost of marketable securities is adjusted for amortization of premium and accretion of discount tomaturity, both of which, together with interest, are included in financial income (expenses), net.The Company classifies its marketable debt securities as either short-term or long-term based on each instrument’s underlyingcontractual maturity date. Marketable debt securities with maturities of 12 months or less are classified as short-term and marketabledebt securities with maturities greater than 12 months are classified as long-term.The Company recognizes an impairment charge when a decline in the fair value of its investments in debt securities below the cost basisof such securities is judged to be other-than-temporary. Factors considered in making such a determination include the duration andseverity of the impairment, the reason for the decline in value, the potential recovery period and the Company’s intent to sell, includingwhether it is more likely than not that the Company will be required to sell the investment before recovery of cost basis. If the Companydoes not intend to sell the security or it is not more likely than not that it will be required to sell the security before it recovers in value,the Company must estimate the net present value of cash flows expected to be collected. If the amortized cost exceeds the net presentvalue of cash flows, such excess is considered a credit loss and an other-than-temporary impairment has occurred. For securities that aredeemed other-than-temporarily impaired (“OTTI”), the amount of impairment is recognized in the statement of operations and is limitedto the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income (loss). TheCompany did not recognize OTTI on its marketable securities during the year ended on June 30, 2016.g.Restricted cash:Restricted cash is primarily invested in short-term bank deposits, which are primarily used to guarantee a letter of credit which has beenissued to one of the Company’s major vendors and to the Company’s landlords for its office leases.h.Inventories:Inventories are stated at the lower of cost or market value. Inventory reserves are provided to cover risks arising from slow-moving itemsor technological obsolescence.The Company periodically evaluates the quantities on hand relative to historical, current and projected sales volume. Based on thisevaluation, an impairment charge is recorded when required to write-down inventory to its market value. Cost of finished goods and rawmaterials is determined using the moving average cost method.F - 17 % Computers and peripheral equipment 14 – 33 (mainly 33) Office furniture and equipment 7 – 15 (mainly 7) Machinery & equipment 7 – 33 (mainly 20) Laboratory equipment 15 – 33 (mainly 33) Vehicles 15 Leasehold improvements over the shorter of the leaseterm or useful economiclife SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Property and equipment:Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method overthe estimated useful lives of the assets, at the following rates:j.Impairment of long-lived assets:The Company’s long-lived assets are reviewed for impairment in accordance with ASC 360 (“Property, Plants and Equipment”),whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable.Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset (or asset group) to the futureundiscounted cash flows expected to be generated by the assets (or asset group).If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amountof the assets exceeds their fair value. For the years ended June 30, 2016, 2015 and 2014, no impairment losses have been identified.k.Severance pay:Pursuant to Israel’s Severance Pay Law, Israeli employees are entitled to severance pay equal to one month’s salary for each year ofemployment, or a portion thereof. The employees of the Company’s Israeli subsidiary have elected to be included under section 14 ofthe Severance Pay Law, 1963, under which these employees are entitled only to monthly deposits made in their name with insurancecompanies, at a rate of 8.33% of their monthly salary. These payments cause the Company to be released from any future obligationunder the Israeli Severance Pay Law to make severance payments in respect of those employees; therefore, related assets and liabilitiesare not presented in the balance sheet.For the years ended June 30, 2016, 2015 and 2014, the Company recorded $1,761, $1,273, and $1,109, severance expenses,respectively.F - 18 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)l.Revenue recognition:The Company and its subsidiaries generate their revenues mainly from the sale of power optimizers, inverters and cloud-basedmonitoring services, to distributors, installers and PV module manufacturers.Revenues from product sales and related services are recognized in accordance with ASC 605 (“Revenue Recognition”), whenpersuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, collectability isreasonably assured and no significant obligations remain.Persuasive evidence of an arrangement exists. The Company’s customers mainly consist of distributors and installers (the“Customers”). The Company’s sales arrangements with Customers are pursuant to written documentation, either a written contract orpurchase order. The actual documentation used is dependent on the business practice with each Customer. Therefore, the Companydetermines that persuasive evidence of an arrangement exists with respect to a Customer when it has a written contract, or a bindingpurchase order from the Customer.Delivery has occurred. Each item of written documentation relating to a sale arrangement that is agreed upon with the Customerspecifically sets forth when risk of loss and title are being transferred (based on the agreed International Commercial terms, or“INCOTERMS”). Unless a different written arrangement with the Customer exists, the Company determines that risk of loss and title aretransferred to the Customer when the applicable INCOTERMS are satisfied and thus delivery of its products has occurred.The fee is fixed or determinable. The Company does not provide any price protection, stock rotation and/or right of return and thus theCompany considers all the Customers as end-users and the fee is considered fixed and determinable upon execution of the writtendocumentation with the Customers. Additionally, payments that are due within the normal course of the Company’s credit terms, whichare currently no more than three months from the delivery date, are deemed to be fixed and determinable. Fees and arrangements withpayment terms extending beyond customary payment terms are considered not to be fixed or determinable, in which case revenues aredeferred and recognized when payments become due, provided that all other revenue recognition criteria have been met.Collectability is reasonably assured. The Company determines whether collectability is reasonably assured on a Customer-by-Customerbasis pursuant to its credit review policy. The Company typically sells to Customers with whom it has a long-term business relationshipand a history of successful collection. For a new Customer, or when an existing Customer substantially expands its commitments, theCompany evaluates the Customer’s financial position, the number of years the Customer has been in business, the history of collectionwith the Customer and the Customer’s ability to pay and typically assigns a credit limit based on that review.F - 19 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)Provisions for rebates, sales incentives, and discounts to customers are accounted for as reductions in revenue in the same period therelated sales are recorded.The Company increases a credit limit only after it has established a successful collection history with the Customer. If the Companydetermines at any time that collectability is not reasonably assured under a particular arrangement based upon its credit review process,the Customer’s payment history or information that comes to light about a Customer’s financial position, it recognizes revenue underthat arrangement as Customer payments are actually received.Revenues related to cloud-based monitoring services are recognized ratably on a straight-line basis over the estimated service period of25 years.For multiple-element arrangements, the Company allocates revenue to all deliverables based on their relative selling prices. In suchcircumstances, the Company uses a hierarchy to determine the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”), and (iii) best estimate of the sellingprice (“ESP”).VSOE generally exists only when the Company sells the deliverable separately and is the price actually charged by the Company forthat deliverable. ESPs reflect the Company’s best estimates of what the selling prices of elements would be if they were sold regularly ona stand-alone basis. The Company has allocated revenue between its deliverables based on their relative selling prices. Because theCompany has neither VSOE nor TPE for its deliverables, the allocation of revenue has been based on the Company’s ESPs. Amountsallocated to the delivered elements are recognized at the time of sale provided the other conditions for revenue recognition have beenmet.The Company’s process for determining its ESP considers multiple factors that may vary depending upon the unique facts andcircumstances related to each deliverable. Key factors considered by the Company in developing the ESPs for its products include pricescharged by the Company for similar offerings, the Company’s historical pricing practices and product-specific business objectives.Deferred revenues consist of deferred cloud-based monitoring services, advance payments received from Customers for the Company’sproducts and warranty extensions, and are classified as short-term and long-term deferred revenues based on the period in whichrevenues are expected to be recognized.m.Cost of revenues:Cost of revenues sold includes the following: product costs consisting of purchases from contract manufacturers and other suppliers,indirect manufacturing, support, warranty expenses, provision for losses related to slow moving and dead inventory and personnel andlogistics costs.F - 20 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)n.Shipping and handling costs:Shipping and handling costs, which amounted to $21,922, $26,931 and $14,066 for the years ended June 30, 2016, 2015 and 2014,respectively, are included in cost of revenues in the consolidated statements of operations. Shipping and handling costs include all costsassociated with the distribution of finished products from the Company’s point of selling directly to its Customers.o.Warranty obligations:The Company’s products include 10 years limited warranty for StorEdge products, a minimum 12-year limited warranty for inverters anda 25-year limited warranty for power optimizers. In certain cases, the Company provides extended warranties for inverters that bring thewarranty period up to 25 years. The Company maintains reserves to cover the expected costs that could result from these warranties. Thepotential liability is generally in the form of product replacement and associated costs. Warranty reserves are based on the Company’sbest estimate of such costs and are included in cost of revenues. The reserve for the related warranty expenses is based on various factorsincluding assumptions about the frequency of warranty claims on product failures, derived from results of accelerated lab testing, fieldmonitoring, analysis of the history of product failures and the Company’s reliability estimates.The Company has established a reliability measurement system based on the units’ estimated mean time between failure, or MTBF, ametric that equates to a steady-state failure rate per year for current generation products. The MTBF represents the predicted meanelapsed time to each product unit failure during system operation. The Company performs accelerated life cycle testing, which simulatesthe service life of the product in a short period of time.The accelerated life cycle tests incorporate test methodologies derived from standard tests used by solar module vendors to evaluate theperiod over which solar modules wear out. Corresponding replacement costs are updated periodically to reflect changes in theCompany’s actual and estimated production costs for its products.F - 21 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)In addition, through the collection of actual failure statistics, the Company has identified several additional failure causes that are notincluded in the MTBF calculations. Such causes, which mostly consist of design, workmanship errors caused during the manufacturingprocess and, to a lesser extent, replacement of non-faulty units by installers, are in addition to the replacement costs projected under theMTBF model. The Company identified each of those causes, its failure pattern and the relative ratio compared to the pattern ofmalfunctions identified under the MTBF and accrued additional provisions for the occurrence of such malfunctioning. The Companyevaluates the continuation of these occurrences and the appearance of potential additional malfunctioning cases beyond the MTBFpattern and accrues additional expenses accordingly.Warranty obligations are classified as short-term and long-term warranty obligations based on the period in which the warranty isexpected to be claimed.p.Royalty-bearing grants from the Binational Industrial Research and Development Foundation:Royalty-bearing grants from the Binational Industrial Research and Development Foundation (“BIRD-F”) for funding of approvedresearch and development projects are recognized, as a deduction from research and development expenses, at the time the Company isentitled to such grants (see Note 14c).No grants were recorded in the years ended June 30, 2016, 2015 and 2014.q.Government grants:Government grants received by the Company’s Israeli subsidiary relating to categories of operating expenditures are credited to theconsolidated statements of operations during the period in which the expenditure to which they relate is charged. Royalty bearing grantsfrom the Israeli Office of the Chief Scientist (“OCS”) for funding certain approved research and development projects are recognized atthe time when the Company’s Israeli subsidiary is entitled to such grants, on the basis of the related costs incurred, and are included as adeduction from research and development expenses.The Company recorded grants in the amount of $763 and $275 for the year ended June 30, 2015 and 2014, respectively, which wasdeducted from research and development expenses.No grants were recorded for the year ended June 30, 2016.r.Research and development costs:Research and development costs, net of grants received, are charged to the consolidated statement of operations as incurred.F - 22 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)s.Concentrations of credit risks:Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cashequivalents, restricted cash, trade receivables, other accounts receivable and marketable securities.Cash and cash equivalents are mainly invested in major banks in the U.S., Israel and in Germany. Management believes that the financialinstitutions that hold the Company’s investments are financially sound and, accordingly, minimal credit risk exists with respect to theseinvestments.The Company’s marketable securities consist of corporate and governmental bonds. The Company's marketable securities include investments in highly rated debentures (mainly of U.S., Canada and other Europancountries) corporations and governmental bonds. The financial institutions that hold the Company's marketable securities are major U.S.financial institutions, located in the United States. Management believes that the Company's marketable securities portfolio is a diverseportfolio of highly-rated securities and the Company's investment policy limits the amount the Company may invest in each issuer, andaccordingly, management believes that minimal credit risk exists from geographic or credit concentration with respect to thesesecurities.As of June 30, 2016, the amortized cost of the Company’s marketable securities was $111,514, and their stated market value was$111,609, representing a net unrealized gain of $95.The trade receivables of the Company are derived from sales to Customers located primarily in North America and Europe.The Company generally does not require collateral however, in certain circumstances, the Company may require letters of credit, othercollateral or additional guarantees.An allowance for doubtful accounts is determined with respect to specific debts that are doubtful of collection. The Company accrued$235 and $13 as allowance for doubtful accounts as of June 30, 2016 and 2015, respectively. As of June 30, 2014 the Company did notaccrue any allowance for doubtful accounts.As of June 30, 2016 and 2015, the Company had two and one major customers (customers with a balance that represents more than 10%of total trade receivables) which accounted in the aggregate for approximately 34% and 30%, respectively, of the Company’sconsolidated trade receivables.The Company and its subsidiaries have no off-balance sheet concentration of credit risk except for certain derivative instruments asmentioned below.F - 23 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)t. Fair value of financial instruments:The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:The carrying value of cash and cash equivalents, restricted cash, trade receivables, prepaid expenses and other accounts receivable, shortterm bank loan, trade payables, employees and payroll accruals and accrued expenses and other accounts payable approximate their fairvalues due to the short-term maturities of such instruments.Assets measured at fair value on a recurring basis as of June 30, 2016 are comprised of foreign currency derivative contracts andmarketable securities. (see Note 4)Assets measured at fair value on a recurring basis as of June 30, 2015 are comprised of foreign currency forward contracts.The Company applies ASC 820 (“Fair Value Measurements and Disclosures”), with respect to fair value measurements of all financialassets and liabilities.Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants. As such, fair value is a market-based measurement that should be determined based onassumptions that market participants would use in pricing an asset or a liability.A three-tiered fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuationmethodologies in measuring fair value:Level 1-Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.Level 2-Include other inputs that are directly or indirectly observable in the marketplace.Level 3-Unobservable inputs which are supported by little or no market activity.The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputswhen measuring fair value.F - 24 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)u.Warrants to Purchase Convertible Preferred Stock:The Company accounts for freestanding warrants to purchase shares of its convertible preferred stock as a liability on the balance sheetsat fair value. The warrants to purchase convertible preferred stock are recorded as a liability because of a provision calling for minimumproceeds upon or after an “Exit Event”, as described in Note 10.The fair value of warrants to purchase convertible preferred stock on the issuance date and on subsequent reporting dates was determinedusing a hybrid method utilizing the assumptions noted below. The fair value of the underlying preferred stock price was determined bythe board of directors considering, among others, third party valuations. The valuation of the Company was performed using the hybridmethod, a hybrid between the probability-weighted estimated return method (“PWERM”) and Option Pricing Method (“OPM”)estimating the probability-weighted value across multiple scenarios but using the OPM to estimate the allocation of value within one ormore of those scenarios. The OPM was used to allocate the Company’s equity value between the preferred stock, common stock andwarrants in a scenario of other liquidation events.The expected terms of the warrants were based on the remaining contractual expiration period. The expected share price volatility for theshares was determined by examining the historical volatilities of a group of the Company’s industry peers as there was insufficienttrading history of the Company’s shares. The risk-free interest rate was calculated using the average of the published interest rates forU.S. Treasury zero-coupon issues with maturities that approximate the expected term.The dividend yield assumption was zero as there is no history of dividend payments and the Company does not expect to pay anydividends in the foreseeable future.The following assumptions were used to estimate the value of the warrants to purchase convertible preferred stock: June 30, 2014 Expected volatility 45.0%Risk-free rate 0.09%Dividend yield 0%Expected term (in years) 1.21 The warrants to purchase convertible preferred stock were subject to re-measurement to fair value at each balance sheet date and anychange in fair value was recognized as a component of financial expenses, net, on the statements of operations.F - 25 Balance atbeginning ofperiod Issuance ofwarrants topurchasepreferred stock Exercise ofwarrants topurchasecommonstock (*) Change infair value Balance atend of period June 30, 2015 $765 $- $(6,115) $5,350 $- June 30, 2014 $818 $- $- $(53) $765 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)The change in the fair value of warrants to purchase convertible preferred stock is summarized below:(*)Upon the closing of the IPO, all outstanding warrants to purchase convertible preferred stock automatically converted intowarrants to purchase 187,671 shares of common stock (See Note 1b). On June 18, 2015 the warrants were redeemed in a cashless exercise into 154,768 common shares. Immediately before the cashlessexercise the warrants were remeasured to fair value based on their intrinsic value which amounted to $6,115 (see Note 10). v.Accounting for stock-based compensation:The Company accounts for stock-based compensation in accordance with ASC 718 (“Compensation-Stock Compensation”). ASC 718requires companies to estimate the fair value of equity-based payment awards on the date of grant using an Option-Pricing Model(“OPM”). The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite serviceperiods in the Company’s consolidated statements of operations.In March 2016, the FASB issued Accounting Standards Update No. 2016-09, “Compensation — Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of theaccounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity orliabilities, and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for fiscal years beginning afterDecember 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company has adopted this guidanceeffective June 30, 2016.F - 26 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)The Company recognizes compensation expenses for the value of its awards granted based on the straight-line method over the requisiteservice period of each of the awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant andrevised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures are based on actualhistorical pre-vesting forfeitures (pursuant to the adoption of ASU 2016-09, the Company made a policy election to estimate the numberof awards that are expected to vest).The Company selected the Black-Scholes-Merton option pricing model as the most appropriate fair value method for its stock-optionawards and Employee Stock Purchase Plan. The option-pricing model requires a number of assumptions, of which the most significantare the fair market value of the underlying common stock, expected stock price volatility and the expected option term. Expectedvolatility was calculated based upon certain peer companies that the Company considered to be comparable. The expected option termrepresents the period of time that options granted are expected to be outstanding. The expected option term is determined based on thesimplified method in accordance with SAB No. 110, as adequate historical experience is not available to provide a reasonable estimate.The simplified method will continue to apply until enough historical experience is available to provide a reasonable estimate of theexpected term. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has notdeclared or paid any dividends on its common stock and does not expect to pay any dividends in the foreseeable future.The fair value of the shares of common stock underlying the stock options has historically been determined by the Company’smanagement and approved by the board of directors. Because until March 31, 2015, there was no public market for the Company’scommon stock, the Company’s management determined the fair value of the common stock by using, among other factors, third partyvaluations at the time of grant of the option by considering a number of objective and subjective factors, including data from othercomparable companies, issuance of convertible preferred stock to unrelated third parties, operating and financial performance, the lackof liquidity of capital stock and general and industry specific economic outlook. The fair value of the underlying common stock wasdetermined by the management until such time as the Company’s common stock is listed on an established stock exchange or nationalmarket system. The Company’s management determined the value of the shares of common stock based on valuations performed usingthe OPM for the years ended June 30, 2014 and 2013 and for the period from July 1, 2014 and up to March 31, 2015. The common stockof the Company has been publicly traded since March 31, 2015Since the distributions and participation rights to security holders until March 31, 2015 are different in a sale/liquidation scenarioversus an IPO, the valuation of the Company's equity was performed using a discounted cash flow (DCF) model or a new investmentround by external investors. The allocation of the Company's equity value between the convertible preferred stock, common stock andwarrants was performed using a hybrid method between the PWERM and OPM estimating the probability-weighted value acrossmultiple scenarios for liquidation events other than an IPO.F - 27 Year endedJune 30, 2016 2015 2014 Employee Stock Options Risk-free interest 1.39% - 1.97% 1.39% - 2.06% 1.62% - 1.94% Dividend yields 0% 0% 0% Volatility 55.45%-56.03% 46.5%-55.1% 46.3%-55.8% Expected option term 5.50-6.11 years 5.50-6.27 years 6.02-6.27 years Estimated forfeiture rate 10.3% 12.5%-18.7% 14.0% Employee Stock Purchase Plan Risk-free interest 0.40% - - Dividend yields 0% - - Volatility 28.54% - - Expected term 6 months - - Year endedJune 30, 2016 2015 2014 Risk-free interest 1.15%-2.21% 1.49%-2.58% 1.95%-2.45% Dividend yields 0% 0% 0% Volatility 55.37%-55.75% 45.5%-56.2% 45.0%-55.8% Contractual life 6.4-10.0 years 7.2-10.0 years 6.0-10.0 years SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share dataNOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)Before the per share value was determined, a discount for lack of marketability and a voting right differential was applied, as applicable,to the common stock.The fair value for options granted to employees and executive directors and Employee Stock Purchase Plan in the years ended June 30,2016, 2015 and 2014 is estimated at the date of grant using a Black-Scholes-Merton option pricing model with the followingassumptions:The following table set forth the parameters used in computation of the options compensation to non-employee consultants in the yearended June 30, 2016, 2015 and 2014, using a Black-Scholes-Merton option pricing model with the following assumptions:w.Income taxes:The Company and its subsidiaries account for income taxes in accordance with ASC 740, “Income Taxes.” ASC 740 prescribes the useof the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financialreporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences areexpected to reverse.The Company and its subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizablevalue.F - 28 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)The Company accounts for uncertain tax positions in accordance with ASC 740. ASC 740-10 contains a two-step approach torecognizing and measuring uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a taxreturn by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technicalmerits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step isto measure the tax benefit as the largest amount that is more than 50% (cumulative probability) likely to be realized upon ultimatesettlement. The Company accrues interest and penalties related to unrecognized tax benefits under taxes on income.x.Derivative financial instruments:The Company accounts for derivatives and hedging based on ASC 815 (“Derivatives and Hedging”). ASC 815 requires the Company torecognize all derivatives on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of aderivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the typeof hedging relationship.To protect against the increase in value of forecasted foreign currency cash flows resulting from salary and lease payments of its Israelifacilities denominated in the Israeli currency, the New Israeli Shekel (“NIS”), during the year ended June 30, 2016, the Companyinstituted a foreign currency cash flow hedging program. The Company hedges portions of the anticipated payroll and lease paymentsdenominated in NIS for a period of one to twelve months with hedging contracts. These hedging contracts are designated as cash flowhedges, as defined by ASC 815 and are all effective hedges.In accordance with ASC 815, for derivative instruments that are designated and qualify as a cash flow hedge (i.e. hedging the exposureto variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on thederivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period orperiods during which the hedged transaction affects earnings. Any gain or loss on a derivative instrument in excess of the cumulativechange in the present value of future cash flows of the hedged item is recognized in current earnings during the period of change.In addition to the above mentioned cash flow hedges transactions, the Company also entered into derivative instrument arrangements tohedge the Company’s exposure to currencies other than the U.S. dollar. These derivative instruments are not designated as cash flowshedges, as defined by ASC 815, and therefore all gains and losses, resulting from fair value remeasurement, were recorded immediatelyin the statement of operations, as financial income (expenses).F - 29 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)As of June 30, 2016, the Company entered into forward contracts and put and call options to sell U.S. dollars for NIS and Euros for U.S.dollars in the amount of $17,693 and €30,000, respectively. These hedging contracts do not contain any credit-risk-related contingencyfeatures. See Note 4 for information on the fair value of these hedging contracts.The fair value of derivative assets and derivative liabilities as of June 30, 2016 was $504 and $23, respectively, which was recorded atnet amount in other accounts receivable and prepaid expenses in the consolidated balance sheets (see Note 13).y.Comprehensive income (loss):The Company reports comprehensive income (loss) in accordance with ASC 220 (“Comprehensive Income”). ASC 220 establishesstandards for the reporting and presentation of comprehensive income and its components in a full set of general purpose financialstatements.Total comprehensive income (loss) and the components of accumulated other comprehensive income (loss) are presented in theconsolidated statements of stockholders’ equity (deficiency). Accumulated other comprehensive income (loss) consists of foreigncurrency translation effects, unrealized gains and losses on available-for-sale marketable securities and hedging contracts.z.Intangible assets: On March 9, 2015, the Company and Beacon Power LLC, a Delaware limited liability company (“Beacon”) entered into a patentpurchase agreement pursuant towhich the Company agreed to purchase all rights in thepatents. In July 2015, the Company completedthe purchase of the patents for $800. The patents are stated at cost, net of accumulated amortization. Amortization is calculated by the straight-line method over 10 years,which represents the estimated useful lives of the patents (see Note 7). aa.The impact of recently issued accounting standards still not effective for the Company as of June 30, 2016 is as follows:In May 2014, the FASB issued an accounting standard update on revenue from contracts with customers, which requires an entity torecognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.F - 30 Amortizedcost Grossunrealizedgains Grossunrealizedlosses Fairvalue Corporate bonds $103,494 $136 $(42) $103,588 Governmental bonds $8,020 $7 $(6) $8,021 $111,514 $143 $(48) $111,609 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)The new guidance will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. On July 9, 2015,the FASB agreed to delay the effective date by one year. In accordance with the agreed upon delay, the new standard is effective for theCompany beginning January 1st, 2018. Early adoption is permitted, but not before the original effective date of the standard. The newstandard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect ofinitially applying it recognized at the date of initial application. The Company is currently evaluating the effect that the new guidancewill have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor hasit determined the effect of the standard on its ongoing financial reporting.In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842), whereby lessees will be required to recognize for all leases atthe commencement date a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on adiscounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified assetfor the lease term.Under the new guidance, lessor accounting is largely unchanged. A modified retrospective transition approach for leases existing at, orentered into after, the beginning of the earliest comparative period presented in the financial statements must be applied. The modifiedretrospective approach would not require any transition accounting for leases that expired before the earliest comparative periodpresented. Companies may not apply a full retrospective transition approach. ASU 2016-02 is effective for annual and interim periodsbeginning after December 15, 2018. Early application is permitted. The Company is evaluating the potential impact of thispronouncement. NOTE 3:-MARKETABLE SECURITIES The following is a summary of available-for-sale marketable securities at June 30, 2016: As of June 30, 2015, the Company had no investments in marketable securities.F - 31 Amortizedcost Grossunrealizedgains Grossunrealizedlosses Fair value Due in one year or less $59,124 $50 $(11) $59,163 Due after one year to two years $52,390 $93 $(37) $52,446 $111,514 $143 $(48) $111,609 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 3:-MARKETABLE SECURITIES (Cont.)The amortized cost of available-for-sale marketable securities at June 30, 2016, by contractual maturities, is shown below:As of June 30, 2016, management believes the impairments are not other than temporary and therefore the impairment losses were recordedin accumulated other comprehensive income (loss). The Company has no intent to sell these securities and it is more likely than not that theCompany will not be required to sell these securities prior to the recovery of the entire amortized cost basis.Proceeds from maturity of available-for-sale marketable securities during 2016 were $6,350. The Company had no proceeds from sales ofavailable-for-sale marketable securities during 2016, therefore no realized gains or losses from the sale of available-for sale marketablesecurities were recognized during 2016. The Company determines realized gains or losses on the sale of available-for-sale marketable securitiesbased on a specific identification method. NOTE 4:-FAIR VALUE MEASUREMENTSIn accordance with ASC 820, the Company measures its cash equivalents, foreign currency derivative contracts and marketable securities, atfair value using the market approach valuation technique. Cash equivalents and marketable securities are classified within Level 1 or Level 2.This is because these assets are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.Foreign currency derivative contracts are classified within the Level 2 value hierarchy, as the valuation inputs are based on quoted prices andmarket observable data of similar instruments.F - 32 Balance as of Fair value measurements Description June 30,2016 Level 1 Level 2 Level 3 Cash equivalents: Money market mutual funds $13,373 $13,373 - - Derivative instruments asset $481 - $481 - Short-term marketable securities: Corporate bonds $57,158 - $57,158 - Governmental bonds $2,005 - $2,005 - Long-term marketable securities: Corporate bonds $46,430 - $46,430 - Governmental bonds $6,016 - $6,016 - Balance as of Fair value measurements Description June 30,2015 Level 1 Level 2 Level 3 Derivative instruments asset $859 - $859 - June 30, 2016 2015 Vendor non-trade receivables (*) $15,375 $24,814 Government authorities 2,727 3,729 OCS - 249 Prepaid expenses and other 2,756 2,994 Foreign currency derivative contracts 482 859 $21,340 $32,645 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 4:-FAIR VALUE MEASUREMENTS (Cont.)The following table sets forth the Company’s assets that were measured at fair value as of June 30, 2016 by level within the fair value hierarchy:The following table sets forth the Company’s assets that were measured at fair value as of June 30, 2015 by level within the fair value hierarchy:NOTE 5:-PREPAID EXPENSES AND OTHER ACCOUNTS RECEIVABLE (*) Vendor non-trade receivables related to contract manufacturers derive from the sale of components to manufacturing vendors whomanufacture products for the Company. The Company purchases these components directly from suppliers. The Company does not reflect thesale of these components in revenues (see also Note 14e).F - 33 June 30, 2016 2015 Raw materials $9,805 $14,405 Finished goods 71,745 59,545 $81,550 $73,950 June 30, 2016 2015 Cost: Computers and peripheral equipment $5,190 $3,139 Office furniture and equipment 1,289 779 Laboratory and testing equipment 8,590 7,205 Machinery and equipment 18,433 6,936 Leasehold improvements 5,450 4,047 Vehicles 13 13 38,965 22,119 Less - accumulated depreciation 11,134 7,402 Depreciated cost $27,831 $14,717 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 6:-INVENTORIESThe Company recorded inventory write-downs of $2,539, $992 and $1,131 for the years ended on June 30, 2016, 2015 and 2014, respectively. NOTE 7:-PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETSDepreciation expenses for the years ended June 30, 2016, 2015 and 2014 were $3,763, $2,253 and $1,978 , respectively.Intangible assets include an acquired patent with an original cost of $800 and accumulated amortization of $84 as of June 30, 2016. The patentis amortized over a 10 years period.Amortization expenses for year ended June 30, 2016 were $84. F - 34 June 30, 2016 2015 Accrued expenses $5,615 $4,735 Government authorities 1,406 536 Provision for contractual inventory purchase obligations * 2,834 1,304 Other 870 412 $10,725 $6,987 June 30, 2016 2015 Balance, at beginning of year $31,879 $18,181 Additions and adjustments to cost of revenues 28,848 19,407 Usage and current warranty expenses (9,535) (5,709) Balance, at end of year 51,192 31,879 Less current portion (14,114) (9,431) Long term portion $37,078 $22,448 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 8:-ACCRUED EXPENSES AND OTHER ACCOUNTS PAYABLE *See also Note 14e. NOTE 9:-WARRANTY OBLIGATIONSChanges in the Company’s product warranty liability for the years ended on June 30, 2016 and 2015 were as follows: NOTE 10:-TERM LOAN AND WARRANTS TO PURCHASE CONVERTIBLE PREFERRED STOCKOn December 28, 2012 (the “Agreement Date”), the Company entered into a loan facility agreement (the “Loan Agreement”) with a lender (the“Lender”), pursuant to which the Lender agreed to loan the Company up to $10,000. On the Agreement Date, the Company received a total of$10,000, less a $100 loan transaction fee paid to the Lender (the “Loan”). The Loan is for a period of 42 months and bears annual interest of11.90%, which is to be paid monthly.F - 35 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 10:-TERM LOAN AND WARRANTS TO PURCHASE CONVERTIBLE PREFERRED STOCK (Cont.)The principal of the loan is to be paid in 33 monthly payments, beginning in September 2013, except for the last loan payment which was paidin advance on the Agreement Date. Repayment of the Loan and payment of all other amounts owed to the Lender is paid in Euro.Borrowings pursuant to the Loan Agreement are secured by a first priority security interest in all existing and future assets of the Company,ranking junior to the Bank Lender’s security interest as to the Company’s trade receivables, inventory and cash and ranking pari passu with theBank Lender’s security interest as to all other collateral, including all equipment, intellectual property and all outstanding share capital ofSolarEdge Technologies GmbH, SolarEdge Technologies Inc. and SolarEdge Technologies (China) Co., Ltd. (see Note 11).In connection with the Loan Agreement, the Company granted the Lender 563,014 warrants to purchase Series D-1 convertible preferred stockat an exercise price of $2.309 (the “Warrants”). The Warrants were exercisable in whole or in part prior to earliest of (i) the tenth anniversary ofthe Agreement Date or (ii) 12 months after a qualified initial public offering or (iii) immediately prior to the consumption of a merger or sale ofall or substantially all of the Company’s assets (“M&A Transaction”, and together with a qualified initial public offering, an “Exit Event”).If (i) the Lender exercised all Warrants in full upon or after an Exit Event, and (ii) the intrinsic value of the Warrants upon such exercise is lowerthan $750, the Company should pay to the Lender, in addition to any other amounts due to the Lender under the Loan Agreement, an amountequal to the difference between $750 and the Warrants’ intrinsic value.On the Agreement Date, the Company recorded its freestanding Warrants to purchase its convertible preferred stock in the amount of $778 as aliability at their fair value upon issuance, by utilizing an option pricing method. The fair value of the Warrants was subject to remeasurement ateach balance sheet date with any change in value being reflected as financial expenses, net.Upon exercise or expiration, the Warrants will be reclassified to stockholders’ equity (deficiency), at which time the Warrant liability will nolonger be subject to fair value accounting.The fair value of the Warrants liability on the Agreement Date in the amount of $778 represented a loan discount which was amortized tofinancial expenses over the period of the Loan by using the effective interest method. The residual amount of $9,122 (net of the $100 loantransaction fee) was allocated to the Loan.Issuance expenses in the amount of $75 were allocated to the warrants to purchase convertible preferred stock liability and to the Loan,according to the above recorded values ratio. Issuance expenses in the amount of $6 related to the Warrants liability were immediatelyexpensed and recorded as financial expenses, net. Issuance expenses in the amount of $69 related to the Loan were recorded as deferred chargeassets (classified to short-term and long-term assets). The deferred charge assets were amortized over the period of the Loan by using theeffective interest method.F - 36 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 10:-TERM LOAN AND WARRANTS TO PURCHASE CONVERTIBLE PREFERRED STOCK (Cont.)Upon the closing of the IPO, all outstanding warrants to purchase convertible preferred stock automatically converted into warrants to purchase187,671 shares of common stock (See Note 1b).As of June 30, 2014, the Warrants liability has been measured at fair value in the amount of $765.In January 2015, the Company fully settled the amount borrowed from the Lender under the Term Loan.On June 18, 2015 the Lender elected to exercise its cashless exercise rights under which the Company issued 154,768 shares of common stock.The fair value of the Warrants liability as of the exercise date in the amount of $6,115 was reclassified to stockholders’ equity (deficiency). NOTE 11:-REVOLVING CREDIT LINEIn June 2011, the Company entered into an agreement for a revolving line of credit from a Bank Lender (the "Bank Lender"), which, asamended to date, permits aggregate borrowings of up to $20,000 in an amount not to exceed 80% of the eligible trade receivables plus 65% ofinventories in transit to customers and bears interest, payable monthly, at the Bank Lender’s prime rate plus a margin of 0.75% to 2.75%. Theaverage interest rate on the Company’s outstanding borrowings as of June 30, 2014 was 4.9%.On February 17, 2015, the Company amended and restated the agreement with the Bank Lender for a revolving line of credit, which permitsaggregate borrowings of up to $40,000 in an amount not to exceed 80% of the eligible accounts receivable and bears interest, payable monthly,at the Bank Lender’s prime rate plus a margin of 0.5% to 2.0%. The amended and restated revolving line of credit will terminate, andoutstanding borrowings will be payable, on December 31, 2016.In connection with the amended and restated revolving line of credit, the Company granted the Bank Lender security interests in substantiallyall of the Company’s assets, including a first‑priority security interest in the Company’s trade receivables, cash and cash equivalents. Financialcovenants contained in the agreement require the Company to maintain EBITDA and liquidity at specified levels.Specifically, the Company is required to maintain negative Adjusted EBITDA (defined in accordance with US GAAP as (a) net income, plus (b)the extent deducted in the calculation of net income, interest, taxes, depreciation and amortization, plus (c) to the extent deducted in thecalculation of net income, non‑cash stock‑based compensation) of no greater than ($1,500) as of March 31, 2015, and positive AdjustedEBITDA of at least (i) $1,500 as of June 30, 2015, (ii) $3,500 as of September 30, 2015 and December 31, 2015, (iii) $1,500 as of March 31,2016 and (iv) $3,500 for the fiscal year ended June 30, 2016 and for each calendar quarter thereafter.F - 37 Unrealizedgains (losses) onavailable-for-sale marketablesecurities Unrealizedgains (losses)on cash flowhedges Unrealizedgains (losses)on foreigncurrencytranslation Total Beginning balance $- $- $(222) $(222)Other comprehensive income (loss) before reclassifications 56 412 193 661 Losses (gains) reclassified from accumulated other comprehensiveincome (loss) 1 (169) - (168)Net current period other comprehensive income (loss) 57 243 193 493 Ending balance $57 $243 $(29) $271 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 11:-REVOLVING CREDIT LINE (Cont.)The Company is required to maintain liquidity (defined as unrestricted and unencumbered cash, plus availability under the amended andrestated revolving line of credit) of $6,750.The amended and restated revolving line of credit also contains covenants that restrict the Company’s ability to dispose of assets, engage inbusiness combinations (or permit a subsidiary to engage in business combinations), grant liens, borrow money, or pay dividends.As of June 30, 2016 and 2015, the Company met all its Bank Lender covenants.As of June 30, 2016 and 2015, the Company had no outstanding borrowings related to this revolving line of credit. NOTE 12:- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)The following table summarizes the changes in accumulated balances of other comprehensive income (loss), net of taxes, for the year endedJune 30, 2016: F - 38 Unrealized gains(losses) onavailable-for-salemarketablesecurities Unrealized gains(losses) on cashflow hedges Unrealizedgains (losses)on foreigncurrencytranslation Total Beginning balance $- $- $(61) $(61)Other comprehensive income (loss) before reclassifications - - (161) (161)Losses (gains) reclassified from accumulated other comprehensiveincome (loss) - - - - Net current period other comprehensive income (loss) - - (161) (161) Ending balance $- $- $(222) $(222)SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 12:- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Cont.)The following table summarizes the changes in accumulated balances of other comprehensive loss, net of taxes, for the year ended June 30,2015:F - 39 Details about Accumulated Other ComprehensiveIncome (Loss) Components Amount ReclassifiedfromAccumulated OtherComprehensive Income(Loss) Affected Line Item in the Statements of Operations Year ended June 30, 2016 Unrealized gains (losses) on cash flow hedges $30 Cost of revenues 115 Research and development 33 Sales and marketing 24 General and administrative 202 Total, before income taxes (33)Income tax expense (benefit) $169 Total, net of income taxes Unrealized gains (losses) on available-for-salemarketable securities $(1)Financial income, net - Income tax expense (benefit) $(1)Total, net of income taxes $168 Total, net of income taxesSOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 12:- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Cont.)The following table provides details about reclassifications out of accumulated other comprehensive income (loss):No amounts were reclassified from accumulated other comprehensive income for the years ended June 30, 2015 and 2014.F - 40 Year ended June 30, 2016 2015 Derivative assets: Derivatives not designated as cash flow hedging instruments: Foreign exchange option contracts $214 $- Derivatives designated as cash flow hedging instruments: Foreign exchange forward contracts 290 - Total $504 $- Derivative liabilities: Derivatives not designated as cash flow hedging instruments: Foreign exchange option contracts $(23) $- Total $(23) $- Year ended June 30, 2016 2015 2014 Derivatives designated as cash flow hedging instruments: Foreign exchange forward contracts $412 $- $- Total $412 $- $- SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 13:- DERIVATIVE INSTRUMENTSThe fair value of the Company’s outstanding derivative instruments is as follows:The Company recorded the fair value of derivative assets and liabilities, net in “prepaid expenses and other accounts receivable” on theCompany’s consolidated balance sheets.The increase (decrease) in unrealized gains (losses) recognized in “accumulated other comprehensive income (loss)” on derivatives, net of taxeffect, is as follows:F - 41 Year ended June 30, 2016 2015 2014 Derivatives designated as cash flow hedging instruments: Foreign exchange forward contracts $(169) $- $- Total $(169) $- $- SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 13:- DERIVATIVE INSTRUMENTS (Cont.)The net (gains) losses reclassified from “accumulated other comprehensive income (loss)” into income (loss), are as follows:The Company recorded in the financial income (expenses), a net gain (loss) of $(136), $1,721 and $(189) during the years ended June 30, 2016,2015 and 2014, respectively related to derivatives not qualified as hedging instruments. NOTE 14:-COMMITMENTS AND CONTINGENT LIABILITIESa.Lease commitments:The Company and its subsidiaries lease their operating facilities under non-cancelable operating lease agreements, which expire overthe next nine years, with the last ending in December 2024.The future minimum lease commitments of the Company and its subsidiaries under various non-cancelable operating lease agreementsin respect of premises, that are in effect as of June 30, 2016, are as follows:2017 $2,404 2018 2,241 2019 1,967 2020 1,810 2021 1,504 2022 and thereafter 5,218 $15,144 Rent expenses for the years ended June 30, 2016, 2015 and 2014 were approximately $2,238, $1,714 and $1,200 , respectively.b.Guarantees:As of June 30, 2016, contingent liabilities exist regarding guarantees in the amount of $618, $52 and $83 in respect of office rent leaseagreements, customs transactions and credit card limits, respectively. F - 42 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 14:-COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)c.Royalty commitments:On April 12, 2009, the Company received approval for a grant in a total amount of $703, from the BIRD-F in conjunction with a mutualdevelopment project with an American corporation.Under the Company’s research and development agreements with the BIRD-F, and pursuant to applicable law, the Company is requiredto pay royalties at the rate of 5% of gross sales of products developed with funds provided by the BIRD-F, up to an amount equal to150% of the research and development grants (dollar-linked) received from the BIRD-F. The obligation to pay these royalties iscontingent on actual sales of the products and, in the absence of such sales, no payment is required. Royalties payable with respect togrants received from the BIRD-F are linked to the Consumer Price Index in the U.S.At the end of 2011, the American corporation that had partnered with the Company announced the discontinuation of its solar business,resulting in the termination of the mutual development agreements. As a result, the development has not advanced into a commercialproduct. The Company does not expect any revenues from such project or the utilization of the technology mutually developed.As of June 30, 2016, the aggregate contingent liability to the BIRD-F amounted to approximately $1,146 which would be payable bythe Company if the project were to generate revenues.d.Governmental commitments:The Company has received royalty-bearing grants sponsored by the Israeli government for the support of research and developmentactivities. Through June 30, 2015, the Company had obtained grants from the OCS for certain of the Company’s research anddevelopment projects. The Company is obligated to pay royalties to the OCS, amounting to 4% in the first three years, and 4.5%thereafter, of the sales of the products and other related revenues (based on the dollar equivalent amount of the grant) generated fromsuch projects, up to 100% of the grants received. The royalty payment obligations also bear interest at the LIBOR rate. The obligation topay these royalties is contingent on actual sales of the applicable products and in the absence of such sales, no payment is required. Asof June 30, 2016 and 2015, there have been no sales or revenues on which royalties are payables.As of June 30, 2016, the aggregate contingent liability to the OCS amounted to $968.The Israeli Research and Development Law provides that know-how developed under an approved research and development programmay not be transferred to third parties without the approval of the OCS. Such approval is not required for the sale or export of anyproducts resulting from such research or development.F - 43 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 14:-COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)The OCS, under special circumstances, may approve the transfer of OCS-funded know-how outside Israel, in the following cases: (a) thegrant recipient pays to the OCS a portion of the sale price paid in consideration for such OCS-funded know-how or in consideration forthe sale of the grant recipient itself, as the case may be, which portion will not exceed six times the amount of the grants received plusinterest (or three times the amount of the grant received plus interest, in the event that the recipient of the know-how has committed toretain the R&D activities of the grant recipient in Israel after the transfer); (b) the grant recipient receives know-how from a third party inexchange for its OCS-funded know-how; (c) such transfer of OCS-funded know-how arises in connection with certain types ofcooperation in research and development activities; or (d) if such transfer of know-how arises in connection with a liquidation by reasonof insolvency or receivership of the grant recipient.e.Contractual purchase obligations:The Company has contractual obligations to purchase goods and raw materials. These contractual purchase obligations relate toinventories held by contract manufacturers and purchase orders initiated by the contract manufacturers, which cannot be canceledwithout penalty. The Company utilizes third parties to manufacture its products.In addition, it acquires raw materials or other goods and services, including product components, by issuing to suppliers authorizationsto purchase based on its projected demand and manufacturing needs. As of June 30, 2016, the Company had non-cancelable purchaseobligations totaling approximately $83,142 out of which the Company already recorded a provision for loss in the amount of $2,834(see also Note 8).f.Legal claims: From time to time, the Company may be involved in various claims and legal proceedings. The Company reviews the status of eachmatter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable andthe amount can be reasonably estimated, the Company accrues a liability for the estimated loss. These accruals are reviewed at leastquarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information andevents pertaining to a particular matter.F - 44 Authorized Issued and outstanding Number of shares June 30, 2016 2015 2016 2015 Stock of $0.0001 par value: Preferred stock 95,000,000 95,000,000 - - 95,000,000 95,000,000 - - SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 15:-LEASE INCENTIVE OBLIGATIONThe Company has an operating lease agreement for building in Herzilia, Israel. In connection with this lease, the Company and its third partylessor (the "Lessor"), agreed that the Lessor would pay approximately $2,938 for certain leasehold improvements on behalf of the Company.As of June 30, 2016, the Company received in cash $2,938 from the Lessor in connection with such leasehold improvements. These leaseholdimprovements are accounted for as a lease incentive obligation, which is recorded under long-term liabilities, net of the current portionrecorded in accrued expenses and other accounts payable under current liabilities. The lease incentive obligation is being amortized over thelife of the lease and as a reduction to rent expense. As of June 30, 2016, the long-term net amortized amount of lease incentive obligationrecorded under long-term liabilities is $2,297. NOTE 16:-CONVERTIBLE PREFERRED STOCKa.Composition of convertible preferred stock of the Company:The Company issued Series A through E Preferred stock between the years 2006 and 2015. The Company classified the convertiblepreferred stock outside of stockholders’ equity (deficiency) as required by ASC 480-10-S99-3A and ASR 268, since the shares possesseddeemed liquidation features that could trigger a distribution of cash or assets not solely within the Company’s control. b.Prior to the consummation of the Company’s IPO on March 31, 2015, the Company had the following convertible preferred stockoutstanding, all of which was converted into common stock following with the IPO on March 31, 2015 (see Note 1b) which resulted inclassification of convertible preferred stock temporary equity in the amount of $140,915 into stockholders’ equity (deficiency):F - 45 SharesOutstanding Number ofShares ofCommonStock issueduponconversion Series A Preferred stock 15,558,830 5,186,276 Series B Preferred stock 18,760,196 6,253,398 Series C Preferred stock 15,984,655 5,328,217 Series D Preferred stock 16,024,251 5,341,416 Series D-1 Preferred stock 2,165,441 721,813 Series D-2 Preferred stock 2,598,528 866,175 Series D-3 Preferred stock 4,330,872 1,443,623 Series E Preferred stock 9,321,019 3,107,005 84,743,792 28,247,923 Authorized Issued and outstanding Number of shares June 30, June 30, 2016 2015 2016 2015 Stock of $0.0001 par value: Common stock 125,000,000 125,000,000 40,889,922 39,297,539 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 16:-CONVERTIBLE PREFERRED STOCK (Cont.) NOTE 17:-STOCK CAPITALa.Composition of common stock capital of the Company: b.Common stock rights:Common stock confers upon its holders the right to receive notice of, and to participate in, all general meetings of the Company, whereeach share of common stock shall have one vote for all purposes; to share equally, on a per share basis, in bonuses, profits or distributionsout of fund legally available therefor; and to participate in the distribution of the surplus assets of the Company in the event of liquidationof the Company.c.On March 23, 2015, the Company's board of directors and the requisite holders of the Company's capital stock consented to a 1-for-3reverse stock split of the Company's common stock.F - 46 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 17:-STOCK CAPITAL (Cont.)d.As a result of the reverse stock split, (i) every 3 shares of authorized, issued and outstanding common stock was decreased to one share ofauthorized, issued and outstanding common stock, (ii) the number of shares of common stock into which each outstanding warrant oroption to purchase common stock is exercisable was proportionally decreased on a 1-for-3 basis, (iii) all share prices and exercise priceswere proportionately increased. All of the share numbers, share prices, and exercise prices have been adjusted within these consolidatedfinancial statements, on a retroactive basis, to reflect this 1-for-3 reverse stock split.e.Stock option plans: The Company’s 2007 Global Incentive Plan (the “2007 Plan”) was adopted by the board of directors on August 30, 2007. The 2007 Planterminated upon the Company’s IPO on March 31, 2015 and no further awards may be granted thereunder. All outstanding awards willcontinue to be governed by their existing terms and 379,358 available options for future grant were transferred to the Company’s 2015Global Incentive Plan (the “2015 Plan”) and are reserved for future issuances under the 2015 plan.The 2015 Plan became effective upon the consummation of the IPO. The 2015 Plan provides for the grant of options, RSUs and other share-based awards to directors, employees, officers and consultants of the Company and its Subsidiaries. As of June 30, 2016, a total of3,827,117 shares of common stock were reserved for issuance pursuant to stock awards under the 2015 Plan (the “Share Reserve”).The Share Reserve will automatically increase on January 1st of each year during the term of the 2015 Plan commencing on January 1st ofthe year following the year in which the 2015 Plan becomes effective in an amount equal to 5% of the total number of shares of capitalstock outstanding on December 31st of the preceding calendar year; provided, however, that the Company’s board of directors maydetermine that there will not be a January 1st increase in the Share Reserve in a given year or that the increase will be less than 5% of theshares of capital stock outstanding on the preceding December 31st. The aggregate maximum number of shares of common stock that maybe issued on the exercise of incentive stock options is 10,000,000.As of June 30, 2016, an aggregate of 2,557,691 options are still available for future grant under the 2015 Plan.F - 47 Weighted average Weighted remaining Number average contractual Aggregate of exercise term intrinsic options price in years Value Outstanding as of July 1, 2015 6,034,782 $3.14 7.06 $202,438 Granted 238,400 24.92 Exercised (1,379,668) 2.07 Forfeited or expired (56,150) 4.03 Outstanding as of June 30, 2016 4,837,364 $4.50 6.58 $74,292 Vested and expected to vest as of June 30, 2016 4,673,944 $4.42 6.54 $72,114 Exercisable as of June 30, 2016 3,146,546 $3.10 5.63 $52,141 Weighted average Weighted remaining Number average contractual Aggregate of exercise term intrinsic options price in years Value Outstanding as of July 1, 2014 4,007,116 $2.13 6.82 $6,384 Granted 2,116,123 $5.05 Exercised (31,981) $2.36 Forfeited or expired (56,476) $3.42 Outstanding as of June 30, 2015 6,034,782 $3.14 7.06 $200,438 Vested and expected to vest as of June 30, 2015 5,742,327 $3.08 6.97 $191,067 Exercisable as of June 30, 2015 3,551,239 $2.17 5.71 $121,373 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 17:-STOCK CAPITAL (Cont.) A summary of the activity in the share options granted to employees and members of the board of directors for the year ended June 30, 2016and related information follows:A summary of the activity in the share options granted to employees and members of the board of directors for the year ended June 30, 2015and related information follows:The aggregate intrinsic value in the tables above represents the total intrinsic value (the difference between the fair value of the Company’scommon stock as of the last day of each period and the exercise price, multiplied by the number of in-the-money options) that would have beenreceived by the option holders had all option holders exercised their options on the last day of each period.The total intrinsic value of options exercised during the year ended June 30, 2016 and 2015 was $30,670 and $484, respectively.F - 48 Options Weighted Options Weighted outstanding average exercisable average Range of as of remaining as of remaining exercise June 30, contractual June 30, contractual price 2016 Life in years 2016 Life in years $0.87 - $1.50 707,091 2.65 707,091 2.65 $1.68 - $2.46 1,411,951 5.22 1,381,725 5.20 $3.03 - $3.96 514,489 7.55 287,763 7.52 $5.01 1,933,216 8.42 715,300 8.41 $9.36 32,217 8.44 11,767 8.19 $20.81 9,600 9.91 - - $25.09 228,800 9.14 42,900 9.14 4,837,364 6.58 3,146,546 5.63 Options Weighted Options Weighted outstanding average exercisable average Range of as of remaining as of remaining exercise June 30, contractual June 30, contractual price 2015 Life in years 2015 Life in years $0.87 490,165 3.14 490,165 3.14 $1.50 - $1.68 771,321 4.04 771,321 4.04 $2.01 - $2.46 2,075,550 6.30 1,794,228 6.24 $3.03 - $3.96 668,270 8.54 247,767 8.46 $5.01 - $5.04 1,996,148 9.42 247,758 9.40 $9.36 33,328 9.59 - - 6,034,782 7.08 3,551,239 5.71 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 17:-STOCK CAPITAL (Cont.)The weighted average grant date fair values of options granted to employees and executive directors during the years ended June 30, 2016,2015 and 2014 were $24.93, $7.57 and $0.66, respectively.The options outstanding as of June 30, 2016, have been separated into exercise price ranges as follows: The options outstanding as of June 30, 2015, have been separated into exercise price ranges as follows:F - 49 No. ofRSUs Weightedaveragegrant datefair value Unvested as of July 1, 2015 67,440 25.09 Granted 981,321 24.77 Vested (161,173) 24.36 Forfeited (53,402) 18.46 Unvested as of June 30, 2016 834,186 24.74 No. ofRSUs Weightedaveragegrant datefair value Unvested as of July 1, 2014 - - Granted 67,440 25.09 Vested - - Forfeited - - Unvested as of June 30, 2015 67,440 25.09 Options outstanding Exercisable as of as of Issuance June 30, Exercise June 30, ExercisableDate 2016 price 2016 ThroughJuly 31, 2008 33,333 0.87 33,333 July 31, 2018October 24, 2012 5,166 2.46 4,749 October 24, 2022January 23, 2013 3,333 3.03 2,986 January 23, 2023January 27, 2014 4,248 3.51 2,069 January 27, 2024May 1, 2014 6,000 3.51 3,542 May 1, 2024September 17, 2014 10,830 3.96 5,466 September 17, 2024October 29, 2014 5,638 5.01 1,192 October 29, 2024August 19, 2015 21,501 0.00 - November 8, 2015 4,167 0.00 - April 18, 2016 2,500 0.00 - 96,716 53,337 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 17:-STOCK CAPITAL (Cont.)e.A summary of the activity in the RSUs granted to employees and members of the board of directors for the year ended June 30, 2016, is asfollows:A summary of the activity in the RSUs granted to employees and members of the board of directors for the year ended June 30, 2015, is asfollows:Options and RSUs issued to non-employee consultants:a.The Company has granted options to purchase common shares to non-employee consultants as of June 30, 2016 as follows:F - 50 Options outstanding Exercisable as of as of Issuance June 30, Exercise June 30, ExercisableDate 2015 price 2015 Through July 31, 2008 33,333 $0.87 33,333 July 31, 2018January 26, 2011 5,000 $2.01 5,000 January 26, 2021January 26, 2012 33,333 $2.46 33,333 January 26, 2022October 24, 2012 6,666 $2.46 4,583 October 24, 2022January 23, 2013 3,333 $3.03 2,153 January 23, 2023January 27, 2014 4,998 $3.51 1,652 January 27, 2024May 1, 2014 6,000 $3.51 2,042 May 1, 2024September 17, 2014 19,163 $3.96 3,662 September 17, 2024October 29, 2014 6,668 $5.01 890 October 29, 2024 118,494 86,648 Year endedJune 30, 2016 2015 2014 Cost of revenues $945 $442 $108 Research and development, net 2,364 635 397 Selling and marketing 2,915 809 297 General and administrative 2,820 1,070 280 Total stock-based compensation expense $9,044 $2,956 $1,082 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 17:-STOCK CAPITAL (Cont.)b.The Company has granted options to purchase common shares to non-employee consultants as of June 30, 2015 as follows: The Company accounts for its options granted to non-employee consultants under the fair value method of ASC 505-50 (“Equity-BasedPayments to Non-Employees”).In connection with the grant of stock options to non-employee consultants, the Company recorded stock compensation expenses in theyears ended June 30, 2016, 2015 and 2014 in the amounts of $524, $563 and $55, respectively.Stock-based compensation expense for employees and non-employee consultants:The Company recognized stock-based compensation expenses related to stock options granted to employees and non-employee consultants inthe consolidated statement of operations for the years ended June 30, 2016, 2015 and 2014, as follows:F - 51 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 17:-STOCK CAPITAL (Cont.)As of June 30, 2016, there was a total unrecognized compensation expense of $28,224 related to non-vested equity-based compensationarrangements granted under the Company’s Plan. These expenses are expected to be recognized during the period from July 1, 2016 throughMay 31, 2020.f.Employee Stock Purchase Plan (“ESPP”):The Company adopted an Employee Stock Purchase Plan (the “ESPP”) effective upon the consummation of the IPO. As of June 30, 2016, atotal of 888,569 shares were reserved for issuance under this plan. The number of shares of common stock reserved for issuance under theESPP will increase automatically on January 1st of each year, for ten years, by the lesser of 1% of the total number of shares of theCompany’s common stock outstanding on December 31st of the preceding calendar year or 487,643 shares.However, the Company’s board of directors may reduce the amount of the increase in any particular year at their discretion, including areduction to zero.The ESPP is implemented through an offering every six months. According to the ESPP, eligible employees may use up to 10% of theirsalaries to purchase common stock shares up to an aggregate limit of $10 per participant for every six months plan. The price of an ordinaryshare purchased under the ESPP is equal to 85% of the lower of the fair market value of the ordinary share on the subscription date of eachoffering period or on the purchase date.As of June 30, 2016, no common stock shares had yet been purchased under the ESPP.As of June 30, 2016, 888,569 common stock shares were available for future issuance under the ESPP.In accordance with ASC No. 718, the ESPP is compensatory and as such results in recognition of compensation cost. For the year endedJune 30, 2016, the Company recognized $45, of compensation expense in connection with the ESPP.For the years ended June 30, 2015 and 2014, no compensation expense was recognized in connection with the ESPP.F - 52 June 30, 2016 2015 Assets in respect of: Carryforward tax losses $3,298 $23,033 Research and Development carryforward expenses- temporary differences 743 5,173 Other reserves 2,255 1,346 6,296 29,552 Valuation allowance (1) - (29,552) Deferred tax assets, net $6,296 $- SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 18:- INCOME TAXESa.Tax rates in U.S. and Germany:The Company is subject to U.S. federal tax at the rate of 34%, and the Company’s German subsidiary is subject to German tax at the rateof 33%.b.Corporate tax in Israel:Taxable income of Israeli companies is subject to corporate tax at the rate of 26.5% in the year ended June 30, 2014 and 2015, and 25%in the year ended June 30, 2016 onwards (see also Note 18i).c.Carryforward tax losses:As of June 30, 2016, the Israeli subsidiary has approximately $20,500 of Israeli net carryforward tax losses, which are expected to beutilized in 2017.As of June 30, 2016, the Company has no federal or state carryforward tax losses.d.Deferred income taxes:Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for income tax purposes.Significant components of the Company’s deferred tax liabilities and assets are as follows:(1) ASC 740 requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion orall of the deferred tax assets will not be realized. The Company evaluated the net deferred tax assets for each separate tax entity. As ofJune 30, 2015, the Company concluded that it is not more likely than not that the net deferred tax assets will be realized and a fullvaluation allowance has been recorded against these assets. The Company's estimate of future book-taxable income considers availableevidence, both positive and negative, about its operating businesses and investments, including an aggregation of individualprojections for each significant operating business and investment, estimated apportionment factors for state and local taxingjurisdictions and includes all future years that the Company estimated it would have available net operating loss carryforwards. During the second fiscal quarter of 2016, the Company determined that the positive evidence outweighs the negative evidence fordeferred tax assets and concluded that these deferred tax assets are realizable on a "more likely than not" basis. This determination wasmainly due to expected future results of positive operations and earnings history.F - 53 Year endedJune 30, 2016 2015 Domestic $3,758 $2,830 Foreign 68,472 20,246 $72,230 $23,076 Year endedJune 30, 2016 2015 2014 Domestic taxes: Current $1,737 1,655 100 Deferred (1,380) - - Foreign taxes: Current 263 300 120 Deferred (4,999) - - $(4,379) $1,955 $220 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 18:- INCOME TAXES (Cont,) e.Income before taxes is comprised as follows:f.Taxes on income (tax benefit) are comprised as follows:F - 54 Year endedJune 30, 2016 2015 2014 Income (loss) before taxes, as reported in the consolidated statements of operations $72,230 $23,076 $(21,158) Statutory tax rate 34% 35% 35%Theoretical tax benefits on the above amount at the US statutory tax rate 24,558 8,077 (7,405)Income tax at rate other than the U.S. statutory tax rate (55) (1,763) 2,007 Impact of Israel corporate tax rate change from 25% to 26.5% - - (2,103)Non-deductible expenses 1,514 3,003 467 Operating losses and other temporary differences for which valuation allowance wasprovided (5,507) (7,542) 7,165 Effects of valuation allowances on deferred tax assets (24,769) - - Other individually immaterial income tax items (120) 180 89 Actual tax expense (tax benefit) $(4,379) $1,955 $220 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 18:- INCOME TAXES (Cont.)g.Reconciliation of theoretical tax expense to actual tax expense:The differences between the statutory tax rate of the Company and the effective tax rate are primarily accounted for by the non-recognition of tax benefits from accumulated net carryforward tax losses among the Company and various subsidiaries due touncertainty of the realization of such tax benefits.A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of theCompany, and the actual tax expense (benefit) as reported in the consolidated statements of operations is as follows:h.Tax assessments:As of June 30, 2016, the Company and certain of its subsidiaries filed U.S. federal and various state and foreign income tax returns. Thestatute of limitations relating to the consolidated U.S. federal income tax return is closed for all tax years up to and including 2012.The statute of limitations related to tax returns of the Company’s Israeli subsidiary is closed for all tax years up to and including 2010.With respect to the Company’s German, Chinese, Australian, Canadian, Dutch, Japanese, UK, French, Italian and Bulgarian subsidiaries,the statute of limitations related to its tax returns is open for all tax years since incorporation.F - 55 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share dataNOTE 18:- INCOME TAXES (Cont.)The Company believes that it has adequately provided for reasonably foreseeable outcomes related to tax audits and settlements. Thefinal tax outcome of any Company tax audits could be different from that which is reflected in the Company’s income tax provisionsand accruals. Such differences could have a material effect on the Company’s income tax provision and net income (loss) in the periodin which such determination is made.i.Tax benefits for Israeli companies under the Law for the Encouragement of Capital Investments, 1959 (the “Investment Law”):The Israeli subsidiary elected tax year 2012 as a "Year of Election" for “Beneficiary Enterprise” status under the Investment Law, whichprovides certain benefits, including tax exemptions and reduced tax rates. Income not eligible for Beneficiary Enterprise benefits istaxed at a regular corporate tax rate. Upon meeting the requirements under the Investment Law, income derived from BeneficiaryEnterprise from productive activity will be exempt from tax for two years from the year in which the Israeli subsidiary first has taxableincome, provided that 12 years have not passed from the beginning of the year of election.If dividends are distributed out of tax exempt profits, the Israeli subsidiary will then become liable for tax at the rate applicable to itsprofits from the Beneficiary Enterprise in the year in which the income was earned, as if it had not chosen the alternative track ofbenefits.The dividend recipient is subject to withholding tax at the rate of 15% applicable to dividends from Beneficiary enterprises, if thedividend is distributed during the tax benefits period or within twelve years thereafter. This limitation does not apply to a foreigninvestors' company. The Israeli subsidiary currently has no plans to distribute dividends and intends to retain future earnings to financethe development of its business.Through June 30, 2016, the Israeli subsidiary had not generated income under the provision of the Investment Law. Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 71): On August 5, 2013, the Israeli Parliament issued the Law for Changing National Priorities (Legislative Amendments for AchievingBudget Targets for 2013 and 2014), 2013 which consists of Amendment 71 to the Law for the Encouragement of Capital Investments("the Amendment"). According to the Amendment, the tax rate on preferred income form a preferred enterprise in 2014 and thereafter willbe 16% (in development area A - 9%). The Amendment also prescribes that any dividends distributed to individuals or foreign residents from the preferred enterprise's earningsas above will be subject to tax at a rate of 20%. F - 56 Year endedJune 30, 2016 2015 2014 Remeasurement of warrants to purchase convertible preferred stock $- $5,350 $(53)Interest on term loan - 579 1,475 Other financial expenses related to term loan - 373 31 Expenses (income) related to hedging transaction 136 (1,721) 189 Interest on short- term loan - 316 537 Interest on marketable securities (1,112) - - Amortization of marketable securities premium and accretion of discount, net 532 - - Exchange rate loss (income), net, bank charges and other finance expenses (27) 180 608 $(471) $5,077 $2,787 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 18:- INCOME TAXES (Cont.)j.The Law for Encouragement of Industry (Taxation), 1969: The Israeli entity has the status of an "industrial company", as defined by this law. According to this status and by virtue of regulationspublished thereunder, The Israeli entity is entitled to claim a deduction of accelerated depreciation on equipment used in industrialactivities, as determined in the regulations issued under the Inflationary Law. The Israeli entity is also entitled to amortize a patent orrights to use a patent or intellectual property that are used in the enterprise's development or advancement, to deduct issuance expensesfor shares listed for trading, and to file consolidated financial statements under certain conditions. Eligibility for benefits under the Industry Encouragement Law is not contingent upon approval of any governmental authority.There can be no assurance that the Company will continue to qualify as an Industrial Company or that the benefits described above willbe available in the future. NOTE 19:-FINANCIAL EXPENSES (INCOME), NETF - 57 Year endedJune 30, 2016 2015 2014 Revenues based on Customers’ location: United States $334,260 $238,340 $64,607 Germany 22,207 13,290 15,133 Europe (*) 89,000 52,163 38,655 Rest of the World 44,376 21,285 14,822 Total revenues $489,843 $325,078 $133,217 Year endedJune 30, 2016 2015 2014 Customer A 11.6% 4.9% 1.8%Customer B 10.9% 24.6% 19.1%Customer C 10.1% 5.4% 3.1% Year endedJune 30, 2016 2015 2014 Inverters $223,756 $156,984 $62,085 Optimizers 244,852 158,513 65,018 Others 21,235 9,581 6,114 Total revenues $489,843 $325,078 $133,217 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 20:-GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER AND PRODUCT DATASummary information about geographic areas:ASC 280 (“Segment Reporting”) establishes standards for reporting information about operating segments. Operating segments are defined ascomponents of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decisionmaker in deciding how to allocate resources and in assessing performance. The Company manages its business on the basis of one reportablesegment, and derives revenues from selling its products (see Note 1a for a brief description of the Company’s business).The following is a summary of revenues within geographic areas:(*) Except for GermanyMajor Customers data as a percentage of total revenues:The following is a summary of revenues by product family :F - 58 Year endedJune 30, 2016 2015 Israel $26,751 $14,136 U.S. 518 342 Europe 508 230 Other 54 9 Total long-lived assets* $27,831 $14,717 SOLAREDGE TECHNOLOGIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share data NOTE 20:-GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER AND PRODUCT DATA (Cont.)Long-lived assets by geographic region:*Long-lived assets are comprised of property and equipment, net (long term lease deposits and severance pay fund are not included). F - 59 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized. SOLAREDGE TECHNOLOGIES, INC. By:/s/ Guy Sella Name: Guy Sella Title: Chief Executive Officer and Chairman Date:August 17, 2016 POWER OF ATTORNEY Know all persons by these presents, that each person whose signature appears below constitutes and appoints Guy Sella, Ronen Faier and RachelPrishkolnik, or any of them, as such person’s true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for such person andin such person’s name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same,with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-factand agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connectiontherewith, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorney-in-fact andagent, or any of them or their or such person’s substitute or substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in thecapacities and on the dates indicated below. SignatureTitleDate /s/ Guy SellaGuy Sella Chief Executive Officer and Chairman(Principal Executive Officer)August 17, 2016/s/ Ronen FaierRonen Faier Chief Financial Officer(Principal Financial and Accounting Officer)August 17, 2016/s/ Dan AvidaDan Avida DirectorAugust 17, 2016/s/ Yoni CheifetzYoni Cheifetz DirectorAugust 17, 2016/s/ Marcel GaniMarcel Gani DirectorAugust 17, 2016/s/ Doron InbarDoron Inbar DirectorAugust 17, 2016/s/ Avery MoreAvery More DirectorAugust 17, 2016/s/ Tal PayneTal PayneDirectorAugust 17, 2016 80 EXHIBIT INDEX ExhibitNo. Description Incorporation by Reference3.1 Amended and Restated Certificate of Incorporation Incorporated by reference to Exhibit 4.1 to Form S-8(Registration No. 333-203193) filed with the SEC onApril 2, 20153.2 Amended and Restated By‑Laws Incorporated by reference to Exhibit 4.2 to Form S-8(Registration No. 333-203193) filed with the SEC onApril 2, 20154.1 Specimen Common Stock Certificate of the Registrant Incorporated by reference to Exhibit 4.1 of AmendmentNo. 1 to Form S-1 (Registration No. 333-202159) filedwith the SEC on March 11, 20154.2 Fifth Amended and Restated Investors’ Rights Agreement, dated as of September17, 2014, among SolarEdge Technologies, Inc. and the investors party thereto Incorporated by reference to Exhibit 4.2 to Form S-1(Registration No. 333-202159) filed with the SEC onFebruary 18, 20154.3 Warrant to Purchase Shares of SolarEdge Technologies, Inc., dated December 28,2012 Incorporated by reference to Exhibit 4.3 to Form S-1(Registration No. 333-202159) filed with the SEC onFebruary 18, 201510.1 Second Amended and Restated Loan and Security Agreement, dated as ofFebruary 17, 2015, among Silicon Valley Bank, SolarEdge Technologies Ltd.,SolarEdge Technologies, Inc. and SolarEdge Technologies GmbH Incorporated by reference to Exhibit 10.1 ofAmendment No. 1 to Form S-1 (Registration No. 333-202159) filed with the SEC on March 11, 201510.2† Employment Agreement, dated August 26, 2007, between SolarEdgeTechnologies, Inc. and Guy Sella Incorporated by reference to Exhibit 10.2 ofAmendment No. 1 to Form S-1 (Registration No. 333-202159) filed with the SEC on March 11, 201510.3 Employment Agreement, dated December 1, 2010, betweenSolarEdge Technologies, Inc. and Ronen Faier Incorporated by reference to Exhibit 10.3 ofAmendment No. 1 to Form S-1 (Registration No. 333-202159) filed with the SEC on March 11, 201510.4† Employment Agreement, dated May 17, 2009, between SolarEdgeTechnologies, Inc. and Zvi Lando Incorporated by reference to Exhibit 10.3 ofAmendment No. 1 to Form S-1 (Registration No. 333-202159) filed with the SEC on March 11, 201510.5† SolarEdge Technologies, Inc. 2007 Global Incentive Plan. Incorporated by reference to Exhibit 99.3 to Form S-8(Registration No. 333-203193) filed with the SEC onApril 2, 201510.6† SolarEdge Technologies, Inc. 2015 Global Incentive Plan Incorporated by reference to Exhibit 99.1 to Form S-8(Registration No. 333-203193) filed with the SEC onApril 2, 201510.7† SolarEdge Technologies, Inc. 2015 Employee Stock Purchase Plan Incorporated by reference to Exhibit 99.2 to Form S-8(Registration No. 333-203193) filed with the SEC onApril 2, 201510.8 Manufacturing Services Agreement, dated February 14, 2010 betweenFlextronics (Israel) Ltd. and SolarEdge Technologies Ltd. (previously filed asExhibit 10.10 to the Company's Registration Statement on Form S-1, filed withthe Commission on February 18, 2015 Incorporated by reference to Exhibit 10.10 to Form S-1(Registration No. 333-202159) filed with the SEC onFebruary 18, 2015 81 10.9# Interim Agreement, dated April 7, 2013 among Flextronics Industrial Ltd.between Flextronics (Israel) Ltd. and SolarEdge Technologies Ltd. (previouslyfiled as Exhibit 10.11 to the Company's Registration Statement on Form S-1,filed with the Commission on February 18, 2015) Incorporated by reference to Exhibit 10.11 to Form S-1(Registration No. 333-202159) filed with the SEC onFebruary 18, 201510.10# Manufacturing Services Agreement, dated June 9, 2011 between Jabil CircuitInc. and SolarEdge Technologies Inc. (previously filed as Exhibit 10.11 to theCompany's Registration Statement on Form S-1, filed with the Commission onFebruary 18, 2015) Incorporated by reference to Exhibit 10.12 to Form S-1(Registration No. 333-202159) filed with the SEC onFebruary 18, 201510.11 † Form of Non-Employee Director RSU Award Agreement Exhibit is Incorporated by reference to Exhibit 10.11 toForm 10 K (Registration No. 001-36894) filed with theSEC on August 20, 201510.12 † Form of Non-Employee Director Stock Option Award Agreement Exhibit is Incorporated by reference to Exhibit 10.12 toForm 10 K (Registration No. 001-36894) filed with theSEC on August 20, 201510.13 † Form of Employee RSU Award Agreement Exhibit is Incorporated by reference to Exhibit 10.13 toForm 10 K (Registration No. 001-36894) filed with theSEC on August 20, 201510.14 † Form of Employee Stock Option Award Agreement Exhibit is Incorporated by reference to Exhibit 10.14 toForm 10 K (Registration No. 001-36894) filed with theSEC on August 20, 201521.1 List of Subsidiaries of the Registrant Filed with this report.23.1 Consent of Kost Forer Gabbay & Kasierer, independent registered publicaccounting firm Filed with this report.24.1 Power of Attorney (included in signature page) Filed with this report.31.1 Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and15d-14(a) of the Securities Exchange Act of 1934, as amended Filed with this report.31.2 Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and15d-14(a) of the Securities Exchange Act of 1934, as amended Filed with this report.32.1 Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Filed with this report32.2 Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Filed with this report.101.INS XBRL Instance Document Filed with this report.101.SCH XBRL Taxonomy Extension Schema Document Filed with this report.101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed with this report.101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed with this report.101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed with this report.101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed with this report. † Management contract or compensatory plan or arrangement.# Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securitiesand Exchange Commission. 82 Exhibit 21.1 List of Subsidiaries Name Jurisdiction of organizationSolarEdge Technologies Ltd. IsraelSolarEdge Technologies GmbH GermanySolarEdge Technologies China ChinaSolarEdge Technologies (Australia) PTY Ltd AustraliaSolarEdge Technologies (Canada) Ltd. CanadaSolarEdge Technologies (Holland) B.V. The NetherlandsSolarEdge Technologies (Japan) Co., Ltd. JapanSolarEdge Technologies (France) SARL. FranceSolarEdge Technologies (UK) Ltd. United KingdomSolarEdge Technologies (Italy) S.R.L. ItalySolarEdge Technologies (Bulgaria) Ltd. Bulgaria Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-203193) pertaining to the SolarEdge Technologies, Inc. 2015Global Incentive Plan, SolarEdge Technologies, Inc. 2007 Global Incentive Plan and SolarEdge Technologies, Inc. 2015 Employee Stock Purchase Plan ofour reports dated August 17, 2016, with respect to the consolidated financial statements of SolarEdge Technologies Inc., and the effectiveness of internalcontrol over financial reporting of SolarEdge Technologies Inc., included in this Annual Report (Form 10-K) for the year ended June 30, 2016. Tel-Aviv, Israel /S/ KOST FORER GABBAY & KASIERERAugust 17, 2016 A Member of Ernst & Young Global EXHIBIT 31.1 I, Guy Sella, certify that: 1. I have reviewed this Annual Report on Form 10-K of SolarEdge Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourthfiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting. Date: August 17, 2016 /s/ Guy SellaGuy SellaChief Executive Officer and Chairman of the Board(Principal Executive Officer) EXHIBIT 31.2 I, Ronen Faier, certify that: 1. I have reviewed this Annual Report on Form 10-K of SolarEdge Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourthfiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting. Date: August 17, 2016 /s/ Ronen FaierRonen FaierChief Financial Officer(Principal Financial Officer) EXHIBIT 32.1 Certification of the Chief Executive OfficerPursuant to 18 U.S.C. §1350Solely for the purposes of complying with 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, I, the undersignedChief Executive Officer and Chairman of the Board of SolarEdge Technologies, Inc. (the “Company”), hereby certify, based on my knowledge, that theAnnual Report on Form 10-K of the Company for the fiscal year ended June 30, 2016 (the “Report”) fully complies with the requirements of Section 13(a) orSection 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in the Report fairly presents, in all material respects, thefinancial condition and results of operations of the Company. /s/ Guy SellaGuy SellaChief Executive Officer and Chairman of the Board(Principal Executive Officer) EXHIBIT 32.2 Certification of the Chief Financial OfficerPursuant to 18 U.S.C. §1350Solely for the purposes of complying with 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, I, the undersignedChief Financial Officer of SolarEdge Technologies, Inc. (the “Company”), hereby certify, based on my knowledge, that the Annual Report on Form 10-K ofthe Company for the fiscal year ended June 30, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the SecuritiesExchange Act of 1934, as amended, and that information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company. /s/ Ronen FaierRonen FaierChief Financial Officer(Principal Financial Officer)
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