Our third-party Internet, hosting and telecommunication providers may experience disruptions, which would reduce our revenues and increase our costs. We own servers located in Israel, Europe and the United States and we also rent the services of approximately 7501,000 servers located around the world, mainly through Amazon Web Services. Our servers include mainly web servers, application servers, data collection servers, data storage servers, data processing servers, mail servers and database servers. While we believe that there are many alternative providers of hosting and other communication services available to us, the costs associated with any transition to a new service provider could be substantial. Furthermore, although we maintain back-up systems for most aspects of our operations, we could still experience deterioration in performance or interruption in our systems, delays, and loss of critical data and registered users and revenues, in addition, the services of such providers could be vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cyber security attacks, terrorist attacks, power losses, telecommunications failures and similar events. The occurrence of a natural disaster or an act of terrorism, a decision to close such providers facilities without adequate notice, or other unanticipated problems could result in lengthy interruptions to our services. The facilities of such providers also could be subject to break-ins, computer viruses, sabotage, intentional acts of vandalism and other misconduct.

Our systems are also not fully redundant and our disaster recovery planning may not be sufficient for all eventualities. In addition, we may have inadequate insurance coverage to compensate us for losses from a major interruption. Furthermore, interruptions in the services of our websiteproviders or their inability to meet the service capacity we require, could result in interruptions in the availability or functionality of our solutions or materially impede our ability to attract and onboard new companiescustomers to advertise on our websiteservices and to maintain relationships with current advertisers.customers. Difficulties of this kind could damage our reputation, be expensive to remedy and curtail our growth.

Users typically install new software and update their existing software as new or updated software is introduced online by third-party developers. In addition, when a user purchases a new computing device or installs a new Internet browser, it generally uses the Internet search services that are typically pre-installed on the new device or Internet browser. Our products are distributed online and are usually not pre-installed on computing devices. Further, as many software vendors that distribute their solutions online also offer search services alongside their primary software product, users often replace our search services with those provided by these vendors in the course of installing new software or updating existing software. After users have installed search solutions offered by us, any event that results in a significant number of our users changing or upgrading their Internet browsers could result in the failure to generate the revenues that we anticipate from our users and result in a decline in our user base. Should we not be able to timely respond to such changes or in the event that the search solutions offered by vendors would offer better user experience than the one offered by us, this could have an adverse effect on our business, financial condition and our results of operations. Finally, although we constantly monitor the compatibility of our Internet search services and related solutions with such new versions and upgrades, we may not be able to make the required adjustments to ensure constant availability and compatibility of such solutions.

Our business is conducted through the Internet and therefore, among other things, we are subject to the laws and regulations that apply to e-commerce and online businesses around the world. These laws and regulations are becoming more prevalent in the United States, Europe, Israel, Canada and elsewhere and may impede the growth of the Internet and consequently our services. These regulations and laws may cover user privacy, data collection and protection, location of data storage and processing, content, use of “cookies,” access changes, “net neutrality,” pricing, advertising, distribution of “spam,”“spam”, intellectual property, distribution of products, protection of minors, consumer protection, taxation and online payment services.

Many areas of the law affecting the Internet remain largely unsettled, even in areas where there has been some legislative action. This uncertainty can be compounded when services hosted in one jurisdiction are directed at users in another jurisdiction. For instance, European data protection rules may apply to companies which are not established in the European Union. The General Data Protection Regulation (which became effective in May 2018) presumably have an even wider territorial scope, broadened the definition of personal data to include location data and online identifiers, and imposes more stringent user consent requirements. Further, it includes stringent operational requirements for companies that process personal data and will contain significant penalties for non-compliance. Also in other relevant subject matters, such as cyber security, e-commerce, copyright and cookies, new European initiatives have been announced by the European regulators. To further complicate matters in Europe, to date, member States have some flexibility when implementing European Directives and certain aspects of the General Data Protection Regulation,GDPR, which can lead to diverging national rules. Similarly, there have been laws and regulations adopted in Israel and throughout the United States (including the California Consumer Privacy Act (2018) which became effective on January 1, 2020) that may impose new obligations in areas such as privacy, in particular protection of personally identifiable information and implementing adequate security measures to protect such information, and liability for copyright infringement by third parties. In addition to the foregoing, a new law, titled the California Privacy Rights Act (“CPRA”) which passed in November 2020 will take effect in January 2023, will impose additional notice and opt out obligations which will also be applicable to our advertising business. Similar to the GDPR and the CCPA, the CPRA will require us to devote resources and incur additional costs associated with compliance as well as impose additional restrictions on our and our partners’ operations. In addition, in the US, there have been other privacy bills introduced at both the state and federal level and other countries around the world, such as Brazil, have also introduced new or expanded privacy requirements and we expect that privacy legislation will continue to evolve in the coming years. Therefore, it is difficult to determine whether and how existing laws, such as those governing intellectual property, privacy, data collection and protection, libel, marketing, data security and taxation, apply to the Internet and our business.

Due to rapid changes in technology and the inconsistent interpretations of privacy and data protection laws, we may be required to materially change the way we do business. For example, adapt our advertising solution to a “cookie-less” environment and introduce alternative solutions which may not provide the targeting capabilities provided by cookies. In addition, we may be required to implement physical, administrative and technological security measures that differ from those we have now, such as different data access controls or encryption technology. In addition, we use cloud-based computing, which is not without substantial risk, particularly at a time when businesses of almost every kind are finding themselves subject to an ever- expanding range of state and federal data security and privacy laws, document retention requirements, and other standards of accountability. Compliance with such existing and proposed laws and regulations can be costly and can delay, or impede the development of new products, result in negative publicity, increase our operating costs, require significant management time and attention and subject us to inquiries or investigations, claims or other remedies, including fines or demands that we modify or cease existing business practices.

In addition to compliance with government regulations, Undertone voluntarily participates in several trade associations and industry self-regulatory groups that promulgate best practices or codes of conduct relating to digital advertising, including the Internet Advertising Bureau, the Network Advertising Initiative and the Digital Advertising Alliance as well as us TAG Certified Against Fraud. We could be adversely affected by new or altered self-regulatory guidelines that are inconsistent with our current practices or in conflict with applicable laws and regulations in the United States, Europe, Israel and other regions where we do business. If we fail to abide by or are perceived as not operating in accordance with industry best practices or any industry guidelines or codes with regard to privacy or the provision of Internet advertising, our reputation may suffer and we could lose relationships with both buyers and sellers.

For more information regarding government regulations to which we are subject, see “Item 4.B Business Overview —Item 4.B. “Business Overview— Government Regulation” for additional discussion of applicable regulations affecting our business.

We collect, use, and maintain certain data about our customers (including, without limitation, customers' clients or users), partners, employees, leads and consumers. Such collection and maintenance of information is subject to data protection laws and regulations. A failure to comply with applicable regulations could result in class actions, governmental investigations and orders, administrative fines and criminal and civil liabilities, which could materially affect our operating results. Moreover, concerns about our collection, use, sharing or handling of such data or other privacy related matters, even if unfounded, could harm our reputation and operating results.

Although we strive to comply with the applicable laws and regulations and use our best efforts to comply with the evolving global standards regarding privacy and inform our customers of our business practices prior to any installations of our product and use of our services, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data collection, use and preservation practices or that it may be argued that our practices do not comply with other countries’ privacy and data protection laws and regulations. In addition to the possibility of fines, such a situation could result in the issuance of an order requiring that we change our data collection or retention practices, which in turn could have a material adverse effect on our business. See “Item 4.B4.B. Business Overview — Overview—Government Regulation” for additional discussion of applicable regulations.

While in some states we are subject to sales tax, in general, the digital advertising business has not traditionally paid sales tax. However, a successful assertion by one or more cities, states or countries that digital advertising services should be subject to such taxes or that we are not providing digital advertising services, but other services and should collect sales, use, or other taxes on the sale of our services, or that we have failed to do so where required in the past, could result in a decrease in future sales and/or substantial tax liabilities for past sales. Each state and country has different rules and regulations governing sales, use, and other taxes, and these rules and regulations are subject to varying interpretations that may change over time.

Following a US Supreme Court decision regarding the rights of individual states to tax out of state suppliers, certain states have adapted their statutes to expand taxation on out-of-state suppliers of goods and services. Some states are also pursuing legislative expansion of the scope of goods and services that are subject to sales and similar taxes as well as the circumstances in which a vendor of goods and services must collect such taxes. Furthermore, legislative proposals have been introduced in Congress that would provide states with additional authority to impose such taxes. Accordingly, it is possible that either federal or state legislative changes may require us to collect additional sales and similar taxes from our clients in the future which could impact our future sales, and therefore could result in a material adverse effect on our revenue.

For example, in February 2021, the State of Maryland’s House of Delegates and Senate approved legislation to tax digital advertising revenues. Similar bills have been introduced in several other states.

Certain countries in the European Union and elsewhere have recently adopted taxation on digital services including digital advertising, in various forms, such enacted and proposed taxes may have an impact on us.

We have entered into non-competition and non-solicitation agreements with many of our employees and vendors. These agreements prohibit our employees and vendors, if they terminate their relationship with us, from competing directly with us, working for our competitors, or soliciting current employees away from us for a limited period. Under current Israeli, U.S., U.K., Ukrainian and French and German law, we may be unable to enforce these agreements, in whole or in part, and it may be difficult for us to restrict our competitors from gaining the expertise that our former employees gained while working for us. For example, Israeli courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or its intellectual property. If we cannot demonstrate that harm would be caused to us, we may be unable to prevent our competitors from benefiting from the expertise of our former employees.

We regard the protection of our proprietary information and technology and other intellectual property as critical to our success. We strive to protect our intellectual property rights by relying on contractual restrictions, trade secret law and other common law rights, as well as federal and international intellectual property registrations and the laws on which these registrations are based. However, the technology we use and incorporate into our offerings may not be adequately protected by these means.

We generally enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with parties with whom we conduct business, in order to limit access to, and the disclosure and use of, our proprietary information. However, we may not be successful in executing these agreements with every party who has access to our confidential information or contributes to the development of our intellectual property. In addition, those agreements that we do execute may be breached, and we may not have adequate remedies for any such breach. Further, these contractual arrangements and the other steps we have taken to protect our intellectual property may not prevent the misappropriation of our intellectual property and/or trade secrets, or deter independent development of similar intellectual property by others.

A significant portion of our intellectual property has been developed by our employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee in the course and as a result of or arising from his or her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Patent Law also provides that if there is no such agreement between an employer and an employee, the Israeli Compensation and Royalties Committee, or the Committee, a body constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for his inventions. Case law clarifies that the right to receive consideration for “service inventions” can be waived by the employee and that in certain circumstances, such waiver does not necessarily have to be explicit. The Committee will examine, on a case-by-case basis, the general contractual framework between the parties, using interpretation rules of the general Israeli contract laws. Further, the Committee has not yet determined one specific formula for calculating this remuneration (but rather uses the criteria specified in the Patent Law). Although we generally enter into assignment-of-invention agreements with our employees pursuant to which such individuals assign to us all rights to any inventions created in the scope of their employment or engagement with us, we may face claims demanding remuneration in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced to litigate such claims, which could negatively affect our business.

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We use certain “open source” software tools that may be subject to intellectual property infringement claims or that may subject our derivative works or products to unintended consequences, possibly impairing our product development plans, interfering with our ability to support our clients or requiring us to allow access to the source code of our products or necessitating that we pay licensing fees.

Certain of our products contain open source code and we may use more open source code in the future. In addition, certain third party software that we embed in our products contains open source code. Open source code is code that is covered by a license agreement that permits the user to liberally use, copy, modify and distribute the software without cost, provided that users and modifiers abide by certain licensing requirements. The original developers of the open source code provide no warranties on such code.

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As a result of the use of open source software, we could be subject to suits by parties claiming ownership of what they believe to be their proprietary code or we may incur expenses in defending claims alleging non-compliance with certain open source code license terms. In addition, third party licensors do not provide intellectual property protection with respect to the open source components of their products, and we may be unable to be indemnified by such third-party licensors in the event that we or our customers are held liable in respect of the open source software contained in such third party software. If we are not successful in defending against any such claims that may arise, we may be subject to injunctions and/or monetary damages or be required to remove the open source code from our products. Such events could disrupt our operations and the sales of our products, which would negatively impact our revenues and cash flow.

Moreover, under certain conditions, the use of open source code to create derivative code may obligate us to make the resulting derivative code available to others at no cost. The circumstances under which our use of open source code would compel us to offer derivative code at no cost are subject to varying interpretations. If we are required to publicly disclose the source code for such derivative products or to license our derivative products that use an open source license, our previously proprietary software products may be available to others without charge. If this happens, our customers and our competitors may have access to our products without cost to them which could harm our business. Certain open source licenses require as a condition to use, modification and/or distribution of such open source that proprietary software incorporated into, derived from or distributed with such open source be disclosed or distributed in source code form, be licensed for the purpose of making derivative works, or be redistributable at no charge. The foregoing may under certain conditions be interpreted to apply to our software, depending upon the use of the open source and the interpretation of the applicable open source licenses.

We monitor our use of open source code to avoid subjecting our products to conditions we do not intend. The use of open source code, however, may ultimately subject some of our products to unintended conditions so that we are required to take remedial action that may divert resources away from our development efforts.

Risks Related to the Geographical Location of our Operations

Our business is significantly reliant on the North American market. Any material adverse change in that market could have a material adverse effect on our results of operations.

Our revenues have been concentrated within the North American market, accounting for approximately 75%83% of our revenues for 2019.2020. A significant reduction in the revenues generated in such market, whether as a result of a recession that causes a reduction in advertising expenditures generally or otherwise, which causes a decrease in our North American revenues, could have a material adverse effect on our results of operations.

Our business may be materially affected by changes to fiscal and tax policies. Potentially negative or unexpected tax consequences of these policies, or the uncertainty surrounding their potential effects, could adversely affect our results of operations and share price.

We operate in a global market and are subject to tax in Israel and other jurisdictions. Our tax expenses may be affected by changes in tax laws, international tax treaties, international tax guidelines (such as the Base Erosion and Profit Shifting project of the OECD’s Inclusive Framework (“BEPS”)).

The OECD’s Inclusive Framework on BEPS has recently made certain recommendations, informally known as BEPS 2.0, which aim to modify international taxation norms with respect to allocation of taxing rights and introduction of minimum taxation, focusing mostly on the digital economy. Currently, there is uncertainty as to what modifications will be made in these recommendations and how they will be implemented.

Certain of these changes could have a negative impact on our results of operations and business. The impact of these changes is uncertain, and may not become evident for some period of time. The uncertainty surrounding the effect of the reforms on our financial results and business could also weaken confidence among investors in our financial condition. This could, in turn, have a materially adverse effect on the price of our ordinary shares. Prospective investorsShareholders are urged to consult their tax advisors regarding the effect of these changes to the U.S. federal tax laws on an investment in our shares.

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Our international operations involve special risks that could increase our expenses, adversely affect our operating results and require increased time and attention of our management.

A large portion of our operations are performed from outside the United States. In addition, we derive and expect to continue to derive a portion of our revenues from users outside the United States. Our international operations and sales are subject to a number of inherent risks, including risks with respect to:

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potential loss of proprietary information due to piracy, misappropriation or laws that may be less protective of our intellectual property rights than those of the United States;

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costs and delays associated with translating and supporting our products in multiple languages;

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foreign exchange rate fluctuations and economic instability, such as higher interest rates and inflation, which could make our products more expensive in those countries;

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costs of compliance with a variety of laws and regulations;

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restrictive governmental actions such as trade restrictions and potential trade wars;

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limitations on the transfer and repatriation of funds and foreign currency exchange restrictions;

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compliance with different consumer and data protection laws and restrictions on pricing or discounts;

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lower levels of adoption or use of the Internet and other technologies vital to our business and the lack of appropriate infrastructure to support widespread Internet usage;

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lower levels of consumer spending on a per capita basis and fewer opportunities for growth in certain foreign market segments compared to the United States;

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lower levels of credit card usage and increased payment risk;

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changes in domestic and international tax regulations; and

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geopolitical events, including war and terrorism.

Political, economic and military instability in the Middle East may impede our ability to operate and harm our financial results.

Our principal executive offices are located in Israel. In addition, a number of our officers and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries, as well as terrorist acts committed within Israel by hostile elements. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations. In December 2008 and January 2009 there was an escalation in violence among Israel, Hamas, the Palestinian Authority and other groups, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missiles being fired from the Gaza Strip into Southern Israel. Similar hostilities accompanied by missiles being fired from the Gaza Strip into Southern Israel, as well at areas more centrally located near Tel Aviv and at areas surrounding Jerusalem, occurred during November 2012 and July through August 2014. These conflicts involved missile strikes against civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected business conditions in Israel. Since April 2011, internal conflict in Syria has escalated, and chemical weapons have been used in the region. Foreign actors have and continue to intervene in Syria. This instability and any intervention may lead to deterioration of the political and economic relationships that exist between the State of Israel and some of the countries in the region, and may have the potential for additional conflicts in the region. In addition, Iran has threatened to attack Israel and may be developing nuclear weapons. Iran also has a strong influence among extremist groups in the region, including Hamas in Gaza, Hezbollah in Lebanon and various rebel militia groups in Syria. Furthermore, in early January 2020, certain events contributed to an increase in hostilities between the United States and Iran, and as a result Iran issued multiple public statements threatening to attack Israel and the United States. These situations have escalated at various points in recent years and may escalate in the future to more violent events, which may affect Israel and us. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.

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Our commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm our results of operations.

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Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition or the expansion of our business. A campaign of boycotts, divestment and sanctions has been undertaken against Israel, which could also adversely impact our business.

In addition, many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (or older, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted by such call-ups, which may include the call-up of members of our management. Such disruption could materially adversely affect our business, prospects, financial condition and results of operations.

On Israel’s domestic front there

There is currently a level of unprecedented political instability.instability on Israel’s domestic front. The Israeli government has been in a transitionary phase since December of 2018 when the Israeli Parliament, or the Knesset, first resolved to dissolve itself and call for new general elections. In 2019, Israel held general elections twice – in April2019, once again in 2020 and September – and a third general election was held inrecently on March of 2020.23, 2021. The Knesset, for reasons related to this extended political transition, hasturmoil, failed to pass a budget for the year 2020, and certain government ministries, certain of which may beare critical to the operation of our business, areoperated without necessary resources andresources. Assuming the current political stalemate persists, such government ministries may not receive sufficient funding moving forward. This political reality is further compounded by a budget deficit of NIS 160.3 billion (approximately $50.4 billion) for the year 2020, which is roughly three times larger than in 2019 and the highest on record since Israel's founding. Given the likelihood that the current political stalemate mightsituation will not be resolved during the next calendar year, our ability to conduct our business effectively may be materially adversely affected.

Investors and our shareholders generally may have difficulties enforcing a U.S. judgment against us, our executive officers or our directors or asserting U.S. securities laws claims in Israel.

We are incorporated under the laws of the State of Israel. Service of process on us, our Israeli subsidiaries, our directors and officers and the Israeli experts, if any, named in this annual report on Form 20-F, substantially all of whom reside outside of the United States, may be difficult to obtain within the United States.

Furthermore, because a significant portion of our assets and investments, and substantially all of our directors, officers and Israeli external experts are located outside the United States, any judgment obtained in the United States against us or any of them may be difficult to collect within the United States.

We have been informed by our legal counsel in Israel that it may also be difficult to assert U.S. securities laws claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. There is little binding case law in Israel addressing these matters. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law.

Subject to specified time limitations and legal procedures, under the rules of private international law currently prevailing in Israel, Israeli courts may enforce a U.S. judgment in a civil matter, including a judgment based upon the civil liability provisions of the U.S. securities laws, as well as a monetary or compensatory judgment in a non-civil matter, provided that the following key conditions are met:

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subject to limited exceptions, the judgment is final and non-appealable;

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the judgment was given by a court competent under the laws of the state of the court and is otherwise enforceable in such state;

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the judgment was rendered by a court competent under the rules of private international law applicable in Israel;

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the laws of the state in which the judgment was given provide for the enforcement of judgments of Israeli courts;

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adequate service of process has been effected and the defendant has had a reasonable opportunity to present his arguments and evidence;

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the judgment and its enforcement are not contrary to the law, public policy, security or sovereignty of the State of Israel;

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the judgment was not obtained by fraud and does not conflict with any other valid judgment in the same matter between the same parties; and

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an action between the same parties in the same matter was not pending in any Israeli court at the time the lawsuit was instituted in the U.S. court.

The tax benefits available to us for activities in Israel require us to meet several conditions and may be terminated or reduced in the future, which would increase our costs and taxes.

We have benefited and currently benefit from a variety of Israeli government programs and tax benefits with regards to our operations in Israel, that generally carry conditions that we must meet in order to be eligible to obtain any benefit. Our tax expenses and the resulting effective tax rate reflected in our financial statements may increase over time as a result of changes in corporate income tax rates, other changes in the tax laws of the countries in which we operate, non-deductible expenses, loss and timing differences, or changes in the mix of countries, where we generate profit.

If we fail to meet the conditions upon which certain favorable tax treatment is based, we would not be able to claim future tax benefits and could be required to refund tax benefits already received.received including interest and linkage to the Israeli consumer price index. Any of the following could have a material effect on our overall effective tax rate:

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we may be unable to meet the requirements for continuing to qualify for some programs;

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these programs and tax benefits may be unavailable at their current levels; or

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we may be required to refund previously recognized tax benefits if we are found to be in violation of the stipulated conditions.

Additional details are provided in “Item 5 – Operating and Financial Review and Products”Item 5.A “Operating Results” under the caption “Taxes on income,Income,” in “Item 10 – Additional Information”Item 10.E. “Taxation” under the caption “Israeli taxation, foreign exchange regulation and investment programs”Taxation” and in Note 15 to our Financial Statements.

Non-U.S. corporations generally may be characterized as a passive foreign investment company (“PFIC”) for any taxable year, if, after applying certain look through rules, either (1) 75% or more of such company’s gross income is passive income, or (2) at least 50% of the average percentage, generally determined by fair value of all such company’s assets (determined on a quarterly basis) are held for the production of, or produce, passive income. For this purpose, passive income includes, for example, dividends, interest, certain rents and royalties, and gain from the disposition of property that produces such income.

If we are characterized as a PFIC for any taxable year, our U.S. shareholders may suffer adverse tax consequences, including having gains realized on the sale of our ordinary shares taxed at ordinary income rates, rather than capital gain rates. Similar rules apply to distributions that are “excess distributions.” In addition, both gains upon disposition and amounts received as excess distributions could be subject to an additional interest charge. A determination that we are a PFIC could also have an adverse effect on the price and marketability of our ordinary shares. 

We do not believe that we were a PFIC for our prior taxable year and we intend to conduct our business so that we should not be treated as a PFIC for our current taxable year or any future taxable year. However, because the PFIC determination is highly fact intensive and made at the end of each taxable year, it is possible that we may be a PFIC for the current or any future taxable year or that the IRS may challenge our determination concerning our PFIC status. Whether we are a PFIC is based upon certain factual matters such as the valuation of our assets. In calculating the value of our assets, we value our total assets, in part, based on our total market capitalization. We believe this valuation approach is reasonable. However, if the IRS successfully challenged our valuation of our assets, or if the market price of our ordinary shares were to fluctuate, it could result in our classification as a PFIC. Because the market price of our ordinary shares is likely to fluctuate and because that market price may affect the determination of whether we will be considered a PFIC, we cannot give any assurances that we will not be considered a PFIC for any future taxable year.

See a discussion of our PFIC status in Item 10.E under “U.S. Federal Income Tax Considerations – Passive Foreign Investment Company Considerations.”

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ITEM 4.INFORMATION ON THE COMPANY

A.HISTORY AND DEVELOPMENT OF THE COMPANY

Our History

We were incorporated in the State of Israel in November 1999 under the name Verticon Ltd., changed our name to IncrediMail Ltd. in November 2000 and in November 2011 changed our name to Perion Network Ltd. We operate under the laws of the State of Israel. Our headquarters are located at 26 HaRokmim Street, Holon 5885849, Israel. Our phone number is 972-73-398-1000. Our website address is www.perion.com. The information on our website does not constitute a part of this annual report. Our agent for service in the United States is Intercept Interactive Inc. d/b/a Undertone, which is located at One World Trade Center, 77th Floor, Suite A, New York, NY 10007.

We completed the initial public offering of our ordinary shares in the United States on February 3, 2006. Since November 20, 2007, our ordinary shares are also traded on the TASE.

In the recent years, we completed several acquisitions, including the acquisition of ClientConnect Ltd. in 2014, the acquisition of Interactive Holding Corp. in 2015, which we refer to, together with its subsidiaries, as “Undertone,”“Undertone”, the acquisition of Septa Communications LLC, also known as “Captain Growth”, in March 2019, and the acquisition of Content IQ LLC in January 2020 and the acquisition of Pub Ocean in July 2020.

Our SEC filings are available to you on the SEC’s website at http://www.sec.gov. This site contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The information on that website is not part of this annual report on Form 20-F and is not incorporated by reference herein.

Principal Capital Expenditures

In 2017, 2018, 2019 and 2019,2020, capital expenditures consisted of $1.6 million, $2.0 million, $1.2 million and $1.2$0.5 million, respectively, mainly from investments in computer hardware and software.

To date, we have financed our general capital expenditures with cash generated from operations and debt. To the extent we acquire new products and businesses, these acquisitions may be financed by any of, or a combination of, cash generated from operations, or issuances of equity.

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B.BUSINESS OVERVIEW

General

Perion is a global technology company that is bringing innovation toinnovator in the ad-tech market bydigital advertising ecosystem, providing agencies, brands and publishers with an opportunity to unlock lucrative growth opportunities. The company operates across the three main pillars of digital advertising – ad search, social media, and display/video/CTV, representing a potential market of more than $340B in 2020 that is expected to grow to $542B in 2024, according to eMarketer.

Through its diversified solutions portfolio, Perion is perfectly positioned to respond to any changes in the direction branded and e-commerce spending is headed. Each of these businesses is led by visionary and experienced leadership.

Perion further strengthens its technology moat by evolving an integrated offering, branded as “Capture and Convince,” which represents a significant industry advance in the user funnel. This new user loop, using Artificial Intelligence, or AI, and machine learning to deliver optimized advertising and content to brand-safe sites, has been shown to engage new users for an average of six minutes, generating significant revenue-per-session by uniquely satisfying their interests and affinities.

Perion’s “capture and convince” solutions suite gives advertisers and publishers the ability to acquire customers — efficiently and at massive scale, and moves them into a branded space created by Perion, where content, layout and advertising are personalized and optimized using predictive algorithms that have been validated over billions of interactions, complemented by our search offering that provides monetization solutions and capabilities to publishers’ own products and services.

The advanced technological solutions offered by Perion, which track with the entire consumer journey and marketing funnel, are poised to benefit from the macro trends. These trends include:

•

The growth in search driven by the growing shift to digital and contactless commerce activity;

•

The move towards in-house advertising;

•

The inevitable disappearance of the cookie in an increasing privacy-centric world and the corresponding imperative of first party data;

•

The need for high-engagement creatives in what is called the “Attention Economy”.

In addition, brands are seeking new solutions that enable them to establish deeper, more meaningful and profitable relationships with their consumers and users. Perion created an AI-based advertising solution that aligns with the consumers’ journey in multiple touchpoints across funnels/platforms/channels. Perion is poised to benefit from macro trends, astranscend the dominance of the triopoly – withtriopoly— Google, Facebook and Amazon, controlling 85%which now control 87% percent of ad spend – means that brands, advertisers and publishers are seeking friendlier andin the U.S. — to enable more flexible options that respect their brands, users, and need for monetization.

Perion’s

Strength Through Diversification

Perion is positioned to benefit from the overall growth of the digital marketplace, through our diversified business solutions that cover the three main pillars of digital advertising—our search ad monetization; cross-channel high impact advertising, positioning us to benefit from rapid shifts in media strategy, spendingincluding through video and allocation by offeringconnected television, or CTV; social advertising through our data-driven, Synchronized Digital Branding platform and high-impact ad display formats; our powerful advertising cloud platformactionable performance monitoring platform; and our branded search network. In addition, each of these pillarscontent monetization system.

Intelligent High Impact Solutions that Win the War for Attention

Brands and advertisers are in a war for attention, and it is being enhanced by Content IQ,getting more intense. What is your winning strategy? Without delivering impactful creative through the right channels, brands cannot express a company we acquired in January 2020. Content IQ brings advanced personalization benefitscohesive, creative campaign throughout the purchase funnel, nor can they achieve successful ROI (Return on Investment). Perion’s High Impact Advertising (HIA), which includes rich media and engaging iCTV, is the breakthrough answer to effective creative expression. It breaks through the clutter and ad blindness that conventional ad units cannot overcome, inspiring engagement, and making it possible for advertisers to “Capture and Convince.” Our solutions enable the upper- and mid-funnel brand objectives that all brands and agencies require, turning awareness into performance.

We operationalize our proprietary, creatively-led solutions based on years of user engagement and interactions with different kinds of advertising units. These units are informed by the requirements of our advertisers and our cultural insights. Because our mission is to assure that our HIA creative can be distributed to the right audiences, we have built and grown our curated network of publishers where our HIA delivered.

Perion’s technology is designed to continually balance the right mix of channels – from display to video/CTV – to improve ROAS (Return on Ad Spend). This complete moat delivers robustly optimized campaigns that combine creativity, reach, and targeting. This moat also includes Perion’s white-glove service and the turnkey provision of comprehensive, full-funnel solutions to all brands and agencies.

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Content optimization Solution - Creating Opportunities for Publishers Under Pressure

The nature of today’s digital ecosystem makes audience growth challenging for publishers. This leaves them with less levers for growing their audiences and achieving profitable results, in a predictable and an efficient manner.

Perion’s Content Monetization Platform (branded as Wildfire) provides publishers with a strategic path to the future. In the face of declining revenues, we drive incremental growth with traffic that comes from Facebook, Taboola, Yahoo and other unquestionable sources.

Perion has built a “Capture and Convince” loop that uses intent signals to keep users engaged – moment-after-moment - by customizingcontinually optimizing content, advertising and layout within mini-sites we operate. Our machine learning employs AI analysis and deploy tens of thousands of combinations of content and advertising. Perion keeps users engaged for an average of six minutes. This monetization engine is tracked by our system, which is able to optimize revenue-per-session, refining and informing decision-making by identifying pockets of profitability and loss.

Publishers will continue to be threatened by the behemoths of social media, and will require technology solutions that enable them to drive traffic and revenue that is affordable and scalable. Perion’s “Capture and Convince” Publisher Solution is well positioned to such needs through the end-to-end platform it offers.

Search monetization solution - Transforming Search into Revenue

Capturing consumers at the landing page level;moment of highest intent simply works - so it’s no wonder that brands and publishes are allocating more and more dollars to search advertising.

Searching is a fundamental digital habit that will continue to grow. As the category grows, Perion is not standing still. We are continuously innovating, advancing our solutions to provide more value to our customers. We deploy advanced AI, neural networks, and machine learning to optimize yield for our publishers and transform search into revenues.

At Perion we are poised to seize this platform is equally meaningfulshift, thanks to publishers who need to generate and monetize increased traffic.

Because search is one of our pillars, and as part of our deep partnershiplongstanding relationship with Microsoft Bing we launched, in early 2020, Privado – a privateand other leading search engine, enabling usand content partners, across 34 countries. Our search monetization solutions are built to capitalize on the growing consumer trend for online privacy;“Capture and Convince” users more holistically and effectively than 70% of consumers are privacy conscious based on recent research.

Overview: Advertising

Ourconventional search solutions.

U.S. search advertising solutionmarket is driven by our Synchronized Digital Branding platform which sitsestimated at the center of our strategic triangle as illustrated below.

Our ability to solve the ad-tech fragmentation is gaining traction in three parallel vectors: Undertone is delivering synchronization to Agencies; MakeMeReach, our Advertising Cloud Platform, is delivering it to Brands; and Content IQ is bringing it home to Publishers.

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Undertone:

Over its 18-year history, Undertone has provided cutting-edge technology and multichannel, multiplatform solutions for some of the world’s leading brands, agencies and publishers - with whom we have longstanding and meaningful relationships.

Undertone is also known for our high-impact, brand-building ad and video units, which  are capable of breaking through the clutter, as well as building and enhancing reputations. By combining data, distribution and creative, we are able to deliver cohesive stories across all critical touchpoints: screens, platforms and a transparent, customizable list of elite publishers.

Our AI-driven cloud platform, which powers our strategic triangle, delivers advertising solutions that eliminate fragmentation, assist publishers in generating much-needed revenue and, most importantly, ensure that brand messaging is synchronized for contextual relevance with the right message and optimized ad spend.

Our customers receive dedicated support throughout the full campaign cycle, including planning, creative services, client solutions, performance and insights. We do all this while maintaining brand safety and applying quality standard as our customer demanding.

Advertising Cloud Platform:

This platform is specifically suited for brands and agencies, small and large, who need to accomplish three critical and related objectives:

• Attract audiences on diverse channels, such as Facebook, Instagram, Google, Amazon, LinkedIn, Snapchat, Pinterest and Twitter;

• Distribute the execution of these campaigns across a range of stakeholders, including agencies, franchises and branches; and

• Measure results in one unified, actionable and intuitive dashboard that is made possible by our AI capabilities and simplified nature of our user experience.

We accomplish all this, and generate peak performance, while protecting brand equity from being adversely impacted by multiple contributors to campaign execution along the value chain.

Content IQ:

We acquired Content IQ in January 2020 as we saw the opportunity to complement their capabilities with our strategic advertising triangle solution. They bring significant value to publishers whose revenues are being squeezed by the triopoly, and who lack the ability to customize their landing pages in a way that “synchronizes” their content with ever-changing user states, needs and intents.

Content IQ operates in the digital publishing space, utilizing data and analytic tools to deconstruct content, revenue and distribution in order to solve digital publishing challenges and drive traffic to owned and operated properties as well as those of our network of publishers. These tools understand and dynamically react to the performance of digital content across millions of engagement moments and optimize every element along the way, at scale. Content IQ’s page-level engagement solutions offer innovative tools for extracting value from content, enabling publishers and brands to monetize their properties through real-time optimization.

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CodeFuel:

CodeFuel is a search platform that competes in an estimated market of $64$59 billion search ad spending category for 2020 according to eMarketer reports, which represents 42% of all digital ad spending. Microsoft Bing has been our partner for a decade; accordingdecade, and we recently extended our partnership for four additional years. According to Microsoft, as of September 2020, they have 556had 639 million unique global PC users, deliver 140delivered 13.9 billion annual searchers; generates $7.6monthly searches over PC and have a 13.5% worldwide PC market share. In addition, it generated approximately $7.7 billion in revenue in the 20192020 fiscal year and has garnered an 11.3% worldwide PC market share. CodeFuel,year. Perion, through its publisher network, delivered approximately 15 million daily searches in 2020 compared to 12 million daily searches in 2019, compared to 9 million daily searches in 2018, which represents an increase of 33% YOY.

CodeFuel’s25% Year-over-Year.

Our Search monetization solution is comprised of the following 3 offerings:

Website Monetization

Leveraging intent signals to deliver text ads, shopping offers, and premium news that enable site owners to gain higher revenues and enhanced user engagement.

Search Mediation

Enables media traders to monetize search based monetization solutions are leverageddemand and achieve higher yields by enhanced analytics platform and capabilitiesleveraging the machine learning that drives our mediation platform.

App Monetization

Using intent-based search signals to track and monitor business performance.

Publishers integrate our solutions into their products and services such as content websites, browser extensionsmonetize publishers' desktop and mobile launcher applicationsapps, white-label search engines, and monetize their solutions at scalemore.

Paragone’s Actionable Performance Monitoring (APM) Platform - The Cross-Channel Social SaaS platform that Lifts ROAS

APM allows you to observe, in real time, all paid social advertising activities - across their digital properties,networks - allowing performance marketers to easily identify opportunities for improvement, use AI to predict campaign success, and take action to maximize performance.

The steady growth of social advertising was accelerated by delivering Microsoft Bing’s high quality search results to validated traffic, thus satisfying and engaging users. End users can configure their browser settings through the search setting dialogue providing them convenient access to search-engine providersCOVID-19 and the abilityboom in e-commerce. This dramatic shift creates the existential challenge of running scaled campaigns across multiple social networks, and optimizing them for engagement in real-time. This requires the connection of massive amounts of cross-network data.

We collect and centralize previously siloed data enabling agencies and brands to conduct searches or follow links to relevant advertisements.manage cross-platform social campaigns. We identify performance bottlenecks, improve productivity, customize metrics, predict results, and test new networks.

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Our APM platform works with all the largest social networks: Facebook, Instagram, Messenger, LinkedIn, Snapchat, Pinterest, and Twitter. The revenue generated dependsresult is improved productivity and improved ROI.

Paragon’s APM Capabilities

Easily identify opportunities for improvement

Our predictive system calculates the probability of achieving campaign goals, so brand and agencies can take appropriate corrective measures and increase performance. Campaigns, audiences and creatives are ranked based on factors such as the quality ofperformance, and validated statistically, so users conducting search queries, rates search providers are charging for advertisements; the ability of the search provider’s systemplatform can decide when to attract advertisersincrease or decrease investment in specific elements.

Predict the next best action and efficiently serve sponsored ads,go for it

Our advanced AI algorithms analyze data from multiple social media channels to find actionable opportunities for growth. The AI suggests multiple solutions for each cross-channel recommendation, enabling decision-making and implement suggestions at the engagementclick of end usersa button – with no manual work required.

Take action at the advertisementssnap of a finger

The APM platform allows campaign adjustment in real time, and the value of the algorithmic results provided in responseactions execution to search queries.

In addition, wemaximize performance, through one centralized and single view dashboard.

Consumer Engagement Offering

We continue to generate a small portion of our revenues through our consumer product -engagement offering called Smilebox, a product that which enables people to tell the stories of their lives - lives—big and small - small—in fun, simple and creative ways with fully customizable eCards, slideshows, invitations, collages and more.

more.

Industry Overview: Overview

Advertising

Our search, advertising and content solutions - which are largely driven by the integration of AI-based ad-tech, video, display, search, and social ad units - address the majority of digital ad spend.

Based on eMarketer reports, digital advertising spend accounted for approximately 50%55% of total worldwide media advertising during 2019,2020, reaching $330$340 billion and expected to increase to $500$542 billion and approximately 60%64% of worldwide advertising spend by 2023.2024. In 2019,2020, US display advertising spend, including banners, rich media, video and social, was approximately $105$78 billion and expected to increase by 36%76% and reach $143$137 billion in 2021,2024, according to eMarketer.

We believe the continued growth of digital ad spend will, in part, be driven by the convergence of television advertising and digital mediums, including instream and outstream digital video and internet-connected TV.CTV. Furthermore, cross-channel technologies such as automatic content recognition (ACR), which allows advertisers to connect brand messaging across television and digital channels, will further enable the convergence of ad spend. Our proprietary Synchronized Digital Branding platform“capture and convince” solution positions us in the sweet spot of these trends.

trends by providing a connective technology layer which tracks with the entire consumer journey and marketing funnel.

Advertisers, including major brands, are increasingly allocating media advertising budgets to digital channels and formats. While we work with some advertisers directly, our primary customers are advertising and media agencies, who are engaged by brand advertisers to develop and implement their media plans. We work with both sides of the market to plan, design, deliver, manage, and measure their digital advertising investments. We generally do not enter into long term contracts with our advertising customers, but respond to requests for specific campaigns, and are compensated based on ad formats, campaign complexity, impressions, and creative requirements.

Undertone addresses the display advertising market through direct and programmatic media sales as well as managed and self-service advertising campaign management tools. Programmatic customers benefit from increased automation, transparency and resulting efficiency. Clients receive support throughout the campaign cycle, which starts with a consultative sales process to shape the best offering for that customer.

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Beyond ad-tech automation, advertisers are also increasingly looking for unique ad formats that are able to tell impactful stories on digital, by utilizing content, rich media, and digital video. We believe the shift beyond standard banner ad formats is unstoppable. Rich media, including our high-impact ad formats, as well as outstream and instream video accounted for $39.84$47 billion of US digital display ad spend in 20192020 and is expected to increase by 65%107%, reaching $65.6approximately $98 billion in 2023,2024, according to eMarketer. Digital video, including instream formats such as “pre-roll” and outstream formats such as “inline” represented the vast majority of rich media ad spend in 2019,2020, topping $34.57$41 billion, and is expected to reach $59.45$89 billion by 2023,2024, representing an increase of 72%115%, according to eMarketer. Additionally, US spending on digital sponsorships, which include branded content pages and full-page sponsorships, will reach over $3 billion in 2020, according to eMarketer.

Social networks are expected to continue to be a major platform for digital advertising, and with a lot of innovation in the sector, advertisers will look for emerging platforms to reach existing and new audiences. According to eMarketer, in 2019,2020, social networks accounted for $36.14$46.21 billion representing 28%30% of the US digital ad spending, which is expected to increase by 41%73% and reach $50.86$79.83 billion of US digital ad spending by 2021,2023,which would represent 29.6%32% of the US digital ad spending.

Users are devoting more and more time to social networks, estimated to reach more than 55.3approximately 65 minutes per day on social networks in 20212022 in the US, representing 13.3%14.2% of time spent on digital media in 2021.2022. Furthermore, emerging and new social networks, such as Instagram, Snapchat and TikTok, are further expanding the audiences and demographic reach of social networks.

It is estimated that 86.5%88.2% of digital display ads will be transacted through programmatic channels by 2021,2022, including programmatic direct and real time bidding (RTB) campaigns, according to eMarketer. Driven by this trend, we invested and continue to make significant investments in AI-based technologies, which optimize both the price and performance of our digital advertising campaigns, including our acquisition of Captain Growth, which automates campaign performance with the capability of testing multiple ads and campaigns in real time.

In light of recent regulatory developments, including GDPR and CCPA, as well as existing and planned limitations to be enacted by major web browser publishers, including Google (who announced, in March 2021 the phase-out the support for third-party cookies in Chrome), Apple, and Mozilla, we expect advertisers to increasingly seek alternatives to third-party “cookie”-based targeting. We are focusing investments and R&D on opportunities in alternative targeting technologies. These include:

•

Development of audience and content targeting;

•

Leveraging first-party data from social networks via integrations with Facebook and other major social networks,

•

Content IQ’s ability to create page level engagement without the new privacy parameters;

•

Undertone’s contextual targeting;

•

CodeFuel’s search and intent-based targeting through our partnership with Microsoft Bing.

Search

In 2019,2020, US search advertising spend reached $55.17$61.7 billion and expected to increase by 56%77% reaching $73$109 billion in 2021,2024, representing 42.5%39.16% of US digital ad spending, according to eMarketer.

Search is the most intent-based form of advertising, as advertisements are served in direct response to the search queries, resulting in relevant advertisements yielding significant revenue to the search engine companies. Our search-related products address the market by engaging with premium search providers like Microsoft, and offers end users the ability to search the Internet via easily embedded search functionality in different search assets.

The search engine market is highly competitive as providers such as Google, Microsoft, Verizon Media and other smaller players, seek to gain more market share. We believe such competition will increase utilization of our search solution, which enables search providers to increase their market share.

The factors that drive the ability of our search engine partners to increase their revenue per search, include the availability of search advertising inventory relative to demand, as well as internal pricing dynamics. As search market continues to grow and we continue to expand our search solution, the revenue earned by us and our partners is expected to grow as well.

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Growth Strategy

High level growth plan

Growth Plan

Our strategy is to grow our business by offering diversified advertising, search, awareness and performance solutions to the world’s leading brands, agencies and publishers. These solutions, driven by advanced technology, will make each component of the funnel – awareness, consideration, intent and purchase – operate more effectively.

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We will achieve this by offering compelling data-driven, digital advertising solutions and search monetization through holistic customer experiences and innovative platforms that cover the three main pillars of digital advertising - ad search, social media and display / video advertising.

/CTV.

Growth through innovation

Innovation

Innovation, driven by the introduction of new technologies, tools, services and offerings, will address one of our key priorities, which is to make our revenue models more predictable, sustainable and resilient. We are expanding our product portfolio to provide added value to our clients without adding silos and overhead, while always maintaining efficiency across our different business units. To accelerate this process, we completed several acquisitions, including the most recent acquisitions of Septa Communication LLC in March 2019 (known as “Captain Growth”) and, the acquisition of Content IQ LLC in January 2020 and the acquisition of Pub Ocean in July 2020, to allow us to expand our capabilities and maximize our existing businesses.

We are able to execute on our growth strategy objectives

Growth through the following elements:

Connected Devices

Our advertising offering targets brands that are focused on their relationship with consumers. They recognize that their reputation and ability to compete are determined by meaningful connections that are sequentially delivered by relevant, high-quality creative, across all platforms, including video, CTV and iCTV, in brand-safe environments. Our Synchronized Digital Branding platform is differentiated by our award-winning ad units that deliver impactful and engaging messages, based on data-driven capabilities that reach consumers at the right time, with the right messages across all screens and platforms, through a transparent and customizable list of elite publishers through both direct and programmatic channels as we expect that spending on programmatic ad buying will continue to grow as both advertisers and publishers continue to adopt programmatic advertising.

Growth through high-speed opportunities

Our growth strategy also contemplates the migration to 5G networks and the growing access to high-speed Internet. VideoStreaming of video content that takes advantage of faster delivery, as well as the growth of connected TVs,CTV and internet-connected devices, is something we are investing in so we will be able to take advantage of upgraded user experiences.

We also intend to continue to invest in technology, partnerships and sales that offer our advertising clients enhanced features and functionalities to reach their consumers, including through the utilization of analytic tools such as ACR (Automated Content Recognition) TV viewership data.

Growth Through the Content Publisher Side

Optimization

Through our content publisheroptimization solution, provided through the recently acquired Content IQ, we provide advertisers the ability to serve advertisements which are relevant to the end-user’s interests, beside relevant optimized content and page-level reader engagement. We connect our Synchronized Digital Branding platform to a digital publishingOur “capture and convince” solution is complemented by the content optimization platform, using proprietary data algorithms and analytic tools that dynamically link publisher content and audience interest to maximize return on ad spend.

Growth Through Search

Monetization

Our search monetization solution, operated through CodeFuel, leverages our relationship with Microsoft Bing and other leading search and content partners, to drive innovation and revenue based on AI and analytic tools as part of our ongoing effort to provide comprehensive and compelling search solutions and monetization tools to diversified publishers around the globe. We do this through a variety of digital properties, including websites, apps, extensions, and search engines.

In addition to strategically diversify our revenue sources and extend our products suite and partners, we are embedding our search functionality in our new products, thus increasing our monetization potential; for example, we are introducing new products such as Privado - our privacy-enabled search engine - that get distributed through a variety of partners including not just our traditional publishers, but also brand and enterprise opportunities.

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potential.

Growth Through Pricing

We are offering and exploring new pricing models such as Software as a Services (“SaaS”SaaS”) and other models in order to execute on our strategy to have a more predictable and sustainable revenue streams. We are productizing our technology to enable agencies and other customers to directly offer their consumers and brands with our platforms’ capabilities through SaaS based plans.

Technology

The Design principles of our technologies and research and development efforts consist of the following elements:

•

Supply and publisher integration;

•

Innovative Creative;

•

Demand generation (direct and indirect);

•

Data and Analytics;

•

AI and optimization; and

•

Executional channels (Programmatic and Direct).

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Advertising Solutions

The technology backbone behind our advertising solutions is designed to connect brands with consumers via meaningful digital interactions and experiences. This is done through 9 key components:

•

Supply Management Platform;

•

Demand Management Platform;

•

Analytics Platform

•

High Impact Programmatic Market Place;

Marketplace;

•

Creative Platform;

•

Data Management Platform;

•

Data Lake Platform;

•

AI Platform; and

Advertising Cloud platform.

•

Actionable Performance Monitoring.

Supply Management Platform

The Supply management platform operationalizes relationships with our publishers by treating every impression in an optimal manner, and according to the business requirements and monetary expectations that derive from which ads are allowed, what prices are expected, and what is the allowable frequency. All components in our supply management platform are based on proprietary technology and are based on our specific needs and use cases.

Demand Management

The demand management platform addresses the needs of advertisers for campaign planning and design with a system that delivers a recommendation that will hit the goals of the advertisers. It will recommend advertising channels, audience targeting strategy and ad product mix which are all based on benchmarks and past experiences of the advertiser. Once the plan is created, the platform pushes instructions to the campaign management system for execution, based on parameters like dates, volume level, list of supply sources and campaign goal.

Analytics Platform

Our Analytics platform provides information and performance insights on the results of campaign investment and other campaign metrics - demonstrating the value of our solutions for our customers. This is a flexible system that reports all the required data based on reach and impressions delivered, budget invested engagement metrics, etc. The analytics platform supports our data driven culture – providing business stakeholders full visibility of KPI’s on key processes while facilitating data and reporting in a self-service manner, with pre-build dashboards and reports.

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High Impact Programmatic Marketplace

Our High Impact Programmatic Marketplace is a platform that allows our advertisers to buy from us in an automated fashion. This marketplace is built on the standard programmatic infrastructure so advertisers have the flexibility of using different systems and platforms to buy from us. Our advertisers maintain full control and have transparency into our inventory, bidding in real time to purchase available supply.

Creative Rich Media Platform

The creative platform is a key component of our Synchronized Advertising Branding”capture and convince” solution and allows us to innovate quickly on end user experiences. Our full-blown rich media platform leverages our proprietary ad units, and is tailored to the needs of our advertisers, providing them with a comprehensive solution to create compelling, engaging, dynamic, cross-platform and high-impact advertisements.

Data Management Platform

Our data management platform (DMP) is at the heart of our Synchronized Digital Branding platform.”capture and convince”. Its main functionality is to manage available data on a user level, what messages an individual user was exposed to, how that user responded, what third party information can make that data richer, and so on. The DMP is connected to all key systems to inform campaign planning, delivery, optimization, creative optimization and analytics. In addition to user level data, the DMP manages various data assets and the data is collected at scale with well-defined schemas. Data assets managed in the DMP are used to support data driven objectives and services like analytic and AI processes.

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AI platform

Platform

Our AI platform uses machine learning to bring deep intelligence to the various phases of campaigns: planning, activation and reporting which utilize models built on top of our data platforms. Based on campaign-to-campaign learnings and heuristics, the platform generates better performance for our customers and improved efficiency by providing rules-based and budget optimizations.

Advertising cloud platform

Actionable Performance Monitoring

The advertising cloudActionable Performance Monitoring platform supports the various phases of campaign management across different channels. The platform manages each of the planning, execution, optimization and measurement phases and simplifies complexity of cross channel advertising for brands and agencies while optimizing performance through AI.

AI in one unified, actionable holistic and intuitive dashboard.

Content ManagementOptimization Platform

Our content publisheroptimization platform, was acquired with our purchase of ContentIQ;ContentIQ and enhanced by the acquisition of Pub Ocean; the tech is composed of the following systems that can power both Content IQ owned and operated websites, and those of third-party publishers

•

Content management platform;

•

Content web sites management system;

•

Content monetization system; and

•

Distribution system.

Content Management Platform

The content management platform supports the process of planning, creation, testing and measurement of content articles. The platform provides tools for content creators to structure their content in a variety of formats to optimize performance for unique audience segments. Once content articles are deployed, the management backend serves the content at scale and with the supporting analysis tools that enable continuous optimization at scale.

Content Web Site Management System

The content web site management system supports the process of website creation, testing, optimization and analysis. The platform provides tools for publishers to build dynamic sites driven by a powerful configuration system, which can be optimized to deliver elastic content in a dynamic page layout. The content articles are sourced from the content management system and served at scale.

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Content Monetization System

The content monetization system provides publishers the tools to maximize ad revenues from reader sessions. The system integrates ads within the content layouts, at the page level, maintaining a user-friendly experience while driving monetization from a variety of programmatic sources. This system is powered by a highly customized header bidding technology which controls ad delivery with optimal viewability measures.

Distribution System

The distribution system provides publishers with AI-powered tools to distribute content articles to optimized audience segments, at scale, on a variety of platforms. Its campaign management components automatically manage, through machine learning capabilities, thousands of campaigns - adjusting the bids and budgets in real time. The distribution system optimizes campaigns based on revenue attribution technology which ties the content management, content web sites and content monetization systems together, Inin order to optimize margins and revenues.

Search Solution:

The technology of our search solution is composed of the following systems:

•

Publishers management system;

•

Search demand management system;

•

Monetization products; and

•

AI system.

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AI system; and

Privado – a privacy-focused search engine

Publisher Management System:

The publisher management system provides publishers access to an online dashboard providing them analytics and performance optimization tools, as well as reports that enable them to maximize their distribution and monetization.

Search Demand Management System:

The search demand management system integrates and onboards demand vendors to our monetization products. The integration supports multiple vendors according to predefined configurations and rules, enabling various business models and offerings.

Monetization Products

Our monetization products are designed to deliver algorithmic search results concurrently with sponsored listings which are served for the same search queries. They can be operationalized in different ways, including the transmission of search queries to search engines such as Bing;Bing, search Feed APIs operated on the publisher’s domain and an enriched and optimized hosted search results page which offers an enhanced user experience.

AI System

The AI technology behind our search solutions optimizes the various phases of the funnel including intent detection and demand optimization to yield performance optimization and maximized consumer experience.

Privado - a privacy-enabled search engine

Privado delivers private search results, leverages proprietary technology, to let users freely search online without being tracked. Privado does not store personal user data, and all search terms are encrypted so that they are not visible in the browser’s history.

Products underUnder Development

Innovation is a core driver of our culture and operations and essential for our growth and hence we invest substantial resources in research and development to develop new solutions, offerings, applications and services, improve our core technologies and enhance our technology facilities and infrastructure and capabilities. Our research and development activities are primarily conducted internally in Israel and Europe, focusing on the development of new services, platforms and SaaS based solutions that will offer our customers (i) standout brand experience (ii) effective distribution tools, (iii) increased monetization capabilities through content features and applications, and (iv) enhanced optimization via powerful and reliable data analytics driven by AI. Additionally, we focus our research and development efforts on developing new products and improving existing products through software updates and upgraded features. Our research and development department is divided into groups based on scientific disciplines and types of applications and products.

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Breakdown of Revenues

Our search monetization solutions, advertising and other, are distributed and sold throughout the world (mainly in North America and Europe). The following table shows the revenues, presented in our statement of operations, generated by territory in the years ended December 31, 2017, 2018, 2019 and 2019.2020.

		2018								2019								2020
		Search Advertising and other Revenues				Display and Social Advertising Revenues				Search Advertising and other Revenues				Display and Social Advertising Revenues				Search Advertising and other Revenues				Display and Social Advertising Revenues
North America (Mainly U.S.)			65	%			91	%			67	%			91	%			73	%			95	%
Europe			29	%			8	%			25	%			9	%			24	%			5	%
Other			6	%			1	%			8	%			0	%			3	%			0	%
Total			100	%			100	%			100	%			100	%			100	%			100	%

		2017								2018								2019
		Search and other Revenues				Advertising Revenues				Search and other Revenues				Advertising Revenues				Search and other Revenues				Advertising Revenues
North America			70	%			86	%			65	%			91	%			67	%			91	%
Europe			24	%			11	%			29	%			8	%			25	%			9	%
Other			6	%			3	%			6	%			1	%			8	%			0	%
Total			100	%			100	%			100	%			100	%			100	%			100	%

Intellectual Property

Our research and development efforts and the underlying proprietary technologies, solutions and products we develop, are meaningful to our operations and competitive advantage and we rely upon trade secret, trademark, copyright, and patent laws in the United States and abroad to establish and protect our intellectual property.

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Although we have a number of patents, copyrights, trademarks and trade secrets and confidentiality and invention assignment agreements to protect our intellectual property rights, we believe that our competitive advantage depends primarily on our marketing, business development, services, applications, know-how and ongoing research and development efforts. Accordingly, we believe that the expiration of any of our patents or patent licenses, or the failure of any of our patent applications to result in issued patents, would not be material to our business or financial position.

Part of the components of our software products were developed solely by us. We have licensed certain components of our software from third parties. We believe that the components we have licensed are not material to the overall performance of our software and may be replaced without significant difficulty.

We enter into licensing arrangements with third parties for the use of software components, graphic, sound and multimedia content integrated into our products.

All employees and consultants are required to execute confidentiality covenants in connection with their employment and consulting relationships with us. These agreements (excluding those with our former German and U.K. employees) also contain assignment and waiver provisions relating to the employee’s or consultant’s rights in respect of inventions.

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Competition

The markets in which we are active are subject to intense competition.

We compete with many other companies offering solutions for online publishers and developers, including search services and other software in conjunction with changing a user’s default search settings.

The advertising technology industry is highly competitive. There are a large number of digital media companies and advertising technology companies that offer services similar to those of our advertising solution and that compete for finite advertiser/agency budgets and publisher inventory. There are a large number of niche companies that are competitive with our advertising solution because they provide a subset of the services that we provide (e.g., mobile in-app ad networks). Some of these companies are larger and have more financial resources than we have, including, Verizon Media, Google, Facebook and Facebook.Microsoft. New entrants and companies that do not currently compete with our advertising solution such as Amazon and Samsung may compete in the future given the relatively low barriers to entry in the industry.

As a major part of our revenues stem from our offering of search properties, we compete with search engine providers themselves such as Google, Microsoft, Verizon Media, IAC and others. We also compete with many other companies offering consumer software, albeit totally different software, utilizing the same strategy, to offer their search properties, such as Interactive Corporation, Oath, System1 and others.

Our ability to attract developers is largely dependent on our ability to pay higher rates to our publishers and developers, our success in creating strong commercial relationships with developers that have successful software, websites or distribution channels, and our ability to differentiate our distribution, monetization, and optimization tools from those of our competitors.

As we innovate evolve and introduce new solutions, and as our competitors as well as other companies introduce new products and services, we may be subject to additional competition. Many of our current and potential competitors may have significantly greater financial, research and development, back-end analytical systems, manufacturing, and sales and marketing resources than we have. These competitors could potentially use their greater financial resources to acquire other companies to gain even further enhanced name recognition and market share, as well as to develop new technologies, enhanced systems and analytical capabilities, products or features that could effectively compete with our existing solutions, products and search services. Demand for our solutions, products and search services could be diminished by solutions, products, services and technologies offered by competitors, whether or not their solutions, products, services and technologies are equivalent or superior.

Government Regulation

We are subject to a number of U.S. federal and state and foreign laws and regulations that affect companies conducting business on the Internet. The manner in which existing laws and regulations will be applied to the Internet in general, and how they will relate to our business in particular is unclear. Accordingly, we cannot be certain how existing laws will be interpreted or how they will evolve in areas such as user privacy, data protection, content, use of “cookies,” access changes, “net neutrality,” pricing, advertising, distribution of “spam,” intellectual property, distribution, protection of minors, consumer protection, taxation and online payment services.

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For example, we are subject to U.S. federal and state laws regarding copyright infringement, privacy and protection of user data, many of which are subject to regulation by the Federal Trade Commission. These laws include the California Consumer Privacy Act, which provides data privacy rights for consumers and operational requirements for companies, the Digital Millennium Copyright Act, which aims to reduce the liability of online service providers for listing or linking to third-party websites that include materials that infringe copyrights or the rights of others, and other federal laws that restrict online service providers’ collection of user information on minors as well as distribution of materials deemed harmful to minors. TheIn addition to the CCPA, the California Consumer Privacy Rights Act (2018) became effective on(“CPRA”) which passed in November 2020 will take effect in January 1, 20202023, will expand the rights granted under the CCPA and impose additional notice and opt out obligations, including an obligation to provide an opt-out for behavioral advertising and may affect us. Many U.S. states, such as California, are adopting statutes that require online service providers to report certain security breaches of personal data and to report to consumers when personal data will be disclosed to direct marketers. There are also a number of legislative proposals pending before the U.S. Congress and various state legislative bodies concerning data protection which could affect us. The interpretation of data protection laws, and their application to the Internet, is unclear and in a state of flux. There is a risk that these laws may be interpreted and applied in conflicting ways and in a manner that is not consistent with our current data protection practices.

Foreign data protection, privacy and other laws and regulations may affect our business, and such laws can be more restrictive than those in the United States. For example, in Israel, privacy laws require that any request for personal information for use or retention in a database, be accompanied by a notice that indicates: whether a person is legally required to disclose such information or that such disclosure is made at such person’s free will and consent; the purpose for which the information is requested; and to whom the information is to be delivered and for which purposes. A breach of privacy under such laws is considered a civil wrong and subject to administrative fines as well as civil damages. Certain violations of the law are considered criminal offences punishable by imprisonment. In the European Union, similar data protection rules exist as well was privacy legislation restricting the use of cookies and similar technologies. Subject to some limited exceptions, the storing of information, or the gaining of access to information already stored, in the terminal equipment of a subscriber or user is only allowed on condition that the subscriber or user concerned has given his or her informed consent. Moreover, the General Data Protection Regulation (which became effective in May 2018) presumably have an even wider territorial scope, broadened the definition of personal data to include location data and online identifiers, and imposes more stringent user consent requirements. Further, it includes stringent operational requirements for companies that process personal data and will contain significant penalties for non-compliance. Also in other relevant subject matters, such as cyber security, e-commerce, copyright and cookies, new European initiatives have been announced by the European regulators. To further complicate matters in Europe, to date, member States have some flexibility when implementing European Directives and certain aspects of the General Data Protection Regulation, which can lead to diverging national rules.

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Because our services are accessible worldwide, certain foreign jurisdictions may claim that we are required to comply with their laws, including in jurisdictions where we have no local entity, employees or infrastructure.

These regulations result in significant compliance costs and could result in restricting the growth and profitability of our business.

C.ORGANIZATIONAL STRUCTURE

Our subsidiaries and the countries of their incorporation are as follows:

Content IQ LLC,

•

Codefuel Ltd., our wholly-owned New York subsidiary, was acquired in January 2020, owns all of the membership interest of BT Media LLC, a Nevada limited liability company.

Septa Communications LLC, also known as “Captain Growth”, our wholly owned Ukrainian subsidiary, was acquired in March 2019.

ClientConnect Ltd., our wholly owned Israeli subsidiary, owns all of the outstanding shares of common stock of ClientConnect, Inc., a Delaware corporation, and all of the outstanding ordinary shares of ClientConnect B.V., a Netherlands company. We are currently in the process of merging ClientConnect into Perion.

incorporated on November 6, 2019.

•

IncrediMail, Inc., our wholly-owned Delaware subsidiary, owns all of the outstanding shares of common stock of Smilebox Inc., a Washington corporation and all of the outstanding shares of common stock of IncrediTone Inc. and Pub Ocean Inc., our wholly-owned Delaware subsidiary.subsidiaries. IncrediTone Inc. owns all of the outstanding shares of common stock of Interactive Holding Corp., a Delaware corporation, which was acquired, together with its subsidiaries, in November 2015.

•

Content IQ LLC, our wholly-owned New York subsidiary, was acquired in January 2020, owns all of the membership interest of BT Media LLC, a Nevada limited liability company.

•

Pub Ocean Limited, our wholly-owned England and Wales subsidiary, was acquired in July 2020.

•

Make Me Reach SAS, dba Paragone, our wholly owned French subsidiary, was acquired in February 2015.

•

Portilev Ltd., our wholly-owned Israeli subsidiary, incorporated on September 22, 2019.

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D. PROPERTY, PLANTS AND EQUIPMENT

Our headquarters are located in Holon, Israel. As of December 31, 2019,2020, we lease approximately 30,94667,759 square feet, excluding office space which we currently sublease. The lease expires in 2025, with an option to extend for two additional two-year periods at its sole discretion and upon 180-day prior written notice. Annual net cost is approximately $0.6$1.4 million.

As of December 31, 2019,2020, we lease office spaces in various locations in the United States, excluding office spaces we currently sublease. Our primary locations, and their principal terms, are as follows:

	Square feet (net)					Annual Rent for 2020 in US$ in thousands (net)				Lease expires on (not including options)
New York, New York			25,550			$	1,737				2026
Chicago, Illinois			3,984			$	79				2023

		Square feet (net)				Annual Rent for 2019 in US$ in thousands (net)				Lease expires on (not including options)
New York, New York			25,550			$	1,737				2026
Chicago, Illinois			3,984			$	76				2023

Undertone’s offices are located at the World Trade Center (WTC) New York and Chicago, pursuant to a lease agreement that expires in May 2026.2026 and September 2023, respectively. Under the lease agreement, we are entitled to terminate the lease of our offices in 2024,New York in 2023, at our sole discretion.

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In addition, we lease offices in various locations throughout Europe. Our primary location, and its principal terms, are as follows:

	Square feet					Annual Rent for 2020 in US$ in thousands				Lease expires on (not including options)
Paris, France			9,182			$	735				2028

		Square feet				Annual Rent for 2019 in US$ in thousands				Lease expires on (not including options)
Paris, France			9,182			$	720				2028

MakeMeReach’s offices in Paris are located at rue de la Poissonniere pursuant to a lease agreement that expires in March 2028. Under the lease agreement we are entitled to terminate the lease in 2023, at our sole discretion.

ITEM 4.AUNRESOLVED STAFF COMMENTS

None.

ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of our financial condition and results of operations should be read in conjunction with our Financial Statements. In addition to historical financial information, the following discussion and analysis contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act, including, without limitation, statements regarding the Company’s expectations, beliefs, intentions, or future strategies that are signified by the words “expects,” “anticipates,” “intends,” “believes,” or similar language. These forward looking statements involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward looking statements as a result of many factors, including those discussed under “Item 3.D RiskItem 3.D. “Risk Factors” and elsewhere in this annual report.

A. OPERATING RESULTS

General

Perion is a global technology company that provides agencies, brands and publishers with innovative solutions that cover the three main pillars of digital advertising. From its data-driven Synchronized Digital Branding platform and high-impact ad formats in the display domain, to its powerful advertising cloud platform, to its branded search network.

Our headquarters and primary research and development facilities are located in Israel and Kiev, we have our primary sales office in the United States and several other offices located in Europe.

The following describes the nature of our principal items of income and expense:

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Revenues

We generate our revenues primarily from two major sources: (i) search-generatedDisplay and other revenues;Social Advertising; and (ii) advertising.Search Advertising and other. The following table shows our revenues by category (in thousands of U.S. dollars):

		Year Ended December 31,
		2018				2019				2020
Display and Social Advertising		$	125,977			$	87,863			$	148,698
Search Advertising and other			126,868				173,587				179,365
Total Revenues		$	252,845			$	261,450			$	328,063

		Year Ended December 31,
		2017				2018				2019
Advertising		$	134,481			$	125,977			$	87,863
Search and other			139,505				126,868				173,587
Total Revenues		$	273,986			$	252,845			$	261,450

In 2018, revenues decreased by 8% compared to 2017, primarily due to a result of Search and other revenues declining 9% due to churn of our legacy products and the network cleanup in the second quarter of 2017, along with a 6% decrease in our Advertising revenues mainly due to insufficient programmatic inventory to meet our demand for our programmatic high-impact ad units.

In 2019, revenues increased by 3% compared to 2018, primarily driven by 37% growth in our Search advertising and other revenues due to new publishers, higher RPMs and an increased number of searches, partially offset by advertisingDisplay and Social Advertising decline of 30% as we continued to prioritize margins over short-term sales.

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In 2020, revenues increased by 25% compared to 2019, primarily due to 69% growth in Display and Social Advertising primarily resulting from the acceleration of our Connected TV advertising offering and the contribution of our content monetization platform evolving from the acquisition of Content IQ and Pub Ocean. Search Advertising and other revenues increased by 3% due to a higher number of daily searches partially offset by lower RPMs.

Cost of Revenues

Cost of revenues consists primarily of salaries and related expenses, license fees and payments for content and server maintenance. Cost of revenues were $23.8 million or 9% of revenues in 2018 and $25.5 million or 10% of revenues in 2019.2019 and $22.5 million or 7% of revenues in 2020. The reduction results from optimization in servers costs as well as reduction in salaries and related expenses mainly due to automation of processes. The number of employees included in cost of revenues as of December 31, 2017, 2018, 2019 and 20192020 were 94, 76, 79 and 7973, respectively.

Customer Acquisition Costs and Media Buy

Our customer acquisition costs consist primarily of payments to publishers and developers who distribute our search properties together with their products, as well as the cost of distributing our own products. Customer acquisition costs are primarily based on revenue share agreements with our traffic sources. Media buy costs consist mainly of the costs of advertising inventory incurred to deliver ads. Customer acquisition and media buy costs were $128.4 million or 51% of revenues and $135.9 million or 52% of revenues and $197.6 million or 60% of revenues in 20182019 and 2019,2020, respectively. The increase as a percentage of customer acquisition costsrevenues is primarily due to churnthe acquisitions of our search legacy products.

Content IQ and Pub Ocean, as well as product mix.

Research and Development Expenses

Our research and development expenses consist primarily of salaries and other personnel-related expenses for employees primarily engaged in research and development activities, allocated facilities costs, subcontractors and consulting fees. Research and development expenses were $18.9 million or 7% of revenues in 2018 and $22.6 million or 9% of revenues in 2019.2019 and $30.9 million or 9% of revenues in 2020. Our research and development expenditures in 20192020 increased compared to the prior year, primarily as a result of headcount increase and retention plans related to supportthe acquisitions of Content IQ and Pub Ocean as well as our significantcontinued investment in technology investments in 2019.

to strengthen our technology moat.

The number of employees in research and development were 86, 117 86 and 117135 as of December 31, 2017, 2018, 2019 and 2019,2020, respectively.

Selling and Marketing Expenses

Our selling and marketing expenses consist primarily of salaries and other personnel-related expenses for employees primarily engaged in marketing activities, allocated facilities costs, as well as other outsourced marketing activity.activities. Selling and marketing expenses were $38.9 million or 15% of revenues in 2018 and $34.7 million or 13% of revenues in 2019.2019 and $39.1 million or 12% of revenues in 2020. The decreaseincrease was primarily due to restructuring efforts undertaken at the beginning of 2018; the savings resulted from reductionas a result of headcount closeincrease and retention plans related to the acquisitions of office facilitiesContent IQ and other cost optimizations. Pub Ocean as well as increased content creation related expenses.

The number of employees in sales and marketing was 167, 141, 136 and 136146 as of December 31, 2017, 2018, 2019 and 2019,2020, respectively.

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General and Administrative Expenses (“G&A”)

Our general and administrative expenses consist primarily of salaries and other personnel-related expenses for executive and administrative personnel, allocated facilities costs, professional fees and other general corporate expenses. General and administrative expenses were $16.5 million or 7% of revenues in 2018 and $15.0 million or 6% of revenues in 2019.2019 and $15.8 million or 5% of revenues in 2020. The decreaseincrease was primarily due to optimization of our rent expenses as a result of Undertone’s transitionrelated to new office facilities. M&A transactions.

The number of G&A employees was 86, 60, 67 and 6763 as of December 31, 2017, 2018, 2019 and 2019,2020, respectively.

Restructuring Charges

In 2019 and 2017,2020, there were no restructuring charges.

In 2018, we incurred restructuring charges of $2.1 million, in connection with the restructuring plan, mainly to reduce workforce, close certain facilities, as well as other cost saving measures.

Impairment, loss of goodwill on intangible assets

Goodwill and intangible assets has been recorded as a result of prior acquisitions. Goodwill represents the excess of the consideration over the net fair value of the assets of the businesses acquired, the fair value of intangible assets was based on the market participant approach to valuation, performed by a third-party valuation firm, using estimates and assumptions provided by management.

We perform tests for impairment of goodwill and intangible assets at the reporting unit level at least annually, or more frequently if events or changes in circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value.

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Following an impairment review of our goodwill and intangible assets for 20182019 and 2019,2020, it was concluded that no such impairment charges should be recorded.

Depreciation and amortization

Depreciation and amortization consist primarily of depreciation of our property and equipment and the amortization of our intangible assets as a result of our acquisitions. Depreciation and amortization expenses in 20182019 were $9.7 million and in 2019 remain steady in the amount of $9.72020 were $9.9 million.

Income Tax Expense

A significant portion of our income is taxed in Israel and, as a result of the Undertone acquisition on November 30, 2015,previous acquisitions, in the United States. The standard corporate tax rate in Israel was 24%23% in 20172018, 2019 and is 23% as of 2018 and 2019.2020. For our Israeli operations we have elected to implement a tax incentive program pursuant to a 2011 Israeli tax reform, referred to as a “Preferred Enterprise,” according to which a reduced tax rate of 16.0% ishas applied to our preferred income in 2016. InStarting in 2017 and in 2018, 2019 and 20192020, we elected to implement the “Preferred Technological Enterprise” benefits pursuant to an amendment to the taxation laws which went into effect in 2017, under which a tax rate of 12% is applied to a portion of our income which qualifies for the benefits. Any other income which does not qualify for special benefits is subject to tax at the ordinarystandard corporate income tax rate. With respect to U.S. tax, we expectcontinue to utilize accumulated losses we have from prior U.S. acquisitions.losses. The federal statutory income tax rate in the United States was 35.0%21% in 20172018, 2019 and 21% starting from 2018.2020. Subsidiaries in Europe are taxed according to the tax laws in their respective countries of residence.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operation are based on our financial statements, which have been prepared in conformity with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these estimates on an on-going basis. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amount values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Under U.S. GAAP, when more than one accounting method or policy or its application is generally accepted, our management selects the accounting method or policy that it believes to be most appropriate in the specific circumstances. Our management considers some of these accounting policies to be critical.

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A critical accounting policy is an accounting policy that management believes is both most important to the portrayal of our financial condition and results and requires management’s most difficult subjective or complex judgment, often as a result of the need to make accounting estimates about the effect of matters that are inherently uncertain. While our significant accounting policies are discussed in Note 2 of the Financial Statements, we believe the following accounting policies to be critical:

Stock-Based Compensation

We account for share-based payment awards made to employees and directors in accordance with ASC 718, “Compensation – Stock Compensation”, which requires the measurement and recognition of compensation expense based on estimated fair values. Determining the fair value of stock-based awards at the grant date requires the exercise of judgment, as well as the determination of the amount of stock-based awards that are expected to be forfeited. We adopted ASU 2016-09 on January 1, 2017, and chose to continue to use the current method of estimating forfeitures each period rather than accounting for forfeitures as they occur. The adoption of the new standard had no material impact on our consolidated financial statements. If actual forfeitures differ from our estimates, stock-based compensation expense and our results of operations would be impacted. Expense is recognized for the value of the awards, which have graded vesting based on service conditions, using the straight-line method, over the requisite service period of each of the awards, net of estimated forfeitures. Estimated forfeitures are based on actual historical pre-vesting forfeitures. For performance-based stock units, expense is recognized for the value of such awards, if and when we conclude that it is probable that a performance condition will be achieved. We are required to reassess the probability of the vesting at each reporting period for awards with performance conditions and adjust compensation cost based on its probability assessment.

We account for changes in award terms as a modification in accordance with ASC 718. A modification to the terms of an award should be treated as an exchange of the original award for a new award with total compensation cost equal to the grant-date fair value of the original award plus the incremental value measured at the same date. Under ASC 718, the calculation of the incremental value is based on the excess of the fair value of the new (modified) award based on current circumstances over the fair value of the original award measured immediately before its terms are modified based on current circumstances.

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In order to keep our competitive hiring position in the industry, following the Boardour board of directors’ approval in December 2017, we effected in 2018 an option repricing plan. Under the repricing plan, among others, options granted to all of our employees, with certain limited exceptions and other than our directors, were adjusted to have an exercise price per share equal to $3.24, which was the weighted average price of our ordinary shares on Nasdaq in the last 90 days prior to the date of approval of the plan by our board of directors as well as have a new vesting schedule. The total incremental fair value of these repriced options amounted to $1.5 million, and was determined based on the binomial pricing options model.

Total stock-based compensation expense recorded during 20192020 was $2.3$4.4 million, of which $0.2$0.1 million was included in cost of revenues, $0.5$0.9 million in research and development costs, $0.5$1.9 million in selling and marketing expenses, and $1.1$1.5 million in general and administrative expenses.

As of December 31, 2019,2020, the maximum total compensation cost related to options, granted to employees and directors not yet recognized amounted to $3.2$6.8 million. This cost is expected to be recognized over a weighted average period of 1.21.54 years.

We estimate the fair value of standard stock options granted using the Binomial method option-pricing model. The option-pricing model requires a number of assumptions, of which the most significant is expected stock price volatility. Expected volatility was calculated based upon actual historical stock price movements of our stock. The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with an equivalent term. The fair value of RSUs is based on the market value of the underlying shares at the date of grant.

Taxes on Income

We are subject to income taxes primarily in Israel and the United States. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Based on the guidance in ASC 740 “Income Taxes”, we use a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.

Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, the refinement of an estimate or changes in tax laws. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate. Interest is recorded within finance income, net.

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Accounting for tax positions requires judgments, including estimating reserves for potential uncertainties. We also assess our ability to utilize tax attributes, including those in the form of carry forwards for which the benefits have already been reflected in the financial statements. We record valuation allowances for deferred tax assets that we believe are not more likely than not to be realized in future periods. While we believe the resulting tax balances as of December 31, 20192020 are appropriately accounted for, the ultimate outcome of such matters could result in favorable or unfavorable adjustments to our consolidated financial statements and such adjustments could be material. See Note 15 of the Financial Statements for further information regarding income taxes. We have filed or are in the process of filing local and foreign tax returns that are subject to audit by the respective tax authorities. The amount of income tax we pay is subject to ongoing audits by the tax authorities, which often result in proposed assessments. We believe that we adequately provided for any reasonably foreseeable outcomes related to tax audits and settlement. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, audits are closed or when statutes of limitation on potential assessments expire.

Business Combinations

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets.

Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer relationships and acquired patents and developed technology; and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

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Goodwill

Goodwill is allocated to reporting units expected to benefit from a business combination. We perform tests for impairment of goodwill at the reporting unit level at least annually, or more frequently if events or changes in circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value. Goodwill impairment tests require judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit.

During 2017 we determined that certain indicators

No impairment of potential impairment existed, which triggered goodwill impairment analysis for our reporting units. These indicators included a decrease in the Company’s share price and a miss of the targeted budget due to lower sales and higher media buy as a percentage of revenues. Accordingly, we determined that the carrying amount of the Undertone reporting unit exceeds its fair value and thus we recorded in 2017 an impairment charge of $65.7 million related to goodwill. No such impairment charges were recorded in 2018, 2019 nor 2019.

2020.

Impairment of Long-Lived Assets

We are required to assess the impairment of tangible and intangible long-lived assets and right-of-use assets subject to amortization, under ASC 360 “Property, Plant and Equipment”, on a periodic basis and when events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment indicators include any significant changes in the manner of our use of the assets or the strategy of our overall business, significant negative industry or economic trends and significant decline in our share price for a sustained period.

Upon determination that the carrying value of a long-lived asset may not be recoverable based upon a comparison of aggregate undiscounted projected future cash flows from the use of the asset or asset group to the carrying amount of the asset, an impairment charge is recorded for the excess of carrying amount over the fair value. We measure fair value using discounted projected future cash flows. We base our fair value estimates on assumptions we believe to be reasonable, but these estimates are unpredictable and inherently uncertain. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for our tangible and intangible long-lived assets subject to amortization. In 2017, we incurred2018, 2019 and 2020 no impairment charges of $20.0 million related to intangiblelong-lived assets associated with our reporting units. In 2018 and 2019, no such impairment charges were recorded.

Derivative and Hedge Accounting

During fiscal 2017, 2018, 2019 and 2019,2020, approximately 9%, 9%10% and 10%8%, respectively, of our operating expenses, were denominated in NIS. In order to mitigate the potential adverse impact on cash flows resulting from fluctuations in the NIS exchange rate, we started to hedge portions of our NIS forecasted expenses with derivatives contracts. We implement hedge accounting under ASC-815, therefore, the effective portion of the change in fair value on the derivatives is reported as a component of other comprehensive income and gains or losses are reclassified into the relevant period earnings. We recognize in “financial income, net” the ineffective portion of a derivative change in fair value, if any, as well as the change in fair value of all non-designated under hedge accounting derivatives. We also entered into a cross currency interest rate SWAP agreements in order to translate our convertible debt (principal and interests) NIS cash flow into USD (see Note 8 and Note 10 of the Financial Statements). On June 6, 2019, the SWAP agreements were terminated concurrently with the early redemption of the convertible bond. The SWAP agreements were not designated as hedging instruments and therefore gains or losses resulting from the change of their fair value are recognized in “financial income, net.” We estimate the fair value of such derivative contracts by reference to rates quoted in active markets.

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Establishing and accounting for foreign exchange contracts involve judgments, such as determining the fair value of the contracts, determining the nature of the exposure, assessing its amount and timing, and evaluating the effectiveness of the hedging arrangement.

Although we believe that our estimates are accurate and meet the requirement of hedge accounting, if actual results differ from these estimates, such difference could cause fluctuation of our recorded expenses.

Recent Accounting Standards

On January 1, 2019, the Company adopted ASC 842, “Leases,” on the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASC 842 supersedes the previous leases standard, ASC 840, “Leases.” ASC 842 requires lessees to apply a dual approach, classifying leases as either finance or operating leases, based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use (“ROU”) asset and a lease liability for all leases with a term of greater than 12 months, regardless of their classification. The Company elected, as a practical expedient, to account for leases with a term of 12 months or less in a manner similar to the accounting under pre-existing guidance for operating leases.

In July 2018,June 2016 the FASB issued ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The FASB subsequently issued amendments into ASU 2018-11,2016-13, which provides anotherhave the same effective date and transition method in addition to the existing transition method, by allowingdate of January 1, 2020. This standard requires entities to initially applyestimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings and report credit losses using an expected losses model rather than the new lease accounting standard at the adoption dateincurred losses model that was previously used, and recognize a cumulative-effect adjustmentestablishes additional disclosures related to the opening balance of retained earnings in the period of adoption, and to not apply the new guidance in the comparative periods they present in the financial statements.credit risks. The guidance isCompany adopted Topic 326 effective for the interim and annual periods beginning on or after December 15, 2018, and the Company has elected to apply the standard using a modified retrospective transition method at the beginning of the period of adoption (JanuaryJanuary 1, 2019) through a cumulative-effect adjustment.

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2020. The most significant impact from recognition of ROU assets and lease liabilities relates to the Company's office space. However, the adoption of ASC 842 doesthis standard did not have a material impact on the operating expenses in the Company'sCompany’s condensed consolidated statements of operations, since the expense recognition under ASC 842 is similar to current practice.financial statements. The Company's financial income (expenses), net is impacted by the revaluation of the lease liabilities denominated in non-dollar currencies.

To adopt ASC 842, the Company has implemented changes to its existing systems and processes in conjunction with a review of existing vendor agreements. See Note 11 of theConsolidated Financial Statements for further information regarding ASC 842.

In February 2018, the FASB issued ASU 2018-02 “Income Statement—Reporting Comprehensive Income—Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The guidance allows reclassification of stranded tax effects resulting fromyear ended December 31, 2020 are presented under the Tax Cutsnew standard, while comparative periods presented are not adjusted and Jobs Act from accumulated other comprehensive incomecontinue to retained earnings. This guidance is effective for fiscal years beginning after December 15, 2018.be reported in accordance with the Company’s historical accounting policy. The adoption of this guidance has nostandard did not have a material impact on the Company’s condensed consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07 “Improvement to Nonemployee Share-Based Payments Accounting.” This guidance simplifies the accounting for non-employee share-based payment transactions. The amendments specify that ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The guidance is effective for fiscal years beginning after December 31, 2018. The adoption of this guidance started as of Jan 1, 2019 and has no material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326).” ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU 2016-13 will become effective for annual and interim periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The new standard will be effective for interim and annual periods beginning after January 1, 2020, and early adoption is permitted. The Company does not expect this standard to have a material effect on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates the requirement to measure the implied fair value of goodwill by assigning the fair value of a reporting unit to all assets and liabilities within that unit (the "Step 2 Test") from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited by the amount of goodwill in that reporting unit. ASU 2017-04 will become effective for the Company beginning January 1, 2020 and must be applied to any annual or interim goodwill impairment assessments after that date. The Company will adopt this standard on a prospective basis as of January 1, 2020 and does not expect this standard to have a material effect on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13 “Fair Value Measurement (Topic 820)—: Disclosure Framework—Framework - Changes to the Disclosure Requirements for Fair Value Measurement.”Measurement”. This guidance removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. The new disclosure requirements include disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Certain disclosures required by this guidance must be applied on a retrospective basis and others on a prospective basis. The guidance will be effectivewas adopted for fiscal yearsinterim and annual periods beginning after December 15, 2019, although early adoption is permitted. The Company does not expectadoption of this standard todid not have a material effectimpact on itsthe Company’s condensed consolidated financial statements.

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The Consolidated Financial Statements and disclosures for the year ended December 31, 2020 are presented under the new standard, while comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy.

Results of Operations

The following table presents, for the periods indicated, our costs and expenses of our continuing operations, by category (in thousands of U.S. dollars):

		Year ended December 31,
		2018				2019				2020
Cost of revenues		$	23,757			$	25,520			$	22,477
Customer acquisition costs and media buy			128,351				135,891				197,626
Research and development			18,884				22,585				30,880
Selling and marketing			38,918				34,736				39,085
General and administrative			16,450				14,999				15,819
Depreciation and amortization			9,719				9,711				9,923
Restructuring costs			2,075				-				-
Total Costs and Expenses		$	238,154			$	243,442			$	315,810

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		Year ended December 31,
		2017				2018				2019
Cost of revenues		$	24,659			$	23,757			$	25,520
Customer acquisition costs and media buy			130,885				128,351				135,891
Research and development			17,189				18,884				22,585
Selling and marketing			52,742				38,918				34,736
General and administrative			21,911				16,450				14,999
Depreciation and amortization			16,591				9,719				9,711
Restructuring costs			-				2,075				-
Impairment, loss of goodwill on intangible assets			85,667				-				-
Total Costs and Expenses		$	349,644			$	238,154			$	243,442

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The following table sets forth, for the periods indicated, our statements of operations expressed as a percentage of total revenues (the percentages may not equal 100% because of the effects of rounding):

		Year Ended December 31,
		2018				2019				2020
Revenues:
Display and Social Advertising			50	%			34	%			45	%
Search Advertising and other			50				66				55
Total revenues			100	%			100	%			100	%
Costs and expenses:
Cost of revenues			9	%			10	%			7	%
Customer acquisition costs and media buy			51				52				60
Research and development			7				9				9
Selling and marketing			15				13				12
General and administrative			7				6				5
Depreciation and amortization			4				4				3
Restructuring charges			1				-				-
Total costs and expenses			94				93				96
Operating income			6				7				4
Financial expenses, net			2				1				1
Income before taxes on income			4				6				3
Income tax expense (benefit)			1				1				(0	)
Net Income			3	%			5	%			3	%

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Revenues. Revenues increased by 25%, from $261.5 million in 2019 to $328.1 million in 2020.

Display and Social Advertising revenues. Display and Social Advertising revenues increased by 69% in 2020, from $87.9 million in 2019 to $148.7 million in 2020. This increase was a result of the acceleration of our Connected TV advertising offering and the contribution of our content monetization platform evolving from the acquisition of Content IQ and Pub Ocean.

Search Advertising and other revenues. Search Advertising and other revenues increased by 3% in 2020, from $173.6 million in 2019 to $179.4 million in 2020. This increase is due to higher number of daily searches partially offset by lower RPMs.

Cost of revenues. Cost of revenues decreased by 12%, from $25.5 million in 2019 to $22.5 million in 2020. Cost of revenues decreased in terms of the percentage of revenues, representing 10% of revenues in 2019 and 7% in 2020.

Customer acquisition costs (“CAC”) and media buy. CAC and media buy increased by 45%, from $135.9 million or 52% of revenues in 2019 to $197.6 million or 60% of revenues in 2020. The increase of customer acquisition costs is mainly as a result of the acquisitions of Content IQ and Pub Ocean, as well as product mix.

Research and development expenses (“R&D”). R&D increased by 37%, from $22.6 million in 2019 to $30.9 million in 2020. The increase was primarily as a result of headcount increase and retention plans related to the acquisitions of Content IQ and Pub Ocean.

Selling and marketing expenses (“S&M”). S&M expenses increased by 13%, from $34.7 million in 2019 to $39.1 million in 2020. The increase was primarily as a result of headcount increase and retention plans related to the acquisitions of Content IQ and Pub Ocean.

General and administrative expenses (“G&A”). G&A increased by 5%, from $15.0 million in 2019 to $15.8 million in 2020. The increase was primarily due to expenses related to M&A transactions.

Depreciation and amortization. Depreciation and amortization increased by 2%, from $9.7 million in 2019 to $9.9 million in 2020. Depreciation and amortization consist primarily of depreciation of our property and equipment and the amortization of our intangible assets as a result of our acquisitions.

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		Year Ended December 31,
		2017				2018				2019
Revenues:
Advertising			49	%			50	%			34	%
Search and other			51				50				66
Total revenues			100	%			100	%			100	%
Costs and expenses:
Cost of revenues			9	%			9	%			10	%
Customer acquisition costs and media buy			48				51				52
Research and development			6				7				9
Selling and marketing			19				15				13
General and administrative			8				7				6
Depreciation and amortization			6				4				4
Restructuring charges			-				1				-
Impairment, loss of goodwill on intangible assets			31				-				-
Total costs and expenses			127				94				93
Operating income (loss)			(27	)			6				7
Financial expenses, net			2				2				1
Income (loss) before taxes on income			(29	)			4				6
Income tax expense (benefit)			(3	)			1				1
Net Income (loss)			(26	)%			3	%			5	%

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Taxes on income (benefit). Taxes on income decreased by $2.2 million from a tax expense of $1.6 million in 2019 to $0.6 million tax income in 2020. The decrease was primarily a result of internal entities merger completed during 2020, which enabled the company to utilize its tax attributes more efficiently.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Revenues. Revenues increased by 3%, from $252.8 million in 2018 to $261.5 million in 2019.

Advertising revenues. Advertising revenues decreased by 30% in 2019, from $126.0 million in 2018 to $87.9 million in 2019. This decrease aswas a result of the transition from selling formats to an integrated solution.

Search and other revenues. Search and other revenues increased by 37% in 2019, from $126.9 million in 2018 to $173.6 million in 2019. This increase is due to additional new publishers, higher RPMs and an increased number of searches.

Cost of revenues. Cost of revenues increased by 7%, from $23.8 million in 2018 to $25.5 million in 2019. Cost of revenues remained stable in terms of the percentage of revenues, representing 9% of revenues in 2018 and 10% in 2019.

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Customer acquisition costs (“CAC”) and media buy. CAC and media buy increased by 6%, from $128.4 million or 51% of revenues in 2018 to $135.9 million or 52% of revenues in 2019. The increase of customer acquisition costs is mainly as a result of the churn of our search legacy products.

Research and development expenses (“R&D”). R&D increase by 20%, from $18.9 million in 2018 to $22.6 million in 2019. The increase was primarily as a result of headcount increase to support our significant technology investments in 2019.

Selling and marketing expenses (“S&M”). S&M expenses decreased by 11%, from $38.9 million in 2018 to $34.7 million in 2019. The decrease resulted mainly from reduction of headcount and other cost optimizations.

General and administrative expenses (“G&A”). G&A decreased by 9%, from $16.5 million in 2018 to $15.0 million in 2019. The decrease was primarily due to optimization of our rent expenses as a result of Undertone’s transition to new office facilities.

Restructuring costs. In 2019, no restructuring charges were recorded. In 2018, the Company incurred a restructuring costs of $2.1 million in connection with the restructuring plan, mainly to reduce workforce, close certain facilities, as well as other cost saving measures.

Depreciation and amortization. Depreciation and amortization expenses remained stable in the amount of $9.7 million in 2019 and 2018. Depreciation and amortization consist primarily of depreciation of our property and equipment and the amortization of our intangible assets as a result of our acquisitions.

Taxes on income (benefit). Taxes on income decreased by $1.2 million from a tax expense of $2.8 million in 2018 to $1.6 million in 2019. The decrease was primarily a result of utilization of tax attributes in foreign subsidiaries during 2019.

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

Revenues. Revenues decreased by 8%, from $274.0 million in 2017, to $252.8 million in 2018. 

Advertising revenues. Advertising revenues decreased by 6% in 2018, from $134.5 million in 2017, to $126.0 million in 2018. This decrease is attributable to insufficient programmatic inventory to meet our demand for our programmatic high-impact ad units.

Search and other revenues. Search and other revenues decreased by 9% in 2018, from $139.5 million in 2017, to $126.9 million in 2018. This decrease was primarily due to the churn of our legacy products and the network cleanup in the second quarter of 2017.

Cost of revenues. Cost of revenues decreased by 4%, from $24.7 million in 2017, to $23.8 million in 2018. Cost of revenues remained stable in terms of the percentage of revenues, representing 9% of revenues in 2017 and 2018. 

Customer acquisition costs (“CAC”) and media buy. CAC and media buy decreased by 2%, from $130.9 million or 48% of revenues in 2017, to $128.4 million or 51% of revenues in 2018. In search, the increase as a percentage of revenues is primarily due to churn of our legacy products, while in advertising, the increase is mainly attributed to product mix and due to the effect of header bidding and Chrome ad blocker.

Research and development expenses (“R&D”). R&D increase by 10%, from $17.2 million in 2017, to $18.9 million in 2018. The increase was primarily as a result of reduction of capitalization expenses due to development completion of platform during 2018.

Selling and marketing expenses (“S&M”). S&M expenses decreased by 26%, from $52.7 million in 2017, to $38.9 million in 2018. The decrease was primarily as a result of restructuring efforts undertaken during 2017 and in the beginning of 2018; the savings resulted from reduction of headcount, close of office facilities and other cost optimizations. 

General and administrative expenses (“G&A”). G&A decreased by 25%, from $21.9 million in 2017, to $16.5 million in 2018. The decrease is primarily due to restructuring efforts undertaken during 2017 and in the beginning of 2018; the savings resulted from reduction of headcount, close of office facilities and other cost optimizations.

Restructuring costs. In 2018, the Company incurred a restructuring costs of $2.1 million in connection with the restructuring plan, mainly to reduce workforce, close certain facilities, as well as other cost saving measures. In 2017, no restructuring charges were recorded.

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Depreciation and amortization. Depreciation and amortization expenses decreased by 41%, from $16.6 million in 2017, to $9.7 million in 2018. Depreciation and amortization consist primarily of depreciation of our property and equipment and the amortization of our intangible assets as a result of our acquisitions. The decrease is primarily attributable to the lower amortization of the acquired intangible assets from the Undertone acquisition, as a result of an impairment charge in 2017.

Impairment, loss of goodwill on intangible assets. In 2017, the Company recorded an impairment charge of $85.7 million, classified as “Impairment charges” in the consolidated statements of income. No further impairment charges were recorded in 2018.

Taxes on income (benefit). Taxes on income increased by $11.6 million from a tax benefit of $(8.8) million in 2017, to a tax expense of $2.8 million in 2018. The increase was primarily a result of the decrease of deferred taxes on intangible assets in 2017. 

B.	LIQUIDITY AND CAPITAL RESOURCES

2019

B.LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2019,2020, we had $61.6$60.4 million in cash, cash equivalents and short-term deposits, compared to $43.1$61.6 million at December 31, 2018.2019. The $18.5$1.2 million increasedecrease is primarily the result of $44.7$19.0 million cash paid in connection with acquisitions, $8.3 million repayment of our debt and $0.5 million used in other investing activities, offset by $22.2 million cash provided by operating activities offset by $24.2and $4.3 million repaymentcash provided from exercise of our short and long-term debt and $1.4 million used in other investing activities. 

share options.

Net cash provided by operating activities

In 2020, our operating activities provided cash in the amount of $22.2 million, primarily as result of income in the amount of $10.2 million, decreased by non-cash expenses, depreciation and amortization of $9.9 million, share-based compensation expenses of $4.4, change in payment obligation related to acquisitions of $4.6 million offset by change in deferred taxes of $3.1 million and net change of $3.9 million in operating assets and liabilities.

In 2019, our operating activities provided cash in the amount of $44.7 million, primarily as result of income in the amount of $12.9 million, decreased by non-cash expenses, depreciation and amortization of $9.7 million, share-based compensation expenses of $2.3 million and net change of $19.8 million in operating assets and liabilities.

In 2018, our operating activities provided cash in the amount of $32.8 million, primarily as result of income in the amount of $8.1 million, decreased by non-cash expenses, depreciation and amortization of $9.7 million, share-based compensation expenses of $2.7 million and net change of $12.3 million in operating assets and liabilities.

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In 2017, our operating activities provided cash in the amount of $36.0 million, primarily as result of net loss in the amount of $72.8 million, decreased by non-cash expenses including, impairment charge of $85.7 million, depreciation and amortization of $16.6 million, share-based compensation expenses of $2.1 million and net change of $4.4 million in operating assets and liabilities. 

Net cash used in investing activities

In 2020, we used in our investing activities $8.9 million cash, primarily due to $19.0 million cash paid in connection to acquisitions and $0.5 million purchase of property plant and equipment offset by a $10.5 million withdrawal from short-term deposits.

In 2019, we used in our investing activities $21.2 million cash, primarily due to $19.2 million investment in short-term deposits, $1.2 million cash paid in connection to acquisitions and $1.2 million invested in the purchase of property and equipment offset by $0.5 million proceeds from sales of property and equipment.

In 2018, we used in our investing activities $1.8 million cash, primarily due to $1.7 million invested in development costs that were capitalized, $1.9 million of proceeds from maturities of short-term bank deposits and $2.0 million invested in the purchase of property and equipment.

Net cash used in financing activities

In 2017,2020, we used in our investingfinancing activities $4.9$4.0 million cash, primarily due to $5.8$8.3 million invested in development costs that were capitalized, $2.5 millionrepayment of our long and short-term loan offset by proceeds from maturitiesexercise of short-term bank deposits and $1.6 million investedoptions in the purchaseamount of property and equipment. 

Net cash used in financing activities

$4.3 million.

In 2019, we used in our financing activities $24.8 million cash, primarily due to $15.9 million repayment of our convertible debt and $8.3 repayment of our long and short-term loan.

In 2018, we used in our financing activities $23.0 million cash, primarily due to $36.5 million in repayments of long-term loans, $8.2 million repayment of our convertible bonds and $3.3 million used for the repayment of obligations related to the SweetIM acquisition, partially offset by $25.0 million proceeds from long-term loans following the new Mizrahi Credit facilities.

In 2017, we used in our financing activities $23.8 million cash, primarily due to $11.4 million in repayments of long-term loans, $7.9 million repayment of our convertible bonds, $7.0 million repayments of short-term loans, net and $2.5 million used for the repayment of obligations related to the Undertone acquisition, partially offset by $5.0 million proceeds from long-term loans.

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Credit facilities

On November 30, 2015, concurrent with the closing of the Undertone acquisition, Undertone entered into a new secured credit agreement with SunTrust Bank, Silicon Valley Bank and Comerica Bank, (Comerica Bank having been replaced in 2016 by Cadence Bank). This facility was repaid in full from the proceeds of the

Bank Mizrahi facility. See “Bank Mizrahi credit facility” below. 

Bank Mizrahi credit facility

On May 10, 2017, ClientConnect executed a credit facility with Mizrahi Tefahot Bank Ltd. (“Bank Mizrahi”), an Israeli bank, pursuant to which ClientConnect was permitted to borrow up to $17.5 million. This facility was repaid in full from the proceeds of the new Bank Mizrahi facility.

Credit Facility

On December 17, 2018, ClientConnect Ltd. (“ClientConnect”), a former Israeli subsidiary of Perion, which merged into Perion on June 30, 2020, executed a new loan facility with Bank Mizrahi in the amount of $25 million. ProceedsAs of the loan facility were applied to the refinancing of existing debt of ClientConnect with Bank Mizrahi as well as existing debt of Undertone with SunTrust Bank.

Principal on the loan is payable in twelve equal quarterly instalments beginning in March 2019. Interest on the loan at the rate of three-month LIBOR plus 5.7% per annum is payable quarterly. The8, 2021, this credit facility is scheduled to mature on December 31, 2021.

was repaid in full.

The credit facility is secured by liens on the assets ClientConnect of and Undertone and is guaranteed by Perion and Undertone. Each such guarantee is limited in amount to $33 million. Financial covenants for the loan facility are tested at the level of Perion on a consolidated basis.

The major financial covenants under the Bank Mizrahi credit facility are as follows:

•

shareholders’ equity of at least $80 million at the end of each quarter;

•

ratio of net financial indebtedness to twelve-month EBITDA of not more than 2.25 at the end of each quarter; and

•

maintenance at all times of cash and cash equivalents in an amount equal to the lesser of (i) $10 million and (ii) the amount of the following payment of principal and interest.

As of December 31, 2019, the balance of the loan was $16.7 million out of which $8.3 million was classified as long-term debt and $8.3 million as current maturities.

As of December 31, 2019,2020, we were in compliance with all of the foregoing covenants.

Series L Convertible Bonds

Bank Mizrahi 2020 Credit Line

On September 23, 2014,May 19, 2020, we completedentered into a public offeringshort-term secured credit line in Israel of Series L Convertible Bonds (the “Bonds”). The Bonds had an aggregate principalthe amount of approximately NIS 143.5up to $20 million (approximately $39.2 million). The Bonds were listedwith Bank Mizrahi, which was scheduled to mature on the TASE, and were convertible intoMay 18, 2021. On August 11, 2020, we withdrawn an aggregateamount of approximately 4.3$12.5 million ordinary shares, atfrom this credit line. Such a conversion price of NIS 100.815 per share (approximately $28 per share as of June 6, 2019, the redemption datewithdrawal was a short-term revolving loan for a three-month period. See Note 9 of the bond). On February 28, 2019, Standard & Poor’s Maalot Ratings Services reaffirmed our corporateFinancial Statements for further information. As of December 21, 2020, this credit rating of ilA-, with a stable outlook. On June 6, 2019 wefacility was repaid the entire outstanding amount (approximately NIS 28.7 million or approximately $8 million).

in full.

Financing Needs

We believe that our current working capital and cash flow from operation, in addition to proceeds from our January 2021 public offering, are sufficient to meet our operating cash requirements for at least the next twelve months, including payments required under our existing bank loans.

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C. RESEARCH, DEVELOPMENT, PATENTS AND LICENSES, ETC.

Our research and development activities are conducted internally by 117135 persons at December 31, 2019.2020. Research and development expenses were $17.2 million, $18.9 million, $22.6 million and $22.6$30.9 million in the years ended December 31, 2017, 2018, 2019 and 2019,2020, respectively. In 2019,2020, our efforts were focused on adapting, extending (organically and in-organically through acquisitions) and maintaining compatibility with the ever-changing business landscapes and automation of our platforms and operating systems.

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For a discussion of our intellectual property and how we protect it, see “Business Overview—Intellectual Property” under Item 4.B4.B. above.

D. TREND INFORMATION

Industry trends expected to affect our revenues, income from continuing operations, profitability and liquidity or capital resources:

1.

The digital advertising environment is very crowded and consumers suffer from over exposure to advertising promotions. This in turn has brought on a certain level of blindness to advertising, decreasing their effectiveness and value to advertisers. We are therefore concentrating on unique stand-out quality ad formats with great creative execution that grabs the attention of consumers, increasing the effectiveness of the ad and ultimately the value to advertisers.

2.

The digital advertising environment is also complex and fragmented. As a result, it is increasingly difficult for advertisers, including brands and agencies, as well as investors, to discern the difference between the offerings, and this situation requires that advertisers to maintain only small number of relationships which provide a comprehensive and holistic solution and service. In addition, advertisers are looking for clean, safe and transparent solutions. We are attempting to address these needs in our various revenue streams by providing robust, scalable and differentiated products across multiple platforms. Our solution offers a full suite of services for the advertising brand and agency, including the entire advertising process from creative through analytic data collection and processing which is also utilized through programmatic capabilities which has an increasing demand. Through Content IQ, we provide advertisers the ability to serve advertisements which are targeted to the end-user’s interests alongside relevant optimized content and page-level reader engagement. Our solution also includes a technology platform for buying media on social and mobile platforms which helps optimize the money spent by agencies and advertisers. In turn, we also provide the publisher a solution for creating new advertising inventory and increasing their revenue.

3.

Our search monetization revenue is predominantly within the desktop computers environment. The transition in recent years of consumer consumption of applications, services and content from desktop towards mobile platforms has accelerated and, as a result, an increasing share of advertising campaigns are channeled towards mobile platforms resulting in fewer consumer software downloadable products are being developed. To address this trend, we have shifted the growth focus of all parts of this business away from downloadable desktop software towards the monetization of other search assets.

4.

In past years the browser companies, particularly Google and Microsoft, as well as others, have been instituting policy changes, regulations and technologies that is making it increasingly difficult to change a browser’s settings even with user consent, including the ability to change a browser’s default search settings. Changing such settings has been a major part of the Company’s monetization model and until now we have been successful in dealing with these measures, within the framework allowed by these companies We continue to believe, as supported by the level of revenues over the last couple of years, that as the market continues to consolidate around accepted marketing practices, there remains sufficient business at a level sufficient to generate significant revenues and profits.

resources:

1.

The digital advertising environment is very crowded and consumers suffer from over exposure to advertising promotions. This in turn has brought on a certain level of blindness to advertising, decreasing their effectiveness and value to advertisers. We are therefore concentrating on unique stand-out quality ad formats with great creative execution that grabs the attention of consumers, increasing the effectiveness of the ad and ultimately the value to advertisers.

2.

The digital advertising environment is also complex and fragmented. As a result, it is increasingly difficult for advertisers, including brands and agencies, as well as investors, to discern the difference between the offerings, and this situation requires that advertisers to maintain only small number of relationships which provide a comprehensive and holistic solution and service. In addition, advertisers are looking for clean, safe and transparent solutions. We are attempting to address these needs in our various revenue streams by providing robust, scalable and differentiated products across multiple platforms. Our solution offers a full suite of services for the advertising brand and agency, including the entire advertising process from creative through analytic data collection and processing which is also utilized through programmatic capabilities which has an increasing demand. Through Content IQ, we provide advertisers the ability to serve advertisements which are targeted to the end-user’s interests alongside relevant optimized content and page-level reader engagement. Our solution also includes a technology platform for buying media on social and mobile platforms which helps optimize the money spent by agencies and advertisers. In turn, we also provide the publisher a solution for creating new advertising inventory and increasing their revenue.

3.

Our search monetization revenue is predominantly within the desktop computers environment. The transition in recent years of consumer consumption of applications, services and content from desktop towards mobile platforms has accelerated and, as a result, an increasing share of advertising campaigns are channeled towards mobile platforms resulting in fewer consumer software downloadable products are being developed. To address this trend, we have shifted the growth focus of all parts of this business away from downloadable desktop software towards the monetization of other search assets.

4.

In past years the browser companies, particularly Google and Microsoft, as well as others, have been instituting policy changes, regulations and technologies that is making it increasingly difficult to change a browser’s settings even with user consent, including the ability to change a browser’s default search settings. Changing such settings has been a major part of the Company’s monetization model and until now we have been successful in dealing with these measures, within the framework allowed by these companies We continue to believe, as supported by the level of revenues over the last couple of years, that as the market continues to consolidate around accepted marketing practices, there remains sufficient business at a level sufficient to generate significant revenues and profits.

For more information on uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our business, see Item 33.D “Key Information—Risk Factors.”

For additional trend information, see the discussion in “Item 5.A OperatingItem 5.A. “Operating and Financial Review and Prospects – Prospects—Operating Results.”

E. OFF-BALANCE SHEET ARRANGEMENTS

We do not have off-balance sheet arrangements (as such term is defined by applicable SEC regulations) that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial conditions, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

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F.TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The following table summarizes our contractual commitments as of December 31, 20192020 and the effect those commitments are expected to have on our liquidity and cash flow in future periods. All numbers below are in US dollars in thousands.

		Payments Due by Period(****)
Contractual Commitments as of December 31, 2020		Total				Less than 1 year				1-3 Years				3-5 Years				More than 5 Years
Short-term debt, including current portion (*)		$	8,333			$	8,333			$	-			$	-			$	-
Accrued severance pay (**)			1,748				-				-				-				1,748
Uncertain tax positions (ASC-740)			4,525				-				-				-				4,525
Operating leases			26,609				5,970				10,199				7,838				2,602
Total		$	41,215			$	14,303			$	10,199			$	7,838			$	8,875

		Payments Due by Period(****)
Contractual Commitments as of December 31, 2019		Total				Less than 1 year				1-3 Years				3-5 Years				More than 5 Years
Long-term debt, including current portion (*)		$	16,666			$	8,333			$	8,333			$	-			$	-
Accrued severance pay (**)			1,768				-				-				-				1,768
Uncertain tax positions (ASC-740)			4,235				-				-				-				4,235
Operating leases			30,152				5,333				10,049				9,536				5,234
Total		$	53,846			$	14,691			$	18,382			$	9,536			$	11,237

(*)	Long-term debt obligation represent maximum repayment of principal and do not include interest payments due thereunder.

(**)

Prior notice to our executive employees as well as severance pay obligations to our Israeli employees, as required under Israeli labor law and as set forth in employment agreements, are payable only upon termination, retirement or death of the respective employee and are for the most part covered by ongoing payments to funds to cover such obligations.

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_________________

(*)Long-term debt obligation represent maximum repayment of principal and do not include interest payments due thereunder.

(**)Prior notice to our executive employees as well as severance pay obligations to our Israeli employees, as required under Israeli labor law and as set forth in employment agreements, are payable only upon termination, retirement or death of the respective employee and are for the most part covered by ongoing payments to funds to cover such obligations.

ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.DIRECTORS AND SENIOR MANAGEMENT

The following table sets forth information regarding our executive officers and directors as of March 9,14, 2020:

Name		Age		Position
Eyal Kaplan*(1)(2)		60 61		Chairman of the Board of Directors
Doron Gerstel		59 60		Chief Executive Officer; Director
Maoz Sigron		42 43		Chief Financial Officer
Dror ErezErez*(1)(3)		50 51		Director
Sarit Firon*(1)(3)(4)		53 54		Director
Rami Schwartz* (3)(4)		62 63		Director
Michael Vorhaus*(2)(4)		62 63		Director
Joy Marcus*(2)(3)		58 59		Director
Miki Kolko		57		Chief Technology Officer
Daniel E. Aks			60 61		President, Undertone
Tal Jacobson		45 46		General Manager, CodeFuel
Ran Cohen			49		Senior Vice President, Product

*	“Independent director” under the Nasdaq Listing Rules.

(1)	Member of the investment committee.

(2)	Member of the nominating and governance committee.

(3)	Member of the compensation committee.

(4)	Member of the audit committee.

_________________________

*“Independent director” under the Nasdaq Listing Rules.

(1)Member of our investment committee.

(2)Member of our nominating and governance committee.

(3)Member of our compensation committee.

(4)Member of our audit committee.

Effective as of August 26, 2019, our board of directors adopted the exemption under the Israeli Companies Regulations (Reliefs for Public Companies whose Shares are Listed on a Stock Exchange Outside of Israel), 2000, or the Regulation, as a result our director in office who was elected and classified as external director, Ms. Sarit Firon, is no longer classified as such under the Companies Law. The transition rules set forth under the Regulation provide that such former external directors have the right to remain in office as company’s directors at their option after the exemption under the Regulation is adopted until the earlier of such directors’ original end of term of office or the second annual meeting of shareholders after the adoption of the exemption under the Regulation. Ms. Sarit Firon’s term of office expiresexpired in January 2020, however our board of directors has re-appointed Ms. Firon with the term of office that expires as of our 2021 annual meeting of shareholders.

There are no arrangements or understandings between any of our directors or executive officers and any other person pursuant to which our directors or executive officers were selected.

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Eyal Kaplan has been the chairmanchairperson of the board of directors of the Company since May 2018. Mr. Kaplan is also the Chairmanchairperson of Expand Investments, an advisory and consulting firm focusing on growth-through-innovation and corporate strategies. Prior to that, he was Managing General Partner with Walden Israel, a venture capital firm, during which time he was Director and Chairmanchairperson of numerous portfolio companies. In 1990 he co-founded Geotek Communications, an international wireless communications company, and served as senior vice president with broad strategic, managerial and operational responsibilities until 1995. Mr. Kaplan has been a member of the Technion (Israel Institute of Technology) Council (executive board) since January 2014, where he chairs the Finance Committee and is a member of the Endowment Investment Committee. Since 2012 he has been a member of the Technion Board of Governors, a body of some 300 high-profile visionaries and decision makers with outstanding achievements in the fields of science, technology, economy, industry, culture and society. From 2007 to 2012, Mr. Kaplan was a member of the Advisory Committee of Caesarea Center for Capital Markets & Risk Management, and from 2005 to 2014, he was a member of the Advisory Committee of the Global Consulting Practicum at the Wharton School of the University of Pennsylvania. Mr. Kaplan holds an MBA from the Wharton School of the University of Pennsylvania, a Master of Arts in International Studies from the Lauder Institute of the University of Pennsylvania, and a Bachelor of Science degree (with Honors) in economics and management from the Technion - Israel Institute of Technology.

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Doron Gerstelhas been a director of the Company since May 2018, and the Chief Executive Officer of the Company since April 2017. In his previous role as CEO of Panaya Ltd., Mr. Gerstel led a company turnaround that saw an increase in annual revenue and the company’s acquisition by Infosys Limited. Mr. Gerstel has also held CEO positions at Nolio Ltd., Syneron Medical Ltd. and Zend Technologies Ltd. Mr.Gerstel holds a BSc. in Economics and Management from the Technion Institute of Technology in Haifa, and an MBA from Tel Aviv University.

Maoz Sigronhas been the Chief Financial Officer of the Company since February 2018. Prior to that, since September 2017 until February 2018, Mr. Sigron served as our VP Finance. Previously, he served in various finance leadership and senior accounting positions at Tnuva Dairy Corporation, Allot Communications Ltd. (Nasdaq:ALLT) and Stratasys Ltd. (Nasdaq:SSYS) as well served as a CPA with PwC. Mr. Sigron holds a B.A in accounting and Economics from the College of Management.

Dror Erezhas been a director of the Company since January 2014. In 2005, Mr. Erez co-founded Conduit and served as its Chief Technology Officer until January 2014, when he became Conduit’s President and in May, 2018 became Conduit’s chairmanchairperson of the board of directors for a year.year. Mr. Erez is also a member of the Conduit board of directors. Mr. Erez is now acting as a CEO of Trevi,io and is also advising for startups on strategy, product and technology. Prior to founding Conduit, he served in various executive roles in private technology companies. Mr. Erez holds a B.A. in Physics and Computer Science from Bar Ilan University.

University.

Sarit Fironhas been an external director of the Company since January 2017 and following the Company’s adoption of the exemption under the Regulation in August 2019 continued as an independent director. SinceMs. Firon is the founding partner and managing partner of Team8 Capital, an early stage venture capital fund, and a partner at Team8 Group.Since November 2014, Ms. Firon has been a managing partner of Cerca Partners, an Israeli venture capital fund. She has served at Extreme Reality Ltd., as its chief executive officer from December 2012 to November 2014 and as a director since December 2014. From November 2011 to November 2012, Ms. Firon was the Chief Financial Officer of Kenshoo Ltd. From November 2007 to October 2011, Ms. Firon was the Chief Financial Officer of MediaMind Technologies Inc., a Nasdaq listed company which was acquired by DG, Inc. in August 2011. From May 2005 to June 2007, Ms. Firon was the Chief Financial Officer of OliveSoftware and from January 2000 to October 2004, she was the CFO of P-Cube, a private company which was acquired in October 2004 by Cisco Systems, Inc. (Nasdaq:CSCO). From October 2004 to January 2005, Ms. Firon was employed by Cisco to be responsible for the post-merger integration of P-Cube. From January 1995 to December 1999, Ms. Firon served in various positions at Radcom Ltd. (Nasdaq:RDCM), including as its Chief Financial Officer from September 1997 to December 1999. Since July 2015, she has served as chairperson of the Boardboard of directors of myThings Israel Ltd. Since June 2014, Ms. Firon has served as a director of Mediwound Ltd. (Nasdaq:MDWD), and since June 2012, Ms. Firon has served as a director of Datorama Ltd. From October 2000 to December 2006, Ms. Firon served as a director of MetaLink Ltd. (OTCMKTS:MTLK). Ms. Firon holds a B.A. in Accounting and Economics from Tel-Aviv University, Israel.

Rami Schwartz has been a director of the Company since January 2019. Mr. Schwartz joined The Portland Trust as Managing Director of the Tel Aviv office in April 2018. Mr. Schwartz also serves as an advisory board member of Algosec. Previously, Mr. Schwartz was the President of the Amdocs Products and Amdocs Delivery groups for 7 years. Prior to joining Amdocs, Mr. Schwartz was the Chairmanchairperson of Olive Software (acquired by ESW Capital), and Comply, the co-founder and CEO of Zizio and DigiHOO, and an EIR at Cedar Fund. Mr. Schwartz was CEO and director of Exanet (acquired by Dell) and General Manager of Precise Software (acquired by Veritas software) and an EIR at Cedar Fund. Mr. Schwartz holds a B.Sc. in excellence, in Mathematics and Computer Science from the Hebrew University in Jerusalem.

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Michael Vorhaus has been a director of the Company since April 2015. StartingMr. Vorhaus also serves as a director of Altimar Acquisitions Corporation (NYSE: ATAC).Starting December of 2018, Mr. Vorhaus has founded Vorhaus Advisors and is CEO of the firm. From 1994 to November 2018,, he was in a variety of positions at of Frank N. Magid Associates, Inc., a research-based strategic consulting firm. From 1994 to 2008, he served as its Senior Vice President and Managing Director and from 2008 to 2018 he served as the President of Magid Advisor, a unit of Magid Associates. From 2013 to 2014, Mr. Vorhaus served as a director of Grow Mobile. In 1987, he founded Vorhaus Investments. Mr. Vorhaus holds a B.A. in Psychology from Wesleyan University and completed the Management Development Program at the University of California, Berkeley’s Haas School of Business.

Joy Marcus has been a director of the Company since November 2019. Ms. Marcus has a wealth of experience in the media industry, including as EVP and GM Digital Video at CondéConde Nast Entertainment, CEO of Bloglovin’ (now Activate)(acquired by Impact), SVP Global Marketing Solutions at Time Warner (now WarnerMedia), VP International at MTV Networks, a division of Viacom and GM North America for DailyMotion. She sits on the Boards ofDailymotion (acquired by Orange/France Telecom). Ms. Marcus is a board member at digital media companies Anyclip andcompany Qwire and the nonprofitsnon-profits New York Tech Alliance, The Video Consortium and Hoops4Hope. Joy is currently Co-Founder of the female focused investment group Brilliant Friends, a full timefull-time Lecturer on Entrepreneurship at Princeton University, where she was the James Wei Visiting Professor in Entrepreneurship in 2014, and is serving as a Venture PartnerFellow at VC firm JVP, focusingwhere she advises the firm on digital media, advertising and consumer investments. Joy graduated with Magna Cum Laude, Phi Beta Kappa from Princeton University, and has a JD from NYU Law School.

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Miki Kolko has beenSchool and completed the Chief Technology Officer of the Company since January 2015. From 2012 to 2014 Mr. Kolko served as the Company VP of the Data Services Group. Previously, Mr. Kolko served as vice president of data at LivePerson (Nasdaq:LPSN), a global leader of digital engagement technology. Prior to his work at LivePerson, Mr. Kolko servedmanagement course in various engineering executive management positionsfinance and was a founder and chief technology officer of 3 startups in enterprise software and Internet B2C. Mr. Kolko holds an M.Sc. in computer scienceaccounting from Tel Aviv University and a B.A. in mathematics and computer science from Bar IlanColumbia University.

Daniel E. Aks has been the President of Undertone since August 2019 and an external director of the Company from August 2018 until August 2019. Since December 2017, Mr. Aks is the Chief Executive Officer of Antenna International, a story-maker and creative technology company devoted to cultural, iconic site and commercial attractions. Prior to Antenna, from December 2010 to December 2017 he was the owner of C3 Multimedia LLC., a consulting firm in the fields of information, education K-16 and media and during his term with C3 was, inter-alia, the Acting Chief Operating Officer for the Educational Records Bureau (ERB), a K-12 assessment organization serving private education and high performing public institutions (from March 2015 until December 2017). From January 2014 until December 2017, Mr. Aks was the Co-Founder of The EdTech Fund, an investment vehicle for seed capital investments in educational technologies. He also served as the Senior Vice President and Chief of Staff for McGraw-Hill Education (MHE) from September 2008 until November 2010 where he was responsible for information technology, public relations, strategy and business development, K-12 differentiated instruction pilots, and content management system development. From July 2007 until April 2008 he served as the Chief Operating Officer and Executive Vice President at The Greenspun Companies, where he had general management responsibility of the company’s magazine and companion web site businesses. Prior to that from January 2006 to July 2007, he held positions with MTV Networks (MTVN) as a Senior Vice President of both Operations and Consumer Products. Prior to MTVN from August 1999 to June 2004, Mr. Ask served PRIMEDIA’s Consumer Magazine Group as Chief Operating Officer, where he managed the Direct Response Advertising Group, Manufacturing, Production, Distribution, IT, Strategy, Business Development, Global Sourcing, and at times Circulation. He was also President of PRIMEDIA Consumer Magazine Internet Group during that term. Prior to joining PRIMEDIA, Mr. Aks was a partner with the Booz Allen Hamilton consulting firm where he specialized in business growth, operations strategy and restructuring in the media, education, telecommunications and consumer goods industries. Mr. Aks holds a BS in Manufacturing/Industrial Engineering and a B.A. in Business Administration from Rutgers University and earned an MBA from the Harvard University Graduate School of Business Administration, where he graduated with second-year honors.

Tal Jacobson has been the General Manager of CodeFuel since November 2018. Tal has been an executive in the Israeli high-tech industry for over 20 years. Previously to joining Perion, Tal served as the Chief Revenue Officer and Chief Business Development Officer at SimilarWeb. He also founded Monotizer, which provided a technology for generating traffic to online retailers. Previously, Tal was the VP of Business at McCann Erickson as well as held the position of CEO at Watchitoo - a video collaboration platform. Tal was also the Director of Business Development at AOL as part of the IM division (ICQ).

Ran Cohen has been the SVP Product of the company since December 2017. From 2014 to 2016 Mr. Cohen served as VP Programmatic Strategy for Undertone and prior to that he was the co-founder and president of Legolas Media (Acquired by Undertone). Prior to that, Mr. Cohen served as VP Product at Sizmek Inc. (formerly known as Eyeblaster Inc.). Mr. Cohen holds an MBA from Tel Aviv University and B.A in economics and Asian studies from the Hebrew University.

There are no family relationships between any of our directors or executive officers.

B.COMPENSATION

The aggregate direct compensation we paid to our officers as a group (including our former officers, 86 persons) for the year ended December 31, 2019,2020, was approximately $5.2$5.8 million, which included approximately $0.5 million that was set aside or accrued to provide for pension, retirement, severance or similar benefits. This amount includes bonuses paid to our officers pursuant to our executive bonus plan based on company performance measures, in accordance with our Compensation Policy for Directors and Officers. This amount does not include expenses we incurred for other payments, including dues for professional and business associations, business travel and other expenses, and other benefits commonly reimbursed or paid by companies in Israel.

The aggregate compensation we paid to our directors who are not officers for their services as directors as a group for the year ended December 31, 20192020 was approximately $0.4 million. In addition, our directors are reimbursed for expenses incurred in order to attend board of directors or committee meetings.

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In the year ended December 31, 2019,2020, we granted (i) options to purchase 476,668400,000 ordinary shares to our officers, at a weighted average exercise price of $3.55$5.35 per share, and the latest expiration date for such options is September 2026.July 2027, and (ii) 500,000 of restricted share units (“RSUs”) to Mr. Gerstel, in accordance with the terms provided below. These optionsawards were granted under our Equity Incentive Plan, as amended, formerly known as the 2003 Israeli Share Option Plan (the “Incentive Plan”).

In 2019,2020, we paid each of our non-executive directors $50,000 per year, subject to adjustment for changes in the Israeli consumer price index and applicable changes in the Israeli regulations governing the compensation of external directors.year. Our non-executive directors were also entitled for an annual grant of options to purchase 8,33315,000 ordinary shares under the Incentive Plan.

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Following the approval of the annual general meeting of our shareholders held Such options were granted on February 6, 2020, the annual grant of options for our non-executive directors (other than the chairperson if compensated under a separate arrangement) was increased to 15,000 options to purchase Ordinary Shares. Such grant will be made upon the initial election or appointment of a non-executive director and on each anniversary of such grant thereafter, and with respect to each non-executive director in office as of February 6, 2020, on the later of the first anniversary of the most recent grant to such director and the date of the resolution to increase the grant of options. Each2020.Each option will beis exercisable for a term of five years at an exercise price per share equal to the average stock market price of the 90 days prior to the date of grant (and not less than the closing share price on the date of grant in the case of U.S. grantees). The options will vestvested on a quarterly basis, in equal tranches, during the year following the grant.grant, such that as of today these options are vested in full. Following termination or expiration of the applicable director’s service with the Company, provided that the termination or expiration is not for “cause” and is not a result of the director’s resignation, the options would retain their original expiration dates and,dates.

Following the approval of the annual general meeting of our shareholders held on December 23, 2020, the annual equity grant structure to our non-executive directors has been changed from a grant of options to a grant of RSUs, with a variable value based on the role held by such member of the board of directors. With respect to new appointed directors, such grant shall be made initially upon the initial election or appointment and on each anniversary of such date. With respect to our incumbent non-executive directors, the initial grant, was made on February 6, 2021, the upcoming tranchedate of the first anniversary of the most recent option grant. Such RSU grant was made in lieu (and not in addition) to the scheduled grant of options thatto our directors. The RSUs granted are scheduled to vest immediately subsequentsubject to the termination date, if any, will automaticallyterms and conditions of the Incentive Plan and the RSU agreement pursuant to the Incentive Plan. The RSUs shall vest and become exercisable.on a quarterly basis, in equal tranches, during the year following the grant. All unvested optionsRSUs held by a director in office will automatically vest and become exercisable upon a change of control of the Company, which is defined for this purpose as (i) a merger, acquisition or reorganization of the Company with one or more other entities in which the Company is not the surviving entity, (ii) a sale of all or substantially all of the assets of the Company;Company, or (iii) a transaction or a series of related transactions as a result of which more than 50% of the outstanding shares or the voting rights of the Company are beneficially owned by one person or group (as defined in the SEC rules) (“Change(the “Change of Control”).

Accordingly, each non-executive director was granted with an annual RSU grant according to his/her role, with a value as follows:

•

chairperson of our audit committee: $110,000;

•

chairperson of our compensation committee: $107,500;

•

chairperson of our nominating and governance committee: $105,000; and

•

other non-executive directors: $97,500.

The compensation we paid to our chairman of the board of directors, Mr. Kaplan, for the year ended December 31, 20192020 was US$$ 100,000 plus VAT, paid in four quarterly payments and reimbursement of out-of-pocket expenses incurred in connection with Mr. Kaplan’s services as chairman. Mr. Kaplan is also entitled for indemnification and liability insurance as provided to other members of the board of directors. Mr. Kaplan’s services agreement also includes customary non-disclosure, non-compete, and ownership assignment of intellectual property undertakings.

Following the approval of the extraordinary general meeting of our shareholders held on August 2, 2018,, Mr. Kaplan was granted with a one-time grant of options to purchase 66,666 Ordinary Shares, with a 3-year vesting schedule, commencingcommencing on May 9, 2018 (the “August 2018 Grant”). In addition, following the approval of the annual general meeting of our shareholders held on February 6, 2020, and subject to the continued engagement as our chairman of the Board,board of directors, Mr. Kaplan was granted with a one-time grant of options to purchase 90,000 Ordinary Shares with a 3-year vesting schedule (the options will vest quarterly in equal tranches over a three-year period), commencing on May 9, 2021, at an exercise price per share equal to the average stock market price of the 90 days period preceding the date of the general meeting of our shareholders, as reported by the Nasdaq Stock Market.Market (together with August 2018 Grant, the “Chairperson’s Previous Grants”). The options granted are subject to the terms and conditions of the Incentive Plan and the option agreement pursuant to the Incentive Plan. Upon removal of Mr. Kaplan from office either by a vote of the Boardboard of directors or by a vote of the Company’s shareholders, either (i) as a direct result of the negotiation of a Change of Control; or (ii) within six months following a Change of Control event (for the avoidance of doubt, in both (i) and (ii), other than for “cause” – as such term defined in the Incentive Plan) all unvested options shall automatically be accelerated and become fully vested on the effective date of any such event described in either (i) or (ii).

Following the approval of the annual general meeting of our shareholders held on December 23, 2020, the equity grant structure to Mr. Kaplan, our chairperson of the board of directors, was changed as well, from grant of option to grant of RSUs. Accordingly, Mr. Kaplan was granted an annual grant with a value of up to $200,000, such annual grant, which shall be made in the form of RSUs, shall be equal to the difference between the fair market value per vesting annum of the Chairperson’s Previous Grants and the approved cap of $200,000. The initial grant was made on February 6, 2021.With respect to new appointed chairperson of our board of directors, such grant shall be made initially upon the initial election or appointment and on each anniversary of such date. The RSUs granted are subject to the terms and conditions of the Incentive Plan and the RSU agreement pursuant to the Incentive Plan. The RSUs shall vest on a quarterly basis, in equal tranches, during the year following the grant. All unvested RSUs held by a chairperson in office will automatically vest upon a Change of Control event. In addition, the Company’s shareholders approved a one-time special grant of 19,000 fully vested RSUs. The grant date of the special grant is the date of our board of directors’ approval which occurred on October 27, 2020.

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The table below reflects the compensation granted to our five most highly compensated office holders during or with respect to the year ended December 31, 2019.2020. We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”

For purposes of the table below, “compensation” includes salary cost, bonuses, equity-based compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking to provide such compensation. All amounts reported in the table are in terms of cost to the Company, as recognized in our financial statements for the year ended December 31, 2019,2020, including the compensation paid to such Covered Executive following the end of the year in respect of services provided during the year. Each of the Covered EmployeesExecutives was covered by our D&O liability insurance policy and was entitled to indemnification and exculpation in accordance with applicable law and our articles of association. All numbers below are in US Dollars in thousands.

Name and Principal Position (1)		Salary Cost (2)				Bonus (3)				Equity-Based Compensation (4)				Total
Doron Gerstel, Chief Executive Officer			498				1,051				834				2,383
Daniel E. Aks, President, Undertone Business Unit			621				320				69				1,010
Tal Jacobson, General Manager, CodeFuel Business Unit			293				467				193				953
Maoz Sigron, Chief Financial Officer			308				420				115				841
Ran Cohen, Senior VP Product, CodeFuel Business Unit			172				62				55				290

Name and Principal Position (1)		Salary Cost (2)				Bonus (3)				Equity-Based Compensation (4)				Total
Doron Gerstel, Chief Executive Officer			714				884				680				2,278
Tal Jacobson, General Manager, CodeFuel Business Unit			279				389				68				736
Miki Kolko, Chief Technology Officer			321				76				165				562
Ran Cohen, Senior Vice President, Product			425				45				64				534
Maoz Sigron, Chief Financial Officer			265				157				64				486

(1)	Unless otherwise indicated herein, all Covered Executives are employed on a full-time (100%) basis.

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(2)

Salary cost includes the Covered Executive’s gross salary plus payment of social benefits made by the Company on behalf of such Covered Executive. Such benefits may include, to the extent applicable to the Covered Executive, payments, contributions and/or allocations for savings funds (e.g., Managers’ Life Insurance Policy), education funds (referred to in Hebrew as “keren hishtalmut”), pension, severance, risk insurances (e.g., life, or work disability insurance), payments for social security and tax gross-up payments, vacation, car, medical insurances and benefits, phone, convalescence or recreation pay and other benefits and perquisites consistent with the Company’s policies.

(3)	Annual bonuses granted to the Covered Executives based on formulas set forth in the annual compensation plan approved by the Board of Directors.

(4)

Represents the equity-based compensation expenses recorded in our consolidated financial statements for the year ended December 31, 2019. Such numbers are based on the option grant date fair value in accordance with accounting guidance for equity-based compensation and does not necessarily reflect the cash proceeds to be received by the applicable officer upon the vesting and sale of the underlying shares. For a discussion of the assumptions used in reaching this valuation, see Note 2 to our Financial Statements.

_________________

(1)Unless otherwise indicated herein, all Covered Executives are employed on a full-time (100%) basis.

(2)Salary cost includes the Covered Executive’s gross salary plus payment of social benefits made by the Company on behalf of such Covered Executive. Such benefits may include, to the extent applicable to the Covered Executive, payments, contributions and/or allocations for savings funds (e.g., Managers’ Life Insurance Policy), education funds (referred to in Hebrew as “keren hishtalmut”), pension, severance, risk insurances (e.g., life, or work disability insurance), payments for social security and tax gross-up payments, vacation, car, medical insurances and benefits, phone, convalescence or recreation pay and other benefits and perquisites consistent with the Company’s policies.

(3)Annual bonuses granted to the Covered Executives based on formulas set forth in the annual compensation plan approved by the board of directors.

(4)Represents the equity-based compensation expenses recorded in our consolidated financial statements for the year ended December 31, 2020. Such numbers are based on the option grant date fair value in accordance with accounting guidance for equity-based compensation and does not necessarily reflect the cash proceeds to be received by the applicable officer upon the vesting and sale of the underlying shares. For a discussion of the assumptions used in reaching this valuation, see Note 2 to our Financial Statements.

Compensation Terms of our Chief Executive Officer

Doron Gerstel serves as our Chief Executive Officer from April 2017 and as a director of the Company since May 2018.2018. His monthly base salary is NIS 95,000130,000 (equivalent to approximately $27,490)$40,435), and effective as of January 15, 2019 he is entitled for a time-limited increase of the monthly base salary,1, 2021, as approved by the extraordinary general meeting of our shareholders held on April 11, 2019, by a gross monthly amount of NIS 36,270, following of which the gross monthly salary is NIS 131,270 (equivalent to approximately $37,980), valid until April 11, 2020. Following the approval of the annual general meeting of our shareholders held on February 13, 2020, the monthly base salary of Mr. Gerstel will be adjusted to NIS 120,000 (equivalent to approximately $34,720), effective April 12, 2020. Mr.December 23, 2020.Mr. Gerstel also entitled to customary benefits (including those mandated by applicable law and/or generally provided to other executive officers of the Company), including managers’ insurance or pension arrangement, disability insurance, severance pay (pursuant to Section 14 of the Severance Pay Law), educational savings fund, private health insurance, indemnification, liability insurance (including for the period of seven years following termination), convalescence pay, meal plan, cellular telephone and personal computer. Mr. Gerstel is not compensated for his role as director.

Mr. Gerstel is also entitled for a target annual cash bonus of up to a maximum of twelve (12) monthly salaries, or eighteen (18) in case of over achievement, subject to performance matrix to be approved by the Company’s compensation committee and board of directors on an annual basis, while up to 25% of such annual bonus may be discretionary and not subject to measurable performance indexes. Following the approval of the annual general meeting of our shareholders held on February 13, 2020, Mr. Gerstel’s maximum annual cash bonus including for overachievement performance will be up to a maximum of eighteen (18) monthly salaries for any given calendar year. In addition, our compensation committee and the board of directors are authorized to grant Mr. Gerstel, from time to time, a special bonus in accordance with and subject to our Compensation Policy for Directors and Officers. 

Officers.

Upon joining the Company, Mr. Gerstel was granted with two stock option grants under the Company’s Incentive Plan: (i) option to purchase up to 387,278 ordinary shares at an exercise price per share of $4.98 (which was the approximate market price per ordinary shares on the Nasdaq Stock Market on the date of the employment agreement); and (ii) option to purchase up to 387,278 ordinary shares at an exercise price per share of $7.89 (together, the “Options”).

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The Options are exercisable for cash or on a “cashless” basis, at the election of Mr. Gerstel, and have a term of six years, which will not be reduced in the event that employment terminates prior thereto, except in the event of termination for “Cause” (as defined in the employment agreement). The Options vest during the term of employer-employee relations, in quarterly installments, over a period of four years. The vesting schedule of the Options will fully accelerate (i) upon the closing of a “Transaction” (as defined below) or (ii) if the employeeMr. Gerstel is terminated without “Cause” or if he resigns as a result of being demoted or relocated, in each case, within 12 months following a “Change of Control” (as defined below).

Each grant constitutes approximately 1.5%1.1% of the outstanding ordinary shares as of March 9, 2020.

14, 2021.

At the annual general meeting of our shareholders held on February 15, 2018, and as part of a cross-company repricing plan designed mainly to keep our competitive hiring position in the industry, the repricing of options granted to Mr. Gerstel was approved. The first tranche of 387,278 options was adjusted to have an exercise price per of $3.24 (which is equal to the weighted average price of our ordinary shares on Nasdaq in the last 90 days prior to the date of approval of the repricing plan by our board of directors) (the “Adjusted Exercise Price”), and the second tranche of 387,278 options was adjusted to have an exercise price per share equal to $4.23, which is 130% of the Adjusted Exercise Price.

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At the extraordinary meeting of our shareholders held on April 11, 2019, Mr. Gerstel was granted with additional grant of options to purchase 150,000 Ordinary Shares, with a 3-year vesting schedule (the options will vest on a quarterly basis in equal tranches over a three-year period), commenced on January 15, 2019 (the “2019 Options”). The exercise price per share for the shares underlying the 2019 Options is as follows: (i) the first 75,000 of shares underlying the 2019 Options will be exercised at a price per share equal to $2.87, which is the weighted average closing price of our ordinary shares on Nasdaq in the last 90 days prior to the date of approval of the grant by our board of directors on February 12, 2019, as reported by the Nasdaq Stock Market (the “Base PPS”); and (ii) the remaining 75,000 of shares underlying the 2019 Options will be exercised at a price per share equal to $3.30 which is a price 15% higher than the Base PPS. The 2019 Options will be subject to the terms and conditions of the Company’s Incentive Plan, as amended and the terms of the option agreement to be issued to Mr. Gerstel pursuant to the Company’s Incentive Plan. The vesting schedule of the Option will fully accelerate in accordance of the acceleration provisions of the options previously granted to Mr. Gerstel (with changeChange in the board eventBoard Event measured as of the date of the shareholders meeting).

Such

Each grant constitutes approximately 0.6%0.2% of the outstanding ordinary shares as of March 9,14, 2021.

At the annual general meeting of our shareholders held on December 23, 2020, Mr. Gerstel was granted with 500,000 RSUs, which is versting over a three-year period commenced on February 1, 2021, with a 6-month cliff after which the RSUs will continue to vest on a quarterly basis over the following ten (10) quarters, unless such RSUs have been cancelled in accordance with the employment terms of Mr. Gerstel (the “RSU Grant”). The grant date is the date of the board of directors’ approval, which occurred on October 27, 2020.

The vesting schedule of the RSU Grant will fully accelerate in accordance with the acceleration provisions of the options previously granted to Mr. Gerstel (with Change in Board Event measured as of the date of the shareholders meeting). Consistent with the previous options grants granted to Mr. Gerstel, the RSU Grant will be subject to the same terms and conditions of prior grants, the terms and conditions of the Company’s Incentive Plan and the terms of the grant agreements issued to Mr. Gerstel pursuant to the Company’s Incentive Plan.

Such grant constitutes approximately 1.5% of the outstanding ordinary shares as of March 14, 2021.

In addition, at the same meeting, our shareholders approved a one-time grant to Mr. Gerstel of performance based options to purchase 225,000 ordinary shares linked to certain KPI’s in connection with the renewal of the strategic partnership agreement with Microsoft Bing (the “2020 Options”), approved by our board of directors on July 28, 2020, to those members of our management who participated in the efforts for the renewal of the strategic partnership for a period of four additional years, whereas 50% of the 2020 Options vested upon the renewal of the Search Distribution Agreement by and between the Company and Microsoft Ireland Operations Limited which occurred on November 2, 2020 (the “Renewal Date”), and the remaining 50% of the 2020 Options will vest in two equal portions on each anniversary of the Renewal Date. The exercise price per share for the ordinary shares underlying the 2020 Options is the weighted average closing price of our ordinary shares in the last 90 days, as reported by the Nasdaq Stock Market, prior to the date of approval of the grant by the board which occurred on July 28, 2020. The vesting schedule of the 2020 Options will fully accelerate in accordance with the acceleration provisions of the options previously granted to Mr. Gerstel (with Change in Board Event measured as of the date of the shareholders meeting). Consistent with the previous options grants granted to Mr. Gerstel, the 2020 Options will be subject to the same terms and conditions of prior grants, the terms and conditions of the Company’s Incentive Plan and the terms of the grant agreements issued to Mr. Gerstel pursuant to the Company’s Incentive Plan.

Such grant constitutes approximately 0.7% of the outstanding ordinary shares as of March 14, 2021.

For the purpose of Mr. Gerstel’s employment agreement, “Transaction”“Transaction” means the occurrence and closing, in a single transaction or in a series of related transactions, of any one or more of the following events pursuant to the approval or recommendation of the Boardboard of Directors:directors: (i) a sale or other disposition of 90% or more of the consolidated assets of the Company and its subsidiaries; (ii) a sale or other disposition of 90% of more of the outstanding securities of the Company resulting in a Change of Control; or (iii) a merger, consolidation or similar transaction involving 90% of more of the outstanding securities of the Company, resulting in a Change of Control.

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“Change of Control” will occur if any person or “group” of persons becomes the “beneficial owner” (as such terms are used for purposes of Section 13(d) of the U.S. Securities Exchange Act of 1934, as amended), directly or indirectly, of 35% or more of the outstanding share capital of the Company, excluding a reorganization resulting in the Company being held by an entity beneficially owned by the holders of the Company’s share capital immediately prior to the transaction or any Change in Board Event (as defined below).

“Change in Board Event” shall mean any time at which individuals who, as of April 2, 2017, constitute the board of directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of the board of directors; provided, however, that any individual becoming a director subsequent to April 2, 2017 whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened (in writing) election contest with respect to the election or removal of directors or other actual or threatened (in writing) solicitation of proxies or consents by or on behalf of a person other than the board of directors.

The agreement also includes customary covenants regarding confidentiality, IP assignment, non-competition and non-solicitation.

The employment term is for an indefinite period. During the first 24 months of employment, we may terminate the employment upon nine months’ prior notice and Mr. Gerstel may resign upon six months’ prior notice. Thereafter, weWe may terminate the employment upon 12 months’ prior notice and Mr. Gerstel may resign upon nine months’ prior notice. During the notice period, Mr. Gerstel will be entitled to all benefits under the employment agreement, including the continued vesting of stock options, even if the Company’sCompany waives its right to continued service. In the event of termination for “Cause” (as defined in the employment agreement), we may terminate the employee without prior notice.

We also have employment agreements with our other executive officers. These agreements usually do not contain any change of control provisions and otherwise contain salary, benefit and non-competition provisions that we believe to be customary in our industry.

C.BOARD PRACTICES

Corporate Governance Practices

We are incorporated in Israel and therefore are subject to various corporate governance practices under the Companies Law, relating to such matters as external directors (or, to the extent applicable, the provisions of the opt-out from external directors), the audit committee, the internal auditor and approvals of interested party transactions. These matters are in addition to the ongoing listing conditions of Nasdaq and other relevant provisions of U.S. securities laws. Under the Nasdaq Listing Rules, a foreign private issuer may generally follow its home country rules of corporate governance in lieu of the comparable Nasdaq requirements, except for certain matters such as composition and responsibilities of the audit committee. For further information, see “ItemItem 16.G – Corporate“Corporate Governance.”

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Nasdaq Requirements

As required by the Nasdaq Listing Rules, a majority of our directors are “independent directors” as defined in the Nasdaq Listing Rules.

As contemplated by the Nasdaq Listing Rules, we have an audit committee, a compensation committee and a nominating and governance committee, all of whose members are independent directors.

See Item “16.G – Corporate16.G. “Corporate Governance” for exemptions that we have taken from certain Nasdaq Listing Rule requirements.

Israeli Companies Law

Board of Directors

According to the Companies Law and our articles of association, our board of directors is responsible, among other things, for:

•

establishing our policies and overseeing the performance and activities of our chief executive officer;

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convening shareholders’ meetings;

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approving our financial statements;

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•

determining our plans of action, principles for funding them and the priorities among them, our organizational structure and examining our financial status; and

•

issuing securities and distributing dividends.

Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders. Our board of directors also appoints and may remove our chief executive officer and may appoint or remove other executive officers, subject to any rights that the executive officers may have under their employment agreements.

As of March 9, 2020,14, 2021, our board of directors consists of seven directorsdirectors. Our directors (other than the directors who were in the position of external directors until August 2019) are elected in three staggered classes by the vote of a majority of the ordinary shares present and entitled to vote at meetings of our shareholders at which directors are elected. The members of only one staggered class will be elected at each annual meeting for a three-year term, so that the regular term of only one class of directors expires annually. Our annual meeting of shareholders is required to be held at least once during every calendar year and not more than fifteen months after the last preceding meeting. Effective as of August 2019, andfollowing our adoption of the exemption under the Israeli Companies Regulations (Reliefs for Public Companies whose Shares are Listed on a Stock Exchange Outside of Israel), 2000, or the Regulation, urour director in office who was elected and classified as external directors, Ms. Sarit Firon, is no longer classified as such under the Companies Law. The transition rules set forth under the Regulation provide that such directors have the right to remain in office as our directors at their option after the exemption under the Regulation is adopted until the earlier of such directors’ original end of term of office or the second annual meeting of shareholders after the adoption of the exemption under the Regulation. Ms. Sarit Firon’s term of office expiresexpired in January 2020, accordingly our board of directors has re-appointed Ms. Firon with the term of office that expires as of our 2021 annual meeting of shareholders.

If the number of directors constituting our board of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, but in no case will a decrease in the number of directors constituting our board of directors reduce the term of any then current director.

Our board of directors may appoint any other person as a director, whether to fill a vacancy or as an addition to the then current number of directors, provided that the total number of directors shall not, at any time, exceed seven directors. Any director so appointed shall hold office until the annual meeting of shareholders at which the term of his class expires, unless otherwise determined by our board of directors. There is no limitation on the number of terms that a non-external director may serve.

Shareholders may remove a non-external director from office by a resolution passed at a meeting of shareholders by a vote of the holders of more than two-thirds of our voting power.

A resolution proposed at any meeting of our board of directors is deemed adopted if approved by a majority of the directors present and voting on the matter. Under the Companies Law, our board of directors must determine the minimum number of directors having financial and accounting expertise, as defined in the regulations that our board of directors should have. In determining the number of directors required to have such expertise, the board of directors must consider, among other things, the type and size of the company and the scope and complexity of its business and operations. Our board of directors has determined that we require at least one director with the requisite financial and accounting expertise and that Ms. Sarit Firon has such expertise.

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Under the Companies Law, a person, who is, directly or indirectly subordinated to the chief executive officer of a public company, may not serve as the chairman of its board of directors. In addition, neither the chief executive officer nor his relative is eligible to serve as chairman of the board of directors (and vice versa), unless such nomination was approved by a majority of the company’s shareholders for a term not exceeding three years, and either: (i) such majority included the majority of the voting shareholders (shares held by abstaining shareholders are not considered) which are not controlling shareholders and have not personal interest regarding the decision; or (ii) the aggregate number of shares voting against the proposal did not exceed 2% of company voting shareholders. The term can be extended for additional three year terms, in the same manner.

External Directors

Under the Companies Law, Israeli companies whose shares have been offered to the public in or outside of Israel are required to appoint at least two individuals to serve as external directors.

Pursuant to regulations promulgated under the Companies Law, companies with shares traded on a U.S. stock exchange, including the Nasdaq Global Select Market, may, subject to certain conditions, “opt out” from the Companies Law requirements to appoint external directors and related Companies Law rules concerning the composition of the audit committee and compensation committee of the board of directors. In accordance with these regulations, in August 2019, we elected to “opt out” from the Companies Law requirements to appoint external directors and related Companies Law rules concerning the composition of the audit committee and compensation committee of the board of directors (the “Opt-Out”).

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Under these regulations, the exemptions from such Companies Law requirements will continue to be available to us so long as: (i) we do not have a “controlling shareholder” (as such term is defined under the Companies Law), (ii) our shares are traded on a U.S. stock exchange, including the Nasdaq Global Select Market, and (iii) we comply with the director independence requirements, the audit committee and the compensation committee composition requirements, under U.S. laws (including applicable Nasdaq Rules) applicable to U.S. domestic issuers.

Committees of the Board of Directors

Our board of directors has established an audit committee, a compensation committee, an investment committee and a nominating and governance committee.

Audit Committee

Our audit committee is comprised of Ms. Sarit Firon (Chairperson)(chairperson), Mr. Michael Vorhaus and Mr. Rami Schwartz,, and operates pursuant to a written charter.

Nasdaq Requirements

Under the listing requirements of the Nasdaq Stock Market, a foreign private issuer is required to maintain an audit committee that has certain responsibilities and authority. The Nasdaq Listing Rules require that all members of the audit committee must satisfy certain independence requirements, subject to certain limited exceptions. We have adopted an audit committee charter as required by the Nasdaq Listing Rules. Our audit committee assists the board of directors in fulfilling its responsibility for oversight of the quality and integrity of our accounting, auditing and financial reporting practices and financial statements. Our audit committee is also responsible for the establishment of policies and procedures for review and pre-approval by the committee of all audit services and permissible non-audit services to be performed by our independent auditor, in order to ensure that such services do not impair our auditor’s independence. For more information see Item “16.C – Principal16.C “Principal Accountant Fees and Services.” Under the Nasdaq Listing Rules, the approval of the audit committee is also required to effect related-party transactions that would be required to be disclosed in our annual report.

Companies Law Requirements

Under the Companies Law, the board of directors of a public company must establish an audit committee. The audit committee must consist of at least three directors who meet certain independence criteria. The responsibilities of the audit committee under the Companies Law include to identify and address problems in the management of the company, review and approve interested party transactions, establish whistleblower procedures and procedures for considering controlling party transactions and oversee the company’s internal audit system and the performance of the internal auditor.

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Compensation Committee

Pursuant to the Companies Law, the compensation committee of a public company must be comprised of at least three directors, include all of the external directors (and also the chairman is required to be an external director), and any other members must satisfy certain independence standards under the Companies Law. Following the Opt-Out, our compensation committee is comprised of Ms. Sarit Firon (Chairperson)Joy Marcus (chairperson), Mr. Dror Erez and Mr. Rami Schwartz,Ms. Joy Marcus, all of whom satisfy the respective “independence” requirements of the Companies Law, SEC and Nasdaq Listing Rules for compensation committee members. Our compensation committee meets at least once each quarter, with additional special meetings scheduled when required.

Our compensation committee is authorized to, among other things, review, approve and recommend to our board of directors base salaries, incentive bonuses, including the specific goals and amounts, stock option grants, employment agreements, and any other benefits, compensation or arrangements of our executive officers and directors. In addition, our compensation committee is required to propose for shareholder approval by a special majority, a compensation policy governing the compensation of office holders based on specified criteria, to review, from time to time, modifications to the said compensation policy and examine its implementation, and to approve the actual compensation terms of office holders prior to approval thereof by the board of directors. Our shareholders adopted a new Compensation Policy for Directors and Officers on February 6, 2020. Our compensation committee also oversees the administration of our Incentive Plan.

Plan.

Investment Committee

Our investment committee is comprised of Mr. Eyal Kaplan (Chairperson)(chairperson), Ms. Sarit Firon and Mr. Dror Erez. The Investment Committee is responsible for formulating the overall investment policies of the Company, and establishing investment guidelines in furtherance of those policies. The Committee monitors the management of the portfolio for compliance with the investment policies and guidelines and for meeting performance objectives over time as well as assist the board of directors in fulfilling its oversight responsibility for the investment of assets of the company.

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Nominating and Governance Committee

Our nominating and governance committee is comprised of Mr. Michael Vorhaus (Chairperson)(chairperson), Mr. Eyal Kaplan,, and Ms. Joy Marcus,, and operates pursuant to a written charter. It is responsible for making recommendations to the board of directors regarding candidates for directorships and the size and composition of the board. In addition, the committee is responsible for overseeing our corporate governance guidelines and reporting and making recommendations to the board concerning corporate governance matters. Under the Companies Law, nominations for director are generally made by our board of directors but may be made by one or more of our shareholders pursuant to applicable law and our articles of association.

Internal Auditor

Under the Companies Law, the board of directors of a public company must appoint an internal auditor nominated based on the audit committee’s recommendation. The role of the internal auditor is to examine whether a company’s actions comply with the law and proper business procedure. The internal auditor may be an employee of the company employed specifically to perform internal audit functions but may not be an interested party or office holder, or a relative of any interested party or office holder, and may not be a member of the company’s independent accounting firm or its representative. The Companies Law defines an interested party as a substantial shareholder of 5% or more of the shares or voting rights of a company, any person or entity that has the right to nominate or appoint at least one director or the general manager of the company or any person who serves as a director or as the general manager of a company. The internal auditor’s term of office shall not be terminated without his or her consent, nor shall he or she be suspended from such position unless the board of directors has so resolved after hearing the opinion of the audit committee and after giving the internal auditor a reasonable opportunity to present his or her position to the board and to the audit committee. Our internal auditor is Mrs.Ms. Linur Dloomy, CPA, of Brightman Almagor Zohar & Co., a member of Deloitte Touche Tohmatsu.

D.EMPLOYEES

The breakdown of our employees, by department, as of the end of each of the past three fiscal years is as follows:

		December 31,
		2018				2019				2020
Cost of sales			76				79				73
Research and development			86				117				135
Selling and marketing			141				136				146
General and administration			60				67				63
Total			363				399				417

		December 31,
		2017				2018				2019
Cost of sales			94				76				79
Research and development			117				86				117
Selling and marketing			167				141				136
General and administration			86				60				67
Total			464				363				399

As of December 31, 2019, 1492020, 158 of our employees were located in Israel, 168172 of our employees were located in the United States and 8287 employees were located in Europe.

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In Israel we are subject to certain labor statutes and national labor court precedent rulings, as well as to some provisions of the collective bargaining agreements. These provisions of collective bargaining agreements apply to our Israeli employees by virtue of extension orders issued in accordance with relevant labor laws by the Israeli Ministry of Economy and Industry, and which apply such provisions under the extension orders to certain or all Israeli employees including our employees even though they are not directly part of a union that has signed a collective bargaining agreement. The laws and labor court rulings that apply to our employees principally concern, among others, minimum wage laws, procedures for dismissing employees, determination of severance pay, leaves of absence (such as annual vacation or maternity leave), sick pay and other conditions for employment. The extension orders which apply to our employees principally concern, among others, the requirement for the length of the workday and the work-week, annual recuperation pay and commuting expenses, and payments to pension funds. As mentioned above, we are required to insure all of our employees by a comprehensive pension plan or a managers’ insurance according to the terms and the rates detailed in the extension order. In addition, Israeli laws determine minimum wages for workers, minimum paid leave or vacation, sick leave, working hours and days of rest, insurance for work-related accidents, determination of severance pay, the duty to give notice of dismissal or resignation and other benefits and terms of employment. We have never experienced a work stoppage, and we believe our relations with our employees are good.

Israeli law generally requires the payment of severance by employers upon the retirement or death of an employee or upon termination of employment by the employer or, in certain circumstances, by the employee. Substantially all of our agreements with employees in Israel contain an arrangement made in accordance with Section 14 of the Severance Pay Law, 1963 (“Section 14”), where our contributions for severance pay are paid in lieu of any severance liability. Upon termination of employment, for any reason, and subject to contribution of the employee’s entire monthly salary as of the commencement date of his/her employment, and release of the policy to the employee, no additional severance payments are required to be made by us to the employee. Additionally, the related obligation and amounts deposited pursuant to such obligation are not stated on the balance sheet, as we are legally released from any obligation to employees once the deposit amounts have been paid.

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Furthermore, Israeli employees and employers are required to pay predetermined sums to the National Insurance Institute, which covers, amongst other benefits, payments for state retirement benefits and survivor benefits (similar to the United States Social Security Administration), as well as state unemployment benefits. These amounts also include payments for national health insurance. The payments to the National Insurance Institute can equal up to approximately 19.6% of wages subject to a cap if an employee’s monthly wages exceed a specified amount, of which the employee contributes up to approximately 12% and the employer contributes approximately 7.6%.

E.SHARE OWNERSHIP

Security Ownership of Directors and Executive Officers

The following table sets forth information regarding the beneficial ownership of our ordinary shares as of March 9, 202014, 2021 by all of our directors and executive officers as a group and by each officer and director who beneficially owns 1% or more of our outstanding ordinary shares.

Beneficial ownership of shares is determined in accordance with the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Ordinary shares that are subject to warrants, RSUs or stock options that are vested or will vest within 60 days of a specified date are deemed to be outstanding and beneficially owned by the person holding the stock options for the purpose of computing the percentage ownership of that person, but are not treated as outstanding for the purpose of computing the percentage of any other person.

Except as indicated in the footnotes to this table, each officer and director in the table has sole voting and investment power for the shares shown as beneficially owned by them. Percentage ownership is based on 26,708,70533,851,574 ordinary shares outstanding as of March 9, 202014, 2021 (such amount excludes 115,339 Ordinary Shares held by the Company).

Name		Number of Ordinary Shares Beneficially Owned				Percentage of Ordinary Shares Outstanding
All directors and officers as a group (10 persons) (1)			2,014,959				5.95	%

(1)	Includes options to purchase 1,711,327 ordinary shares, that are vested or will vest within 60 days of March 14, 2020.

Name		Number of Ordinary Shares Beneficially Owned				Percentage of Ordinary Shares Outstanding
Dror Erez (1)			1,292,755				4.84	%
All directors and officers as a group (12 persons) (2)			2,527,038				9.46	%

(1) Based solely upon, and qualified in its entirety with reference to, a Schedule 13G/A filed with the SEC on December 30, 2019 by Mr. Erez. Includes options to purchase 28,748 ordinary shares that are vested or will vest, within 60 days of March 9, 2020. Mr. Erez serves as a director of the Company. Other than Mr. Dror Erez, all of our directors and executive officers beneficially owned less than 1% of the Company’s shares as of such date.

(2) Includes options to purchase 1,263,031 ordinary shares, that are vested or will vest within 60 days of March 9, 2020.

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Employee Benefit Plans

The Incentive Plan, our current equity incentive plan, was initially adopted in 2003, providing certain tax benefits in connection with share-based compensation under the tax laws of Israel and the United States. The term of the Incentive Plan will expire on December 9, 2022. Please also see Note 13 to our Financial Statements for information on the options issued under the Incentive Plan.

Under the Incentive Plan, as amended from time to time, we may grant to our directors, officers, employees, consultants, advisers, service providers and controlling shareholders options to purchase our ordinary shares, restricted shares and RSUs. As of December 31, 2019,2020, a total of 4,157,7934,527,047 ordinary shares were subject to the Incentive Plan. As of March 9, 2020,14, 2021, options to purchase a total of 5,088,8854,456,378 ordinary shares were outstanding under our Incentive Plan, of which options to purchase a total of 2,080,4522,263,540 ordinary shares were held by our directors and officers (12(10 persons) as a group. The outstanding options are exercisable at purchase prices which range from $2.25$0.01 to $11.07$8.34 per share. Any expired or cancelled options are available for reissuance under the Incentive Plan.

Our Israeli employees and directors may be granted awards under Section 102 (“Section 102”) of the Israeli Income Tax Ordinance [New Version], 1961 (the “Ordinance”), which provides them with beneficial tax treatment, and non-employees (such as service providers, consultants and advisers) and controlling shareholders may only be granted awards under section 3(i) of the Ordinance, which does not provide for similar tax benefits. In order to be eligible for tax benefits under Section 102, the securities must be issued through a trustee, and if held by the trustee for the minimum required period, the employees and directors are entitled to defer any taxable event with respect to the award until the earlier of (the “Exercise Date”) (i) the transfer of securities from the trustee to the employee or director or (ii) the sale of securities to a third party. Our board of directors has resolved to elect the “Capital Gains Route” (under Section 102) for the grant of awards to Israeli grantees under the Company's incentive plan. Based on such election, and subject to the fulfillment of the conditions of Section 102, under the Capital Gains Route, gains realized from the sale of shares issued pursuant to the Incentive Plan will generally be taxed at the capital gain tax rate of 25%, provided the trustee holds the securities for 24 months following the date of grant of the award. To the extent the conditions of Section 102 are not met, tax will be payable at the Exercise Date at the marginal income tax rate applicable to the employee or director (47% in 20192020 and additional National Security contributions). In addition, in certain circumstances, an excess tax of 3% will be imposed as well. We are not entitled to deduct for Israeli tax purposes the expenses recorded with respect to grant of awards on the “Capital Gains Route.” However, in case the employee has an ordinary income component under section 102(b)(3) of the Ordinance, that component is deductible by the company for tax purposes. The voting rights of any shares held by the trustee under Section 102 remain with the trustee.

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The Incentive Plan contains a U.S. addendum that provides for the grant of awards to U.S. citizens and resident aliens of the United States for U.S. tax purposes. Pursuant to the approval of our board of directors and shareholders, stock options granted to U.S. citizens and resident aliens may be either incentive stock options under the Code or nonqualified options that do not qualify as incentive stock options. Subject to the fulfillment of the applicable conditions of the Code, an incentive stock option may provide tax benefits to the holder in that it converts ordinary income into income taxed at long-term capital gain rates and defers the tax until the sale of the underlying share. In that event, we would not recognize a tax deduction with respect to such capital gain.

Our board of directors has the authority to administer, and to grant awards, under the Incentive Plan. However, the compensation committee appointed by the board provides recommendations to the board with respect to the administration of the plan. Generally, RSUs and options granted under the Incentive Plan vest in two or three installments on each anniversary of the date of grant.

See “Item 6.B Compensation”Item 6.B. “Compensation” for a description of awards granted under the Incentive Plan to our directors and officers in 2019.

2020.

ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.MAJOR SHAREHOLDERS

The following table sets forth information with respect to the beneficial ownership of our shares as of March 9, 2020,14, 2021, by each person or entity known by us to beneficially own 5% or more of our outstanding Ordinary Shares.

Beneficial ownership of shares is determined in accordance with the Exchange Act and the rules promulgated thereunder, and generally includes any shares over which a person exercises sole or shared voting or investment power. Ordinary Shares that are issuable pursuant to an outstanding right within 60 days of a specified date are deemed to be outstanding and beneficially owned by the person holding the right for the purpose of computing the percentage ownership of that person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

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For the purpose of calculating the percentage of shares beneficially owned by any shareholder, this table lists the applicable percentage ownership based on 26,708,70533,851,574 Ordinary Shares issued and outstanding as of March 9,14, 2020 (such amount excludes 115,339 Ordinary Shares held by the Company).

Except as indicated in the footnotes to this table, to our knowledge, each shareholder in the table have voting and investment power for the shares shown as beneficially owned by such shareholder, except to the extent the power is shared by spouses under community property law. Our major shareholders do not have different voting rights than our other shareholders.

Name of Beneficial Owner		Shares Beneficially Owned
		Number				Percentage
Private Capital Management, LLC(1)			2,386,268				7.05	%
Zack and Orli Rinat(2)			2,161,449				6.39	%
Renaissance Technologies LLC(3)			1,818,025				5.37	%

Name of Beneficial Owner		Shares Beneficially Owned
		Number				Percentage
Benchmark Israel II, L.P.(1)			3,096,296				11.59	%
Zack and Orli Rinat(2)			2,161,449				8.09	%
Renaissance Technologies LLC(3)			1,818,025				6.81	%
EA2K Ltd.(4)			1,800,000				6.74	%

(1)Based solely upon, and qualified in its entirety with reference to, a Schedule 13G filed with the SEC on February 5, 2021, by Private Capital Management, LLC (“PCM”). PCM exercises shared voting authority with respect to shares held by those PCM clients that have delegated proxy voting authority to PCM. Such delegation may be granted or revoked at any time at the client's discretion. The address of PCM is 8889 Pelican Bay Boulevard, Suite 500, Naples, Florida 34108.

(2)Based solely upon, and qualified in its entirety with reference to, a Schedule 13G filed with the SEC on January 16, 2014, by Zack and Orli Rinat. The Ordinary Shares are held by Zack Rinat and Orli Rinat as community property. The address of Zack and Orli Rinat is 26319 Esperanza Drive Los Altos Hills, CA.

(3)Based solely upon, and qualified in its entirety with reference to, a Schedule 13G filed with the SEC on February 12, 2020, by Renaissance Technologies LLC (“RTC”) and Renaissance Technologies Holdings Corporation (“RTHC”). RTHC owns the majority of the membership interests of RTC. As the holder of the majority of the membership interests of RTC, RTHC has shared voting or dispositive power over the 1,818,025 Ordinary Shares held by RTC. The address of each of RTC and RTHCS is 800 Third Avenue New York, New York 10022.

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(1)

Based solely upon, and qualified in its entirety with reference to, a Schedule 13G/A filed with the SEC on February 11, 2019, by Benchmark Israel II, L.P. (“BI II”) and affiliates. BCPI Partners II, L.P. (“BCPI-P”), the general partner of BI II, may be deemed to have sole power to vote and dispose of the 3,096,296 Ordinary Shares directly held by BI II. BCPI Corporation II (“BCPI-C”), the general partner of BCPI-P, may be deemed to have sole power to vote and dispose of the shares directly held by BI II. Michael A. Eisenberg and Arad Naveh, the directors of BCPI-C, may be deemed to have shared power to vote and dispose of the shares directly held by BI II. 94,294 Ordinary Shares are held in nominee form for the benefit of persons associated with BCPI-C. BCPI-P may be deemed to have sole power to vote and dispose of these shares, BCPI-C may be deemed to have sole power to vote and dispose of these shares and Messrs. Eisenberg and Naveh may be deemed to have shared power to vote and dispose of these shares. The Address of BI II is 2965 Woodside Road Woodside, California 94062s.

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(2)

Based solely upon, and qualified in its entirety with reference to, a Schedule 13G filed with the SEC on January 16, 2014, by Zack and Orli Rinat. The Ordinary Shares are held by Zack Rinat and Orli Rinat as community property. The address of Zack and Orli Rinat is 26319 Esperanza Drive Los Altos Hills, CA.

(3)

Based solely upon, and qualified in its entirety with reference to, a Schedule 13G filed with the SEC on February 12, 2020, by Renaissance Technologies LLC (“RTC”) and Renaissance Technologies Holdings Corporation (“RTHC”). RTHC owns the majority of the membership interests of RTC. As the holder of the majority of the membership interests of RTC, RTHC has shared voting or dispositive power over the 1,818,025 Ordinary Shares held by RTC. The address of each of RTC and RTHCS is 800 Third Avenue New York, New York 10022.

(4)

Based solely upon, and qualified in its entirety with reference to, a Schedule 13G/A filed with the SEC on January 30, 2019, by EA2K Ltd. (“EA2K”). Baruch Erlich controls EA2K, and by reason of such control may be deemed to have shared power to vote and dispose of the 1,800,000 Ordinary Shares directly held by EA2K. The Address of each of EA2K and Baruch Erlich is12 Mevo Habustan St. Har Adar 90836, Israel.

To our knowledge, the significant changes in the percentage of ownership held by our major shareholders during the past three years preceding the date of this annual report on Form 20-F have been: (i) the increase in the percentage of ownership held by Renaissance Technologies LLC and Renaissance Technologies Holdings Corporation above 5% in 2019during the year 2019; (ii) the decrease in the percentage of ownership held by Dror Erez below the 5% during the year 2019; (iii) the decrease in the percentage of ownership held by Ronen Shilo below the 5% during the year 2019; (iv) the decrease in the percentage of ownership held by J.P. Morgan Investment Management Inc., Digital Growth Fund L.P. and Project Condor LLC below the 5% during the year 2019.

2019; (v) the decrease in the percentage of ownership held by Benchmark Israel II, L.P. below the 5% during the year 2020; (vii) the increase in the percentage of ownership held by Private Capital Management, LLC above 5% in 2020; (vi) the increase in the percentage of ownership held by The Phoenix Holdings Ltd., and its various direct or indirect, majority or wholly-owned subsidiaries, above 5% during the year 2020; and (vii) the decrease in the percentage of ownership held by EA2K Ltd. below the 5% during the year 2020.

To our knowledge, as of March 9, 2020,14, 2021, we had 106 shareholders of record of which 96 (excluding the Depository Trust Company) were registered with addresses in the United States. These U.S. holders were, as of such date, the holders of record of approximately 0.3%0.1% of our outstanding shares. The number of record holders in the United States is not representative of the number of beneficial holders nor is it representative of where such beneficial holders are resident since many of these ordinary shares were held of record by brokers or other nominees.

B.RELATED PARTY TRANSACTIONS

It is our policy that transactions with office holders or transactions in which an office holder has a personal interest will be on terms that, on the whole, are no less favorable to us than could be obtained from independent parties.

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See “Item 10.B Memorandum and Articles of Association — Approval of Related Party Transactions”Exhibit 2.1 to this annual report on Form 20-F, which is incorporated by reference into this annual report on Form 20-F, for a discussion of the requirements of Israeli law regarding special approvals for transactions involving directors, officers or controlling shareholders.

The following is a description of some of the transactions with related parties to which we are party and which were in effect within the past three fiscal years. The descriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the complete agreements.

Indemnification Agreements

Our articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. We have obtained directors’ and officers’ insurance for each of our officers and directors and have entered into indemnification agreements with all of our current officers and directors.

We have entered into indemnification and exculpation agreements with each of our current office holders and directors exculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the law and our articles of association, including with respect to liabilities resulting from this annual report, to the extent such liabilities are not covered by insurance. See also “Item 10B. — Exculpation, Insurance and Item 10.B. “Related Party Transactions—Indemnification of Directors and Officers.Agreements.” in this annual report on Form 20-F.

Employment and Consulting Agreements

We have or have had employment, consulting or related agreements with each member of our senior management. For more information on employment and consulting agreements see “Item 6B. — Compensation” in this annual report on Form 20-F.

Item 6.B. “Compensation.”

C.INTERESTS OF EXPERTS AND COUNSEL

Not applicable.

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ITEM 8.FINANCIAL INFORMATION

A.CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

Our Financial Statements are included in this annual report pursuant to Item 18.

Legal Proceedings

On November 7, 2012, we entered into a Share Purchase Agreement with SweetIM Ltd., SweetIM Technologies Ltd., the shareholders of SweetIM and Nadav Goshen, as Shareholders’ Agent, according to which we purchased 100% of the issued and outstanding shares of SweetIM Ltd. Under the terms of the Share Purchase Agreement, among other things, a third payment of up to $7.5 million in cash was due in May 2014, if certain milestones were met. The milestones are based on our revenues in the fiscal year of 2013 and the absence of certain changes in the industry in which we operate. We believe that that the terms of the Share Purchase Agreement require us to pay only $2.5 million with respect to the contingent payment, which we have paid. However, the Shareholders’ Agent has demanded payment of an additional $5.0 million. We believe that the claim is without merit and we are defending against it vigorously. Until this dispute is resolved, we will maintain the $5.0 million liability in our financial statements that we recorded at the time that we entered into the Share Purchase Agreement. In April 2015, pursuant to the Share Purchase Agreement, an arbitration process with respect to this claim was commenced in Israel. Based on the August 2018 ruling of the arbitrator, the remaining balance of the Contingent Payment was paid to SweetIM's shareholders in 3 equal installments, the last of which was paid during January 2019.

On December 22, 2015, Adtile Technologies Inc. (“Adtile”) filed a lawsuit against Perion and its wholly-owned subsidiary, Intercept Interactive Inc. (“Intercept”) in the United States District Court for the District of Delaware. The lawsuit alleges various causes of action against Perion and Intercept related to Intercept’s alleged unauthorized use and misappropriation of Adtile’s proprietary information and trade secrets. Adtile is seeking injunctive relief and unspecified monetary damages. We are unable to predict the outcome or range of possible loss at this stage. On June 23, 2016, the court denied Adtile’s motion for a preliminary injunction. On June 24, 2016, the court (i) granted Perion’s motion to dismiss and (ii) granted Intercept’s motion to stay the action and compel arbitration. As of the date of this report, Adtile had not commenced an arbitration proceeding and the court dismissed the case for administrative reasons. We believe that we have strong defenses against this lawsuit and we intend to defend against it vigorously if the case is ever resubmitted.

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Policy on Dividend Distribution

It is currently our policy not to distribute dividends.

B.SIGNIFICANT CHANGES

Since the date of our audited Financial Statements incorporated by reference in this report, there have not been any significant changes other than as set forth in note 20 to our Financial Statements.”

ITEM 9.THE OFFER AND LISTING

A.OFFER AND LISTING DETAILS

Our ordinary shares have been listed on the Nasdaq Stock Market since January 2006. Our ordinary shares commenced trading on the TASE on December 4, 2007. Our trading symbol on Nasdaq is “PERI” and on TASE is “PERION.”

B.PLAN OF DISTRIBUTION

Not applicable.

C.MARKETS

See “—Listing Details” above.

D.SELLING SHAREHOLDERS

Not applicable.

E.DILUTION

Not applicable.

F.EXPENSES OF THE ISSUE

Not applicable.

ITEM 10.ADDITIONAL INFORMATION

A.SHARE CAPITAL

Not applicable

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B.MEMORANDUM AND ARTICLES OF ASSOCIATION

A copy of our amended and restated articles of association is attached as Exhibit 1.1 to this annual report on Form 20-F. The information called for by this Item is set forth in Exhibit 2.1 to this annual report on Form 20-F and is incorporated by reference into this annual report on Form 20-F.

C.MATERIAL CONTRACTS

Acquisition of Content IQ

On January 14, 2020, we entered into and consummated an agreementa Membership Interest Purchase Agreement, or MIPA, with Asaf Katzir and Ziv Yirmiyahu, or the Sellers, Content IQ and Perion for the acquisition of all the shares of contentContent IQ, a privately held company founded in 2014, based in New York City with offices in Tel Aviv, and 51 employees.Aviv. Content IQ has created data algorithm and analytics tools that deconstruct content, revenue and distribution to solve digital publishing challenges. The acquisition was made for a total consideration of $73.05 million, of which $15 million in cash was paid upon closing, with an additional maximum $11 million will be paid as a retention incentive. As part of the total consideration, there is a maximum of $47.05 million in earn-outs over a period of two years. The earn-outs are tied to revenue and EBITDA-based metrics that would be paid in full if Content IQ generates $158 million in revenues and more than $17 million of EBITDA in aggregate, over the next two years. The agreement also contains customary representations, warranties, covenants and indemnification provisions.

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On July 22, 2020, in connection with the acquisition of Pub Ocean, we amended the MIPA. Under the terms of the amended MIPA, it was agreed with the Sellers, that (i) revenues and EBITDA of Pub Ocean will be attributed towards Sellers’ revenue and EBITDA targets under the MIPA with Perion; and (ii) Sellers will bear 40% of the cost of milestone payments that are ultimately payable to Pub Ocean under the Asset Purchase Agreement (as defined below), which will be paid solely by deductions from their own earn-out payments and certain escrowed amounts.

Acquisition of Pub Ocean

On July 22, 2020, we entered into an agreement to acquire the assets of Pub Ocean, or the Asset Purchase Agreement a rapidly-growing digital publisher-focused technology company with scalable content distribution and real-time revenue analytics technology. Pub Ocean offers significant and immediate synergies to Content IQ, driving incremental revenue opportunities and enhanced profitability. The acquisition was for an aggregate cash consideration of up to $22 million, of which (i) $4 million was paid upon signing, (ii) $17 million of earn-out payments tied to financial targets to be paid over a two-year period, and (iii) an additional amount of $1 million in retention incentives to be paid over a two-year period. The agreement also contains customary representations, warranties, covenants and indemnification provisions.

Search Services Agreement with Microsoft

In October 2017,November 2020, we entered into a renewed agreement with Microsoft Ireland Operations Limited effective as of January 1, 20182021 until December 31, 20202024 which includes desktop and tabletmobile distribution with limited exclusivity in the United States as well as mobileand an extended geography distribution.

Bank Mizrahi Credit Facility

On May 10, 2017, ClientConnect, a former Israeli subsidiary of Perion, which merged into Perion on June 30, 2020, executed a credit facility with Mizrahi Tefahot Bank Ltd. (“Bank Mizrahi”), an Israeli bank, pursuant to which ClientConnect was permitted to borrow up to $17.5 million. This facility was repaid in full from the proceeds of the new Bank Mizrahi facility.

On December 17, 2018, ClientConnect executed a new loan facility with Bank Mizrahi in the amount of $25 million. Proceeds of the loan facility were applied to the refinancing of existing debt of ClientConnect with Bank Mizrahi as well as existing debt of Undertone with SunTrust Bank.

Principal on the loan is payable in twelve equal quarterly instalments since As of March 2019. Interest on the loan at the rate of three-month LIBOR plus 5.7% per annum is payable quarterly. The8, 2021, this credit facility iswas repaid in full.

Bank Mizrahi 2020 Credit Line

On May 19, 2020, we entered into a short-term secured credit line in the amount of up to $20 million with Bank Mizrahi, which was scheduled to mature in Decemberon May 18, 2021.

The credit facility is secured by liens on the assets ClientConnect of and Undertone and is guaranteed by Perion and Undertone. Each such guarantee is limited in amount to $33 million. Financial covenants for the loan facility are tested at the level of Perion on a consolidated basis.

The major financial covenants under the Bank Mizrahi credit facility are as follows:

shareholders’ equity of at least $80 million at the end of each quarter;

ratio of net financial indebtedness to twelve-month EBITDA of not more than 2.25 at the end of each quarter; and

maintenance at all times of cash and cash equivalents in On August 11, 2020, we withdrawn an amount equal to the lesser of (i) $10$12.5 million and (ii) the amountfrom this credit line. Such a withdrawal was a short-term revolving loan for a three-month period. See Note 9 of the following payment of principal and interest.

Financial Statements for further information. As of December 31, 2019, the balance of the loan21, 2020, this credit facility was $16.7 million out of which $8.3 million was classified as long-term debt and $8.3 million as current maturities.

As of December 31, 2019, we wererepaid in compliance with all of the foregoing covenants.full.

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D.EXCHANGE CONTROLS

Non-residents of Israel who hold our ordinary shares are able to receive any dividends, and any amounts payable upon the dissolution, liquidation and winding up of our affairs, freely repatriable in non-Israeli currency at the rate of exchange prevailing at the time of conversion. However, Israeli income tax is required to have been paid or withheld on these amounts. In addition, the statutory framework for the potential imposition of exchange controls has not been eliminated, and may be restored at any time by administrative action.

E.TAXATION

The following is a general summary only and should not be considered as income tax advice or relied upon for tax planning purposes.

ISRAELI TAXATION

THE FOLLOWING DESCRIPTION IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSEQUENCES RELATING TO THE OWNERSHIP OR DISPOSITION OF OUR ORDINARY SHARES. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR CONCERNING THE TAX CONSEQUENCES OF YOUR PARTICULAR SITUATION, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAXING JURISDICTION.

The following is a summary of the material Israeli tax laws applicable to us, and some Israeli Government programs benefiting us. This section also contains a discussion of some Israeli tax consequences to persons acquiring our ordinary shares. This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. Since some parts of this discussion are based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion.

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The discussion below should not be construed as legal or professional tax advice and does not cover all possible tax considerations. Potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership and disposition of our ordinary shares, including, in particular, the effect of any foreign, state or local taxes.

General Corporate Tax Structure in Israel

Taxable income of Israeli companies is generally subject to corporate tax at the rate of 23% for the 20192020 tax year. Under an amendment to the Israeli Income Tax Ordinance, the corporate tax rate was decreased to 23% for 2018 and thereafter. However, the effective tax rate payable by a company that derives income from a Preferred Enterprise (as further discussed below) may be considerably lower.

Under Israeli tax legislation, a corporation is considered as an “Israeli resident company” under the Ordinance if it meets one of the following: (i) it was incorporated in Israel; or (ii) the control and management of its business are exercised in Israel.

Foreign Currency Regulations

We are permitted to measure our Israeli taxable income in U.S. dollars pursuant to regulations published by the Israeli Minister of Finance, which provide the conditions for doing so. We believe that we meet and will continue to meet, the necessary conditions and as such, we measure our results for tax purposes based on the U.S. dollar/NIS exchange rate as of December 31st of each year.

Law for the Encouragement of Capital Investments, 1959

The Law for Encouragement of Capital Investments, 1959 (the “Investment Law”) provides tax benefits for income of Israeli companies meeting certain requirements and criteria. The Investment Law has undergone certain amendments and reforms in recent years.

The Israeli parliament enacted a reform to the Investment Law, effective January 2011 (the “2011 Amendment”). The reform introduced new benefits instead of the benefits granted in accordance with the provisions of the Investment Law in effect prior to the 2011 Amendment. However, companies entitled to benefits under the Investment Law in effect up to January 1, 2011, which were referred to as an Approved Enterprise and Benefited Enterprise, were entitled to choose to continue to enjoy such benefits, provided that certain conditions are met, or elect instead, irrevocably, to forego such benefits and elect the benefits of the 2011 Amendment. The 2017 Amendment introduces new benefits for Technological Enterprises, alongside the existing tax benefits. According to the 2011 Amendment, a flat rate tax applies to companies eligible for the “Preferred Enterprise” status. In order to be eligible for Preferred Enterprise status, a company must meet minimum requirements to establish that it contributes to the country’s economic growth and is a competitive factor for the Gross Domestic Product (a competitive enterprise).

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We elected “Preferred Enterprise” status commencing in 2011. We believe that our Israeli subsidiary (ClientConnect Ltd.), which merged into Perion on June 30, 2020, qualified as a “Preferred Technological Enterprise” in 2017, 2018 and 2019 and therefore, the portion of the income derived from ClientConnect in those years, which qualifies for the benefits, was subject to a lower tax rate of 12% according to Amendment 73 to the Law, as described below.

On December 31, 2019 the Israeli subsidiary – ClientConnect Ltd., was merged into the Company. In 2020 the Company elected to implement “Preferred Technological Enterprise” benefits.

Benefits granted to a Preferred EnterpriseEnterprise’s Preferred Income include reduced tax rates. In peripheral regions (Development Area A) the reduced tax rate was 9% in 2015 and 2016. Under an amendment to the Investment Law enacted in December 2016, the reduced tax rate was decreased to 7.5% starting from 2017 and thereafter. In other regions the tax rate was 16% in 2015 and thereafter. Preferred Enterprises in peripheral regions will be eligible for grants from the Israeli Authority for Investments and Development of the Industry and Economy (the “Investment Center”), as well as the applicable reduced tax rates.

A dividend distribution from a Preferred Enterprise out of the “Preferred Income” would be subject to 20% withholding tax for Israeli-resident individuals and(in the case of non-Israeli residents (or a reduced rate under an applicable double tax treatyshareholders - subject to the receipt in advance of a valid certificate from the ITAIsrael Tax Authority ("ITA") allowing for a reduced tax rate)rate, 20% or such lower rate as may be provided under an applicable double tax treaty). Dividend distributions out of “Preferred Income” to an Israeli company, are not subject to withholding tax.

A dividend distribution from income derived from Approved or Beneficiary Enterprise are subject, under certain conditions, to withholding at the rate of 15%. Nonetheless, a company that elected to waive its Beneficiary Enterprise or Approved Enterprise status, which relate to tax incentive programs afforded under the Investment Law prior to the 2011 Amendment, through June 30, 2015, will be entitled to distribute income generated by the Approved/Beneficiary Enterprise to its Israeli corporate shareholders exempt from withholding tax. A dividend distribution out of income attributed to its Beneficiary Enterprise or Approved Enterprise during the tax Exemption Period, will be subject to corporate tax in respect of the amount of the dividend distributed (grossed-up to reflect the pre-tax income that it would have had to earn in order to distribute the dividend) at the corporate tax rate which would have otherwise been applicable.

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Pursuant to an amendment to the Investments Law which became effective on November 12, 2012 (“Amendment 69”), a company that elects by November 11, 2013 to pay a corporate tax rate as set forth in that amendment (rather than the regular corporate tax rate applicable to Approved Enterprise or Beneficiary Enterprise income) with respect to undistributed exempt income accumulated by the company up until December 31, 2011, will be entitled to distribute a dividend from such income without being required to pay additional corporate tax with respect to such dividend. A company that has so elected must make certain qualified investments in Israel over the five-year period commencing in 2013. A company that has elected to apply the amendment cannot withdraw from its election.

During 2013, we applied the provisions of Amendment 69 to all undistributed exempt profits accrued prior to 2011 by us and our Israeli subsidiary. Consequently, we paid NIS 6.3 million (approximately $1.8 million) corporate tax on exempt income of NIS 63.2 million (approximately $17.9 million). This income is available to be distributed as dividends in future years with no additional corporate tax liability. As a result, we are required to invest (and have already invested) NIS 4.7 million (approximately $1.2 million) in our industrial enterprises in Israel over a five year period. Such investment may be in the form of the acquisition of industrial assets (excluding real estate assets), investment in R&D in Israel, or payroll payments to new employees to be hired by the enterprise.

In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016, which includes Amendment 73 to the Law for the Encouragement of Capital Investments, was published. Amendment 73 prescribes special tax routes for technological enterprises as described below, and is in addition to the other existing tax beneficial programs under the Investment Law.

On June 30, 2021, certain grandfather rules in Amendment 73 pertaining the preferred enterprises will expire, most significantly the limitation of Preferred Income to exclude such which is generated by intangible assets not related to the manufacturing or such that would not have been recognized as Preferred Technological Income.

New Tax benefits under Amendment 73 that became effective on January 1, 2017.

Amendment 73 was enacted as part of the Economic Efficiency Law that was published on December 29, 2016, and was pending the publication of regulations, in May 2017 regulations were promulgated by the Finance Ministry to implement the "Nexus Principles" based on OECD guidelines published as part of the Base Erosion and Profit Shifting (BEPS) project. Following the publication of the regulations the 2017 Amendment became fully effective. 2017.

Amendment 73 provides new tax benefits for two types of “Technology Enterprises”, as described below, and is in addition to the other existing tax beneficial programs under the Investment Law.

Amendment 73 applies to “Preferred Technology Enterprise” that meet certain condition, including all of the following:

•

A company's average R&D expenses in the three years prior to the current tax year must be greater than or equal to 7% of its total revenue or exceed NIS 75 million (approximately $21 million) per year; and

•

A company must also satisfy one of the following conditions: (1) at least 20% of the workforce (or at least 200 employees) are employed in R&D; (2) a venture capital investment of an amount approximately equivalent to at least $2NIS 8 million was previously made in the company; or (3) growth in sales or workforce by an average of 25% over the three years preceding the tax year.

A "Special“Special Preferred Technological Enterprise"Enterprise” is an enterprise that meets conditions one and two above, and in addition is a part of a group of companies that have total annual consolidated revenues above NIS 10 billion (approximately $2.8 billion).

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A “Preferred Technology Enterprise” satisfying the required conditions will thereby enjoy a reduced corporate tax rate of 12% on income that qualifies as “Preferred Technology Income,” as defined in the Investment Law. The tax rate is further reduced to 7.5% for a Preferred Technology Enterprise located in development zonearea A. In addition, a Preferred Technology Enterprise will enjoy a reduced corporate tax rate of 12% on capital gain derived from the sale of certain “Benefitted Intangible Assets” (as defined in the Investment Law) to a related foreign company if the Benefitted Intangible Assets were acquired from a foreign company on or after January 1, 2017 for at least NIS 200 million, and the sale receives prior approval from the National Authority for Technological Innovation (previously known as the Israeli Office of the Chief Scientist), to which we refer as IIA.

A “Special Preferred Technology Enterprise” satisfying the required conditions, will thereby enjoy a reduced corporate tax rate of 6% on “Preferred Technology Income” regardless of the company’s geographic location within Israel. In addition, a Special Preferred Technology Enterprise will enjoy a reduced corporate tax rate of 6% on capital gain derived from the sale of certain “Benefitted Intangible Assets” to a related foreign company if the Benefitted Intangible Assets were either developed by the Special Preferred Technology Enterprise or acquired from a foreign company on or after January 1, 2017, and the sale received prior approval from NATI.IIA. A Special Preferred Technology Enterprise that acquires Benefitted Intangible Assets from a foreign company for more than NIS 500 million will be eligible for these benefits for at least ten years, subject to certain approvals as specified in the Investment Law.

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Dividends distributed to Israeli shareholders by a Preferred Technology Enterprise or a Special Preferred Technology Enterprise, paid out of Preferred Technology Income, are generally subject to withholding tax at source at the rate of 20% (in the case of non-Israeli shareholders - subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate, 20% or such lower rate as may be provided in an applicable tax treaty (subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate)treaty). However, if such dividends are paid to an Israeli company, no tax is required to be withheld. If more than 90% of the Preferred Technology Enterprise or Special Preferred Technology Enterprise are held by foreign company shareholders and other conditions are met, such dividends, distributed to a foreign company, will be subject to a 4% withholding tax rate (or a lower rate under a tax treaty, if applicable, subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate).

We believe that we qualified as a “Preferred Technological Enterprise” in 2020 and that our former Israeli subsidiary, qualifiesClientConnect, qualified as a “Preferred Technological Enterprise” in 2017, 2018 and 2019 and was subject to a lower tax rate of 12% according to Amendment 73 to the Law, as described above.

Law for the Encouragement of Industry (Taxes), 1969

We believe that we currently qualify as an “Industrial Company” within the meaning of the Law for the Encouragement of Industry (Taxes), 1969, or the Industry Encouragement Law. The Industry Encouragement Law defines “Industrial Company” as a company resident of Israel which was incorporated in Israel, of which 90% or more of its income in any tax year, other than of income from defense loans, , is derived from an “Industrial Enterprise” owned by it and located in Israel or in the “Area”, in accordance with the definition in section 3a of the Ordinance. An “Industrial Enterprise” is defined as an enterprise whose major activity in a given tax year is industrial production.

The following corporate tax benefits, among others, are available to Industrial Companies:

•

Amortization of the cost of purchased know-how, patents, and right to use patent or know how, which are used for the development or promotion of the Industrial Enterprise, over an eight-year period;

•

Accelerated depreciation rates on equipment and buildings;

•

Under specified conditions, an election to file consolidated tax returns with additional related Israeli Industrial Companies; and

•

Deduction of expenses related to a public offering in equal amounts over three years.

Eligibility for the benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority. We cannot assure that we qualify or will continue to qualify as an “Industrial Company” or that the benefits described above will be available in the future.

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Transfer Pricing

In accordance with Section 85A of the Ordinance and the regulations promulgated under it, an international transaction (where at least one party is a non-Israeli or the income from such transaction, in whole or in part, is taxable income abroad as well as in Israel) of which the parties are related (including relations between a person and their relative, and also control of one party to the transaction over the other, control of one person over the parties to the transaction, whether direct or indirect, alone or together with another), and due to this relationship the price set for an asset, right, service or credit was determined or other conditions for the transaction were set such that a smaller profit was realized rather than what would have been realized, if the price or the conditions had been set between parties that are not related (the "Market Terms"), then such transaction shall be reported in accordance with the Market Terms. The assessment of whether a transaction falls under the aforementioned definition shall be implemented in accordance with one of the procedures mentioned in the regulations and is based, among others, on comparisons of characteristics which portray similar transactions in ordinary market conditions, such as profit, the area of activity, nature of the asset, the contractual conditions of the transaction and according to additional terms and conditions specified in the regulations.

Taxation of our Shareholders

Taxation on Dividends to Israeli Resident Shareholders. Dividends paid to Israeli individuals, from income, which is not attributed to a Preferred Enterprise, are generally subject to 25% withholding tax. However, with respect to an Israeli individual who is a “Substantial Shareholder” (which is someone who alone, or together with another person who collaborates with such person on a permanent basis, holds, directly or indirectly, at least 10% in one or all of any of the means of control in the corporation) at the time of receiving the dividend or on any date in the preceding 12 months, the applicable withholding tax rate is 30%.

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Dividends distributed to Israeli individuals from taxable income attributed to Preferred Enterprise are subject to withholding tax at the rate of 20%. If the dividend is attributable partly to income derived from a Preferred Enterprise, and partly to other sources of income, the withholding rate will be a blended rate reflecting the relative portions of the two types of income.

Israeli resident corporations are generally exempt from Israeli corporate tax for dividends paid on shares of Israeli resident corporations provided the income from which such dividend is distributed was derived or accrued within Israel.

Capital Gains Taxes Applicable to Israeli Resident Shareholders. An individual is subject to a 25% tax rate on real capital gains derived from the sale of shares, as long as the individual is not a “Substantial Shareholder” in the company issuing the shares.

A Substantial Shareholder will be subject to tax at a rate of 30% in respect of real capital gains derived from the sale of shares (that were purchased after January 1, 2012, whether listed on a stock exchange or not) issued by a company in which he or she is a Substantial Shareholder at the time of sale or at any time during the preceding 12 months period.

Israeli corporations are generally subject to the corporate tax rate (23% in 2019) on capital gains derived from the sale of shares.

Capital Gains Taxes Applicable to Non-Israeli Resident Shareholders.

The Israeli Income Tax Ordinance [New Version], 5721-1961, or the Tax Ordinance, generally imposes a capital gaingains tax is imposed on the disposaldisposition of capital assets by a non-Israeli residenttax residents if those assets (i) are either (i) located in Israel;Israel, (ii) are shares or a right to a shareshares in an Israeli resident corporation, or (iii) represent, directly or indirectly, rights to assets located in Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s country of residence provides otherwise.

Shareholders that are The Tax Ordinance distinguishes between real capital gain and inflationary surplus. The inflationary surplus is a portion of the total capital gain equivalent to the increase of the relevant asset’s tax basis attributable to an increase in the Israeli consumer price index or, in certain circumstances, a foreign currency exchange rate, between the date of purchase and the date of disposition. Inflationary surplus is not Israeli residents may be exempt from Israelicurrently subject to tax in Israel. The real capital gain is the excess of the total capital gain over the inflationary surplus.

Generally, a non-Israeli resident (whether an individual or a corporation) who derives capital gains tax on  gains derived from the sale exchange or disposition of our ordinary shares that are listed for trading on a non-Israel stock exchange, to the extent that the following cumulative conditions are met: (i) the shares werein an Israeli resident company purchased upon or after the registration of the securitiesshares on the stock exchange, (ii) the seller does not haveTASE or on a permanent establishment inregulated market outside of Israel to which the derived capital gain is attributed, and (iii) the capital gains are neither subject to section 101 of the Ordinance, nor to the Israeli Income Tax Law (Inflationary Adjustments) 5745-1985.

Shareholders that are not Israeli residents may(such as Nasdaq) should be exempt from Israeli capital gains tax on gains derived fromunless, among others, (i) the sale, exchange or disposition of our ordinary shares that are listed for trading on TASE if the capital gain is not in theirwere held through a permanent enterprise in Israel; if the day of acquisition of the share was before the day on which it was listed for trading on an exchange, and if – had it been sold before the said listing –establishment that the non-Israeli resident shareholder maintains in Israel, or (ii) the Israeli resident company is classified as a real estate investment trust or ceased to be a real estate investment trust (as defined in the Tax Ordinance). If not exempt, a non-Israeli resident shareholder would not have been entitledgenerally be subject to an exemption in respect to shares in a private company, then the part of thetax on capital gain that would have accruedat the ordinary corporate tax rate (23% in 2020), if the share had been sold on the day before it was listed for trading on the exchange and not more than the amount of the capital gain on the day on which the share was sold shall be charged taxgenerated by a company, or at the rate of 25%, if generated by an individual, or 30%, if generated by an individual who is a “substantial shareholder” (as defined under the Ordinance,Tax Ordinance), at the time of sale or at any time during the preceding 12-month period (or if the shareholder claims a deduction for interest and linkage differences expenses in connection with the purchase and holding of such shares). A “substantial shareholder” is generally a person who alone or together with such person’s relative or another person who collaborates with such person on condition that its value ona permanent basis, holds, directly or indirectly, at least 10% of any of the day“means of its listing was greater than its value oncontrol” of the daycorporation. “Means of its acquisitioncontrol” generally include, among others, the right to vote, receive profits, nominate a director or an executive officer, receive assets upon liquidation, or order someone who holds any of the aforesaid rights how to act, regardless of the source of such right. Individual and thatcorporate shareholders dealing in securities in Israel are taxed at the consideration on the daytax rates applicable to business income (a corporate tax rate for a corporation (23% in 2020) and a marginal tax rate of its sale was greater than its value on the day of its acquisition.

However, non-Israeli corporationsup to 47% for an individual in 2020 (excluding excess tax as discussed below)) unless contrary provisions in a relevant tax treaty apply. Non-Israeli entities (including corporations) will not be entitled to the foregoing exemptionsexemption if Israeli residents, whether directly or indirectly: (i) have a controlling interest of more than 25% in such non-Israeli corporation,entity or (ii) are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such non-Israeli corporation, whetherentity. Such exemption is not applicable, inter alia, to a person whose gains from selling or otherwise disposing of the shares are deemed to be business income.

Additionally, a sale of shares by a non-Israeli resident may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty between Israel and the shareholder’s country of residence. For example, under the Convention Between the Government of the United States and the Government of the State of Israel with respect to Taxes of Income, as amended, or the United States-Israel Tax Treaty, the disposition of shares by a shareholder who (i) is a U.S. resident (for purposes of the United States-Israel Tax Treaty), (ii) holds the shares as a capital asset, and (iii) is entitled to claim the benefits afforded to such person by the United States-Israel Tax Treaty, is generally exempt from Israeli capital gains tax. Such exemption will not apply, inter alia, if (a) the capital gain arising from such sale, exchange or disposition is attributed to a permanent establishment that the shareholder maintains in Israel, (b) the shareholder holds, directly or indirectly.indirectly, shares representing 10% or more of the voting capital of the company at any time in the 12-month period preceding such sale, exchange or disposition, subject to certain conditions, (c) such U.S. resident is an individual and was present in Israel for a period or periods aggregating to 183 days or more during the relevant taxable year, (d) the capital gains arising from such sale, exchange or disposition is attributed to real estate located in Israel, or (e) the capital gain arising from such sale, exchange or disposition is attributed to royalties. In certain instances, whereeach case, the sale, exchange or disposition of our ordinary shares would be subject to Israeli tax, to the extent applicable; however, under the United States-Israel Tax Treaty, the taxpayer may be permitted to claim a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations under U.S. law applicable to foreign tax credits. The United States-Israel Tax Treaty does not provide such credit against any U.S. state or local taxes.

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Regardless of whether non-Israeli shareholders may be liable tofor Israeli capital gains tax on the sale of theirour ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at the source.

Additionally, a sale of shares may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty (subject to the receipt in advance of a valid certificate from the ITA). For example, Under the U.S.-Israel Tax Treaty, the sale, exchange or disposition of our ordinary shares by a shareholder who is a U.S. resident (for purposes of the U.S.-Israel Tax Treaty) holding the ordinary shares as a capital asset is exempt from Israeli capital gains tax unless either (i) the shareholder holds, directly or indirectly, shares representing 10% or more of the voting power of the company during any part of the 12‑month period preceding such sale, exchange or disposition, or (ii) the capital gains arising from such sale are attributable to a permanent establishment of the shareholder located in Israel, or (iii) the seller, if an individual, has been present in Israel for 183 days or more than (in the aggregate), during the taxable year.

Upon the purchase of securities, the stockbrokers who effected the transaction or the financial institution holding the traded securities through which payment to the seller is made are obligated to withhold Israeli tax at source from such payment. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at the time of sale. Specifically, in transactions involving a sale of all of the shares of an Israeli resident company, in the form of a merger or otherwise, the ITAIsrael Tax Authority may require from shareholders who are not liable for Israeli tax to sign declarations in forms specified by this authority or obtain a specific exemption from the ITAIsrael Tax Authority to confirm their status as non-Israeli resident.

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tax residents, and, in the absence of such declarations or exemptions, may require the purchaser of the shares to withhold taxes at source.

In addition, with respect to mergers involving an exchange of shares, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions, including, in some cases, a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions in which the sellers receive shares in the acquiring entity that are publicly traded on a stock exchange, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of such shares has occurred. In order to benefit from the tax deferral, a pre-ruling from the Israel Tax Authority might be required.

Taxation of Non-Israeli Resident Shareholders on Receipt of Dividends. Non-residents of Israel Non-Israeli residents (whether individuals or corporations) are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25%, 30%unless relief is provided under the provisions of an applicable tax treaty between Israel and the shareholder’s country of residence (provided that a certificate from the Israel Tax Authority allowing for a reduced withholding tax rate or a tax exemption is obtained in advance). With respect to a person who is a “substantial shareholder” (described above) at the time of receiving the dividend or on any time during the preceding 12 months, the applicable tax rate is 30%. Dividends paid on publicly traded shares, like our ordinary shares, to non-Israeli residents, are generally subject to Israeli withholding tax at a rate of 25%, so long as the shares are registered with a nominee company (whether or not the recipient is a substantial shareholder,shareholder), unless a lower rate is provided under an applicable tax treaty (provided that a certificate from the Israel Tax Authority allowing for a reduced withholding tax rate is obtained in advance). However, a distribution of dividends to non-Israeli residents is generally subject to withholding tax at source at a rate of 15% if the dividend is distributed from income attributed to an “Approved Enterprise” or a “Benefited Enterprise” and 20% if the dividend is distributed from income attributed to a “Preferred Enterprise” (as such terms are defined in the Law for the Encouragement of Capital Investments, 5719-1959, or the Encouragement Law), subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate, or such lower rate as may be provided under an applicable tax treaty. If such dividends are distributed by a “Preferred Technological Enterprise” or a “Special Preferred Technological Enterprise”, paid out of “Preferred Technological Income” (as such terms are defined under the Encouragement Law), to a non-Israeli company that holds, alone or together with other foreign companies, 90% or more in the Israeli company and other conditions are met, the withholding tax rate will be 4% (or a lower rate under a tax treaty, if applicable, subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate).

For example, under the United States-Israel Tax Treaty and subject to the eligibility to the benefits under such treaty, the maximum rate of tax withheld at source in Israel on dividends paid to a holder of our ordinary shares who is a U.S. resident (for purposes of the United States-Israel Tax Treaty) is 25%. However, for dividends not generated by an Approved Enterprise, Benefited Enterprise or Preferred Enterprises and paid to a U.S. corporation holding 10% or more of the outstanding voting capital throughout the tax year in which the dividend is distributed as well as during the previous tax year, the maximum rate of withholding tax is generally 12.5%, provided that not more than 25% of the gross income of the Israeli resident paying corporation for such preceding year consists of certain types of dividends and interest. Notwithstanding the foregoing, dividends distributed from income attributed to an Approved Enterprise, Benefited Enterprise or Preferred Enterprise whichare not entitled to such reduction under such tax will be withheldtreaty but are subject to withholding tax at source. Such rates may be reduced by the applicationrate of the provisions of applicable double tax treaties15% or 20% for such a United States corporate shareholder (subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate). , provided that the conditions related to the holding of 10% of our voting capital and to our gross income for the previous year (as set forth in the previous sentence) are met. The aforementioned rates under the United States-Israel Tax Treaty would not apply if the dividend income is derived through a permanent establishment of the U.S. resident in Israel.

If the dividend is attributable partly to income derived from aan Approved Enterprise, Benefited Enterprise or Preferred Enterprise, and partly to other sources of income, the withholding rate will be a blended rate reflecting the relative portions of the two types of income.

Under the U.S.-Israel Tax Treaty, the maximum rate of tax withheld in Israel on dividends paid to a holder of our ordinary shares who is a U.S. residentresidents (for purposes of the U.S.-IsraelUnited States-Israel Tax Treaty) is 25%. However, generally, the maximum rate ofwho are subject to Israeli withholding tax on dividends, not generated by our Approved, Beneficiary or Preferred Enterprises that are paida dividend may be entitled to a credit or deduction for United States federal income tax purposes up to the amount of the taxes withheld, subject to detailed rules contained in U.S. corporation holding 10% or more of our outstanding voting capital throughout the tax year in which the dividend is distributed as well as the previous tax year, is 12.5%. The lower 12.5% rate does not apply if the company has more than 25% of its gross income derived from certain types of passive income. Furthermore, dividends paid from income derived from our Approved, Beneficiary or Preferred Enterprise are subject, under certain conditions, to withholding at the rate of 15% or 20%. law.

We cannot assure you that we will designate the profits that are being distributedwe may distribute in a way that will reduce shareholders’ tax liability.

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A non-resident of Israelnon-Israeli resident who receives dividends from which tax was withheld is generally exempt from the dutyobligation to file tax returns in Israel in respect of such income, provided, inter alia, that (i) such income was not derived from a business conducted in Israel by the taxpayer, (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to be filed and (iii) the taxpayer is not obliged to pay excess tax (as further explained below).

Excess Tax. Individuals who are subject to tax in Israel whether as(whether any such individual is an Israeli resident or a non-Israeli resident,resident) are also subject to an additional tax at a rate of 3% on annual taxable income exceeding 640,000 in 2017,NIS 641,880 in 2018 and NIS 649,560 in 2019, which651,600 for 2020 (which amount is linked to the annual change in the Israeli consumer price index,index), including, but not limited to, dividends, interest and capital gain.

Estate and Gift Tax. Israeli tax law presently does not impose estate or gift taxes.

U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following discussion is a description of certainmaterial U.S. federal income tax considerations applicableconsequences to an investment inthe U.S. Holders described below of owning and disposing of our ordinary shares, by U.S. Holders (defined below) who acquirebut this discussion does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to own our ordinary shares.

This discussion applies only to a U.S. Holder that holds the ordinary shares and hold them as capital assets for U.S. federal income tax purposes (generally, property held for investment). As used in this section, the term “U.S. Holder” means a beneficial owner of an ordinary share who is:

an individual citizen or residentIt does not describe all of the United States;

tax consequences that may be relevant in light of a corporation (or entity classifiedU.S. Holder’s particular circumstances, including the alternative minimum tax, the Medicare contribution tax on net investment income and tax consequences applicable to U.S. Holders subject to special rules, such as:

•

certain financial institutions;

•

dealers or traders in securities that use a mark-to-market method of tax accounting;

•

persons holding ordinary shares as part of a corporationstraddle, integrated or similar transaction;

•

persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;

•

entities classified as partnerships for U.S. federal income tax purposes and their partners;

•

tax-exempt entities, “individual retirement accounts” or “Roth IRAs”;

•

persons who acquired our ordinary shares pursuant to the exercise of an employee stock option or otherwise as compensation;

•

persons that own or are deemed to own 10% or more of our stock by voting power or value; or

•

persons holding ordinary shares in connection with a trade or business outside the United States.

If a partnership (or other entity that is classified as a partnership for U.S. federal income tax purposes) owns ordinary shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships owning ordinary shares and their partners should consult their tax advisers as to their particular U.S. federal income tax consequences of owning and disposing of ordinary shares.

This discussion is based on the Internal Revenue Code of 1986, as amended, or the Code, administrative pronouncements, judicial decisions, final, temporary and proposed Treasury regulations, and the income tax treaty between the United States and Israel, or the Treaty, all as of the date hereof, any of which is subject to change, possibly with retroactive effect.

As used herein, a “U.S. Holder” is a person that for U.S. federal income tax purposes is a beneficial owner of ordinary shares and:

•

a citizen or individual resident of the United States;

•

a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state of the United Statestherein or the District of Columbia;

or

•

an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source; or

a trust if (i) a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions or (ii) the trust has in effect a valid election under applicable U.S. Treasury Regulations to be treated as a U.S. person.

The term “Non-U.S. Holder” means a beneficial owner of an ordinary share other than a partnership or other pass-through entity who issource.

This discussion does not a U.S. Holder. The tax consequences to a Non-U.S. Holder may differ substantially from the tax consequences to a U.S. Holder. Certain limited aspects ofaddress any U.S. federal income tax considerations relevant to Non-U.S. Holders of an ordinary share are also discussed below.

This discussion is based on provisions of the Code, current and proposed U.S. Treasury Regulations and administrative and judicial interpretations, each in effecttaxes (such as of the date hereof, all of which are subject to change, possibly on a retroactive basis. This description does not discuss all aspects of U.S. federal income taxation that may be applicable to investors in light of their particular circumstances or to investors who are subject to special treatment under U.S. federal income tax laws, including:

insurance companies;

dealers in stocks, securities or currencies;

financial institutions and financial services entities;

regulated investment companies or real estate investment trusts;

grantor trusts;

S corporations;

persons that acquire ordinary shares upon the exercise of employee stock options or otherwise as compensation;

tax-exempt organizations;

persons that hold ordinary shares as a position in a straddle or as part of a hedging, conversion or other integrated instrument;

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individual retirement and other tax-deferred accounts;

certain former citizens or long-term residents of the United States;

persons (other than Non-U.S. Holders) having a functional currency other than the U.S. dollar; and

persons that own directly, indirectly or constructively 10% or more of our voting shares.

Additionally, the tax treatment of persons who are, or hold our ordinary shares through, a partnership or other pass-through entity is not discussed, and such persons should consult their advisor as to their tax consequences. The possible application of the alternative minimum tax, U.S. federal estate or gift taxes) other than income taxes, andnor does it address any aspect of state, local or non-U.S. tax laws are also not considered in this discussion.

We urge you toconsiderations. U.S. Holders should consult with your owntheir tax advisor regardingadvisers concerning the tax consequences of investing in the ordinary shares, including the effects of U.S. federal, state, local foreign or otherand non-U.S. tax laws.consequences of owning and disposing of our ordinary shares in their particular circumstances.

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Taxation of Distributions Paid on the Ordinary Shares

Subject

This discussion is subject to the discussion below under “Passive“—Passive Foreign Investment Company Considerations,” a U.S. Holder generally will be requiredRules” below.

We currently do not intend to include in gross income as ordinary dividend income the amount of anymake distributions paid by us on the ordinary shares, including the amountshares. Any distributions (other than certain pro rata distributions of any non-U.S. income taxes withheld,ordinary shares) will be treated as dividends to the extent that those distributions are paid out of our current or accumulated earnings and profits, as determined forunder U.S. federal income tax purposes. Distributions in excessprinciples. Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be treated firstreported to U.S. Holders as a non-taxable return of capital anddividends. Dividends will reducenot be eligible for the dividends-received deduction generally available to U.S. Holder’s tax basis in itscorporations under the Code. Subject to applicable limitations, dividends paid on our ordinary shares to certain non-corporate U.S. Holders may be taxable at a favorable rate, provided that we are not a passive foreign investment company, or PFIC, for our taxable year in which the extent thereofdividend is paid or the preceding taxable year. Non-corporate U.S. Holders should consult their tax advisers regarding the availability of this favorable rate in their particular circumstances.

Dividend income will include any amounts withheld in respect of Israeli taxes and to the extent distributions exceed such tax basis, then will be treated as gain fromforeign-source income. Dividends will generally be included in a sale or exchangeU.S. Holder’s income on the date of those ordinary shares. Our dividends generally will not qualify for the dividends-received deduction applicable, in some cases, to U.S. corporations. Dividendsreceipt. If any dividend is paid in NIS, including the amount of any non-U.S.dividend income taxes withheld, will be includible in the income of a U.S. Holder in a U.S. dollar amount of the dividend calculated by reference to the exchange rate in effect on the date they are included in income by the U.S. Holder,of receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into

U.S. dollars on the date of receipt, a U.S. Holder should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars. A U.S. holder that receives distributions paid in NIS (or any other foreign currency) and converts the NIS (or other foreign currency) into dollars after the date such distributions are included in income may have foreign exchangeof receipt. Such gain or loss based on any appreciation or depreciation in the value of the NIS (or other foreign currency) against the dollar, which will generally be U.S. sourcetreated as U.S.-source ordinary income or loss.

A non-corporate

Subject to applicable limitations, some of which vary depending upon the U.S. Holder’s “qualified dividend income” may be taxed at reduced rates (currently, a maximum rate of 20% applies). For this purpose, subject to the limitations discussed below, “qualified dividend income” generally includescircumstances, Israeli taxes withheld from dividends paid by a non-U.S. corporation if either:

(a)

the stock of that corporation with respect to which the dividends are paid is readily tradable on an established securities market in the United States, or

(b)

that corporation is eligible for the benefits of a comprehensive income tax treaty with the United States which includes an information exchange program and is determined to be satisfactory by the United States Secretary of the Treasury. The Internal Revenue Service has determined that the United States-Israel Tax Treaty is satisfactory for this purpose.

No dividend income received by a U.S. Holderon our ordinary shares will be qualified dividend income (1) unless such U.S. Holder generally has held its ordinary shares for at least 61 days duringcreditable against the 121-day period beginning on the date that is 60 days prior to the ex-dividend date with respect to such dividend, excluding for this purpose, under the rules of Code section 246(c), any period during which the U.S. Holder has an option to sell, is under a contractual obligation to sell, has made and not closed a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has otherwise diminished its risk of loss by holding other positions with respect to, such ordinary share (or substantially identical securities) or (2) to the extent such U.S. Holder is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in property substantially similar or related to the ordinary share with respect to which the dividend is paid.

In addition, a non-corporate U.S. Holder will be able to take a qualified dividend into account in determining its deductible investment interest (which is generally limited to its net investment income) only if it elects to do so; in such case the dividend will be taxed at ordinary income tax rates. Dividends paid by a non-U.S. corporation will not be qualified dividend income and thus, not qualify for reduced rates, if such corporation is, for the tax year in which the dividend is paid or the preceding tax year, a “passive foreign investment company” for U.S. federal income tax purposes.

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Subject to certain conditions and limitations, non-U.S. income tax withheld on dividends may be deducted from taxable income or credited against a U.S. Holder’s U.S. federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. Dividends paid by us generally will be foreign source “passive income” for U.S.rules governing foreign tax credit purposes. U.S. Holders that do not elect to claim a foreign tax credit may generally instead claim a deduction for the non-U.S. income taxes withheld if such U.S. Holders itemize their deductions for U.S. federal income tax purposes. The rules relating to the determination of foreign source income and the foreign tax creditcredits are complex and the availability of a foreign tax credit depends on numerous factors. U.S. Holders should consult their tax advisorsadvisers regarding the applicationcreditability of the foreign tax credit rules.

A U.S. Holder will be deniedtaxes in their particular circumstances. In lieu of claiming a foreign tax credit, for non-U.S.U.S. Holders may elect to deduct foreign taxes (including Israeli taxes) in computing their taxable income, subject to applicable limitations. An election to deduct foreign taxes withheld from a dividend receivedinstead of claiming foreign tax credits applies to all foreign taxes paid or accrued in the taxable year.

Sale or Other Taxable Disposition of Ordinary Shares

This discussion is subject to the discussion under “—Passive Foreign Investment Company Rules” below.

Gain or loss realized on the sale or other taxable disposition of our ordinary shares (i)will be capital gain or loss and will be long-term capital gain or loss if the U.S. Holder has not heldowned the ordinary shares for at least 16 daysmore than one year. The amount of the 31-day period beginning ongain or loss will equal the date which is 15 days before the ex-dividend date with respect to such dividend or (ii) to the extentdifference between the U.S. Holder is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positionsHolder’s tax basis in substantially similar or related property. Any days during which a U.S. Holder has substantially diminished its risk of loss on the ordinary shares are not counted toward meeting the required 16-day holding period.

Dispositiondisposed of Ordinary Shares

Upon the sale or other disposition of ordinary shares (other than with respect to certain non-recognition transactions), subject to the discussion below under “Passive Foreign Investment Company Considerations,” a U.S. Holder generally will recognize capital gain or loss equal to the difference betweenand the amount realized on the disposition, and the holder’s adjusted tax basis in the ordinary shares. Gaineach case as determined in U.S. dollars. This gain or loss upon the disposition of the ordinary shares will generally be treated as long-term if, at the time of the saleU.S.-source gain or disposition, the ordinary shares were heldloss for more than one year. Long-term capital gains realized by non-corporate U.S. Holders generally are subject to reduced rates offoreign tax (currently, a maximum rate of 20% applies).credit purposes. The deductibility of capital losses by a U.S. Holder is subject to limitations.

A U.S. Holder Israeli taxes on capital gains will generally not be eligible for foreign tax credits to the extent that uses the cash method of accounting calculates the dollar value of the proceeds received on the sale as of the date that the sale settles. However, a U.S. Holder that uses the accrual method of accounting is required to calculate the value of the proceeds of the sale as of the trade date and may therefore realize foreign currency gain or loss between the trade date and the settlement date. A U.S. Holder may avoid realizing foreign currency gain or loss by electing to use the settlement date to determine the proceeds of sale for purposes of calculating the foreign currency gain or loss. In addition, a U.S. Holder that receives foreign currency upon disposition of ordinary shares and converts the foreign currency into dollars after the settlement date or trade date (whichever date the U.S. Holder is requiredentitled to use to calculatean exemption from such taxes under Israeli domestic law or the value of the proceeds of sale) may have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the dollar, which will generally be U.S. source ordinary income or loss.

Net Investment Income Tax

Non-corporateTreaty. U.S. Holders may be subject to an additional 3.8% surtax on all or a portion of the “net investment income,” which generally may include dividends on, or capital gains recognized from the disposition of, our ordinary shares. U.S. Holders are urged toshould consult their own tax advisors regardingadvisers with respect to the applicabilitycreditability or deductibility of the net investment income tax toIsraeli taxes, if any, on disposition gains in their investment in our shares.

particular circumstances.

Passive Foreign Investment Company Considerations

Special U.S. federal income tax rules apply to U.S. Holders owning shares ofRules

In general, a passive foreign investment company or “PFIC.” A non-U.S. corporation will be consideredis a PFIC for any taxtaxable year in which after applying certain look-through rules,(i) 75% or more of its gross income consists of specified types of passive income or (ii) 50% or more of the average value of its assets (determined(generally determined on aan average quarterly basis) consists of passive assets, which generally means assets that generate,produce, or are held for the production of, passive income. For purposes of the above calculations, a non-U.S. corporation that owns (or is treated as owning for U.S. federal income tax purposes), directly or indirectly, at least 25% by value of the shares or equity interests of another corporation or partnership is treated as if it held its proportionate share of the assets of the other corporation or partnership and received directly its proportionate share of the income of the other corporation or partnership. Passive income generally includes dividends, interest, rents, royalties and certain gains. Cash is generally a passive asset for these purposes. Goodwill is generally characterized as a non-passive or passive asset based on the nature of the income produced in the activity to which the goodwill relates.

We believe that we were not a PFIC for our 2020 taxable year. However, there can be no assurance that we will not be a PFIC for the current or any future taxable year because our PFIC status is an annual determination that can be made only after the end of the relevant taxable year and will depend on the composition of our income and assets and the value of our assets from time to time (including the value of our goodwill, which may be determined, in large part, by reference to the market price of our ordinary shares, which has been, and may continue to be, volatile). Because the value of our goodwill may be determined by reference to our market capitalization from time to time, our risk of being or becoming a PFIC for any taxable year will increase if our market capitalization declines.

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If we were classified asare a PFIC for any taxable year and any of our subsidiaries or other companies in which we own equity interests is also a PFIC (any such entity, a “Lower-tier PFIC”), a U.S. Holder couldwill be deemed to own a proportionate amount (by value) of the shares of any Lower-tier PFIC and will be subject to increasedU.S. federal income tax liability uponaccording to the rules described in the subsequent paragraph on (i) certain distributions by the Lower-tier PFIC and (ii) dispositions of shares of the Lower-tier PFIC, in each case as if the U.S. Holder held such shares directly, even though the U.S. Holder will not receive the proceeds of those distributions or dispositions.

In general, if we are a PFIC for any taxable year during which a U.S. Holder holds ordinary shares, gain recognized by such U.S. Holder on a sale or other disposition (including certain pledges) of its ordinary shares or upon the receipt of amounts treated as “excess distributions.” Under these rules, the excess distribution and any gain from the sale or disposition wouldwill be allocated ratably over the U.S. Holder’s holding period for the ordinary shares, and the amountperiod. The amounts allocated to the current taxable year of the sale or disposition and to any taxable years prior to the first taxable year in whichbefore we werebecame a PFIC wouldwill be taxed as ordinary income. The amount allocated to each of the priorother taxable years in which we were a PFIC wouldyear will be subject to tax at the highest marginal rate in effect for the applicable class of taxpayerindividuals or corporations, as appropriate, for that taxable year, and an interest charge for the deemed deferral benefit wouldwill be imposed on the resulting tax allocatedliability for each such year. Furthermore, to the extent that distributions received by a U.S. Holder in any year on its ordinary shares exceed 125% of the average of the annual distributions on the ordinary shares received during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, such priordistributions will be subject to taxation in the same manner. If we are a PFIC for any taxable years. The tax liabilityyear during which a U.S. Holder owns ordinary shares, we will generally continue to be treated as a PFIC with respect to the amount allocated to taxableU.S. Holder for all succeeding years prior toduring which the year ofU.S. Holder owns the disposition, or “excess distribution,” cannot be offset by any net operating losses. In addition, holders of stock in a PFIC may not receive a “step-up” in basis on shares acquired from a decedent. U.S. Holders who hold ordinary shares, during a period when we are a PFIC will be subject to the foregoing rules even if we cease to be a PFIC. Unless otherwise provided bymeet the IRS, if a non-U.S. corporation is athreshold requirements for PFIC a U.S. Holder generally is required to file an annual informational return with the IRS.

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As an alternative to the tax treatment described above, a U.S. Holder could elect to treat us as a “qualified electing fund” (“QEF”), in which case the U.S. Holder would be required to include in income, for each taxable year thatstatus. If we are a PFIC its pro rata sharefor any taxable year but cease to be PFIC for subsequent years, U.S. Holders should consult their tax advisers regarding the advisability of making a “deemed sale” election that will allow them to eliminate the continuing PFIC status under certain circumstances.

Alternatively, if we are a PFIC for any taxable year and if our ordinary earnings as ordinary income and its pro rata share of our net capital gains as capital gain, subject to a separate election to defer payment of taxes where such deferral is subject to an interest charge. A QEF election is madeshares are “regularly traded” on a shareholder-by-shareholder basis, applies to all“qualified exchange,” a U.S. Holder can make a mark-to-market election that will result in tax treatment different from the general tax treatment for PFICs described above. The ordinary shares held or subsequently acquired by an electing U.S. Holder and can onlywill be revoked with consenttreated as “regularly traded” for any calendar year in which more than a de minimis quantity of the IRS. A U.S. Holder may makeordinary shares are traded on a QEF election only if we furnish such U.S. Holder with certain tax information. We currently do not providequalified exchange on at least 15 days during each calendar quarter. Nasdaq, where the ordinary shares are listed, is a qualified exchange for this information, and we do not intend to take any actions that would be necessary to permit U.S. Holders to make a QEF election in the event we become a PFIC.

As an alternative to making a QEF election,purpose. If a U.S. Holder of PFIC stock which is “marketable stock” (e.g., “regularly traded” onordinary shares makes a timely mark-to-market election, the Nasdaq Global Select Market) may in certain circumstances avoid certain of the tax consequences generally applicable to holders of stock in a PFIC by electing to mark the stock to market as of the beginning of such U.S. Holder’s holding period for the ordinary shares. As a result of such election, in any taxable year that we are a PFIC, a U.S. Holder generally would be required to report gain or loss to the extentwill recognize as ordinary income any excess of the difference between the fair market value of the ordinary shares at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of the ordinary shares over their fair market value at the end of the taxable year and such(but only to the extent of the net amount of income previously included as a result of the mark- to-market election). If a U.S. Holder makes the election, the U.S. Holder’s tax basis in itsthe ordinary shares at that time.will be adjusted to reflect the income or loss amounts recognized. Any gain under this computation, and any gainrecognized on an actualthe sale or other disposition of the ordinary shares in a year in which we are a PFIC wouldwill be treated as ordinary income. Any loss under this computation,income and any loss on an actual disposition of the ordinary shares in a year in which we are a PFIC, generally wouldwill be treated as an ordinary loss (but only to the extent of the cumulative net-mark-to-market gainnet amount of income previously included. Any remaining loss from marking ordinary shares to market will not be allowed, andincluded as a result of the mark-to-market election, with any remaining loss from an actual dispositionexcess treated as capital loss). If a U.S. Holder of ordinary shares generally would be capital loss. A U.S. Holder’s tax basis in its ordinary shares is adjusted annually for any gain or loss recognized under themakes a timely mark-to-market election. There can be no assurances that there will be sufficient trading volume with respect to the ordinary shares in order for the ordinary shares to be considered “regularly traded” or that our ordinary shares will continue to tradeelection, distributions paid on the Nasdaq Global Select Market. Accordingly, there are no assurances that our ordinary shares will be marketable stock for these purposes. As with a QEF election,treated as discussed under “—Taxation of Distributions” above. U.S. Holders should consult their tax advisers regarding the availability and advisability of making a mark-to-market election is made onin their particular circumstances. In particular, U.S. Holders should consider carefully the impact of a shareholder-by-shareholder basis, appliesmark-to-market election with respect to alltheir ordinary shares heldgiven that we may have Lower-tier PFICs and that there is no provision in the Code, Treasury regulations or subsequently acquired by an electing U.S. Holder and can only be revokedother official guidance that would permit them to make a mark-to-market election with consentrespect to any Lower-tier PFIC the shares of the IRS (except to the extent the ordinary shares no longer constitute “marketable stock”).

Based on our income, assets, activities and market capitalization, wewhich are not “regularly traded” as described above.

We do not believe thatintend to provide information necessary for U.S. Holders to make “qualified electing fund” elections which, if available, would result in tax treatment different from the general tax treatment for PFICs described above.

If we wereare a PFIC for theany taxable year ended December 31, 2019 forduring which a U.S. federal income tax purposes. Our belief that we were not a PFIC for the 2019 taxable year is based on our estimate of the fair market value of our assets, including our intangible assets and goodwill, which are reflected in our financial statements under U.S. GAAP. In calculating the value of our assets, we value our total assets, in part, based on our total market capitalization. We believe this valuation approach is reasonable. However, there can be no assurances that the IRS could not successfully challenge our valuations or methods, which could result in our classification as a PFIC. While we intend to manage our business so as to avoid PFIC status, to the extent consistent with our other business goals, we cannot predict whether our business plans will allow us to avoid PFIC status or whether our business plans will change in a manner that affects our PFIC status determination. In addition, because the market price of ourHolder owns any ordinary shares, is likelythe U.S. Holder will generally be required to fluctuate and because that market price may affectfile annual reports with the Internal Revenue Service. U.S. Holders should consult their tax advisers regarding the determination of whether we will be consideredare a PFIC we cannot be certain that we will not be afor any taxable year and the potential application of the PFIC in 2020 or become a PFIC in any other future taxable year.

The rules applicable to owning sharestheir ownership of a PFIC are complex, and each prospective purchaser who would be a U.S. Holder should consult with its own tax advisor regarding the consequences of investing in a PFIC.

Tax Consequences for Non-U.S. Holders of Ordinary Shares

Except as described in “Informationour ordinary shares.

Information Reporting and Backup Withholding” below, a Non-U.S. HolderWithholding

Payments of our ordinary shares will notdividends and sales proceeds that are made within the United States or through certain U.S.-related intermediaries may be subject to information reporting and backup withholding, unless (i) the U.S. federal incomeHolder is a corporation or withholding tax on the payment of dividends on,other “exempt recipient” and the proceeds from the disposition of, our ordinary shares, unless, in the case of U.S. federal income taxes:

the item is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States and (i) in the case of a resident of a country which has a treaty with the United States, the item is attributable to a permanent establishment, or (ii) in the case of an individual, the item is attributable to a fixed place of business in the United States; or

the Non-U.S. Holder is an individual who holds the ordinary shares as a capital asset and is present in the United States for 183 days or more in the taxable year of the disposition, and certain other conditions are met.

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Information Reporting and Backup Withholding

U.S. Holders generally are subject to information reporting requirements with respect to dividends on, or proceeds from the disposition of, our ordinary shares. In addition, a U.S. Holder may be subject, under certain circumstances, to backup withholding, with respect to dividends paid on, or proceeds from the disposition of, our ordinary shares unless the U.S. Holder provides proof of an applicable exemption ora correct taxpayer identification number and otherwise complies with the applicable requirements of the backup withholding rules. A U.S. Holder of our ordinary shares who provides an incorrect taxpayer identification number may becertifies that it is not subject to penalties imposed by the IRS. Amounts withheld under the backup withholding. Backup withholding rules areis not an additional tax and maytax. The amount of any backup withholding from a payment to a U.S. Holder will be refunded or creditedallowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the IRS.

Non-U.S. Holders generally are not subject to information reporting or backup withholding, provided that the Non-U.S. Holder provides a taxpayer identification number, certifies to its foreign status, or establishes another exemption to the information reporting or backup withholding requirements.

Internal Revenue Service.

Certain U.S. Holders (and to the extent provided in IRS guidance,who are individuals (or certain Non-U.S. Holders) who hold interests in “specified foreign financial assets” (as defined in Section 6038D of the Code) are generallyspecified entities) may be required to file an IRS Form 8938 as part of their U.S. federal income tax returnsreport information relating to report their ownership of such specified foreign financials assets,ordinary shares or non-U.S. accounts through which may include our commonthe ordinary shares if the total value of those assets exceed certain thresholds. Substantial penalties may apply to any failure to timely file IRS Form 8938. In addition, in the event a holder that is required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection ofare held. U.S. federal income taxes of such holder for the related tax year may not close until three years after the date that the required information is filed. Holders should consult their own tax advisorsadvisers regarding their tax reporting obligations.obligations with respect to our ordinary shares.

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F.DIVIDENDS AND PAYING AGENTS

Not applicable.

G.STATEMENT BY EXPERTS

Not applicable.

H.DOCUMENTS ON DISPLAY

We are subject to the informational requirements of the Exchange Act that are applicable to foreign private issuers, and under those requirements file reports with the SEC. Those other reports or other information may be inspected without charge at the locations described above. As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each subsequent fiscal year, or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm, and will submit to the SEC reports on Form 6-K containing unaudited quarterly financial information.

Our filings with the SEC are also available to the public through the SEC’s website at http://www.sec.gov. This site contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The information on that website is not part of this annual report on Form 20-F and is not incorporated by reference herein.

I.SUBSIDIARY INFORMATION

Not applicable.

ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Exchange Rate Risk. A portion of our revenues and expenses are denominated in foreign currencies. As a result, numerous balances are denominated or linked to these currencies. Foreign currency related fluctuations resulted in $0.2 million net gains in 2017, $1.0 million net gains in 2018, and $1.0 million net losses in 2019 respectively.and $1.3 million net losses in 2020. These gains and losses are included in financial expenses, net, as presented in our statements of income.

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As of December 31, 2019,2020, balance sheet financial items in U.S. dollars, our functional currency, and those currencies other than the U.S. dollars were as follows:

		U.S. dollars				NIS				Other Currencies				Total
		In thousands of U.S. dollars
Current assets			141,873				3,585				1,901				147,359
Long-term assets			4,312				2,130				1,165				7,607
Current liabilities			(104,533	)			(8,522	)			(1,347	)			(114,402	)
Long-term liabilities			(42,173	)			(7,677	)			(4,596	)			(54,446	)
Total			(521	)			(10,484	)			(2,877	)			(13,882	)

		U.S. dollars				NIS				Other Currencies				Total
		In thousands of U.S. dollars
Current assets			110,070				1,247				3,790				115,107
Long-term assets			5,551				366				962				6,879
Current liabilities			(74,435	)			(1,594	)			(3,091	)			(79,120	)
Long-term liabilities			(20,946	)			(9,324	)			(5,016	)			(35,286	)
Total			20,240				(9,305	)			(3,355	)			7,580

The fair value of the outstanding derivative instruments and the notional amount of the designed and not designed as hedging as of December 31, 2019 were as follows:

		Notional Amount				Fair Value
		In thousands of U.S. dollars
Forward contracts to hedge payroll expenses			3,918				73

In addition, in territories where our prices are based on local currencies, fluctuations in the dollar exchange rate could affect our gross profit margin. We may compensate for such fluctuations by changing product prices accordingly. We also hold a small part of our financial investments in other currencies, mainly NIS and Euro. The dollar value of those investments may decline. A revaluation of 1% of the foreign currencies (i.e. other than U.S. dollar) would not have a material effect on our income before taxes possibly reducing it by $0.2$0.3 million.

A significant portion of our costs, including salaries and office expenses are incurred in NIS. Inflation in Israel may have the effect of increasing the U.S. dollar cost of our operations in Israel. If the U.S. dollar declines in value in relation to the New Israeli Shekel, it will become more expensive for us to fund our operations in Israel. A revaluation of 1% of the New Israeli Shekel will affect our income before tax by approximately 1%3%. The exchange rate of the U.S. dollar to the New Israeli Shekel, based on exchange rates published by the Bank of Israel, was as follows:

		Year Ended December 31,
		2018				2019				2020
Average rate for period			3.597				3.564				3.437
Rate at year-end			3.748				3.456				3.215

		Year Ended December 31,
		2017				2018				2019
Average rate for period			3.599				3.597				3.564
Rate at year-end			3.467				3.748				3.456

ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

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PART II

ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

None.

ITEM 14.        MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15.        CONTROLS AND PROCEDURES

(a)

Disclosure controls and procedures

ITEM 15.CONTROLS AND PROCEDURES

(a)Disclosure controls and procedures

Our interim chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures as of December 31, 2019,2020, have concluded that, as of such date, our disclosure controls and procedures were effective and ensured that information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our interim chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

(b)

Management annual report on internal control over financial reporting

(b)Management annual report on internal control over financial reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting and has assessed the effectiveness of our internal control over financial reporting as of December 31, 2019.2020. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control – Integrated Framework” (2013 framework). Our management has concluded, based on its assessment, that our internal control over financial reporting was effective as of December 31, 2019.

(c)

Attestation Report of the Registered Public Accounting Firm

2020.

(c)Attestation Report of the Registered Public Accounting Firm

Kost Forer Gabbay & Kasierer, an independent registered accounting firm and a member firm of Ernst & Young, has issued an attestation report on the effectiveness of our internal control over financial reporting, as stated in their report included herein. See “Report of Independent Registered Public Accounting Firm” on page F-3.

(d)

Changes in internal control over financial reporting

F-6.

(d)Changes in internal control over financial reporting

During the period covered by this report, no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) have occurred that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Ms. Sarit Firon, who is an independent director (as defined in the Nasdaq Listing Rules) and serves as our chairperson of the audit committee, qualifies as an “audit committee financial expert” as defined in Item 16A of Form 20-F.

Our board of directors has determined that Ms. Sarit Firon, who is an independent director (as defined in the Nasdaq Listing Rules) and serves as our chairperson of the audit committee, qualifies as an “audit committee financial expert” as defined in Item 16A of Form 20-F. ITEM 16B.CODE OF ETHICS

Our board of directors has adopted a code of business conduct and ethics (which was amended in February 2017) applicable to all of our directors, officers and employees as required by the Nasdaq Listing Rules, which also complies with the definition of a “code of ethics” set out in Section 406(c) of the Sarbanes-Oxley Act of 2002. A copy of the code of ethics can be found on our website at: http://www.perion.com/governance-documents. We granted no waivers under our code of business conduct and ethics in 2019.

ITEM 16C.     PRINCIPAL ACCOUNTANT FEES AND SERVICES

Fees for the professional services rendered by our independent accountants Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, for each of the last two fiscal years were as follows (in thousands):

		2018				2019
Audit Fees		$	480			$	610
Tax Fees			35				240
Audit Related fees			18				187
Total		$	533			$	1,037

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Audit fees include fees for professional services rendered by our principal accountant in connection with the annual audit, review of quarterly consolidated financial data, internationally required statutory audits, consents and assistance with review of documents filed with the SEC.

Tax fees include services related to tax compliance and claims for refunds, tax planning and advice, including assistance with tax audits and appeals, advice related to mergers and acquisitions and assistance with respect to requests for rulings from tax authorities.

Audit-related fees principally include assistance with audit services and consultations.

Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by pre-approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of our independent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management. Our audit committee has authorized all auditing and non-auditing services provided by our independent accountants during 2018 and 2019 and the fees paid for such services.

ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

None.

Our board of directors has adopted a code of business conduct and ethics (which was amended in February 2017) applicable to all of our directors, officers and employees as required by the Nasdaq Listing Rules, which also complies with the definition of a “code of ethics” set out in Section 406(c) of the Sarbanes-Oxley Act of 2002. A copy of the code of ethics can be found on our website at: http://www.perion.com/governance-documents. We granted no waivers under our code of business conduct and ethics in 2020.

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ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES Fees for the professional services rendered by our independent accountants Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, for each of the last two fiscal years were as follows (in thousands): 2019 2020 Audit Fees $ 610 $ 500 Tax Fees 240 236 Audit Related fees 187 86   Total $ 1,037 $ 822 Audit fees include fees for professional services rendered by our principal accountant in connection with the annual audit, review of quarterly consolidated financial data, internationally required statutory audits, consents and assistance with review of documents filed with the SEC. Tax fees include services related to tax compliance and claims for refunds, tax planning and advice, including assistance with tax audits and appeals, advice related to additional efforts required in connection with mergers and acquisitions and assistance with respect to requests for rulings from tax authorities. Audit-related fees principally include assistance with audit services and consultations, mainly related to mergers and acquisitions. Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by pre-approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of our independent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management. Our audit committee has authorized all auditing and non-auditing services provided by our independent accountants during 2019 and 2020 and the fees paid for such services. ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES None. ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Not applicable.

Not applicable. ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

Not applicable. ITEM 16G.CORPORATE GOVERNANCE

We are a foreign private issuer whose ordinary shares are listed on the Nasdaq Global Select Market. As such, we are required to comply with U.S. federal securities laws, including the Sarbanes-Oxley Act, and the Nasdaq Listing Rules, including the Nasdaq corporate governance requirements. The Nasdaq Listing Rules provide that foreign private issuers may follow home country practice in lieu of certain qualitative listing requirements subject to certain exceptions and except to the extent that such exemptions would be contrary to U.S. federal securities laws, so long as the foreign private issuer discloses that it does not follow such listing requirement and describes the home country practice followed in its reports filed with the SEC. Below is a concise summary of the significant ways in which our corporate governance practices differ from the corporate governance requirements of Nasdaq applicable to domestic U.S. listed companies:

Shareholder Approval. Although the Nasdaq Listing Rules generally require shareholder approval of equity compensation plans and material amendments thereto, we follow Israeli practice, which is to have such plans and amendments approved only by the board of directors, unless such arrangements are for the compensation of chief executive officer or directors, in which case they also require the approval of the compensation committee and the shareholders.

In addition, rather than follow the Nasdaq Listing Rules requiring shareholder approval for the issuance of securities in certain circumstances, we follow Israeli law, under which a private placement of securities requires approval by our board of directors and shareholders if it will cause a person to become a controlling shareholder (generally presumed at 25% ownership) or if:

the securities issued amount to 20% or more of our outstanding voting rights before the issuance;

some or all of the consideration is other than cash or listed securities or the transaction is not on market terms; and

the transaction will increase the relative holdings of a shareholder that holds 5% or more of our outstanding share capital or voting rights or will cause any person to become, as a result of the issuance, a holder of more than 5% of our outstanding share capital or voting rights.

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Shareholder Quorum. The Nasdaq Listing Rules require that an issuer have a quorum requirement for shareholders meetings of at least one-third of the outstanding shares of the issuer’s common voting stock. We have chosen to follow home country practice with respect to the quorum requirements of an adjourned shareholders meeting. Our articles of association, as permitted under the Companies Law, provide that if at the adjourned meeting a legal quorum is not present after 30 minutes from the time specified for the commencement of the adjourned meeting, then the meeting shall take place regardless of the number of members present and in such event the required quorum shall consist of any number of shareholders present in person or by proxy.

Executive Sessions. While the Nasdaq Listing Rules require that “independent directors,” as defined in the Nasdaq Listing Rules, must have regularly scheduled meetings at which only “independent directors” are present. Israeli law does not require, nor do our independent directors necessarily conduct, regularly scheduled meetings at which only they are present.

Approval of Related Party Transactions. Although the Nasdaq Listing Rules require the approval of the audit committee or another independent body of a Company’s board of directors for all “related party transactions” required to be disclosed pursuant to Item 7.B. of Form 20-F, we follow the provisions of the Israeli Companies Law. Specifically, that all related party transactions are approved in accordance with the requirements and procedures for approval of interested party acts and transactions, set forth in sections 268 to 275 of the Israeli Companies Law, and the regulations promulgated thereunder, which allow for the approval of certain related party transactions, which are immaterial, in the normal course of business and on market terms, by the board of directors. Other specified transactions can require audit committee approval and shareholder approval, as well as board approval. See also “Item 10.B Memorandum and Articles of Association — Approval of Related Party Transactions” for the definition and procedures for the approval of related party transactions.

We are a foreign private issuer whose ordinary shares are listed on the Nasdaq Global Select Market. As such, we are required to comply with U.S. federal securities laws, including the Sarbanes-Oxley Act, and the Nasdaq Listing Rules, including the Nasdaq corporate governance requirements. The Nasdaq Listing Rules provide that foreign private issuers may follow home country practice in lieu of certain qualitative listing requirements subject to certain exceptions and except to the extent that such exemptions would be contrary to U.S. federal securities laws, so long as the foreign private issuer discloses that it does not follow such listing requirement and describes the home country practice followed in its reports filed with the SEC. Below is a concise summary of the significant ways in which our corporate governance practices differ from the corporate governance requirements of Nasdaq applicable to domestic U.S. listed companies:

Shareholder Approval. Although the Nasdaq Listing Rules generally require shareholder approval of equity compensation plans and material amendments thereto, we follow Israeli practice, which is to have such plans and amendments approved only by the board of directors, unless such arrangements are for the compensation of chief executive officer or directors, in which case they also require the approval of the compensation committee and the shareholders.

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In addition, rather than follow the Nasdaq Listing Rules requiring shareholder approval for the issuance of securities in certain circumstances, we follow Israeli law, under which a private placement of securities requires approval by our board of directors and shareholders if it will cause a person to become a controlling shareholder (generally presumed at 25% ownership) or if: • the securities issued amount to 20% or more of our outstanding voting rights before the issuance; • some or all of the consideration is other than cash or listed securities or the transaction is not on market terms; and • the transaction will increase the relative holdings of a shareholder that holds 5% or more of our outstanding share capital or voting rights or will cause any person to become, as a result of the issuance, a holder of more than 5% of our outstanding share capital or voting rights. Shareholder Quorum. The Nasdaq Listing Rules require that an issuer have a quorum requirement for shareholders meetings of at least one-third of the outstanding shares of the issuer’s common voting stock. We have chosen to follow home country practice with respect to the quorum requirements of an adjourned shareholders meeting. Our articles of association, as permitted under the Companies Law, provide that if at the adjourned meeting a legal quorum is not present after 30 minutes from the time specified for the commencement of the adjourned meeting, then the meeting shall take place regardless of the number of members present and in such event the required quorum shall consist of any number of shareholders present in person or by proxy. Executive Sessions. While the Nasdaq Listing Rules require that “independent directors,” as defined in the Nasdaq Listing Rules, must have regularly scheduled meetings at which only “independent directors” are present. Israeli law does not require, nor do our independent directors necessarily conduct, regularly scheduled meetings at which only they are present. Approval of Related Party Transactions. Although the Nasdaq Listing Rules require the approval of the audit committee or another independent body of a Company’s board of directors for all “related party transactions” required to be disclosed pursuant to Item 7.B. of Form 20-F, we follow the provisions of the Israeli Companies Law. Specifically, that all related party transactions are approved in accordance with the requirements and procedures for approval of interested party acts and transactions, set forth in sections 268 to 275 of the Israeli Companies Law, and the regulations promulgated thereunder, which allow for the approval of certain related party transactions, which are immaterial, in the normal course of business and on market terms, by the board of directors. Other specified transactions can require audit committee approval and shareholder approval, as well as board approval. See also Exhibit 2.1 to this annual report on Form 20-F, which is incorporated by reference into this annual report on Form 20-F, for the definition and procedures for the approval of related party transactions. ITEM 16H.MINE SAFETY DISCLOSURE Not applicable. 77

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Not applicable.

77

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PART III

PART III ITEM 17.FINANCIAL STATEMENTS

Not applicable.

Not applicable.

ITEM 18.        FINANCIAL STATEMENTS

ITEM 18.FINANCIAL STATEMENTS

The following financial statements and related auditors’ report are filed as part of this annual report:

report on Form 20-F:

78

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2019

2020

IN U.S. DOLLARS

INDEX

INDEX

	Page
Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 20182019 and 20192020	F-5 F-8
Consolidated Statements of Income (Loss) for the Years Ended December 31, 2017, 2018, 2019 and 20192020	F-6 F-9
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2017, 2018, 2019 and 20192020	F-7 F-10
Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2017, 2018, 2019 and 20192020	F-8 F-11
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2018, 2019 and 20192020	F-9 F-12
Notes to the Consolidated Financial Statements	F-11 F-14

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Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel

Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of directors of Perion Network Ltd.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Perion Network Ltd. and subsidiaries ("the Company") as of December 31, 20192020 and 2018,2019, the related consolidated statements of income, (loss), comprehensive income, (loss), changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2019,2020, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20192020 and 2018,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2020, in conformity 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) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019,2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 16, 202025, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

F - 2

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Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel

Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

	Revenue Recognition Gross versus Net presentation
Description of the Matter	As described in Note 2 to the consolidated financial statements, the Company’s revenues are comprised primarily of Search Advertising Revenues and Display and Social Advertising Revenues. To determine whether Search Advertising and Display and Social Advertising revenues should be presented on a gross or net basis, the Company considers whether it controls the promised good or service before transferring that good or service to the customer. Auditing the Company's gross or net basis evaluation was complex and required a high degree of auditor judgment due to the significant judgment and subjectivity used by the Company in determining whether revenue should be presented on a gross or net basis. The significant judgment was primarily due to the evaluation, for each contract, of whether the Company is the primary obligor in the arrangement.
How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s revenue recognition process, including controls over the review of contracts and assessment of principal versus agent, and controls over the completeness and accuracy of data. Our substantive audit procedures included, among others, reviewing, on a sample basis, the terms of contracts with publishers, evaluating management’s assessment on the principal versus agent analysis, discussing the terms of contracts with legal and finance personnel responsible for managing the contractual arrangements and evaluating the related disclosures in the consolidated financial statements.

F - 3

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Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel

Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com

	Acquisition accounting for Content IQ LLC (CIQ) business combination
Description of the Matter	As described in Note 4.b to the consolidated financial statements, on January 14, 2020, the Company acquired 100% of the shares of Content IQ LLC” ("the CIQ Acquisition") for a total consideration of $38 million, of which $15 million was paid in cash upon the completion of the transaction and $23 million as earn-out tied to financial targets over a two-year period. The CIQ Acquisition was accounted for as a business combination in accordance with ASC 805 "Business Combinations". Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including total intangible assets of $17 million, which consist primarily of $12.5 million of technology intangible asset. Auditing the Company's accounting for the CIQ acquisition was complex and involved subjective auditor judgment in applying procedures relating to the fair value measurement of the technology intangible asset. The Company used the discounted cash flow method under the income approach ("the valuation model") to measure the fair value of the technology intangible asset. The significant assumptions used to estimate the fair value of the technology intangible asset included the discount rate applied and certain assumptions that form the basis of the forecasted results, such as revenue growth rates and profitability margins. These significant assumptions are forward-looking and could be affected by future economic and market conditions.
How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company's accounting for acquisitions process, such as controls over the measurement of the technology intangible asset, including the valuation model and underlying assumptions used to develop such estimates. We performed substantive audit procedures that included, among others, evaluating the completeness and accuracy of the underlying data and the reasonableness of management’s significant assumptions and estimates. These procedures included comparing the significant assumptions to current industry, market and economic trends, historical results of the acquired business and to other relevant third-party industry outlooks. We involved our valuation specialists to assist us in evaluating the appropriateness of the Company’s valuation model as well as the significant assumptions used to estimate the fair value of the technology intangible asset such as the weighted average cost of capital calculation. Our audit procedures included comparing the Company’s discount rate to a discount rate range that was independently developed using publicly available market data for comparable peers. We also evaluated the appropriateness of the related disclosures included in Note 4.b to the consolidated financial statements in relation to the CIQ Acquisition.

F - 4

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Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel

Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com

	Acquisition accounting for Pub Ocean business combination
Description of the Matter	As described in Note 4.c to the consolidated financial statements, on July 22, 2020 the Company acquired the net assets of Pub Ocean (the “Pub Ocean acquisition”) for an aggregate cash consideration of up to $13.4 million, of which $4 million was paid upon the completion of transaction and $9.4 million as earn-out tied to financial targets over a two-year period. The Pub Ocean Acquisition was accounted for as a business combination in accordance with ASC 805 "Business Combinations". Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including total intangible assets of $10.3 million, which consist primarily of $8.6 million of current technology intangible asset. Auditing the Company's accounting for the Pub Ocean acquisition was complex and involved subjective auditor judgment in applying procedures relating to the fair value measurement of the current technology intangible asset. The Company used the discounted cash flow method under the income approach ("the valuation model") to measure the fair value of the current technology intangible asset. The significant assumptions used to estimate the fair value of the current technology intangible asset included the discount rate applied and certain assumptions that form the basis of the forecasted results, such as revenue growth rates and profitability margins. These significant assumptions are forward-looking and could be affected by future economic and market conditions.
How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company's accounting for acquisitions process, such as controls over the measurement of the current technology intangible asset, including the valuation model and underlying assumptions used to develop such estimates. We performed substantive audit procedures that included, among others, evaluating the completeness and accuracy of the underlying data and the reasonableness of management’s significant assumptions and estimates. These procedures included comparing the significant assumptions to current industry, market and economic trends, historical results of the acquired business and to other relevant third-party industry outlooks. We involved our valuation specialists to assist us in evaluating the appropriateness of the Company’s valuation model as well as the significant assumptions used to estimate the fair value of the current technology intangible asset such as the weighted average cost of capital calculation. Our audit procedures included comparing the Company's discount rate to a discount rate range that was independently developed using publicly available market data for comparable peers. We also evaluated the appropriateness of the related disclosures included in Note 4.c to the consolidated financial statements in relation to the Pub Ocean Acquisition.

/s/ KOST FORER GABBAY & KASIERER

A Member of Ernst & Young Global

We have served as the Company‘s auditor since 2004.

Tel-Aviv, Israel

March 16, 2020

25, 2021

F - 25

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Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel

Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Perion Network Ltd.

Opinion on Internal Control over Financial Reporting

We have audited Perion Network Ltd. and subsidiaries' ("the Company") internal control over financial reporting as of December 31, 2019,2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2020, based on the COSO criteria.

As indicated in the accompanying Management's Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the businesses of Content IQ LLC ("Content IQ") and Pub Ocean Limited ("Pub Ocean") that were acquired during 2020 and included in the 2020 consolidated financial statements of the Company and constitute 19% and 10% of total and net assets, respectively, as of December 31, 2020 and 19% of revenues, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of the business of Content IQ and Pub Ocean.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20192020 and 2018,2019, the related consolidated statements of income, (loss), comprehensive income, (loss), changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2019,2020, and the related notes, and our report dated March 16, 202025, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’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 Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

F - 6

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Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel

Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

F - 3

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Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel

Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal 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 as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KOST FORER GABBAY & KASIERER

A Member of Ernst & Young Global

Tel-Aviv, Israel

March 16, 2020

25, 2021

F - 47

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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U.S. dollars in thousands (except share data)

		December 31,
		2020				2019
Assets
Current Assets:
Cash and cash equivalents		$	47,656			$	38,389
Restricted cash			1,222				1,216
Short-term bank deposits			12,700				23,234
Accounts receivable (net of allowance of $694 and $417 at December 31, 2020 and 2019, respectively)			81,221				49,098
Prepaid expenses and other current assets			4,560				3,170
Total Current Assets			147,359				115,107
Property and equipment, net			6,770				10,918
Operating lease right-of-use assets			20,266				22,429
Intangible assets, net			24,376				2,635
Goodwill			152,303				125,809
Deferred taxes			7,111				6,171
Other assets			496				708
Total Assets		$	358,681			$	283,777
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable		$	72,498			$	47,681
Accrued expenses and other liabilities			21,188				18,414
Short-term operating lease liability			4,514				3,667
Short-term loans and current maturities of long-term loans			8,333				8,333
Deferred revenues			5,711				4,188
Short-term payment obligation related to acquisitions			7,869				1,025
Total Current Liabilities			120,113				83,308
Long-Term Liabilities:
Long-term debt, net of current maturities			0-				8,333
Long-term operating lease liability			17,698				20,363
Payment obligation related to acquisition			30,035				0-
Other long-term liabilities			6,713				6,591
Total Liabilities			174,559				118,595
Commitments and Contingencies			0				0
Shareholders' Equity:
Ordinary shares of ILS 0.03 par value - Authorized: 43,333,333 shares at December 31, 2020 and 2019; Issued: 27,467,313 and 26,357,798 shares at December 31, 2020 and 2019, respectively; Outstanding: 27,351,974 and 26,242,459 shares at December 31, 2020 and 2019, respectively			224				213
Additional paid-in capital			251,933				243,211
Treasury shares at cost (115,339 shares at December 31, 2020 and 2019)			(1,002	)			(1,002	)
Accumulated other comprehensive income			112				130
Accumulated deficit			(67,145	)			(77,370	)
Total Shareholders' Equity			184,122				165,182
Total Liabilities and Shareholders' Equity		$	358,681			$	283,777

		December 31,
		2019				2018
Assets
Current Assets:
Cash and cash equivalents		$	38,389			$	39,109
Restricted cash			1,216				1,694
Short-term bank deposits			23,234				4,000
Accounts receivable (net of allowance for doubtful debt of $417 and $607 at December 31, 2019 and 2018, respectively)			49,098				55,557
Prepaid expenses and other current assets			3,170				3,533
Total Current Assets			115,107				103,893
Property and equipment, net			10,918				15,649
Operating lease right-of-use assets			22,429				-
Intangible assets, net			2,635				6,496
Goodwill			125,809				125,051
Deferred taxes			6,171				4,414
Other assets			708				943
Total Assets		$	283,777			$	256,446
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable		$	47,681			$	38,208
Accrued expenses and other liabilities			18,414				17,240
Short-term operating lease liability			3,667				-
Short-term loans and current maturities of long-term and convertible debt			8,333				16,059
Deferred revenues			4,188				3,794
Short-term payment obligation related to acquisitions			1,025				1,813
Total Current Liabilities			83,308				77,114
Long-Term Liabilities:
Long-term debt, net of current maturities			8,333				16,667
Convertible debt, net of current maturities			-				7,726
Long-term operating lease liability			20,363				-
Other long-term liabilities			6,591				6,158
Total Liabilities			118,595				107,665
Commitments and Contingencies
Shareholders' Equity:

Ordinary shares of ILS 0.03 par value - Authorized: 43,333,333 shares at December 31, 2019 and 2018; Issued: 26,357,798 and 25,965,527 shares at December 31, 2019 and 2018, respectively; Outstanding: 26,242,459 and 25,850,188 shares at December 31, 2019 and 2018, respectively			213				211
Additional paid-in capital			243,211				239,693
Treasury shares at cost (115,339 shares at December 31, 2019 and 2018)			(1,002	)			(1,002	)
Accumulated other comprehensive income			130				142
Accumulated deficit			(77,370	)			(90,263	)
Total Shareholders' Equity			165,182				148,781
Total Liabilities and Shareholders' Equity		$	283,777			$	256,446

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

F - 58

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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U.S. dollars in thousands (except share and per share data)

		Year ended December 31,
		2020				2019				2018
Revenues:
Display and Social Advertising		$	148,698			$	87,863			$	125,977
Search Advertising and other			179,365				173,587				126,868
Total Revenues			328,063				261,450				252,845
Costs and Expenses:
Cost of revenues			22,477				25,520				23,757
Customer acquisition costs and media buy			197,626				135,891				128,351
Research and development			30,880				22,585				18,884
Selling and marketing			39,085				34,736				38,918
General and administrative			15,819				14,999				16,450
Depreciation and amortization			9,923				9,711				9,719
Restructuring charges			0-				0-				2,075
Total Costs and Expenses			315,810				243,442				238,154
Income from Operations			12,253				18,008				14,691
Financial expenses, net			2,638				3,470				3,794
Income before Taxes on Income			9,615				14,538				10,897
Taxes on income (benefit)			(610	)			1,645				2,776
Net Income		$	10,225			$	12,893			$	8,121
Net Earnings per Share - Basic:		$	0.38			$	0.50			$	0.31
Net Earnings per Share - Diluted:		$	0.36			$	0.49			$	0.31
Weighted average number of shares – Basic:			26,687,145				25,965,357				25,850,067
Weighted average number of shares – Diluted:			28,797,747				26,357,585				25,855,225

		Year ended December 31,
		2019				2018				2017
Revenues:
Advertising		$	87,863			$	125,977			$	134,481
Search and other			173,587				126,868				139,505
Total Revenues			261,450				252,845				273,986
Costs and Expenses:
Cost of revenues			25,520				23,757				24,659
Customer acquisition costs and media buy			135,891				128,351				130,885
Research and development			22,585				18,884				17,189
Selling and marketing			34,736				38,918				52,742
General and administrative			14,999				16,450				21,911
Depreciation and amortization			9,711				9,719				16,591
Impairment, loss of goodwill and intangibles			-				-				85,667
Restructuring charges			-				2,075				-
Total Costs and Expenses			243,442				238,154				349,644
Income (Loss) from Operations			18,008				14,691				(75,658	)
Financial expenses, net			3,470				3,794				5,922
Income (Loss) before Taxes on Income			14,538				10,897				(81,580	)
Taxes on income (benefit)			1,645				2,776				(8,826	)
Net Income (Loss)		$	12,893			$	8,121			$	(72,754	)
Net Earnings (Loss) per Share - Basic:		$	0.50			$	0.31			$	(2.81	)
Net Earnings (Loss) per Share – Diluted:		$	0.49			$	0.31			$	(2.81	)
Weighted average number of shares – Basic:			25,965,357				25,850,067				25,849,724
Weighted average number of shares – Diluted:			26,357,585				25,855,225				25,849,724

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

F - 69

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

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U.S. dollars in thousands

		Year ended December 31,
		2020				2019				2018
Net income		$	10,225			$	12,893			$	8,121
Other comprehensive income (loss):
Change in foreign currency translation adjustment			49				(185	)			(167	)
Cash Flow Hedge:
Unrealized gain (loss) from cash flow hedges			697				445				(429	)
Less: reclassification adjustment for net gain (loss) included in net income (loss)			(764	)			(272	)			206
Net change			(67	)			173				(223	)
Other comprehensive loss			(18	)			(12	)			(390	)
Comprehensive income		$	10,207			$	12,881			$	7,731

		Year ended December 31,
		2019				2018				2017
Net income (loss)		$	12,893			$	8,121			$	(72,754	)
Other comprehensive income (loss):
Change in foreign currency translation adjustment			(185	)			(167	)			717
Cash Flow Hedge:
Unrealized gain (loss) from cash flow hedges			445				(429	)			605
Less: reclassification adjustment for net gain (loss) included in net income (loss)			(272	)			206				(525	)
Net change			173				(223	)			80
Other comprehensive income (loss)			(12	)			(390	)			797
Comprehensive income (loss)		$	12,881			$	7,731			$	(71,957	)

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

F - 710

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

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U.S. dollars in thousands (except share data)

		Common shares								Additional paid-in capital				Accumulated Other Comprehensive income (loss)				Retained earnings (Accumulated deficit)				Treasury shares				Total shareholders' equity
		Number of Shares				$				$				$				$				$				$
Balance as of  December 31, 2017			25,850,021				211				236,975				532				(98,384	)			(1,002	)			138,332
Share-based compensation			0-				-				2,718				-				-				-				2,718
Proceeds from exercise of stock-based compensation			167				0*	)			0*	)			-				-				-				0*	)
Other comprehensive loss			-				-				-				(390	)			-				-				(390	)
Net income			-				-				-				-				8,121				-				8,121
Balance as of December 31, 2018			25,850,188				211				239,693				142				(90,263	)			(1,002	)			148,781
Share-based compensation			-				-				2,293				-				-				-				2,293
Proceeds from exercise of stock-based compensation			392,271				2				1,225				-				-				-				1,227
Other comprehensive loss			-				-				-				(12	)			-				-				(12	)
Net income			-				-				-				-				12,893				-				12,893
Balance as of December 31, 2019			26,242,459				213				243,211				130				(77,370	)			(1,002	)			165,182
Share-based compensation			-				-				4,447				-				-				-				4,447
Proceeds from exercise of stock-based compensation			1,109,515				11				4,275				-				-				-				4,286
Other comprehensive loss			-				-				-				(18	)			-				-				(18	)
Net income			-				-				-				-				10,225				-				10,225
Balance as of December 31, 2020			27,351,974				224				251,933				112				(67,145	)			(1,002	)			184,122

		Common shares								Additional paid-in capital				Accumulated Other Comprehensive income (loss)				Retained earnings (Accumulated deficit)				Treasury shares				Total shareholders’ equity
		Number of Shares				$				$				$				$				$				$
Balance as of December 31, 2016			25,741,021				210				234,831				(265	)			(25,630	)			(1,002	)			208,144
Share-based compensation			-				-				2,144				-				-				-				2,144
Exercise of share options and vesting of restricted share units			109,000				1				-				-				-				-				1
Other comprehensive income			-				-				-				797				-				-				797
Net loss			-				-				-				-				(72,754	)			-				(72,754	)
Balance as of December 31, 2017			25,850,021				211				236,975				532				(98,384	)			(1,002	)			138,332
Share-based compensation			-				-				2,718				-				-				-				2,718
Exercise of share options and vesting of restricted share units			167				*	)			*	)			-				-				-				*	)
Other comprehensive loss			-				-				-				(390	)			-				-				(390	)
Net income			-				-				-				-				8,121				-				8,121
Balance as of December 31, 2018			25,850,188				211				239,693				142				(90,263	)			(1,002	)			148,781
Share-based compensation			-				-				2,293				-				-				-				2,293
Exercise of share options and vesting of restricted share units			392,271				2				1,225				-				-				-				1,227
Other comprehensive loss			-				-				-				(12	)			-				-				(12	)
Net income			-				-				-				-				12,893				-				12,893
Balance as of December 31, 2019			26,242,459				213				243,211				130				(77,370	)			(1,002	)			165,182

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

*) Less than $1

F - 811

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

---

U.S. dollars in thousands

		Year ended December 31,
		2020				2019				2018
Operating activities:
Net income		$	10,225			$	12,893			$	8,121
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			9,923				9,711				9,719
Restructuring costs related to impairment of property and equipment			0-				0-				462
Share-based compensation expense			4,447				2,293				2,718
Foreign currency translation			19				(86	)			3
Accrued interest, net			(125	)			(204	)			1,005
Deferred taxes, net			(3,093	)			(1,756	)			335
Accrued severance pay, net			(23	)			96				(783	)
Change in payment obligation related to acquisitions			4,646				1,025				0-
Fair value revaluation - convertible debt			0-				600				(1,585	)
Loss from sale of property and equipment			10				0-				0-
Net changes in operating assets and liabilities:
Accounts receivable, net			(32,049	)			6,416				7,423
Prepaid expenses and other current assets			(1,185	)			646				9,451
Operating lease right-of-use assets			2,595				3,119				0-
Operating lease liabilities			(2,255	)			(1,518	)			0-
Accounts payable			24,742				9,459				(1,066	)
Accrued expenses and other liabilities			2,776				1,653				(1,524	)
Deferred revenues			1,506				394				(1,478	)
Net cash provided by operating activities		$	22,159			$	44,741			$	32,801
Investing activities:
Purchases of property and equipment		$	(459	)		$	(1,209	)		$	(2,038	)
Proceeds from sale of property and equipment			5				492				59
Capitalization of development costs			0-				0-				(1,756	)
Short-term deposits, net			10,534				(19,234	)			1,913
Cash paid in connection with acquisitions, net of cash acquired			(19,000	)			(1,200	)			0-
Net cash used in investing activities		$	(8,920	)		$	(21,151	)		$	(1,822	)
Financing activities:
Proceeds from exercise of stock-based compensation		$	4,286			$	1,227			$	0-
Payments made in connection with acquisition			0-				(1,813	)			(3,333	)
Proceeds from long-term loans			0-				0-				25,000
Repayment of convertible debt			0-				(15,850	)			(8,167	)
Repayment of long-term loans			(8,333	)			(8,332	)			(36,509	)
Net cash used in financing activities		$	(4,047	)		$	(24,768	)		$	(23,009	)
Effect of exchange rate changes on cash and cash equivalents			81				(20	)			78
Net increase (decrease) in cash and cash equivalents and restricted cash		$	9,273			$	(1,198	)		$	8,048
Cash and cash equivalents and restricted cash at beginning of year			39,605				40,803				32,755
Cash and cash equivalents and restricted cash at end of year		$	48,878			$	39,605			$	40,803

		Year ended December 31,
		2019				2018				2017
Operating activities:
Net income (loss)		$	12,893			$	8,121			$	(72,754	)
			12,893				8,121				(72,754	)
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			9,711				9,719				16,591
Impairment of intangible assets and goodwill			-				-				85,667
Restructuring costs related to impairment of property and equipment			-				462				-
Share-based compensation expense			2,293				2,718				2,112
Foreign currency translation			(86	)			3				83
Accretion of payment obligation related to acquisition			-				-				43
Accrued interest, net			(204	)			1,005				475
Deferred taxes, net			(1,756	)			335				(8,877	)
Accrued severance pay, net			96				(783	)			801
Change in payment obligation related to acquisitions			1,025				-				-
Fair value revaluation - convertible debt			600				(1,585	)			3,785
Net changes in operating assets and liabilities:
Accounts receivable, net			6,416				7,423				8,888
Prepaid expenses and other current assets			646				9,451				(3,241	)
Operating lease right-of-use assets			3,119				-				-
Operating lease liabilities			(1,518	)			-				-
Accounts payable			9,459				(1,066	)			1,106
Accrued expenses and other liabilities			1,653				(1,524	)			1,429
Deferred revenues			394				(1,478	)			(95	)
Net cash provided by operating activities		$	44,741			$	32,801			$	36,013
Investing activities:
Purchases of property and equipment		$	(1,209	)		$	(2,038	)		$	(1,606	)
Proceeds from sale of property and equipment			492				59				10
Capitalization of development costs			-				(1,756	)			(5,756	)
Short-term deposits, net			(19,234	)			1,913				2,501
Cash paid in connection with acquisitions, net of cash acquired			(1,200	)			-				-
Net cash used in investing activities		$	(21,151	)		$	(1,822	)		$	(4,851	)
Financing activities:
Exercise of share options and restricted share units		$	1,227			$	-			$	1
Payments made in connection with acquisition			(1,813	)			(3,333	)			(2,551	)
Proceeds from long-term loans			-				25,000				5,000
Repayment of short-term loans			-				-				(7,000	)
Repayment of convertible debt			(15,850	)			(8,167	)			(7,901	)
Repayment of long-term loans			(8,332	)			(36,509	)			(11,389	)
Net cash used in financing activities		$	(24,768	)		$	(23,009	)		$	(23,840	)
Effect of exchange rate changes on cash and cash equivalents			(20	)			78				287
Net increase (decrease) in cash and cash equivalents and restricted cash		$	(1,198	)		$	8,048			$	7,609
Cash and cash equivalents and restricted cash at beginning of year			40,803				32,755				25,146
Cash and cash equivalents and restricted cash at end of year		$	39,605			$	40,803			$	32,755

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

F - 912

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

---

U.S. dollars in thousands

		Year ended December 31
		2020				2019				2018
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheet
Cash and cash equivalents		$	47,656			$	38,389			$	39,109
Restricted cash included in Long-term interest-bearing bank deposits			1,222				1,216				1,694
Total cash, cash equivalents, and restricted cash		$	48,878			$	39,605			$	40,803
Supplemental Disclosure of Cash Flow Activities:
Cash paid during the year for:
Income taxes		$	3,180			$	4,007			$	1,256
Interest		$	1,097			$	2,320			$	3,567
Non-cash investing and financing activities:
Creation of new lease right-of-use assets arising from lease liability		$	1,671			$	25,537			$	0-
Purchase of property and equipment on credit		$	3			$	15			$	1

		Year ended December 31
		2019				2018				2017
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheet
Cash and cash equivalents		$	38,389			$	39,109			$	31,567
Restricted cash included in Long-term interest-bearing bank deposits			1,216				1,694				1,188
Total cash, cash equivalents, and restricted cash		$	39,605			$	40,803			$	32,755
Supplemental Disclosure of Cash Flow Activities:
Cash paid during the year for:
Income taxes		$	4,007			$	1,256			$	2,702
Interest		$	2,320			$	3,567			$	4,619
Non-cash investing and financing activities:
Share-based compensation capitalized as part of capitalization of software development costs		$	-			$	-			$	31
Creation of operating lease right-of-use assets		$	25,537			$	-			$	-
Purchase of property and equipment on credit		$	15			$	1			$	-

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

F - 1013

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

NOTE 1:GENERAL

Perion Network Ltd. ("Perion") and its wholly-owned subsidiaries (collectively referred to as the "Company"), is a global technology company that provides agencies, brands and publishers with innovative solutions that cover the three main pillars of digital advertising. From its data-driven Synchronized Digital Branding platformadvertising – ad search, social media, and high-impact ad formats indisplay/video and CTV advertising.

On January 14, 2020, the display domain, to its powerful advertising cloud platform, to its branded search network.

Company completed the acquisition of Content IQ LLC (see Note 4) and on July 22, 2020, the Company consummated the assets acquisition of Pub Ocean (see Note 4).

NOTE 2:SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

The consolidated financial statements include the accounts of Perion and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

Use of estimates

The preparation of the consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, the Company's management evaluates its estimates, including those related to sales allowances and allowance for doubtful debts,credit losses, fair value of intangible assets and goodwill, useful lives of intangible assets, fair value of share-based awards, realizability of deferred tax assets, tax uncertainties, and contingent liabilities, among others. Such estimates are based on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of the Company’s assets and liabilities.

Financial statements in U.S. dollars

The reporting currency of the Company is the U.S. dollar (“USD”). Major parts of the Company’s operations are carried out by the Company and its subsidiaries in the United States and Israel. The functional currency of these entities is the USD. Accordingly, monetary accounts maintained in currencies other than the USD are remeasured into USD, in accordance with ASC 830, "Foreign Currency Matters". All transaction gains and losses resulting from the re-measurement of the monetary balance sheet items are reflected in the statements of income as financial income or expenses, as appropriate.

Management believes that the USD is the currency of the primary economic environment in which the Company operates. The financial statements of other subsidiaries, whose functional currency is determined to be their local currency, have been translated into USD. All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Statement of operations amounts have been translated using the average exchange rate for each applicable quarter. The resulting translation adjustments are reported as an accumulated other comprehensive income (loss) component of shareholders' equity.

F - 1114

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

Cash and cash equivalents and short-term deposits

The Company considers all short-term, highly liquid and unrestricted cash balances, with stated maturities of three months or less from date of purchase, as cash equivalents. Short-term deposits are bank deposits with maturities of more than three months but less than one year. The short-term deposits as of December 31, 20192020 and 20182019 are denominated primarily in USD and bear interest at an average annual rate of 2.16%0.35% and 3.00%2.16%, respectively.

Restricted cash

Restricted cash is comprised primarily of security deposits that are held to secure the Company’s hedging activity, lease obligations and certain letters of credit associated with lease obligations. Restricted cash in the amount of $1,216$1,222 and $1,694,$1,216, as of December 31, 2020 and 2019, and 2018, respectively, are included under prepaid expenses and other current assets.

The Company adopted ASU 2016-18 “Statement of Cash Flows: Restricted Cash”, starting January 1, 2018 in accordance with the retrospective transition method. According to the ASU amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flow.

respectively.

Accounts receivable and allowance for doubtful accounts

credit losses

Trade accounts receivables are stated at realizable value, net of an allowance for doubtful accounts.credit losses. The Company evaluates its outstanding accounts receivable and establishes an allowance for doubtful accountscredit losses. based on information available on their credit condition, current aging, historical experience and historical experience.future economic and market conditions. These allowances are reevaluated and adjusted periodically as additional information is available.

As of December 31, 2020 and 2019, the Company has recorded an allowance in the amounts of $694 and $417, respectively.

Total expenses for doubtful debts during 2020, 2019 and 2018 amounted to $323, $78 and $180, respectively.

Property and equipment

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

		%	%
Computers and peripheral equipment			33
Office furniture and equipment			6 - 15

Leasehold improvements are amortized using the straight-line method over the term of the lease or the estimated useful life of the improvements, whichever is shorter.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and operating lease liabilities in the Company’s consolidated balance sheets. Finance leases are included in property, plant and equipment, net, other current liabilities, and other long-term liabilities in the Company’s consolidated balance sheets.

F - 15

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

F - 12

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

The Company uses incremental borrowing rates based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expenses for lease payments are recognized on a straight-line basis over the lease term.

Impairment of long-lived assets, Right-of-use assets and intangible assets subject to amortization

The Company’s long-livedlong-lived assets (assets group) to be held or used, including property and equipment, right of use assets and intangible assets subject to amortization are reviewed for impairment in accordance with ASC 360, "Accounting for the Impairment or Disposal of Long-Lived Assets", whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The recoverability of these assets is measured by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If property and equipment and intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value.

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

Goodwill and intangible assets

Goodwill reflects the excess of the purchase price of business acquired over the fair value of net assets acquired. Goodwill is not amortized but instead is tested for impairment, in accordance with ASC 350, “Intangibles – Goodwill and Other”, at the reporting unit level, at least annually at December 31 each year, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Following the early adoption of ASU 2017-04, "Simplifying the Test for Goodwill Impairment" by the Company in January 2017, any excess of the carrying amount of the reporting unit over its fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value.

Based on the goodwill assessment for the Advertising reporting unit in 2017, the Company determined that the carrying amount of the Advertising reporting unit exceeds its fair value and recorded an impairment charge of $65,686 to its Goodwill.  No such impairment charges were recorded in 2018 and in 2019.

In 2017, the Company recorded impairment charges of $19,981, with respect to intangible assets subject to amortization. No such impairment charges were recorded in 2018 and 2019.

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

Intangible assets that are not considered to have an indefinite useful life are amortized over their estimated useful lives. The Customer Relationship, technology and trade name are amortized over their estimated useful lives in proportion to the economic benefits realized. This accounting policy results in accelerated amortization of such intangible assets as compared to the straight-line method.

F - 13

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

Deferred Financing Costs

Direct and incremental costs related to the issuance of debt are capitalized as deferred financing costs and are deducted from the carrying amount of that debt in the consolidated balance sheets. The Company amortizes deferred financing costs using the effective-interest method and records such amortization as interest expense.

Revenue recognition

The Company applies the provisions of Accounting Standards Codification 606, Revenue from Contracts with Customers ("ASC 606" or "Topic 606") The Company adopted the provisions of ASC 606 effective January 1, 2018 using the modified retrospective application method for all uncompleted contracts as of that date. The adoption of ASC 606 did not have a material impact on the Company’s consolidated financial statements. In addition, the adoption of ASC 606 had no impact on the Company's accounts receivable.

F - 16

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and deferred revenues balance as of December 31, 2018 or on the Company's revenues, cost of sales or its operating expenses during 2018, compared to ASC 605.

per share data)

The Company applies the practical expedient for incremental costs of obtaining contracts when the associated revenues is recognized over less than one year.

The Company generates revenues primarily from two major sources:

Display and Social Advertising Revenues (“Advertising”) - the Company primarily generates advertising revenues from delivering high impact ad formats through different channels – display, social and video/CTV, creatively designed to capture consumer attention and drive engagement, across a hand-picked portfolio of websites and mobile applications.

In addition, the Company also generates advertising revenues from content optimization solutions and services, which are being recognizes once the advertisement partners serve their advertisement across owned and operated properties as well as those of our publishers.

Search Advertising and other Revenues (“Search Monetization”) - the Company obtains its search revenues from service agreements with its search partners. Search revenue is generated primarily from monthly transaction volume-based fees earned by the Company for making its applications available to online publishers and app developers (either based on fixed price models, pay-per-search fee or portion ofa revenue share basis relative to the revenue generated by the search partners).

partners.

For more disaggregated information of revenues refer to Note 19.

The Company generalCompany’s payments terms are less than one year. Therefore, no finance component is recognized.

The Company evaluates whether Search and Advertising Revenues should be presented on a gross basis, which is the amount that a customer pays for the service, or on a net basis, which is the amount of the customer payment less amounts the Company pays to publishers. In making that evaluation, the Company considers whether it controls the promised good or service before transferring that good or service to the customer. The Company considers indicators such as whether the Company is the primary obligor in the arrangement and assumes risks and rewards as a principal or an agent, including the credit risk, whether the Company has latitude in establishing prices and selecting its suppliers and whether it changes the products or performs part of the service. The evaluation of these factors is subject to significant judgment and subjectivity. Generally, in cases in which the Company is primarily obligated in a transaction, is subject to risk, involved in the determination of the product (or the service) specifications, separately negotiates each revenue service agreement or publisher agreement and can have several additional indicators, revenue is recorded on a gross basis.

F - 14

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

Remaining performance obligations (RPOs) represent amounts collected on contracted revenues that have not yet been recognized. As of December 31, 2019,2020, the aggregate amount of the RPOs was $4,188.$5,711. The Company expectsanticipates that it will satisfy all of its remaining performance obligation associated with the RPO to be recognized as revenuesdeferred revenue within the next twelve months.

prospective fiscal year.

Contract balances are presented separately on the consolidated balance sheets as either Accounts receivable or Deferred revenues. The Company does not have contract assets.

Accounts receivable includes amounts billed and currently due from customers.

Deferred revenues are recorded when payments are received from customers in advance of the Company's rendering of services.

Revenues recognized during 20192020 from amounts included within the Deferred revenues balance at the beginning of the period amounted to $3,794.$4,188.

F - 17

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

Cost of revenues

Cost of revenues consists primarily of expenses associated with the operation of the Company’s server hosting, data centers,verification and targeting, campaign creative, labor, energy and bandwidth costs, as well as content acquisition costs and customer support. The direct cost relating to search revenues is immaterial.

Customer acquisition costs and media buy

Customer acquisition costs and media buy consist of amounts paid to publishers who distribute the Company’s search applicationssolutions and services and other products as well as the costs of advertising inventory and user acquisition costs incurred to deliver ads.in our advertising business. Customer acquisition costs are primarily based either on revenue share arrangements with minimum guaranty andguarantee or fixed rates, which are charged as incurred.

Research and development costs

Research and development costs are charged to the statement of income as incurred, except for certain costs relating to internally developed software, which are capitalized.

The Company capitalizes certain internal and external software development costs, consisting primarily of direct labor associated with creating the internally developed software. Software development projects generally include three stages: (i) the preliminary project stage (all costs expensed as incurred); (ii) the application development stage (costs are capitalized) and (iii) the post implementation/operation stage (all costs expensed as incurred). The costs capitalized in the application development stage primarily include the costs of designing the application, coding and testing of the system. Capitalized costs are amortized using the straight-line method over the estimated useful life of the software, generally three years, once it is ready for its intended use. The Company believes that the straight-line recognition method best approximates the manner in which the expected benefit will be derived. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

Capitalized software development costs, net of accumulated amortization, of $4,448$1,392 and $8,212$4,448 are included in property and equipment in the consolidated balance sheets as of December 31, 20192020 and 2018,2019, respectively (see Note 5).

F - 15

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

Income taxes

The Company accounts for income taxes in accordance with ASC 740, "Income Taxes". This Statement prescribes the use of the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. To the extent necessary, the Company provides a valuation allowance to reduce deferred tax assets to their estimated realizable value.

The Company accounts for uncertain tax positions in accordance with ASC 740, which contains a two-step approach for recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement.

F - 18

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The Company accrued interest

PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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U.S. dollars in thousands (except share and penalties related to unrecognized tax benefits in its financial expenses.

per share data)

Severance pay

The Company's agreements with employees in Israel are in accordance with section 14 of the Severance Pay Law, 1963 (“Section 14”), where the Company's contributions for severance pay is paid to the employee upon termination instead of the severance liability that would otherwise be payable under the law as aforementioned. Upon contribution to a fund, based on the full amount of the employee's monthly salary, and release of the fund to the employee, no additional severance payments are required to be made by the Company to the employee. Therefore, the related obligation and amounts deposited on behalf of such obligation are not stated on the balance sheet, as the Company is legally released from obligation to such employees once the deposit amounts have been paid.

Severance expenses for the years ended December 31, 2020, 2019 2018 and 20172018 amounted to $1,754, $1,270 $1,230 and $2,039,$1,230, respectively. The balances of severance deposits and accrued severance pay are immaterial and included in other assets and other long-term liabilities on the accompanying balance sheets, respectively.

Employee benefit plan

The Company’s U.S. operations maintain a retirement plan (the “U.S. Plan”) that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Participants in the U.S. Plan may elect to defer a portion of their pre-tax earnings, up to the Internal Revenue Service’s annual contribution limit. The Company matches up to 100% of each participant’s contributions, up to 3% of employee deferral, and 50% of the next 2%6% of employee deferral. Contributions to the U.S. Plan are recorded during the year contributed as an expense in the consolidated statement of income.

Total employer 401(k) contributions for the years ended December 31, 2020, 2019 and 2018 were $624, $691 and 2017 were $2,119, $2,305 and $2,765,$751, respectively.

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U.S. dollars in thousands (except share and per share data)

Comprehensive income (loss)

The Company accounts for comprehensive income (loss) in accordance with ASC 220, "Comprehensive Income". This statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income generally represents all changes in shareholders' equity during the period except those resulting from investments by, or distributions to, shareholders. The Company determined that its other comprehensive income (loss) relates to hedging derivative instruments and foreign currency translation adjustments.

Net earnings per share

In accordance with ASC 260, "Earnings Per Share", basic net earnings per share ("Basic EPS") is computed by dividing net earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted net earnings per share ("Diluted EPS") reflects the potential dilution that could occur if share options and other commitments to issue ordinary shares were exercised or equity awards vested, resulting in the issuance of ordinary shares that could share in the net earnings of the Company.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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U.S. dollars in thousands (except share and per share data)

The weighted average number of ordinary shares related to the outstanding options, restricted shares, convertible debt and warrants excluded from the calculations of diluted net earnings per ordinary share, as these securities are anti-dilutive, was 3,178,024, 4,087,559 4,725,618 and 5,408,2064,725,618 for the years ended December 31, 2020, 2019 and 2018, and 2017, respectively.

Concentrations of credit risk

Financial instruments, which potentially subject the Company to a concentration of credit risk, consist primarily of cash and cash equivalents, bank deposits, restricted cash and accounts receivable.

The majority of the Company’s cash and cash equivalents, bank deposits and restricted cash are invested in USD instruments with major banks in the U.S. and Israel. Deposits in the U.S. may be in excess of insured limits and are not insured in other jurisdictions. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk.

The Company’s major customers are financially sound, and the Company believes low credit risk is associated with these customers. To date, the Company has not experienced any material bad debt losses. Total expenses for doubtful debts during 2019, 2018 and 2017 amounted to $78, $180 and $230, respectively.

Share-based compensation

The Company accounts for share-based compensation under ASC 718, "Compensation - Stock Compensation", which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made to employees, contractors and directors. ASC 718 requires companies to estimate the fair value of equity-based awards on the date of grant, using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated statement of income. The Company estimates forfeitures to be estimated at the time of grant, and revised if necessary in subsequent periods, if actual forfeitures differ from those estimates.

The Company recognizes compensation expenses for the value of its awards, which have graded vesting based on service conditions, using the straight-line method, over the requisite service period of each of the awards, net of estimated forfeitures. Estimated forfeitures are based on actual historical pre-vesting forfeitures. For performance-based share units, the Company recognizes compensation expenses for the value of such awards, if and when the Company concludes that it is probable that a performance condition will be achieved based on the accelerated attribution method over the requisite service period. The Company should reassess the probability of vesting at each reporting period for awards with performance conditions and adjust compensation cost based on its probability assessment.

F - 17

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U.S. dollars in thousands (except share and per share data)

The Company accounted for changes in award terms as a modification in accordance with ASC 718. A modification to the terms of an award should be treated as an exchange of the original award for a new award with total compensation cost equal to the grant-date fair value of the original award plus the incremental value measured at the same date. Under ASC 718, the calculation of the incremental value is based on the excess of the fair value of the new (modified) award based on current circumstances over the fair value of the original award measured immediately before its terms are modified based on current circumstances.

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U.S. dollars in thousands (except share and per share data)

The Company estimates the fair value of its new share-based awards using the Binomial option-pricing model.

The following table presents the various assumptions used to estimate the fair value of the Company's share-based awards granted to employees and directors in the periods presented:

		Year ended December 31
		2020				2019				2018
Risk-free interest rate			0.29% - 1.60%				0.70% - 2.90%				1.50% - 3.00%
Expected volatility			53% - 59%				43% - 55%				48% - 57%
Early exercise factor			110% - 200%				110% - 230%				150% - 200%
Forfeiture rate post vesting			0% - 34%				0% - 34%				0% - 34%
Dividend yield			0%				0%				0%

		Year ended December 31
		2019				2018				2017
Risk-free interest rate			0.70% - 2.90%				1.50% - 3.00%				0.81% - 2.08%
Expected volatility			43% - 55%				48% - 57%				52% - 56%
Early exercise factor			110% - 230%				150% - 200%				150% - 200%
Forfeiture rate post vesting			0% - 34%				0% - 34%				0% - 23%
Dividend yield			0%				0%				0%

The expected volatility is calculated based on the actual historical share price movements of the Company’s share. The expected option term represents the period that the Company’s share options are expected to be outstanding. The early exercise factor and the forfeiture rate post-vesting are calculated based on the Company’s estimated early exercise and post-vesting forfeiture multiples, which are based on comparable companies and on actual historical data. The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds, with a term which is equivalent to the expected term of the share-based awards. The dividend yield is based on the current decision of the Company’s management not to distribute any dividends.

The fair value of restricted share units (“RSU”) is based on the market value of the underlying shares on the date of grant.

Derivative instruments

The Company accounts for derivatives and hedging based on ASC 815, "Derivatives and Hedging", which requires recognizing all derivatives on the balance sheet at fair value. If the derivatives meet the definition of a cash flow hedge and are so designated, depending on the nature of the hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period, or periods, during which the hedged transaction affects earnings. The ineffective portion of a derivative’s change in fair value, if any, is recognized in earnings, as well as gains and losses from a derivative’s change in fair value that are not designated as hedges are recognized in earnings immediately.

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U.S. dollars in thousands (except share and per share data)

In order to mitigate the potential adverse impact on cash flows resulting from fluctuations in the exchange rate of the new Israeli shekels (“ILS”), the Company hedges portions of its forecasted expenses denominated in ILS with swapSWAP and options contracts. The Company does not speculate in these hedging instruments in order to profit from foreign currency exchanges, nor does it enter into trades for which there are no underlying exposures.

To protect against the increase in value of forecasted foreign currency cash flow resulting mainly from salaries and related benefits and taxes paid in ILS during the year, the Company hedges portions of its anticipated payroll denominated in ILS for a period of one to twelve months with forward and options contracts (the “Hedging Contracts”). Accordingly, when the USD strengthens against the ILS, the decline in present value of future ILS currency expenses is offset by losses in the fair value of the Hedging Contracts. Conversely, when the USD weakens, the increase in the present value of future ILS expenses is offset by gains in the fair value of the Hedging Contracts. These Hedging Contracts are designated as cash flow hedges.

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U.S. dollars in thousands (except share and per share data)

The Company follows the requirements of ASC No. 815, Derivatives and Hedging (“ASC 815”), which requires companies to recognize all of their derivative instruments as either assets or liabilities on the balance sheet at fair value. The accounting for changes in fair value (i.e. gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging transaction and further, on the type of hedging transaction. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation.

Additionally, in order to mitigate the potential adverse impact of the fluctuations in the ILS-USD exchange rate in connection with the convertible debt (see Note 10), the Company has entered into a cross currency interest rate SWAP agreement (the “SWAP”) in order to hedge the future interest and principal payments, which are all denominated in ILS. However, since the convertible debt was measured at fair value at each reporting date, the SWAP does not qualify and was not designated as hedge under ASC 815. Therefore, gains or losses resulted from the change of the SWAP's fair value were recognized immediately as incurred in "financial expenses, net". The Company measured the fair value of these contracts in accordance with ASC 820, "Fair Value Measurement and Disclosures", and they were classified as level 2. On June 6, 2019, the SWAP agreements were terminated concurrently with the early redemption of the convertible bond.

In order to limit the Company’s interest expenses derived from the secured credit agreement in which the Company entered concurrently with the closing of the UndertoneInteractive Holding Corp. acquisition (see Note 4)in 2015 (“Undertone”), the Company has purchased a Cap Option for the interest amounts that was expected to be paid until June 2018. The cap option was designated as cash flow hedge under ASC 815.

The notional value of the Company’s derivative instruments as of December 31, 20192020 and 2018,2019, amounted to $3,918$0 and $25,691,$3,918, respectively. Notional values in USD are translated and calculated based on the spot rates for options and swap. Gross notional amounts do not quantify risk or represent assets or liabilities of the Company; however, they are used in the calculation of settlements under the contracts.

Fair value of financial instruments

The carrying amounts of financial instruments carried at cost, including cash and cash equivalents, short-term deposits, restricted cash, accounts receivable, prepaid expenses and other assets, accounts payable, accrued expenses and other liabilities approximate their fair value due to the short-term maturities of such instruments.

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U.S. dollars in thousands (except share and per share data)

The Company follows the provisions of ASC No. 820, “Fair Value Measurement” (“ASC 820”), which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

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

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U.S. dollars in thousands (except share and per share data)

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

•

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

•

Level 2 - Other inputs that are directly or indirectly observable in the market place.

•

Level 3 - Unobservable inputs which are supported by little or no market activity.

•

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

•

Level 2 - Other inputs that are directly or indirectly observable in the market place.

•

Level 3 - Unobservable inputs which are supported by little or no market activity.

Treasury shares

In the past, the Company repurchased its ordinary shares on the open market. The Company holds the shares as treasury shares and presents their cost as a reduction of shareholders' equity.

Business combinations

The Company accounted for business combination in accordance with ASC 805, "Business Combinations". ASC 805 requires recognition of assets acquired, liabilities assumed, and any non-controlling interest at the acquisition date, measured at their fair values as of that date. Any excess of the fair value of net assets acquired over purchase price is allocated to goodwill and any subsequent changes in estimated contingencies are to be recorded in earnings. In addition, changes in valuation allowance related to acquired deferred tax assets and in acquired income tax position are to be recognized in earnings.

Acquisition related costs are expensed to the statement of income in the period incurred.

Recent Adopted Accounting Pronouncements:

On January 1, 2019, the Company  adopted ASC 842, "Leases", on the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASC 842 supersedes the previous leases standard, ASC 840, "Leases". ASC 842 requires lessees to apply a dual approach, classifying leases as either finance or operating leases, based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use ("ROU") asset and a lease liability for all leases with a term of greater than 12 months, regardless of their classification. The Company elected, as a practical expedient, to account for leases with a term of 12 months or less in a manner similar to the accounting under pre-existing guidance for operating leases.

In July 2018,June 2016 the FASB issued Accounting Standards Update (ASU) No. 2016-13 "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments". The FASB subsequently issued amendments into ASU 2018-11,2016-13, which provides anotherhave the same effective date and transition method in addition to the existing transition method, by allowingdate of January 1, 2020. This standard requires entities to initially applyestimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings and report credit losses using an expected losses model rather than the new lease accounting standard at the adoption dateincurred losses model that was previously used, and recognize a cumulative-effect adjustmentestablishes additional disclosures related to the opening balance of retained earnings in the period of adoption, and to not apply the new guidance in the comparative periods they present in the financial statements. credit risks.

The guidance isCompany adopted Topic 326 effective for the interim and annual periods beginning on or after December 15, 2018, and the Company has elected to apply the standard using a modified retrospective transition method at the beginning of the period of adoption (JanuaryJanuary 1, 2019) through a cumulative-effect adjustment.

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U.S. dollars in thousands (except share and per share data)

2020. The most significant impact from recognition of ROU assets and lease liabilities relates to the Company's office space. However, the adoption of ASC 842 doesthis standard did not have a material impact on the operating expensesCompany’s condensed consolidated financial statements.

The Consolidated Financial Statements for the year ended December 31, 2020 are presented under the new standard, while comparative periods presented are not adjusted and continue to be reported in accordance with the Company's consolidated statements of operations, since the expense recognition under ASC 842 is similar to current practice. The Company's financial income (expenses), net is impacted by the revaluation of the lease liabilities denominated in non-dollar currencies.

To adopt ASC 842, the Company has implemented changes to its existing systems and processes in conjunction with a review of existing vendor agreements. See also Note 11.

In February 2018, the FASB issued ASU 2018-02 “Income Statement—Reporting Comprehensive Income—Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. The guidance allows reclassification of stranded tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. This guidance is effective for fiscal years beginning after December 15, 2018. Company’s historical accounting policy.

The adoption of this guidance has nostandard did not have a material impact on the Company’s condensed consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07 “Improvement to Nonemployee Share-Based Payments Accounting”. This guidance simplifies the accounting for non-employee share-based payment transactions. The amendments specify that ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The guidance is effective for fiscal years beginning after December 31, 2018. The adoption of this guidance started as of Jan 1, 2019 and has no material impact on the Company’s consolidated financial statements.

Reclassifications

Certain items of expense have been reclassified to conform to current year financial statement presentation.

Recent Accounting Pronouncements not yet adopted

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments – Credit Losses (Topic 326)". ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU 2016-13 will become effective for annual and interim periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The new standard will be effective for interim and annual periods beginning after January 1, 2020, and early adoption is permitted. The Company does not expect this standard to have a material effect on its consolidated financial statements.

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U.S. dollars in thousands (except share and per share data)

In January 2017, the FASB issued ASU 2017-04, "Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". ASU 2017-04 eliminates the requirement to measure the implied fair value of goodwill by assigning the fair value of a reporting unit to all assets and liabilities within that unit (the "Step 2 Test") from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited by the amount of goodwill in that reporting unit. ASU 2017-04 will become effective for the Company beginning January 1, 2020 and must be applied to any annual or interim goodwill impairment assessments after that date. The Company will adopt this standard on a prospective basis as of January 1, 2020 and does not expect this standard to have a material effect on its consolidated financial statements

In August 2018, the FASB issued ASU 2018-13 “Fair Value Measurement (Topic 820)—Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. This guidance removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements.

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U.S. dollars in thousands (except share and per share data)

The new disclosure requirements include disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Certain disclosures required by this guidance must be applied on a retrospective basis and others on a prospective basis. The guidance will be effectivewas adopted for fiscal yearsinterim and annual periods beginning after December 15, 2019, although early adoption is permitted.

The Company does not expectadoption of this standard todid not have a material effectimpact on the Company’s condensed consolidated financial statements.

The Consolidated Financial Statements and disclosures for the year ended December 31, 2020 are presented under the new standard, while comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy.

Recent Accounting Pronouncements not yet adopted

In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): “Simplifying the Accounting for Income Taxes” (ASU 2019-12), which simplifies the accounting for income taxes. This guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, and early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

Reclassifications

Certain items of expense have been reclassified to conform to current year financial statement presentation.

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U.S. dollars in thousands (except share and per share data)

NOTE 3:

FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 3:FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table present liabilities measured at fair value on a recurring basis as of December 31, 2020:

		Fair value measurements using input type
		Level 1				Level 2				Level 3				Total
Liabilities:
Contingent consideration in connection to the acquisitions		$	0-			$	0-			$	37,904			$	37,904
Total financial liabilities		$	0-			$	0-			$	37,904			$	37,904

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

		Fair value measurements using input type
		Level 1				Level 2				Level 3				Total
Assets:
Derivative assets		$	0-			$	73			$	0-			$	73
Total financial assets		$	0-			$	73			$	0-			$	73

		Fair value measurements using input type
		Level 1				Level 2				Level 3				Total
Assets:
Derivative assets		$	-			$	73			$	-			$	73
Total financial assets		$	-			$	73			$	-			$	73

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U.S. dollars in thousands (except share and per share data)

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

		Fair value measurements using input type
		Level 1				Level 2				Level 3				Total
Assets:
Derivative assets		$	-			$	871			$	-			$	871
Total financial assets		$	-			$	871			$	-			$	871
Liabilities:
Derivative liabilities			-				153				-				153
Convertible debt			15,453				-				-				15,453
Total financial liabilities		$	15,453			$	153			$	-			$	15,606

NOTE 4:ACQUISITIONS

a.

Interactive Holding Corp.

On November 30, 2015, the Company acquired 100% of the shares of Interactive Holding Corp., a Delaware corporation, and its subsidiaries (collectively referred to as "Undertone") for a total preliminary purchase price of $133,101, comprised of (i) immediate cash payment of $89,078; (ii) $6,129 cash payments between 2016 and 2017; (iii) $16,000 holdback for potential claims recorded at fair value ($14,391 at acquisition), and (iv) $20,000 deferred consideration, bearing 10% annual interest, to be paid on November 2020, for which a liability of $22,005 was recorded at fair value  (v) Working capital adjustment in the amount of $1,498.

On August 2, 2016, the Company executed an amendment to the purchase agreement, pursuant to which, the Company paid $22,000 and eliminated $35,546 at fair value, of obligations. As a result of the amendment, the Company reduced the purchase price by $13,546. Final purchase price amounted to $119,768 including a working capital final adjustment of $213 in 2016.

b.

Make Me Reach SAS

On February 10, 2015, the Company consummated the acquisition of 100% of the shares of Make Me Reach SAS, a private French company headquartered in Paris, France ("MMR"). MMR enables advertisers to efficiently and effectively scale their advertising campaigns on social media, with a specific focus on optimizing mobile ad campaigns. MMR is a Facebook Preferred Marketing Developer (“PMD”) and Twitter Marketing Platform Partner (“MPP”). The purchase price was $6,394 in cash and $4,378 in the form of 1,437,510 ordinary shares. In addition, the Company paid certain key employees of MMR retention payments of $144 in cash and $63 in the form of 18,998 ordinary shares, which were paid upon closing, and $708 in cash and $650 in ordinary shares, subject to retention conditions, which were met and paid in full in February 2016. Amounts subject to retention conditions were included as payroll expenses in the statement of operations.

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U.S. dollars in thousands (except share and per share data)

c.

Septa Communications LLC

a.Septa Communications LLC

On March 28, 2019, the Company consummated the acquisition of 100% of the shares of Septa Communications LLC, also known as “Captain Growth”.

Captain Growth is a Ukrainian-based start-up that has developed a proprietary AI platform to better connect and deliver relevant campaign messages through the entire ad journey.

Total consideration is up to $3,750,for the acquisition was $1,200 paid in cash at closing.

b.Content IQ LLC

On January 14, 2020, the Company consummated the acquisition of Content IQ LLC (“Content IQ”), a privately held company founded in 2014, based in New York City. Content IQ has created data algorithm and analytics tools that deconstruct content, revenue and distribution to solve current major digital publishing challenges.

The total consideration for the acquisition was $37,838, comprised of $15,000 paid in cash at closing whileand a contingent consideration (with a maximum amount of up to $47,050), tied to revenues and EBITDA-based metrics over a period of two years, estimated at fair value of $22,838 at the remainingacquisition date. As of December 31, 2020, the contingent consideration is subjectestimated at fair value of $19,546. The change in fair value of the contingent consideration was recorded to general and administrative expenses. In addition, the acquisition includes a retention-based component of up to $11,000.

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U.S. dollars in thousands (except share and per share data)

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:

		Fair value
Property and equipment, net		$	4
Technology			12,483
Customer Relationship			4,243
Deferred Taxes			(2,253	)
Goodwill			23,361
Net assets acquired		$	37,838

Technology includes publishing orchestration system with proprietary data algorithms and analytic tools which deconstruct content, revenue and distribution to solve digital publishing challenges. The technology is amortized over the estimated useful life of 5 years using the straight-line method.

Customer relationships is derived from customer contracts and related customer relationships with existing customers. Customer relationships is amortized based on the accelerated method over the estimated useful life of 7 years.

The following table represents the pro-forma condensed unaudited consolidated statements of operations as if the acquisition completed during the years ended December 31, 2019 and 2020, had been included in the condensed consolidated statements of operations of the Company for the years ended December 31, 2019 and 2020:

		Year ending
		December 31,
		2020				2019
Revenues		$	329,068			$	299,871
Net Income		$	8,079			$	3,985

The pro-forma results have been calculated after applying the Company’s accounting policies and adjusting the results of all acquisitions to reflect the additional payroll related expenses, revaluation of the earnout liability and depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied since the acquisitions date, together with the consequential tax effects.

The pro-forma results are based on estimates and assumptions, which the Company believes are reasonable. The pro-forma results are not the results that would have been realized had the acquisitions actually occurred on January 1, 2019 and 2020, are not necessarily indicative of the Company’s condensed consolidated statements of operations in future periods.

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U.S. dollars in thousands (except share and per share data)

c.Pub Ocean

On July 22, 2020, the Company acquired the net assets of Pub Ocean Limited, also known as “Pub Ocean” (the "Pub Ocean Acquisition"), a rapidly growing digital publisher-focused technology company with scalable content distribution and real-time revenue analytics technology.

The total consideration for the acquisition was $13,399, comprised of $4,000 paid in cash at closing and a contingent consideration (with a maximum amount of up to $17,000), tied to financial targets over a two-year period, estimated at fair value of $9,399 at the acquisition date. As of December 31, 2020, the contingent consideration is estimated at fair value of $12,313. The change in fair value of the contingent consideration was recorded to general and administrative expenses. In addition, the acquisition includes a retention-based component of up to $1,000.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:

		Fair value
Property and equipment, net		$	15
Other creditors			(25	)
Technology			9,618
Customer Relationship			658
Goodwill			3,133
Net assets acquired		$	13,399

Technology includes content recommendation system based on proprietary data algorithms and analytic tools which complement the technology offered by Content IQ. The technology is amortized over the estimated useful life of 5 years using the straight-line method.

Customer relationships is derived from customer contracts and related customer relationships with existing customers. Customer relationships is amortized based on the accelerated method over the estimated useful life of 7 years.

Pro forma results of operations related to this acquisition have not been prepared because they are not material to the achievementCompany’s consolidated statements of operations.

In connection with the Pub Ocean Acquisition, the Company amended the Content IQ Membership Interest Purchase Agreement (“MIPA”). Under the terms of the amended MIPA, it was agreed with the sellers of Content IQ (“the Sellers”), that (i) revenues and EBITDA of Pub Ocean will be attributed towards Sellers’ revenue and EBITDA targets under the MIPA with Perion; and (ii) Sellers will bear 40% of the cost of milestone payments that are ultimately payable to Pub Ocean under the Asset Acquisition agreement, which will be paid solely by deductions from their own earn-out payments and certain milestones and retention over the next 2 years, starting from the acquisition date.escrowed amounts.

F - 27

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

NOTE 5:

PROPERTY AND EQUIPMENT, NET

NOTE 5:PROPERTY AND EQUIPMENT, NET

		December 31,
		2020				2019
Cost:
Computers and peripheral equipment		$	6,776			$	7,212
Office furniture and equipment			2,682				2,703
Leasehold improvements			8,658				8,678
Capitalized software			12,473				12,473
Total cost			30,589				31,066
Less: accumulated depreciation and amortization			(23,819	)			(20,148	)
Property and equipment, net		$	6,770			$	10,918

		December 31,
		2019				2018
Cost:
Computers and peripheral equipment		$	7,212			$	7,004
Office furniture and equipment			2,703				2,836
Leasehold improvements			8,678				8,712
Capitalized software			12,488				12,645
Total cost			31,081				31,197
Less: accumulated depreciation and amortization			(20,163	)			(15,548	)
Property and equipment, net		$	10,918			$	15,649

Depreciation and amortization expenses totaled to $4,662, $5,455 $4,950 and $3,567,$4,950, for the years ended December 31, 2020, 2019 and 2018, and 2017, respectively.

During 2018 the Company capitalized software development costs of $1,756. InDuring 2019 and 2020 there were no software development capitalization cost.

Amortization expense for the related capitalized internally developed software in the consolidated statements of income amounted to $3,056, $3,607 and $2,978 during 2020, 2019 and $842 during 2019, 2018, and 2017, respectively.

F - 24

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

NOTE 6:

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

a.

Goodwill

NOTE 6:GOODWILL AND OTHER INTANGIBLE ASSETS, NET

a.Goodwill

The changes in the net carrying amount of goodwill in 20182019 and 20192020 were as follows:

Balance as of January 1, 2019		$	125,051
Acquisition of Captain growth		$	758
Balance as of December 31, 2019		$	125,809
Acquisition of Content IQ		$	23,361
Acquisition of Pub Ocean		$	3,133
Balance as of December 31, 2020		$	152,303

Balance as of January 1, 2018		$	125,051
Balance as of December 31, 2018		$	125,051
Acquisition of Captain growth		$	758
Balance as of December 31, 2019		$	125,809

Goodwill has been recorded as a result of prior acquisitions and represents excess of the consideration over the net fair value of the assets of the businesses acquired. As of December 31, 2019,2020, the Company has two reporting units – Advertising and Search monetization. The Company performs tests for impairment of goodwill at the reporting unit level at least annually, or more frequently if events or changes in circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value. In 2017

No impairment was incurred for the Company recorded an impairment charge of $65,686, classified as “Impairment charges” in the consolidated statements of income. No such impairment charges were recorded in 2018years ended December 31, 2020, 2019 and 2019.

2018.

F - 2528

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

b.Intangible assets, net

The following is a summary of intangible assets as of December 31, 2020:

		December 31, 2019				Additions				Amortization				OCI				December 31, 2020
Acquired technology		$	31,159			$	22,101			$	0-			$	152			$	53,412
Accumulated amortization			(21,810	)			0-				(3,579	)			(159	)			(25,548	)
Impairment			(8,749	)			0-				0-				0-				(8,749	)
Acquired technology, net			600				22,101				(3,579	)			(7	)			19,115
Customer relationships			31,911				4,901				0-				48				36,860
Accumulated amortization			(20,727	)			0-				(1,465	)			31				(22,161	)
Impairment			(10,426	)			0-				0-				0-				(10,426	)
Customer relationships, net			758				4,901				(1,465	)			79				4,273
Tradename and other			18,284				0-				0-				219				18,503
Accumulated amortization			(11,897	)			0-				(217	)			(291	)			(12,405	)
Impairment			(5,110	)			0-				0-				0-				(5,110	)
Tradename and other, net			1,277				0-				(217	)			(72	)			988
Intangible assets, net		$	2,635			$	27,002			$	(5,261	)		$	0-			$	24,376

b.

Intangible assets, net

The following is a summary of intangible assets as of December 31, 2019:

		December 31, 2018				Additions				Amortization				OCI				December 31, 2019
Acquired technology		$	30,807			$	442			$	0-			$	(90	)		$	31,159
Accumulated amortization			(21,242	)			0-				(649	)			81				(21,810	)
Impairment			(8,749	)			0-				0-				0-				(8,749	)
Acquired technology, net			816				442				(649	)			(9	)			600
Customer relationships			31,940				0-				0-				(29	)			31,911
Accumulated amortization			(19,825	)			0-				(928	)			26				(20,727	)
Impairment			(10,426	)			0-				0-				0-				(10,426	)
Customer relationships, net			1,689				0-				(928	)			(3	)			758
Tradename and other			18,415				0-				0-				(131	)			18,284
Accumulated amortization			(9,314	)			0-				(2,679	)			96				(11,897	)
Impairment			(5,110	)			0-				0-				0-				(5,110	)
Tradename and other, net			3,991				0-				(2,679	)			(35	)			1,277
Intangible assets, net		$	6,496			$	442			$	(4,256	)		$	(47	)		$	2,635

		December 31, 2018				Additions				Amortization				OCI				December 31, 2019
Acquired technology		$	30,807			$	442			$	-			$	(90	)		$	31,159
Accumulated amortization			(21,242	)			-				(649	)			81				(21,810	)
Impairment			(8,749	)			-				-				-				(8,749	)
Acquired technology, net			816				442				(649	)			(9	)			600
Customer relationships			31,940				-				-				(29	)			31,911
Accumulated amortization			(19,825	)			-				(928	)			26				(20,727	)
Impairment			(10,426	)			-				-				-				(10,426	)
Customer relationships, net			1,689				-				(928	)			(3	)			758
Tradename and other			18,415				-				-				(131	)			18,284
Accumulated amortization			(9,314	)			-				(2,679	)			96				(11,897	)
Impairment			(5,110	)			-				-				-				(5,110	)
Tradename and other, net			3,991				-				(2,679	)			(35	)			1,277
Intangible assets, net		$	6,496			$	442			$	(4,256	)		$	(47	)		$	2,635

The following is a summary of intangible assets as of December 31, 2018:

		December 31, 2017				Amortization				OCI				December 31, 2018
Acquired technology		$	30,837			$	-			$	(30	)		$	30,807
Accumulated amortization			(19,959	)			(1,301	)			18				(21,242	)
Impairment			(8,749	)			-				-				(8,749	)
Acquired technology, net			2,129				(1,301	)			(12	)			816
Customer relationships			31,949				-				(9	)			31,940
Accumulated amortization			(18,832	)			(999	)			6				(19,825	)
Impairment			(10,426	)			-				-				(10,426	)
Customer relationships, net			2,691				(999	)			(3	)			1,689
Tradename and other			18,457				-				(42	)			18,415
Accumulated amortization			(6,858	)			(2,469	)			13				(9,314	)
Impairment			(5,110	)			-				-				(5,110	)
Tradename and other, net			6,489				(2,469	)			(29	)			3,991
Intangible assets, net		$	11,309			$	(4,769	)		$	(44	)		$	6,496

F - 2629

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

The estimated useful life of the intangible assets are as follows:

		Estimated useful life
Acquired technology			3-5 years
Acquired technology Customer relationships			3-5 4-7 years
Customer relationships			4-5 years
Tradename and other			4-11 years

Amortization of intangible assets, net, in each of the succeeding five years and thereafter is estimated as follows:

2021		$	5,438
2022			5,450
2023			5,462
2024			5,395
2025			1,858
Thereafter			773
		$	24,376

2020		$	1,366
2021			322
2022			333
2023			346
2024			268
		$	2,635

NOTE 7:

ACCRUED EXPENSES AND OTHER LIABILITIES

NOTE 7: ACCRUED EXPENSES AND OTHER LIABILITIES

		December 31,
		2020				2019
Employees and payroll accruals		$	13,970			$	10,506
Government authorities			3,422				2,540
Accrued expenses			3,003				5,092
Other short-term liabilities			793				276
		$	21,188			$	18,414

		December 31,
		2019				2018
Employees and payroll accruals		$	11,084			$	8,528
Accrued expenses			5,092				6,391
Government authorities			1,962				2,068
Other short-term liabilities			276				253
		$	18,414			$	17,240

F - 2730

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

NOTE 8: DERIVATIVES AND HEDGING ACTIVITES

As of December 31, 2019, The fair value of the Company’s outstanding derivative instruments isreflected as follows:

			December 31,
	Balance sheet		2019				2018
Derivatives designate as hedging instruments:
Foreign exchange forward contracts and other derivatives	''Prepaid expenses and other current assets''		$	73			$	11
	''Accrued expenses and other liabilities''			-				153
	''Accumulated other comprehensive income''			67				(106	)
Derivatives not designated as hedging instruments:
Cross currency SWAP	''Prepaid expenses and other current assets''		$	-			$	860

prepaid expenses and other current assets was $73 and reflected as Accumulated other comprehensive income was $67.

As of December 31, 2019,2020 the Company estimates that allfair value of the net derivative assets related to its cash flow hedges included in accumulated other comprehensive income will be reclassified into expenses within the next 12 months when the underlying hedged item impacts earnings.

Company’s outstanding derivatives instruments was $0.

The net amounts reclassified from accumulated other comprehensive loss to the operating expenses are as follows:

		Gain recognized in Statements of Comprehensive Income					Gain (loss) recognized in consolidated statements of Income
		Year ended December 31,					Year ended December 31,
		2020			Statement of Income		2020				2019				2018
Derivatives designated as hedging instruments:
Foreign exchange options and forward contracts		$	67		"Operating expenses"		$	764			$	272			$	(206	)
Derivatives not designated as hedging instruments:
Foreign exchange options and forward contracts			0-		"Financial expenses"			(166	)			59				(186	)
SWAP			0-		"Financial expenses"			0-				380				(2,487	)
Total		$	67				$	598			$	711			$	(2,879	)

		Gain recognized in Statements of Comprehensive Income					Gain (loss) recognized in consolidated statements of Income
		Year ended December 31,			Statement of Income		Year ended December 31,
		2019					2019				2018				2017
Derivatives designated as hedging instruments:
Foreign exchange options and forward contracts		$	173		"Operating expenses"		$	272			$	(206	)		$	525
Derivatives not designated as hedging instruments:
Foreign exchange options and forward contracts			-		"Financial expenses"			59				(186	)			132
SWAP			-		"Financial expenses"			380				(2,487	)			2,373
Total		$	173				$	711			$	(2,879	)		$	3,030

F - 28

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

NOTE 9:

SHORT TERM AND LONG-TERM DEBT

NOTE 9: SHORT TERM AND LONG-TERM DEBT

On December 17, 2018, the Company,ClientConnect Ltd., a former Israeli subsidiary of Perion, which merged into Perion on June 30, 2020, executed a new loan facility, in the amount of $25,000. Proceeds of the loan facility were applied to refinancing of the existing debt as well as the debt of Undertone.Undertone, a US subsidiary of Perion. ClientConnect's obligations under the facility were assumed by Perion in the context of the merger. Principal on the loan is payable in twelve equal quarterly instalments beginning March 2019 and maturing on December 31, 2021. The interest on the loan is at the rate of three-month LIBOR plus 5.7% per annum, payable quarterly. The credit facility is secured by liens on the assets of ClientConnectPerion and Undertone and is guaranteed by Perion and Undertone. Each suchThe guarantee by Undertone is limited to $33 million.$33,000. Financial covenants for the loan facility are tested at the level of Perion on a consolidated basis. As of December 31, 2019,2020, the Company meets all of its covenants.

F - 31

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

As of December 31, 2019,2020, the aggregate principal annual maturities according to all of the above loan agreements were as follows:

		Repayment amount
2021			8,333
Present value of principal payments		$	8,333
Less: current portion			(8,333	)
Long-term debt		$	0-

		Repayment amount
2020		$	8,333
2021			8,333
Present value of principal payments			16,666
Less: current portion			(8,333	)
Long-term debt		$	8,333

On May 19, 2020, the Company entered into a short-term secured credit line in the amount of up to $20 million with Bank Mizrahi, which was scheduled to mature on May 18, 2021. On August 11, 2020, the Company withdrawn an amount of $12.5 million from this credit line. Such a withdrawal was a short-term revolving loan for a three-month period. On December 21, 2020, this credit facility was repaid in full.

On March 8, 2021, the Company had repaid it’s loan facility (see Note 20).

NOTE 10:

CONVERTIBLE DEBT

NOTE 10: CONVERTIBLE DEBT

In September 2014, the Company completed a public offering in Israel of its Series L Convertible Bonds (the "Bonds"), with an aggregate par value of approximately ILS 143.5 million. The Bonds were issued at a purchase price equal to 96.5% of their par value and bear annual interest at a rate of 5%, payable semi-annually, subject to a possible increase up to 6% in the event and to the extent the Company’s debt rating is downgraded. The Bonds’ principal, denominated in ILS, was repayable in five equal annual instalments commencing on March 31, 2016.

The Bonds were convertible, at the election of each holder, into the Company’s ordinary shares at a conversion price of ILS 100.815 per share from the date of issuance and until March 15, 2020. The ordinary shares issued upon conversion of the Bonds will be listed on the NASDAQ Stock Market (“Nasdaq”) and the Tel-Aviv Stock Exchange (“TASE”), to extent that the Company's ordinary shares are listed thereon at the time of conversion. The conversion price is subject to adjustment in the event that the Company effects a share split or reverse share split, rights offering or a distribution of bonus shares or a cash dividend.

F - 29

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

The Company had the option to redeem the Bonds upon delisting of the Bonds from the TASE, subject to certain conditions. In addition, the Company was able to redeem the Bonds or any part thereof at its discretion after December 1, 2014, subject to certain conditions.

The Company elected to apply the fair value option in accordance with ASC 825, “Financial Instruments”, to the Bonds and therefore all unrealized gains and losses were recognized in earnings.

On May 15, 2019 the Company announced it provided a Notice of Redemption to the Noteholders of its 5% Series L Convertible Bonds that was fully paid on June 6^th, 2019. Following the redemption, the bond was delisted from the Tel Aviv Stock Exchange.

F - 32

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

The changes of the long-term convertible debt in 20182020 and 2019 were as follows:

Balance as of January 1, 2019 (*)		$	15,453
Change in accrued interest			267
Change in fair value			600
Payment of interest			(470	)
Payment of principal			(15,850	)
Balance as of December 31, 2019		$	0-
Balance as of December 31, 2020		$	0-

Balance as of January 1, 2018		$	25,353
Change in accrued interest			863
Change in fair value			(1,585	)
Payment of interest			(1,011	)
Payment of principal			(8,167	)
Balance as of December 31, 2018 (*)		$	15,453
Change in accrued interest			267
Change in fair value			600
Payment of interest			(470	)
Payment of principal			(15,850	)
Balance as of December 31, 2019		$	-

(*) Includes accrued interest of $193.

NOTE 11:

Leases

$193.

NOTE 11: LEASES

In January 2014, the Company entered into a lease agreement for new corporate offices in Holon, Israel. The lease expires in January 2025, with an option by the Company to extend for two2 additional terms of 24 months each. The Company sublease part of the office to three different sub-tenants.

In June 2018, Undertone entered into a lease agreement for its office at World Trade Center (WTC) New York. The lease expires in May 2026. Additionally, the Company may choose an early termination in 2023.

In January 2019, Our French subsidiary entered into a lease agreement for its office at Paris, France. The lease expires in March 2028. Additionally, the Company may choose an early termination in 2023.

Certain other facilities of the Company are rented under operating lease agreements, which expire on various dates, the latest of which is in 2023. The Company recognizes rent expense under such arrangements on a straight-line basis.

F - 30

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

The Company's capitalized operating lease agreements have remaining lease terms ranging from 1.830.83 year to 8.257.25 years.

The following table represents the weighted-average remaining lease term and discount rate:

		Year ended
		December 31, 20192020
Weighted average remaining lease term		6.09 5.13 Years
Weighted average discount rate		7.42%		7.42%

The discount rate was determined based on the estimated collateralized borrowing rate of the Company, adjusted to the specific lease term and location of each lease.

F - 33

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

Maturities of operating lease liabilities were as follows:

Year ending December 31,
2021		$	5,970
2022			5,290
2023			4,909
2024			4,907
2025			2,931
Thereafter			2,602
Total lease payments *)			26,609
Less – imputed interest			(4,397	)
Present value of lease liabilities		$	22,212

Year ending December 31,
2020		$	5,333
2021			5,267
2022			4,782
2023			4,760
2024			4,776
Thereafter			5,234
Total lease payments *)			30,152
Less – imputed interest			(6,122	)
Present value of lease liabilities		$	24,030

*) Total lease payments have not been reduced by sublease rental payments of $11,310$6,376 due in the future under non-cancelable subleases.

Facilities leasing expenses (net) in the years 2020, 2019 and 2018 were $3,493, $3,076 and 2017 were $3,076, $4,123 and $4,118 respectively. Out of which, Sublease income amounted to $3,235, $2,682 $2,213 and $1,706$2,213 in the years 2020, 2019 and 2018, and 2017, respectively.

Cash paid for amounts included in measurement of lease liabilities during 20192020 was $ 4,454.

F - 31

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

6,521.

NOTE 12:COMMITMENT AND CONTINGENT LIABILITIES

a.Contingent purchase obligation

On November 30, 2012, the Company completed the acquisition of 100% of Sweet IM’s shares. Pursuant to the terms of the Share Purchase Agreement (“SPA”) between the Company and SweetIM, the Company was obligated to pay SweetIM's shareholders, among other payments, a payment of up to $7,500 in cash in May 2014 if certain milestones were met (the “Contingent Payment”). The milestones were based on the Company's GAAP revenues in 2013, and the absence of certain changes in the industry in which the Company operates. On May 28, 2014, the Company paid $2,500 in respect of the Contingent Payment. Following such payment, on June 22, 2014, SweetIM’s Shareholders’ representative notified the Company claiming that the Company owes SweetIM’s shareholders the entire Contingent Payment. In April 2015, pursuant to the SPA, an arbitration process with respect to this claim has commenced in Israel. Based on the August 2018 ruling of the arbitrator, the remaining balance of the Contingent Payment shall be paid to SweetIM's shareholders in 3 equal installments, the last of which was paid during January 2019.

a.

Contingent purchase obligation On November 30, 2012, the Company completed the acquisition of 100% of Sweet IM’s shares. Pursuant to the terms of the Share Purchase Agreement (“SPA”) between the Company and SweetIM, the Company was obligated to pay SweetIM's shareholders, among other payments, a payment of up to $7,500 in cash in May 2014 if certain milestones were met (the “Contingent Payment”). The milestones were based on the Company's GAAP revenues in 2013, and the absence of certain changes in the industry in which the Company operates. On May 28, 2014, the Company paid $2,500 in respect of the Contingent Payment. Following such payment, on June 22, 2014, SweetIM’s Shareholders’ representative notified the Company claiming that the Company owes SweetIM’s shareholders the entire Contingent Payment. In April 2015, pursuant to the SPA, an arbitration process with respect to this claim has commenced in Israel. Based on the August 2018 ruling of the arbitrator, the remaining balance of the Contingent Payment shall be paid to SweetIM's shareholders in 3 equal installments, the last of which was paid during January 2019.

F - 34

a.

Legal Matters On December 22, 2015, Adtile Technologies Inc. filed a lawsuit against the Company and Intercept Interactive Inc. (“Intercept”), a subsidiary of Interactive Holding Corp., in the United States District Court for the District of Delaware. The lawsuit alleges various causes of action against Perion and Undertone related to Undertone’s alleged unauthorized use and misappropriation of Adtile’s proprietary information and trade secrets. Adtile is seeking injunctive relief and, unspecified monetary damages. On June 23, 2016, the court denied Adtile’s motion for a preliminary injunction. On June 24, 2016, the court (i) granted the Company’s motion to dismiss, and (ii) granted Intercept’s motion to stay the action and compel arbitration. In November 2017, the court dismissed the case for administrative reasons, since Adtile had not commenced arbitration proceedings. The Company is still unable to predict the outcome or range of possible loss as of the date of these financial statements, since to date Adtile had not commenced arbitration procedures. Regardless, the Company believes it has strong defenses against this lawsuit and intends to defend against it vigorously. In addition, from time to time, the Company is party to other various legal proceedings, claims and litigation that arise in the ordinary course of business. It is the opinion of management that the ultimate outcome of these matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows.

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

b.Legal Matters

On December 22, 2015, Adtile Technologies Inc. filed a lawsuit against the Company and Intercept Interactive Inc. (“Intercept”), a subsidiary of Interactive Holding Corp., in the United States District Court for the District of Delaware. The lawsuit alleges various causes of action against Perion and Undertone related to Undertone’s alleged unauthorized use and misappropriation of Adtile’s proprietary information and trade secrets. Adtile is seeking injunctive relief and, unspecified monetary damages. On June 23, 2016, the court denied Adtile’s motion for a preliminary injunction. On June 24, 2016, the court (i) granted the Company’s motion to dismiss, and (ii) granted Intercept’s motion to stay the action and compel arbitration. In November 2017, the court dismissed the case for administrative reasons, since Adtile had not commenced arbitration proceedings. The Company is still unable to predict the outcome or range of possible loss as of the date of these financial statements, since to date Adtile had not commenced arbitration procedures. Regardless, the Company believes it has strong defenses against this lawsuit and intends to defend against it vigorously.

In addition, from time to time, the Company is party to other various legal proceedings, claims and litigation that arise in the ordinary course of business. It is the opinion of management that the ultimate outcome of these matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows.

NOTE 13:

SHAREHOLDERS' EQUITY

a.

Ordinary shares

NOTE 13:SHAREHOLDERS' EQUITY

a.Ordinary shares

The ordinary shares of the Company entitle their holders to voting rights, the right to receive cash dividend and the right to a share in excess assets upon liquidation of the Company.

On August 2, 2018 the Company's Shareholders' approved a 3:1 “Reverse Share Split” of its Ordinary shares, which became effective on August 26, 2018. The accompanying consolidated financial statements and notes give retroactive effect to the reverse share split for all periods presented. All fractional shares created by the Reverse Share Split have been rounded down to the nearest whole share.

F - 32

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share

b.Share Options, Restricted Share Units and per share data)

b.

Share Options, Restricted Share Units and Warrants

Warrants

In 2003, the Company's Board of Directors approved the 2003 Equity Incentive Plan (the "Plan") for an initial term of ten years from adoption and on December 9, 2012, extended the term of the Plan for an additional ten years. On August 7, 2013, the Company’s Board of Directors approved amendments to the Plan which include the ability to grant RSUs and restricted shares.

The contractual term of the share options is generally no more than seven years and the vesting period of the options and RSUs granted under the Plan is between one and three years from the date of grant. The rights of the ordinary shares issued upon the exercise of share options or RSUs are identical to those of the other ordinary shares of the Company.

As of December 31, 2019,2020, there were 289,657691,577 ordinary shares reserved for future share-based awards under the Plan.

F - 35

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

The following table summarizes the activities for the Company’s service-based share options for the year ended December 31, 2019:2020:

						Weighted average
		Number of options				Exercise price				Remaining contractual term (in years)				Aggregate intrinsic value
Outstanding at January 1, 2020			4,091,127			$	3.79				4.70			$	10,226
Granted			1,915,435				2.66				-				-
Exercised			(1,042,849	)			3.86				-				5,010
Cancelled			(436,666	)			4.36				-				-
Outstanding at December 31, 2020			4,527,047			$	3.24				21.79			$	42,942
Exercisable at December 31, 2020			1,902,226			$	3.70				3.51			$	17,171
Vested and expected to vest at December 31, 2020			3,789,743			$	3.36				3.22			$	35,604

						Weighted average
		Number of options				Exercise price				Remaining contractual term (in years)				Aggregate intrinsic value
Outstanding at January 1, 2019			3,744,807			$	3.85				4.97			$	27
Granted			1,674,703				3.94				-				-
Exercised			(392,271	)			3.24				-				-
Cancelled			(936,112	)			4.47				-				-
Outstanding at December 31, 2019			4,091,127			$	3.79				4.70			$	10,226
Exercisable at December 31, 2019			1,890,917			$	3.76				3.87			$	4,941
Vested and expected to vest at December 31, 2019			2,677,542			$	4.07				3.81			$	5,661

The weighted-average grant-date fair value of options granted during the years ended December 31, 2020, 2019 and 2018 was $3.14, $1.75 and 2017 was $1.75, $1.27, and $0.72, respectively.

The aggregate intrinsic value of the outstanding share options at December 31, 2019,2020, represents the intrinsic value of 3,958,075all outstanding options thatsince they were all in-the-money as of such date. The remaining 133,052 outstanding options were out-of-the-money as of December 31, 2019, and their intrinsic value was considered as zero. Total intrinsic value of options exercised during the year ended December 31, 2019 was $884.

F - 33

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

The number of options expected to vest reflects an estimated forfeiture rate.

The following table summarizes the activities for the Company’s performance-based share options for the year ended December 31, 2019:2020:

						Weighted average
		Number of Performance based options				Exercise price				Remaining contractual term (in years)				Aggregate intrinsic value
Outstanding at January 1, 2020			66,666			$	3.24				4.95			$	199
Granted			815,354				2.62				-				-
Exercised			(66,666	)			3.24				-				514
Cancelled			(46,043	)			0-				-				-
Outstanding at December 31, 2020			769,311				2.78				40.53				7,653
Exercisable at December 31, 2020			200,000				5.35				6.58				1,476
Vested and expected to vest at December 31, 2020			596,988			$	3.58				4.51			$	5,460

						Weighted average
		Number of Performance based options				Exercise price				Remaining contractual term (in years)				Aggregate intrinsic value
Outstanding at January 1, 2019			216,665			$	4.35				4.12			$	-
Cancelled			(149,999	)			4.84				-				-
Outstanding at December 31, 2019			66,666				3.24				4.95				199
Exercisable at December 31, 2019			66,666				3.24				4.95				199
Vested and expected to vest at December 31, 2019			66,666			$	3.24				4.95			$	199

As

The weighted-average grant-date fair value of options granted during the year ended December 31, 2019 all performance-based options have been vested.

2020 was $3.12. No performance-based options were granted during 2019 2018 and 2017.2018.

F - 36

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

The aggregate intrinsic value of the outstanding performance-based options at December 31, 2019,2020, represents the intrinsic value of all outstanding options since they were all in-the-money as of such date.

The following table summarizes additional information regarding outstanding and exercisable options under the Company's share Option Plan as of December 31, 2019:2020:

				Outstanding												Exercisable
Range of exercise price				Number of options				Weighted average remaining contractual life (years)				Weighted average exercise price				Number of options				Weighted average remaining contractual life (years)				Weighted average exercise price
$	0.00 – 0.50				1,051,494				79.46			$	0-				0-				-			$	0-
	1.03 – 2.94				316,567				3.98				2.76				190,741				3.76				2.71
	3.00 – 3.38				1,509,699				3.88				3.19				1,082,647				3.51				3.21
	4.23 – 6.90				1,508,954				4.79				5.18				598,005				3.47				4.66
	7.08 – 9.81				132,000				5.66				8.20				22,500				4.10				7.97
$	10.01 –12.75				8,333				0.00				11.07				8,333				0.00				11.07
					4,527,047				21.79			$	3.24				1,902,226				3.51			$	3.70

				Outstanding												Exercisable
Range of exercise price				Number of options				Weighted average remaining contractual life (years)				Weighted average exercise price				Number of options				Weighted average remaining contractual life (years)				Weighted average exercise price
$	1.03 – 2.94				426,268				4.98			$	2.78				92,076				3.56			$	2.61
	3.01 – 3.38				2,322,439				4.74				3.23				1,400,410				4.46				3.21
	4.23 – 6.90				1,342,700				4.75				4.73				398,711				2.59				4.75
	7.08 – 9.81				6,666				0.65				7.08				6,666				0.65				7.08
$	10.01 –12.75				59,720				0.80				10.94				59,720				0.80				10.94
					4,157,793				4.70			$	3.78				1,957,583				3.91			$	3.75

F - 34

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

The Company recognized share-based compensation expenses related to its share-based awards in the consolidated statements of operations as follows:

		Year ended December 31,
		2020				2019				2018
Cost of revenues		$	102			$	164			$	136
Research and development			887				488				448
Selling and marketing			1,898				515				848
General and administrative			1,560				1,126				1,286
Total		$	4,447			$	2,293			$	2,718

		Year ended December 31,
		2019				2018				2017
Cost of revenues		$	164			$	136			$	36
Research and development			488				448				229
Selling and marketing			515				848				744
General and administrative			1,126				1,286				1,135
Total		$	2,293			$	2,718			$	2,144

As of December 31, 2019,2020, there was $3,216$6,815 of unrecognized compensation cost related to outstanding options. These amounts are expected to be recognized over a weighted-average period of 1.201.54 years related to outstanding options. To the extent the actual forfeiture rate is different from what has been estimated, share-based compensation related to these awards will differ from the initial expectations.

c.As part of the acquisition of Undertone, the Company granted warrants to purchase 66,666 ordinary shares, at a weighted average exercise price of $9.09 per share, to a third-party vendor that provides development services to Undertone. The warrants were exercisable until December 27, 2020 and wasn’t exercised by this date. 0No expense incurred in 2020. The total expense incurred in 2019 and 2018 was $59 and $61, respectively.

c.

In connection with the Undertone acquisition, the Company granted warrants to purchase 66,666 ordinary shares, at a weighted average exercise price of $9.09 per share, to a third-party vendor that provides development services to Undertone. The warrants are exercisable until December 27, 2020, and the weighted-average grant-date fair value was $1.23. The total expense incurred in 2019, 2018 and 2017 was $59, $61 and $61, respectively.

d.

In December 2017, the Company executed a repricing of 2,689,669 share options of the Company's employees, and directors. As part of the repricing, the options' exercise price was adjusted to $ $3.24 with a vesting period of (i) grants issued prior to January 1, 2015, shall vest over a twelve months period in quarterly installments whether or not currently vested or would have been vested by that time; (ii) grants issued after January 1, 2015 will be subject to the following vesting schedule: one third shall vest over twelve months in equal quarterly installments, and the remaining two-thirds shall vest over twenty four months in equal quarterly installments whether or not currently vested or would have been vested by that time. The expiration date of the adjusted options shall be seven years from the repricing date. The total incremental fair value of these options amounted to $1,471.

F - 3537

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

NOTE 14:FINANCIAL INCOME (EXPENSE), NET

		Year ended December 31,
		2020				2019				2018
Financial income:
Interest income		$	287			$	624			$	296
Foreign currency translation gains			0-				0-				827
Change in fair value of convertible debt			0-				0-				1,585
Change in fair value of SWAP			0-				380				0-
Other			45				147				366
		$	332			$	1,151			$	3,074
Financial expense:
Foreign currency translation losses		$	(1,537	)		$	(950	)		$	0-
Interest expense on debts			(1,045	)			(2,334	)			(3,938	)
Change in fair value of SWAP			0-				0-				(2,487	)
Change in fair value of convertible debt			0-				(600	)			0-
Bank charges and other			(388	)			(737	)			(443	)
		$	(2,970	)		$	(4,621	)		$	(6,868	)
Financial expense, net		$	(2,638	)		$	(3,470	)		$	(3,794	)

NOTE 14:

FINANCIAL INCOME (EXPENSE), NET

		Year ended December 31,
		2019				2018				2017
Financial income:
Interest income		$	624			$	296			$	132
Foreign currency translation gains, net			-				827				204
Change in fair value of convertible debt			-				1,585				-
Change in fair value of SWAP			380				-				2,373
Other			147				366				197
		$	1,151			$	3,074			$	2,906
Financial expense:
Foreign currency translation losses, net		$	(950	)		$	-			$	-
Interest and change in fair value of payment obligation related to acquisitions			-				-				(43	)
Interest expense on debts			(2,334	)			(3,938	)			(4,794	)
Change in fair value of SWAP			-				(2,487	)			-
Change in fair value of convertible debt			(600	)			-				(3,785	)
Bank charges and other			(737	)			(443	)			(206	)
		$	(4,621	)		$	(6,868	)		$	(8,828	)
Financial expense, net		$	(3,470	)		$	(3,794	)		$	(5,922	)

NOTE 15:

INCOME TAXES

a.

Income (Loss) before taxes on income

NOTE 15:INCOME TAXES

a.Income (Loss)before taxes on income

Income before taxes on income is comprised as follows:

		Year ended December 31,
		2020				2019				2018
Domestic		$	12,175			$	21,095			$	9,081
Foreign			(2,560	)			(6,557	)			1,816
Total		$	9,615			$	14,538			$	10,897

		Year ended December 31,
		2019				2018				2017
Domestic		$	21,095			$	9,081			$	10,485
Foreign			(6,557	)			1,816				(92,065	)
Total		$	14,538			$	10,897			$	(81,580	)

F - 3638

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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U.S. dollars in thousands (except share and per share data)

b.

Taxes on income

b.Taxes on income

Taxes on income are comprised as follows:

		Year ended December 31,
		2020				2019				2018
Current taxes		$	2,498			$	3,816			$	1,706
Taxes in respect of previous years			6				(129	)			612
Deferred tax expense (benefit)			(3,114	)			(2,042	)			458
Total		$	(610	)		$	1,645			$	2,776

		Year ended December 31,
		2019				2018				2017
Current taxes		$	3,816			$	1,706			$	1,212
Taxes in respect of previous years			(129	)			612				(1,179	)
Deferred tax expense (benefit)			(2,042	)			458				(8,859	)
Total		$	1,645			$	2,776			$	(8,826	)

Taxes on income by jurisdiction were as follows:

		Year ended December 31,
		2020				2019				2018
Domestic		$	1,031			$	3,055			$	2,187
Foreign			(1,641	)			(1,410	)			589
Total		$	(610	)		$	1,645			$	2,776
Domestic:
Current taxes		$	1,466			$	3,519			$	1,121
Deferred tax (benefit) expense			(984	)			(197	)			649
Taxes in respect of previous years			549				(267	)			417
Total - Domestic		$	1,031			$	3,055			$	2,187
Foreign:
Current taxes		$	1,032			$	297			$	585
Deferred tax benefit			(2,130	)			(1,845	)			(191	)
Taxes in respect of previous years			(543	)			138				195
Total - Foreign		$	(1,641	)		$	(1,410	)		$	589
Total income tax expense (benefit)		$	(610	)		$	1,645			$	2,776

		Year ended December 31,
		2019				2018				2017
Domestic		$	3,055			$	2,187			$	1,548
Foreign			(1,410	)			589				(10,374	)
Total		$	1,645			$	2,776			$	(8,826	)
Domestic:
Current taxes		$	3,519			$	1,121			$	387
Deferred tax (benefit) expense			(197	)			649				2,532
Taxes in respect of previous years			(267	)			417				(1,371	)
Total - Domestic		$	3,055			$	2,187			$	1,548
Foreign:
Current taxes		$	297			$	585			$	825
Deferred tax benefit			(1,845	)			(191	)			(11,391	)
Taxes in respect of previous years			138				195				192
Total - Foreign		$	(1,410	)		$	589			$	(10,374	)
Total income tax expense		$	1,645			$	2,776			$	(8,826	)

F - 3739

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

c.

Deferred Taxes

c.Deferred Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company’s deferred tax assets and liabilities are as follows:

		December 31,
		2020				2019
Deferred tax assets:
Net operating loss and other losses carry forwards		$	4,049			$	4,490
Research and development			2,287				2,865
Intangible assets			1,476				2,543
Other temporary differences mainly relating to reserve and allowances			1,553				624
Deferred tax assets, before valuation allowance		$	9,365			$	10,522
Valuation allowance			2,254				4,351
Total deferred tax assets, net		$	7,111			$	6,171
Domestic:
Long term deferred tax asset, net		$	2,034			$	1,050
		$	2,034			$	1,050
Foreign:		$	5,077			$	5,121
Long term deferred tax asset, net		$	5,077			$	5,121
Total deferred tax asset, net		$	7,111			$	6,171

		December 31,
		2019				2018
Deferred tax assets:
Net operating loss carry forwards		$	4,490			$	4,992
Research and development			2,865				2,216
Intangible assets			2,543				1,480
Other temporary differences mainly relating to reserve and allowances			624				718
Deferred tax assets, before valuation allowance			10,522				9,406
Valuation allowance			4,351				4,992
Total deferred tax assets, net		$	6,171			$	4,414
Domestic:
Long term deferred tax asset, net		$	1,050			$	950
		$	1,050			$	950
Foreign:
Long term deferred tax asset, net		$	5,121			$	3,464
		$	5,121			$	3,464
Total deferred tax asset, net		$	6,171			$	4,414

The $641$2,097 change in the total valuation allowance for the year ended December 31, 2019,2020, relates to the increase in deferred taxes onprojected utilization of certain operating loss carry-forwards and temporary differences for which a full valuation allowance was previously recorded.

F - 3840

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

d.

Reconciliation of the Company’s effective tax rate to the statutory tax rate in Israel

d.Reconciliation of the Company’s effective tax rate to the statutory tax rate in Israel

A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company, and the actual tax expense as reported in the statement of income is as follows:

		Year ended December 31,
		2020				2019				2018
Income before taxes on income		$	9,615			$	14,538			$	10,897
Statutory tax rate in Israel			23.0	%			23.0	%			23.0	%
Theoretical tax expense		$	2,211			$	3,344			$	2,506
Increase (decrease) in tax expenses resulting from:
"Preferred Enterprise" benefits *			(1,701	)			(2,973	)			(1,301	)
Non-deductible expenses			2,409				374				298
Tax adjustment in respect of different tax rate of foreign subsidiaries			228				397				511
Deferred taxes related to prior years			(1,576	)			0-				0-
Change in valuation allowance			(2,097	)			421				541
Other			(84	)			82				221
Taxes on income		$	(610	)		$	1,645			$	2,776
* Benefit per ordinary share from "Preferred Enterprise" status:
Basic		$	0.06			$	0.11			$	0.05
Diluted		$	0.06			$	0.11			$	0.05

		Year ended December 31,
		2019				2018				2017
Income (Loss) before taxes on income		$	14,538			$	10,897			$	(81,580	)
Statutory tax rate in Israel			23.0	%			23.0	%			24.0	%
Theoretical tax expense (income)		$	3,344			$	2,506			$	(19,579	)
Increase (decrease) in tax expenses resulting from:
"Preferred Enterprise" benefits *			(2,973	)			(1,301	)			(584	)
Non-deductible expenses			374				298				1,150
Non- deductible Impairment charges			-				-				12,652
Deferred taxes on losses and other temporary charges for which a valuation allowance was provided, net			421				541				(209	)
Tax adjustment in respect of different tax rate of foreign subsidiaries			397				511				(3,392	)
Change in future tax rate			-				-				836
Other			82				221				300
Taxes on income		$	1,645			$	2,776			$	(8,826	)
* Benefit per ordinary share from "Preferred Enterprise" status:
Basic		$	0.11			$	0.05			$	0.02
Diluted		$	0.11			$	0.05			$	0.02

e.

Income tax rates

e.Income tax rates

Taxable income of Israeli companies was generally subject to corporate tax at the rate of was 24% in 2017 and 23% in 2018, 2019 and 2019.2020. However, the effective tax rate payable by a company that derives income from a Preferred Enterprise (as discussed below) may be considerably lower.

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

Deferred taxes were not provided for undistributed earnings of the Company’s foreign subsidiaries. Currently, the Company does not intend to distribute any amounts of its undistributed earnings as dividends. The Company intends to reinvest these earnings indefinitely in the foreign subsidiaries and pay down its debt. Accordingly, no deferred income taxes have been provided in respect of these subsidiaries. If these earnings were distributed to Israel in the form of dividends or otherwise, the Company would be subject to additional Israeli income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes. The amount of undistributed earnings of foreign subsidiaries is immaterial.

F - 3941

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and per share data)

f.

Law for the Encouragement of Capital Investments, 1959

f.Law for the Encouragement of Capital Investments, 1959

The Law for Encouragement of Capital Investments, 1959 (the "Investment Law") provides tax benefits for Israeli companies meeting certain requirements and criteria. The Investment Law has undergone certain amendments and reforms in recent years.

The Israeli parliament enacted a reform to the Investment Law, effective January 2011 (which was amended in August 2013). According to the reform, a flat rate tax applies to Preferred Income of companies eligible for the "Preferred Enterprise" status. In order to be eligible for Preferred Enterprise status, a company must meet minimum requirements to establish that it contributes to the country’s economic growth and is a competitive factor for the gross domestic product.

The Company’s Israeli operations elected “Preferred Enterprise” status, startedstarting in 2011.

Benefits granted to a Preferred Enterprise include reduced tax rates. As part of the Economic Efficiency Law (Legislative Amendments for Accomplishment of Budgetary Targets for Budget Years 2017-2018), 5777-2016, the tax rate is 16% for all other Areas other than Development Area A (which was 9%7.5% from 20162017 onward).

A distribution from a Preferred Enterprise out of the "Preferred Income" would be subject to 15%20% withholding tax for Israeli-resident individuals and non-Israeli residents (subject to applicable treaty rates), or 20% for dividends which are distributed on or after January 1, 2014 and from “Preferred Income” that was produced or accrued after such date. A distribution from a Preferred Enterprise out of the "Preferred Income" would be exempt from withholding tax for an Israeli-resident company.

g.

The New Technological Enterprise Incentives Regime (Amendment 73 to the Investment Law)

g.The New Technological Enterprise Incentives Regime (Amendment 73 to the Investment Law)

In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which includes Amendment 73 to the Law for the Encouragement of Capital Investments ("the 2017 Amendment"Amendment 73") was published and was pending the publication of regulations, in May 2017 regulations were promulgated by the Finance Ministry to implement the "Nexus Principles" based on OECD guidelines published as part of the Base Erosion and Profit Shifting (BEPS) project. Following the publication of the regulations the 2017 Amendment 73 became fully effective. According to the 2017 Amendment 73, a Preferred Technological Enterprise, as defined in the 2017 Amendment 73, with total consolidated revenues of less than NIS 10 billion, shall be subject to 12% tax rate on income derived from intellectual property (in development area A—a tax rate of 7.5%). In order to qualify as a Preferred technological enterprise certain criterioncriteria must be met, such as a minimum ratio of annual R&D expenditure and R&D employees, as well as having at least 25% of annual revenues derived from exports.

Any dividends distributed from income from the preferred technological enterprises will be subject to tax at a rate of 20%. The 2017 Amendment 73 further provides that, in certain circumstances, a dividend distributed to a foreign corporate shareholder, would be subject to a 4% tax rate (if the percentage of foreign investorsshareholders exceeds 90%).

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

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U.S. dollars in thousands (except share and per share data)

The Company assessed the criteria for qualifying as a “Preferred Technological Enterprise,” status and concluded that the Israeli subsidiaryCompany is eligible to the above-mentioned benefits. The Company implemented the Preferred Technological Enterprise benefits in its

h.Uncertain tax calculations starting 2017.

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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U.S. dollars in thousands (except share and per share data)

h.

Uncertain tax positions

positions

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:

		December 31,
		2020				2019
Balance at the beginning of the year		$	4,232			$	4,034
Increase (Decrease) related to prior year tax positions, net			293				(249	)
Increase related to current year tax positions, net			0-				447
Balance at the end of the year		$	4,525			$	4,232

		December 31,
		2019				2018
Balance at the beginning of the year		$	3,619			$	4,195
Decrease related to prior year tax positions, net			404				658
Increase related to current year tax positions, net			447				82
Balance at the end of the year		$	3,662			$	3,619

In 2020, The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in financetax expenses. During the years ended December 31, 2020, 2019 2018 and 2017,2018, the Company recognized approximately $444, $158 $12 and $344$12 in interest and penalties. The Company had $573$1,017 and $415$573 for the payment of interest and penalties accrued at December 31, 2020, and 2019, and 2018, respectively.

respectively which are included in the balance of the end at the year.

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

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

The Company’s tax assessments in Israel and the U.S. for tax years prior to 2015 and 2016 respectively are considered final. The Company has net operating losses in the U.S. from prior tax periods beginning in 20142011 which may be subject to examination upon utilization in future tax periods

i.

Tax loss carry-forwards

i.Tax loss carry-forwards

As of December 31, 2019,2020, the Company’s U.S. subsidiaries have Federal net operating loss carry-forwards of $3,189.

$3,471 and States net operating loss carry-forwards of $2,746.

Net operating losses in the U.S. may be carried forward through periods which will expire in the years starting from 20342031 up to 2035.2035. Utilization of U.S. net operating losses may be subject to substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization. NOLs created in 2018 onwards may be carried forward indefinitely.

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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U.S. dollars in thousands (except share and per share data)

As of December 31, 2019,2020, the Company’s European subsidiaries have net operating loss carry-forwards of $8,592$6,402 which may be carried forward indefinitely.

As

The Company has accumulated net operating losses for tax purposes as of December 31, 2019, Perion have net operating loss carry-forwards,2020, in Israel,the amount of $12,800approximately $11,111, which may be carried forward indefinitely.

j.

US Tax Reform:

and offset against taxable income in the future for an indefinite period. The net operating losses may be offset against taxable income annually with a limitation of up to 20% of the total accumulated losses but no more than 50% of the Company's taxable income. The limitation applies during the years 2020-2024. In addition, the Company has accumulated capital losses for tax purposes as of December 31, 2020, of approximately $1,570, which may be carried forward and offset against taxable capital gains in the future for an indefinite period, but are limited as stated above.

j.US Tax Reform:

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”). The TCJA makes broad and complex changes to the Code. The changes include, but are not limited to:

•A corporate income tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017 (“Rate Reduction”);

•The transition of U.S international taxation from a worldwide tax system to a territorial system by providing a 100 percent deduction to an eligible U.S. shareholder on foreign sourced dividends received from a foreign subsidiary (“100% Dividend Received Deduction”);

•A one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017;

In March 2018, the FASB issued Accounting Standards Update No. 2018-05, "Income Taxes Topic (740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118" ("ASU 2018-05") to address situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA.

In March 2020, in response to the COVID-19 pandemic the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted. The Company includedCARES Act comprises of a $836 provisional estimate forspending package and tax reliefs in order to reduce the expected impact of the TCJA as of December 31, 2017, mainly in respectpandemic. The tax portion of the CARES Act includes several corporate rate reduction. Duringtax relief provisions such as: eliminating the taxable income limitation and allowing carryback to the prior 5 years for net operating losses (“NOLs”) arising in 2018, 2019 and 2020; increasing the business interest deduction limitation from 30% to 50%; accelerated refunds of AMT credits and other provisions. The Company completedis considering which provisions are relevant for its analysis of the impacts of the Act with an immaterial impact.

US subsidiaries.

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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U.S. dollars in thousands (except share and per share data)

NOTE 16:

EARNINGS PER SHARE

NOTE 16:EARNINGS PER SHARE

The table below presents the computation of basic and diluted net earnings per common share:

		Year ended December 31,
		2020				2019				2018
Numerator:
Net income attributable to ordinary shares - basic		$	10,225			$	12,893			$	8,121
Net income - diluted		$	10,225			$	12,893			$	8,121
Denominator:
Number of ordinary shares outstanding during the year			26,687,145				25,965,357				25,850,067
Weighted average effect of dilutive securities:
Employee options and restricted share units			2,110,602				392,228				5,158
Diluted number of ordinary shares outstanding			28,797,747				26,357,585				25,855,225
Basic net earnings per ordinary share		$	0.38			$	0.50			$	0.31
Diluted net earnings per ordinary share		$	0.36			$	0.49			$	0.31
Ordinary shares equivalents excluded because their effect would have been anti-dilutive			3,178,024				4,087,559				4,725,618

		Year ended December 31,
		2019				2018				2017
Numerator:
Net income (Loss) attributable to ordinary shares - basic		$	12,893			$	8,121			$	(72,754	)
Net income (Loss) - diluted		$	12,893			$	8,121			$	(72,754	)
Denominator:
Number of ordinary shares outstanding during the year			25,965,357				25,850,067				25,849,724
Weighted average effect of dilutive securities:
Employee options and restricted share units			392,228				5,158				-
Diluted number of ordinary shares outstanding			26,357,585				25,855,225				25,849,724
Basic net earnings (loss) per ordinary share			0.50			$	0.31			$	(2.81	)
Diluted net earnings (loss) per ordinary share			0.49			$	0.31			$	(2.81	)
Ordinary shares equivalents excluded because their effect would have been anti-dilutive			4,087,559				4,725,618				5,408,206

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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U.S. dollars in thousands (except share and per share data)

NOTE 17:RESTRUCTURING COSTS

Restructuring

Restructuring charges were recorded in connection with plans in order to reduce workforce, close certain facilities and other cost saving measures which amounted to $2,100 during 2018. In 20192020 and 2017,2019, there were no00no restructuring charges.

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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U.S. dollars in thousands (except share and per share data)

NOTE 18:MAJOR CUSTOMERS

A substantial portion of the Company's revenue is derived from search fees and online advertising, the market for which is highly competitive and rapidly changing. Significant changes in this industry or in customer buying behavior would adversely affect the Company’s operating results.

The following table sets forth the customers that represent 10% or more of the Company’s total revenues in each of the years presented below:

		Year ended December 31,
		2020				2019				2018
Customer A			51%				63%				45%

		Year ended December 31,
		2019				2018				2017
Customer A			63%				45%				46%

NOTE 19:GEOGRAPHIC INFORMATION

The Company operates as one operating segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the Chief Operating Decision Maker, who is the Chief Executive Officer, in deciding how to allocate resources and assessing performance. Over the past few years, the Company has completed several acquisitions. These acquisitions have allowed the Company to expand its offerings, presence and reach in various markets. While the Company has offerings in multiple enterprise markets, the Company’s business operates in one segment which is the High Impact Advertising solutions, and the Company’s Chief Operating Decision Maker evaluates the Company’s financial information and resources and assesses the performance of these resources on a consolidated basis.

The following table presents the total revenues for the years ended December 31, 2020, 2019 2018 and 2017,2018, allocated to the geographic areas in which they were generated:

		Year ended December 31,
		2020				2019				2018
North America (mainly U.S.)		$	272,220			$	195,903			$	197,440
Europe			49,222				50,669				46,858
Other			6,621				14,878				8,547
		$	328,063			$	261,450			$	252,845

		Year ended December 31,
		2019				2018				2017
North America (mainly U.S.)		$	195,903			$	197,440			$	213,471
Europe			50,669				46,858				48,146
Other			14,878				8,547				12,369
		$	261,450			$	252,845			$	273,986

The total revenues are attributed to geographic areas based on the location of the end-users.

The following table presents the locations of the Company’s long-lived assets as of December 31, 2020 and 2019:

		December 31,
		2020				2019
Israel		$	11,343			$	15,816
U.S.			10,157				11,987
Europe			5,536				5,544
		$	27,036			$	33,347

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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U.S. dollars in thousands (except share and per share data)

The following table presents the locations of the Company’s property and equipment as of December 31, 2019 and 2018:

		December 31,
		2019				2018
Israel		$	7,873			$	11,193
U.S.			2,545				3,997
Europe			500				459
		$	10,918			$	15,649

NOTE 20:SUBSEQUENT EVENTS

a.On January 14, 2020,20, 2021, the Company consummatedclosed a follow on offering whereby 6,487,000 ordinary shares were sold by the acquisitionCompany to the public, (inclusive of 100%748,500 ordinary shares pursuant to the full exercise of an overallotment option granted to the sharesunderwriters). The aggregate proceeds, net of Content IQ LLC, also known as “Content IQ”.

Content IQ isunderwriting discounts and other offering cost, received by the Company from the offering were approximately $61,126.

b.On March 8, 2021, the Company early repaid the full amount of its loan facility with bank Mizrachi or a privately held company founded in 2014, based in New York City. Content IQ has created data algorithm and analytics tools that deconstruct content, revenue and distribution to solve current major digital publishing challenges.

The total consideration isprincipal amount of $8,333 together with the accumulated interest up to $73,050, which is comprised of $15,000 paid in cash at closing, with an additional maximum amount of $11,000 to be paidthis date as a retention incentive. As part ofper the total consideration, there is a maximum amount of $47,050 in earn-outs over a period of two years. The earn-outs are tied to revenue and EBITDA-based metrics.

The purchase price allocation is considered preliminary, and additional adjustments may be recorded during the measurement period in accordance with ASC 805. Fair values still under review include values assigned to identifiable intangible assets, goodwill, deferred income taxes and contingent liabilities.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:

		Fair value
Current assets		$	45
Property and equipment, net			4
Technology			12,167
Customer Relationship			4,043
Goodwill			22,470
Net assets acquired		$	38,729

agreement.

F - 4547

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ITEM 19.EXHIBITS:

No.			Description
1.1			Memorandum of Association of Perion, as amended and restated (translated from Hebrew)(1)
1.2			Articles of Association of Perion, as amended and restated(1)
2.1			Description of Perion’s Securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 (4)
4.1			Perion 2003 Israeli Share Option Plan and U.S. Addendum(2)
4.2			Perion Equity Incentive Plan(3)
4.3			Compensation Policy for Directors and Officers, adopted on February 6, 2020
4.4			Translation of a certain Credit Agreement by and between Perion Network Ltd. and Mizrahi Tefahot Bank Ltd., effective as of December 17, 2018(1)
4.5			A formForm of Indemnification Letter Agreement between the Company and its presentPresent and future directorsFuture Directors and officers Officers(4)
4.6			Search DistributionBing Services Framework Agreement by and between Perion Network Ltd. and Microsoft Ireland Operations Limited, , effective as of January 1, 2018* (4)2021**
4.7			Membership Interest Purchase Agreement by and between Perion Network Ltd., Mr. Assaf Katzir, Mr. Ziv Yarmiyahu and Content IQ LLC, dated January 14, 2020*2020** (4)
4.8			Summary in English of Lease Agreement by and between Perion Network Ltd. and Kanit HaShalom Investments Ltd., dated January 28, 2014,, as amended on October 7, 2015 and December 26, 2019
8			List of subsidiariesSubsidiaries
12.1			Certification required by Rule 13a-14(a) or Rule 15d-14(a) executed by the Chief Executive Officer of the Company
12.2			Certification required by Rule 13a-14(a) or Rule 15d-14(a) executed by the Chief Financial Officer of the Company
13.1			Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code
13.2			Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code
15.1			Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, Independent Auditors
101			Financial information from Perion Network Ltd.’s Annual Report on Form 20-F for the year ended December 31, 20192020 formatted in XBRL (eXtensible Business Reporting Language)

(1)
_________________________
(1)		Previously filed with the SEC on March 19, 2019 as an exhibit to our annual report on Form 20-F, and incorporated herein by reference

(2)
(2)		Previously filed with the SEC on April 29, 2013 as an exhibit to our annual report on Form 20-F, and incorporated herein by reference

(3)
(3)		Previously filed with the SEC on October 15, 2013 as an exhibit to our Report on Form 6-K, and incorporated herein by reference

(4)
(4)		Previously filed with the SEC on March 27, 201816, 2020 as an exhibit to our annual report on Form 20-F, and incorporated herein by reference

*

Confidential treatment was granted with respect to certain portions of this exhibit pursuant to 17.C.F.R. §240.24b-2. Omitted portions were filed separately with the SEC

**

Certain confidential information contained in this document, marked by brackets, was omitted because it is both (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed. “[***]” indicates where the information has been omitted from this exhibit.

79

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

	PERION NETWORK LTD.
	By:	/s/ Doron Gerstel
		Name: Doron Gerstel
		Title: Chief Executive Officer
	By:	/s/ Maoz Sigron
		Name: Maoz Sigron
		Title: Chief Financial Officer

Date: March 16, 2020

25, 2021

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