NOTE 1:-

GENERAL

SolarEdge Technologies, Inc. (the “Company”) and its subsidiaries design, develop, and sell an intelligent inverter solution designed to maximize power generation at the individual photovoltaic (“PV”) module level while lowering the cost of energy produced by the solar PV system and providing comprehensive and advanced safety features. The Company’s products consist mainly of (i) power optimizers designed to maximize energy throughput from each and every module through constant tracking of Maximum Power Point individually per module, (ii) inverters which invert direct current (DC) from the PV module to alternating current (AC) and (iii) a related cloud-based monitoring platform, that collects and processes information from the power optimizers and inverters of a solar PV system to enable customers and system owners as applicable, to monitor and manage the solar PV systems. In addition, the Company has a storage solution that is used to increase energy independence and maximize self-consumption for homeowners by utilizing a battery that is sold separately by third party manufacturers, to store and supply power as needed (the “StorEdge solution”). The StorEdge solution is designed to provide smart energy functions such as maximizing self-consumption, Time-of-Use programming for desired hours of the day, and home energy backup solutions.

The Company and its subsidiaries sells its products worldwide directly to large solar installers and engineering, procurement and construction firms (“EPCs”), as well as through large distributors and electrical equipment wholesalers to smaller solar installers.

The Company was incorporated in Delaware in August 2006 and began commercial sale of its products in January 2010.

Recent accounting pronouncements:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. ASU 2016-13 also applies to employee benefit plan accounting, with an effective date of the first quarter of fiscal 2022. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements, footnote disclosures and employee benefit plans’ accounting.

The significant accounting policies applied in the Company’s audited annual consolidated financial statements as of June 30, 2016 are applied consistently in these financial statements.

Basis of Presentation:

The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with Article 10 of Regulation S-X, “Interim Financial Statements” and the rules and regulations for Form 10-Q of the Securities and Exchange Commission (the “SEC”). Pursuant to those rules and regulations, the Company has condensed or omitted certain information and footnote disclosure it normally includes in its annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).

In management’s opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present its condensed consolidated financial position, results of operations and cash flows. The Company’s interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the 2016 consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for its fiscal year ended June 30, 2016 filed with the SEC on August 17, 2016 (the “2016 Form 10-K”). There have been no changes in the significant accounting policies from those that were disclosed in the audited consolidated financial statements for the fiscal year ended June 30, 2016 included in the 2016 Form 10-K.

In August 2016, the Company announced that its fiscal year-end will begin on January 1 and end on December 31 of each year, starting on January 1, 2017.

Fiscal year 2016, which ended on June 30, 2016, will be followed by a transition period from July 1, 2016 to December 31, 2016. The Company plans to disclose the results of the transition period on a form 10-KT transition report.

The Company depends on two contract manufacturers and several limited or single source component suppliers. Reliance on these vendors makes the Company vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields and costs.

Two vendors collectively account for 62.8% (unaudited) and 69% of the Company’s total trade payables as of September 30, 2016 (unaudited) and June 30, 2016, respectively.

The Company has the right to offset its payables to one of its contract manufacturers against vendor non-trade receivables. As of September 30, 2016 a total of $2,177 of these receivables met the criteria for net recognition and were offset against the corresponding accounts payable balances for this contract manufacturer in the accompanying condensed Consolidated Balance Sheets.

Derivative financial instruments:

The Company accounts for derivatives and hedging based on ASC 815 (“Derivatives and Hedging”). ASC 815 requires the Company to recognize all derivatives on the balance sheet at fair value. The accounting for changes in the 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 relationship and further, on the type of hedging relationship.

To protect against the increase in value of forecasted foreign currency cash flows resulting from salary payments of its Israeli facilities denominated in the Israeli currency, the New Israeli Shekels (“NIS”), during the three months ended September 30, 2016, the Company instituted a foreign currency cash flow hedging program. The Company hedges portions of the anticipated payroll payments denominated in NIS for a period of one to twelve months with hedging contracts. Accordingly, when the dollar strengthens against the foreign currencies, the decline in present value of future foreign currency expenses is offset by losses in the fair value of the hedging contracts. Conversely, when the dollar weakens, the increase in the present value of future foreign currency cash flows is offset by gains in the fair value of the hedging contracts. These hedging contracts are designated as cash flow hedges, as defined by ASC 815 and are all effective hedges.

In accordance with ASC 815, for derivative instruments that are designated and qualify as a cash flow hedge (i.e. hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument 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. Any gain or loss on a derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item is recognized in current earnings during the period of change.

In addition to the above mentioned cash flow hedges transactions, the Company also entered into derivative instrument arrangements to hedge the Company’s exposure to currencies other than the U.S. dollar. These derivative instruments are not designated as cash flows hedges, as defined by ASC 815, and therefore all gains and losses, resulted from fair value remeasurements, were recorded immediately in the statement of operations, as financial expenses, net.

As of September 30, 2016, the Company entered into forward contracts and put and call options to sell U.S. dollars for NIS and Euros for U.S. dollars in the amount of $8,846 and 15 million Euro, respectively. These hedging contracts do not contain any credit-risk-related contingency features. See Note 5 for information on the fair value of these hedging contracts.

The fair value of the Company’s outstanding derivative instruments is as follows:

	Three months ended September 30,		Year ended June 30
	2016		2016
	(unaudited)
Derivative assets:
Derivatives not designated as cash flow hedging instruments:
Foreign exchange option contracts	$	21	$	214
Derivatives designated as cash flow hedging instruments:
Foreign exchange forward contracts		344		290

Total	$	365	$	504

Derivative liabilities:
Derivatives not designated as cash flow hedging instruments:
Foreign exchange option contracts	$	-	$	(23	)

Total	$	-	$	(23	)

The Company recorded the fair value of derivative assets and liabilities, net in “prepaid expenses and other accounts receivable” on the Company’s condensed consolidated balance sheets.

The increase (decrease) in unrealized gains (losses) recognized in “accumulated other comprehensive income (loss)” on derivatives, net of tax effect, is as follows:

	Three months ended
	September 30,
	2016		2015
	(unaudited)

Derivatives designated as cash flow hedging instruments:
Foreign exchange forward contracts		320		37

The net (gains) losses reclassified from “accumulated other comprehensive income (loss)” into income (loss), are as follows:

	Three months ended
	September 30,
	2016			2015
	(unaudited)

Derivatives designated as cash flow hedging instruments:
Foreign exchange forward contracts		(254	)		(1	)

The Company recorded in the financial income (expenses), a net gain (loss) of $(170) and $(1) during the three months ended September 30, 2016 and 2015, respectively related to derivatives not qualified as hedging instruments.

Intangible assets:

On March 9, 2015, the Company and Beacon Power LLC, a Delaware limited liability company (“Beacon”) entered into a patent purchase agreement under which the Company agreed to purchase all rights in certain patents owned by Beacon. In July 2015 the Company completed the purchase of the patents for $800.

The patents are stated at cost, net of accumulated amortization. Amortization is calculated by the straight-line method over 10 years, which represents the estimated useful lives of the patents.

Amortization expenses for the three months ended September 30, 2016 (unaudited) were $21.

Accumulated other comprehensive income:

The following table summarizes the changes in accumulated balances of other comprehensive income (loss), net of taxes, for the three months ended September 30, 2016 (unaudited):

	Unrealized gains (losses) on available-for-sale marketable securities			Unrealized gains (losses) on cash flow hedges			Unrealized gains (losses) on foreign currency translation			Total

Beginning balance	$	57		$	243		$	(29	)	$	271
Other comprehensive income (loss) before reclassifications		(92	)		320			(125	)		103
Losses (gains) reclassified from accumulated other comprehensive income (loss)		-			(254	)		-			(254	)
Net current period other comprehensive income (loss)		(92	)		66			(125	)		(151	)

Ending balance	$	(35	)	$	309		$	(154	)	$	120

The following table summarizes the changes in accumulated balances of other comprehensive loss, net of taxes, for the three months ended September 30, 2015:

	Unrealized gains (losses) on available-for-sale marketable securities		Unrealized gains (losses) on cash flow hedges			Unrealized gains (losses) on foreign currency translation			Total

Beginning balance	$	-	$	(-	)	$	(222	)	$	(222	)
Other comprehensive income (loss) before reclassifications		-		37			(41	)		(4	)
Losses (gains) reclassified from accumulated other comprehensive income (loss)		-		1			-			1
Net current period other comprehensive income (loss)		-		38			(41	)		(3	)

Ending balance	$	-	$	38		$	(263	)	$	(225	)

The following table provides details about reclassifications out of accumulated other comprehensive income (loss):

Details about Accumulated Other Comprehensive Income (Loss) Components	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)		Affected Line Item in the Statements of Operations
	Three months ended
	September 30, 2016

Unrealized gains on cash flow hedges, net		32	Cost of revenues
		152	Research and development
		39	Sales and marketing
		31	General and administrative

		254	Total, before income taxes

		-	Income tax expense (benefit)

		254	Total, net of income taxes

For the three months period, ended September 30, 2015, $1 was reclassified from accumulated other comprehensive income.

Certain amounts in prior year have been reclassified to conform to the current quarter presentation.