UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM20-F
For the fiscal year ended December 31, 2021
OR
Date of event requiring this shell company report ___________
For the transition period from _____ to _____
Commission File No. 000-51694
Perion Network Ltd.
(Exact Name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Israel
(Jurisdiction of incorporation or organization)
26 HaRokmim Street
Holon,Israel5885849
(Address of principal executive offices)
Maoz Sigron, Chief Financial Officer
Tel: +972-73-3981582; Fax: +972-3-644-5502
(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on which Registered
Ordinary shares, par value NIS 0.03 per share
PERI
NasdaqGlobal Select Market
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report.
As of December 31, 2021, the Registrant had outstanding 43,696,723ordinary shares, par value NIS 0.03 per share (excluding treasury shares).
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
Yes ☐ No☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes☐No ☒
2
PERION NETWORK LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
IN U.S. DOLLARS
INDEX
Page
Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 1281)
F-2
Consolidated Balance Sheets as of December 31, 2020 and 2021
F-7
Consolidated Statements of Income for the Years Ended December 31, 2019, 2020 and 2021
F-8
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2020 and 2021
F-9
Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2019, 2020 and 2021
F-10
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2020 and 2021
F-11
Notes to the Consolidated Financial Statements
F-13
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
Wehave audited the accompanying consolidated balance sheets of Perion Network Ltd. and subsidiaries ("the Company") as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
Wealso 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, 2021, 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, 2022, 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
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 Advertising Revenues. To determine whether Search Advertising and Display 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
Acquisition accounting for Vidazoo Ltd (Vidazoo) business combination
Asdescribed in Note 4.c to the consolidated financial statements, on October 04, 2021, the Company acquired 100% of the shares of Vidazoo Ltd ("the Vidazoo Acquisition") for a total consideration of $77.7 million, of which $35 million was paid in cash upon the completion of the transaction and $36.6 million as earn-out tied to financial targets over a two-year period. The Vidazoo 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 identified intangible assets of $39.2 million, which consist primarily of $31 million of technology intangible asset.
Auditingthe Company's accounting for the Vidazoo 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.
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.c to the consolidated financial statements in relation to the Vidazoo 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, 2022
F - 4
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 it's subsidiaries' ("the Company") internal control over financial reporting as of December 31, 2021, 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, 2021, 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 business of Vidazoo Ltd. ("Vidazoo") that was acquired during 2021 and included in the 2021 consolidated financial statements of the Company and constitute 4% of total net assets as of December 31, 2021 and 6% 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 Vidazoo.
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, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes, and our report dated March 16, 2022 expressed an unqualified opinion thereon.
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.
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 - 5
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.
F - 6
On October 4, 2021, we also completed the acquisition of Vidazoo Ltd. (for additional information on these acquisitions, see Note 4)
F - 13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021 and 2020, the Company has recorded an allowance for doubtful debts in the amounts of $891and $694, respectively.
F - 14
F - 15
Revenue recognition
The Company applies the provisions of Accounting Standards Codification 606, Revenue from Contracts with Customers ("ASC 606" or "Topic 606").
F - 16
F - 17
F - 18
F - 19
F - 20
• 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.
F - 21
Recent Accounting Pronouncements not yet adopted
F - 22
NOTE 3:FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table present assets and liabilities measured at fair value on a recurring basis as of December 31, 2021:
Fair value measurements using input type
Level 1
Level 2
Level 3
Total
Assets:
Derivative assets
$
-
75
Total financial assets
Liabilities:
Contingent consideration in connection to the acquisitions
63,550
Total financial liabilities
The following table present assets measured at fair value on a recurring basis as of December 31, 2020:
31,859
NOTE 4:ACQUISITIONS
a.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 $15,000paid in cash at closing and 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 $22,838on the acquisition date. As of December 31, 2021, the contingent consideration is estimated at fair value of $17,844. 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.
F - 23
b.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 $4,000paid in cash at closing and a contingent consideration (with a maximum amount of up to $17,000), tied to financial targets over a two-yearperiod, estimated at fair value of $9,399on the acquisition date. As of December 31, 2021, the contingent consideration is estimated at fair value of $8,963. 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.
c.Vidazoo
F - 24
NOTE 5: PROPERTY AND EQUIPMENT, NET
December 31,
2021
2020
Cost:
Computers and peripheral equipment
7,219
6,776
Office furniture and equipment
2,686
2,682
Leasehold improvements
8,392
8,658
Capitalized software
12,473
Total cost
30,770
30,589
Less: accumulated depreciation and amortization
(26,559
)
(23,819
Property and equipment, net
4,211
6,770
NOTE 6:GOODWILL AND OTHER INTANGIBLE ASSETS, NET
a.Goodwill
The changes in the net carrying amount of goodwill in 2021 and 2020 were as follows:
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, 2021, the Company has two reporting units – Display advertising and Search advertising. 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.
No impairment was incurred for the years ended December 31, 2021, 2020 and 2019.
F - 25
b.Intangible assets, net
The following is a summary of intangible assets as of December 31, 2021:
Acquired technology
Accumulated amortization
Impairment
Acquired technology, net
Customer relationships
Customer relationships, net
Tradename and other
Tradename and other, net
Intangible assets, net
The following is a summary of intangible assets as of December 31, 2020:
Amortization
OCI
December 31, 2020
31,159
22,101
152
53,412
(21,810
(3,579
(159
(25,548
(8,749
600
(7
19,115
31,911
4,901
48
36,860
(20,727
(1,465
31
(22,161
(10,426
758
79
4,273
18,284
219
18,503
(11,897
(217
(291
(12,405
(5,110
1,277
(72
988
2,635
27,002
(5,261
24,376
F - 26
The estimated useful life of the intangible assets are as follows:
Estimateduseful life
4-7years
5-8years
4-11years
Amortization of intangible assets, net, in each of the succeeding five years and thereafter is estimated as follows:
2022
11,275
2023
11,150
2024
10,963
2025
7,137
2026
5,735
Thereafter
10,440
56,700
NOTE 7: ACCRUED EXPENSES AND OTHER LIABILITIES
Employees and payroll accruals
19,597
13,970
Obligation related to acquisitions
8,725
Government authorities
6,706
3,422
Accrued expenses
4,560
3,003
Other short-term liabilities
743
793
40,331
21,188
F - 27
NOTE 8: DERIVATIVES AND HEDGING ACTIVITES
The fair value of the Company’s outstanding derivative instruments is as follows:
Balance sheet
Derivatives designate as hedging instruments:
Foreign exchange forward contracts and other derivatives
''Prepaid expenses and
other current assets''
''Accumulated other
comprehensive income''
Derivatives not designated as hedging instruments:
''Accrued expenses and
other liabilities''
The net amounts reclassified from accumulated other comprehensive loss to the operating expenses are as follows:
Gain recognized inStatements ofComprehensive Income
Gain (loss) recognized
in consolidated statements of
Income
Year ended
Year ended December 31,
Statement of Income
2019
Derivatives designated as hedging instruments:
Foreign exchange options and forward contracts
(75
"Operating expenses"
167
764
272
"Financial expenses"
24
(166
59
SWAP
380
191
598
711
F - 28
NOTE 9: SHORT TERM AND LONG-TERM DEBT
On December 17, 2018, 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, 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 LIBORplus 5.7% per annum, payable quarterly. The credit facility is secured by liens on the assets of Perion and Undertone and is guaranteed by Undertone. The guarantee by Undertone is limited to $33,000. Financial covenants for the loan facility are tested at the level of Perion on a consolidated basis.
On March 8, 2021, the Company early repaid the full amount of its loan facility with bank Mizrachi of a principal amount of $8,333together with the accumulated interest up to this date as per the agreement.
NOTE 10: 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 twoadditional terms of 24months 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 2024.
InJanuary 2019, the Company’s French subsidiary entered into a lease agreement for its office at Paris, France. The Company chose an early termination during December 2021.
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.
The Company's capitalized operating lease agreements have remaining lease terms ranging from 0.67year to 4.33years.
The following table represents the weighted-average remaining lease term and discount rate:
December 31, 2021
Weighted average remaining lease term
3.72Years
Weighted average discount rate
7.67%
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 - 29
Maturities of operating lease liabilities were as follows:
Year ending December 31,
4,485
4,104
4,101
2,057
622
Total lease payments *)
15,369
Less – imputed interest
(1,980
13,389
*)Total lease payments have not been reduced by sublease rental payments of $5,838due in the future under non-cancelable subleases.
Facilities leasing expenses (net) in the years 2021, 2020 and 2019 were $4,441, $3,493, and $3,076respectively. Out of which, Sublease income amounted to $2,838, $2,682and $2,213in the years 2021, 2020 and 2019, respectively.
Cash paid for amounts included in measurement of lease liabilities during 2021 was $8,465.
NOTE 11: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 $7,500in 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 $2,500in 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.
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.
F - 30
NOTE 12: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.
b.Share Options, Restricted Share Units and 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, 2021, there were 625,477ordinary shares reserved for future share-based awards under the Plan.
The following table summarizes the activities for the Company’s service-based share options for the year ended December 31, 2021:
Weighted average
Number of options
Exerciseprice
Remaining
contractualterm
(in years)
Aggregateintrinsic
value
Outstanding at January 1, 2021
4,527,047
3.24
21.79
42,942
Granted
1,567,323
1.22
Exercised
(2,219,157
3.11
39,395
Cancelled
(300,812
4.82
Outstanding at December 31, 2021
3,574,401
2.46
45.90
77,173
Exercisable at December 31, 2021
968,706
4.45
4.27
18,984
Vested and expected to vest at December 31, 2021
3,432,075
2.54
2.13
73,693
The weighted-average grant-date fair value of options granted during the years ended December 31, 2021, 2020 and 2019 was $18.55, $3.14, and $1.75, respectively.
F - 31
The aggregate intrinsic value of the outstanding share options at December 31, 2021, represents the intrinsic value of all outstanding options since they were all in-the-money as of such date.
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, 2021:
Number ofPerformance basedoptions
Exercise price
Remainingcontractual term(in years)
Aggregate intrinsicvalue
The weighted-average grant-date fair value of options granted during the year ended December 31, 2021 and 2020 was $20.03and $3.12, respectively. No performance-based options were granted during 2019.
The aggregate intrinsic value of the outstanding performance-based options at December 31, 2021, represents the intrinsic value of all outstanding options since they were all in-the-money as of such date.
F - 32
The following table summarizes additional information regarding outstanding and exercisable service-basedoptions under the Company's share Option Plan as of December 31, 2021:
The following table summarizes additional information regarding outstanding and exercisable performance-based options under the Company's share Option Plan as of December 31, 2021:
Outstanding
Exercisable
Range of exercise price
Weightedaverage remaining contractuallife (years)
Weightedaverage
exercise price
0.01
503,900
78.37
5.35
400,000
5.58
300,000
903,900
46.16
2.37
The Company recognized share-based compensation expenses related to its share-based awards in the consolidated statements of operations as follows:
Cost of revenues
171
102
164
Research and development
946
887
488
Selling and marketing
3,248
1,898
515
General and administrative
2,620
1,560
1,126
6,985
4,447
2,293
As of December 31, 2021, there was $16,293of unrecognized compensation cost related to outstanding options. These amounts are expected to be recognized over a weighted-average period of 1.59years 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.
F - 33
c.As part of the acquisition of Undertone, the Company granted warrants to purchase 66,666ordinary shares, at a weighted average exercise price of $9.09per 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. No expense incurred in 2020. The total expense incurred in 2019 was $59.
NOTE 13:FINANCIAL INCOME (EXPENSE), NET
Financial income:
Interest income
539
287
624
Change in fair value of SWAP
Other
45
147
332
1,151
Financial expense:
Foreign currency translation losses
(528
(1,537
(950
Interest expense on debts
(119
(1,045
(2,334
Change in fair value of convertible debt
(600
Bank charges and other
(473
(388
(737
(1,120
(2,970
(4,621
Financial expense, net
(581
(2,638
(3,470
NOTE 14:INCOME TAXES
F - 34
b.Taxes on income
Deferred tax benefit
F - 35
Long term deferred tax asset (liability), net
Foreign:
Long term deferred tax asset, net
F - 36
Previous years taxes
* Benefit per ordinary share from "Preferred Enterprise" status:
F - 37
The Company assessed the criteria for qualifying as a “Preferred Technological Enterprise,” status and concluded that the Company and certain of its Israeli subsidiaries are eligible to the above-mentioned benefits.
F - 38
Increase related to prior year tax positions, net
Increase related to current year tax positions, net
As of December 31, 2021, the Company’s U.S. subsidiaries have Federal net operating loss carry-forwards of $6,752and States net operating loss carry-forwards of $5,883. Net operating losses generated in fiscal years prior to 2018 in the U.S. may be carried forward through periods which will expire in the years starting from 2031 up to 2035. Net operating losses generated in 2018 and subsequent years in the U.S. may be carried forward indefinitely for Federal tax purposes yet are subject to certain limitations. Different states have varying rules regarding utilization and expiration of net operating losses. 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.
As of December 31, 2021, the Company’s European subsidiaries have net operating loss carry-forwards of $7,293which may be carried forward indefinitely.
The Company has accumulated net operating losses for Israeli tax purposes as of December 31, 2021, in the amount of approximately $8,534which may be carried forward 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 not 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, 2021, of approximately $1,643, which may be carried forward and offset against taxable capital gains in the future for an indefinite period, but are limited as stated above.
In March 2020, in response to the COVID-19 pandemic the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted. The CARES Act comprises of a spending package and tax reliefs in order to reduce the impact of the pandemic. The tax portion of the CARES Act includes several corporate tax 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.
F - 39
NOTE 15:EARNINGS PER SHARE
The table below presents the computation of basic and diluted net earnings per common share:
Numerator:
Net income attributable to ordinary shares - basic
38,706
10,225
12,893
Net income - diluted
Denominator:
Number of ordinary shares outstanding during the year
34,397,134
26,687,145
25,965,357
Weighted average effect of dilutive securities:
Employee options and restricted share units
3,432,591
2,110,602
392,228
Diluted number of ordinary shares outstanding
37,829,725
28,797,747
26,357,585
Basic net earnings per ordinary share
1.13
0.38
0.50
Diluted net earnings per ordinary share
1.02
0.36
0.49
Potential ordinary shares equivalents excluded because their effect would have been anti-dilutive
1,035,307
3,178,024
4,087,559
NOTE 16: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:
Customer A
37%
51%
63%
F - 40
NOTE 17: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, 2021, 2020 and 2019, allocated to the geographic areas in which they were generated:
North America (mainly U.S.)
423,571
272,220
195,903
Europe
48,109
49,222
50,669
6,818
6,621
14,878
478,498
328,063
261,450
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, 2021 and 2020:
8,049
11,343
U.S.
7,524
10,157
216
5,536
15,789
27,036
F - 41
86