Non-compliance with environmental, social,
and governance, or ESG, practices could harm our reputation, or otherwise adversely impact our business, while increased attention to
ESG initiatives could increase our costs.
Expectations around a company's management of ESG matters continues
to evolve rapidly, in many instances due to factors that are out of our control. To
the extent ESG matters negatively impact our reputation, it may also impede our ability to compete as effectively to attract and retain
employees or customers, which may adversely impact our operations.
The Israeli government is currently pursuing extensive changes
to Israel’s judicial system. This has sparked extensive political debate. In response to the foregoing developments, many individuals,
organizations and institutions, both within and outside of Israel, have voiced concerns that the proposed changes may negatively impact
the business environment in Israel including due to reluctance of foreign investors to invest or transact business in Israel as well as
to increased currency fluctuations, downgrades in credit rating, increased interest rates, increased volatility in security markets, and
other changes in macroeconomic conditions. To the extent that any of these negative developments do occur, they may have an adverse effect
on our business, our results of operations and our ability to raise additional funds, if deemed necessary by our management and board
of directors.
|
• |
Israeli corporate law does not provide for shareholder action
by written consent for public companies, thereby requiring all shareholder actions to be taken at a general meeting of shareholders;
|
|
• |
our articles of association divide our directors into three
classes, each of which is elected once every three years; |
|
• |
our articles of association generally require a vote of the
holders of a majority of our outstanding ordinary shares entitled to vote present and voting on the matter at a general meeting of shareholders
(referred to as simple majority), and solely the amendment of the provision relating to the removal of members of our board of directors,
require a vote of the holders of 65% of our outstanding ordinary shares entitled to vote at a general meeting; |
|
• |
our articles of association provide that director vacancies
may be filled by our board of directors. |
RISKS RELATED TO OWNERSHIP OF THE ADSs
If we are unable to maintain compliance with Nasdaq listing standards, our
ADSs may be delisted from the Nasdaq Stock Market and you may face significant restrictions on the resale of your shares.
There can be no assurances that we will be able to maintain our Nasdaq listing
in the future. On March 27, 2023, we received a notification from Nasdaq that the trading price of our ADSs did not meet the
minimum bid price requirement of $1.00 per share for a period of 30 consecutive trading days. We were granted a 180-day compliance
period, or September 18, 2023, to regain compliance by achieving a closing bid price of at least $1.00 per share for a minimum
of 10 consecutive trading days. In the event we are unable to regain compliance with the Nasdaq Capital Market listing standards
and our ADSs are delisted from the exchange, it would, among other things, likely lead to a number of negative implications, including
an adverse effect on the price of our ADSs, reduced liquidity in our ADSs and greater difficulty in obtaining financing. In the event
of a de-listing, we would take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance
that any such action taken by us would allow our ADSs to become listed again, stabilize the market price or improve the liquidity of our
ADSs, prevent our ADSs from dropping below the Nasdaq minimum bid price requirement in the future, or prevent future non-compliance
with Nasdaq’s listing requirements. If we cannot restore our compliance with Nasdaq’s listing requirements, we would pursue
eligibility for trading of these securities on other markets or exchanges, such as the OTCQB or OTCQX, which are unorganized, inter-dealer,
over-the-counter markets which provides significantly less liquidity than the Nasdaq Capital Market or other national securities
exchanges.
The ADS price may be volatile, and you may lose all or part of
your investment.
The market price of the ADSs could be highly volatile and may fluctuate
substantially, including downward, as a result of many factors, including:
|
• |
changes in the prices of our raw materials or the products manufactured in factories
using our technologies; |
|
• |
the trading volume of the ADSs; |
|
• |
general economic, market and political conditions, including negative effects on
consumer confidence and spending levels that could indirectly affect our results of operations; |
|
• |
actual or anticipated fluctuations in our financial condition and operating results,
including fluctuations in our quarterly and annual results; |
|
• |
announcements by us or our competitors of innovations, other significant business
developments, changes in distributor relationships, acquisitions or expansion plans; |
|
• |
announcement by competitors or new market entrants of their entry into or exit from
the alternative protein market; |
|
• |
overall conditions in our industry and the markets in which
we intend to operate; |
|
• |
market conditions or trends in the packaged food sales industry
that could indirectly affect our results of operations; |
|
• |
addition or loss of significant customers or other developments
with respect to significant customers; |
|
• |
adverse developments concerning our manufacturers and suppliers;
|
|
• |
changes in laws or regulations applicable to our products or
business; |
|
• |
our ability to effectively manage our growth and market expectations
with respect to our growth, including relative to our competitors; |
|
• |
changes in the estimation of the future size and growth rate
of our markets; |
|
• |
announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments; |
|
• |
additions or departures of key personnel; |
|
• |
competition from existing products or new products that may
emerge; |
|
• |
issuance of new or updated research or reports about us or
our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts; |
|
• |
variance in our financial performance from the expectations
of market analysts; |
|
• |
our failure to meet or exceed the estimates and projections
of the investment community or that we may otherwise provide to the public; |
|
• |
fluctuations in the valuation of companies perceived by investors
to be comparable to us; |
|
• |
disputes or other developments related to proprietary rights,
including patents, and our ability to obtain intellectual property protection for our products; |
|
• |
litigation or regulatory matters; |
|
• |
announcement or expectation of additional financing efforts;
|
|
• |
sales and short-selling of the ADSs; |
|
• |
our issuance of equity or debt; |
|
• |
changes in accounting practices; |
|
• |
ineffectiveness of our internal controls; |
|
• |
negative media or marketing campaigns undertaken by our competitors or lobbyists
supporting the conventional meat industry; |
|
• |
the public’s response to publicity relating to the health aspects or nutritional
value of products to be manufactured in factories using our technologies; and |
|
• |
other events or factors, many of which are beyond our control. |
In addition, the stock markets have experienced extreme price and
volume fluctuations. Broad market and industry factors may materially harm the market price of the ADSs, regardless of our operating performance.
These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These fluctuations,
as well as general economic, political and market conditions such as recessions, interest rate changes, tariffs, international currency
fluctuations, or the effects of disease outbreaks or pandemics (such as the COVID-19 pandemic), may negatively impact the market price
of the ADSs. In the past, following periods of volatility in the market price of a company’s securities, securities class action
litigation has often been instituted against that company. If we were involved in any similar litigation, we could incur substantial costs
and our management’s attention and resources could be diverted.
We have never paid dividends on our share capital and we do not
intend to pay dividends for the foreseeable future.
We have never declared or paid any dividends on our share capital
and do not intend to pay any dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use
in the development and growth of our business and for general corporate purposes. Accordingly, any gains from an investment in the ADSs
will depend on price appreciation of the ADSs, which may never occur. In addition, Israeli law limits our ability to declare and pay dividends,
and may subject our dividends to certain Israeli withholding taxes.
ADS holders may not receive the same distributions or dividends
as those we make to the holders of our ordinary shares, and, in some limited circumstances, they may not receive dividends or other distributions
on our ordinary shares and may not receive any value for them, if it is illegal or impractical to make them available.
The depositary for the ADSs has agreed to pay to ADS holders the
cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying the ADSs,
after deducting its fees and expenses. ADS holders will receive these distributions in proportion to the number of ordinary shares their
ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available
to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that
require registration under the Securities Act of 1933, as amended, or the Securities Act, but that are not properly registered or distributed
under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currency that was part of a dividend
made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof,
which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited
securities” or may seek to affect a substitute dividend or distribution, including net cash proceeds from the sale of the dividends
that the depositary deems an equitable and practicable substitute. We have no obligation to register under U.S. securities laws any ADSs,
ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to
permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositary may deduct from
such dividends or distributions its fees and may withhold an amount on account of taxes or other governmental charges to the extent the
depositary believes it is required to make such withholding. These restrictions may cause a material decline in the value of the ADSs.
ADS holders do not have the same rights as our shareholders.
ADS holders do not have the same rights as our shareholders.
For example, ADS holders may not attend shareholders’ meetings or directly exercise the voting rights attaching to the ordinary
shares underlying their ADSs. ADS holders may vote only by instructing the depositary to vote on their behalf. If we request
the depositary to solicit voting instructions from ADS holders (which we are not required to do), the depositary will notify ADS holders
of a shareholders’ meeting and send or make voting materials available to them. Those materials will describe the matters to
be voted on and explain how ADS holders may instruct the depositary how to vote. For instructions to be valid, they must reach the
depositary by a date set by the depositary. The depositary will try, as far as practical, subject to the laws of Israel and the provisions
of our articles of association or similar documents, to vote or to have its agents vote the deposited ordinary shares as instructed by
ADS holders. If we do not request the depositary to solicit voting instructions from ADS holders, they can still send voting instructions,
and, in that case, the depositary may try to vote as they instruct, but it is not required to do so. Except by instructing the depositary
as described above, ADS holders won’t be able to exercise voting rights unless they surrender their ADSs and withdraw the ordinary
shares. However, they may not know about the meeting enough in advance to withdraw the ordinary shares. We cannot assure ADS
holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ordinary shares.
In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying
out voting instructions. This means that ADS holders may not be able to exercise voting rights and there may be nothing they can
do if their ordinary shares are not voted as they requested. In addition, ADS holders have no right to call a shareholders’
meeting.
ADS holders may be subject to limitations on transfer of their
ADSs.
ADSs will be transferable on the books of the depositary. However,
the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance
of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the
books of the depositary are closed, or at any time if we or the depositary deem it advisable to do so because of any requirement of law
or of any government or governmental body, under any provision of the deposit agreement, or for any other reason in accordance with the
terms of the deposit agreement.
As a foreign private issuer whose ADSs are listed on Nasdaq, we
follow certain home country corporate governance practices instead of certain Nasdaq requirements, we are not subject to U.S. proxy rules
and are exempt from certain Exchange Act reporting requirements. If we were to lose our foreign private issuer status, our costs to modify
our practices and maintain compliance under U.S. securities laws and Nasdaq rules would be significantly higher.
We are a foreign private issuer and are not subject to the same
requirements that are imposed upon U.S. domestic issuers by the SEC. We are permitted to follow certain home country corporate governance
practices instead of certain requirements of the rules of Nasdaq. As permitted under the Israeli Companies Law 1999, or Companies Law,
pursuant to our articles of association, the quorum for an ordinary meeting of shareholders shall be the presence of at least two shareholders
present in person, by proxy or by a voting instrument, who hold at least 25% of the voting power of our shares (and in an adjourned meeting,
with some exceptions, a minimum of one shareholder) instead of 33 1⁄3% of our issued share capital as otherwise required under the
Nasdaq corporate governance rules. We may also adopt and approve material changes to equity incentive plans in accordance with the Companies
Law, which does not impose a requirement of shareholder approval for such actions. In addition, we follow Israeli corporate governance
practice instead of the Nasdaq requirements to obtain shareholder approval for certain dilutive events (such as issuances that will result
in a change of control, certain transactions other than a public offering involving issuances of a 20% or greater interest in us and certain
acquisitions of the stock or assets of another company). Additionally, we follow Israeli corporate governance practices instead of Nasdaq
requirements with regard to, among other things, the composition of our board of directors. For example, our board of directors currently
comprises four directors, three of whom we have determined are independent, however during 2021, the majority of our board of directors
was not deemed to be independent, in compliance with our home-country requirements. Accordingly, our shareholders may be afforded less
protection that what is provided under the Nasdaq corporate governance rules to investors in U.S. domestic issuers. See “Item
16G. —Corporate Governance—Nasdaq Listing Rules and Home Country
Practices.”
Additionally, we are exempt from the rules and regulations under
the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors, and principal shareholders are
exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. Furthermore, although
under regulations promulgated under the Companies Law, as an Israeli public company listed on Nasdaq, we are required to disclose the
compensation of our five most highly compensated officers on an individual basis, this disclosure may not be as extensive as that required
of U.S. domestic reporting companies. In addition, we are not required under the Exchange Act to file current reports and quarterly reports,
including financial statements, with the SEC as frequently or as promptly as U.S. domestic reporting companies whose securities are registered
under the Exchange Act. Moreover, we are not required to comply with Regulation FD, which restricts the selective disclosure of material
information. These exemptions and leniencies reduce the frequency and scope of information and protections available to ADS holders in
comparison to those applicable to U.S. domestic reporting companies.
If we cease to qualify as a foreign private issuer, we would be
required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers. We would lose our foreign
private issuer status if a majority of our shares are owned by U.S. residents and a majority of our directors or executive officers are
U.S. citizens or residents or we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. If we
are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms
with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. We may also be required to modify
certain of our policies to comply with accepted governance practices associated with U.S. domestic issuers and we would lose our ability
to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.
Such modifications and subsequent compliance would cause us to incur significant legal, accounting and other expenses that we would not
incur as a foreign private issuer.
If we are a “passive
foreign investment company” for U.S. federal income tax purposes, there may be adverse U.S. federal income tax consequences to U.S.
investors
Based on our income and assets, we believe that we may be treated
as a PFIC for the preceding taxable year. However, the determination of our PFIC status is made annually based on the factual tests described
below. Consequently, while we may be a PFIC in future years, we cannot estimate with certainty at this stage whether or not we are likely
to be treated as a PFIC in the current taxable year or any future taxable years. Generally, if, for any taxable year, at least 75 percent
of our gross income is “passive income” or at least 50 percent of the average percentage of our assets during the taxable
year (based on the average of the fair market values of the assets determined at the end of each quarterly period) are assets that produce
or are held for the production of passive income, we will be characterized as a PFIC for U.S. federal income tax purposes. Passive income
for this purpose generally includes, among other things, dividends, interest, rents, royalties, gains from commodities and securities
transactions, and gains from assets that produce passive income. However, rents and royalties received from unrelated parties in connection
with the active conduct of a trade or business should not be considered passive income for purposes of the PFIC test. For example, if
we were to be characterized as a PFIC for U.S. federal income tax purposes in any taxable year during which a U.S. Holder (as defined
in “Item 10.—Additional Information—Taxation — Material United States federal income tax considerations”)
holds ordinary shares or ADSs, such U.S. Holder could be subject to additional taxes and interest charges upon certain distributions by
us and any gain recognized on a sale, exchange or other disposition of our shares, whether or not we continue to be characterized as a
PFIC. Certain adverse consequences of PFIC status can be mitigated if a U.S. Holder makes a “mark to market” election or an
election to treat us as a qualified electing fund, or QEF. See “Item 10.—Additional Information—Taxation—Passive
foreign investment company considerations.”
Whether we are a PFIC for any taxable year will depend on the composition
of our income and the composition and value of our assets from time to time. Each U.S. Holder is strongly urged to consult its tax advisor
regarding these issues and any available elections to mitigate such tax consequences.
If we are a controlled foreign corporation, there could be adverse
U.S. federal income tax consequences to certain U.S. Holders.
Each “Ten Percent Shareholder” (as defined below) in
a non-U.S. corporation that is classified as a “controlled foreign corporation,” or a CFC, for U.S. federal income tax purposes
generally is required to include in income for U.S. federal tax purposes such Ten Percent Shareholder’s pro rata share of the CFC’s
“Subpart F income,” “tested income,” “global intangible low-taxed income” and investment of earnings
in U.S. property, even if the CFC has made no distributions to its shareholders. Subpart F income generally includes dividends, interest,
rents, royalties, gains from the sale of securities and income from certain transactions with related parties. A non-U.S. corporation
generally will be classified as a CFC for U.S. federal income tax purposes if Ten Percent Shareholders own, directly or indirectly, more
than 50% of either the total combined voting power of all classes of stock of such corporation entitled to vote or of the total value
of the stock of such corporation. A “Ten Percent Shareholder” is a United States person (as defined by the Internal Revenue
Code of 1986, as amended, or the Code) who owns or is considered to own, directly,
indirectly, or constructively, 10% or more of the value or total combined voting power of all classes of stock entitled to vote
of such corporation.
The determination of CFC status is complex and includes complex
attribution rules. A non-corporate Ten Percent Shareholder with respect to a CFC generally will not be allowed certain tax deductions
or foreign tax credits generally available to a corporate Ten Percent Shareholder. Failure to comply with CFC reporting obligations may
subject a Ten Percent Shareholder to significant monetary penalties. We cannot provide any assurances that we will furnish to any Ten
Percent Shareholder information that may be necessary to comply with the reporting and tax paying obligations applicable under the CFC
rules of the Code. U.S. Holders should consult their own tax advisors with respect to the potential adverse U.S. tax consequences of becoming
a Ten Percent Shareholder in a CFC.
| |
ITEM 4. |
INFORMATION ON THE COMPANY
|
A. History and Development
of the Company
We were incorporated
in May 2018 in Israel as DocoMed Ltd., and originally provided digital health services. In July 2019, we changed our name to MeaTech Ltd.
and later Steakholder Innovation Ltd., or Steakholder Innovation, and commenced our cultured meat technology development operations. In
January 2020, Steakholder Innovation completed a merger with Ophectra Real Estate and Investment Ltd., or Ophectra, a company incorporated
in Israel whose shares were traded on the TASE, whereupon the name of Ophectra was changed to Meat-Tech 3D Ltd., then MeaTech 3D Ltd.
and finally Steakholder Foods Ltd., or Steakholder Foods.
According to the terms
of the merger, Steakholder Foods acquired all outstanding shares of Steakholder Innovation from the shareholders of Steakholder Innovation,
in return for the issuance of ordinary shares to the shareholders of Steakholder Innovation, as well as non-tradable merger warrants to
receive ordinary shares upon the achievement of pre-defined milestones, which were achieved in 2020 and 2021. Steakholder Innovation become
Steakholder Foods’ wholly-owned subsidiary.
In connection with
the merger, the Tel Aviv District Court for Economic Affairs approved an arrangement whereby all of Ophectra’s assets and liabilities,
whether certain or contingent, at the time of the merger were irrevocably assigned to a settlement fund, or Settlement Fund, for the purpose
of settling Ophectra’s pre-merger liabilities (except for Ophectra’s ownership of 14.74% of the outstanding shares of Therapin
Ltd., as described below). This includes all future liabilities arising from Ophectra’s activities prior to the merger (including
tax liabilities, if any), and any commitments made by Ophectra prior to the merger. We also provided the Settlement Fund approximately
NIS 1.3 million (approximately $0.4 million), which we included in our public listing expenses, for the purpose of settling any of Ophectra’s
debts, and bear no additional liabilities to the Settlement Fund. Anyone who believed they had a claim to Ophectra’s assets were
invited to lodge their claims to the trustees. Due to the fact that two years have passed since the merger, and the fact that the Settlement
Fund no longer contains any assets, its trustees are expected to instigate proceedings to wind up the Settlement Fund.
Although Steakholder
Foods was the legal acquirer of Steakholder Innovation’s shares as described above, the merger was not considered a business acquisition
as defined in IFRS 3. As a result, it was determined that Steakholder Innovation is the acquirer of the business for accounting purposes
and the transaction was treated as a reverse acquisition that does not constitute a business combination.
Therefore, the consolidated
financial statements and financial data included herein for all periods through and including December 31, 2019 were adjusted retroactively
to reflect the financial statements of Steakholder Innovation, other than the information concerning earnings per share, which is presented
according to the equity information of Steakholder Foods (then called Ophectra Real Estate and Investments Ltd.), and our consolidated
financial statements and financial data included herein from January 1, 2020 onward relate to Steakholder Foods.
We temporarily maintained ownership of 14.74% of the outstanding shares of Therapin
Ltd., or Therapin, a company incorporated in Israel, while considering a possible collaboration, however, in May 2020, we returned these
holdings to Therapin, and agreed to convert our investment of NIS 7.25 million in Therapin into an interest-free loan, to be repaid by
the latter at a rate of NIS 0.48 million per annum for ten years (NIS 4.8 million in total) or in full upon an exit event, plus NIS 2.45
million to be paid upon an exit event, including a public offering, or repayment of 14.74% of any distributable surplus or dividend distributed
by Therapin, up to the amount of the outstanding balance, as detailed in our separation agreement with Therapin. As part of the agreement,
Therapin gave us an option to convert the cash payment to equity of Therapin.
B. Business Overview
Overview
We are an international
deep-tech food company, headquartered in Rehovot, Israel, that initiated activities in 2019 and are listed on the Nasdaq Capital Market
under the ticker “STKH”. We believe that cultivated meat technologies hold significant potential to improve meat production,
develop a sustainable livestock system, simplify the meat supply chain, and offer consumers a range of new product offerings.
We are on a mission to
make meat sustainable, delicious, and clean. We aim to provide an alternative to industrialized animal farming that reduces carbon footprint,
minimizes water and land usage, and prevents the slaughtering of animals. By adopting a modular factory design, we expect to be able to
offer a sustainable solution for producing a variety of beef, chicken, pork and seafood products, both as raw materials and whole
cuts.
We are developing cultivated
meat technologies, including three-dimensional printing technology, together with biotechnology processes and customizable manufacturing
processes in order to manufacture cultivated meat that does not require animal slaughter. We are developing a novel, proprietary three-dimensional
bioprinter to deposit layers of customized bio-ink in a three-dimensional geometry to form structured cultivated meat. We believe that
the cultivated meat production processes we are developing, which are designed to offer our eventual customers an alternative to industrial
slaughter, have the potential to improve the quality of the environment, shorten global food supply chains, and reduce the likelihood
of health hazards such as zoonotic diseases transferred from animals to humans (including viruses, such as virulent avian influenza and
COVID-19, and drug-resistant bacterial pathogens, such as some strains of salmonella).
In August 2020, we announced
the completion of Project Carpaccio, whereby we printed a thin slice of meat consisting of muscle and fat tissue developed from stem cells,
having developed the entire growth process of the tissue components, followed by three-dimensional printing using our dedicated, in-house
printer.
In December 2021, we
announced that we had successfully three-dimensionally printed a 3.67 oz cultivated steak, primarily composed of cultivated fat and muscle
tissues. While cultivated meat companies have made some progress developing unstructured, or even undifferentiated, alternative meat
products, such as minced meat and sausage, to the best of our knowledge, the industry has struggled in developing high-margin, high-value
structured and cultivated meat products such as steak. Unlike minced meat, a cultivated meat steak product has to grow in fibers and contain
connective tissues and fat. To be adopted by diners, we believe that cultivated steaks will need to be meticulously engineered to look
and smell like conventional meat, both before and after cooking, and to taste and feel like meat to the diner. We believe that we are
the first company to be developing both a proprietary bioprinter and the related processes for growing cultivated meat to focus on what
we believe is a high value sector of the alternative protein market.
In May 2022, we joined
the UN Global Compact initiative, committing to ten universally accepted principles in the areas of human rights, labor, environment,
and anti-corruption and to act in support of the issues embodied in the UN’s Sustainable Development Goals.
We are led by our Chief
Executive Officer, Arik Kaufman, who has founded various Nasdaq- and Tel Aviv Stock Exchange, or TASE, -traded foodtech companies, and
currently serves as director of Wilk Technologies Ltd. He is also a founding partner of BlueOcean Sustainability Fund, LLC, or BlueSoundWaves,
led by Ashton Kutcher, Guy Oseary and Effie Epstein, which has partnered with Steakholder to assist in attempting to accelerate the Company’s
growth. Mr. Kaufman holds extensive personal experience in the fields of food-tech and bio-tech law, and has led and managed numerous
complex commercial negotiations, as part of local and international fundraising, M&A transactions and licensing agreements. We have
carefully selected personnel for the rest of our executive management team who possess substantial industry experience and share our core
values.
Cultivated Meat Industry
and Market Opportunity
Protein is a necessary
staple for healthy nutrition. The growth in recent years of both the human population and global wealth is driving a decades-long trend
of accelerating demand for meat. The demand for protein products has consistently risen in recent decades and is expected to continue
to do so. The rising growth of demand for farm animals for the food industry has created significant environmental, health, financial
and ethical challenges.
According to Statista,
the value of the global meat sector was estimated at $838 billion in 2020, and was forecast to increase to $1.157 billion by 2025. According
to market research firm Fortune Business Insights, the global meat substitute market was estimated at $5.4 billion in 2021 and is expected
to grow to $10.8 billion by 2028. McKinsey & Company estimates between $20 and $25 billion in sales by 2030, and with regard to the
longer term, Barclays predicted in November 2021 that by 2040, 20% of the demand for meat globally will be provided by cultivated meat
– a $450 billion market opportunity. Jefferies likewise forecasts a $240-470 billion meat market, with 9%-18% of global meat demand
provided by cultivated meat by 2040.
The meat industry is
showing strong interest in the alternative protein space, both in plant-based and cell-based proteins. There are several drivers underlying
the strong engagement with alternative proteins. We believe consumers are looking for less harmful protein sources, with approaches such
as flexitarianism already an established middle path between vegetarian diets and those heavy in animal proteins, such as the paleo diet.
Many meat processors have experienced the worst of the COVID-19 pandemic outbreaks and are seeking to minimize human involvement in the
manufacturing process. To that end, retailers such as Costco and Walmart are increasingly opening their own meat processing facilities
on which they can rely exclusively without the involvement of third party manufacturers.
Limitations
of Conventional Meat Production
In addition to questions
about whether conventional meat production can adequately provide for the growing global population, conventional meat production raises
serious environmental issues. According to the United Nations, 8% of the world’s freshwater is used for raising livestock
for meat and leather. At least 18% of the greenhouse gases entering the atmosphere are from the livestock industry. 26% of the planet’s
ice-free land is used for livestock grazing and 33% of croplands are used for animal feed. With regard to treatment of animals in
conventional meat production, more than 70 billion animals are slaughtered annually with steady increases to be expected in line with
increased demand for meat.
Another common consumer
concern with industrial-scale animal rearing is the reliance on the intensive use of antibiotics. Antibiotics are used in livestock, especially
pigs and poultry, to manage animal health, and to treat or prophylactically prevent diseases such as avian flu and swine flu. Their effects
on human health have not been fully resolved, with concerns including the potential growth of antibiotic-resistant diseases in meat for
human consumption.
Existing
Alternative Proteins and their Limitations
Negative consumer sentiment
towards the perceived ethical, health and environmental effects of the global meat industry help explain the strong focus that has developed
on creating methods of protein production that are more sustainable, nutritious and conscious of animal welfare. Recent years have seen
a combination of increasing consumer awareness and advanced technological development that has led to substantially increased demand for
proteins that do not involve animal slaughter besides traditional plant-based proteins, such as soy, peas and chickpeas. Some of the alternative
proteins being developed for human consumption for this purpose include:
Mycoproteins: Some
of the most commercially successful novel alternative protein products are currently mycoproteins, which are derived from fungi. They
are high in protein and fiber, low in saturated fat, and contain no cholesterol. However, they have been associated with allergic
and gastrointestinal reactions. They are fermented to become a dough, which can develop a texture similar to that of meat.
Jackfruit:
Jackfruit is a tropical fruit native to India, which has a similar taste to fruits such as apples and mangoes. While it contains substantially
greater protein than these fruits, its protein content is lower than that of meat. Therefore, while its texture is somewhat similar to
that of shredded meat, it is not generally viewed as an alternative to meat for consumers used to animal proteins, due to the difference
in taste from traditional meat products, and its lower protein content.
Insects: Insects
are an environmentally-friendly source of protein that requires significantly less land and water, and emits significantly less greenhouse
gases than large mammals raised for slaughter. In addition, they can be fed food unsuitable for livestock that would otherwise be wasted.
While crickets are the most common source of edible insects, research is currently taking place on new insect species of value for food
production, as well as methods to produce them economically at scale. Insects can be consumed in their natural state; however many cultures
consider insect consumption to be taboo and many people are disgusted by the idea. As a result, research is taking place into developing
insect-based products in different forms not easily discernable as insect-based, including flour.
The
Cultivated Meat Solution
We believe that cultivated
meat grown through cellular agriculture, which aims to produce cultivated animal proteins without the need for large-scale slaughter,
has the potential to satisfy consumer desire for meat while also avoiding the negative impacts of conventional meat production. Cellular
agriculture is an efficient, closely-controlled indoor agricultural process that utilizes advanced technologies with conceptual similarities
to hydroponics, which are used for growing meat cells rather than fruit. Cultivated meat is grown in cell culture rather than inside animals
and applies tissue engineering practices for fat and muscle production for the purpose of human consumption. Instead of animal slaughter,
stem cells are isolated from animal tissue, such as from an umbilical cord (following birth), an adipose or a muscle tissue, and then
cultivated in vitro to form protein biomass, muscle fibers and fat cells. While also
known as “cultured meat”, “clean meat”, “in vitro meat” or “lab-grown meat”, the term
“cultivated meat” has gained the most traction as of late and is the term believed to best appeal to consumers.
Cultivated meat production
is an advanced technology that operates as part of the wider field of cellular agriculture, which entails growing animal cells in bioreactors
and is an emerging solution to the growing demand for alternative proteins. We are aware of a few dozen companies and institutions actively
working to develop technologies and other products to meet this demand, some of whom are focused on producing red and white meats, while
others are focused on fish and crustaceans. Some of these companies are working on culturing various types of cells, such as chicken,
pork, kangaroo and foie gras. We believe this push of scaling-up cellular agriculture has the potential to offer a solution to the scale
and environmental challenges confronting conventional meat production. Other alternative protein companies are already selling plant-based
meat substitutes, but to our knowledge, these companies are not focused on the production of real meat products produced with animal cells.
We are engaged with experimentation
to develop optimal and cost-effective cell culture media composition. In so doing, we are also exploring a range of types of and sources
for growth factors suited to cell culture. These sources are expected to be sustainable and ethical, providing a route to enabling efficient
and cost-effective processes. While many challenges remain, surveys are consistently showing consumer openness toward, and enthusiasm
for, cultivated meat. According to “Consumer Acceptance of Cultured Meat: An Updated Review (2018–2020)” published by
researchers at the University of Bath, “the evidence suggests that, while most people see more societal benefits than personal benefits
of eating cultivated meat, there is a large potential market for cultivated meat products in many countries around the world. Cultivated
meat is generally seen as more acceptable than other food technologies, and more appealing than other alternative proteins like insects.
Although it is not as broadly appealing as plant-based proteins, evidence suggests it may be more uniquely positioned to appeal to meat-lovers
who are resistant to other alternative proteins, and it is more appealing to certain demographic groups”.
We believe that cultivated
meat could have several potential advantages over conventionally-harvested meat:
|
• |
Environmental:
At least 18% of the greenhouse gases entering the atmosphere today are from the livestock industry. Research shows that the expected environmental
footprint of cultivated meat includes approximately 78% to 96% fewer greenhouse gas emissions, 63%-95% less land use, 51% to 78% less
water use, and 7% to 45% less energy use than conventionally-produced beef, lamb, pork and poultry. This suggests that the environmental
consequences of switching from large-scale, factory farming to lab-grown cultivated meat could have a long-term positive impact on the
environment. |
|
• |
Mitigating
and reducing of health risks: Another potential benefit of cultivated meat is that its growth environment is designed to be less
susceptible to biological risk and disease, through standardized, tailored production methods consistent with controlled manufacturing
practices that are designed to contribute to improved nutrition, health and wellbeing. Therefore, cultivated meat reduces the risk
of new diseases and future pandemics. Plant-based and cultivated meats are expected to be insusceptible to animal diseases and should
therefore not contribute to pandemic risk because they do not require the use of live animals. Moreover, cultivated meat does not require
antibiotics during its production and therefore will not contribute to antibiotic resistance. |
|
• |
Cost:
While the precise economic value of harvested cells has yet to be determined, the potential to harvest large numbers of cells from a small
number of live donor animals gives rise to the possibility of considerably higher returns than traditional agriculture, with production
cycles potentially measured in months rather than years. By comparison, raising a cow for slaughter generally takes an average of 18 months,
over which period 15,400 liters of water and 7 kilograms of feed will be consumed for every kilogram of beef produced. While the original
cultivated burger is thought to have cost around $330 thousand, consulting firm CE Delft estimates that economies of scale combined with
technological improvements will bring the cost of cultivated meat down to less than $8 per kilogram by 2035. |
|
• |
Animal
Suffering: More and more people are grappling with the ethical question of whether humanity should continue to slaughter animals
for food. There is a growing trend of opposition to the way animals are raised for slaughter, often in small, confined spaces with unnatural
feeding patterns. In many cases, such animals suffer terribly throughout their lives. This consideration is likely a factor in many consumers
choosing to incorporate more flexitarian, vegetarian and vegan approaches to their diets in recent years. |
|
• |
Alternate
Use of Natural Resources: Eight percent of the world’s freshwater supply and one third of croplands are currently used to
provide for livestock. The development of cultivated meat is expected to free up many of these natural resources, especially in developing
economies where they are most needed. |
|
• |
Food Waste:
The conventional meat industry’s largest waste management problem relates to the disposal of partially-used carcasses, which are
usually buried, incinerated, rendered or composted, with attendant problems such as land, water or air pollution. Cultivated meat offers
a potential solution for this problem, with only the desired cuts of meat being produced for consumption and only minimal waste product
generated with no leftover carcass. |
Our Strategy
Our vision is to be a global leader in the production of meat through advanced biotechnology
and engineering solutions for a more sustainable world, enabling the production of the food of the future. We are committed to making
the right choice of meat for end consumers simple by developing high-quality meat that is slaughter-free, delicious, nutritious, and safer
than farm-raised meat, We accomplish this by adopting a factory design intended to offer a sustainable solution for producing a variety
of beef, chicken, sea-food and pork products, whether as raw materials or final consumer products.
Our technologies and
processes have the potential to be sustainable. We are developing a meat production process that is designed to provide sustainability
in an industry that, due to inefficiencies inherent in conventional meat farming, is not otherwise expected to be able to meet the growing
demand for protein caused by rising population numbers and global affluence. These include the large amounts of land and water use that
are needed for raising livestock, which causes precious natural resources to be squandered and the release of methane and other greenhouse
gases by livestock.
We are designing our
cellular agriculture and bioprinting processes to be modular so that customers can initiate their cultivated meat activities at scales
suitable for their specific needs and to grow their activities as their needs evolve. Whether a customer wishes to manufacture a hybrid
product that includes cultivated and plant-based ingredients, cultivated fat as a raw material, or even 3D-printed steak, each facility
can be adapted to scale-out product capabilities and production volumes.
We are developing a fully
automated, clean and proprietary process for cultivated meat manufacturing in a controlled, sterile environment, which is expected to
significantly increase food safety. Our production facilities will not house a single animal and will contain robust integrated monitoring
systems and minimal human interaction, which will greatly reduce the risk of pathogen contamination of the type claimed to have caused
the COVID-19 pandemic and numerous other human health crises.
We have carefully selected
personnel for our management team who possess substantial industry experience, from diverse fields including the food industry, business
development bioprinting, tissue engineering, industrial stem cell growth, software engineering, electronic and mechanical engineering
and print materials development. We believe that this blend of talent and experience in managers who share our core values gives us the
requisite insights and capabilities to execute our plan to develop technologies designed to meet demand in a scalable, profitable and
sustainable way.
To achieve our mission,
we intend to:
|
• |
Commercialize
our technologies for use in consumer and business markets. We intend to commercialize our three-dimensional bio-printing capabilities,
while also customizing bio-inks to enable the production of products based on a wide range of species in accordance with the needs of
our partners and customers. We also intend to provide ingredients to business customers for use in consumer products in order to help
meet the growing demand for sustainable, slaughter-free cultivated meat products. For example, manufacturers of meat alternatives, such
as vegetarian sausages, may choose to include our cultivated fat biomass in their products in order to deliver the signature meaty flavors,
aromas and textures of the meat that is otherwise provided by the conventional meat of species such as chicken, beef and pork. We believe
that this combination has the potential to unlock a new level of meat experience. |
|
• |
Perfect
the development of our cultivated meat manufacturing technology and processes. We intend to continue developing and refining
our processes, procedures and equipment until we are in a position to commercialize our technologies, whether by manufacturing final products
for consumers (B2B2C models) or ingredients for industrial use, as well as in outlicensing (B2B models). We are continuing to tackle
the technological challenges involved in scaling up both our biological and printing processes to industrial-scale levels. |
In addition, we intend
to license our production technology as well as provide associated products, such as cell lines, printheads, bioreactors and incubators,
and services, such as technology implementation, training, and engineering support, whether directly or through contractors, to companies
in fields including food processing, food retail and cultivated meat. We intend to charge our customers a production license fee,
based upon the amount of meat printed. We expect that each production facility will periodically require us to provide them with our proprietary
materials, such as fresh sets of starter cells, for a fee. In addition, other materials used in the production process, such as cell-culture
media and additives in our bio-inks may be sourced from third parties. Whether these materials are customized for the specifics of our
production processes, “white-labelled” generic materials or proprietary materials that we have developed, we may charge a
fee for restocking such materials; however, we have not yet reached the stage where it would be possible to estimate to what extent this
would contribute to any future revenue stream. Finally, we intend to provide
paid product implementation and guidance services to our customers looking to establish cultivated meat manufacturing facilities. We expect
that each facility licensing our technologies will need to deal with novel challenges and, as a result, will require the assistance of
our expert knowledge in order to set up and implement our licensed technologies.
In December 2022, we
announced that we will focus on commercialization of our 3D bio-printer in 2023 to accelerate our go-to-market strategy through business
collaborations and partnerships. To facilitate an accelerated go-to-market plan, we will focus resources on dedicating business personnel
to create and develop partnerships during 2023.
|
• |
Develop additional alternative
proteins to meet growing industry demand. There are substantial technological challenges inherent in expanding our offering beyond
our current cultivated beef technologies to additional alternative proteins and cell lines. However, we believe that our experience,
know-how and intellectual property portfolio form an excellent basis from which to surmount such challenges. In January 2023, we announced
a collaboration with Singaporean cultivated seafood developer, Umami Meats, to develop 3D-printed structured eel and grouper products
pursuant to a grant from the Singapore-Israel R&D Foundation. The initiative is being funded by a grant from the Singapore-Israel
Industrial R&D Foundation (SIIRD), a cooperation between Enterprise Singapore (ESG) and the Israel Innovation Authority (IIA). The
collaboration aims to develop a scalable process for producing structured cultivated fish products and will involve the use of our newly-developed
technology for mimicking the flaky texture of cooked fish which was the subject of a recent patent application. |
By the end of the first
quarter of 2023, we intend to complete the project’s first prototype, a structured hybrid grouper product printed using our proprietary
three-dimensional bio-printing technology and bio-inks, customized for cells provided by Umami Meats.
|
• |
Acquire
synergistic and complementary technologies and assets. We intend to optimize our processes and diversify our product range
to expand the cultivated meat technologies upon which marketable products can be based. We intend to accomplish this through a combination
of internal development, acquisitions and collaborations, with a view to complementing our own processes and diversifying our product
range along the cultivated meat production value chain in order to introduce cultivated products to the global market as quickly as possible.
See also “- Additional Technologies” below. |
The Commercialization
Roadmap
The following table sets
forth a road map for the expected commercialization of substitutes for conventionally-farmed meat, which include:
|
• |
Fully-plant-based meat-like offerings that are already commercially
available but lack the organoleptic properties of meat, primarily flavor, aroma, texture and color; |
|
• |
Hybrid meat products of the type that we are developing, which
combines real cultivated fat with plant-based protein to offer meatier products with enhanced organoleptic properties; |
|
• |
Unstructured meat products, such as hamburgers and minced meat;
|
|
• |
Thee-dimensional, printed, hybrid, structured products such as hybrid steaks,
chicken breast and fish fillets (“ready to cook”); and |
|
• |
Fully-cultivated structured meat products, such as 3D-printed
steaks. |
We are focusing on developing
complex structured products, starting with ready-to-cook structured hybrid products, followed by fully cultivated and structured, maturated
whole cuts of meat.
In September 2022, we
announced the development of Omakase Beef Morsels, a richly-marbled, structured meat product developed using our proprietary 3D-printing
process. Inspired by the marbling standard of Wagyu beef, we believe that Omakase Beef Morsels are an innovative culinary achievement
elegantly designed as a meat lover’s delicacy for premium dining experiences.
The product is made up
of multiple layers of muscle and fat tissue, which have been differentiated from bovine stem cells, and showcases the control, flexibility
and consistency inherent in our bioprinting technology. Each layer is printed separately using two different bio-inks – one for
muscle and one for fat. The layers can be printed in a variety of muscle/fat sequences to obtain differing results of juiciness and marbling
of the cut.
We expect to reach industrial-speed
printing capabilities in the second half of 2023 and generate initial revenues from our hybrid product technologies commencing in 2024,
followed by whole cuts of meat commencing in 2025.
Omakase Beef Morsels (Photo
credit: Shlomo Arbiv)
Meat Ingredients for Hybrid
and Unstructured Cultivated Products
We continue to develop novel, proprietary, stem-cell-based technologies to produce fat,
muscle and connective tissue biomass from multiple species, such as beef and fish, without harming any animals. We are leveraging this
technology, including through novel hybrid food products, to expedite market entry while we develop an industrial process for cultivating
and producing real meat, including through the use of three-dimensional bioprinting technology. The first expected application of the
technology is in hybrid food products, which combines plant-based protein with cultivated animal biomass and is designed to provide meat
analogues with qualities of “meatiness”, such as taste and texture, closer to that of conventional meat products than are
currently available in the market today. To this end, we have conducted a number of taste tests where we demonstrated the potential that
our cultivated fat biomass has to enhance the taste of plant-based protein products. We believe that a product comprised of as little
as 10-25% of our cultivated fat biomass combined with plant-based protein has the potential to enhance meatiness. Our cultivated fat biomass
is designed to be free of antibiotics and can be tailored to provide personalized nutritional profiles.
Our fat biomass production
technology relies on the use of cells derived from proprietary cell lines. These cells grow naturally in suspension and in high densities.
They also proliferate continuously, are relatively large and tend to easily accumulate lipid. This quality of the cells makes them an
excellent candidate for producing cultivated fat, so we have used them to build a robust cell line that is free of genetic modifications,
which we are now attempting to upscale towards industrial production volumes. Our most advanced cell line is being built with GMO pluripotent
stem cells that can differentiate into muscle cells and fat cells and form connective tissue, which need fewer high-cost media components,
such as growth factors, for their development. As a result, these cells may have higher growth potential with lower costs than alternative
technologies. We have likewise developed the process for isolating, growing and differentiating bovine stem cells into muscle fibers,
fat biomass and connective tissue.
Some of the steps which
we are taking in order to keep the growth media cost low include:
|
• |
Replacing expensive, animal-derived components in cell growth
media with chemical replacements, including through in-house production, with a view to completing animal-free growth media and bio-ink
by the first half of 2023; |
|
• |
Cell line optimizations, such as through high-throughput analyses
of evolved isolates; |
|
• |
Bioprocess optimization and media recycling; |
|
• |
Upscaled growth factor production, such as through hollow fiber
bioreactors; and |
|
• |
Long-term market optimization as a result of expected increased
demand. |
Structured Fully-Cultivated
Meat
In addition to meat ingredients
for use in hybrid meats and unstructured, cultivated meat, we are developing the technology and processes to produce cultivated meat steak
at an industrial scale. We are working to achieve this by creating an end-to-end technology that combines cellular agriculture with
bioprinting to produce complex meat structures. We are developing cellular agriculture technology, such as cell lines, and approaches
to working with growth media to support the growth of cells such as fat and muscle cells in a scalable process, and have demonstrated
an ability to differentiate stem cells into fat and muscle cells. We expect the media to be composed of food-grade ingredients, with growth
factors similar to those produced naturally in the bodies of cattle, albeit free of fetal bovine serum, traditionally a significant component
of cellular growth media that is harvested from animals. We are engaged with experimentation to develop optimal and cost-effective antibiotic-free
cell culture media, and are exploring a range of types of, and sources for, growth factors suited to cell culture. These sources are expected
to be sustainable and ethical, providing a route to enabling effective and cost-effective processes. The processes we are developing are
designed to allow cells of interest, following humane tissue extraction from the umbilical cord or biopsy, to be isolated, replicated,
grown and maintained in vitro under controlled, laboratory conditions.
In February 2023, we
announced that we had analyzed our muscle cells and found that they offer the same amino acid profile as that of the native tissue. The
amino acid profile has two important roles in our cultivated beef products – taste and nutritional value. Our biology team tested
17 amino acids and compared them to native tissue, with the results showing that the team was able to create the same amino acid profile
in the lab as in animals, This demonstrates that cultivated meat has the same biochemical composition as conventional meat, and we believe
that it has the potential to provide similar nutritional value.
Amino acids are the building
blocks of proteins, playing a crucial role in human nutrition. Meat is a rich source of amino acids, particularly those that are considered
"essential" because the human body cannot produce them on its own. These essential amino acids include leucine, isoleucine, valine, lysine,
methionine, phenylalanine, threonine, tryptophan, and histidine. These amino acids are important for a variety of bodily functions, including
muscle growth and repair, immune function, and hormone production. The specific amino acid profile of meat, as well as its taste, varies
depending on the animal species and how it is raised, as well as the cut of meat.
We are also developing
proprietary bioprinting and tissue engineering technologies to enable the design and bioprinting of three-dimensional tissues. Our goal
is for the meat produced using these technologies to have an authentic texture, flavor, appearance and aroma without being limited to
the precise combinations of existing meat tissue, so that fat content of the meat, for example, can be adjusted to amounts other than
those occurring naturally in animals in order to meet varied consumer preferences for fattier or leaner cuts of meat. We believe that
the novel processes that we are developing have the potential to eventually be competitive with conventional manufacturing technologies
for premium products as large-scale production of meat tissues will create new lines of meat without any unnecessary animal use.
In the course of developing
our technologies, we intend to develop a large-scale technology demonstration model. We have set forth below an illustration of the process
that we are developing that we believe will, upon completion, allow us and our customers to develop and manufacture cultivated steaks
at industrial scale.
We are working on slaughter-free
meat development processes, including cell proliferation and differentiation and experiments with stem cell growth media to grow high-density
stem cells based solely on compounds produced in laboratory processes.
In these experiments,
we have developed stem cells able to differentiate into fat or muscle cells which allows for the maturation of fat tissue and muscle fibers
following an isolation process of specific stem cells from sources, such as bovine umbilical cords or muscle tissue. These cells are nourished
with nutritional compounds that we develop as a growth medium to direct their differentiation into fat tissue or muscle tissue as needed.
In February 2022, we
announced the successful development of a novel technology process in which muscle cells are fused into significant muscle fibers that
better resemble those in whole cuts of meat. Bovine stem cells were isolated, proliferated in the lab and differentiated into matured
muscle cells with improved muscle fiber density, thickness and length.
Cell
source for cultivated meat products
The process of industrial
scale meat printing necessitates the isolation and development of cells able to produce both animal muscle and fat tissues. Our proprietary
cell lines are isolated from various sources that harbor these properties. For example, adult stem cells can be isolated from various
adult tissues and give rise to more cells of the same type, such as either fat or muscle tissues, while stem cells isolated from the umbilical
cord immediately following birth can give rise to multiple types of cells, including both fat and muscle cells. Each of these cells has
advantages and disadvantages and their adaptation to our robust meat production process is currently being evaluated.
Bioreactors
We are using software-controlled
bioreactors to foster cell proliferation. The initial growth phase leverages exponential growth of stem cells to achieve sufficient cell
volumes for food production. These stem cells initiate differentiation processes into multiple cell types, such as muscle and fat.
We are in the process
of developing cell-culturing processes and protocols for use in bioreactor systems. Such bioreactor systems will enable monitoring and
control of growth parameters, as well as testing and development of efficient and economical cell-growth processes in industrial breeding
containers. Separate from the bioreactor development process, we have commenced development of a cell-suspension growth process. This
growth process is different from cell growth on laboratory plates. We expect that the newly-developed processes may allow cell growth
on a scale needed for industrial-scale meat development. We have already developed a cell-suspension growth process using chicken and
beef cells in the course of developing both structured and unstructured products.
Our
Bio-Inks
Structured, three-dimensional
printed products require the use of edible bio-inks, which are printable biological materials produced from the biomass produced in our
bioreactors, as well as scaffolding materials. Bioinks produced differ in their differentiation potential into muscle, fat and connective
tissue. In this step, our bio-inks are printed in thin layers in the desired combination, which provides creative control over the steak
design, in a process that maintains the ongoing viability of the bio-ink cells. Since the printed layers are composed of viable cells,
they are then able to coalesce and mature in an incubator with the help of bonding agents that serve as a scaffold that forms three-dimensional
tissues. We are in the process of optimizing the characteristics of our proprietary bio-inks, including composition, motility, viscosity,
temperature, structural stability, density and jettability, or the ability to be dispersed by a printer, as well as the factors helping
the cells to connect in three-dimensional tissues.
We also have the capability
to customize bio-inks for businesses that we work with, offering the opportunity to 3D print with their cell lines. This is currently
being proven in the collaboration with Umami Meat as we are customizing the bio-ink to the Umami Meats Grouper cells.
Proprietary
Bioprinting
Bioprinting is a process
of fashioning a specific type or types of native or manipulated cells configured to form the edible tissue analog by depositing scaffolding
material mixed with cells and other bio-inks. This is done through the use of an inkjet-style printer with drop-on-demand capabilities
where inks are printed precisely into a three-dimensional design.
The image below depicts
a potential laboratory model that we could use for the development and production of cultivated meat steaks.
After the completion
of the bioprinting process, the tissue is transferred into a special incubator, where, in addition to providing nutrients and other chemical
and biological agents, the system may physically manipulate the tissue. This “training” process increases the muscle cells
differentiation, a process in which a cell changes its function and phenotype, and produces a stronger, more fibrous tissue.
To date, we have printed
several cell types, which coalesced into fat and muscle tissue grown in our laboratory. In December 2021, we announced that we had successfully
three-dimensionally printed a 3.67 ounce cultivated steak that was primarily composed of cultivated fat and muscle tissues without using
soy or pea protein. The cells used to make the steak were produced with an advanced proprietary process that started by isolating bovine
stem cells from tissue samples and multiplying them. Upon reaching sufficient cellular mass, stem cells were formulated into bio-inks
compatible with our proprietary 3D bioprinter. The bio-inks were printed from a digital design file of a steak structure. The printed
product was placed in an incubator to mature, allowing the stem cells to differentiate into fat and muscle cells and develop into fat
and muscle tissue to form our steak.
In May 2022, we announced the development of a novel, multi-nozzle
3D bioprinting system for industrial scale production of complex cultivated meat products without impacting cell viability. We plan to
offer the technology to third parties via our wholly-owned private subsidiary, Steakholder Innovation Ltd. as a potential additional revenue
stream and to accelerate commercialization. We aim to conclude our first strategic engagement to this end in the second half of 2023.
In addition, in December 2022, we announced the development of
a temperature-controlled print bed for our industrial-scale printer, which is a step forward on our path toward mass production of cultivated
meat using 3D printing technology. Temperature control is a critical requirement when printing a cultivated product containing live cells.
Maintaining optimal temperature poses a challenge in the architecture of our industrial printers, so the development of temperature-controlled
print beds is a major milestone on the path to production at scale, whereby contactless electromagnetic power is delivered to the print
bed which is connected to a wireless communication module that monitors and controls its temperature.
Cultivated
Steak Scaffolding
Growing three-dimensional
meat presents a unique challenge. Typically, animal cells must remain within 200 microns of a nutrient supply in order to survive. This
is little more than the width of a human hair and is known as the diffusion limit. It is the reason that cells grow along the surface
of a petri dish rather than forming vertical piles.
In the next step of the
process that we are developing, we intend to build a scaffold to support the growth of three-dimensional meat. A “scaffold”,
or “biocompatible scaffolding”, refers to an engineered platform having a predetermined three-dimensional structure that mimics
the environment of the natural extracellular material, or ECM. The ECM is a three-dimensional network of large molecules that provide
structural and biochemical support to surrounding cells. Collagen is the most abundant component in the ECM that supports the development
and growth of complex tissues, and specifically, also muscle tissues. Engineering of bovine muscle tissues in vitro while avoiding the
use of animal derived collagen requires the development of plant based scaffolds that would imitate the properties of the ECM. Plants
are an obvious candidate for scaffolding as they are sustainable, cost worthy and could be processed to have similar properties of collagen
fibers. We are developing technology to allow for the formation of a composite scaffold.
Modularity
We are focused on developing
a process that will allow our food technology customers to operate a high-throughput manufacturing process for high-quality, healthy meat.
Our cellular agriculture and bioprinting processes are being designed to be modular, meaning that they can work using different factory
sizes. We believe we could license our technology to customers with industrial plants close to urban areas seeking to provide “just
in time”, logistically-efficient, local and premium cellular agriculture. In addition, we believe a licensee of our technology could
build a plant in a locality that does not have the resources needed for industrial animal husbandry, which would allow places like the
United Arab Emirates, Hong Kong or Singapore to potentially become more agriculturally independent by increasing food security. As costs
continue to decrease, we believe licensees of our technology could also build production facilities in localities where there is high
agricultural seasonality or desertification risk.
Illustration of a contemplated
cultivated meat manufacturing plant.
Clean
Energy
We are developing processes
intended to achieve high-volume manufacturing capabilities in line with the needs of today’s value-added food processors and other
meat and food industry players. To this end, we are working on processes to scale up production, beginning with different cell types,
including induced pluripotent stem cells and embryonic stem cells. We expect high-volume stem cell production to feed into differentiation
bioreactors that are dedicated to producing fat and muscle cells. These cells are the key input for our downstream productization stages.
The processes we are
developing are advanced biotechnological processes that are intended to produce cultivated meat in a clean environment with minimal environmental
impact. We envision that factories utilizing our technologies will exist in greater harmony with their environment than typical current
factories by supporting sustainability, utilizing renewable energy sources and recycling or treating their own waste.
Additional
Technologies
We may incorporate novel
bioreactor technologies that benefit cellular agriculture and the development of low-cost cell culture media not based on fetal bovine
serum.
We also plan to add cell line types to expand the development of cultivated meat to
other types of animals, as well as achieving market penetration in the shortest timeframe possible, which would allow us to realize the
great potential in the market. We are developing cultivated meat, both unstructured hybrid products and structured, three-dimensional
printed products, with an initial emphasis on bovine cells. Beyond hybrid products, cultivated fat is expected to be a component in other
fat-based products, whether edible or otherwise, and an integrated component in our printing technology. We are working to create synergy
and added value to the cultivated meat market, while also sustaining animal welfare and meeting the growing global demand for meat.
International Expansion
United
States
In March 2022, we announced that we intended to open a U.S. office. We expect the new
space will include activities in research and development, investor relations and business development. In September 2022, we commenced
development of a bovine cell line in the United States, by isolating cells sourced from cattle raised on a farm approved by the United
States Department of Agriculture, or USDA. We plan to make a regulatory submission in the United States for approval of our cultivated
meat in the second half of 2023.
Europe
Peace of Meat Acquisition
In February 2021, we
finalized our acquisition of Peace of Meat, a Belgian producer of cultivated avian products, for up to $19.9 million in cash and equity,
depending on milestone achievements. Peace of Meat was established in Belgium in 2019 and developed cultured avian fat directly from animal
cells without the need to grow or kill animals.
In April 2021, we commenced
food technology development activities through our European subsidiary, MeaTech Europe BV, with an initial focus on hybrid foods using
Peace of Meat’s cultivated fat. Hybrid foods are products composed of both plant and cultivated meat ingredients that have the potential
to offer a meatier experience than purely plant-based meat alternatives. We currently expect food technology development activities to
continue at our Israeli headquarters.
On March
7, 2023, we announced a restructuring plan for Peace of Meat, to which end Peace of Meat began implementing a series of changes designed
to streamline its operations. On April 4, 2023, we announced that Peace of Meat would close, in the context of optimizing our funds and
investment strategy, alongside enabling a greater focus on recently-announced core goals such as accelerating the commercialization of
our 3D printing technology.
As part of our purchase of the shares of Peace of Meat at the end of 2020, Peace of
Meat’s management had been granted full contractual autonomy throughout 2021 and 2022, and was provided with the funding required
to develop its technologies in accordance with the terms of the purchase. Following the conclusion of the autonomous period and following
our previously announced plans to restructure Peace of Meat, we further evaluated the expected return on our investment, and decided not
to provide additional funds to Peace of Meat, in order to focus our efforts in the advancement of its core technology 3D printing of cultured
products, and potential collaborations. As a result, Peace of Meat has ceased operations and is expected to be liquidated. As part of
this process, we expect Peace of Meat’s assets to be realized, following which we shall consider how and when to continue development
of cultivated avian products. The closure of Peace of Meat is expected to reduce our expenses by about $4.5 million annually, relative
to 2022.
Asia
In November 2022, we
received a registered trademark for our name in Japan, which we view as an important next step in our plans to penetrate the Japanese
market and other markets in Asia. This follows on our collaboration with Umami Meats for the joint development of 3D-printed cultivated
structured seafood. In addition, we plan to make a regulatory submission for approval of our cultivated meat in Singapore in the first
half of 2023.
On April 3, 2023, we announced our participation
in a strategic investment round in Wilk Technologies Ltd. (TASE: WILK), alongside leading players in the food industry, such as Danone
and the Central Bottling Co. Ltd. (owner of Tara, Coca Cola Israel and more). The transaction was approved by our audit committee (due
to related party considerations) and board of directors. As part of the investment, we purchased ordinary shares of Wilk in the amount
of $450,000 at a 15% discount below their 45-day average closing price, giving us a 2.5% stake in Wilk. In parallel with this investment,
we aim to identify synergies with Wilk, including various types of strategic cooperation with the company surrounding our proprietary
biology and printing technologies.
Sales and Distribution
We are working to develop
and establish sales and distribution capabilities. In the event that we complete the development of our technologies and secure adequate
funding, we intend to consider commercialization collaborations where appropriate.
Apart from end consumers
in B2B2C models of branded products, we believe that our ideal business customers will be value-added food processors and retailers that
wish to benefit from cultivated meat manufacturing capabilities. We intend to provide our corporate customers with a solution to these
needs in the form of highly-automated, cleaner and ‘just-in-time’ manufacturing of cultivated meat products using a repeatable,
consistent manufacturing process. Our goal is for our customers to be able to streamline their meat supply chain, introduce greater manufacturing
flexibility and locate their cultivated meat production facilities closer to the point of retail or consumption.
We intend to provide
our business licensees with assistance in constructing facilities to employ our proprietary technology and processes. We expect that we
will need to collaborate with third parties to obtain and make available to our customers the expertise necessary to provide this assistance.
In addition, we intend to procure the equipment our licensees need to deploy our proprietary technology and processes from third-party
providers. Some equipment, such as piping, clean rooms and packing and freezing equipment are standard industry equipment and can be sourced
on open markets. Other equipment, such as bioreactors and our proprietary bioprinters, will need to be produced by contract manufacturers.
Intellectual Property
We have sought and continue
to seek patent protection as well as other intellectual property rights for our products, processes and technologies in the United States
and internationally. Our policy is to pursue, maintain, expand, protect and defend our patent rights and trade secrets, which we believe
enable us to deliver long-term protection for the proprietary technologies, inventions and improvements that are commercially important
to the development of our business.
Since the beginning of 2022, we have received notices of grant
or allowance for patent applications in the USA, Canada, Australia and New Zealand relating to our development of systems and methods
to apply external forces to muscle tissue that result in the development of high-quality complex structured meat.
We have a growing portfolio
of 15 provisional and non-provisional patent applications pending with the USPTO, WIPO (filed through the Paris Convention Treaty, or PCT,
and in various countries worldwide. A provisional patent application is a preliminary application, and establishes a priority date for
the patenting process of inventions disclosed therein.
Our existing patent portfolio
can currently be divided into three main areas:
Mechanical: covering
printer components and peripherals used in the fabrication of the tissue cultures with two applications filed at the national stage of
prosecution. The first; directed to print heads operable in a bioprinting systems for the fabrication of edible biostructures using
drop-on-demand, the print heads specifically designed to accommodate bio fluids of suspended systems without causing demixing, while still
delivering bio fluids with high accuracy and precision.
Following a favorable
patentability opinion, the Application was filed in the USPTO and has received a first office action indicating an intent to grant upon
correction of some minor procedural deficiencies. The second application currently undergoing examination in 7 countries, is directed
to systems and methods of physically manipulating a resilient container (bladder) of bioprinted tissue culture having non-random three
dimensional cell structure over 4 dimensions, namely elongation, compression, torsion and shear, to modulate the tissue and achieve the
desired texture for each meat type. The Application was already granted in the United States, Canada, Australia and New Zealand.
Current development work
in the mechanical area will most likely result in the development of at least two additional intellectual property registrations.
Biological: covering
initial materials used in the process with several provisional, and PCT applications filed and currently pending.
These include an application
directed to methods for harvesting ICM from bovine blastocysts; methods and compositions for the xeno-free propagation of bESC on bovine
umbilical stem cells (bUCSC), derived from a bovine umbilical cord; the use of plant-based lecithins and/or their components in a composition
as a differentiation drivers for use in selectively promoting adipocytes differentiation; and methods and compositions for accelerated
myotube formation.
Applications: covering
the final consumable formed using mechanical and biological inputs, with a couple of applications currently pending.
These include a provisional
application for a beef-emulating consumable formed of stacked 3D-pronted layers of muscle and fat tissues; and an application for a method
and composition for achieving the flaky characteristics associated with fish.
In addition to patent
applications, we maintain trade secrets covering know-how and proprietary information relating to our core technologies and make practicable
efforts to protect our confidential trade secrets. To this end, we require our employees engaged in the development of intellectual
property to enter into confidentiality agreements prohibiting the disclosure of confidential information and further, require disclosure
and assignment of any inventions and associated intellectual property rights that are important to our business. Additionally, we require
all entering employees to represent they are not bringing in, or are using any third party’s Trade Secrets.
We have also registered
our new name, Steakholder Foods, and brand name as registered trademarks in various countries, and maintain ongoing rights to our domain
name. Steakholder Foods® was registered in Japan and the European Community and is currently undergoing examination in several other
countries, including the United States.
While our policy is to
obtain patents by application, license or otherwise, to maintain trade secrets and to seek to operate without infringing on the intellectual
property rights of third parties, technologies related to our business have been rapidly developing in recent years. Additionally, patent
applications that we may file or license from third parties may not result in the issuance of patents, and our current or future issued
patents may be challenged, invalidated or circumvented. Therefore, we cannot predict the extent of claims that may be allowed or enforced
against our patents, nor be certain of the priority of inventions covered by pending third-party patent applications. If third parties
prepare and file patent applications that also claim technology or therapeutics to which we have rights, we may have to engage in proceedings
to determine priority of invention, which could result in substantial costs to us, even if the eventual outcome is favorable. Moreover,
because of the extensive time required for clinical development and regulatory review of products we may develop, it is possible that
the patent or patents on which we rely to protect such products could expire or be close to expiration by the commencement of commercialization,
thereby reducing the value of such patent. Loss or invalidation of certain of our patents, or a finding of unenforceability or limited
scope of certain of our intellectual property, could also have a material adverse effect on us. See “Risk Factors — Risks
Related to our Intellectual Property and Potential Litigation.”.
Competition
We expect that demand
for our cultivated meat manufacturing technologies will be driven by consumer demand for alternative proteins and, more specifically,
consumer acceptance of cultivated meat as the alternative protein of choice. We believe that we will compete with other cultivated meat
manufacturers, alternative protein manufacturers and the conventional meat industry as a whole. We expect to directly compete with
companies licensing know-how or otherwise enabling the establishment of cultivated meat manufacturing plants. We are aware of certain
companies that have announced plans to provide their cultivated meat technology on a B2B basis; however, we are not currently aware of
a potential competitor focusing on complex, industrial-scale, bioprinted, high-value real structured meats, such as steak.
Companies such as Upside
Foods, Inc. and Mosa Meat BV are focused on producing red meats, while BluNalu, Inc. is focusing on fish and Shiok Meats Pte. Ltd. is
focusing on crustaceans. There are different companies working on culturing varying cell types, such as chicken, pork, kangaroo and foie
gras. This push on scaling-up cellular agriculture can serve as a solution to the scale and environmental challenges confronting traditional
meat production. Other alternative protein competitors such as Beyond Meat, Inc. and Impossible Foods, Inc. are already selling plant-based
meat substitutes, but to the best of our knowledge, these companies are not focused on the production of real meat products produced with
animal cells.
Companies
Developing Vegetable and Insect Protein Alternatives
There are numerous companies
focused on developing meat substitutes. In order for a product to achieve commercial acceptance as an alternative to meat, it must have
an appearance, taste, smell and nutritional values that are similar enough to the type of meat that it seeks to replace or with
which it seeks to compete. These meat substitute companies generally employ proprietary formulae for manufacturing that are based wholly
on ingredients of plant origin. In addition, we are aware of several companies developing insect-protein production capabilities, employing
among other insects, flies, larvae and grasshoppers.
Companies
Developing Cultivated Meat
The cellular agriculture meat sector is in early stages of development. The sector is
currently primarily comprised of companies developing a full technology stack from developing cell lines to scaling up cellular cultivation,
developing media and researching the food technology aspects of the final product. Market dynamics have led to a large number of companies
operating in this manner. We do not believe that any companies in this space have already developed the capability to produce industrial
quantities at prices low enough to compete on a dollar-per-pound basis against conventionally-harvested meat.
A number of larger companies have begun engaging in this sector. For example, companies
such as Cargill, Inc., JBS Foods, Nestlé S.A., Tyson Foods, Inc., Merck & Co., Inc. and Lonza Group AG are currently investing
in capabilities to accommodate the market’s desire for change in the cell culture media market. Additionally, a number of bioreactor
companies are rumored to be interested in the cellular agriculture market opportunity. Over time, we expect that larger players will continue
to increase their exposure to cellular meat production either by selling to, or collaborating with, the many start-ups in the space.
Currently, cellular agriculture
companies are for the most part paving their own path, with a goal of producing meat cells suitable as a replacement for ground meat.
The ground meat type of cellular product may also be suitable as an ingredient in a hybrid plant-based food product. The cell-types relevant
to this effort are primarily muscle and fat cells. What exactly these cell-based companies will offer is likely to be affected by consumer
expectations and underlying cost structures. We believe that these companies may have to mix their cellular meat product with plant-based
ingredients in the interests of cost or appearance.
Companies
Developing Structured Cultivated Meat Products
To our knowledge, there
is currently no other company that is advanced as Steakholder Foods who focused on the scaling up of three-dimensional bioprinting for
the cultivated meat industry. As far as we know we are the only company to publicly demonstrate our printing technology in a few of the
main food tech events in 2023. However, there are companies attempting to produce steaks by means of other approaches, such as growing
bovine cells, including fat, muscle and connective tissue on a pre-prepared scaffold, in order to create a contiguous piece of meat, which
has so far yielded steaks.
Government Regulation
Regulators around the
world are in the process of developing a regulatory approval process for cultivated meat. Cultivated meat is not yet generally commercially
available, but technologies like ours are anticipated to facilitate the imminent scaling up of cultivated meat production. In general,
cultivated meat production is expected to be subject to extensive regulatory laws and regulations in the United States and in
other jurisdictions such as Canada, Japan, the European Union and the United Kingdom. In the United States, existing food safety requirements
are expected to apply. Additional details are being developed at the U.S. Food and Drug Administration, or FDA, and the U.S. Department
of Agriculture, or USDA, pursuant to a Memorandum of Understanding, or MOU, published by the FDA and USDA on March 7, 2019 entitled the
“Formal Agreement to Regulate Cell-Cultured Food Products from Cell Lines of Livestock and Poultry.” For example, the
FDA anticipates publishing Draft Guidance on premarket safety oversight by December 31, 2022, and in September 2021, the USDA published
an Advance Notice of Proposed Rulemaking (ANPR), indicating that the USDA will be developing new labeling requirements for foods under
its jurisdiction produced through cell culture technology.
Under the MOU, which
is expected to affect our customers producing cultivated meat, the two agencies will operate under a joint regulatory framework wherein
the FDA will oversee cell collection, cell banks and cell growth and differentiation. A transition from FDA to USDA oversight will then
occur during the cell harvest stage, at which point the USDA will oversee the production and labeling of cultivated meat. The USDA will
be advancing new labeling requirements. To the best of our knowledge, the regulatory approval details under development, including the
Draft Guidance on FDA premarket oversight, are not expected to apply to our business directly, but they are instructive as to the regulatory
requirements that our cultivated meat production customers are expected to face and their expectations of us, in the form of customer
assurances, regarding our products.
At this time, our business
is limited to developing cultivated meat production technology, such as bioprinters, that will be marketed to cultivated meat producers.
Production equipment manufacturers must ensure that their products do not contribute to the production of adulterated food. The regulatory
obligation falls on the food manufacturer to ensure that all food produced, including cultivated meat, is wholesome and not adulterated.
Therefore, when sourcing food processing equipment, such as the three-dimensional bioprinter that we are developing, our customers will
request assurances that the bioprinter is safe for its intended use and will not result in the production of adulterated food. We intend
to monitor developments at the FDA and USDA in connection with the MOU to determine whether any specific requirements or recommendations
are published with specific regard to cultivated meat equipment manufacturers.
In the United States,
we expect companies manufacturing cultivated meat products to be subject to regulation by various government agencies, including the FDA,
USDA, and the FTC. Equivalent foreign regulatory authorities include the Canadian Food Inspection Agency, the Japanese Food Safety Commission,
the European Food Safety Authority and authorities of the EU member states, the State Food and Drug Administration of China and the SFA. These
agencies, among other things, prescribe the requirements and establish the standards for food quality and safety, and regulate various
food technologies, including alternative meat product composition, ingredients, manufacturing, labeling and other marketing
and advertising to consumers.
In June 2022, Singapore
was the first country to approve cultivated meat for sale. The SFA has published comprehensive guidance explaining all of the requirements
necessary for the safety assessment of novel foods, covering all of the specifications required for the approval of cultivated meat in
Singapore.
In November 2022, the FDA announced that it completed its first pre-market consultation
of human food made from cultured animal cells. Through a process with a U.S.-based cultivated meat technology company, which involved
evaluating the company’s production process and the cultured cell material made by the production process, including the establishment
of cell lines and cell banks, manufacturing controls, and all components and inputs, the FDA determined that it had no further questions
about the company’s safety conclusion. As this was the first instance of the FDA giving the greenlight to a cultivated meat product,
the FDA further announced that the world is experiencing a food revolution and the FDA is committed to supporting innovation in the food
supply. In March 2023, the FDA completed a second such consultation.
We expect that federal,
state and foreign regulators will have the authority to inspect our customers’ facilities to evaluate compliance with
applicable food safety requirements. Federal, state and foreign regulatory authorities also require that certain nutrition and
product information appear on the product labels of our customers’ food products and, more generally, that such labels, marketing
and advertising be truthful, non-misleading and not deceptive to consumers.
As the cell-based agriculture
industry is young and its regulatory framework is emerging and evolving, legislation and regulation may evolve to raise barriers to our
go-to-market strategies.
In addition to federal
regulatory requirements in the United States, certain states impose their own manufacturing and labeling requirements. For example, states
typically require facility registration with the relevant state food safety agency, and those facilities are subject to state inspections
as well as federal inspections. Further, states can impose state-specific labeling requirements. In the United States, the USDA will be
developing new labeling requirements for foods under its jurisdiction produced through cell culture technology as noted in an Advance
Notice of Proposed Rulemaking (ANPR) published in September 2021.
We are subject to labor
and employment laws, laws governing advertising, privacy laws, safety regulations and other laws, including consumer protection regulations
that regulate retailers or govern the promotion and sale of merchandise. Our operations are subject to various laws and regulations relating
to environmental protection and worker health and safety matters. We monitor changes in these laws and believe that we are in material
compliance with applicable laws.
Environmental, Health
and Safety Matters
We, our agents and our
service providers, including our manufacturers, may be subject to various environmental, health and safety laws and regulations, including
those governing air emissions, water and wastewater discharges, noise emissions, the use, management and disposal of hazardous, radioactive
and biological materials and wastes and the cleanup of contaminated sites. We believe that our business, operations and facilities, including,
to our knowledge, those of our agents and service providers, are being operated in compliance in all material respects with applicable
environmental and health and safety laws and regulations. Based on information currently available to us, we do not expect environmental
costs and contingencies to have a material adverse effect on us. However, significant expenditures could be required in the future if
we, our agents or our service providers are required to comply with new or more stringent environmental or health and safety laws, regulations
or requirements.
Except as stated above,
we are not aware of any environmental risks related to our operations, and therefore, we do not believe that environmental regulations
will have a significant effect on us. However, in the future, we may be required to meet environmental protection standards or regulations
which could have a material impact on our activities, activities, profitability and ability to remain competitive.
Organizational Structure
Our subsidiaries and
the countries of their incorporation are as follows:
|
Name |
|
Jurisdiction of
Incorporation |
|
Parent |
|
% Ownership
(direct
or
otherwise) |
|
|
Steakholder Foods USA, Inc.
|
|
Delaware, U.S. |
|
Steakholder Foods Ltd. |
|
|
100 |
% |
|
Steakholder Innovation Ltd.
|
|
Israel |
|
Steakholder Foods Ltd. |
|
|
100 |
% |
|
Steakholder Foods Europe BV
|
|
Belgium |
|
Steakholder Foods Ltd. |
|
|
100 |
% |
|
Peace of Meat BV
|
|
Belgium |
|
Steakholder Foods Europe BV |
|
|
100 |
% |
Property and Infrastructure
Our principal executive
offices and laboratory are located at 5 David Fikes St., Rehovot, Israel. The laboratory and office space total approximately 18,300 square
feet. The lease for this facility will expire in January 2026, although we have an option to renew it for four years, and the annual rent
(including parking fees) is approximately $0.7 million, linked to the Israeli CPI.
Employees
As of December 31, 2022,
we employed 49 employees based at our office and laboratory in Rehovot, Israel and Peace of Meat employed 32 employees based at its office
and laboratory in Antwerp, Belgium. On March 7, 2023, we announced a strategic restructuring for Peace of Meat, including targeted layoffs
in areas of the business that were unrelated to its updated focus, and on April 4, 2023, we announced the expected liquidation of Peace
of Meat, as a result of which it will no longer employ employees.
Local labor laws govern
the length of the workday and workweek, minimum wages for employees, procedures for hiring and dismissing employees, determination of
severance pay, annual leave, sick days, advance notice of termination, Social Security payments or regional equivalents, and other conditions
of employment, including equal opportunity and anti-discrimination laws. None of our employees is party to any collective bargaining agreements.
We generally provide our employees with benefits and working conditions beyond the required minimums. We believe we have a good relationship
with our employees, and have never experienced any employment-related work stoppages.
Legal Proceedings
From time to time, we
may be party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not
currently involved in any legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects,
financial condition or results of operations.
| |
ITEM
4A. |
UNRESOLVED STAFF COMMENTS |
None.
|
|
ITEM
5. |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
The following “Operating
and Financial Review and Prospects” should be read together with the information in our financial statements and related notes included
elsewhere in this Annual Report. The following discussion is based on our financial information prepared in accordance with the International
Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, which may differ in material
respects from generally accepted accounting principles in other jurisdictions, including U.S. GAAP. The following discussion includes
forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of many factors, including but not limited to those described in “Risk Factors”
and elsewhere in this Annual Report. Please also see “Forward-Looking Statements.”
For a discussion of our
results of operations for the year ended December 31, 2021, including a comparison between 2021 and 2020, refer to “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Year Ended December 31, 2021
Compared to Year Ended December 31, 2020” in our annual report on Form 20-F filed on March 24, 2022.
A. Operating Results
To date, we have not
generated any revenue since we commenced our cultured meat operations. We do not expect to receive any revenue unless and until
we complete development of and successfully commence out-licensing our technologies, or until we receive revenue from a collaboration
or other partnership such as a co-development agreement, or the acquisition of a company that generates revenues. There can be no
assurance that we will be successful in developing or ultimately commercializing our technologies, in establishing revenue-generating
collaborations or acquiring revenue-generating companies.
Research
and Development Expenses
Research and development
activities are our primary focus. We do not believe that it is possible at this time to accurately project total expenses required for
us to reach the point at which we will be ready to out-license our technologies. Development timelines, the probability of success and
development costs can differ materially from expectations. In addition, we cannot forecast whether and when collaboration arrangements
will be entered into, if at all, and to what degree such arrangements would affect our development plans and capital requirements. We
expect our research and development expenses to increase over the next several years as our development program progresses. We would also
expect to incur increased research and development expenses if we were to identify and develop additional technologies.
Research and development
expenses include the following:
|
• |
employee-related expenses, such as salaries and share-based
compensation; |
|
• |
expenses relating to outsourced and contracted services, such
as external laboratories and consulting, research and advisory services; |
|
• |
supply and development costs; |
|
• |
expenses, such as materials, incurred in operating our laboratories
and equipment; and |
|
• |
costs associated with regulatory compliance. |
We recognize research
and development expenses as we incur them.
Marketing expenses consist
primarily of professional services, personnel costs, including share-based compensation related to employees, and business development,
public relations and investor relations services.
General
and Administrative Expenses
General and administrative
expenses consist primarily of personnel costs, including share-based compensation related to directors and employees, corporate costs
(such as insurance), facility costs, patent application and maintenance expenses, and professional service costs, including legal, accounting,
audit, finance and human resource services, and other consulting fees.
Finance
Expenses (income), Net
Finance expenses (income),
net, consisted primarily of a change in the fair value of financial instruments mandatorily measured at fair value through profit or loss,
and exchange rate fluctuations.
We have yet to generate
taxable income. As of December 31, 2022, our operating tax loss carryforwards were approximately $23.6 million.
Our results of operations
have varied in the past and can be expected to vary in the future due to numerous factors. We believe that period-to-period comparisons
of our operating results are not necessarily meaningful and should not be relied upon as indications of future performance.
Below is a summary of
our results of operations for the periods indicated (in thousands):
| |
|
Year Ended December 31, |
|
| |
|
2022 |
|
|
2021 |
|
| |
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
Research and development expenses
|
|
$ |
9,801 |
|
|
$ |
7,594 |
|
|
Marketing expenses
|
|
|
3,044 |
|
|
|
1,628 |
|
|
General and administrative expenses
|
|
|
6,937 |
|
|
|
8,010 |
|
|
Impairment loss
|
|
|
15,577 |
|
|
|
- |
|
|
Loss from operations
|
|
$ |
35,359 |
|
|
$ |
17,232 |
|
|
Finance income
|
|
|
4,878 |
|
|
|
509 |
|
|
Finance expense
|
|
|
286 |
|
|
|
1,299 |
|
|
Finance expense (income), net |
|
|
(4,592 |
) |
|
|
790 |
|
|
Net loss
|
|
$ |
30,767 |
|
|
$ |
18,022 |
|
Year
Ended December 31, 2022 Compared to Year Ended December 31, 2021
Research and development
expenses
Research and development
expenses increased by approximately $2.2 million, or 29%, to approximately $9.8 million for the year ended December 31, 2022, compared
to $7.6 million for year ended December 31, 2021. The increase resulted mainly from payroll expenses, materials and professional services
expenditures related to our cultured meat research and development operations. The increase reflects Steakholder Foods’ growing
investment in research and development as it achieves its milestones and expands its cultured meat technology capabilities.
Marketing expenses increased
by approximately $1.4 million, or 87%, to approximately $3.0 million for the year ended December 31, 2022, compared to $1.6 million for
year ended December 31, 2021. The increase resulted mainly from professional services, personnel costs, including share-based compensation
related to employees, and business development, public relations and investor relations services.
General and administrative
expenses
General and administrative
expenses decreased by approximately $1.1 million, or 13%, to approximately $6.9 million for the year ended December 31, 2022, compared
to approximately $8.0 million for the year ended December 31, 2021. The decrease resulted mainly from corporate costs reduction.
Impairment from re-measurement
of cash-generating unit
As part of an annual impairment
test, we tested the Peace of Meat Cash-Generating Unit (“CGU”) for impairment as of December 31, 2022. We determined that
the value in use of the operation is negative, and therefore assessed the fair value less costs of disposal of the CGU. As of the date
of publication of these financial statements, we have not identified a potential market participant that may purchase the CGU in an arm’s-length
transaction. Thus, we have concluded that the fair value less costs of disposal of the CGU is immaterial. The fair value less costs of
disposal of the CGU’s IPR&D asset was determined to be zero, as the Company did not identify any potential buyer for this asset.
We have allocated the impairment loss to the CGU’s fixed assets based on their fair value. The fair value of fixed assets that are
available for sale to a market participant is based on their estimated selling value as of the valuation date, net of selling costs. We
estimated the selling value net of selling costs of the fixed assets based on actual offers received, previous purchases, and our knowledge
of the second-hand industry market. In allocating the impairment loss, we have not reduced the carrying amount of each asset below its
fair value net of disposal costs on an individual basis, if determinable. As a result, we recognized an impairment loss of USD 14,367
thousand for our IPR&D asset and USD 1,210 thousand for our fixed assets. The total impairment loss recorded was USD 15,577 thousand.
Net loss increased by approximately $12.8 million to approximately $30.8 million for
the year ended December 31, 2022, compared to $18.0 million for the year ended December 31, 2021. Net of the $15.6 million non-cash impairment
and $3.8 million net financial income in 2021 and 2022, the net loss increased by approximately $2.6 million, or 15%, driven mainly by
increased research and development and marketing expenses.
Critical Accounting Policies
We describe our significant
accounting policies and estimates in Note 3, Summary of Significant Accounting Policies, to the consolidated financial statements contained
elsewhere in this annual report. We believe that these accounting policies and estimates are critical in order to fully understand and
evaluate our financial condition and results of operations.
We prepare our financial statements in accordance
with IFRS as issued by the IASB.
In preparing these financial
statements, management has made judgments, estimates and assumptions that affect the application of our accounting policies and the reported
amounts recognized in the financial statements. On a periodic basis, we evaluate our estimates, including those related to share-based
compensation and derivatives. We base our estimates on historical experience, authoritative pronouncements and various other assumptions
that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
Recently-Issued
Accounting Pronouncements
Certain recently-issued
accounting pronouncements, if applicable, are discussed in Note 3 to our consolidated financial statements, regarding the impact of the
IFRS standards as issued by the IASB that we will adopt in future periods in our consolidated financial statements.
Emerging Growth Company
Status
We qualify as an “emerging
growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take
advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions
include:
|
• |
to the extent that we no longer qualify as a foreign private
issuer, (i) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (ii) exemptions
from the requirement to hold a non-binding advisory vote on executive compensation, including golden parachute compensation; |
|
• |
an exemption from the auditor attestation requirement in the
assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; and |
|
• |
an exemption from compliance with the Critical Audit Matters
requirement that the Public Company Accounting Oversight Board has adopted regarding a supplement to the auditor’s report providing
additional information about the audit and the financial statements. |
We may take advantage of these exemptions for up to five years or until such earlier
time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of:
(i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (ii) the date on which we
have issued more than $1.0 billion in nonconvertible debt during the previous three years; (iii) the date on which we are deemed to be
a large accelerated filer under the rules of the SEC; or (iv) the last day of the fiscal year following the fifth anniversary of our initial
Nasdaq offering of March 2021. We may choose to take advantage of some but not all of these exemptions. Section 107 of the JOBS Act provides
that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the
Securities Act for complying with new or revised accounting standards. This means that an “emerging growth company” can delay
the adoption of certain accounting standards until those standards would otherwise apply to private companies. Given that we currently
report and expect to continue to report our financial results under IFRS as issued by the IASB, we will not be able to avail ourselves
of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which
adoption of such standards is required by the IASB.
B. Liquidity and Capital
Resources
Since the commencement
of our cultured meat operations, we have not generated any revenue and have incurred operating losses and negative cash flows from our
operations. We have funded our operations primarily through the sale of equity securities. From the inception of Steakholder Innovation
through December 31, 2022, we raised an aggregate of $53.0 million in four rounds of private placements of our securities, our initial
public offering of securities on the Nasdaq and a registered direct offering, and $6.1 million in proceeds from option exercises. As of
December 31, 2022, we had $6.3 million in cash and cash equivalents.
The table below shows
a summary of our cash flows for the periods indicated:
| |
|
Year Ended December 31, |
|
| |
|
2022 |
|
|
2021 |
|
| |
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
$ |
(14,253 |
) |
|
$ |
(13,951 |
) |
|
Net cash used in investing activities
|
|
|
(3,533 |
) |
|
|
(9,191 |
) |
|
Net cash provided by financing activities
|
|
|
5,572 |
|
|
|
28,865 |
|
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
(12,214 |
) |
|
$ |
5,723 |
|
Year Ended December 31, 2022 Compared to Year
Ended December 31, 2021
Net cash used in operating activities
Net cash used in operating
activities increased by $0.3 million, or 2%, to approximately $14.3 million for the year ended December 31, 2022 compared to approximately
$14.0 million for the year ended December 31, 2021. This increase was due to the increase in its research and development and marketing
expenses growing activity with reduction in corporate costs.
Net cash used in investing
activities
Net cash used in investing activities decreased by $5.7 million, or 62%, to approximately
$3.5 million for the year ended December 31, 2022 compared to $9.2 million for the year ended December 31, 2021. This decrease was
driven mainly by our investment in Peace of Meat in year ended December 31, 2021.
Net cash provided by
financing activities
Net cash provided by financing activities decreased by $23.3 million,
or 81%, to approximately $5.6 million for the year ended December 31, 2022 compared to $28.9 million for the year ended December 31, 2021.
This decrease was driven mainly from the Company’s initial Nasdaq public offering and issuance of shares and warrants taking place
in year ended December 31, 2021.
We have incurred losses and cash flow deficits from operations since the inception of
Steakholder innovation, resulting in an accumulated deficit as of December 31, 2022 of approximately $67.7 million. We anticipate that
we will continue to incur net losses for the foreseeable future. We believe that our existing cash and cash equivalents will be sufficient
to fund our projected cash needs through the third quarter of 2023 (including January 2023 funding round). We do not currently have any
specific commitments or plans for acquisitions; to the extent we do engage in acquisitions, we will do so after ensuring that we will
have sufficient funds available to meet our capital requirements, and such acquisitions are likely to affect our projected cash needs.
To meet future capital needs, we would need to raise additional capital through equity or debt financing or other strategic transactions. However,
any such financing may not be on favorable terms or even available to us. Our failure to obtain sufficient funds on commercially
acceptable terms when needed would have a material adverse effect on our business, results of operations and financial condition. Our
forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement
that involves risks and uncertainties, and the actual amount of our expenses could vary materially and adversely as a result of a number
of factors. We have based our estimates on assumptions that may prove to be wrong, and our expenses could prove to be significantly higher
than we currently anticipate.
Our future capital requirements
will depend on many factors, including, but not limited to:
|
• |
the progress and costs of our research and development activities;
|
|
• |
the costs of development and expansion of our operational infrastructure;
|
|
• |
the costs and timing of developing technologies sufficient
to allow food production equipment manufacturers and food manufacturers to product products compliant with applicable regulations;
|
|
• |
our ability, or that of our collaborators, to achieve development
milestones and other events or developments under potential future licensing agreements; |
|
• |
the amount of revenues and contributions we receive under future
licensing, collaboration, development and commercialization arrangements with respect to our technologies; |
|
• |
the costs of filing, prosecuting, enforcing and defending patent
claims and other intellectual property rights; |
|
• |
the costs of contracting with third parties to provide sales
and marketing capabilities for us or establishing such capabilities ourselves, once our technologies are developed and ready for commercialization;
|
|
• |
the costs of acquiring or undertaking development and commercialization
efforts for any future products or technology; |
|
• |
the magnitude of our general and administrative expenses; and
|
|
• |
any additional costs that we may incur under future in- and
out-licensing arrangements relating to our technologies and futures products. |
Until we can generate
significant recurring revenues, we expect to satisfy our future cash needs through capital raising or by out-licensing and/or co-developing
applications of one or more of our product candidates. We cannot be certain that additional funding will be available to us on acceptable
terms, if at all. If funds are not available on favorable terms, or at all, we may be required to delay, reduce the scope of or eliminate
research or development efforts or plans for commercialization with respect to our technologies and make necessary change to our operations
to reduce the level of our expenditures in line with available resources.
We are a development-stage
technology company and it is not possible for us to predict with any degree of accuracy the outcome of our research and development efforts.
As such, it is not possible for us to predict with any degree of accuracy any significant trends, uncertainties, demands, commitments
or events that are reasonably likely to have a material effect on our net loss, liquidity or capital resources, or that would cause financial
information to not necessarily be indicative of future operating results or financial condition. However, to the extent possible, certain
trends, uncertainties, demands, commitments and events are described herein.
Since inception, we have incurred significant losses and negative cash flows from operations
and have an accumulated deficit of USD 67.7 million. We have financed our operations mainly through fundraising from various investors.
Our management expects
that we will continue to generate losses and negative cash flows from operations for the foreseeable future. On January 9, 2023, we consummated
a securities purchase agreement with gross proceeds of approximately USD 6.5 million. Consequently, our management is of the opinion that
our existing cash will be sufficient to fund operations until the third quarter of 2023. As a result, there is substantial doubt about
our ability to continue as a going concern.
Management’s plans
include continuing to secure sufficient financing through the sale of additional equity securities or capital inflows from strategic partnerships.
Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If we are unsuccessful in securing
sufficient financing, we may need to cease operations.
Our financial statements
include no adjustments for measurement or presentation of assets and liabilities, which may be required should we fail to operate as a
going concern.
Quantitative and Qualitative
Disclosures About Market Risk
Liquidity risk is the
risk that we will encounter difficulty in meeting the obligations associated with our financial liabilities that are settled in cash.
Cash flow forecasting is performed in our operating entities and aggregated at a consolidated level. We monitor forecasts of our liquidity
requirements to ensure we have sufficient cash to meet operational needs. We may be reliant on our ability to raise additional investment
capital from the issuance of both debt and equity securities to fund our business operating plans and future obligations.
Credit risk is the risk of financial loss to us if a debtor or
counterparty to a financial instrument fails to meet its contractual obligations, and arises mainly from our receivables.
As part of an agreement with Therapin from May 2020, we agreed
to convert an NIS 7.25 million investment in Therapin made by Ophectra and assumed by us at the Merger, into an interest-free loan, to
be repaid by the latter at a rate of NIS 0.48 million per annum for ten years (NIS 4.8 million in total) plus NIS 2.45 million to be paid
upon an exit event, including a public offering, or repayment of 14.74% of any distributable surplus or dividend distributed by Therapin,
up to the amount of the outstanding balance, as detailed in our separation agreement with Therapin. As part of the agreement, Therapin
gave us an option to convert the cash payment to equity of Therapin. Therapin has not provided any guarantees in connection with its repayment
of our loan.
We restrict exposure to credit risk in the course of our operations
by investing only in bank deposits.
As we have not invested
in securities riskier than short-term bank deposits, we do not believe that changes in equity prices pose a material risk to our holdings.
However, decreases in the market price of our ordinary shares or ADSs could make it more difficult for us to raise additional funds in
the future or require us to raise funds at terms unfavorable to us.
Foreign Currency Exchange Risk
Currency fluctuations
could affect us primarily through increased or decreased foreign currency-denominated expenses. Currency fluctuations had a material effect
on our results of operations during the year ended December 31, 2022, although not in the year ended December 31, 2021.
C. Research and development,
patents and licenses, etc.
For a description of
our research and development policies for the last three years, see “Item 4.—Information on the Company—Business Overview—Intellectual
Property.”
D. Trend Information
Not applicable.
E. Critical Accounting
Estimates
Critical accounting estimates
are those estimates made in accordance with IFRS that involve a significant level of estimation uncertainty and have had or are reasonably
likely to have a material impact on the financial condition or results of operations of the registrant. For further information, see Note
2E to our annual consolidated financial statements included in this Annual Report on Form 20-F.
| |
ITEM 6.
|
DIRECTORS, SENIOR MANAGEMENT
AND EMPLOYEES |
A. Directors and Senior
Management
The following table sets
forth the name, age and position of each of our executive officers and directors as of the date of this Annual Report on Form 20-F. Unless
otherwise stated, the address of our executive officers and directors is Steakholder Foods Ltd., 5 David Fikes St., Rehovot 7638205, Israel.
|
Name |
|
Age |
|
Position |
| |
|
|
|
|
|
Executive Officers:
|
|
|
|
|
|
Arik Kaufman
|
|
42 |
|
Chief Executive Officer |
|
Guy Hefer
|
|
41 |
|
Chief Financial Officer* |
|
Dan Kozlovski
|
|
38 |
|
Chief Technologies Officer |
|
Non-Employee Directors:
|
|
|
|
|
|
Yaron Kaiser
|
|
45 |
|
Chairman of the Board of Directors
|
|
David Gerbi(1)(2)(3)
|
|
43 |
|
Director |
|
Eli Arad(1)(2)(3)
|
|
50 |
|
Director |
|
Sari Singer(1)(2)(3)
|
|
43 |
|
Director |
|
(1) |
Member of the Audit Committee |
|
(2) |
Member of the Compensation Committee |
|
(3) |
Independent director as defined under Nasdaq Marketplace Rule
5605(a)(2) and SEC Rule 10A-3(b)(1). |
*As previously announced, effective April 5, 2023, Eitan Noah has been appointed as the Company’s
Chief Financial Officer, replacing Mr. Hefer in this role. For more information, see Item 8 – Significant Changes.
Executive Officers
Arik Kaufman, Chief Executive Officer
Arik
Kaufman has served as our Chief Executive Officer since January 2022. He has founded various Nasdaq- and TASE-traded
foodtech companies, and currently serves as director of Wilk Technologies Ltd. He is also a founding partner of the BlueSoundWaves
collective, led by Ashton Kutcher, Guy Oseary and Effie Epstein, which recently partnered with Steakholder Foods to assist in attempting
to accelerate the Company’s growth. Mr. Kaufman holds extensive personal experience in the fields of food-tech and bio-tech law,
and has led and managed numerous complex commercial negotiations, as part of local and international fundraising, M&A transactions
and licensing agreements. He holds a B.A. degree in Law from Reichman University (formerly the Interdisciplinary Center Hertzliya).
Guy Hefer, Chief Financial Officer
Guy Hefer has served as our Chief Financial
Officer since October 2020. Mr. Hefer will step down from his position as our Chief Financial Officer on April 5, 2023, at which time
Mr. Eitan Noah, our current Vice President of Finance will assume such role. Mr. Hefer has over ten years of experience in investment
banking and corporate finance roles. Between 2019 and 2020, he was the chief financial officer of Prytek Holdings Pte Ltd., a private
holding group investing in technology companies globally. Prior to that, Mr. Hefer was an investment banker at Leumi Partners Ltd. between
2018 and 2019 and GCA Altium Israel Ltd. between 2017 and 2018 in Israel and at Barclays investment banking division between 2011 and
2016 in the UK and in Israel. Prior to that Guy worked at Fahn Kanne Grant Thornton Israel, an accounting firm in Israel between 2009
and 2011. Mr. Hefer holds a B.A. degree in Accounting and Economics from the Tel Aviv University, Israel.
Dan Kozlovski, Chief Technologies Officer
Dan
Kozlovski has served as our Chief Technologies Officer since February 2022, having previously served as our Vice President
of Research & Development from August 2020 after joining us in December 2019. He specializes in R&D and product development, with
expertise in three-dimensional computer-aided design. Mr. Kozlovski has more than ten years of experience working in high-technology companies
in the printing market. Previously, he served as Future Platform R&D Mechanical Engineer at HP Indigo Division from June 2018 to December
2019. Mr. Kozlovski has also worked as Mechanical Team Leader at Nano Dimension Ltd. from August 2015 to June 2018. Mr. Kozlovski holds
a B.Sc. degree in Mechanical Engineering from Ben Gurion University of the Negev and an Executive MBA in Technology, Innovation &
Entrepreneurship Management from Tel Aviv University.
Directors
Yaron Kaiser, Chairman of the Board of Directors
Yaron
Kaiser has founded various Nasdaq- or TASE-traded foodtech companies, and has served as Chairperson of Wilk Technologies Ltd.
since January 2021. Mr. Kaiser is a founding partner of the BlueSoundWaves collective since 2021, and practices law in the fields of securities,
commercial and corporate law, representing numerous public companies on fundraising, IPOs, M&A, the Israel Securities Authority and
corporate governance, most recently at JST & Co., Law Office, between 2010 and May 2021, and since then as a founding partner of Kaufman
Kaiser Raz, Law Firm. He holds an LL.B. degree from the College of Management Academic Studies, Israel.
Eli Arad, Director
Eli Arad has served
as a director since February 2018. Mr. Arad has been chief executive officer of the real-estate and life science investment company Merchavia
Holdings and Investments Ltd (TASE:MRHL) since 2011. Mr. Arad has served as a director of Cleveland Diagnostics, Inc., a clinical-stage
biotechnology company developing technology to improve cancer diagnostics since 2016, E.N. Shoham Business Ltd. (TASE:SHOM) since 2019,
and a number of privately-held companies (Veoli Ltd., Train Pain Ltd., EFA Ltd., Nervio Ltd. and Cardiosert Ltd.). He has had leadership
roles in many biomedical startup companies, and has extensive experience in all areas of financial management. Mr. Arad is a certified
practicing accountant who holds a diploma in Accounting from Ramat Gan College and an Executive B.A. (Hons.) in Business Administration
from the Ruppin Academic Center.
David Gerbi, Director
David
Gerbi has served as a director since August 2019. Mr. Gerbi is managing partner of accounting firm Gerbi & Co., and serves
as Chief Financial Officer of Israir Group Ltd. (TASE:ISRG) since 2017, Erech Finance Cahalacha Ltd. (TASE:EFNC) since 2019, Nur Ink Innovations
Ltd. (TASE:NURI) since June 2021 and Bee-io Honey Ltd. (TASE:BHNY) since November 2021. Mr. Gerbi holds a B.A. in Business Administration
and Accounting from the Israeli College of Management Academic Studies and an M.B.A. in Finance from Tel Aviv University.
Sari Singer, Director
Sari
Singer has served as a director since March 2021. Ms. Singer has served as General Counsel and Executive Vice President
at NewMed Energy LP (formerly Delek Drilling LP), the oil and gas arm of the Delek Group in Israel, and a partner in the Leviathan offshore
gas field, as well as other petroleum assets offshore Israel and Cyprus, since 2012, where she has led significant strategic processes,
including restructurings and complex financing rounds totaling some $7 billion in various transactions in the international and domestic
markets. Ms. Singer holds an LL.B. (cum laude) from Tel Aviv University and has been a member of the Israel Bar since 2007.
Family
Relationships
There are no family relationships
among any of our directors or officers.
B. Compensation
Aggregate Compensation of Office Holders
The aggregate compensation we paid to our executive officers and
directors for the year ended December 31, 2022, was approximately $1.3 million. This amount includes approximately $0.2 million paid,
set aside or accrued to provide pension, severance, retirement or similar benefits or expenses, but does not include share-based compensation
expenses, or business travel, professional and business association dues and expenses reimbursed to office holders, and other benefits
commonly reimbursed or paid by companies in our industry. As of the date of this prospectus, options to purchase 2,472,540 Ordinary Shares
granted to our officers and directors were outstanding under our share option plans at a weighted average exercise price of $0.62 per
share, in addition to 157,790 restricted share units with no exercise price.
Individual Compensation of Office Holders
The table and summary below outlines the compensation granted to
our Chief Executive Officer, Chief Financial Officer, Chief Technologies Officer, and the previous and current Chairmen of our board of
directors, with respect to the year ended December 31, 2022. For purposes of the table and the summary below, “compensation”
includes base salary, 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.
|
Name and Principal Position
|
|
Salary(1)
|
|
|
Bonus(2)
|
|
|
Equity-Based
Compensation(3)
|
|
|
Other
Compensation(4)
|
|
|
Total |
|
| |
|
(USD in thousands)
|
|
|
Mr. Arik Kaufman |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Executive Officer
|
|
$ |
235 |
|
|
$ |
- |
|
|
$ |
88 |
|
|
$
|
8 |
|
|
$ |
331 |
|
|
Mr. Guy Hefer(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer
|
|
|
210 |
|
|
|
34 |
|
|
|
83 |
|
|
|
- |
|
|
|
327 |
|
|
Mr. Dan Kozlovski
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Technologies Officer
|
|
|
201 |
|
|
|
42 |
|
|
|
51 |
|
|
|
- |
|
|
|
294 |
|
|
Mr. Yaron Kaiser |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chairman of the Board
of Directors |
|
|
161 |
|
|
|
- |
|
|
|
62 |
|
|
|
8 |
|
|
|
231 |
|
|
Mr. Steven H. Levin
(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former Chairman of the
Board of Directors(5)
|
|
$ |
57 |
|
|
$ |
- |
|
|
$ |
108 |
|
|
$
|
- |
|
|
$ |
165 |
|
|
(1) |
Salary includes the officer’s gross salary plus payment by us of social benefits
on behalf of the officer. Such benefits may include payments, contributions and/or allocations for savings funds (e.g., Managers’
Life Insurance Policy), pension, severance, risk insurance (e.g., life, or work disability insurance), payments for social security and
tax gross-up payments, vacation, medical insurance and benefits, convalescence or recreation pay and other benefits and perquisites consistent
with our policies. |
|
(2) |
Represents annual bonuses paid in 2022 with respect to 2021. |
|
(3) |
Represents the equity-based compensation expenses, based on the options’ fair
value on the grant date, calculated in accordance with applicable accounting guidance for equity-based compensation. For a discussion
of the assumptions used in reaching this valuation, see Note 10(B) to our annual consolidated financial statements included elsewhere
in this prospectus. |
|
(4) |
Represents consulting services provided prior to commencement of the aforementioned
current position. |
|
(5) |
Mr. Hefer will step down from his position as Chief Financial Officer on March 23,
2023, at which time Mr. Eitan Noah, our current Vice President of Finance, will assume the role of Chief Financial Officer. |
|
(6) |
Mr. Levin resigned his position as Chairman on January 24, 2022. |
Employment
Agreements and Director Fees
We have entered into written employment agreements with each of
our executive officers, which provide for notice periods of varying duration for termination of the agreement by us or by the relevant
executive officer, during which time the executive officer will continue to receive base salary and benefits. These agreements also contain
customary provisions regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability
of the noncompetition provisions may be limited under applicable law. See “Risk Factors — Risks relating to our operations
— Under applicable employment laws, we may not be able to enforce covenants not to compete” for a further description of the
enforceability of non-competition clauses.
The material employment terms for Mr. Kaufman, our Chief Executive
Officer, are as follows: (1) a gross annual salary of NIS 564,000 ($160,000); (2) reimbursement of annual travel expenses of up to NIS
60,000 ($17,000); (3) options to purchase 500,000 Ordinary Shares (currently equivalent to 50,000 ADSs), vesting over three years from
the date of his appointment as Chief Executive Officer, pursuant to which 1/12 will vest every quarter until fully vested, expiring one
year following Mr. Kaufman’s cessation of service in all then-applicable capacities, but in any case after four years, with an exercise
price of $0.519 per ordinary share (currently equivalent to $5.19 per ADS) and subject to acceleration upon termination pursuant to our
sale or change in control; (4) an annual performance bonus in the aggregate amount of NIS 282,000 ($80,000), subject to his meeting certain
performance milestones as determined by our board of directors on an annual basis; (5) termination of the employment relationship upon
provision of six months’ advance notice by either party; (6) severance pay equal to 25% of the gross annual salary upon termination
of Mr. Kaufman’s employment by us, not for cause, following three to twelve months of service, or 50% following twelve or more months
of service (or 50% of these amounts upon Mr. Kaufman’s resignation); and (7) social benefits that we pay on behalf of officers,
such as payments, contributions and/or allocations for savings funds (e.g., Managers’ Life Insurance Policy), pension, severance,
risk insurance (e.g., life, or work disability insurance), payments for social security and tax gross-up payments, vacation, medical insurance
and benefits, convalescence or recreation pay and other benefits and perquisites consistent with our policies, such as inclusion in our
directors’ and officers’ liability insurance policy, and provision of indemnification, exculpation and exemption undertakings
to the fullest extent permitted by the Companies Law.
The material terms for Mr. Kaiser, the Chairman of our board of directors, were as follows
from his appointment in January 2022, until January 24, 2023: (1) an annual fee of $150,000, to be paid in four equal quarterly installments
in USD or in NIS at the then-current exchange rate, which will automatically increase by an amount equal to seven percent at the end of
each year of service; (2) reimbursement of annual travel expenses of up to $18,000; (3) options to purchase 350,000 Ordinary Shares (currently
equivalent to 35,000 ADSs), vesting over three years from the date of his appointment as Chairman, pursuant to which 1/12 will vest every
quarter until fully vested, expiring one year following Mr. Kaiser’s cessation of service in all then-applicable capacities, but
in any case after four years, with an exercise price of $0.519 per ordinary share (currently equivalent to $5.19 per ADS) and subject
to acceleration upon termination pursuant to our sale or change in control; (4) an annual bonus equal to 50% of the bonus awarded to the
Chief Executive Officer in the applicable year; (5) severance pay equal to 12.5% of Mr. Kaiser’s annual fee upon the involuntary
termination of his directorship, not for cause, following three to twelve months of service, or 25% following twelve or more months of
service (or 50% of these amounts upon Mr. Kaiser’s resignation); and (6) other benefits and perquisites consistent with our policies,
such as inclusion in our directors’ and officers’ liability insurance policy, and provision of indemnification, exculpation
and exemption undertakings to the fullest extent permitted by the Companies Law.
Effective January 24, 2023, pursuant to approvals by our Compensation Committee, Board
of Directors and a general meeting of our shareholders, the following amendments to the materials terms for Mr. Kaiser were adopted: his
annual fee was adjusted to $290,000, automatically increased by an amount equal to seven percent at the end of each year of service commencing
from the date of adjustment; his annual bonus shall be equal to 70% of the bonus awarded to the Chief Executive Officer in the applicable
year; he received an allocation of restricted share units (RSUs) vesting into 1,340,000 ordinary shares (currently equivalent to 134,000
ADSs), vesting over three years from the date of adjustment, pursuant to which 1/12 will vest every quarter until fully vested, with no
exercise price, issued under the Company’s 2022 Share Incentive Plan and the Capital Gains tax track pursuant to Section 102 of
the Israeli Income Tax Ordinance (New Version), 1961 and subject to acceleration upon termination pursuant to either our sale or change
in control; and he received an allocation of performance share units (PSUs) vesting into 1,340,000 ordinary shares (currently equivalent
to 134,000 ADSs), vesting upon achievement of any one of the following milestones: (i) engagement with a strategic partner / investor
(a corporation operating in the field of food, healthcare, pharmaceuticals or printing) for an investment in the company or its subsidiaries,
in cash in an amount of not less than five hundred thousand dollars; (ii) submission of a regulatory approval to the U.S. FDA, Singapore
Food Agency or European Food Safety Authority, for the commercial sale or distribution of our products; or (iii) engagement with a strategic
partner (as defined above) in a joint development agreement to collaborate to develop technology or products for the purpose of later
commercialization.
In addition, we pay fees to our non-executive directors in return
for their service on our board of directors, in accordance with our compensation policy.
Our other employees are employed under the terms prescribed in
their respective employment contracts. The employees are entitled to the social benefits prescribed by law and as otherwise provided in
their agreements. These agreements each contain provisions standard for a company in our industry regarding non-competition, confidentiality
of information and assignment of inventions. Under currently applicable labor laws, we may not be able to enforce covenants not to compete
and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. See “Risk
Factors—Risks Related to Our Operations” for a further description of the enforceability of non-competition clauses.
Executive officers are also employed on the terms and conditions
prescribed in employment agreements. These agreements provide for notice periods of varying duration for termination of the agreement
by us or by the relevant executive officer, during which time the executive officer will continue to receive base salary and benefits.
See “Risk Factors—Risks Related to Our Operations—If we are unable to attract and retain qualified employees, our ability
to implement our business plan may be adversely affected.”
2018
Option and RSU Allocation Plan
In June 2018, the board of directors of Ophectra adopted our Option
and RSU Allocation Plan, as amended, or the share option plan, to issue options to purchase our Ordinary Shares and restricted stock units
to our directors, officers, employees and consultants, and those of our affiliated companies (as such term is defined under share option
plan), or the Grantees. The share option plan is administered by our board of directors or a committee that was designated by the board
of directors for such purpose, or the Administrator.
Under the share option plan, we may grant options to purchase Ordinary
Shares and/or RSUs, or options, under four tracks: (i) Approved 102 capital gains options through a trustee, which was approved by the
Israeli Tax Authority in accordance with Section 102(a) of the Israeli Income Tax Ordinance (New Version), 1961, or ITO, and granted under
the tax track set forth in Section 102(b)(2) of the ITO. The holding period under this tax track is 24 months from the date of issuance
of options to the trustee or such period as may be determined in any amendment of Section 102 of the ITO, or any applicable tax ruling
or guidelines; (ii) Approved 102 earned income options through a trustee, granted under the tax track set forth is Section 102(b)(1) of
the ITO. The holding period under this tax track is 12 months from the date of issuance of options to the trustee or such period as may
be determined in any amendment of Section 102 of the ITO; (iii) Unapproved 102 options (the options will not be issued through a trustee
and will not be subject to a holding period); and (iv) 3(i) options (the options will not be subject to a holding period). These options
shall be subject to taxation pursuant to Section 3(i) of the ITO, or Section 3(i).
Options pursuant to the first three tax tracks (under Section 102
of the ITO) can be granted to our employees and directors and the grant of options under Section 3(i) can be granted to our consultants
and controlling shareholders (a controlling shareholder is defined under the Section 102 of the ITO is a person who holds, directly or
indirectly, alone or together with a “relative,” (i) the right to at least 10% of the company’s issued capital or 10%
of the voting power; (ii) the right to hold at least 10% of the company’s issued capital or 10% of the voting power, or the right
to purchase such rights; (iii) the right to receive at least 10% of the company’s profits; or (iv) the right to appoint a company’s
director). Grantees who are not Israeli residents may be granted options that are subject to the applicable tax laws in their respective
jurisdictions.
We determine, in our sole discretion, under which of the first
three tax tracks above the options are granted and we notify the Grantee in a grant letter, as to the elected tax track. As mentioned
above, consultants and controlling shareholders can only be granted Section 3(i) options.
The number of Ordinary Shares authorized to be issued under the
share option plan will be proportionately adjusted for any increase or decrease in the number of Ordinary Shares issued as a result of
a distribution of bonus shares, change in our capitalization (split, combination, reclassification of the shares or other capital change),
or issuance of rights to purchase Ordinary Shares or payment of a dividend. We will not issue fractions of Ordinary Shares and the number
of Ordinary Shares shall be rounded up to the closest number of ordinary shares.
In the event of a (i) merger or consolidation in which we (in this
context, specifically Steakholder Foods Ltd.) are not the surviving entity or pursuant to which the other company becomes our parent company
or that pursuant to which we are the surviving company but another entity holds 50% or more of our voting rights, (ii) an acquisition
of all or substantially all of our Ordinary Shares, (iii) the sale of all or substantially all of our assets, or (iv) any other event
with a similar impact, we may exchange all of our outstanding options granted under the share option plan that remain unexercised prior
to any such transaction for options to purchase shares of the successor corporation (or those of an affiliated company) following the
consummation of such transaction.
The exercise price of an option granted under the share option
plan will be specified in the grant letter every Grantee received from us in which the Grantee notifies of the decision to grant him/her
options under the share option plan, and will be denominated in our functional currency at the time of grant or the currency in which
the Grantee is paid, at our discretion.
The Administrator may, in its absolute discretion, accelerate the
time at which options granted under the share option plan or any portion of which will vest.
Unless otherwise determined by the Administrator, in the event
that the Grantee’s employment was terminated, not for Cause (as defined in the share option plan), the Grantee may exercise that
portion of the options that had vested as of the date of such termination until the end of the specified term in the grant letter or the
share option plan. The portion of the options that had not vested at such date, will be forfeited and can be re-granted to other Grantees,
in accordance with the terms of the share option plan.
At the discretion of our board of directors, and subject to receipt
of taxation authority approvals, we may allow Grantees to exercise their options on a cashless basis.
2022
Share Incentive Plan
We adopted the 2022 Share Incentive Plan, or the 2022 Plan, on June 10, 2022, and a
general meeting of our shareholders approved the 2022 Plan on March 30, 2023. The 2022 Plan provides for the grant of equity-based incentive
awards to our employees, directors, office holders, service providers and consultants in order to incentivize them to increase their efforts
on behalf of the Company and to promote the success of the Company’s business.
Shares Available for Grants. The maximum number Shares (which means
ordinary shares, of no par value, (including ordinary shares resulting or issued as a result of share split, reverse share split, bonus
shares, combination or other recapitalization events, and including in the form of ADSs), or shares of such other class of shares as shall
be designated by the board of directors of the Company in respect of the relevant award) available for issuance under the 2022 Plan is
equal to the sum of (i) 8,500,000 Shares, (ii) 1,127,850 Shares, which represents the number of Shares available for issuance under the
Option and RSU Allocation Plan, or the Prior Plan, on the effective date of the 2022 Plan, and (iii) an annual increase on the first
day of each year beginning in 2023 and on January 1st of each calendar year thereafter and ending on January 1, 2032, equal to the lesser
of (A) 5% of the outstanding ordinary shares of the Company on the last day of the immediately preceding calendar year, on a fully diluted
basis; and (B) such amount as determined by our board of directors if so determined prior to January 1 of a calendar year. Shares issued
under the 2022 Plan may be, in whole or in part, authorized but unissued Shares, (and, subject to obtaining a ruling as it applies to
102 awards) treasury shares (dormant shares) or otherwise Shares that shall have been or may be repurchased by the Company (to the extent
permitted pursuant to the Companies Law).
Any Shares (a) underlying
an award granted under the 2022 Plan or an award granted under the Prior Plan (in an amount not to exceed 8,498,490 Shares under the Prior
Plan) that has expired, or was cancelled, terminated, forfeited, or settled in cash in lieu of issuance of Shares, for any reason, without
resulting in the issuance of Shares; (b) if permitted by the Company, subject to an award that are tendered to pay the exercise price
of an award; or withholding tax obligations with respect to an award; or if permitted by the Company, subject to an award that are
not delivered to a Grantee because such Shares are withheld to pay the exercise price of such award; or withholding tax obligations with
respect to such award may again be available for issuance under the 2022 Plan and for issuance upon exercise or (if applicable) vesting
thereof for the purposes of the 2022 Plan, unless determined otherwise by the Board. Our board of directors may also reduce the number
of ordinary shares reserved and available for issuance under the 2022 Plan in its discretion.
The maximum aggregate
number of Shares that may be issued pursuant to the exercise of incentive stock options granted under the 2022 Plan, or the ISO Limit,
shall be the sum of (a) the aggregate number of Shares set forth in clauses (a) and (b) in the above paragraph; and (b) any Shares underlying
awards granted under the Prior Plan that are returned to the 2022 Plan (not to exceed 8,498,490 Shares). To the extent permitted under
Section 422 of the United States Internal Revenue Code of 1986, and any applicable regulations promulgated thereunder, all as amended
(the “Code”), any Shares covered by an award that has expired, or was cancelled, terminated, forfeited, or settled in cash
without the issuance of Shares shall not count against the ISO Limit. Shares that actually have been issued under the 2022 Plan shall
not become available for future issuance hereunder pursuant to incentive stock options.
Administration. Our board
of directors, or a duly authorized committee of our board of directors, or the Administrator, or the Administrator, will administer
the 2022 Plan. Under the 2022 Plan, the Administrator has the authority, subject to applicable law, to interpret the terms of the 2022
Plan and any award agreements or awards granted thereunder, designate recipients of awards, determine and amend the terms of awards, including
the exercise price of an option award, the fair market value of an ordinary share, the time and vesting schedule applicable to an award
or the method of payment for an award, accelerate or amend the vesting schedule applicable to an award, prescribe the forms of agreement
for use under the 2022 Plan and take all other actions and make all other determinations necessary for the administration of the 2022
Plan.
The Administrator also has the authority to approve the conversion,
substitution, cancellation or suspension under and in accordance with the 2022 Plan of any or all option awards or ordinary shares, and
the authority to modify option awards to eligible individuals who are foreign nationals or are individuals who are employed outside Israel
to recognize differences in local law, tax policy or custom, in order to effectuate the purposes of the 2022 Plan but without amending
the 2022 Plan; provided,
that if the Administrator takes such action with respect to an award held by a U.S. service provider, it shall do so in accordance with
the requirements of Section 409A of the Code, if applicable.
The Administrator also
has the authority to amend and rescind rules and regulations relating to the 2022 Plan or terminate the 2022 Plan at any time before the
date of expiration of its ten year term.
Eligibility. The
2022 Plan provides for granting awards under various tax regimes, including, without limitation, in compliance with Section 102 of the
Israeli Income Tax Ordinance (New Version) 5271-1961, and the regulations and rules promulgated thereunder, all as amended from time to
time (the “Ordinance”), and Section 3(i) of the Ordinance and in compliance with Section 422 of the Code and Section 409A
of the Code as they relate to U.S. service providers when granted Nonqualified Stock Options, and to U.S. service providers who
are Employees when granted Incentive Stock Options.
Grants. All
awards granted pursuant to the 2022 Plan will be evidenced by an award agreement, in a form approved, from time to time, by the Administrator
in its sole discretion. The award agreement will set forth the terms and conditions of the award, including the type of award, number
of shares subject to such award, vesting schedule and conditions (including performance goals or measures) and the exercise price, if
applicable. Certain awards under the 2022 Plan may constitute or provide for a deferral of compensation, subject to Section 409A of the
Code, which may impose additional requirements on the terms and conditions of such awards.
Unless otherwise determined
by the Administrator and stated in the award agreement, and subject to the conditions of the 2022 Plan, awards vest and become exercisable
under the following schedule: 25% of the shares covered by the award on the first anniversary of the vesting commencement date determined
by the Administrator (and in the absence of such determination, the date on which such award was granted) and 6.25% of the Shares covered
by the award at the end of each subsequent three-month period thereafter over the course of the following three years; provided that the
grantee remains continuously as an employee or provides services to the company throughout such vesting dates.
Each award will expire
ten years from the date of the grant thereof, unless such shorter term of expiration is otherwise designated by the Administrator.
Awards. The
2022 Plan provides for the grant of stock options (including incentive stock options and nonqualified stock options), ordinary shares,
restricted shares, RSUs, stock appreciation rights and other share-based awards.
Options granted under
the 2022 Plan to the Company employees who are U.S. residents may qualify as “incentive stock options” within the meaning
of Section 422 of the Code, or may be non-qualified stock options. The exercise price of an option may not be less than the par value
of the Shares (if the Shares bear a par value) for which such option is exercisable. The exercise price of an Incentive Stock Option may
not be less than 100% of the fair market value of the underlying share on the date immediately preceding the day of the grant or such
other amount as may be required pursuant to the Code, and in the case of Incentive Stock Options granted to ten percent stockholders,
not less than 110%.
Nonqualified stock options
may not be granted to a U.S. service provider unless (i) the Shares underlying such options constitute “service recipient stock”
under Section 409A of the Code and such options meet the other requirements to be exempt from Section 409A of the Code or (ii) such
options comply with the requirements of Section 409A of the Code. A nonqualified stock option may be granted with an exercise price
lower than the minimum exercise price set forth above if (i) such option is granted pursuant to an assumption or substitution for another
option in accordance with and pursuant to Section 409A of the Code or (ii) the Administrator expressly determined that the option
will have a lower exercise price and the Option complies with Section 409A of the Code or meets another exemption under Section 409A
of the Code.
Incentive stock options
may be granted only to U.S. service providers who are employees of the Company. However, if for any reason an option (or portion thereof)
does not qualify as an incentive stock option, then, to the extent of such non-qualification, such option (or portion thereof) shall be
treated as a nonqualified stock option granted under the 2022 Plan.
An RSU may be awarded
to any service provider, including under Section 102 of the Ordinance. Subject to Applicable Law, RSUs may be granted in consideration
of a reduction in the recipient’s other compensation. No payment of exercise price shall be required as consideration for RSUs,
unless included in the award agreement or as required by applicable law. The grantee shall not possess or own any ownership rights in
the Shares underlying the RSUs. Settlement of vested RSUs shall be made in the form of Shares. Distribution to a grantee of an amount
(or amounts) from settlement of vested RSUs can be deferred to a date after vesting as determined by the Administrator; provided, that
no such deferral shall be made with respect to RSUs held by a U.S. service provider if such deferral would cause such RSUs to fail to
qualify for an exemption under Section 409A of the Code and become subject to the requirements of Section 409A of the Code, unless expressly
determined by the Administrator, or would violate the requirements of Section 409A. In no event shall any dividends or dividend equivalent
rights be paid before the vesting of the portion of the RSUs to which such dividends or dividend equivalent rights relate, unless otherwise
provided for in an award agreement or determined by the Committee. Any RSUs granted under the 2022 Plan that are not exempt from the requirements
of Section 409A of the Code shall contain such restrictions or other provisions so that such RSUs will comply with the requirements
of Section 409A of the Code.
Exercise. An
award under the 2022 Plan may be exercised by providing the Company with a written or electronic notice of exercise and full payment of
the exercise price for such shares underlying the award, if applicable, in such form and method as may be determined by the Administrator
and permitted by applicable law. An award may not be exercised for a fraction of a share. With regard to tax withholding, exercise price
and purchase price obligations arising in connection with awards under the 2022 Plan, the Administrator may, in its discretion, accept
cash, provide for net withholding of shares in a cashless exercise mechanism or direct a securities broker to sell shares and deliver
all or a part of the proceeds to the Company or the trustee. The exercise period of an award will be determined by the Administrator and
stated in the award agreement, but will in no event be longer than ten (10) years from the date of grant of the award. Notwithstanding
anything to the contrary, the Administrator may extend the periods for which awards held by any grantee may continue to vest and/or be
exercisable; it being clarified that such awards may lose their entitlement to certain tax benefits under applicable law; if done so with
respect to a U.S service provider, the Administrator shall act in accordance with Section 409A of the Code, as applicable.
Transferability. Other
than by will, the laws of descent and distribution or as otherwise provided under the 2022 Plan, neither the options nor any right in
connection with such options are assignable or transferable.
Termination
of Employment. In the event of termination of a grantee’s employment or service with the Company or any of its affiliates,
all vested and exercisable awards held by such grantee as of the date of termination may be exercised within three months after such date
of termination, unless otherwise determined by the Administrator, but in no event later than the date of expiration of the award as set
forth in the award agreement. After such three-month period, all such unexercised awards will terminate and the shares covered by such
awards shall again be available for issuance under the 2022 Plan.
In the event of termination
of a grantee’s employment or service with the Company or any of its affiliates due to such grantee’s death or permanent disability,
or in the event of the grantee’s death within the three month period (or such longer period as determined by the Administrator)
following his or her termination of service, all vested and exercisable awards held by such grantee as of the date of termination may
be exercised by the grantee or the grantee’s legal guardian, estate or by a person who acquired the right to exercise the award
by bequest or inheritance, as applicable, within one year after such date of termination, unless otherwise provided by the Administrator,
but in no event later than the date of expiration of the award as set forth in the award agreement. Any awards which are unvested as of
the date of such termination or which are vested but not then exercised within the one year period following such date, will terminate
and the shares covered by such awards shall again be available for issuance under the 2022 Plan.
Notwithstanding any of
the foregoing, if a grantee’s employment or services with the Company or any of its affiliates is terminated for “cause”
(as defined in the 2022 Plan), all outstanding awards held by such grantee (whether vested or unvested) will terminate on the date of
such termination and the shares covered by such awards shall again be available for issuance under the 2022 Plan.
Any Option that is intended
to be an incentive stock option and is exercised later than three (3) months after the grantee ceases to be employed by the Company (or
any parent or subsidiary), except in the case of death or “Disability” (as defined in Section 22(e)(3) of the Code), will
be deemed a nonqualified stock option. If the grantee ceases to be employed by the Company (or any parent or subsidiary) due to disability,
any option that is intended to be an incentive stock option and is exercised later than twelve (12) months after such termination date
will be deemed a nonqualified stock option.
Voting
Rights. Except with respect to restricted share awards, grantees will not have the rights as a shareholder of the Company
with respect to any shares covered by an award until the award has vested and/or the grantee has exercised such award, paid any exercise
price for such award and becomes the record holder of the shares. With respect to restricted share awards, grantees will possess all incidents
of ownership of the restricted shares, including the right to vote and receive dividends on such shares.
Dividends. Grantees
holding restricted share awards will be entitled to receive dividends and other distributions with respect to the shares underlying the
restricted share award. Any stock split, stock dividend, combination of shares or similar transaction will be subject to the restrictions
of the original restricted share award. Grantees holding RSUs will not be eligible to receive dividend but may be eligible to receive
dividend equivalents.
Transactions. In
the event of a share split, reverse share split, share dividend, recapitalization, combination or reclassification of the Company’s
shares, the Administrator in its sole discretion may, and where required by applicable law shall, without the need for a consent of any
holder, make an appropriate adjustment in order to adjust (i) the number and class of shares reserved and available for the outstanding
awards, (ii) the number and class of shares covered by outstanding awards, (iii) the exercise price per share covered by any award, (iv)
the terms and conditions concerning vesting and exercisability and the term and duration of the outstanding awards, (v) the type or class
of security, asset or right underlying the award (which need not be only that of the Company, and may be that of the surviving corporation
or any affiliate thereof or such other entity party to any of the above transactions), and (vi) any other terms of the award that in the
opinion of the Administrator should be adjusted; provided that any fractional shares resulting from such adjustment shall be rounded to
the nearest whole share unless otherwise determined by the Administrator. In the event of a distribution of a cash dividend to all shareholders,
the Administrator may determine, without the consent of any holder of an award, that the exercise price of an outstanding and unexercised
award shall be reduced by an amount equal to the per share gross dividend amount distributed by the Company, subject to applicable law.
In the event of a merger
or consolidation of the Company or a sale of all, or substantially all, of the Company’s shares or assets or other transaction having
a similar effect on the Company, or change in the composition of the board of directors, or liquidation or dissolution, or such other
transaction or circumstances that our board of directors determines to be a relevant transaction, then without the consent of the grantee,
(i) unless otherwise determined by the Administrator, any outstanding award will be assumed or substituted by such successor corporation,
or (ii) regardless of whether or not the successor corporation assumes or substitutes the award (a) provide the grantee with the option
to exercise the award as to all or part of the shares, and may provide for an acceleration of vesting of unvested awards, (b) cancel the
award and pay in cash, shares of the Company, the acquirer or other corporation which is a party to such transaction or other property
as determined by the Administrator as fair in the circumstances, or (c) provide that the terms of any award shall be otherwise amended,
modified or terminated, as determined by the Administrator to be fair in the circumstances. Changes with respect to awards held by U.S.
service providers shall be made in accordance with the requirements of Section 409A of the Code or Section 424 of the Code, as applicable
and to the extent necessary to avoid adverse tax consequences under Section 409A of the Code, a transaction or other event will not be
deemed a Merger/Sale for purposes of awards granted to U.S. service providers unless the transaction or other event qualifies as a change
in control event within the meaning of Section 409A of the Code.
C. Board Practices
Board
of Directors
Our board of directors consists of four directors, three of whom
are deemed independent directors under the corporate governance standards of the Nasdaq Marketplace Rules and the independence requirements
of Rule 10A-3 of the Exchange Act, as well as the standards of the Companies Law.
Under our articles of
association, our board of directors must consist of no less than three and no more than seven directors (including the external directors,
if any), divided into three classes with staggered three-year terms. Each class of directors consists, as nearly as possible, of one-third
of the total number of directors constituting the entire board of directors. At each annual general meeting of our shareholders, the election
or re-election of directors following the expiration of the term of office of the directors of that class of directors will be for a term
of office that expires on the third annual general meeting following such election or re-election.
Our directors are divided among the three classes as follows:
|
• |
the Class I directors are Messrs. Eli Arad and David Gerbi and their respective
terms will expire at the Company’s annual general meeting of shareholders to be held in 2026; |
|
• |
the Class II director is Ms. Sari Singer and her term will
expire at the Company’s annual general meeting of shareholders to be held in 2024; and |
|
• |
the Class III director is Mr. Yaron Kaiser his term will
expire at the Company’s annual general meeting of shareholders to be held in 2025. |
Pursuant to our articles
of association, the vote general required to appoint a director is a simple majority vote of holders of our voting shares participating
and voting at the relevant meeting, provided that (i) in the event of a contested election, the method of calculation of the votes
and the manner in which the resolutions will be presented to our shareholders at the general meeting shall be determined by our board
of directors in its discretion, and (ii) in the event that our board of directors does not or is unable to make a determination on
such matter, then the directors will be elected by a plurality of the voting power represented at the general meeting in person or by
proxy and voting on the election of directors.
Each director will hold
office until the annual general meeting of our shareholders for the year in which such director’s term expires, unless the
tenure of such director expires earlier pursuant to the Companies Law or unless such director is removed from office. Under our articles
of association, the approval of the holders of at least 65% of the total voting power of our shareholders is generally required to remove
any of our directors from office.
In addition, our articles of association allow our board of directors
to appoint new directors to fill vacancies which can occur for any reason or as additional directors, provided that the number of board
members shall not exceed the maximum number of directors mentioned above. A director so appointed will hold office until the next annual
general meeting of our shareholders for the election of the class of directors in respect of which the vacancy was created, or in the
case of a vacancy due to the number of directors being less than the maximum number of directors stated in our articles of association,
until the next annual general meeting of our shareholders for the election of the class of directors to which such director was assigned
by our board of directors. Our board of directors may continue to operate for as long as the number of directors is no less than the minimum
number of directors mentioned above.
In addition, under the Companies Law, our board of directors must
determine the minimum number of directors who are required to have financial and accounting expertise. Under applicable regulations, a
director with financial and accounting expertise is a director who, by reason of his or her education, professional experience and skill,
has a high level of proficiency in and understanding of business accounting matters and financial statements. He or she must be able to
thoroughly comprehend the financial statements of the company and initiate discussion regarding the manner in which financial information
is presented. 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 operations. Our board of directors has determined that we
require at least one director with the requisite financial and accounting expertise and that Eli Arad and David Gerbi have such expertise.
External
Directors
The Companies Law requires
a public Israeli company to have at least two external directors who meet certain independence criteria to ensure that they are unaffiliated
with the company and its controlling shareholder. An external director must have either financial and accounting expertise or professional
qualifications, as defined in the regulations promulgated under the Companies Law, and at least one of the external directors is required
to have financial and accounting expertise. An external director is entitled to reimbursement of expenses and compensation as provided
in the regulations promulgated under the Companies Law, but is otherwise prohibited from receiving any other compensation from the company,
directly or indirectly, during his or her term and for two years thereafter.
Pursuant to regulations
promulgated under the Companies Law, as a company with shares traded on Nasdaq, we have elected no to comply with the requirements to
appoint external directors and related rules concerning the composition of the audit committee and compensation committee of the board
of directors. We are still subject to the gender diversity rule under the Companies Law, which requires that if, at the time a director
is to be elected or appointed, all members of the board of directors are of the same gender, the director to be appointed must be of the
other gender. The conditions to the exemptions from the Companies Law requirements are that: (i) the company does not have a “controlling
shareholder,” as such term is defined under the Companies Law, (ii) its shares are traded on certain U.S. stock exchanges, including
Nasdaq, and (iii) it comply with the director independence requirements and the audit committee and compensation committee composition
requirements under U.S. laws, including the rules of the applicable exchange, that are applicable to U.S. domestic issuers.
Committees
of the Board of Directors
Our board of directors
has established the following committees. Each committee operates in accordance with a written charter that sets forth the committee’s
structure, operations, membership requirements, responsibilities and authority to engage advisors.
Audit
Committee
Under the Companies Law,
the Exchange Act and Nasdaq Marketplace Rules, we are required to maintain an audit committee.
The responsibilities
of an audit committee under the Companies Law include identifying and addressing flaws in the business management of the company, reviewing
and approving related party transactions, establishing whistleblower procedures, overseeing the company’s internal audit system
and the performance of its internal auditor, and assessing the scope of the work and recommending the fees of the company’s independent
accounting firm. In addition, the audit committee is required to determine whether certain related party actions and transactions are
“material” or “extraordinary” for the purpose of the requisite approval procedures under the Companies Law and
to establish procedures for considering proposed transactions with a controlling shareholder.
In accordance with U.S.
law and Nasdaq Marketplace Rules, our audit committee is also responsible for the appointment, compensation and oversight of the work
of our independent auditors and for assisting our board of directors in monitoring our financial statements, the effectiveness of our
internal controls and our compliance with legal and regulatory requirements.
Under the Companies Law,
the audit committee must consist of at least three directors who meet certain independence criteria. Under the Nasdaq Marketplace Rules,
we are required to maintain an audit committee consisting of at least three independent directors, all of whom are financially literate
and one of whom has accounting or related financial management expertise. Each of the members of the audit committee is required to be
“independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act.
Our audit committee currently
consists of Eli Arad, Sari Singer and David Gerbi. All members are independent directors as defined in the Companies Law, SEC rules and
Nasdaq listing requirements. Our board of directors has determined that all members of our audit committee meet the requirements for financial
literacy under the applicable rules and regulations of the SEC and Nasdaq Marketplace Rules. Our board of directors has determined that
Eli Arad and David Gerbi are audit committee financial experts as defined by the SEC rules and have the requisite financial experience
as defined by the Nasdaq Marketplace Rules.
Compensation
Committee
Under both the Companies
Law and Nasdaq Marketplace Rules, we are required to establish a compensation committee.
The responsibilities
of a compensation committee under the Companies Law include recommending to the board of directors, for ultimate shareholder approval
by a special majority, a policy governing the compensation of directors and officers based on specified criteria, reviewing modifications
to and implementing such compensation policy from time to time, and approving the actual compensation terms of directors and officers
prior to approval by the board of directors.
The Companies Law stipulates
that the compensation committee must consist of at least three directors who meet certain independence criteria. Under Nasdaq Marketplace
Rules, we are required to maintain a compensation committee consisting of at least two independent directors; each of the members of the
compensation committee is required to be independent under Nasdaq Marketplace Rules relating to compensation committee members, which
are different from the general test for independence of board and committee members.
Our compensation committee
currently consists of Eli Arad, Sari Singer and David Gerbi. All members are independent directors as defined in the Companies Law, SEC
rules and regulations, and Nasdaq Marketplace Rules.
Director
Nominations
We do not have a standing
nominating committee. In accordance with Rule 5605(e)(2) of the Nasdaq Rules, a majority of the independent directors may recommend a
director nominee for selection by the board of directors. Our board of directors believes that the independent directors can satisfactorily
carry out the responsibility of properly selecting or approving director nominees without the formation of a standing nominating committee.
As we do not have a standing nominating committee, we will not have a nominating committee charter in place.
Our board of directors
will consider candidates for nomination who have a high level of personal and professional integrity, strong ethics and values and the
ability to make mature business judgments. In general, in identifying and evaluating nominees for director, our board of directors will
also consider experience in corporate management such as serving as an officer or former officer of a publicly held company, experience
as a board member of another publicly held company, professional and academic experience relevant to our business, leadership skills,
experience in finance and accounting or executive compensation practices, whether candidate has the time required for preparation, participation
and attendance at board meetings and committee meetings, if applicable, independence and the ability to represent the best interests of
our stockholders.
Internal
Auditor
Under the Companies Law,
the board of directors is required to appoint an internal auditor recommended by the audit committee. The role of the internal auditor
is to examine, among other things, whether the company’s actions comply with applicable law and proper business procedures. The
internal auditor may not be an interested party, a director or an officer of the company, or a relative of any of the foregoing, nor may
the internal auditor be our independent accountant or a representative thereof. Our current internal auditor is Mr. Daniel Spira, CPA,
who is a member of the board of directors of the Institute of Internal Auditors in Israel and Chairman of its Auditing and Knesset Relations Committee.
Fiduciary
Duties and Approval of Related Party Transactions
Fiduciary
duties of directors and officers
Israeli law imposes a
duty of care and a duty of loyalty on all directors and officers of a company. The duty of care requires a director or officer to act
with the level of care with which a reasonable director or officer in the same position would have acted under the same circumstances.
The duty of care includes, among other things, a duty to use reasonable means, under the circumstances, to obtain information on the advisability
of a given action brought for his approval or performed by virtue of his position and other important information pertaining to such action.
The duty of loyalty requires the director or officer to act in good faith and for the benefit of the company.
Disclosure
of Personal Interests of an Office Holder and Approval of Certain Transactions
Under the Companies Law,
a company may approve an act specified above which would otherwise constitute a breach of the office holder’s fiduciary duty, provided
that the office holder acted in good faith, the act or its approval does not harm the company, and the office holder discloses to the
company his or her personal interest in the transaction (including any significant fact or document) a reasonable time before the approval
of such act. Any such approval is subject to the terms of the Companies Law, setting forth, among other things, the appropriate bodies
of the company required to provide such approval, and the methods of obtaining such approval.
The Companies Law requires
that an office holder promptly disclose to the company any direct or indirect personal interest that he or she may have and all related
material information or documents known to him or her relating to any existing or proposed transaction by the company. An interested office
holder’s disclosure must be made promptly and, in any event, no later than the first meeting of the board of directors at which
the transaction is considered. An office holder is not obliged to disclose such information if the personal interest of the office holder
derives solely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction.
If the transaction is
an extraordinary transaction, the office holder must also disclose any personal interest held by:
|
|
• |
the office holder’s relatives (spouse,
siblings, parents, grandparents, descendants, spouse’s descendants and the spouses of any of these people); or |
|
|
• |
any company in which the office holder or
his or her relatives holds 5% or more of the shares or voting rights, serves as a director or general manager or has the right to appoint
at least one director or the general manager. |
Under the Companies Law,
unless the articles of association of a company provide otherwise, a transaction with an office holder or with a third party in which
the office holder has a personal interest, which is not an extraordinary transaction, requires approval by the board of directors or a
committee authorized by the board of directors. If the transaction considered is an extraordinary transaction with an office holder or
third party in which the office holder has a personal interest, then audit committee approval is required prior to approval by the board
of directors. Under specific circumstances, shareholder approval may also be required. For the approval of compensation arrangements with
directors and executive officers, see “Item 6.B. Compensation—Compensation of Directors and Executive Officers.”
Any persons who have
a personal interest in the approval of a transaction that is brought before a meeting of the board of directors or the audit committee
may not be present at the meeting or vote on the matter. However, if the chairman of the board of directors or the chairman of the audit
committee, as applicable, has determined that the presence of an office holder with a personal interest is required, such office holder
may be present at the meeting for the purpose of presenting the matter. Notwithstanding the foregoing, a director who has a personal interest
may be present at the meeting of the board of directors or the audit committee (as applicable) and vote on the matter if a majority of
the members of the board of directors or the audit committee (as applicable) have a personal interest in the approval of such transaction.
If a majority of the directors at a board of directors meeting have a personal interest in the transaction, such transaction also generally
requires approval of the shareholders of the company.
A “personal interest”
is defined under the Companies Law as the personal interest of a person in an action or in a transaction of the company, including the
personal interest of such person’s relative or the interest of any other corporate body in which the person and/or such person’s
relative is a director or general manager, a 5% shareholder or holds 5% or more of the issued and outstanding share capital of the company
or of its voting rights, or has the right to appoint at least one director or the general manager, but excluding a personal interest stemming
solely from the fact of holding shares in the company. A personal interest also includes (i) a personal interest of a person who votes
according to a proxy of another person, including in the event that the other person has no personal interest, and (ii) a personal interest
of a person who gave a proxy to another person to vote on his or her behalf regardless of whether the discretion of how to vote lies with
the person voting.
An “extraordinary
transaction” is defined under the Companies Law as any of the following:
|
|
• |
a transaction other than in the ordinary
course of business; |
|
|
• |
a transaction that is not on market terms;
or |
|
|
• |
a transaction that may have a material impact
on the company’s profitability, assets or liabilities. |
Disclosure
of Personal Interests of a Controlling Shareholder and Approval of Transactions
Pursuant to the Companies
Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company. Extraordinary
transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, including a private placement
in which a controlling shareholder has a personal interest, and the terms of engagement of the company, directly or indirectly, with a
controlling shareholder or a controlling shareholder’s relative (including through a corporation controlled by a controlling shareholder),
regarding the company’s receipt of services from the controlling shareholder, and if such controlling shareholder is also an office
holder or employee of the company, regarding his or her terms of employment, require the approval of each of (i) the audit committee (or
the compensation committee with respect to the terms of the engagement as an office holder or employee, including insurance, indemnification
and compensation), (ii) the board of directors and (iii) the shareholders, in that order. In addition, the shareholder approval must fulfill
one of the following requirements:
|
|
• |
a majority of the shares held by shareholders
who have no personal interest in the transaction and are voting at the meeting must be voted in favor of approving the transaction, excluding
abstentions; or |
|
|
• |
the shares voted by shareholders who have
no personal interest in the transaction who vote against the transaction represent no more than 2% of the voting rights in the company.
|
Such majority determined
in accordance with the majority requirement described above is hereinafter referred to as the Compensation Special Majority Requirement.
Any such transaction
for which the term is more than three years must be approved in the same manner every three years, unless with respect to certain transactions
as permitted by the Companies Law, the audit committee has determined that a longer term is reasonable under the circumstances. In addition,
transactions with a controlling shareholder or a controlling shareholder’s relative who serves as an executive officer in a company,
directly or indirectly (including through a corporation under his control), involving the receipt of services by a company or their compensation
can have a term of five years from the company’s initial public offering under certain circumstances.
The Companies Law requires
that every shareholder that participates, in person or by proxy, in a vote regarding a transaction with a controlling shareholder, must
indicate in advance or in the ballot whether or not that shareholder has a personal interest in the vote in question. Failure to so indicate
generally results in the invalidation of that shareholder’s vote.
Disclosure
of Compensation of Executive Officers
For so long as we qualify
as a foreign private issuer, we are not required to comply with the proxy rules applicable to U.S. domestic filers, including the requirement
applicable to emerging growth companies to disclose the compensation of our chief executive officer and other two most highly compensated
executive officers on an individual, rather than an aggregate, basis. Nevertheless, regulations promulgated under the Companies Law require
us to disclose in the proxy statement for the annual general meeting of our shareholders (or to include a reference therein to other previously
furnished public disclosure) the annual compensation of our five most highly compensated executive officers on an individual, rather than
an aggregate, basis. This disclosure will not be as extensive as that required of a U.S. domestic issuer.
Compensation
of Directors and Executive Officers
Directors.
Under the Companies Law, the compensation of our directors requires the approval of our compensation committee, the subsequent approval
of the board of directors and, unless exempted under regulations promulgated under the Companies Law, the approval of the shareholders
at a general meeting. If the compensation of our directors is inconsistent with our compensation policy, then, provided that those provisions
that must be included in the compensation policy according to the Companies Law have been considered by the compensation committee and
board of directors, and provided that shareholder approval is obtained by the Compensation Special Majority Requirement.
Executive
Officers (other than the Chief Executive Officer). The Companies Law requires the approval of the compensation of a public company’s
executive officers (other than the chief executive officer) in the following order: (i) the compensation committee, (ii) the company’s
board of directors and (iii) if such compensation arrangement is inconsistent with the company’s compensation policy, the company’s
shareholders (the Compensation Special Majority Requirement). However, if the shareholders of the company do not approve a compensation
arrangement with an executive officer that is inconsistent with the company’s compensation policy, the compensation committee and
board of directors may override the shareholders’ decision if each of the compensation committee and the board of directors provide
detailed reasons for their decision.
Chief
Executive Officer. The Companies Law requires the approval of the compensation of a public company’s chief executive officer
in the following order: (i) the company’s compensation committee, (ii) the company’s board of directors and (iii) the company’s
shareholders (the Compensation Special Majority Requirement). However, if the shareholders of the company do not approve the compensation
arrangement with the chief executive officer, the compensation committee and board of directors may override the shareholders’ decision
if each of the compensation committee and the board of directors provide a detailed report for their decision. The approval of each of
the compensation committee and the board of directors should be in accordance with the company’s compensation policy; however, in
special circumstances, they may approve compensation terms of a chief executive officer that are inconsistent with such policy provided
that they have considered those provisions that must be included in the compensation policy according to the Companies Law and that shareholder
approval was obtained (by a special majority vote as discussed above with respect to the approval of director compensation). In addition,
the compensation committee may waive the shareholder approval requirement with regards to the approval of the engagement terms of a candidate
for the chief executive officer position, if the compensation committee determines that the compensation arrangement is consistent with
the company’s compensation policy, and that the chief executive officer did not have a prior business relationship with the company
or a controlling shareholder of the company and that subjecting the approval of the engagement to a shareholder vote would impede the
company’s ability to employ the chief executive officer candidate.
Compensation
Policy
Under the Companies Law,
we are required to approve, at least once every three years, a compensation policy with respect to our directors and officers. Following
the recommendation of our compensation committee, the compensation policy must be approved by our board of directors and our shareholders.
The shareholder approval must be by a simple majority of all votes cast, provided that (i) such majority includes a simple majority of
the votes cast by non-controlling shareholders having no personal interest in the matter or (ii) the total number of votes of shareholders
mentioned in clause (i) above who voted against such transaction does not exceed 2% of the total voting rights in the company.
Directors’
Service Contracts
There are no arrangements
or understandings between us and any of our subsidiaries, on the one hand, and any of our directors, on the other hand, providing for
benefits upon termination of their employment or service as directors of our company or any of our subsidiaries.
Under the Companies Law,
a shareholder has a duty to refrain from abusing its power in the company and to act in good faith and in an acceptable manner in exercising
its rights and performing its obligations to the company and other shareholders, including, among other things, when voting at meetings
of shareholders on the following matters:
|
|
• |
an amendment to the articles of association;
|
|
|
• |
an increase in the company’s authorized
share capital; |
|
|
• |
the approval of related party transactions
and acts of office holders that require shareholder approval. |
A shareholder also has
a general duty to refrain from discriminating against other shareholders.
The remedies generally
available upon a breach of contract also apply to a breach of the shareholder duties mentioned above, and in the event of discrimination
against other shareholders, additional remedies may be available to the injured shareholder.
In addition, any controlling
shareholder, any shareholder that knows that its vote can determine the outcome of a shareholder vote and any shareholder that, under
a company’s articles of association, has the power to appoint or prevent the appointment of an office holder, or any other power
with respect to a company, is under a duty to act with fairness towards the company. The Companies Law does not describe the substance
of this duty except to state that the remedies generally available upon a breach of contract also apply in the event of a breach of the
duty to act with fairness, taking the shareholder’s position in the company into account.
Exculpation,
Insurance and Indemnification of Directors and Officers
Under the Companies Law,
a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate an office
holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty
of care but only if a provision authorizing such exculpation is included in its articles of association. Our articles of association include
such a provision. The company may not exculpate in advance a director from liability arising from a breach of his or her duty of care
in connection with a prohibited dividend or distribution to shareholders.
As permitted under the
Companies Law, our articles of association provide that we may indemnify an office holder in respect of the following liabilities, payments
and expenses incurred for acts performed by him or her as an office holder, either in advance of an event or following an event:
|
|
• |
financial liability that was imposed upon
him in favor of another person pursuant to a judgment, including a compromise judgment or an arbitrator’s award approved by a court;
|
|
|
• |
reasonable litigation expenses, including
attorneys’ fees paid by an officeholder following an investigation or proceeding conducted against him by an authority authorized
to conduct such investigation or proceeding, and which ended without the filing of an indictment against him and without any financial
obligation being imposed on him as an alternative to a criminal proceeding, or which ended without the filing of an indictment against
him but with the imposition of a financial obligation as an alternative to a criminal proceeding for an offense which does not require
proof of mens rea or in connection with a financial sanction; |
|
|
• |
reasonable litigation expenses, including
attorneys’ fees paid by the officeholder or which he was required to pay by a court, in a proceeding filed against him by the Company
or on its behalf or by another person, or in criminal charges from which he was acquitted, or in criminal charges in which he was convicted
of an offense which does not require proof of mens rea; |
|
|
• |
a financial obligation imposed on the officeholder
for the benefit of all of the parties damaged by the violation of an administrative proceeding; |
|
|
• |
expenses incurred by an officeholder in
connection with an Administrative Proceeding conducted in his regard, including reasonable litigation expenses, and including attorneys’
fees; |
|
|
• |
expenses incurred by an officeholder in
connection with a proceeding under the Antitrust Law, 5748-1988 and/or in connection with it (a “Proceeding Under the Antitrust
Law”), conducted regarding him, including reasonable litigation expenses, and attorneys' fees; and |
|
|
• |
any other liability or expense in respect
of which it is permitted or shall be permitted by Law to indemnify an officeholder. |
As permitted under the
Israeli Companies Law, our articles of association provide that we may insure an office holder against the following liabilities incurred
for acts performed by him or her as an office holder:
|
|
• |
Breach of the duty of care to the Company
or to any other person; |
|
|
• |
Breach of the fiduciary duty to the Company,
provided that the officeholder acted in good faith and had reasonable grounds to assume that his act would not adversely affect the Company’s
best interests; |
|
|
• |
financial liability imposed upon him in
favor of another person; |
|
|
• |
financial liability imposed on the officeholder
for the benefit of all of the parties damaged by the violation of an administrative proceeding; |
|
|
• |
expenses incurred or to be incurred by an
officer in connection with an Administrative Proceeding, including reasonable litigation expenses, and including attorneys’ fees;
|
|
|
• |
Expenses incurred or to be incurred in connection
with a proceeding under the Antitrust Law, including reasonable litigation expenses, and including attorneys’ fees; and |
|
|
• |
any other event in respect of which it is
permitted and/or shall be permitted by Law to insure the liability of an officeholder. |
Under the Companies Law,
a company may not indemnify, exculpate or insure an office holder against any of the following:
|
|
• |
a breach of the duty of loyalty, except
for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holder acted in good
faith and had a reasonable basis to believe that the act would not prejudice the company; |
|
|
• |
a breach of duty of care committed intentionally
or recklessly, excluding a breach arising out of the negligent conduct of the office holder; |
|
|
• |
an act or omission committed with intent
to derive illegal personal benefit; or |
|
|
• |
a fine, monetary sanction or forfeit levied
against the office holder. |
Under the Companies Law,
exculpation, indemnification and insurance of office holders must be approved by the compensation committee and the board of directors
and, with respect to directors or controlling shareholders, their relatives and third parties in which controlling shareholders have a
personal interest, also by the shareholders.
Our articles of association
permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by law. Our office
holders are currently covered by a directors’ and officers’ liability insurance policy. As of the date of this annual report,
no claims for directors’ and officers’ liability insurance have been filed under this policy and we are not aware of any pending
or threatened litigation or proceeding involving any of our office holders, including our directors, in which indemnification is sought.
D. Employees
As of December 31, 2022,
we had 49 employees based at our office and laboratory in Rehovot, Israel and Peace of Meat employed 32 employees based at its office
and laboratory in Antwerp, Belgium. On March 7, 2023, we announced a strategic restructuring for Peace of Meat, including targeted layoffs
in areas of the business that were unrelated to its updated focus, and on April 4, 2023, we announced the expected liquidation of Peace
of Meat, as a result of which it will no longer employ employees.
Local labor laws govern
the length of the workday and workweek, minimum wages for employees, procedures for hiring and dismissing employees, determination of
severance pay, annual leave, sick days, advance notice of termination, Social Security payments or regional equivalents, and other conditions
of employment and include equal opportunity and anti-discrimination laws. None of our employees is party to any collective bargaining
agreements. We generally provide our employees with benefits and working conditions beyond the required minimums. We believe we have a
good relationship with our employees, and have never experienced any employment-related work stoppages.
E. Beneficial Ownership
of Executive Officers and Directors
The beneficial ownership
of our ordinary shares (including ordinary shares represented by ADSs) is determined in accordance with the rules of the SEC. Under these
rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to
vote or to direct the voting of the security, or investment power, which includes the power to dispose of or to direct the disposition
of the security. For purposes of the table below, we deem ordinary shares issuable pursuant to options or warrants that are currently
exercisable or exercisable within 60 days of the date of this Annual Report on Form 20-F, if any, to be outstanding and to be beneficially
owned by the person holding the options or warrants for the purposes of computing the percentage ownership of that person, but we do not
treat them as outstanding for the purpose of computing the percentage ownership of any other person.
Unless otherwise noted
below, each shareholder’s address is c/o Steakholder Foods Ltd., 5 David Fikes St., Rehovot 7638205, Israel.
| |
|
Shares Beneficially Owned |
|
|
Name of Beneficial Owner |
|
Number |
|
|
Percentage(1)
|
|
|
Directors and executive
officers |
|
|
|
|
|
|
|
Arik Kaufman(2)
|
|
|
491,600 |
|
|
|
* |
|
|
Guy Hefer(3)
|
|
|
333,330 |
|
|
|
* |
|
|
Dan Kozlovski(4)
|
|
|
133,340 |
|
|
|
* |
|
|
Yaron Kaiser(5)
|
|
|
3,003,610 |
|
|
|
1.7 |
% |
|
David Gerbi(6)
|
|
|
218,510 |
|
|
|
* |
|
|
Eli Arad(7)
|
|
|
167,010 |
|
|
|
* |
|
|
Sari Singer(8)
|
|
|
168,460 |
|
|
|
* |
|
|
All directors and executive
officers as a group (7 persons) |
|
|
4,515,860 |
|
|
|
2.6 |
% |
| * |
Less than one percent (1%). |
| (1) |
Based on 172,071,117 Ordinary Shares outstanding as of March
22, 2023. |
| (2) |
Consists of 283,270 Ordinary Shares and options to purchase
208,330 Ordinary Shares exercisable within 60 days of the date of this annual report, with an exercise price of $0.519. These options
expire on March 16, 2026. |
| (3) |
Consists of options to purchase 187,500 Ordinary Shares exercisable
within 60 days of the date of this annual report, with an exercise price of NIS 3.49 ($0.96), expiring on March 24, 2025, and options
to purchase 145,830 Ordinary Shares exercisable within 60 days of the date of this annual report, with an exercise price of $0.716, expiring
on July 20, 2025. |
| (4) |
Consists of options to purchase 133,340 Ordinary Shares exercisable
within 60 days of the date of this annual report, with an exercise price of NIS 1.90 ($0.52). These options expire on August 5, 2024.
|
| (5) |
Consists of 1,435,280 Ordinary Shares based on information
provided to us by Mr. Kaiser, options to purchase 116,660 Ordinary Shares exercisable within 60 days of the date of this annual report,
with an exercise price of $0.519, expiring on March 16, 2026, restricted share units vesting into 111,670 Ordinary Shares within 60 days
of the date of this annual report, and performance share units that may vest into 1,340,000 Ordinary Shares within 60 days of this annual
report if their associated performance targets are met during such period. |
| (6) |
Consists of 96,450 Ordinary Shares, RSUs vesting into 7,490
Ordinary Shares within 60 days of the date of this annual report and options to purchase 114,570 Ordinary Shares within 60 days of the
date of this annual report with an exercise price of $0.716. These options expire on July 20, 2025. |
| (7) |
Consists of 44,950 Ordinary Shares, RSUs vesting into 7,490
Ordinary Shares within 60 days of the date of this annual report and options to purchase 114,570 Ordinary Shares within 60 days of the
date of this annual report with an exercise price of $0.716. These options expire on July 20, 2025. |
| (8) |
Consists of 44,910 Ordinary Shares, RSUs vesting into 8,980 Ordinary Shares within 60 days of the date of this annual report and
options to purchase 114,570 Ordinary Shares within 60 days of the date of this annual report with an exercise price of $0.716. These options
expire on July 20, 2025. |
F. Action to Recover
Erroneously Awarded Compensation
Not applicable.
| |
ITEM 7.
|
MAJOR SHAREHOLDERS AND
RELATED PARTY TRANSACTIONS |
A. Major Shareholders
The following table sets
forth certain information regarding the beneficial ownership of our outstanding ordinary shares, including ordinary shares represented
by ADSs, as of the date of this Annual Report on Form 20-F, by each person or entity who we know beneficially owns 5% or more of the outstanding
ordinary shares. For purposes of the table below, we deem ordinary shares issuable pursuant to options or warrants that are currently
exercisable or exercisable within 60 days of the date of this Annual Report on Form 20-F, if any, to be outstanding and to be beneficially
owned by the person holding the options or warrants for the purposes of computing the percentage ownership of that person, but we do not
treat them as outstanding for the purpose of computing the percentage ownership of any other person.
None of our shareholders
have different voting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a
change of control of our company.
As of the date of this
Annual Report on Form 20-F, there are five shareholders of record of our ordinary shares, of whom two are in the United States. The number
of record holders is not representative of the number of beneficial holders of our ordinary shares, as most of the shares we have issued,
including those represented by ADSs are currently recorded in the name of our ADS registrar, The Bank of New York Mellon. Based upon a
review of the information provided to us by The Bank of New York Mellon, as of March 1, 2023, there were 25 holders of record of the ADSs
on record with the Depository Trust Company. These numbers are not representative of the number of beneficial holders of our ADSs nor
is it representative of where such beneficial holders reside, since many of these ADSs were held of record by brokers or other nominees.
| |
|
Ordinary Shares Beneficially
Owned |
|
|
Name of Beneficial Owner
|
|
Number |
|
|
Percentage |
|
|
5%
or greater shareholders |
|
|
|
|
|
|
|
Shimon Cohen
|
|
|
12,175,320 |
|
|
|
7.1 |
% |
(1) Based
on 172,071,117 Ordinary Shares outstanding as of March 22, 2023.
(2)
This information is based solely on a Schedule 13D filed with the SEC on September
22, 2022, pursuant to which Shimon Cohen reported that he is the direct and beneficial owner of 12,175,320 Ordinary Shares, which
represents (i) 305,616 ADSs held by Mr. Cohen in his individual capacity and (ii) 437,245 ADSs, 222,068 ADSs and 252,603 ADSs held indirectly
by Mr. Cohen through S.C. Ma’agarei Enosh Ltd., Reshet Bitachon Ltd. and Ma’agarim Proyektim Ltd., respectively, each of which
Mr. Cohen is the sole owner, manager and shareholder. The address for Shimon Cohen is 20 Derech HaShalom, Tel Aviv, 61250 Israel.
B. Related Party Transactions
The following is a description
of the material transactions we entered into with related parties since the beginning of 2020. We believe that we have executed all of
our transactions with related parties on terms no less favorable to us than those we could have obtained from unaffiliated third parties.
Our Board of Directors,
acting through our Audit Committee, is responsible for the review, approval, or ratification of related party transactions between us
and related persons. Under Israeli law, related party transactions are subject to special approval requirements, see “Management
— Fiduciary duties and approval of specified related party transactions and compensation under Israeli law.”
Employment
Agreements and Director Fees
We have entered into
written employment agreements with each of our executive officers, which provide for notice periods of varying duration for termination
of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive base salary
and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment
of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law. See “Risk factors
- Risks relating to our operations - Under applicable employment laws, we may not be able to enforce covenants not to compete” for
a further description of the enforceability of non-competition clauses. For further information, see “Management - Employment and
Consulting Agreements.”
Directors
and Officers Insurance Policy and Indemnification and Exculpation Agreements
In accordance with our
articles of association, we have obtained Directors and Officers insurance for our executive officers and directors, and provide indemnification,
exculpation and exemption undertakings to each of our directors and officers to the fullest extent permitted by the Companies Law.
Private
Issuances of Securities
In January 2020, following
the closing of the merger between MeaTech and Ophectra, we issued former shareholders of Steakholder Innovations warrants to receive ordinary
shares, including to the following then-related parties: (1) warrants to receive 1,036,098 ordinary shares each to Sharon Fima, then our
Chief Executive Officer and Chief Technical Officer, and Omri Schanin, then our Deputy Chief Executive Officer; and (2) warrants to receive
1,291,158 ordinary shares to Liran Damati, then a substantial shareholder. The warrants had no exercise price and vested upon the achievement
of pre-defined milestones in 2020 and 2021.
In May 2020, pursuant
to approvals of our audit committee, board of directors and a general meeting of our shareholders: (1) we issued 1,043,846 ordinary shares
and options to purchase 6,030,286 ordinary shares at an exercise price of NIS 3.36 (approximately $0.92) per share in return for a private
investment of $750,000 by EL Capital Investments LLC, a company controlled by Mr. Steven Lavin, who was concurrently appointed to our
board of directors as its chairman; and (2) we issued options to purchase 1,967,327 ordinary shares at an exercise price of NIS 2.49 (approximately
$0.68) per share and options to purchase 1,967,328 ordinary shares at an exercise price of NIS 3.486 (approximately $0.96) to Silver Road
Capital Ltd., the majority of whose shares were owned by directors at the time, Mr. Steven Lavin and Mr. Daniel Ayalon.
Engagement
with BlueSoundWaves
On October 6, 2021, we
entered into a services and collaboration agreement, or the Services and Collaboration Agreement, with BlueOcean Sustainability Fund,
LLC, or BlueSoundWaves, pursuant to which BlueSoundWaves provides us with marketing and promotional services, strategic consulting advice,
and partner and investor engagement services in the United States. As consideration for such services, BlueSoundWaves received (i) an
option to purchase 6,215,770 ordinary shares, currently equal to 621,577 ADSs, and (ii) 1,243,150 of our ordinary restricted shares, currently
equal to 124,315 ADSs.
BlueOcean Sustainability
Management Fund LP, a Cayman partnership, and the managing partner of BlueSoundWaves holds all of the outstanding share capital of BlueOcean
Kayomot Ltd., an Israeli company. Messrs. Kaufman and Kaiser are directors of BlueOcean Kayomot Ltd. and founding partners of BlueSoundWaves.
Mr. Kaufman also serves as the chief executive officer of BlueOcean Kayomot Ltd. See Item 10.C for additional discussion of the Services
and Collaboration Agreement.
C.
Interests of Experts and Counsel
Not applicable.
| |
ITEM 8. |
FINANCIAL INFORMATION |
A. Consolidated Statements
and other Financial Information
See “Item 18.—Financial
Statements” in this Annual Report on Form 20-F.
Legal
Proceedings
From time to time, we
may be party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not
currently involved in any legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects,
financial condition or results of operations.
Dividend
Distributions
We have never declared
or paid cash dividends to our shareholders. Currently we do not intend to pay cash dividends. We currently intend to reinvest any future
earnings in developing and expanding our business. Any future determination relating to our dividend policy will be at the discretion
of our Board of Directors and will depend on a number of factors, including future earnings, our financial condition, operating results,
contractual restrictions, capital requirements, business prospects, applicable Israeli law and other factors our Board of Directors may
deem relevant.
B. Significant Changes
Since December 31, 2022,
the following significant changes have occurred:
Fundraising
Round
On January 9, 2023, we consummated an underwritten public offering of 1,550,000 American
Depositary Shares (“ADSs”) at a price of $1.00 per ADS and pre-funded warrants to purchase 4,950,000 ADSs at a purchase price
of $0.9999 per warrant and an exercise price of $0.0001 per warrant, for total immediate gross proceeds of approximately $6.5 million.
As part of the offering, we issued warrants to purchase 6,500,000 ADSs, exercisable immediately for a period of five years, with an exercise
price of $1.00 per ADS. Underwriting discounts and other offering expenses totaled approximately $0.7 million. In addition, we granted
the underwriters a 45-day option to purchase up to an additional 975,000 ADSs and/or warrants at the public offering price, less discounts
and commissions, solely to cover over-allotments, if any, which was not exercised.
In connection with the
offering, we entered into an agreement with an existing investor to reduce the exercise price of outstanding warrants to purchase up to
1,857,143 ADS which were issued in our July 2022 registered direct offering (the “Prior Warrants”) from $3.50 per ADS to $1.00
per ADS, and to extend the term of the Prior Warrants until January 10, 2028.
Appointment
of Chief Financial Officer
On March 2, 2023, we announced that our Vice President of Finance, Mr. Eitan Noah, will
be assuming the position of Chief Financial Officer, as our current Chief Financial Officer, Guy Hefer, has decided to step down
from his role for personal reasons, all effective April 5, 2023.
Eitan Noah, B.A., CPA,
has been our Vice President of Finance since January 2021. He is an integral member of our finance team, demonstrating exceptional leadership
and financial acumen during his tenure, with a deep understanding of our operations, financials, and strategic priorities. Before joining
us, Mr. Noah was Director of Finance at Inception XR, Inc., and Controller and FP&A Manager at Fluence Corp. Ltd. Prior to that, he
was a senior associate at PwC Israel. He holds a Bachelor’s degree in Economics from the Ben-Gurion University of the Negev, Israel,
and is a certified practicing accountant in Israel.
| |
ITEM 9. |
THE OFFER AND LISTING |
A. Offer and Listing
Details
ADSs
The ADSs, representing
our ordinary shares, traded on Nasdaq under the symbol “MITC” between March 12, 2021 and August 2, 2022, and have traded under
the symbol “STKH” since then.
Ordinary
Shares
Our ordinary shares were
traded on the TASE between January 26, 2020 and August 3, 2021, when we voluntarily de-listed them from trade on the TASE. Our ordinary
shares were traded under the symbol “MEAT” until March 2021, and thereafter under the symbol “MITC.” Some of our
ordinary shares are traded over the counter under the symbol MTTCF.
B. Plan of Distribution
Not applicable.
C. Markets
For a description of
our publicly-traded ADSs, see “Item 9.— Offer and Listing Details —ADSs.” For a description of our ordinary shares,
see “Item 9.— Offer and Listing Details —Ordinary Shares.”
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.
B. Articles of Association
The information set forth
in our prospectus dated January 9, 2023, filed with the SEC pursuant to Rule 424(b), under the headings “Description of Share Capital”
is incorporated herein by reference.
C. Material Contracts
On October 6, 2021, we
entered into the Services and Collaboration Agreement with BlueSoundWaves, a sustainability focused fund led by led by Ashton Kutcher,
Guy Oseary and Effie Epstein. Pursuant to the Services and Collaboration Agreement, BlueSoundWaves provides us marketing and promotional
services, strategic consulting advice, and partner and investor engagement services in the United States.
As consideration for
such services, BlueSoundWaves received (i) an option to purchase 6,215,770 ordinary shares, currently equal to 621,577 ADSs, and (ii)
1,243,150 of our ordinary restricted shares, currently equal to 124,315 ADSs. The exercise price per ordinary share of the ordinary share
option and restricted ordinary share option is the greater of (a) the closing price per ADS on October 5, 2021 ($6.65) divided by the
number of ordinary shares represented by the ADS and (b) the closing price per ADS on the day prior to the exercise of the options less
a discount ranging from 25% to 75% depending on how much higher the exercise price is compared to the price determined under subsection
(a) of this paragraph. The options granted pursuant to this agreement will vest over a three-year period, with one-third vesting on the
first anniversary of the Services and Collaboration Agreement with the remaining amount vesting in equal quarterly installments for the
remaining period. If either party provides notice to terminate the agreement, the quarterly vesting will be cancelled. A percentage of
the options described above will immediately vest and be exercisable upon the occurrence of certain trading milestones, investment milestones
or change of control event. We have also agreed to reimburse BlueSoundWaves its reasonable out of pocket expenses which have been previously
approved.
The Services and Collaboration
Agreement will remain in effect until terminated in accordance with its terms. Each party has the right to terminate upon 60 days prior
written notice after the 12-month anniversary of the effective date. Either party may also terminate the Services and Collaboration Agreement
upon the occurrence of a material breach which remains uncured 30 days after the breaching party has received notice of the breach. Any
portion of the vested options to purchase ordinary shares or restricted ordinary shares will expire on the second anniversary of the termination
of the Services and Collaboration Agreement, or otherwise expire on the 10th anniversary.
For other agreements
with related parties, see “Item 7.—Major Shareholders and Related Party Transactions—Related Party Transactions.”
D. Exchange Controls
Non-residents of Israel
who purchase our ordinary shares outside of Israel with U.S. dollars or other foreign currency will be able to convert dividends (if any)
thereon, and any amounts payable upon the dissolution, liquidation or winding up of the affairs of the Company, as well as the proceeds
of any sale in Israel of the ordinary shares to an Israeli resident, into freely repatriable dollars, at a rate of exchange prevailing
at the time of conversion, pursuant to regulations issued under the Currency Control Law, 1978, provided that Israeli income tax has been
withheld by the Company with respect to such amounts.
E. Taxation
The following description
is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of our
ordinary shares or ADSs. 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.
Israeli
tax considerations and government programs
The following is a summary
of the current tax regime in the State of Israel, which applies to us and to persons who hold our ordinary shares or ADSs.
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 traders in securities
or persons who do not hold our ordinary shares or ADSs as a capital asset. Some parts of this discussion are based on a new tax legislation
which has not been subject to judicial or administrative interpretation. The discussion should not be construed as legal or professional
tax advice and does not cover all possible tax considerations.
HOLDERS AND 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 OR ADSs, INCLUDING, IN PARTICULAR, THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAXES.
General
corporate tax structure in Israel
Israeli resident companies
are generally subject to corporate tax on both ordinary income and capital gains, currently at the rate of 23% of a company’s taxable
income. Capital gains derived by an Israeli resident company are subject to tax at the prevailing corporate tax rate.
Taxation
of our shareholders
Capital
gains
Capital gains tax is
generally imposed on the disposal of capital assets by an Israeli resident, and on the disposal of capital assets by a non-Israeli resident
if those assets (i) are located in Israel, (ii) are shares or a right to shares in an Israeli resident corporation, (iii) represent, directly
or indirectly, rights to assets located in Israel, or (iv) a right in a foreign resident corporation, which in its essence is the owner
of a direct or indirect right to property located in Israel (with respect to the portion of the gain attributed to the property 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. The ITO distinguishes between “Real Capital Gain” and “Inflationary Surplus.” Real Capital
Gain is the excess of the total capital gain over Inflationary Surplus. The Inflationary Surplus is a portion of the total capital gain
which is equivalent to the increase of the relevant asset’s price that is attributable to the 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 sale. Inflationary
Surplus is not currently subject to tax in Israel.
Real Capital Gain accrued
by individuals on the sale of our ordinary shares or ADSs will be taxed at the rate of 25%. However, if the individual shareholder is
a “Substantial Shareholder” (i.e., a person who holds, directly or indirectly, alone
or together with another, 10% or more of one of the Israeli resident company’s means of control) at the time of sale or at any time
during the preceding 12-month period, such gain will be taxed at the rate of 30%.
Individual and corporate
shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income in 2022, a tax rate of 23% for corporations
and a marginal tax rate of up to 47% for individuals, unless contrary provisions in a relevant tax treaty applies. In addition, a 3% excess
tax (as discussed below) is levied on individuals whose total taxable income in Israel in 2022 exceeded NIS 663,240.
Notwithstanding the foregoing,
generally, capital gain derived from the sale of our ordinary shares or ADSs by a shareholder who is a non-Israeli resident (whether an
individual or a corporation) should be exempt from Israeli capital gain tax, provided, among others, that:(i) the ordinary shares or ADSs
were purchased upon or after the listing of the securities on the stock exchange, and (ii) the seller does not have a permanent establishment
in Israel to which the derived capital gain is attributable. However, non-Israeli entities (including corporations) will not be entitled
to the foregoing exemption if Israeli residents, whether directly or indirectly: (i) have a controlling interest of more than 25% in such
non-Israeli entity or (ii) are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such non-Israeli entity.
In addition, such exemption is not applicable to a person whose gains from selling or otherwise disposing of the shares or ADSs are deemed
to be business income. In addition, the sale of ordinary shares or ADSs may be exempt from Israeli capital gains tax under the provisions
of an applicable tax treaty. For example, the U.S.-Israel Tax Treaty, or the Treaty, generally exempts U.S. residents (for purposes of
the U.S.-Israel Treaty) holding the shares as a capital asset from Israeli capital gains tax in connection with such sale, exchange or
disposition unless either (i) the U.S. treaty resident owns, directly or indirectly, 10% or more of the Israeli resident company’s
voting rights at any time within the 12-month period preceding such sale, exchange or disposition; (ii) the seller, if an individual,
has been present in Israel for a period or periods aggregating to 183 days or more during the relevant taxable year; (iii) the capital
gain from the sale, exchange or disposition was derived through a permanent establishment of the U.S. resident in Israel; (iv) the capital
gain arising from such sale, exchange or disposition is attributed to real estate located in Israel, or (v) the capital gains arising
from such sale, exchange or disposition is attributed to royalties. In any such case, the sale, exchange or disposition of such
shares or ADSs would be subject to Israeli tax, to the extent applicable; however, under the U.S.-Israel Treaty, a U.S. resident would
be permitted to claim a credit for the Israeli tax against the U.S. federal income tax imposed with respect to the sale, exchange or disposition,
subject to the limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel Treaty does not provide such credit against
any U.S. state or local taxes.
In some instances where
our shareholders may be liable for Israeli tax on the sale of their shares or ADSs, the payment of the consideration may be subject to
withholding tax at source in Israel. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains
in order to avoid withholding tax 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 Israel 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 Israel Tax Authority
to confirm their status as non-Israeli residents, and, in the absence of such declarations or exemptions, may require the purchaser of
the shares to withhold tax at source.
Upon the sale of securities
traded on a stock exchange, a detailed return, including a computation of the tax due, must be filed and an advance payment must be made
on January 31 and July 31 of every tax year, in respect of sales of securities made within the previous six months by Israeli residents
for whom tax has not already been deducted. However, if all tax due was withheld at source according to applicable provisions of the ITO
and the regulations promulgated thereunder, there is no need to file a return and no advance payment must be paid, provided that (i) such
income was not generated from 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 an advance payment does not need to be made, and (iii) the
taxpayer is not obligated to pay excess tax (as further explained below). Capital gains are also reportable on the annual income tax return.
Dividends
Israeli residents who
are individuals are generally subject to Israeli income tax for dividends paid (other than bonus shares or share dividends) at 25%, or
30% if the recipient of such dividend is a Substantial Shareholder, as defined above, at the time of distribution or at any time during
the preceding 12-month period. Israeli resident corporations are generally exempt from Israeli corporate tax on the receipt of dividends
paid on shares of Israeli resident corporations.
Non-Israeli residents
(whether individuals or corporations) are generally subject to Israeli income tax on the receipt of dividends paid on ordinary shares
at the rate of 25% or 30% (if the dividend recipient is a Substantial Shareholder at the time of distribution or at any time during the
preceding 12-month period). Such dividends are generally subject to Israeli withholding tax at a rate of 25% so long as the shares are
registered with a nominee company (whether the recipient is a Substantial Shareholder or not), unless a reduced rate is provided under
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). Under the U.S.- Israel 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 U.S.-Israel Treaty)
is 25%. However, for dividends not generated by an Approved Enterprise, Benefited Enterprise or Preferred Enterprises (which are benefitted
tax regimes under the Law for Encouragement of Capital Investments-1959) 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 are not entitled to such reduction under such
tax treaty but are subject to withholding tax at the rate of 15% or 20% for such a United States corporate shareholder, 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 U.S.-Israel 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 an 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. U.S. residents (for purposes
of the U.S.-Israel Treaty) who are subject to Israeli withholding tax on a 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. tax law.
A non-Israeli resident
who receives dividends from which tax was withheld is generally exempt from the obligation 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 any such individual is an Israeli resident or non-Israeli resident) are also subject to an additional tax at
a rate of 3% on annual income exceeding NIS 663,240 for 2022 (which amount is linked to the annual change in the Israeli consumer price
index), including, but not limited to, dividends, interest and capital gain.
Estate
and gift tax
Israeli law presently
does not impose estate or gift taxes.
Material United States
federal income tax considerations
The following discussion
describes material United States federal income tax considerations relating to the acquisition, ownership, and disposition of shares or
ADSs by a U.S. Holder (as defined below) that acquires our shares or ADSs and holds them as a capital asset. This discussion is based
on the tax laws of the United States, including the Code, Treasury regulations promulgated or proposed thereunder, and administrative
and judicial interpretations thereof, all as in effect on the date hereof. These tax laws are subject to change, possibly with retroactive
effect, and subject to differing interpretations that could affect the tax consequences described herein. In addition, this section is
based in part upon the representations of the depositary and the assumption that each obligation in the deposit agreement and any related
agreements will be performed in accordance with its terms. This discussion does not address the tax consequences to a U.S. Holder under
the laws of any state, local or foreign taxing jurisdiction.
For purposes of this
discussion, a “U.S. Holder” is a beneficial owner of our shares or ADSs that, for United States federal income tax purposes,
is:
|
• |
an individual who is a citizen or resident of the United States,
|
|
• |
a domestic corporation (or other entity taxable as a corporation);
|
|
• |
an estate the income of which is subject to United States federal
income taxation regardless of its source; or |
|
• |
a trust if (1) a court within the United States is able to
exercise primary supervision over the trust’s administration and one or more United States persons have the authority to control
all substantial decisions of the trust or (2) a valid election under the Treasury regulations is in effect for the trust to be treated
as a United States person. |
A “Non-U.S. Holder”
is a beneficial owner of our ordinary shares that is neither a U.S. Holder nor a partnership (or other entity treated as a partnership
for United States federal income tax purposes).
This discussion does
not address all aspects of United States federal income taxation that may be applicable to U.S. Holders in light of their particular circumstances
or status (including, for example, banks and other financial institutions, insurance companies, broker and dealers in securities or currencies,
traders that have elected to mark securities to market, regulated investment companies, real estate investment trusts, partnerships or
other pass-through entities, corporations that accumulate earnings to avoid U.S. federal income tax, tax-exempt organizations, pension
plans, persons that hold our shares as part of a straddle, hedge or other integrated investment, persons subject to alternative minimum
tax or whose “functional currency” is not the U.S. dollar).
If a partnership (including
any entity or arrangement treated as a partnership for United States federal income tax purposes) holds our shares or ADSs, the tax treatment
of a person treated as a partner in the partnership for United States federal income tax purposes generally will depend on the status
of the partner and the activities of the partnership. Partnerships (and other entities or arrangements so treated for United States federal
income tax purposes) and their partners should consult their own tax advisors.
In general, and taking
into account the earlier assumptions, for United States federal income and Israeli tax purposes, a holder that holds ADRs evidencing ADSs
will be treated as the owner of the shares represented by those ADRs. Exchanges of shares for ADRs, and ADRs for shares, generally will
not be subject to United States federal income or Israeli tax.
This
discussion addresses only U.S. Holders and does not discuss any tax considerations other than United States federal income tax considerations.
Prospective investors are urged to consult their own tax advisors regarding the United States federal, state, and local, and non-United
States tax consequences of the purchase, ownership, and disposition of our shares or ADSs.
We do not expect to make
any distribution with respect to our shares or ADSs. However, if we make any such distribution, under the United States federal income
tax laws, and subject to the passive foreign investment company, or PFIC, rules discussed below, the gross amount of any dividend we pay
out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes) will be includible
in income for a U.S. Holder and subject to United States federal income taxation. Dividends paid to a noncorporate U.S. Holder that constitute
qualified dividend income will be taxable at a preferential tax rate applicable to long-term capital gains of, currently, 20 percent,
provided that the U.S. Holder holds the shares or ADSs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend
date and meets other holding period requirements. If we are treated as a PFIC, dividends paid to a U.S. Holder will not be treated as
qualified dividend income. If we are not treated as a PFIC, dividends we pay with respect to the shares or ADSs generally may be qualified
dividend income, provided that the holding period requirements are satisfied by the U.S. Holder.
A U.S. Holder must include
any Israeli tax withheld from the dividend payment in the gross amount of the dividend even though the holder does not in fact receive
it. The dividend is taxable to the holder when the holder, in the case of shares, or the Depositary, in the case of ADSs, receives the
dividend, actually or constructively. The amount of the dividend distribution includible in a U.S. Holder’s income will be the U.S.
dollar value of the NIS payments made, determined at the spot NIS/U.S. dollar rate on the date the dividend distribution is includible
in income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency
exchange fluctuations during the period from the date the dividend payment is included in income to the date the payment is converted
into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified
dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation
purposes.
Dividends paid with respect
to our ordinary shares or ADSs will be treated as foreign source income, which may be relevant in calculating the holder’s foreign
tax credit limitation. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of
income. For this purpose, dividends that we distribute generally should constitute “passive category income,” or, in the case
of certain U.S. Holders, “general category income.” A foreign tax credit for foreign taxes imposed on distributions may be
denied if holders do not satisfy certain minimum holding period requirements. The rules relating to the determination of the foreign tax
credit are complex, and you should consult your tax advisor to determine whether and to what extent you will be entitled to this credit.
To the extent a distribution
with respect to our shares or ADSs exceeds our current or accumulated earnings and profits, as determined under United States federal
income tax principles, the distribution will be treated, first, as a tax-free return of the U.S. Holder’s investment, up to the
holder’s adjusted tax basis in its shares or ADSs, and, thereafter, as capital gain, which is subject to the tax treatment described
below in “—Gain on Sale, Exchange or Other Taxable Disposition.”
Subject to certain limitations,
the Israeli tax withheld in accordance with the Treaty and paid over to Israel will be creditable or deductible against a U.S. Holder’s
United States federal income tax liability.
Subject to the discussion
below under “Information reporting and backup withholding,” if you are a Non-U.S. Holder, you generally will not
be subject to United States federal income (or withholding) tax on dividends received by you on your ordinary shares, unless you conduct
a trade or business in the United States and such income is effectively connected with that trade or business (or, if required by an applicable
income tax treaty, the dividends are attributable to a permanent establishment or fixed base that such holder maintains in the United
States).
Gain
on sale, exchange or other taxable disposition
Subject to the PFIC rules
described below under “—Passive Foreign Investment Company
Considerations,” a U.S. Holder that sells, exchanges or otherwise disposes of shares or ADSs in a taxable disposition generally
will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the U.S. Dollar value
of the amount realized and the holder’s tax basis, determined in U.S. Dollars, in the shares or ADSs. Gain or loss recognized on
such a sale, exchange or other disposition of shares or ADSs generally will be long-term capital gain if the U.S. Holder’s holding
period in the shares or ADSs exceeds one year. Long-term capital gains of non-corporate U.S. Holders are generally taxed at preferential
rates. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes.
A U.S. Holder’s ability to deduct capital losses is subject to limitations.
Subject to the discussion
below under “Information reporting and backup withholding,” if you are a Non-U.S. Holder, you generally will not be subject
to United States federal income or withholding tax on any gain realized on the sale or exchange of such ordinary shares unless:
|
• |
such gain is effectively connected with your conduct of a trade
or business in the United States (or, if required by an applicable income tax treaty, the gain is attributable to a permanent establishment
or fixed base that such holder maintains in the United States); or |
|
• |
you are an individual and have been present in the United States
for 183 days or more in the taxable year of such sale or exchange and certain other conditions are met. |
For a cash basis taxpayer,
units of foreign currency paid or received are translated into U.S. dollars at the spot rate on the settlement date of the purchase or
sale. In that case, no foreign currency exchange gain or loss will result from currency fluctuations between the trade date and the settlement
date of such a purchase or sale. An accrual basis taxpayer, however, may elect the same treatment required of cash basis taxpayers with
respect to purchases and sales of our ordinary shares that are traded on an established securities market, provided the election is applied
consistently from year to year. Such election may not be changed without the consent of the IRS. An accrual basis taxpayer who does not
make such election may recognize exchange gain or loss based on currency fluctuations between the trade date and the settlement date.
Any foreign currency gain or loss a U.S. Holder realizes will be U.S. source ordinary income or loss.
The determination of
whether the ADSs or ordinary shares are traded on an established securities market is not entirely clear under current U.S. federal income
tax law. Please consult your tax advisor regarding the proper treatment of foreign currency gains or losses with respect to a sale or
other disposition of our ordinary shares.
Passive
foreign investment company considerations
Based on our income and
assets, we believe that we may be treated as a PFIC for the preceding taxable year. However, the determination of our status is made annually
based on the factual tests described below. Consequently, while we may be treated as a PFIC in future years, we cannot estimate with certainty
at this stage whether or not we are likely to be treated as a PFIC for the current or future taxable years. If we were classified as a
PFIC in any taxable year, a U.S. Holder would be subject to special rules with respect to distributions on and sales, exchanges and other
dispositions of the shares or ADSs. We will be treated as a PFIC for any taxable year in which at least 75 percent of our gross income
is “passive income” or at least 50 percent of the average percentage of our assets during the taxable year, assuming we were
not a controlled foreign corporation, or CFC, for the year being tested, based on the average of the fair market values of the assets
determined at the end of each quarterly period, are assets that produce or are held for the production of passive income. Passive income
for this purpose generally includes, among other things, dividends, interest, rents, royalties, gains from commodities and securities
transactions, and gains from assets that produce passive income. However, rents and royalties received from unrelated parties in connection
with the active conduct of a trade or business are not considered passive income for purposes of the PFIC test. In determining whether
we are a PFIC, a pro rata portion of the income and assets of each corporation in which we own, directly or indirectly, at least a 25%
interest (by value) is taken into account.
Excess
distribution rules
If we were a PFIC with
respect to a U.S. Holder, then unless the holder makes one of the elections described below, a special tax regime would apply to the U.S.
Holder with respect to (a) any “excess distribution” (generally, aggregate distributions in any year that are greater than
125% of the average annual distribution received by the holder in the shorter of the three preceding years or the holder’s holding
period for the shares or ADSs) and (b) any gain realized on the sale or other disposition of the shares or ADSs. Under this regime, any
excess distribution and realized gain will be treated as ordinary income and will be subject to tax as if (a) the excess distribution
or gain had been realized ratably over the U.S. Holder’s holding period, (b) the amount deemed realized in each year had been subject
to tax in each year of that holding period at the highest marginal rate for such year (other than income allocated to the current period
or any taxable period before we became a PFIC, which would be subject to tax at the U.S. Holder’s regular ordinary income rate for
the current year and would not be subject to the interest charge discussed below), and (c) the interest charge generally applicable to
underpayments of tax had been imposed on the taxes deemed to have been payable in those years. If we were determined to be a PFIC, this
tax treatment for U.S. Holders would apply also to indirect distributions and gains deemed realized by U.S. Holders in respect of stock
of any of our subsidiaries determined to be PFICs. In addition, dividend distributions would not qualify for the lower rates of taxation
applicable to long-term capital gains discussed above under “Dividends”.
A U.S. Holder that holds
the shares or ADSs at any time during a taxable year in which we are classified as a PFIC generally will continue to treat such shares
or ADSs as shares or ADSs in a PFIC, even if we no longer satisfy the income and asset tests described above, unless the U.S. Holder elects
to recognize gain, which will be taxed under the excess distribution rules as if such shares or ADSs had been sold on the last day of
the last taxable year for which we were a PFIC.
Certain elections by
a U.S. Holder would alleviate some of the adverse consequences of PFIC status and would result in an alternative treatment of the shares
or ADSs, as described below. However, we do not currently intend to provide the information necessary for U.S. Holders to make “QEF
elections,” as described below, and the availability of a “mark-to-market election” with respect to the shares or ADSs
is a factual determination that will depend on the manner and quantity of trading of our shares or ADSs, as described below. A mark-to-market
election cannot be made with respect to the stock of any of our subsidiaries.
QEF
election
If we were a PFIC, the
rules above would not apply to a U.S. Holder that makes an election to treat our shares or ADSs as stock of a “qualified electing
fund” or QEF. A U.S. Holder that makes a QEF election is required to include in income its pro rata share of our ordinary earnings
and net capital gain as ordinary income and long-term capital gain, respectively, subject to a separate election to defer payment of taxes,
which deferral is subject to an interest charge. A U.S. Holder makes a QEF election generally by attaching a completed IRS Form 8621 to
a timely filed United States federal income tax return for the year beginning with which the QEF election is to be effective (taking into
account any extensions). A QEF election can be revoked only with the consent of the IRS. In order for a U.S. Holder to make a valid QEF
election, we must annually provide or make available to the holder certain information. We cannot provide any assurances that we will
provide to U.S. Holders the information required to make a valid QEF election.
Mark-to-market
election
If we were a PFIC, the
rules above also would not apply to a U.S. Holder that makes a “mark-to-market” election with respect to the shares or ADSs,
but this election will be available with respect to the shares or ADSs only if they meet certain minimum trading requirements to be considered
“marketable stock” for purposes of the PFIC rules. In addition, a mark-to-market election generally could not be made with
respect to the stock of any of our subsidiaries unless that stock were itself marketable stock, and the election may therefore be of limited
benefit to a U.S. Holder that wants to avoid the excess distribution rules described above. Shares or ADSs will be marketable stock if
they are regularly traded on a national securities exchange that is registered with the Securities and Exchange Commission or on a non-U.S.
exchange or market that meets certain requirements under the Treasury regulations. Shares or ADSs generally will be considered regularly
traded during any calendar year during which they are traded, other than in de minimis quantities,
on at least 15 days during each calendar quarter. Any trades that have as their principal purpose meeting this requirement will be disregarded.
A U.S. Holder that makes
a valid mark-to-market election for the first tax year in which the holder holds (or is deemed to hold) our shares or ADSs and for which
we are a PFIC will be required to include each year an amount equal to the excess, if any, of the fair market value of such shares or
ADSs the holder owns as of the close of the taxable year over the holder’s adjusted tax basis in such shares or ADSs. The U.S. Holder
will be entitled to a deduction for the excess, if any, of the holder’s adjusted tax basis in the shares or ADSs over the fair market
value of such shares or ADSs as of the close of the taxable year, but only to the extent of any net mark-to-market gains with respect
to such shares or ADSs included by the U.S. Holder under the election for prior taxable years. The U.S. Holder’s basis in such shares
or ADSs will be adjusted to reflect the amounts included or deducted pursuant to the election. Amounts included in income pursuant to
a mark-to-market election, as well as gain on the sale, exchange or other taxable disposition of such shares or ADSs, will be treated
as ordinary income. The deductible portion of any mark-to-market loss, as well as loss on a sale, exchange or other disposition of our
shares or ADSs to the extent that the amount of such loss does not exceed net mark-to-market gains previously included in income, will
be treated as ordinary loss.
The mark-to-market election
applies to the taxable year for which the election is made and all subsequent taxable years, unless the shares cease to be treated as
marketable stock for purposes of the PFIC rules or the IRS consents to its revocation. The excess distribution rules described above generally
will not apply to a U.S. Holder for tax years for which a mark-to-market election is in effect. However, if we were a PFIC for any year
in which the U.S. Holder owns the shares or ADSs but before a mark-to-market election is made, the interest charge rules described above
would apply to any mark-to-market gain recognized in the year the election is made.
PFIC
reporting obligations
A U.S. Holder of PFIC
shares must generally file an annual information return on IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment
Company or Qualified Electing Fund) containing such information as the U.S. Treasury Department may require. The failure to file IRS Form
8621 could result in the imposition of penalties and the extension of the statute of limitations with respect to U.S. federal income tax.
U.S.
Holders are urged to consult their tax advisors as to our status as a PFIC, and the tax consequences to them if we were a PFIC, including
the reporting requirements and the desirability of making, and the availability of, a QEF election or a mark-to-market election with respect
to the shares or ADSs.
Non-corporate U.S. Holders
that are individuals, estates or trusts and whose income exceeds certain thresholds generally are subject to a 3.8% tax on all or a portion
of their net investment income, which may include their gross dividend income and net gains from the disposition of shares or ADSs. A
United States person that is an individual, estate or trust is encouraged to consult its tax advisors regarding the applicability of this
Medicare tax to its income and gains in respect of any investment in our shares or ADSs.
Information
reporting with respect to foreign financial assets
Individual U.S. Holders
may be subject to certain reporting obligations on IRS Form 8938 (Statement of Specified Foreign Financial Asset) with respect to the
shares or ADSs for any taxable year during which the U.S. Holder’s aggregate value of these and certain other “specified foreign
financial assets” exceed a threshold amount that varies with the filing status of the individual. This reporting obligation also
applies to domestic entities formed or availed of to hold, directly or indirectly, specified foreign financial assets, including the shares
or ADSs. Significant penalties can apply if U.S. Holders are required to make this disclosure and fail to do so.
Information
reporting and backup withholding
In general, information
reporting, on IRS Form 1099, will apply to dividends in respect of shares or ADSs and the proceeds from the sale, exchange or redemption
of shares of ADSs that are paid to a holder of shares or ADSs within the United States (and in certain cases, outside the United States),
unless such holder is an exempt recipient such as a corporation. Backup withholding (currently at a 24% rate) may apply to such payments
if a holder of shares or ADSs fails to provide a taxpayer identification number (generally on an IRS Form W-9) or certification of other
exempt status or fails to report in full dividend and interest income.
Backup withholding is
not an additional tax. A U.S. Holder generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed
the U.S. Holder’s income tax liability by filing a refund claim with the Internal Revenue Service.
F. Dividends and Paying
Agents
Not applicable
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to the
information reporting requirements of the Exchange Act applicable to foreign private issuers and under those requirements will file reports
with the SEC. Those reports may be inspected without charge at the locations described below. 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 are 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 periodic reports and financial statements with the SEC as frequently or as
promptly as United States companies whose securities are registered under the Exchange Act.
We maintain a corporate
website at www.steakholderfoods.com. We intend to post our Annual Report on Form 20-F on our website promptly following it being filed
with the SEC. Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report
on Form 20-F. We have included our website address in this Annual Report on Form 20-F solely as an inactive textual reference.
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.
With respect to references
made in this Annual Report on Form 20-F to any contract or other document of Steakholder Foods, such references are not necessarily complete
and you should refer to the exhibits attached or incorporated by reference to this Annual Report on Form 20-F for copies of the actual
contract or document.
I. Subsidiary Information
Not applicable.
J. Annual Report to Security
Holders
Not applicable.
| |
ITEM 11. |
QUANTITATIVE AND QUALITATIVE DISCLOSURE ON MARKET RISK |
For quantitative and
qualitative information regarding our market risk, see “Item 5 — Operating and Financial Review and Prospects — Liquidity
and Capital Resources — Quantitative and Qualitative Disclosures About Market Risk” and Note 23 to our financial statements.
| |
ITEM 12. |
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary
Shares
The Bank of New York
Mellon is the depositary of the ADSs. Each ADS represents ten ordinary shares (or a right to receive ten ordinary shares). Each ADS will
also represent any other securities, cash or other property which may be held by the depositary. The depositary’s office at which
the ADSs are administered and its principal executive office are located at 240 Greenwich Street, New York, New York 10286.
A deposit agreement among
us, the depositary, ADS holders and all other persons indirectly or beneficially holding ADSs sets out ADS holder rights as well as the
rights and obligations of the depositary. New York law governs the deposit agreement and the ADSs. A copy of the deposit agreement was
filed as Exhibit 4.1 to our amended registration statement on Form F-1 filed with the SEC on March 5, 2021 and is incorporated by reference
herein.
Fees and Expenses
Pursuant to the terms
of the deposit agreement, the holders of the ADSs will be required to pay the following fees:
|
Persons depositing or
withdrawing ordinary
shares or ADS holders must pay |
|
For: |
|
$5.00 (or less) per 100 ADSs (or portion
of 100 ADSs) |
|
Issuance of ADSs, including issuances resulting
from a distribution of ordinary shares or rights or other property Cancellation of ADSs for the purpose of withdrawal, including if the
deposit agreement terminates |
|
|
|
|
|
$.05 (or less) per ADS |
|
Any cash distribution to ADS holders
|
|
|
|
|
|
A fee equivalent to the fee that would be
payable if securities distributed to you had been ordinary shares and the ordinary shares had been deposited for issuance of ADSs
|
|
Distribution of securities distributed to
holders of deposited securities (including rights) that are distributed by the depositary to ADS holders |
|
|
|
|
|
$.05 (or less) per ADS per calendar year
|
|
Depositary services |
|
|
|
|
|
Registration or transfer fees |
|
Transfer and registration of ordinary shares
on our share register to or from the name of the depositary or its agent when you deposit or withdraw ordinary shares |
|
|
|
|
|
Expenses of the depositary |
|
Cable, telex and facsimile transmissions
(when expressly provided in the deposit agreement)
Converting foreign currency to U.S. dollars |
|
|
|
|
|
Taxes and other governmental charges the
depositary or the custodian have to pay on any ADSs or ordinary shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding
taxes |
|
As necessary |
|
|
|
|
|
Any charges incurred by the depositary or
its agents for servicing the deposited securities |
|
As necessary |
The depositary collects
its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose of
withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those
fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual
fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system
accounts of participants acting for them. The depositary may collect any of its fees by deduction from any cash distribution payable (or
by selling a portion of securities or other property distributable) to ADS holders that are obligated to pay those fees. The depositary
may generally refuse to provide fee-attracting services until its fees for those services are paid.
From time to time, the
depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance of the
ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders.
In performing its duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency or other service providers
that are owned by or affiliated with the depositary and that may earn or share fees, spreads or commissions.
The depositary may convert
foreign currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as an agent,
fiduciary or broker on behalf of any other person and earns revenue, including, without limitation, fees and spreads that it will retain
for its own account. The revenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion
made under the deposit agreement and the rate that the depositary or its affiliate receives when buying or selling foreign currency for
its own account. The depositary makes no representation that the exchange rate used or obtained in any currency conversion under the deposit
agreement will be the most favorable rate that could be obtained at the time or that the method by which that rate will be determined
will be most favorable to ADS holders, subject to its obligations under the deposit agreement. The methodology used to determine exchange
rates used in currency conversions is available upon request.
PART II
| |
ITEM 13. |
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
Not applicable.
| |
ITEM 14. |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE
OF PROCEEDS |
Initial Public Offering
In March 2021, we sold
2,721,271 ADSs, each representing ten ordinary shares, no par value, in our U.S. initial public offering at a public offering price of
$10.30 per ADS. Gross proceeds, including proceeds generated from the partial exercise of the underwriter’s option to purchase
additional ADSs, were $28 million. Net proceeds to us, after deducting underwriting discounts and commissions and estimated offering expenses
payable by us were approximately $24.7 million. The effective date of the registration statement on Form F-1 (File No. 333-253257) for
our U.S. initial public offering of ADSs was March 11, 2021. The offering closed on March 17, 2021. H.C. Wainwright, Inc. acted as the
sole underwriter in the offering.
The net proceeds from
our initial public offering are held in cash and cash equivalents and we expect they will meet our capital requirements until the fourth
quarter of 2022. We do not currently have any specific commitments or plans for acquisitions; to the extent we do engage in acquisitions,
we will do so after ensuring that we will have sufficient funds available to meet our capital requirements, and such acquisitions are
likely to affect our projected cash needs. None of the net proceeds of our initial public offering were paid directly or indirectly to
any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities,
or to any of our affiliates.
| |
ITEM
15. |
CONTROLS AND PROCEDURES |
|
A. |
Disclosure Controls and Procedures
|
We have performed an
evaluation of the effectiveness of our disclosure controls and procedures that are designed to ensure that the material financial and
non-financial information required to be disclosed to the SEC is recorded, processed, summarized and reported timely. Based on our evaluation,
our management, including our chief executive officer and chief financial officer, has concluded that our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report are effective. Notwithstanding
the foregoing, there can be no assurance that our disclosure controls and procedures will detect or uncover all failures of persons within
the Company to disclose material information otherwise required to be set forth in our reports.
|
B. |
Management’s Annual Report on Internal
Control over Financial Reporting |
Our management is responsible
for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) promulgated
under the Exchange Act. Our internal control system was designed to provide reasonable assurance to our management and board of directors
regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements for external
purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation and 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 policies or procedures may deteriorate.
Our management assessed
our internal control over financial reporting as of December 31, 2022, the end of our fiscal year. Management based its assessment
on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The assessment included evaluation of elements such as the design and operating effectiveness of key financial
reporting controls, process documentation, accounting policies and our overall control environment.
Based on its assessment,
our management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
reporting purposes in accordance with International Financial Reporting Standards. We reviewed the results of our management’s assessment
with the Audit Committee of our Board of Directors.
|
C. |
Attestation Report of the Registered
Public Accounting Firm |
This Annual Report on
Form 20-F does not include an attestation report of the company’s registered public accounting firm as the company is considered
an emerging growth company.
|
D. |
Changes in Internal Control over Financing
Reporting |
There were no changes
in our internal control over financial reporting that occurred during the period covered by this Annual Report on Form 20-F that have
materially affected, or that 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 all members of our audit committee are financially literate as determined in accordance with Nasdaq rules and that
Messrs. Eli Arad and David Gerbi are qualified to serve as “audit committee financial experts” as defined by SEC rules. The
audit committee financial experts are independent directors.
We have adopted a Code
of Business Conduct and Ethics (the “Code of Ethics”) that is applicable to all of our directors, executives and other employees,
and those of our affiliates. A copy of the Code of Conduct is available on our website at www.steakholderfoods.com. Any waivers of the
Code of Ethics for directors and officers require the approval of the audit committee of our board of directors. We expect that any amendments
to the Code of Conduct will be disclosed on our website.
| |
ITEM
16C. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Fees Paid to Independent
Registered Public Accounting Firm
Somekh Chaikin, a member firm of KPMG International, located in Tel Aviv, Israel (PCAOB
ID 1057), has served as our independent registered public accounting firm for 2022 and 2021. Following are Somekh Chaikin’s fees
for professional services in each of the respective fiscal years:
|
|
|
Year ended December 31,
|
|
|
|
|
2022 |
|
|
2021 |
|
|
|
|
USD, in thousands |
|
|
|
|
|
|
|
Audit fees(1)
|
|
|
295 |
|
|
|
336 |
|
|
Tax fees(2)
|
|
|
25 |
|
|
|
3 |
|
|
Total |
|
|
320 |
|
|
|
339 |
|
|
(1) |
Audit fees consist of fees billed or expected
to be billed for the annual audit services engagement and other audit services, which are those services that only the external auditor
can reasonably provide, and include the Company audit; statutory audits; comfort letters and consents; attest services; and assistance
with and review of documents filed with the TASE and SEC. |
|
|
|
|
(2) |
Tax fees include fees billed for tax compliance
services that were rendered during the most recent fiscal year, including the preparation of original and amended tax returns and claims
for refund; tax consultations, such as assistance and representation in connection with tax audits and appeals, tax advice related to
mergers and acquisitions, transfer pricing, and requests for rulings or technical advice from taxing authority; tax planning services;
and expatriate tax planning and services. |
Policy on Audit Committee
Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
Our Audit Committee has
the sole authority to approve the scope of the audit and any audit-related services, as well as all audit fees and terms. The Audit Committee
must pre-approve any audit and non-audit services provided by our independent registered public accounting firm. The Audit Committee will
not approve the engagement of the independent registered public accounting firm to perform any services that the independent registered
public accounting firm would be prohibited from providing under applicable laws, rules and regulations, including those of self-regulating
organizations. The Audit Committee reviews and pre-approves the statutory audit fees that can be provided by the independent registered
public accounting firm on an annual basis.
| |
ITEM 16D.
|
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
Not applicable.
| |
ITEM 16E.
|
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|
Not applicable.
| |
ITEM 16F.
|
CHANGE IN REGISTRANT’S
CERTIFYING ACCOUNTANT |
Not applicable.
| |
ITEM 16G.
|
CORPORATE GOVERNANCE
|
Nasdaq Listing Rules
and Home Country Practices
The Sarbanes-Oxley Act,
as well as related rules subsequently implemented by the SEC, requires foreign private issuers, such as us, to comply with various corporate
governance practices. As a foreign private issuer, we are permitted to follow certain Israeli corporate governance practices instead of
Nasdaq rules, provided that we disclose which requirements we are not following and the equivalent Israeli requirements. 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:
|
• |
Quorum. As permitted
under the Companies Law, pursuant to our articles of association, the quorum required for an ordinary meeting of shareholders consists
of at least two shareholders present in person or by proxy who hold or represent between them at least 25% of the voting power of our
shares (and, with respect to an adjourned meeting, generally one or more shareholders who hold or represent any number of shares), instead
of 33 1/3% of the issued share capital provided under Nasdaq Listing Rule 5260(c). |
|
• |
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: (a) the securities
issued amount to 20% or more of our outstanding voting rights before the issuance; (b) some or all of the consideration is other than
cash or listed securities or the transaction is not on market terms; and (c) 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. |
|
• |
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. |
| |
ITEM 16H.
|
MINE SAFETY DISCLOSURE |
Not applicable.
| |
ITEM 16I. |
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
Not applicable.
PART
III
| |
ITEM 17. |
FINANCIAL STATEMENTS |
The Registrant has responded
to Item 18 in lieu of responding to this Item.
| |
ITEM 18.
|
FINANCIAL STATEMENTS |
See the financial statements
beginning on page F-1. The following financial statements and financial statement schedules are filed as part of this Annual Report on
Form 20-F together with the report of the independent registered public accounting firm.