We were founded in 2016 by veterans of Unit 81, the elite technology unit of Israel’s Intelligence Corps, one of the most prestigious multidisciplinary technological units in the Israeli Defense Forces.IDF. From our founding, our culture drew from Unit 81’s core values of solving sophisticated technological problems through creativity and agile thinking. We have relied on these values to address the needs of autonomous vehicles in a manner that strikes the desired balance between performance and cost. We created a new type of LiDAR sensor from the chip-level up, including a suite of powerful and sophisticated software applications for high-performance computer vision to allow superior perception. Our multidisciplinary team developed an operational MEMS-based (Micro-Electro-Mechanical System) LiDAR prototype, which attracted the attention of leading Tier-1 companies such as Magna and Aptiv PLC as early as 2017. This was followed by a further intensive development and qualification stage, which culminated with our company achieving a design win with BMW fromin 2018 to power BMW’s Level 3 autonomous platform.
During 2022, we made the major strategic decision to become a Tier-1 direct supplier of LiDAR to the automotive industry. This decision allows us to have direct technical discussions with customers and to improve pricing to automotive OEMs with the goal of continuing to strengthen our position in the automotive market. This strategic decision has already played a significant role in our major OEM program wins since, as discussed below.
In 2022, following more than two years of extensive diligence and qualification, we were selected by Volkswagen as its direct LiDAR supplier for automated vehicles within the Volkswagen brands with our InnovizTwo next generation high-performance automotive-grade LiDAR sensor. Later in 2022, an Asia-based automotive OEM selected us to serve as its direct LiDAR supplier for series production passenger vehicles. BMW and Volkswagen are leaders in deploying new technologies into the automotive industry and the Asian-based automotive OEM is an emerging EV manufacturer using its platform for advanced technologies.industry. We believe that our close cooperation with these OEMs uniquely positions us to make Level 3 autonomous driving a commercial reality.
In 2023, we announced that Volkswagen aims to expand its use of our InnovizTwo LiDAR to its existing light commercial vehicle program. In addition, we announced that we were beginning a B-sample development phase on a new generation of LiDAR for BMW Group. Under the development agreement, we developed B-samples based on our second generation InnovizTwo LiDAR sensor.
The sustained cooperation with our customers provides our engineers and other research and development personnel with a valuable competitive edge. These engineers and other research and development personnel have been meticulously trained to design, operate and verify our many ground-breaking innovations in accordance and in compliance with the rigorous ISO26262 standard for Functional Safety in the automotive industry. Compliance with this and other standards have been enforced by regular ongoing audits of Innoviz and rigorous testing by our key suppliers, existing customers and prospective customers that thoroughly review the performance of various elements of our operations. As a result, our products have been constructed from the bottom up with hardware and software technology that meets the most stringent automotive safety, quality, environmental, manufacturing, and other standards.
Our innovation has produced LiDAR solutions that deliver market leading performance and that meet the current demanding safety requirements for Level 2+ through Level 5 autonomous vehicles at price points suitable for mass produced passenger vehicles. Our integrated custom design of advanced hardware and software components, which leverages the multidisciplinary expertise and experience of our team, enables us to provide turn-key autonomous solutions that are likely to accelerate widespread adoption across automakers at serial production scale.
Our robust software suite enables our ~905nm wavelength laser-based LiDAR architecture to be easily leveraged to provide compelling solutions for Level 2+ through Level 5.4 (and Level 5 when applicable). This means that we are positioned to penetrate the current market, which is currently characterized mainly byfocused primarily on Level 2+ production,(with some Level 3 production), and to continue to capture and extend our market share to LevelLevels 3 and above,through 5 as the market continues to mature.
We are currently expanding our third-party manufacturing capacity through contract manufacturers to meet an anticipated increase in customer demand for our products, while also further developing a next generation high-performance automotive-grade LiDAR sensor, the InnovizTwo, that is expected to provide further cost efficiencies, while enabling even higher performance solutions for vehicles offering driving automations levels of Level 2+ and above.
In addition, during 2022 Innoviz made the major strategic decision to become a Tier-1 supplier to the automotive industry. This will allow Innoviz to have direct technical discussions with end-customers and to improve pricing to automotive OEMs with the goal of strengthening Innoviz’s position in the automotive market. This new strategic decision has already played a significant role in two of Innoviz’s major OEM program wins, one in Europe and one in Asia.
Geographically, the substantial majority of our revenue is generated from customers in Europe and North America. As we continue to grow, we expect to generate additional revenue from existing and other geographic areas and the geographic mix of our revenue could therefore change over time.
Business Combination
On December 10, 2020, Innovizwe entered into the Business Combination Agreement with Collective Growth, Perception, Antara Capital and Merger Sub. Pursuant to the Business Combination Agreement, Merger Sub merged with and into Collective Growth, with Collective Growth surviving the merger. Upon consummation of the Business Combination and the other transactions contemplated by the Business Combination Agreement on April 5, 2021, Collective Growth became a wholly owned subsidiary of Innoviz.
Key Factors Affecting Innoviz’s Operating Results
Innoviz believesWe believe that itsour future performance and success depends to a substantial extent on the following factors, each of which is in turn subject to significant risks and challenges, including those discussed below and in the section of this Annual Report entitled Item 3.D. “Key Information—Risk Factors.”
Market Adoption
We believe that widespread adoption of LiDAR across applications for autonomy is approaching and that we are well-positioned in both automotive and nonautomotive markets to take advantage of this opportunity. Nevertheless, automotive OEMs and their suppliers are just beginning to commercialize autonomous systems that rely on LiDAR technology. Accordingly, we expect the rate of actual adoption and commercialization of LiDAR-based solutions by automotive OEMs and their suppliers to impact our results of operations, including revenue and gross margins, for the foreseeable future. Given the significance of the jump from Level 2 to Level 3, the Level 2+ segmentfocus of the consumer automotive market is expectedon Level 3 and Level 2+ segments, we expect these verticals to grow significantly over the short to medium term, and we are aligning our focus ourand efforts on this segment,these segments, specifically via our InnovizTwo product.
We believe that InnovizTwo will drive significant revenue growth in the near to medium term. We also believe that market penetration of InnovizTwo will drive revenues in the Level 3 segment of the market. This is because the architecture of our products, which feature agile configuration of multiple components, allow us to offer different product configurations based on the same hardware with only software modification. Accordingly, we can address multiple market needs and niches without the need to develop several hardware configurations. Therefore, our LiDAR solution enables upgrade from Level 2+ to Level 3 through a vehicle software update without changes to the hardware components or the need of new hardware.
We also target markets such as robotaxis, shuttles, delivery vehicles and trucking, as well as other industries, including drones, robotics, logistics, smart cities, agriculture, industrial, construction, security, and mapping.trucks. We believe that LiDAR-based solutions in these emerging markets are still in the pre-commercial development stage and, as a result, our future success also depends on customers in these industries adopting and bringing these solutions to commercial scale.
Design Wins
Our solutions are designed to be a key enabling technology for OEMs in automotive and other applications. Because our solutions must be integrated into a broader platform by the OEM, it is critical that we achieve design wins with these customers. The time necessary to achieve design wins varies based on the market and application. The design cycle in the automotive market tends to be substantially longer and more onerous than in other markets. Even within the automotive market, achieving a design win with an automotive OEM takes considerably longer than a design cycle for an aftermarket application. We consider design wins to be critical to our future success, although the revenue generated by each design win (if any) and the time necessary to achieve such a win can vary significantly making it difficult to predict our financial performance.
Product Cost and Margins
Our results of operations will depend on our ability to leverage the fixed costs involved in production of our current products and our ability to improve gross margins on the basis of volume and manufacturing efficiencies.
InnovizTwo is based on an improved design, which allows: (i) lower bill of materials, and (ii) more efficient manufacturing process, which together may allow for a significant cost reduction and improved gross margins.
Continued Investment and Innovation
Our unique LiDAR and perception solutions that feature technological breakthroughs across core components and allow us to act as a leading supplier in a competitive market. We believe that our financial performance is significantly dependent on our ability to maintain this position. This in turn will depend on our future research and development investments and our ability to attract and retain highly qualified and experienced research and development personnel. These are necessary to both continue the work required to bring InnovizOne, InnovizTwo, Innoviz360on our current products and future products to full commercialization, and also to identify and respond to rapidly evolving customer requirements, develop and introduce innovative new products and enhance and service existing products. Failure to do this could adversely affect our market position and our revenue, and our research and development investments may not be recovered.
Components of Results of Operations
Revenues
Our revenues derive primarily from sales of LiDAR sensors, and critical components and NRE to customers.
Revenue from LiDAR sensors and critical components is recognized at a point in time when the control of the goods is transferred to the customer, generally upon delivery.
We also provide application engineering services to our customers that are not part of a long-term production arrangement. Application engineering services revenue is recognized at a point in time or over time depending, among other considerations, on whether we have an enforceable right to payment for performance completed to date. ServicesNRE to certain customers may require substantive customer acceptance due to performance acceptance criteria that is considered more than a formality. For these services, revenue is recognized at a point in time upon customer acceptance. We did not recognize revenue related to application engineering services duringDuring the years ended December 31, 2023 and 2022, we recognized revenue related to NRE in the amount of $15.2 million and 2021 as acceptance criteria were not met.
$0, respectively.
Cost of Revenues
Cost of revenues include the manufacturing cost of our LiDAR sensors, which primarily consists of components costs, sub assemblysub-assembly costs and personnel-related costs, directly associated with our operation organization, and amounts paid to our third-party contract manufacturers and vendors. Cost of revenuerevenues also includes depreciation, costs of providing services,NRE, an allocated portion of overhead, warranty costs, excess and obsolete inventory and shipping costs. We expect cost of revenue to increase in absolute dollars in future periods to the extent revenue increases, however we expect our products’ unit cost to decrease as sales increase thereby leveraging economies of scale achievable due to our business model and higher production efficiencies.
Operating Expenses
Research and Development
Our research and development (“R&D”) efforts are focused on enhancing and developing cost efficient LiDAR solution and the accompanying perception software.
R&D expenses include:
personnel-related expenses, including salaries, benefits, and stock-based compensation expense for personnel in research and engineering functions;
expenses related to materials, software licenses, depreciation, supplies and third-party services;
an allocated portion of facility and IT costs.
We expense R&D costs as incurred until the point that technological feasibility is reached, which for our software products is generally shortly before the products are released to production. We expect that our R&D expenses will continue to increasebe significant for the foreseeable future as we invest in R&D activities to enhance our product portfolio.
Sales and Marketing
Sales and marketing expenses include:
personnel-related expenses, including salaries, benefits, and stock-based compensation expense for personnel in sales and marketing;
sales and marketing activities, including the cost of sales commissions, marketing programs, trade shows, consulting services, promotional materials and demonstration equipment, among other costs; and
an allocated portion of facility and IT costs.
We expect that our sales and marketing expenses to continue to increase over timeremain relatively flat as we augmentfocus our marketing activities and grow our domestic and international sales and marketing operations.in the automotive market.
General and Administrative
General and administrative expenses include:
personnel-related expenses, including salaries, benefits, and stock-based compensation expense for personnel in corporate, executive, finance and other administrative functions;
general and administration activities, including expenses relating to outside professional services, including legal, investors relations and audit and accounting services; and
the relevant portion of expenses for facilities, depreciation and IT costs that was not allocated to other operating expenses.
We expect our general and administrative expenses towill continue to increase in the near term; however, we expect such increases to occur at a slower pace than in recent years. We continue to anticipate additional expenses related to our global expansion.the previous year.
Financial Income, Net
Financial income, net consists primarily of interest on cash and cash equivalents deposited in our bank account, exchange rate differences arising from our ILS denominated lease liabilities under ASC 842, net income earned from sale of an equity investment in a privately held company,marketable securities remeasurement and private placement warrants remeasurement, cash and cash equivalents deposited in our bank account and marketable securities remeasurement. The deposits will vary based on cash and cash equivalents, and with market rates. Our marketable securities have an average credit rating of “A” and a maturity of up to three years. We do not intend to invest more than 5% of our investment portfolio in a single security.security at time of purchase. In addition, financial income, net includes the fluctuation in value due to foreign exchange differences between cash and cash equivalent and monetary assets and liabilities denominated in foreign currency, mainly in ILS and EUR.
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements included elsewhere in this Annual Report for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Annual Report.
A. Results of Operations
For a discussion of our results of operations for the year ended December 31, 2020,2021, including a year-to-year comparison between the years ended December 31, 20212022 and December 31, 2020,2021, as well as a discussion of our liquidity and capital resources for the year ended December 31, 2020,2021, refer to Item 5. “Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the year ended December 31, 2021,2022, filed with the SEC on March 30, 2022.9, 2023.
The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this Annual Report. The following table sets forth our consolidated results of operations data for the periods presented:
| | Year ended December 31, | | | Year ended December 31, | |
| | 2022 | | | 2021 | | | 2023 | | | 2022 | |
| | (In thousands except per share) amounts) | | | (In thousands, except share and per share data) | |
Revenues | | $ | 6,026 | | | $ | 5,466 | | | $ | 20,876 | | | $ | 6,026 | |
Cost of revenues
| | | (14,790 | ) | | | (10,488 | ) | | | (32,490 | ) | | | (14,790 | ) |
Gross loss
| | | (8,764 | ) | | | (5,022 | ) | | | (11,614 | ) | | | (8,764 | ) |
Operating expenses: | | | | | | | | | | | | | | | | |
Research and development
| | | 95,107 | | | | 93,336 | | | | 92,676 | | | | 95,107 | |
Sales and marketing
| | | 10,300 | | | | 23,735 | | | | 8,777 | | | | 10,300 | |
General and administrative | | | 19,178 | | | | 35,560 | | | | 19,535 | | | | 19,178 | |
Total operating expenses
| | | 124,585 | | | | 152,631 | | | | 120,988 | | | | 124,585 | |
Operating loss
| | | (133,349 | ) | | | (157,653 | ) | | | (132,602 | ) | | | (133,349 | ) |
Financial income, net | | | 6,802 | | | | 4,378 | | | | 9,790 | | | | 6,802 | |
Loss before taxes on income
| | | (126,547 | ) | | | (153,275 | ) | | | (122,812 | ) | | | (126,547 | ) |
Taxes on income
| | | (325 | ) | | | (284 | ) | | | (642 | ) | | | (325 | ) |
Net loss
| | $ | (126,872 | ) | | $ | (153,559 | ) | | $ | (123,454 | ) | | $ | (126,872 | ) |
| | | | | | | | | | | | | | | | |
Basic and diluted net loss per ordinary share | | $ | (0.94 | ) | | $ | (1.54 | ) | | $ | (0.84 | ) | | $ | (0.94 | ) |
Weighted average number of ordinary shares used in computing basic and diluted net loss per ordinary share | | | 135,224,312 | | | | 102,859,891 | | | | 147,480,521 | | | | 135,224,312 | |
Comparison of the Years Ended December 31, 20222023 and 20212022
Revenues
| | Year Ended December 31, | | | Change | | | Change | |
| | 2022 | | | 2021 | | | $ | | | % | |
| | (In thousands) | | | (In thousands | | | (In thousands) | | | | |
Revenues | | $ | 6,026 | | | $ | 5,466 | | | $ | 560 | | | | 10 | % |
| | Year ended December 31, | | | Change | | | Change | |
| | 2023 | | | 2022 | | | $ | |
| % | |
| | (In thousands) | | | (In thousands) | | | (In thousands) | | | | | |
Revenues | | $ | 20,876 | | | $ | 6,026 | | | $ | 14,850 | | | | 246 | % |
Revenues increased by approximately $0.6$14.9 million, or 10%246%, to approximately $20.9 million for the year ended December 31, 2023, from approximately $6.0 million for the year ended December 31, 2022, from approximately $5.5 million for the year ended December 31, 2021.2022.
The increase in revenues was primarily due to increased sales of InnovizOne and related products,NRE, which contributed $5.9$15.2 million in revenues during the year ended December 31, 20222023 compared to $4.3$0.0 million in revenues during the year ended December 31, 2021.2022.
Cost of Revenues and Gross Margin
| | Year Ended December 31, | | | Change | | | Change | | | Year ended December 31, | | | Change | | | Change | |
| | 2022 | | | 2021 | | | $ | | | % | | | 2023 | | | 2022 | | | $ | | | % | |
| | (In Thousands except percentages) | | | (In thousands) | | | | | | (In thousands except percentages) | | | (In thousands) | | | | | |
Cost of revenues | | $ | 14,790 | | | $ | 10,488 | | | $ | 4,302 | | | | 41 | % | | $ | 32,490 | | | $ | 14,790 | | | $ | 17,700 | | | | 120 | % |
Gross margin | | | (145 | )% | | | (92 | )% | | | | | | | | | | | (56 | )% | | | (145 | )% | | | | | | | | |
Cost of revenues increased by approximately $4.3$17.7 million, or 41%120%, to approximately $32.5 million for the year ended December 31, 2023, from approximately $14.8 million for the year ended December 31, 2022, from approximately $10.5 million for the year ended December 31, 2021.2022.
The increase in cost of revenues was primarily due to full realization of the production inefficiencies of InnovizOne, excess and obsolete inventory, cost related to sales of NRE, as well as machinery depreciation. Gross margin decreasedincreased to approximately (56)% for the year ended December 31, 2023, from approximately (145)% for the year ended December 31, 2022, fromprimarily due to sales of NRE during the year ended December 31, 2023.
Operating Expenses
| | Year ended December 31, | | | Change | | | Change | |
| | 2023 | | | 2022 | | | $ | | | % | |
| | (In thousands) | | | (In thousands) | | | (In thousands) | | | | | |
Research and development | | $ | 92,676 | | | $ | 95,107 | | | $ | (2,431 | ) | | | (3 | )% |
Sales and marketing | | | 8,777 | | | | 10,300 | | | | (1,523 | ) | | | (15 | )% |
General and administrative | | | 19,535 | | | | 19,178 | | | | 357 | | | | 2 | % |
Total operating expenses | | $ | 120,988 | | | $ | 124,585 | | | $ | (3,597 | ) | | | (3 | )% |
Research and Development
Research and development expenses decreased by approximately (92)%$2.4 million, or 3%, to approximately $92.7 million for the year ended December 31, 2021, primarily due to the same factor that resulted in the increase in cost of revenues.
Operating Expenses
| | Year Ended December 31, | | | Change | | | Change | |
| | 2022 | | | 2021 | | | $ | | | % | |
| | (In Thousands) | | | (In Thousands) | | | (In Thousands) | | | | |
Research and development | | $ | 95,107 | | | $ | 93,336 | | | $ | 1,771 | | | | 2 | % |
Sales and marketing | | | 10,300 | | | | 23,735 | | | | (13,435 | ) | | | (57 | )% |
General and administrative | | | 19,178 | | | | 35,560 | | | | (16,382 | ) | | | (46 | )% |
Total operating expenses | | $ | 124,585 | | | $ | 152,631 | | | $ | (28,046 | ) | | | (18 | )% |
Research and Development
Research and development expenses increased by approximately $1.8 million, or 2.0%, to2023, from approximately $95.1 million for the year ended December 31, 2022, from approximately $93.3 million for the year ended December 31, 2021.2022.
The increasedecrease was primarily attributable to an increasedecreases in payroll of $6.4$5.0 million primarily(primarily due to allocation of direct costs related to the recruitmentsales of additional engineers to develop the InnovizTwo product, as well asNRE), facilities cost of $1.5 million and depreciation and amortization of $3.3 million, cost of facilities of $3.1 million and consulting services of $1.4$0.4 million. The increasedecrease in research and development expenses was partly offset by a $13.5increases in third-party software and consulting services of $2.6 million decrease in 2022 ofand stock-based compensation related to the Business Combination that occurred in 2021.of $1.7 million.
Sales and Marketing
Sales and marketing expenses decreased by approximately $13.4$1.5 million, or 57%15%, to approximately $8.8 million for the year ended December 31, 2023, from approximately $10.3 million for the year ended December 31, 2022, from2022.
The decrease was primarily attributable to decreases of $0.9 million in stock-based compensation and $0.5 million in marketing expenses.
General and Administrative
General and administrative expenses increased by approximately $23.7$0.3 million, or 2%, to approximately $19.5 million for the year ended December 31, 2021.
The decrease was primarily attributable to a decrease of $14.9 million in stock-based compensation related primarily to the Business Combination that occurred in 2021. The decrease was partly offset by an increase of $0.4 million in marketing expenses in 2022.
General and Administrative
General and administrative expenses decreased by approximately $16.4 million, or 46%, to2023, from approximately $19.2 million for the year ended December 31, 2022, from2022.
The increase was primarily attributable to increases in payroll of $0.7 million and stock-based compensation of $0.7 million. The increase was partly offset by decreases in insurance of $0.8 million and depreciation and amortization of $0.3 million.
Financial Income, net
| | Year ended December 31 | | | Change | | | Change | |
| | 2023 | | | 2022 | | | $ | | | % | |
| | (In thousands) | | | (In thousands) | | | (In thousands) | | | | | |
Financial income, net | | $ | 9,790 | | | $ | 6,802 | | | $ | 2,988 | | | | 44 | % |
Financial income, net was approximately $35.6$9.8 million for the year ended December 31, 2021.
The decrease was primarily attributable2023, compared to a $17.1 million decrease in 2022 of stock-based compensation related primarily to the Business Combination that occurred in 2021. The decrease was partly offset by an increase in payroll of $2.7 million in 2022.
Financial Income, net
| | Year Ended December 31 | | | Change | | | Change | |
| | 2022 | | | 2021 | | | $ | | | % | |
| | (In Thousands) | | | (In Thousands) | | | (In Thousands) | | | | |
Financial income, net | | $ | 6,802 | | | $ | 4,378 | | | $ | 2,424 | | | | 55 | % |
Financialfinancial income, net wasof approximately $6.8 million for the year ended December 31, 2022, compared to financial income, net of approximately $4.4 million for the year ended December 31, 2021.2022.
The increase was primarily related to bank deposit interest income of $3.7 million and to a gain of $2.0 million related to marketable securities. These increases were partially offset by exchange rate differences of $3.5$2.4 million arising from our ILS denominated lease liabilities under ASC 842 (the ILS was devaluated compared to USD during the year ended December 31, 2022)2023) and to bank deposit interest income of $1.5 million. These increases were partially offset by $2.0 million related to income from the sale of an equity interest we held in a privately held company during the year ended December 31, 2021 as well as to warrants liability revaluation income of $0.3 million and a loss of $0.3 million related to marketable securities.$0.4 million.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of risks, including foreign currency exchange fluctuations, changes in interest rates and inflation. We regularly assess currency, interest rate and inflation risks to minimize any adverse effects on our business as a result of those factors.
Foreign Currency Risk
Our financial results are reported in USD, and changes in the exchange rate between USD and local currencies in the countries in which we operate (primarily ILS) may affect the results of our operations. In the year ended December 31, 2022,2023, approximately 98% of our revenues were denominated in USD. The USD cost of our operations in countries other than the United States may be negatively influenced by devaluation of the USD against other currencies.
During the year ended December 31, 2022,2023, the value of the USD appreciated against the value of the ILS by approximately 13.2%3.1%. Our most significant foreign currency exposures are related to our operations in Israel. The Company hedges itsWe hedge our anticipated exposure by exchanging USD into ILS in amounts sufficient to fund up to three months of operations and monitoring foreign currency exchange rates over time.
Interest Rate Risk
Our investment strategy is to achieve a return that will allow us to preserve capital and meet our liquidity requirements. We invest in bank deposits and marketable securities, primarily in USD.
Our cash and cash equivalents are exposed to market risk related to changes in interest rates, which is affected by changes in the general level of the Bank of Israel interest rates and United States Federal Reserve interest rates. Due to the short-term nature and the low-risk profile of our interest-bearing accounts, an immediate 10% change in interest rates would not have a material effect on the fair market value of our cash and cash equivalents, bank deposits and restricted bank deposits or on our financial position or results of operations.
Our investments in marketable securities are primarily in securities with an average credit rating of “A” and a maturity of up to three years. We do not intend to invest more than 5% of our investment portfolio in a single security.security at time of purchase.
Other Market Risks
We do not believe that inflation had a material effect on our business, financial conditions or results of operations during the years ended December 31, 20222023 and 2021.2022.
B. Liquidity and Capital Resources
Sources of Liquidity
Prior to 2021, we funded our operations primarily from private placements of our convertible preferred shares in an aggregate amount of approximately $260 million. During 2021 and 2022, we funded our operations primarily from the proceeds of the Business Combination of approximately $370 million.
In the third quarter of 2023, we completed an underwritten public offering in which we issued and sold an aggregate of 26,352,878 ordinary shares for proceeds of approximately $61.4 million, net of the underwriting discount and to a lesser extent, from revenues generated from the sale of goods and services. before deducting offering expenses.
As of December 31, 2022,2023, we had approximately $186.2$150.2 million in cash and cash equivalents, short term deposits, short term restricted cash and marketable securities. Cash equivalents and marketable securities are invested in accordance with our investment policy.
Cash Flow Summary
The following table summarizes our cash flows for the periods presented:
| | Year Ended December 31, | | | Year ended December 31, | |
| | 2022 | | | 2021 | | | 2023 | | | 2022 | |
| | (In Thousands) | | | (In Thousands) | | | (In thousands) | | | (In thousands) | |
Net cash used in operating activities | | $ | (93,411 | ) | | $ | (82,522 | ) | | $ | (93,053 | ) | | $ | (93,411 | ) |
Net cash provided by (used in) investing activities | | | 125,354 | | | | (281,597 | ) | |
Net cash provided by investing activities | | | | 1,064 | | | | 125,354 | |
Net cash provided by financing activities | | | 609 | | | | 337,178 | | | | 61,856 | | | | 609 | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | | (1,139 | ) | | | 716 | | | | 515 | | | | (1,139 | ) |
Net increase (decrease) in cash, cash equivalents and restricted cash | | $ | 31,413 | | | $ | (26,225 | ) | | $ | (29,618 | ) | | $ | 31,413 | |
Operating Activities
During the year ended December 31, 2023, operating activities used approximately $93.1 million. The primary factors affecting operating cash flows during the year ended December 31, 2023 were the net loss of approximately $123.5 million, impacted by non-cash charges of approximately $30.4 million consisting of stock-based compensation of approximately $22.3 million, depreciation and amortization of approximately $9.2 million, remeasurement of private warrants of approximately $(0.5) million and an increase in working capital of approximately $(0.6) million.
During the year ended December 31, 2022, operating activities used approximately $93.4 million. The primary factors affecting operating cash flows during the year ended December 31, 2022 were the net loss of approximately $126.9 million, impacted by non-cash charges of approximately $33.5 million consisting of stock-based compensation of approximately $19.4 million, depreciation and amortization of approximately $7.5 millionand remeasurement of private warrants of approximately $(0.9)million and a decrease in working capital of approximately $7.5 million.
Investing Activities
During the year ended December 31, 2021, operating2023, cash provided by investing activities usedwas approximately $82.5 million. The primary factors affecting operating cash flows during this period were the net loss$1.1 million, which primarily resulted from withdrawal of bank deposits of approximately $153.6$141.5 million, impacted by non-cash chargesproceeds from sales and maturities of marketable securities of approximately $67.5$83.5 million, consisting of share-based compensationpartially offset by investment in bank deposits of approximately $64.7$165.6 million, depreciation and amortizationinvestment in marketable securities of approximately $4.0$51.7 million and purchases of property, plant, and revaluation of private warrantsequipment of approximately $)1.2($6.6 million. In addition to a decrease in working capital of approximately $1.7 million.
Investing Activities
During the year ended December 31, 2022, cash provided by investing activities was approximately $125.4 million, which primarily resulted from the withdrawal of bank deposits of approximately $230.0 million, partially offset by investments in bank deposits of approximately $79.5 million, purchases of property, plant, and equipment of approximately $22.6 million and an increase in restricted deposits of approximately $2.6 million.
Financing Activities
During the year ended December 31, 2021,2023, cash used in investingprovided by financing activities was approximately $281.6$61.9 million which was primarilyresulting from investment$61.4 million in short-term deposits of approximately $375.0 million, investments in marketable securities of approximately $50.0 million and purchases of property, plant, and equipment of approximately $3.8 million, which was partially offset by withdrawals of bank deposits of approximately $145.0 million andnet proceeds from saleunderwritten public offering and $0.5 million from the exercise of an investee of approximately $2.2 million.employee stock options.
Financing Activities
During the year ended December 31, 2022, cash provided by financing activities was approximately $0.6 million resulting from the exercise of employee stock options.
During the year ended December 31, 2021, cash provided by financing activities was approximately $337.2 million, which was primarily from approximately $338.9 million in net proceeds from the Business Combination, partially offset by repayment of loans of approximately $2.6 million.
Funding Requirements
We expect to continue to invest substantially in our expenses to gradually increasemain activities in connection with our ongoing activities. Particularly,particular, as we continue research and development activities, commercialization expenses related to product sales, marketing, manufacturing and distribution. As we achieve further commercial success, we may need to obtain additional funding to support our continuing operations. In addition, our financial stability is reviewed by existing and potential customers from time to time and we believe that a stronger cash position provides us additional time to execute our growth strategy and is perceived positively by such customers and may also provide us with higher grading in such customers’ diligence processes. If we are unable to raise capital when and if needed or on attractive terms, we could be forced to delay, reduce or eliminate some of our research and development programs or future commercialization efforts.
As of December 31, 2022,2023, we had cash and cash equivalents, short term bank deposits,restricted cash, short term restricted cashbank deposits and marketable securities of approximately $186.2$150.2 million. We expect those funds to be sufficient to continue to execute our business plan for at least the next 12 months.
We also expect our losses to be highersimilar in future periods as we:
expand production capabilities to produce our LiDAR solutions, and accordingly incur costs associated with outsourcing the production of our LiDAR solutions;
expand our design, development, installation and servicing capabilities;
increase our investmentcontinue to invest in research and development;
increase our test and validation activities as part of our Tier 1 responsibilities;
produce an inventory of our LiDAR solutions; and
increase ourcontinue to invest in sales and marketing activities and develop our distribution infrastructure.
Because we will incur costs and expenses from these efforts before we receive incremental revenues with respect thereto, losses in future periods will be significant. In addition, we may find that these efforts are more expensive than we currently anticipate or that these efforts may not result in revenues, which would further increase our losses.
Off-Balance Sheet Arrangements
The Company’sOur remaining performance obligations are comprised of product andapplication engineering services not yet satisfied. As of December 31, 2022,2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $9.6$1.2 million, which we expect to recognize as revenue in future years.
Other than as set forth above, we have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
C. Research and Development, Patents and Licenses, etc.
Research and Development
We have invested a significant amount of time and expense into research and development of LiDAR-based technologies. Many of our employees are veterans of technological units in the Israeli Defense Forces. Our research and development team is the largest department in the company and, as of December 31, 2022,2023, was comprised of 297395 employees. Our ability to maintain a leadership position in the industry depends to a great degree on our ongoing research and development activities. Our research and development team includes engineers and researchers with a diverse range of expertise and diverse levels of experience and academic backgrounds, including holders of B.Sc., M.Sc. and PhD degrees from leading academic institutions. Our research and development activities are largely conducted at our headquarters in Rosh HaAin, Israel and at our German subsidiary’s offices in Munich, Germany.Israel.
Creating a solid-state,an automotive-grade, eye-safe and cost efficient ~905nm wavelength LiDAR solution and the accompanying perception software required the efforts of a multi-disciplinary team with expertise spanning optics, lasers, mechanical engineering, micro-electronics, chip design, MEMS design, complex IC packaging, algorithms, neural networks, systems engineering and software architecture and engineering.
Intellectual Property
Our success and competitive advantage depend in part upon our ability to develop and protect our core technology and intellectual property. We own a portfolio of intellectual property, including registered patents, and registered trademarks, registered designs, confidential technical information, and expertise in the development of LiDAR technology and software for, among others, autonomous vehicles.
We have filed patent and trademark applications in order to further secure these rights and strengthen our ability to defend against third parties who may infringe on our rights. We also rely on design and manufacturing know-how, continuing technological innovations, and licensing and exclusivity opportunities to maintain and improve our competitive position. Additionally, we protect our proprietary rights through agreements with our commercial partners, supply-chain vendors, employees, and consultants, as well as close monitoring of developments and products in our industry.
D. Trend Information
Supply Chain
The supply chain for certain of our components is currently experiencing significant strain due to, among other factors, higher-than-expected demand, capacity constraints, consolidation of suppliers within the industry, and overburdened shippers. As a result, there has been a decrease in availability, an increase in price and an increase in lead times for certain of our product components.
We currently have sufficient component inventory in order to meet the demands of our customers in the near-term. In addition, we are in the process of procuring additional component stock to keep in inventory on a go-forward basis to minimize the effect of supply chain strain on our business in the future.
E. Critical Accounting Policies and Use of Estimates
Innoviz’sOur management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience, known trends and events, and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report, we believe the following accounting policies used in the preparation of our consolidated financial statements require the most significant judgments and estimates. Please see Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report for additional information.
Accrued Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing purchase orders and open contracts, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the services when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and makes adjustments if necessary. The significant estimates in our accrued research and development expenses include costs incurred for services in connection with development activities for which we have not yet been invoiced.
Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are either too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.
Stock-Based Compensation
We measure share options and other share-based awards granted to our employees, consultants or advisors or affiliates based on their fair value according to the Black-Scholes option pricing model, whereas the fair value of restricted stock units is based on the closing market value of the underlying shares at the date of grant. The option pricing model requires several assumptions, of which the most significant are the expected share price volatility and the expected option term. We recognize forfeitures of equity-based awards as they occur. For graded vesting awards, we recognize compensation expenses based on the straight-line method over the requisite service period.
Options
Exercise price. Before we became a public company in April 2021, in determining the exercise prices for share options granted, the board of directors considered the fair value of ordinary shares as of each grant date. The fair value of ordinary shares underlying the share options was determined by the board of directors at each award grant date based upon a variety of factors, including the results obtained from independent third-party valuations, our financial position and historical financial performance, the status of technological developments within our products, the composition and ability of the current management team, an evaluation or benchmark of our competition, the current business climate in the marketplace, the illiquid nature of the ordinary shares, arm’s length sales of our capital share, the effect of the rights and preferences of the preferred shares, and the prospects of a liquidity event, among others. From the date we became public, the fair value of each ordinary share was based on the closing price of the Company’s publicly-traded ordinary shares as reported on the date of the grant.
Expected volatility. As we became a public company in April 2021, there is not sufficient historical volatility for the expected term of the share options. Therefore, we used an average historical share price volatility based on an analysis of reported data for a peer group of comparable public companies which were selected based upon industry similarities.
Expected term (years). This represents the period that our options that have been granted are expected to be outstanding. There is not sufficient historical share exercise data to calculate the expected term of the share options. Therefore, we elected to utilize the simplified method to value option grants. Under this approach, the weighted-average expected life is presumed to be the average of the shortest vesting term and the contractual term of the option.
Risk-free interest rate. We determined the risk-free interest rate by using a weighted-average equivalent to the expected term based on the U.S. Treasury yield curve in effect as of the date of grant.
Expected dividend yield. We do not anticipate paying any dividends in the foreseeable future. Thus, we used 0% as our expected dividend yield.
Earn-out Shares
We estimated the value of our earn-out shares using the Monte Carlo pricing model under the following assumptions:
| • | Share price. The share price was based on the closing price of the share on day of grant.
|
| • | Expected volatility. we estimate the volatility of our earn-out shares based on the historical volatility of our share price and of a selected peer companies that matches the expected remaining life of the earn-out shares.
|
| • | Risk-free interest rate. We determined the risk-free interest rate by using a weighted average equivalent to the expected term based on the U.S. Treasury yield curve in effect as of the date of grant.
|
| • | Threshold. We determined the earnout share price as part of the Business Combination.
|
Private Warrants
As part of the Business Combination, we assumed a derivative warrant liability related to previously issued private placement warrants in connection with Collective Growth’s initial public offering. The private warrants were classified as a liability. We utilize a Black-Scholes option pricing model to estimate the fair value of the private placement warrants. We estimate the volatility of our private warrants based on implied volatility of the publicly traded warrants and the historical volatility of our share price and of a selected peer companies that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve as of the valuation date for a maturity similar to the expiration of the warrants. The dividend yield is based on the historical rate, which we anticipate remaining at zero.
Revenue Recognition
We follow the provisions of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), which applies to all contracts with customers. Under ASC 606, revenue is recognized upon transfer of control of promised products and services to customers in an amount that reflects the consideration that we expect to receive in exchange for those products and services.
When we enter into a contract, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within the contract and determinesdetermine those that are performance obligations and assessesassess whether each promised good or service is distinct.
We evaluate each performance obligation to determine if it is satisfied at a point in time or over time.
Changes in judgments with respect to these assumptions and estimates could impact the timing or amount of revenue recognition.53
Inventory ValuationReserves
Our inventories are stated at the lower of cost or estimated net realizable value. Cost of inventories is determined as follows:
Raw materials and work in process - based on weighted average cost.
Finished goods – mainly based on weighted average standard cost method.
We charge cost of revenue for write-downs of inventories which are obsolete or in excess of anticipated demand based on a consideration of marketability and product life cycle stage, product development plans, component cost trends, demand forecasts, historical revenue, and assumptions about future demand and market conditions.
55Losses expected to arise from firm non-cancelable commitments for future purchases of inventory are charged to cost of revenues unless the losses are recoverable through firm sales contracts or other means.
Useful Lives of Property, Plant, and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and impairment. The estimated useful lives of property and equipment are determined when those assets are initially recognized and are routinely reviewed for the remaining estimated useful lives. When useful life is reassessed for an asset, the remaining carrying amount of the asset is accounted for prospectively and depreciated over the revised estimated useful life.
Item 6. | Directors, Senior Management and Employees |
A. Directors and Senior Management
Executive Officers and Directors
The following table provides information about our directors and executive officers as of February 28, 2023.March 1, 2024. The address for each of the directors and executive officers is 5 Uri Ariav Street, Building C, Rosh HaAin, Israel 4809202.
Name | | Age | | Position(s) |
Omer Keilaf | | 4344 | | Chief Executive Officer, Co-Founder and Director |
Eldar Cegla | | 5354 | | Chief Financial Officer |
Oren Buskila Avishay Moscovici | | 3956 | | Chief Research & Development Officer and Co-Founder |
Tali ChenElad Hofstetter | | 4542 | | Chief Business Officer |
Udy Gal-On | | 5455 | | Chief Operating Officer |
Amichai Steimberg | | 61 | | Chairperson of the Board of Directors |
Aharon Aharon | | 69 | | Director |
Dan Falk | | 79 | | Director |
Stefan Jacoby | | 66 | | Director |
Ronit Maor | | 53 | | Director |
James Sheridan | | 56 | | Director |
Orit Stav | | 53 | | Director |
Alexander von Witzleben | | 60 | | Director |
Aharon Aharon | | 68 | | Director |
Dan Falk | | 78 | | Director |
Ronit Maor | | 52 | | Director |
James Sheridan | | 55 | | Director |
Orit Stav | | 52 | | Director |
Omer David Keilaf, Chief Executive Officer, Co-Founder and Director
Omer Keilaf is the Co-Founder of our company and has served as our Chief Executive Officer since January 2016. Mr. Keilaf has also served as a member of the board of directors of our company since January 2016. Mr. Keilaf serves as a member of the board of directors of Perception Capital Corp. II (Nasdaq: PCCT) since October 2021. Mr. Keilaf held senior leadership roles at companies including Consumer Physics, Inc., STMicroelectronics N.V. (NYSE: STM) and in an elite technological unit of the Intelligence Corps of the Israel Defense Forces (the “IDF”),IDF, where he served as the System and Product Team Manager, R&D manager, and Project Manager and System Architecture Manager, respectively. Mr. Keilaf holds a BSc and MSc in Electrical Engineering and an MBA, all from Tel Aviv University, Israel where he has also served as a lecturer.
Eldar Cegla, Chief Financial Officer
Eldar Cegla has served as the Chief Financial Officer of our company since June 2017. Prior to joining Innoviz, Mr. Cegla served as the VP Finance of ConsumerPhysics, Inc from 2014 to 2015, as the Chief Financial Officer of Metrolight Ltd. from 2010 to 2014 and as the Chief Operations Officer of Mantis-Vision Ltd. from 2007 to 2010. Mr. Cegla was a Co-Founder of Browzwear International Ltd. and served as its Chief Financial Officer from 2000 to 2006. Mr. Cegla holds a BSc in Chemistry from Tel Aviv University, Israel.
Avishay Moscovici, Chief Research & Development Officer and Co-Founder
Oren BuskilaAvishay Moscovici is the Co-Founder of our company and has served as our Chief R&DResearch & Development Officer since February 2019, prior to which he2024. He previously served as theour VP R&DSoftware Engineering from 2016.2019 to 2024 and as our Director of Software Engineering from 2017 to 2019. Prior to co-founding our company,joining Innoviz, Mr. BuskilaMoscovici served as VP of Research & Development at Rachip Ltd. from 2016 to 2017. Before joining Rachip Ltd., Mr. Moscovici served in a System Engineernumber of roles in Motorola Semiconductor/Freescale Semiconductor Israel from 2000-2016, including Director of Engineering, overseeing its software and Product Manager at ConsumerPhysics Inc. and was responsible for the company’s HW system design, as well as for managing the company’s launch of its first consumer product and leading several development and design projects.hardware activities. Mr. Buskila served seven years in the elite technological unit of the Intelligence Corps of the IDF, where he served as a Project Manager, System Engineer and Hardware Engineer. Mr. BuskilaMoscovici holds a BSc in Physics, a BSc in Electrical Engineering,and an MSc in Electro-opticalElectronic Engineering, and an MBA in Information Systems from Tel-Aviv University, all from Tel Aviv University, Israel.Magna Cum Laude.
Tali Chen,Elad Hofstetter, Chief Business Officer
Tali ChenElad Hofstetter is thehas served as our Chief Business Officer of our company since May 2022. Prior to joining the company, Ms. ChenSeptember 2023. He previously served as Chief Business Officer at DSP Groupour VP Product Management from 20202021 to 2023 and as our Product and Program Manager from 2018 to 2021. Prior to such position, shejoining Innoviz, Mr. Hofstetter served in a number of roles at DSP GroupLifeBEAM Technologies Ltd., including as Chief Marketing OfficerEngineering Manager from 2018 to 2020, where she managed the IoT business line, European business development, sales and marketing, US operations, and corporate management, as CVP of Corporate Development, and as CVP Marketing and Human Resource. 2017-2018. Before joining DSP Group, TaliLifeBEAM Technologies Ltd., Mr. Hofstetter was Director of Corporate Development at RADA Electronica QA investigator in Teva Pharmaceutical Industries Ltd., and a Majorcommander and medic in the Israeli Defense Forces, and the founding manager of the “Atidim for Industry” program. TaliIDF Commando Unit. Mr. Hofstetter holds an LLB in Law and Government with honors from the Interdisciplinary Center (IDC) of Herzliyaa BSc and an MBAMSc in Bio-Medical Engineering from the Technion Israel Institute of Technology.Tel Aviv University, Israel.
Udy Gal-On, Chief Operating Officer
Udy Gal-On has served as our Chief Operating Officer since March 2021. Prior to joining our company, Mr. Gal-On served as the VP Operations and VP Strategic Projects of SolarEdge Technologies, Inc. from 2012 to 2021, as the VP Engineering of ECI Telecom Ltd. from 2007 to 2012, as the Product Engineering Department Manager of Marvell Semiconductor, Inc. from 2005 to 2007 and as VP Operations of Mysticom Semiconductor Ltd. from 2002 to 2005. Mr. Gal-On holds a BSc in Mechanical Engineering and a MSc in Quality & Reliability Engineering, each from Technion-Israel Institute of Technology.
Amichai Steimberg, Chairperson of the Board of Directors
Amichai Steimberg joinedhas served on our board of directors uponsince April 2021 and currently serves as the completionchairperson of the Business Combination.board of directors. Mr. Steimberg previously served as President and Chief Operating Officer of Orbotech Ltd. from 2013 to 2019, and as chief executive officer of Orbotech Ltd. from 2019 to 2020. Mr. Steimberg is the managing partner of Amplify Operating Partners Ltd., and serves as a board member for several private companies, including as Chairperson of the board of directors at Airovation Technologies Ltd. From September 2020 to January 2021, Mr. Steimberg served as Chairperson of the board of directors of Highcon System Ltd., an Israeli company listed on the Tel Aviv Stock Exchange.companies. Mr. Steimberg holds a BSc in Agricultural Economics and Business Administration from the Hebrew University in Jerusalem.
Aharon Aharon, Director
Aharon Aharon joinedhas served on our board of directors upon the completion of the Business Combination.since April 2021. Since 2021, Mr. Aharon has run and operated C-Perto, a consulting service that he cofounded. He also currently serves on the board of directors of The Tel Aviv Stock Exchange Ltd. as an independent director. From 2017 to 2021, Mr. Aharon served as the Chief Executive Officer of the Israel Innovation Authority (the “IIA”), an independent public entity that operates for the benefit of the Israeli innovation ecosystem and Israeli economy as a whole. Prior to joining the Israeli Innovation Authority,IIA, Mr. Aharon served as the Corporate Vice President of Hardware Technologies and General Manager of Apple Israel from 2011 to 2017. Prior to his time at Apple, Mr. Aharon served as the chief executive officer of Camero, a leading provider of UWB imaging radars, from 2004 to 2010 (when the company was acquired). In addition, Mr. Aharon served as Chairpersonchairperson of the board of directors of Discretix Technologies from 2003 to 2010 (Discretix was acquired by ARM in 2014). From 2001 to 2003, Mr. Aharon was the chief executive officer of Seabridge. Prior to joining Seabridge, Mr. Aharon was the Chief Operating Officer of Zoran, a Silicon Valley-based, leading provider of digital solutions in the digital entertainment and digital imaging market. Mr. Aharon started his professional career at IBM Research and has a BSc in Computer Engineering and a MSc in Electrical Engineering from the Israel Institute of Technology.
Dan Falk, Director
Dan Falk joinedhas served on our board of directors upon the completion of the Business Combination.since April 2021. Mr. Falk currently serves as a member of the board of directors of the following companies: Nice Ltd. (Nasdaq: NICE) and Evogene (Nasdaq: EVGN). From 1999 to 2000, Mr. Falk was President and Chief Operating Officer of Sapiens International Corporation N.V. From 1985 to 1999, Mr. Falk served in various positions in Orbotech Ltd., the last of which were Chief Financial Officer and Executive Vice President. From 1973 to 1985, he served in several executive positions in the Israel Discount Bank. During the past five years, Mr. Falk served as a member of the board of directors of the following public companies, for which he no longer serves as a director: Attunity Ltd, Orbotech Ltd. (NYSE: KLAC) and Ormat Technologies Inc. (NYSE: ORA). Mr. Falk holds a Bachelor’sB.A. degree in Economics and Political Science and a Master’s degree in Business Administration, both from the Hebrew University.
Stefan Jacoby, Director
Stefan Jacoby has served on our board of directors since January 2024. Stefan Jacoby currently serves as a member of the board of directors of McLaren Group, Sion Power Corporation and Openlane Inc. (NYSE:KAR). Mr. Jacoby also serves as a member of the compensation and nomination committee of Openlane Inc. His prior experience includes roles as executive vice-president of General Motors Company, global chief executive officer and president of Volvo Car Corporation, Sweden and chief executive officer and president of Volkswagen Group of America. Mr. Jacoby also holds a degree in business administration from the University of Cologne.
Ronit Maor, Director
Ronit Maor joinedhas served on our board of directors upon the completion of the Business Combination.since April 2021. Since 2017, Ms. Maor has served as the Chief Financial Officer of Earnix Inc., a leading SaaS company providing an AI-driven pricing, rating and product personalization for insurance and banking customers. Prior to joining Earnix Inc., Ms. Maor was Chief Financial Officer at Pontis, a leading digital customer engagement company, from 2012 until its acquisition by Amdocs in 2016. Prior to her time at Pontis, Ms. Maor was VP Corporate Development at Modu, an Israeli start-up designing unique cellular phones, from 2007 to 2011. Ms. Maor also served as Chief Financial Officer of msystems Ltd., a Nasdaq-listed company, from 1997 until the company was sold to SanDisk in 2006. Ms. Maor has a BSc in Industrial Engineering and Management from Tel Aviv University.
James Sheridan, Director
James Sheridan joinedhas served on our board of directors upon the completion of the Business Combination.since April 2021. Mr. Sheridan is a senior operating executive with over 25 years of experience and deep experience in the automotive industry. Since 2020, Mr. Sheridan has served as President of Perception Capital Partners. He has experience as both an operating executive (Chief Procurement Officer) and as a leader of the Purchasing Practice at McKinsey. His prior experiences include roles as CPO at Forterra, Senior Expert at McKinsey, CPO at Champion, and a variety of roles with Ford Motor. Jim earned a B.A. from the College of the Holy Cross and M.B.AMBA from Carnegie Mellon. Mr. Sheridan was appointed by Perception, which is entitled to appoint one director for so long as it beneficially owns at least 50% of the total number of ordinary shares it beneficially owned at the date of the closing of the Business Combination.
Orit Stav, Director
Orit Stav joinedhas served on our board of directors after the completion of the Business Combination.since April 2021. Ms. Stav is a seasoned investment manager with 20 years of experience in the technology, venture capital, and private equity sectors. Ms. Stav currently serves as a member of the board of directors of the following companies: Menora Mivtachim Holdings Ltd., Camtek Ltd., Doral Renewable Energy Resources Ltd., Hadasit Bio-holdings Ltd., YSB Group and HomeBioGas. Ms. Stav also serves as a member of the board of directors of RavTech Beit Tochna Torani Ltd. (“RavTech”), Altshuler Shaham Properties Ltd. and Poalim I.B.I. Underwriting & Issuing Ltd., and RavTech Beit Tochna Torani Ltd., a private company. Since 2015, Ms. Stav has served as a Managing Partner at Israel Innovation Partners. Prior to that, she represented Siemens Venture Capital in Israel, and led investments in technology startups. Ms. Stav holds a Master of Business Administrationan MBA from Hertfordshire University, UK,UK.
Alexander Von Witzleben, Director
Alexandervon Witzleben has served on our board of directors since December 2023. Mr. von Witzleben served in different executive positions in Arbonia AG since 2015 and currently serves as executive chairman of its board and a Bachelor’smember of its nomination, compensation and audit committees. In addition, Mr. von Witzleben currently serves as the chairman of the board of directors of Feintool International Holding, AG, chairman of the supervisory board of PVA TePla AG and VERBIO Vereinigte BioEnergie AG, and serves as a board member and supervisory board member for several private companies. Mr. von Witzleben holds a degree in Arts (Economicseconomics and Management)business administration from the Tel Aviv University.University of Passau.
B. Compensation of Directors and Executive Officers
The table below reflects the Company’s compensation costs related to the employment of our five most highly compensated office holders (as defined in Israel’s Companies Law) with respect to the year ended December 31, 2022.2023. We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.” For purposes of the table below, “compensation” includes amounts accrued or paid in connection with salary, bonuses, equity-based compensation, retirement or termination payments, benefits and perquisites (such as car and phone), social benefits and any undertaking to provide such compensation. All amounts reported in the table are in terms of cost to the Company (in USD), as recognized in our financial statements for the year ended December 31, 2022,2023, including compensation paid to such Covered Executives following the end of the year in respect of services provided during the year. Each of the Covered Executives was covered by our directors’ and officers’ liability insurance policy and was granted an indemnification letter as approved by our shareholders in accordance with applicable law and our Articles.
Name and Principal Position(1) | | Salary and benefits(2) | | | Bonus | | | Equity-Based Compensation(3) | | | Total | | |
| | | | | | | | | | | | | |
Name and Principal Position(1) | | | Salary and benefits(2) | | | Bonus | | | Equity-Based Compensation(3) | | | Total | |
Omer Keilaf (Chief Executive Officer) | | $ | 474,803 | | | $ | 0 | | | $ | 2,802,953 | | | $ | 3,277,757 | | | $ | $432,704 | | | $ | 0 | | | $ | $2,962,154 | | | $ | $3,394,858 | |
Oren Buskila (Chief Research & Development Officer) | | $ | 384,376 | | | $ | 0 | | | $ | 1,705,268 | | | $ | 2,089,644 | | |
Oren Rosenzweig (former Chief Business Officer) | | $ | 233,269 | | | $ | 0 | | | $ | 1,010,274 | | | $ | 1,243,543 | | |
Oren Buskila (former Chief Research & Development Officer) | | | $ | $350,376 | | | $ | 0 | | | $ | $1,759,057 | | | $ | $2,109,432 | |
Udy Gal-On (Chief Operating Officer) | | $ | 273,924 | | | $ | 0 | | | $ | 302,270 | | | $ | 576,195 | | | $ | $249,684 | | | $ | 0 | | | $ | $371,526 | | | $ | $621,209 | |
Eldar Cegla (Chief Financial Officer) | | $ | 324,045 | | | $ | 0 | | | $ | 201,908 | | | $ | 525,952 | | | $ | $295,554 | | | $ | 0 | | | $ | $272,703 | | | $ | $568,256 | |
Avishay Moscovici (Chief Research & Development Officer) | | | $ | $231,021 | | | $ | 0 | | | $ | $213,436 | | | $ | $444,457 | |
(1) | All Covered Executives were employed on a full time (100%) basis during 2022.2023. Mr. RosenzweigBuskila resigned from his position as Chief BusinessResearch & Development Officer in May 2022.on February 28, 2024. |
(2) | Includes the Covered Executive’s gross salary and benefits and perquisites, including those mandated by applicable law. Such benefits and perquisites may include, to the extent applicable to the Covered Executives, payments, contributions and/or allocations for savings funds (e.g., Managers’ Life Insurance Policy), education funds (referred to in Hebrew as “keren hishtalmut”), pension, severance, vacation, car or car allowance, medical insurances and benefits, risk insurance (e.g., life, disability, accident), telephone, convalescence pay, payments for social security, tax gross-up payments and other benefits and perquisites consistent with the Company’s policies. |
(3) | Represents the equity-based compensation expenses recorded in the Company’s consolidated financial statements for the year ended December 31, 2022,2023, based on the equity fair value on the grant date, calculated in accordance with accounting guidance for equity-based compensation. For a discussion on the assumptions used in reaching this valuation, see Note 12 to our consolidated financial statements included in this Annual Report. |
Directors
Under the Companies Law, the compensation of a public company’s directors requires the approval of its compensation committee, the subsequent approval of its board of directors and, unless exempted under regulations promulgated under the Companies Law, the approval of its shareholders at a general meeting. If the compensation of a public company’s directors is inconsistent with its stated compensation policy, then those provisions that must be included in the compensation policy according to the Companies Law must have been considered by the compensation committee and board of directors, and the shareholder approval will require a special majority under which:
at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in such matter, present and voting at such meeting, are voted in favor of the compensation package, excluding abstentions; or
the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in such matter voting against the compensation package does not exceed 2% of the aggregate voting rights in the company.
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 stated compensation policy, the company’s shareholders (by a special majority vote as discussed above with respect to the approval of director compensation). However, if the shareholders of the company do not approve a compensation arrangement with an executive officer that is inconsistent with the company’s stated 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
Under the Companies Law, the compensation of a public company’s chief executive officer is required to be approved by: (i) the company’s compensation committee; (ii) the company’s board of directors, and (iii) the company’s shareholders (by a special majority vote as discussed above with respect to the approval of director compensation). 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 detailed reasons for their decision. The approval of each of the compensation committee and the board of directors should be in accordance with the company’s stated 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 regard to the approval of the engagement terms of a candidate for the chief executive officer position if they determine that the compensation arrangement is consistent with the company’s stated compensation policy, 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 engage the chief executive officer candidate.
Aggregate Compensation of Office Holders
The aggregate compensation, including share-basedstock-based compensation, paid by our company to its executive officers and directors as a group for the year ended December 31, 20222023 was approximately $8.8$8.3 million (including one director and executive officer who left the Company during 2022)2023). This amount includes approximately $0.3 million paid for pension, severance, retirement or similar benefits or expenses, but does not include business travel, relocation, professional and business association dues and expenses reimbursed to office holders, and other benefit costs commonly reimbursed or paid by companies in Israel.
As of December 31, 2022,2023, options to purchase 3,857,1414,181,613 of our ordinary shares granted to our executive officers and directors as a group were outstanding under our equity incentive plans at a weighted average exercise price of $10.33$9.84 per ordinary share.
In addition, 1,653,2561,849,036 RSUs granted to our executive officers and directors, were outstanding under our equity incentive plans as of December 31, 2022.2023.
We pay to each of our non-employee directors an annual cash retainer as follows: chairperson of the board of directors: $77,500; chairperson of the audit committee, compensation committee and nominating, environmental, social and governance committee: $50,000, $45,000 and $42,500, respectively; members of the audit committee, compensation committee and nominating, environmental, social and governance committee: $42,500, $40,000 and $38,750, respectively; and each other non-employee director: $35,000. Such compensation will not be cumulative and the non-employee directors will receive the highest level of compensation to which they are entitled. Additionally, we grant the chairperson of the board of directors an annual grant in a value of up to $300,000, and each of our non-employee directors annual grants in a value of up to $100,000 each. We also reimburse them for expenses arising from their board membership.
Share Option Plans
2016 Share Incentive Plan
Our 2016 Share Incentive Plan (the “2016 Plan”) was adopted by our board of directors on May 23, 2016. The Plan provides for the grant of options to employees, directors, office holders, service providers and consultants of our company and its subsidiaries.
We no longer grant any awards under the 2016 Plan as it was superseded by our 2021 Share Incentive Plan (the “2021 Plan”), although outstanding options previously granted under the 2016 Plan remain governed by the 2016 Plan. As of December 31, 2022,2023, a total of 6,307,0375,611,673 options to purchase ordinary shares were outstanding under the 2016 Plan, with a weighted average exercise price of $0.81$0.83 per ordinary share. Our board of directors, or a duly authorized committee of our board of directors, administers the 2016 Plan.
2021 Share Incentive Plan
In connection with the closing of the Business Combination, we adopted a new share incentive plan, the 2021 Plan, under which we may grant equity-based incentive awards to attract, motivate and retain the talent for which we compete. Following the consummation of the Business Combination, we ceased to grant any awards under the 2016 Plan, though previously granted options under the 2016 Plan remain outstanding and governed by the 2016 Plan. As of December 31, 2022,2023, options to purchase 7,773,9597,717,763 of our ordinary shares and 7,308,57911,699,888 RSUs were outstanding under the 2021 Plan.
The maximum number of our ordinary shares available for issuance under the 2021 Plan is equal to the sum of (i) 19,510,820 shares (together with any shares subject to awards under the 2016 Plan that expire or become un-exercisable without having been exercised), and (ii) an annual increase on the first day of each year beginning in 2022 and ending in and including 2031, equal to the lesser of (A) 5% of the outstanding shares on the last day of the immediately preceding calendar year and (B) such amount as determined by our board of directors if so determined prior to January 1 of a calendar year; provided, however, that no more than 14,000,000 shares in total may be issued upon the exercise of incentive stock options under the 2021 Plan. If permitted by us, ordinary shares tendered to pay the exercise price or withholding tax obligations with respect to an award granted under the 2021 Plan or the 2016 Plan may again be available for issuance under the 2021 Plan. Our board of directors may also reduce the number of ordinary shares reserved and available for issuance under the 2021 Plan in its discretion. On January 1, 2023,2024, the number of ordinary shares reserved for the 2021 Plan increased by 4,909,261.8,021,536. The total number of ordinary shares reserved and available for future equity grants under the 2021 Plan, as of February 15, 20232024 was 6,809,263.8,334,514.
Our board of directors, or a duly authorized committee of our board of directors, administers the 2021 Plan. Under the 2021 Plan, the administrator has the authority, subject to applicable law, to interpret the terms of the 2021 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 2021 Plan and take all other actions and make all other determinations necessary for the administration of the 2021 Plan.
The administrator also has the authority to amend and rescind rules and regulations relating to the 2021 Plan or terminate the 2021 Plan at any time before the date of expiration of its ten year term.
The 2021 Plan provides for granting awards under various tax regimes, including, without limitation, for awards granted to our Israeli employees or service providers, in compliance with Section 102 of the Israeli Income Tax Ordinance (New Version), 1961 (the “Ordinance”) or Section 3(i) of the Ordinance and for awards granted to our United States employees or service providers, including those who are deemed to be residents of the United States for tax purposes, Section 422 of the Code and Section 409A of the Code.
Section 102 of the Ordinance allows employees, directors and officers who are not “controlling shareholders” (as used under the Ordinance) and are considered Israeli residents to receive favorable tax treatment for compensation in the form of shares or options. Our non-employee service providers and controlling shareholders may only be granted options under section 3(i) of the Ordinance, which does not provide for similar tax benefits.
The 2021 Plan provides for the grant of stock options (including incentive stock options and nonqualified stock options), ordinary shares, restricted shares, restricted share units, performance restricted share units and other share-basedstock-based awards. Options granted under the 2021 Plan to our 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.
Clawback Policy
In 2023, we adopted a Clawback Policy in compliance with the SEC rules and Nasdaq listing standards to recover any excess incentive-based compensation from current and former executive officers after an accounting restatement.
C. Board Practices
Board of Directors
Under the Companies Law and our Articles, our business and affairs are managed under the direction of our board of directors. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to executive management. Our Chief Executive Officer (referred to as a “general manager” under the Companies Law) is responsible for our day-to-day management. Our Chief Executive Officer is appointed by, and serves at the discretion of, our board of directors. All other executive officers are appointed by the Chief Executive Officer and are subject to the terms of any applicable employment or consulting agreements that we may enter into with them.
Under our Articles, our directors are 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, such that each year the term of office of only one class of directors will expire.
Further, our Articles include a provision which provides that Perception has the right to appoint one director to our board of directors upon closing of the Business Combination (the “Perception Director”) and for so long as it beneficially owns at least 50% of the total number of ordinary shares it beneficially owned at the date of the closing of the Business Combination. Mr. Sheridan was appointed as the Perception Director.
Our directors, other than the Perception Director, are divided among the three classes as follows:
the Class I directors are Aharon Aharon, Stefan Jacoby and Orit Stav and their terms expire at our annual general meeting to be held in 2024;
the Class II directors are Dan Falk and Ronit Maor and their terms expire at our annual general meeting to be held in 2025; and
the Class III directors are Amichai Steimberg, and Omer Keilaf and Alexander von Witzleben and their terms expire at our annual general meeting to be held in 2023.2026.
Director Independence
As an Israeli company, our company is subject to various corporate governance requirements under the Companies Law. However, pursuant to regulations promulgated under the Companies Law, companies with shares traded on certain U.S. stock exchanges, including Nasdaq, may, subject to certain conditions, opt out from the Companies Law requirements to appoint external directors and related Companies Law rules concerning the composition of the audit committee, compensation committee and nominating, environmental, social and governance committee of the board of directors (other than the gender diversification rule under the Companies Law, which requires the appointment of a director from the other gender if at the time a director is appointed all members of the board of directors are of the same gender). In accordance with these regulations, we have elected to opt out of those requirements of the Companies Law. These exemptions will continue to be available to our company so long as: (i) we do not have a “controlling shareholder” as used under the Companies Law, (ii) our shares are traded on certain U.S. stock exchanges, including Nasdaq, and (iii) we comply with the director independence requirements and the audit committee, compensation committee and nominating, environmental, social and governance committee composition requirements under U.S. laws (including applicable Nasdaq rules) applicable to U.S. domestic issuers.
The term “controlling shareholder” as used in the Companies Law for purposes related to external directors and for the requirements related to appointment to the audit committee, compensation committee or nominating, environmental, social and governance committee, as described below, means a shareholder with the ability to direct the activities of the company, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or its general manager. With respect to certain matters (including various related party transactions), a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a public company if no other shareholder holds more than 50% of the voting rights in the company, but excludes a shareholder whose power derives solely from his or her position as a director of the company or from any other position with the company.
Accordingly, we comply with Nasdaq rule 5605(b)(1), which requires that the board of directors be comprised of a majority of independent directors. A majority of our board of directors is composed of directors who are “independent” as defined by the rules of Nasdaq and all of the non-management directors qualify as “independent” under these standards. The board of directors has established categorical standards to assist it in making its determination of director independence. We use the definition of “independence” of Nasdaq to make this determination. Nasdaq Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of our company or any other individual having a relationship which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Nasdaq rules provide that a director cannot be considered independent if:
the director is, or at any time during the past three years was, an employee of our company;
the director or a family member of the director accepted any compensation from our company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service);
a family member of the director is, or at any time during the past three years was, an executive officer of our company;
the director or a family member of the director is a partner in, controlling shareholder of, or an executive officer of an entity to which our company made, or from which our company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions);
the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of our company served on the compensation committee of such other entity; or
the director or a family member of the director is a current partner of our outside auditor, or at any time during the past three years was a partner or employee of our outside auditor, and who worked on our audit.
Under the following three Nasdaq director independence rules a director is not considered independent: (a) Nasdaq Rule 5605(a)(2)(A), a director is not considered to be independent if he or she also is an executive officer or employee of our company, (b) Nasdaq Rule 5605(a)(2)(B), a director is not considered independent if he or she accepted any compensation from our company in excess of $120,000 during any period of twelve consecutive months within the three years preceding the determination of independence, and (c) Nasdaq Rule 5605(a)(2)(D), a director is not considered to be independent if he or she is a partner in, or a controlling shareholder or an executive officer of, any organization to which our company made, or from which our company received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenues for that year, or $200,000. Under such definitions, we have fiveseven independent directors.
The board of directors assesses on a regular basis, and at least annually, the independence of directors and makes a determination as to which members are independent. References to “our company” above include any subsidiary in a consolidated group with our company. The terms “immediate family member” and “executive officer” above have the same meanings specified for such terms in the Nasdaq listing standards.
However, as a foreign private issuer, we are permitted to comply with Israeli corporate governance practices instead of the Nasdaq corporate governance rules, provided that we disclose which requirements we are not following and the equivalent Israeli requirement. We intend to rely on this “home country practice exemption” solely with respect to the quorum requirement for shareholder meetings. As permitted under the Companies Law, pursuant to our Articles, the quorum required for an ordinary meeting of shareholders will consist of at least two shareholders present in person, by proxy or by other voting instrument in accordance with the Companies Law, who hold at least 25% of the voting power of its shares (and in an adjourned meeting, with some exceptions, any number of shareholders), instead of 33 1/3% of the issued share capital required under the Nasdaq corporate governance rules. We otherwise comply with the rules generally applicable to U.S. domestic companies listed on Nasdaq. We may in the future decide to use the foreign private issuer exemption with respect to some or all of the other corporate governance rules.
Chairperson of the Board
Our Articles provide that the chairperson of the board of directors is appointed by the members of the board of directors and serves as chairperson of the board of directors throughout his or her term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the chief executive officer (or any relative of the chief executive officer) may not serve as the chairperson of the board of directors, and the chairperson (or any relative of the chairperson) may not be vested with authorities of the chief executive officer without shareholder approval, for periods of up to three years each, consisting of a majority vote of the shares present and voting at a shareholders meeting, provided that either:
at least a majority of the shares of non-controlling shareholders or shareholders that do not have a personal interest in the approval voted at the meeting are voted in favor (disregarding abstentions); or
the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in such appointment voting against such appointment does not exceed 2% of the aggregate voting rights in the Company.
In addition, a person subordinated, directly or indirectly, to the chief executive officer may not serve as the chairperson of the board of directors; the chairperson of the board of directors may not be vested with authorities that are granted to those subordinated to the chief executive officer; and the chairperson of the board of directors may not serve in any other position in the Company or a controlled company, but he may serve as a director or chairperson of a subsidiary.
External Directors
Under the Companies Law, companies incorporated under the laws of the State of Israel that are public companies, including companies with shares listed on Nasdaq, are required to appoint at least two external directors who must meet heightened independence requirements. Pursuant to regulations promulgated under the Companies Law, companies with shares traded on certain U.S. stock exchanges, including Nasdaq, may, subject to certain conditions, opt out from the Companies Law requirements to appoint external directors and related Companies Law rules concerning the composition of the audit committee, compensation committee and nominating, environmental, social and governance committee of the board of directors. In accordance with these regulations, we elected to opt out from these Companies Law requirements. Instead, we must comply with the director independence requirements, the audit committee, the compensation committee and the nominating, environmental, social and governance committee composition requirements under U.S. laws (including applicable Nasdaq rules) applicable to U.S. domestic issuers.
Committees of the Board of Directors
Our board of directors has the following standing committees: an audit committee, a compensation committee and a nominating, environmental, social and governance committee.
Audit Committee
The audit committee is responsible, among its other duties and responsibilities, for overseeing our accounting and financial reporting processes, audits of financial statements, qualifications and independence of the independent registered public accounting firm, the effectiveness of internal control over financial reporting and the performance of the internal audit function and independent registered public accounting firm. The audit committee reviews and assesses the qualitative aspects of our financial reporting, processes to manage business and financial risks, and compliance with significant applicable legal, ethical and regulatory requirements. The audit committee is directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm. In addition, the audit committee is responsible for the following additional matters pursuant to the Companies Law:
recommending to the board of directors the retention and termination of the internal auditor, and the internal auditor’s engagement fees and terms, in accordance with the Companies Law as well as approving the yearly or periodic work plan proposed by the internal auditor;
reviewing with our general counsel and/or external counsel, as deemed necessary, legal and regulatory matters that could have a material impact on the financial statements;
identifying irregularities in our business administration, including by consulting with the internal auditor or with the independent auditor, and suggesting corrective measures to the board of directors;
reviewing policies and procedures with respect to transactions (other than transactions related to the compensation or terms of services) between the Company and officers and directors, or affiliates of officers or directors, or transactions that are not in the ordinary course of the Company’s business and deciding whether to approve such acts and transactions if so required under the Companies Law; and
establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to such employees.
The charter of the audit committee is available without charge at https://ir.innoviz.tech.
The members of the audit committee are Dan Falk, Ronit Maor and Orit Stav. Dan Falk serves as the Chairpersonchairperson of the audit committee. The board of directors has designated Dan Falk as an “audit committee financial expert” and determined that each member is “financially literate” under the Nasdaq rules. The board of directors has also determined that each member of the audit committee is “independent” as defined under the Nasdaq rules and Exchange Act rules and regulations.
Compensation Committee
The compensation committee is responsible, among its other duties and responsibilities, for reviewing and approving all forms of compensation to be provided to, and employment agreements with, our executive officers and directors, establishing the general compensation policies of our company and its subsidiaries and reviewing, approving and overseeing the administration of the employee benefits plans of our company and its subsidiaries. The compensation committee is also responsible for:
recommending to the board of directors with respect to the approval of the compensation policy for “office holders” (a term used under the Companies Law, which means, in effect, directors and executive officers) and, once every three years, regarding any extensions to a compensation policy that has been in effect for a period of more than three years;
reviewing the implementation of the compensation policy and periodically recommending to the board of directors with respect to any amendments or updates of the compensation plan;
resolving whether or not to approve arrangements with respect to the terms of office and employment of office holders; and
exempting, under certain circumstances, from the requirement of approval by the general meeting of shareholders, transactions with the chief executive officer of our company.
The charter of the compensation committee is available without charge at https://ir.innoviz.tech
The members of the compensation committee are Ronit Maor and Dan Falk. Ronit Maor serves as the Chairpersonchairperson of the compensation committee. The board of directors has determined that each member of the compensation committee is “independent” as defined under the Nasdaq listing standards. The compensation committee has the authority to retain compensation consultants, outside counsel and other advisers.
Compensation Policy Under the Companies Law
In general, under the Companies Law, a public company must have a compensation policy approved by the board of directors after receiving and considering the recommendations of the compensation committee. In addition, a compensation policy must be approved at least once every three years, first, by the public company’s board of directors, upon recommendation of its compensation committee, and second, by a simple majority of the ordinary shares present, in person or by proxy, and voting at a shareholders meeting, provided that either:
such majority includes at least a majority of the shares held by shareholders who are not controlling shareholders and do not have a personal interest in such compensation policy and who are present and voting (excluding abstentions); or
the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in the compensation policy and who vote against the policy, does not exceed 2% of the company’s aggregate voting rights.
In the event that the shareholders fail to approve the compensation policy in a duly convened meeting, the board of directors may nevertheless override that decision, provided that the compensation committee and then the board of directors decide, on the basis of detailed reasons and after further review of the compensation policy, that approval of the compensation policy is for the benefit of the company despite the failure of the shareholders to approve the policy.
If a company that adopts a compensation policy in advance of its initial public offering (or in our case, prior to the closing of the Business Combination) describes the policy in its prospectus for such offering, then that compensation policy shall be deemed validly adopted in accordance with the Companies Law and will remain in effect for term of five years from the date such company becomes a public company.
The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy must relate to certain factors, including advancement of the company’s objectives, business plan and long-term strategy, and creation of appropriate incentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensation policy must furthermore consider the following additional factors:
the education, skills, experience, expertise and accomplishments of the relevant office holder;
the office holder’s position, responsibilities and prior compensation agreements with him or her;
the ratio between the cost of the terms of employment of an office holder and the cost of the employment of other employees of the company, including employees employed through contractors who provide services to the company, in particular the ratio between such cost, the average and median salary of the employees of the company, as well as the impact of such disparities on the work relationships in the company;
if the terms of employment include variable components—the possibility of reducing variable components at the discretion of the board of directors and the possibility of setting a limit on the value of non-cash variable equity-based components; and
if the terms of employment include severance compensation—the term of employment or office of the office holder, the terms of his or her compensation during such period, the company’s performance during such period, his or her individual contribution to the achievement of the company goals and the maximization of its profits and the circumstances under which he or she is leaving the company.
The compensation policy must also include, among other things:
with regard to variable components of compensation:
with the exception of office holders who report directly to the chief executive officer, provisions determining the variable components on the basis of long-term performance and on measurable criteria; however, the company may determine that an immaterial part of the variable components of the compensation package of an office holder shall be awarded based on non-measurable criteria, if such amount is not higher than three monthly salaries per annum, while taking into account such office holder’s contribution to the company; and
the ratio between variable and fixed components, as well as the limit on the values of variable components at the time of their grant.
a condition under which the office holder will return to the company, according to conditions to be set forth in the compensation policy, any amounts paid as part of his or her terms of employment, if such amounts were paid based on information later to be discovered to be wrong, and such information was restated in the company’s financial statements;
the minimum holding or vesting period of variable equity-based components to be set in the terms of office or employment, as applicable, while taking into consideration long-term incentives; and
a limit on retirement grants.
Our compensation policy, which became effective immediately following the consummation of the Business Combination, is designed to promote retention and motivation of directors and executive officers, incentivize superior individual excellence, align the interests of our directors and executive officers with our long-term performance and provide a risk management tool. To that end, a portion of an executive officer compensation package is targeted to reflect our short and long-term goals, as well as the executive officer’s individual performance. On the other hand, our compensation policy includes measures designed to reduce an executive officer’s incentives to take excessive risks that may harm us in the long-term, such as limits on the value of cash bonuses and equity-based compensation, limitations on the ratio between the variable and the total compensation of an executive officer and minimum vesting periods for equity-based compensation.
The compensation policy also addresses our executive officers’ individual characteristics (such as their respective positions, education, scope of responsibilities and contribution to the attainment of its goals) as the basis for compensation variation among our executive officers and considers the internal ratios between compensation of our executive officers and directors and other employees. Pursuant to our compensation policy, the compensation that may be granted to an executive officer may include: base salary, annual bonuses and other cash bonuses (such as a signing bonus and special bonuses with respect to any special achievements, such as outstanding personal achievement, outstanding personal effort or outstanding company performance), equity-based compensation, benefits and retirement and termination of service arrangements. All cash bonuses are limited to a maximum amount linked to the executive officer’s base salary. In addition, the total variable compensation components (cash bonuses and equity-based compensation) may not exceed 95% of each executive officer’s total compensation package with respect to any given calendar year.
An annual cash bonus may be awarded to executive officers upon the attainment of pre-set periodic objectives and individual targets. The annual cash bonus that may be granted to our executive officers other than our Chief Executive Officer will be based on performance objectives and a discretionary evaluation of the executive officer’s overall performance by the Chief Executive Officer and subject to minimum thresholds. The annual cash bonus that may be granted to executive officers other than our chief executive officerChief Executive Officer may be based entirely on a discretionary evaluation. Furthermore, our Chief Executive Officer is entitled to recommend performance objectives, and such performance objectives will be approved by the compensation committee (and, if required by law, by our board of directors).
The measurable performance objectives of our Chief Executive Officer may be determined annually by our compensation committee and board of directors and include the weight to be assigned to each achievement in the overall evaluation. A less significant portion of the Chief Executive Officer’s annual cash bonus may be based on a discretionary evaluation of the Chief Executive Officer’s overall performance by the compensation committee and the board of directors based on quantitative and qualitative criteria.
The equity-based compensation under the compensation policy for our executive officers is designed in a manner consistent with the underlying objectives in determining the base salary and the annual cash bonus. Primary objectives include enhancing the alignment between the executive officers’ interests and our long-term interests and those of our shareholders and strengthening the retention and the motivation of executive officers in the long term. Our compensation policy provides for executive officer compensation in the form of share options or other equity-based awards, such as restricted shares, restricted share units and restrictedperformance share units, in accordance with our share incentive plan then in place. All equity-based incentives granted to executive officers shall be subject to vesting periods and/or performance milestones in order to promote long-term retention of the awarded executive officers. Equity-based compensation shall be granted from time to time and be individually determined and awarded according to the performance, educational background, prior business experience, qualifications, role and the personal responsibilities of the executive officer.
In addition, the compensation policy contains compensation recovery provisions which allows us under certain conditions to recover bonuses paid in excess, enables our Chief Executive Officer to approve immaterial changes in the terms of employment of an executive officer (provided that the changes of the terms of employment are in accordance our compensation policy) and allows us to exculpate, indemnify and insure our executive officers and directors subject to certain limitations as set forth therein.
The compensation policy also provides for compensation to the members of our board of directors either (i) in accordance with the amounts provided in the Companies Regulations (Rules Regarding the Compensation and Expenses of an External Director) of 2000, as amended by the Companies Regulations (Relief for Public Companies Traded in Stock Exchange Outside of Israel) of 2000, as such regulations may be amended from time to time, or (ii) in accordance with the amounts determined in the compensation policy.
Our compensation policy, which was approved by our board of directors and shareholders on January 20, 2021 and January 29, 2021, respectively, became effective upon the closing of the Business Combination.
Nominating, Environmental, Social and Governance Committee
The members of the nominating, environmental, social and governance committee are Orit Stav and Aharon Aharon. Orit Stav serves as the Chairpersonchairperson of the nominating, environmental, social and governance committee. The nominating, environmental, social and governance committee is responsible, among other things, for:
identify, review and evaluate candidates to serve as members of our board of directors, recommend to our board of directors nominees for election as directors of the Company, and review and evaluate incumbent members of the board of directors;
make recommendations to our board of directors regarding corporate governance guidelines and matters;
oversee all aspects of the Company’s corporate governance functions and ethical conduct; and
oversee the Company’s programs and strategies related to environmental, social and governance matters.
The charter of the nominating, environmental, social and governance committee is available without charge at https://ir.innoviz.tech.
Exculpation, Insurance and Indemnification of Office Holders
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, in whole or in part, for damages caused 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 include such a provision. An Israeli company may not exculpate a director from liability arising out of a prohibited dividend or distribution to shareholders.
An Israeli company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed as an office holder, either in advance of an event or following an event, provided a provision authorizing such indemnification is contained in its articles of association:
a financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the board of directors, can be foreseen based on the company’s activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detail the abovementioned events and amount or criteria;
| • | reasonable litigation expenses, including legal fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (i) no indictment was filed against such office holder as a result of such investigation or proceeding; and (ii) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; and (2) in connection with a monetary sanction; |
reasonable litigation expenses, including legal fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf or by a third-party or in connection with criminal proceedings in which the office holder was acquitted or as a result of a conviction for an offense that does not require proof of criminal intent; and
expenses, including reasonable litigation expenses and legal fees, incurred by an office holder in relation to an administrative proceeding instituted against such office holder, or certain compensation payments made to an injured party imposed on an office holder by an administrative proceeding, pursuant to certain provisions of the Israeli Securities Law, 1968 (the “Israeli Securities Law”).
An Israeli company may insure an office holder against the following liabilities incurred for acts performed as an office holder if and to the extent provided in the company’s articles of association:
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 the duty of care to the company or to a third-party, including a breach arising out of the negligent conduct of the office holder;
a financial liability imposed on the office holder in favor of a third-party;
a financial liability imposed on the office holder in favor of a third-party harmed by a breach in an administrative proceeding; and
expenses, including reasonable litigation expenses and legal fees, incurred by the office holder as a result of an administrative proceeding instituted against him or her, pursuant to certain provisions of the Israeli Securities Law.
An Israeli company may not indemnify or insure an office holder against any of the following:
a breach of the duty of loyalty, except 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 the 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 and the chief executive officer, by the shareholders). However, under regulations promulgated under the Companies Law, the insurance of office holders does not require shareholder approval and may be approved by only the compensation committee, if the engagement terms are determined in accordance with the company’s compensation policy, which was approved by the shareholders by the same special majority required to approve a compensation policy, provided that the insurance policy is on market terms and the insurance policy is not likely to materially impact the company’s profitability, assets or obligations.
Our Articles allow us to exculpate, indemnify and insure our office holders for any liability imposed on them as a consequence of an act (including any omission) which was performed by virtue of being an office holder to the fullest extent permitted under applicable law. Our office holders are currently covered by a directors and officers’ liability insurance policy.
We have entered into agreements with certain of our directors and executive officers exculpating them in advance from liability to us for damages caused to us as a result of a breach of duty of care, and undertaking to indemnify them to the fullest extent permitted by law. This indemnification is limited to events determined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances.
The maximum indemnification amount set forth in such agreements is limited to an amount equal to the higher of $40,000,000 and 25% of our total shareholders’ equity on a consolidated basis as reflected in our most recent consolidated financial statements prior to the date on which the indemnity payment is made (other than indemnification for an offering of securities to the public, including by a shareholder in a secondary offering, in which case the maximum indemnification amount is limited to the gross proceeds raised by us and/or any selling shareholder in such public offering). The maximum amount set forth in such agreements is in addition to any amount paid (if paid) under insurance and/or by a third-party pursuant to an indemnification arrangement.
In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy and therefore unenforceable.
There is no pending litigation or proceeding against any of our office holders as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any office holder.
Internal Auditor
Under the Companies Law, the board of directors of a public company must appoint an internal auditor based on the recommendation of the audit committee. The role of the internal auditor is, among other things, to examine whether a company’s actions comply with applicable law and orderly business procedure. Under the Companies Law, the internal auditor cannot be an interested party or an office holder or a relative of an interested party or an office holder, nor may the internal auditor be the company’s independent auditor or its representative. An “interested party” is defined in the Companies Law as: (i) a holder of 5% or more of the issued share capital or voting power in a company, (ii) any person or entity who has the right to designate one or more directors or to designate the chief executive officer of the company, or (iii) any person who serves as a director or as a chief executive officer of the company.
Ms. Sharon Cohen, CPA from Deloitte IL & Co, a firm in the Deloitte Global Network serves as our internal auditor.
D. Employees
We believe that our corporate culture and our relationship with our employees contribute to our success. Our employees are continuously innovating, and our structure rewards productivity. As of December 31, 2022,2023, we had 468488 employees.
On January 31, 2024, we announced a strategic realignment of our operations to expand our cash runway and optimize our path towards profitability and free cash flow generation, which included a reduction in the company’s headcount by approximately 13% during the first quarter of 2024.
In regard to our Israeli employees, Israeli labor laws govern the length of the workday, minimum wages for employees, procedures for hiring and dismissing employees, determination of severance pay, annual leave, sick days, advance notice of termination of employment, equal opportunity and anti-discrimination laws and other conditions of employment. Subject to certain exceptions, Israeli law generally requires severance pay upon the retirement, death or dismissal of an employee, and requires us and our employees to make payments to the National Insurance Institute, which is similar to the U.S. Social Security Administration. Our employees have pension plans that comply with the applicable Israeli legal requirements, and we make monthly contributions to severance pay funds for all employees, which cover potential severance pay obligations.
None of our employees work under any collective bargaining agreements. Extension orders issued by the Israeli government apply to us and affect matters such as cost of living adjustments to salaries, length of working hours and week, recuperation pay, travel expenses and pension rights.
We have never experienced labor-related work stoppages or strikes and believe that our relations with our employees are satisfactory.
E. Share Ownership
For information regarding the share ownership of directors and officers, see Item 7.A. “Major Shareholders and Related Party Transactions—Major Shareholders.” For information as to our equity incentive plans, see Item 6.B. “Directors, Senior Management and Employees—Compensation of Directors and Executive Officers —Share Option Plans.”
F. Disclosure of a registrant’s action to recover erroneously awarded compensation
None.
Item 7. | Major Shareholders and Related Party Transactions |
A. Major Shareholders
The following table sets forth information with respect to the beneficial ownership of our shares as of February 15, 2023March 1, 2024 by:
each person or entity known by us to own beneficially more than 5% of our outstanding shares;
each of our directors and executive officers individually; and
all of our executive officers and directors as a group.
The beneficial ownership of ordinary shares is determined in accordance with the SEC rules and generally includes any ordinary shares over which a person exercises sole or shared voting or investment power. For purposes of the table below, we deem shares subject to options that are currently exercisable or exercisable within 60 days as of February 15, 2023,March 1, 2024, and restricted share units that shall vest within 60 days of February 15 , 2023,March 1, 2024, to be outstanding and to be beneficially owned by the person holding the options or restricted share units 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. The percentage of shares beneficially owned is based on 136,321,581165,839,801 ordinary shares outstanding as of February 15, 2023.March 1, 2024.
All of our shareholders, including the shareholders listed below, have the same voting rights attached to their ordinary shares. Unless otherwise noted below, each shareholder’s address is 5 Uri Ariav Street, Building C, Rosh HaAin 4809202, Israel.
A description of any material relationship that our principal shareholders have had with us or any of our affiliates since January 1, 20222023 is included under Item 7.B. “Major Shareholders and Related Party Transactions—Related Party Transactions.”
Name of Beneficial Owner | | Number | | | % | |
Five Percent or More Holders | | | | | | |
Antara Capital LP(1) | | | 13,651,009 | | | | 10.8 | % |
Bank of American Corporation(2) | | | 9,359,411 | | | | 6.9 | % |
FIFTHDELTA LTD (3) | | | 9,337,413 | | | | 6.8 | % |
Magma Venture Capital Management (IV) LP(4) | | | 8,576,206 | | | | 6.3 | % |
Cowen and Company, LLC and Cowen Financial Products LLC(5) | | | 6,916,390 | | | | 5.1 | % |
| | | | | | |
Directors and Executive Officers | | | | | | |
Omer Keilaf(6) | | | 6,874,364 | | | | 5.0 | % |
Eldar Cegla(7) | | | 438,998 | | | | * | |
Tali Chen
| | | — | | | | — | |
Oren Buskila(8) | | | 2,961,692 | | | | 2.2 | % |
Udy Gal-On(9) | | | 90,572 | | | | * | |
Amichai Steimberg(10) | | | 33,354 | | | | * | |
Aharon Aharon(10) | | | 33,354 | | | | * | |
Dan Falk(10) | | | 33,354 | | | | * | |
Ronit Maor(10) | | | 33,354 | | | | * | |
James Sheridan(11) | | | 3,173,601 | | | | 2.3 | % |
Orit Stav(10) | | | 33,354 | | | | * | |
All executive officers and directors as a group (11 persons) | | | 13,706,000 | | | | 9.6 | % |
Name of Beneficial Owner | | Number | | | % | |
Five Percent or More Holders | | | | | | |
Antara Capital LP (1) | | | 18,627,642 | | | | 11.2 | % |
Citigroup Global Markets Inc. (2) | | | 11,635,265 | | | | 7.0 | % |
FIFTHDELTA LTD (3) | | | 8,728,403 | | | | 5.3 | % |
| | | | | | | | |
Directors and Executive Officers | | | | | | | | |
Omer Keilaf (4) | | | 4,578,590 | | | | 2.7 | % |
Eldar Cegla (5) | | | 483,586 | | | | * | |
Elad Hofstetter (6) | | | 108,903 | | | | * | |
Avishay Moscovici (7) | | | 271,375 | | | | * | |
Udy Gal-On (8) | | | 164,441 | | | | * | |
Amichai Steimberg (9) | | | 211,255 | | | | * | |
Aharon Aharon (10) | | | 63,503 | | | | * | |
Dan Falk (10) | | | 63,503 | | | | * | |
Ronit Maor (10) | | | 63,503 | | | | * | |
Orit Stav (10) | | | 63,503 | | | | * | |
James Sheridan (11) | | | 3,186,172 | | | | 1.9 | % |
Alexander von Witzleben (12) | | | 15,274 | | | | * | |
Stefan Jacoby (13) | | | 10,500 | | | | * | |
All executive officers and directors as a group (13 persons) | | | 9,284,108 | | | | 5.4 | % |
(1) | Based on information reported on Schedule 13G/A filed with the SEC on February 14, 2023.2024 and other information available to the Company, Antara Capital Master Fund LP (“Antara Master Fund”) directly holds 3,814,112865,900 ordinary shares and options to purchase 6,003,200 ordinary shares. Certain managed accounts for which Antara Capital LP (“Antara Capital”) serves as investment manager (the “Managed Accounts”) directly hold 2,807,7283,527,850 ordinary shares. In addition, Antara Master Fund directly holds warrants to purchase 7,029,1698,230,692 ordinary shares at an exercise price of $11.50 per share.ordinary share, which are presently exercisable, and will expire five years after April 5, 2021 or earlier upon redemption or liquidation. The foregoing amounts do not include 312,296 ordinary shares to be issued to Antara Master Fund upon the satisfaction of certain earn-out conditions. Antara Capital is the investment manager of the Antara Master Fund and the Managed Accounts. Antara Capital GP LLC (“Antara GP”) is the general partner of Antara Capital. Himanshu Gulati (“Mr. Gulati”) is the sole member of Antara GP. Antara Capital, Antara GP and Mr. Gulati may be deemed to beneficially own the securities of Innovizthe company held directly by Antara Master Fund and the Managed Accounts. The business address of the foregoing persons is 55 Hudson Yards, 47th Floor, Suite C, New York, NY 10001. |
(2) | Based on information reported on Schedule 13G filed with the SEC on February 14, 2023. Bank12, 2024, each of America Corporation on behalf of itselfCitigroup Global Markets Inc. (“CGM”), Citigroup Financial Products Inc. (“CFP”), Citigroup Global Markets Holdings Inc.(“CGM Holdings”) and its wholly owned subsidiaries Bank of America N.A., Merrill Lynch International and Merrill Lynch Pierce Fenner & Smith,Citigroup Inc. (“Citigroup”), has the shared power to vote or direct to vote 9,357,17311,635,265 ordinary shares and the shared power to dispose or to direct the disposition of 9,359,41111,635,265 ordinary shares. The business address of the foregoing reporting personseach of CGM, CFP, CGM Holdings and Citigroup is, Bank of America Corporate Center, 100 N Tryon St., Charlotte, NC 28255.388 Greenwich Street, New York, NY 10013. |
(3) | Based on information reported on Schedule 13G/A filed with the SEC on February 13, 2023.12, 2024, FIFTHDELTA Master Fund Limited (the “Master Fund”), an exempted company incorporated in the Cayman Islands with limited liability, directly holds 9,337,4138,728,403 ordinary shares. FIFTHDELTA LTD (the “Manager”), a private limited company organized under the laws of England and Wales, serves as investment manager to the Master Fund and has discretionary and voting power over the ordinary shares held by the Master Fund. Accordingly, the Manager may be deemed to be the beneficial owner of 9,337,4138,728,403 ordinary shares which are held by the Master Fund. The Manager disclaims beneficial ownership of the Shares of the Issuer held by the Master Fund, except to the extent of any pecuniary interest therefrom. The business address of the Manager is 15 Sackville Street, 1st Floor, London W1S 3DJ, United Kingdom and the business address for the Master Fund is c/o Walkers Corporate Limited, 190 Elgin Avenue, George Town, Grand Cayman, KY1-9008, Cayman Islands. |
(4) | Based on information reported on Schedule 13G/A filed with the SEC on February 7, 2023. Magma Venture Capital IV CEO Fund, L.P. (“Magma IV CEO”) directly holds 235,086 ordinary shares. Magma Venture Capital IV, L.P. (“Magma IV”) directly holds 8,341,120 ordinary shares. Magma Venture Capital Management IV, L.P. (“Magma Management IV”) is the sole general partnerConsists of Magma IV CEO and Magma IV. Magma Venture Partners General Partner Ltd. (“Magma General Partner”) is the sole general partner of Magma Management IV. Yahal Zilka and Modi Rosen are each the beneficial owners of 50% of the outstanding shares of Magma General Partner. Each of the foregoing persons disclaims beneficial ownership of the ordinary shares except to the extent of its or his (as applicable) pecuniary interest (if any) therein. The business address of the foregoing reporting persons is c/o 22 Rothschild Blvd., 25 floor, Tel Aviv, 6688218, Israel.
|
(5) | Based on information reported based on Schedule 13G filed with the SEC on November 2, 2022. Cowen and Company, LLC has the sole power to vote and dispose of 220,0002,772,753 ordinary shares and Cowen Financial Products LLC has the sole power to vote and dispose of 6,696,390 ordinary shares. The business address of the foregoing reporting persons is 599 Lexington Ave., New York, NY 10022.
|
(6) | Consists of 5,353,028 ordinary shares and 1,521,3361,805,837 ordinary shares issuable upon vesting of RSUs or exercise of options that are exercisable as of or within 60 days of February 15, 2023.March 1, 2024.
|
(7)(5) | Consists of 149,437173,863 ordinary shares and 289,561309,723 ordinary shares issuable upon vesting of RSUs or exercise of options that are exercisable as of or within 60 days of February 15, 2023.March 1, 2024. |
(8)(6) | Consists of 1,645,30418,242 ordinary shares and 1,316,38890,661 ordinary shares issuable upon vesting of RSUs or exercise of options that are exercisable as of or within 60 days of February 15, 2023.March 1, 2024. |
(9)(7) | Consists of 15,15774,029 ordinary shares and 75,418197,346 ordinary shares issuable upon vesting of RSUs or exercise of options that are exercisable as of or within 60 days of March 1, 2024. |
(8) | Consists of 44,304 ordinary shares and 120,137 ordinary shares issuable upon vesting of RSUs or exercise of options that are exercisable within 60 days of February 15, 2023.March 1, 2024. |
(9) | Consists of 83,354 ordinary shares and 127,901 ordinary shares issuable upon vesting of RSUs or exercise of options that are exercisable within 60 days of March 1, 2024. |
(10) | Consists of (a) 10,14233,354 ordinary shares and (b) 23,21230,149 ordinary shares issuable upon vesting of RSUs that vest within 60 days of February 15, 2023.March 1, 2024. |
(11) | Consists of (a) 10,14233,354 ordinary shares and (b) 23,21230,149 ordinary shares issuable upon vesting of RSUs that vest within 60 days of February 15, 2023,March 1, 2024. In addition, Perception Capital Partners, LLC directly holds 75,000 ordinary shares and 3,065,2473,047,669 warrants to purchase ordinary shares at a price of $11.50 per share. Mr. Sheridan is the Chief Executive Officer of Perception Capital Partners, LLC and may be deemed to be the beneficial owner of the securities held by Perception Capital Partners, LLC. |
(12) | Consists of 15,274 ordinary shares issuable upon vesting of RSUs that vest within 60 days of March 1, 2024. |
(13) | Consists of 10,500 ordinary shares issuable upon vesting of RSUs that vest within 60 days of March 1, 2024. |
To our knowledge, other than as disclosed in the table above, our other filings with the SEC and this Annual Report, there has been no significant change in the percentage ownership held by any major shareholder since January 1, 2019.2021. The major shareholders listed above do not have voting rights with respect to their ordinary shares that are different from the voting rights of other holders of our ordinary shares.
As a number of our shares are held in book-entry form, we are not aware of the identity of all of our shareholders. As of February 15, 2023,March 1, 2024, we had 128,94775,464 ordinary shares held by 53 U.S. resident shareholders of record.
B. Related Party Transactions
The following is a description of our related party transactions since January 1, 2022.2023.
Registration Rights Agreement
Concurrently with the execution of the Business Combination Agreement, Innoviz, certain equityholders of Innoviz, certain equityholders of Collective Growth, Perception and Antara entered into a registration rights agreement (the “Registration Rights Agreement”), pursuant to which Innoviz agreed to file a shelf registration statement with respect to the registrable securities defined therein within 60 days of the closing of the Business Combination. Certain holders of registrable securities under the Registration Rights Agreement may request to sell all or any portion of their registrable securities in an underwritten offering up to twice in any 12-month period so long as the total offering price is reasonably expected to exceed $75.0 million. Innoviz also agreed to provide customary “piggyback” registration rights. The Registration Rights Agreement also provides that Innoviz will pay certain expenses relating to such registrations and indemnify the shareholders against certain liabilities. The Registration Rights Agreement does not contemplate the payment of penalties or liquidated damages to the equityholders party thereto as a result of a failure to register, or delays with respect to the registration of, the registrable securities.
Put Option Agreement
Concurrently with the execution of the Business Combination Agreement, Innoviz and Antara entered into the Put Option Agreement, pursuant to which Innoviz caused Antara to subscribe for a number of Innoviz ordinary shares in the PIPE with an aggregate equity value equal to $70,000,000. In consideration for entering into the Put Option Agreement, at the Effective Time (as defined in the Put Option Agreement), Innoviz issued to an affiliate of Antara 3,784,753 warrants and 3,002,674 ordinary shares. In addition, Innoviz agreed to issue to an affiliate of Antara 312,296 ordinary shares in the event that earnout shares are issued to Perception.
Agreements with Directors and Officers
Options, restricted share units and performance share units. Since our inception, we have granted restricted share units, performance share units and options to purchase our ordinary shares to our executive officers. We describe our option plans under Item 6. “Directors, Senior Management and Employees.”
Exculpation, indemnification and insurance. Our Articles permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted by the Companies Law. We have entered into agreements with certain of our office holders, exculpating them from a breach of their duty of care to us to the fullest extent permitted by law and undertaking to indemnify them to the fullest extent permitted by law, subject to certain exceptions, including with respect to liabilities resulting from our initial public offering to the extent that these liabilities are not covered by insurance. See Item 6.C. “Directors, Senior Management and Employees—Board Practices—Exculpation, Insurance and Indemnification of Office Holders.”
Rights of Appointment. As part of the Business Combination, our Articles include a provision which provides that Perception has the right to appoint, replace and remove one director to our board of directors so long it beneficially holds, together with any permitted transferee, in the aggregate at least 1,513,874 of our ordinary shares, which is equal to fifty percent (50%) of the total number of our ordinary shares Perception beneficially owned as of the date of the adoption of our Articles.
Transaction with RavTech71
RavTech has provided engineering and operator services to the Company since December 2019. Fees paid to RavTech during fiscal years 2022, 2021 and 2020 were $0, $100,000, and $71,000, respectively. Orit Stav, a director of the Company as of April 2021, is a director of RavTech. There are no amounts due to RavTech as of February 15, 2023.
Related Party Transaction Policy
Our board of directors has adopted a written related party transaction policy to set forth the policies and procedures for identifying related party transactions.
C. Interests of Experts and Counsel
Not applicable.
Item 8. | Financial Information |
A. Consolidated Statements and Other Financial Information
Consolidated Financial Statements
See Item 18. “Financial Statements.”
Legal and Arbitration Proceedings
From time to time, we may become involved in actions, claims suits, and other legal proceedings arising in the ordinary course of our business, including assertions by third parties relating to intellectual property infringement, breaches of contract or warranties or employment-related matters. We are not currently a party to any material actions, claims, suits or other legal proceedings the outcome of which, if determined adversely to it, would individually or in the aggregate have a material adverse effect on our business, financial condition, and results of operations.
Dividend Policy
We have never declared or paid any dividends on our ordinary shares. We do not anticipate paying any dividends in the foreseeable future. We currently intend to retain future earnings, if any, to finance operations and expand our business. Our board of directors has sole discretion whether to pay dividends. If our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that our directors may deem relevant.
The Companies Law imposes restrictions on our ability to declare and pay dividends. See Item 5. “Operating and Financial Review and Prospects.”
Payment of dividends may be subject to Israeli withholding taxes. See Item 10.E. “Taxation—Taxation and Government Programs—Israeli Tax Considerations and Government Programs” for additional information.
B. Significant Changes
None.
Item 9. | The Offer and Listing |
A. Offer and Listing Details
Our ordinary shares and warrants commenced trading on Nasdaq on April 6, 2021 under the trading symbols “INVZ” and “INVZW,” respectively. Prior to this, no public market existed for our ordinary shares or warrants.
B. Plan of Distribution
Not applicable.
C. Markets
Our ordinary shares and warrants commenced trading on Nasdaq on April 6, 2021 under the trading symbols “INVZ” and “INVZW,” respectively. Prior to this, no public market existed for our ordinary shares or warrants.
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. Memorandum and Articles of Association
A copy of our Articles is incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form F-3 (File No. 333‑265170) filed with the SEC on May 24, 2022. Other than as set forth below, the information called for by this Item is set forth in Exhibit 2.1 to this Annual Report and is incorporated by reference herein.
Share Capital
As of December 31, 2022,2023, we had 136,185,264165,387,098 ordinary shares and 16,231,141 warrants outstanding.
Exchange Controls
There are currently no Israeli currency control restrictions on remittances of dividends on our ordinary shares, proceeds from the sale of the ordinary shares or interest or other payments to non-residents of Israel, except for shareholders who are subjects of countries that are, or have been, in a state of war with Israel.
Shareholder Meetings
Under Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year that must be held no later than 15 months after the date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to in our Articles as “special general meetings”. Our board of directors may call special general meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law provides that our board of directors is required to convene a special general meeting upon the written request of (i) any two or more of our directors or one-quarter or more of the serving members of our board of directors or (ii) one or more shareholders holding, in the aggregate, either (a) 5% or more of our outstanding issued shares and 1% or more of our outstanding voting power or (b) 5% or more of our outstanding voting power.
Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetings are the shareholders of record on a date to be decided by the board of directors, which, as a company listed on an exchange outside Israel, may be between four and 40 days prior to the date of the meeting. Furthermore, the Companies Law requires that resolutions regarding the following matters must be passed at a general meeting of our shareholders:
amendments to our articles of association;
appointment, termination or the terms of service of our auditors;
appointment of external directors (if applicable);
approval of certain related party transactions;
increases or reductions of our authorized share capital;
the exercise of our board of director’s powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of its powers is required for our proper management.
The Companies Law requires that a notice of any annual general meeting or special general meeting be provided to shareholders at least 21 days prior to the meeting and if the agenda of the meeting includes, among other things, the appointment or removal of directors, the approval of transactions with office holders or interested or related parties or the approval of a merger, notice must be provided at least 35 days prior to the meeting. Under the Companies Law, shareholders are not permitted to take action by way of written consent in lieu of a meeting.
C. Material Contracts
The following is a summary of each material contract, other than material contracts entered into in the ordinary course of business, to which we are or have been a party, for the two years immediately preceding the date of this Annual Report:
| • | Form of Indemnification Agreement (incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement on Form F-4 (File No. 333-252023) filed with the SEC on February 12, 2021). See Item 6. “Directors, Senior Management and Employees” for more information about this agreement. |
| • | Compensation Policy for Directors and Officers (incorporated by reference to Exhibit 10.13 to the Company’s Registration Statement on Form F-4 (File No. 333-252023) filed with the SEC on February 12, 2021). See Item 6. “Directors, Senior Management and Employees” for more information about this agreement. |
| • | 2016 Share Incentive Plan of Innoviz Technologies Ltd. (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form F-4 (File No. 333-252023) filed with the SEC on February 12, 2021). See Item 6. “Directors, Senior Management and Employees” for more information about this agreement. |
| • | 2021 Share Incentive Plan of Innoviz Technologies Ltd. (incorporated by reference to Exhibit 4.4 to the Company’s Annual Report on Form 20-F filed with the SEC on March 30, 2022). See Item 6. “Directors, Senior Management and Employees” for more information about this agreement. |
Warrant Agreement, dated as of April 30, 2020, between Continental Stock Transfer & Trust Company and Collective Growth Corporation (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form F-4 (File No. 333-252023) filed with the SEC on January 11, 2021). See Exhibit 2.1 for more information about this agreement.
Assignment, Assumption and Amendment Agreement, by and among Innoviz Technologies Ltd., Collective Growth Corporation, American Stock Transfer & Trust Company and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.11 to the Company’s Annual Report on Form 20-F filed with the SEC on April 21, 2021). See Exhibit 2.1 for more information about this agreement.
| • | Registration Rights Agreement, dated as of December 10, 2020, by and among Innoviz, certain equityholders of Innoviz, certain equityholders of Collective Growth, Perception and Antara Capital (incorporated by reference to Exhibit 4.8 to the Company’s Registration Statement on Form F-4 (File No. 333-252023) filed with the SEC on January 11, 2021). See Item 7.B. “Major Shareholders and Related Party Transactions—Related Party Transactions” for more information about this agreement. |
| • | Put Option Agreement, dated as of December 10, 2020, by and between Innoviz and Antara Capital (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form F-4 (File No. 333-252023) filed with the SEC on January 11, 2021). See Item 7.B. “Major Shareholders and Related Party Transactions—Related Party Transactions” for more information about this agreement. |
Magna Joint Development and Master Supply Agreement
In December 2017, we entered into a Joint Development and Master Supply Agreement (“JDMSA”) with Magna incorporated by reference to Exhibit 10.15 to the Company’s Registration Statement on Form F-4 (File No. 333-252023) filed with the SEC on January 11, 2021) pursuant to which the parties agreed to work together to jointly develop and commercialize various LiDAR-related technologies. This agreement provides the framework for the collaboration between Magna as a leading Tier-1 partner and our company as a leading LiDAR company. The initial term of this agreement is eight years with automatic renewals of 1-year periods thereafter, subject in each case to mutual termination rights in the event of material breach, insolvency or bankruptcy.
BMW SOW
In connection with the JDMSA, in February 2018, we entered into the BMW SOW with Magna Electronics Europe GmbH & Co. OHG (incorporated by reference to Exhibit 10.16 to the Company’s Registration Statement on Form F-4 (File No. 333-252023) filed with the SEC on January 11, 2021) describing the services to be performed and deliverables to be provided to BMW, to equip Innoviz LiDAR products into BMW’s Level 3 vehicle platform.
The parties have mutual termination rights, including in the event of a material breach by the other party. Serial production volumes will ultimately be highly dependent on numerous factors and therefore are binding only upon issuance of a purchase order.
In 2019, the parties signed an amendment to the BMW SOW (incorporated by reference to Exhibit 10.17 to the Company’s Registration Statement on Form F-4 (File No. 333-252023) filed with the SEC on January 11, 2021), under which BMW advanced certain payments due under the BMW SOW in consideration for development activities and delivery of early samples to Magna Electronics Europe by the end of August 2019.
Magna Manufacturing MOU
In October 2020, Innoviz signed a memorandum of understanding with Magna Electronics Technology, Inc. (the “Magna MOU”) (incorporated by reference to Exhibit 10.18 to the Company’s Registration Statement on Form F-4 (File No. 333-252023) filed with the SEC on January 11, 2021) for high-volume manufacturing of Innoviz LiDARs at Magna’s automotive grade facility in Holly, Michigan. The Magna MOU contemplates Magna’s manufacturing of our LiDAR solution for the BMW program. The MOU has been in effect since October 2020 and has been periodically extended since.until replaced by the Magna Agreement, as set forth below.
Lease Agreement
Our corporate headquarters are located in Rosh HaAin, Israel, where we currently lease an office with approximately 16,350 square meters pursuant to the Lease Agreement (incorporated by reference to Exhibit 4.14 to the Company’s Annual Report on Form 20-F for the Year Ended December 31, 2021 filed with the SEC on March 30, 2022). This facility contains engineering, research and development, testing, product, sales and administrative functions. The initial term under the Lease Agreement is for 67 months and expires on January 31, 2028. We have an option under the Lease Agreement to renew the lease for additional 60 months, which will be exercised automatically unless we inform the lessor in advance.
| • | Electronic Nomination Agreement with Cariad SE (a Volkswagen group company) |
Electronic Nomination Agreement with Cariad SE (a Volkswagen group company)
In December 2022, Innoviz and Cariad SE executed an electronic nomination agreement (the “eNA”) (incorporated by reference to Exhibit 4.15 to the Company’s Annual Report on Form 20-F for the Year Ended December 31, 2022 filed with the SEC on March 9, 2023) pursuant to which Cariad commissioned Innoviz to develop, manufacture and deliver InnovizTwo LiDARs.
Cariad has the right to terminate the eNA under certain circumstances, including (a) if Innoviz does not meet the prerequisites for series production of the products that are the subject matter of the eNA, and (b) if Innoviz enters into insolvency proceedings.
Agreement with Magna regarding Manufacturing of InnovizOne for the BMW Program
In December 2023, Innoviz signed an agreement with Magna Electronics Technology, Inc., and Magna Electronics Europe GmbH & Co. OHG (the “Magna Agreement”), addressing the high-volume manufacturing of Innoviz LiDARs at Magna’s automotive grade facility in Holly, Michigan, for the BMW program.
D. Exchange Controls
There are currently no Israeli currency control restrictions on remittances of dividends on our ordinary shares, proceeds from the sale of the ordinary shares or interest or other payments to non-residents of Israel, except for shareholders who are subjects of countries that are, or have been, in a state of war with Israel.
E. Taxation
Taxation and Government Programs
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 and warrants. 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.
Material Israeli Tax Considerations and Government Programs
The following is a brief summary of the material Israeli tax laws applicable to us, and certain Israeli Government programs that benefit us. This section also contains a discussion of material Israeli tax consequences concerning the purchase, ownership and disposition of our ordinary shares. This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of such investors include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent that the discussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion. The discussion below is subject to change, including due to amendments under Israeli law or changes to the applicable judicial or administrative interpretations of Israeli law, which change could affect the tax consequences described below.
General corporate tax structure in Israel. Israeli companies are generally subject to corporate income tax. In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years) which reduces the corporate income tax rate from 25% to 24% effective from January 1, 2017, and to 23% effective from January 1, 2018.2018 onwards. However, the effective tax rate payable by a company that derives income from an Approved Enterprise, a Preferred Enterprise, a Special Preferred Enterprise, a BeneficiaryBenefited Enterprise, a Preferred Technological Enterprise or a TechnologySpecial Preferred Technological Enterprise (as discussed below) may be considerably less. Capital gains derived by an Israeli company are generally subject to the corporate income tax rate.
Law for the Encouragement of Industry (Taxes), 5729-1969. The Law for the Encouragement of Industry (Taxes), 5729-1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for “Industrial Companies.” We believe that we currently qualify as an Industrial Company within the meaning of the Industry Encouragement Law.
The Industry Encouragement Law definesand the regulations promulgated thereunder provide that an “Industrial Company” asis an Israeli resident-company, of which 90% or more of its income in any tax year, other than income from certain government loans, capital gains, dividends and interest and linkage differentials, is derived from an “Industrial Enterprise” owned by it and located in Israel or in the “Area”, in accordance with the definition under section 3A of the Ordinance. An “Industrial Enterprise” is defined as an enterprise whose principal activity in a given tax year is industrial production.
Following are the main tax benefits available to Industrial Companies:
Amortization of the cost of purchased patent,patents, rights to use a patent, and know-how, which are used for the development or advancement of the Industrial Enterprise, over an eight-year period, commencing on the year in which such rights were first exercised;the Industrial Company began to use them;
Under limited conditions, an election to file consolidated tax returns with controlled Israeli Industrial Companies; and
Expenses related to a public offering are deductible in equal amounts over three years commencing on the year of the offering.
Eligibility for benefits under the Industry Encouragement Law is not contingent upon approval of any governmental authority.
Tax benefits and grants for research and development. Israeli tax law allows, under certain conditions, a tax deduction for expenditures, including capital expenditures, for the year in which they are incurred. Expenditures are deemed related to scientific research and development projects, if:
The expenditures are approved by the relevant Israeli government ministry, determined by the field of research;
The research and development must be for the promotion of the company; and
The research and development is carried out by or on behalf of the company seeking such tax deduction.
The amount of such deductible expenses is reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects. No deduction under these research and development deduction rules is allowed if such deduction is related to an expense invested in an asset depreciable under the general depreciation rules of the Ordinance. Expenditures that are unqualified under the conditions above are deductible in equal amounts over three years.years commencing in the year of the payment of such expenses.
From time to time we may apply to the Israel Innovation AuthorityIIA for approval to allow a tax deduction for all or most of research and development expenses during the year incurred. There can be no assurance that such application will be accepted. If we will not be able to deduct research and development expenses during the year of the payment, we will be able to deduct research and development expenses during a period of three years commencing in the year of the payment of such expenses.
Law for the Encouragement of Capital Investments, 5719-1959. The Law for the Encouragement of Capital Investments, 5719-1959, generally referred to as the Investment Law, provides certain incentives for capital investments in production facilities (or other eligible assets).
The Investment Law was significantly amended effective as of April 1, 2005 (the “2005 Amendment”), as of January 1, 2011 (the “2011 Amendment”) and as of January 1, 2017 (the “2017 Amendment”). Pursuant to the 2005 Amendment, tax benefits granted in accordance with the provisions of the Investment Law prior to its revision by the 2005 Amendment remain in force, but any benefits granted subsequently are subject to the provisions of the amended Investment Law. Similarly, the 2011 Amendment introduced new benefits to replace those granted in accordance with the provisions of the Investment Law in effect prior to the 2011 Amendment. However, companies entitled to benefits under the Investment Law as in effect prior to January 1, 2011 were entitled to choose to continue to enjoy such benefits, provided that certain conditions are met, or elect instead, irrevocably, to forego such benefits and have the benefits of the 2011 Amendment apply. The 2017 Amendment introduces new benefits for Technological Enterprises, alongside the existing tax benefits.
Tax benefits under the 2011 amendment. The 2011 Amendment cancelled the availability of the benefits granted to Industrial Companies under the Investment Law prior to 2011 and, instead, introduced new benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in the Investment Law) as of January 1, 2011. The definition of a Preferred Company includes a company incorporated in Israel that is not fully owned by a governmental entity, and that has, among other things, Preferred Enterprise status and is controlled and managed from Israel. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 15% with respect to its income derived by its Preferred Enterprise in 2011 and 2012, unless the Preferred Enterprise is located in a specified development zone, in which case the rate will be 10%. Under the 2011 Amendment, such corporate tax rate was reduced from 15% and 10%, respectively, to 12.5% and 7%, respectively, in 2013, 16% and 9% respectively, in 2014, 2015 and 2016, and 16% and 7.5%, respectively, in 2017 and thereafter. Income derived by a Preferred Company from a “Special Preferred Enterprise” (as such term is defined in the Investment Law) would be entitled, during a benefits period of 10 years, to further reduced tax rates of 8%, or 5% if the Special Preferred Enterprise is located in a certain development zone.
Dividends distributed from income which is attributed to a “Preferred Enterprise” will be subject to withholding tax at source at the following rates: (i) Israeli resident corporations – 0%, (although, if such dividends are subsequently distributed to individuals or a non-Israeli company the below rates detailed in sub sections (ii) and (iii) shall apply), (ii) Israeli resident individuals – 20%, and (iii) non-Israeli residents (individuals and corporations)–25% or 30%, and subject to a reduced tax rate under the provisions of any applicable double tax treaty (subject to the receipt in advance of a valid certificate from the Israel Tax Authority (“ITA”) allowing for a reduced tax rate–20%) or asuch reduced tax rate under the provisions of any applicable double tax treaty.– 20%).
The 2011 Amendment also provided transitional provisions to address companies already enjoying existing tax benefits under the Investment Law. These transitional provisions provide, among other things, that unless an irrevocable request is made to apply the provisions of the Investment Law as amended in 2011 with respect to income to be derived as of January 1, 2011, a BeneficiaryBenefited Enterprise can elect to continue to benefit from the benefits provided to it before the 2011 Amendment came into effect, provided that certain conditions are met.
We do not currently intend to implement the 2011 Amendment.
New tax benefits under the 2017 Amendment that became effective on January 1, 2017. The 2017 Amendment was enacted as part of the Economic Efficiency Law that was published on December 29, 2016, and is effective as of January 1, 2017. The 2017 Amendment provides new tax benefits for two types of “Technology“Technological Enterprises,” as described below, and is in addition to the other existing tax beneficial programs under the Investment Law.
The 2017 Amendment provides that a technologytechnological company satisfying certain conditions will qualify as a “Preferred TechnologyTechnological Enterprise” and will thereby enjoy a reduced corporate tax rate of 12% on income that qualifies as “Preferred TechnologyTechnological Income”, as defined in the Investment Law. The tax rate is further reduced to 7.5% for a Preferred TechnologyTechnological Enterprise located in development zone “A”. In addition, a Preferred TechnologyTechnological Company will enjoy a reduced corporate tax rate of 12% on capital gain derived from the sale of certain “Benefitted Intangible Assets” (as defined in the Investment Law) to a related foreign company if the Benefitted Intangible Assets were acquired from a foreign company on or after January 1, 2017 for at least ILS 200 million, and the sale receives prior approval from the Israel Innovation Authority.IIA.
The 2017 Amendment further provides that a technology company satisfying certain conditions (group consolidated revenues of at least ILS 10 billion) will qualify as a “Special Preferred TechnologyTechnological Enterprise” and will thereby enjoy a reduced corporate tax rate of 6% on “Preferred TechnologyTechnological Income” regardless of the company’s geographic location within Israel. In addition, a Special Preferred TechnologyTechnological Enterprise will enjoy a reduced corporate tax rate of 6% on capital gain derived from the sale of certain “Benefitted Intangible Assets” to a related foreign company if the Benefitted Intangible Assets were either developed by the Special Preferred Technological Enterprise or acquired from a foreign company on or after January 1, 2017, and the sale received prior approval from the Israel Innovation Authority.IIA. A Special Preferred TechnologyTechnological Enterprise that acquires Benefitted Intangible Assets from a foreign company for more than ILS 500 million will be eligible for these benefits for at least ten10 years, subject to certain approvals as specified in the Investment Law.
Dividends distributed to Israeli shareholders by a Preferred TechnologyTechnological Enterprise or a Special Preferred TechnologyTechnological Enterprise, paid out of Preferred TechnologyTechnological Income, are generally subject to withholding tax at source at the rate of 20% (in the case of non-Israeli shareholders—subject to the receipt in advance of a valid certificate from the ITA allowing for asuch reduced tax rate, 20% or such lower rate as may be provided in an applicable tax treaty). However, if such dividends are paid to an Israeli company, no tax is required to be withheld (although, if such dividends are subsequently distributed to individuals or a non-Israeli company, withholding tax at a rate of 20% or such lower rate as may be provided in an applicable tax treaty, will apply). If such dividends are distributed to a foreign company that holds solely or together with other foreign companies 90% or more in the Israeli company and other conditions are met, the withholding tax rate will be 4% (in either case, subject to the receipt in advance of a valid certificate from the ITA allowing for such 4% rate or lower treaty tax rate).
We believe that we may be eligible to receive the tax benefits under the 2017 Amendment.Amendment but there is no assurance that we will meet all the terms and conditions required under the Investment Law that will allow us to enjoy any tax benefits under the Investment Law. It should be noted that the proportion of income that may be considered Preferred TechnologyTechnological Income and enjoy the tax benefits described above should be calculated according to the Nexus Formula, which is based on the proportion as that of qualifying expenditures in the IPintellectual property compared to overall expenditures.
Taxation of Our Shareholders
Capital gains taxes applicable to non-Israeli resident shareholders. A non-Israeli resident who derives capital gains from the sale of ordinary shares in an Israeli resident company that were purchased after the company was listed for trading on a stock exchange outside of Israel should be exempt from Israeli tax unless, among other requirements, the ordinary shares were held through a permanent establishment that the non-resident maintains in Israel. If not exempt, a non-Israeli resident shareholder would generally be subject to tax on capital gain at the ordinary corporate income tax rate (23% in 2023), if generated by a company, or at the rate of 25%, if generated by an individual, or 30%, if generated by an individual who is a “substantial shareholder” (as defined under the Tax Ordinance), at the time of sale or at any time during the preceding 12-month period (or if the shareholder claims a deduction for interest and linkage differences expenses in connection with the purchase and holding of such shares). A “substantial shareholder” is generally a person who, alone or together with such person’s relativerelatives or another person who collaborates with such person on a permanent basis, holds, directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include, among others, the right to vote, receive profits, nominate a director or an executive officer, receive assets upon liquidation, or order someone who holds any of the aforesaid rights how to act, regardless of the source of such right. Individual and corporate shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income (a corporate(corporate income tax rate for a corporation (23% in 2023) and a marginal tax rate of up to 47% for an individual in 2023 (excluding surtax as discussed below)) unless contrary provisions in a relevant tax treaty apply. Non-Israeli corporations will not be entitled to the foregoing exemption if Israeli residents: (i) have a controlling interest of more than 25% in such non-Israeli corporation or (ii) are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly. In addition, such exemption is not applicable to a person whose gains from selling or otherwise disposing of the ordinary shares are deemed to be business income.
Additionally, a sale of securitiesordinary shares by a non-Israeli resident may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty. For example, under The Convention Between the Government of the United States of America and the Government of the State of Israel with respect to Taxes on Income, as amended (the “United States-Israel Tax Treaty”), the sale, exchange or other disposition of ordinary shares by a shareholder who is a United States resident (for purposes of the treaty) holding the ordinary shares as a capital asset and is entitled to claim the benefits afforded to such a resident by the U.S. IsraelUnited States-Israel Tax Treaty (a “Treaty U.S. Resident”) is generally exempt from Israeli capital gains tax, unless: (i) the capital gain arising from such sale, exchange or disposition is attributed to real estate located in Israel; (ii) the capital gain arising from such sale, exchange or disposition is attributed to royalties; (iii) the capital gain arising from the such sale, exchange or disposition is attributed to a permanent establishment in Israel, under certain terms; (iv) such Treaty U.S. Resident holds, directly or indirectly, shares representing 10% or more of the voting capital during any part of the 12 month12-month period preceding the sale, exchange or disposition, subject to certain conditions; or (v) such Treaty U.S. Resident is an individual and was present in Israel for 183 days or more during the relevant taxable year. In each case, the sale, exchange or disposition of our ordinary shares would be subject to Israeli tax, to the extent applicable. There is no assurance that anyapplicable; however, under the United States-Israel Tax Treaty, the taxpayer may be permitted to claim a credit for such Israeli tax would be creditable fortaxes against the U.S. federal income tax purposes.imposed with respect to such sale, exchange or disposition, subject to the limitations under U.S. law applicable to foreign tax credits. The United States-Israel Tax Treaty does not provide such credit against any U.S. state or local taxes.
In some instances where our shareholders may be liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at the time of sale (i.e., valid withholding tax residencycertificate issued by the ITA, resident certificate or other documentation).
Taxation of non-Israeli shareholders on receipt of dividends. Non-Israeli residents (either individuals or corporations) are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25%, which tax will be withheld at source, unless relief is provided in a treaty between Israel and the shareholder’s country of residence (subject to the receipt in advance of a valid withholding tax certificate from the ITA allowing for a reduced tax rate). With respect to a person who is a “substantial shareholder” at the time of receiving the dividend or on any time during the preceding twelve12 months, the applicable tax rate is 30%. Such dividends are generally subject to Israeli withholding tax at a rate of 25% so long as the ordinary shares are registered with a nominee company (whether the recipient is a substantial shareholder or not) and, subject to the receipt in advance of a valid withholding tax certificate from the ITA allowing for a reduced tax rate, 15% if the dividend is distributed from income attributed to an Approved Enterprise or a BeneficiaryBenefited Enterprise and 20% if the dividend is distributed from income attributed to a Preferred Enterprise, a Special Preferred Enterprise, Preferred Technological Enterprise or Special Preferred TechnologyTechnological Enterprise or such lower rate as may be provided in an applicable tax treaty. For example, under the United States Israel Tax Treaty, the maximum rate of tax withheld at source in Israel on dividends paid to a holder of our ordinary shares who is a Treaty U.S. Resident is 25%. However, generally, the maximum rate of withholding tax on dividends, not generated by a Preferred Enterprise or BeneficiaryBenefited Enterprise, that are paid to a United StatesU.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, is 12.5%, provided that not more than 25% of the gross income for such preceding year consists of certain types of dividends and interest. Notwithstanding the foregoing, dividends distributed from income attributed to an Approved Enterprise, BeneficiaryBenefited Enterprise or Preferred Enterprise are not entitled to such reduction under the tax treaty but are subject to a withholding tax rate of 15% for a shareholder that is a U.S. corporation, provided that the conditions related to 10% or more holdingholdings and to our gross income for the previous year (as set forth in the previous sentence) are met. The aforementioned rates under the United States-Israel Tax Treaty would not apply if the dividend income is derived through a permanent establishment of the U.S. resident in Israel. If the dividend is attributable partly to income derived from 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. We cannot assure you that we will designate the profits that we may distribute in a way that will reduce shareholders’ tax liability.
A non-Israeli resident who receives dividends from which tax wasall taxes due were withheld at source according to applicable provisions of the Ordinance and the regulations promulgated thereunder is generally exempt from the obligation to file tax returns in Israel with respect to such income, 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 (iii) the taxpayer is not obligated to pay surtax (as further explained below).
Surtax. Subject to the provisions of an applicable tax treaty, 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 (including, but not limited to, dividends, interest and capital gain) exceeding ILS 698,280721,560 for 2023,2024, which amount is linked to the annual change in the Israeli consumer price index.
Estate and Gift Tax. Israeli law presently does not impose estate or gift taxes.
United States Federal Income Taxation
The following is a description of the material U.S. federal income tax consequences of the acquisition, ownership and disposition of our ordinary shares and warrants. This description addresses only the U.S. federal income tax consequences to U.S. Holders (as defined below) that hold our ordinary shares or warrants as capital assets within the meaning of Section 1221 of the Code, and that have the U.S. dollar as their functional currency. This discussion is based upon the Code, applicable U.S. Treasury regulations, administrative pronouncements and judicial decisions, in each case as in effect on the date hereof, all of which are subject to change (possibly with retroactive effect). No ruling has been or will be requested from the IRS regarding the tax consequences of the acquisition, ownership or disposition of the ordinary shares and warrants, and there can be no assurance that the IRS will agree with the discussion set out below. This summary does not address any U.S. tax consequences other than U.S. federal income tax consequences (e.g., the estate and gift tax, the alternative minimum tax or the Medicare tax on net investment income) and does not address any state, local or non-U.S. tax consequences.
This description does not address tax considerations applicable to holders that may be subject to special tax rules, including, without limitation:
banks, financial institutions or insurance companies;
real estate investment trusts or regulated investment companies;
traders that elect to mark to market;
tax exempt entities or organizations;
“individual retirement accounts” and other tax deferred accounts;
certain former citizens or long term residents of the United States;
persons that are resident or ordinarily resident in or have a permanent establishment in a jurisdiction outside the United States;
persons that acquired our ordinary shares pursuant to the exercise of any employee share option or otherwise as compensation for the performance of services;
persons holding our ordinary shares or warrants as part of a “hedging,” “integrated” or “conversion” transaction or as a position in a “straddle” for U.S. federal income tax purposes;
partnerships or other pass through entities and persons holding ordinary shares or warrants through partnerships or other pass through entities; or
holders that own directly, indirectly or through attribution 10% or more of the total voting power or value of all of our outstanding shares.
For purposes of this description, a “U.S. Holder” is a beneficial owner of our ordinary shares or warrants that, for U.S. federal income tax purposes, is:
an individual who is a citizen or resident of the United States;
a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any state thereof, including the District of Columbia;
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
a trust if such trust has validly elected to be treated as a United States person for U.S. federal income tax purposes or if (1) a court within the United States is able to exercise primary supervision over its administration and (2) one or more United States persons have the authority to control all of the substantial decisions of such trust.
If a partnership (or any other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our ordinary shares or warrants, the tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor as to the particular U.S. federal income tax consequences of acquiring, owning and disposing of our ordinary shares or warrants in its particular circumstance.
You should consult your tax advisor with respect to the U.S. federal, state, local and foreign tax consequences of acquiring, owning and disposing of our ordinary shares and warrants.
Distributions on Ordinary Shares
Subject to the discussion under “Passive Foreign Investment Company Considerations” below, the gross amount of any distribution made to you with respect to our ordinary shares, before reduction for any Israeli taxes withheld therefrom, generally will be includible in your income as dividend income on the date on which the dividends are actually or constructively received, to the extent such distribution is paid out of our current or accumulated earnings and profits as determined under U.S. federal income tax principles. To the extent that the amount of any distribution by us exceeds our current and accumulated earnings and profits as determined under U.S. federal income tax principles, it will be treated first as a tax free return of your adjusted tax basis in our ordinary shares and thereafter as capital gain. However, we do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles and, therefore, you should expect that the entire amount of any distribution generally will be reported as dividend income to you. If you are a non-corporate U.S. Holder you may qualify for the lower rates of taxation with respect to dividends on ordinary shares applicable to long term capital gains (i.e., gains from the sale of capital assets held for more than one year), provided that we are not a PFIC (as discussed below under “Passive Foreign Investment Company Considerations”) with respect to you in our taxable year in which the dividend was paid or in the prior taxable year and certain other conditions are met, including certain holding period requirements and the absence of certain risk reduction transactions. However, such dividends will not be eligible for the dividends received deduction generally allowed to corporate U.S. Holders.
Dividends paid to you with respect to our ordinary shares generally will be treated as foreign source income, which may be relevant in calculating your foreign tax credit limitation. Subject to certain conditions and limitations, Israeli tax withheld on dividends may be credited against your U.S. federal income tax liability or, at your election, be deducted from your U.S. federal taxable income. An election to deduct creditable foreign taxes instead of claiming foreign tax credits would generally apply to all such foreign taxes paid or accrued in such taxable year. Dividends that we distribute generally should constitute “passive category income” for purposes of the foreign tax credit. A foreign tax credit for foreign taxes imposed on distributions may be denied if you do not satisfy certain minimum holding period requirements. Pursuant to applicable United States Treasury regulations, however, if a U.S. Holder is not eligible for the benefits of an applicable income tax treaty or does not elect to apply such treaty, then such holder may not be able to claim a foreign tax credit arising from any foreign tax imposed on a distribution on our ordinary shares, depending on the nature of such foreign tax. 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 would be entitled to this credit, including your eligibility for benefits under an applicable income tax treaty and the potential impact of the applicable United States Treasury regulations.
Sale, Exchange or Other Disposition of Ordinary Shares and Warrants
Subject to the discussion under “Passive Foreign Investment Company Considerations” below, you generally will recognize gain or loss on the sale, exchange or other disposition of our ordinary shares or warrants equal to the difference between the amount realized on such sale, exchange or other disposition and your adjusted tax basis in our ordinary shares or warrants, and such gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, capital gain from the sale, exchange or other disposition of ordinary shares or warrants is currently generally eligible for a preferential rate of taxation applicable to capital gains, if your holding period for such ordinary shares or warrants exceeds one year (i.e., such gain is long term capital gain). The deductibility of capital losses for U.S. federal income tax purposes is subject to limitations under the Code. Any such gain or loss that a U.S. Holder recognizes generally will be treated as U.S. source income or loss for foreign tax credit limitation purposes.
In addition, pursuant to applicable United States Treasury regulations, if a U.S. Holder is not eligible for the benefits of an applicable income tax treaty or does not elect to apply such treaty, then such holder may not be able to claim a foreign tax credit arising from any foreign tax imposed on the disposition of our ordinary shares, depending on the nature of such foreign tax. The rules governing the treatment of foreign taxes imposed on a U.S. Holder and foreign tax credits are complex and U.S. Holders should consult their tax advisors as to whether the Israeli tax on gains may be creditable or deductible in light of their particular circumstances, including their eligibility for benefits under an applicable income tax treaty and the potential impact of applicable United States Treasury regulations.
Exercise or Lapse of a Warrant
Except as discussed below with respect to the cashless exercise of a warrant, a U.S. Holder generally will not recognize gain or loss upon the acquisition of an ordinary share on the exercise of a warrant for cash. A U.S. Holder’s tax basis in the ordinary shares received upon exercise of warrants generally should be an amount equal to the sum of the U.S. Holder’s tax basis in the warrants exchanged therefor and the exercise price. The U.S. Holder’s holding period for ordinary shares received upon exercise of warrants will begin on the date following the date of exercise (or possibly on the date of exercise) of the warrants and will not include the period during which the U.S. Holder held the warrants. If a warrant is allowed to lapse unexercised, a U.S. Holder generally will recognize a capital loss equal to such holder’s tax basis in the warrant.
The tax consequences of a cashless exercise of a warrant are not clear under current U.S. federal income tax law. A cashless exercise may be tax-deferred, either because the exercise is not a realization event or because the exercise is treated as a recapitalization for U.S. federal income tax purposes. In either tax-deferred situation, a U.S. Holder’s basis in the ordinary shares received would equal the U.S. Holder’s basis in the warrants exercised therefore. If the cashless exercise is not treated as a realization event, a U.S. Holder’s holding period in the ordinary shares would be treated as commencing on the date following the date of exercise (or possibly on the date of exercise) of the warrants. If the cashless exercise were treated as a recapitalization, the holding period of the ordinary shares would include the holding period of the warrants exercised therefore.
It is also possible that a cashless exercise of a warrant could be treated in part as a taxable exchange in which gain or loss would be recognized in the manner set forth above under “Sale, Exchange or Other Disposition of Ordinary Shares and Warrants.” In such event, a U.S. Holder could be deemed to have surrendered warrants equal to the number of ordinary shares having an aggregate fair market value equal to the exercise price for the total number of warrants to be exercised. The U.S. Holder would recognize capital gain or loss in an amount generally equal to the difference between (i) the fair market value of the warrants deemed surrendered and (ii) the U.S. Holder’s tax basis in such warrants deemed surrendered. In this case, a U.S. Holder’s tax basis in the ordinary shares received would equal the sum of (i) U.S. Holder’s tax basis in the warrants deemed exercised and (ii) the exercise price of such warrants. A U.S. Holder’s holding period for the ordinary shares received in such case generally would commence on the date following the date of exercise (or possibly on the date of exercise) of the warrants.
Due to the absence of authority on the U.S. federal income tax treatment of a cashless exercise of warrants, there can be no assurance which, if any, of the alternative tax consequences and holding periods described above would be adopted by the IRS or a court of law. Accordingly, U.S. Holders should consult their tax advisors regarding the tax consequences of a cashless exercise of warrants.
Possible constructive distributions
The terms of each warrant provide for an adjustment to the number of ordinary shares for which the warrant may be exercised or to the exercise price of the warrant in certain events. An adjustment which has the effect of preventing dilution generally is not taxable. A U.S. Holder of a warrant would, however, be treated as receiving a constructive distribution from us if, for example, the adjustment increases the holder’s proportionate interest in our assets or earnings and profits (for instance, through an increase in the number of ordinary shares that would be obtained upon exercise of such warrant) as a result of a distribution of cash or other property such as other securities to the holders of the ordinary shares which is taxable to such holders under “Distributions on Ordinary Shares” above. Such constructive distribution would be subject to tax as described under that section in the same manner as if the U.S. Holder of such warrant received a cash distribution from us equal to the fair market value of such increased interest.
Passive Foreign Investment Company Considerations
In general, a non-U.S. corporation will be classified as a PFIC for any taxable year if at least (i) 75% of its gross income is classified as “passive income” or (ii) 50% of its gross assets (generally determined on the basis of a quarterly average) produce or are held for the production of passive income. Passive income for this purpose generally includes dividends, interest, royalties, rents, gains from commodities and securities transactions and the excess of gains over losses from the disposition of assets which produce passive income. For these purposes, cash and other assets readily convertible into cash are considered passive assets, and goodwill and other unbooked intangibles are generally taken into account. In making this determination, the non-U.S. corporation is treated as earning its proportionate share of any income and owning its proportionate share of any assets of any corporation in which it directly or indirectly holds 25% or more (by value) of the stock.
We believe we were not a PFIC for our taxable year ending December 31, 2022.2023. However, as discussed below, whether we were a PFIC for any given taxable year is based on a complex and factual determination and there is no assurance that the IRS will agree with our determination. Based on the current and anticipated composition of our income, assets and operations, and those of our subsidiaries, we cannot be sure as to whether we will be a PFIC for U.S. federal income tax purposes for our current taxable year ending December 31, 2023 or in future taxable years. However, because PFIC status is based on our income, assets and activities for the entire taxable year, it is not possible to determine whether we will be characterized as a PFIC for our current taxable year or future taxable years until after the close of the applicable taxable year. Moreover, we must determine our PFIC status annually based on tests that are factual in nature, and our status in the current year and future years will depend on our income, assets and activities in each of those years and, as a result, cannot be predicted with certainty as of the date hereof. The value of our assets (including unbooked goodwill) for purposes of the PFIC determination may be determined by reference to the trading value of our ordinary shares, which could fluctuate significantly.
If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder of our ordinary shares or warrants and, in the case of our ordinary shares, the U.S. Holder did not make either a timely qualified electing fund (“QEF”) election or a mark-to-market election for our first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) ordinary shares, as described below, such holder generally will be subject to special rules with respect to:
any gain recognized by the U.S. Holder on the sale or other disposition of its ordinary shares or warrants; and
any “excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable year of the U.S. Holder that are greater than 125% of the average annual distributions received by such U.S. Holder in respect of the ordinary shares during the three preceding taxable years of such U.S. Holder or, if shorter, such U.S. Holder’s holding period for the ordinary shares).
Under these rules,
the U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for the ordinary shares and warrants;
the amount allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized the gain or received the excess distribution, or to the period in the U.S. Holder’s holding period before the first day of our first taxable year in which we are a PFIC, will be taxed as ordinary income;
the amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will be taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder; and
the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such other taxable year of the U.S. Holder.
In general, if we are determined to be a PFIC, a U.S. Holder may avoid the PFIC tax consequences described above with respect to our ordinary shares (but not our warrants) by making a timely QEF election (if eligible to do so) to include in income its pro rata share of our net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income), on a current basis, in each case whether or not distributed, in the taxable year of the U.S. Holder in which or with which our taxable year ends.
A U.S. Holder generally may make a separate election to defer the payment of taxes on undistributed income inclusions under the QEF rules, but if deferred, any such taxes will be subject to an interest charge. A U.S. Holder may not make a QEF election with respect to its warrants. As a result, if a U.S. Holder sells or otherwise disposes of such warrants (other than upon exercise of such warrants), under currently proposed Treasury regulations, any gain recognized generally may be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above, if we were a PFIC at any time during the period the U.S. Holder held the warrants. If a U.S. Holder that exercises such warrants properly makes a QEF election with respect to the newly acquired ordinary shares (or has previously made a QEF election with respect to our ordinary shares), the QEF election will apply to the newly acquired ordinary shares, but the adverse tax consequences relating to PFIC shares, adjusted to take into account the current income inclusions resulting from the QEF election, will continue to apply with respect to such newly acquired ordinary shares (which generally will be deemed to have a holding period for purposes of the PFIC rules that includes the period the U.S. Holder held the warrants), unless the U.S. Holder makes a purging election. One type of purging election creates a deemed sale of such shares at their fair market value. Any gain recognized in this deemed sale will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above. As a result of this election, the U.S. Holder will have additional basis and, solely for purposes of the PFIC rules, a new holding period in the ordinary shares acquired upon the exercise of the warrants. U.S. Holders are urged to consult their tax advisors as to the application of the rules governing purging elections to their particular circumstances (including a potential separate “deemed dividend” purging election that may be available if we are a “controlled foreign corporation” for U.S. federal income tax purposes).
The QEF election is made on a shareholder-by-shareholder basis and, once made, can be revoked only with the consent of the IRS. A U.S. Holder generally makes a QEF election by attaching a completed IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund), including the information provided in a PFIC Annual Information Statement, to a timely filed U.S. federal income tax return for the tax year to which the election relates. Retroactive QEF elections generally may be made only by filing a protective statement with such return and if certain other conditions are met or with the consent of the IRS. U.S. Holders should consult their tax advisors regarding the availability and tax consequences of a retroactive QEF election under their particular circumstances.
In order to comply with the requirements of a QEF election, a U.S. Holder must receive a PFIC Annual Information Statement from us. If we determine we were a PFIC for a given taxable year, we will reasonably endeavor to provide a PFIC Annual Information Statement to a U.S. Holder upon request. There can be no assurance, however, that we will timely provide such information for the current taxable year or subsequent taxable years. The failure to provide such information on an annual basis could prevent a U.S. Holder from making a QEF election or result in the invalidation or termination of a U.S. Holder’s prior QEF election.
If a U.S. Holder has made a QEF election with respect to our ordinary shares, and the special tax and interest charge rules do not apply to such shares (because of a timely QEF election for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) such shares or a purge of the PFIC taint pursuant to a purging election, as described above), any gain recognized on the sale of our ordinary shares generally will be taxable as capital gain and no interest charge will be imposed under the PFIC rules. As discussed above, U.S. Holders of a QEF are currently taxed on their pro rata shares of its earnings and profits, whether or not distributed. In such case, a subsequent distribution of such earnings and profits that were previously included in income generally should not be taxable as a dividend to such U.S. Holders. The tax basis of a U.S. Holder’s shares in a QEF will be increased by amounts that are included in income, and decreased by amounts distributed but not taxed as dividends, under the above rules.
Although a determination as to our PFIC status will be made annually, an initial determination that our company is a PFIC will generally apply for subsequent years to a U.S. Holder who held ordinary shares or warrants while we were a PFIC, whether or not we meet the test for PFIC status in those subsequent years. A U.S. Holder who makes the QEF election discussed above for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) ordinary shares, however, will not be subject to the PFIC tax and interest charge rules discussed above in respect to such shares. In addition, such U.S. Holder will not be subject to the QEF inclusion regime with respect to such ordinary shares for any taxable year of us that ends within or with a taxable year of the U.S. Holder and in which we are not a PFIC. On the other hand, if the QEF election is not effective for each of our taxable years in which we are a PFIC and the U.S. Holder holds (or is deemed to hold) ordinary shares, the PFIC rules discussed above will continue to apply to such ordinary shares unless the U.S. Holder makes a purging election, as described above, and pays the tax and interest charge with respect to the gain inherent in such shares attributable to the pre-QEF election period.
Alternatively, if a U.S. Holder, at the close of its taxable year, owns shares in a PFIC that are treated as marketable stock, the U.S. Holder may make a mark-to-market election with respect to such shares for such taxable year. If the U.S. Holder makes a valid mark-to-market election for the first taxable year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) ordinary shares and for which we are determined to be a PFIC, such U.S. Holder generally will not be subject to the PFIC rules described above in respect to its ordinary shares. Instead, in general, the U.S. Holder will include as ordinary income each year the excess, if any, of the fair market value of its ordinary shares at the end of its taxable year over the adjusted basis in its ordinary shares. Such a U.S. Holder also will be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of its ordinary shares over the fair market value of its ordinary shares at the end of its taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). Such U.S. Holder’s basis in its ordinary shares will be adjusted to reflect any such income or loss amounts, and any further gain recognized on a sale or other taxable disposition of the ordinary shares will be treated as ordinary income. Currently, a mark-to-market election may not be made with respect to our warrants.
The mark-to-market election is available only for stock that is regularly traded on a national securities exchange that is registered with the SEC, including Nasdaq, or on a foreign exchange or market that the IRS determines, has rules sufficient to ensure that the market price represents a legitimate and sound fair market value. U.S. Holders should consult their tax advisors regarding the availability and tax consequences of a mark-to-market election in respect to our ordinary shares under their particular circumstances.
Certain of the PFIC rules may impact U.S. Holders with respect to equity interests in subsidiaries and other entities which we may hold, directly or indirectly, that are PFICs (collectively, “Lower-Tier PFICs”). There can be no assurance, however, that we do not own, or will not in the future acquire, an interest in a subsidiary or other entity that is or would be treated as a Lower-Tier PFIC. If we own any interests in a Lower-Tier PFIC, a U.S. Holder generally must make a separate QEF election for each Lower-Tier PFIC, subject to our providing the relevant tax information for each Lower-Tier PFIC on an annual basis. A mark-to-market election generally would not be available with respect to any Lower-Tier PFIC. U.S. Holders should consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries.
A U.S. Holder of a PFIC may be required to file an IRS Form 8621 on an annual basis in certain circumstances which include, but are not limited to, if a U.S. Holder recognizes gain on a disposition of such ordinary shares or receives distributions with respect to such ordinary shares. U.S. Holders should consult their tax advisors regarding any reporting requirements that may apply to them if we are a PFIC.
The rules dealing with PFICs and with the QEF and mark-to-market elections are very complex, are unclear in certain respects, and are affected by various factors in addition to those described above. Accordingly, U.S. Holders of ordinary shares or warrants should consult their tax advisors concerning the application of the PFIC rules to our ordinary shares or warrants under their particular circumstances.
Backup Withholding Tax and Certain Information Reporting Requirements
Distribution payments on, and proceeds paid from the sale or other taxable disposition of, the ordinary shares and warrants may be subject to information reporting to the IRS. In addition, a U.S. Holder may be subject to backup withholding on payments received in connection with distribution payments and proceeds from the sale or other taxable disposition of ordinary shares or warrants made within the United States or through certain U.S. related financial intermediaries.
Backup withholding will not apply, however, to a U.S. Holder that furnishes a correct taxpayer identification number, provides other required certification and otherwise complies with the applicable requirements of the backup withholding rules or that is otherwise exempt from backup withholding (and, when required, demonstrates such exemption). Backup withholding is not an additional tax. Rather, any amount withheld under the backup withholding rules will be creditable or refundable against the U.S. Holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Foreign Asset Reporting
Certain U.S. Holders are required to report their holdings of certain foreign financial assets, including equity of foreign entities, if the aggregate value of all of these assets exceeds certain threshold amounts, by filing IRS Form 8938 with their federal income tax return. Our ordinary shares and warrants are expected to constitute foreign financial assets subject to these requirements unless the ordinary shares or warrants are held in an account at certain financial institutions. U.S. Holders are urged to consult their tax advisors regarding their information reporting obligations, if any, with respect to their ownership and disposition of our ordinary shares and warrants and the significant penalties for non-compliance.
The above description is not intended to constitute a complete analysis of all tax consequences relating to acquisition, ownership and disposition of our ordinary shares and warrants. You should consult your tax advisor concerning the tax consequences of your particular situation.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to the informational requirements of the Exchange Act. Accordingly, we are required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K.
As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing 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 U.S. companies whose securities are registered under the Exchange Act. We are required to make certain filings with the SEC. The SEC maintains an internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that site is www.sec.gov.
Our ordinary shares and warrants are quoted on Nasdaq. Information about us is also available on our website at https://innoviz.tech/. Our website and the information contained therein or connected thereto will not be deemed to be incorporated into this Annual Report and you should not rely on any such information in making your decision whether to purchase our ordinary shares or warrants.
I. Subsidiary Information
Not applicable.
J. Annual Report to Security Holders
Not applicable.
Item 11. | Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of foreign currency exchange rates and interest rates, which are discussed in detail below.
We do not believe that inflation had a material effect on our business, financial condition or results of operations during the years ended December 31, 20222023 and 2021.2022.
Our financial results are reported in USD, and changes in the exchange rate between USD and local currencies in thosethe countries in which we operate (primarily the ILS) may affect the results of our operations. In the year ended December 31, 2022,2023, approximately 98% of our revenues were denominated in USD. The USD cost of our operations in countries other than the United States, may be negatively influenced by revaluation of the USD against other currencies.
Not applicable.
None.
None.
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that, as of December 31, 2022,2023, our internal control over financial reporting was effective.
This Annual Report does not include an attestation report of our registered public accounting firm due to a transition period established by rules of the SEC for newly public companies. In addition,as we are an emerging growth company and accordingly, are exempt from the requirement to provide such a report.
There were no changes in our internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) that occurred during the period covered by this Annual Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We have adopted a Code of Ethics and Conduct that applies to all our employees, officers and directors, including our principal executives, principal financials and principal accounting officers. Our Code of Ethics and Conduct addresses, among other things, competition and fair dealing, conflicts of interest, financial matters and external reporting, company funds and assets, confidentiality and corporate opportunity requirements and the process for reporting violations of the Code of Ethics and Conduct, employee misconduct, conflicts of interest or other violations. Our Code of Ethics and Conduct is intended to meet the definition of “code of ethics” under Item 16B of Form 20-F under the Exchange Act.
We will disclose on our website any amendment to, or waiver from, a provision of our Code of Ethics and Conduct that applies to our directors or executive officers to the extent required under the rules of the SEC or Nasdaq. Our Code of Ethics and Conduct is available on our website at https://ir.innoviz.tech/. The information contained on or through our website, or any other website referred to herein, is not incorporated by reference in this Annual Report. You may request a copy of our Code of Ethics and Conduct, free of charge, by writing to us at the following address: investors@innoviz-tech.com.
Not applicable.