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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report:
For the transition period from ____________ to ____________
Commission file No. 001-37353
Scinai Immunotherapeutics Ltd.
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
ISRAEL
(Jurisdiction of incorporation or organization)
Jerusalem BioPark, 2nd floor
Hadassah Ein Kerem Campus
Jerusalem, Israel
(+972)
8-930-2529
(+972) 8-930-2531 (facsimile)
(Address of principal executive offices)
Amir Reichman,
Chief Executive Officer
(+972)
8-930-2529
(+972) 8-930-2531 (facsimile)
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| American Depositary Shares, each representing 4,000 ordinary share, no par value | SCNI | Nasdaq Capital Market | ||
| Ordinary Shares, no par value* |
| * | Not for trading on The Nasdaq Capital Market, but listed above only in connection with the registration of American Depositary Shares. |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 3,411,983,584 ordinary shares, no par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☒ | Emerging growth company | ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
| † | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| U.S. GAAP ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. N/A
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
TABLE OF CONTENTS
INTRODUCTION
Certain Definitions:
In this annual report, unless the context otherwise requires:
| ● | references to “Scinai,” the “Company,” “us,” “we” and “our” refer to Scinai Immunotherapeutics Ltd. (the “Registrant”), an Israeli company; |
| ● | references to “ordinary shares,” “our shares” and similar expressions refer to the Registrant’s ordinary shares, no par value; |
| ● | references to “ADS” refer to the Registrant’s American Depositary Shares |
| ● | references to “Company product candidate(s)” refer to any future, newly licensed or acquired product candidate(s); |
| ● | references to “CDMO business unit” refer to the Registrant’s contract development and manufacturing services business unit. |
| ● | references to “R&D business unit” refer to the Registrant’s research and development business unit focused on in-house development of inflammation and immunology (I&I) biological therapeutic products beginning with an innovative, de-risked, pipeline of nanosized VHH antibodies (NanoAbs) targeting diseases with large unmet medical needs. |
| ● | references to “dollars,” “U.S. dollars” and “$” are to United States Dollars; |
| ● | references to “shekels” and “NIS” are to New Israeli Shekels, the Israeli currency; |
| ● | references to the “Companies Law” are to Israel’s Companies Law, 5759-1999, as amended; and |
| ● | references to the “SEC” are to the United States Securities and Exchange Commission. |
Trademarks and Tradenames
Solely for convenience, the trademarks, service marks and trade names referred to or incorporated by reference herein are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names. This annual report contains additional trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service marks and trade names appearing herein are, to our knowledge, the property of their respective owners. Nanobody is a trademark registered by ABLYNX N.V., a wholly owned subsidiary of Sanofi. Scinai has no affiliation with and is not endorsed by Sanofi. We do not intend our use or display of other companies’ trademarks, service marks or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
Note Regarding Ratio Change of ADSs to Non-Traded Ordinary Shares
Effective May 21, 2024, we effected a ratio change of the American Depositary Shares (ADSs) to our ordinary shares from the previous ratio of one (1) ADS representing four hundred (400) non-traded ordinary shares to a new ratio of one (1) ADS representing four thousand (4,000) ordinary shares. Previously, effective November 25, 2022, we effected a ratio change of the American Depositary Shares (ADSs) to our ordinary shares from the previous ratio of one (1) ADS representing forty (40) non-traded ordinary shares to a new ratio of one (1) ADS representing four hundred (400) ordinary shares. Each such ratio change had the same effect as a one-for-ten reverse ADS split. Unless otherwise indicated, ADSs and per ADS amounts in this Annual Report have been retroactively adjusted to reflect the changes in ratio for all periods presented.
Note Regarding Forward-Looking Statements
Some of the statements under the sections entitled “Item 3. Key Information – Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and Financial Review and Prospects” and elsewhere in this Annual Report on Form 20-F constitute forward-looking statements that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, results of operations, liquidity, plans and objectives. In some cases, you can identify forward-looking statements by terminology such as “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “potential,” or the negative of these terms or other similar expressions, but these are not the only ways these statements are identified. Forward-looking statements are based on information we have when those statements are made or our management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Unless we are required to do so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements.
Some of the factors that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements contained herein, include but are not limited to:
| ● | We are a developmental stage biopharmaceutical company with a history of operating losses, with no product candidate that generates revenue, and as such we are not currently profitable, do not expect to become profitable in the near future, may never become profitable and as a result may need to wind up our business and operation; |
| ● | We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts; |
| ● | Our failure to meet the continued listing requirements of The Nasdaq Stock Market LLC (“Nasdaq”) could result in a delisting of the ADSs which could adversely affect the market liquidity of our shares and the market price of our shares could decrease significantly; |
| ● | Our business strategy may not be successful; |
| ● | We conduct most of our operations in Israel. Conditions in Israel, including Israel’s war with Hamas and other terrorist organizations in the Gaza Strip and Israel’s conflict with Hezbollah and with Iran, may affect our operations; |
| ● | We are highly dependent upon our ability to enter into agreements with partners to develop, commercialize, and market any current and future product candidate(s) or enter into other strategic partnerships; |
| ● | Raising additional capital may cause dilution to our existing shareholders, and debt financing, if available, may restrict our operations or require us to relinquish rights to our technologies or product candidate(s); |
| ● | Our novel nanosized antibodies, also known as VHH-antibodies, Nanobodies or NanoAbs, represent a relatively new approach to treating diseases, and we must overcome significant challenges in order to successfully develop, commercialize and manufacture product candidates based on this technology; |
| ● | Clinical trials are very expensive, time-consuming and difficult to design and implement, and, as a result, we may suffer delays or suspensions in future trials which would have a material adverse effect on our ability to generate revenues; |
| ● | Positive results from earlier preclinical data and clinical trials we conduct may not be predictive of the results in later clinical trials of current and future product candidates, and the results of any clinical trials we conduct may not be replicated in additional clinical trials that we may be required to conduct, which could result in development delays or a failure to obtain marketing approval; |
| ● | Due to the ongoing generation of new variants of the COVID-19 coronavirus and the difficulty of identifying broad spectrum NanoAbs, we suspended further development of this program and are unlikely to continue to further develop this program. |
| ● | If we are not successful in discovering, developing and commercializing current and future product candidates, our ability to expand our business and achieve our strategic objectives may be impaired; |
| ● |
Under the collaboration agreement with Max Planck Institute for Multidisciplinary Sciences in Gottingen, Germany, or MPG, and the University Medical Center Göttingen, or UMG, we have the option to in-license up to nine total NanoAbs. To date, we have licensed anti-COVID-19 NanoAbs and anti-IL-17 NanoAbs. The anti-IL-17 NanoAbs are potential candidates to treat psoriasis and other conditions where over expression of IL-17 is implicated in creating or exacerbating the disease. There are many competitors targeting IL-17, including a significant number with far greater resources and/or further advanced in clinical development. We may be unsuccessful in in-licensing additional NanoAbs from MPG and UMG, or developing, and/or commercializing any of our NanoAbs;
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| ● | We may be unable to exercise our option to acquire Pincell srl, the owner of PC111, or Pincell, or if we exercise the option we may be required to resell our shares in Pincell to the previous shareholder, either of which will affect our future prospects. |
| ● | We face significant competition. If we cannot successfully compete with new or existing product candidate(s), our marketing and sales will suffer, and we may never be profitable; |
| ● | Our NanoAbs program is based on an exclusive license from MPG and UMG, and we could lose our rights to this license if a dispute with MPG and/or UMG arises or if we fail to comply with the financial and other terms of the license; |
| ● | There is no guarantee that our strategy to utilize our manufacturing site and laboratories by launching a CDMO Business Unit will succeed, that we will be able to ramp up operations, or that we will become profitable; |
| ● | CDMO services are highly complex and failure to provide quality and timely services to our CDMO clients, could adversely impact our business; |
| ● | Our CDMO business is dependent upon attracting and maintaining customers and upon the demand for our services by our customers; |
| ● |
Significant delays in product manufacturing or development and in our ability to produce sufficient quantities to meet the needs of our clients could cause delays in recognizing revenues, which would harm our business, financial condition, operating results and cash flows; and
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| ● | A disruption to our GMP biologics manufacturing facility in Jerusalem could impede our ability to advance our NanoAbs programs or our other product candidates and deliver our CDMO services, which could adversely affect our business. |
A disruption to our GMP biologics manufacturing facility in Jerusalem could impede our ability to advance our NanoAbs programs and deliver our CDMO services, which could adversely affect our business
PART I
| Item 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
| Item 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
| Item 3. | KEY INFORMATION |
| A. | RESERVED. |
| B. | Capitalization and Indebtedness |
Not applicable.
| C. | Reasons for the Offer and Use of Proceeds |
Not applicable.
| D. | Risk Factors |
An investment in our securities involves a high degree of risk. Before making an investment decision, you should carefully consider the factors described below, together with all other information included in this annual report, including our financial statements and the related notes included elsewhere in this annual report. We may face additional risks and uncertainties not currently known to us or that we currently deem to be immaterial. If any of these risks occur, our business, financial condition, results of operations and business prospects could be materially and adversely affected. In that event, the trading price of the ADSs could decline and you could lose all or part of your investment.
Summary of Risk Factors
The following is a summary of some of the principal risks we face. The list below is not exhaustive, and investors should read this “Risk factors” section in full.
| ● | We are a developmental stage biopharmaceutical company with a history of operating losses, with no product candidate that generates revenue and as such we are not currently profitable, do not expect to become profitable in the near future, may never become profitable and as a result may need to wind up our business and operation; |
| ● | We will require substantial additional financing to achieve our goals and to finance our losses and negative cash flows from operations, and a failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts; |
| ● | Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of the ADSs which could adversely affect the market liquidity of our shares and the market price of our shares could decrease significantly; |
| ● | Our business strategy may not be successful; |
| ● | We are highly dependent upon our ability to enter into agreements with partners to develop, commercialize, and market any current and future product candidate(s) or enter into other strategic partnerships; |
| ● | Raising additional capital may cause dilution to our existing shareholders, and debt financing, if available, may restrict our operations or require us to relinquish rights to our technologies or product candidate(s); |
| ● | Our novel nanosized antibodies, also known as VHH-antibodies, Nanobodies or NanoAbs, represent a relatively new approach to treating diseases, and we must overcome significant challenges in order to successfully develop, commercialize and manufacture product candidates based on this technology; |
| ● | Clinical trials are very expensive, time-consuming and difficult to design and implement, and, as a result, we may suffer delays or suspensions in future trials which would have a material adverse effect on our ability to generate revenues; |
| ● | Positive results from earlier preclinical data and clinical trials we conduct may not be predictive of the results in later clinical trials of current and future product candidates, and the results of any clinical trials we conduct may not be replicated in additional clinical trials that we may be required to conduct, which could result in development delays or a failure to obtain marketing approval; |
| ● | Due to the ongoing generation of new variants of the COVID-19 coronavirus and the difficulty of identifying broad spectrum NanoAbs, we suspended further development of this program and are unlikely to continue unless we find a partner to further develop this program. Current interest in, and funding for, COVID-19 therapeutics is low and we may not be successful in finding a partner; |
| ● | If we are not successful in discovering, developing and commercializing current and future product candidates, our ability to expand our business and achieve our strategic objectives may be impaired; |
| ● | We have no product candidate(s) in clinical development or approved, which makes it difficult to assess our future viability; |
| ● | We face significant competition. If we cannot successfully compete with new or existing product candidate(s), our marketing and sales will suffer, and we may never be profitable; |
| ● | Our NanoAbs program is based on an exclusive, worldwide license from the Max Planck Society, and we could lose our rights to this license if a dispute with MPG arises or if we fail to comply with the financial and other terms of the license; |
| ● | CDMO services are highly complex and failure to provide quality and timely services to our CDMO clients could adversely impact our business; |
| ● | Our CDMO business is dependent upon the demand for our services by our customers; |
| ● | Significant delays in product manufacturing or development and our ability to produce sufficient quantities to meet the needs of our clients could cause delays in recognizing revenues, which would harm our business, financial condition, operating results and cash flows; and |
| ● | A disruption to our GMP biologics manufacturing facility in Jerusalem could impede our ability to advance our NanoAbs programs or our other product candidates and deliver our CDMO services, which could adversely affect our business. |
Risks Related to Our Financial Position and Capital Requirements
Our financial statements include a going concern reference. We will need to raise significant additional capital to finance our losses and negative cash flows from operations, and if we were to fail to do so, we may need to cease operations. Management has substantial doubt about our ability to continue as a going concern.
As of December 31, 2024 and December 31, 2023, our cash and cash equivalents totaled $1.9 million and $4.9 million, respectively. In the twelve months ended December 31, 2024 and December 31, 2023, we had an operating loss of $ 8.6 million and $9.7 million, respectively, and negative cash flows from operating activities of $6.3 million and $9.3 million, respectively. Our current cash and cash equivalents position is not sufficient to fund our planned operations for at least a year beyond the date of the filing date of the financial statements. Those factors raise substantial doubt about our ability to continue as a going concern. The ability to continue as a going concern is dependent upon our obtaining the necessary financing to meet our obligations, reducing costs and repaying our liabilities arising from normal business operations when they become due. While we have successfully raised funds in the past, there is no guarantee that we will be able to do so in the future, particularly given the current difficult market conditions and our very low market capitalization which makes it more difficult for us to raise significant amounts of capital. The inability to borrow or raise sufficient funds on commercially reasonable terms would have serious consequences for our financial condition and results of operations.
Our current operating budget includes various assumptions concerning the level and timing of cash receipts and cash outlays for operating expenses and capital expenditures, including a cost-saving plan. We are planning to finance our operations from our existing working capital resources and additional sources of capital and financing. However, there is no assurance that additional capital and/or financing will be available to us, and even if available, whether it will be on terms acceptable to us or in amounts required, particularly if we are not able to maintain our listing on Nasdaq. See “- Risks Related to our Securities - Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of the ADSs. The delisting could adversely affect the market liquidity of our shares and the market price of our shares could decrease significantly”. Accordingly, our board of directors approved a cost-saving plan, a portion of which has been implemented to date, to assist us in continuing our operations and meeting our cash obligations. As part of our cost-saving plan, we are reducing expenditures by reducing headcount costs through lay-offs and postponing and/or cancelling capital expenditures that would not be required for the implementation of the revised business plan.
The Company’s financial statements for the twelve months ended December 31, 2024 and the twelve months ended December 31, 2023 were prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liabilities and commitments in the normal course of business. Such financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.
We are a developmental stage biopharmaceutical company with a history of operating losses, with no product candidate that generates revenue and as such we are not currently profitable, do not expect to become profitable in the near future, may never become profitable and as a result may ultimately need to wind up our business and operation.
We are a development stage biopharmaceutical company and currently do not have, and may never have, any product candidate(s) that generate revenues. Our CDMO Unit has generated limited revenues to date. Investment in pharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate(s) will fail to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval and become commercially viable.
We are not profitable and have incurred losses since inception, principally as a result of research and development, clinical trials, construction of our GMP biologics manufacturing facility, and general administrative expenses in support of our operations. We have not generated any revenue other than limited revenues from our CDMO Unit, expect to incur substantial losses for the foreseeable future and may never become profitable. As of December 31, 2024 and December 31, 2023, respectively, we had an accumulated deficit of $117.6] million and $122.5 million, respectively, and we expect to experience negative cash flow for the foreseeable future. As a result, we will ultimately need to generate significant revenues in order to achieve and maintain profitability. We may never be able to generate significant revenues or achieve profitability in the future, and we expect to incur additional losses for the foreseeable future. Our failure to achieve or maintain profitability, or substantial delays in achieving profitability, could negatively impact the value of the securities and our ability to raise additional financing. A substantial decline in the value of the securities would also affect the price at which we could sell them to secure future funding, which could dilute the ownership interest of current shareholders. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Accordingly, it is difficult to evaluate our business prospects. Moreover, our prospects must be considered in light of the risks and uncertainties encountered by an early-stage company in highly regulated and competitive markets, such as the biopharmaceutical market, where regulatory approval and market acceptance of our product candidate(s) are uncertain. There can be no assurance that our efforts will ultimately be successful or result in significant revenues or profits.
We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts.
As of December 31, 2024 and December 31, 2023, we had $1.9 million and $4.9 million, respectively, in cash and cash equivalents and short-term deposits, working capital of $0.59 million and $3.6 million, respectively, and an accumulated deficit of $117.6 million and $122.3 million, respectively. Our existing cash resources are not sufficient to fund our projected cash requirements at current monthly rates for at least the next 12 months.
Our ability to execute on our business plan is dependent upon our ability to raise capital through private or public financings, or enter into a commercial agreement, among others. Since our inception, most of our resources have been dedicated to product development. In the future, we believe that we will expend significant operating and capital expenditures to acquire additional product candidates, develop and, subject to results of any future clinical trials, apply for regulatory approval of current and future product candidates, if any. These expenditures may include, but are not limited to, costs associated with research and development, manufacturing, conducting clinical trials, contract manufacturing organizations, or CMOs, hiring additional management and other personnel, applying for regulatory approvals, acquisition of equipment, as well as commercializing any product candidates approved for sale. Furthermore, we incur additional costs associated with operating as a public company traded on Nasdaq in the United States. We cannot precisely estimate the actual amounts necessary to acquire additional product candidates and successfully complete the development and commercialization of product candidates. As a result of these and other factors currently unknown to us, we will require additional funds, through public or private equity or debt financings or non-dilutive sources or other sources, that may not be available to us or, if available, may not be on terms favorable to us. A failure to fund these activities may significantly harm our growth strategy, competitive position, quality compliance, financial condition and is expected to have a material adverse effect on our business and operations.
Our future capital requirements depend on many factors, including:
| ● | our ability to establish and maintain strategic partnerships, licensing or other arrangements and the financial terms of such agreements; |
| ● | our search for new business opportunities; |
| ● | our ability to identify and acquire rights to, or develop on our own, new product candidate(s) and diversify/expand our product opportunities; |
| ● | the scope and cost of researching and developing, obtaining regulatory approval for, commercializing and manufacturing any new product candidate(s); |
| ● | our ability to generate significant revenue from our CDMO business unit. |
| ● | the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; |
| ● | the expenses needed to attract and retain skilled personnel; and |
| ● | any product liability or other lawsuits related to any current or future product candidate(s). |
Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate the potential acquisition of other product candidates, preclinical studies, clinical trials or other research and development activities for current and future product candidates or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize such product candidate(s).
Our business strategy may not be successful.
We cannot offer any assurance that our business strategy will be successful. If we are unable to successfully execute our business strategy, our business, financial condition and results of operations may be materially and adversely affected.
Raising additional capital may cause dilution to our existing shareholders, and debt financing, if available, while an inability to raise additional capital may restrict our operations or require us to relinquish rights to our technologies or product candidate(s).
We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholders will be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring future indebtedness, making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships, alliances and licensing arrangements with third parties, we may have to relinquish
Risks Related to Development, Clinical Testing and Regulatory Approval of NanoAbs and any Other Current and Future Product Candidate(s)
We have not yet commercialized any product candidate(s), and we may never become profitable.
We are party to a licensing and research collaboration arrangements with MPG and UMG pursuant to which we are working to develop and commercialize a pipeline of innovative VHH antibody fragments, or NanoAb, drug candidates, addressing diseases with large underserved medical needs and attractive commercial opportunities. Our first licensed program was a development of an inhalable COVID-19 NanoAb, and while we were able to demonstrate promising results in an industry accepted animal (hamster) model of COVID-19, the market for COVID-19 therapeutics has decreased significantly, and with it capital sources. Accordingly, due to changing market conditions for COVID therapeutics we suspended further development of the COVID-19 NanoAb and, together with the licensors, elected to abandon the related patents, given the low interest from the industry and the financial community and the high costs of maintenance. We are now focused on the development of NanoAbs targeting Interleukin-17 (IL-17), which we licensed in June 2023, as treatments for all potential indications where IL-17 plays a meaningful role, starting with plaque psoriasis and psoriatic arthritis. In addition, we have signed an option agreement to acquire the Italian biotech company, Pincell srl, or Pincell, the owner of PC111, a fully human, monoclonal antibody that binds to the human soluble Fas ligand and thus blocks its activation of apoptosis of skin cells (keratinocytes). Aside from this, we have no product candidates in pre-clinical development, in clinical trials or on the market. Even if we are successful in developing current or future product candidates, we will not be successful unless we complete our product development efforts, obtain regulatory approval and such product candidate(s) gain(s) market acceptance for appropriate indications at favorable reimbursement rates. The degree of market acceptance of these product candidate(s) will depend on a number of factors, including, but not limited to:
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● | the timing of regulatory approvals in the U.S. and other countries, if any, and the uses for which we intend to pursue regulatory approval for the commercialization of current and future product candidates; |
| ● | the competitive environment; |
| ● | the demand for our product candidate(s); |
| ● | the establishment and demonstration in, and acceptance by, the medical community of the safety and clinical efficacy of our product candidate(s) and its potential advantages over other competitive products; |
| ● | our ability to enter into supply agreements with health organizations and governments around the world for the supply of our product candidate(s) or our ability to enter into strategic agreements with pharmaceutical and biopharmaceutical companies with strong marketing and sales capabilities; |
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the adequacy and success of our distribution, sales and marketing efforts;
our ability to conduct large-scale manufacturing, including yield and quality, and in shipping product internationally, on our own and/or through third parties; and |
| ● | the pricing, coverage and reimbursement policies of government and third-party payors, such as insurance companies, health maintenance organizations and other plan administrators. |
Physicians, participants, third-party payors or the medical community in general may be unwilling to accept, utilize or recommend, and in the case of third-party payors, cover payment for current and future product candidates. As a result, we are unable to predict the extent of our future losses or the time required for us to achieve profitability, if at all. Even if we successfully develop one or more products, we may not become profitable.
In addition, we have limited marketing capabilities, and if we are unable to enter into collaborations with marketing partners or develop our own sales and marketing capabilities, we may not be successful in commercializing current and future product candidates. If we are unable to reach and maintain agreements with one or more pharmaceutical companies or partners, we may be required to market our product candidate(s) directly. Developing a marketing and sales force is expensive and time-consuming and could delay a product launch. We may not be able to attract and retain qualified sales personnel or otherwise develop this capability.
NanoAbs represent a relatively new approach to treating diseases, and we must overcome significant challenges in order to successfully develop, commercialize and manufacture product candidates based on this technology.
We are currently concentrating our development efforts on the IL-17 NanoAb as a treatment for all potential indications where IL-17 plays a meaningful role, starting with psoriasis and psoriatic arthritis. The processes and requirements imposed by the U.S. Food and Drug Administration (the “FDA”) or other applicable health authorities may cause delays and additional costs in obtaining approvals for marketing authorization for our products. Because our platform is relatively new and only one drug developed by a competing company and related to rare blood diseases has been approved to date in the market, regulatory agencies, as well as insurance and other coverage providers and payers, may lack experience in evaluating our product candidates. This inexperience may lengthen the regulatory review process, increase our development costs and delay or prevent reimbursement and commercialization of our platform products. Additionally, advancing this novel platform creates significant challenges for us, and we must be able to overcome these challenges in order to successfully develop, commercialize and manufacture our product candidates.
In light of our current resources and limited commercial experience, we have and may need to continue to establish third-party relationships to successfully develop, commercialize and market our pipeline candidates.
Our long-term commercial viability may depend, in part, on our ability to successfully execute current strategic collaborations and establish new strategic collaborations with contract commercial organizations, pharmaceutical and biotechnology companies, non-profit organizations, and government agencies. Establishing and maintaining strategic collaborations and obtaining government funding is difficult and time-consuming. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory or intellectual property position or based on their internal pipeline or available resources; government agencies may reject contract or grant applications based on their assessment of public need, the public interest, the ability of our products to address these areas, or other reasons beyond our expectations or control. If we fail to establish or maintain collaborations necessary for successful development, commercialization and marketing on acceptable terms, we may not be able to develop, commercialize or market product candidates or generate sufficient revenue to fund further research and development efforts.
New or existing collaborations, including our collaboration with MPG and UMG, may never result in the successful development or commercialization of any pipeline candidates for several reasons, including the fact that:
| ● | we may not have the ability to control the activities of our partners and cannot provide assurance that they will fulfill their obligations to us, including with respect to the license, development, manufacture and commercialization of pipeline candidates, in a timely manner or at all; |
| ● | such partners may not devote sufficient resources to our pipeline candidates or properly maintain or defend our intellectual property rights (if required); |
| ● | such partners may decide to pursue competitive product candidates developed outside of the partnership arrangement; |
| ● | any failure on the part of our partners to perform or satisfy their obligations to us could lead to delays in the development or commercialization of our pipeline candidates and affect our ability to realize product revenue; |
| ● | disagreements, including disputes over the ownership of technology developed with such collaborators, could result in litigation, which would be time-consuming and expensive, and may delay or terminate research and development efforts, regulatory approvals, and commercialization activities; and |
| ● | such partners may decide to terminate or not to renew the collaboration for these or other reasons. |
If we or our collaborators fail to maintain our existing agreements or in the event we fail to establish agreements as necessary, we could be required to undertake research, development, manufacturing, and commercialization activities solely at our own expense. These activities would significantly increase our capital requirements and, given our lack of sales, marketing and distribution capabilities, significantly delay the commercialization of our pipeline candidates.
We may be unable to exercise our option to acquire Pincell, or if we exercise the option we may be required to resell our shares in Pincell to the previous shareholder, either of which will affect our future prospects.
On March 27, 2025, we announced that we had entered into a binding option agreement for the acquisition of Pincell, the owner of PC111, a monoclonal antibody in development for treating Pemphigus, Steven Johnson’s Syndrome (SJS) and Toxic Epidermal Necrolysis (TEN). Pursuant to the terms of the option agreement with Pincell, we have the right to exercise, at our sole discretion, a full sale and transfer of Pincell’s shares by the end of 2025, subject to approval of the Golden Power regulatory clearance by the Italian government and satisfaction of certain closing requirements, which include the requirement to either obtain an award of a grant to our wholly owned Polish subsidiary under the European Funds for a Modern Economy (FENG) program in Poland or secure $3 million by December 31, 2025 to fund the development of PC111. If regulatory approval is not obtained or if we are not successful in either obtaining the grant under the FENG program or securing $3 million by December 31, 2025 to fund the development of PC111, we will be unable to exercise the option. If we are unable to exercise the option, our future prospects will be affected.
In addition, pursuant to the option agreement, if we or our affiliates have not filed an IND application for PC111 to the FDA, or any similar dossier application in a country other than the U.S., by December 31, 2028, the option agreement grants each seller the right to repurchase the shares of Pincell it sold to us for the lower of (i) the fair market value of Pincell and (ii) the sum funded by us or our affiliates into Pincell at that time (but in any event not less than the nominal value of the shares of Pincell). If we have difficulty in funding the development of PC111, including if we exercise our option to acquire Pincell but do not receive the grant from the FENG program in Poland, or if for any other reason we do not file an IND application for PC111 to the FDA, or any similar dossier application in a country other than the U.S., by December 31, 2028, we will be required to resell our shares in Pincell to the previous shareholders of Pincell, which will affect our future prospects.
Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy are required, and we may not adequately develop such protocols to support approval.
In addition to FDA requirements and those of other regulatory authorities, an independent institutional review board or an independent ethics committee at each medical institution proposing to participate in the conduct of the clinical trial generally must review and approve the clinical trial design and patient informed consent form before commencement of the study at the respective medical institution. The institutional review boards approve the clinical trial protocols and conduct periodic reviews of the clinical trials. The clinical trial protocols describe the type of people who may participate in the clinical trial, the schedule of tests and procedures, the medications and dosages to be studied, the length of the study, the study’s objectives, and other details. In general, the institutional review board will consider, among other matters, ethical factors, the safety of human subjects and the possibility of liability of the institution conducting the trial. Our pre-clinical studies may not be adequate proof of safety and efficacy, and as a result, we may not be successful in developing clinical trial protocols necessary to support institutional review board approval. Any delay or failure to obtain institutional review board approval to conduct a clinical trial at a prospective site could materially impact the costs, timing, or successful completion of a clinical trial.
Current and future product candidates would be subject to extensive regulation and may never obtain regulatory approval.
The clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, import, export, marketing and distribution of our product candidate(s) are subject to extensive regulation by the Food and Drug Administration (the “FDA”) in the United States (the “U.S.”) as detailed in Title 21 of the U.S. Code or elsewhere and by comparable authorities in foreign markets. In the U.S., we are not permitted to market our product candidate(s) until we receive regulatory approval from the FDA. The process of obtaining regulatory approval is expensive, often takes many years and can vary substantially based upon the type, complexity and novelty of the product candidate(s) involved, as well as the target indications and patient population. Current and future product candidates must satisfy rigorous standards of safety and efficacy before product candidates can be approved for commercial use by the European Medicines Agency (the “EMA”) in the European Union (the “EU”) or the FDA in the U.S., or any other regulatory authorities for all or any of the indications for which product candidates are intended to be used. The EMA, FDA and any other regulatory authorities have substantial discretion over the approval process, and approval is never guaranteed. We may need to conduct significant additional research before we can file applications for product approval. Typically, in the pharmaceutical industry, there is a high rate of attrition for product candidates in clinical trials. Success in early clinical trials does not ensure that later clinical trials will be successful. For example, a number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials.
The FDA or comparable foreign regulatory authorities can delay, limit or deny approval of a product candidate(s) for many reasons, including:
| ● | such authorities may disagree with the design or implementation of our clinical trials; |
| ● | we may be unable to demonstrate to the satisfaction of the FDA or other comparable regulatory authorities in foreign markets that a product candidate(s) is safe and effective for any indication; |
| ● | such authorities may not accept clinical data from trials which are conducted at clinical facilities or in countries where the standard of care is potentially different from that of the U.S.; |
| ● | we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; |
| ● | such authorities may disagree with our interpretation of data from preclinical studies or clinical trials; |
| ● | approval may be granted only for indications that are significantly more limited than what we apply for and/or with other significant restrictions on distribution and use; or |
| ● | such authorities may find deficiencies in manufacturing processes or facilities, including the processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies. |
In addition, delays or rejections may be encountered based upon additional government regulation, including any changes in legislation or policy of the EMA, FDA or any other regulatory policy, during the process of product development, clinical trials and regulatory reviews. Approval procedures vary among countries, and may involve additional product testing, administrative review periods and agreements with pricing authorities. In addition, events raising questions about the safety of certain marketed pharmaceuticals may result in increased cautiousness by the EMA, FDA and comparable foreign regulatory authorities in reviewing new pharmaceutical products based on safety, efficacy or other regulatory considerations and may result in significant delays in obtaining regulatory approvals. Failure to obtain EMA, FDA or any other regulatory approval for current and future product candidates in a timely manner or at all will severely undermine our business by delaying or halting commercialization of our products, imposing costly procedures, diminishing competitive advantages and reducing the number of saleable products and, therefore, corresponding product revenues.
Current and future product candidates will remain subject to ongoing regulatory requirements even if we receive regulatory approval to market such product candidate(s), and if we fail to comply with such requirements, we could lose those approvals that have been obtained, and the sales of any approved commercial products could be suspended.
Even if we receive regulatory approval to market current and future product candidates, such product candidate(s) will remain subject to extensive regulatory requirements, including requirements relating to manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion, distribution and record keeping. Even if regulatory approval of any product candidate(s) is granted, approval may be subject to limitations on the uses for which the product candidate(s) may be marketed or the conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product candidate(s), which could negatively impact us or our collaboration partners by reducing revenues or increasing expenses, and cause the approved product candidate(s) not to be commercially viable. In addition, as clinical experience with a drug expands after approval, typically because it is used by a greater number and more diverse group of people after approval than during clinical trials, side effects and other problems may be observed over time after approval that were not seen or anticipated during pre-approval clinical trials or other studies. Any adverse effects observed after the approval and marketing of a product candidate(s) could result in limitations on the use of, withdrawal of EMA, FDA or any other regulatory approval or withdrawal of any approved product candidate(s) from the marketplace. Absence of long-term safety data may also limit the approved uses of our product candidate(s), if any. If we fail to comply with the regulatory requirements of the EMA, FDA and any other applicable regulatory authorities, or previously unknown problems with any approved commercial product candidate(s), manufacturers or manufacturing processes are discovered, we could be subject to administrative or judicially imposed sanctions or other setbacks, including, without limitation, the following:
| ● | suspension or imposition of restrictions on the product candidate(s), manufacturers or manufacturing processes, including costly new manufacturing requirements; |
| ● | warning letters; |
| ● | civil or criminal penalties, fines and/or injunctions; |
| ● | product seizures or detentions; |
| ● | import or export bans or restrictions; |
| ● | voluntary or mandatory product recalls and related publicity requirements; |
| ● | suspension or withdrawal of regulatory approvals; |
| ● | total or partial suspension of production; and |
| ● | refusal to approve pending applications for marketing approval of new product candidate(s) or supplements to approved applications. |
If we or our partners, if any, are slow to adapt, or are unable to adapt, to changes in existing regulatory requirements or adoption of new regulatory requirements or policies, marketing approval for our product candidate(s) may be lost or cease to be achievable, resulting in decreased revenue from milestones, product sales or royalties, or otherwise, which would have a material adverse effect on our business, financial condition or results of operations.
Current and future product candidates, if approved, may face competition sooner than anticipated.
Our product candidates may face serious competition from other products targeting the same disease or condition, including biosimilar products. In the U.S., current and future product candidates may be regulated by the FDA as biologic products and we may seek approval for such product candidate(s) pursuant to the biologics license application, or BLA, pathway. The Biologics Price Competition and Innovation Act of 2009, or BPCIA, amended the Public Health Service Act (the “PHSA”) and created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until twelve years from the date on which the reference product was first licensed. During this twelve-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of its product. This twelve-year period of exclusivity does not pre-empt and is independent of any patent protection afforded to current and future product candidates. The law is complex and is still being interpreted and implemented by the FDA. Any processes adopted by the FDA to implement the BPCIA could have a material adverse effect on the future commercial prospects for our biological products, if any.
Although we believe that current and future product candidates should qualify for the twelve-year period of exclusivity described above if product candidates are approved as biological products under a BLA, we may not be granted such exclusivity. Further, there is a risk that this exclusivity could be shortened due to Congressional action or otherwise, or that the FDA will not consider current and future product candidates to be reference products for competing products, potentially creating the opportunity for generic or biosimilar competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar product, once approved, could be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products will depend on a number of marketplace and regulatory factors that are still developing. In addition, a competitor could decide to forego the biosimilar approval path and submit a full BLA after completing its own preclinical studies and clinical trials. In such cases, any exclusivity to which we may be eligible under the BPCIA would not prevent the competitor from marketing its product as soon as it is approved.
If the results of any future clinical trials show that current and future product candidates are effective based on certain endpoints but nevertheless fail to achieve all the primary/secondary endpoint(s) requiring us to conduct additional clinical trials, or if clinical trials that we conduct for such products in the future are prolonged or delayed, we would be unable to commercialize current and future product candidates on a timely basis, which would require us to incur additional costs and delay our receipt of any revenues from potential sales of such product candidate(s).
If we fail to achieve all the primary/secondary endpoints, then we may be required by the FDA or any other regulatory authority to conduct additional clinical studies. We cannot predict whether we will encounter problems with any such clinical trials that will cause us or any regulatory authority to delay or suspend those clinical trials or delay the analysis of data derived from them. A number of events, including any of the following, could delay the completion of any such additional clinical trials and negatively impact our ability to obtain regulatory approval for, and to market and sell, a particular product candidate(s):
| ● | conditions imposed on us by the FDA or any applicable foreign regulatory authority regarding the scope or design of our clinical trials; |
| ● | delays in recruiting and enrolling participants or volunteers into any potential future clinical trials; |
| ● | delays in obtaining, or our inability to obtain, required approvals from institutional review boards (“IRBs”) or other reviewing entities at clinical sites selected for participation in our clinical trials; |
| ● | insufficient supply or deficient quality of our product candidate(s) or other materials necessary to conduct our clinical trials; |
| ● | lower than anticipated retention rate of subjects and participants in clinical trials; |
| ● | negative or inconclusive results from clinical trials, or results that are inconsistent with earlier results, that necessitate additional clinical studies; |
| ● | serious and unexpected drug-related side effects experienced by subjects and participants in clinical trials; or |
| ● | failure of our third-party contractors to comply with regulatory requirements or otherwise meet their contractual obligations to us in a timely manner. |
Clinical trials require sufficient participant enrollment, which is a function of many factors, including the size of the participant population, the nature of the trial protocol, the proximity of participants to clinical sites, the availability of effective treatments for the relevant disease and the eligibility criteria for the clinical trial. Delays in participant enrollment can result in increased costs and longer development times. The failure to enroll participants in a clinical trial could delay the completion of the clinical trial beyond our current expectations. In addition, the FDA or foreign applicable regulatory authorities could require us to conduct clinical trials with a larger number of subjects than we have prior experience with. We may not be able to enroll a sufficient number of participants in a timely or cost-effective manner. Furthermore, enrolled participants may drop out of clinical trials, which could impair the validity or statistical significance of those clinical trials.
Prior to commencing clinical trials in the U.S., we must submit an Investigational New Drug (“IND”) application to the FDA and the IND application must become effective.
Delays in any clinical trials the FDA or EMA may require us to conduct will result in increased development costs for current and future product candidates. In addition, if any such clinical trials are delayed, our competitors may be able to bring products to market before we do and the commercial viability of current and future product candidates could be limited.
Clinical trials are very expensive, time-consuming and difficult to design and implement, and, as a result, we may suffer delays or suspensions in future trials which would have a material adverse effect on our ability to generate revenues.
Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Regulatory authorities, such as the EMA and FDA, may preclude clinical trials from proceeding. Additionally, the clinical trial process is time-consuming, failure can occur at any stage of the trials and we may encounter problems that cause us to abandon or repeat clinical trials. The commencement and completion of clinical trials may be delayed by several factors, including:
| ● | unforeseen safety issues; |
| ● | determination of proper dosing; |
| ● | lack of effectiveness or efficacy during clinical trials; |
| ● | failure of our contract manufacturers or inability of our in-house facility to manufacture our product candidate(s) in sufficient quantities and in accordance with current good manufacturing practices, or cGMP; |
| ● | our failure or the failure of third party suppliers to perform final manufacturing steps for the drug substance; |
| ● | slower than expected rates of participant recruitment and enrollment; |
| ● | lack of healthy volunteers and participants to conduct trials; |
| ● | inability to monitor participants adequately during or after treatment; |
| ● | Failure or delay in reaching an agreement with a third party contract research organization or clinical trial site(s), and failure of third party contract research organizations to properly implement or monitor the clinical trial protocols; |
| ● | failure of the FDA, Institutional Review Boards (“IRBs”), or other regulatory bodies to authorize our clinical trial protocols, or a decision by a regulatory body to place one or more of our trials on hold; |
| ● | inability or unwillingness of medical investigators and Contract Research Organizations to follow our clinical trial protocols and applicable regulatory requirements; and |
| ● | lack of sufficient funding to finance the clinical trials. |
In addition, we or regulatory authorities may suspend or terminate our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks, if the regulatory authorities find deficiencies in our regulatory submissions or the conduct of these trials, if inspection of the clinical trial operations or trial site by a regulatory authority results in the imposition of a clinical hold, or if there is a failure to demonstrate a benefit from using the product candidate(s), or changes in governmental regulations or administrative actions. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial. Any suspension of clinical trials will delay possible regulatory approval, if any, and adversely impact our ability to develop product candidate(s) and generate revenue.
We may in the future conduct clinical trials of current and future product candidates at sites outside the U.S., and the FDA may not accept data from trials conducted in foreign locations.
We may in the future conduct clinical trials of current and future product candidates outside of the U.S. Although the FDA may accept data from clinical trials conducted outside the U.S., acceptance of this data is subject to certain conditions imposed by the FDA. For example, under 21 Code of Federal Regulations (“CFR”) 312.20, the clinical trial must be well designed and conducted in accordance with good clinical practice, or GCP, requirements, and the FDA must be able to validate the clinical trial data through an on-site inspection, if necessary, among other things. If a marketing application is based solely on foreign clinical data, the FDA can require such data to be applicable to the U.S. population and U.S. medical practice, and for the clinical trials to have been performed by clinical investigators of recognized competence. There can be no assurance the FDA will accept data from trials conducted outside of the U.S. If the FDA does not accept the data from any clinical trials that may be conducted outside of the U.S. of current and future product candidates, it would likely result in the need for additional trials, which would be costly and time-consuming and delay or permanently halt our development of the product candidate(s).
Positive results from earlier preclinical data and clinical trials may not be predictive of the results in later clinical trials of current and future product candidates, and the results of our clinical trials may not be replicated in additional clinical trials that we may be required to conduct, which could result in development delays or a failure to obtain marketing approval.
Positive results from previous clinical trials may not be predictive of the results of later clinical trials of current and future product candidates, and any early clinical trials may not be predictive of results in later clinical trials that we may conduct. A number of companies in the pharmaceutical and biopharmaceutical industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in early-stage development. Accordingly, the results from preclinical studies and clinical trials for current and future product candidates may not be predictive of the results we may obtain in later stage trials.
Our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials. Moreover, clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain FDA or European Medicines Agency, or other applicable regulatory agency, approval for their product candidates.
We may be unsuccessful in finding a partner to further develop our COVID-19 NanoAb program to protect against current and future variants of COVID-19.
Our first program under the licensing and collaboration arrangement with MPG and University Medical Center Göttingen was development of an inhalable COVID-19 NanoAb. Due to the ongoing generation of new variants of the COVID-19 coronavirus and the difficulty of identifying broad spectrum NanoAbs, we suspended further development of this program and are unlikely to continue unless we find a partner to further develop this program. Current interest in, and funding for, COVID-19 therapeutics is low, and we may not be successful in finding a partner.
We have limited experience with the development of local delivery and inhalation-administered therapies.
We currently intend to develop our anti-IL-17 NanoAbs to be administered by local delivery directly into the dermis, while we continue to explore other routes of administration including systemic delivery and various combinations with other molecules. If the development of our COVID-19 NanoAb is continued, we expect that it would be developed to be administered by inhalation, targeting the virus directly in the lungs and airways. Although our team has significant experience with designing and conducting clinical trials, we have never developed or commercialized a local delivery therapy or an inhalation-administered therapy. Even if our anti-IL-17 NanoAbs are effective against potential indications where IL-17 plays a meaningful or our COVID-19 NanoAbs are effective against COVID-19, we are subject to development risks associated with these routes of administration.
If we experience delays in the enrollment of participants in any future clinical trials we may conduct, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate clinical trials for current and future product candidates. Participant enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the population eligible to participate, the proximity of potential participants to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and participants’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. If we fail to enroll and maintain the number of participants for which the clinical trial was designed, the statistical power of that clinical trial may be reduced, which would make it harder to demonstrate that the product candidate being tested in such clinical trial is safe and effective. Additionally, enrollment delays in any clinical trials may result in increased development costs for current and future product candidates, which could materially harm our financial condition and limit our ability to obtain additional financing. Our inability to enroll a sufficient number of participants for any clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether.
The occurrence of serious complications or side effects in connection with current and future product candidates, either in future clinical trials we may conduct or post-approval, could impede such future clinical trials, if any, and lead to refusal of regulatory authorities to approve our product candidate(s) or, post-approval, revocation of marketing authorizations or refusal to approve new indications, which could severely harm our business, prospects, operating results and financial condition.
In any future clinical trials of current and future product candidates that we may conduct, or following regulatory approval, illnesses, injuries, discomforts and other adverse events may be reported by subjects. In addition, side effects are sometimes only detectable after they are made available to patients on a commercial scale after approval. Results of any future clinical trials we may undertake for current and future product candidates could reveal a high and unacceptable severity and prevalence of such side effects. In such an event, any clinical trials we may conduct could be suspended or terminated, and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of current and future product candidates for any or all targeted indications. Drug-related side effects could affect patient recruitment for any clinical trials we may conduct or the ability of enrolled participants to complete such trials or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.
In addition, if current and future product candidates receive marketing approval, and we or others later identify undesirable side effects caused by such product candidate(s), a number of potentially significant negative consequences could result, including:
| ● | such authorities may disagree with the design or implementation of our clinical trials; |
| ● | we may be unable to demonstrate to the satisfaction of the FDA or other comparable regulatory authorities in foreign markets that a product candidate(s) is safe and effective for any indication; |
| ● | such authorities may not accept clinical data from trials which are conducted at clinical facilities or in countries where the standard of care is potentially different from that of the U.S.; |
| ● | we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; |
| ● | such authorities may disagree with our interpretation of data from preclinical studies or clinical trials; |
| ● | approval may be granted only for indications that are significantly more limited than what we apply for and/or with other significant restrictions on distribution and use; or |
| ● | such authorities may find deficiencies in manufacturing processes or facilities. |
Any of these events could prevent us from achieving or maintaining market acceptance of current and future product candidates, if approved, and could significantly harm our business, results of operations and prospects.
If we are not successful in discovering, developing and commercializing current and future product candidates, our ability to expand our business and achieve our strategic objectives may be impaired.
Research programs designed to identify current and future product candidates may require substantial technical, financial and human resources, whether or not such efforts are successful. Our research programs may initially show promise in identifying current and future product candidates, yet fail to lead to clinical development or commercialization for many reasons, including the following:
| ● | the research methodology used may not be successful in identifying potential product candidate(s); |
| ● | competitors may develop alternatives that render our product candidate(s) obsolete; |
| ● | a product candidate(s) may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria; |
| ● | a product candidate(s) may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and |
| ● | a product candidate(s) may not be accepted as safe and effective by regulatory authorities, participants, the medical community or third-party payors. |
If we are unable to identify suitable compounds for preclinical and clinical development, we may not be able to obtain sufficient product revenues in future periods, which likely would result in significant harm to our financial position and adversely impact the price of the ADSs.
Inadequate funding for the FDA and other government agencies and/or potentially shifting priorities under the new administration could hinder the FDA’s and/or those other government agencies’ ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner, or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new products, provide feedback on clinical trials and development programs, meet with sponsors and otherwise review regulatory submissions can be affected by a variety of factors, including government budget and funding levels; ability to hire and retain key personnel and accept the payment of user fees; and statutory, regulatory, and policy changes, among other factors. Average review times at the agency may fluctuate as a result. In addition, government funding of other government agencies on which our operations may rely is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also increase the time necessary for new drugs to be reviewed and/or approved by necessary government agencies or to otherwise respond to regulatory submissions, which would adversely affect our business. For example, the Trump Administration has discussed several changes to the reach and oversight of the FDA, which could affect its relationship with the pharmaceutical industry, transparency in decision making and ultimately the cost and availability of prescription drugs. Additionally, over the last several years, the US government has shut down multiple times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA and other government employees and stop critical activities. If funding for the FDA is reduced, FDA priorities change, or a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
Coverage and reimbursement may not be available for current and future product candidates (if and when approved for commercial sale), which could make it difficult for us to sell such product candidates profitably.
Market acceptance and sales of current and future product candidates will depend on coverage and reimbursement policies. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which products they will pay for and establish reimbursement levels. We cannot be sure that coverage and reimbursement will be available for current and future product candidates we may develop. Even if coverage is provided, we cannot be sure that the amount of reimbursement available, if any, will not reduce the demand for, or the price of, our product candidate(s). If reimbursement is not available or is available only at limited levels, we may not be able to successfully compete through sales of our proposed product candidate(s).
In the United States, no uniform policy of coverage and reimbursement for pharmaceutical products exists among third-party payors. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement rates, but also have their own methods and approval process apart from Medicare determinations. Therefore, coverage and reimbursement for pharmaceutical products can differ significantly from payor to payor. Certain Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the Affordable Care Act marketplace and other private payor plans are required to include coverage for certain preventative services, including vaccinations recommended by the U.S. Centers for Disease Control’s, or CDC’s, Advisory Committee on Immunization Practices, or ACIP, without cost share obligations (i.e., co-payments, deductibles or co-insurance) for plan members. For Medicare beneficiaries, vaccines may be covered for reimbursement under either the Part B program or Part D depending on several criteria, including the type of vaccine and the beneficiary’s coverage eligibility. If our vaccine candidate(s), once approved, is reimbursed only under the Part D program, physicians may be less willing to use our product candidate(s) because of the claims adjudication costs and time related to the claims adjudication process and collection of co-payments associated with the Part D program.
Outside the United States, certain countries, including a number of member states of the European Union, set prices and reimbursement for pharmaceutical products, with limited participation from the marketing authorization holders. We cannot be sure that such prices and reimbursement will be acceptable to us or our partners, if any. If the regulatory authorities in these jurisdictions set prices or reimbursement levels that are not commercially attractive for us, our revenues from sales by us, and the potential profitability of our product candidate(s), in those countries would be negatively affected. Additionally, some countries require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. As a result, we might obtain marketing approval for a product candidate(s) in a particular country, but then may experience delays in the reimbursement approval of our product candidate(s) or be subject to price regulations that would delay our commercial launch of the product candidate(s), possibly for lengthy time periods, which could negatively impact the revenues we are able to generate from the sale of the product candidate(s) in that particular country.
Current and future legislation may increase the difficulty and cost for us and our partners, if any, to obtain marketing approval of and commercialize current and future product candidates and affect the prices we, or they, may obtain.
In the United States and some foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system, including cost-containment measures that may reduce or limit coverage and reimbursement for newly approved drugs and affect our ability to profitably sell current and future product candidates for which we obtain marketing approval. In particular, there have been and continue to be a number of initiatives at the U.S. federal and state levels that seek to reduce healthcare costs and improve the quality of healthcare.
For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act, was enacted in the United States. Among the provisions of the Affordable Care Act of importance to our potential product candidate(s), the Affordable Care Act: established an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents; expands eligibility criteria for Medicaid programs; increased the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program; created a new Medicare Part D coverage gap discount program; required certain Affordable Care Act marketplace and other private payor plans to include coverage for preventative services, including vaccinations recommended by the ACIP without cost share obligations (i.e., co-payments, deductibles or co-insurance) for plan members; established a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in and conduct comparative clinical effectiveness research, along with funding for such research; and established a Center for Medicare and Medicaid Innovation at the Centers for Medicare & Medicaid Services, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid spending.
Since its enactment, there have been judicial and congressional challenges to numerous aspects of the Affordable Care Act. By way of example, the 2017 Tax Reform Act included a provision repealing the individual mandate, effective January 1, 2019. On December 14, 2018, a U.S. District Court judge in the Northern District of Texas ruled that the individual mandate portion of the Affordable Care Act is an essential and inseverable feature of the Affordable Care Act, and therefore because the mandate was repealed, the remaining provisions of the Affordable Care Act are invalid as well. On December 18, 2019, the U.S. Court of Appeals for the Fifth Circuit upheld the District Court ruling that the individual mandate was unconstitutional, but remanded the case back to the District Court to determine whether the remaining provisions of the Affordable Care Act are invalid as well. On March 2, 2020, the U.S. Supreme Court granted the petitions for writs of certiorari to review the case. On November 10, 2020, the U.S. Supreme Court heard oral arguments regarding the constitutionality of the individual mandate. In June 2021, the U.S. Supreme Court ruled that the states that initially challenged the individual mandate did not have standing to sue. The U.S. Supreme Court did not rule on the constitutionality of the individual mandate. In addition, there may be other efforts to challenge, repeal or replace the Affordable Care Act. We are continuing to monitor any changes to the Affordable Care Act that, in turn, may potentially impact our business in the future.
Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. These changes include aggregate reductions to Medicare payments to providers of 2% per fiscal year pursuant to the Budget Control Act of 2011 and subsequent laws, which began in 2013 and will remain in effect through 2030, unless additional congressional action is taken. In addition, in January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. New laws may result in additional reductions in Medicare and other healthcare funding, which may materially adversely affect customer demand and affordability for our product candidates, if approved, and, accordingly, the results of our financial operations. We cannot predict whether future healthcare legislative or policy changes will be implemented at the federal or state level or in countries outside of the United States in which we may do business, or the effect any future legislation or regulation will have on us, but we expect there will continue to be legislative and regulatory proposals at the federal and state levels directed at containing or lowering the cost of health care.
We are subject to extensive and costly government regulation.
Any current and future product candidate(s) we may develop will be, subject to extensive and rigorous domestic government regulation, including with respect to Europe, regulation by the EMA and other relevant regional, national and local authorities, with respect to Israel, regulation by the Israeli Ministry of Health, and with respect to the U.S., regulation by the FDA, the CMS, other divisions of the U.S. Department of Health and Human Services, including its Office of Inspector General, the U.S. Department of Justice, the Departments of Defense and Veterans Affairs and, to the extent our product candidate(s) are paid for directly or indirectly by those departments, state and local governments and their respective foreign equivalents. The FDA regulates the research, development, preclinical and clinical testing, manufacture, safety, effectiveness, record keeping, reporting, labeling, storage, approval, advertising, promotion, sale, distribution, and import and export of pharmaceutical products under various regulatory provisions. Current and future product candidates we may develop, which will be tested and marketed abroad, will be subject to extensive regulation by foreign governments, whether or not we have obtained EMA, the Israeli Ministry of Health’s approval and/or FDA approval. Such foreign regulation may be equally or more demanding than corresponding European, Israeli or U.S. regulation.
Government regulation substantially increases the cost and risk of researching, developing, manufacturing, and selling products. Our failure to comply with these regulations could result in, by way of example, significant fines, criminal and civil liability, product seizures, recalls, withdrawals, withdrawals of approvals, and exclusion and debarment from government programs. Any of these actions, including the inability of current and future product candidates to obtain and maintain regulatory approval, would have a materially adverse effect on our business, financial condition, results of operations and prospects.
Our relationships with customers, third-party payors, physicians and healthcare providers will be subject to applicable anti-kickback, fraud and abuse, and other laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, and diminished profits.
Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of current and future product candidates. Our current and future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we conduct research and would market, sell and distribute our product candidate(s). As a biopharmaceutical company, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. Restrictions under applicable federal and state healthcare laws and regulations that may affect our ability to operate include the following:
| ● | the federal healthcare Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving, paying or providing remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order, arrangement, or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under a federal healthcare program such as the Medicare and Medicaid programs. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand, and prescribers, purchasers and formulary managers, among others, on the other; |
| ● | federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claims Act, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment to, or approval by, Medicare, Medicaid, or other federal healthcare programs, knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim or obligation to pay or transmit money or property to the federal government, or knowingly concealing or knowingly and improperly avoiding or decreasing or concealing an obligation to pay money to the federal government. Manufacturers can be held liable under the False Claims Act even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act. The False Claims Act also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the False Claims Act and to share in any monetary recovery; |
| ● | the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious, or fraudulent statements in connection with the delivery of or payment for healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; |
| ● | the federal healthcare Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving, paying or providing remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order, arrangement, or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under a federal healthcare program such as the Medicare and Medicaid programs. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand, and prescribers, purchasers and formulary managers, among others, on the other; |
| ● | federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claims Act, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment to, or approval by, Medicare, Medicaid, or other federal healthcare programs, knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim or obligation to pay or transmit money or property to the federal government, or knowingly concealing or knowingly and improperly avoiding or decreasing or concealing an obligation to pay money to the federal government. Manufacturers can be held liable under the False Claims Act even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act. The False Claims Act also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the False Claims Act and to share in any monetary recovery; |
| ● | the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious, or fraudulent statements in connection with the delivery of or payment for healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; |
| ● | the federal transparency requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively known as the Affordable Care Act, or ACA, including the provision commonly referred to as the Physician Payments Sunshine Act, and its implementing regulations, which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS information related to payments or other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Effective January 1, 2022, these reporting obligations extend to include transfers of value made to certain non-physician providers such as physician assistants and nurse practitioners; |
| ● | federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; and |
| ● | analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers or patients; state laws that require pharmaceutical companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state and local laws that require the licensure of sales representatives; and state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and pricing information. |
Efforts to ensure that our current and future business arrangements with third parties, and our business generally, continue to comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with any such laws and regulations. If our operations, including any arrangements with physicians and other healthcare providers, are found to be in violation of any such laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, reputational harm, exclusion from government-funded healthcare programs, such as Medicare and Medicaid, disgorgement, additional reporting requirements, and/or the curtailment or restructuring of our operations, as well as additional reporting obligations oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws. If we enter into business with any physicians or other healthcare providers or entities who are then found to not be in compliance with applicable laws, they may be subject to similar penalties.
Changes in regulatory requirements and guidance or unanticipated events may occur during any future clinical trials we may conduct, which may result in necessary changes to clinical trial protocols, which could result in increased costs to us, delay our development timeline or reduce the likelihood of successful completion of such clinical trials.
Changes in regulatory requirements and guidance or unanticipated events may occur during any clinical trials we may conduct may occur, as a result of which we may need to amend clinical trial protocols. Amendments may require us to resubmit our clinical trial protocols to IRBs for review and approval, which may adversely affect the cost, timing and successful completion of a clinical trial. If we experience delays in the completion of, or if we terminate, any future clinical trials we may conduct, the commercial prospects for current and future product candidates would be harmed and our ability to generate product revenue would be delayed, possibly materially.
If we acquire or license additional technologies or product candidate(s), we may incur a number of additional costs, have integration difficulties and/or experience other risks that could harm our business and results of operations.
We may acquire and in-license current and future product candidate(s) and technologies. Any current and future product candidate(s) or technologies we in-license or acquire will likely require additional development efforts prior to commercial sale, including extensive preclinical or clinical testing, or both, and approval by the FDA and applicable foreign regulatory authorities, if any. All product candidates are prone to risks of failure inherent in pharmaceutical product development, including the possibility that the product candidate(s) or product candidate(s) developed based on in-licensed technology will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot assure you that any current and future product candidate(s) that we develop based on acquired or licensed technology that is granted regulatory approval will be manufactured or produced economically, successfully commercialized or widely accepted or competitive in the marketplace. Moreover, integrating any newly acquired or in-licensed product candidate(s) could be expensive and time-consuming. If we cannot effectively manage these aspects of our business strategy, our business may not succeed.
Natural disasters, public health and other states of emergency, such as the COVID-19 outbreak, could adversely impact our business, including identifying current and future product candidates.
Natural disasters, public health and other states of emergency affecting the countries in which we operate, or the global economic markets may have an adverse impact on our business. Quarantines, travel restrictions, shelter-in-place, nationalization efforts or similar government orders, such as lockdowns, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, related to COVID-19 or other infectious diseases could have an indeterminate impact on our operations. Our suppliers or partners could also be disrupted by conditions related to infectious diseases, possibly resulting in disruption to our supply chain, collaborations or operations. If our suppliers, or other potential partners such as CMOs or contract research organizations (CROs) are unable or fail to fulfill their obligations to us for any reason, our ability to meet clinical and commercial supply demand for current and future product candidates may become impaired.
A resurgence of COVID-19 and actions taken to reduce its spread may also materially affect us economically. While the COVID-19 pandemic has generally subsided, there is a risk of the emergence of a new variant which could have potential economic impact and can significantly disrupt global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity and financial position.
Also, in the event of a pandemic, there is no guarantee that interruptions or delays in the operations of the FDA or other regulatory authorities in other jurisdictions will not impact the review and approval timelines for the marketing applications we may submit for current and future product candidates. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
The effect of the emergence of a new variant of COVID-19 or other broadly harmful pathogen is uncertain, and while we maintain business continuity plans, they might not adequately protect us. The extent to which COVID-19 or others broadly harmful pathogen or occurrence can negatively impact our business, financial condition and results of operations in the future will depend on future developments, which are highly uncertain and cannot be accurately predicted.
Risks Related to Our CDMO Business Unit
Initiating new business activities or strategies may expose us to new risks and may increase our costs associated with doing business.
On September 6, 2023, we announced the launch of a new business unit named Scinai Bioservices to serve as a CDMO offering a multitude of services to support biotech companies through process development, as well as pilot and clinical GMP manufacturing. Initiating new business activities or strategies may expose us to new or increased financial, regulatory, reputational, and other risks. There is no guarantee that our business strategies will succeed. Such business strategies are important and necessary ways to grow our business and respond to changing circumstances in our industry; however, we cannot be certain that we will be able to manage the associated risks and compliance requirements effectively. Such risks include a lack of management-level personnel experienced with CDMO business management, increased administrative burden, increased logistical problems, increased credit and liquidity risk and increased regulatory scrutiny. See also “Risks Related to Our R&D Business Unit - We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results of operations and financial condition”.
External competition from other CDMO providers may be harmful to our planned CDMO business.
We face competition from other companies that are large, well-established manufacturers with financial, technical, research and development and sales and marketing resources that are significantly greater than ours. To be successful, we will need to convince potential clients that our overall value proposition is superior to the one of other CDMOs. Our ability to achieve this and to successfully compete against other manufacturers will depend, in large part, on our success in developing processing technologies that improve the efficiency of and reduce the cost and/or time associated with drug development projects. If we are unable to successfully demonstrate our competitive advantages, we may not be able to compete against other CDMOs and generate significant revenues.
Our CDMO business is dependent upon attracting and maintaining customers and upon the demand for our services by our customers.
Our CDMO business is dependent upon attracting and maintaining customers and upon the amount of money our customers choose to spend on development and manufacturing services. If we are not able to attract and maintain customers or if there is a decrease in the budget of our customers for spending on development and manufacturing services, it will negatively impact our revenue and profitability. Customers may elect to cancel our services for any reason or be forced to delay or cancel our services in an effort to conserve cash which could have a material adverse effect on our revenues and profitability. For instance, our customer, Ayana Pharma, has recently notified us that it is cancelling our services under a five-year Master Services Agreement. In addition, the outcomes of our customers’ research, development and marketing also significantly influence the amount that our customers choose to spend on our services and offerings. Further, increasing consolidation in the pharmaceutical industry may impact such spending, particularly in the event that any of our customers choose to develop or acquire integrated manufacturing operations. Any inability to attract or maintain customers or a reduction in customer spending on biologics development and related services as a result of these and other factors, may require us to raise additional capital and could have a material adverse effect on our business, the recoverability of our facility and our financial condition and results of operations.
CDMO services are highly complex and failure to provide quality and timely services to our CDMO clients could adversely impact our business.
The CDMO services we offer can be highly complex, due in part to strict regulatory requirements and the inherent complexity of the services provided. A failure of our quality management systems and processes in our facilities could cause problems in connection with facility operations for a variety of reasons, including equipment malfunction, viral contamination, failure to follow specific manufacturing instructions, protocols and standard operating procedures, problems with raw materials or environmental factors. Such issues could affect production of a single manufacturing run or manufacturing campaigns, requiring the destruction of products, or could halt manufacturing operations altogether. In addition, any failure to meet required quality standards may result in our failure to timely deliver products to our clients which, in turn, could damage our reputation for quality and service. Any such incident could, among other things, lead to increased costs, lost revenue, reimbursement to clients for lost drug substances, damage to and possibly termination of client relationships, time and expense spent investigating and remediating the cause and, depending on the cause, similar losses with respect to other manufacturing runs. In addition, such issues could subject us to litigation, the cost of which could be significant.
Problems may arise during the production of our products and product candidates, as well as those we produce for our CDMO clients, due to the complexity of the processes involved in their development, manufacturing and shipment or other factors. Significant delays in product manufacturing or development and our ability to produce sufficient quantities to meet the needs of our clients could cause delays in recognizing revenues, which would harm our business, financial condition, operating results and cash flows.
The majority of our products and our clients’ products are complex biological drug candidates. Manufacturing biological drug candidates, especially in large quantities, is complex. The products must be made consistently and in compliance with a clearly defined manufacturing processes. Problems during manufacturing may arise for a variety of reasons, including problems with raw materials, equipment malfunction and failure to follow specific protocols and procedures. Slight deviations anywhere in the manufacturing process, including obtaining materials, maintaining master cell banks and preventing genetic drift, cell growth, fermentation, contamination including from particulates among other things, filtration, filling, labeling, packaging, storage and shipping, potency and stability issues and other quality control testing, may result in lot failures or manufacturing shut-downs, delays in the release of lots, product recalls, spoilage or regulatory action. Such deviations may require us to revise manufacturing processes or change manufacturers. Additionally, as our equipment ages, it will need to be replaced, which has the potential to result in similar consequences. Success rates can also vary dramatically at different stages of the manufacturing process, which can reduce yields and increase costs. From time to time, we may experience deviations in the manufacturing process that may take significant time and resources to resolve and, if unresolved, may affect manufacturing output and could cause us to fail to satisfy client orders or contractual commitments, lead to a termination of one or more of our contracts, lead to delays in our clinical trials, result in litigation, or other restrictions on the marketing or manufacturing of a product, any of which could be costly to us, damage our reputation and negatively impact our business. Regulatory action, including the issuance of Forms FDA 483 and warning letters, can also have an impact.
We may be required to ship biological candidates manufactured at our facility to clinical trial facilities at a prescribed temperature range and variations from that temperature range could result in loss of product and could significantly and adversely impact the related drug development program timelines, which could harm our business, financial condition, operating results and cash flows.
In addition, we may not be able to produce sufficient quantities to meet the rapidly changing demand or specifications of our clients on the desired timeframe, if at all. Our inability to produce sufficient quantities to meet the demand or specifications of our clients or the inability to timely obtain regulatory authorization to produce the products or product candidates of our clients could also harm our business, financial condition, operating results and cash flows.
Risks Related to Our R&D Business Unit
The members of our management team and certain consultants are important to the efficient and effective operation of our business, and we may need to attract and retain additional management and experts. Our limited financial resources may hinder the successful retention of our management and consulting team and adding additional experts, which could have a material adverse effect on our business, financial condition or results of operations.
Our executive officers, management team and technical personnel, as well as certain consultants, are important to the efficient and effective operation of our business, particularly Mr. Amir Reichman, our Chief Executive Officer, Dr. Tamar Ben-Yedidia, our Chief Scientific Officer, Mr. Elad Mark, our Chief Operating Officer and Dr. Dalit Fischer our Chief Technology Officer. The early stage of our NanoAbs program creates uncertainty about our prospects and may make it more difficult to attract and retain qualified executives and other key personnel.
We are a developmental stage biopharmaceutical company with no product candidate(s) approved for marketing by regulatory agencies such as FDA, which makes it difficult to assess our future viability.
We are a developmental stage biopharmaceutical company with a limited operating history. We have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in rapidly evolving fields, particularly in the pharmaceutical area. For example, to execute any future business plan, we may need to successfully:
| ● | execute development activities; |
| ● | obtain required FDA and applicable foreign regulatory authorizations for the development and commercialization of current and future product candidates; |
| ● | maintain, leverage and expand our intellectual property portfolio; |
| ● | build and maintain robust manufacturing, sales, distribution and marketing capabilities, either on our own or in collaboration with strategic partners; |
| ● | gain market acceptance for our product candidate(s); |
| ● | develop and maintain any strategic relationships we elect to enter into; and |
| ● | manage our spending as costs and expenses increase due to drug discovery, preclinical development, clinical trials, regulatory approvals and commercialization. |
If we are unsuccessful in accomplishing these objectives, we may not be able to develop any current and future product candidate(s), raise capital, expand our business or continue our operations.
We face significant competition. If we cannot successfully compete with new or existing product candidate(s), our marketing and sales will suffer and we may never be profitable.
We compete against fully integrated pharmaceutical and biopharmaceutical companies and smaller companies that are collaborating with pharmaceutical companies, academic institutions, government agencies and other public and private research organizations. In addition, many of these competitors, either alone or together with their strategic partners, operate larger research and development programs than we do, and have substantially greater financial resources than we do, as well as significantly greater experience in:
| ● | developing immuno-modulating products; |
| ● | undertaking preclinical testing and human clinical trials; |
| ● | obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals of drugs; |
| ● | formulating and manufacturing drugs; and |
| ● | launching, marketing and selling drugs. |
Generally, our competitors currently include large fully integrated pharmaceutical companies as well as smaller biotech companies and academic research institutes attempting to develop antibodies directed at IL-17 as therapies or related therapies aimed at treating the same therapeutic areas, such as BMS, Novartis, Lilly, UCB, Moonlake, and others. If our competitors develop and commercialize products faster than we do or develop and commercialize products that are superior to our product candidate(s), our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing and commercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors may also develop products or technologies that are superior to those we are developing and render our product candidate(s) obsolete or non-competitive. If we cannot successfully compete with new or existing product candidate(s), our marketing and sales will suffer and we may never be profitable.
The extent to which our product candidate(s) achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competition in the biotechnology and biopharmaceutical industry is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:
| ● | attract parties for acquisitions, joint ventures or other collaborations; |
| ● | license proprietary technology that is competitive with current and future product candidates; |
| ● | attract funding; and |
| ● | attract and hire scientific talent and other qualified personnel. |
We may be subject to legal proceedings and/or to product liability lawsuits.
We could incur substantial costs and be required to limit commercialization in connection with product liability claims relating to current and future product candidates, which may result in substantial losses.
Current and future product candidates could cause adverse events, including injury, disease or adverse side effects. These adverse events may not be observed in clinical trials but may nonetheless occur in the future. If any of these adverse events occur, they may render current and future product candidates ineffective or harmful in some participants, and any future sales would suffer, materially adversely affecting our business, financial condition and results of operations.
In addition, potential adverse events caused by current and future product candidates could lead to product liability lawsuits. If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may be required to limit the marketing and commercialization of any current and future product candidate(s). Our business exposes us to potential product liability risks, which are inherent in the testing, manufacturing, marketing and sale of pharmaceutical products. We may not be able to avoid product liability claims. For example, changes in laws outside the U.S. are expanding our potential liability for injuries that occur during clinical trials. Product liability insurance is expensive, subject to deductibles and coverage limitations, and may not be available in the amounts that we desire for a price we are willing to pay. Product liability insurance for the pharmaceutical and biotechnology industries is generally expensive, if available at all. If, at any time, we are unable to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims, we may be unable to clinically test, market or commercialize any current and future product candidate(s). A successful product liability claim brought against us in excess of our insurance coverage, if any, may cause us to incur substantial liabilities, and, as a result, our business, liquidity and results of operations would be materially adversely affected. In addition, the existence of a product liability claim could affect the market price of the ADSs.
If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements, and insider trading, our business may experience serious adverse consequences.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures: to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state health-care fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. Our board of directors adopted a Code of Ethics. However, it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
In addition, during the course of our operations, our directors, executives and employees may have access to material, non-public information regarding our business, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to be brought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such a claim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks important to the success of our business.
We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results of operations and financial condition.
We may not be able to successfully grow and expand. Successful implementation of any future business plan will require management of growth, including potentially rapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capital resources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, train and manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational, financial and management controls, reporting systems and procedures, and to attract and retain sufficient talented personnel. If we are unable to scale up and implement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not be able to successfully commercialize any current and future product candidate(s). Failure to attract and retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, the management, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel and to improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on our business, results of operations and financial condition.
If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss or damage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtaining adequate directors’ and officers’ liability insurance.
Our business will expose us to potential liability that results from risks associated with conducting clinical trials of current and future product candidates. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects, financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. The current and planned insurance coverages may only mitigate a small portion of a substantial claim against us.
In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claims made against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers and directors to manage the Company.
Disruptions in the financial markets and economic conditions could affect our ability to raise capital.
In recent years, the U.S. and global economies suffered dramatic downturns as the result of a deterioration in the credit markets and related financial crises as well as a variety of other factors including, among other things, the COVID-19 pandemic, extreme volatility in security prices, severely diminished liquidity and credit availability, ratings downgrades of certain investments and declining valuations of others. While the financial markets have improved, they are still somewhat unstable, and future disruptions or the return of adverse economic conditions may cause a significant impact on our ability to raise capital, if needed, on a timely basis and on acceptable terms or at all.
We may be subject to extensive environmental, health and safety, and other laws and regulations in multiple jurisdictions.
Our business involves the controlled use, directly or indirectly through our service providers, of hazardous materials, various biological compounds and chemicals; therefore, we, our agents and our service providers may be subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges, noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. The risk of accidental contamination or injury from these materials cannot be eliminated. If an accident, spill or release of any regulated chemicals or substances occurs, we could be held liable for resulting damages, including for investigation, remediation and monitoring of the contamination, including natural resource damages, the costs of which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials and chemicals. Although we maintain workers’ compensation insurance to cover the costs and expenses that may be incurred because of injuries to our employees resulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities. Additional or more stringent federal, state, local or foreign laws and regulations affecting our operations may be adopted in the future. We may incur substantial capital costs and operating expenses and may be required to obtain consents to comply with any of these or certain other laws or regulations and the terms and conditions of any permits or licenses required pursuant to such laws and regulations, including costs to install new or updated pollution control equipment, modify our operations or perform other corrective actions at our respective facilities or the facilities of our service providers.
Governments may impose strict price controls, which may adversely affect our revenues, from the sale of product candidates.
In some countries, including the countries comprising the European Union (the “EU”), the pricing of pharmaceuticals and certain other therapeutics is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate(s) to other available therapies. If reimbursement of our product candidate(s) is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.
Our internal computer systems, or those used by our contractors or consultants, may fail or experience security breaches or other unauthorized or improper access.
Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to privacy and information security incidents, such as data breaches, damage from computer viruses and unauthorized access, malware, natural disasters, fire, terrorism, war and telecommunication, electrical failures, cyber-attacks or cyber-intrusions over the internet and attachments to emails. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed, ongoing or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we will rely on third parties to conduct clinical trials for, and manufacture, current and future product candidates, and similar events relating to their computer systems could also have a material adverse effect on our business. Unauthorized disclosure of sensitive or confidential data, including personally identifiable information, whether through a breach of computer systems, systems failure, employee negligence, fraud or misappropriation, or otherwise, or unauthorized access to or through our information systems and networks, whether by our employees or third parties, could result in negative publicity, legal liability and damage to our reputation. Unauthorized disclosure of personally identifiable information could also expose us to sanctions for violations of data privacy laws and regulations around the world. To the extent that any disruption or security breach result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our product candidate(s) could be delayed.
As we become more dependent on information technologies to conduct our operations, cyber incidents, including deliberate attacks and attempts to gain unauthorized access to computer systems and networks, may increase in frequency and sophistication. These threats pose a risk to the security of our systems and networks, the confidentiality and the availability and integrity of our data and these risks apply both to us, and to third parties on whose systems we rely for the conduct of our business. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and often are not recognized until launched against a target, we and our partners may be unable to anticipate these techniques or to implement adequate preventative measures. Further, we do not have any control over the operations of the facilities or technology of our cloud and service providers, including any third party vendors that collect, process and store personal data on our behalf. Our systems, servers and platforms and those of our service providers may be vulnerable to computer viruses or physical or electronic break-ins that our or their security measures may not detect. Individuals able to circumvent such security measures may misappropriate our confidential or proprietary information, disrupt our operations, damage our computers or otherwise impair our reputation and business. We may need to expend significant resources and make significant capital investment to protect against security breaches or to mitigate the impact of any such breaches. There can be no assurance that we or our third party providers will be successful in preventing cyber-attacks or successfully mitigating their effects. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our current and future product candidate(s) could be delayed.
Failure to comply with current or future federal, state and foreign laws and regulations and industry standards relating to privacy and data protection laws could lead to government enforcement actions (which could include civil or criminal penalties), private litigation, and adverse publicity and could negatively affect our operating results and business.
We and our partners and third-party providers may be subject to federal, state and foreign data privacy and security laws and regulations. In the United States, numerous federal and state laws and regulations, including federal health information privacy laws, state data breach notification laws, state health information privacy laws and federal and state consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), that govern the collection, use, disclosure and protection of health-related and other personal information could apply to our operations or the operations of our partners and third-party providers.
In many jurisdictions, enforcement actions and consequences for noncompliance are rising. In the United States, these include enforcement actions in response to rules and regulations promulgated under the authority of federal agencies and state attorneys general and legislatures and consumer protection agencies. In addition, privacy advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards that may legally or contractually apply to us. If we fail to follow these security standards, even if no customer information is compromised, we may incur significant fines or experience a significant increase in costs. Many state legislatures have adopted legislation that regulates how businesses operate online, including measures relating to privacy, data security and data breaches. Laws in all 50 states require businesses to provide notice to customers whose personally identifiable information has been disclosed as a result of a data breach. The laws are not consistent, and compliance in the event of a widespread data breach is costly. States are also constantly amending existing laws, requiring attention to frequently changing regulatory requirements. Furthermore, California enacted the California Consumer Privacy Act (the “CCPA”), which gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation.
Foreign data protection laws, including EU General Data Protection Regulation (the “GDPR”), may also apply to health-related and other personal information obtained outside of the United States. The GDPR, which came into effect on May 25, 2018, introduced new data protection requirements in the European Union, as well as potential fines for noncompliant companies of up to the greater of €20 million or 4% of annual global revenue. The regulation imposes numerous new requirements for the collection, use and disclosure of personal information, including more stringent requirements relating to consent and the information that must be shared with data subjects about how their personal information is used, the obligation to notify regulators and affected individuals of personal data breaches, extensive new internal privacy governance obligations and obligations to honor expanded rights of individuals in relation to their personal information (e.g., the right to access, correct and delete their data). Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms between the EU and the United States remains uncertain. For example, in 2016, the EU and United States agreed to a transfer framework for data transferred from the EU to the United States, called the Privacy Shield, but the Privacy Shield was invalidated in July 2020 by the Court of Justice of the European Union.
Compliance with U.S. and foreign data protection laws and regulations could require us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose data, or in some cases, impact our ability to operate in certain jurisdictions. Failure by us or our partners and third-party providers to comply with U.S. and foreign data protection laws and regulations could result in government enforcement actions (which could include civil or criminal penalties), private litigation and/or adverse publicity and could negatively affect our operating results and business. Moreover, clinical trial subjects about whom we or our potential partners obtain information, as well as the providers who share this information with us, may contractually limit our ability to use and disclose the information. Claims that we have violated individuals’ privacy rights, failed to comply with data protection laws or breached our contractual obligations, even if we are not found liable, could be expensive and time consuming to defend, could result in adverse publicity and could have a material adverse effect on our business, results of operation and financial condition.
Risks Related to Dependence on Third Parties
Our NanoAbs program is based on an exclusive license from MPG and UMG, and we could lose our rights to this license if a dispute with MPG and/or UMG arises or if we fail to comply with the financial and other terms of the license.
We license the core intellectual property for our NanoAbs program from MPG and UMG under exclusive license agreements, pursuant to which we received an exclusive worldwide license for the development and commercialization of COVID-19 NanoAbs and for the IL-17 NanoAbs. The license for the IL-17 NanoAbs is based on certain patents and intellectual property owned by MPG and UMG and related thereto. Pursuant to the terms of the license agreement, unless earlier terminated in accordance with the provisions thereof, the license agreement will expire on a product-by-product and country-by-country basis upon the later of (i) the expiration or abandonment of the patent rights that relate to such product in such country and (ii) ten years from the date of first commercial sale of such product in such country. However, MPG is entitled to terminate the exclusivity rights or to terminate the license agreement if, among other things, the Company fails to submit an IND application by a certain date or if the patent rights licensed pursuant to the License Agreement are invalidated. We have the right to license nanobodies against certain other molecular targets on the same terms described above.
If MPG terminates the license agreement, or licenses to a third party the intellectual property it had licensed to us pursuant to this license agreement, or if any dispute arises with respect to our arrangement with MPG, such dispute may disrupt our operations and would likely have a material and adverse impact on us if resolved in a manner that is unfavorable to us. Our NanoAbs program is based on the intellectual property licensed under the license agreement, and if the license agreement is terminated prior to its expiration, it could have a material adverse effect on our business, prospects and results of operations.
We rely on MPG to create and provide additional support for our IL-17 NanoAbs program and any additional NanoAbs for our NanoAbs program, which are part of the Research Collaboration Agreement
We rely on MPG to provide additional support for our IL-17 NanoAbs program and any additional NanoAbs which are part of our five year Research Collaboration Agreement with MPG and UMG. If the supply of NanoAbs is disrupted or delayed, we may not be able to complete at all or in a timely manner, the successful development and commercialization of our current or future product candidates. There is no guarantee that we will be successful in in in-licensing additional NanoAbs from MPG and UMG, or developing, and/or commercializing any of our NanoAbs
If we were to conduct clinical trials, we would rely on third parties to conduct any such clinical trials and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.
We will rely on third parties such as contract research organizations, clinical data management organizations, medical institutions and clinical investigators, to conduct any future clinical trials on our behalf. Any of these third parties may terminate their engagement with us at any time. If we need to enter into alternative arrangements, it would delay our product development activities.
Our reliance on these third parties for clinical development activities reduces our control over these activities but does not relieve us of our responsibilities. We remain responsible for ensuring that our clinical trial is conducted in accordance with the requirements of the relevant regulator, and failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
Furthermore, third parties that we rely on for our clinical development activities may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for any current and future product candidate(s). Our product development costs will increase if we experience delays in testing or obtaining marketing approvals.
A disruption to our GMP biologics manufacturing facility in Jerusalem could impede our ability to advance our NanoAbs programs and other product candidates and deliver our CDMO services, which could adversely affect our business.
Our current manufacturing facility contains highly specialized equipment and materials and utilizes complicated production processes developed over a number of years, which would be difficult, time-consuming, and costly to duplicate or, though a remote risk, may be impossible to duplicate. We do not have any redundant manufacturing facilities. If this facility were damaged or destroyed, or otherwise subject to disruption, including contamination, it would require substantial lead-time to replace such manufacturing capabilities and could cause costly delays in our R&D activities and in the performance of our CDMO services. In such event, we would be forced to identify and rely entirely on third-party contract manufacturers for an indefinite period of time, which we may not be able to do in a timely manner and would further increase our production costs. Any disruptions or delays at our facility or its failure to meet regulatory compliance would significantly impair our ability to advance our NanoAbs program and other product candidates and deliver our CDMO services, which would result in increased costs and losses and adversely affect our business and results of operations.
Use of third parties to manufacture current and future product candidate(s) may increase the risk that we will not have sufficient quantities of such product candidate(s) at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
Our GMP biologics manufacturing facility in Jerusalem is capable of manufacturing an annual supply of current and future product candidate(s) suitable for regulatory or other similar uses. However, we may also rely on a third party CMO for commercial supply of current and future product candidates.
Reliance on a third party CMO entails risks, including:
| ● | Reliance on third party for regulatory compliance and quality assurance; |
| ● | The possible breach of the manufacturing agreement by the third party; |
| ● | The possible failure to manufacture sufficient quantities of current and future product candidates due to reasons outside of the reasonable control of the third party; |
| ● | The possible misappropriation of our proprietary information, including our know-how; and |
| ● | The possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us. |
A CMO may not be able to comply with cGMP regulations or similar regulatory requirements outside of the U.S. Our failure, or the failure of our third-party manufacturers to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidate(s), operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidate(s).
countries around the world that we may conduct.
Clinical trials we may conduct in the future may involve obtaining materials and information that may not currently be in our possession and that we rely on suppliers and manufacturers to provide. It is possible that the FDA or any other relevant regulatory body will request that we provide materials or information that are not in our possession at that time before allowing us to proceed with any proposed clinical trials.
Risks Related to Our Intellectual Property
If we fail to adequately protect, enforce or secure rights to the patents which we own or that were licensed to us or any patents we may own or license in the future, the value of our intellectual property rights would diminish and our business and competitive position would suffer.
Our success, competitive position and future revenues depend in part on our ability to obtain and successfully leverage intellectual property covering our product candidate(s), know-how, methods, processes and other technologies, to protect our trade secrets, to prevent others from using our intellectual property and to operate without infringing the intellectual property rights of third parties.
The risks and uncertainties that we face with respect to our intellectual property rights include, but are not limited to, the following:
| ● | the degree and range of protection any patents will afford us against competitors; |
| ● | the patents concerning our business activities were not registered in all countries and therefore our patent protection may be lacking in some territories; |
| ● | if and when patents will be issued; |
| ● | whether or not others will obtain patents claiming aspects similar to those covered by our own or licensed patents and patent applications; |
| ● | we may be subject to interference proceedings; |
| ● | we may be subject to opposition or post-grant proceedings in foreign countries; |
| ● | any patents that are issued may not provide meaningful protection; |
| ● | we may not be able to develop additional proprietary technologies that are patentable; |
| ● | other companies may challenge patents licensed or issued to us or our customers; |
| ● | other companies may independently develop similar or alternative technologies, or duplicate our technologies; |
| ● | other companies may design around technologies we have licensed or developed; |
| ● | enforcement of patents is complex, uncertain and expensive; and |
| ● | we may need to initiate litigation or administrative proceedings that may be costly whether we win or lose. |
If patent rights covering our product candidate(s) and methods are not sufficiently broad, they may not provide us with any protection against competitors with similar products and technologies. Furthermore, if the United States Patent and Trademark Office (the “USPTO”) or any foreign patent office issue patents to us or our licensors, others may challenge the patents or design around the patents, or the patent office or the courts may invalidate the patents. An adverse determination in any opposition, derivation, revocation, re-examination, post-grant and inter parties review or interference proceedings or foreign equivalent, or litigation, challenging our patent rights or the patent rights of others could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. Such proceedings and any other patent challenges may result in loss of patent rights, loss of exclusivity, loss of priority or in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical technology and products or limit the duration of the patent protection of our technology and product candidate(s). Thus, any patents we own or license from or to third parties may not provide any protection against our competitors. Such proceedings also may result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us. Moreover, there could be public announcements of the results of hearings, motions or other developments related to any of the foregoing proceedings. If securities analysts or investors perceive those results to be negative, it could cause the price of the ADSs to decline. Any of the foregoing could harm our business, results of operations and financial condition.
We cannot be certain that patents will be issued as a result of any pending applications, and we cannot be certain that any of our issued patents or patents licensed from MPG (or any other third-party in the future) will give us adequate protection from competing products. Further, even if our owned or licensed patent applications issue as patents, the issuance of any such patents is not conclusive as to their inventorship, scope, validity or enforceability and such patents may be challenged, invalidated, narrowed or held to be unenforceable.
We may be subject to a third-party pre-issuance submission of prior art to the USPTO or equivalent foreign bodies. In addition, since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were the first to make our inventions or to file patent applications covering those inventions.
Moreover, some of our owned or in-licensed patents and patent applications may in the future be co-owned with third parties. If we are unable to obtain an exclusive license to any such co-owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors, who could market competing products and technology. In addition, we may need the cooperation of any such co-owners in order to enforce such patents against third parties, and such cooperation may not be provided to us.
It is also possible that others may obtain issued patents that could prevent us from commercializing our product candidate(s) or require us to obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business. The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. If we are unable to license such technology, or if we are forced to license such technology, on unfavorable terms, our business could be materially harmed and the third parties owning such intellectual property rights could seek either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation. As to those patents that we have licensed, our rights depend on maintaining our obligations to the licensor under the applicable license agreement, and we may be unable to do so.
In addition to patents and patent applications, we depend upon proprietary know-how to protect our proprietary technology. We require our employees, consultants, advisors and partners to enter into confidentiality agreements that prohibit the disclosure of confidential information to any other parties. We also require our employees and consultants to disclose and assign to us their ideas, developments, discoveries and inventions. These agreements may not, however, provide adequate protection for our know-how or other proprietary information in the event of any unauthorized use or disclosure.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.
Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect on our business.
Costly litigation may be necessary to protect our intellectual property rights and we may be subject to claims alleging the violation of the intellectual property rights of others.
We may face significant expense and liability as a result of litigation or other proceedings relating to patents and other intellectual property rights of others. In the event that another party has also filed a patent application or been issued a patent relating to an invention or technology claimed by us in pending applications, we may be required to participate in an interference proceeding declared by the USPTO to determine priority of invention, which could result in substantial uncertainties and costs for us, even if the eventual outcome is favorable to us. We, or our licensors, also could be required to participate in interference proceedings involving issued patents and pending applications of another entity. An adverse outcome in an interference proceeding could require us to cease using the technology or to license rights from prevailing third parties.
The cost to us of any patent litigation or other proceeding relating to our licensed patents or patent applications, even if resolved in our favor, could be substantial and could divert management’s resources and attention. Competitors and other third parties may infringe, misappropriate or otherwise violate our issued patents or other intellectual property or the patents or other intellectual property of our licensors. Our ability to enforce our patent protection could be limited by our financial resources, and may be subject to lengthy delays. In addition, our patents or the patents of our licensors may become involved in inventorship or priority disputes. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents or that our patents are invalid or unenforceable. In a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology. An adverse result in any litigation proceeding could put one or more of our owned or licensed patents at risk of being invalidated, held unenforceable or interpreted narrowly. We may find it impractical or undesirable to enforce our intellectual property against some third parties.
A third party may claim that we are using inventions claimed by their patents and may go to court to stop us from engaging in our normal operations and activities, such as research, development and the sale of any current and future product candidate(s). Such lawsuits are expensive and would consume time and other resources. There is a risk that a court will decide that we are infringing the third party’s patents and will order us to cease the activities claimed by the patents, including to cease commercializing the infringing technology or product candidate(s), redesign our product candidate(s) or processes to avoid infringement, which may be impossible or require substantial time and monetary expenditure, or obtain licenses (which may not be available on commercially reasonable terms or at all). In addition, there is a risk that a court will order us to pay the other party damages for having infringed their patents.
There is no guarantee that any prevailing patent owner would offer us a license so that we could continue to engage in activities claimed by the patent, or that such a license, if made available to us, could be acquired on commercially acceptable terms. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties and other fees. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business. In addition, third parties may, in the future, assert other intellectual property infringement claims against us with respect to our product candidate(s), technologies or other matters. Any claims of infringement asserted against us, whether or not successful, may have a material adverse effect on us. Any of the foregoing events would harm our business, financial condition, results of operations and prospects.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims could result in substantial costs and diversion of management resources, which could harm our business. In addition, the uncertainties associated with litigation could compromise our ability to raise the funds necessary to continue our clinical trials, continue our internal research programs or in-license needed technology or other product candidate(s). There could also be public announcements of the results of the hearing, motions or other interim proceedings or developments. If securities analysts or investors perceive those results to be negative, it could cause the price of the ADSs to decline. Any of the foregoing events could harm our business, financial condition, results of operations and prospects.
We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual property to compete against us.
Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the non-disclosure of confidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments, discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek to enter into these types of agreements with our contractors, consultants, advisors and research and other partners, to the extent that employees and consultants utilize or independently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with current and future product candidates. If a dispute arises, a court may determine that the right belongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary know-how that we seek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. We cannot guarantee that we have entered into such agreements with each party that may have or has had access to our trade secrets or proprietary technology and processes. Despite the protective measures we employ, we still face the risk that:
| ● | these agreements may be breached; |
| ● | these agreements may not provide adequate remedies for the applicable type of breach; |
| ● | our proprietary know-how will otherwise become known; or |
| ● | our competitors will independently develop similar technology or proprietary information. |
International patent protection is particularly uncertain, and if we are involved in opposition proceedings in foreign countries, we may have to expend substantial sums and management resources.
Patent law outside the United States may be different than in the United States. Further, the laws of some foreign countries, such as China where certain patents owned or licensed by us were granted, may not protect our intellectual property rights to the same extent as the laws of the United States, if at all. A failure to obtain sufficient intellectual property protection in any foreign country could materially and adversely affect our business, results of operations and future prospects. Moreover, we may participate in opposition proceedings to determine the validity of our foreign patents or our competitors’ foreign patents, which could result in substantial costs and divert management’s resources and attention. Additionally, due to uncertainty in patent protection law, we have not filed patent applications in many countries where significant markets exist.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
| ● | others may be able to make compounds that are the same as or similar to current and future product candidates but that are not covered by the claims of the patents that we own or have exclusively licensed; |
| ● | we or our licensors or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed; |
| ● | we or our licensors or any future strategic partners might not have been the first to file patent applications covering certain of our inventions; |
| ● | others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; |
| ● | it is possible that our pending patent applications will not lead to issued patents; |
| ● | issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors; |
| ● | our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; |
| ● | we may not develop additional proprietary technologies that are patentable; and |
| ● | the patents of others may have an adverse effect on our business. |
We may be subject to claims challenging the inventorship of our patents and other intellectual property.
We may be subject to claims that employees, partners or other third parties who were involved in the development of intellectual property for the Company have an interest in our patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who were involved in the development of intellectual property for the Company. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.
A significant portion of our intellectual property has been and may in the future be developed by our employees in the course of their employment for us. Under the Israeli Patents Law, 5727-1967 (the “Patents Law”), inventions conceived by an employee in the course and as a result of or arising from his or her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Patents Law also provides that if there is no such agreement between an employer and an employee, the Israeli Compensation and Royalties Committee (the “Committee”), a body constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for his inventions. Decisions by the Committee have created uncertainty in this area, as it held that employees may be entitled to remuneration for their service inventions despite having specifically waived any such rights. However, a later decision by the Committee held that such right can be waived by the employee. The Committee further held that an explicit reference to the waived right is not necessary in every circumstance in order for the employee’s waiver of such right to be valid. Such waiver can be formalized in writing or orally or be implied by the actions of the parties in accordance with the rules of interpretation of Israeli contract law. We generally enter into assignment-of-invention agreements with our employees pursuant to which such individuals assign to us all rights to any inventions created in the scope of their employment or engagement with us. Although our employees have agreed to assign to us service invention rights, we may face claims demanding remuneration in consideration for assigned inventions.
We may receive less revenue from any current and future product candidate(s) if any of our employees successfully claim for compensation for their work in developing our intellectual property, which in turn could impact our future profitability.
Our employees may have been previously employed at other biotechnology or pharmaceutical companies. Although we try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these individuals have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s former employer. Litigation may be necessary to defend against these claims. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs, delay development of our product candidate(s) and be a distraction to management. Any of the foregoing events would harm our business, prospects and results of operations.
Patent terms may be inadequate to protect our competitive position on our product candidate(s) for an adequate amount of time.
Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidate(s) are obtained, once the patent life has expired for a product candidate(s), we may be open to competition from competitive medications, including generic medications. Given the amount of time required for the development, testing and regulatory review of new product candidate(s), patents protecting such product candidate(s) might expire before or shortly after such product candidate(s) are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing product candidate(s) similar or identical to ours.
Depending upon the timing, duration and conditions of any FDA marketing approval of our product candidate(s), one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments, and one or more of our foreign patents may be eligible for patent term extension under similar legislation, for example, in the European Union. In the United States, the Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. However, there are no assurances that the USPTO or any comparable foreign regulatory authority or national patent office will grant such extensions, in whole or in part. For example, we may not receive an extension if we fail to exercise due diligence during the testing phase or regulatory review process, fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. Only one patent per approved product can be extended, the extension cannot extend the total patent term beyond 14 years from approval, and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for the applicable product candidate(s) will be shortened, and our competitors may obtain approval to market competing products sooner. As a result, our revenue from applicable product candidate(s) could be reduced. Further, if this occurs, our competitors may take advantage of our investment in development and trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case, and our competitive position, business, financial condition, results of operations and prospects could be materially harmed.
Risks Related to Our Operations in Israel
We conduct most of our operations in Israel. Conditions in Israel, including the October 2023 attack by Hamas from the Gaza Strip and Israel’s war against it, may affect our operations and business results.
Because we are incorporated under the laws of the State of Israel and most of our operations are conducted in Israel, our business and operations are directly affected by economic, political, geopolitical and military conditions in Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its neighboring countries and terrorist organizations active in the region. These conflicts have involved missile strikes, hostile infiltrations and terrorism against civilian targets in various parts of Israel. In addition, Israel faces threats from more distant neighbors, in particular, Iran. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital.
Parties with whom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements. Any such limits on travel and delays in imports could result in our inability to receive, or a shortage of, supplies and materials necessary for us to conduct our business.
In October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive rocket attacks on Israeli population and industrial centers located along Israel’s border with the Gaza Strip and in other areas within the State of Israel. These attacks resulted in extensive deaths, injuries and kidnapping of civilians and soldiers. Following the attack, Israel’s security cabinet declared war against Hamas and a military campaign against this terrorist organization commenced in parallel to its continued rocket and terror attacks. Moreover, there were clashes between Israel and Hezbollah in Lebanon, including limited ground operations by Israel against Hezbollah in Lebanon. Additionally, Israel and Iran traded their first ever direct attacks, as well as proxy and covert actions, throughout 2024, and Yemeni rebel group, the Houthis, have launched attacks on Israel and on global shipping routes in the Red Sea, causing disruptions of supply chain. Furthermore, during December 2024, Syrian Islamist rebel forces seized control of Syria, a country bordering Israel, and the Assad regime collapsed, adding additional instability to the region. Any or all of these hostilities may escalate in the future into more violent events which may adversely affect our ability to continue carrying out various administrative, research, operational and commercial functions and activities both in Israel and globally.
Our R&D business unit is currently focused on advancing a novel VHH antibody for the treatment of psoriasis and related diseases. We plan to commence a pre-clinical toxicology study in 2026. The production of the drug substance and drug product batches required for the studies is done at our site located in Jerusalem, Israel. As such, an escalation of tensions or violence could potentially impact the studies. Risks include delays in operations and/or difficulty in recruiting additional employees or service providers due to their service in the reserve forces of the Israel Defense Forces (the “IDF”), the national military of Israel.
We currently do not anticipate any material risk that the drug production for the studies will not be to be produced in Jerusalem, Israel. In the event we are not able to perform the drug production ourselves, we can approach alternative suppliers to perform the production. If we need to approach alternative suppliers, our pre-clinical trial could be delayed. A delay or disruption in our pre-clinical trial could impact the value of our securities, require us to raise additional capital, reduce operating expenses, including by reducing headcount, and/or limit or terminate our product development activities.
Although we have not seen that the ongoing conflict has affected our CDMO business to date, there can be no assurances that potential clients will not delay their engagement with us or not engage us for CDMO services due to conflict or that the conflict will not otherwise have a material adverse effect on us or our operations in the future.
The IDF is a conscripted military service, subject to certain exceptions. Since October 7, 2023, the IDF has called up more than 350,000 of its reserve forces to serve. We currently have 29 employees, all of whom reside in Israel, consisting of 4 management employees and 25 non-management employees. Our CEO and two non-management employees were called for reserve service. Such reserve duty has not materially affected the Company’s operations. It is possible that there will be further military reserve duty call-ups in the future, which may affect our business and disrupt our operations due to a shortage of skilled labor and loss of institutional knowledge, and necessary mitigation measures we may take to respond to a decrease in labor availability. These measures may include overtime and third-party outsourcing. These possible effects on our business may adversely impact our results of operations, liquidity or cash flows.
Additionally, shelter-in-place and work-from-home measures, government-imposed restrictions on movement and travel and other precautions taken to address the ongoing conflict may temporarily disrupt our management and employees’ ability to effectively perform their daily tasks.
In addition, as a result of the war, the international rating agency, Moody’s, has cut Israel’s credit rating from A1 to A2 and has also lowered Israel’s outlook from stable to negative, stating that it sees a possible further downgrade in the future. Lowered credit rating of Israel could materially impact our ability to raise capital and ability to secure loans, if needed, in each case on reasonable terms.
It is currently not possible to predict the duration or severity of the ongoing conflict or its effect on our business, operations and financial conditions. The ongoing conflict is rapidly evolving and developing, and could disrupt our business and operations, interrupt our sources and availability of supply and hamper our ability to raise additional funds or sell our securities, among other possible effects.
Furthermore, the Israeli government has pursued extensive changes to Israel’s judicial system, which has sparked extensive political debate and unrest. Actual or perceived political instability in Israel may negatively affect our business, financial condition and prospects. Further, in the past, the State of Israel and Israeli companies were subjected to economic boycotts. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition or the expansion of our business.
Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws, against us, or our executive officers and directors or asserting U.S. securities laws claims in Israel.
We are incorporated in Israel. Most of our current executive officers and directors reside in Israel and most of our assets reside outside of the United States. Therefore, a judgment obtained against us or any of these persons in the United States, including one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not be enforced by an Israeli court unless certain provisions of Israeli law are satisfied. It may also be difficult to effect service of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel.
Under Israeli law, if U.S. law is found to be applicable to such a claim, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process, and certain matters of procedure would be governed by Israeli law. There is little binding case law in Israel addressing these matters.
Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective of their agreements with us, which in turn could impact our future profitability.
We generally enter into non-competition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectual property. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain competitive may be diminished.
Your rights and responsibilities as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities of shareholders of U.S. corporations.
Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.-based corporations. In particular, a shareholder of an Israeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and other shareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such as an amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholder approval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder who knows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder of ours or other power towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. Since Israeli corporate law underwent extensive revisions approximately 15 years ago, the parameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to impose additional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.
Changes in Israeli tax laws and examinations by the Israeli Tax Authorities could increase our overall tax liabilities.
We are subject to various taxes and tax compliance obligations in Israel. Changes in Israeli tax laws and regulations or their implementation in the future could increase our tax liabilities and our tax compliance obligations. In addition, the proper application of Israeli tax laws is subject to certain uncertainties and require the exercise of judgement. We may be subject to examinations by the Israeli Tax Authorities, and if our application or interpretation of Israeli tax laws is successfully challenged, we could be subject to additional tax liabilities, including interest and penalties, which could adversely affect our business and financial position.
Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control, even when the terms of such a transaction are favorable to us and our shareholders.
Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar of Companies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of each class of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of the issued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, except that if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by a majority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including those who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter the consideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).
Our articles of association provide that our directors (other than external directors) are elected to terms, with only two or three of our directors (other than external directors) to be elected each year, in each case for a term of three years. The staggering of the terms of our directors prevents a potential acquirer from readily replacing our entire board of directors at a single annual general shareholder meeting. This could prevent an acquirer from seeking to effect a change in control of our company by proposing an acquisition proposal offer opposed by our board, even if beneficial to our shareholders.
Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred.
These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition or merger would be beneficial to us or to our shareholders.
Because a certain portion of our expenses is incurred in currencies other than the U.S. Dollar, our results of operations may be harmed by currency fluctuations and inflation.
Our reporting and functional currency is the U.S. Dollar, but some portion of our operational expenses are in NIS and Euros. As a result, we are exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rate of the currencies mentioned above in relation to the U.S. Dollar. These measures, however, may not adequately protect us from adverse effects.
Risks Related to our Securities
Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of the ADSs. The delisting could adversely affect the market liquidity of our shares and the market price of our shares could decrease significantly.
If we fail to satisfy Nasdaq’s continued listing requirements, Nasdaq may take steps to delist the ADSs.
On November 1, 2023, we received a notice of non-compliance from Nasdaq that we are not in compliance with the requirement to maintain a minimum bid price of $1.00 per share as required by Nasdaq Listing Rule 5550(a)(2) (the “Minimum Price Rule”). We were given 180 days to regain compliance. On April 30, 2024, we received a staff determination letter from Nasdaq notifying us that, due to our continued non-compliance with the minimum $1.00 bid price requirement, the ADSs would be scheduled for delisting from Nasdaq and would be suspended for trading at the opening of business on May 7, 2024 unless we timely request a hearing before an independent Nasdaq Hearings Panel (the “Hearing Panel”). We appealed the delisting determination and requested a hearing before the Hearing Panel, which automatically stayed any suspension. Our board of directors also approved a ratio change of the ADSs to our non-traded Ordinary Shares, increasing the number of Ordinary Shares represented by each ADS from 400 to 4,000, which was equivalent to a reverse split of 1 for 10. The effective date of the ratio change was May 21, 2024, and as result of this ratio change we regained compliance with the Minimum Price Rule.
In addition, we received notification letters from Nasdaq dated September 28, 2022 and May 1, 2023 advising us that we are not in compliance with Listing Rule 5550(b)(1) requiring companies listed on Nasdaq to maintain a minimum of $2,500,000 in stockholders’ equity (the “Minimum Stockholders’ Equity Rule”) for continued listing. On August 1, 2023, we announced that Nasdaq reviewed our plan to regain compliance with the Minimum Stockholders’ Equity Rule and provided us with an extension until October 30, 2023 to demonstrate compliance. On November 20, 2023, we announced the receipt of formal notification from Nasdaq that we had regained compliance with the Minimum Stockholders’ Equity Rule. Nasdaq also indicated that if we do not evidence such compliance in our next periodic report (the Annual Report on Form 20-F), Nasdaq may provide notification to us that the ADSs may be subject to delisting, at which time we may appeal the determination to a Hearings Panel. Our shareholders’ equity as of December 31, 2023, as reflected in our financial statements for the year ended December 31, 2023, was less than the minimum of $2,500,000 in stockholders’ equity required by Nasdaq for continued listing.
As a result, on May 20, 2024, we received a staff determination letter from the Staff of Nasdaq that we are not in compliance with the Minimum Stockholders’ Equity Rule. On June 18, 2024, a hearing was held before an independent Nasdaq Hearings Panel (the “Hearings Panel”), and we presented our views with respect to the stockholders’ equity deficiency, including presenting a plan to address the Equity Requirement matter by converting a significant portion of the loan owed by us to the EIB into equity.
On August 29, 2024, following completion of the conversion of a significant portion of the loan owed by us to the EIB into preferred shares as described below, we announced that we had received formal notification from the Staff that we have regained compliance with the Equity Requirement.
In addition, if the ADSs are delisted from Nasdaq, trading of our securities would most likely take place in an over-the-counter market for unlisted securities. An investor would likely find it less convenient to sell, or to obtain accurate quotations in seeking to buy, our securities in an over-the-counter market, and many investors would likely not buy or sell our securities due to difficulty in accessing over-the-counter markets, policies preventing them from trading in securities not listed on a national exchange or other reasons. In addition, as a delisted security, our securities would be subject to SEC rules as a “penny stock,” which impose additional disclosure requirements on broker-dealers. The regulations relating to penny stocks, coupled with the typically higher cost per trade to the investor of penny stocks due to factors such as broker commissions generally representing a higher percentage of the price of a penny stock than of a higher-priced stock, would further limit the ability of investors to trade in our securities. For these reasons and others, delisting would adversely affect the liquidity, trading volume and price of our securities, causing the value of an investment in us to decrease and having an adverse effect on our business, financial condition, and results of operations, including our ability to attract and retain qualified employees and raise capital.
A delisting from Nasdaq would likely have a negative effect on the price of the ADSs and would impair shareholders’ ability to sell or purchase their ADSs when they wish to do so. In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow the ADSs to become listed again, stabilize the market price or improve the liquidity of the ADSs, prevent the ADSs from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.
We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.
We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, we are subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we are not required to issue quarterly reports or proxy statements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under the regulations promulgated under the Companies Law, as an Israeli public company listed overseas we will be required to disclose the compensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli public companies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We also have four months after the end of each fiscal year to file our annual reports with the SEC and are not required to file current reports as frequently or promptly as U.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders are exempt from the requirements to report short-swing profit recovery contained in Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are also not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies reduce the frequency and scope of information and protections available to you in comparison to those applicable to U.S. domestic reporting companies.
As a “foreign private issuer,” we are permitted, and follow certain home country corporate governance practices instead of otherwise applicable SEC and NASDAQ Capital Market requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.
As a “foreign private issuer,” we are permitted, and follow certain home country corporate governance practices instead of those otherwise required under the listing rules of the Nasdaq Capital Market for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among other things, board independence requirements, director nomination procedures and quorum requirements. In addition, we may follow our home country law instead of the listing rules of the Nasdaq Capital Market that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control, certain transactions other than a public offering involving issuances of a 20% or greater interest in the Company, and certain acquisitions of the stock or assets of another company. We also intend to follow our home country rules regarding the periodic approval of and changes to the formal charter for our compensation committee instead of the listing rules of the Nasdaq Capital Market. We may in the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the Nasdaq Capital Market may provide less protection to you than what is accorded to investors under the listing rules of the Nasdaq Capital Market applicable to domestic U.S. issuers.
We may lose our foreign private issuer status which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.
We are a foreign private issuer and therefore we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers. If in the future we are not a foreign private issuer as of the last day of the second fiscal quarter in any fiscal year, we would be required to comply with all of the periodic disclosure, current reporting requirements and proxy solicitation rules of the Exchange Act applicable to U.S. domestic issuers. In order to maintain our current status as a foreign private issuer, either (a) a majority of our Ordinary Shares must be either directly or indirectly owned of record by non-residents of the United States or (b)(i) a majority of our managing directors, supervisory directors and executive officers may not be United States citizens or residents, (ii) more than 50% of our assets cannot be located in the United States and (iii) our business must be administered principally outside the United States. If we were to lose this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and stock exchange rules. The regulatory and compliance costs to us if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the costs we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time consuming and costly. These rules and regulations could also make it more difficult for us to attract and retain qualified managing directors and supervisory directors.
We have not paid, and do not currently intend to pay, dividends on the ADSs and, therefore, unless our traded securities appreciate in value, our investors may not benefit from holding our securities.
We have not paid any cash dividends on the ADSs since inception. We do not anticipate paying any cash dividends on the ADSs in the foreseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in the ADSs will not be able to benefit from owning these securities unless their market price becomes greater than the price paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price more than the price paid.
You may not receive the same distributions or dividends as those we make to the holders of our Ordinary Shares, and, in some limited circumstances, you may not receive dividends or other distributions on our Ordinary Shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.
The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on Ordinary Shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of Ordinary Shares the ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act, but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currency that was part of a dividend made in respect of deposited Ordinary Shares may require the approval or license of, or a filing with, any government or agency thereof, which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effect a substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute. We have no obligation to register under U.S. securities laws any ADSs, Ordinary Shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, Ordinary Shares, rights or anything else to holders of ADSs. In addition, the depositary may withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes it is required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our Ordinary Shares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs.
Holders of ADSs must act through the depositary to exercise their rights as our shareholders.
Holders of the ADSs do not have the same rights of our ordinary shareholders and may only exercise the voting rights with respect to the underlying Ordinary Shares in accordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting is no less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders of the ADSs may not receive sufficient notice of a shareholders’ meeting to permit them to withdraw their Ordinary Shares to allow them to cast their vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but we cannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested. In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders’ meeting.
You may be subject to limitations on transfer of the ADSs.
The ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.
General Risks
We incur significant costs as a public company in the United States, and our management is required to devote substantial additional time to new compliance initiatives as well as to compliance with ongoing U.S. and Israeli reporting requirements.
We are a publicly traded company in the U.S. As a public company in the U.S., we incur additional significant accounting, legal and other expenses. We also incur costs associated with corporate governance requirements of the SEC and the NASDAQ Capital Market, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act. The implementation and testing of such processes and systems may require us to hire outside consultants and incur other significant costs. Any future changes in the laws and regulations affecting public companies in the United States, including Section 404 and other provisions of the Sarbanes-Oxley Act, and the rules and regulations adopted by the SEC and the NASDAQ Capital Market, for so long as they apply to us, will result in increased costs to us as we respond to such changes. These laws, rules and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees, if any, or as executive officers.
The market price for the ADSs has been and will likely remain volatile.
The market price for the ADSs has been and is likely to remain highly volatile and subject to wide fluctuations in response to numerous factors including the following:
| ● | our failure to obtain the authorizations necessary to commence future clinical trials; |
| ● | results of clinical and preclinical studies; |
| ● | announcements of regulatory approval or the failure to obtain it, or specific label indications or patient populations for its use, or changes or delays in the regulatory review process; |
| ● | announcements of technological innovations, new product candidate(s) or product enhancements by us or others; |
| ● | adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities; |
| ● | changes or developments in laws, regulations, or decisions applicable to our product candidate(s) or patents; |
| ● | any adverse changes to our relationship with manufacturers or suppliers; |
| ● | announcements concerning our competitors or the pharmaceutical or biotechnology industries in general; |
| ● | achievement of expected product sales and profitability or our failure to meet expectations; |
| ● | our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringement actions; |
| ● | any major changes in our board of directors, management or other key personnel; |
| ● | legislation in the United States, Europe and other foreign countries relating to the sale or pricing of pharmaceuticals; |
| ● | announcements by us of entering into or termination of significant strategic partnerships, out-licensing, in-licensing, joint ventures, acquisitions or capital commitments; |
| ● | expiration or terminations of licenses, research contracts or other collaboration agreements; |
| ● | public concern as to the safety of therapeutics we, our licensees or others develop; |
| ● |
success of research and development projects;
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| ● | developments concerning intellectual property rights or regulatory approvals; |
| ● | variations in our and our competitors’ results of operations; |
| ● | changes in earnings estimates or recommendations by securities analysts, if the ADSs are covered by these analysts; |
| ● | future issuances of Ordinary Shares, ADSs or other securities; |
| ● | general market conditions, including the volatility of market prices for shares of biotechnology companies generally, and other factors, including factors unrelated to our operating performance; and |
| ● | the other factors described in this “Risk Factors” section. |
These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs, which would result in substantial losses by our investors.
Additionally, market prices for securities of biotechnology and pharmaceutical companies historically have been very volatile. The market for these securities has from time to time, experienced significant price and volume fluctuations for reasons unrelated to the operating performance of any one company. In the past, the COVID-19 pandemic resulted in significant financial market volatility and uncertainty. A resurgence of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of the ADSs.
In the past, securities class action litigation has often been brought against a company and its management following a decline in the market price of its securities. This risk is especially relevant for biopharmaceutical companies, which have experienced significant share price volatility in recent years.
In addition, the trading prices for securities of other biopharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic. The extent to which the outbreak may impact our business, preclinical studies and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence.
In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs.
Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholders vote.
Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares, including Ordinary Shares and ADSs issuable upon the exercise of outstanding options. Issuances of additional shares and ADSs would reduce your influence over matters on which our shareholders vote.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our traded securities, the market price for the ADSs and trading volume could be negatively impacted.
The trading market for our securities may be influenced by the research and reports that industry or securities analysts publish about us, our business, our market or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs, or provide more favorable relative recommendations about our competitors, the price of the ADSs would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs or their trading volume.
| Item 4. | INFORMATION ON THE COMPANY |
| A. | History and Development of the Company |
Our History
Our legal and commercial name is Scinai Immunotherapeutics Ltd. We are a company limited by shares organized under the laws of Israel. We were incorporated in Israel in 2003 as a privately held company. In February 2007, we completed an initial public offering of our ordinary shares on the Tel Aviv Stock Exchange (TASE), and we voluntarily delisted from the TASE in January 2018. In May 2015 we completed an initial public offering of ADSs and ADSs warrants (which have since expired) on the Nasdaq Capital Market. On September 6, 2023, we announced the change of our corporate name to Scinai Immunotherapeutics Ltd. from BiondVax Pharmaceuticals Ltd. to reflect better our fresh start and new direction.
Our principal executive offices are located at Jerusalem BioPark, 2nd floor, Hadassah Ein Kerem Campus, Jerusalem, Israel, and our telephone number is +972-8-930-2529. Our website is www.scinai.com. The information we post on our website may be deemed material. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and public conference calls and webcasts. However, the information contained on, or accessible through, our website is not incorporated by reference herein and shall not be considered part of this prospectus. Our agent for service of process in the United States is Puglisi & Associates, whose address is 850 Library Avenue, Suite 204, Newark, Delaware, and whose telephone number is (302) 738-6680.
Our capital expenditures for twelve months ended December 31, 2024 and December 31, 2023 amounted to approximately $12 and $637 thousand, respectively. These expenditures were primarily for factory leasehold improvements, computers and laboratory equipment.
| B. | Business Overview |
We are a biopharmaceutical company with two complementary business units, one focused on in-house development of inflammation and immunology (I&I) biological therapeutic products beginning with an innovative, de-risked, pipeline of nanosized VHH antibodies (NanoAbs) targeting diseases with large unmet medical needs, and the other a boutique CDMO providing services to help biotech companies efficiently bring their products to by leveraging Scinai’s drug development and GMP and non-GMP manufacturing capabilities for pre-clinical and clinical studies. We have also recently signed an option agreement to acquire the Italian biotech company, Pincell srl, the owner of PC111, a fully human, monoclonal antibody that blocks its activation of apoptosis of skin cells (keratinocytes).
Development of I&I biological therapeutic products
NanoAbs
Since inception, we have executed eight clinical trials including a seven country, 12,400 participant phase 3 trial of our prior lead drug candidate, a universal influenza vaccine candidate (“M-001”) and have built a GMP biologics manufacturing facility for biopharmaceutical products. After receiving the phase 3 trial results in Q4 2020, indicating that M-001 did not meet its clinical endpoints, we performed a turnaround process that included raising fresh capital, hiring new talent (including a new CEO), signing a research collaboration agreement with and in-licensing new intellectual property from world leading academic research institutes. Since then, we are in the process of developing a pipeline of diversified and commercially viable products built around innovative nanosized antibodies (NanoAb). NanoAbs are nanosized antibody fragments derived from camelid animals and are also known as VHH-antibodies or Nanobodies. “Nanobody” is a trademark registered by ABLYNX N.V., a wholly owned subsidiary of Sanofi. SCINAI has no affiliation with and is not endorsed by Sanofi. We have also established our CDMO business unit to take advantage of our laboratory and manufacturing capacity at our cGMP facility in Jerusalem.
As part of the abovementioned turnaround, on December 22, 2021, the Company signed a definitive exclusive, worldwide, License Agreement (“LA”) with the Max Planck Society (“MPG”), the parent organization of the Max Planck Institute for Multidisciplinary Sciences (“MPI”), and the University Medical Center Göttingen (“UMG”), both in Gottingen, Germany, for the development and commercialization of innovative NanoAbs for the treatment of COVID-19. The agreement provides for an upfront payment, development and sales milestones and royalties based on sales and sharing of sublicense revenues. In addition, the Company signed an accompanying Research Collaboration Agreement (“aRCA”) with MPG and UMG in support of the abovementioned development of a COVID-19 NanoAb by MPI and UMG. The aRCA provided for monthly payments to MPG and UMG and had a term until the earlier of two years or the date the Company enters into first in-human clinical trials with the COVID-19 NanoAb. Consequently with our decision to put the COVID19 Nanoab for partnering, we have agreed with MPG/UMG to stop the aRCA.
On March 23, 2022, we signed a five-year Research Collaboration Agreement (“RCA”; collectively, with the LA and aRCA, the “MPG/UMG Agreements”) with MPG and UMG covering the discovery, selection and characterization of NanoAbs for up to nine molecular targets that have the potential to be further developed into drug candidates for the treatment of disease indications such as plaque psoriasis, psoriatic arthritis, asthma and wet macular degeneration. These are all large and growing markets with underserved medical needs. In each case, the molecular target has been validated as an appropriate target for therapeutic intervention through inhibition by an antibody, thereby significantly reducing the discovery work that typically entails many years of research, high cost and high risk of failure. We believe that we can leverage our NanoAbs’ unique and strong binding affinity, stability at high temperatures, and potential for more effective and convenient routes of administration towards competitive commercial viability. We believe that since these are clinical validated targets, we can develop NanoAb treatments with reduced risk and cost and accelerate the time from NanoAb selection to initiation of clinical development. Each NanoAb candidate is therefore positioned as a “biobetter” piggybacking on prior discoveries of others to mitigate risk but with significant potential advantages over existing therapeutics. In addition, while each NanoAb constitutes a novel molecule for which we file patent applications thereby creating a proprietary position, all of the developed NanoAbs when viewed together constitute a pipeline that is built around the same drug discovery, development and manufacturing platform allowing us to reduce risks and save costs. We have the exclusive option for an exclusive, pre-negotiated worldwide license agreement for the development and commercialization of each of the NanoAbs covered by the RCA with MPG and UMG.
On June 5, 2023, we announced that as part of our ongoing broad-based collaboration with the Max Planck Society and the University Medical Center Gottingen (UMG), we signed an exclusive worldwide license agreement to develop and commercialize VHH antibodies (NanoAbs) targeting Interleukin-17 (IL-17) as treatments for all potential indications, starting with psoriasis and psoriatic arthritis.
In June 2023, we disclosed that we were ceasing active development of our COVID-19 program due to ongoing generation of variants of the coronavirus, difficulty in identifying a broad spectrum NanoAb and a significant reduction in both market interest in a COVID-19 therapeutic and funding. As a result, we would expect any continued development to be based on finding a strategic partnership for our COVID-19 self-administered inhaled NanoAb therapeutic/prophylactic which demonstrated highly promising in vivo results in animals and that we will focus on developing the anti-IL-17 NanoAb.
On June 4, 2024, the Company met for a scientific advisory meeting with the Paul Erlich Institute (the PEI) of Germany, the scientific advice of which is considered acceptable guidance for IMPD filing with the European Medicines Agency (EMA) and is also considered the European comparable to a pre-IND meeting with the FDA in the U.S. Consequently, on July 23, 2024, the Company announced the receipt of positive regulatory feedback from the PEI for its drug development program towards Phase 1/2a clinical trial of its anti-IL-17A/F nanoAb (SCN-1) in Plaque Psoriasis. The Phase 1/2a study is expected to include approximately 24 plaque psoriasis patients and is expected to commence in the second half of 2026 with readout in 2027.
On July 15, 2024, we announced a successful in-vivo preclinical study results of our innovative anti IL-17A/F VHH antibody fragment (NanoAb) as a local, first of its kind, intralesional biological treatment for the large and underserved population of patients suffering from mild to moderate plaque psoriasis. The study aimed to demonstrate that local, intralesional treatment with Scinai’s NanoAb, which targets the two isoforms of the cytokine IL-17 (A and F) implicated in plaque psoriasis, has at least a non-inferior anti-inflammatory effect on the psoriatic lesions compared to corticosteroids and systemic biologics. The unique ability of our NanoAb to neutralize both IL-17A and IL-17F isoforms was confirmed, this time in-vivo, by the histopathology analysis, which demonstrated that our NanoAb led to reduced levels of both IL-17 isoforms in the psoriatic skin tissue. In addition, the statistical analysis of these markers confirmed that the effect of our NanoAb on the tested inflammatory markers was similar to that of two comparator drugs, supporting the hypothesis that intralesional injection of a nanoAb blocking the IL-17 cytokine can impact the inflammatory cytokine cascade, and lead to reduction in psoriatic lesion severity and improvement of the skin’s integrity. The results confirm and build upon previous reported results from ex-vivo studies done with human skin specimens (conducted by Genoskin) and in a plaque psoriasis in vitro model with human skin tissue grown in a dish.
We recently filed new patents for a novel NanoAb targeting IL-13 and, as per the RCA, we have an exclusive option to execute an exclusive license for this drug candidate for a worldwide development and commercialization rights at pre-agreed financial terms.
On March 27, 2025, we announced that we had entered into a binding option agreement for the acquisition of the Italian biotech company Pincell srl, the owner of PC111, a monoclonal antibody in development for treating Pemphigus, Steven Johnson’s Syndrome (SJS) and Toxic Epidermal Necrolysis (TEN). PC111 has already received an Orphan Drug Designation in Pemphigus by the European Medicine’s Agency.
Pursuant to the terms of the option agreement, we have the right to exercise, at our sole discretion (pending our satisfaction of closing requirements and approval of the Golden Power regulatory clearance by the Italian government), a full sale and transfer of Pincell’s shares by the end of 2025. Such requirements include either the award of a grant to our wholly owned Polish subsidiary under the European Funds for a Modern Economy (FENG) program in Poland referred to below or our securing $3 million. If such share sale and transfer is exercised, Pincell’s current shareholders will be eligible for development milestone payments, pass through payments from sublicenses with a staggered percentage based on the stage of development at the time of the sublicense, and royalties out of future net sales of PC111 in the low single digits. In addition, the management team of Pincell will join Scinai’s wholly owned, newly created subsidiary in Poland and Pincell’s founder, Prof. Carlo Pincelli, will join Scinai’s Scientific Advisory Board. In the event we or our affiliates have not filed an IND application for PC111 to the FDA, or any similar dossier application in a country other than the U.S., by December 31, 2028, the option agreement grants each seller the right to repurchase the shares of Pincell it sold to us for the lower of (i) the fair market value of Pincell and (ii) the sum funded by us or our affiliates into Pincell.
On September 26, 2024, we filed with the Securities and Exchange Commission a Current Report on Form 6-K disclosing that we had entered into a license agreement with an unaffiliated U.S. private company (“Licensee”), pursuant to which Scinai has granted Licensee exclusive global rights to certain patents and know-how under Scinai’s agreement with the Max Planck Society and the University Medical Center Göttingen for the development and commercialization of licensed products in exchange for an up-front license fee payable by the Licensee’s completion of specified pre-clinical work, as well as other contingent development milestone payments across several indications and royalties on net sales of licensed products. On March 20, 2025, we were notified by the Licensee that it had determined not to proceed with the development of the products contemplated by the license and was accordingly exercising its right to terminate the license.
PC111
PC111 is a fully human, monoclonal antibody that binds to the human soluble Fas ligand and thus blocks its activation of apoptosis of skin cells (keratinocytes). This pathway has a major role in several skin blistering disorders, characterized by a very high unmet medical need with significant market sizes. Importantly, PC111 does not suppress the immune system, at variance with many other biologicals treating inflammatory conditions that can lead to significant, at times fatal side effects. Pincell has successfully developed a proprietary FasL humanized mouse model, with which it studied the involvement of the Fas/FasL pathway in these diseases, and that can be successfully used in other dermatological and non-dermatological diseases, where this pathway may play a key role in disease development and progression.
In anticipation of the signing of the option agreement, the parties have prepared together and submitted a grant application by our wholly owned Polish subsidiary, seeking Euro 12 million of non-dilutive capital to fund the next stage of development of PC111. To facilitate the submission of the application, Pincell exclusively licensed PC111 to our subsidiary. The grant application is under the European Funds for a Modern Economy (FENG) program in Poland. Subject to prior clearance of certain Italian regulatory formalities, an award decision is expected in the third quarter of 2025.
Pincell has carried out a large number of in-vitro, ex-vivo and in-vivo experiments using PC111 without steroids in validated models of pemphigus, to prove that soluble FasL is a critical target in this disease. Most importantly, Pincell has demonstrated that PC111 can block blister formation without steroids in a transgenic humanized FasL mouse model of pemphigus, indicating that the antibody can work also in a humanized setting and thus suggesting that it may be a novel targeted therapy for this disease at the clinical level. As there is abundant and convincing data supporting the critical role of soluble FasL also in the pathogenesis of SJS/TEN, PC111 could inhibit the mechanisms underlying the progression of this disease, as shown by the in vivo model where it ameliorates ocular conjunctivitis and edema, two main early features of this disease in humans, as well as its progression towards more severe forms.
Pemphigus, Stevens-Johnson Syndrome (SJS), and Toxic Epidermal Necrolysis (TEN) are severe dermatological conditions that significantly impact the skin and mucous membranes. Pemphigus is a rare autoimmune blistering disease of the skin and mucous membranes with the incidence of new cases ranging between 0.5 and 3.0 new cases per year per 100,000 people and prevalence of between 15 to 30 per 100,000 people at any point in time. The disease often requires long-term immunosuppressive medications for disease management, generates severe impact on the patient’s quality of life, is associated with chronic pain and visible lesions and results in dietary restrictions for the patients alongside emotional and social distress. Pemphigus often relapses, can be life-threatening without treatment and can leave the patient with long-term complications even with current treatments. Stevens-Johnson Syndrome and Toxic Epidermal Necrolysis are rare but severe mucocutaneous reactions and are both part of the same disease spectrum, which is a serious reaction to medications. SJS has an incidence rate of between one and six cases per million people annually, and TEN has an incidence rate of 0.4 to 1.2 cases per million people annually. Both SJS and TEN result in massive epidermal cell death, resembling severe burns, rapid progression to skin blistering and detachment with involvement of mucosal tissues. SJS has a mortality rate of up to 10% while Toxic Epidermal Necrolysis, has a mortality rate of 30-50%. Pemphigus is being treated these days with systemic corticosteroids, steroid-sparing agents and rituximab while SJS/TEN have no approved drug on the market and are treated by supportive care (similar to burn management) and can sometimes be treated with systemic immunomodulators, such as cyclosporine, etanercept, and corticosteroids. The efficacy of these treatments, however, is controversial and case-dependent. These conditions highlight a significant unmet medical need for more effective treatments and better management strategies to improve patient outcomes and reduce mortality rates.
CDMO services
On September 6, 2023, we announced the launch of a new business unit named Scinai Bioservices to serve as a CDMO utilizing capacity at our manufacturing facility in Jerusalem to offer a multitude of services to support biotech companies through process development, as well as cGMP manufacturing for clinical supplies. We seek to provide high quality, yet affordable CDMO services to accelerate the drug development processes of small biotech companies, including cGMP aseptic processing required for manufacturing of clinical batches.
Our biological drug development and manufacturing services for early-stage pre-clinical and clinical programs of protein-based biological drugs are executed using highly advanced laboratories and a cGMP pilot plant (designed to meet EMA and FDA regulatory requirements), upstream and downstream process development, process optimization and scaleup, cGMP manufacturing, fill & finish operations, analytical method development and GMP quality control supported by a robust quality management system. The manufacturing facility features modular, single-use infrastructure, which allows higher flexibility, reduces change over time, saves costs in cleaning and QC testing and saves time.
In December 2024, we announced the establishment of a U.S.-based subsidiary for our CDMO business unit operating under the name Scinai Bioservices Inc.
We perform our CDMO services at our approximately 1,850 square meters (20,000 square feet) facility which we lease in the Jerusalem BioPark, located in the Ein Kerem Hadassah campus, next to Hadassah University Hospital and the Hebrew University’s Medical School.
Our Competitive Strengths
We believe that our people, processes and technologies give us distinct advantages over our competitors, as follows:
| ● | People: Our leadership team has deep biotech and pharmaceutical industry experience, including our Chairman of the Board Mark Germain (former Co-Chairman of Pluri (previously Pluristem Therapeutics), and a co-founder and former director of a number of other biotechnology companies including, without limitation, Alexion, Neurocrine, ChromaDex, Stem Cell Innovations, Omnimmune Corp. and Collexis Holdings), Board director Samuel Moed (former Senior VP Corporate Strategy at Bristol Myers Squibb), Board director Jay Green (former Senior VP Finance and CFO of GSK’s global vaccines business) and COO Elad Mark (formerly employed by Novartis). Our CEO, Amir Reichman, has extensive vaccines R&D, supply chain, manufacturing, and engineering experience from Novartis in the U.S. and GSK in Europe. Furthermore, our Chief Science Officer, Dr. Tamar Ben-Yedidia, oversaw M-001 vaccine development from early research at the Weizmann Institute through the pivotal Phase 3 clinical trial. |
| ● | Processes: After years of experience, Sinai has developed a mature set of business processes including pre-clinical and clinical development, regulatory, quality and GMP manufacturing processes. These processes can help us accelerate time to market for future in-licensed assets and hence provide us with a competitive advantage versus other companies of our size. In the past, we conducted a pivotal Phase 3 trial in over 100 clinical trial sites in seven Eastern European countries, subject to, among others, the regulation of the European Medicines Agency (EMA). The trial was completed on time and on budget. Our Phase 3 clinical trial was initiated after we completed two Phase 1/2 clinical trials and three Phase 2 clinical trials in Israel pursuant to clinical trial protocols approved by the Israeli Ministry of Health, a Phase 2b clinical trial in Europe, and a Phase 2 clinical trial sponsored and conducted by the NIH/NIAID in the USA. |
| ● | Technology: Our licensed technology from MPG and UMG is innovative and highly competitive, offering significant opportunities in drug development and manufacturing. Our drug candidates are de-risked by targeting molecular pathways already validated by existing drugs, ensuring effective therapeutic outcomes when neutralized by an antibody. Additionally, our unique drug candidates provide new administration routes and address the needs of patient populations underserved by current treatments. Our existing and advanced GMP manufacturing facility in Jerusalem uses an agile and modular ‘Single Use’ infrastructure that can be used for a wide variety of applications and technologies, such as the production of recombinant proteins, nanobodies and other vaccines and treatments. In addition, we have advanced automation, data management and IT systems necessary for regulatory compliant clinical development, clinical supplies and commercial supplies. |
Our Business Strategy
Business Strategy for our R&D Business Unit:
The Company intends to implement a strategy that will build a diversified pipeline of assets along several axes, as follows:
| ● | A pipeline of products for prevention and/or treatment of illnesses with large market opportunities for more effective treatments. |
| ● | A pipeline of products based on opportunistic acquisitions or in-licenses of therapeutic candidates involving antibody or other treatments. |
| ● | Each product candidate originated through the MPG/UMG Agreements would be designed to interact with a target previously validated as an appropriate target for therapeutic intervention by an antibody already on the market. |
| ● | Each therapeutic indication of a product candidate originated through the MPG/UMG Agreements nevertheless is underserved by existing antibody treatments and for which a large market opportunity exists for a proprietary NanoAb with improved attributes. |
| ● | A pipeline of product candidates originated through the MPG/UMG Agreements that would take advantage of the unique physicochemical attributes of our NanoAbs, including: |
| ● | Smaller molecular weight and superior physicochemical stability – our NanoAbs are approximately 1/10th the molecular weight of regular antibodies and have a durable molecular structure. This allows them to be delivered through routes of administration (e.g., intra-dermal, nasal, inhalation, etc.) not particularly amenable to regular antibodies, which are too large and/or easily break down under pressure, opening new or enlarged market opportunities for our NanoAbs. |
| ● | Ultra-high thermo-stability – our NanoAbs retain biological activity even at high temperatures. This provides extended self-life and may ease the requirements for cold chain shipping and storage. |
| ● | High binding affinity to the target with highly effective neutralization. Binding affinity is the likelihood that a drug molecule (e.g., a single NanoAb) will find and attach to its designated target, thereby contributing to therapeutically relevant neutralization of the target. This has the potential to translate to faster onset of medical efficacy or in some cases to translate to lower required human dosage compared to other antibodies. |
| ● | High specificity - Our NanoAbs have high specificity to their intended target, and therefore fewer of them are expected to bind to targets other than the designated target, resulting in fewer side effects. Furthermore, and because of their relatively short half-life, any NanoAbs, that do not bind to a target are expected to be quickly excreted from the body, thus also limiting future adverse effects. |
| ● | A pipeline of products originated through the MPG/UMG Agreements that can progress through the discovery stage and enter the clinic relatively quickly compared to traditional monoclonal antibody drug discovery. |
| ● | Traditional monoclonal antibody drug discovery entails years of research identifying and validating a target, identifying the appropriate type of molecule to interact with that target, validating that the mechanism of action can produce a therapeutically relevant benefit with a satisfactory safety profile and that the drug can be produced at an acceptable cost of goods. |
| ● | Together with an international management consulting firm, we have triaged through more than 800 potential molecular targets for our NanoAbs and selected those that had already been validated as targets for commercially available monoclonal antibodies. Furthermore, we filtered for targets for disease treatments that still leave a large unmet need or a large, underserved patient population. We then selected those targets that we believe have the highest commercial value but lowest clinical development costs (small sized clinical trials with fastest timeline to in human proof of concept). |
| ● | Our collaborators at MPG/UMG have been able to generate large libraries of NanoAbs against most of our pre-validated targets within the first 12 months of the collaboration and in many cases have selected from those libraries a small portfolio of candidates that meet or are close to meeting a set of pre-agreed Compound Acceptance Criteria, which we have agreed make them potentially appropriate for further development. |
| ● | As a consequence, over the next 12 to 24 months, subject to having sufficient capital, we believe we will be in a position to execute our exclusive option for exclusive license for development and commercialization of several of the abovementioned nanoAbs and advance them, in addition to our IL-17 NanoAb, through remaining pre-clinical development and, subject to available capital resources, updated analysis of market opportunities, partner interest and other relevant factors determined at the time, potentially initiate first in human clinical trials, all in a time frame we believe to be much quicker, at a cost much lower, and with fewer unknowns/less risk than traditional monoclonal antibodies drug discovery at the same stage of development. |
| ● | A pipeline of products that can be developed through the various Chemistry, Manufacturing and Controls steps (CMC) and then be produced for clinical development and potentially initial commercial volumes required for product launch at a low cost of goods at our existing manufacturing facility in Jerusalem, built to GMP standards. |
| ● | Our NanoAbs are produced in yeast, a relatively low cost and rapid production system compared to the manufacture of regular antibodies. Regular antibodies are produced in mammalian cell lines that take considerable time to establish, require a much more sophisticated production facility, have lower yields and involve more expensive processing to harvest and purify the ultimate drug substance. |
| ● | Our facility in Jerusalem is equipped to take the candidates generated by MPG/UMG and immediately begin development of NanoAbs for pre-clinical testing and ultimately produce clinical grade NanoAbs. |
| ● | By conducting these activities in-house, we will be in a position to avoid the delays and high costs typically associated with third party contract manufacturers and have more direct control over the process. |
If successfully implemented, this strategy would provide Scinai with a diverse multi-dimensional pipeline that we believe has been substantially de-risked without necessarily limiting the upside potential. We would also expect to have considerable flexibility regarding partnering with other companies in the pharmaceutical industry, out-licensing, joint ventures and the like. The Company is currently actively engaged in identifying and evaluating many of these opportunities. Notwithstanding the Company’s efforts to mitigate the risk associated with the development of our NanoAbs, there remains significant risk of failure, as described under “Risks Related to Our Business”, associated with product development, manufacturing, regulatory matters, capital availability, commercialization, and other factors relevant to small companies, such as Scinai, engaged in early stage pharmaceutical development activities.
Business Strategy for our CDMO Business Unit:
Scinai Bioservices operates as a Contract Development and Manufacturing Organization (CDMO) business unit, leveraging our state-of-the-art laboratory and manufacturing clean room facilities in Jerusalem. We offer a comprehensive range of services to support biotech companies in process development and cGMP manufacturing for clinical supplies.
Our expertise encompasses biological drug development and manufacturing for early-stage pre-clinical and clinical programs of protein-based biological drugs. Utilizing advanced laboratories and a cGMP pilot plant designed to meet EMA and FDA regulatory standards, we provide upstream and downstream process development, process optimization and scale-up, cGMP manufacturing, fill & finish operations, analytical method development, and GMP quality control, all supported by a robust quality management system.
Our manufacturing facility features modular, single-use infrastructure, enhancing flexibility, reducing changeover time, and lowering costs associated with cleaning and QC testing. This infrastructure also expedites processes, saving valuable time.
Our mission is to deliver high-quality, flexible, and cost-effective CDMO services in a “boutique” style, catering to early-stage biotech companies. We aim to accelerate their drug development projects, including cGMP aseptic processing required for the manufacturing of clinical batches.
As a corporation, maintaining the CDMO business unit enables us to optimize our existing capacity, thereby generating returns on our assets, absorbing fixed costs, and reducing our burn rate. This also enhances our team’s expertise in drug development and aseptic manufacturing, while ensuring sufficient capacity for our R&D business unit’s drug development programs. This strategic advantage sets us apart from smaller and early-stage biotech companies that rely on external capacity for their programs. Such dependency exposes them to higher costs and longer wait times for available slots. Additionally, any deviations in timelines or required changes during the drug development process can lead to unexpected and increased costs and extended timelines. By having internal capacity, we gain flexibility, speed, and cost efficiency. However, maintaining and fully utilizing this capacity to prevent it from becoming a loss center requires focused investment in marketing, sales, and business development, and involves risks as outlined in the risk factors section.
Research and Development
NanoAbs
On September 20, 2022, we announced that MPG and UMG have successfully generated, identified and isolated NanoAbs addressing a number of additional biological target molecules as specified in the RCA. Based on these promising results, the Scinai-MPG-UMG Joint Steering Committee, established to guide the RCA programs, decided to focus further development beginning with the following NanoAbs, targeting immune system cytokines:
| ● | NanoAbs targeting IL-17A, IL-17F and IL-17A/F complex as drug candidates for the potential treatment of psoriasis and psoriatic arthritis. |
| ● | NanoAbs targeting IL-13 and NanoAbs targeting TSLP as drug candidates for the potential treatment of asthma. |
As mentioned above, on June 5, 2023, we signed an exclusive worldwide license agreement to develop and commercialize VHH antibodies (NanoAbs) targeting Interleukin-17 (IL-17) as treatments for all potential indications, starting with psoriasis and psoriatic arthritis. In addition, as disclosed under “Business Overview”, in June 2023, we disclosed that we were pursuing a strategic partnership for our COVID-19 NanoAb and that we will focus on developing the anti-IL-17 NanoAb.
Pre-Clinical Trial of anti-IL-17 NanoAb mild to moderate plaque psoriasis
In December 2023, we announced successful preclinical trial results of the anti-IL-17 NanoAb, as a local treatment for the large and underserved population of mild to moderate plaque psoriasis. The study, conducted by Genoskin (FR), a pioneering French biotechnology company, aimed to evaluate the anti-inflammatory effects of our NanoAbs. Genoskin’s proprietary human skin models were induced for expression of plaque psoriasis symptoms to enable ex-vivo examination of the therapeutic effects of drugs targeting underlying mechanisms in the pathogenesis of plaque psoriasis, particularly the IL-17 family of pro-inflammatory cytokines. This disease-induced skin model reproduces key features of plaque psoriasis tissue morphology as well as the cytokine profile associated with the inflammatory state of plaque psoriasis lesions. Genoskin’s model has been successfully validated1 as a reliable ex-vivo system for testing drugs aimed at plaque psoriasis.
The trial’s study groups included intradermal injections in two dosage schedules of our anti-IL-17 NanoAbs, which were compared to Cosentyx® (a leading monoclonal anti-IL-17A antibody treatment for severe psoriasis), Betamethasone (a topically applied corticosteroid used a treatment for mild to moderate psoriasis), an unrelated VHH NanoAb, and an untreated control. The anti-inflammatory effect of our NanoAbs were evaluated by measuring cytokine levels secreted by the skin tissues, including IL-17 family cytokines. Additionally, the skin’s structure, integrity, and viability were assessed by a histological analysis.
The statistically significant results demonstrated the potential for our anti-IL-17 NanoAbs to noticeably improve psoriatic skin lesions as indicated by skin viability and structural integrity. This finding was corroborated by cytokine release analysis, which showed significantly reduced IL-17 release (p<0.001) upon treatment with our IL-17 nanoAb as compared to the untreated control, similar to the effects of Betamethasone and Cosentyx, but with potential advantages related to the unique attributes of our NanoAbs as described above..
The results confirm and build upon previously reported results indicating that our anti-IL-17 NanoAbs downregulated key molecular markers overexpressed in plaque psoriasis in a 3D scaffold of skin cells, a model mimicking a skin tissue. We have recently conducted an in-vivo proof of concept animal study in early 2024 in collaboration with Technion Israel Institute of Technology.
On June 4, 2024, we met for a scientific advisory meeting with the Paul Erlich Institute (the PEI) of Germany, the scientific advice of which is considered acceptable guidance for IMPD filing with the European Medicines Agency (EMA) and is also considered the European comparable to a pre-IND meeting with the FDA in the U.S. Consequently, on July 23, 2024, we announced the receipt of positive regulatory feedback from the PEI for our drug development program towards Phase 1/2a clinical trial of its anti-IL-17A/F nanoAb (SCN-1) in Plaque Psoriasis. The Phase 1/2a study is expected to include approximately 24 plaque psoriasis patients and is expected to commence in the second half of 2026 with a readout in 20276.
On July 15, 2024, we announced a successful in-vivo preclinical study results of our innovative anti IL-17A/F VHH antibody fragment (NanoAb) as a local, first of its kind, intralesional biological treatment for the large and underserved population of patients suffering from mild to moderate plaque psoriasis. The study aimed to demonstrate that local, intralesional treatment with Scinai’s NanoAb, which targets the two isoforms of the cytokine IL-17 (A and F) implicated in plaque psoriasis, has at least a non-inferior anti-inflammatory effect on the psoriatic lesions compared to corticosteroids and systemic biologics. The unique ability of our NanoAb to neutralize both IL-17A and IL-17F isoforms was confirmed, this time in-vivo, by the histopathology analysis, which demonstrated that our NanoAb led to reduced levels of both IL-17 isoforms in the psoriatic skin tissue. In addition, the statistical analysis of these markers confirmed that the effect of our NanoAb on the tested inflammatory markers was similar to that of two comparator drugs, supporting the hypothesis that intralesional injection of a nanoAb blocking the IL-17 cytokine can impact the inflammatory cytokine cascade, and lead to reduction in psoriatic lesion severity and improvement of the skin’s integrity. The results confirm and build upon previous reported results from ex-vivo studies done with human skin specimens (conducted by Genoskin) and in a plaque psoriasis in vitro model with human skin tissue grown in a dish.
We are planning to conduct a second in-vivo study using xenografted transgenic mice to evaluate the duration of effect of our target product profile. This study, to be conducted at the Technion Institute in Israel, will compare our drug candidate to standard of care therapies over a significantly longer treatment duration. This proof-of-concept study aims to demonstrate that our target product profile offers a convenient and cost-effective dosing schedule, making it attractive to patients. Scheduled for 2025, the study’s results will inform our decision on whether to incorporate a sustained release formulation to further enhance dosing convenience for patients. Following this stage, we intend to initiate manufacturing for a toxicology study in non-human primates, which will be the final step before submitting an IND/IMPD to regulatory authorities. We expect that this submission would pave the way for the initiation of a first-in-human clinical trial (Phase 1/2a), as previously discussed with the PEI and disclosed above.
Additional nanoAbs for treatment of additional autoimmune diseases, such as asthma, atopic dermatitis and wet AMD, have been discovered and characterized at the Max Planck Institute in Gottingen and the University Medical Center Göttingen, both in Germany as part of their research collaboration agreement with us. We hold exclusive options for exclusive, world-wide licenses to develop and commercialize these nanoAbs at pre-agreed financial terms.
The Company is pursuing strategic partnerships and sublicensing options for its anti-IL-17 nanoAb for the treatment of plaque psoriasis and other potential indications and also is looking for partners to co-develop or sub license the additional nanoAbs that have been discovered and characterized.
NanoAb program for COVID-19
Despite encouraging set of in-vitro and in-vivo animal studies showing that inhalation of our COVID-19 NanoAbs has the potential to effectively treat or prevent infection by various strains of COVID-19, we suspended further development of the COVID-19 NanoAbs program due to changing market conditions for COVID therapeutics and are unlikely to continue unless we find a partner to further develop this program.
| ● | Technology transfer of several COVID-19 potential lead drug candidates has been conducted and included manufacturing process development and analytical methods development, and initial manufacturing has been commenced. |
| ● | We have partnered with two world-renowned institutes to conduct a preclinical proof-of-concept in vivo study of the COVID-19 NanoAb targeting the Wuhan strain as a proof-of-concept study of a NanoAb as an inhaled therapy in COVID-19 infected animals: The Fraunhofer Institute for Toxicology and Experimental Medicine (ITEM) and The University of Veterinary Medicine Hannover (TiHo), Germany. The trial commenced in Q4 2022 and used an industry-standard animal model that correlates severity of disease with weight loss. The trial we conducted compared weight loss, among other vitality and illness parameters in four groups of hamsters after infection with SARS-COV-2. The experimental groups were treated with our anti-COVID-19 NanoAb, as an inhaled therapy, in descending doses, starting one day after being infected, while the control group was treated in the same manner but with saline serving as a placebo. On November 29, 2022, we reported results from our high dose experimental group in comparison to the control group and showed that, compared to their weight immediately prior to infection, the control group’s weight declined on average 12.01%, considered to be indicative of severe disease, while the weight of the high dose experimental group, which was administered by our NanoAb through inhalation, declined on average only 3.80%, a highly statistically significant result (p<0.001). The successful result was further supported by eight other tracked parameters, including heart rate and social behaviors, that indicated the group treated with inhaled NanoAbs experienced a milder and shorter illness. The results from the two lower doses of our inhaled anti COVID-19 NanoAb were not different than those demonstrated by the high dose. On January 6, 2023, we announced additional results from the preclinical in vivo proof-of-concept study, namely that six days after infection, compared to the placebo group, hamsters treated with our inhaled NanoAb not only had over 30 times lower SARS-COV-2 viral titers in their lungs as measured by median tissue culture infectious dose (TCID50) but also those levels were at the border of detection, suggesting potential virtual elimination of the virus from their lungs. These results were corroborated also by PCR. |
| ● | On January 23, 2023, we announced additional results from the preclinical in vivo proof-of-concept study, this time testing a prophylactic use of our anti-COVID-19 NanoAbs in prevention of COVID-19 disease. The study compared weight loss in two groups of hamsters. Hamsters administered a mid-sized dose of the NanoAb three hours prior to infection experienced no significant weight loss over the six-day trial, whereas the untreated control group’s weight declined 12% on average, a highly statistically significant difference (p<0.0005). Data from our trial indicate that our NanoAb may effectively serve as both a therapeutic and protective prophylactic drug. A pilot quantity of the NanoAb was manufactured in-house and sent to our consulting partner supporting us with the development of a formulation and selection of an inhalation device for human use. |
We received supportive Scientific Advice for our COVID-19 NanoAb development plans from the Paul Ehrlich Institute (PEI), an agency of the German Federal Ministry of Health whose research and control activities promote the quality, efficacy and safety of biological medicinal products. PEI supported our plan for first-in-human clinical trial to be conducted directly in sick patients as a combined Phase 1/2a, testing both safety and efficacy, thereby shortening our potential clinical development timelines.
PC111 for the treatment of Pemphigus Vulgaris
Acantholysis is commonly seen in diseases such as pemphigus vulgaris. It is a medical term referring to the loss of coherence between keratinocytes (skin cells) in the epidermis due to the breakdown of desmosomal intercellular attachments. This results in the separation of these cells, which can lead to blistering and other skin conditions. Pincell tested PC111 in in vitro, ex-vivo and in-vivo experiments. In in-vitro studies, PC111 was shown to be effective in preventing FasL-dependent acantholysis of normal human keratinocytes in a dose dependent manner (Lotti et al, Front Immunol 2023). PC111 was also tested in two ex-vivo independent pemphigus human skin models, significantly reducing blister formation by 50% in a severe pemphigus model and dramatically reducing blister extent in milder pemphigus model (Lotti et al, Front Immunol 2023). In in-vivo studies, Pincell developed a proprietary platform for PC111 testing: a humanised FasL mouse model. Using this model, Pincell confirmed the efficacy of PC111 for the treatment of Pemphigus induced by the transfer of PV-IgGs. In addition, Pincell completed PK/PD study in vivo.
PC111 for the treatment of Steven Johnson’s Syndrome (SJS) and Toxic Epidermal Necrolysis (TEN)
SJS/TEN are two closely related diseases which are characterized by a toxic dermatosis associated with drugs or infections (SJS involves less than 10% of Body Surface Area (BSA) while TEN involves BSA>30%). It is a rare disease with an incidence of one to two patients per 1,000,000 people worldwide with a target population for treatment of approximately 5,000-10,000 patients worldwide. These are acute and often life-threatening diseases with overall mortality rate of 8% (≥30% in TEN patients). To date there is no approved treatment for these diseases with most patients requiring ICU/burn unit care. The clinical course of SJS/TEN diseases is closely related to the increase of serum soluble Fas ligand, which is detected before and at the onset of the disease and declines a few days later (Abe Riichiro et al., Journal of Allergy and Clinical Immunology, 2008). It has been shown that the phenomena of skin detachment observed in these diseases is due to extensive death of keratinocytes (Abe R. at al, 2003). Aberrant activation of the immune system by the causative drugs causes SJS/TEN through high levels of soluble FasL. In-vitro Study (Prof. R. Abe) demonstrated that SJS/TEN donor serum had elevated sFasL and PC111 preserved the viability of HaCaT cells exposed to serum in a dose-dependent response (≥10 µg/mL). In an In-vivo Study (Prof. R. Abe) in an established SJS/TEN model (induced by patients' PBMCs plus acetaminophen) PC111 group had a significantly (p<0.05) lower percent of TUNEL positive cells and reduced hyperemia of conjunctiva (Saito et al, J Invest Dermatol 2024). The conclusion from these preclinical studies was that PC111 prevents keratinocyte apoptosis and skin detachment induced by the elevated levels of soluble Fas ligand at the onset of SJS/TEN, allowing for an early therapeutic intervention.
Competition
Generally, our competitors include large, fully integrated pharmaceutical companies as well as companies and academic research institutes in various developmental stages attempting to develop (i) products for the prevention and treatment of disease targets that are the subject of our broader agreement with MPG and UMG, such as psoriasis, atopic dermatitis, asthma and AMD and (ii) the indications targeted by PC111. In addition, we face competition from large, fully integrated pharmaceutical companies that are already commercially selling products for the treatment of therapeutic indications that we aim to address. In the case of PC111, the current first-line treatment for Pemphigus, is systemic corticosteroids, and the current second-line treatment is Rituximab, sold under the brand name Rituxan®. In the case of Steven Johnson’s Syndrome (SJS) and Toxic Epidermal Necrolysis (TEN), there is no approved treatment aside from hospitalization in an ICU or a burn unit with supportive care. To our knowledge, there are no molecules or targeted therapy currently in development for SJS/TEN.
Marketing and Sales
We do not currently have any pharmaceutical product marketing or sales capabilities. We intend to license to, or enter into strategic alliances, with third parties in the pharmaceutical business, which are equipped to market and/or sell any products that we acquire or develop in the future. We may seek to establish such capabilities internally in the future, if and when appropriate, in addition to any such licensing arrangements or strategic alliances.
For our CDMO business, we pursue targeted marketing activities, including online advertisements, direct outreach campaigns and participation in major pharmaceutical conferences at which we market our CDMO services and meet with prospective clients.
Manufacturing
We built, own, and operate a biologics manufacturing facility in Jerusalem, which is capable of manufacturing GMP-compliant product candidates for use in either clinical trials or for small to medium scale commercial supply. We have manufactured the COVID-19 and IL-17 NanoAbs for our preclinical in vivo studies in our facility, and although we currently anticipate using our facility for future manufacturing of product candidates, we may also rely on a third party CMO for commercial manufacturing.
Properties
Office Leasing Agreement
We lease approximately 1,850 square meters (20,000 square feet) in the Jerusalem BioPark, located in the Ein Kerem Hadassah campus, next to Hadassah University Hospital and Hebrew University’s Medical School. The facility includes laboratories, offices, and upstream and downstream manufacturing suites for bulk production and limited capacity for single-dose syringe filling. The lease expires on December 31, 2032. We also have infrastructure to support future product manufacturing processes and equipment. The manufacturing facility features modular, single-use infrastructure, which enables us to adapt the facility to various manufacturing platforms (such as, for example, fermenters or bioreactors).
We believe this existing property is sufficient for our needs in the foreseeable future and that we have the ability to renew our lease at market terms and expand if required.
Fixed Assets
Our fixed assets are comprised of factory leasehold improvements, laboratory equipment, furniture, software and improvements in the leased property. The accumulated depreciation as stated in our financial reports is deducted from the fixed assets value. Our fixed assets, less deduction for the accumulated depreciation, were $9.2 million for the year ended December 31, 2024 and $10.8 million for the year ended December 31, 2023.
Our Main Laboratory
Our facility in Jerusalem consists of laboratories, manufacturing suites, and offices. The laboratories include (i) an analytical lab, which conducts quality tests on our products using our designated analytical methods; and (ii) technical research and development lab for manufacturing process development and scale up. The manufacturing suites, defined as “clean rooms”, include a fermentation suite (“upstream”), a protein purification suite (“downstream”), a formulation suite, an aseptic, automated pre-filled syringes/vials filling, and an equipment cleaning and sterilization suite. In addition, we have two GMP cold, and ambient temperature storage areas.
Scinai’s modern cGMP pharmaceutical manufacturing facility is designed in a modular ‘Single Use’ technology concept enabling relatively flexible production capabilities. Equipment units are mobile and can be replaced or relocated. The facility includes sufficient room to conduct upstream, downstream and media / buffer preparation processes. Each clean room is segregated with a separate Fan Filter Unit (FFU) designed to avoid cross contamination.
The analytical lab is equipped with advanced equipment and machinery including computerized analytical devices for qualitative and quantitative analysis, equipment for measuring light absorption properties for identifying substances, equipment for measuring weight, acidity and temperature, and equipment for identifying replication of DNA sequences.
Our laboratory also includes a separate technician room which contains our computers and software used to collect the data received from our different devices for the purpose of analyzing it. The lab also contains refrigerators and freezers which are consistently monitored and that are connected to a computerized control system. The production rooms are equipped with a fermentation facility, machinery for filtering and concentrating proteins, a computerized system for the characterization and separation of proteins, as well as equipment allowing us to work under sterile conditions.
The facility also includes a Water for Injection (WFI) water purification system. The WFI system is controlled and monitored continuously.
Research and other Grants
Finance Contract with European Investment Bank and Restructuring
We borrowed 24 million Euro under a Finance Contract with the EIB, to finance a portion of the cost of developing our previous leading drug candidate M-001and building our GMP biologics manufacturing facility. As part of the Finance Contract, we also entered into a security agreement (the “Security Agreement”), whereby we created a first ranking floating charge in favor of EIB over substantially all of our assets (other than certain licensed intellectual property related to our former M-001 program).
On August 21, 2024, we announced that we had closed the Restructuring Agreement with the EIB, which included an amendment to the Finance Contract (the transactions contemplated by the Restructuring Agreement called the “EIB Restructuring Transaction”). In connection with the EIB Restructuring Transaction, an amount equal to approximately EUR 26.6 million (equal to approximately $27.9 million), including interest accrued to date, owed by us to the EIB under the Finance Contract was converted into 1,000 of our preferred shares, no par value per share. Following such conversion, the total outstanding amount owed by us to the EIB is EUR 250,000 (equal to approximately $260,000). The outstanding amount has a maturity date of December 31, 2031, is not prepayable in advance, and no interest accrues or is due and payable on such amount. The terms of the Preferred Shares are set forth in our Amended and Restated Articles of Association approved by our shareholders at the Extraordinary Meeting of Shareholders held August 12, 2024. See “Prospectus Summary – Recent Developments” above.
Israeli Innovation Authority
Since 2006, we have received approximately $6 million in grants to the Israeli Innovation Authority (IIA), formerly known as the Office of the Chief Scientist. The grants were for research and development of M-001. In light of the Phase 3 clinical trial results, we do not currently expect any future revenues from M-001 and therefore do not currently expect to make any royalty payments to the IIA. The Company is subject to various other restrictions pursuant to the grants, including limitations on transferring IP developed with grant funds. In light of the Company’s new strategy, we do not expect these restrictions to be material to our ongoing operations.
In November 2023, we announced that the IIA had approved a non-dilutive grant, with effective date being September 1, 2023, covering 66% of the costs of an NIS 3.5 million (approximately $1.0 million) project aimed at ramping up our new CDMO business unit. The grant is neither subject to repayment nor tied to royalty payments of any kind. The grant covers approved expenses required for further developing Scinai’s CDMO service for the 12 months from grant. IIA informed us that in August 2024 Scinai can apply for a grant extension covering 66% of additional NIS 1.5 million. While the IIA did not award the grant extension on our initial application, we intend to re-apply for the grant extension option in May 2025.
We are also exploring potential research grants from other potential governmental sources.
Government Regulation
United States
FDA Regulations
In the United States, the FDA regulates pharmaceuticals and biologics under the Food, Drug & Cosmetics Act, and the Public Health Service Act, and their implementing regulations. These products are also subject to other federal, state, and local statutes and regulations, including federal and state consumer protection laws, laws protecting the privacy of health-related information, and laws prohibiting unfair and deceptive acts and trade practices.
The process required by the FDA before a new drug product may be marketed in the United States generally involves the following: completion of extensive preclinical laboratory tests and preclinical animal studies, all performed in accordance with the FDA’s Good Laboratory Practice, or GLP, regulations; submission to the FDA of an IND application, which must allow become effective before human clinical trials may begin and must be updated annually; performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for each proposed indication; and submission to the FDA of a “new drug application (“NDA”) for a drug, and Biologic License Application (BLA) for biological product, after completion of all pivotal clinical trials.
An IND application, while technically a request for a federal approval to transport or distribute a drug across state lines, is, in effect, a request for authorization from the FDA to administer an investigational drug product to humans. In the future, we may consider submitting an IND application to the FDA for initiating clinical trials or, if required, to conduct a bridging clinical study to allow licensure of a Company product candidate in the U.S.
Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators in accordance with current Good Clinical Practices, or GCP, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. Additionally, approval must also be obtained from each clinical trial site’s IRB, before the trials may be initiated, and the IRB must monitor the trial until completed. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries.
Generally, three phases of clinical trials are conducted prior to receiving regulatory marketing approval: Phase 1 clinical trials are normally conducted in small groups of healthy volunteers to assess safety and find the potential dosing range. After a safe dose has been established, the drug is administered to small populations of eligible participants (Phase 2) to look for initial signs of efficacy in treating the targeted disease or condition and to continue to assess safety. In the case of vaccines, the participants are healthy, and the signs of efficacy can be obtained in early Phase 1, therefore this Phase is defined as Phase 1/2. Phase 3 clinical trials are usually multi-center, double-blind controlled trials in hundreds or even thousands of subjects at various sites to assess as fully as possible both the safety and effectiveness of the drug.
The FDA, the IRB, or the clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group reviews unblinded data from clinical trials and provides authorization for whether or not a trial may move forward at designated check points based on access to certain data from the trial. We may also suspend or terminate a clinical trial based on evolving business objectives and/or the competitive climate.
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, detailed investigational drug product information is submitted to the FDA in the form of a BLA as compared to an NDA for general traditional small molecule drugs requesting approval to market the product for one or more indications. The application includes all relevant data available from pertinent preclinical and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, and controls and proposed labeling, among other things. Given the complexities of manufacturing biological products that are processed from living material, BLA content must also demonstrate purity specifically in terms of showing that the final product does not contain extra material.
Once the BLA submission has been accepted for filing, the FDA’s goal is to review applications within 10 months of filing. However, the review process is often significantly extended by FDA requests for additional information or clarification. The FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it typically follows such recommendations.
After the FDA evaluates the BLA and conducts inspections of manufacturing facilities where the drug product will be formulated and where the drug will be produced, it may issue an approval letter or, instead, a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application is not ready for approval. A Complete Response Letter may require additional clinical data and/or an additional Phase 3 clinical trial(s), and/or other significant, expensive and time-consuming requirements related to clinical trials, preclinical studies or manufacturing. Even if such additional information is submitted, the FDA may ultimately decide that the BLA does not satisfy the criteria for approval. The FDA could also approve the BLA with a risk evaluation and mitigation strategy to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, participant registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct one or more post-market studies or clinical trials. Such post-market testing may include Phase 4 clinical trials and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.
After regulatory approval of a drug product is obtained, the drug producer is required to comply with a number of post-approval regulations. As a holder of an approved BLA, we would be required to report, among other things, certain adverse reactions and production problems to the FDA, to provide updated safety and efficacy information, and to comply with requirements concerning advertising and promotional labeling for any of our products. These promotion and advertising requirements include, among others, standards for direct-to-consumer advertising, prohibitions against promoting drugs for uses in participant populations that are not described in the drug’s approved labeling (known as “off-label use”), rules for conducting industry-sponsored scientific and educational activities and other promotional activities, Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such off-label uses. Failure to comply with FDA requirements can have negative consequences, including the immediate discontinuation of marketing activities and noncomplying materials, adverse publicity, enforcement letters from the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties. Such enforcement may also lead to scrutiny and enforcement by other government and regulatory bodies.
Also, quality control and manufacturing procedures must continue to conform to cGMP after approval to ensure and preserve the long-term stability of the drug product. The FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural, substantive, and record keeping requirements. In addition, changes to the manufacturing process are strictly regulated and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.
Future FDA and state inspections may identify compliance issues at our facilities or at the facilities of our CMOs or licensees that may disrupt production or distribution or require substantial resources to correct. In addition, discovery of previously unknown problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved BLA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could delay or prohibit further marketing. Newly discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of any Company product candidates we may develop in the future.
The FDA also may require post-marketing testing, or Phase 4 testing, as well as risk minimization action plans and surveillance to monitor the effects of an approved product or place conditions on an approval that could otherwise restrict the distribution or use of the product.
Expedited Development and Review Programs
The FDA has a number of programs intended to expedite the development and review of product candidates. For example, Fast Track designation is intended to expedite or facilitate the process for reviewing new biological products that meet certain criteria. Specifically, new biological products are eligible for Fast Track designation if they are intended to treat a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition. Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a new biological product may request the FDA to designate the biological product as a Fast Track product at any time during the clinical development of the product. Unique to a Fast Track product, the FDA may consider for review sections of the marketing application on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the application. FDA may revoke the Fast Track designation if it believes that the designation is no longer supported by data emerging in the clinical trial process.
Under the Breakthrough Therapy program, products intended to treat a serious or life-threatening disease or condition may be eligible for Breakthrough Therapy designation, which includes eligibility for the benefits of the Fast Track program, when preliminary clinical evidence demonstrates that such product may have substantial improvement on one or more clinically significant endpoints over existing therapies. Additionally, FDA will seek to ensure the sponsor of a breakthrough therapy product receives timely advice and interactive communications to help the sponsor design and conduct a development program as efficiently as possible.
A product is eligible for priority review if it is intended to treat a serious condition and, if approved or licensed, it would provide a significant improvement in safety or effectiveness. FDA intends to take action on a priority review marketing application within six months of receipt, compared to 10 months of receipt for regular review submissions.
Additionally, a product may be eligible for accelerated approval if it is intended to treat a serious or life-threatening disease or condition and would provide meaningful therapeutic benefit over existing treatments. Accelerated approval may be granted on the basis of adequate and well-controlled clinical studies establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality and is reasonably likely to predict an effect on irreversible morbidity, mortality, or other clinical benefit. As a condition of approval, the FDA may require that a sponsor of a biological product receiving accelerated approval diligently perform adequate and well-controlled post marketing clinical studies demonstrating clinical benefit. In addition, the FDA requires as a condition for accelerated approval the submission of promotional materials, which could adversely impact the timing of the commercial launch of the product. Fast Track designation, Breakthrough Therapy designation, priority review and accelerated approval do not change the standards for licensure but may expedite the review process.
Pediatric Studies and Exclusivity
Under the Pediatric Research Equity Act of 2003, a BLA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the biological product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. With enactment of the Food and Drug Administration Safety and Innovation Act of 2012, or FDASIA, sponsors must also submit pediatric study plans prior to the assessment data.
Those pediatric study plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests, and other information required by regulation. The applicant, the FDA and the FDA’s internal review committee must then review the information submitted, consult with each other and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.
The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after licensure of the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in FDASIA. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.
Pediatric exclusivity is a type of non-patent marketing exclusivity in the U.S. and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity. This six-month exclusivity may be granted if a BLA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application.
FDA Review of BLAs
After completion of the required clinical testing, a BLA is prepared and submitted to the FDA. FDA approval of the BLA is required before marketing of the product may begin in the U.S. The BLA must include the results of all preclinical, clinical, and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture, and controls. The cost of preparing and submitting a BLA is substantial. The submission of most BLAs is additionally subject to a substantial application user fee, currently exceeding $4,310,002 for fiscal year 2025, and the manufacturer and sponsor under an approved BLA are also subject to annual program fees, currently $403,889 for each prescription product. These fees are typically increased annually. Sponsors of applications for drugs granted Orphan Drug Designation are exempt from these user fees.
The FDA has 60 days from its receipt of a BLA to determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept a BLA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of BLAs to encourage timeliness. Applications for standard review drug products are meant to be reviewed within ten months; applications for priority review drugs are meant to be reviewed in six. Priority review can be applied to drugs that the FDA determines offer major advances in treatment or provide a treatment where no adequate therapy exists. The review process for both standard and priority review may be extended by the FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission.
The FDA is required to refer an application for a novel biological product to an advisory committee or explain why such referral was not made. An advisory committee is typically a panel that includes clinicians and other experts—for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations.
Before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not license the product unless compliance with cGMPs is satisfactory, and the application meets the appropriate standard. A BLA must include data that demonstrate that the biological product is safe, pure, and potent.
After the FDA evaluates the BLA and accompanying information and the manufacturing facilities, it issues either an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the BLA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
An approval or licensure letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of BLA licensure, the FDA may require a REMS, to help ensure that the benefits of the biological product outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals and ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. Moreover, product licensure may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product licenses may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.
If the FDA approves a product, it may limit the approved indications for use for the product; require that contraindications, warnings or precautions be included in the product labeling; require that postmarketing studies, including Phase 4 clinical trials, be conducted to further assess the drug’s safety after licensure; require testing and surveillance programs to monitor the product after commercialization; or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval, as applicable, of a new BLA or supplement before the change can be implemented. A BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing supplements as it does in reviewing BLAs.
Biosimilars and Reference Product Exclusivity
The BPCIA created an abbreviated approval pathway for biological product candidates shown to be highly similar, or “biosimilar,” to or interchangeable with an FDA licensed reference biological product. Biosimilarity, which requires that a product is highly similar to the reference product notwithstanding minor differences in clinically inactive components, and that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency, can generally be shown through analytical studies, animal studies, and a clinical study or studies. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product in any given patient and, for products that are administered multiple times to an individual, the interchangeable biosimilar and the reference biological product may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biological product. A product shown to be biosimilar or interchangeable with an FDA-approved reference biological product may rely in part on the FDA’s previous determination of safety and effectiveness for the reference product for approval, which can potentially reduce the cost and time required to obtain approval to market the product. Complexities associated with the larger, and often more complex, structures of biological products, as well as the processes by which such products are manufactured, pose significant hurdles and have slowed implementation of the BPCIA by the FDA.
Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of reference product exclusivity, another company may obtain FDA licensure and market a competing version of the reference product if the FDA approves a full BLA for the competing product containing that applicant’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of its product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. At this juncture, it is unclear whether products deemed “interchangeable” by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law.
A biological product can also obtain pediatric market exclusivity in the U.S. As stated above, pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study.
The BPCIA is complex and continues to be interpreted and implemented by the FDA. In addition, there has been discussion of whether Congress should reduce the 12-year reference product exclusivity period. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. As a result, the ultimate implementation of the BPCIA is subject to significant uncertainty.
Post-Licensure FDA Requirements
Biological products manufactured or distributed pursuant to FDA licenses are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion with the product. After licensure, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and licensure. There also are continuing annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.
Often times, even after a biological product has been licensed by the FDA for sale, the FDA may require that certain post-licensure requirements be satisfied, including the conduct of additional clinical studies. If such post-approval requirements are not satisfied, the FDA may withdraw its licensure of the biological product. In addition, holders of a biological product license are required to report certain adverse reactions to the FDA, comply with certain requirements concerning advertising and promotional labeling for their products, and continue to have quality control and manufacturing procedures conform to cGMP after approval. In addition, biological product manufacturers and their subcontractors are required to register their establishments with the FDA and state agencies and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements and other aspects of regulatory compliance. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance.
Among the conditions for BLA licensure is the requirement that the manufacturing operations conform on an ongoing basis with cGMP. In complying with cGMP, we must expend time, money and effort in the areas of training, production and quality control within our own organization and at our contract manufacturing facilities. A successful inspection of the manufacturing facility by the FDA is usually a prerequisite for final licensure of a biological product. Following licensure of the BLA, we and our manufacturers will remain subject to periodic inspections by the FDA to assess continued compliance with cGMP requirements and the conditions of licensure. We will also face similar inspections coordinated by foreign regulatory authorities. The FDA periodically inspects the sponsor’s records related to safety reporting and/or manufacturing facilities; this latter effort includes assessment of compliance with cGMP. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.
Once licensure is granted, the FDA may withdraw licensure if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:
| ● | restrictions on the marketing or manufacturing of the product, including total or partial suspension of production, complete withdrawal of the product from the market or product recalls; |
| ● | fines, warning letters or holds on post-licensure clinical trials; |
| ● | refusal of the FDA to license pending BLAs or supplements, or suspension or revocation of product licensure; |
| ● | product seizure or detention, or refusal to permit the import or export of products; |
| ● | consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; |
| ● | mandated modification of promotional materials and labeling and the issuance of corrective information; |
| ● | the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety information about the product; or |
| ● | injunctions or the imposition of civil or criminal penalties. |
The FDA closely regulates marketing, labeling, advertising and promotion of products that are placed on the market. Biological products may be promoted only for the licensed indications and in accordance with the provisions of the approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off label uses may be subject to significant liability. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products.
In addition, the distribution of prescription drug products, including most biological products that require a prescription, is subject to the Prescription Drug Marketing Act, or the PDMA, which regulates the distribution of drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription drug product samples and impose requirements to ensure accountability in distribution.
Other U.S. Healthcare Laws and Compliance Requirements
Among others, the FDA, HHS, Office of Inspector General, the CMS and comparable regulatory authorities in state and local jurisdictions and in other countries impose substantial and burdensome requirements upon companies involved in the preclinical and clinical development, manufacture, marketing, and distribution of drugs such as those we are developing. These agencies and other federal, state, and local entities regulate, among other activities, the research and development, testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval, sales, commercialization, marketing, advertising and promotion, distribution, post-approval monitoring and reporting, sampling, and export and import of our product candidates. Any drug candidates that we develop must be approved by the FDA before they may be legally marketed in the U.S. and by the appropriate foreign regulatory agency before they may be legally marketed in those foreign countries. Generally, our activities in other countries will be subject to regulation that is similar in nature and scope as that imposed in the U.S., although there can be important differences. Additionally, some significant aspects of regulation in the EU are addressed in a centralized way, but country-specific regulation remains essential in many respects.
Although we do not currently have any products on the market, in addition to FDA restrictions on marketing of pharmaceutical products, we are also subject to healthcare statutory and regulatory requirements and enforcement by the U.S. federal and state governments. Pharmaceutical companies like us are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which they conduct their business. Such regulation may constrain the financial arrangements and relationships through which we research, develop, and, ultimately, sell, market, and distribute any products for which we obtain marketing approval. Such laws include, without limitation:
| ● | The federal Anti-Kickback Statute, an intent-based criminal statute that prohibits, among other activities, persons and entities from knowingly and willfully soliciting, offering, paying, receiving, or providing any remuneration (including any kickback, bride, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order, or recommendation of, any item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as Medicare or Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. |
| ● | The federal civil and criminal false claims laws, including the civil FCA, which prohibit individuals or entities from, among other activities, knowingly presenting, or causing to be presented, to the federal government claims for payment or approval that are false, fictitious, or fraudulent; knowingly making, using, or causing to be made or used, a false statement or record material to a false or fraudulent claim or obligation to pay or transmit money or property to the federal government; or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay money to the federal government. In addition, the government may assert that a claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. The FCA also permits a private individual acting as a “whistleblower” to bring qui tam actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery or settlement. |
| ● | The federal civil monetary penalties laws, which prohibit, among other activities (1) arranging for or contracting with an individual or entity that is excluded from participation in federal healthcare programs to provide items or services reimbursable by a federal healthcare program, (2) failing to report and return a known overpayment, or (3) offering or transferring any remuneration to a Medicare or Medicaid beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of items or services reimbursable by Medicare or Medicaid, unless an exception applies. |
| ● | The federal criminal statutes enacted under HIPAA which impose criminal liability for knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program; knowingly and willfully embezzling or stealing from a healthcare benefit program; willfully preventing, obstructing, misleading, or delaying a criminal investigation of a healthcare offense; and knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false statements in connection with the delivery of or payment for healthcare benefits, items, or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. |
| ● | The federal Physician Payment Sunshine Act, enacted as part of the ACA, which imposes annual reporting requirements for certain manufacturers of drugs, devices, biological products, and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, for certain payments and “transfers of value” provided to “covered recipients,” which include U.S.-licensed physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by such physicians and their immediate family members. For reports submitted to CMS on or after January 1, 2022, such obligations will include the reporting of payments and other transfers of value provided in the previous year to certain other healthcare professionals, including physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, anesthesiologist assistants and certified nurse midwives. |
| ● | The FDCA and PHSA, which regulate licensure of biological products and prohibit the misbranding and adulteration of biological products. |
| ● | Analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply with respect to healthcare items or services reimbursed by non-governmental third party-payors and may be broader than their federal equivalents; state and foreign laws requiring pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and/or the relevant compliance guidance promulgated by the federal government or otherwise restricting payments that may be made to healthcare providers; state laws and regulations requiring drug manufacturer disclosures to state agencies and/or commercial purchasers with respect to certain price increases; state and foreign laws requiring drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers and restricting marketing practices or requiring disclosure of marketing expenditures and pricing information; and state and local laws that requiring registration of pharmaceutical sales representatives. |
We are also subject to the Foreign Corrupt Practices Act, or FCPA, which prohibits improper payments or offers of payments to foreign governments and their officials for the purpose of obtaining or retaining business. On February 10, 2025, President Trump signed an executive order pausing all future US Department of Justice criminal investigations and enforcement actions under the FCPA for at least 180 days. Despite this pause, the FCPA remains a valid law and it is uncertain the effect this executive order will have on future criminal enforcement of the FCPA. The executive order does not affect the SEC’s civil enforcement of the FCPA.
Safeguards we implement to discourage improper payments or offers of payments by our employees, consultants, and others may be ineffective, and violations of the FCPA and similar state laws may result in severe criminal or civil sanctions, or other liabilities or proceedings against us, any of which would likely harm our reputation, business, financial condition and results of operations.
Violations of any of these laws or any other applicable laws or regulations may result in significant penalties, including, without limitation, administrative, civil, and criminal penalties, damages, fines, disgorgement, the curtailment or restructuring of operations, integrity oversight and reporting obligations to resolve allegations of noncompliance, exclusion from participation in federal and state healthcare programs, such as Medicare and Medicaid, and imprisonment. Ensuring business arrangements comply with applicable healthcare laws, as well as responding to possible investigations by government authorities, can be time- and resource-consuming and can divert a company’s attention from its business.
Coverage and Reimbursement
Sales of any pharmaceutical product depend, in part, on the extent to which such product will be covered by third-party payors, such as federal, state, and foreign government healthcare programs, commercial insurance, and managed healthcare organizations, and the level of reimbursement for such product by third-party payors. Decisions regarding the extent of coverage and amount of reimbursement to be provided are made on a payor-by-payor basis. These third-party payors are increasingly reducing coverage and reimbursement for healthcare items (including drugs) and services. Moreover, for products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. Additionally, separate reimbursement for the product itself may or may not be available. Instead, the hospital or administering physician may be reimbursed only for providing the treatment or procedure in which our product is used.
In addition, the U.S. government, states, and foreign governments have continued implementing cost-containment programs, including price controls, restrictions on coverage and reimbursement, and requirements for substitution of lower-cost or generic products. Adoption of price controls and cost-containment measures and adoption of more restrictive policies in jurisdictions with existing controls and measures could further limit sales of any drug product. Decreases in third-party reimbursement for any drug product or a decision by a third-party payor not to cover a product could reduce physician usage and patient demand for the product and also have a material adverse effect on sales.
Moreover, as a condition of participating in, and having products covered under, certain federal healthcare programs, such as Medicare and Medicaid, we may become subject to federal laws and regulations that require pharmaceutical manufacturers to calculate and report certain pricing metrics to the government, including the Average Manufacturer Price, or AMP, and Best Price under the MDRP, the Medicare Average Sales Price, the 340B Ceiling Price, and Non-Federal AMP reported to the Department of Veteran Affairs, and with respect to Medicaid, pay statutory rebates on utilization of manufacturers’ products by Medicaid beneficiaries. Compliance with these laws and regulations will require significant resources and may have a material adverse effect on our revenues.
Healthcare Reform
In the U.S., in March 2010, the ACA was enacted, which substantially changed the way healthcare is financed by both governmental and private payors, and significantly affected the pharmaceutical industry. The ACA contained a number of provisions, including those governing the federal healthcare programs, provider reimbursement, and healthcare fraud and abuse laws. For example, the ACA:
| ● | increased the minimum level of Medicaid rebates payable by manufacturers of brand name drugs from 15.1% to 23.1% of the AMP; |
| ● | required collection of rebates for drugs paid by Medicaid managed care organizations; |
| ● | expanded beneficiary eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 138% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability; |
| ● | extended manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; |
| ● | expanded the types of entities eligible for the 340B Drug Pricing Program; |
| ● | established a new methodology by which rebates owed by manufacturers under MDRP are calculated for drugs that are inhaled, infused, instilled, implanted or injected; |
| ● | required manufacturers to participate in a coverage gap discount program, under which they must agree to offer 70 percent point-of-sale discounts off negotiated prices of applicable branded drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; |
| ● | imposed a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded prescription drugs” and biologic agents apportioned among these entities according to their market share in certain federal government programs; |
| ● | established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending; |
| ● | created the Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; |
| ● | required reporting of certain financial arrangements between manufacturers of drugs, biologics, devices, and medical supplies and physicians and teaching hospitals under the federal Physician Payments Sunshine Act; and |
| ● | required annual reporting of certain information regarding drug samples that manufacturers and distributors provide to licensed practitioners. |
Since its enactment, there have been executive, judicial, and legislative branch challenges to certain aspects of the ACA, and, on June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision, President Biden had issued an executive order to initiate a special enrollment period from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, policies that create barriers to obtaining access to health insurance coverage through the ACA marketplaces. It is unclear how healthcare reform measures enacted by Congress or implemented by the Biden administration or other efforts to challenge, repeal or replace the ACA, if any, will impact the ACA.
Other legislative changes have been proposed and adopted in the U.S. since the ACA was enacted. These changes include the Budget Control Act of 2011, which, among other changes, led to aggregate reductions in Medicare payments to providers of up to 2% per fiscal year that started in April 2013 and, due to subsequent legislation, will continue into 2031, with the exception of a temporary suspension of the payment reduction from May 1, 2020 through December 31, 2021 due to the COVID-19 pandemic, unless additional Congressional action is taken. Most recently, the American Rescue Plan Act of 2021 eliminates the statutory cap on drug manufacturers’ MDRP rebate liability effective January 1, 2024. Under current law enacted as part of the ACA, drug manufacturers’ MDRP rebate liability is capped at 100% of AMP for a covered outpatient drug.
The cost of prescription drugs has been the subject of considerable policy discussion and debate in the U.S. Congress has considered and passed legislation, and the former Trump administration pursued several regulatory reforms to further increase transparency around prices and price increases, lower out-of-pocket costs for consumers, and decrease spending on prescription drugs by government programs. Congress has also continued to conduct inquiries into the prescription drug industry’s pricing practices. While several proposed reform measures will require Congress to pass legislation to become effective, Congress and the Biden administration have expressed support for legislative and/or administrative measures to address prescription drug costs. The Biden administration has also taken several executive actions that signal changes in policy from the prior administration, including with respect to executive actions by the Trump administration related to prescription drug costs. At the state level, legislatures are increasingly passing legislation and states are implementing regulations designed to control spending on, and patient out-of-pocket costs for, drug products.
We expect that additional state and federal healthcare reform and/or drug pricing measures will be adopted in the future, any of which could affect the pricing and/or availability of drug products, the amounts that federal and state governments and other third-party payors will pay for healthcare products and services, and/or our ability to generate revenue, attain or maintain profitability, or commercialize products for which we may receive regulatory approval in the future.
Other U.S. Healthcare Laws and Compliance Requirements
For products distributed in the United States, we will also be subject to additional healthcare regulation and enforcement by the federal government and the states in which we conduct our business.
Efforts to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations could be costly. Although we believe our business practices are structured to be compliant with applicable laws, it is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our future operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from third party payor programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians, providers or entities with whom we may do business with will be found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusion from government funded healthcare programs.
Many aspects of these laws have not been definitively interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of subjective interpretations which increases the risk of potential violations. In addition, these laws and their interpretations are subject to change. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business, and damage our reputation.
In addition, from time to time in the future, we may become subject to additional laws or regulations administered by the FDA, the Federal Trade Commission, or by other federal, state, local or foreign regulatory authorities, to the repeal of laws or regulations that we generally consider favorable, or to more stringent interpretations of current laws or regulations. We are not able to predict the nature of such future laws, regulations, repeals or interpretations, and we cannot predict what effect additional governmental regulation, if and when it occurs, would have on our business in the future. Such developments could, however, require reformulation of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated, additional record-keeping requirements, increased documentation of the properties of certain products, additional or different labeling, additional scientific substantiation, additional personnel, or other new requirements. Any such developments could have a material adverse effect on our business.
Israel
Before an entity or person can conduct clinical testing on humans in Israel, such entity or person must receive special authorization from the ethics committee (also known as a “Helsinki Committee”) and general manager of the institution in which such entity or person intends to conduct its study, as required under the Guidelines for Clinical Trials in Human Subjects implemented pursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. These regulations also require authorization from the Israeli Ministry of Health in certain circumstances, such as genetic trials and special fertility trials. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project to determine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for the rights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. If we perform future clinical studies in Israel, we will be required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conduct our clinical trials, and in most cases, from the Israeli Ministry of Health.
Europe and Other Territories
Before obtaining the regulatory approval for a product (FDA or other), we must obtain approval to commence clinical trials. For example, in the European Union, the Clinical Trials Regulation (EU No 536/2014), which became fully applicable on January 31, 2022, harmonizes the processes for assessment and supervision of clinical trials throughout the EU. This regulation allows for a single submission via the Clinical Trials Information System (CTIS) for approval to run a clinical trial in multiple EU countries, streamlining the process. The CTA must be approved by both the national health authority and the independent ethics committee prior to the commencement of a clinical trial in the member state. The approval process varies from country to country and the time frame may be longer or shorter than that required for FDA approval. In addition, the requirements governing the conduct of clinical trials, product licensing, pricing, and reimbursement vary greatly from country to country. In all cases, clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Helsinki Declaration.
To obtain marketing approval of a drug under European Union regulatory systems, we may submit marketing authorization applications under a centralized procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states. The centralized procedure is compulsory for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, and products with a new active substance indicated for the treatment of certain diseases. It is optional for products with other new active substances (which have not been developed for the diseases named in the Annex of the relevant EU-Regulation on the authorization of medicinal products for human use and the EMA), those products that are highly innovative, or for which a centralized process is in the interest of participants. Under the centralized procedure category in the European Union, the maximum time frame for the evaluation of a marketing authorization application by the Committee of Medicinal Products for Human Use (CHMP) is 210 days after receipt of a valid application (excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP). Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest, for which there is no single definition, but which needs to be justified by the applicant and assessed by the CHMP on a case-by-case basis. Relevant criteria can be: the seriousness of the disease, such as seriously disabling or life-threatening diseases, to be treated; the absence or insufficiency of an appropriate alternative therapeutic approach; and anticipation of high therapeutic benefit. In this circumstance, the EMA ensures that the opinion of the CHMP is given within 150 days. On the basis of the CHMP opinion, the European Commission will decide on the marketing authorization within 67 days after receipt of the CHMP opinion.
The decentralized procedure provides for approval by one or more other, or concerned, member states of an assessment of an application performed by one member state, known as the reference member state. Under this procedure, an applicant submits an application, or dossier, and related materials, including a draft summary of product characteristics, and draft labeling and package leaflet, to the reference member state and concerned member states. The reference member state prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application (Assessment Step I). Within 90 days of receiving the reference member state’s assessment report, each concerned member state must decide whether to approve the assessment report and related materials (Assessment Step II). If a member state cannot approve the assessment report and related materials on the grounds of potential serious risk to public health, the matter will be referred to the Coordination Group for Mutual Recognition Procedures and Decentralized Procedures (CMDh) at the EMA. If within 60 days of the referral a consensus is not reached, the matter and the disputed points will eventually be referred to the CHMP with EMA. The decision on whether the product can be approved is then taken by the European Commission on the basis of the opinion of the CHMP. The decision of the European Commission is binding on all member states. After the close of the procedure and review of the national translations of the texts for the labeling, the package leaflet and the summary of product characteristics the reference member state and the concerned member states issue national marketing authorization within a further 30 days (National Step).
For other countries outside of the European Union, such as countries in Eastern Europe, Latin America, or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing, and reimbursement vary from country to country. In all cases, again, the clinical trials are conducted in accordance with GCPs and the applicable regulatory requirements and the ethical principles that have their origin in the Helsinki Declaration.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions, and criminal prosecution.
Intellectual Property
We license the core intellectual property for our NanoAbs program from MPG under an exclusive license agreement, pursuant to which we received an exclusive worldwide license for the development and commercialization of NanoAbs based on certain patents and intellectual property owned by MPG and related thereto. Pursuant to the terms of the license agreement, unless earlier terminated in accordance with the provisions thereof, the license agreement will expire on a product-by-product and country-by-country basis upon the later of (i) the expiration or abandonment of the patent rights that relate to such product in such country and (ii) ten years from the date of first commercial sale of such product in such country. We have the right to license nanobodies against certain other molecular targets on the same terms described above.
Environmental Matters
We are subject to various environmental, health and safety laws and regulations, including those governing the use, management and disposal of hazardous, and biological materials and wastes and the cleanup of contaminated sites. We believe that our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations. Our laboratory personnel have ongoing communication with the Israeli Ministry of Environmental Protection in order to verify compliance with relevant instructions and regulations. In addition, all of our laboratory personnel participate in instruction on the proper handling of chemicals, including hazardous substances before commencing employment, and during the course of their employment, with us. In addition, all information with respect to any chemical substance that we use is filed and stored as a Material Safety Data Sheet, as required by applicable environmental regulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on us. The operation of our facilities, however, entails risks in these areas. Significant expenditures could be required in the future if we are required to comply with new or more stringent environmental or health and safety laws, regulations or requirements.
| C. | Organizational Structure |
Our wholly-owned subsidiary, Scinai BioServices Inc., was incorporated in Delaware on December 5, 2024 to serve as a CDMO contracting party for clients based in the United States. On March 24, 2025, we acquired a Polish company, Scinai Immunotherapeutics Spółka z ograniczoną odpowiedzialnością, as to serve as our wholly-owned subsidiary in Poland and as an applicant for potential grants under programs established by the Polish government.
| D. | Property, Plants and Equipment |
Our principal executive offices and main laboratory are located at Jerusalem BioPark, 2nd floor, Hadassah Ein Kerem Campus, Jerusalem, Israel, next to Hadassah University Hospitals and Hebrew University’s Medical School.
For the year ended December 31, 2024, cash outflow for our office and laboratory leases amounted to $0.4 million.
Our fixed assets are comprised of factory leasehold improvements, laboratory equipment, furniture and software. The accumulated depreciation as stated in our financial reports is deducted from the fixed assets value. Our fixed assets, less deduction for the accumulated depreciation, were $9.2 million as of December 31, 2024 and $10.8 million as of December 31, 2023.
For a description of our current laboratory see Item 4B. “Business Overview – Properties”.
| Item 4A. | UNRESOLVED STAFF COMMENTS |
Not applicable.
| Item 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
| A. | Operating Results |
The information contained in this section should be read in conjunction with our consolidated financial statements for the year ended December 31, 2024 and related notes and the information contained elsewhere in this annual report. Our financial statements have been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP) as set forth in the Financial Accounting Standards Board (the FASB) Accounting Standards Codification (ASC).
Company Overview
We are a biopharmaceutical company with two complementary business units, one focused on in-house development of inflammation and immunology (I&I) biological therapeutic products beginning with an innovative, de-risked, pipeline of nanosized VHH antibodies (NanoAbs) targeting diseases with large unmet medical needs, and the other a boutique CDMO providing services to help biotech companies efficiently bring their products to market by leveraging Scinai’s drug development and GMP and non-GMP manufacturing capabilities for pre-clinical and clinical studies. For financial reporting purposes, we treat our R&D business unit and our CDMO business unit as one reporting segment.
Development of I&I biological therapeutic products
Since inception, we have executed eight clinical trials including a seven country, 12,400 participant phase 3 trial of its prior lead drug candidate, a universal influenza vaccine candidate (“M-001”) and have built a GMP biologics manufacturing facility for biopharmaceutical products. After receiving the phase 3 trial results in Q3 2020, indicating that M-001 did not meet its clinical endpoints, we performed a turnaround process that included raising fresh capital, hiring new talent (including a new CEO), signing a research collaboration agreement with and in-licensing new intellectual property from world leading academic research institutes. Since then, we are in the process of developing a pipeline of diversified and commercially viable products built around the licensed innovative nanosized antibodies (NanoAb). NanoAbs are nanosized antibodies derived from camelid animals and are also known as VHH-antibodies or Nanobodies. “Nanobody” is a trademark registered by ABLYNX N.V., a wholly owned subsidiary of Sanofi. SCINAI has no affiliation with and is not endorsed by Sanofi.
As part of the abovementioned turnaround, on December 22, 2021, the Company signed a definitive exclusive, worldwide, License Agreement (“LA”) with the Max Planck Society (“MPG”), the parent organization of the Max Planck Institute for Multidisciplinary Sciences (“MPI”), and the University Medical Center Göttingen (“UMG”), both in Gottingen, Germany, for the development and commercialization of innovative NanoAbs for the treatment of COVID-19. The agreement provides for an upfront payment, development and sales milestones and royalties based on sales and sharing of sublicense revenues. In addition, the Company signed an accompanying Research Collaboration Agreement (“aRCA”) with MPG and UMG in support of the abovementioned development of a COVID-19 NanoAb by MPI and UMG. The aRCA provided for monthly payments to MPG and UMG and had a term until the earlier of two years or the date the Company enters into first in-human clinical trials with the COVID-19 NanoAb.
On March 23, 2022, we signed a five-year Research Collaboration Agreement (“RCA”; collectively, with the LA and aRCA, the “MPG/UMG Agreements”) with MPG and UMG covering the discovery, selection and characterization of NanoAbs for up to nine molecular targets that have the potential to be further developed into drug candidates for the treatment of disease indications such as psoriasis, psoriatic arthritis, asthma and wet macular degeneration. These are all large and growing markets with underserved medical needs. In each case, the molecular target has been validated as an appropriate target for therapeutic intervention through inhibition by an antibody, thereby significantly reducing the discovery work that typically entails many years of research, high cost and high risk of failure. We believe that we can leverage our NanoAbs’ unique and strong binding affinity, stability at high temperatures, and potential for more effective and convenient routes of administration towards competitive commercial viability. We believe that since these are clinical validated targets, we can develop NanoAb treatments with reduced risk and cost and accelerate the time from NanoAb selection to initiation of clinical development. Each NanoAb candidate is therefore positioned as a “biobetter” piggybacking on prior discoveries of others to mitigate risk but with significant potential advantages over existing therapeutics. In addition, while each NanoAb constitutes a novel molecule for which we file patent applications thereby creating a proprietary position, all of the developed NanoAbs when viewed together constitute a pipeline that is built around the same drug discovery, development and manufacturing platform allowing us to reduce risks and save costs. SCINAI has the exclusive option for an exclusive, pre-negotiated worldwide license agreement for the development and commercialization of each of the NanoAbs covered by the RCA with MPG and UMG.
On June 5, 2023, we announced that as part of our ongoing broad-based collaboration with the Max Planck Society and the University Medical Center Gottingen (UMG), we signed an exclusive worldwide license agreement to develop and commercialize VHH antibodies (NanoAbs) targeting Interleukin-17 (IL-17) as treatments for all potential indications, starting with psoriasis and psoriatic arthritis.
CDMO services
On September 6, 2023, we announced the launch of a new business unit named Scinai Bioservices to serve as a CDMO offering a multitude of services to support biotech companies through process development, as well as pilot and clinical GMP manufacturing. We seek to provide high quality, yet affordable CDMO services to accelerate the drug development processes of small biotech companies, including cGMP aseptic processing required for manufacturing of clinical batches.
We lease approximately 1,850 square meters (20,000 square feet) in the Jerusalem BioPark, located in the Ein Kerem Hadassah campus, next to Hadassah University Hospital and Hebrew University’s Medical School. The facility includes laboratories, offices, and upstream and downstream manufacturing suites for bulk production and limited capacity for single-dose syringe filling. We also have infrastructure to support future product manufacturing processes and equipment. The manufacturing facility features modular, single-use infrastructure, which enables us to adapt the facility to various manufacturing platforms (such as, for example, fermenters or bioreactors).
Key Components of Statements of Operations
Revenues
Sources of revenues. Since our inception, we have generated significant losses in connection with our research and development, clinical trials and general administrative expenses in support of our operations. During 2023 we did not generate revenues from sales of services or products and started to generate revenues only from 2024.
Cost of Revenues
Our Cost of Revenues consist primarily of Depreciation expenses. These expenses represent the allocation of the cost of our manufacturing facilities, which are utilized to generate our CDMO revenues, over their estimated useful lives, and constitute a significant portion of our operational costs
Operating Expenses
our Operating expenses consist primarily of Deprciation,. This expense reflects the allocation of the cost of our manufacturing facilities over their useful lives and is a substantial part of our operational costs.
Research and development expenses.
Our research and development expenses consist primarily of salaries and related personnel expenses, fees paid to consultants, patent-related legal fees, costs of preclinical studies and clinical studies, drug and laboratory supplies, and costs for facilities and equipment. We charge all research and development expenses to operations as they are incurred. We expect our research and development expenses to remain our primary expense in the near future. Increases or decreases in research and development expenditures are attributable to the number and/or duration of the clinical studies that we conduct.
We expect that a large percentage of our research and development expenses in the future will be incurred in support of our future clinical development projects. Due to the inherently unpredictable nature of clinical development processes, we are unable to estimate with any certainty the costs we will incur. Clinical development timelines, the probability of success and development costs can differ materially from expectations.
Our future research and development expenses will depend on any Company product candidate’s commercial potential. As we obtain results from clinical studies, we may elect to discontinue or delay clinical studies for any Company product candidate in certain indications in order to focus our resources on more promising product candidates. Completion of clinical studies may take several years or more, but the length of time generally varies according to the type, complexity, novelty and intended use of a product candidate.
The lengthy process of completing clinical studies and seeking regulatory approval for any Company product candidate requires the expenditure of substantial resources. Any failure or delay in completing clinical studies, or in obtaining regulatory approvals, could cause a delay in generating product revenue and cause our research and development expenses to increase and, in turn, have a material adverse effect on our operations. Because of the risk factors set forth above in “Risk Factors”, we are not able to estimate with any certainty when we would recognize any net cash inflows from our projects.
Developing bio-pharmaceutical products, conducting clinical trials, obtaining commercial manufacturing capabilities and commercializing products is expensive and we will need to raise substantial additional funds to achieve our strategic objectives. Our existing cash resources are not sufficient to fund our projected cash requirements at current monthly rates for at least the next 12 months, and we will require significant additional financing in the future to fund our operations, including if and when we conduct clinical trials, obtain regulatory approval and obtain commercial manufacturing capabilities for any Company product candidate and commercialize such product candidates. Our future capital requirements will depend on many factors, including:
| ● | the progress and costs of our clinical trials and other research and development activities; |
| ● | the scope, prioritization and number of our clinical trials and other research and development programs; |
| ● | the amount of revenues and contributions we receive under future licensing, collaboration, development and commercialization arrangements with respect to our Company product candidates; |
| ● | the costs of the development and expansion of our operational infrastructure; |
| ● | the costs and timing of obtaining regulatory approvals for our Company product candidates; |
| ● | the ability of us, or our collaborators, to achieve development milestones, marketing approvals and other events or developments under our potential future licensing agreements; |
| ● | the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights; |
| ● | the costs and timing of building and securing manufacturing arrangements for clinical or commercial production; |
| ● | the costs of contracting with third parties to provide sales and marketing capabilities for us or establishing such capabilities ourselves; |
| ● | the costs of acquiring or undertaking development and commercialization efforts for any Company product candidate or platforms; |
| ● | the magnitude of our general and administrative expenses; and |
| ● | any cost that we may incur under future in- and out-licensing arrangements relating to one or more of our Company product candidates. |
Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through the net proceeds received from future private or public equity raising, grants from governmental agencies such as the IIA, debt or equity or other non-dilutive financings such as the loan from EIB, among other financing mechanisms. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of or eliminate research or development plans for, or commercialization efforts with respect to any Company product candidate.
Since 2006, we received $6.4 million in IIA grants and Euro 24 million ($25.6 million) in EIB loans.
Marketing, General and Administrative Expenses
Our marketing, general and administrative expenses consist primarily of salaries and expenses related to employee benefits, including share-based compensation, for our general and administrative employees, which includes employees in executive and operational roles, including finance and human resources, as well as consulting, legal and professional services related to our general and administrative operations.
Financial Income and Expenses
Financial income consists primarily of interest income on our cash and cash equivalents, foreign currency exchange income, income in respect of EIB loan and warrants valuation. Financial expenses consist primarily of expenses related to bank charges foreign currency exchange expense and expenses in respect of EIB.
Participation by Third Parties
Our research and development expenses are net of certain participations by third parties.
Research and development grants received from the OCS, today known as the IIA, are recognized upon receipt as a liability if future economic benefits are expected from the project that will result in royalty-bearing sales. The amount of the liability for the grant is first measured at fair value using a discount rate that reflects a market rate of interest that reflects the appropriate degree of risks inherent in our business. If no economic benefits are expected from the research activity, the grant receipts are recognized as a reduction of the related research and development expenses.
At the end of each reporting period, we evaluate whether there is reasonable assurance that the received grants will not be repaid based on its best estimate of future sales and, if so, no liability is recognized and the grants are recorded against a corresponding reduction in research and development expenses.
As a result of the failure of the Phase 3 clinical trial, the Company’s management estimates that there will be no future revenues from M-001. Therefore, most likely, there will be no future royalty payments to the Israel Innovation Authority (“IIA”).
The loan from the European Investment Bank (“EIB”) was recorded in the Company’s financial statements for the year ended December 31, 2024 as a liability in the amount of $0.3 million and as of December 31, 2023 as a liability in the amount of $19.4 million. On August 21, 2024, we announced that we had closed a Restructuring Agreement with EIB, which included an amendment to the amended Finance Contract with EIB. In connection with the EIB Restructuring Transaction, an amount equal to approximately EUR 26.6 million (equal to approximately $29 million), including interest accrued to date, owed by us to the EIB under the Finance Contract was converted into 1,000 of our preferred shares, no par value per share. Following such conversion, the total outstanding amount owed by us to the EIB is EUR 250,000 (equal to approximately $260,000). The outstanding amount has a maturity date of December 31, 2031, is not prepayable in advance, and no interest accrues or is due and payable on such amount.
Research and development grants received from the European Union and from the IIA are recorded against a corresponding reduction in research and development expenses.
Taxes on Income
Israeli resident companies, such as the Company, are generally subject to corporate tax at the rate of 23% as of 2024.
Capital gains derived by an Israeli resident company are generally subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a corporation will be considered as an “Israeli Resident” if it meets one of the following: (a) it was incorporated in Israel; or (b) the control and management of its business are exercised in Israel.
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
Research and Development Expenses, net
Research and development expenses. Our research and development expenses for the year ended December 31, 2024 amounted to $5.6 million, compared to $5.2 million for the year ended December 31, 2023.
Marketing, General and Administrative Expenses
Our marketing, general and administrative expenses for the year ended December 31, 2024 amounted to $2.6 million, compared to $4.5 million for the year ended December 31, 2023. The decrease of $1.9 million was primarily due to a decrease in wages, share based compensation and professional services.
Financial Income, Net
Our financial income, net for the year ended December 31, 2024 amounted to $13.5 million primarily from financial income from loan conversion of $14.8 million offset principally by exchange rate differences of approximately $1.5 million.
Our financial income, net for the year ended December 31, 2023 amounted to $3.2 million, primarily from remeasurement of warrants liabilities of $4.0 million and finance income in respect of loans from others of $0.05 million, offset by exchange rate differences of $0.85 million.
Net Income (Loss)
Our net income for the year ended December 31, 2024 was $4.8 million, compared to our net loss for the year ended December 31, 2023 of $6.5 million. The increase from net loss to income was primarily due to financial income from loan conversion of $14.8 million. offset by the gross loss of $0.5 million from the CDMO operation and $8.0 million operating expenses during the year ended December 31, 2024.
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022.
See Item 5 of the Company’s Annual Report on Form 20-F for the year ended December 31, 2023.
Liquidity and Capital Resources
Since our inception, we have funded our operations primarily through public and private offerings of our equity securities in Israel and the U.S., grants from the OCS (today known as the IIA), grants received by the Israeli Ministry of Economy and European grants under the UNISEC consortium and the loan from the EIB. Information regarding the outstanding loan from the EIB is set forth above in “Research and other Grants: Finance Contract - European Investment Bank.”
As of December 31, 2024, we had cash and cash equivalents and short-term deposits of $1.9 million as compared to $4.9 million as of December 31, 2023. Our cash and cash equivalents are denominated in US dollars.
Net cash used in operating activities was $6.3 million for the year ended December 31, 2024, compared with net cash used in operating activities of $9.4 million for the year ended December 31, 2023.
Net cash used by investing activities for the year ended December 31, 2024 was $0.01 million compared with net cash used by investing activities of $0.64 million for the year ended December 31, 2023, and primarily reflects purchase of property, plant and equipment.
Net cash provided by financing activities for the year ended December 31, 2024 was $3.4 million, primarily from proceeds from issuance of shares and warrants compared to $1.1 million as of December 31, 2023, mostly from proceeds from issuance of warrants.
As of December 31, 2024, the Company’s cash and cash equivalents totaled $1.9 million. In the year ended December 31, 2024, the Company had an operating loss of $8.6 million and negative cash flows from operating activities of $6.3 million. The Company’s current cash and cash equivalents position is not sufficient to fund the Company’s planned operations for at least a year beyond the date of the filing date of the financial statements. Those factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. While the Company has successfully raised funds in the past, there is no guarantee that it will be able to do so in the future. The inability to borrow or raise sufficient funds on commercially reasonable terms, would have serious consequences on our financial condition and results of operations.
The Company’s current operating budget includes various assumptions concerning the level and timing of cash receipts and cash outlays for operating expenses and capital expenditures, including a cost-saving plan. The Company is planning to finance its operations from its existing working capital resources and additional sources of capital and financing. However, there is no assurance that additional capital and/or financing will be available to the Company, and even if available, whether it will be on terms acceptable to the Company or in amounts required, particularly if we are not able to maintain our listing on Nasdaq. See “- Risks Related to our Securities - Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of the ADS. Accordingly, the Company’s board of directors approved a cost-saving plan to assist the Company in continuing its operations and meeting its cash obligations. As part of the cost-saving plan consists we have reduced by reducing its headcount costs through nonpaid leave and lay-offs and postponing and/or cancelling capital expenditures that would not be required for the implementation of the revised business plan.
The Company and the board of directors believe, however, that its existing financial resources, potential successful capital raising exercises and its operating plans, including the possible disposition of assets outside the ordinary course of business, along with the effects of the cost-saving plan, may be adequate to satisfy its expected liquidity requirements for a period of at least twelve months from the end of the filing date, although there is no guarantee.
The company financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liabilities and commitments in the normal course of business. The financial statements for the year ended December 31, 2024, do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.
On February 2, 2021, we closed an underwritten offering in which we sold 24,347 ADSs at a public offering price of $495 per ADS. On February 10, 2021, Aegis Capital Corp., the sole bookrunning manager for the underwritten offering, fully exercised its over-allotment option to purchase an additional 365,21 ADSs, bringing total gross proceeds to us from the offering including exercise of the over-allotment option of approximately $13.8 million. We received gross proceeds of $12.836 million and a net sum of $12.465 million after deduction of issuance expenses.
On December 29, 2021, we closed an underwritten offering in which it sold 41,440 ADSs at a public offering price of $236 per ADS for total proceeds of approximately $9.780 million, including ADSs acquired upon the full exercise by Aegis Capital Corp., the sole bookrunning manager for the underwritten offering, of its over-allotment option to purchase additional ADSs. The Company received gross proceeds of $9.020 million and a net sum of $8.817 million after deduction of issuance expenses.
On December 20, 2022, we closed an underwritten offering in which we sold 160,000 units and pre-funded units. Each unit consisted of one ADS and two warrants, each to purchase one ADS, and each pre-funded unit consisted of one pre-funded warrant to purchase one ADS and two warrants each to purchase one ADS. Each ADS (or pre-funded warrant) was sold together with two warrants at a combined purchase price of $50.00 per unit (or $49.99 per pre-funded unit after reducing $0.001 attributable to the exercise price of the pre-funded warrants). One of the warrants will expire three years from the date of issuance, and the other warrant will expire one year from the date of issuance and may be exercised for half an ADS on or prior to six (6) months following the original issuance for no additional consideration. We received gross proceeds of $7.3 million and a net sum of $7.2 million after deduction of issuance expenses.
On September 19, 2023, we closed an offering in which we issued (i) in a registered direct offering, 40,000 ADSs and pre-funded warrants to purchase up to 74,655 ADSs, at an exercise price of $0.01 per ADS, at a purchase price of $11.6 per ADS and $11.59 per pre-funded warrant, and (ii) in a concurrent private placement, unregistered warrants to purchase up to 114,655 ADSs. The warrants have an exercise price of $11.6 per ADS and are exercisable for a period of five and one-half years from issuance. We received gross proceeds of approximately $1.33 million and a net sum of approximately $1.0 million after deduction of placement agent fees and issuance expenses.
On January 4, 2024, we closed an offering in which we issued new unregistered warrants to purchase up to 521,310 ADSs in consideration for the immediate exercise of certain outstanding warrants to purchase up to an aggregate of 260,655 ADSs, issued by us in September 2023 and December 2022, at a reduced exercise price of $6.50 per ADS. The new warrants have an exercise price of $6.50 per ADS and have a term of exercise equal to three years or five and one-half years, as applicable, based on the term of the exercised warrants, from the date of issuance. We received gross proceeds of approximately $1.69 million and a net sum of approximately $1.42 million, after deduction of underwriter discount and issuance expenses of $275.
On August 20, 2024, we announced that we had entered into a $2.0 million Investment Commitment Agreement with RK Stone Miami LLC (“RK Stone”), an affiliate of Mr. Daniel Stone, the largest shareholder of the Company. Pursuant to the agreement, we had the right to issue and sell ADSs to RK Stone, from time to time through December 31, 2024, for an aggregate purchase price of up to $2 million. Each such sale of ADSs was to be initiated (at the Company’s discretion) by the Company providing an advance notice to RK Stone of the sale of ADSs in a minimum amount of $200,000 and a maximum amount of $500,000, provided that we were not able to provide advance notices for an aggregate amount greater than $1.5 million prior to December 1, 2024. The price of the ADSs was to be calculated based on the lower of (i) the volume weighted average price (the “VWAP”) of the daily VWAP of the ADSs for the ten trading days prior to the Company providing the advance notice or (ii) the VWAP of the daily VWAP of the ADSs for the three trading days following the delivery of the advance notice (provided the Company may impose a minimum market price for such three day period, and in the event the market price for such period is less than the minimum market price the Company has the right to rescind the advance notice and not issue the ADSs), in either case subject to a discount of 5%. Pursuant to the agreement, we issued 28,698 ADSs to RK Stone as a commitment fee. In addition, we issued pre-funded warrants to RK Stone to acquire an aggregate of 602,826 ADSs for an aggregate purchase price of $2.0 million, which was the entire amount we were able to raise under the agreement.
On March 3, 2025, we entered into the Standby Equity Purchase Agreement (“Purchase Agreement”) with YA II PN, Ltd. (“YA”), pursuant to which YA has committed to purchase up to $10.0 million of ADSs, or the Commitment Amount, at our direction from time to time, subject to the restrictions and satisfaction of the conditions in the Purchase Agreement, during the period commencing on the date of execution of the Purchase Agreement until the earlier of (i) the 36-month anniversary of the date of execution of the Purchase Agreement, and (ii) YA’s purchase of the total Commitment Amount under the Purchase Agreement, such period the Commitment Period. Pursuant to the terms of the Purchase Agreement, we issued 28,784 ADSs (the “Commitment Shares”) to YA as consideration for its irrevocable commitment to purchase the Advance Shares under the Purchase Agreement. We filed a registration statement on Form F-1 to register the resale of up to 3,022,796 ADSs issuable to YA under the Purchase Agreement from time to time during the Commitment Period (including the Commitment Shares), subject to the restrictions and satisfaction of the conditions in the Purchase Agreement, if and when we determine to sell additional ADSs to YA under the Purchase Agreement. YA has no right to require us to sell any ADSs to YA, but YA is obligated to make purchases of the ADSs as directed by us, subject to the restrictions and satisfaction of conditions set forth in the Purchase Agreement upon receipt of a notice sent by us to YA setting forth the number of ADSs that we desire to issue and sell to YA, or an Advance Notice. The purchase price of the ADSs that we may direct YA to purchase from time to time under the Purchase Agreement will be equal to 97% of the lowest daily volume weighted average price (VWAP) during the three consecutive trading day period commencing on the date that we deliver any Advance Notice to YA. We have the right to set a floor price in the Advance Notice that sets a lower limit of the ADS price at which we are willing to sell ADSs to YA. On March 24, 2025, we delivered an Advance Notice for 31,746 ADSs and thereafter delivered the ADSs, and on March 27, 2025, the Company received gross proceeds of approximately $104,000.
We expect that we will incur additional losses soon as a result of our research and development activities. Such research and development activities will require us to obtain and expend further resources if we are to be successful. As a result, we expect to continue to incur operating losses, and we may be required to obtain additional funds to further develop our research and development programs.
Trend Information
We are a development stage company with no significant revenues to date. Accordingly, it is not possible for us to predict with any degree of accuracy the outcome of our research, development or commercialization efforts, or identify any significant trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect in the future on our net sales or revenues, income from continuing operations, profitability, liquidity or capital resources. However, to the extent possible, certain trends, uncertainties, demands, commitments and events are identified above.
E. Critical Accounting Policies
The preparation of financial statements and the related notes thereto included elsewhere in this annual report in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company’s management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities at the dates of the financial statements, and the reported amount of expenses during the reporting periods. Actual results could differ from those estimates.
We believe that the following accounting policies involve a substantial degree of judgment and complexity, and accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations. See also note 2 to our financial statements included elsewhere in this annual report.
Impairment of long-lived assets
The Company’s long-lived assets are reviewed for impairment in accordance with ASC No. 360 “Property, Plant and Equipment,” whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment exist and the undiscounted future cash flows that the assets are expected to generate are less than the carrying value of the assets, the Company reduces the carrying amount of the assets through an impairment charge, to their estimated fair values. The majority of our fixed assets are concentrated in our CDMO facility in Jerusalem. Our ability to generate positive cashflows from such facility may impact the recoverability of such assets and may trigger future impairment to such facility. During the years ended December 31, 2024 and 2023, no impairment indicators were recognized.
Fair value of financial instruments
The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
| ● | Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. |
| ● | Level 2: Observable inputs that are based on inputs not quoted on active markets but corroborated by market data. |
| ● | Level 3: Unobservable inputs are used when little or no market data are available. |
The Company measures warrants liability at fair value classified within Level 3. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value (note 4)
The carrying amounts of cash and cash equivalents, restricted cash, trade receivables, prepaid expenses and other receivables, trade payables and other current payables approximate their fair value due to the short-term maturity of such instruments.
| Item 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
| A. | Directors and Senior Management |
Executive Officers and Directors
We are managed by a board of directors, which is currently comprised of eight members, and our executive officers. Each of our executive officers is appointed by our board of directors. The table below sets forth our directors and executive officers. The business address for each of our executive officers and directors is c/o Scinai Immunotherapeutics Ltd., Jerusalem BioPark, 2nd floor, Hadassah Ein Kerem Campus, Jerusalem, Israel.
| Name | Age | Position | ||
| Amir Reichman | 49 | Chief Executive Officer and Director | ||
| Tamar Ben-Yedidia | 61 | Chief Scientist | ||
| Uri Ben-Or | 54 | Chief Financial Officer | ||
| Elad Mark | 43 | Chief Operating Officer | ||
| Dalit Weinstein Fischer | 54 | Chief Technology Officer | ||
| Mark Germain | 74 | Chairman of the Board of Directors | ||
| Jay Green | 53 | Director | ||
| Morris Laster(1) (2) | 60 | Director | ||
| Yael Margolin(1) (2) | 72 | Director | ||
| Samuel Moed | 62 | Director | ||
| Adi Raviv(1) (2) | 69 | Director | ||
| Avner Rotman | 81 | Director |
| (1) | Member of the Audit Committee. |
| (2) | Member of the Compensation Committee. |
Executive Officers
Mr. Amir Reichman became full-time CEO of the Company on March 2, 2021, after sharing CEO duties during a transition period beginning on January 21, 2021. Mr. Reichman served as Head of Global Vaccines Engineering Core Technologies and Asset Management at GSK Vaccines (“GSK”) in Belgium from December 2017 until March 2021. Prior to this, Mr. Reichman served as Senior Director of Vaccines Supply Chain for GSK from September 2015 to November 2017. Prior to GSK, Mr. Reichman held various leadership roles of increasing responsibility in the Global Vaccines Value Chain Management organization of Novartis Vaccines and Diagnostics Ltd. (“Novartis”) in Holly Springs, NC from 2011 to 2015, at which time Novartis Vaccines was acquired by GSK. In 2003, Mr. Reichman’s academic research contributed to the founding of NeuroDerm Ltd. (“NeuroDerm”), an Israeli company that developed a drug device combination product aimed at transdermal drug delivery for the treatment of Parkinson’s NeuroDerm was acquired by Mitsubishi Tanabe Pharma Corporation in 2017 for $1.1 billion. Mr. Reichman served as NeuroDerm’s first employee and Senior Scientist until his departure for an MBA at the Wharton school in 2009. Mr. Reichman earned an M.Sc. in Biotechnology Engineering from the Ben-Gurion University of the Negev in Be’er Sheva, Israel and an MBA in Finance and Health Care Management from the Wharton School of the University of Pennsylvania in Philadelphia, PA.
Dr. Tamar Ben-Yedidia has served as our Chief Scientist since 2004 and is responsible for the pre-clinical and clinical development and trials of the Company. Dr. Ben-Yedidia began her career at Biotechnology General (Israel) Ltd., BTG (Rehovot), where she was employed as lab manager from 1991 to 1994. Dr. Ben-Yedidia joined the Department of Immunology at the Weizmann Institute of Science from 1994 - 2004. Dr. Ben-Yedidia was involved in two European Consortium projects related to the evaluation of different approaches for vaccination, and managed 7 clinical trials from Phae 1 to multinational large phase 3, with more than 12,000 participants. Dr. Ben-Yedidia received her Ph.D. in immunology from the Weizmann Institute after completion of her doctoral thesis titled “A Peptide-Based Vaccine Against Influenza.” And is being invited to address conferences worldwide and to publish in peer-reviewed scientific journals.
Mr. Uri Ben-Or, CPA, MBA, has served as our Chief Financial Officer since 2007. In January 2007, Mr. Ben-Or founded CFO Direct, in which he has served as the chief executive officer and through which he provides his services to our company. Mr. Ben-Or has over 20 years of experience and significant expertise in corporate finance, accounting, M&A transactions and IPOs, and has served as CFO with life science companies traded on the TASE, on Nasdaq and over the counter. Mr. Ben-Or holds a B.A degree in Business from the College of Administration, and a M.B.A degree from the Bar Ilan University and is a certified public accountant in Israel.
Mr. Elad Mark joined the company in 2018 as Site Head and has been serving as Chief Operating Officer since September 2019. In his role as COO and Head of the CDMO business unit, he oversees Scinai's manufacturing facility, scale-up operations, and technology transfer activities. This includes responsibility for CDMO business development, sales, and marketing, as well as engaging with clients to ensure that processes are implemented according to their requirements. Prior to joining Scinai, Mr. Mark served for more than three years at Novartis as TPM (Technical Process Manager) and Area Lead Process for a large-scale biological facility establishment in Singapore, a $800 million investment in a biologics facility focused on drug substance manufacturing based on cell culture technology, which was designed to support both clinical and commercial production of potential new products that include monoclonal antibodies for use in helping patients with autoimmune, respiratory and oncology disorders. Before that Mr. Mark served as the Head of the Engineering Department in Biopharmax Group, a company which focuses on EPCM (Engineering, Procurement, Construction and Management) in the pharmaceutical field. Mr. Mark is a principal bioprocess engineer with over 15 consecutive years of biotechnology engineering experience with diverse project stages including feasibility study, conceptual and detail design, commissioning, qualification and process validation. Mr. Mark holds a B.Sc. in Engineering from the Afeka Academic College of Engineering in Tel Aviv and an MBA from the Open University of Israel.
Dr. Dalit Weinstein Fischer joined the Company in 2022 as VP R&D and has served as Chief Technology Officer since September 2023. From 2019 to 2022, Dr. Weinstein Fischer served as CTO of VAYU Sense AG, specializing in improving bio-based fermentation processes with an AI-based controller, and from 2016 until 2019, she served as a Director of Biological Processes at NanoSpun Technologies Ltd. From 2015 to 2016, Dr. Weinstein Fischer led the Natural Biotechnology Systems Department at Sigma Aldrich. Dr. Weinstein Fischer holds a Ph.D. from the Hadassah Medical School, Molecular Genetics and Microbiology Department, Hebrew University of Jerusalem.
Directors
Mr. Mark Germain joined the board in 2018 and has served as the Chairman of our board of directors since 2019. Mr. Germain has been involved as a founder, director, chairman of the board of, and/or investor in, over twenty companies in the biotech field and assisted many of them in arranging corporate partnerships, acquiring technology, entering into mergers and acquisitions, and executing financings and going public transactions. He graduated from New York University School of Law in 1975, Order of the Coif, and was a partner in a New York law firm practicing corporate and securities law before leaving in 1986. Since then, and until he entered the biotech field in 1991, he served in senior executive capacities, including as president of a public company that was sold in 1991. In addition to being a director of Scinai, Mr. Germain is a Managing Director at The Aentib Group, a boutique merchant bank, and served as a director on the board of Pluristem Therapeutics from 2007 through June 2022, including time as Co-Chairman and lead independent director. He is also a co-founder and director of a number of private companies in and outside the biotech field.
Mr. Jay Green CPA, CA, MAcc, joined the board in 2022. He is currently the Chief Financial Officer of a privately held, Canadian-based healthcare services company, a role that he has held since January 2022. Prior to this, he completed a 19-year career with GSK across several progressive leadership positions in GSK’s three businesses of consumer healthcare, pharmaceuticals, and vaccines, as well as corporate development. He also led GSK’s global enterprise resource planning (ERP) program, one of the largest IT-enabled business transformation programs in the company’s history. Mr. Green served from 2014 to 2020 as Senior Vice President, Finance and CFO of GSK’s global vaccines business. In 2020 and 2021, Mr. Green served in an advisory role to Gavi for COVAX, an international initiative to support equitable distribution of COVID-19 vaccines. He is a Chartered Professional Accountant who holds a Master of Accounting from the University of Waterloo, Ontario, Canada.
Dr. Morris Laster has served as a member of our board of directors since November 2017. Dr. Laster is a healthcare executive and entrepreneur with 30 years of experience in the biopharmaceutical industry. His expertise lies in the identification, development, management and financing of advanced biomedical drugs and technologies. Dr. Laster is currently the CEO of Metabolize, Inc. and Tedence, Ltd., two innovative startups focused on metabolic health and bioelectric medicine, respectively. Dr. Laster is currently the CEO of Clil Medical Ltd., a biomedical consultancy company, a position he has held since 2010. From 2013-2024 he served as the Medical Venture Partner at OurCrowd, where he has led over 45 investments. Dr. Laster has founded seven companies that have gone public in the U.S., UK or Israel. Previously, he was the founding CEO of BioLineRx Ltd. (TASE: BLRX) from 2003 to 2009. In addition, he was the chairman and CEO of Keryx Biopharmaceuticals (NASDAQ: KERX) from 1997 to 2002. Dr. Laster received his MD from Downstate Medical Center, Brooklyn, NY in 1990 and a BS in Biology from SUNY Albany.
Dr. Yael Margolin has more than 35 years of experience as senior manager, CEO and board member in venture capital and in the pharmaceutical and biotech industries, leading strategic and business planning, financing, team building, product development and corporate partnerships. From 2005 to 2019, Dr. Margolin served as President, Chief Executive Officer and director of Gamida Cell Ltd., a clinical stage biopharmaceutical company, leading the company from preclinical development through phase 3 international registration studies. Prior to that, Dr. Margolin was Vice President of Denali Ventures LLC, a venture capital firm focused on healthcare, and a program manager at Teva Pharmaceuticals. Dr. Margolin holds a bachelor of science in biology and a master of science Cum Laude from the department of microbiology, both from Tel Aviv University in Israel, a Ph.D. From the department of membrane research at the Weitzman Institute of Science in Rehovot, Israel and was a post-doctoral associate at the Yale University School of Medicine.
Mr. Samuel Moed is a healthcare executive with over 35 years of experience. Mr. Moed was for seven years Head of Corporate Strategy at Bristol Myers Squibb (“BMS”), a global biopharma company, until his retirement in 2020. Prior to that role, Mr. Moed was Head of Strategy Worldwide Pharma, President of US Pharma and President of the WW Consumer Health care Business at BMS. In addition to Scinai, Mr. Moed serves on the board of Mediwound Ltd., a company that develops, manufactures and commercializes bio-therapeutic solutions for tissue repair and regeneration, is a Venture Partner at aMoon, a HealthTech and Life Sciences investment fund with Scinai’s former controlling shareholder Mr. Marius Nacht as the anchor investor, and advises companies in the healthcare arena. Mr. Moed received his BA in history from Columbia University in New York City in 1985.
Mr. Adi Raviv is a senior financial executive with a career spanning over 35 years. Mr. Raviv founded HTI Associates LLC in 1996 and since then has served as its managing member. In the past five years, and in the capacity of a consultant on behalf of HTI, Mr. Raviv has served as a Chief Executive Officer, Chief Financial Officer and Senior Advisor, respectively, to several healthcare and related companies, and continues to serve in a CFO role in one such company. In addition, since April 2016 he has been a Principal at Capacity Funding LLC, a company providing working capital solutions to small businesses. Prior to that, Mr. Raviv served in a chief financial officer position in two other companies that provide similar types of funding alternatives from 2009 to 2016. Mr. Raviv has extensive capital markets, cash management, corporate finance, investment banking, investor relations, restructuring, tax and treasury, and transactional experience along with knowledge of the private equity and venture capital arenas. Mr. Raviv co-founded THCG, Inc., a publicly traded technology merchant banking and consulting company (where he was also CFO), and has been involved with companies in challenging startup, growth, and turnaround environments. He was also an investment banker at Lehman Brothers, Oscar Gruss and Hambros over a span of a dozen years. Mr. Raviv served on the boards of directors of many private and several public companies, as well as various non-profit entities. He received a bachelor’s degree in International Relations with honors from the Hebrew University of Jerusalem and an MBA, with honors, from Columbia University in New York City.
Professor Avner Rotman has been a member of our board of directors since 2005 and served as the Chairman until 2019.Prof. Rotman founded Rodar Technologies Ltd. in 2000 and served as its Chief Executive Officer and Chairman of the Board until2019. Prof. Rotman also founded Bio-Dar Ltd. in 1984 and served as its President and CEO from 1985 until 2000. Prof. Rotman was also the chairman of the I-Tech incubator at Kyriat Weizmann. Prof. Rotman is the Founder and Chairman of the Foundation of Cardiovascular Research in Israel. Prof. Rotman holds a PhD in chemistry from the Weizmann Institute of Science, Israel, and an M.Sc and B.Sc in chemistry from the Hebrew University of Jerusalem, Israel. We believe that Prof. Rotman is qualified to serve on our board of directors based on his extensive experience and knowledge in the field of biotechnology and as an executive officer and director of multiple biotechnology companies.
Our Scientific Advisory Board
Our Scientific Advisory Board includes specialists and experts in Israel, with experience in the fields of biochemistry, infectious diseases and medical research. Our Scientific Advisory Board plays an active role in advising us with respect to our products, technology development, clinical trials and safety. Pursuant to their respective appointment letters, our advisory board members are entitled to receive the following compensation: As approved by the board of directors of the Company, each SAB member receives in consideration for his/her Advisory Board membership and for provision of the Services as detailed in the standard SAB agreement approved by the board of directors, an award of RSUs for 5,000 (five thousand) ADSs, each representing 4,000 Ordinary Shares of the Company, as of the effective date of each SAB member agreement, pursuant to the 2018 Israeli Share Option Plan, to vest in three equal tranches each consisting of 1,667 RSUs starting on the first anniversary of each SAB agreement subject to the continued provision of services on each vesting date. Each SAB member shall also receive annual cash compensation in the amount of $12,000 (twelve thousand USD), payable in two semiannual installments ($6000 each), with the first one paid within 60 days after the effective date of each SAB agreement in consideration for his/her Scientific Advisory Board membership and for provision of the services during the term of the agreement.
The following table sets forth certain biographical information with respect to our Scientific Advisory Board members:
Professor Dr. Matthias Dobbelstein has served as Director of the Institute of Molecular Oncology at the University Medical Center Göttingen (UMG), Germany since 2005 and is also an Associate Member of the Max Planck Institute for Multidisciplinary Sciences (MPI-NAT). He received his training as a physician at the University of Munich (LMU) and performed research as a virologist and cancer biologist at Princeton University (USA), the University of Marburg (Germany) and the University of Southern Denmark. Professor Dobbelstein’s research interests focus on principles of infections and cancer, including the application of anti-cancer drugs as antivirals, as well as alpaca-derived NanoAbs (nanosized antibodies also known as nanobodies and VHH antibodies) as therapeutics. His collaboration with Professor Dr. Dirk Görlich at MPI-NAT as highlighted in their 2021 EMBO Journal article titled “Neutralization of SARS-CoV-2 by highly potent, hyperthermostable, and mutation-tolerant nanobodies” forms the scientific basis of Scinai’s exclusive license for development and commercialization of an innovative, self-administered, inhaled NanoAb for the treatment of COVID-19. In addition, Professor Dobbelstein, together with Professor Görlich, is collaborating with Scinai under a five-year strategic research agreement for the discovery, characterization and cloning of additional NanoAbs for the treatment of autoimmune diseases such as psoriasis, psoriatic arthritis, asthma and macular degeneration.
Prof. George H. Lowell, M.D. served as a member of our board of directors from 2008 to May 2023. He is also since 2019 a member of the Board of Directors and Chief Scientific Officer (CSO) of Healables Ltd., a private Israeli digital health start-up company. Prior to joining our company, Prof. Lowell served as CSO for BioDefense at GlaxoSmithkline Biologicals (2006-7) which acquired ID Biomedical Corp. (IDB) and CSO of IDB (2001-6) which acquired Intellivax Intl. Prof. Lowell served as founding CEO, President and CSO of the vaccine R&D companies he founded, Intellivax, Inc. in Baltimore and Intellivax Intl. Inc. in Montreal from 1995 until 2001. From 1974, Prof. Lowell served on active duty in the US Army Medical R&D Command (USAMRDC), retiring in 1994 with the rank of Colonel. During this period he served as consultant in pediatric infectious diseases at The Walter Reed Army Medical Center and director of his laboratories at The Walter Reed Army Institute of Research in Washington, D.C. From 1989-1991 COL Lowell served as Medical Liaison Officer attached to the US Embassy in Israel representing the USAMRDC to the IDF Medical Corps Research Unit. Prof. Lowell has held a number of academic posts, including Visiting Scientist at the Weizmann Institute of Science (Israel) and Visiting Professor, Hebrew University-Hadassah Medical Center (Israel). Prof. Lowell holds a B.A. from Yeshiva University, and an M.D. from the Albert Einstein College of Medicine of Yeshiva University. Prof. Lowell performed three years of post-doctoral training in pediatrics and pediatric infectious diseases and immunology at NYU-Bellevue Medical Center, and The Mount Sinai Medical Center, NY, NY. We believe that Prof. Lowell is qualified to serve on our board of directors based on his extensive experience and knowledge in the field of health care and years of executive leadership in the biomedical industry.
Prof. Michael Schön is a distinguished Professor and Director of the Department of Dermatology, Venereology, and Allergology at the University Medical Center Göttingen. He also serves as Vice Dean and Deputy Director for Research and Teaching and is the former director of the Lower Saxony Institute of Occupational Dermatology. Prof. Schön has been recognized with numerous awards for his groundbreaking research on immune reactions in inflammation. From 2011 to 2024, he was the Editor-in-Chief of the Journal of the German Dermatological Society. Currently, he holds the position of Secretary General and Vice President of the European Dermatology Forum (EDF). Prof. Schön earned his MD in Medicine from the University of Ulm, Germany. He has worked at the Free University of Berlin, Harvard Medical School and the universities of Düsseldorf and Magdeburg. Before his appointment at the University Medical Center Göttingen, he held a professorship in Experimental Biomedicine at the University of Würzburg. Michael has further qualifications in dermatopathology, allergology, immunology and health economics.
Dr. Jonathan Sadeh is an accomplished physician-scientist with over 20 years of experience in drug development and clinical research. He spent the last five years at Bristol-Myers Squibb (BMS), where he held multiple senior leadership positions, including Senior Vice President and Global Programs Head for Immunology, Cardiovascular, and Neuroscience; Immunology Therapeutic Area Head; and China R&D Head. Prior to BMS, Dr. Sadeh held senior leadership positions at Sanofi, AstraZeneca, and Schering-Plough. Dr. Sadeh earned his MD in Medicine from the Mount Sinai School of Medicine and an M.Sc. degree in Clinical Research from Harvard Medical School. He completed his fellowship in pulmonary and critical care at Harvard Medical School. He began his medical career as an academic researcher at Brigham and Women’s Hospital.
| B. | Compensation |
Compensation of Directors and Executive Officers
Directors
Each of our non-management directors receives a cash retainer, meeting participation fees, and equity awards, as detailed below.
The annual cash compensation payable to our current and future non-management directors other than Mr. Germain (all such other directors, the “Independent Directors”) in exchange for their services, is as follows:
| ● | $35,000 for each Independent Director, which would cover such director’s attendance at up to eight Board meetings per year; |
| ● | $5,000 for each member of the Company’s Compensation Committee and Strategy Committee (other than the applicable committee chairperson), which would cover such member’s attendance at up to eight committee meetings per year; |
| ● | $7,500 for each member of the Company’s Audit Committee (other than the committee chairperson), which would cover such member’s attendance at up to eight committee meetings per year; |
| ● | $7,500 for the chairperson of each of the Company’s Compensation Committee and Strategy Committee, which would cover the chairperson’s attendance at up to eight committee meetings per year; |
| ● | $10,000 for the chairperson of the Company’s audit committee, which would cover the chairperson’s attendance at up to eight committee meetings per year; |
| ● | $500 for attendance (in person or by video or other electronic means) by each director or committee member at any meeting of the Board or relevant committee in excess of eight meetings for the Board or the applicable committee; and |
| ● | $300 for each written consent of the Board or any of its committees. |
Following shareholder approval, we granted equity awards to our non-management directors. In 2023, shareholders approved the option awards to each of our non-management directors. We granted to each such director (other than our chairman) options to purchase 2,,00 ADSs of the Company, and to our chairman options to purchase 4,000 ADSs, all at an exercise price of $18.10, which was the higher of (i) 130% of the closing price of the Company’s ADSs on June 15, 2023 (the date the Board approved this proposal) or (ii) 100% of the closing price of the Company’s ADS on August 24, 2023 (the date of shareholder approval). The options vest in equal annual installments over a period of three years, commencing one year following the date of shareholder approval. The options are subject to accelerated vesting and will become immediately exercisable in the event of a change of control.
Following shareholder approval, we also cancelled options previously granted to our non-management directors and granted replacement options to these directors. In 2023, shareholders approved that all the options that were held at by non-management directors at the time of the meeting be cancelled and in exchange therefor the Company would grant each non-management director a replacement option to purchase such number of ADSs (each, a “Replacement Option”) that is equal to the aggregate number of ADSs subject to the options held at the time by each non-management director. The number of ADSs underlying the Replacement Option that were issued to each non-management director in exchange for the options that were held by each such non-management director was as follows: (i) for Mr. Mark Germain, 2,907 ADSs; (ii) for Mr. Morris Laster; Mr. Adi Raviv, Professor Avner Rotman and Ms. Yael Margolin, 430 ADSs; (iii) Mr. Samuel Moed, 1,000 ADSs; and (iv) Mr. Jay Green, 250 ADSs. The exercise price of per ADS for the Replacement Options is $18.10, which was the higher of (i) 130% of the closing price of the Company’s ADSs on June 15, 2023 (the date the Board approved this proposal) or (ii) 100% of the closing price of the Company’s ADS on August 24, 2023 (the date of shareholders’ approval). The options vest in equal annual installments over a period of three years, commencing one year following the date of shareholder approval. The options are subject to accelerated vesting and will become immediately exercisable in the event of a change of control.
For these purposes, a “Change of Control” means the first to occur of (i) a sale of all or substantially all of the assets of the Company; (ii) a merger, consolidation, or like transaction of the Company with or into another company; provided, that in the case of either clauses (i) or (ii) the Company’s stockholders of record immediately prior to such transaction will, immediately after such transaction, hold less than fifty percent (50%) of the voting power of the surviving or acquiring entity, and provided further that a Change of Control shall not include (x) any consolidation, merger or reorganization effected to change the domicile of the Company or (y) any transaction or series of transactions effected principally for bona fide equity financing purposes in which cash is received by the Company or any successor or indebtedness of the Company is cancelled or converted or a combination thereof; (iii) the acquisition by any person, entity or group of more than 50% of the voting power of the Company, in a single or series of related transactions; and (iv) when a person, entity or group becomes a shareholder that has “control,” as defined in the Israeli Companies Law, 1999.
Pursuant to shareholder approval in 2012, incumbent directors who were serving in 2012 are entitled to a one-time bonus in connection with (i) the sale of all or substantially all of our assets or (ii) a commercialization of one of our products, in each case with aggregate proceeds of at least $10 million. The one-time bonus shall be equal to 0.5% of the proceeds received by us under the material agreement, which shall be limited an aggregate amount of NIS 50 million ($15.4 million) under our Compensation Policy.
For the year ended December 31, 2024, we paid an aggregate of approximately $413 thousand to our directors.
Executive Officers
The following table presents information regarding compensation actually received by our executive officers during the year ended December 31, 2024.
| Base Salary or Other Payment |
Value of Social Benefits (1) |
Value of Equity Based Compensation Granted (2) |
All Other Compensation (3) |
Total | ||||||||||||||||
| Name | USD Thousands |
USD Thousands |
USD Thousands |
USD Thousands |
USD Thousands |
|||||||||||||||
| Mr. Amir Reichman Chief Executive Officer |
338 | 34 | 272 | 15 | 659 | |||||||||||||||
| Dr. Tamar Ben-Yedidia Chief Scientific Officer |
146 | 44 | 50 | 11 | 250 | |||||||||||||||
| Mr. Uri Ben-Or Chief Financial Officer |
127 | 9 | 7 | - | 142 | |||||||||||||||
| Mr. Elad Mark Chief Operating Officer |
151 | 33 | 46 | 12 | 242 | |||||||||||||||
| Dr. Dalit Weinstein Fischer Chief Technology Officer |
121 | 37 | 31 | 15 | 203 | |||||||||||||||
| (1) | Includes payments to the National Insurance Institute, advanced education funds, managers’ insurance and pension funds; vacation pay; and recuperations pay as mandated by Israeli law. |
| (2) | Includes RSU’s and options. |
| (3) | Includes payments for car allowance and bonus payment. |
Employment and Services Agreements
Our employees are employed under the terms prescribed in their respective personal contracts, in accordance with the decisions of our management. Under these employment contracts, the employees are entitled to the social benefits prescribed by law and as otherwise provided in their personal contracts. These employment contracts each contain provisions standard for a company in our industry regarding non-competition, confidentiality of information and assignment of inventions. Under current applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. We also provide certain of our employees with a company car, which is leased from a leasing company, and a mobile phone and additional benefits.
Our executive officers are also employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods of varying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive base salary and benefits. These agreements also contain customary provisions regarding non-competition, confidentiality of information and assignment of inventions.
We have set aside or accrued a total amount of $515 thousands during 2024 to provide pension, retirement or similar benefits.
Services Agreement with Our Chairman of the Board
We are party to a services agreement with Mr. Germain, pursuant to which he receives a monthly payment of $12,500. Pursuant to this agreement, in May 2019 and May 2021 Mr. Germain was grantedoptions to purchase ADSs which were replaced by the Replacement Options described above. The agreement, as amended to date, expires in May 2025 and provides that either party may terminate the agreement upon 90 days’ written notice. In addition, in May 2022 we granted Mr. Germain a cash bonus of $90,000, and in August 2023, we granted Mr. Germain a cash bonus of $37,500. Mr. Germain voluntarily agreed to a 20% reduction in his monthly payment commencing mid-October 2024 until February 2025.
Services and Employment Agreements with Our Chief Executive Officer
Pursuant to his employment agreement entered into with us on January 20, 2021, Mr. Reichman is entitled to an annual gross salary of $350,000. Mr. Reichman voluntarily agreed to a 25% reduction in his monthly salary from mid-October 2024 until February 1, 2025.
The agreement also provides that Mr. Reichman was entitled to a one-time signing bonus at the gross lump sum amount of USD 50,000 and is eligible to receive an annual cash bonus of a gross amount equal to three to six monthly salaries to the extent Mr. Reichman meets annual objectives that shall be approved by the board of directors and by shareholders. It is currently contemplated that the annual bonus would be (i) four monthly salaries for meeting a set of baseline annual objectives, and (ii) three monthly salaries in the case of underperforming compared to such annual objectives, provided the Employee meets the baseline objectives set by the board of directors. Under extraordinary circumstances reflecting performance by Mr. Reichman significantly above all such annual objectives, the board of directors may, in its sole discretion, consider an additional cash bonus of not more than an additional three monthly salaries (up to nine monthly salaries in total). The bonus amounts and annual objectives shall be subject to the terms of the Company’s Compensation Policy from time to time.
Furthermore, under the agreement Mr. Reichman is entitled to receive 6,000 restricted share units (the “RSUs”) under the Company’s 2018 Israeli Share Option Plan, which will vest over a period of five years, 20% to vest each year starting on January 20, 2021 (the “Commencement Date”), and would become fully vested, in accordance with the terms of the grant, on January 20,2026. The ADSs underlying the RSUs may not be sold by Mr. Reichman during the term of his employment except that, commencing on the third anniversary of the Commencement Date, sales may be made pursuant to a Rule 10b5-1 plan, with the number of RSUs sold during any one year period not exceeding five percent of the vested RSUs held by Mr. Reichman at the time of such sales (the “Resale Limits”). If Mr. Reichman’s employment agreement is terminated by the Company for no cause prior to the fifth anniversary of the Commencement Date, the Resale Limits shall terminate. If Mr. Reichman’s employment agreement is terminated by Mr. Reichman or terminated by the Company for cause prior to the fifth anniversary of the Commencement Date, the Resale Limits shall continue until the earlier of (i) one year after such termination, or (ii) the fifth anniversary of the Commencement Date. The RSUs would be subject to accelerated vesting in the event of a change of control.
For these purposes, a “change of control” means the first to occur of (i) a sale of all or substantially all of the assets of the Company; (ii) a merger, consolidation, or like transaction of the Company with or into another company; provided, that in the case of either clauses (i) or (ii) the Company’s stockholders of record immediately prior to such transaction will, immediately after such transaction, hold less than fifty percent (50%) of the voting power of the surviving or acquiring entity, and provided further that a change of control shall not include (x) any consolidation, merger or reorganization effected to change the domicile of the Company or (y) any transaction or series of transactions effected principally for bona fide equity financing purposes in which cash is received by the Company or any successor or indebtedness of the Company is cancelled or converted or a combination thereof; (iii) the acquisition by any person, entity or group not directly or indirectly affiliated with Angels Investments in Hi Tech Ltd. (“Angels”) of more than 50% of the voting power of the Company, in a single or series of related transactions; and (iv) when a person, entity or group not directly or indirectly affiliated with Angels becomes a shareholder that has “control,” as defined in the Israeli Companies Law, 1999.
The Company will provide Mr. Reichman other benefits, such as a company car, vacation, sick days, contribution towards work disability insurance, monthly contributions equal to 7.5% of monthly salary to an Education Fund (“Keren Hishtalmut”, a short-term savings plan available in Israel which is tax free to the employee up to a cap determined by law) and a manager’s insurance policy or a pension fund and other benefits and perquisites similar to those of other officers of the Company.
Each of Mr. Reichman and the Company may terminate Mr. Reichman’s employment by prior written notice of 60 days. In the event of termination by the Company without cause, the Company will pay Mr. Reichman nine monthly salaries, which includes amounts accrued in a pension insurance policy and amounts required by Israeli law.
In May 2022, we granted Mr. Reichman an annual bonus for the year 2021 of $250,266. In March 2023, we granted Mr. Reichman an annual cash bonus for the year 2022 of $182,000, equal to 50% of his annual base compensation) and 7,812 RSUs that vest in three years. In August 2024, following shareholder approval, we granted Mr. Reichman 17,909 RSUs that would vest over a period of three years. On November 21, 2024, the Board approved the grant to Mr. Reichman of 3,073 RSUs with vesting one-third on April 1, 2025, one-third on August 1, 2025, and one-third on December 1 2025, subject to shareholder approval.
Services and Employment Agreements with Our Chief Scientific Officer
Pursuant to her employment agreement entered into with us on March 15, 2005, as amended to date, Dr. Ben-Yedidia is employed on a full-time basis and is currently entitled to a monthly salary of NIS 49,000 plus Company car (approximately$13,500) which also includes monthly contributions equal to 7.5% of her monthly salary to an Education Fund and a manager’s insurance policy and other benefits and perquisites similar to those of other officers of the Company. In addition, we provide Dr. Ben-Yedidia with a leased company car and a mobile phone. Dr. Ben-Yedidia is entitled to 22 annual paid vacation days. Dr. Ben-Yedidia voluntarily agreed to a 20% reduction in his monthly salary from mid-October 2024 until December 31, 2024.
Dr. Ben-Yedidia’s employment agreement may be terminated by either us or Dr. Ben-Yedidia upon 120 days’ prior written notice or by us immediately for cause (i.e., termination due to embezzlement of our funds, or the material breach of the terms and conditions of the employment agreement, or if Dr. Ben-Yedidia is involved in an act which constitutes a breach of trust between her and us or constitutes a severe breach of discipline, or conduct causing grave injury to us any, monetarily or otherwise, or Dr. Ben-Yedidia’s inability to carry out her duties for a period exceeding 120 consecutive days, provided that her resumption of duties for a period of less than 15 consecutive days shall not be deemed to have broken the continuity of the aforementioned 120 days).
In addition, in February 2012 our board of directors approved the grant of the following conditioned bonus to Tamar Ben-Yedidia: in the event that we duly enter into one or more material agreement(s) (i.e. an agreement or a series of agreements, pertaining to a transaction with us (or any other entity designated by us for the transaction by us) in connection with the sale of all or substantially all of our assets or a commercialization of one of our products in the field of business, with aggregate proceeds received resultant of such agreement are no less than a sum of $10 million) with any third party during the term of Dr. Ben-Yedidia’s engagement with us or during a period of three years commencing on the date of the termination of the employment agreement by us, Dr. Ben-Yedidia shall be entitled to receive a one-time bonus per material agreement equal to 1.25% of the proceeds received by us as a result of the material agreement.
In May 2021, Dr. Ben-Yedidia was granted 410 RSUs vesting in three years. In May 2022, Dr. Ben-Yedidia was granted a 2021 bonus of NIS 140,250 (approximately $43,800), an amount equal to three months’ salary and 375 RSUs vesting in three years. For the year 2022, Dr. Ben-Yedidia was granted a performance-based incentive package of NIS 147,000 (approximately $42,000), an amount equal to 25% of her annual compensation, and a grant of 2,008 RSUs vesting in three years. In January 2024, Dr. Ben-Yedidia was granted 5,421 and 3,312 RSUs which will vest over three years.
Services and Employment Agreement with Our Chief Financial Officer
Pursuant to the service agreement entered into on June 20, 2007, between us, Mr. Ben-Or and CFO Direct, an Israeli company solely owned by him through which he provides his services to us, as amended to date. CFO Direct is entitled to a monthly fee of NIS 30,000. The service agreement may be terminated by either us or CFO Direct with 60 days prior written notice. We may terminate our service agreement with CFO Direct at any time and effective immediately, without need for prior written notice, and without derogating from any other remedy to which we may be entitled, for cause (i.e., termination due to the conviction of CFO Direct and/or Uri Ben-Or of any felony, the liability of CFO Direct by a court of competent jurisdiction for fraud against us, any conduct that has a material adverse effect or is materially detrimental to us, including but not limited to, a breach of contract or any claim by CFO direct or any one connect thereto that CFO Direct is our employee).
In addition, pursuant to a separate employment agreement entered into between us and Mr. Ben-Or on August 31, 2014 and extended on June 11, 2020, Mr. Ben-Or is also employed by us in a 60% employment capacity, for which he is entitled to a monthly salary of NIS 10,000. Mr. Ben-Or is entitled to 60% of the annual paid vacation days prescribed under applicable law, and we shall obtain and maintain with Mr. Ben-Or a pension insurance to Mr. Ben-Or, in a Managers Insurance and/or a pension fund, according to Mr. Ben-Or’s discretion. Mr. Ben-Or’s employment agreement may be terminated by either us or Mr. Ben-Or with 60 days prior written notice, or by us immediately for cause.
Employment Agreement with Our Chief Operating Officer
Pursuant to his employment agreement entered into with us and Mr. Elad Mark on September 5, 2018, he is entitled to a monthly salary of NIS 46,000 (approximately $13,000), which also includes monthly contributions equal to 7.5% of his monthly salary to an Education Fund and a manager’s insurance policy and other benefits and perquisites similar to those of other officers of the Company. In addition, we provide Mr. Mark with a leased company car and a mobile phone. Mr. Mark is entitled to 16 annual paid vacation days. Mr. Mark agreed to a 20% reduction in his monthly salary from mid-October 2024 until December 31, 2024.
Mr. Mark’s employment agreement may be terminated by either us or Mr. Mark upon 60 days’ prior written notice or by us immediately for cause (i.e., termination due to embezzlement of our funds, or the material breach of the terms and conditions of the employment agreement, or if Mr. Mark is involved in an act which constitutes a breach of trust between his and us or constitutes a severe breach of discipline, or conduct causing grave injury to us any, monetarily or otherwise, or Mr. Mark’s inability to carry out his duties for a period exceeding 120 consecutive days, provided that his resumption of duties for a period of less than 15 consecutive days shall not be deemed to have broken the continuity of the aforementioned 120 days). In May 2022, Mr. Mark was granted a 2021 bonus of NIS 138,000 (approximately $37,000), an amount equal to three months’ salary and 35,300 RSUs vesting in three years. For the year 2022, Mr. Mark was granted a performance-based incentive package of 138,000 NIS (approximately $39,000), an amount equal to 25% of his annual compensation. In January 2024, Mr. Mark was granted 5,089 RSUs which vest over three years
Equity Compensation Plans
2018 Israeli Share Option Plan
The 2018 Israeli Share Option Plan (the “2018 Plan”) permits the granting of options, restricted share units or allotment of shares or other equity-based awards to employees, directors, consultants, service providers and other entities which the board shall decide their services are considered valuable to the Company, under similar terms and conditions to the 2005 Plan.
Options granted under the 2018 Plan are subject to applicable vesting schedules and generally expire 10 years from the grant date.
Upon the termination of a recipient’s engagement with us for any reason other than death, disability or for cause, all unvested options allocated shall automatically expire and all vested options allocated will automatically expire 90 days after the termination, unless expired earlier due to their term, or unless expiration is extended beyond termination under certain circumstance for a period not to exceed the term of the options, such as was recently approved by shareholders in connection with option grants to directors. If the recipient’s engagement was terminated for cause (as defined in the 2018 Plan), the recipient’s right to exercise any unexercised options, awarded and allocated in favor of such recipient, whether vested or not, will immediately cease and expire as of the date of such termination. If the recipient dies or is disabled, any vested but unexercised options will automatically expire 12 months from the termination of the engagement, unless expired earlier due to their term.
In the event that options allocated under the 2018 Plan expire or otherwise terminate in accordance with the provisions of the 2018 Plan, such expired or terminated options will become available for future grant awards and allocations under the 2018 Plan.
Restricted share units granted under the 2018 Plan are subject to applicable vesting schedules, and the Board may condition the grant or vesting of restricted share units upon the attainment of specified performance targets or such other factors as the Board may determine, in its sole discretion.
In the event of (i) the sale of all or substantially all of our assets; (ii) a sale (including an exchange) of all or substantially all of our share capital; or (iii) a merger, acquisition or reorganization of the Company with or into another corporation, then, subject to obtaining the applicable approvals of the Israeli tax authorities, unexercised awards then outstanding shall be assumed or substituted for an appropriate number of shares of the successor company subject to certain adjustments as determined by the board of directors in its sole discretion. Subject to certain conditions, the board shall also have the power to provide for immediate acceleration in a recipient’s award agreement in the event of such a transaction.
The Company has reserved an unlimited amount of the issued and outstanding capital of the Company available for issuance under the 2018 Plan.
As of March 31, 2025, the Company had awarded grants under the Option Plan to acquire 494,440,729 ordinary shares represented by 123,610 ADSs.
| C. | Board Practices |
Board of Directors
Under the Companies Law and our articles of association, our board of directors shall direct the Company’s policy and shall supervise the performance of the Company’s Chief Executive Officer. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executive officers are responsible for our day-to-day management and have individual responsibilities established by our board of directors. Our Chief Executive Officer is appointed by and serves at the discretion of our board of directors, subject to an agreement with Mr. Amir Reichman. All other executive officers are also appointed by our board of directors and are subject to the terms of any applicable employment or services agreements that we may enter into with them or with certain entities through which we receive their services. Other than Mr. Reichman, who is entitled to certain termination payments under his agreement with us, none of our directors are entitled to benefits upon termination of their service.
Our board of directors has affirmatively determined that a majority of our directors are independent, in compliance with the NASDAQ Capital Market rules. The definition of independent director includes a set of statutory criteria that must be satisfied, including criteria whose aim is to ensure that there is no factor which would impair the ability of the independent director to exercise independent judgment in addition to the requirement that the board consider any factor which would impair the ability of the independent director to exercise independent judgment. Independent directors may be elected by an ordinary majority of the general shareholders meeting.
Under our articles of association, our board of directors must consist of at least three and not more than eleven directors, including any external directors to the extent required by Israeli law. Our board of directors currently consists of nine members, including our non-executive Chairman of the board of directors. Our directors, excluding the external directors, are divided into three groups, as nearly equal in number as practicable, with staggered three-year terms, each consisting of one-third of the directors, constituting our entire board of directors (other than the external directors). At each annual meeting, the three-year duration of service of one group of directors shall expire and the directors of such group will stand for election. Each of the directors or the successors elected to replace the directors of a group whose term shall have expired at such annual meeting shall be elected to hold office until the third annual meeting held after the date of his or her election and until his or her respective successor is elected. If no directors are appointed at the annual meeting, the directors appointed at the previous annual meeting will continue their service. Directors whose service period has ended may be appointed again.
Under our articles of association, our board of directors may appoint directors to fill vacancies on our board of directors, for a term of office for the remaining period of time during which the director whose service has ended was filled would have held office, or the conclusion of the term of office in accordance with our articles or any applicable law, subject to the maximum number of directors allowed under the articles of association. In addition, our shareholders may appoint an additional director/s to the Company, whether for the purpose of filling a position that was vacated or as an additional director/s.
Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise. In determining the number of directors required to have such expertise, our board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of our company who are required to have accounting and financial expertise is one. Our board of directors has determined that Adi Raviv has accounting and financial expertise and possesses professional qualifications as required under the Companies Law.
Chairman of the Board
Our articles of association provide that the chairman of the board is appointed and dismissed by the members of the board of directors and serves as chairman of the board throughout his term as a director, unless resolved otherwise by the board of directors. Under the Companies Law, the chief executive officer or a relative of the chief executive officer may not serve as the chairman of the board of directors, and the chairman or a relative of the chairman may not be vested with authorities of the chief executive officer without shareholder approval by special majority and for periods of time not exceeding three years each.
In addition, a person subordinated, directly or indirectly, to the chief executive officer may not serve as the chairman of the board of directors; the chairman of the board may not be vested with authorities that are granted to those subordinated to the chief executive officer; and the chairman of the board may not serve in any other position in the company or a controlled company, except as a director or chairman of a controlled company.
External Directors
Companies incorporated under the laws of the State of Israel whose shares are publicly traded, including companies with shares listed on the Nasdaq Capital Market, are considered public companies under Israeli law and are required to comply with various corporate governance requirements under Israeli law relating to such matters as external directors, the audit committee, the compensation committee and an internal auditor. These requirements are in addition to the corporate governance requirements imposed by the listing rules of the Nasdaq Capital Market and other applicable provisions of U.S. securities laws.
Pursuant to regulations enacted under the Israeli Companies Law, the board of directors of a public company whose shares are listed on certain non-Israeli stock exchanges, including Nasdaq, that do not have a controlling shareholder (as such term is defined in the Israeli Companies Law), may, subject to certain conditions, elect to “opt-out” of the requirements of the Israeli Companies Law regarding the election of external directors and to the composition of the audit committee and compensation committee, provided that the company complies with the requirements as to director independence and audit committee and compensation committee composition applicable to companies that are incorporated in the jurisdiction in which its stock exchange is located. In March 2023, our board of directors elected to opt-out of the Israeli Companies Law requirements to appoint external directors and related Israeli Companies Law rules concerning the composition of the audit committee and compensation committee.
The foregoing exemptions will continue to be available to us so long as: (i) we do not have a “controlling shareholder” (as such term is defined under the Israeli Companies Law), (ii) our shares are traded on a U.S. stock exchange, including Nasdaq, and (iii) we comply with the Nasdaq rules applicable to domestic U.S. companies. If in the future we were to have a controlling shareholder, we would again be required to comply with the requirements relating to external directors and composition of the audit committee and compensation committee.
Under the Israeli Companies Law, the term “controlling shareholder” 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. For the purpose of approving transactions with controlling shareholders, the term “controlling shareholder” also includes any shareholder that holds 25% or more of the voting rights of the company if no other shareholder holds more than 50% of the voting rights in the company.
Audit Committee
Our audit committee consists of Mr. Adi Raviv, Dr. Yael Margolin and Dr. Morris Laster. Mr. Adi Raviv serves as the chairman of the audit committee.
Under the NASDAQ Capital Market corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each of whom is financially literate and one of whom has accounting or related financial management expertise.
All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQ Capital Market corporate governance rules. Our board of directors has affirmatively determined that Mr. Adi Raviv is an audit committee financial expert as defined by the SEC rules and has the requisite financial experience as defined by the NASDAQ Capital Market corporate governance rules.
Each of the members of the audit committee are deemed “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act, which is different from the general test for independence of board and committee members.
Audit Committee Role
Our board of directors adopted an audit committee charter effective upon the listing of the ADSs and warrants on the NASDAQ Capital Market that set forth the responsibilities of the audit committee consistent with the rules of the SEC and the listing rules of the NASDAQ Capital Market, as well as the requirements for such committee under the Companies Law, including the following:
| ● | oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of our independent registered public accounting firm to the board of directors in accordance with Israeli law; |
| ● | recommending the engagement or termination of the person filling the office of our internal auditor; and |
| ● | recommending the terms of audit and non-audit services provided by the independent registered public accounting firm for pre-approval by our board of directors. |
Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by pre-approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of our independent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.
Compensation Committee and Compensation Policy
Compensation Committee
Our compensation committee currently consists of Mr. Adi Raviv, Dr. Yael Margolin and Dr. Morris Laster. Dr. Yael Margolin serves as the Chairman of the Compensation committee. The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement of office holders, to which we refer as a compensation policy. That policy must be adopted by the company’s board of directors, after considering the recommendations of the compensation committee, and will need to be brought for approval by the company’s shareholders, which approval requires a special approval for Compensation as described below under “Approval of Related Party Transactions Under Israeli Law — Fiduciary Duties of Directors and Executive Officers”.
Under the Companies Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy.
Compensation Policy
The Compensation Policy must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in the Companies Law. The Compensation Policy must be approved by the company’s board of directors after considering the recommendations of the compensation committee. In addition, the Compensation Policy needs to be approved by the company’s shareholders by a simple majority, provided that (i) such majority includes a majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting(abstentions are disregarded) or (ii) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter who were present and voted against the Compensation Policy, constitute two percent or less of the voting power of the company. Such majority determined in accordance with clause (i) or (ii) is hereinafter referred to as the Compensation Majority.
To the extent a Compensation Policy is not approved by shareholders at a duly convened shareholders meeting, the board of directors of a company may override the resolution of the shareholders following a re-discussion of the matter by the board of directors and the compensation committee and for specified reasons, and after determining that despite the rejection by the shareholders, the adoption of the Compensation Policy is for the benefit of the company.
A Compensation Policy that is for a period of more than three years must be approved in accordance with the above procedure every three years.
Notwithstanding the above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders and their relatives, who serve as office holders) requires the approval of only the compensation committee, if such committee determines that the amendment is not material in relation to its existing terms.
Pursuant to the Companies Law and following the recommendation of our compensation committee, our board of directors approved our compensation policy, and our shareholders, in turn, approved the Compensation Policy at our annual general meeting of shareholders that was held on December 27, 2021. Our shareholders approved amendments to our compensation policy on August 24, 2023.
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, the Company’s business plan and its long-term strategy, and creation of appropriate incentives for officeholders. 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 knowledge, skills, expertise and accomplishments of the relevant office holder; |
| ● | the office holder’s roles and 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 compensation of the other employees of the company, including those employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees of the company, as well as the impact such disparities may have on the work relationships in the company; |
| ● | the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise value of non-cash variable equity-based compensation; and |
| ● |
as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, the company’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the company.
|
The Compensation Policy must also include:
| ● | a link between variable compensation and long-term performance and measurable criteria; |
| ● | the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation; |
| ● | the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated in the company’s financial statements; |
| ● | the minimum holding or vesting period for variable, equity-based compensation; and |
| ● | maximum limits for severance compensation. |
The compensation committee is responsible for (a) recommending the compensation policy to a company’s board of directors for its approval (and subsequent approval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functions previously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:
| ● | recommending whether a compensation policy should continue in effect, if the then-current policy has a term of greater than three years (approval of either a new compensation policy or the continuation of an existing compensation policy must in any case occur every three years); |
| ● | recommending to the board of directors periodic updates to the compensation policy; |
| ● | assessing implementation of the compensation policy; and |
| ● | determining whether the compensation terms of the chief executive officer of the company need not be brought to approval of the shareholders. |
Our compensation committee’s responsibilities include:
| ● | reviewing and recommending overall compensation policies with respect to our Chief Executive Officers and other executive officers; |
| ● | reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officers and other executive officers including evaluating their performance in light of such goals and objectives; |
| ● | reviewing and approving the granting of options and other incentive awards; and |
| ● | reviewing, evaluating and making recommendations regarding the compensation and benefits for our non-employee directors. |
Internal Auditor
Under the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation of the audit committee. An internal auditor may not be:
| ● | a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights; |
| ● | a person (or a relative of a person) who has the power to appoint a director or the general manager of the company; |
| ● | an office holder (including a director) of the company (or a relative thereof); or |
| ● | a member of the company’s independent accounting firm, or anyone on his or her behalf. |
| ● | The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee is required to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. On October 22, 2014, we appointed Mr. Gewirtz Yisrael as our internal auditor. Mr. Gewirtz Yisrael is a certified internal auditor and a partner at Fahn Kanne & Co. Grant Thornton Israel, a certified public accounting firm in Israel. |
| ● | The board of directors shall determine the direct supervisor of the internal auditor. The internal auditor is required to submit his findings to the audit committee, unless specified otherwise by the board of directors. |
Approval of Related Party Transactions under Israeli Law
Fiduciary Duties of Directors and Executive Officers
The Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Executive Officers and Directors” is an office holder under the Companies Law.
An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in good faith and in the best interests of the company.
The duty of care includes a duty to use reasonable means to obtain:
| ● | information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and | |
| ● | all other important information pertaining to any such action. |
The duty of loyalty includes a duty to:
| ● | refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs; |
| ● | refrain from any activity that is competitive with the company; |
| ● | refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and | |
| ● | disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position as an office holder. |
Disclosure of Personal Interests of an Office Holder and Approval of Certain Transactions
The Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all related material information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be made promptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest of any person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative of such person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, but excluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person for whom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or she holds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obligated to disclose a personal interest if it derives solely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinary transaction is defined as any of the following:
| ● | a transaction other than in the ordinary course of business; | |
| ● | a transaction that is not on market terms; or | |
| ● | a transaction that may have a material impact on a company’s profitability, assets or liabilities. |
If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless the company’s articles of association provide for a different method of approval. Our articles of association do not provide otherwise. Further, so long as an office holder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemed a breach of the duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed by the office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s audit committee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requires approval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking to indemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the Chief Executive Officer (apart from a number of specific exceptions), then such arrangement is subject to the approval of a majority vote of the shares present and voting at a shareholders meeting, provided that either: (a) such majority includes 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 compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights. We refer to this as the Special Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require the approval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a Special Approval for Compensation.
Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be present at such a meeting or vote on that matter unless the chairman of the relevant committee or board of directors, as applicable, determines that he or she should be present in order to present the transaction that is subject to approval. Generally, if a majority of the members of the audit committee or the board of directors, as applicable, have a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors, as applicable. In the event a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval thereof shall also require the approval of the shareholders.
Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions
Pursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controlling shareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder who holds 25% or more of the voting rights in the company if no other shareholder holds more than 45% of the voting rights in the company. For this purpose, the holdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensation committee, as the case may be, the board of directors and the shareholders of the company, in that order is required for (a) extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directly or indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who is not an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred as Transaction with a Controlling Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:
| ● | at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meeting approving the transaction, excluding abstentions; or | |
| ● | the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting do not exceed 2% of the voting rights in the company. |
To the extent that any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every three years, unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances related thereto.
Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require the approval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with the company’s stated compensation policy.
Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative of a controlling shareholder, or a director that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the audit committee and board of directors.
Shareholder Duties
Pursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and to refrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect to the following matters:
| ● | an amendment to the company’s articles of association; | |
| ● | an increase of the company’s authorized share capital; | |
| ● | a merger; or | |
| ● | the approval of related party transactions and acts of office holders that require shareholder approval. |
In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.
Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows that he or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class meeting and any shareholder who has the power to appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define the substance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness.
Exculpation, Insurance and Indemnification of Directors and Officers
Under the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if a provision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpate in advance a director from liability arising out of a prohibited dividend or distribution to shareholders.
Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him or her as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provision authorizing such indemnification:
| ● | 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 reasonably 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 foreseen events and amount or criteria; |
| ● | reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (i) 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 (A) no indictment was filed against such office holder as a result of such investigation or proceeding; and (B) 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 (ii) in connection with a monetary sanction; and |
| ● | reasonable litigation expenses, including attorneys’ 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. |
Under the Companies Law and the Israeli Securities Law 5728-1968 (the “Israeli Securities Law”), a company may insure an office holder against the following liabilities incurred for acts performed by him or her 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, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company; |
| ● | a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and |
| ● | a financial liability imposed on the office holder in favor of a third party. |
Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following liabilities:
| ● | a breach of duty of care to the company or to a third party. |
| ● | any other action against which we are permitted by law to insure an office holder; |
| ● | expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including the Efficiency of Enforcement Procedures in the Securities Authority Law (legislation amendment), 5771-2011 and the Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and |
| ● | a financial liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law. |
Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:
| ● | a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company; |
| ● | a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder; |
| ● | an act or omission committed with intent to derive illegal personal benefit; or |
| ● | a fine, civil fine, administrative fine or ransom or levied against the office holder. |
Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committee and the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders.
Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Law and the Israeli Securities Law, including expenses incurred and/or paid by the office holder in connection with an Administrative Enforcement Procedure.
We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles of association and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. 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 which shall not exceed 25% of our net assets based on our most recently audited or reviewed financial statements prior to actual payment of the indemnification amount. Such maximum amount is in addition to any amount paid (if paid) under insurance and/or by a third-party pursuant to an indemnification arrangement.
| D. | Employees |
As of March 31, 2025, we had 31 employees, four of whom were employed in finance and administration and 27 of whom were employed in research and development. All Company employees are in Israel.
Israeli labor laws principally 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 defined benefit pension plans that comply with applicable Israeli legal requirements, which also include the mandatory pension payments required by applicable law and allocations for severance pay.
While none of our employees are party to any collective bargaining agreements, certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists’ Associations) are applicable to our employees by extension orders issued by the Israel Ministry of Economy (previously the Israeli Ministry of Trade, Industry and Labor). These provisions primarily concern the length of the workweek, pension fund benefits for all employees and for employees in the industry section, insurance for work-related accidents, travel expenses reimbursement, holiday leave, convalescent payments and entitlement for vacation days. We generally provide our employees with benefits and working conditions beyond the required minimums. We have never experienced any employment-related work stoppages and believe our relationship with our employees is good.
| E. | Share Ownership |
For information regarding the share ownership of our directors and executive officers, see “Item 7.A. Major Shareholders.”
| F. | Disclosure Of A Registrant’s Action To Recover Erroneously Awarded Compensation |
Not Applicable.
| Item 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
| A. | Major Shareholders |
The following table sets forth certain information as of March 31, 2025 concerning the beneficial ownership of ADSs of: (i) each director and director nominee, (ii) each Named Executive Officer in the Summary Compensation Table under “Executive Compensation” above, (iii) all executive officers and directors as a group, and (iv) each person (including any “group” as that term is used in Section 13(d)(3) of the Exchange Act) known by us to be the beneficial owner of 5% or more of our ADSs. The address for each of the persons below who are beneficial owners of 5% or more of our ADSs is our corporate address at Scinai Immunotherapeutics Ltd., Jerusalem BioPark, 2nd floor, Hadassah Ein Kerem Campus, Jerusalem, Israel. The information with respect to beneficial ownership of ADSs by certain of our major shareholders is given based on information reported in such shareholder’s Schedule 13G or Schedule 13D.
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to ADSs. ADSs issuable under share options or other conversion rights that were exercisable within 60 days after March 31, 2025, are deemed outstanding for the purpose of computing the percentage ownership of the person holding the options or other conversion rights but are not deemed outstanding for the purpose of computing the percentage ownership of any other person. The percentage of ADSs beneficially owned is based on 999,919 ADSs outstanding as of March 31, 2025.
Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all ADSs that they beneficially own.
None of our shareholders has different voting rights from other shareholders. To the best of our knowledge, we are not owned or controlled, directly or indirectly, by another corporation or by any foreign government. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
Except as otherwise indicated in the footnotes to this table, we believe the persons named in this table have sole voting and investment power with respect to all the ordinary shares indicated.
| Percent of | ||||||||
| ADSs | Class % | |||||||
| Directors and Executive Officers | ||||||||
| Avner Rotman (1) | 1,670 | * | ||||||
| Mark Germain (2) | 4,605 | * | ||||||
| Morris Laster (3) | 1,670 | * | ||||||
| Adi Raviv (4) | 1,670 | * | ||||||
| Yael Margolin (5) | 1,670 | * | ||||||
| Sam Moed (6) | 2,000 | * | ||||||
| Amir Reichman (7) | 10,770 | * | ||||||
| Jay Green (8) | 1,550 | * | ||||||
| Uri Ben-Or (9) | 589 | * | ||||||
| Tamar Ben-Yedidia (10) | 2,592 | * | ||||||
| Elad Mark (11) | 2,139 | * | ||||||
| Dalit Weinstein Fischer (12) | 1,464 | |||||||
| All executive officers and directors as a group (12 people) | 25,096 | * | ||||||
| 5% Shareholders | ||||||||
| Daniel E. Stone (13) | 104,046 | 9.99 | % | |||||
| Richard J. Kertzman (14) | 102,020 | 9.99 | % | |||||
| YA II PN, Ltd.(15) | 93,274 | 9.32 | % | |||||
| * | Less than 1%. |
|
(1)
(2) |
Consists of 50 ADSs, and 1,620 ADSs issuable upon settlement of vested options and RSUs.
Consists of ADSs issuable upon exercise of options. |
| (3) | Consists of 50 ADSs, and 1,620 ADSs issuable upon settlement of vested options and RSUs. |
| (4) | Consists of 50 ADSs, and 1,620 ADSs issuable upon settlement of vested options and RSUs. |
|
(5)
(6) |
Consists of 50 ADSs, and 1,620 ADSs issuable upon settlement of vested options and RSUs.
Consists of ADSs issuable upon exercise of options. |
| (7) | Consists of 8,077 ADSs and 2,693 ADSs issuable upon settlement of vested RSUs. |
| (8) | Consists of 39 ADSs, and 1,511 ADSs issuable upon settlement of vested RSUs. |
| (9) | Consists of 276 ADSs, and 313 ADSs issuable upon settlement of vested RSUs. |
| (10) | Consists of 1,355 ADSs, and 1,237 ADSs issuable upon settlement of RSUs. |
| (11) | Consists of 1,272 ADSs, and 867 ADSs issuable upon settlement of RSUs. |
| (12) | Consists of 1,023 ADSs, and 441 ADSs issuable upon settlement of RSUs. |
| (13) | Includes 62,400 ADSs held directly and 41,646 ADSs issuable upon exercise of pre-funded warrants held by RK Stone Miami LLC (“RK”). RK holds 484,928 pre-funded warrants, which may not be exercised if such exercise would result in beneficial ownership by RK, together with its affiliates (which include the reporting person) and certain other persons, of greater than 9.99% of the ordinary shares. Future issuances of ordinary shares or ADSs by us to third parties are expected to cause additional amounts of pre-funded warrants to become exercisable within the foregoing limitation, without increasing RK’s beneficial ownership percentage. The address of Daniel E Stone is 1200 Brickell Avenue, #1470 Miami, FL 33131. |
| (14) | Includes 80,736 ADSs held directly and 21,284 ADSs issuable upon exercise of pre-funded warrants held by LCK JNK1 LLC and LCK JNK LLC (together, “LCK”). LCK holds 80,757 pre-funded warrants, which may not be exercised if such exercise would result in beneficial ownership by Mr. Kertzman, together with his affiliates (which include the reporting person) and certain other persons, of greater than 9.99% of the ordinary shares. Future issuances of ordinary shares or ADSs by us to third parties are expected to cause additional amounts of pre-funded warrants to become exercisable within the foregoing limitation, without increasing Mr. Kertzman’s person's beneficial ownership percentage. The address of Mr. Kertzman is 3105 NW 107th Avenue, Suite 103, Doral, FL 33172. |
| (15) | Pursuant to the Standby Equity Purchase Agreement with YA, YA has committed to purchase up to $10.0 million of ADSs at our direction from time to time, subject to the restrictions and satisfaction of the conditions in the Purchase Agreement. See “Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Resources”. Under the agreement, we are prohibited from issuing and selling shares to YA II to the extent that it would cause the aggregate number of ADSs beneficially owned by YA and its affiliates to exceed 9.99% of the then outstanding ADSs. All investment decisions for YA are made by Mr. Mark Angelo. The business address of YA is 1012 Springfield Avenue, Mountainside, NJ 07092. |
| B. | Related Party Transactions |
The following is a description of some of the transactions with related parties to which we are a party to, and which were in effect within the past three fiscal years. The descriptions provided below are summaries of the terms of such agreements and do not purport to be complete and are qualified in their entirety by the complete agreements.
We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained from unaffiliated third parties. See “Approval of Related Party Transactions under Israeli Law.”
Indemnification Agreements
Our articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law. We have obtained directors’ and officers’ insurance for each of our officers and directors and have entered into indemnification agreements with all of our current officers and directors.
We have entered into indemnification and exculpation agreements with each of our current office holders and directors exculpating them to the fullest extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the law and our articles of association, including with respect to liabilities resulting from the initial public offering in the U.S., to the extent such liabilities are not covered by insurance. On March 1, 2015, our general shareholders meeting approved the grant of an indemnification and exculpation agreement under the same terms and conditions for each of our current office holders and directors.
Employment and Service Agreements
We have or have had employment, service or related agreements with each member of our senior management. See Item 6.
Family Relationships
There are no family relationships between any members of our executive management and our directors.
| C. | Interests of Experts and Counsel |
Not applicable.
| Item 8. | FINANCIAL INFORMATION |
| A. | Consolidated Statements and Other Financial Information |
Consolidated Financial Statements
We have appended our consolidated financial statements at the end of this annual report, starting at page F-1, as part of this annual report.
Legal Proceedings
We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, or proceeding by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company, threatened against or affecting our Company, our ordinary shares, our officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Dividend Policy
We have never declared or paid cash dividends to our shareholders. Currently, we do not intend to pay cash dividends. We intend to reinvest any earnings in developing and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects, applicable Israeli law and other factors our board of directors may deem relevant. In addition, the distribution of dividends is limited by Israeli law, which permits the distribution of dividends only out of distributable profits except if otherwise approved by an Israeli court. In addition, if we paya dividend out of income attributed to our Benefited Enterprise during the tax exemption period, we may be subject to tax on the grossed-up amount of such income at the corporate tax rate which would have been applied to such Benefited Enterprise’s income had we not enjoyed the exemption for a Benefited Enterprise.
If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on our ordinary shares, if any, will be paid to ADS holders in U.S. dollars.
| B. | Significant Changes |
No significant changes have occurred since December 31, 2023, except as otherwise disclosed in this annual report.
| Item 9. | THE OFFER AND LISTING |
| A. | Listing Details |
Our Ordinary Shares were traded on the TASE under the symbol “BNDX” from June 18, 2007 and under the symbol “BVXV” from May 18, 2015 to February 2018 and were voluntarily delisted from trading on the TASE, effective February 2018. The ADSs have traded on the Nasdaq Capital Market under the symbol “BVXV” since May 11, 2015, and since September 7, 2023, under the symbol “SCNI”. The ADS warrants issued to investors in our initial public offering in the U.S. were traded on the Nasdaq Capital Market under the symbol “BVXVW” from May 11, 2015 until May 13, 2020.
| B. | Plan of Distribution |
Not applicable.
| C. | Markets |
The ADSs, each representing four hundred Ordinary Shares and evidenced by an American depositary receipt, or ADR, are traded on the Nasdaq Global Market under the symbol “SCNI.” The ADRs were issued pursuant to a Depositary Agreement entered into with The Bank of New York Mellon. Effective May 21, 2024, we effected a ratio change of the ADSs to our ordinary shares from the previous ratio of one ADS representing 400 non-traded ordinary shares to a new ratio of one ADS representing 4,000 ordinary shares. Effective November 25, 2022, we effected a ratio change of the ADSs to our ordinary shares from the previous ratio of one ADS representing 40 non-traded ordinary shares to a new ratio of one ADS representing 400 ordinary shares.
| D. | Selling Shareholders |
Not applicable.
| E. | Dilution |
Not applicable.
| F. | Expenses of the Issue |
Not applicable.
Item 10. ADDITIONAL INFORMATION
| A. | Share Capital |
Not applicable.
| B. | Articles of Association |
Our number with the Israeli Registrar of Companies is 51-343610-5. Our purpose as set forth in our Articles of Association is to engage in every lawful purpose in the field of biotechnology.
Our authorized share capital consists of (i) 40,000,000,000 Ordinary Shares, no par value, the equivalent of 10 million ADSs (each ADS representing 4,000 Ordinary Shares), and (ii) 1.000 preferred shares, no par value per share. As of March 31, 2025, there were 3,999,675,584 Ordinary Shares issued and outstanding (all of which were represented by ADSs other than 3,584 Ordinary Shares). All of our outstanding Ordinary Shares are validly issued, fully paid and non-assessable. Our Ordinary Shares are not redeemable and do not have any preemptive rights.
Voting Rights
Holders of our Ordinary Shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders at a shareholder meeting. Shareholders may vote at shareholder meetings either in person, by proxy or by written ballot. Israeli law does not allow public companies to adopt shareholder resolutions by means of written consent in lieu of a shareholder meeting. According to the Companies Law and the regulations promulgated thereunder, for purposes of determining the shareholders entitled to notice and to vote at such meeting, the board of directors may fix the record date not more than 60 nor less than four calendar days prior to the date of the meeting, provided that an announcement regarding the general meeting be given prior to the record date. Unless stipulated differently in the Companies Law or in the articles of association, all shareholders’ resolutions shall be approved by a simple majority vote. Except as otherwise disclosed herein, an amendment to our articles of association requires the prior approval of the holders of at least 75% of our Ordinary Shares, represented and voting at a general meeting.
Our Ordinary Shares do not have cumulative voting rights for the election of directors. As a result, the holders of a majority of the voting power represented at a shareholders meeting have the power to elect all of our directors, subject to the special approval requirements for external directors under the Israeli Companies Law.
Transfer of Shares
Our Ordinary Shares that are fully paid for are issued in registered form and may be freely transferred under our articles of association, unless the transfer is restricted or prohibited by applicable law or the rules of a stock exchange on which the shares are traded. The ownership or voting of our Ordinary Shares by non-residents of Israel is not restricted in any way by our articles of association or Israeli law, except for ownership by nationals of some countries that are, or have been, in a state of war with Israel.
The Powers of the Directors
Our board of directors shall direct the Company’s policy and shall supervise the performance of the Company’s Chief Executive Officer. Pursuant to the Companies Law and our articles of association, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised or taken by our shareholders, including the power to borrow money for company purposes.
Amendment of share capital
Our articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must be approved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions that have the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance of shares for less than their nominal value, require a resolution of our board of directors and court approval.
Dividends
Under Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that the distribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, the distribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distribution according to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date of distribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seek the approval of the court in order to distribute a dividend. The court may approve our request if it is determined that there is no reasonable concern that the payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.
Shareholder Meetings
Under Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event 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 as special meetings. Our board of directors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, as a company whose shares are listed for trade on an exchange outside of Israel, the Companies Law provides that our board of directors is required to convene a special meeting upon the written request of (i) any two of our directors or one quarter of the directors then in office; or (ii) one or more shareholders holding, in the aggregate either (a) 10% of our issued share capital and 1% of our outstanding voting power, or (b) 10% of our outstanding voting power.
Under Israeli law, one or more shareholders holding at least 1% of the voting rights at the general meeting may request that the board of directors include a matter in the agenda of a general meeting to be convened in the future (or, with respect to a company whose shares are listed for trade on an exchange outside of Israel, such as us, 5% if the matter is the appointment or removal of a director), provided that it is appropriate to discuss such any other matter at the general meeting
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. Furthermore, the Companies Law and our articles of association require that resolutions regarding the following matters must be passed at a general meeting of our shareholders:
| ● | amendments to our articles of association; | |
| ● | appointment or termination of our auditors; | |
| ● | appointment of directors and appointment and dismissal of external directors; |
| ● | approval of acts and transactions requiring general meeting approval pursuant to the Companies Law; | |
| ● | director compensation, indemnification and change of the principal executive officer; | |
| ● | increases or reductions of our authorized share capital; | |
| ● | a merger; | |
| ● | the exercise of our board of directors’ 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; and | |
| ● | authorizing the chairman of the board of directors or his relative to act as the company’s chief executive officer or act with such authority; or authorize the company’s chief executive officer or his relative to act as the chairman of the board of directors or act with such authority. |
The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda of the meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of a merger, notice must be provided at least 35 days prior to the meeting.
Quorum
The quorum required for our general meetings of shareholders consists of one or more shareholders present in person, by proxy or by other voting instrument in accordance with the Companies Law who hold or represent, in the aggregate, at least 10% (or, for so long we do not qualify as a foreign private issuer and for only so long as required by the Nasdaq Stock Market, 33 1/3% of the Company’s outstanding Ordinary Shares) of the total outstanding voting rights, within half an hour from the appointed time.
A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in the summons or notice of the meeting. At the reconvened meeting, any number of our shareholders present in person or by proxy shall constitute a lawful quorum.
Resolutions
Our articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law or by another provision of the articles of association.
Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholder indicates how he or she votes on resolutions relating to the following matters:
| ● | an appointment or removal of directors; | |
| ● | an approval of transactions with office holders or interested or related parties, that require shareholder approval; | |
| ● | an approval of a merger; |
| ● | authorizing the chairman of the board of directors or his relative to act as the company’s chief executive officer or act with such authority; or authorize the company’s chief executive officer or his relative to act as the chairman of the board of directors or act with such authority; |
| ● | any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate any additional matters; and | |
| ● | other matters which may be prescribed by Israel’s Minister of Justice. |
The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.
The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its other shareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matters such as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions. A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, any shareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, can appoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The Companies Law does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to act with fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.
Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by a simple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for the voluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by written ballot and voting on the resolution.
In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our Ordinary Shares in proportion to their shareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.
Access to Corporate Records
Under the Companies Law, all shareholders of a company generally have the right to review minutes of the company’s general meetings, its shareholders register and principal shareholders register, articles of association, financial statements and any document it is required by law to file publicly with the Israeli Companies Registrar and the ISA. Any of our shareholders may request to review any document in our possession that relates to any action or transaction with a related party, interested party or office holder that requires shareholder approval under the Companies Law. We may deny a request to review a document if we determine that the request was not made in good faith, that the document contains a commercial secret or a patent or that the document’s disclosure may otherwise prejudice our interests.
Acquisitions under Israeli Law
Full Tender Offer
A person wishing to acquire shares of a public Israeli company and who would as a result hold over 90% of the target company’s issued and outstanding share capital is required by the Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the issued and outstanding shares of the company. A person wishing to acquire shares of a public Israeli company and who would as a result hold over 90% of the issued and outstanding share capital of a certain class of shares is required to make a tender offer to all of the shareholders who hold shares of the same class for the purchase of all of the issued and outstanding shares of the same class. If the shareholders who do not accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer except that if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by a majority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer). However, a shareholder that had its shares so transferred may petition the court within six months from the date of acceptance of the full tender offer, whether or not such shareholder agreed to the tender or not, to determine whether the tender offer was for less than fair value and whether the fair value should be paid as determined by the court unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights, so long as prior to the acceptance of the full tender offer, the acquirer and the company disclosed the information required by law in connection with the full tender offer. If the shareholders who did not accept the tender offer hold 5% or more of the issued and outstanding share capital of the company or of the applicable class, the acquirer may not acquire shares of the company that will increase its holdings to more than 90% of the company’s issued and outstanding share capital or of the applicable class from shareholders who accepted the tender offer.
Special Tender Offer
The Companies Law provides that an acquisition of shares of a public Israeli company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a holder of 25% or more of the voting rights in the company, unless one of the exemptions in the Companies Law is met. This rule does not apply if there is already another holder of at least 25% of the voting rights in the company. Similarly, the Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a holder of 45% or more of the voting rights in the company, if there is no other shareholder of the company who holds 45% or more of the voting rights in the company, unless one of the exemptions in the Companies Law is met.
A special tender offer must be extended to all shareholders of a company, but the offeror is not required to purchase shares representing more than 5% of the voting power attached to the company’s outstanding shares, regardless of how many shares are tendered by shareholders. A special tender offer may be consummated only if (i) at least 5% of the voting power attached to the company’s outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer.
If a special tender offer is accepted, then the purchaser or any person or entity controlling it or under common control with the purchaser or such controlling person or entity may not make a subsequent tender offer for the purchase of shares of the target company and may not enter into a merger with the target company for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.
Under regulations enacted pursuant to the Companies Law, the above special tender offer requirements may not apply to companies whose shares are listed for trading on a foreign stock exchange if, among other things, the relevant foreign laws or the rules of the stock exchange, include provisions limiting the percentage of control which may be acquired or that the purchaser is required to make a tender offer to the public. However, the Israeli Securities Authority’s opinion is that such leniency does not apply with respect to companies whose shares are listed for trading on stock exchanges in the United States, including the NASDAQ Capital Market, which do not provide for sufficient legal restrictions on obtaining control or an obligation to make a tender offer to the public, therefore the special tender offer requirements shall apply to such companies.
Merger
The Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements described under the Companies Law are met, a majority of each party’s shares voted on the proposed merger at a shareholders’ meeting called with at least 35 days’ prior notice.
For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares represented at the shareholders meeting that are held by parties other than the other party to the merger, or by any person who holds 25% or more of the outstanding shares or the right to appoint 25% or more of the directors of the other party, vote against the merger. If the transaction would have been approved but for the separate approval of each class or the exclusion of the votes of certain shareholders as provided above, a court may still approve the merger upon the request of holders of at least 25% of the voting rights of a company, if the court holds that the merger is fair and reasonable, taking into account the value of the parties to the merger and the consideration offered to the shareholders.
Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger, and may further give instructions to secure the rights of creditors.
In addition, a merger may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger was filed by each party with the Israeli Registrar of Companies and 30 days have passed from the date the merger was approved by the shareholders of each party.
Antitakeover Measures
The Companies Law allows us to create and issue shares having rights different from those attached to our Ordinary Shares, including shares providing certain preferred rights, distributions or other matters and shares having preemptive rights. As of the date of this prospectus, we have authorized and issued ordinary shares and preferred shares. In the future, if we do create and issue a class of shares other than Ordinary Shares, such class of shares, depending on the specific rights that may be attached to them, may delay or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of their Ordinary Shares. The authorization of a new class of shares will require an amendment to our articles of association which requires the prior approval of the holders of at least 75% of our Ordinary Shares at a general meeting. Shareholders voting in such meeting will be subject to the restrictions provided in the Companies Law as described above.
Transfer Agent and Depositary
The transfer agent and registrar for our Ordinary Shares is Vstock Transfer, LLC. The ADSs were issued pursuant to a Depositary Agreement entered into with The Bank of New York Mellon, which acts as depositary.
| C. | Material Contracts |
Our material agreements are (i) the license agreements and research collaboration agreements with MPG, (ii) the finance agreement with EIB, and (iii) our lease agreement for our facility in Jerusalem, each of which is described elsewhere in this Annual Report. We have not entered into any other material agreements in the two years immediately preceding the date of this Annual Report.
| D. | Exchange Controls |
In 1998, Israeli currency control regulations were liberalized significantly, so that Israeli residents generally may freely deal in foreign currency and foreign assets, and non-residents may freely deal in Israeli currency and Israeli assets. There are currently no Israeli currency control restrictions on remittances of dividends on the ordinary shares or the proceeds from the sale of the shares provided that all taxes were paid or withheld; however, legislation remains in effect pursuant to which currency controls can be imposed by administrative action at any time.
Non-residents of Israel may freely hold and trade our securities. Neither our articles of association nor the laws of the State of Israel restrict in any way the ownership or voting of ordinary shares by non-residents, except that such restrictions may exist with respect to citizens of countries which are in a state of war with Israel. Israeli residents are allowed to purchase our ordinary shares.
| E. | Taxation |
The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our ordinary shares or ADSs (both referred to below as the Shares). You should consult your own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.
Material U.S. Federal Income Tax Considerations
The following is a summary of the material U.S. federal income tax consequences relating to the acquisition, ownership, and disposition of the Warrants and ADSs (collectively, the “Securities”) by U.S. Holders, as defined below. This summary addresses solely U.S. Holders who acquire the Securities pursuant to this offering and who hold the Securities as capital assets for tax purposes. This summary is based on current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), current and proposed U.S. Treasury regulations promulgated thereunder, and administrative and judicial decisions as of the date hereof, all of which are subject to change, possibly on a retroactive basis. In addition, this section is based in part upon representations of the depositary and the assumption that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms. This summary does not address all U.S. federal income tax matters that may be relevant to a particular holder or all tax considerations that may be relevant with respect to an investment in the Securities.
This summary does not address tax considerations applicable to a holder of the Securities that may be subject to special tax rules including, without limitation, the following:
| ● | dealers or traders in securities, currencies, or notional principal contracts; |
| ● | banks, insurance companies, and other financial institutions; |
| ● | real estate investment trusts or regulated investment companies; |
| ● | persons or corporations subject to an alternative minimum tax; |
| ● | tax-exempt organizations; |
| ● | traders that have elected mark-to-market accounting; |
| ● | corporations that accumulate earnings to avoid U.S. tax; |
| ● | pension plans; |
| ● | investors that hold the Securities as part of a “straddle,” “hedge,” or “conversion transaction” with other investments; |
| ● | persons that actually or constructively own 10 percent or more of our Ordinary Shares outstanding by vote or by value; |
| ● | persons that are treated as partnerships or other pass-through entities for U.S. federal income purposes; and |
| ● | U.S. Holders whose functional currency is not the U.S. dollar. |
This summary does not address the effect of any U.S. federal taxation other than U.S. federal income taxation, and does not include any discussion of state, local, or foreign tax consequences to a holder of the Securities. In addition, this summary does not include any discussion of the U.S. federal income tax consequences to any holder of Securities that is not a U.S. Holder.
You are urged to consult your own tax advisor regarding the foreign and U.S. federal, state, and local income and other tax consequences of an investment in the Securities, including the potential effects of any proposed legislation, if enacted.
For purposes of this summary, a “U.S. Holder” means a beneficial owner of a Security that is for U.S. federal income tax purposes:
| ● | an individual who is a citizen or resident of the U.S.; |
| ● | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the U.S. or under the laws of the U.S., any state thereof, or the District of Columbia; |
| ● | an estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
| ● | a trust (1) if (a) a court within the U.S. is able to exercise primary supervision over the administration of the trust and (b) one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
If an entity or arrangement that is classified as a partnership for U.S. federal tax purposes holds any Securities, the U.S. federal tax treatment of its partners will generally depend upon the status of the partners and the activities of the partnership. Entities or arrangements that are classified as partnerships for U.S. federal tax purposes and persons holding any Securities through such entities should consult their own tax advisors.
In general, and assuming that all obligations under the Deposit Agreement will be satisfied in accordance with the terms of the Deposit Agreement, if you hold ADSs, you will be treated as the holder of the underlying Ordinary Shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, gain or loss generally will not be recognized if you exchange ADSs for the underlying Ordinary Shares represented by those ADSs.
Distributions
If we make any distribution with respect to the Securities, subject to the discussion under “– Passive Foreign Investment Companies” below, the gross amount of any distribution actually or constructively received by a U.S. Holder (through the Depositary) with respect to a Security will generally be taxable to the U.S. Holder as foreign-source dividend income to the extent of our current and accumulated earnings and profits as determined under U.S. federal income tax principles. The amount distributed will include the amount of any Israeli taxes withheld from such distribution, as described above under the caption “Material Tax Considerations-Israeli Tax Considerations.” A U.S. Holder will not be eligible for any dividends received deduction in respect of the dividends paid by us, which deduction is otherwise available to a corporate U.S. Holder in respect of dividends received from a domestic corporation. Distributions in excess of earnings and profits will be non-taxable to the U.S. Holder to the extent of the U.S. Holder’s adjusted tax basis in its Securities. Distributions in excess of such adjusted tax basis will generally be taxable to a U.S. Holder as capital gain from the sale or exchange of property as described below under “-Sale or Other Disposition of ADSs and Warrants.” If we do not report to a U.S. Holder the portion of a distribution that exceeds earnings and profits, then the distribution will generally be taxable as a dividend. The amount of any distribution of property other than cash will be the fair market value of that property on the date of distribution.
Under the Code, certain qualified dividends received by non-corporate U.S. Holders will be subject to U.S. federal income tax at the preferential long-term capital gains of, currently, a maximum of 20%. This preferential income tax rate is applicable only to dividends paid by a “qualified foreign corporation” that is not a PFIC (as defined below under “– Passive Foreign Investment Companies,”) for the year in which the dividend is paid or for the preceding taxable year, and only with respect to the Securities held by a qualified U.S. Holder (i.e., a non-corporate holder) for a minimum holding period (generally 61 days during the 121-day period beginning 60 days before the ex-dividend date) and certain other holding period requirements are met. If such holding period requirements are met, dividends we pay with respect to the Securities generally will be qualified dividend income. However, if we were a PFIC, dividends paid by us to individual U.S. Holders would not be eligible for the reduced income tax rate applicable to qualified dividends. As discussed below under “– Passive Foreign Investment Companies,” we do not anticipate being treated as a PFIC for this year; however, there can be no assurance that we will not be treated as a PFIC for our current taxable or future taxable years. You should consult your own tax advisor regarding the availability of this preferential tax rate under your particular circumstances.
The amount of any distribution paid in a currency other than U.S. dollars (a “foreign currency”), including the amount of any withholding tax thereon, will be included in the gross income of a U.S. Holder in an amount equal to the U.S. dollar value of the foreign currency calculated by reference to the exchange rate in effect on the date of the U.S. Holder’s (or, in the case of ADSs, the depositary’s) receipt of the dividend, actively or constructively, regardless of whether the foreign currency is converted into U.S. dollars. If the foreign currency is converted into U.S. dollars on the date of receipt, a U.S. Holder generally should not be required to recognize a foreign currency gain or loss in respect of the dividend. If the foreign currency received in the distribution is not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any gain or loss on a subsequent conversion or other disposition of the foreign currency will be treated as U.S. source ordinary income or loss and will not be eligible for the preferential rate applicable to qualified dividend income.
Subject to certain conditions and limitations, any Israeli taxes withheld on dividends may be creditable against a U.S. Holder’s U.S. federal income tax liability, subject to generally applicable limitations. The rules relating to foreign tax credits and the timing thereof are complex. You should consult your own tax advisors regarding the availability of a foreign tax credit in your particular situation.
Sale, Exchange, or Other Disposition of ADSs and Warrants
Subject to the discussion under “– Passive Foreign Investment Companies” below, a U.S. Holder that sells or otherwise disposes of its Securities will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount realized on the sale or other disposition and such U.S. Holder’s adjusted basis in the Securities. Such gain or loss generally will be capital gain or loss and will be a long-term capital gain or loss if the U.S. Holder’s holding period of the Securities exceeds one year at the time of the sale or other disposition. Long-term capital gains realized by non-corporate U.S. Holders are generally subject to a preferential U.S. federal income tax rate. In general, gain or loss recognized by a U.S. Holder on the sale or other disposition of the Securities will be U.S. source gain or loss for purposes of the foreign tax credit limitation. However, if we are a PFIC, any such gain will be subject to the PFIC rules, as discussed below, rather than being taxed as a capital gain. As discussed below in “-Passive Foreign Investment Companies,” we do not anticipate being a PFIC for this year; however, there can be no assurance that we will not be treated as a PFIC for our current taxable year and future taxable years.
If a U.S. Holder receives foreign currency upon a sale or exchange of the Securities, gain or loss will be recognized in the manner described above under “– Distributions.” However, if such foreign currency is converted into U.S. dollars on the date received by the U.S. Holder, the U.S. Holder generally should not be required to recognize any foreign currency gain or loss on such conversion.
As discussed above under the heading “Material Tax Considerations-Israeli Tax Considerations-Taxation of Shareholders,” a U.S. Holder who holds Securities through an Israeli broker or other Israeli intermediary may be subject to Israeli withholding tax on any capital gains recognized on a sale or other disposition of the Securities. Any Israeli tax paid under circumstances in which an exemption from (or a refund of or a reduction in) such tax was available will not be creditable for U.S. federal income tax purposes. U.S. Holders are advised to consult their Israeli broker or intermediary regarding the procedures for obtaining an exemption or reduction.
Medicare Tax on Unearned Income
Non-corporate U.S. Holders whose income exceeds certain thresholds are required to pay an additional 3.8% tax on their net investment income, which includes dividends paid on the Securities and capital gains from the sale or other disposition of the Securities.
Passive Foreign Investment Companies
Although we do not anticipate being treated as a passive foreign investment company (“PFIC”) for this year, the treatment of the Company as a PFIC is based on the value and composition of our assets, and no assurance can be given that we will not be treated as a PFIC for U.S. federal income tax purposes for our current taxable year or future taxable years. We will be considered a PFIC for any taxable year if:
| ● | at least 75% of our gross income for such taxable year is passive income; or |
| ● | at least 50% of the value of our assets (based on an average of the fair market values of the assets determined at the end of each quarter during a taxable year) is attributable to assets that produce or are held for the production of passive income. |
For purposes of the above calculations, if we own, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, we will be treated as if we (a) held a proportionate share of the assets of such other corporation and (b) received a proportionate share of the income of such other corporation directly. Passive income generally includes, among other things, dividends, interest, rents, royalties and certain capital gain, but generally excludes rents and royalties that are derived in the active conduct of a trade or business and which are received from a person other than a related person.
A separate determination must be made each taxable year as to whether we are a PFIC (after the close of each such taxable year). Because the value of our assets for purposes of the asset test will generally be determined by reference to the market price of the ADSs and Warrants, our PFIC status will also depend in large part on the market price of the Securities, which may fluctuate significantly.
If we are a PFIC for any year during which a U.S. Holder holds any Securities, we generally will be treated as a PFIC with respect to such U.S. Holder for all succeeding years during which such U.S. Holder holds the Securities, unless we cease to be a PFIC and such U.S. Holder makes a “deemed sale” election with respect to the Securities that such U.S. Holder holds. For this purpose, a U.S. Holder that acquired an ADS through the exercise of a Warrant will be treated as holding such ADS for the period during which such Warrant was held. A U.S. Holder that makes such an election will be deemed to have sold the Securities it holds at their fair market value on the last day of the last taxable year in which we qualified as a PFIC, and any gain from such deemed sale will be subject to the U.S. federal income tax treatment described below. After the deemed sale election, the Securities with respect to which the deemed sale election was made will not be treated as shares in a PFIC unless we subsequently become a PFIC.
For each taxable year for which we are treated as a PFIC with respect to a U.S. Holder, such U.S. Holder will be subject to special tax rules with respect to any “excess distribution” it receives and any gain it realizes from a sale or other disposition (including a pledge) of the Securities, unless it makes a “mark-to-market” election or a “qualified electing fund” election discussed below. Distributions that a U.S. Holder receives in a taxable year that are greater than 125% of the average annual distributions it received during the shorter of the three preceding taxable years or its holding period for the Securities will be treated as an excess distribution. Under these special tax rules, if a U.S. Holder receives any excess distribution or realizes any gain from a sale or other disposition of the Securities:
| ● | the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the Securities; |
| ● | the amount of excess distribution or gain allocated to the current taxable year, and any taxable year before the first taxable year in which we were a PFIC, must be included in the U.S. Holder’s gross income (as ordinary income) for the tax year of the sale or disposition; and |
| ● | the amount allocated to each other year will be subject to the highest marginal tax rate in effect with respect to such U.S. Holder for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to such amounts allocated to each other year. |
The tax liability for amounts allocated to years before the year of disposition or “excess distribution” cannot be offset by any losses for such years. Additionally, any gains realized on the sale of the Securities cannot be treated as capital gains.
If we are treated as a PFIC with respect to a U.S. Holder for any taxable year, to the extent any of our subsidiaries are also PFICs, such U.S. Holder will be deemed to own its proportionate share of any such subsidiaries that are PFICs, and such U.S. Holder may be subject to the rules described in the preceding two paragraphs with respect to the shares of such subsidiaries that are PFICs it will be deemed to own. As a result, a U.S. Holder may incur liability for any “excess distribution” described above if we receive a distribution from such subsidiaries that are PFICs or if we dispose of, or are deemed to dispose of, any shares in such subsidiaries that are PFICs. You should consult your own tax advisor regarding the application of the PFIC rules to any of our subsidiaries.
Alternatively, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the general tax treatment for PFICs discussed above. If a U.S. Holder makes a mark-to-market election for the ADSs, such U.S. Holder will include in income for each year we are a PFIC an amount equal to the excess, if any, of the fair market value of the ADSs as of the close of such U.S. Holder’s taxable year over such U.S. Holder’s adjusted basis in such ADSs. A U.S. Holder is allowed a deduction for the excess, if any, of the adjusted basis of the ADSs over their fair market value as of the close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-market gains on the ADSs included in a U.S. Holder’s income for prior taxable years. Amounts included in a U.S. Holder’s income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ADSs, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the ADSs, as well as to any loss realized on the actual sale or disposition of the ADSs to the extent the amount of such loss does not exceed the net mark-to-market gains previously included for the ADSs. A U.S. Holder’s basis in the ADSs will be adjusted to reflect any such income or loss amounts. If a U.S. Holder makes a valid mark-to-market election, the tax rules that apply to distributions by corporations that are not PFICs will apply to distributions by us, except the lower applicable tax rate for qualified dividend income will not apply. If we cease to be a PFIC when a U.S. Holder has a mark-to-market election in effect, gain or loss realized by such U.S. Holder on the sale of the ADSs will be a capital gain or loss and taxed in the manner described above under “– Sale, Exchange, or Other Disposition of ADSs and Warrants.”
The mark-to-market election is available only for “marketable stock,” which is a stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter, or regularly traded, on a qualified exchange or another market, as defined in applicable U.S. Treasury regulations. Any trades that have as their principal purpose meeting this requirement will be disregarded. The ADSs are listed on Nasdaq and, accordingly, provided the ADSs are regularly traded, the mark-to-market election will be available to a U.S. Holder of ADSs if we are a PFIC. Once made, the election cannot be revoked without the consent of the IRS unless the ADSs cease to be marketable stock. If we are a PFIC for any year in which the U.S. Holder owns the ADSs but before a mark-to-market election is made, the interest charge rules described above will apply to any mark-to-market gain recognized in the year the election is made. If any of our subsidiaries are or become PFICs, the mark-to-market election will not be available with respect to the shares of such subsidiaries that are treated as owned by a U.S. Holder. Consequently, a U.S. Holder could be subject to the PFIC rules with respect to income of the lower-tier PFICs the value of which already had been taken into account indirectly via mark-to-market adjustments. You should consult your own tax advisors as to the availability and desirability of a mark-to-market election, as well as the impact of such election on interests in any lower-tier PFICs.
In certain circumstances, a U.S. Holder of stock in a PFIC can make a “qualified electing fund” election to mitigate some of the adverse tax consequences of holding stock in a PFIC by including in income its share of the corporation’s income on a current basis. However, we do not currently intend to prepare or provide the information that would enable a U.S. Holder to make a qualified electing fund election.
Unless otherwise provided by the U.S. Treasury, each U.S. shareholder of a PFIC is required to file an annual information return on IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualifying Electing Fund) containing such information as the U.S. Treasury may require. A U.S. Holder’s failure to file such annual information return could result in the imposition of penalties and the extension of the statute of limitations with respect to U.S. federal income tax. You should consult your own tax advisors regarding the requirements of filing such information returns under these rules, taking into account the uncertainty as to whether we are currently treated as or may become a PFIC.
YOU ARE STRONGLY URGED TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE IMPACT AND APPLICATION OF THE PFIC RULES ON YOUR INVESTMENT IN THE SECURITIES.
Backup Withholding and Information Reporting
Payments of dividends with respect to the Securities and the proceeds from the sale, retirement, or other disposition of the Securities made by a U.S. paying agent or other U.S. intermediary will generally be reported to the IRS and to the U.S. Holder as may be required under applicable U.S. Treasury regulations. We, or an agent, a broker, or any paying agent, as the case may be, may be required to withhold tax (backup withholding), currently at the rate of 24%, if a non-corporate U.S. Holder that is not otherwise exempt fails to provide an accurate taxpayer identification number and comply with other IRS requirements concerning information reporting. Certain U.S. Holders (including, among others, corporations and tax-exempt organizations) are not subject to backup withholding. Backup withholding is not an additional tax. Any amount of backup withholding withheld may be used as a credit against your U.S. federal income tax liability or may be refunded provided that the required information is timely furnished to the IRS. U.S. Holders should consult their own tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining an exemption.
You should consult your own tax advisors regarding the backup withholding tax and information reporting rules.
Foreign Asset Reporting
Certain U.S. Holders who are individuals are required to report information relating to an interest in the Securities, subject to certain exceptions (including an exception for shares held in accounts maintained by financial institutions) by filing IRS Form 8938 (Statement of Specified Foreign Financial Assets) with their federal income tax return. 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 the Securities.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF AN INVESTMENT IN THE SECURITIES IN LIGHT OF SUCH INVESTOR’S PARTICULAR CIRCUMSTANCES.
Israeli Tax Considerations
General
The following is a brief summary of the material tax consequences under Israeli law concerning the purchase, ownership and disposition of American Depositary Shares, representing Ordinary Shares, Pre-funded Warrants and Warrants (collectively, the “Shares”) by persons who acquired the Shares in this offering.
This discussion does not purport to constitute a complete analysis of all potential tax consequences applicable to investors upon purchasing, owning or disposing of our Shares. In particular, this discussion does not take into account the specific circumstances of any particular investor (such as tax-exempt entities, financial institutions, certain financial companies, broker-dealers, investors that own, directly or indirectly, 10% or more of our outstanding voting rights, all of whom are subject to special tax regimes not covered under this discussion). To the extent that issues discussed herein are based on legislation that has yet to be subject to judicial or administrative interpretation, there can be no assurance that the views expressed herein will accord with any such interpretation in the future. This discussion 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, possibly with retroactive effect. The discussion below is not intended, and should not be construed, as legal or professional tax advice and does not cover all possible tax considerations.
Potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership, and disposition of the Shares, including, in particular, the effect of any foreign, state or local taxes.
General Corporate Tax Structure in Israel
Israeli resident companies are generally subject to corporate tax on their taxable income at the rate of 23% for the 2025 tax year. A corporation will generally be considered as an “Israeli resident company” if it meets one of the following: (i) it was incorporated in Israel; or (ii) the control and management of its business are exercised in Israel.
Taxation of Shareholders
Capital Gains
Capital gain tax is imposed on the disposition of capital assets by an Israeli resident and on the disposition of such assets by a non-Israeli resident if those assets are either (i) located in Israel; (ii) are shares or a right to a share in an Israeli resident corporation, or (iii) represent, directly or indirectly, rights to assets located in Israel, unless an exemption is available or unless an applicable double tax treaty between Israel and the seller’s country of residence provides otherwise. The Israeli Income Tax Ordinance distinguishes between “Real Gain” and the “Inflationary Surplus”. “Real Gain” is the excess of the total capital gain over Inflationary Surplus generally computed on the basis of the increase in the Israeli Consumer Price Index between the date of purchase and the date of disposition. Inflationary Surplus is not currently subject to tax in Israel.
In 2025, Real Gain accrued by individuals on the sale of the Shares will be taxed at the rate of 25%. However, if the individual shareholder is a “SubstantialShareholder” (i.e., a person who holds, directly or indirectly, alone or together with another, 10% or more of one of the Israeli resident company’s Means Of Control) at the time of sale or at any time during the preceding 12-month period, such gain will be taxed at the rate of 30%.“Means Of Control” generally include the right to vote, receive profits, nominate a director or other general manager or like the same, receive assets upon liquidation, or order someone who holds any of the aforesaid rights how to act, regardless of the source of such right.
Corporate and individual shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income (23% for corporations in 2025), and a marginal tax rate of up to 47% in 2025 for individuals (not including a Excess Tax as discussed below).
Notwithstanding the foregoing, capital gains generated from the sale of our Shares by a non-Israeli resident shareholder may be exempt from Israeli capital tax under the Israeli Income Tax Ordinance provided (among other conditions) that the seller does not have a permanent establishment in Israel to which the generated capital gain is attributed. However, non-Israeli resident corporations will not be entitled to the foregoing exemption if Israeli residents: (i) have a 25% or more interest 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 would not be available to a person whose gains from selling or otherwise disposing of the securities are deemed to be business income.
In addition, the sale of the Shares may be exempt from Israeli capital gain tax under the provisions of an applicable double tax treaty. For example, 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, or the U.S.-Israel Double Tax Treaty, exempts a U.S. resident (for purposes of the U.S.-Israel Double Tax Treaty) from Israeli capital gain tax in connection with the sale, exchange or other disposition of the Shares, provided (among other conditions) that: (i) the U.S. resident owned, directly or indirectly, less than 10% of the voting power of the company at any time within the 12-month period preceding such sale; (ii) the U.S. resident, being an individual, is present in Israel for a period or periods of less than 183 days during the taxable year; and (iii) the capital gain from the sale was not derived through a permanent establishment of the U.S. resident in Israel; however, under the U.S.-Israel Double Tax Treaty, the taxpayer may be permitted to claim a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations under U.S. law applicable to foreign tax credits. The U.S.-Israel Double Tax Treaty does not relate to 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 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. Specifically, the Israeli Tax Authority (“ITA”) may require shareholders who are not liable for Israeli capital gain tax on such sale to sign declarations in forms prescribed by the ITA, provide documents (including, for example, a certificate of residency) or obtain a specific exemption from the ITA to confirm their status as non-Israeli residents (and, in the absence of such declarations or exemptions, the ITA may require the purchaser or any applicable payor of the shares to withhold tax at source).
Payers of consideration for the Ordinary Shares, including the purchaser, the Israeli stockbroker or the financial institution through which the Shares are held, are generally obligated, subject to certain exemptions, to withhold tax upon the sale of Shares at a rate of 25% of the consideration for individuals and corporations.
Upon the sale of traded securities, a detailed return, including a computation of the tax due, must be filed and an advance payment must be paid to the Israeli Tax Authority on January 31 and July 31 of every tax year in respect of sales of traded securities made within the previous six months. However, if all tax due was withheld at source according to applicable provisions of the Israeli Income Tax Ordinance and regulations promulgated thereunder, the aforementioned return need not be filed, provided that (among other conditions) (i) such income was not generated from business conducted in Israel by the taxpayer, (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to be filed and an advance payment does not need to be made, and (iii) the taxpayer is not obligated to pay Excess Tax (as further explained below). Capital gains are also reportable on annual income tax returns.
Dividends
Dividends distributed by a company to a shareholder who is an Israeli resident individual will generally be subject to income tax at a rate of 25%. However, a 30% tax rate will apply if the dividend recipient is a Substantial Shareholder, as defined above, at the time of distribution or at any time during the preceding 12-month period. If the recipient of the dividend is an Israeli resident corporation, such dividend will generally be exempt from Israeli income tax provided that the income from which such dividend is distributed, derived or accrued within Israel.
Dividends distributed by an Israeli resident company to a non-Israeli resident (either an individual or a corporation) are generally subject to Israeli withholding tax on the receipt of such dividends at the rate of 25% (30% if the dividend recipient is a Substantial Shareholder at the time of distribution or at any time during the preceding 12-month period). These rates may be reduced under the provisions of an applicable double tax treaty. For example, under the U.S.-Israel Double Tax Treaty, the following withholding tax rates will apply in respect of dividends distributed by an Israeli resident company to a U.S. resident: (i) if the U.S. resident is a corporation that holds during that portion of the taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10% of the outstanding shares of the voting share capital of the Israeli resident paying corporation and not more than 25% of the gross income of the Israeli resident paying corporation for such prior taxable year (if any) consists of certain types of interest or dividends the tax rate is 12.5%; (ii) if both the conditions mentioned in clause (i) above are met and the dividend is paid from an Israeli resident company’s income which was entitled to a reduced tax rate under The Law for the Encouragement of Capital Investments, 1959, the tax rate is 15%; and (iii) in all other cases, the tax rate is 25%. The aforementioned rates under the U.S.-Israel Double Tax Treaty will not apply if the dividend income is attributed to a permanent establishment of the U.S. resident in Israel.
Excess Tax
Individual holders 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, income derived from dividends, interest and capital gains, exceeding a certain threshold (currently NIS 721,560 for years 2024 through 2027, which amount will be updated annually starting January 1, 2028, based on the change in the Israeli consumer price index) (the “Threshold Amount”). An additional 2% tax applies to “capital income” earned as of January 1, 2025 (including capital gains, dividends, and interest) exceeding the Threshold Amount.
Estate and Gift Tax
Israel does not currently impose estate or gift taxes if the Israeli Tax Authority is satisfied that the gift was made in good faith and on condition that the recipient of the gift is not a non-Israeli resident.
.
Foreign Exchange Regulations
Non-residents of Israel who hold our Shares are able to receive any dividends, and any amounts payable upon the dissolution, liquidation and winding up of our affairs, repayable in non-Israeli currency at the rate of exchange prevailing at the time of conversion. However, Israeli income tax is generally required to have been paid or withheld on these amounts. In addition, the statutory framework for the potential imposition of currency exchange control has not been eliminated and may be restored at any time by administrative action.
| F. | Dividends and Paying Agents |
Not applicable.
| G. | Statement by Experts |
Not applicable.
| H. | Documents on Display |
We are subject to the information reporting requirements of the Exchange Act that are applicable to foreign private issuers, and under those requirements will file reports with the SEC through its electronic data gathering, analysis and retrieval (EDGAR) system. Our securities filings, including this Annual Report and the exhibits thereto, are available electronically through the SEC website (http://www.sec.gov).
As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. Furthermore, as a foreign private issuer, we are also not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. In addition, we will not be required under the Exchange Act to file annual or other 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 maintain a corporate website at www.Scinai.com. Information contained on, or that can be accessed through, our website does not constitute a part of this annual report. We have included our website address in this annual report solely as an inactive textual reference.
| I. | Subsidiary Information |
Not applicable.
| Item 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments. Our market risk exposure is primarily a result of interest rates and foreign currency exchange rates.
Interest Rate Risk
Following the date of this annual report, we do not anticipate undertaking any significant long-term borrowings. At present, our investments consist primarily of cash and cash equivalents and financial assets at fair value.
Following the date of this annual report, we may invest in investment-grade marketable securities with maturities of up to three years, including commercial paper, money market funds, and government/non-government debt securities. The primary objective of our investment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Our investments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any. We manage this exposure by performing ongoing evaluations of our investments. Due to the short-term maturities, if any, of our investments to date, their carrying value has always approximated their fair value. If we decide to invest in investments other than cash and cash equivalents, it will be our policy to hold such investments to maturity in order to limit our exposure to interest rate fluctuations.
Foreign Currency Exchange Risk
Our foreign currency exposures give rise to market risk associated with exchange rate movements of the U.S. dollar, our functional and reporting currency, mainly against the NIS and the Euro. Although the U.S. dollar is our functional currency, a significate portion of our expenses are denominated in both NIS and Euro. Our NIS and Euro expenses consist principally of payments made to our partners at MPG and UMG, sub-contractors and consultants for pre-clinical trials and other research and development activities as well as payments made to purchase new equipment. We anticipate that a sizable portion of our expenses will continue to be denominated in currencies other than the NIS. If the US. dollar fluctuates significantly against either the NIS or the Euro, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results of operations or financial condition for the periods under review.
| Item 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
| A. | Debt Securities |
Not applicable.
| B. | Warrants and Rights |
Not applicable.
| C. | Other Securities |
Not applicable.
| D. | American Depositary Shares |
The Bank of New York Mellon, as depositary, registered and delivered American Depositary Shares, also referred to as ADSs. Each ADS represents 4,000 ordinary shares (or a right to receive 4,000 ordinary shares) deposited with the principal Tel Aviv office of either of Bank Leumi or Bank Hapoalim, as custodian for the depositary. Each ADS also represents any other securities, cash or other property which may be held by the depositary. The depositary’s office at which the ADSs are administered is located at 101 Barclay Street, New York, New York 10286. The Bank of New York Mellon’s principal executive office is located at One Wall Street, New York, New York 10286.
Fees and Expenses
| Persons depositing or withdrawing ordinary shares or ADS holders must pay: | For: | ||
| $5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | ● | Issuance of ADSs, including issuances resulting from a distribution of ordinary shares or rights or other property Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | |
| $.05 (or less) per ADS | ● | Any cash distribution to ADS holders | |
| A fee equivalent to the fee that would be payable if securities distributed to you had been ordinary shares and the ordinary shares had been deposited for issuance of ADSs | ● | Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders | |
| $.05 (or less) per ADS per calendar year | ● | Depositary services | |
| Registration or transfer fees | ● | Transfer and registration of ordinary shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw ordinary shares | |
| Expenses of the depositary | ● | Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) converting foreign currency to U.S. dollars | |
| Taxes and other governmental charges the depositary or the custodian has to pay on any ADSs or ordinary shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes | ● | As necessary | |
| Any charges incurred by the depositary or its agents for servicing the deposited securities | ● | As necessary | |
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may collect any of its fees by deduction from any cash distribution payable to ADS holders that are obligated to pay those fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
From time to time, the depositary may make payments to us to reimburse and/or share revenue from the fees collected from ADS holders, or waive fees and expenses for services provided, generally relating to costs and expenses arising out of establishment and maintenance of the ADS program. In performing its duties under the deposit agreement, the depositary may use brokers, dealers or other service providers that are affiliates of the depositary and that may earn or share fees or commissions.
PART II
| Item 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None.
| Item 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
Not applicable
| Item 15. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 filings are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management was necessarily required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2024 (the “Evaluation Date”). Based on such evaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective.
Management Annual Report on Internal Control over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, as a process designed by, or under the supervision of our principal executive and principal financial officers and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| ● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets; |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and |
| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, including the CEO and CFO, conducted an evaluation, pursuant to Rule 13a-15(c) promulgated under the Exchange Act, of the effectiveness, as of the end of the period covered by this Annual Report, of its internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on the results of this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2024.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16. [Reserved]
Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that Mr. Adi Raviv, a member of our Audit Committee, is an audit committee financial expert, as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and NASDAQ rules.
Item 16B. CODE OF ETHICS
We have adopted a written code of ethics that applies to our officers and employees, including our principal executive officer, principal financial officer, principal controller and persons performing similar functions as well as our directors. Our Code of Business Conduct and Ethics is posted on our website at www.Scinai.com. Information contained on, or that can be accessed through, our website does not constitute a part of this annual report on Form 20-F and is not incorporated by reference herein. If we make any amendment to the Code of Business Conduct and Ethics or grant any waivers, including any implicit waiver, from a provision of the code, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of the SEC including the instructions to Item 16B of Form 20-F. We have not granted any waivers under our Code of Business Conduct and Ethics.
Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Principal Accountant Fees and Services
Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global (“EY Israel”), a member of Ernst & Young Global, an independent registered public accounting firm, served as our independent registered public accountants until August 24, 2023. At such time, Kesselman & Kesselman, certified public accountants in Israel and a member of PricewaterhouseCoopers International Limited (“PwC Israel”), became our independent registered public accountants.
We paid the following fees for professional services rendered by PwC Israel, for the year ended December 31, 2024 and 2023:
| 2024 | 2023 | |||||||
| (in thousands of U.S. dollars) |
||||||||
| Audit Fees | $ | 120 | $ | 136 | ||||
| Audit-Related Fees | $ | 18 | $ | 51 | ||||
| Total | $ | 138 | $ | 187 | ||||
“Audit fees” are the aggregate fees paid for the audit of our annual financial statements. This category also includes services that generally the independent accountant provides, such as consents and assistance with and review of documents filed with the SEC.
“Audit-related fees” are the aggregate fees paid for assurance and related services that are reasonably related to the performance of the audit and are not reported under audit fees. These fees primarily include accounting consultations regarding the accounting treatment of matters that occur in the regular course of business, implications of new accounting pronouncements and other accounting issues that occur from time to time.
“Additional fees” include fees for professional services rendered by our independent registered public accounting firm for tax compliance, transfer pricing, tax advice on actual or contemplated transactions and Israel innovation authority advisory.
Audit Committee’s Pre-approval Policies and Procedures
Our audit committee has a pre-approval policy for the engagement of our independent accountant to perform certain audit and non-audit services. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee pre-approves annually a catalog of specific audit and non-audit services in the categories of audit service, audit-related service and tax services that may be performed by our independent accountants.
Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
Item 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
Item 16G. CORPORATE GOVERNANCE
Companies incorporated under the laws of the State of Israel whose shares are publicly traded, including companies with shares listed on the NASDAQ Capital Market, are considered public companies under Israeli law and are required to comply with various corporate governance requirements under Israeli law relating to such matters as the audit committee, the compensation committee and an internal auditor. These requirements are in addition to the corporate governance requirements imposed by the listing rules of the NASDAQ Capital Market and other applicable provisions of U.S. securities laws to which we are subject to (as a foreign private issuer) since the closing of the offering in the U.S. and the listing of the ADSs and warrants on the NASDAQ Capital Market. Under the listing rules of the NASDAQ Capital Market, a foreign private issuer, such as us, may generally follow its home country rules of corporate governance in lieu of the comparable requirements of the listing rules of the NASDAQ Capital Market, except for certain matters including (among others) the composition and responsibilities of the audit committee and the independence of its members within the meaning of the rules and regulations of the SEC.
NASDAQ Capital Market listing rules and Home Country Practices
In accordance with Israeli law and practice, and subject to the exemption set forth in Rule 5615 of the listing rules of the NASDAQ Capital Market, we intend to follow the provisions of the Companies Law, rather than the listing rules of the NASDAQ Capital Market, with respect to the following requirements:
Distribution of certain reports to shareholders. As opposed to the listing rules of the NASDAQ Capital Market, which require listed issuers to make certain reports, such as annual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distribute periodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make such reports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statements available to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt from the SEC’s proxy solicitation rules.
Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with the responsibilities of our compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles of association do not require that the independent members of our board of directors, or a compensation committee composed solely of independent members of our board of directors, determine an executive officer’s compensation, as is generally required under the listing rules of the NASDAQ Capital Market with respect to the Chief Executive Officer and all other executive officers of a company. Our compensation committee has been established and conducts itself in accordance with the provisions governing the responsibilities of a compensation committee as set forth in the Companies Law. Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and in certain circumstances by our shareholders, as detailed below under the caption “—Shareholder Approval.” Thus, we will seek shareholder approval for all corporate actions with respect to office holder compensation (including the compensation required to be approved for our Chief Executive Officer) requiring such approval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain office holder compensation, rather than seeking approval for such corporate actions in accordance with listing rules of the NASDAQ Capital Market. See “— Compensation Committee and Compensation Policy” below.
Compensation Committee. Pursuant to the Companies Law, we established a compensation committee as detailed below. Since the consummation of the offering, our board of directors has affirmatively determined that each member of our compensation committee qualifies as “independent” under applicable NASDAQ Capital Market and SEC rules.
Annual Shareholders Meeting. The Company shall convene an annual shareholders meeting under the requirements (including required dates) of the Companies Law, rather than as required under rule NASDAQ Capital Market Rule 5620(a).
Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, rather than seeking approval for corporate actions in accordance with NASDAQ Capital Market Listing Rule 5635. In particular, under this NASDAQ Capital Market rule, shareholder approval is generally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rights or if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leading to a change of control; (iii) adoption or amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights (including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) if such equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is required for, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for any other position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b) extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described below under “Disclosure of personal interests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, if any, or such controlling shareholder’s relative, which require the special approval described below under “Disclosure of personal interests of controlling shareholders and approval of certain transactions, (d) approval of transactions with Company’s Chief Executive Officer with respect to his or hers compensation, whether in accordance with the approved compensation policy of the Company or not in accordance with the approved compensation policy of the Company, or transactions with officers of the Company not in accordance with the approved compensation policy, and (e) approval of the compensation policy of the Company for office holders. In addition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies. See also “Description of Share Capital — Acquisitions under Israeli Law — Merger” below.
Quorum for shareholder meetings. As permitted under the Companies Law, pursuant to our articles of association, the quorum required for an ordinary meeting of shareholders will consist of one or more shareholders present in person, by proxy or by other voting instrument in accordance with the Companies Law, who hold, in the aggregate, at least 10% of the voting power of our shares (or, for so long we do not qualify as a foreign private issuer and for only so long as required by the Nasdaq Stock Market, 33 1/3% of our outstanding ordinary shares), (and in an adjourned meeting, any number of shareholders), instead of 33 1/3% of the issued share capital required under the NASDAQ Capital Market corporate governance rules.
Other than the foregoing home country practices, we otherwise intend to comply with the rules generally applicable to U.S. domestic companies listed on the NASDAQ Capital Market. We may in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ Capital Market corporate governance rules. Following our home country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the NASDAQ Capital Market may provide less protection to you than what is accorded to investors under the listing rules of the NASDAQ Capital Market applicable to domestic U.S. issuers.
Item 16H. MINE SAFETY DISCLOSURE
Not applicable.
Item 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16J. INSIDER TRADING POLICIES
We have adopted an Insider Trading Policy which governs the purchase, sale and other dispositions of our securities by our directors, officers, employees and contractors that is reasonably designed to promote compliance with applicable insider trading laws, rules and regulations and the listing standards of Nasdaq. A copy of our Insider Trading Policy is filed as Exhibit 11.2 to this Annual Report.
ITEM 16K. CYBERSECURITY
We operate in the biotechnology sector, which is subject to various cybersecurity risks that could adversely affect our business. We recognize the critical importance of developing, implementing, and maintaining cybersecurity measures to safeguard our information systems and protect the confidentiality, integrity, and availability of our data. We currently have security measures in place to protect and prevent data loss and other security breaches, including a cybersecurity risk assessment program. Our network infrastructure was designed with cybersecurity in mind, incorporating a range of critical components such as firewalls, intrusion detection and prevention systems, virtual private networks (VPNs), and secure Wi-Fi access points. Additionally, strong authentication mechanisms, encryption protocols, and robust monitoring tools are essential elements for ensuring a secure network infrastructure. These components work together to protect against unauthorized access, data breaches, malware attacks, and other cybersecurity threats.
Our current cybersecurity risk assessment program consists of routine evaluations of our network infrastructure, penetration testing and continuous monitoring of security controls and threats. The program outlines governance, policies and procedures, and technology we use to oversee and identify risks from cybersecurity threats and is informed by previous cybersecurity incidents we have observed within the Company.
Our COO and Quality Unit Manager are responsible for day-to-day assessment and management of risks from cybersecurity threats, including the prevention, mitigation, detection, and remediation of cybersecurity incidents. Our COO is experienced in operating a company which offers cybersecurity services. Our COO and Quality Unit Manager are informed of cybersecurity risks or incidents by our IT manager who regularly monitors our systems to detect cybersecurity incidents or risks.
The Board of Directors is responsible for oversight of risks from cybersecurity threats in conjunction with management. The Board of Directors receives reports and updates from management with respect to the management of risks from cybersecurity threats. Such reports cover the Company’s information technology security program, including its current status, capabilities, objectives and plans, as well as the evolving cybersecurity threat landscape. The Board of Directors takes into consideration such reports and updates into its overall risk assessment of the Company.
We leverage the advice of third-party consultants to help us assess and identify risks from cybersecurity threats, including the threat of a cybersecurity incident, and manage our risk assessment program. Among other things, these third-party consultants conduct security audits, penetration testing, and vulnerability assessments to evaluate the strength of our defenses. They also offer expertise in regulatory compliance, helping us ensure that our security measures align with industry standards and legal requirements. Additionally, they provide ongoing monitoring and analysis of emerging threats, allowing us to proactively adapt and strengthen our cybersecurity posture.1
We also have policies and procedures to oversee and identify the risks from cybersecurity threats associated with our use of third-party service providers. When engaging with vendors or partners, we prioritize those who demonstrate robust cybersecurity measures and a strong commitment to protecting sensitive data. To mitigate risks associated with third-party providers, we incorporate specific cybersecurity requirements into contracts and service level agreements. These agreements outline expectations regarding data protection, access controls, incident reporting, and compliance monitoring. Furthermore, we implement other mechanisms to enhance security when working with third-party providers, including implementing two-factor authentication. By implementing these measures, we aim to minimize the cybersecurity risks associated with third-party service providers and ensure the protection of our organization's assets and data.
To date, no cybersecurity incident (or aggregation of incidents) or cybersecurity threat has materially affected our results of operations or financial condition. For information on how a cybersecurity threat might affect us, see also Item 3D. Risk Factors – General Risk Factors.
| 1 | Describe role of the third-party assessors, consultants, auditors, etc., within the Company’s processes for assessing, identifying, and managing material risks from cybersecurity threats discussed above. |
PART III
Item 17. FINANCIAL STATEMENTS
The Registrant has responded to Item 18 in lieu of responding to this Item.
Item 18. FINANCIAL STATEMENTS
See the financial statements beginning on page F-1. The following financial statements and financial statement schedules are filed as part of this Annual Report on Form 20-F together with the report of the independent registered public accounting firm:
Item 19. EXHIBITS
EXHIBIT INDEX
| * | Filed herewith. |
| + | Certain confidential portions of this exhibit have been redacted from the publicly filed document because such portions are (i) not material and (ii) would be competitively harmful if publicly disclosed. |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| Scinai Immunotherapeutics Ltd. | ||
| Date: May 7, 2025 | By: | /s/ Amir Reichman |
| Amir Reichman | ||
| Chief Executive Officer | ||
SCINAI IMMUNOTHERAPEUTICS LTD.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024
Index to the Financial Statements
- - - - - - - - - - - - - -Report of Independent Registered Public Accounting Firm
F-
To the board of directors and shareholders of Scinai Immunotherapeutic Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Scinai Immunotherapeutics Ltd. and its subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statement of operations, comprehensive loss (income), changes in shareholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1f to the financial statements, the Company has suffered recurring losses from operations and has incurred cash outflows from operating activities. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1f. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. This matter is also described in the “Critical Audit Matters” section of our report.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Kesselman
& Kesselman, 146 Derech Menachem Begin St. Tel-Aviv 6492103, Israel,
P.O Box 7187 Tel-Aviv 6107120, Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il
F-
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
The Company’s ability to continue as a going concern
As described above and in Note 1f to the financial statements, the Company has an accumulated deficit, cash outflows from operating activities and its activities have been funded primarily through offerings of the Company’s securities and borrowing. The Company’s operations are dependent upon the Company obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. This dependency will continue until the Company will be able to completely finance its operations by generating revenue from its services and products and to raise funds to support the ongoing advancement of its clinical trials and corporate activities. Also, the Company’s board of directors approved a cost saving plan, which is being implemented, to allow the Company to continue its operations and meet its cash obligations. These conditions and events raise substantial doubt about its ability to continue as a going concern.
The principal considerations for our determination that performing procedures related to the Company’s ability to continue as a going concern is a critical audit matter are the estimation and execution uncertainty regarding the Company’s future cash flows and the risk of bias in management’s judgments and assumptions in estimating these cash flows to conclude the Company would have sufficient liquidity to fund its operations for at least one year from the date of issuance of the financial statements. This in turn led to a high degree of auditor subjectivity and judgment to evaluate the audit evidence supporting the liquidity conclusions.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with our overall opinion on the financial statements. Our audit procedures to evaluate the significant judgments and assumptions made by management included, among others, inquiries with management, testing the reasonableness of the forecasted revenue and operating expenses and the underlying management assumptions, reconsidering management forecasted amounts to evaluate whether those forecasted amounts approximated the ultimate actual results. We assessed the adequacy of the Company’s going concern disclosures included in Note 1f to the consolidated financial statements.
/s/ Kesselman & Kesselman
Certified Public Accountants (Isr.)
A member of PricewaterhouseCoopers International Limited
Tel-Aviv, Israel
May 7, 2025
We have served as the Company’s auditor since 2023.
Kesselman
& Kesselman, 146 Derech Menachem Begin St. Tel-Aviv 6492103, Israel,
P.O Box 7187 Tel-Aviv 6107120, Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il
F-
 |
Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A Tel-Aviv 6492102, Israel |
Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
BIONDVAX PHARMACEUTICALS LTD.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Biondvax Pharmaceuticals Ltd. (the Company) as of December 31, 2022 and 2021, the related statements of operations, comprehensive loss, changes in shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2022 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
F-
Liquidity and Capital Resources
Description of the Matter
As discussed in Note 1 to the financial statements, the Company has incurred losses, and has not yet started recognizing revenues from sales. As of December 31, 2022, the Company’s cash position (cash and cash equivalents) totaled $14,075. In the year ended December 31, 2022, the Company had an operating loss of $5,796 and negative cash flows from operating activities of $7,265 million. The Company’s operations are dependent on its existing working capital resources and additional sources of capital and financing. This dependency will continue until the Company will be able to completely finance its operations by generating revenue from its products and to raise funds (through public or private securities offerings, debt financings, government funding or grants, or other sources) to support the ongoing advancement of its clinical trials and corporate activities. Also, the Company’s board of directors approved a cost saving plan, to be implemented if and as required, to allow the Company to continue its operations and meet its cash obligations. The Company and the board of directors believe that its existing financial resources and its operating plans, including the effects of the costs saving plan, will be adequate to satisfy its expected liquidity requirements for a period of at least twelve months from the end of the filing date.
Liquidity and Capital Resources are a critical audit matter due to the subjective judgments and various assumptions required by management concerning the level and timing of cash receipts and cash outlays for operating expenses and capital expenditures, including a cost saving plan and to conclude the Company would have sufficient liquidity to sustain itself for at least a year beyond the date of the issuance of the financial statements. This in turn led to a high degree of auditor subjectivity and judgment to evaluate the audit evidence supporting the liquidity conclusions. Additionally, the relevance of management’s liquidity conclusions to the users of the financial statements also impacted our assessment of these circumstances as a critical audit matter.
How We Addressed the Matter in Our Audit
Addressing the matter involved performing procedures and evaluating audit evidence in connection with our overall opinion on the financial statements. Our audit procedures to evaluate the significant judgments and assumptions made by management included, among others, inquiries with management, testing the reasonableness of the forecasted operating expenses compared to historic amounts and the underlying management assumptions, including the assumptions used for the saving plan, reconsidering certain prior management forecasted amounts to evaluate whether those forecasted amounts approximated the ultimate actual results. This was performed in consideration of management’s ability to put forth reasonable estimates and evaluating the adequacy of the Company’s disclosure of these circumstances in the financial statements. Additionally, these procedures included evaluating the sufficiency of the company’s liquidity disclosure included in the notes to the financial statements.
/S/ KOST FORER GABBAY & KASIERER
KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
We have served as the Company’s auditor
from 2005 to 2023.
Tel-Aviv, Israel
April 17, 2023
F-
SCINAI IMMUNOTHERAPEUTICS LTD.
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 1,964 | $ | 4,870 | ||||
| Restricted cash | 131 | 140 | ||||||
| Prepaid expenses and other receivables | 213 | 437 | ||||||
| Trade receivables | 83 | |||||||
| Total current assets | 2,391 | 5,447 | ||||||
| NON-CURRENT ASSETS: | ||||||||
| Property, plant and equipment, net | 9,189 | 10,825 | ||||||
| Operating lease right-of-use assets | 1,868 | 1,200 | ||||||
| Total non-current assets | 11,057 | 12,025 | ||||||
| Total assets | $ | 13,448 | $ | 17,472 | ||||
The accompanying notes are an integral part of the financial statements.
F-
SCINAI IMMUNOTHERAPEUTICS LTD.
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| TOTAL LIABILITIES AND EQUITY (CAPITAL DEFICIENCY) | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Trade payables | $ | 376 | $ | 535 | ||||
| Operating lease liabilities | 424 | 396 | ||||||
| Other payables | 1,006 | 849 | ||||||
| Total current liabilities | 1,806 | 1,780 | ||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Warrants liability | 3 | 96 | ||||||
| Loan from others | 260 | 19,368 | ||||||
| Non-current operating lease liabilities | 1,402 | 797 | ||||||
| Total non-current liabilities | 1,665 | 20,261 | ||||||
| CONTINGENT LIABILITIES AND COMMITMENTS | ||||||||
| SHAREHOLDERS’ DEFICIT: | ||||||||
| Ordinary shares of no par value: Authorized: 40,000,000,000 shares at December 31, 2024 and 20,000,000,000 at December 31, 2023; Issued and outstanding 3,411,983,584 shares at December 31, 2024 and 1,857,169,984 shares at December 31, 2023 | ||||||||
| Preferred shares, no par value; Authorized: 1,000 shares at December 31, 2024 (redemption amount of $34,000) and 0 shares at December 31, 2023; Issued and outstanding: 1,000 shares at December 31, 2024 and 0 shares at December 31, 2023 | 5,627 | |||||||
| Additional paid-in capital | 123,629 | 119,506 | ||||||
| Accumulated deficit | (117,539 | ) | (122,335 | ) | ||||
| Accumulated other comprehensive loss | (1,740 | ) | (1,740 | ) | ||||
| Total shareholders’ equity (deficit) | 9,977 | (4,569 | ) | |||||
| Total liabilities and shareholders’ equity (deficit) | $ | 13,448 | $ | 17,472 | ||||
The accompanying notes are an integral part of the financial statements.
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SCINAI IMMUNOTHERAPEUTICS LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands (except share and per share data)
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Revenues | 658 | |||||||||||
| Cost of revenues | 1,238 | |||||||||||
| Gross loss | 580 | |||||||||||
| Research and development expenses, net | $ | 5,532 | 5,210 | 5,765 | ||||||||
| Marketing, general and administrative expenses | 2,526 | 4,505 | 5,296 | |||||||||
| Other income | (9 | ) | ||||||||||
| Total operating expenses | 8,058 | 9,706 | 11,061 | |||||||||
| Total operating loss | 8,638 | 9,706 | 11,061 | |||||||||
| Gain on troubled debt restructuring | (14,759 | ) | ||||||||||
| Financial expenses (income) net, | 1,325 | (3,206 | ) | (5,265 | ) | |||||||
| Net loss (Income) | $ | (4,796 | ) | 6,500 | 5,796 | |||||||
| Net loss )Income) per ordinary share attributable to shareholders, basic and diluted | 0.004 | 0.01 | ||||||||||
| Weighted average number of shares used in computing net loss (income) per share attributable to ordinary shareholders, basic and diluted | 3,225,472,266 | 1,562,627,495 | 754,076,407 | |||||||||
The accompanying notes are an integral part of the financial statements.
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SCINAI IMMUNOTHERAPEUTICS LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (INCOME)
U.S. dollars in thousands (except share and per share data)
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Net loss (income) | $ | (4,796 | ) | $ | 6,500 | $ | 5,796 | |||||
| Other comprehensive income: | ||||||||||||
| Foreign currency translation adjustments | (267 | ) | (48 | ) | ||||||||
| Total comprehensive loss (income) | $ | (4,796 | ) | $ | 6,233 | $ | 5748 | |||||
The accompanying notes are an integral part of the financial statements.
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SCINAI IMMUNOTHERAPEUTICS LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
U.S. dollars in thousands (except share and per share data)
| Ordinary shares | Preferred shares | Additional paid-in |
Accumulated | Accumulated | Total shareholders’ |
|||||||||||||||||||||||||||
| Number | Amount | Number | Amount | capital | comprehensive loss | equity (deficit) | equity (deficit) | |||||||||||||||||||||||||
| Balance as of January 1, 2022 | 739,048,544 | 113,076 | (2,055 | ) | (110,039 | ) | 982 | |||||||||||||||||||||||||
| Issuance of shares, net of issuance costs of $129 | 168,104,520 | 1,154 | 1,154 | |||||||||||||||||||||||||||||
| Exercise of warrants | 75,060,000 | 250 | 250 | |||||||||||||||||||||||||||||
| Share-based compensation | 7,077,720 | 1,602 | 1,602 | |||||||||||||||||||||||||||||
| Other comprehensive income | - | 48 | 48 | |||||||||||||||||||||||||||||
| Net loss | - | (5,796 | ) | (5,796 | ) | |||||||||||||||||||||||||||
| Balance as of December 31, 2022 | 989,290,784 | $ | $ | $ | 116,082 | $ | (2,007 | ) | $ | (115,835 | ) | $ | (1,760 | ) | ||||||||||||||||||
| Exercise of warrants | 584,015,200 | 801 | 801 | |||||||||||||||||||||||||||||
| Vested RSU’s | 8,108,400 | |||||||||||||||||||||||||||||||
| Issuance of warrants and shares, net of issuance costs of $86 | 160,000,000 | 1,086 | 1,086 | |||||||||||||||||||||||||||||
| Reclassification of warrants liability to equity | - | 398 | 398 | |||||||||||||||||||||||||||||
| Share-based compensation | - | 869 | 869 | |||||||||||||||||||||||||||||
| Shares issued for services | 115,755,600 | 270 | 270 | |||||||||||||||||||||||||||||
| Other comprehensive income | - | 267 | 267 | |||||||||||||||||||||||||||||
| Net loss | - | (6,500 | ) | (6,500 | ) | |||||||||||||||||||||||||||
| Balance as of December 31, 2023 | 1,857,169,984 | $ | $ | 119,506 | $ (1, 740 | ) | $ | (122,335 | ) | $ | (4,569 | ) | ||||||||||||||||||||
| Vested RSU’s | 63,572,800 | |||||||||||||||||||||||||||||||
| Exercise of warrants, net of issuance costs of $263 | 1,042,620,000 | 1,441 | 1,441 | |||||||||||||||||||||||||||||
| Exercise of prefunded warrant | 448,620,800 | |||||||||||||||||||||||||||||||
| Loan conversion into preferred shares | 1,000 | 5,627 | 5,627 | |||||||||||||||||||||||||||||
| Share-based compensation | 682 | 682 | ||||||||||||||||||||||||||||||
| Issuance of prefunded warrants | 2,000 | 2,000 | ||||||||||||||||||||||||||||||
| Net Income | 4,796 | 4,796 | ||||||||||||||||||||||||||||||
| Balance as of December 31, 2024 | 3,411,983,584 | 1,000 | $ | 5,627 | $ | 123,629 | (1, 740 | ) | (117,539 | ) | 9,977 | |||||||||||||||||||||
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SCINAI IMMUNOTHERAPEUTICS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income (loss) | $ | 4,796 | $ | (6,500 | ) | $ | (5,796 | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||||||
| Depreciation of property, plant and equipment | 1,649 | 514 | 562 | |||||||||
| Expense of in-process research and development | 209 | |||||||||||
| Financial income (expense) related to loan from others | 1,278 | 401 | (4,113 | ) | ||||||||
| Revaluation of warrants | (93 | ) | (4,140 | ) | ||||||||
| Gain on troubled debt restructuring | (14,759 | ) | ||||||||||
| Share-based compensation | 682 | 1,139 | 1,602 | |||||||||
| Decrease (increase) in trade receivables | (83 | ) | ||||||||||
| Decrease (increase) in other receivables | 224 | (290 | ) | 140 | ||||||||
| Changes in operating lease right-of-use assets | 284 | 43 | 153 | |||||||||
| Increase (decrease) in trade payables | (156 | ) | (150 | ) | (175 | ) | ||||||
| Changes in operating lease liabilities | (314 | ) | (58 | ) | (156 | ) | ||||||
| Increase (decrease) in other payables | 157 | (341 | ) | 309 | ||||||||
| Net cash used in operating activities | (6,335 | ) | (9,382 | ) | (7,265 | ) | ||||||
| Cash flows from investing activities: | ||||||||||||
| Purchase of property, plant and equipment | (12 | ) | (637 | ) | (836 | ) | ||||||
| Net cash used in investing activities | $ | (12 | ) | $ | (637 | ) | $ | (836 | ) | |||
The accompanying notes are an integral part of the financial statements.
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SCINAI IMMUNOTHERAPEUTICS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands (except share and per share data)
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Cash flows from financing activities: | ||||||||||||
| Proceed from exercise of warrants, net | $ | 1,441 | $ | 947 | $ | 5,844 | ||||||
| Proceeds from issuance of shares, net | 2,000 | 139 | 932 | |||||||||
| Net cash provided by financing activities | 3,441 | 1,086 | 6,776 | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (9 | ) | (272 | ) | (1,977 | ) | ||||||
| Increase (decrease) in cash, cash equivalents and restricted cash | (2,915 | ) | (9,205 | ) | (3,302 | ) | ||||||
| Cash, cash equivalents and restricted cash at beginning of year | 5,010 | 14,215 | 17,517 | |||||||||
| Cash, cash equivalents and restricted cash at end of year | $ | 2,095 | $ | 5,010 | $ | 14,215 | ||||||
| Supplementary disclosure of cash flows activities: | ||||||||||||
| (1) Cash paid during the year for: | ||||||||||||
| Interest | $ | 143 | $ | 833 | $ | 916 | ||||||
| (2) Non-cash transactions: | ||||||||||||
| Recognition of right-of-use assets and lease liabilities upon exercise of lease extension option | 952 | |||||||||||
| Reclassification of warrants liability to equity | 398 | |||||||||||
| Loan convert into preferred shares | 5,627 | |||||||||||
| Exercise of warrants liability into shares | $ | $ | 801 | $ | 250 | |||||||
| Reconciliation of cash, cash equivalents and restricted cash: | ||||||||||||
| Cash and cash equivalents | $ | 1,964 | $ | 4,870 | $ | 14,075 | ||||||
| Restricted cash | 131 | 140 | 140 | |||||||||
| Cash, cash equivalents and restricted cash | $ | 2,095 | $ | 5,010 | $ | 14,215 | ||||||
The accompanying notes are an integral part of the financial statements.
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SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 1:- GENERAL
| a. |
Scinai Immunotherapeutics LTD (the “Company”), operations focuses on: an innovative R&D and a Contract Development and Manufacturing Organization (“CDMO”) (please see section e). The R&D focuses on: (i) managing and guiding a research contract with the Max Planck Society (“MPG”), the parent organization of the Max Planck Institute for Multidisciplinary Sciences, and the University Medical Center Gottingen (“UMG”), both located in Germany; and (ii) developing licensed drug candidates throughout the pre-clinical and clinical steps required for drug approval. The CDMO focuses on providing drug development and manufacturing services to small biotech companies. The Company was incorporated on July 21, 2003 in Israel and started its activity on March 31, 2005. In June 2007, the Company completed an initial public offering of its ordinary shares on the Tel Aviv Stock Exchange (TASE) and then voluntarily delisted from the TASE in January 2018. In May 2015, the Company completed an initial public offering of American Depositary Shares (“ADS”) on the Nasdaq Capital Market. The Company’s principal executive offices and main laboratories are located in Jerusalem, Israel.
The “Iron Swords” conflict, which began in October 2023, had a moderate impact on the Company’s operations for the year ended December 31, 2024. Some employees were called to reserve duty, causing temporary workforce shortages. In addition, the unstable environment made capital raising efforts more challenging. |
| b. | On December 22, 2021, the Company signed an exclusive, worldwide, license agreement with MPG and UMG for the development and commercialization of an innovative COVID-19 VHH antibody fragment () therapy and an accompanying research collaboration agreement with MPG and UPG in support of the such COVID-19 nanoAb. The agreements became effective January 1, 2022 and provide for an upfront payment, development and sales milestones and royalties based on sales and sharing of sublicense revenues. |
| c. | On March 23, 2022, the Company signed a broader research collaboration agreement (“RCA”) with MPG and UMG covering the discovery, selection and characterization of additional nanoAbs for several other molecular targets that can leverage the nanoAbs’ unique and strong binding affinity, stability at high temperatures, and potential for more effective and convenient routes of administration. These targets are the basis for validated and currently marketed monoclonal antibodies, including for conditions such as psoriasis, asthma, macular degeneration, and psoriatic arthritis. Pursuant to the RCA, the Company has an exclusive option for exclusive license agreement for the development and commercialization of each of the nanoAbs covered by the agreement with MPG and UMG |
| d. | On September 6, 2023, the Company announced the change of its corporate name from BiondVax Pharmaceuticals Ltd. to Scinai Immunotherapeutics Ltd. |
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SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 1:- GENERAL (Cont).
| e. | On September 6, 2023, the Company also announced the launch of a new business named Scinai Bioservices to serve as a CDMO, offering a multitude of drug development services to support small biotech companies through drug development as well as GMP manufacturing for clinical trials. In October 2023, the CDMO signed its first contract to provide R&D services to a biotech client and since then has signed a contract with several other clients, and the Company is in advanced contract discussions with additional potential clients. The CDMO business is still in its early stages, and its success is dependent on contracting with additional clients, which is not certain, could take some time and may require additional funds to finance such operations in the interim. As detailed under f., below the Company also have liquidity issues. Accordingly, there is uncertainty regarding the Company’s ability to generate future positive cash flows from such operations to support the carrying value of the CDMO facility. If the Company is not successful in generating positive cash flows from such operations, the carrying value of the CDMO plant may be considered impaired, which may result in significant charges to the Company’s statement of operations. In December 2024, the company established a U.S.-based subsidiary for the CDMO business unit operating under the name Scinai Bioservices Inc. has remained without activity since its inception. |
| f. |
As of December 31, 2024, the Company’s cash and cash equivalents totaled $1,964. In the year ended December 31, 2024, the Company had an operating loss of $8,638 and negative cash flows from operating activities of $6,335. The Company’s current cash and cash equivalents position is not sufficient to fund the Company’s planned operations for at least one year from the filing date of the financial statements. Those factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. While the Company has successfully raised funds in the past, there is no assurance that it will be able to do so in the future. The inability to borrow or raise sufficient funds on commercially reasonable terms, would have serious consequences on the Company’s financial condition and results of operations.
The Company’s current operating budget includes various assumptions concerning the level and timing of cash receipts and cash outlays for operating expenses and capital expenditures. The Company is planning to finance its operations from its existing working capital resources and additional sources of capital and financing that are in the advanced planning phase. In addition, the Company has implemented a cost-saving plan intended to reduce operating expenses and extend its cash runway. However, there is no assurance that additional capital and/or financing will be available to the Company, and even if available, whether it will be on terms acceptable to the Company or in amounts required.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liabilities and commitments in the normal course of business. The financial statements for the year ended December 31, 2024, do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern. |
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SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
| a. | Basis of presentation of the financial statements: |
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”), as applicable to annual reporting.
As of June 30, 2023, the Company qualified as a “foreign private issuer” as defined under Rule 3b-4 of the Securities Exchange Act of 1934, as amended. Accordingly, beginning July 1, 2023, the Company is subject to the reporting requirements applicable to foreign private issuers and is not required to file financial statements with the SEC as frequently or as promptly as U.S. domestic issuers.
| b. | Use of estimates: |
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. The most significant estimates and assumptions relate to impairment of long-lived assets and the Fair Value of financial Instruments. The Company’s management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities at the dates of the financial statements, and the reported amount of expenses during the reporting periods. Actual results could differ from those estimates.
| c. | Revenue Recognition |
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers as follows:
CDMO Services
Under these contracts, the Company typically provides a combination of the following services:
| ● | Manufacturing services: The Company utilizes its facilities and equipment to produce pharmaceutical products according to customer specifications. The customer typically owns and supplies the active pharmaceutical ingredient (API) and other raw materials. |
| ● | Quality assurance and control: The Company implements quality assurance standards via its quality management system to ensure product compliance with regulatory requirements and provides quality control testing required for such compliance, including sterilization services. |
| ● | Method development: The Company assist customers in developing or optimizing manufacturing processes and providing analytical methods that are required to meet customer product specifications. |
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SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The company recognizes revenue from manufacturing services at a point in time when control over the product is transferred to customers (upon delivery).
In case in which the company is compensated for providing access to the manufacturing infrastructure, such compensation is recognized throughout the agreement period.
Licensing agreement
The Company had one license agreement. In this license agreement, the Company has identified one performance obligation: grant of the license and use of its IP. The grant of the license and use of its IP performance obligation is considered to be a right to use IP in accordance with ASC 606. Therefore, revenue is recognized at a point in time, upon transfer of control over the license to the licensee.
| d. | Functional currency: |
Effective July 1, 2023, the Company changed its functional currency to the U.S. dollar (“dollar”, “USD” or “$”) from the New Israeli Shekel (“NIS”). This change was based on an assessment by Company management that the dollar is the primary currency of the economic environment in which the Company operates, due to the starting of the company new business CDMO, including engaging in related agreements with suppliers and customers and the prospect markets it is intended to reach which operate mainly in USD. Accordingly, the functional and reporting currency of the Company in the year ended December 31, 2023, financial statements is the U.S. dollar. The change in functional currency was accounted for prospectively from such date.
In applying the change in reporting currency, all assets and liabilities of the Company’s operations were translated from their NIS functional currency into U.S. dollars using the exchange rates in effect on the balance sheet date, and shareholders’ equity was translated at the historical rates. Opening shareholders’ equity on August 1, 2018, has been translated at the historic rate on that date and any other movements in shareholders’ equity during the period from August 1, 2018 to December 31, 2022 were translated using the appropriate historical rates at the date of the respective transaction. All other revenues, expenses and cash flows were translated at the average rates during the reporting periods presented. The resulting translation adjustments are reported under comprehensive income as a separate component of shareholders’ equity.
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SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| e. | Comprehensive income: |
The Company accounts for comprehensive income in accordance with ASC 220, “Comprehensive Income”. It includes all changes in equity during a period except those resulting from investments by and distributions to owners. For further details see note 2d.
| f. | Cash equivalents: |
Cash equivalents are short-term highly liquid deposits that are readily convertible to cash with original maturities of three months or less, at the date acquired.
| g. | Restricted cash: |
Restricted cash are deposits with original maturities of three months or less and are used as security for the Company’s Bank Guarantee. Restricted cash amounted to $131 as of December 31, 2024, and $140 as of December 2023.
| h. | Property, plant and equipment: |
Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation, accumulated impairment losses and any related investment grants, excluding day-to-day servicing expenses.
Depreciation is calculated on a straight-line basis over the useful life of the assets at annual rates as follows:
| % | ||||
| Laboratory equipment | 15 - 33 | |||
| Office, furniture and equipment | 6 - 33 | |||
| Computers and Cars | 20-33 | |||
| Leasehold improvements | (*)10 | |||
| Manufacturing plant | (**)10-12.5 | |||
| (*) | Leasehold
improvements are depreciated on a straight-line basis over the shorter of the lease term or the expected life of the improvement. As a result of exercising the option to extend the lease period on December 24, 2024, the company revaluated the useful life of the Leasehold improvements and Manufacturing plant to be in accordance with the lease period. (note 6). |
| (**) | As of April 2024, the manufacturing plant has completed its validation process, which enabled the commencement of production activities. Accordingly, the depreciation of the manufacturing plant has begun. And will be recognized over its useful life of 8 years. |
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SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| i. | Impairment of long-lived assets: |
The Company’s long-lived assets are reviewed for impairment in accordance with ASC No. 360 “Property, Plant and Equipment,” whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment exist and the undiscounted future cash flows that the assets are expected to generate are less than the carrying value of the assets, the Company reduces the carrying amount of the assets through an impairment charge, to their estimated fair values. The majority of our fixed assets are concentrated with our new CDMO facility. Our ability to generate positive cashflows from such plant may impact the recoverability of such assets and may trigger future impairment to such plant. During the years ended December 31, 2024 and 2023, no impairment was recognized.
| j. | Government grants: |
The Company received royalty-bearing grants from the Israel Innovation Authority (“IIA”) for approved research and development projects and, in return, undertook to pay royalties amounting to 3%-5% on the revenues derived from sales of products or services developed in whole or in part using these grants. These grants are recognized when the Company becomes entitled to them, based on the costs incurred in accordance with the terms of the relevant agreement. The grants are recorded as a deduction from research and development expenses. During 2024, the company deducted $205 in connection with such grants from the R&D expenses. For the year ended December 31, 2024 and 2023, the Company received $358 and $225 from the IIA. (note 8)
| k. | Research and development expenses: |
Research and development expenses net of grants, are recognized in the statements of operations when incurred. Research and development expenses consist of personnel costs (including salaries, benefits and share-based compensation), materials, consulting fees and payments to subcontractors, costs associated with obtaining regulatory approvals, and executing pre-clinical and clinical studies. In addition, research and development expenses include overhead allocations consisting of various administrative and facilities related costs. The company charges research and development as incurred.
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SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
In accordance with the agreement with MPG disclosed in note 1b, the Company issued 15,000 ADSs at no cost to MPG as an upfront payment for the license. The ADSs are restricted for a period of three years. The Company evaluated the fair value of the license at $209. The fair value was calculated by an independent valuation, at a discount rate of 31% based on the following assumptions:
| Stock price | 1.48 | |||
| Variance | 150 | % | ||
| Risk free interest | 1 | % |
The fair value of the license in the amount of $209 was recorded as expense in the statement of operating income for the year ended 2022.
| l. | Share-based compensation: |
The Company accounts for share-based compensation in accordance with ASC No. 718, “Compensation - Stock Compensation”, which requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the award is recognized as an expense over the requisite service periods, which is the vesting period of the respective award, on a straight-line basis when the only condition to vesting is continued service.
The Company has selected the binominal option-pricing model as the most appropriate fair value method for its option awards. The Binomial model takes into account variables such as volatility, dividend yield rate, and risk-free interest rate and also allows for the use of dynamic assumptions and considers the contractual term of the option, and the probability that the option will be exercised prior to the end of its contractual life. The fair value of restricted shares unit is based on the closing market value of the underlying shares at the date of grant. The Company estimates the forfeitures at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures are based on actual historical pre-vesting forfeitures.
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SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| m. | Severance pay and retirement plans: |
The majority of the Company’s employees who are Israeli citizens have subscribed to Section 14 of Israel’s Severance Pay Law, 5723-1963 (the “Severance Pay Law”). Pursuant to Section 14 of the Severance Pay Law, employees covered by this section are entitled to monthly deposits at a rate of 8.33% of their monthly salary, made on their behalf by the Company. Payments made to employees in accordance with this section release the Company from any future severance liabilities with respect to such employees. Neither severance pay liability nor severance pay fund under Section 14 of the Severance Pay Law is recorded on the Company’s balance sheets.
Severance expense for the years ended December 31, 2024, 2023 and 2022, amounted to $163, $182 and $288, respectively.
| n. | Fair value of financial instruments: |
The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable inputs that are based on inputs not quoted on active markets but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data are available.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value. The Company measures warrants liability at fair value classified within Level 3. (note 4)
The carrying amounts of cash and cash equivalents, restricted cash, trade receivables, prepaid expenses and other receivables, trade payables and other current payables approximate their fair value due to the short-term maturity of such instruments.
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SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| o. | Leases: |
The Company accounts for leases according to ASC 842, “Leases”. The Company determines if an arrangement is a lease and the classification of that lease at inception. The Company elected the practical expedient for lease agreements with a term of twelve months or less and does not recognize right-of-use (“ROU”) assets and lease liabilities in respect of those agreements. The Company also elected the practical expedient to not separate lease and non-lease components for its leases.
An ROU asset represents the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease agreement. An ROU asset is measured based on the discounted present value of the remaining lease payments, plus any initial direct costs incurred and prepaid lease payments, excluding lease incentives. The lease liability is measured at lease commencement date based on the discounted present value of the remaining lease payments. The implicit rate within the operating leases is generally not determinable, therefore the Company uses the Incremental Borrowing Rate (“IBR”) based on the information available at commencement date in determining the present value of lease payments. The Company’s IBR is estimated to approximate the interest rate for collateralized borrowing with similar terms and payments and in economic environments where the leased asset is located. Certain leases include options to extend the lease.
Payments under the Company’s lease arrangements are primarily fixed, however, and certain lease agreements contain variable payments, which are expensed as incurred and not included in the operating lease right-of-use assets and liabilities.
| p. | Contingencies: |
The Company is currently involved in various commitment and contingent liabilities. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss (see Note 8).
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SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| q. | Income taxes: |
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes”, which prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, to reduce deferred tax assets to their estimated realizable value, if needed.
ASC 740 offers a two-step approach for recognizing and measuring a liability for uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. As of December 31, 2024, and 2023 no liability for unrecognized tax benefits was recorded as a result of ASC 740.
| r. | Basic and diluted net loss (income) per share: |
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, Earnings Per Share. Basic net (income) loss per share is computed by dividing net income (loss) by the weighted average number of ordinary shares outstanding during the period, including pre-funded warrants and fully vested RSUs.
The Company applies the two-class method in calculating net income (loss) per ordinary shares. In order to determine the net income (loss) attributable to ordinary shares, the Company first considered the total income (loss) allocable to preferred shares. This is calculated using the total net income (loss) less undistributed income allocable to preferred shares due to their redemption feature.
Calculating diluted EPS incorporates the potential impact of dilution that could occur if outstanding dilutive securities were converted into Ordinary shares or exercised. These securities can include stock options, restricted stock units (RSUs), preferred shares and warrants.
| s. | Warrants: |
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance. The assessment considers whether the warrants are freestanding financial instruments, meet the definition of a liability under ASC 480, and meet all of the requirements for equity classification, including whether the warrants are indexed to the Company’s own common stock. Warrants that determined to be classified as equity, are recorded as a component of additional paid-in capital. Warrants that determined to be classified as liabilities are recorded at their initial fair value on the date of issuance and remeasured to fair value at each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized in Financial expenses, net in the statements of operations.
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SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| t. | Recently adopted accounting pronouncements: |
Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued ASU 2023-07 “Segment Reporting: Improvements to Reportable Segment Disclosures”. This guidance expands public entities’ segment disclosures primarily by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments are required to be applied retrospectively to all prior periods presented in an entity’s financial statements. The company implemented this guidance, refer to note 16 in the financial statement disclosures.
| u. | Recently issued accounting pronouncements, not yet adopted: |
Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements disclosures.
Disaggregation of Income Statement Expenses
In November 2024, the FASB issued ASU 2024-03, Income Statement — Reporting Comprehensive Income (Topic 220): Improvements to Reportable Segment Disclosures. This ASU requires public business entities to provide enhanced disaggregation of certain income statement expense categories. Specifically, entities will be required to disclose, in tabular format, the amounts of employee compensation, depreciation, intangible asset amortization, and inventory procurement costs included in each relevant income statement expense line.
The standard is effective for annual reporting periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements
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SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 3:- PREPAID EXPENSES AND OTHER RECEIVABLES
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Government authorities | $ | 103 | $ | 178 | ||||
| Grant receivable | 152 | |||||||
| Prepaid expenses | 79 | 71 | ||||||
| Others | 31 | 36 | ||||||
| $ | 213 | $ | 437 | |||||
NOTE 4:- FAIR VALUE MEASUREMENTS
In accordance with ASC No. 820, the Company measures warrants liability at fair value classified within Level 3.
The following table presents assets measured at fair value on a recurring basis as of December 31, 2024 and 2023:
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Fair value measurement using input Level 3 |
||||||||
| Non-current liabilities: | ||||||||
| Warrants liability | $ | 3 | $ | 96 | ||||
| Total liabilities | $ | 3 | $ | 96 | ||||
The warrants fair value was established by management leveraging calculations by an independent expert using the binomial model and based on the following assumptions: (For more details please see note 10f)
| December 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Dividend Yield on the Shares (%) | ||||||||
| Expected Share Price Volatility (%) | 91 | % | 99 | |||||
| Risk-free Interest Rate (%) | 5 | % | 4.2 | % | ||||
| ADS Price $ | 0.019 | 0.6 | ||||||
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SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 5:- PROPERTY, PLANT AND EQUIPMENT, NET
The composition of property, plant and equipment is as follows:
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Cost: | ||||||||
| Laboratory equipment | $ | 2,150 | $ | 2,142 | ||||
| Computers and Cars | 284 | 280 | ||||||
| Office, furniture and equipment | 41 | 41 | ||||||
| Leasehold improvements | 3,723 | 3,723 | ||||||
| Manufacturing plant * | 7,447 | |||||||
| 13,645 | 6,186 | |||||||
| Less - accumulated depreciation | (4,456 | ) | (2,808 | ) | ||||
| Manufacturing plant in process* | 7,447 | |||||||
| Property and equipment, net | $ | 9,189 | $ | 10,825 | ||||
Depreciation expenses amounted to $1,648, $514 and $562 for the years ended December 31, 2024, 2023 and 2022, respectively.
| * | Validation process of the Manufacturing plant was finalized in April 2024. (Refer to note 2.h) |
NOTE 6:- LEASES
The Company has several operating lease agreements that include leases of office space, a lab, a production line, and vehicles used to support the Company’s ongoing operations. The vehicle leases are for a period of 3 years. The original lease term of the office space was 10 years and on December 24, 2024, the Company exercised its option to extend the lease for an additional five years which ends at December 31, 2032. At the date of the lease extension, the Company recognized a right-of-use asset and a corresponding lease liability in respect of the extended lease term.
In connection with the exercise of an option to extend the lease term for an existing lease arrangement, the Company reassessed the lease liability and the corresponding right-of-use asset. As required under ASC 842, upon such reassessment, the Company re-evaluated the lease and updated the lease discount rate to reflect the rate as of the effective date of the modification. The revised discount rate was used to reassess the lease liability and right-of-use asset accordingly.
F-
SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 6:- LEASES (Cont.)
Supplemental balance sheet information related to operating leases is as follows:
| Year ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Office | ||||||||
| Weighted average remaining lease term (in years) | 8 | 4 | ||||||
| Weighted average discount rate | 16.93 | % | 8 | % | ||||
| Cars | ||||||||
| Weighted average remaining lease term (in years) | 0.44 | 0.8 | ||||||
| Weighted average discount rate | 18%-26 | % | 18%-26 | % | ||||
Minimum lease payments for the Company’s right of use assets over the remaining lease periods as of December 31, 2024, are as follows:
| Office | Cars | Total | ||||||||||
| 2025 | $ | 384 | $ | 42 | $ | 426 | ||||||
| 2026 | 384 | 384 | ||||||||||
| 2027 | 384 | 384 | ||||||||||
| 2028 | 384 | 384 | ||||||||||
| 2029 | 384 | 384 | ||||||||||
| 2030-2032 | 1,151 | 1,151 | ||||||||||
| Total undiscounted lease payments | 3,071 | 42 | 3,113 | |||||||||
| Less - adjustment to discounted lease payments | (1,285 | ) | (2 | ) | (1,287 | ) | ||||||
| Present value of lease liabilities | $ | 1,786 | $ | 40 | $ | 1,826 | ||||||
Lease Costs
The table below presents certain information related to lease costs operating leases:
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Cash paid for amounts included in the measurement of leases liabilities: | ||||||||||||
| Operating leases | $ | 384 | $ | 343 | 351 | |||||||
F-
SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 7:- OTHER PAYABLES
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Employees and payroll accruals | $ | 254 | $ | 388 | ||||
| Deferred Revenues | 225 | |||||||
| Accrued expenses | 527 | 461 | ||||||
| $ | 1,006 | $ | 849 | |||||
NOTE 8:- CONTINGENT LIABILITIES AND COMMITMENTS
Since 2006, the Company received approximately $6,562 in grants from the Israeli Innovation Authority (IIA). $5,979 of which grants were for research and development of M-001 and $583 of which grants were received to support the new CDMO business, out of which grants for $358 were received during 2024.
In exchange for those grants, the Company undertook to pay royalties amounting to 3%-5% on the income deriving from a product (including know-how) which was developed, in whole or in part, directly or indirectly, in the framework of a research and development program that had benefited from IIA support, including any derivatives, and related services thereof. Royalty payments are capped at the amount of the grants received by the Company, plus Annual Interest for a File (as such term is defined in the IIA rules). However, on October 25, 2023, the IIA published a directive concerning changes in royalties to address the expiration of the LIBOR. Under such directive, regarding IIA grants approved by the IIA prior to January 1, 2024 but which are outstanding thereafter, as of January 1, 2024 the annual interest will be calculated at a rate based on 12-month Secured Overnight Financing Rate, the SOFR, or at an alternative rate published by the Bank of Israel plus 0.71513%; and, for grants approved on or following January 1, 2024 the annual interest will be the higher of (i) the 12 months SOFR interest rate, plus 1%, or (ii) a fixed annual interest rate of 4%. The maximum royalty amounts payable by the Company as of December 31, 2024 is approximately $6,096 which represents the total gross amount of grants actually received by the Company from the IIA including accrued interest. As of December 31, 2024, the Company had not paid any royalties to the IIA.
At the time the grants were received and as of December 31, 2024, successful development of the M-001 product was not assured and therefore the company does not currently expect to make any royalty payments to the IIA.
The Company is also subject to various other restrictions pursuant to the grant, including limitations on transferring IP developed with grant funds. In light of the Company’s new strategy, it does not expect these restrictions to be material to its ongoing operations.
On November 2023, we announced that the IIA had approved a non-dilutive grant covering 66% of the costs of a $975 project aimed to support our new CDMO business. The grant is neither subject to repayment nor tied to royalty payments of any kind. The grant covers approved expenses required for further developing Scinai’s CDMO service for the 12 months from grant.
F-
SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 9:- LOAN FROM OTHERS.
| a. | On June 19, 2017, the Company entered into a Finance Contract with the European Investment bank (EIB) for a total amount of approximately $22,422 (€ 20,000) and up to 50% of the Company’s expected cost of developing and marketing the Company’s product candidate, M-001. In addition, as a repayment features, EIB was entitled to receive the higher between 3% of any M-001 sales revenues for a period of ten years, or realizing a cash-on-cash multiple of 2.8 times |
During 2018, the Company received approximately $23,599 (€ 20,000) in two tranches of approximately $7,080 (€ 6,000) and the third tranche of approximately $9,439 (€ 8,000). On October 7, 2019, the Company received the remaining approximately $4,390 (€ 4,000).
In the event the Company elects to prepay the EIB financing, or in the event the EIB shall demand prepayment following certain events, including a change of control, senior management changes or merger events, the Company shall be required to pay EIB the principal amount of the tranches already paid, or the Prepayment Amount, plus the greater of:
| (i) | the amount, as determined by EIB required in order for the EIB to realize an internal rate of return on the relevant amount prepaid of 20%; and |
| (ii) | the Prepayment Amount. |
The Finance Contract also stipulates that in the event the EIB demands prepayment of the loan due to any prepayment event to non-EIB lenders, the Company shall be obligated to pay the Prepayment Amount plus an additional reduced amount. In addition, and as consideration for the EIB financing, the EIB shall be entitled to 3% of any annual M-001future revenue.
| b. | On April 22, 2019, the Committee of EIB agreed to expand the 2017 financing agreement with the Company by an additional approximately $4,502 (€ 4,000) to a total of approximately $27,013 (€ 24,000). An amendment was signed in June 2019 (the “Amendment”). Those funds were received in October 2019 to support of the ongoing pivotal, clinical efficacy, Phase 3 trial of the company M-001 Universal Flu Vaccine candidate in Europe |
| c. | On October 23, 2020, the Company announced the failure of Phase 3 clinical trial results of the M-001 universal vaccine product. |
As a result of the Phase 3 clinical trial failure, Company’s management estimates that there will be no future revenues from the M-001 product. Therefore, most likely, there will be no future royalty payments to EIB from this product.
Under the Finance Contract, the EIB may accelerate all loans extended thereunder if an event of default has occurred, which includes, amongst other things, an event of default arising from the occurrence of a material adverse change, defined as any event or change of condition, which in the opinion of the EIB, has a material adverse effect on: our ability to perform our obligations under the Finance Documents; the Company’s business, operations, property, condition (financial or otherwise) or prospects; or the rights or remedies of the EIB under the Finance Contract, amongst other things. If the EIB determines that an event of default has occurred, it could accelerate the amounts outstanding under the Finance Contract, making those amounts immediately due and payable On January 26, 2021, the EIB notified the Company that it welcomed the Company’s efforts to secure future equity financing in an amount not less than $ 2,000 in order to enable the Company to pursue new business opportunities, strengthen the Company balance sheet and invest in growth.
F-
SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 9:- LOAN FROM OTHERS (Cont.)
Thus, within that context, the EIB wrote in their letter that they will not consider the failure of the Company’s pivotal phase 3 trial for M-001 to meet the primary and secondary efficacy endpoints as a trigger for prepayment of a loan extended under the Finance Contract. However, EIB cautioned the Company that their letter is not a consent, agreement, amendment or waiver in respect of the terms of the Finance Contract, reserving any other right or remedy the EIB may have now or subsequently.
| d. | On August 9, 2022, the Company signed a loan restructuring agreement with the European Investment Bank (EIB) for the new terms of its outstanding approximately $24,554 (€ 24,000) loan to the Company. The new terms include: |
| 1. | An extension of the maturity dates from 2023 until December 31, 2027. |
| 2. | Interest on the loan will begin to accrue starting January 1, 2022, at an annual rate of 7%. The interest payments will be deferred until the new maturity date and will be added to the principal balance at the end of each year during the loan period. |
| 3. | An amount of $ 900 (approximately € 880) were paid by the Company on August 15, 2022, shortly after the execution of the relevant amendment letter with the EIB and was applied to reduce the outstanding loan. In addition, 10% of any capital raises until maturity are to be used to further repay the Loan principal including any outstanding accrued interest. |
| 4. | If the Company sales exceed approximately $5,332 (€ 5,000), 3% of the revenues will be paid to the EIB as royalties until the EIB receives (from the Loan repayment, inter alia the interest and the royalties) the higher of (i) a total of 2.8 times the original approximately $25,596 (€ 24,000) principal (as provided in the original Loan agreement) and (ii) 20% IRR on the principal |
| 5. | In case the Company decides to discharge all liabilities under the finance contract, inter alia payments of the variable remuneration, the Company would need to repay to the EIB an indemnity amount in addition to the Loan principal and the accrued interest. The indemnity amount will be calculated such that the EIB receives an additional payment equal to the greater of (i) the prepayment amount (i.e. twice the prepayment amount in the aggregate) and (ii) the amount required to realize 20% IRR on the prepayment amount at the time of prepayment. |
F-
SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 9:- LOAN FROM OTHERS (Cont.)
The Company accounted for the EIB loan as an extinguishment of the existing debt and the execution of a new debt instrument.
The Company recorded the cash received in each tranche and a corresponding liability to repay the cash. When the estimated cash flows change from the estimates used as of the date on which the EIB loan was issued, the EIB loan’s carrying amount is adjusted to an amount equal to the present value of the estimated remaining future payments, discounted by using the original effective interest rate. The adjustment to the carrying amount is recognized in earnings as an adjustment to interest expenses, in the period in which the change in estimate occurred.
As a result of the loan restructure, the Company recorded an amount of $ 7,168 under finance income and interest expense related to the EIB loan were to $87 For the year ended December 31, 2022
| e. | During the third quarter of 2023, following the updated estimated future cash payments based on the company’s forecasted revenues, the company updated the loan carrying value resulting in a reversal of all accretion recognized since August 2022, resulting in a financial income of $ 3,845. |
On November 24, 2023, the Company signed an amendment to the loan agreement with the EIB providing for an extension of the maturity date of the outstanding approximately $24,554 (€ 24,000) loan from December 31, 2027 to December 31, 2031.
The Company evaluated the amendment in accordance with ASC 470-60 Troubled Debt Restructuring, and concluded the EIB loan amendment represented a troubled debt restructuring (“TDR”) as the company is experiencing financial difficulty and a concession has been granted by the EIB. As a result, due to the fact that the future undiscounted cash flows of the amended debt were higher than the net carrying value of the existing debt, the net carrying value of the loan wasn’t updated and the modification was accounted for prospectively with no gain or loss recorded in the Statements of Operations.
During 2023, as a result of a capital raising, the company paid $833 to the EIB applied toward accrued interest, related to the loan restructure agreement from august 2022 that set a partial repayment of the loan for any capital raising.
| f. | On August 21, 2024, the company closed the Restructuring Agreement with the EIB, which included an amendment to the Finance Contract (the transactions contemplated by the Restructuring Agreement called the “EIB Restructuring Transaction”). |
In connection with the EIB Restructuring Transaction, an amount equal to approximately EUR 26.6 million (equal to approximately $29 million), including interest accrued to date, owed by the company to the EIB under the Finance Contract was converted into 1,000 preferred shares, no par value per share. The company assessed the fair value of the preferred shares using the OPM model and the following assumptions, (1) expected term of three years, (2) risk-free rate of 3.8%, (3) STD of 110%.
As a result of the loan conversion the company recorded financial incomes of $14,759. This financial income was calculated based on the variance between the outstanding loan amount as of the conversion date to the fair value of the preferred shares.
F-
SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 9:- LOAN FROM OTHERS (Cont.)
Following such conversion, the total outstanding amount to the EIB is EUR 250,000 (equal to approximately $260,000). The outstanding amount has a maturity date of December 31, 2031, and no interest accrues or is due and payable on such amount. The Company is no longer required to pay to the EIB (i) royalties based on the Company’s commercial sales exceeding EUR 5 million or (ii) a percentage (10%) of the gross proceeds from the Company’s capital raises.
The company evaluated the Restructuring Agreement with the EIB in accordance with ASC 470-60 Troubled Debt Restructuring, and concluded the outstanding amount to the EIB represents a troubled debt restructuring (“TDR”) as the company is experiencing financial difficulty and a concession has been granted by the EIB.
For the year ended December 31, 2024 and December 31, 2023 the company recorded $1,421 and $2,968 under finance expenses.
During the year ended December 31, 2024, as a result of a capital raising, the company paid to the EIB $143 against the accrued interest related to the loan restructuring agreement from August 2022 that set a partial repayment of the loan for any capital raising.
As of December 31, 2024, the outstanding principal amount related to the EIB loan in nominal terms is $260 .
In consideration for the above, EIB received 1,000 of the Company’s newly created preferred shares (the “Preferred Shares”), as approved by the Company’s shareholders at a meeting of shareholders held on August 12, 2024. The material terms of the Preferred Shares consist of the following:
| a. | The Preferred Shares are convertible (in whole or in part) into an aggregate of 364,000 ADSs representing 19.5% of the fully diluted share capital of the Company as of the signature date, August 12, 2024, with each Preferred Share convertible into 364 ADSs. The number of ADSs that can be acquired upon conversion of the Preferred Shares is also subject to adjustment in the event of any share split, share dividend and similar events involving the ordinary shares. |
| b. | The Preferred Shares have an aggregate stated fixed redemption amount stated in USD ($34 million, with each Preferred Share carry a redemption value equal to USD $34 thousand). |
| c. | In the event a Preferred Share is converted into ordinary shares, the right to receive such payment for such Preferred Share will be extinguished. |
| d. | The Company will pay the holder of the Preferred Shares the stated redemption amount only if the Company elects, in its sole discretion, to make such redemption payment, and provided that such redemption is in compliance with applicable law, or in the event of a formal liquidation of the Company. |
| e. | Following the payment in full of the redemption amount of a Preferred Share, such share will be considered redeemed and canceled. |
| f. | In the event that the distributable proceeds are insufficient for the distribution of the redemption amount in full to each holder of Preferred Shares for each of the unredeemed Preferred Shares, the distributable proceeds will be distributed among the holders of Preferred Shares on a pro rata basis in proportion to the number of unredeemed Preferred Shares held by the holders. |
F-
SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 9:- LOAN FROM OTHERS (Cont.)
| g. | The Preferred Shares are entitled to preference in formal liquidation in the stated redemption value of USD $34 million described above (with each Preferred Share having a preferences in the stated redemption value of described above) (“Preferred Redemption Amount”). |
| h. | The Preferred Shares have no dividend right, and dividends on ordinary shares may not be distributed until all preferred shares have been fully redeemed. |
| i. | The Preferred Shares are detachable from the remaining EUR 250,000 loan and will survive any loan repayment. |
| j. | The Company has a “right of first of refusal” to buy the Preferred Shares in case the EIB intends to sell, transfer, assign or otherwise dispose of the Preferred Shares (partially or in full). |
| k. | Unless the Company elects to redeem the Preferred Shares, the Company will not take any of the following actions without obtaining the written consent or affirmative vote of the holders of a majority of the Preferred Shares: |
| - | The Company incurring additional Indebtedness (as defined in the Company’s Amended Articles of Association). |
| - | The Company consummating a merger or an acquisition. |
| - | The Company taking any action or step in relation to delisting the ADSs from trading on the Nasdaq. |
| - | The Company’s authorizing the creation of any security having rights, preferences or privileges equal to or greater than those of the Preferred Shares, including the issuance of additional Preferred Shares. |
Based on the above and according to ASC 470-60 requirements, the Company applies the following accounting treatment as of the agreement signing date:
| ● | The Preferred Shares were measured at their fair value as of the closing date of the 2024 Amendment. The Company recognized an increase in its shareholders’ equity for the fair value of the Preferred Shares issued. The carrying amount of the debt will be reduced by the Preferred Shares’ fair value. |
| ● | The debt’s carrying amount was reduced to the total amount of the undiscounted future cash flows of the restructured debt (that is, 250,000 EUR). This additional reduction was recognized as a debt restructuring gain in the Company’s financial statements. |
F-
SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 10:- SHAREHOLDERS’ EQUITY
| a. | Rights attached to shares: |
An ordinary share confers upon its holder(s) a right to vote at the general meeting, a right to participate in distribution of dividends, and a right to participate in the distribution of surplus assets upon liquidation of the Company.
Preferred shares rights are detailed in note 9.
| b. | On November 10, 2022, the Company announced that it plans to affect a ratio change of the ADSs to its non-traded ordinary shares from the previous ratio of one (1) ADS representing forty (40) ordinary shares to a new ratio of one (1) ADS representing four hundred (400) ordinary shares. The ratio change had the same effect as a reverse split of the existing ADSs of one (1) new ADS for every ten (10) old ADSs. The effective date for the ratio change was November 25, 2022. |
| c. | On December 13, 2022, the shareholders approved an amendment to the Company’s Articles of Association increasing the registered share capital of the Company by an additional 18,200,000,000 Ordinary Shares (the equivalent of 4,550,000 ADSs) such that the total registered share capital of the Company would consist of 20,000,000,000 Ordinary Shares, no par value (the equivalent of 5,000,000 ADSs). |
| d | On December 20, 2022, the Company closed an underwritten public offering with gross proceeds to the Company of $8,000 before deducting underwriting discounts and other expenses payable by the Company. The offering consisted of 160,000 units and pre-funded units. Each unit consisted of one ADS and two warrants, each to purchase one ADS, and each pre-funded unit consists of one pre-funded warrant to purchase one ADS and two warrants each to purchase one ADS. One of the warrants (Non-Exchangeable Warrant) will expire three years from the date of issuance, and the other warrant (Exchangeable Warrant) expired one year from the date of issuance and provided for exercised for half an ADS on or prior to six (6) months following the original issuance for no additional consideration. Each ADS (or pre-funded warrant) was sold together with two warrants at a combined purchase price of $5.00 per unit (or $4.99 per pre-funded unit after reducing $0.01 attributable to the exercise price of the pre-funded warrants). The Company issued a total of 400,000 Common Units and 120,000 pre-funded units, including 160,000 Exchangeable Warrants and 160,000 Non Exchangeable Warrants. The Company received a net sum of $7,231 after deduction of underwriter discount and issuance expenses of $769. The warrants were classified as liabilities, initially and subsequently measured at fair value through earnings pursuant to ASC 480 as the warrants are not considered indexed to the Company’s own shares. | |
| e. | On September 19, 2023, the Company closed an offering in which the Company issued (i) in a registered direct offering, 40,000 ADSs and pre-funded warrants to purchase up to 74,655 ADSs, at an exercise price of $0.01 per ADS, at a purchase price of $11.6 per ADS and $11.59 per pre-funded warrant, and (ii) in a concurrent private placement, unregistered warrants to purchase up to 114,655 ADSs. The warrants have an exercise price of $11.6 per ADS and are exercisable for a period of five and one-half years from issuance. The company received gross proceeds of approximately $1.33 million and a net sum of approximately $1.0 million after deduction of placement agent fees and issuance expenses. The warrants were accounted as equity. |
| f.. | On October 11, 2023, the Company issued 28,939 ADSs to a service provider. The fair value of the ADSs that were granted was $270 |
| g. | On January 4, 2024, the Company closed an offering in which the Company issued new unregistered warrants to purchase up to 521,310 ADSs in consideration for the immediate exercise of certain outstanding warrants to purchase up to an aggregate of 260,655 ADSs, issued by us in September 2023 and December 2022, at a reduced exercise price of $6.50 per ADS. The new warrants have an exercise price of $6.50 per ADS and have a term of exercise equal to three years or five and one-half years, as applicable, based on the term of the exercised warrants, from the date of issuance. The Company received gross proceeds of approximately $1.69 million and a net sum of approximately $1.42 million, after deduction of underwriter discount and issuance expenses of $263. |
| h. | On May 6, 2024, the Company issued a press release announcing receipt of a Nasdaq delisting notification regarding the Company’s non-compliance with the minimum $1.00 bid price requirement for continued listing set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Price Rule”) and appeal as well as the board approval of a ratio change of the ADSs to non-traded ordinary shares (equivalent to a reverse split) designed to regain compliance. On May 24, 2024, the Company issued a press release announcing the receipt of a Nasdaq staff determination letter regarding the Company’s non-compliance with the minimum stockholders’ equity requirement of at least $2,500 for continued under Nasdaq Listing Rule 5550(b)(1) (the “Minimum Shareholders’ Equity Rule”) and a hearing before the Nasdaq Hearing Panel to present a plan for regaining compliance. |
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SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 10:- SHAREHOLDERS’ EQUITY (Cont.)
| i. | On May 21, 2024, the ratio between the Company’s ordinary shares and its ADSs was increased from 400 ordinary shares per one ADS to 4,000 ordinary shares per one ADS, a change which was equivalent to a reverse split of 10 for 1. All ADS amounts have been retrospectively applied to these financial statements, where applicable. |
| j. | On June 7, 2024, the Company announced receipt of notification from Nasdaq that it had regained compliance with the Minimum Price Rule. |
| k. |
On June 18, 2024, the Company presented to the Nasdaq Hearing Panel the Company’s plan to regain compliance with the Minimum Shareholders’ Equity Rule.
On August 29, 2024, following the completion of the conversion of approximately EUR 26.6 million (approximately $29 million), including accrued interest, of the Company’s outstanding loan to the European Investment Bank (EIB) into 1,000 preferred shares with no par value, the Company received formal notification from Nasdaq staff confirming that it had regained compliance with the stockholders’ equity requirement under Listing Rule 5550(b)(1).
Following this transaction, the remaining outstanding amount owed to the EIB is EUR 250,000 (approximately $260,000), which bears no interest, is not prepayable, and matures on December 31, 2031. As a result, the Company’s stockholders’ equity now exceeds $2.5 million as of the date of this report. |
| l. |
On August 20, 2024, the Company announced that it had entered into a $2 million Investment Commitment Agreement with RK Stone Miami LLC, an affiliate of Mr. Daniel Stone, the largest shareholder of the Company which contemplated the potential issuance and sale of ADSs and possibly pre-funded warrants to the investor. from time to time through December 31, 2024 (the “Commitment Period”), for an aggregate purchase price of up to $2 million. Each such sale of ADSs may be initiated (at the Company’s discretion) by the Company providing an advance notice to the Investor of the sale of ADSs in a minimum amount of $200,000 and a maximum amount of $500,000, provided the maximum amounts in any month may not exceed $500,000 and the Company may not provide advance notices for an aggregate amount greater than $1.5 million prior to December 1, 2024. The price of the ADSs to be purchased under any advance will be calculated based on the lower of (i) the volume weighted average price (the “VWAP”) of the daily VWAP of the ADSs for the ten trading days prior to the Company providing the advance notice or (ii) the VWAP of the daily VWAP of the ADSs for the three trading days following the delivery of the advance notice (provided the Company may impose a minimum market price for such three day period, and in the event the market price for such period is less than the minimum market price the Company has the right to rescind the advance notice and not issue the ADSs), in either case subject to a discount of 5%.
Pursuant to the agreement, the Company was to pay the Investor a commitment fee, payable in cash or in ADSs at the option of the Company. In the event that during the Commitment Period the Company provides to the investor an advance notice, the amount of the commitment fee will be equal to $100,000, which was to be payable by the Company simultaneously with the closing of the first advance. Pursuant to the agreement, in the event the Company elects to pay such amount in the form of ADSs, the number of the ADSs was to be based on the market price determined for such advance. In the event that during the Commitment Period the Company does not provide to the Investor an advance notice, the amount of the commitment fee would have been equal to $40,000, payable by the Company promptly following the termination of the Commitment Period. In the event the Company elects to pay such amount in the form of ADSs, the number of the ADSs was to be based on the market price determined as of December 31, 2024.
Pursuant to the agreement, the company issued pre-funded warrants to RK Stone to acquire an aggregate of 617,744 ADSs for an aggregate purchase price of $2.0 million. In addition, the Company issued 28,698 pre-funded warrants to RK Stone as a commitment fee in accordance with the terms of the agreement. |
F-
SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 11:- SHARE-BASED COMPENSATION
| a. | Option plans: |
Options granted under the Company’s 2005 Israeli Share Option Plan (“Plan”) were exercisable in accordance with the terms of the Plan, within 10 years from the date of grant, against payment of an exercise price. The options generally vest over a period of three or four years.
In March 2018, the Company’s Board of Directors approved the adoption of the Company’s 2018 Israeli Share Option Plan (“2018 Plan”) for the grant of options and restricted shares (“RSU”) to employees, directors and service providers. The options are exercisable within 10 years from the date of grant, against payment of the exercise price, in accordance with the terms of the 2018 Plan. The options generally vest over a period of three or four years.
During 2024 the company granted 94,964 RSU to employees and directors.
Option grants:
Expected volatility was calculated based upon the Company’s historical share price and historical volatilities of similar entities in the related sector index. The expected term of the options granted is derived from output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends.
During the year ended December 31, 2023, the board of directors approved the grant of an aggregate of 44,933 RSUs, each vesting in three years, 36,423 of which RSU’s were granted to officers and directors and 8,509 RSU’s of which were granted to employees of the Company. The value of the said RSU’s was $635 thousand.
On August 24, 2023, shareholders approved the grant of option awards to our directors and chairman of the board. The company granted 18,680 ADS’s options purchase 18,680 ADSs of the Company in the aggregate, all at an exercise price of $18.1. The options vest in equal annual installments over a period of three years, commencing one year following the date of shareholder approval. The options are subject to accelerated vesting and will become immediately exercisable in the event of a change of control.
The value of the said options was $193 thousand.
On the same day, the Company also cancelled options previously granted to our directors and chairman and granted replacement options to these directors. Shareholders approved that all the options that were held at by directors and chairman at the time of the meeting be cancelled and in exchange therefor the Company would grant a replacement option to purchase such number of ADSs (each, a “Replacement Option”) that is equal to the aggregate number of ADSs subject to the options held at the time by the company directors and chairman. The number of ADSs underlying the Replacement Option that were issued in exchange for the options that were held by our directors and chairman was 5,627 ADS’s. The exercise price of per ADS for the Replacement Options is $18.1. The options vest in equal annual installments over a period of three years, commencing one year following the date of shareholder approval. The options are subject to accelerated vesting and will become immediately exercisable in the event of a change of control. The fair value of the replacement warrants was $59.
The fair value of the Replacement Options is more than the fair value of the old options, the incremental amount will be recognized in equal annual installments over a period of three years, commencing one year following the date of shareholder approval.
F-
SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 11:- SHARE-BASED COMPENSATION (Cont.)
The following table lists the inputs to the binomial option-pricing model used for the fair value measurement of equity-settled share options for the above Options Plans for the years 2024, 2023 and 2022:
| December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Dividend yield | - | % | 0 | % | 0 | % | ||||||
| Expected volatility of the share prices | - | % | 107 | % | 84 | % | ||||||
| Risk-free interest rate | - | % | 4.2 | % | 2.1 | % | ||||||
| Expected term (in years) | 10 | % | 10 | |||||||||
| * | During the year 2024 there were no new grants of options. |
Based on the above inputs, the fair value of the ADS options was determined to be $1.03 and $0.157 for the years ended December 31,2023 and 2022, respectively.
| b. | The following table summarizes the number of options granted to employees under the Option Plans for the year ended December 31, 2024 and related information: |
| Number of options |
Weighted average exercise price |
Weighted average remaining contractual term (in years) |
Aggregate intrinsic value |
|||||||||||||
| Balance as of December 31, 2023 | 98,491,200 | 0.005 | 9.9 | 12 | ||||||||||||
| Granted | ||||||||||||||||
| Forfeited | (1,262,800 | ) | 0.005 | 9.9 | 12 | |||||||||||
| Balance as of December 31, 2024 | 97,228,400 | 0.005 | 8.65 | 12 | ||||||||||||
| Exercisable as of December 31, 2024 | 32,409,467 | 0.005 | 8.65 | 12 | ||||||||||||
As of December 31, 2024, there are $549 of total unrecognized costs related to share-based compensation that is expected to be recognized over a period of up to four years.
F-
SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 11:- SHARE-BASED COMPENSATION (Cont.)
| c. | The following table summarizes information about the Company’s outstanding and exercisable options granted to employees as of December 31, 2024: |
| Exercise price | Options outstanding as of December 31, 2024 |
Weighted average remaining contractual term (years) |
Options exercisable as of December 31, 2024 |
Weighted average remaining contractual term (years) |
||||||||||||
| $0.005 | 97,228,400 | 8.65 | 32,409,467 | 8.65 | ||||||||||||
| d. | A summary of ADSs restricted shares units activity for the year ended December 31, 2024 is as follows: |
| Number of ADS |
Weighted average grant date fair value |
|||||||
| Balance as of December 31, 2023 | 30,503 | 30.6 | ||||||
| Granted | 94,964 | 4.46 | ||||||
| Vested | (15,893 | ) | 30.6 | |||||
| Forfeited | (3,391 | ) | 30.6 | |||||
| Balance as of December 31, 2024 | 106,183 | 7.22 | ||||||
| e. | The total share-based compensation expense related to all of the Company’s equity-based awards, recognized for the years ended December 31, 2024, 2023 and 2022 is comprised as follows: |
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Research and development expenses | $ | 322 | $ | 107 | $ | 100 | ||||||
| Marketing, general and administrative expenses | 360 | 1,032 | 1,502 | |||||||||
| Total share-based compensation | $ | 682 | $ | 1,139 | $ | 1,602 | ||||||
F-
SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 12:- REVENUES
The Company recognized revenue from contracts with customers for the years ended December 31, 2024, 2023 and 2022 as follows:
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Revenues from CDMO recognized Over time* | $ | 496 | $ | $ | ||||||||
| Revenues from CDMO recognized Point in time | 62 | |||||||||||
| Revenues recognized from Licensing | 100 | |||||||||||
| Total | $ | 658 | $ | $ | ||||||||
| * | Amount of $389 is related to one customer |
NOTE 13:- TAXES ON INCOME
| a. | Corporate tax rates |
Corporate tax rate in Israel was 23% in 2024 and 2023 and 2022.
| b. | Net operating losses carryforward: |
The Company has net operating losses for tax purposes as of December 31, 2024 totaling approximately $102 millions, which may be carried forward and offset against taxable income in the future for an indefinite period.
| c. | Final tax assessments: |
The Company’s tax assessments through the 2019 tax year are considered final.
| d. | Deferred taxes: |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax assets and liabilities are as follows:
| Year ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry forward | $ | 23,377 | $ | 26,109 | ||||
| Temporary differences mainly relating to Research and Development | ||||||||
| Lease liabilities | 322 | 307 | ||||||
| Deferred tax asset before valuation allowance | 23,699 | 26,416 | ||||||
| Deferred tax liabilities: | ||||||||
| Right-of-use assets | (284 | ) | (217 | ) | ||||
| Deferred tax liabilities before valuation allowance | (284 | ) | (217 | ) | ||||
| Valuation allowance | (23,415 | ) | (26,199 | ) | ||||
| Deferred tax asset, net | $ | $ | ||||||
| e. | Reconciliation of the theoretical tax expense to the actual tax expense: |
F-
SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 13:- TAXES ON INCOME (Cont.)
The main reconciling item between the statutory tax rate of the Company and the effective tax rate is the recognition of valuation allowance in respect of deferred taxes relating to accumulated net operating losses carried forward due to the uncertainty of the realization of such deferred taxes.
NOTE 14:- BASIC AND DILUTED NET LOSS (INCOME) PER SHARE
| a. | Details of the number of ordinary shares and loss used in the computation of net loss per share: |
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Basic and diluted (Earnings) Losses per ordinary share | ||||||||||||
| Net (income) loss | (4,796 | ) | 6,500 | 5,796 | ||||||||
| Less - Undistributed income allocable to preferred shares due to their redemption feature | (4,796 | ) | ||||||||||
| Net (income) loss applicable to ordinary shareholders | 6,500 | 5,796 | ||||||||||
| Weighted average number of shares used in the computation of basic and diluted (income) loss per ordinary share | 3,225,472,266 | 1,562,627,495 | 754,076,407 | |||||||||
| Basic and diluted (Earnings) Losses per ordinary share | 0.004 | 0.01 | ||||||||||
| b. | The following items have been excluded from the diluted weighted average number of shares outstanding because they are anti – diluted: |
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Share Options | 97,228,400 | 98,491,200 | 28,919,600 | |||||||||
| Restricted share units | 424,732,329 | 214,729,600 | 43,107,200 | |||||||||
| Warrants | 2,231,316,096 | 1,100,500,800 | 292,940,000 | |||||||||
| Preferred shares | 1,456,000,000 | |||||||||||
F-
SCINAI IMMUNOTHERAPEUTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data and unless otherwise indicated)
NOTE 15:- FINANCIAL INCOME (EXPENSES), NET
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Income: | ||||||||||||
| Exchange differences, net | $ | $ | 1,524 | |||||||||
| Remeasurement of warrants liabilities | 91 | 4,024 | 711 | |||||||||
| Bank deposits | 100 | 79 | ||||||||||
| Finance income in respect of loans from others | 3,845 | 3,051 | ||||||||||
| 191 | 7,948 | 286 | ||||||||||
| Expenses: | ||||||||||||
| Exchange differences, net | 84 | 933 | ||||||||||
| Finance expense, net | 1,422 | 3,801 | ||||||||||
| Bank commissions and other financial expenses | 10 | 8 | 21 | |||||||||
| 1,516 | 4,742 | 21 | ||||||||||
| Total financial income (expenses), net | $ | 1,325 | $ | 3,206 | 5,265 | |||||||
| * | Includes finance income due to loan restructuring. |
NOTE 16:- SEGMENTS
The Company operates as one operating segment. The Company’s chief operating decision maker (“CODM”) is its chief executive officer, manages the Company’s business activities as a single operating and reportable segment at the consolidated level. Accordingly, our CODM uses consolidated net income to measure segment profit or loss, allocate resources and assess performance based on consolidated net income which is consistent with the basis the consolidated statements of operations are presented.
NOTE 17:- SUBSEQUENT EVENTS
| 1. | On March 3, 2025, the Company entered into the Standby Equity Purchase Agreement (“Purchase Agreement”) with YA II PN, Ltd. (“YA”), pursuant to which YA has committed to purchase up to $10.0 million of ADSs, or the Commitment Amount, at our direction from time to time, subject to the restrictions and satisfaction of the conditions in the Purchase Agreement, during the period commencing on the date of execution of the Purchase Agreement until the earlier of (i) the 36-month anniversary of the date of execution of the Purchase Agreement, and (ii) YA’s purchase of the total Commitment Amount under the Purchase Agreement, such period the Commitment Period. Pursuant to the terms of the Purchase Agreement, the Company issued 28,784 ADSs (the “Commitment Shares”) to YA as consideration for its irrevocable commitment to purchase the Advance Shares under the Purchase Agreement. The Company filed a registration statement on Form F-1 to register the resale of up to 3,022,796 ADSs issuable to YA under the Purchase Agreement from time to time during the Commitment Period (including the Commitment Shares), subject to the restrictions and satisfaction of the conditions in the Purchase Agreement, if and when the Company determine to sell additional ADSs to YA under the Purchase Agreement. YA has no right to require us to sell any ADSs to YA, but YA is obligated to make purchases of the ADSs as directed by us, subject to the restrictions and satisfaction of conditions set forth in the Purchase Agreement upon receipt of a notice sent by the Company to YA setting forth the number of ADSs that the Company desire to issue and sell to YA, or an Advance Notice. The purchase price of the ADSs that the Company may direct YA to purchase from time to time under the Purchase Agreement will be equal to 97% of the lowest daily volume weighted average price (VWAP) during the three consecutive trading day period commencing on the date that the Company deliver any Advance Notice to YA. The Company have the right to set a floor price in the Advance Notice that sets a lower limit of the ADS price at which the Company are willing to sell ADSs to YA. On March 24, 2025, the Company delivered an Advance Notice for 31,746 ADSs and thereafter delivered the ADSs, and on March 27, 2025 the Company received gross proceeds of approximately $104. | |
| 2. | On March 24, 2025, we acquired a Polish shell company without any operations or net assets, Scinai Immunotherapeutics Spółka z ograniczoną odpowiedzialnością, for total consideration of $1 as to serve as our wholly-owned subsidiary in Poland and as an applicant for potential grants under programs established by the Polish government. | |
| In March 2025, the Company signed an option agreement providing the Company with the exclusive right to acquire, subject to certain conditions being satisfied and the payment of certain sums, the Italian biotech company Pincell srl, which is developing PC111, a novel monoclonal antibody targeting severe dermatological conditions such as Pemphigus, Stevens-Johnson Syndrome (SJS), and Toxic Epidermal Necrolysis (TEN). Concurrently, the Company’s wholly owned Polish subsidiary submitted a €12 million non-dilutive grant application under the European Funds for a Modern Economy (FENG) program to fund ~ 80% of the costs of the next stage of PC111 development. PC111, which has received Orphan Drug Designation from the EMA for Pemphigus, is a fully human antibody with a non-immunosuppressive mechanism of action, addressing a significant unmet medical need in these life-threatening diseases. |
F-40
Exhibit 1.1
COMPANIES LAW, 5759 – 1999
LIMITED SHARES COMPANY
Amended and Restated Articles of Association
of
SCINAI IMMUNOTHERAPEUTICSLTD.
| 1. | In these articles, except where the written content requires a different interpretation: |
“Law” As defined in the Interpretation Law, 5741 – 1981;
“The Company” The abovementioned Company;
“The Law” or the “Companies Law” The Companies Law, 5759 – 1999, as it shall be from time to time;
“Administrative Enforcement Proceeding” An administrative enforcement proceeding in accordance with the provisions of any law, including the Improvement of Enforcement Proceedings Law and the Securities Law, including an administrative petition or appeal in connection with the aforementioned proceeding;
“Securities Law” The Securities Law, 5728 – 1968, as it is updated from time to time;
“The Office” or the “Registered Office” The Company’s office, the address of which is registered with the Registrar, as it shall be from time to time;
“The Ordinance” or the “Companies Ordinance” The Companies Ordinance (new version), 5743 – 1983, as it is updated from time to time, and the regulations subject thereto;
“Ordinary Majority” An ordinary majority of the total votes of shareholders attending a general meeting or class meetings, as the case may be, who are entitled to vote and have voted therein, without taking into account the abstaining votes;
“Year” or “Month” According to the Gregorian calendar;
“Corporation” A company, partnership, cooperative society, association, and any other incorporated or unincorporated body of persons;
“These Articles of Association” or the “Articles of Association” The Articles of Association drafted in this document, as they may change from time to time;
“Indebtedness”:
| (a) | obligations for borrowed money; |
| (b) | indebtedness under any acceptance credit; |
| (c) | indebtedness under any bond, debenture, note or similar instrument; |
| (d) | instrument under any bill of exchange; |
| (e) | indebtedness in respect of any interest rate or currency swap or forward currency sale or purchase or other form of interest or currency hedging transaction (including without limit caps, collars and floors); |
| (f) | indebtedness under any finance lease; |
| (g) | indebtedness (actual or contingent) under any guarantee, bond security, indemnity or other agreement; |
| (h) | indebtedness (actual or contingent) under any instrument entered into for the purpose of raising finance; |
| (i) | indebtedness in respect of a liability to reimburse a purchaser of any receivables sold or discounted in the event that any amount of those receivables is not paid; |
| (j) | indebtedness arising under a securitisation; or |
| (k) | other transaction that has the commercial effect of borrowing. |
“M&A Event”: Any amalgamation, demerger, merger or corporate reconstruction in relation to the Company.
“Permitted Hedging”:
| (a) | any derivative transaction by the Borrower to hedge actual or projected exposure arising in the ordinary course of trading and not for speculative purposes; and |
| (b) | any derivative instrument of the Borrower which is accounted for on a hedge accounting basis but is not entered into for speculative purposes. |
| 1.1. | Any term in these Articles of Association not defined in the abovementioned article shall bear the meaning prescribed thereto in the Companies Law, unless the aforesaid constitutes a contradiction to the written subject or its content; words stated in the singular shall be construed as well in the plural, and vice versa, words stated in the male gender shall be construed in the female gender as well. |
| 1.2. | The headings in these Articles of Association are for convenience purposes only and shall not be used to construe these Articles of Association. |
| 1.3. | Anywhere in the Articles of Association where it is determined that its provisions shall be subject to the provisions of the Ordinance and/or subject to the provisions of the Companies Law and/or subject to the provisions of any law, this means the provisions of the Ordinance and/or the provisions of the Companies Law and/or the provisions of any law, which may not be subjected to conditions, unless the context requires otherwise. |
| 1.4. | The provisions which may be subject to conditions in the Companies Law shall apply to the Company wherever it is not stated to the contrary in these Articles of Association and as long as there is no contradiction between them and the provisions of these Articles of Association. |
COMPANY NAME
| 2. | The Company’s name is as follows: |
| 2.1. | In Hebrew - סאינאי אימונותרפאוטיקה בע”מ |
| 2.2. | In English – Scinai Immunotherapeutics Ltd. |
LIMITATION OF LIABILITY
| 3. | The liability of the shareholders is limited to repayment to the Company of the par value of the shares they own, if said sum has not yet been paid to the Company. In the event that the Company allots shares for consideration lower than their par value as stated in section 304 to the Law (the “Reduced Consideration”), the liability of each shareholder shall be limited to the repayment of the Reduced Consideration sum for each share allotted thereto as aforementioned. |
COMPANY’S OBJECTIVES
| 4. | The objectives of the Company are to engage in any lawful activity in the field of biotechnology. |
BUSINESS
| 5. | The Company may, at any time, engage in any branch or type of business in which it is authorized, explicitly or implicitly, to engage subject to Article 4 above. In addition the Company may cease from engaging in such businesses, whether it has begun said branch or type of business, or otherwise. |
DONATIONS
| 6. | The Company may donate reasonable amounts to worthy causes, even if said donation is not within the framework of the Company’s business considerations. The Board of Directors is authorized to determine, subject to its discretion, the sums of the donations, the purposes for which they are executed, the identity of the receiver of the donation, and any other condition in connection therewith. |
REGISTERED OFFICE
| 7. | The Company’s registered office will be at the address determined by the Board of Directors, as it changes from time to time. |
THE ARTICLES OF ASSOCIATION
| 8. | The Company may amend these Articles of Association upon a resolution passed by the General Meeting with a majority of at least 75% of the voting rights at the meeting. |
| 9. | A resolution passed by the General Meeting with the required majority to amend the Articles of Association, as stated in Article 8 above, which amends any of the provisions of these Articles of Association, will be deemed a resolution to amend these Articles of Association, even if this was not explicitly stated in the resolution. |
| 10. | Subject to the provisions of the Companies Law, amendments to these Articles of Association will be valid as of the date of passing the resolution in this matter by the Company or on a later date determined in the resolution. |
REGISTERED SHARE CAPITAL
| 11. | The Company’s registered share capital consists of (i) 40,000,000,000 Ordinary Shares, no par value (the “Ordinary Shares”), and (ii) 1,000 Preferred Shares, no par value (the “Preferred Shares” and together with the Ordinary Shares, the “Shares”). |
| 11.1. | Each Ordinary Share grants its owner the following rights: |
| a) | Receiving an invitation and participation in the Company’s General Meetings and voting thereat; |
| b) | One vote at the General Meeting votes; |
| c) | Subject to Article 143 below, participation in the distributed profit of the Company pro rata to the sum paid on account of the share’s par value; and |
| d) | Subject to Article 170 below, in the event of distribution of surpluses of the Company’s assets (after payment of its debt) to the shareholders as part of Liquidation (as defined below) – participation in the distribution of the surplus pro rata to the sum paid on account of the share’s par value. |
| 11.2. | Each Preferred Share grants its owner the following rights: |
| a) | Subject to Article 143 below, participation in the distributed profit of the Company; and |
| b) | Subject to Article 170 below, in the event of distribution of surpluses of the Company’s assets (after payment of its debt) to the shareholders as part of Liquidation – participation in the distribution of the surplus. |
THE SHARES
| 12. | Ordinary Shares. |
| 12.1. | Subject to Articles 143 and 1 below and such rights of the Preferred Shares, each Ordinary Share in the Company’s equity bears equal rights, for all intents and purposes, compared to any other Ordinary Share, including the right to a dividend, bonus shares, and participation in the distribution of surplus Company assets during Liquidation (as defined in Article 170 below), on a pro rata basis with all other Ordinary Shares, without taking into account any premium paid therefor, and all subject to the provisions of these Articles of Association. |
| 12.2. | Each of the Ordinary Shares entitles its owner to the right to participate in the Company’s General Meeting and to one vote. |
| 13. | Preferred Shares. |
| 13.1. | Subject to Article 1 below and prior and in preference to any such rights of the Ordinary Shares, each Preferred Share in the Company’s equity bears equal rights, for all intents and purposes, compared to any other Preferred Share, including the right to bonus shares and participation in the distribution of surplus Company assets during Liquidation on a pro rata basis with all other Preferred Shares, without taking into account any premium paid therefor, and all subject to the provisions of these Articles of Association. |
| 13.2. | Except as provided in Article 172 and except with respect to amendments to these Articles that would affect the rights of the Preferred Shareholders, the Preferred Shares shall not entitle their owners to the right to vote (either as a class or on an as converted basis) on any matters brought to holders of the Ordinary Shares for approval. |
| 14. | A Company shareholder is anyone registered as a shareholder in the shareholders ledger, and anyone who owns a share registered with a stock exchange member and the same share is included among the shares registered in the Company’s shareholders ledger in the name of the registration company. |
| 14.1. | A shareholder who is a trustee will be registered in the shareholders ledger while stating his trusteeship, and he shall be deemed for the purpose of the Companies Law a shareholder. Without derogating from the aforementioned, the Company will recognize the trustee, as aforesaid, as the shareholder, for all intents and purposes, and will not recognize any other person, including the beneficiary, as having any right whatsoever in the share. |
| 14.2. | Without derogating from the abovementioned, and subject to the provisions of these Articles of Association, apart from Company shareholders, as stated in Article 14.1 above, no person shall be recognized by the Company as having any right whatsoever in a share and the Company will not be bound by and will not acknowledge any benefit subject to equity laws or fiduciary relations or chose in action, future or partial in any share or benefit whatsoever in a share fraction or any other right pertaining to a share except only the right of a shareholder as stated in Article 14.1 above, in an entire share, and all, except if an authorized court has instructed to the contrary. |
SHARE CERTIFICATES
| 15. | The certificates attesting to the proprietary right in the shares shall bear the Company seal and the signatures of one director jointly with the Company CEO or jointly with the Company secretary or the signatures of any two people appointed for this purpose by the Board of Directors. The Board of Directors may decide that a signature or signatures as abovementioned shall be done in any mechanical way, as determined by the Board of Directors. |
| 16. | Except in the event that the terms of issue of shares determine otherwise: |
| 16.1. | Each registered shareholder is entitled to receive from the Company, as per his request, within a period of two months after the allotment or registration of transfer, as the case may be, one certificate attesting to his ownership in the shares registered in his name, or, with the Company’s consent, a number of aforesaid certificates. |
| 16.2. | The registration company is entitled to receive from the Company, as per its request, within a period of two months after the allotment or registration of transfer, as the case may be, one certificate attesting to the number of shares and class of shares registered in its name in the shareholder ledger. |
| 17. | Subject to the provisions of the Companies Law, each certificate shall specify the amount of shares for which it was issued, their serial numbers and par value. |
| 18. | A certificate referring to a share registered to two persons or more, shall be delivered to anyone whose name appears first in the shareholder ledger, with regard to the same share, unless all registered owners of the same share, instruct the Company in writing to deliver it to another registered owner. |
| 19. | In the event that a share certificate is destroyed, damaged, lost, or impaired, the Board of Directors may order the cancellation thereof and issue a new certificate in lieu thereof, provided that the share certificate was delivered to the Company and destroyed thereby, or it was proven to the satisfaction of the Board of Directors that the certificate was lost or destroyed and the Company received guarantees to the Board of Directors’ satisfaction for any damage which may occur thereto. For each share certificate issued subject to this article a reasonable sum shall be paid therefor as determined by the Board of Directors from time to time. |
PAYMENTS FOR SHARES
| 20. | All of the shares in the Company’s issued capital will be fully paid-up shares. |
FORFEITURE OF SHARES
| 21. | Without derogating from Article 20 above, the Board of Directors may forfeit a share allotted by the Company and sell it, if the consideration payable by the shareholder, all or some, was not paid to the Company, and the provisions of the Companies Law in this matter shall apply. |
TRANSFER AND DELIVERY OF SHARES
| 22. | Any transfer of shares registered in the name of the registration company shall be performed through the registration company. Any transfer of shares registered in the shareholder ledger in the name of a registered shareholder, including a transfer by the registration company or thereto, shall be done in writing, provided that the deed of transfer is signed by hand only, by the transferor or the transferee, themselves or by proxy, and by witnesses to the signing, and delivered to the registered office or any other place determined for this purpose by the Board of Directors. Subject to the provisions of the Companies Law, transfer of shares will not be registered in the shareholder ledger, except after a transfer deed as abovementioned is delivered to the Company; the transferor will continue to be considered the owner of the transferred shares until the transferee is registered in the shareholder ledger as the owner of the transferred shares. |
| 23. | The share transfer deed will be in writing, in the format acceptable in Israel or in any other format approved by the Board of Directors. If the transferor or transferee are a corporation, confirmation will be provided by an attorney or accountant or another person the identity of whom is acceptable to the Board of Directors, regarding the authority of those signing on behalf of the corporation to execute or receive the transfer, as the case may be. |
| 24. | The Company may close the shareholder ledger for a duration determined by the Board of Directors provided that it does not exceed, in total, thirty days each year. While the ledger is closed, no transfer of shares will be registered in the ledger. Without derogating from the aforementioned, the Board of Directors may determine an effective date for the question of entitlement to vote at the General Meeting, or receive a dividend payment or allotment of any rights whatsoever or for any other legal purpose. |
| 25. | Subject to the provisions of these Articles of Association or the terms of issue of shares of any class, the shares will be transferable without requiring the approval of the Board of Directors. |
| 26. | Each transfer deed will be submitted to the office or any other place determined by the Board of Directors, for the purpose of registration, together with the share certificate about to be transferred, if such was issued, and any other proof required by the Board of Directors regarding the proprietary right of the transferor or his right to transfer the shares. The deeds of transfer registered will remain in the Company’s possession however any deed of transfer which the Board of Directors refuses to register will be returned to the submitter, as per his request. |
| 27. | If the Board of Directors refuses to approve a transfer of shares due to failure to fulfill any of the terms specified in Article 26 above, it shall notify the transferor of this no later than one month from the date of receiving the deed of transfer. |
| 28. | The Company will be entitled to charge payment for the registration of the transfer, at a sum determined by the Board of Directors, from time to time, and which will be reasonable under the circumstances. |
| 29. |
| 29.1. | Subject to the provisions of the Companies Law and the provisions of these Articles of Association, if it is proven to the Company to the Board of Directors’ satisfaction and by means determined thereby, that the legal requirements were upheld to endorse a right in the shares registered in the ledger in the name of a registered shareholder, the Company will recognize the endorsee, and him alone, as the owner of the right in the aforementioned shares. |
| 29.2. | Notwithstanding the abovementioned, in the event of death of one or more of the joint owners of shares registered in their name in the ledger, the Company will recognize the remaining registered owners, and them alone, as having a proprietary right in those shares. |
| 30. |
| 30.1. | Subject to the provisions of these Articles of Association, the Company will change the registration of ownership in shares in the shareholders ledger if the Company receives a court order to amend the ledger or if it was proven to the Company, to the Board of Directors’ satisfaction and by methods determined thereby, that the legal requirements were upheld to endorse the right in the shares, and the Company will not recognize any other right of a person in the shares, prior to proving his right as abovementioned. |
| 30.2. | Without derogating from the abovementioned, the Board of Directors may refuse to perform the registration or may delay it, as it would be entitled to do, had the registered owner himself transferred the share prior to the endorsement of the right. |
| 31. | Subject to the provisions of the Companies Law and the provisions of these Articles of Association, a person who becomes entitled to a share as stated in Article 29 above, will be entitled to perform a transfer of the shares as the registered owner of the shares would have been entitled to himself prior to the endorsement of the right. |
| 32. | The Company may destroy the share transfer deeds after seven years have passed from the date of registration in the ledger; in addition, the Company may destroy revoked share certificates, after seven years have passed from their date of revocation, and a prima facie presumption shall apply that all of the transfer deeds and certificates destroyed, as aforementioned, were fully valid and that the transfers, revocations, and registrations, as the case may be, were duly executed. |
CHANGES IN CAPITAL
| 33. | Subject to the provisions of any law, the Company may, with a resolution passed at the General Meeting by Ordinary Majority, increase the Company’s registered share capital, with types of shares, as it shall determine. |
| 34. | Subject to the provisions of the Companies Law, the Company may, with a resolution passed at the General Meeting by ordinary majority: |
| 34.1. | Consolidate its shares, all or some, and divide them into shares of par values greater than the par value of its existing shares. |
| 34.2. | Divide its shares, all or some, by secondary division, into shares of par values smaller than the par value of its existing shares. |
| 34.3. | Reduce the Company’s capital and any capital redemption reserve fund. |
In order to execute any resolution as abovementioned, the Board of Directors may settle, subject to its discretion, any difficulty arising therefrom.
| 35. | Without derogating from the generality of the Board of Directors’ authority, as abovementioned, if as a result of the consolidation or division, as abovementioned, the shareholders will remain with share fractions, the Board of Directors may subject to its discretion act as follows: |
| 35.1. | Determine that the share fractions that do not entitle their owners to a whole share will be sold by the Company and the consideration of the sale will be paid to those entitled, subject to the conditions and in the manner determined. |
| 35.2. | Allot to each shareholder which the consolidation and/or division leave in their hands a share fraction, shares of the type of shares existing in the Company capital prior to the consolidation and/or division, of such a number so that their consolidation with the fraction creates one whole share, and an allotment as aforementioned will be deemed in effect near before the consolidation or division, as the case may be. |
| 35.3. | Determine the manner in which the sums owed for the shares allotted as stated in Article 35.2 will be redeemed, including the manner in which the sums can be redeemed on account of bonus shares. |
| 35.4. | Determine that the owners of share fractions will not be entitled to receive a whole share for a share fraction. |
| 35.5. | Determine that shareholders will not be entitled to receive a whole share for a fraction of a whole share at a certain par value or less and will be entitled to receive a whole share for a fraction of a whole share the par value of which is higher than the aforementioned par value. |
| 36. | The Company may, with a resolution passed by the General Meeting by ordinary majority, revoke registered share capital that has not yet been allotted, provided that there is no undertaking by the Company, including a contingent undertaking, to allot the shares. |
CHANGE OF RIGHTS
| 37. | At any time in which the share capital is divided into different classes, the Company will be entitled by ordinary resolution passed at the General Meeting by ordinary majority, except if the terms of issue of the same class of shares stipulate otherwise, to revoke, convert, expand, add, reduce, amend, or change in any other way the rights of a class of the Company shares, provided that consent was granted thereto in writing by all shareholders of the same class or that the resolution was passed at a General Meeting of the shareholders of the same class by ordinary majority, or in the event that the terms of issue of a certain class of Company shares stipulate otherwise, as was stipulated in the terms of issue of the same class. |
| 38. | The provisions set in the Articles of Association regarding General Meetings shall apply, mutatis mutandis, to any class meeting. However if no such legal quorum is created, the class meeting will be deferred to another date and at the deferred meeting any number of participants will constitute a legal quorum, regardless of the number of shares they own. |
| 39. | The rights of the shareholders or the owners of a class of shares, issued whether as ordinary rights or preferred rights or other extraordinary rights, shall not be considered as if they were converted, reduced, derogated, or changed in any other manner by the creation or issue of additional shares of any type whatsoever, whether at an equal level or a different or preferred level thereto, and they will not be considered as if they were converted, reduced, derogated, or changed in any other way, by changing the rights attached to shares of any other class whatsoever, and all, unless otherwise explicitly stipulated in the terms of issue of the same shares. |
ISSUE OF SHARES AND OTHER SECURITIES
| 40. | The Board of Directors may issue shares and other securities, convertible or exercisable into shares, up to the limit of the Company’s registered share capital; in this matter convertible securities that are convertible or exercisable into shares shall be considered as if they were converted or exercised on the date of the issue. Without derogating from the generality of the aforementioned, the Board of Directors will be entitled to issue the shares and other securities, as abovementioned, grant choice rights to purchase them including options or to grant them in another way, and all to the people determined thereby and on the dates, at the prices and subject to the terms determined thereby, and to determine any other instruction related thereto, including provisions regarding the methods of distributing the shares and securities issued by the Company, among their buyers, including in the event of oversubscription, and all subject to the discretion of the Board of Directors. |
| 41. | Without derogating from the generality of the aforementioned, and subject to the provisions of the Companies Law and the Articles of Association, the Board of Directors may determine that the consideration for the shares will be paid in cash or with assets in kind, and thus including with securities or any other manner, subject to its discretion, or that the shares will be allotted as bonus shares or that the shares will be allotted for consideration equal to their par value or higher therefrom, whether in unit or in series, and all subject to the conditions and on the dates determined by the Board of Directors, subject to its discretion. |
| 42. | In a resolution to increase the Company’s registered capital the General Meeting may determine that the new shares included in the sum with which the registered share capital is increased as aforementioned (hereinafter referred to as the “New Shares”), or any part thereof, will be first offered, for their par value or a premium, to all of the shareholders holding shares at that time, at a proportionate rate to the par value of their shares in the Company or determine other provisions regarding the issue and allotment of the New Shares. However, if the General Meeting did not determine as aforementioned in a resolution to increase the Company’s registered share capital, the Board of Directors may offer them, as stated in Article 40 above. |
| 43. | The Board of Directors may decide to pay commission or underwriting fees to any person, upon signing or agreement to sign or obtaining signatures or guaranteeing signatures for shares, or debentures or other Company securities. In addition the Board of Directors is entitled, in any event of issuing securities of the Company, to decide to pay brokerage fees, and all, in cash, in Company shares, or other securities issued by the Company, or in any other way, or partly in one way and partly in another way, all subject to the provisions of any law. |
REDEEMABLE SECURITIES
| 44. | Subject to the provisions of any law, the Company may issue redeemable securities subject to the terms and in the manner determined by the Board of Directors, subject to its discretion. |
REGISTRIES
| 45. |
| 45.1. | The Company will keep a shareholder ledger and register therein the names of the shareholders and other details required subject to the Companies Law, near after the issue of any shares of the Company. Subject to the provisions of the Law, upon his registration in the ledger the registered shareholder will be deemed the owner of the shares registered in his name, and thus even if share certificates for said shares were not issued. |
| 45.2. | The Company will keep a ledger of material shareholders, as is required subject to the Companies Law. |
| 46. | The Company may keep an additional shareholders ledger outside of Israel subject to the conditions determined for this matter in the Companies Law. |
| 47. | The Company will keep a ledger of the holders of debentures and securities convertible into Company shares, and all of the provisions of the Articles of Association in connection with shares shall apply to said convertible securities, with regard to registration in the ledger, issue of certificates, replacement of certificates, transfer and endorsement, mutatis mutandis as the case may be, and all subject to the terms of the allotment of the securities. |
GENERAL MEETING
| 48. | The Company’s decisions in the following matters shall be approved at the General Meeting: |
| 48.1. | Articles of Association amendments; |
| 48.2. | Exercising the Board of Directors’ authority by the General Meeting, if the Board of Directors is unable to exercise its authorities and the exercise of an authority of its authorities is vital for the orderly management of the Company, as stated in section 52(a) to the Companies Law; |
| 48.3. | Appointing the Company’s auditor and termination of his employment; |
| 48.4. | Appointing the Company directors and their dismissal; |
| 48.5. | Approving actions and transactions that require the approval of the General Meeting subject to the provisions in sections 255 and 268 to 275 to the Companies Law; |
| 48.6. | Increasing the registered share capital and decreasing it in accordance with the provisions of sections 286 and 287 to the Companies Law as well as changes in capital as specified in Article 34 above; |
| 48.7. | Subject to the provisions of section 320(a1) to the Companies Law, merger as stated in section 320(a) to the Companies Law; |
| 48.8. | Any resolution which must be passed according to the Articles of Association by a resolution of the General Meeting. |
| 48.9. | Authorizing the chairperson of the Board of Directors or his relative to fulfill the duty of CEO or exercise his authorities and authorizing the CEO or his relative to fulfill the duty of chairperson of the Board of Directors or exercise his authorities, as stated in section 121(c) to the Companies Law. |
| 49. | The Company will hold an annual General Meeting each year and no later than fifteen months after the last annual General Meeting, on the date and at the place determined by the Board of Directors. |
| 50. | The agenda of the annual General Meeting will include the following subjects: |
| 50.1. | Discussion regarding the Company financial statements and the Board of Directors report regarding the state of the Company’s affairs, submitted to the General Meeting; |
| 50.2. | Appointing directors and determining their salary; |
| 50.3. | Appointing the auditor; |
| 50.4. | Board of Directors report regarding the salary of the auditor for auditing activity and for additional services, if any; |
| 50.5. | In addition to the abovementioned, any other subject put on the agenda as stated in Article 53 below may be included on the agenda of the annual General Meeting. |
A General Meeting as abovementioned will be referred to as an “annual meeting” and any other meeting will be referred to as an “extraordinary meeting”.
| 51. | The Company Board of Directors will convene an extraordinary meeting subject to its discretion, and upon the demand of any of the following: |
| 51.1. | Two directors or a quarter of the serving directors. |
| 51.2. | A shareholder, one or more, who holds at least five percent of the issued capital and one percent of the Company’s voting rights, or a shareholder, one or more, than has at least five percent of the voting rights in the Company. |
If the Board of Directors is required to summon an extraordinary meeting, as abovementioned, it will summon it within twenty one days from the date the demand was submitted thereto, for the date determined in the notice regarding the extraordinary meeting, as stated in Article 55.1 below, provided that the date on which it is convened is no later than thirty five days from the date of publishing the notice, all subject to the Companies Law.
| 52. | If the Board of Directors failed to summon an extraordinary meeting demanded subject to Article 51 above, the demander may, and when concerning shareholders – even some of those who have more than half of their voting rights, convene the meeting himself, provided that it is not held after three months have passed from the date on which the aforementioned demand was submitted, and it will be convened, as much as possible, in the same manner in which meetings are convened by the Board of Directors. |
| 53. |
| 53.1. | The agenda of a General Meeting will be determined by the Board of Directors and will include all subjects for which the convening of an extraordinary meeting was demanded subject to article 51 above and a subject requested as stated in Article 53.2 below. |
| 53.2. | A shareholder, one or more, with at least one percent of the voting rights at the General Meeting, may request that the Board of Directors include a subject on the agenda of a future General Meeting, provided that the subject is appropriate for discussion at a General Meeting. |
| 53.3. | A request as specified in Article 53.2 above will be submitted to the Company in writing at least seven days prior to the delivery of notice regarding the convening of a General Meeting, and the draft of the resolution proposed by the shareholder will be attached thereto. |
| 54. |
| 54.1. | A notice regarding a General Meeting will be published in at least two daily newspapers, with wide circulation, published in the Hebrew language; subject to the provisions of the Companies Law, the notice will be published at least 21 days prior to the convening of the General Meeting. |
| 54.2. | Apart from the notice regarding a General Meeting as stated in Article 54.1 above, the Company will not deliver notice regarding a General Meeting, both to the registered and non-registered shareholders, subject to the provisions of the Law. |
| 55. |
| 55.1. | The notice regarding the General Meeting will specify the location, date and time of the convening of the meeting and it will include the agenda as well as a summary of the proposed resolutions and any other specification required by law. |
| 55.2. | In its decision to summon a meeting, the Board of Directors may determine the manner of specification of the subjects on the agenda of the meeting, which will be delivered to the shareholders entitled to participate in the meeting, and all subject to the discretion of the Board of Directors and subject to the provisions of the Companies Law. |
| 55.3. | Without derogating from the authority of the Board of Directors as stated in this Article 55 above and without derogating from the generality of the provisions of the Articles of Association regarding transfer of authorities by the Board of Directors, the Board of Directors will be entitled to transfer its authorities as stated in this Article 55 above to the Board of Directors committee and/or Company officer, whether for the purpose of a certain General Meeting or for a period. |
| 56. | A bona fide fault in the convening of the General Meeting or the convening thereof, including a fault arising from the failure to comply with an instruction or the conditions of the law or the Articles of Association, including with regard to the manner of convening or managing the General Meeting, will not invalidate any resolution passed at the General Meeting and will not derogate from the discussions held therein, subject to the provisions of any law. |
DELIBERATIONS AT THE GENERAL MEETING
| 57. | A deliberation at the General Meeting shall not be started unless a legal quorum is present upon opening the meeting. A legal quorum will be created with the attendance, themselves or by proxy, of shareholder/s holding, alone or accumulatively, at least 10% of the Company’s voting rights (or, for so long as the Company does not qualify as a foreign private issuer under the rules of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and for only so long as required by the Nasdaq Stock Market, 33-1/3% of the Company’s outstanding ordinary shares) within half an hour from the time set for opening the meeting, unless otherwise stipulated in the Articles of Association. |
| 58. | If a legal quorum is not in attendance at the General Meeting after half an hour from the time set for the opening of the meeting, the meeting will be deferred for one week, to the same date, same time and same location, without the requirement of notifying the shareholders of this, or another date is such was stated in the a notice regarding the meeting, or to a different date, hour and location, as shall be determined by the Board of Directors in a notice to the shareholders. |
| 59. | A deferred meeting will be held with any number of participants (unless the Company does not qualify as a foreign private issuer under the rules of the Exchange Act). |
| 60. | The chairperson of the Board of Directors, or, in the absence thereof, any director appointed for this purpose by the Board of Directors, will head each General Meeting of the Company. In the absence of a chairperson, as stated or if at any meeting whatsoever none of them are present fifteen minutes after the time set for the opening of the meeting or if they refuse to serve as chairperson of the meeting, the present directors, by a majority of votes among them, may choose a chairperson among them or among the Company officers attending the meeting, and if they fail to do so – the present shareholders themselves or by proxy will choose one of the present directors or officers to head the meeting. If no directors or officers are present or if the directors or officers all refuse to head the meeting, they will choose one of the shareholders or the proxy of an aforementioned shareholder to head the meeting. |
| 61. | The Company will take minutes of the proceeding at the General Meeting which will include the following details: |
| 61.1. | The names of the shareholders participating at the General Meeting and the number of shares held thereby; and |
| 61.2. | The matters deliberated at the General Meeting and the passed resolutions. |
| 62. | Minutes signed by the chairperson of the General Meeting constitutes prima facie evidence to its contents. |
VOTING AND PASSING RESOLUTIONS AT THE GENERAL MEETINGS
| 63. | A shareholder who wishes to vote at the General Meeting will prove to the Company his ownership of a share, as required subject to the Companies Law. Without derogating from the aforementioned, the Board of Directors may determine provisions and procedures for proving the ownership of Company shares. |
| 64. | A shareholder may vote at a General Meeting or class meeting, himself or by proxy, all subject to the provisions of the Articles of Association and subject to the provisions of the Companies Law. A proxy at a vote does not have to be a Company shareholder. |
| 65. | Subject to the provisions of any law, in the event of joint ownership in a share, each of them may vote at any meeting, whether himself or by proxy, with regard to such share, as if he were the sole person entitled thereto. If more than one of the joint owners of a share attend the meeting, themselves or by proxy, the one whose name is listed first in the shareholder ledger with regard to the share, or in the approval of the Tel Aviv Stock Exchange member regarding his ownership of the share (“Ownership Confirmation”), or in another document determined by the Board of Directors for this purpose, shall vote, as the case may be. A number of legal guardians or a number of estate executers of a deceased registered shareholder shall be considered for the purpose of this section as joint owners of these shares. |
| 66. | Any person entitled to a share subject to Article 29 above may vote subject thereto at any General Meeting in the same manner as if he were the registered owner of those shares provided that he proves to the Board of Directors’ satisfaction his right to the share at least forty-eight hours prior to the date of the General Meeting or the deferred meeting, as the case may be, where he intends to vote, unless the Company has previously recognized his right to vote subject to those shares at such meeting. |
| 67. | The document appointing a proxy for a vote (“Letter of Proxy”) will be drafted in writing and signed by the appointer, and if the appointer is a corporation, the Letter of Proxy will be drafted in writing and signed in the manner obligating the corporation; the Board of Directors may demand that the Company receive prior to the convening of the meeting, confirmation in writing, to the Board of Directors’ satisfaction, regarding the signatories’ authority to obligate the corporation. In addition, the Board of Directors is entitled to determine instructions and procedures in connection therewith. |
The Letter of Proxy or an appropriate copy thereof, to the Board of Directors’ satisfaction, will be deposited at the registered office or another place or places, in Israel or abroad – as shall be determined by the Board of Directors from time to time, in general or with regard to a special case – at least forty-eight hours prior to the beginning of the meeting or the deferred meeting, as the case may be, when the proxy intends to vote based on said Letter of Proxy. Notwithstanding the abovementioned, the chairperson of the meeting may, subject to his discretion, receive a Letter of Proxy as aforementioned, even after the aforesaid date, if he deemed this appropriate, subject to his discretion. If no Letter of Proxy was received as stated in this section above, it will be invalid at that meeting.
| 68. | A proxy at a vote may participate in the deliberations at the General Meeting and be chosen as chairperson of the meeting as the appointing shareholder would have been entitled provided that nothing to the contrary was stated in the Letter of Proxy. |
| 68.1. | The Letter of Proxy appointing a proxy to participate in a vote will be in the form acceptable in Israel or any other form approved by the Board of Directors. |
| 68.2. | The Letter of Proxy will note the class and number of shares for which it was granted, If no number of shares for which it was granted are stated in the Letter of Proxy or if it states a number of shares higher than the number of shares registered to the name of the shareholder or stated in the Ownership Confirmation, as the case may be, the Letter of Proxy will be deemed as given for the shares of the shareholder. |
| 68.3. | If the Letter of Proxy is given for a number of shares lower than the number of shares registered to the name of the shareholder or stated in the Ownership Confirmation, as the case may be, the shareholder will be deemed as if he avoided attending the vote for the balance of his shares and the Letter of Proxy will be valid for the number of shares stated therein. |
| 69. | Without derogating from the provisions of the Articles of Association regarding appointment of a proxy to a vote, a shareholder holding more than one share will be entitled to appoint more than one proxy, subject to these instructions: |
| 69.1. | Each Letter of Proxy will note the class on number of shares for which it was granted. |
| 69.2. | If the total number of shares of any class stated in the Letter of Proxy given by one shareholder exceeds the number of shares of the same class registered in his name or stated in the Ownership Confirmation, as the case may be, all Letters of Proxy granted by the same shareholder shall be null and void. |
| 70. | A shareholder or proxy at a vote may vote subject to some of the shares he owns or for which he serves as a proxy, and may vote subject to some of the shares in one manner and subject to some of them in another manner. |
| 71. | A vote subject to a Letter of Proxy will be valid even if there was a flaw in the Letter of Proxy and even if prior to the vote the appointer died or was declared incompetent or if the Letter of Proxy was revoked or the share for which the Letter of Proxy was granted was transferred, unless prior to the meeting notice was received at the office, in writing, regarding the flaw, death, incompetency, revocation, or transfer, as the case may be. Notwithstanding the abovementioned, the meeting chairperson may, subject to his discretion, accept notice as aforementioned even during the meeting, if he decides that this is appropriate, subject to his discretion. |
| 72. | A Letter of Proxy will be valid as well with regard to any deferred meeting of a meeting to which the Letter of Proxy refers, provided that nothing to the contrary was stated in the Letter of Proxy. |
| 73. | Each of the Ordinary Shares entitles its owner to the right to participate in the Company’s General Meetings and to one vote. |
| 74. | A resolution put up for a vote at a General Meeting will be decided by a vote of the number of votes; the vote will be performed in the manner determined by the chairperson of the meeting. In the event of a dispute regarding whether to accept any vote or disqualify it the chairperson of the meeting will resolve the matter and his bona fide decision will be final and decisive. |
| 75. | The announcement of the chairperson that the resolution at the General Meeting was passed or rejected, whether unanimously or by any majority and a note stated in this matter in the minutes of the meeting will constitute prima facie evidence to that which was stated therein, and there will be no further necessity to prove the number of votes (or their relative portion) given for or against the resolution. |
| 76. | Subject to the provisions of the Companies Law or the provisions of the Articles of Association regarding another majority, the resolutions of the General Meeting will be passed by ordinary majority. In the event that the number of votes for and against are equal, the chairperson of the meeting will not have an additional or decisive vote. |
| 77. | The chairperson of the General Meeting may, with the consent of a meeting that has a legal quorum, defer it or defer the deliberation or defer passing a resolution in a certain subject which is on that day’s agenda, to another date and place determined, and he must do so subject to the meeting’s demand. At a deferred meeting as aforementioned, no subject shall be discussed except that which was on the agenda and for which no resolution was made at the meeting where the deferral was decided upon. If the General Meeting is deferred to a date that exceeds twenty-one days, notices and invitations to the deferred meeting will be given as stated in Articles 54 and 55 above. If the General Meeting is deferred without changing its agenda, to a date that does not exceed 21 days, notices and invitations regarding the new date will be given as soon as possible, and no later than 72 hours before the General Meeting; the notices and invitations as aforementioned shall be given subject to sections 54 and 55, mutatis mutandis. |
| 78. | .Subject to the provisions of the Companies Law and its regulations, votes at a General Meeting in the subjects mentioned below can be performed as well by means of a voting ballot: (a) appointment and dismissal of directors; (b) approval of actions or transactions that require the General Meeting’s approval subject to the provisions of sections 255 and 268 to 275 to the Companies Law; (c) approval of a merger subject to section 320 to the Companies Law; (date) subjects determined by the Minister in the regulations instated or that will be instated subject to section 89 to the Companies Law. |
THE BOARD OF DIRECTORS
| 79. | The number of directors, including any external directors required by Israeli law, shall be no less than three and no more than eleven. |
| 80. | The directors will be appointed at the annual meeting. The directors, excluding the external directors, shall be classified into three groups (A, B and C) as nearly equal in number as practicable. Subject to the foregoing, the duration of their service, except for the external directors, shall be as follows: |
| ● | One-third of the directors will belong to group A, and the duration of their service shall be from the time of their appointment until the third annual meeting held after the date of their appointment. |
| ● | One-third of the directors will be appointed to group B, and the duration of their service shall be from the time of their appointment until the third annual meeting held after the date of their appointment. |
| ● | One-third of the directors will be appointed to group C, and the duration of their service shall be from the time of their appointment until the third annual meeting held after the date of their appointment. |
At each annual meeting, the three-year duration of service of one group of directors shall expire, and the directors of such group will stand for election. Each of the directors or the successors elected to replace the directors of a group whose term shall have expired at such annual meeting shall be elected to hold office until the third annual meeting held after the date of his or her election and until his or her respective successor is elected. If no directors are appointed at the annual meeting, the directors appointed at the previous annual meeting will continue their service. Directors whose service period has ended may be appointed again.
Directors may be elected for a term of less than three years in order to enable that the three groups of directors have as equal a number of directors as possible as provided in this Article 80.
| 81. | Apart from anyone who served as director until the date of the annual meeting, no director shall be appointed at the annual meeting, unless the Board of Directors recommended the appointment thereof, or if a Company shareholder wishing to suggest him had submitted to the office, no later than seven days from the date of publishing the notice regarding the meeting, a document in writing signed by the shareholder, announcing the intention of same shareholder to suggest that this candidate be appointed as director, while the written consent of the candidate to serve as director is attached to the document. |
| 82. | The Board of Directors may, from time to time, appoint an additional director or directors to the Company, whether for the purpose of filling the position of a director vacated for any reason whatsoever or as an additional director or directors, provided that the total amount of directors does not exceed the maximum number stated in Article 79 above. The office of a director that was appointed by the Board to fill any vacancy shall only be for the remaining period of time during which the director whose service has ended was filled would have held office, or in case of a vacancy due to the number of directors serving being less than the maximum number stated in Article 79 above, the Board shall determine at the time of appointment the class pursuant to Article 80 above, to which the additional director shall be assigned |
| 83. | The shareholders may, at an extraordinary meeting, appoint an additional director or directors to the Company, whether for the purpose of filling a position that was vacated for any reason whatsoever or as an additional director or directors. Directors appointed as abovementioned to fill a vacated position, except for external directors, will finish their service in accordance with the group to which the director whose position was vacated belonged, subject to the provisions of Article 80 above. |
| 84. | Notwithstanding the abovementioned, the Company Board of Directors and General Meeting may at any time, upon a resolution with a majority of at least 75% of the voting rights at the Board of Directors or General Meeting, as the case may be, remove from office any director, except for an external director, prior to the end of his service period, provided that the director is granted the reasonable opportunity to present his case before the General Meeting. In addition, any General Meeting, with an ordinary majority resolution, may appoint in lieu of the director removed from office as abovementioned another person as director. A director appointed as abovementioned will serve in his position only for the period of service which the director whom he had replaced would have served. |
| 85. | If the position of a director is vacated, the Board of Directors shall be entitled to continue to act with regard to any matter as long as the number of directors is no less than the minimum number of directors stated in Article 79 above. If the number of directors is less than this number, the Board of Directors will not be entitled to act except for the purpose of convening a General Meeting in order to appoint additional director, however not for any other purpose. |
| 86. | A director may resign by delivering notice to the Board of Directors, to the chairperson of the Board of Directors or the office, as is required subject to the Companies Law, and his resignation shall take effect on the date on which the notice was delivered, unless the notice states a later date. The director will disclose the reasons for his resignation. |
| 87. | Subject to the provisions of the Companies Law, the Company may pay the directors compensation for fulfilling their duty as directors. |
| 88. |
| 88.1. | A director is entitled to appoint a substitute and thus subject to approving him as alternate director by the Board of Directors (hereinafter referred to as the “Alternate Director”). Notwithstanding the abovementioned, anyone unsuitable to be appointed as director shall not be appointed and shall not serve as Alternate Director, and as well anyone serving as Company director or as Alternate Director for a Company director or as the representative of a corporation. |
| 88.2. | The Alternate Director is equal to the director for whom he serves as a substitute, and he will be entitled to attend the meetings of the Board of Directors and/or Board of Directors committees, participate and vote therein, same as the eligibility of the appointing director. |
| 88.3. | A director who had appointed an Alternate Director may, subject to the provisions of the law, revoke the appointment at any time. In addition, the position of Alternate Director will be vacated whenever the position of the director who had appointed the Alternate Director is vacated in any manner whatsoever. |
| 88.4. | Any appointment or revocation of the appointment of Alternate Director, as abovementioned, will be done by written notice delivered to the Alternate Director and to the Company, and shall take effect after the delivery of the letter of appointment, as abovementioned or on the date stated in the letter of appointment, according to the later date. |
| 88.5. | Subject to the provisions of the Companies Law, the Company may pay to the Alternate Director compensation for his participation in Board of Directors meetings. |
EXTERNAL DIRECTORS
| 89. | To the extent required by the Companies Law and the regulations thereunder, the Company will have at least two external directors, and the provisions of the Companies Law in this matter shall apply. |
BOARD OF DIRECTORS AUTHORITY AND FUNCTIONS
| 90. | The Board of Directors will have all authorities and powers vested therein subject to the Company Articles of Association, the Companies Law and any law. |
| 91. | Without derogating from the provisions of these Articles of Association, the Board of Directors will outline the Company’s policy and oversee the performance of the CEO’s duties and actions, including – |
| 91.1. | Determine the Company’s action plans, the principles for financing them and their order of priority; |
| 91.2. | Examine the Company’s financial situation and determine its approved line of credit; |
| 91.3. | Determine the organizational structure and the remuneration policy; |
| 91.4. | Entitled to determine the issue of a series of debentures; |
| 91.5. | Responsible for preparing and approving the financial statements, as stated in section 171 to the Companies Law; |
| 91.6. | Report to the annual meeting regarding the state of the Company’s affairs and its business results, as stated in section 173 to the Companies Law; |
| 91.7. | Appoint and dismiss the CEO; |
| 91.8. | Decide regarding actions and transactions that require its approval subject to the Company Articles of Association or the provisions of sections 255 and 268 to 275 to the Companies Law; |
| 91.9. | May allot shares and securities convertible into shares up to the limit of the Company’s registered share capital; |
| 91.10. | May decide to distribute a dividend or bonus shares, as the case may be; |
| 91.11. | May decide upon an acquisition as this term is defined in section 1 to the Companies Law, from all of the Company’s shareholders or part of them or any of them, subject to its discretion; |
| 91.12. | Offer an opinion regarding a special tender offer, as stated in section 329 to the Companies Law; |
| 91.13. | Determine the minimum required number of directors on the Board of Directors, who must have accounting and financial expertise, as this is defined in section 240 to the Companies Law; the Board of Directors will determine the aforementioned minimum number based, inter alia, on the Company’s nature, size, scope of the Company’s activity and the complexity thereof, and subject to the number of directors stipulated in the Articles of Association subject to section 219 to the Companies Law. |
The Board of Directors’ authorities subject to this section may not be delegated to the CEO, expect as specified in the Companies Law.
| 92. | A power of the Company, not granted by law or the Company’s Articles of Association to another organ, may be executed by the Board of Directors. |
| 93. |
| 93.1. | The Board of Directors may resolve that the authorities vested in the CEO will be transferred to its authority, all in connection with a specific matter, or a specific timeframe, which shall not exceed the timeframe required under the circumstances. |
| 93.2. | Without derogating from the aforementioned, the Board of Directors may instruct the CEO on how to act with regard to a specific matter. If the CEO fails to comply with the instruction, the Board of Directors may exercise the required authority in order to execute the instruction in lieu thereof. |
| 93.3. | If the CEO is barred from exercising his authorities, the Board of Directors may exercise them in lieu thereof. |
| 94. | Subject to the provisions of the Companies Law, the Board of Directors may delegate from its authorities to the CEO, a Company officer or another person. Delegating an authority of the Board of Directors may be for a certain matter or for a certain timeframe, all subject to the Board of Directors’ discretion. |
RECEIVING CREDIT AND GRANTING GUARANTEES AND COLLATERAL
| 95. | Without derogating from any authority vested in the Board of Directors subject to these Articles of Association, the Board of Directors may, from time to time, subject to its discretion, resolve upon: |
| 95.1. | Receiving credit by the Company at any sum and securing its discharge, in the manner it deems fit; |
| 95.2. | Granting guarantees, collateral, and warranties of any kind; |
| 95.3. | Issuing a series of debentures, including capital notes or bonds, and including debentures, capital notes or bonds convertible or exercisable into shares, and to determine their terms, and pledge its property, all or some, whether in the present or in the future, whether by a floating or fixed charge. Debentures, capital notes, bonds, or other guarantees, as abovementioned, may be issued at a discount, with a premium or in any other manner, whether with deferred rights and/or special rights and/or privileges and/or other rights, all as determined by the Board of Directors subject to its discretion. |
| 96. | The abovementioned in Article 95 does not negate the authority of the CEO or anyone authorized thereby for this purpose, to decide upon accepting credit by the Company, within the framework of the credit line and the guarantees determined by the Board of Directors. |
BOARD OF DIRECTORS COMMITTEES
| 97. |
| (a) | Subject to the Companies Law, the Board of Directors may, as it deems fit, create Board of Directors committees, consisting of two members or more, and delegate from its authorities thereto. Notwithstanding the abovementioned, the Board of Directors may not delegate from its authorities to a Board of Directors committee with regard to the following subjects: |
| (1) | Determining general policy for the Company; |
| (2) | Distribution, unless pertaining to the purchase of Company shares in accordance with a framework outlined in advance by the Board of Directors; |
| (3) | Determining the position of the Board of Directors in a matter that requires the approval of the General Meeting or granting an opinion as stated in section 329 to the Companies Law; |
| (4) | Appointing directors, if the Board of Directors is entitled to appoint them; |
| (5) | Issue or allotment of shares or securities convertible into shares or exercisable into shares, or a series of debentures, except for that which is specified in section 288(b) to the Companies Law; |
| (6) | Approving financial statements; |
| (7) | Board of Directors approval for transactions and actions that require the Board of Directors’ approval subject to sections 255 and 268 to 275 to the Companies Law. |
| (b) | The Board of Directors may create committees for the subjects specified in subsections (a) (1) – (7) above, for recommendation only. |
| (c) | There shall be no person on a Board of Directors committee to which the Board of Directors has delegated authorities who is not a Board of Directors member. |
| (d) | Those who are not Board of Directors members may serve on a Board of Directors committee where its sole function is to advise or offer a recommendation to the Board of Directors. |
| 98. | A resolution passed or action taken on a Board of Directors committee subject to the authority delegated thereto from the authorities of the Board of Directors, constitutes a resolution passed or action taken by the Board of Directors, unless otherwise explicitly determined by the Board of Directors with regard to a certain matter or certain committee. The Board of Directors may from time to time extend, reduce or revoke the delegation of powers to a Board of Directors committee, however a reduction or revocation of powers as aforementioned shall not derogate from the validity of a committee’s resolution which the Company acted pursuant thereto towards another person, where it was unaware of the revocation thereof. |
| 99. |
| 99.1. | The legal quorum for opening a meeting of a Board of Directors committee will be two committee members serving on the date of the meeting, or their substitutes, as long as the Board of Directors had not determined otherwise. |
| 99.2. | The provisions included in these Articles of Association regarding the actions of the Board of Directors shall apply, mutatis mutandis, to the Board of Directors committees as well, as long as no replacement provisions were given in this matter by the Board of Directors, and all subject to the provisions of the Companies Law. |
| 99.3. | The Board of Directors committee will regularly report to the Board of Directors regarding its resolutions or recommendations. |
| 100. |
| 100.1. | The Board of Directors will appoint among its members an audit committee. The number of members of the audit committee shall be no less than three and all of the external directors shall be its members. The following will not be members of the audit committee: the chairperson of the Board of Directors, any director employed by the Company or who routinely provides services thereto, and the Company’s controlling shareholder or his relative. |
| 100.2. | The functions of the audit committee will be as prescribed by the Companies Law including any other function instructed by the Board of Directors. |
FUNCTIONS OF THE BOARD OF DIRECTORS
| 101. | Subject to the provisions of the Company Articles of Association, the Board of Directors may convene to execute its duties, defer its meetings and regulate its actions and deliberations as it deems fit. |
| 102. | The Board of Directors will appoint one of its members to serve as the chairperson of the Board of Directors and it may appoint more than one Board of Directors chairperson (each of them shall be hereinafter referred to as the “Board of Directors Chairperson”). In addition, the Board of Directors may remove the Board of Directors Chairperson from office and appoint another in lieu thereof. The Board of Directors may appoint from among its members one or more as the vice chairperson of the Board of Directors, who will serve as his replacement when absent. The Board of Directors may determine the timeframe for the Board of Directors Chairperson and his vice chairpersons’ service. If such period is not determined as aforesaid, the Board of Directors Chairperson and vice chairpersons will serve as long as they serve as directors. |
| 103. | The Board of Directors Chairperson will head the Board of Directors meetings and manage them. If the Board of Directors Chairperson is absent from a Board of Directors meeting, following a notice he had delivered in advance, or if he does not appear at the Board of Directors meeting within 15 minutes from the time scheduled for holding the meeting, then the vice chairperson (if such was appointed) shall head the meeting. If both the Board of Directors Chairperson and the vice chairperson are absent from the meeting the attending Board of Directors members will choose one of those among them to be the chairperson of the meeting. |
| 104. | The Board of Directors will convene for its meeting according to the Company’s needs and at least once every three months. |
| 105. | The Board of Directors Chairperson may convene the Board of Directors at any time, and determine the place and time for holding the Board of Directors meeting. |
| 106. | Without derogating from the aforementioned, the Board of Directors Chairperson is obligated to convene the Board of Directors upon the occurrence of each of the following: |
| 106.1. | Receiving a demand to convene the Board of Directors from at least two directors, in order to deliberate the subject specified in their demand; |
| 106.2. | Receiving notice or a report from the CEO which require the Board of Directors’ action; |
| 106.3. | Receiving notice from the auditor regarding material flaws in the Company’s auditing; |
| 106.4. | Receiving notice from a director regarding the Company which prima facie contains an illegality or disruption of the regular course of business. |
Upon receiving notice or a report as abovementioned, the Board of Directors Chairperson will convene the Board of Directors, immediately, and no later than 14 days after the date of the demand, the notice or the report, as the case may be.
| 107. |
| 107.1. | Early notice regarding the convening of the Board of Directors will be given to all members of the Board of Directors a reasonable time before the date of the meeting. |
| 107.2. | Notwithstanding the abovementioned, the Board of Directors may, with the consent of all of the directors, convene a meeting without notice. |
| 108. | The agenda of the Board of Directors meetings will be determined by the Board of Directors Chairperson, and it will include: |
| 108.1. | Subjects determined by the Board of Directors Chairperson; |
| 108.2. | Subjects determined as stated in Article 106 above; |
| 108.3. | Any subject which a director or the CEO requested that the Board of Directors Chairperson, a reasonable time before convening the Board of Directors meeting, include on the agenda (hereinafter referred to as the “Agenda”). |
| 109. | The notice regarding the convening of the Board of Directors will state the time and location of the meeting as well as a reasonable specification of the matters that will be discussed at the meeting, according to the Agenda. |
| 110. | Notice regarding a Board of Directors meeting will be delivered to the address of the director given in advance to the Company, unless the director requests that the notice be delivered elsewhere. |
| 111. | The legal quorum for opening a Board of Directors meeting is half of the Board of Directors members serving at the time of the meeting, themselves or their proxies, or three members, according to the lower number. |
| 112. |
| 112.1. | At a Board of Directors vote each director will have one vote. Board of Directors resolutions will be passed by a majority of votes of the directors attending the meeting and voting therein, without taking into account the abstaining votes. The Board of Directors Chairperson will not have an additional or deciding vote. |
| 112.2. | If the opinions are tied, the proposed resolution on which the Board of Directors members have voted will be deemed to have been rejected. |
| 113. | The Board of Directors may hold meetings with the use of any means of communication provided that each of the participating directors can hear each other simultaneously. The Board of Directors may regulate the manner and methods of holding a meeting through the use of means of communication. |
| 114. | The Board of Directors may pass resolutions even without convening in practice, provided that all of the directors entitled to participate in the deliberation and vote in the subject of the resolution have agreed not to convene for a meeting regarding said subject. The resolutions passed subject to this section, including the resolution not to convene, will be signed by the Board of Directors Chairperson and will be valid, for all intents and purposes, as if passed in a duly convened and conducted Board of Directors meeting. |
MINUTES
| 115. | The Board of Directors will ensure that minutes will be recorded of the proceedings at the Board of Directors meetings; the minutes will be recorded in books designated for this purpose, and will include, inter alia, the following details: |
| 115.1. | The names of the participating directors and other persons in attendance at each Board of Directors meeting; and |
| 115.2. | The matters discussed at the Board of Directors meetings and the resolution that were passed. The minutes will be signed by the Board of Directors Chairperson or the chairperson of the meeting, as the case may be; approved and signed minutes, as aforementioned, will serve as prima facie evidence to its content. |
| 116. | The provisions of Article 115 above, shall apply as well to the meetings of each Board of Directors committee and the passing of Board of Directors resolutions without convening, as stated in Article 114 above. |
THE CEO
| 117. | The Board of Directors may, from time to time, appoint a CEO to the Company, and it may appoint more than one CEO (each of them hereinafter referred to as the “CEO”). In addition, the Board of Directors is entitled to dismiss the CEO or replace him, as it deems fit, subject to the provisions of aby contract between the CEO and the Company. |
| 118. | The CEO is not required to be a Company shareholder or a director. |
| 119. | The CEO is responsible for the regular management of the Company affairs, within the framework of the policy determined by the Board of Directors and subject to its instructions. |
| 120. | The CEO will have all administrative and executive powers not granted by law or by these Articles of Association or subject thereto to a different organ of the Company except for powers as aforementioned transferred therefrom to the Board of Directors, subject to the provisions of Article 93.1 above, if transferred; the CEO will be subject to the Board of Directors’ supervision. |
| 121. | Subject to the provisions of the Companies Law and the provisions of these Articles of Association, the Board of Directors may, from time to time, deliver and grant to the CEO powers vested in the Board of Directors subject to these Articles of Association, as it deems fit, and it may grant from these powers for such period, purposes, and subject to the same conditions and with the same restrictions as the Board of Directors shall deem fit, and the Board of Directors may grant these powers, both without waiving its own powers in the matter and instead or in lieu thereof, all or some, and it may from time to time cancel, revoke and amend these powers, all or some. |
| 122. | The CEO may, with the Board of Directors’ approval, delegate its powers, to another or to others, subordinate thereto; such approval may be given whether as a general approval or ad hoc. |
| 123. | Without derogating from the provisions of the Companies Law or any law, the CEO will submit to the Board of Directors reports in the subject, on the dates and at the scope determined by the Board of Directors, whether in a specific resolution or as part of the Board of Directors protocols. |
| 124. | The CEO’s fee may be paid by paying a salary or commission fees or profit participation or by granting securities or the right to purchase securities, or in any other way. |
VALIDITY OF ACTIONS AND APPROVAL OF TRANSACTIONS
| 125. | Subject to the provisions of any law, all actions taken by the Board of Directors or a Board of Directors committee or any person acting as director or as member of a Board of Directors committee or by the CEO, as the case may be – will be valid even if at a later time any flaw is discovered in the appointment of the Board of Directors, the Board of Directors committee, the director, committee member or CEO, as the case may be, or if any of the aforementioned officers was barred from serving in his position. |
| 126. |
| 126.1. | A position at any other corporation, including a corporation which the Company is an interested party therein or which is a shareholder in the Company, will not disqualify the officer from being an officer of the Company. In addition, no officer shall be disqualified from being an officer of the Company due to his entering into an agreement or the entering into an agreement of any corporation as abovementioned, with the Company in any matter whatsoever and by any means whatsoever. |
| 126.2. | Subject to the provisions of the Companies Law, the fact that a person is an officer of the Company shall not disqualify him and/or his relative and/or another corporation which he is an interested party therein from executing transactions with the Company in which the officer has a personal interest in any way. |
| 126.3. | Subject to the provisions of the Companies Law, an officer will be entitled to participate and vote in deliberations regarding the approval of transactions or actions in which he has a personal interest. |
| 127. | Subject to the provisions of the Companies Law, a transaction between the Company and its officer or controlling shareholder or a transaction between the Company and another person in which a Company officer or its controlling shareholder have a personal interest therein, and which are not extraordinary transactions, shall be approved as follows: |
| 127.1. | An agreement as abovementioned, in a transaction that is not extraordinary, will be approved by the Board of Directors, unless it was determined by the Board of Directors that the agreement will be approved by the audit committee, whether in a specific resolution or as part of the Board of Directors proceedings, whether by general authorization or authorization for a specific type of transaction, or whether by authorization for a specific transaction. |
| 127.2. | Approval of transactions which are not extraordinary as abovementioned can be done by granting general approval for a certain type of transactions or by approving a certain transaction. |
| 128. | Subject to the provisions of the Companies Law, general notice given to the Board of Directors by an officer or controlling shareholder of the Company, regarding his personal interest in a certain entity, while specifying his personal interest, shall constitute disclosure of the officer or controlling shareholder to the Company regarding his aforesaid personal interest, for the purpose of any agreement with an entity as abovementioned, in a transaction that is not extraordinary. |
SIGNING ON BEHALF OF THE COMPANY
| 129. | Subject to the provisions of the Companies Law and the provisions of these Articles of Association, the Board of Directors may authorize any person to act and sign on behalf of the Company, whether alone or jointly with another person, whether as a general matter or for specific matters. |
| 130. | The Company will have a seal bearing the Company name. Signing a document will not bind the Company unless those authorized to sign on behalf of the Company have signed it together with the Company seal or its printed name. |
APPOINTING A LEGAL REPRESENTATIVE
| 131. | Subject to the provisions of the Companies Law, the Board of Directors may, at any time, grant Power of Attorney to any person to be the Company’s legal representative for such purposes and with such powers and discretion, for the period and subject to the terms, all as the Board of Directors shall deem fit. |
The Board of Directors is entitled to grant to said person, inter alia, the power to transfer to another, fully or partially, the powers, authorizations and discretion granted thereto.
EXEMPTION, INDEMNITY AND INSURANCE
| 132. | Subject to the provisions of the Companies Law, the Company may exempt its officer from his liability, all or some, due to damage following the breach of his duty of care towards the Company. |
| 133. | Subject to the provisions of the Companies Law, the Company may enter into a contract to insure the liability of its officer, due to the liability imposed thereon following an action which he performed while serving as its officer, in each of the following: |
| 133.1. | Breach of his duty of care towards the Company or towards another person; |
| 133.2. | Breach of his fiduciary duty towards the Company, provided that the officer acted bona fide and he had reasonable grounds to assume that the action will not harm the Company’s interests; |
| 133.3. | A monetary obligation imposed thereon in favor of another person; |
| 133.4. | Another action permitted to be insured by the Companies Law; |
| 133.5. | Expenses paid by the officer or which he was ordered to pay, in connection with an administrative enforcement proceeding held in his case, including reasonable litigation expenses, and including legal fees; |
| 133.6. | Payment to the person injured by the breach as stated in section 52ND to the Securities Law, as it was amended in the Improvement of Enforcement Proceedings Law (hereinafter referred to as the “Payment to the Person Injured by the Breach”); |
| 133.7. | Any other event for which it is permitted and/or will be permitted to insure the liability of an officer. |
| 134. | Subject to the provisions of the Companies Law – |
| 134.1. | The Company may grant an undertaking in advance to indemnify its officer, due to liability or an expense imposed thereon or which he will pay due to an action which he performed as a result of him being its officer, in each of the following (hereinafter referred to as the “Indemnity Undertaking”) – |
| (a) | As specified in Article 136.1 below, and provided that the Indemnity Undertaking is limited to events which in the opinion of the Board of Directors are expected in light of the Company’s activity de facto at the time of granting the Indemnity Undertaking and to a sum or standard which the Board of Directors determined to be reasonable under the circumstances, and that the Indemnity Undertaking states the events which in the Board of Directors’ opinion are expected in light of the Company’s activity de facto at the time of granting the undertaking and the sum or standard which the Board of Directors deemed reasonable under the circumstances. The indemnity sum will be limited only to sums not covered by the insurance and which were not paid de facto. |
| (b) | As specified in Articles 135.2 or 135.3 or 135.4 or 135.5 below, the indemnity sum will be limited only to sums not covered by the insurance and not paid de facto. |
| 134.2. | Without derogating from the content of Article 134.1 above, the Company may indemnify its officer retroactively, due to liability or an expense as specified in article 136 below, imposed thereon as a result of on action which he performed as a Company officer. The indemnity sum will be limited only to sums not covered by the insurance and not paid de facto. |
| 135. | An Indemnity Undertaking or indemnity, as stated in article above, may be given due to liability or an expense as specified in subsections 135.1 to 135.6 below, imposed on the officer due to an action which he performed as a Company officer, as follows: |
| 135.1. | Monetary obligation imposed thereon in favor of another person pursuant to a legal judgment, including a judgment rendered by settlement or an arbitration award approved by the court. |
| 135.2. | Reasonable litigation expenses, including legal fees, paid by the officer due to an investigation or proceeding held against him by an entity authorized to hold an investigation or proceeding, and which ended without an indictment thereagainst and without imposing a monetary obligation thereupon as an alternative for a criminal proceeding, or which ended without an indictment thereagainst but with the imposing of a monetary obligation thereupon as an alternative to a criminal proceeding in an offense that does not require proving mens rea; in this section – “proceeding ending without an indictment in a matter in which a criminal investigation was held” – meaning the closing of the case subject to section 62 to the Rules of Criminal Procedure [combined version], 5742 – 1982 (in this subsection – “Criminal Procedure Law”) or a stay of proceedings by the Attorney General subject to section 231 to the Criminal Procedure Law. |
“Monetary obligation as an alternative to a criminal proceeding” – monetary obligation imposed by law as an alternative to the criminal process, including an administrative fine subject to the Administrative Offenses Law, 5745- 1985, a fine for an offense determined as a fineable offense subject to the Criminal Procedure Law, financial sanction or forfeit.
| 135.3. | Reasonable litigation expenses, including legal fees, which the officer paid or was ordered to pay by the court, in a process submitted thereagainst by the Company or on its behalf or by another person, or in a criminal indictment from which he was acquitted, or in a criminal indictment where he was convicted of an offense that does not require proof of mens rea. |
| 135.4. | Expenses paid by the officer or which he was ordered to pay, in connection with an administrative enforcement proceeding held in his case, including reasonable litigation expenses, and thus including legal fees. |
| 135.5. | Payment to the Person Injured by the Breach. |
| 135.6. | Any liability or other expense for which it is permitted and/or will be permitted to indemnify the officer. |
| 136. | Subject to the provisions of the Companies Law – |
| 136.1. | The Company is entitled to grant an undertaking in advance to indemnify any person including a Company officer, who serves or has served the Company or as per its request as a director in another company which the Company has shares therein, directly or indirectly, or which the Company has any interest whatsoever therein (hereinafter referred to as the “Director in Another Company”), subject to the provisions of Article 134 above, which shall apply mutatis mutandis. |
| 136.2. | Without derogating from Article 136.1 above, the Company may indemnify the Director in Another Company retroactively, due to liability or expense as specified in Article 136 above, imposed thereon due to an action he performed pursuant to his being a Director in Another Company. |
| 137. | Subject to the provisions of the Companies Law, the Company may grant an undertaking in advance to indemnify an employee or clerk of the Company who is not a Company officer or indemnify him retroactively for any monetary liability imposed thereon in favor of another person due to an action performed bona fide within his capacity as Company employee or clerk. |
| 138. | Subject to the provisions of the Companies Law, the provisions of the Company’s Articles of Association do not limit the Company, in any manner whatsoever, with regard to its entering into an insurance contract, or with regard to the granting of exemption or indemnity: |
| 138.1. | In connection with a Company officer or Director in Another Company, if the insurance, exemption or indemnity are not prohibited subject to any law. |
| 138.2. | In connection with a person who is not a Company officer or Director in Another Company, including however without derogating from the generality of the aforementioned, employees, contractors or consultants. |
DIVIDENDS, FUNDS AND CAPITALIZATION OF FUNDS AND PROFITS
| 139. | The Board of Directors may, prior to deciding upon dividend distribution, as stated in Article 143 below, contribute out of the profits any sums, subject to its discretion, to a general or reserve fund for the distribution of a dividend, bonus shares, or any other purpose, as the Board of Directors shall determine subject to its discretion. |
| 140. | Until utilizing the aforementioned funds, the Board of Directors may invest the sums contributed as aforementioned and the monies of the funds, in any investment whatsoever, to manage these investments, change them or make any other use thereof, and it is entitled to divide the reserve fund into special funds, and use any fund or part thereof for the purpose of the Company’s business, without holding it separate from the rest of the Company’s assets, all subject to the Board of Directors’ discretion and the terms it shall determine. |
| 141. | Subject to the provisions of the Companies Law, the Board of Directors may pass a resolution regarding the distribution of a dividend. The Board of Directors deciding upon the distribution of a dividend may decide that the dividend will be paid, all or some, in cash or by distribution of assets in kind, and thus including securities or by any other means, as it deems fit. |
| 142. |
| 142.1. |
| (a) | Subject to the provisions of the Companies Law, the Board of Directors may decide upon the allotment of bonus shares, and turn into share capital some of the Company profits, as this is construed in section 302(b) to the Companies Law, from share premium or any other source included in its equity, stated in its most recent financial statements, at the sum determined by the Board of Directors and which shall be no less than the par value of the bonus shares. |
| (b) | The Board of Directors deciding upon the allotment of bonus shares, will determine whether they will be of one class only for all shareholders without taking into account the classes of shares held thereby or that each shareholder as aforementioned will be distributed bonus shares of the same class for all classes of shares held thereby. |
| (c) | Bonus shares allotted subject to this section will be deemed fully paid-up. |
| 142.2. | The Board of Directors deciding upon the allotment of bonus shares may decide that the Company will transfer to a special fund designated for the future distribution of bonus shares, such an amount which the conversion thereof into share capital will suffice in order to allot to anyone who at the time will have, for any reason whatsoever, the right to purchase Company shares (including a right which can only be activated on a later date), bonus shares which would have been owed thereto, had he exercised the right to purchase the shares prior to the effective date for the right to receive bonus shares (in this section the “Effective Date”). If after the Effective Date the owner of the aforementioned right will exercise his right to purchase the shares or part thereof the Company will allot thereto bonus shares of par value and which have been owed thereto had he exercised prior to the Effective Date the right to purchase the shares which he had purchased de facto, and thus by converting into share capital the proper amount out of the aforementioned special fund. The bonus shares will entitle their owners to participate in the dividend distribution in cash or the bonus shares as of the Effective Date determined by the Board of Directors. For the purpose of determining the amount that should be transferred to the aforementioned special fund, any amount transferred to this fund due to previous distributions of bonus shares shall be deemed as if it were already capitalized and that shares entitling the owners of the right to purchase shares, to bonus shares, were already allotted therefrom. |
| 143. | Subject to the provisions of the Articles of Association, if at any time the Company is permitted under the Companies Law to make any distribution to its shareholders, prior and in preference to any dividend or distribution made to holders of Ordinary Shares, the Company may, at its election, redeem Preferred Shares by making payments (each such payment, a “Redemption Payment”) from time to time to the holders of Preferred Shares up to an aggregate value of $34,000 per Preferred Share (the “Preferred Redemption Amount”). If any such Redemption Payment shall be insufficient to pay the Preferred Redemption Amount of all Preferred Shares, the Company shall redeem from each holder of Preferred Shares a number of Preferred Shares determined on a pari passu basis in proportion to the number of Preferred Shares held by such holder. No Preferred Shares shall be redeemed on a fractional basis, and in the event a Redemption Payment would result in a fractional Preferred Share of any holder to be redeemed, the number of Preferred Shares of such holder to be redeemed shall be rounded down to the nearest whole Preferred Share. Following the payment in full of the Preferred Redemption Amount for any Preferred Shares, such shares shall immediately be deemed redeemed and cancelled without any further action required on the part of the Preferred Shareholders or the Company. For the avoidance of doubt, no dividends or distributions shall be made to holders of Ordinary Shares until an amount equal to the full Preferred Redemption Amount has been distributed on account of each Preferred Share. |
| 144. | Subject to the rights attached to the classes of shares issued by the Company and the provisions of the Articles of Association, if at any time the Company is permitted under the Companies Law to make any distribution to its shareholders, subject to and following payment in full of the Preferred Redemption Amount as described in Article 143, it may, at its election, pay any dividends or issue bonus shares, if any, to Ordinary Shares on a pro rata basis with all other Ordinary Shares, without taking into account any premium paid therefor. In order to implement a resolution regarding the distribution of a dividend or allotment of bonus shares the Board of Directors may: |
| 144.1. | Settle as it deems fit any difficulty arising in connection therewith and take any action it chooses in order to overcome such difficulty. |
| 144.2. | Decide that fractions or fractions at a sum lower than a certain sum determined by the Board of Directors, will not be taken into account in order to adjust the right of shareholders or sell share fractions and pay the (net) consideration to those entitled. |
| 144.3. | Authorize to sign on behalf of the shareholders any contract or other document required in order to validate the allotment and/or distribution, and especially, authorize to sign and submit for registration a document as stated in section 291 to the Companies Law. |
| 144.4. | Determine the value of certain assets for distribution and decide that payments in cash will be paid to the shareholders based on the determined value. |
| 144.5. | Grant cash or certain assets to trustees in favor of those entitled thereto, as the Board of Directors deems advantageous. |
| 144.6. | Make any arrangement or other settlement required in the Board of Directors’ opinion in order to enable the allotment, or distribution, as the case may be. |
| 145. | Dividend or other benefits due to shares shall not bear interest. |
| 146. | The Board of Directors may withhold any dividend or bonus share or other benefits due to a share which the consideration determined therefor, all or some, was not paid to the Company, and collect any sum as aforementioned or consideration received from the sale of any bonus share or other benefit, on account of the debts or undertakings due to the aforementioned share, thus, whether the aforesaid share is exclusively owned by the indebted shareholder or jointly with other shareholders. |
| 147. | The Board of Directors may withhold any dividend or bonus share or other benefits due to a share for which a person is entitled to be registered as its owner in the ledger or is entitled to transfer it, subject to articles 29 or 31 above, as the case may be, until the same person is registered as the owner of the share or until he duly transfers it, as the case may be. |
| 148. | The Board of Directors may determine, from time to time, the methods of payment of the dividends or allotment of bonus shares or their transfer to those entitled thereto and as well the instructions, procedures, and arrangements in connection therewith, both with regard to the registered shareholders and as well with regard to the non-registered shareholders. Without derogating from the generality of the aforementioned, the Board of Directors may determine as follows: |
| 148.1. |
| (a) | Subject to the content of subsection (b) below, a dividend or monies distributed to registered shareholders will be paid to a registered shareholder by mailing a check to his address, as it is registered in the shareholder ledger, or in the event of joint registered owners of a share, to the person whose name appears first in the shareholder ledger with respect to said share. Any delivery of a check as aforementioned will be done at the risk of the registered shareholder; without derogating from the aforementioned, the Board of Directors may determine that a dividend sum lower than a certain sum determined by the Board of Directors will not be delivered by check as abovementioned and the provisions of subsection (b) below shall apply in connection therewith. |
| (b) | The Board of Directors may determine that the payment of a dividend or monies distributed to registered shareholders shall be done at the office or any other place determined by the Board of Directors. |
| (c) | A dividend the payment of which was not demanded within a period of seven (7) years from the date on which its distribution was decided upon, the person entitled thereto will be deemed to have waived it and it will return to the ownership of the Company. |
| 148.2. | A dividend distributed to non-registered shareholders will be transferred to the aforementioned shareholders through the Registration Company or by any other means determined by the Board of Directors. |
| 149. | If two or more are registered in the ledger as the joint owners of a share, each of them is entitled to provide a valid receipt against any dividend, share or other security, or other monies or benefits owing on account of the share. |
COMPANY DOCUMENTS
| 150. |
| 150.1. | The shareholders will have the right to review the Company documents specified in section 184 to the Companies Law, upon the fulfillment of the conditions determined for this purpose. |
| 150.2. | Without derogating from the content of article 151.1 above, the Board of Directors may, subject to its discretion, decide to grant a reviewing right of the Company documents, or any part thereof, including to the shareholders, all or some, as it deems fit, subject to its discretion. |
| 150.3. | The shareholders will not have the right to review the Company documents or part thereof, unless such right was awarded thereto by law or subject to these Articles of Association or if they were permitted to do so by the Board of Directors, as stated in article 151.2 above. |
| 151. | Subject to the provisions of any law, any book, ledger or other registry which the Company must keep, subject to any law or these Articles of Association, will be kept using technical, mechanical, or other means, as shall be decided by the Board of Directors. |
FINANCIAL STATEMENTS
| 152. | The Company’s financial statements will be approved by the Board of Directors, signed on its behalf by anyone authorized to do so by the Board of Directors, and presented before the annual meeting. |
AUDITOR
| 153. | The auditor or auditors will be appointed at each annual meeting, and serve until the end of the following annual meeting. |
| 154. |
| 154.1. | If an auditor is appointed to the Company, the Board of Directors will determine his fee for the auditing activity, subject to the discretion of the Board of Directors. |
| 154.2. | The fee of the auditor for additional services to the Company which are not auditing activities, will be determined by the Board of Directors, subject to its discretion. |
The Board of Directors will report to the annual meeting the terms of the agreement with the auditor for additional services including payments and undertakings of the Company towards the auditor; for the purpose of this article, an “auditor” – including a partner, employee or relative of the auditor and including a corporation controlled thereby.
THE INTERNAL AUDITOR
154a.
| (a) | The Company Board of Directors will appoint an internal auditor for the Company, subject to the suggestion of the audit committee. |
| (b) | The organizational supervisor of the internal auditor will be the chairperson of the Board of Directors. |
| (c) | The internal auditor will submit to the Board of Directors for its approval, or, subject to the Board of Directors’ determination from time to time, to the audit committee, a proposal for an annual or periodic work plan, and the Board of Directors or audit committee, as the case may be, will approve it with the changes they deem fit. |
| (d) | The internal auditor will act in accordance with the provisions of the Companies Law. |
NOTICES
| 155. | Providing notices or delivering documents to the shareholders and the Registration Company, subject to the provisions of the Law or subject to the Articles of Association, will be done in one of the ways mentioned below in this chapter. |
| 156. | Notice regarding a General Meeting will be delivered as stated in Article 54 above. |
| 157. | Without derogating from the aforementioned, the Company may deliver notice or a document to a shareholder, by delivering it in person or by facsimile or by post or by e-mail; delivery by post shall be done in accordance with the address of the shareholder registered in the ledger, or if no such address is registered, in accordance with the address given to the Company thereby for the purpose of delivering notices thereto. A notice delivered by facsimile transmission will be sent to the shareholder in accordance with the facsimile number given thereby to the Company. A notice delivering by e-mail will be sent to the shareholder in accordance with the e-mail address given thereby to the Company. |
| a. | A notice or document delivered personally to a shareholder will be deemed delivered on the date they were delivered thereto. |
| b. | A notice or document delivered by post will be deemed duly delivered if submitted to a post office bearing the correct address and duly stamped. The delivery will be deemed as if performed at the time when the letter would have been regularly delivered by the postal service, and no more than two days from the date on which the letter containing the aforesaid notice was delivered to the post office. |
| c. | A notice sent by facsimile or e-mail will be deemed delivered twenty four hours after their transmission. |
| 158. | Without derogating from the abovementioned, the Company may deliver a notice to the shareholders by publishing the notice once in two daily newspapers published in Israel, in the Hebrew language, both in addition and in lieu of delivering the notice as stated in Article 157 above. The date of publication in the newspaper shall be deemed the date on which the notice was received by the shareholders. |
| 159. | The Company may announce the delivery of a document at the office or any other place determined by the Board of Directors or by any other means, including through the internet. |
| 160. | The Company is entitled to deliver notice or a document to joint owners of a share by sending them to the shareholder whose name is mentioned first in the shareholder ledger, with regard to that share. |
| 161. | Delivery of notice or a document to one of the family members living with the person for whom they are designated will be deemed personal delivery to the same person. |
| 162. | Any person who received the right to any share, by law, by transfer or by any other means, any notice with regard to that share, duly delivered to the person from whom the right to the same share originated, prior to the registration of his details in the ledger shall obligate him. |
| 163. | Any document or notice delivered to a Company shareholder, in accordance with the provisions of the Articles of Association, will be deemed duly delivered despite the event of death, insolvency or dissolution of the same shareholder or endorsement of the right to his shares, by law (whether if the Company was aware of this or otherwise), as long as no one was registered in lieu thereof as shareholder, and delivery or shipment as aforementioned will be deemed for any purpose as sufficient with regard to any person interested in the same shares and/or entitled thereto subject to the endorsement of the right, by law, whether jointly with the same shareholder or as a result thereof or in lieu thereof. |
| 164. | Subject to the provisions of any law, a shareholder, director or any other person, entitled to receive notice subject to the Articles of Association or by law, may waive the right to receive it, whether in advance or in retrospect, whether for a specific event or in general, and once he does so this will be considered as if the notice was duly delivered, and any proceeding or action for which notice should have been given will be deemed valid and in force. |
| 165. | Written confirmation signed by a director or by the Company secretary regarding the delivery of a document or notice by any of the method specified in the Articles of Association, will be deemed decisive proof regarding any detail included therein. |
| 166. | Whenever early notice of a number of days must be granted or when a notice is valid during a certain period, the date of delivery will be included among the count of the number of days or the period, except if otherwise determined. If notice is given in more than one of the methods specified above, it will be deemed delivered on the earliest date for which it would be deemed delivered, as abovementioned. |
MERGER
| 167. | The approval of a merger as stated in section 327 of the Companies Law requires, in addition to any approval set forth in Article 172 below, an ordinary majority at the General Meeting or a class meeting, as the case may be, and all subject to the provisions of any law. |
CONVERSION OF PREFERRED SHARES
| 168. | Conversion. Each holder of Preferred Shares (the “Preferred Shareholders”) shall have the right to convert its Preferred Shares into Ordinary Shares as follows: |
| 168.1. | Right to Convert. |
(a) Each Preferred Share shall be convertible, at the option of the Preferred Shareholder, at any time after the issuance of such Preferred Share and without the payment of additional consideration by the holder thereof, into 1,456,000 fully paid and nonassessable Ordinary Shares of the Company, as subject to adjustment pursuant to Article 168.2 below.
(b) Before any Preferred Shareholder is entitled to convert any Preferred Share into Ordinary Shares, the Preferred Shareholder shall surrender the certificate or certificates thereof, or an affidavit of loss of the certificate or certificates therefor in a form reasonably acceptable to the Company, duly executed at the Office and shall give written notice by electronic mail or facsimile to the Company at an address to be provided by the Company of the election to convert the same (a “Notice of Exercise”). The Company shall, as soon as practicable thereafter, register with the transfer agent of the Company the number of Ordinary Shares to which such Preferred Shareholder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of the surrender of the certificate or submission of the affidavit of loss of the certificate representing the Preferred Shares to be converted, and the person or persons entitled to receive the Ordinary Shares issuable upon such conversion shall be treated for all purposes as the record holder of such Ordinary Shares as of such date.
168.2 Recapitalization Event. If at any time or from time to time there shall be a Recapitalization Event, and other than a Liquidation (as defined below), provision shall be made so that the Preferred Shareholders shall thereafter be entitled to receive upon conversion of the Preferred Shares the number of Ordinary Shares had the Preferred Shares been converted into Ordinary Shares immediately prior to such Recapitalization Event. For the purposes of this Article 168.2, “Recapitalization Event” means any event of share combination or subdivision, share split, reverse share split, share dividend, distribution of bonus shares or any other reclassification, reorganization or recapitalization of the Ordinary Shares.
168.3 Notwithstanding any of the foregoing, Preferred Shares shall not be convertible into Ordinary Shares, and the Company shall not effect any such conversion, to the extent (but only to the extent) that by giving effect to such conversion the Preferred Shareholder (together with its affiliates and any other persons acting as a group together with the Preferred Shareholder or any of such holder’s affiliates (such persons, collectively, the “Attribution Parties”)) (i) would beneficially own in excess of 4.99% of the issued and outstanding Ordinary Shares (including Ordinary Shares underlying American Depositary Shares of the Company (“ADSs”)) (the “Beneficial Ownership Limitation”) or (ii) the Attribution Parties will have received or would have been entitled to receive upon such conversion, together with all other conversion by such Attribution Parties within the twelve (12)-month period immediately prior to such conversion, an aggregate number of Ordinary Shares in excess of 4.99% of the number of Ordinary Shares (including Ordinary Shares underlying ADSs) then issued and outstanding at the time of such conversion (the “Conversion Limitation”). In addition, a holder of Preferred Shares may not convert any such shares for a period of twelve (12) months commencing on the original date of issuance of the Preferred Shares to such holder. For purposes of the Beneficial Ownership Limitation, the number of Ordinary Shares beneficially owned by the Preferred Shareholder and its affiliates and Attribution Parties shall include the number of Ordinary Shares underlying ADSs, if any, held by the Preferred Shareholder and its Attribution Parties plus the number of Ordinary Shares issuable upon conversion of the Preferred Shares with respect to which the conversion is being made but shall exclude the number of Ordinary Shares which would be issuable upon (i) exercise of the remaining Preferred Shares beneficially owned by the Preferred Shareholder or any of its affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Ordinary Share equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein that are beneficially owned by the Preferred Shareholder or any of its affiliates or Attribution Parties. Except as set forth in the preceding sentence, for the purposes of this Article 168.3, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act, and the Preferred Shareholder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitations contained in this Article 168.3 applies, the determination of whether Preferred Shares are convertible (in relation to other securities owned by the Preferred Shareholder together with any affiliates and Attribution Parties) shall be in the sole discretion of the Preferred Shareholder, and the submission of a Notice of Exercise shall be deemed to be the holder’s determination of whether the Preferred Shares are convertible (in relation to other securities owned by the holder together with any affiliates and Attribution Parties), in each case subject to the Beneficial Ownership Limitation or Conversion Limitation. To ensure compliance with this restriction, each holder shall be deemed to represent to the Company each time it delivers a Notice of Exercise that such Notice of Exercise has not violated the restrictions set forth in this Article, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Article 168.3, in determining the number of outstanding Ordinary Shares, the Preferred Shareholder may rely on the number of outstanding Ordinary Shares as reflected in (x) the Company’s most recent Annual Report on Form 20-F, Report on Form 6-K or other public filing filed with the Commission, as the case may be, (y) a more recent public announcement by the Company or (z) any other written notice by the Company or the Depositary setting forth the number of Ordinary Shares outstanding.
168.4 No fractional Ordinary Shares shall be issued upon conversion of the Preferred Shares, and the number of Ordinary Shares to be issued shall be rounded to the nearest whole share.
168.5 Reservation of Shares Issuable upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued Ordinary Shares, solely for the purpose of effecting the conversion of the Preferred Shares, such number of its Ordinary Shares as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Shares, and if at any time the number of authorized but unissued Ordinary Shares shall not be sufficient to effect the conversion of all then outstanding Preferred Shares, then the Company will take such corporate action as may be necessary to increase its authorized but unissued Ordinary Shares to such number of shares as shall be sufficient for such purposes.
LIQUIDATION
| 169. | Subject to the provisions of any law, the liquidator may, whether by voluntary liquidation or otherwise, subject to the resolution of a General Meeting passed by ordinary majority, to distribute in kind among the shareholders the surplus of assets, all or some, and as well the liquidator may subject to the resolution of the General Meeting passed by ordinary majority, to deposit any part of the assets surplus with trustees who will hold it in trust on behalf of the shareholders, as the liquidator shall deem fit. For the purpose of distributing the assets in kind, the liquidator may determine the proper value of the assets intended for distribution and determine how the distribution will be performed among the shareholders while taking into consideration the rights attached to the various classes of the Company shares which they own. |
| 170. | Liquidation Preference. In the event of: (i) any liquidation, dissolution, or winding-up of the Company, either voluntary or involuntary; (ii) any bankruptcy, insolvency or reorganization proceeding under any bankruptcy or insolvency or similar law, whether voluntary or involuntary, which is properly commenced by or against the Company, and which was not withdrawn and/or cancelled within 90 days from its commencement date; or (iii) the appointment of a receiver or liquidator to all or substantially all of the Company’s assets (each of Subsections (i), (ii) and (iii), a “Liquidation”), then upon each such Liquidation, the assets or proceeds available for distribution or payment to the Shareholders (the “Distributable Proceeds”) shall be distributed among the Shareholders according to the following order of preference: |
| (i) | First, only to the extent that not all Preferred Shares have been redeemed pursuant to Article 143 above, each holder of unredeemed Preferred Shares shall be entitled to receive for each such Preferred Share held thereby, on a pari passu basis, prior and in preference to any payment made to the holders of the Ordinary Shares and/or any other securities of the Company, an amount per each such Preferred Share equal to the Preferred Redemption Amount (such amount, the “Liquidation Preference”). In the event that the Distributable Proceeds shall be insufficient for the distribution of the Liquidation Preference in full to each holder of Preferred Shares for each of the unredeemed Preferred Shares held thereby, the Distributable Proceeds shall be distributed among the holders of Preferred Shares on a pro rata, pari passu basis in proportion to the number of unredeemed Preferred Shares held by such holder. Following the payment in full of the Redemption Payments for all the Preferred Shares, all such shares shall immediately be deemed redeemed and cancelled without any further action required on the part of the Preferred Shareholders or the Company; and |
| (ii) | Second, after payment in full of the Liquidation Preference to the holders of the Preferred Shares for all Preferred Shares held thereby, the remaining Distributable Proceeds, if any, shall be distributed pro-rata among the holders of Ordinary Shares, on a pro-rata, pari passu, non-participating basis. |
RIGHT OF FIRST REFUSAL
| 171. | Each holder of Preferred Shares hereby unconditionally and irrevocably grants to the Company the right to purchase all or any Preferred Shares that such Holder may propose to transfer, at the same price and on the same terms and conditions, as those offered to any prospective transferee (the “Right of First Refusal”). Each holder of Preferred Shares proposing to make a proposed transfer, sale, disposition or other assignment (each, a “Transfer”) of Preferred Shares must promptly deliver a notice (a “Notice of Transfer”) to the Company prior to the consummation of such proposed Transfer, setting forth all the material terms and conditions (including price and form of consideration) of the proposed Transfer, the identity of the prospective transferee and the intended date of the proposed Transfer. To exercise the Right of First Refusal, the Company must deliver a notice to the holder of Preferred Shares proposing the Transfer within thirty (30) days after delivery of the proposing shareholder’s Notice of Transfer specifying the number of Preferred Shares to be purchased by the Company. If the Company does not deliver such a notice to the proposing shareholder’s notice by the end of the thirty (30) day period, the Company shall be deemed to have irrevocably waived its Right of First Refusal to purchase all or any portion of the Preferred Shares proposed to be transferred. If the Company does deliver such a notice to the proposing shareholder within such thirty (30) day period, then promptly thereafter the parties shall arrange the Transfer of the shares being acquired by the Company (as set forth in the notice), including the consideration to be paid by the Company for such shares, and in the event the Company has elected not to purchase all the shares included in the proposing shareholder’s Notice of Transfer, then the proposing shareholder may Transfer such remaining shares to the proposed transferee on the terms set forth in the Notice of Transfer. The share certificate or certificates representing any Preferred Shares transferred hereunder shall contain a legend indicating that they are subject to the Transfer restrictions contained in these Articles and any other agreements between the holder of the Preferred Shares and the Company. |
REDEMPTION IN CERTAIN EVENTS
| 172. | Notwithstanding anything to the contrary in these Articles, for so long as any holder of Preferred Shares holds Preferred Shares of the Company, the Company shall not take any of the following actions (whether taken directly or indirectly, by merger, consolidation or otherwise, and whether by the Company or a subsidiary) without either first redeeming all then-outstanding Preferred Shares by making a Redemption Payment in respect of each Preferred Share in an amount equal to the Preferred Redemption Amount or obtaining the written consent or affirmative vote of the holders of a majority of the Preferred Shares in order to proceed without making such a redemption (it being understood that the foregoing shall not apply if any of the following occurs and is not in the control of the Company): |
| (i) | consummating any M&A Event; |
| (ii) | taking any action or step in relation to the delisting of the Company’s securities from the Nasdaq Stock Market; |
| (iii) | authorizing the creation of any security having rights, preferences or privileges equal to or greater than those of the Preferred Shares, or |
| (iv) | the incurrence of any Indebtedness, save for Indebtedness incurred: |
| (a) | with the prior written consent of the holders of a majority of the Preferred Shares; |
| (b) | under any finance or capital leases of equipment if the aggregate liability in respect of the equipment leased does not at any time exceed EUR 10,000,000 (or its equivalent in another currency or currencies); |
| (c) | under Permitted Hedging |
| (d) | under any letters of credit provided that such Indebtedness does not, singularly or in aggregate, exceed EUR 10,000,000 (or its equivalent in another currency or currencies); |
| (e) | in respect of any guarantees in respect of any liability or obligation of any person: |
(i) with the prior written consent of the holders of a majority of the Preferred Shares; or
(ii) guarantees issued in the ordinary course of trade by the Company under or in connection with:
(A) under any negotiable instruments;
(B) in connection with any performance bond; or
(C) in connection with any Indebtedness permitted under this Article 172(iv); or
(f) not permitted by the preceding paragraphs and the outstanding amount of which does not exceed EUR 10,000,000 (or its equivalent) in aggregate at any time.
Following the payment in full of the Preferred Redemption Amount for any Preferred Shares, such shares shall immediately be deemed redeemed and cancelled without any further action required on the part of the Preferred Shareholders or the Company. For the avoidance of doubt, no dividends or distributions shall be made to holders of Ordinary Shares until an amount equal to the full Preferred Redemption Amount has been distributed on account of each Preferred Share.
46
Exhibit 2.3
DESCRIPTION OF SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
This section summarizes certain information regarding the ordinary shares, no par value (the “Ordinary Shares”), of BiondVax Pharmaceuticals Ltd. (the “Company”) and the American Depositary Shares (“ADSs”), each representing 40 Ordinary Shares. The following descriptions are a summary and do not purport to be complete and is qualified by reference to our amended and restated articles of association (the “Articles”), which are filed with the Securities and Exchange Commission as an exhibit to our annual report on Form 20-F.
General
Our authorized share capital consists of 40,000,000,000 ordinary shares, no par value, and 1,000 preferred shares, no par value. All of our outstanding ordinary shares are validly issued, fully paid and non-assessable. Our ordinary shares are not redeemable and do not have any preemptive rights.
Registration Number and Purposes of the Company
Our number with the Israeli Registrar of Companies is 513436105. Our purpose is set forth in our Articles of Association is to engage in every lawful purpose in the field of biotechnology.
Voting Rights
Holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders at a shareholder meeting. Shareholders may vote at shareholder meetings either in person, by proxy or by written ballot. Israeli law does not allow public companies to adopt shareholder resolutions by means of written consent in lieu of a shareholder meeting. The board of directors shall determine and provide a record date for each shareholders meeting and all shareholders at such record date may vote. Unless stipulated differently in the Companies Law or in the articles of association, all shareholders’ resolutions shall be approved by a simple majority vote. Except as otherwise disclosed herein, an amendment to our articles of association requires the prior approval of the holders of at least 75% of our shares, represented and voting at a general meeting.
Our ordinary shares do not have cumulative voting rights for the election of directors. As a result, the holders of a majority of the voting power represented at a shareholders meeting have the power to elect all of our directors, subject to the special approval requirements for external directors under the Israeli Companies Law.
Transfer of Shares
Our ordinary shares that are fully paid for are issued in registered form and may be freely transferred under our articles of association, unless the transfer is restricted or prohibited by applicable law or the rules of a stock exchange on which the shares are traded. The ownership or voting of our ordinary shares by non-residents of Israel is not restricted in any way by our articles of association or Israeli law, except for ownership by nationals of some countries that are, or have been, in a state of war with Israel.
The Powers of the Directors
Our board of directors shall direct the Company’s policy and shall supervise the performance of the Company’s Chief Executive Officer. Pursuant to the Companies Law and our articles of association, our board of directors may exercise all powers and take all actions that are not required under law or under our articles of association to be exercised or taken by our shareholders, including the power to borrow money for company purposes.
Amendment of share capital
Our articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must be approved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions that have the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits and an issuance of shares for less than their nominal value, require a resolution of our board of directors and court approval.
Dividends
Under Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that the distribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, the distribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distribution according to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date of distribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seek the approval of the court in order to distribute a dividend. The court may approve our request if it is determines that there is no reasonable concern that the payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.
Election of Directors
Our ordinary shares do not have cumulative voting rights for the election of directors. As a result, the holders of a majority of the voting power represented at a shareholders meeting have the power to elect all of our directors, subject to the special approval requirements for external directors under the Israeli Companies Law.
Under our articles of association, our board of directors must consist of at least three and not more than eleven directors, including any external directors required by Israeli law. Our board of directors currently consists of ten members, including our non-executive Chairman of the board of directors. Our directors, excluding the external directors, are divided into three groups, as nearly equal in number as practicable, with staggered three-year terms, each consisting of one-third of the directors, constituting our entire board of directors (other than the external directors). At each annual meeting, the three-year duration of service of one group of directors shall expire and the directors of such group will stand for election. Each of the directors or the successors elected to replace the directors of a group whose term shall have expired at such annual meeting shall be elected to hold office until the third annual meeting held after the date of his or her election and until his or her respective successor is elected. If no directors are appointed at the annual meeting, the directors appointed at the previous annual meeting will continue their service. Directors whose service period has ended may be appointed again.
Shareholder Meetings
Under Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event 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 as special meetings. Our board of directors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law and our articles of association provide that our board of directors is required to convene a special meeting upon the written request of (i) any two of our directors or one quarter of the directors then in office; or (ii) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1% of our outstanding voting power, or (b) 5% 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. Furthermore, the Companies Law and our articles of association require that resolutions regarding the following matters must be passed at a general meeting of our shareholders:
| ● | amendments to our articles of association; | |
| ● | appointment or termination of our auditors; | |
| ● | appointment of directors and appointment and dismissal of external directors; | |
| ● | approval of acts and transactions requiring general meeting approval pursuant to the Companies Law; | |
| ● | director compensation, indemnification and change of the principal executive officer; | |
| ● | increases or reductions of our authorized share capital; | |
| ● | a merger; | |
| ● | the exercise of our board of directors’ 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; and | |
| ● | authorizing the chairman of the board of directors or his relative to act as the company’s chief executive officer or act with such authority; or authorize the company’s chief executive officer or his relative to act as the chairman of the board of directors or act with such authority. |
The Companies Law requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the agenda of the meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of a merger, notice must be provided at least 35 days prior to the meeting.
Quorum
The quorum required for our general meetings of shareholders consists of one or more shareholders present in person, by proxy or by other voting instrument in accordance with the Companies Law who hold or represent, in the aggregate, at least 10% of the total outstanding voting rights, within half an hour from the appointed time.
A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified in the summons or notice of the meeting. At the reconvened meeting, any number of our shareholders present in person or by proxy shall constitute a lawful quorum.
Resolutions
Our articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law or by another provision of the articles of association.
Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholder indicates how he or she votes on resolutions relating to the following matters:
| ● | an appointment or removal of directors; | |
| ● | an approval of transactions with office holders or interested or related parties, that require shareholder approval; | |
| ● | an approval of a merger; |
| ● | authorizing the chairman of the board of directors or his relative to act as the company’s chief executive officer or act with such authority; or authorize the company’s chief executive officer or his relative to act as the chairman of the board of directors or act with such authority; | |
| ● | any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate any additional matters; and | |
| ● | other matters which may be prescribed by Israel’s Minister of Justice. |
The provision allowing the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the vote.
The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its other shareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matters such as changes to the articles of association, increasing the company’s registered capital, mergers and approval of certain interested or related party transactions. A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, any shareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under such company’s articles of association, can appoint or prevent the appointment of an office holder or other power towards the company, is required to act with fairness towards the company. The Companies Law does not describe the substance of this duty except that the remedies generally available upon a breach of contract will also apply to a breach of the duty to act with fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly.
Under the Companies Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval by a simple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Generally, a resolution for the voluntary winding up of the company requires the approval of holders of 75% of the voting rights represented at the meeting, in person, by proxy or by written ballot and voting on the resolution.
In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to their shareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.
Access to Corporate Records
Under the Companies Law, all shareholders of a company generally have the right to review minutes of the company’s general meetings, its shareholders register and principal shareholders register, articles of association, financial statements and any document it is required by law to file publicly with the Israeli Companies Registrar and the ISA. Any of our shareholders may request to review any document in our possession that relates to any action or transaction with a related party, interested party or office holder that requires shareholder approval under the Companies Law. We may deny a request to review a document if we determine that the request was not made in good faith, that the document contains a commercial secret or a patent or that the document’s disclosure may otherwise prejudice our interests.
Acquisitions under Israeli Law
Full Tender Offer
A person wishing to acquire shares of a public Israeli company and who would as a result hold over 90% of the target company’s issued and outstanding share capital is required by the Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the issued and outstanding shares of the company. A person wishing to acquire shares of a public Israeli company and who would as a result hold over 90% of the issued and outstanding share capital of a certain class of shares is required to make a tender offer to all of the shareholders who hold shares of the same class for the purchase of all of the issued and outstanding shares of the same class. If the shareholders who do not accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer except that if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by a majority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer). However, a shareholder that had its shares so transferred may petition the court within six months from the date of acceptance of the full tender offer, whether or not such shareholder agreed to the tender or not, to determine whether the tender offer was for less than fair value and whether the fair value should be paid as determined by the court unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights, so long as prior to the acceptance of the full tender offer, the acquirer and the company disclosed the information required by law in connection with the full tender offer. If the shareholders who did not accept the tender offer hold 5% or more of the issued and outstanding share capital of the company or of the applicable class, the acquirer may not acquire shares of the company that will increase its holdings to more than 90% of the company’s issued and outstanding share capital or of the applicable class from shareholders who accepted the tender offer.
Special Tender Offer
The Companies Law provides that an acquisition of shares of a public Israeli company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a holder of 25% or more of the voting rights in the company, unless one of the exemptions in the Companies Law is met. This rule does not apply if there is already another holder of at least 25% of the voting rights in the company. Similarly, the Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a holder of 45% or more of the voting rights in the company, if there is no other shareholder of the company who holds 45% or more of the voting rights in the company, unless one of the exemptions in the Companies Law is met.
A special tender offer must be extended to all shareholders of a company, but the offeror is not required to purchase shares representing more than 5% of the voting power attached to the company’s outstanding shares, regardless of how many shares are tendered by shareholders. A special tender offer may be consummated only if (i) at least 5% of the voting power attached to the company’s outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer.
If a special tender offer is accepted, then the purchaser or any person or entity controlling it or under common control with the purchaser or such controlling person or entity may not make a subsequent tender offer for the purchase of shares of the target company and may not enter into a merger with the target company for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.
Under regulations enacted pursuant to the Companies Law, the above special tender offer requirements may not apply to companies whose shares are listed for trading on a foreign stock exchange if, among other things, the relevant foreign laws or the rules of the stock exchange, include provisions limiting the percentage of control which may be acquired or that the purchaser is required to make a tender offer to the public. However, the Israeli Securities Authority’s opinion is that such leniency does not apply with respect to companies whose shares are listed for trading on stock exchanges in the United States, including the NASDAQ Capital Market, which do not provide for sufficient legal restrictions on obtaining control or an obligation to make a tender offer to the public, therefore the special tender offer requirements shall apply to such companies.
Merger
The Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements described under the Companies Law are met, a majority of each party’s shares voted on the proposed merger at a shareholders’ meeting called with at least 35 days’ prior notice.
For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares represented at the shareholders meeting that are held by parties other than the other party to the merger, or by any person who holds 25% or more of the outstanding shares or the right to appoint 25% or more of the directors of the other party, vote against the merger. If the transaction would have been approved but for the separate approval of each class or the exclusion of the votes of certain shareholders as provided above, a court may still approve the merger upon the request of holders of at least 25% of the voting rights of a company, if the court holds that the merger is fair and reasonable, taking into account the value of the parties to the merger and the consideration offered to the shareholders.
Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger, and may further give instructions to secure the rights of creditors.
In addition, a merger may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger was filed by each party with the Israeli Registrar of Companies and 30 days have passed from the date the merger was approved by the shareholders of each party.
Antitakeover Measures
The Companies Law allows us to create and issue shares having rights different from those attached to our ordinary shares, including shares providing certain preferred rights, distributions or other matters and shares having preemptive rights. As of the date of this annual report, we do not have any authorized or issued shares other than our ordinary shares. In the future, if we do create and issue a class of shares other than ordinary shares, such class of shares, depending on the specific rights that may be attached to them, may delay or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of their ordinary shares. The authorization of a new class of shares will require an amendment to our articles of association which requires the prior approval of the holders of at least 75% of our shares at a general meeting. In addition, the rules and regulations of the TASE also limit the terms permitted with respect to a new class of shares and prohibit any such new class of shares from having voting rights. Shareholders voting in such meeting will be subject to the restrictions provided in the Companies Law as described above.
Transfer Agent and Depositary
The transfer agent and registrar for our ordinary shares is Vstock Transfer, LLC. Our ADSs were issued pursuant to a Depositary Agreement entered into with The Bank of New York Mellon, which acts as depositary.
AMERICAN DEPOSITARY SHARES
The Bank of New York Mellon, as depositary, registered and delivered American Depositary Shares, also referred to as ADSs. Each ADS represents forty (40) ordinary shares (or a right to receive forty (40) ordinary shares) deposited with the principal Tel Aviv office of either of Bank Leumi or Bank Hapoalim, as custodian for the depositary. Each ADS also represents any other securities, cash or other property which may be held by the depositary. The depositary’s office at which the ADSs are administered is located at 101 Barclay Street, New York, New York 10286. The Bank of New York Mellon’s principal executive office is located at One Wall Street, New York, New York 10286.
You may hold ADSs either (A) directly (i) by having an American Depositary Receipt, also referred to as an ADR, which is a certificate evidencing a specific number of ADSs, registered in your name, or (ii) by having ADSs registered in your name in the Direct Registration System, or DRS, or (B) indirectly by holding a security entitlement in ADSs through your broker or other financial institution. If you hold ADSs directly, you are a registered ADS holder, also referred to as an ADS holder. This description assumes you are an ADS holder. If you hold the ADSs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADS holders described in this section. You should consult with your broker or financial institution to find out what those procedures are.
The DRS is a system administered by The Depository Trust Company, or DTC, under which the depositary may register the ownership of uncertificated ADSs, which ownership is confirmed by periodic statements sent by the depositary to the registered holders of uncertificated ADSs.
As an ADS holder, we will not treat you as one of our shareholders and you will not have shareholder rights. Israeli law governs shareholder rights. The depositary will be the holder of the ordinary shares underlying your ADSs. As a registered holder of ADSs, you will have ADS holder rights. A deposit agreement among us, the depositary, ADS holders and all other persons indirectly or beneficially holding ADSs sets out ADS holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement and the ADSs.
The following is a summary of the material provisions of the deposit agreement. For more complete information, you should read the entire deposit agreement and the form of ADR.
Dividends and Other Distributions
How will you receive dividends and other distributions on the shares?
The depositary has agreed to pay to ADS holders the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent.
Cash. The depositary will convert any cash dividend or other cash distribution we pay on the ordinary shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If that is not possible or if any government approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADS holders to whom it is possible to do so. It will hold the foreign currency it cannot convert for the account of the ADS holders who have not been paid. It will not invest the foreign currency and it will not be liable for any interest.
Before making a distribution, the depositary will deduct any withholding taxes, or other required governmental charges. The depositary will distribute only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, you may lose some or all of the value of the distribution.
Shares. The depositary may distribute additional ADSs representing any ordinary shares we distribute as a dividend or free distribution. The depositary will only distribute whole ADSs. It may sell ordinary shares which would require it to deliver a fraction of an ADS and distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional ADSs, the outstanding ADSs will also represent the new shares. The depositary may sell a portion of the distributed ordinary shares sufficient to pay its fees and expenses in connection with that distribution.
Rights to purchase additional shares. If we offer holders of our securities any rights to subscribe for additional ordinary shares or any other rights, the depositary may make these rights available to ADS holders. If the depositary decides it is not legal and practical to make the rights available but that it is practical to sell the rights, the depositary will use reasonable efforts to sell the rights and distribute the proceeds in the same way as it does with cash. The depositary will allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them.
If the depositary makes rights available to ADS holders, it will exercise the rights and purchase the ordinary shares on your behalf. The depositary will then deposit the ordinary shares and deliver ADSs to the persons entitled to them. It will only exercise rights if you pay it the exercise price and any other charges the rights require you to pay.
U.S. securities laws may restrict transfers and cancellation of the ADSs represented by ordinary shares purchased upon exercise of rights. For example, you may not be able to trade these ADSs freely in the United States. In this case, the depositary may deliver restricted depositary shares that have the same terms as the ADSs described in this section except for changes needed to put the necessary restrictions in place.
Other Distributions. The depositary will send to ADS holders anything else we distribute on deposited securities by any means it thinks is legal, fair and practical. If it cannot make the distribution in that way, the depositary will have a choice. It may decide to sell what we distributed and distribute the net proceeds, in the same way as it does with cash. Or, it may decide to hold what we distributed, in which case ADSs will also represent the newly distributed property. However, the depositary is not required to distribute any securities (other than ADSs) to ADS holders unless it receives reasonably satisfactory evidence from us that it is legal to make that distribution. The depositary may sell a portion of the distributed securities or property sufficient to pay its fees and expenses in connection with that distribution
The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. We have no obligation to register ADSs, shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADSs, shares, rights or anything else to ADS holders. This means that you may not receive the distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you.
Deposit, Withdrawal and Cancellation
How are ADSs issued?
The depositary will deliver ADSs if you or your broker deposits ordinary shares or evidence of rights to receive ordinary shares with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of ADSs in the names you request and will deliver the ADSs to or upon the order of the person or persons that made the deposit.
How can ADS holders withdraw the deposited securities?
You may surrender your ADSs at the depositary’s office. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the ordinary shares and any other deposited securities underlying the ADSs to the ADS holder or a person the ADS holder designates at the office of the custodian. Or, at your request, risk and expense, the depositary will deliver the deposited securities at its office, if feasible.
How do ADS holders interchange between certificated ADSs and uncertificated ADSs?
You may surrender your ADR to the depositary for the purpose of exchanging your ADR for uncertificated ADSs. The depositary will cancel that ADR and will send to the ADS holder a statement confirming that the ADS holder is the registered holder of uncertificated ADSs. Alternatively, upon receipt by the depositary of a proper instruction from a registered holder of uncertificated ADSs requesting the exchange of uncertificated ADSs for certificated ADSs, the depositary will execute and deliver to the ADS holder an ADR evidencing those ADSs.
Voting Rights
How do you vote?
ADS holders may instruct the depositary how to vote the number of deposited ordinary shares their ADSs represent. Otherwise, you won’t be able to exercise your right to vote unless you withdraw the shares. However, you may not know about the meeting sufficiently in advance to withdraw the shares.
The depositary will notify ADS holders of shareholders’ meetings and arrange to deliver our voting materials to them if we ask it to. Those materials will describe the matters to be voted on and explain how ADS holders may instruct the depositary how to vote. For instructions to be valid, they much reach the depositary by a date set by the depositary.
The depositary will try, as far as practical, subject to the laws of Israel and of our articles of association or similar documents, to vote or to have its agents vote the ordinary shares or other deposited securities as instructed by ADS holders. The depositary will only vote or attempt to vote as instructed or as described in the following sentence. If we ask the depositary to solicit your instructions at least 30 days before the meeting date but the depositary does not receive voting instructions from you by the specified date, it will consider you to have authorized and directed it to give a discretionary proxy to a person designated by us to vote the number of deposited securities represented by your ADSs. The depositary will give a discretionary proxy in those circumstances to vote on all questions at to be voted upon unless we notify the depositary that:
| ● | we do not wish to receive a discretionary proxy; | |
| ● | there is substantial shareholder opposition to the particular question; or | |
| ● | the particular question would have an adverse impact on our shareholders. |
We are required to notify the depositary if one of the conditions specified above exists.
We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and there may be nothing you can do if your ordinary shares are not voted as you requested.
In order to give you a reasonable opportunity to instruct the Depositary as to the exercise of voting rights relating to Deposited Securities, if we request the Depositary to act, we agree to give the Depositary notice of any such meeting and details concerning the matters to be voted upon at least 30 days in advance of the meeting date.
Fees and Expenses
| Persons depositing or withdrawing ordinary shares or ADS holders must pay: | For: | ||
| $5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | ● | Issuance of ADSs, including issuances resulting from a distribution of ordinary shares or rights or other property Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | |
| $.05 (or less) per ADS | ● | Any cash distribution to ADS holders | |
| A fee equivalent to the fee that would be payable if securities distributed to you had been ordinary shares and the ordinary shares had been deposited for issuance of ADSs | ● | Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders | |
| $.05 (or less) per ADS per calendar year | ● | Depositary services | |
| Registration or transfer fees | ● | Transfer and registration of ordinary shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw ordinary shares | |
| Expenses of the depositary | ● | Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) converting foreign currency to U.S. dollars | |
| Taxes and other governmental charges the depositary or the custodian has to pay on any ADSs or ordinary shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes | ● | As necessary | |
| Any charges incurred by the depositary or its agents for servicing the deposited securities | ● | As necessary | |
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may collect any of its fees by deduction from any cash distribution payable to ADS holders that are obligated to pay those fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
From time to time, the depositary may make payments to us to reimburse and/or share revenue from the fees collected from ADS holders, or waive fees and expenses for services provided, generally relating to costs and expenses arising out of establishment and maintenance of the ADS program. In performing its duties under the deposit agreement, the depositary may use brokers, dealers or other service providers that are affiliates of the depositary and that may earn or share fees or commissions.
Payment of Taxes
You will be responsible for any taxes or other governmental charges payable on your ADSs or on the deposited securities represented by any of your ADSs.
Reclassifications, Recapitalizations and Mergers
| If we: | Then: | |||
| ● | Change the nominal or par value of our shares | The cash, ordinary shares or other securities received by the depositary will become deposited securities. Each ADS will automatically represent its equal share of the new deposited securities. | ||
| ● | Reclassify, split up or consolidate any of the deposited securities | |||
| ● | Distribute securities on the ordinary shares that are not distributed to you | The depositary may distribute new ADSs representing the new deposited securities or ask you to surrender your outstanding ADRs in exchange for new ADRs identifying the new deposited securities. | ||
| ● | Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or take any similar action | |||
Amendment and Termination
How may the deposit agreement be amended?
We may agree with the depositary to amend the deposit agreement and the ADSs without your consent for any reason. If an amendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, or prejudices a substantial right of ADS holders, it will not become effective for outstanding ADSs until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective, you are considered, by continuing to hold your ADSs, to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended.
How may the deposit agreement be terminated?
The depositary will terminate the deposit agreement at our direction by mailing notice of termination to the ADS holders at least 30 days prior to the date fixed in such notice for such termination. The depositary may also terminate the deposit agreement by mailing notice of termination to us and the ADS holders if 60 days have passed from the date on which the depositary told us it wants to resign but a successor depositary has not been appointed and accepted its appointment.
After termination, the depositary and its agents will do the following under the deposit agreement but nothing else: collect distributions on the deposited securities, sell rights and other property, and deliver ordinary shares and other deposited securities upon cancellation of ADSs. Four months after termination, the depositary may sell any remaining deposited securities by public or private sale. After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the deposit agreement for the pro rata benefit of the ADS holders that have not surrendered their ADSs. It will not invest the money and has no liability for interest. The depositary’s only obligations will be to account for the money and other cash. After termination our only obligations will be to indemnify the depositary and to pay fees and expenses of the depositary that we agreed to pay.
Limitations on Obligations and Liability
Limits on our Obligations and the Obligations of the Depositary; Limits on Liability to Holders of ADSs
The deposit agreement expressly limits our obligations and the obligations of the depositary. It also limits our liability and the liability of the depositary. We and the depositary:
| ● | are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith; | |
| ● | are not liable if we are or it are prevented or delayed by law or circumstances beyond our or its control from performing our or its obligations under the deposit agreement; | |
| ● | are not liable if we or it exercise discretion permitted under the deposit agreement; | |
| ● | are not liable for the inability of any holder of ADSs to benefit from any distribution on deposited securities that is not made available to holders of ADSs under the terms of the deposit agreement, or for any special, consequential or punitive damages for any breach of the terms of the deposit agreement; | |
| ● | have no obligation to become involved in a lawsuit or other proceeding related to the ADSs or the deposit agreement on your behalf or on behalf of any other person; |
| ● | are not liable for the acts or omissions of any securities depository, clearing agency or settlement system; and | |
| ● | may rely upon any documents we believe or it believe in good faith to be genuine and to have been signed or presented by the proper person. |
In the deposit agreement, we and the depositary agree to indemnify each other under certain circumstances.
Requirements for Depositary Actions
Before the depositary will deliver or register a transfer of ADSs, make a distribution on ADSs, or permit withdrawal of shares, the depositary may require:
| ● | payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any ordinary shares or other deposited securities; | |
| ● | satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and | |
| ● | compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents. |
The depositary may refuse to deliver ADSs or register transfers of ADSs when the transfer books of the depositary or our transfer books are closed or at any time if the depositary or we think it advisable to do so.
Your Right to Receive the Ordinary Shares Underlying your ADSs
ADS holders have the right to cancel their ADSs and withdraw the underlying ordinary shares at any time except:
| ● | when temporary delays arise because: (i) the depositary has closed its transfer books or we have closed our transfer books; (ii) the transfer of ordinary shares is blocked to permit voting at a shareholders’ meeting; or (iii) we are paying a dividend on our shares; | |
| ● | when you owe money to pay fees, taxes and similar charges; or | |
| ● | when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of ordinary shares or other deposited securities. |
This right of withdrawal may not be limited by any other provision of the deposit agreement.
Pre-release of ADSs
The deposit agreement permits the depositary to deliver ADSs before deposit of the underlying shares. This is called a pre-release of the ADSs. The depositary may also deliver ordinary shares upon cancellation of pre-released ADSs (even if the ADSs are canceled before the pre-release transaction has been closed out). A pre-release is closed out as soon as the underlying ordinary shares are delivered to the depositary. The depositary may receive ADSs instead of ordinary shares to close out a pre-release. The depositary may pre-release ADSs only under the following conditions: (1) before or at the time of the pre-release, the person to whom the pre-release is being made represents to the depositary in writing that it or its customer owns the ordinary shares or ADSs to be deposited; (2) the pre-release is fully collateralized with cash or other collateral that the depositary considers appropriate; and (3) the depositary must be able to close out the pre-release on not more than five business days’ notice. In addition, the depositary will limit the number of ADSs that may be outstanding at any time as a result of pre-release, although the depositary may disregard the limit from time to time if it thinks it is appropriate to do so.
Direct Registration System
In the deposit agreement, all parties to the deposit agreement acknowledge that DRS and the Profile Modification System, or Profile, will apply to uncertificated ADSs upon acceptance thereof to DRS by DTC. DRS is the system administered by DTC under which the depositary may register the ownership of uncertificated ADSs, which ownership will be confirmed by periodic statements sent by the depositary to the registered holders of uncertificated ADSs. Profile is a required feature of DRS that allows a DTC participant, claiming to act on behalf of a registered holder of ADSs, to direct the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver those ADSs to the DTC account of that DTC participant without receipt by the depositary of prior authorization from the ADS holder to register that transfer.
In connection with and in accordance with the arrangements and procedures relating to DRS/Profile, the parties to the deposit agreement understand that the depositary will not determine whether the DTC participant that is claiming to be acting on behalf of an ADS holder in requesting registration of transfer and delivery described in the paragraph above has the actual authority to act on behalf of the ADS holder (notwithstanding any requirements under the Uniform Commercial Code). In the deposit agreement, the parties agree that the depositary’s reliance on and compliance with instructions received by the depositary through the DRS/Profile System and in accordance with the deposit agreement will not constitute negligence or bad faith on the part of the depositary.
Shareholder communications; inspection of register of holders of ADSs
The depositary will make available for your inspection at its office all communications that it receives from us as a holder of deposited securities that we make generally available to holders of deposited securities. The depositary will send you copies of those communications if we ask it to. You have a right to inspect the register of holders of ADSs, but not for the purpose of contacting those holders about a matter unrelated to our business or the ADSs.
12
Exhibit 4.3
COMPENSATION POLICY
SCINAI IMMUNOTHERAPEUTICS LTD.
Compensation Policy for Executive Officers and Directors
(As Adopted by the Shareholders on November 21, 2024)
| A. | Overview and Objectives |
| 1. | Introduction |
| This document sets forth the Compensation Policy for Executive Officers and Directors (this “Compensation Policy” or “Policy”) of Scinai Immunotherapeutics Ltd. (“Scinai” or the “Company”), in accordance with the requirements of the Companies Law, 5759-1999 (the “Companies Law”). |
| Compensation is a key component of Scinai’s overall human capital strategy to attract, retain, reward, and motivate highly skilled individuals that will enhance Scinai’s value and otherwise assist Scinai to reach its business and financial long-term goals. Accordingly, the structure of this Policy is established to tie the compensation of each officer to Scinai’s goals and performance. |
| For purposes of this Policy, “Executive Officers” shall mean “Office Holders” as such term is defined in Section 1 of the Companies Law, excluding, unless otherwise expressly indicated herein, Scinai’s directors. |
| This policy is subject to applicable law and is not intended and should not be interpreted as limiting or derogating from, provisions of applicable law to the extent not permitted. |
| This Policy shall apply to compensation agreements and arrangements which will be approved after the date on which this Policy is adopted and shall serve as Scinai’s Compensation Policy for three (3) years, commencing as of its adoption, unless amended earlier. |
| The Compensation Committee and the Board of Directors of Scinai (the “Compensation Committee” and the “Board”, respectively) shall review and reassess the adequacy of this Policy from time to time, as required by the Companies Law. |
| 2. | Objectives |
Scinai’s objectives and goals in setting this Policy are to attract, motivate and retain highly experienced leaders who will contribute to Scinai’s success and enhance shareholder value, while demonstrating professionalism in a highly achievement-oriented culture that is based on merit and rewards excellent performance in the long term, and embedding Scinai’s core values as part of a motivated behavior. To that end, this Policy is designed, among others:
| 2.1. | To closely align the interests of the Executive Officers with those of Scinai’s shareholders in order to enhance shareholder value; |
| 2.2. | To align a significant portion of the Executive Officers’ compensation with Scinai’s short and long-term goals and performance; |
| 2.3. | To provide the Executive Officers with a structured compensation package, including competitive salaries, performance-motivating cash and equity incentive programs and benefits, and to be able to present to each Executive Officer an opportunity to advance in a growing organization; |
| 2.4. | To strengthen the retention and the motivation of Executive Officers in the long term; |
| 2.5. | To provide appropriate awards in order to incentivize superior individual excellency and corporate performance; and |
| 2.6. | To maintain consistency in the way Executive Officers are compensated. |
| 3. | Compensation Instruments |
| Compensation instruments under this Policy may include the following: |
| 3.1. | Base salary; |
| 3.2. | Benefits; |
| 3.3. | Cash bonuses; |
| 3.4. | Equity based compensation; |
| 3.5. | Change of control terms; and |
| 3.6. | Retirement and termination terms. |
| 4. | Overall Compensation - Ratio Between Fixed and Variable Compensation |
| 4.1. | This Policy aims to balance the mix of “Fixed Compensation” (comprised of base salary and benefits) and “Variable Compensation” (comprised of cash bonuses and equity-based compensation) in order to, among other things, appropriately incentivize Executive Officers to meet Scinai’s short and long-term goals while taking into consideration the Company’s need to manage a variety of business risks. |
| 4.2. | The total annual bonus and equity-based compensation of each Executive Officer shall not exceed 90% of the total compensation package of such Executive Officer on an annual basis. |
| 5. | Inter-Company Compensation Ratio |
| 5.1. | In the process of drafting and updating this Policy, Scinai’s Board and Compensation Committee have examined the ratio between employer costs associated with the engagement of the Executive Officers, including directors, and the average and median employer costs associated with the engagement of Scinai’s other employees (including contractor employees as defined in the Companies Law) (the “Ratio”). |
| 5.2. | The possible ramifications of the Ratio on the daily working environment in Scinai were examined and will continue to be examined by Scinai from time to time in order to ensure that levels of executive compensation, as compared to the overall workforce will not have a negative impact on work relations in Scinai. |
| B. | Base Salary and Benefits |
| 6. | Base Salary |
| 6.1. | A base salary provides stable compensation to Executive Officers and allows Scinai to attract and retain competent executive talent and maintain a stable management team. The base salary varies among Executive Officers, and is individually determined according to the educational background, prior vocational experience, qualifications, company’s role, business responsibilities and the past performance of each Executive Officer. |
| 6.2. | Since a competitive base salary is essential to Scinai’s ability to attract and retain highly skilled professionals, Scinai will seek to establish a base salary that is competitive with base salaries paid to Executive Officers in a peer group of other companies operating in technology sectors which are similar in their characteristics to Scinai’s, as much as possible, while considering, among others, such companies’ size and characteristics including without limitation their revenues, stage of development, market capitalization, number of employees and operating arena (in Israel or globally), the list of which shall be reviewed and approved by the Compensation Committee at least every three years. To that end, Scinai shall utilize as a reference, comparative market data and practices, which will include a compensation survey that compares and analyses the level of the overall compensation package offered to an Executive Officer of Scinai with compensation packages in similar positions to that of the relevant officer in such companies. Such compensation survey may be conducted internally or through an external independent consultant. |
| 6.3. | The Compensation Committee and the Board may periodically consider and approve base salary adjustments for Executive Officers. The main considerations for salary adjustment are similar to those used in initially determining the base salary, but may also include change of role or responsibilities, recognition for professional achievements, regulatory or contractual requirements, budgetary constraints or market trends. The Compensation Committee and the Board will also consider the previous and existing compensation arrangements of the Executive Officer whose base salary is being considered for adjustment. |
| 7. | Benefits |
| 7.1. | The following benefits may be granted to the Executive Officers in order, among other things, to comply with legal requirements: |
| 7.1.1. | Vacation days in accordance with market practice; |
| 7.1.2. | Sick days in accordance with market practice; |
| 7.1.3. | Convalescence pay according to applicable law; |
| 7.1.4. | Monthly remuneration for a study fund, as allowed by applicable law and with reference to Scinai’s practice and the practice in peer group companies (including contributions on bonus payments); |
| 7.1.5. | Scinai shall contribute on behalf of the Executive Officer to an insurance policy or a pension fund, as allowed by applicable law and with reference to Scinai’s policies and procedures and the practice in peer group companies (including contributions on bonus payments); and |
| 7.1.6. | Scinai shall contribute on behalf of the Executive Officer towards work disability insurance, as allowed by applicable law and with reference to Scinai’s policies and procedures and to the practice in peer group companies. |
| 7.2. | Non-Israeli Executive Officers may receive other similar, comparable or customary benefits as applicable in the relevant jurisdiction in which they are employed. Such customary benefits shall be determined based on the methods described in Section 6.2 of this Policy (with the necessary changes and adjustments). |
| 7.3. | In events of relocation or repatriation of an Executive Officer to another geography, such Executive Officer may receive other similar, comparable or customary benefits as applicable in the relevant jurisdiction in which he or she is employed or additional payments to reflect adjustments in cost of living. Such benefits shall include reimbursement for out-of-pocket one-time payments and other ongoing expenses, such as housing allowance, car allowance, and home leave visit, etc. |
| 7.4. | Scinai may offer additional benefits to its Executive Officers, which will be comparable to customary market practices, such as, but not limited to: cellular and land line phone benefits, company car and travel benefits, reimbursement of business travel including a daily stipend when traveling and other business related expenses, insurances, other benefits (such as newspaper subscriptions, academic and professional studies), etc., provided, however, that such additional benefits shall be determined in accordance with Scinai’s policies and procedures. |
| C. | Cash Bonuses |
| 8. | Annual Cash Bonuses - The Objective |
| 8.1. | Compensation in the form of an annual cash bonus is an important element in aligning the Executive Officers’ compensation with Scinai’s objectives and business goals. Therefore, a pay-for-performance element is provided for, as payout eligibility and levels are determined based on actual financial and operational results, as well as individual performance. |
| 8.2. | An annual cash bonus may be awarded to Executive Officers upon the attainment of pre-set periodic objectives and individual targets determined by the Compensation Committee (and, if required by law, by the Board) at the beginning of each calendar year, or upon engagement, in case of newly hired Executive Officers, taking into account Scinai’s short and long-term goals, as well as its compliance and risk management policies. The Compensation Committee and the Board shall also determine applicable minimum thresholds that must be met for entitlement to the annual cash bonus (all or any portion thereof) and the formula for calculating any annual cash bonus payout, with respect to each calendar year, for each Executive Officer. In special circumstances, as determined by the Compensation Committee and the Board (e.g., regulatory changes, significant changes in Scinai’s business environment, a significant organizational change, a significant merger and acquisition events etc.), the Compensation Committee and the Board may modify the objectives and/or their relative weights during the calendar year. |
| 8.3. | In the event the service of an Executive Officer is terminated prior to the end of a fiscal year, Scinai may (but shall not be obligated to) pay such Executive Officer a full annual cash bonus or a prorated one. |
| 8.4. | The actual annual cash bonus to be awarded to Executive Officers shall be approved by the Compensation Committee and the Board. |
| 8.5 | For purposes of this Section 8 and Section 9 below, the term “Executive Officer” shall be deemed to include the Chairman of the Board. |
| 9. | Annual Cash Bonuses - The Formula |
Executive Officers other than the CEO
| 9.1. | The annual cash bonus of Scinai’s Executive Officers, other than the chief executive officer (the “CEO”), will be based on performance objectives and a discretionary evaluation of the Executive Officer’s overall performance by the CEO and subject to minimum thresholds. The performance objectives will be approved by Scinai’s CEO at the commencement of each calendar year (or upon engagement, in case of newly hired Executive Officers or in special circumstances as indicated in Section 8.2 above) on the basis of, but not limited to, company, division and individual objectives. The performance measurable objectives, which include the objectives and the weight to be assigned to each achievement in the overall evaluation, will be based on overall company performance measures, which are based on actual financial and operational results, such as revenues, operating income and cash flow (at least 25% of the annual cash bonus will be based on overall company performance measures) and may further include, divisional or personal objectives which may include operational objectives, such as market share, initiation of new markets and operational efficiency, customer focused objectives, project milestones objectives and investment in human capital objectives, such as employee satisfaction, employee retention and employee training and leadership programs. |
| 9.2. | The target annual cash bonus that an Executive Officer, other than the CEO, will be entitled to receive for any given calendar year, will not exceed 100% of such Executive Officer’s annual base salary or annual payment, as the case may be. |
| 9.3. | The maximum annual cash bonus including for overachievement performance that an Executive Officer, other than the CEO, will be entitled to receive for any given calendar year, will not exceed 150% of such Executive Officer’s annual base salary or annual payment, as the case may be. |
CEO
| 9.4. | The annual cash bonus of Scinai’s CEO will be mainly based on performance measurable objectives and subject to minimum thresholds as provided in Section 8.2 above. Such performance measurable objectives will be determined annually by Scinai’s Compensation Committee (and, if required by law, by Scinai’s Board) at the commencement of each calendar year (or upon engagement, in case of newly hired CEO or in special circumstances as indicated in Section 8.2 above) on the basis of, but not limited to, company and personal objectives. These performance measurable objectives, which include the objectives and the weight to be assigned to each achievement in the overall evaluation, will be based on overall company performance measures, which are based on actual financial and operational results, such as revenues, sales, operating income, cash flow or Company’s annual operating plan and long-term plan. |
| 9.5. | The less significant part of the annual cash bonus granted to Scinai’s CEO, and in any event not more than 30% of the annual cash bonus, may be based on a discretionary evaluation of the CEO’s overall performance by the Compensation Committee and the Board based on quantitative and qualitative criteria. |
| 9.6. | The target annual cash bonus that the CEO will be entitled to receive for any given calendar year, will not exceed 100% of his or her annual base salary. |
| 9.7. | The maximum annual cash bonus including for overachievement performance that the CEO will be entitled to receive for any given calendar year, will not exceed 150% of his or her annual base salary. |
| 10. | Other Bonuses |
| 10.1. | Special Bonus. Scinai may grant its Executive Officers and directors a special bonus as an award for special efforts or achievements (such as in connection with mergers and acquisitions, offerings, achieving target budget or business plan objectives under exceptional circumstances or special recognition in case of retirement) or as a retention award at the CEO’s discretion (and in the CEO’s case, at the Board’s discretion), subject to any additional approval as may be required by the Companies Law (the “Special Bonus”). The Special Bonus will not exceed 100% of the Executive Officer’s or director’s annual base salary or annual cash retainer, as the case may be (and in the case of Executive Officers, together with any annual bonus paid under Section 9 above, not to exceed 150% of the Executive Officer’s annual base salary). |
| 10.2. | Signing Bonus. Scinai may grant a newly recruited Executive Officer a signing bonus at the CEO’s discretion (and in the CEO’s case, at the Board’s discretion), subject to any additional approval as may be required by the Companies Law (the “Signing Bonus”). The Signing Bonus will not exceed 100% of the Executive Officer’s annual base salary. |
| 10.3. | Relocation/ Repatriation Bonus. Scinai may grant its Executive Officers a special bonus in the event of relocation or repatriation of an Executive Officer to another geography (the “Relocation Bonus”). The Relocation bonus will include customary benefits associated with such relocation and its monetary value will not exceed 100% of the Executive Officer’s annual base salary. |
| 10.4. | Discretion Regarding Reducing a Bonus. The Compensation Committee and the Board of Directors of Scinai shall be entitled, in exceptional cases, at their discretion, to reduce or cancel a bonus to an Executive Officer. |
| 11. | Compensation Recovery (“Clawback”) |
| 11.1. | In the event of an accounting restatement, Scinai shall be entitled to recover from its Executive Officers the bonus compensation or performance-based equity compensation received by each such Executive Officer during the three completed fiscal years immediately preceding the date that Scinai is required to prepare an accounting restatement in the amount in which such bonus exceeded what would have been paid or received under the financial statements, as restated ("Compensation Recovery"), For purposes of this Policy, when compensation is deemed to be “received”, the date on which a restatement shall be deemed to be required, and the type of restatement for which this provision shall apply, shall be as provided in the SEC Clawback Rule (as defined below). |
| 11.2. | Notwithstanding the aforesaid, the compensation recovery will not be triggered in the following events: |
| 11.2.1. | The financial restatement is required due to changes in the applicable financial reporting standards; |
| 11.2.2. |
The Compensation Committee has determined that the direct expense paid to a third party to assist in enforcing the Policy would exceed the amount to be recovered; and |
| 11.2.3. | Otherwise as provided in the SEC Clawback Rule. |
| 11.3. |
Nothing in this Section 11 derogates from any other “Clawback” or similar provisions regarding disgorging of profits imposed on Executive Officers by virtue of applicable securities or other laws, rules or regulations (including applicable stock exchange rules)and with respect to which the Board of Directors, following approval of the Compensation Committee, may adopt additional policies (which, for the sake of clarity, shall not require additional shareholder approval).
Without derogating from the generality of the foregoing, the Company has adopted a clawback policy (“Nasdaq Clawback Policy”) that complies with the listing standards (the “Nasdaq Standards”) adopted by The Nasdaq Stock Market LLC (“Nasdaq”) in accordance with the provisions of Rule 10D-1 under the Securities and Exchange Act of 1934, as amended (as amended from time to time, the “SEC Clawback Rule”), which directs national securities exchanges, including Nasdaq, to establish listing standards for purposes of complying with such rule. Any provision of the Nasdaq Clawback Policy as required by the Nasdaq Standards shall be deemed to comply with this Compensation Policy. In the event of any inconsistency between this Policy and the Nasdaq Clawback Policy, the Nasdaq Clawback Policy shall prevail to the extent the Nasdaq Clawback Policy creates or expands the obligation of the Company to conduct a “Clawback” from Office Holders. For the avoidance of any doubt, no amendments to, or further corporate approvals in connection with, this Policy will be required in connection with the Nasdaq Clawback Policy as long as it is approved by the Compensation Committee and the Board of Directors. |
| D. | Equity Based Compensation |
| 12. | The Objective |
| 12.1. | The equity-based compensation for Scinai’s Executive Officers is designed in a manner consistent with the underlying objectives in determining the base salary and the annual cash bonus, with its main objectives being to enhance the alignment between the Executive Officers’ interests with the long-term interests of Scinai and its shareholders, and to strengthen the retention and the motivation of Executive Officers in the long term. In addition, since equity-based awards are structured to vest over several years, their incentive value to recipients is aligned with longer-term strategic plans. |
| 12.2. | The equity-based compensation offered by Scinai is intended to be in a form of share options and/or other equity-based awards, such as RSUs, in accordance with the Company’s equity incentive plan in place as may be updated from time to time. |
| 12.3. | All equity-based incentives granted to Executive Officers shall be subject to vesting periods in order to promote long-term retention of the awarded Executive Officers. Unless determined otherwise in a specific award agreement approved by the Compensation Committee and the Board, grants to Executive Officers other than non-employee directors shall vest gradually over a period of between three (3) to five (5) years or based on performance. The exercise price of options shall be determined in accordance with Scinai’s policies, the main terms of which shall be disclosed in the annual report of Scinai. |
| 12.4. | All other terms of the equity awards shall be in accordance with Scinai’s incentive plans and other related practices and policies. Accordingly, the Board may, following approval by the Compensation Committee, extend the period of time for which an award is to remain exercisable and make provisions with respect to the acceleration of the vesting period of any Executive Officer’s awards, including, without limitation, in connection with a corporate transaction involving a change of control, subject to any additional approval as may be required by the Companies Law. |
| 13. | General Guidelines for the Grant of Awards |
| 13.1. | 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. |
| 13.2. | In determining the equity-based compensation granted to each Executive Officer, the Compensation Committee and Board shall consider the factors specified in Section 13.1 above, and in any event the total fair market value of annual equity-based compensation at the time of grant shall not exceed: (i) with respect to the CEO – for the initial grant 500% of his or her annual base salary and thereafter 300% of his or her annual base salary; and (ii) with respect to each of the other Executive Officers - 200% of his or her annual base salary. |
| 13.3. | The fair market value of equity-based compensation for the Executive Officers will be determined according to acceptable valuation practices at the time of grant. |
| 13.4. | The Board considered the possibility of determining a ceiling for the exercise value of equity-based compensation and decided, taking into account the purpose of equity-based compensation, not to set such a ceiling in this Policy. |
| E. | Retirement and Termination of Service Arrangements |
| 14. | Advance Notice Period |
Scinai may provide an Executive Officer, according to his/her seniority in the Company, his/her contribution to the Company’s goals and achievements and the circumstances of retirement a prior notice of termination of up to twelve (12) months in the case of the CEO and six (6) months in the case of other Executive Officers, during which the Executive Officer may be entitled to all of the compensation elements, and to the continuation of vesting of his/her equity-based compensation. Scinai shall be entitled to waive the employment or service of an Executive Officer (including the CEO) during the course of the prior notice period, in whole or in part, provided that it continues to make all of the payments and provide all benefits s/he is due under his/her employment agreement and applicable law. Alternatively, Scinai shall be entitled to terminate the Executive Officer’s (including the Scinai CEO) service without prior notice provided that the Company pays the officer (including the Scinai CEO), on the date of the termination of his employment, payments that shall not be less than the payments he is owed in lieu of the prior notice period (and, without limitation, salary, vacation days and all payments and benefits he/she is due under his/her employment agreement and applicable law).
| 15. | Adjustment Period |
Scinai may provide an additional adjustment period of up to nine (9) months to an Executive Officer, according to his/her seniority in the Company, his/her contribution to the Company’s goals and achievements, and to the CEO, and the circumstances of retirement, during which the Executive Officer may be entitled to all of the compensation elements, and to the continuation of vesting of his/her equity-based compensation.
| 16. | Additional Retirement and Termination Benefits |
Scinai may provide additional retirement and terminations benefits and payments as may be required by applicable law (e.g., mandatory severance pay under Israeli labor laws), or which will be comparable to customary market practices.
| 17. | Non-Compete Grant |
Upon termination of service and subject to applicable law, Scinai may grant to its Executive Officers a non-compete grant as an incentive to refrain from competing with Scinai for a defined period of time. The terms and conditions of the non-compete grant shall be decided by the Board and shall not exceed such Executive Officer’s monthly base salary multiplied by twelve (12).
| 18. | Limitation Retirement and Termination of Service Arrangements |
In addition to the Advance Notice Period, Scinai may provide an adjustment period/retirement payment that will be determined by, among other things, taking into consideration the Executive Officer’s seniority in the Company, his or her performance during employment, his or her contribution to Scinai achieving its goals and the circumstances of the Executive Officer’s retirement or termination. The maximum adjustment period/retirement payment that may be paid to each Executive Officer shall be up to twelve (12) monthly Base Salaries and may only be granted to Executive Officers who have served in Scinai for at least twelve (12) months. The total non-statutory payments under Sections 14-18 shall not exceed the Executive Officer’s monthly base salary multiplied by twenty-four (24).
| F. | Exculpation, Indemnification and Insurance |
| 19. | Exculpation |
Scinai may exempt its directors and Executive Officers in advance for all or any of his/her liability for damage in consequence of a breach of the duty of care vis-a-vis Scinai, to the fullest extent permitted by applicable law.
| 20. | Insurance and Indemnification |
| 20.1. | Scinai may indemnify its directors and Executive Officers to the fullest extent permitted by applicable law, for any liability and expense that may be imposed on the director or the Executive Officer, as provided in the indemnity agreement between such individuals and Scinai, all subject to applicable law and the Company’s articles of association. |
| 20.2. | Scinai will provide directors’ and officers’ liability insurance (the “Insurance Policy”) for its directors and Executive Officers as follows: |
| 20.2.1. | The limit of liability of the insurer shall not exceed the greater of $75 million or 50% of the Company’s shareholders equity based on the most recent financial statements of Scinai at the time of approval by the Compensation Committee; and |
| 20.2.2. | The Insurance Policy, as well as the limit of liability and the premium for each extension or renewal shall be approved by the Compensation Committee (and, if required by law, by the Board) which shall determine that the sums are reasonable considering Scinai’s exposures, the scope of coverage and the market conditions and that the Insurance Policy reflects the current market conditions, and it shall not materially affect the Company’s profitability, assets or liabilities. |
| 20.3. | Upon circumstances to be approved by the Compensation Committee (and, if required by law, by the Board), Scinai shall be entitled to enter into a “run off” Insurance Policy (the “Run-Off Policy”) of up to seven (7) years, with the same insurer or any other insurance, as follows: |
| 20.3.1. | The limit of liability of the insurer shall not exceed the greater of $75 million or 50% of the Company’s shareholders equity based on the most recent financial statements of Scinai at the time of approval by the Compensation Committee; and |
| 20.3.2. | The Run-Off Policy, as well as the limit of liability and the premium for each extension or renewal shall be approved by the Compensation Committee (and, if required by law, by the Board) which shall determine that the sums are reasonable considering the Company’s exposures covered under such policy, the scope of coverage and the market conditions, and that the Insurance Policy reflects the current market conditions and that it shall not materially affect the Company’s profitability, assets or liabilities. |
| 20.4. | Scinai may extend the Insurance Policy in place to include cover for liability pursuant to a future public offering of securities as follows: |
| 20.4.1. | The Insurance Policy, as well as the additional premium shall be approved by the Compensation Committee (and if required by law, by the Board) which shall determine that the sums are reasonable considering the exposures pursuant to such public offering of securities, the scope of cover and the market conditions and that the Insurance Policy reflects the current market conditions, and it does not materially affect the Company’s profitability, assets or liabilities. |
| G. | Arrangements upon Change of Control |
| 21. | The following benefits may be granted to the Executive Officers in addition to the benefits applicable in the case of any retirement or termination of service upon, or in connection with, a “Change of Control” as shall be defined in the respective incentive plan or employment or service agreement: |
| 21.1. | Vesting acceleration of outstanding options or other equity-based awards; |
| 21.2. | Extension of the exercise period of equity-based compensation for Scinai’s Executive Officer for a period of up to one (1) year in case of an Executive Officer other than the CEO and two (2) years in case of the CEO, following the date of service termination; and |
| 21.3. | Up to an additional six (6) months of continued base salary and benefits following the date of service termination (the “Additional Adjustment Period”). For avoidance of doubt, such additional Adjustment Period shall be in addition to the advance notice and adjustment periods pursuant to Sections 14 and 15 of this Policy, but subject to the limitation set forth in Section 18 of this Policy. |
| 21.4. | A cash bonus not to exceed 150% of the Executive Officer’s annual base salary in case of an Executive Officer other than the CEO and 200% in case of the CEO. |
| H. | Board of Directors Compensation |
| 22. | The following benefits may be granted to Scinai’s Board members: |
| 22.1. | All of Scinai’s Board members, excluding the chairman of the Board, may be entitled to an annual cash fee retainer of up to $50,000, committee membership annual cash fee retainer of up to $10,000 and committee chairperson annual cash fee retainer of up to $20,000 (it is being clarified that the payment for the chairpersons is in lieu of (and not in addition) to the payments referenced above for committee membership). The chairperson of Scinai’s Board may be entitled to an annual cash fee retainer of up to $200,000. |
Board members may also receive cash payments of up to $1,500 for attendance at each meeting of the board of directors and at each of its committees whether in person or by teleconference or other electronic means and cash payments of up to $750 for each written consent of the board of directors and of each of its committees.
| 22.2. | Notwithstanding the provisions of Sections 22.1 above, in special circumstances, such as in the case of a professional director, an expert director or a director who makes a unique contribution to the Company, such director’s compensation may be different than the compensation of all other directors and may be greater than the maximal amount allowed under Section 22.1. |
| 22.3. | Notwithstanding the provisions of Sections 22.1 and 22.2 above, the compensation of the Company’s external directors, if elected, shall be in accordance with the Companies Regulations (Rules Regarding the Compensation and Expenses of an External Director), 5760-2000,as amended by the Companies Regulations (Relief for Public Companies Traded in Stock Exchange Outside of Israel), 5760-2000, including in accordance with the relative compensation track of such regulation, all as such regulations may be amended from time to time. |
| 22.4. | Each member of Scinai’s Board (excluding the chairman of the Board) may be granted an initial equity-based award in a value of up to $200,000 and annual grants in a value of up to $150,000 each. The equity-based awards shall vest annually over a period of three (3) years. |
The chairperson of Scinai’s Board may be granted an initial equity-based award in a value of up to $300,000 and annual grants in a value of up to $200,000 each. The equity-based awards shall vest annually over a period of three (3) years. In lieu of an annual grant, the chairperson may receive a one-time grant of 160,000 RSU’s.
| 22.5. | In addition, members of Scinai’s Board may be entitled to reimbursement of expenses in connection with the performance of their duties. |
| 22.6. | It is hereby clarified that the compensation (and limitations) stated under this Section H will not apply to directors who serve as Executive Officers. |
| I. | Miscellaneous |
| 23. | Nothing in this Policy shall be deemed to grant any of Scinai’s Executive Officers or employees or any third party any right or privilege in connection with their employment by the Company. Such rights and privileges shall be governed by the respective personal employment agreements. The Board may determine that none or only part of the payments, benefits and perquisites detailed in this Policy shall be granted and is authorized to cancel or suspend a compensation package or part of it. |
| 24. | An Immaterial Change in the Terms of Employment of an Executive Officer other than the CEO may be approved by the CEO, provided that the amended terms of employment are in accordance with this Policy. An “Immaterial Change in the Terms of Employment” means a change in the terms of employment of an Executive Officer with an annual total cost to Scinai not exceeding an amount equal to two (2) monthly base salaries of such employee. |
| 25. | In the event that new regulations or amendments to laws in connection with Executive Officers’ and directors’ compensation will be enacted following the adoption of this Policy, Scinai may follow such new regulations or legal amendments, even if such new regulations are in contradiction to the compensation terms set forth herein. |
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This Policy is designed solely for the benefit of Scinai and none of the provisions thereof are intended to provide any rights or remedies to any person other than Scinai.
10
Exhibit 4.15
[Unofficial Translation from Hebrew Original]
First Addendum to the Unprotected Lease Agreement from July 10, 2017
Prepared and signed on April 29, 2022
| between | Minrav Group Ltd. 52-0034505 |
(Formerly Unihead Biopark Ltd.)
Hoshem Street 3, Ashdod
(“the Company”)
On the one hand;
| And | BiondVax Pharmaceuticals Ltd. 51-34361 |
Einstein Street 14, Ness Ziona
(“the Tenant”)
On the other hand;
| Whereas: | an unprotected lease agreement, with its extensions and additions (“the Lease Agreement”), was signed between the parties on July 10, 2017, by virtue of which the Lessee leases from the Company laboratories and offices in an area of approximately 1,845 square meters (gross) which constitutes the entire area of the second floor (“the Leased”), in a building in the compound of the medical campus of Hadassah and the Hebrew University of Ein Kerem in Jerusalem (“Structure”), as specified in the Lease Agreement; |
| Whereas: | and the Tenant has approached the Company with a request to regulate the rights to use the parking spaces, all as detailed and subject to the provisions in this Addendum below; |
Therefore, it was declared, conditioned and agreed upon between the parties, as follows:
| 1. | Introduction and Headings |
| 1.1. | The preamble to this Addendum constitutes an integral part of it, and the headings of the sections in this addendum are for convenience only and should not be used in any way to interpret it. |
| 1.2. | All terms appearing in this Addendum and defined in the Lease Agreement shall have the meaning given to them in the Lease Agreement, unless expressly stated otherwise in this Addendum. |
| 2. | Parking spaces |
| 2.1. | Notwithstanding all that is stated in the Lease Agreement, its appendices and/or any other agreement between the parties, it is agreed between the parties that during the Lease Period and the Option Period (to the extent exercised) (as such terms are defined in the Lease Agreement), the Tenant will be entitled to make use of the Parking Spaces (as defined below), under the conditions and for consideration detailed below: |
| 2.1.1. | The Tenant will be entitled to make use of 20 (twenty) parking spaces in total, as detailed below: |
| 2.1.1.1. | 5 (five) covered parking spaces (the “Original Parking Spaces”). |
11 (eleven) regular outdoor parking spaces (the “Outdoor Parking Spaces”).
| 2.1.1.2. | 4 (four) parking spaces located in two consecutive serial parking lots, unmarked, on the basis of availability, only, and in accordance with the instructions of the Company and/or the management company (the “Serial Parking”). |
(“Parking Spaces”)
| 2.1.2. | In respect of granting the right to use the Covered Parking Spaces, the Tenant will pay the Company an agreed usage fee in the sum of NIS 490 (four hundred and ninety NIS) per month for each of the Covered Parking Spaces, plus indexation differences (as of the date of signing this Addendum) and VAT in accordance with the law (the “Fees for the Use of the Covered Parking Spaces”). |
| 2.1.3. | In respect of granting the right to use the External Parking Spaces, the Lessee will pay the Company an agreed usage fee in the sum of NIS 350 (three hundred and fifty NIS) per month for each of the External Parking Spaces, plus indexation differences (as of the date of signing this Addendum) and VAT as required by law (the “Fees for the Use of the External Parking Spaces”). |
| 2.1.4. | In respect of granting the right to use the Tory parking lots, the Tenant will pay the Company an agreed usage fee in the sum of NIS 650 (NIS 650) per month for each of the Serial Parking Spacess, plus indexation differences (as of the date of signing this Addendum) and VAT in accordance with the law (the “Serial Parking Usage Fees”). |
| 2.1.5. | Notwithstanding the aforesaid and subject to the fulfillment of all the Tenant’s obligations in full and on time, it is agreed that the Tenant will be exempt from paying the Usage Fees for three (3) Covered Parking Spaces and Three (3) Outdoor Parking Spaces, only, for the entire Rental Period, until January 1, 2028 (the “Grace Period”), and will begin to pay the Usage Fees for the six (6) aforementioned parking spaces only during the option period (to the extent that it is exercised). For the avoidance of doubt, it is clarified that during the grace period, the tenant will be liable for all other payments that apply to him in accordance with the provisions of the Lease Agreement and this Addendum, including the payment of municipal taxes for all parking spaces, and any other payment that applies to the tenant in accordance with the Lease Agreement and/or the management agreement and/or this Addendum. |
| 2.1.6. | The Company and/or the Management Company reserve the right to change the amount of payment for the use of the Parking Spaces, from time to time, at its sole discretion. In addition, the Tenant declares that he is aware that the number of Parking Spaces that the Company can make available to the Tenant during the Rental Period is limited, based on available space and is subject to the Company’s sole discretion. |
| 2.1.7. | The Company and/or the Client is not obligated to maintain guards or other security measures in any of the areas in the building or outside it, and the existence of guards or other security measures in the building does not create any obligation or liability towards the tenant. The Guards Law, 5727-1967, does not apply to this Agreement. |
| 2.1.8. | For the avoidance of doubt, it is clarified that in addition to the fees for the use of the parking spaces as stated above, the Tenant will bear the payments of general property taxes and/or business property taxes as well as any other taxes, fees, levies and other mandatory payments, whether governmental or inter-municipal, of any kind or kind, in connection with the parking spaces, which apply and/or will apply in the future according to any law to the Tenant and will be paid by him on the legal date to be paid to the authorities. The aforementioned payments will be paid by the Tenant whether imposed directly on the Tenant or on the Company, and the Tenant hereby undertakes to pay his share of the aforementioned payments immediately upon receipt of the payment demand (to the extent that it is imposed directly on the Tenant) or within 7 days of the Company’s demand, to the extent that the taxes are imposed on the Company. |
| 2.1.9. | The provisions of clause 19 of the Lease Agreement will obligate the tenant with regard to the use of the parking spaces. |
| 3. | Miscellaneous |
| 3.1. | All other provisions of the Lease Agreement (for the avoidance of doubt, with its appendices), which have not been changed in the framework of this Addendum, will remain in effect, will also apply to the parking spaces and will bind the parties, with the necessary changes. |
| 3.2. | Each of the parties hereby declares to the other that there is no impediment or restriction, whether by virtue of an agreement, by virtue of the law or otherwise, that prevents or restricts him from entering into this Addendum and/or executing it in accordance with its terms. |
| /s/ | /s/ Amir Reichman | ||
| Minrav Group Ltd. | BiondVax Pharmaceuticals Ltd. | ||
| Company | The Tenant |
Exhibit 4.16
[Unofficial Translation from Hebrew Original]
Addendum 2 to the Lease Agreement of July 10, 2017
Prepared and signed in Tel Aviv on June 3, 2023
| between | Minrav Group Ltd. 52-0034505 |
(Formerly Unihead Biopark Ltd.)
Raoul Wallenberg Street 24, Ziv Tower, Building D, Tel Aviv
(“the Company”)
On the one hand;
| And | BiondVax Pharmaceuticals Ltd. 51346105 |
From Building Minrav Campus Hadassah Ein Karem, Floor 2
(“the Tenant”)
On the other hand;
| Whereas: | an unprotected lease agreement, with its extensions and additions (“the Lease Agreement”), was signed between the parties on July 10, 2017, by virtue of which the Lessee leases from the Company laboratories and offices in an area of approximately 1,845 square meters (gross) which constitutes the entire area of the second floor (“the Leased”), in a building in the compound of the medical campus of Hadassah and the Hebrew University of Ein Kerem in Jerusalem (“Structure”), as specified in the Lease Agreement; |
| Whereas: | And the tenant contacted the Company with a request to lease two (2) additional parking spaces in addition to twenty (20) Parking Spaces (as defined with Addendum No. 1 to the Lease Agreement), which the Tenant leases from the Company; |
| Whereas: | the Company complied with the request of the Tenant to lease two (2) additional parking spaces, all subject to the provisions of the Lease Agreement and the terms of this Addendum as detailed below. |
Therefore, it was agreed, declared and stipulated between the parties as follows:
| 1. | Introduction and Interpretation |
| 1.1. | The preamble and appendices to this addendum are an integral part of it. |
| 1.2. | The headings of the sections have been added for convenience purposes only and will not be used for the interpretation of this Addendum. |
| 1.3. | The terms in this Addendum shall have the meaning set forth in the Lease Agreement, to the extent that they have not been expressly changed and with the required changes. |
| 1.4. | Previous drafts of this Addendum shall have no weight in connection with the interpretation of the Lease Agreement and/or this Addendum and shall not be admissible in any judicial or quasi-judicial proceeding. |
| 2. | Additional Parking |
| 2.1. | The Company hereby leases to the Tenant, and the Tenant leases from the Company two (2) additional unmarked covered parking spaces (the “Additional Parking Spaces”). |
| 2.2. | The provisions of the Lease Agreement, including (but not derogating) the first Addendum to the Lease Agreement, with the necessary changes, will continue to apply to the lease of the Additional Parking Spaces. |
| 3. | Lease Period |
The lease period of the Additional Parking Spaces will begin on June 5, 2023 and end upon the end of the lease period, including the option period (if exercised), as stated in the Lease Agreement (the “Lease Period of the Additional Parking”).
| 4. | Lease Payments |
| 4.1. | The Tenant undertakes to paythe Company during the Lease Period of the Additional Parking lease payments for the Additional Parking Spaces, as detailed below: the Tenant will pay during the Lease Period of the Additional Parking Spaces, including the Option Period (if exercised), for the use of the Additional Parking Lots (i.e., two (2) parking spaces) the sum of NIS 490 (four hundred and ninety New Shekels) for each parking space, and in total, the Tenant will pay lease payments for the use of the Additional Parking Spaces in the sum of NIS 950 (nine hundred and fifty new shekels), plus indexation differences, all together with VAT in law (the “Fees for the Use of the Additional Parking”). |
| 5. | Index |
The Fundamental Index is the Index known at the time of the signing of this Addendum (the “Index”).
| 6. | Insurance |
| 6.1. | For the avoidance of doubt, it is clarified that the insurance obligations that apply to the parties are in accordance with the provisions of section 20 of the Lease Agreement and the appendices of the insurance certificates that were attached to the Lease Agreement as Appendices H1 and H2. |
| 6.2. | Without derogating from the aforesaid, it is agreed that in light of the provisions circular of the Supervisor of Insurance regarding the provision of a uniform version of the insurance approvals (Uniform Insurance Approval) by virtue of the Supervision of Financial Services (Insurance) Law, 5741-1981 and the update of the circular dated February 1, 2023 on the date of signing this Addendum, the Tenant shall provide the Company with updated insurance certificates in the form attached to this Addendum as Appendices A1and A2. |
| 7. | General |
| 7.1. | The provisions of the Lease Agreement, with the necessary changes, will continue to apply to the lease of the Additional Parking Spots and this Addendum. |
| 7.2. | For the avoidance of doubt, it is clarified that in any case of a clear contradiction between the provisions of the Lease Agreement and this Addendum, the provisions of this Addendum will prevail. |
| 7.3. | Any other or additional changes to the Lease Agreement or this Addendum shall be made in writing and signed by the parties, otherwise they shall be invalid. |
And as proof, we have come to the signatory
| /s/ | /s/ Amir Reichman /s/ Mark Germain | ||
| Minrav Group Ltd. | BiondVax Pharmaceuticals Ltd. | ||
| Company | The Tenant |
Exhibit 4.17
CERTAIN IDENTIFIED INFORMATION MARKED ([* * *]) HAS BEEN OMITTED FROM THIS EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED.
[Unofficial Translation from Hebrew Original]
Addendum 3 to the Lease Agreement of July 10, 2017
Prepared and signed in Tel Aviv on July 10, 2023
| between | Minrav Group Ltd. 52-0034505 |
(Formerly Unihead Biopark Ltd.)
Raoul Wallenberg Street 24, Ziv Tower, Building D, Tel Aviv
(“the Company” or “the Lessor”)
On the one hand;
| And | BiondVax Pharmaceuticals Ltd. 51346105 |
JBP Building Hadassah Ein Kerem, Jerusalem
(“the Tenant”)
On the other hand;
| Whereas: | an unprotected lease agreement, with its extensions and additions (“the Lease Agreement”), was signed between the parties it was signed on July 10, 2017, by virtue of which the Lessee leases from the Company laboratories and offices in an area of approximately 1,845 square meters (gross) which constitutes the entire area of the second floor (“the Leased”), in a building in the compound of the medical campus of Hadassah and the Hebrew University of Ein Kerem in Jerusalem (“Structure”), as specified in the Lease Agreement; |
Whereas: and the Tenant applied to the Company with a request to [***];
| Whereas: | and the Company acceded to the Tenant’s request, all subject to the provisions of the Lease Agreement and the terms of this Addendum as detailed below. |
Therefore, it was agreed, declared and stipulated between the parties as follows:
| 1. | Introduction and Interpretation |
| 1.1. | The preamble and appendices to this addendum are an integral part of it. |
| 1.2. | The headings of the sections have been added for convenience purposes only and will not be used for the interpretation of this Addendum. |
| 1.3. | The terms in this Addendum shall have the meaning set forth in the Lease Agreement, to the extent that they have not been expressly changed and with the necessary changes. |
| 1.4. | Previous drafts of this Addendum shall have no weight in connection with the interpretation of the Lease Agreement and/or this Addendum and shall not be admissible in any judicial or quasi-judicial proceeding. |
| 2. | [***] fees |
| 2.1. | Notwithstanding what is stated in the Lease Agreement, [***]. |
| 2.2. | The remainder of the [***]. |
| 2.3. | For the avoidance of doubt, it is clarified that the Tenant undertakes to continue to bear all [***] payments and obligations during the [***], on time and precisely, in accordance with the provisions of the Lease Agreement, including (but not limited to) municipal taxes, electricity consumption, water and any payment to any third party in respect of the leased premises, all in accordance with the provisions of the Lease Agreement, and with the addition of VAT in accordance with the law. |
| 2.4. | Without derogating from the aforesaid, it is agreed that at any time [***], in any case in which the Tenant violates any of the provisions of the Lease Agreement at any time, and does not correct its breach within 7 days from the date of the Lessor’s notice thereof, the Tenant shall [***], immediately upon receipt of the Lessor’s first demand. |
| 3. | Secrecy |
The Tenant undertakes to [***].
| 4. | General |
| 4.1. | For the avoidance of doubt, it is clarified that in any case of a clear conflict between the provisions of the Lease Agreement and this Addendum, the provisions of this addendum will prevail. |
| 4.2. | Any other or additional changes to the Lease Agreement or this Addendum shall be made in writing and signed by the parties, otherwise they shall be invalid. |
| 4.3. | Any breach of any of the provisions of this Addendum will be considered a breach of the Lease Agreement, for all intents and purposes, and will provide the Landlord with all the remedies available to it under the Lease Agreement and/or by law, for such a breach. |
And as proof, we have come to the signatory
| /s/ | /s/ Amir Reichman /s/ Uri Ben-Or | ||
| Minrav Group Ltd. | BiondVax Pharmaceuticals Ltd. | ||
| Company | The Tenant |
Exhibit 4.18
CERTAIN IDENTIFIED INFORMATION MARKED ([* * *]) HAS BEEN OMITTED FROM THIS EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED.
[Unofficial Translation from Hebrew Original]
Addendum 4 to the Lease Agreement of July 10, 2017
Prepared and signed in Tel Aviv on December 15, 2024
| between | Minrav Group Ltd. 52-0034505 |
(Formerly Unihead Biopark Ltd.)
Raoul Wallenberg Street 24, Ziv Tower, Building D, Tel Aviv
(“the Company” or “the Lessor”)
On the one hand;
| And | Scinai Immunotherapeutics Ltd. 51346105 |
(formerly BiondVax Pharmaceuticals Ltd.)
JBP Building Hadassah Ein Kerem, Jerusalem
(“the Tenant”)
On the other hand;
| Whereas: | an unprotected lease agreement, with its extensions and additions (“the Lease Agreement”), was signed between the parties on July 10, 2017, by virtue of which the Tenant leases from the Company laboratories and offices in an area of approximately 1,845 square meters (gross) which constitutes the entire area of the second floor (“the Leased”), in a building in the compound of the medical campus of Hadassah and the Hebrew University of Ein Kerem in Jerusalem (“Structure”), as specified in the Lease Agreement; |
| Whereas: | and the Tenant applied to the Company with a request to [***]; |
| Whereas: | and the Company acceded to the Tenant’s request, all subject to the provisions of the lease agreement and the terms of the Addendum detailed below. |
Therefore, it was agreed, declared and stipulated between the parties as follows:
| 1. | Introduction and Interpretation |
The preamble and appendices to this addendum are an integral part of it.
| 1.1. | The headings of the sections have been added for convenience purposes only and will not be used for the interpretation of this addition. |
| 1.2. | The terms in this Addendum shall have the meaning set forth in the Lease Agreement, to the extent that they have not been expressly changed and with the necessary changes. |
| 1.3. | Previous drafts of this Addendum shall have no weight in connection with the interpretation of the Lease Agreement and/or this Addendum and shall not be admissible in any judicial or quasi-judicial proceeding. |
| 2. | [***]fees |
| 2.1. | Notwithstanding what is stated in the Lease Agreement, [***]. |
To the extent that in practice the Company [***].
| 2.2. | The remainder of the [***]. |
| 2.3. | It is agreed that the rent and management fees paid by the tenant during the period of neglect will be paid to the company as an “ongoing” condition + 45. |
| 2.4. | For the avoidance of doubt, it is clarified that the Tenant undertakes to continue to bear all [***] payments and debts during the [***] as well, on time and precisely, in accordance with the provisions of the Lease Agreement, including (but not limited to) municipal taxes, electricity consumption, taxes and any control over any third party in respect of the Leased Property, all in accordance with the provisions of the Lease Agreement. |
| 2.5. | Without derogating from the aforesaid, it is agreed that at any time [***], in any case in which the Tenant violates any of the provisions of the Lease Agreement and/or the Addendum, and does not correct its breach within7days from the date of the Company’s notice thereof, the Tenant shall [***], immediately upon receipt of the first demand of the Lease. |
| 3. | Secrecy |
The Tenant undertakes to [***].
| 4. | General |
| 4.1. | For the avoidance of doubt, it is clarified that in any case of a clear conflict between the provisions of the Lease Agreement and this Addendum, the provisions of this addendum will prevail. |
| 4.2. | Any other or additional changes to the lease agreement or the addition of a hook shall be made in writing and signed by the parties, otherwise they shall be invalid. |
| 4.3. | Any breach of the provisions of this Addendum will be considered a breach of the Lease Agreement, for all intents and purposes, and will provide the Company with all the remedies available to it under the Lease Agreement and/or by law, for such breach. |
And as proof, we have come to the signatory
| /s/ | /s/ Amir Reichman | ||
| Minrav Group Ltd. | Scinai Immunotherapeutics Ltd. | ||
| Company | The Tenant |
Exhibit 4.19
[Unofficial Translation from Hebrew Original]
Addendum 5 to the Lease Agreement of July 10, 2017
Prepared and signed in Tel Aviv on December 24, 2024
| between | Minrav Group Ltd. 52-0034505 |
(Formerly Unihead Biopark Ltd.)
Raoul Wallenberg Street 24, Ziv Tower, Building D, Tel Aviv
(“the Company” or “the Lessor”)
On the one hand;
| And | Scinai Immunotherapeutics Ltd. 51346105 |
(formerly BiondVax Pharmaceuticals Ltd.)
JBP Building Hadassah Ein Kerem, Jerusalem
(“the Tenant”)
On the other hand;
| Whereas: | an unprotected lease agreement, with its extensions and additions (“the Lease Agreement”), was signed between the parties signed on July 10, 2017, by virtue of which the Tenant leases from the Company laboratories and offices in an area of approximately 1,845 square meters (gross) which constitutes the entire area of the second floor (“the Leased Premises”), and 13 (thirteen) outdoor parking spaces, 2 (two) outdoor double parking spaces and 7 (seven) covered parking spaces, in a building in the compound of the medical campus of Hadassah and the Hebrew University of Ein Kerem in Jerusalem (“Structure”), as specified in the Lease Agreement |
| Whereas: | and the Company declares that it has a leasehold right in a sublease of real estate, including the building, including the right to lease the leased property in accordance with this Addendum; |
| Whereas: | the lease period in the Leased Premises is scheduled to end on the day 31.12.2027; |
| Whereas: | and the Tenant contacted the Company and informed it that it would exercise its right to extend the lease period in the leased property and exercise the option period (as defined in the Lease Agreement), all in accordance with the provisions of the Lease Agreement; |
| Whereas: | the Company acceded to the Tenant’s request, all subject to the provisions of the Lease Agreement and the terms of this Addendum as detailed below. |
Therefore, it was agreed, declared and stipulated between the parties as follows:
| 1. | Introduction and Interpretation |
| 1.1. | The preamble and appendices to this Addendum are an integral part of it. |
| 1.2. | The headings of the sections have been added for convenience purposes only and will not be used for the interpretation of the Zddendum. |
| 1.3. | The terms in this Addendum shall have the meaning set forth in the Lease Agreement, to the extent that they have not been expressly changed and with the necessary changes. |
| 1.4. | Previous drafts of this Addendum shall have no weight in connection with the interpretation of the Lease Agreement and/or this Addendum and shall not be admissible in any judicial or quasi-judicial proceeding. |
| 2. | Rent and management fees |
The lease period in the Leased Premises will be extended for an additional period of 60 (sixty) months (the “Additional Lease Period”) until December 31, 2032, under the same terms as in the Lease Agreement, including with respect to the rent that will be increased in accordance with the provisions of Section 5 of Appendix A to the Lease Agreement.
| 3. | general |
| 3.1. | For the avoidance of doubt, it is clarified that in any clear conflict between the provisions of the Lease Agreement and the Addendum, the provisions of this Addendum will prevail. |
| 3.2. | Any breach of any of the provisions of this Addendum will be considered a breach of the Lease Agreement, for all intents and purposes, and will provide the Company with all the remedies available to it under the Lease Agreement and/or by law, in respect of such breach. |
And as proof, we have come to the signatory
| /s/ | /s/ Amir Reichman /s/ Uri Ben-Or | ||
| Minrav Group Ltd. | Scinai Immunotherapeutics Ltd. | ||
| Company | The Tenant |
Exhibit 4.29
CERTAIN IDENTIFIED INFORMATION MARKED ([* * *]) HAS BEEN
OMITTED FROM THIS EXHIBIT BECAUSE IT IS BOTH (I) NOT
MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED.
BINDING OPTION AGREEMENT CONCERNING THE SALE AND TRANSFER OF ALL QUOTA IN PINCELL S.R.L.
between
[***]
the Sellers
and
PinCell S.r.l.
as Company
and
Scinai Immunotherapeutics sp. z.o.o.
as Scinai SPV
and
Scinai Immunotherapeutics Ltd.
as Scinai
 |
Execution Version March 27, 2025 |
CONTENTS
| SECTION | PAGE | |
| 1. | DEFINED TERMS AND INTERPRETATION | 4 |
| 2. | RIGHT OF DESIGNATION | 10 |
| 3. | CALL OPTION RIGHT | 11 |
| 4. | PLEDGE OVER THE QUOTA AND THE COMPANY ASSETS | 15 |
| 5. | GRANT OF LICENSE | 15 |
| 6. | CONSIDERATIONS | 15 |
| 7. | NO LEAKAGE | 24 |
| 8. | INTERIM PERIOD | 29 |
| 9. | CONDITIONS TO CLOSING | 30 |
| 10. | RUNNING COSTS OF THE COMPANY | 31 |
| 11. | CLOSING | 31 |
| 12. | RIGHT TO WITHDRAW | 33 |
| 13. | SELLERS’ WARRANTIES | 34 |
| 14. | BREACH OF SELLERS’ WARRANTIES | 35 |
| 15. | LIMITATION OF SELLERS’ LIABILITY | 36 |
| 16. | SCINAI’S WARRANTIES AND LIABILITY | 39 |
| 17. | EMPLOYMENT OF EXECUTIVES | 40 |
| 18. | NON-COMPETE, NON-SOLICITATION | 41 |
| 19. | CALL-BACK OPTION | 42 |
| 20. | MISCELLANEA | 44 |
| 21. | GOVERNING LAW AND JURISDICTION | 51 |
|
Execution Version March 27, 2025 |
LIST OF EXHIBITS
| Exhibit (A) | Cap Table |
| Exhibit 3.3.1 | Business Plan |
| Exhibit 4.1 | Deed of Pledge 1 |
| Exhibit 4.2 | Deed of Pledge 2 |
| Exhibit 5.2 | License Agreement |
| Exhibit 10 | Running costs and transaction costs |
| Exhibit 11.2.1(a)(i) | Form of letters of resignation |
| Exhibit 11.2.1(c) | Form of release and discharge and hold harmless |
| Exhibit 13.1 | Sellers’ Warranties |
| Exhibit 15.5.1(a)(ii) | Financial statements of the Company as of December 31, 2024 |
| Exhibit 16.1 | Scinai’s Warranties |
| Exhibit 20.3.3 | Sellers’ proportions for payments |
|
Execution Version March 27, 2025 |
THIS BINDING OPTION AGREEMENT CONCERNING THE SALE AND TRANSFER OF ALL QUOTA IN PINCELL S.R.L. (“Agreement”) is dated March 27, 2025 (the “Signing Date”) and made
BETWEEN:
[***] a private person, [***]– referred to as “CP” –
[***] a private person, [***]– referred to as “AA” –
[***], a private person, [***] – referred to as “AM” –
[***], a private person, [***] – “referred to as “RL” –
| (1) | [***], a private person, [***] |
– referred to as “BB” –
[***], a private person, [***] – referred to as “SP” –
– CP, AA, AM, RL, BB and SP are also referred to collectively as the “Sellers” and each as a “Seller” –
| (2) | PinCell S.r.l., a limited liability company having the form of “innovative SME” (PMI Innovativa) incorporated in Italy, registered with the Companies Register of Milan-Monza-Brianza-Lodi under registration number 03229990365, with its registered office address at Via Visconti di Modrone 18, 20122 Milan, Italy, hereby represented by Mr. Antonino Amato as chief executive officer and who is empowered to sign this Agreement by virtue of resolution of the board of directors dated March 26, 2025 |
– referred to as “Company” –
| (3) | Scinai Immunotherapeutics sp. z.o.o., a company incorporated in Poland, registered with National Court Register, KRS number 0001156276, VAT Code 5253035600, with its registered office address at Warsaw, Krolewska Street 2/32, 00-065, Poland, hereby represented by Amir Reichman as President of the Board of Directors |
– referred to as “Scinai SPV” –
| (4) | Scinai Immunotherapeutics Ltd, a company incorporated in Israel, registered with the Registrar of Companies under registration number 513436105, with its registered office address at Jerusalem BioPark, 2nd floor, Hadassah Ein Kerem Campus, Jerusalem, Israel, hereby represented by Amir Reichman as chief executive officer and who is empowered to sign this Agreement by virtue of resolution of the board of directors dated March 26, 2025 |
– referred to as “Scinai” –
– Sellers, the Company, Scinai SPV and Scinai are also referred to collectively as the “Parties” and individually as a “Party” –
|
Execution Version March 27, 2025 |
PREAMBLE
| (A) | The Sellers are the sole quotaholders of the Company, and the sole holders of granted options under the stock option plan approved by the Company to acquire quota of the Company having, in the overall, a nominal value of Euro 4,262.00 (the “ESOP”), all as provided under the cap table enclosed hereto under Exhibit (A). |
| (B) | The Company carries on the business of pre-clinical stage biotech research focused on the development of PC111, a novel, first-in-class, fully human anti-FasL mAb (“PC111”) for the treatment of Pemphigus, SJS/TEN and other underserved skin disorders (the “Business”). |
| (C) | Scinai is a biopharmaceutical company focused on developing, manufacturing, and commercializing innovative inflammation and immunology (I&I) biological products primarily for the treatment of autoimmune and infectious diseases, whose shares are listed on the Nasdaq (ticker SCNI). |
| (D) | Scinai SPV is a newly incorporated company under Polish Law, whose corporate capital is entirely owned by Scinai, for the purposes of filing a request before the Polish government for a funding of at least Euro 11 million for preferential support in the European Funds for Modern Economy Program for further pre-clinical development of PC111 and for conducting such pre-clinical development of PC111. |
| (E) | Scinai and the Sellers agreed upon a non-binding term sheet (the “Term Sheet”) which provides the main terms and conditions of a transaction according to which (i) Scinai will have an option right, exercisable upon the occurrence of certain conditions, to purchase (directly or through a subsidiary fully owned directly by Scinai and designated by the latter), and the Sellers will be bound to sell, all the quota in the Company (including the quota arising from the exercise of the ESOP - jointly as the “Quota”), which, after completion of the Closing Actions (as defined below), will represent the entire corporate capital of the Company, and, therefore, all right and title to the Company Assets (as hereinafter defined) (the “Acquisition”), (ii) subject to the Closing of the Acquisition, Scinai will develop the Business, and (iii) at Signing Date, the Company and Scinai SPV will sign a binding license agreement with respect to the Company Assets to allow Scinai SPV to file for the obtainment of a grant before the Polish Government to fund the development of PC111 and conduct such development of PC111, which license shall automatically terminate in case the Closing of the Acquisition does not occur (the “Transaction”). |
| (F) | Following the Term Sheet, Scinai, on the basis of its own assumptions, evaluations and projections, has confirmed to the Sellers its willingness to purchase the Quota (directly or through the Buyer, as defined below), and the Sellers are now willing to grant Scinai with the option right for the purchase of the Quota, all on the terms and subject to the conditions set forth in this Agreement. |
|
Execution Version March 27, 2025 |
NOW IT IS AGREED as follows:
1. DEFINED TERMS AND INTERPRETATION
| 1.1 | Definitions |
In addition to the other terms and expressions defined elsewhere in this Agreement, in this Agreement each of the terms listed below has the meaning given to it opposite to such term:
|
“AA” |
Introductory Section (2). | |
| “AA Quota” | Section 3.1.1(b). | |
| “Accounting Principles” | means the rules of the Civil Code dealing with annual financial statements interpreted and complemented according to the accounting principles as issued by the Organismo Italiano di Contabilità (OIC) and by the Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili, applied consistently with past practice of the Company. | |
| “Affiliate” | means any company, directly or indirectly, controlled by, controlling or under common control with the referred company, while the term “control” means (i) direct or indirect ownership of more than fifty percent (50%) of the voting securities of a legal entity, or (ii) possession, directly or indirectly, of the power to elect the majority of the board of directors of that entity. | |
| “Agreement” | Introductory Section. | |
| “AM” | Introductory Section (3). | |
| “AM Quota” | Section 3.1.1(c). | |
| “Applicable Period” | Section 18.1. | |
| “Authority” | means any supranational, EU, federal, state, municipal, local or other governmental department, commission, board, bureau, agency or instrumentality, or any administrative, judicial or arbitration court or panel. | |
| “BB” | Introductory Section (5). | |
| “BB Quota” | Section 3.1.1(e). | |
| “Business” | Preamble Paragraph (B). | |
| “Business Day” | means any day other than Friday, Saturday, Sunday, and any other day on which banking institutions in Milan, Italy and/or Jerusalem, Israel are not open for business. | |
| “Buyer” | means Scinai or, in the event a Designation Notice is delivered according to Section 2.1, the Designee. | |
| “Call-Back Option” | Section 19.1. | |
| “Civil Code” | means the Italian civil code, as approved by the Royal Decree dated 16 March 1942, No. 262, as subsequently amended. |
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| “Claim” | Section 15.1.1. | |
| “Clinical Studies” | Section 6.2 | |
| “Clinical Study” | Section 6.2. | |
| “Closing” | means the execution and exchange of all the documents and agreements and the performance and consummation of all the obligations, actions and transactions set out under Section 11.2. | |
| “Closing Actions” | Section 11.2. | |
| “Closing Condition” | Section 9.1. | |
| “Closing Date” | Section 11.1. | |
| “Combination Product” | Section 6.3. | |
| “Commercialization” and “Commercialize” | Section 6.2. | |
| “Commercially Reasonable Efforts” | Section 3.3.1. | |
| “Commercial Sale” | Section 6.3. | |
| “Company” | Introductory Section (7). | |
| “Company Assets” | means, without limitation, all granted patents, patent applications and know-how related to PC111 and all derivatives, new versions, and new generations (including combinations, multi specifics, fragments, nanobodies, etc.) targeting FasL, the FasL mouse model, all related regulatory filings and regulatory designations such as Orphan Status, and all data compiled to date. | |
| “Company Executives” | Section 17.1. | |
| “CP” | Introductory Section (1). | |
| “CP Quota” | Section 3.1.1(a). | |
| “Consideration” | Section 6.1. | |
| “Development” and “Develop” | Section 6.2. | |
| “Disclosed” | means, in respect of any Sellers’ Warranty, fairly disclosed to the Buyer in the Annexes to the Sellers’ Warranties or in the Updated Disclosure Schedule delivered to the Buyer in accordance with the terms of this Agreement, in each case, in such manner that a professional purchaser assisted by expert advisers would be reasonably able to conclude out of such fact, matter or other information the underlying issue, uncertainty or risk. | |
| “Dispute” | Section 21.2. |
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| “Earmarked Funds” | Section 6.3.1(a)(i)(aa). | |
| “ESOP” | Preamble Paragraph (A). | |
| “Fair Market Value” | means an amount equal to the consideration that an unrelated and bona fide third party, acting in good faith, would pay in an arm’s length transaction, determined in accordance with the appropriate methodologies applicable in similar transactions for companies operating in the same or similar businesses. | |
| “Force Majeure” | Section 20.7 | |
| “Golden Power Authority” | means the presidency of the Italian Council of Ministries (Presidenza del Consiglio dei Ministri) or any other office, department or branch of the Italian Government competent to issue and release the clearance under the Golden Power Law. | |
| “Golden Power Clearance” | means the obtainment of the clearances, approvals and consents required to be obtained by the Buyer and by the Company pursuant to the Golden Power Law, each such decision approving, not opposing or confirming that the transactions contemplated hereunder do not fall within the scope of the Golden Power Law or do not constitute a prejudice for the national interests, or the lapse or termination (as appropriate) of any and all necessary waiting and time periods under the applicable Laws (when such lapse or termination equals consent), by the Golden Power Authority, in order to permit (i) the granting of the License and (ii) the Sellers and Buyer performing the Transaction. | |
| “Golden Power Law” | means the Law Decree no. 56 dated 11 May 2012, as subsequently amended and integrated, together with all connected or subordinated implementing decrees and regulations. | |
| “Grant” | means the awarding of the funding amount (for at least Euro 11,000,000.00 (eleven million)) applied for by Scinai SPV at the Polish government for preferential support in the European Funds for Modern Economy Program for further pre-clinical/clinical development of PC111 without any conditions different from (i) providing Euro 3 million in matching money by Scinai SPV and/or Scinai and (ii) requiring Scinai SPV to spend no more than 30% of the awarded amount in Poland. | |
| “Independent Expert” | means an independent neutral expert from a recognized audit firm with Milan office agreed by the Sellers and the Buyer within 10 (ten) Business Days of either Party requesting in writing a decision by an Independent Expert according to this Agreement. In case of failure by the Parties to reach such agreement, then either Party can request the President of the Tribunal of Milan (“Presidente del Tribunale di Milano”) to select the Independent Expert among accounting firms of international standing and reputation (having offices in Italy), after allowing sufficient time for the hearing of the other Parties. |
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| “Indication” | Section 6.2. | |
| “Leakage” | Section 7.2.15(a). | |
| “License” | Section 5.1. | |
| “Loss” | means any damage (danno), liability, loss, costs and expenses (including, without limitation, reasonable legal costs and expenses) incurred or suffered by the Buyer and/or the Company to be compensated or indemnified, as defined pursuant to Article 1223 (Risarcimento del danno) of the Civil Code, but excluding any loss of profit (lucro cessante). | |
| “Net Sales” | Section 6.3. | |
| “Notary Public” | means Lucia Folladori, notary public in Milan or any replacement to be agreed by the Parties. | |
| “Option Right” | Section 3.1.1 | |
| “Option Conditions” | Section 3.2.1 | |
| “Option Notice” | Section 3.5. | |
| “Parties” | Introductory Section. | |
| “Party” | Introductory Section. | |
| “PC111” | Preamble Paragraph (B). | |
| “Permitted Leakage” | Section 7.2.15(b). | |
| “Phase 1 Clinical Study” | Section 6.2. | |
| “Phase 2 Clinical Study” | Section 6.2. | |
| “Phase 3 Clinical Study” | Section 6.2. | |
| “Product” | Section 6.2. | |
| “Quota” | Preamble Paragraph (E). | |
| “Regulatory Approval” | Section 6.2. | |
| “Regulatory Authority” | Section 6.2. | |
| “Regulatory Requirements” | Section 20.3.1 | |
| “Relevant Person” | Section 20.9.2. | |
| “Rescission” | Section 12.2 |
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| “Restricted Person” | Section 18.2.1(a). | |
| “Required Resubmission” | Section 3.6 | |
| “RL” | Introductory Section (4). | |
| “RL Quota” | Section 3.1.1(d). | |
| “RSUs” | Section 17.2(b). | |
| “Scinai” | Introductory Section (9). | |
| “Scinai SPV” | Introductory Section (8). | |
| “Scinai’s Warranties” | Section 16.1. | |
| “Sellers” | Introductory Section. | |
| “Sellers’ Knowledge” | Section 1.2.1. | |
| “Sellers’ Warranties” | Section 13.1. | |
| “Sellers’ Warranty” | Section 13.1. | |
| “Signing Date” | Introductory Section. | |
| “SP” | Introductory Section (6). | |
| “SP Quota” | Section 3.1.1(f). | |
| “Sublicense Consideration” | Section 6.3.1(a)(i)(bb). | |
| “Term Sheet” | Preamble Paragraph (E). | |
| “Third-Party Claim” | Section 15.8. | |
| “Transaction” | Preamble Paragraph (E). | |
| “VAT” | Section 6.8. | |
| “Warranty Breach” | Section 14.2.1. |
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| 1.2 | Interpretation |
| 1.2.1 | Where any statement is qualified as being limited by the “Sellers’ Knowledge”, the statement is deemed to be given to the actual knowledge which the Sellers had at the Signing Date. Where any statement is qualified as being limited by the “Buyer’s Knowledge”, the statement is deemed to be given to the actual knowledge which the Buyer had at the Signing Date. |
| 1.2.2 | The table of contents and headings and sub-headings of this Agreement are for convenience only and do not affect the construction of this Agreement. |
| 1.2.3 | The words “other”, “include”, “including” and “in particular” do not connote limitation in any way. |
| 1.2.4 | References to recitals, annexes, Exhibits, schedules, Sections and sub-Sections are to (respectively) recitals to, annexes to, Exhibits to, schedules to and Sections and sub-Sections of this Agreement (unless otherwise specified) and references within an Exhibit or schedule to paragraphs or annexes are to paragraphs or annexes of that Exhibit or schedule (unless otherwise specified). |
| 1.2.5 | Unless otherwise provided for in this Agreement, any reference to “writing” or “written” includes any legible reproduction of words. |
| 1.2.6 | Any amount expressed in Euro, to the extent that it requires in whole or in part to be expressed in any other currency, is deemed for that purpose to have been converted into the relevant currency by applying the exchange rate of the European Central Bank of the second (2) Business Days before the relevant due date as set out in this Agreement. |
| 1.2.7 | The singular shall include the plural and vice versa. |
| 1.2.8 | Recitals of and Schedules to this Agreement constitute an integral and essential part of this Agreement. |
| 1.2.9 | The Parties have participated jointly in the negotiation and drafting of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof or construction shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement |
| 1.2.10 | Where in this Agreement an Italian term is given in italics or in italics and in brackets after an English term and there is any inconsistency between the Italian and the English, the meaning of the Italian term shall prevail. |
| 1.2.11 | The words “shall cause” or “shall procure that” (or any similar expression) and, in general, any reference to actions to be taken (or not taken) by a Person which is not a Party to this Agreement shall be construed as a “promessa dell’obbligazione o del fatto del terzo” in accordance with article 1381 of the Civil Code. |
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| 1.2.12 | Any reference in this Agreement to a “day” or number of “days” (without the explicit qualification of Business Day(s)) shall be interpreted as a reference to a calendar day or number of calendar days. When calculating the period of days before which, within which or following which any act is to be done, or step taken, under this Agreement, the day that is the reference date in calculating such period shall be excluded. If the last day of such period is not a Business Day, the relevant period shall end on the next succeeding Business Day. Unless otherwise expressly indicated, any period of time expressed in months shall be calculated under article 2963, paragraphs 4 and 5 (Computo dei termini di prescrizione) of the Civil Code. |
2. RIGHT OF DESIGNATION
| 2.1 | Scinai may designate in writing Scinai SPV or a wholly owned subsidiary of Scinai (each, the “Designee”) to exercise the Option Right, and thus to purchase the Quota from the Sellers, provided that such designation shall be made in accordance with the following provisions: |
| ( ) | the Designee shall be (directly or indirectly) wholly owned (at the time of designation and also at the Closing Date) by Scinai; |
| (a) | anything in Article 1403 of the Civil Code to the contrary notwithstanding, the designation shall be deemed validly made if notified in writing to the Sellers together with the written unconditional acceptance by the Designee of the designation and all the terms and conditions of this Agreement, including the express acceptance of the arbitration clause contained in Section 21 (the “Designation Notice”); |
| (b) | Scinai shall deliver to the Sellers the Designation Notice together with the Option Notice. The right to designate shall be under penalty of forfeiture (decadenza), i.e. the Designation Notice can only be provided together with the Option Notice and a designation of a Designee by Sciani at any other time is not possible; |
| (c) | the Designee shall acquire all rights and assume all obligations of Scinai under this Agreement effective as of the Option Notice. Without prejudice to letter (e) below, following the receipt by the Sellers of the Designation Notice any reference to Scinai under this Agreement shall be construed as a reference to the Designee, except for: |
| (i) | any reference to Scinai under Section 16 (Scinai’s Warranties), Section 20.5 (Confidentiality, Announcements), Section 20.7 (Notices and Communications) and Section 21 (Governing Law and Jurisdiction), which shall be construed as a reference to both Scinai and the Designee; |
| (ii) | any reference to Scinai under Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 5.3, 6, 7.2.15, 8.2, 8.3, 11.2, 17, 19.4, 19.12, 20.1, 20.2, 20.3.3, 20.5.4, and 20.9.2. which shall continue to be construed as a reference to Scinai; and |
| (d) | following the exercise of its right of designation under this Section 2, Scinai shall remain jointly and severally liable with the Designee for the performance of any obligations arising under, or in connection with, this Agreement (including the payment of the Consideration and the Additional Payments). |
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3. CALL OPTION RIGHT
| 3.1 | Option right |
| 3.1.1 | At the terms and conditions set forth under this Section 3, each Seller hereby irrevocably grant to Scinai, which accepts, an irrevocable call option right, pursuant to article 1331 of the Civil Code, to be exercised by Scinai (or by the Designee) within January 15, 2026 and subject to fulfilment of the Option Conditions, for the purchase by the Buyer of all (and not less than all) the Quota owned by the Sellers in the corporate capital of the Company with all rights and obligations attaching to it, including the rights to any profits or dividends for the current year and to the extent not yet distributed for previous years (the “Option Right”). In particular: |
| ( ) | CP grants to Scinai the Option Right to purchase (1) all its Quota owned in the Company having a nominal value of [***] and (2) all its Quota that will derive from the exercise of its portion of ESOP that will have a nominal value of [***] (the “CP Quota”); |
| (a) | AA grants to Scinai the Option Right to purchase (1) all its Quota owned in the Company having a nominal value of [***] and (2) all its Quota that will derive from the exercise of its portion of ESOP that will have a nominal value of [***] (the “AA Quota”); |
| (b) | AM grants to Scinai the Option Right to purchase (1) all its Quota owned in the Company having a nominal value of [***] and (2) all its Quota that will derive from the exercise of its portion of ESOP that will have a nominal value of [***] (the “AM Quota”); |
| (c) | RL grants to Scinai the Option Right to purchase (1) all its Quota owned in the Company having a nominal value of [***] and (2) all its Quota that will derive from the exercise of its portion of ESOP that will have a nominal value of [***] (the “RL Quota”); |
| (d) | BB grants to Scinai the Option Right to purchase (1) all its Quota owned in the Company having a nominal value of [***] and (2) all its Quota that will derive from the exercise of its portion of ESOP that will have a nominal value of [***] (the “BB Quota”); |
| (e) | SP grants to Scinai the Option Right to purchase (1) all its Quota owned in the Company having a nominal value of [***] and (2) all its Quota that will derive from the exercise of its portion of ESOP that will have a nominal value of [***] (the “SP Quota”). |
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| 3.1.2 | Scinai hereby accepts the grant of the Option Right to purchase the Quota as set out in Section 3.1.1. |
| 3.2 | Option Right Conditions |
| 3.2.1 | The Option Right shall only be exercisable by Scinai (to purchase the Quota directly or through the Designee) if both the following conditions (the “Option Conditions”) have been fulfilled before and including December 31, 2025: |
| ( ) | the Sciani SPV having been awarded the Grant (i.e. not only on a provisional basis, but rather only subject to acceptance by Scinai SPV and disregarding any terms and conditions as well as funding authority’s rights to revoke/withdraw and request repayment of the Grant) within December 31, 2025 and provided the Sellers with evidence in writing of the awarding of the Grant; |
or, alternatively
| (a) | the Buyer having secured within December 31, 2025 by any other means an amount equal to or exceeding US$ 3,000,000.00 (three million) of own dedicated funds, or of third-party or funding authority, to be specifically and irrevocably designated and committed to fund the development of PC111 pursuant to the Business Plan, and provided to the Sellers (1) evidence in writing of having secured such funds, by delivering to the Sellers a statement issued by the Buyer’s bank evidencing that such amount is credited on the Buyer’s bank account, and (2) a commitment signed by the Buyer to use such amount to fund the development of PC111 pursuant to the Business Plan; |
and
| (b) | Scinai having paid when due and payable, and Sellers having received, the amounts provided under Section 6.1.1. |
| 3.3 | Collaboration Duties to achieve Option Conditions |
| 3.3.1 | Scinai shall use its Commercially Reasonable Efforts to raise the US$ 3,000,000.00 (three million) funding provided under Section 3.2.1 and the additional capital necessary to develop the Company Assets in accordance with the development plan attached as Exhibit 3.3.1, as it may be amended from time to time (the “Business Plan”) to reasonably reflect considerations with respect to the safety and efficacy of PC111, the costs to develop it, the competitiveness of alternative or competing compounds in the same Indication(s), the anticipated or, if applicable, actual patent claim structure and the nature and extent of the market exclusivity in the Indication(s) for which PC111 is developed (including patent coverage and regulatory exclusivity), the likelihood of regulatory approval, the expected coverage and reimbursement by payers in those territories (health funds, private health insurance and government health insurance such as Medicaid and Medicare in the USA), its expected profitability, competing product opportunities in the same field, and all other similarly relevant factors. |
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| 3.3.2 | In this Agreement, “Commercially Reasonable Efforts” means the efforts that a reasonable entity in the pharmaceutical industry, similar in size and operations to Scinai, is expected to commit to achieving the relevant objective, where “reasonable” implies good faith business judgments and “commercial” implies the goal of making a profit or financial gain. Commercially Reasonable Efforts shall be determined also considering that, in the context of raising funds, the factors relevant for amending the Business Plan are also relevant with respect to availability of capital on the market as well as considering market conditions for biotech companies and for pre-clinical assets with limited patent coverage. |
| 3.3.3 | AA, CP, RL and BB will use their Commercially Reasonable Efforts to assist Scinai with respect to capital raising for aspects concerning PC111, including reasonable support in the preparation of grant applications, investor presentations, and attendance at meetings (at Scinai’s expenses) and/or calls with respect to any of the foregoing, but in any event limited to aspects concerning PC111. Reasonable costs incurred by AA, CP, RL and BB in performing this duties will be reimbursed by Scinai upon prior approval of Scinai and presentation of receipts in accordance with Scinai’s practices. |
| 3.3.4 | The Parties agree, clarify and acknowledge that it shall be in Scinai’s sole discretion the exercise of the Option Right (subject to satisfaction of the Option Conditions). Scinai and Scinai SPV shall not be liable towards Sellers in any way (e.g., for any costs, expenses, damages or other liabilities) if Scinai in its sole discretion decides not to exercise the Option. |
| 3.4 | Expiry of the Option Right |
If the Option Conditions are not fulfilled by December 31, 2025 (including), or if, despite having fulfilled by (and including) December 31, 2025, Scinai does not exercise the Option Right by delivering the Option Notice pursuant to Section 3.5 by (and including) January 15, 2026, this Agreement (including the License Agreement) shall automatically terminate and the Parties shall be released from all obligations hereunder, provided that (i) nothing in this Section 3.4 shall relieve any Party from any liability in case of breach of such Party’s obligations hereunder, and (ii) this Section 3.4, Section 20 (Miscellanea) and Section 21 (Governing Law and Jurisdiction) shall survive any termination of this Agreement.
| 3.5 | Exercise of the Option Right by Scinai |
If the Option Conditions are fulfilled by no later than December 31, 2025 (including), at any time prior to, or on, December 31, 2025, Scinai will be entitled to exercise the Option Right by means of a written notice submitted to the Sellers no later than by (and including) January 15, 2026 (i) containing Scinai’s declaration to exercise the Option Right, and (ii) if the purchase of the Quota will not be performed by Scinai directly but through the Designee, attaching the Designation Notice (the “Option Notice”).
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| 3.6 | Shifting of Time limits |
The Parties acknowledge that the Polish government may refuse Scinai SPV’s application for the Grant and/or may request or recommend that Scinai SPV resubmits the application for the Grant in light of the pending Golden Power Clearance (“Required Resubmission”) and in such situation resubmission by Scinai SPV of the application for the Grant is expected to occur until end of June 2025. In such situation of Required Resubmission, and should Scinai SPV actually resubmit the application for the Grant before June 30, 2025, the Parties hereby agree that the time limit for fulfilling the Option Conditions shall be postponed automatically by 3 (three) months until March 31, 2026 and the exercise of the Option by Scinai shall be made until April 15, 2026. For the avoidance of doubt, in the situation of Required Resubmission, any reference in this Agreement -whether direct or indirect - to time limits related to the Option and its exercise shall be understood as subject to the dates specified in the preceding sentence.
| 3.7 | Option Right Closing |
| 3.7.1 | As a result of the receipt by the Sellers of the Option Notice under Section 3.5, a preliminary binding sale and purchase agreement (contratto preliminare di compravendita) relating to the Quota shall be deemed to be entered into by the Sellers, on one side, and the Buyer, on the other side, pursuant to which, subject to the satisfaction of the Closing Condition, each Seller shall be bound to sell its Quota, and the Buyer shall be bound to purchase such Quota. In particular: |
| ( ) | CP shall sell, and the Buyer shall purchase, the CP Quota; |
| (a) | AA shall sell, and the Buyer shall purchase, the AA Quota; |
| (b) | AM shall sell, and the Buyer shall purchase, the AM Quota; |
| (c) | RL shall sell, and the Buyer shall purchase, the RL Quota; |
| (d) | BB shall sell, and the Buyer shall purchase, the BB Quota; |
| (e) | SP shall sell, and the Buyer shall purchase, the SP Quota. |
| 3.7.2 | The completion of the sale and purchase of the Quota as a consequence of the exercise of the Option Right shall take place, subject to the satisfaction of the Closing Condition, on the Closing Date pursuant to Section 11. |
| 3.7.3 | Subject to the satisfaction of the Closing Condition, at the Closing Date each Seller shall sell all its Quota to the Buyer, including the Quota deriving from the exercise of its portion of ESOP. To this aim, each Seller undertakes to exercise at the Closing Date its option rights under the ESOP granted as provided under Exhibit (A). After the completion of the Closing Actions, there will be no outstanding securities, nor any agreements or understandings to issue any securities, in the Company other than the Quota. Sellers agree that any option right under the ESOP which has not been exercised at the Closing Date shall be deemed expired between the Sellers and the Company and in such case the relevant Seller irrevocably waives such Seller’s option right under the ESOP with effect as of Closing Date. |
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| 3.7.4 | The Sellers shall not enter into any agreement with a third party regarding the sale, transfer, assignment, pledge, encumbrance of the Quota or any similar transaction hindering the consummation of the Closing. |
4. PLEDGE OVER THE QUOTA AND THE COMPANY ASSETS
| 4.1 | On the Signing Date, the Sellers shall pledge all the Quota and the Company Assets in favour of Scinai by entering into, and causing the Company to entering into, and performing all the relevant formalities thereto needed, the deed of pledge hereto provided under Exhibit 4.1 (the “Deed of Pledge 1”) to secure the Buyer’s interest in the Option Right. |
| 4.2 | On the Closing Date, the Buyer shall pledge all the Quota and the Company Assets in favour of the Sellers by entering into, and causing the Company to entering into, and performing all the relevant formalities thereto needed, the deed of pledge hereto provided under Exhibit 4.2 (the “Deed of Pledge 2”) to secure the Sellers’ interest in the Call-Back Option. |
5. GRANT OF LICENSE
| 5.1 | With effect from and subject to obtainment of the Golden Power Clearance, the Company hereby grants to Scinai SPV a fully paid up, sole, royalty-free, perpetual, worldwide, irrevocable, except in the cases set out in Section 5.3, non-transferable right to use the Company Assets, in particular but not limited to the intellectual property and know-how listed under the License Agreement, for the purpose of filing for (1) the obtainment of the Grant and (2) the purpose of further development of PC111 in accordance with the Business Plan to be agreed upon by the Company and Scinai SPV and (3) other purposes contemplated under this Agreement (the “License”). |
| 5.2 | The further conditions of the License are set out in the Sole License Agreement attached hereto as Exhibit 5.2 (the “License Agreement”). |
| 5.3 | The License (a) is entered into in the interest of the Sellers as well pursuant to Article 1411 of the Civil Code (and cannot be amended and/or transferred without Sellers’ consent) and (b) will automatically terminate if (i) this Agreement is terminated in accordance with its terms, (ii) the Closing does not occur for any reason, and (iii) in the event the Closing occurs, if the Call-Back Option is exercised in accordance with Section 19 and (iv) in the event of any Rescission in accordance with Section 12. The Parties clarify that the terms and conditions of the License and the License Agreement might be amended after the Closing according to the License Agreement and such amendment shall not be construed or deemed a violation of Sellers’ interest and shall not result in any liability of Company, Scinai or Buyer vis-à-vis Sellers. |
6. CONSIDERATIONS
| 6.1 | Consideration for the Option Right |
| 6.1.1 | The aggregate consideration payable by Scinai to each Seller for the granting of the Option Right and to the Company for the grant of the License, to be intended also as consideration at the Closing Date for the sale and purchase of the Quota if the Closing is completed (the “Consideration”), amounts to overall [***] ([***]) in cash to be paid as follows: |
| ( ) | [***] ([***]) to be paid [***]; |
| (a) | [***] ([***]) to be paid |
| (i) | in 2 (two) equal installments, the first one to be paid no later than [***], and the second one to be paid no later than [***], but in any event both these instalments shall be paid before the Closing Date (also should this occur before [***]); or alternatively |
| (ii) | in the situation of Required Resubmission and actual resubmission of the application for the Grant before [***], in 3 (three) equal installments, the first one to be paid no later than [***], the second one to be paid no later than [***], and the third one to be paid no later than [***], but in any event all these installments shall be paid before the Closing Date (also should this occur before [***]5), |
it being understood that Scinai is entitled to decide in its sole discretion to exercise the Option Right or terminate at any time this Agreement and if the Option Right is not exercised and the Agreement is terminated either by Scinai according to Section 6.1.2 or, as the case may be, by the Sellers according to Section 6.1.3, the Sellers shall be entitled to (y) retain the amounts of the Consideration which Scinai already paid before the termination, and (z) receive an additional payment by Scinai in the amount of [***] ([***]) if the full amount of all installments under Section 6.1.1(b) has not been already paid to the Sellers at the time of the termination, except in the event the termination will occur pursuant to Section 12.2, in which event the Sellers shall be only entitled to retain the amounts of the Consideration which Scinai already paid before the termination/ withdrawal pursuant to Section 12.2, without prejudice for the Buyer and/or Scinai to claim pursuant to Section 12.3.3 and within the limits thereto provided.
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| 6.1.2 | Scinai and Scinai SPV shall be entitled to terminate this Agreement (including the License Agreement) with immediate effect by delivering a notice to the Sellers at any time prior to the Option Notice. |
| 6.1.3 | In case Scinai fails to pay to the Sellers, partially or totally, the Consideration by the due dates provided under Section 6.1.1, the Sellers shall be entitled to terminate this Agreement (including the License Agreement) with immediate effect by delivering a written notice to Scinai as follows: |
| ( ) | in case of failure of Scinai to pay the instalment under Section 6.1.1(a), by delivering a written reminder notice to Scinai to pay the instalment within 10 (ten) Business Days after receipt of such reminder notice and non-payment by Scinai within the afore-mentioned cure period; and |
| (a) | in case of failure of Scinai to pay any of the instalments under Section 6.1.1(b)(i) – if applicable, by delivering a written reminder notice to Scinai to pay the applicable instalment within 10 (ten) Business Days after receipt of such reminder notice, and non-payment by Scinai within the applicable cure period mentioned before, and |
| (b) | in case of failure of Scinai to pay any of the instalments under Section 6.1.1(b)(ii) – if applicable, by delivering a written reminder notice to Scinai to pay the applicable instalment within 10 (ten) Business Days after receipt of such reminder notice, and non-payment by Scinai within the applicable cure period mentioned before, |
and in such an event - as well as in the event provided under Section 6.1.2, the Parties shall be released from all obligations hereunder (including the Additional Payments and not attending the Closing), provided that (i) nothing in this Section 6.1.3 shall relieve any Party from any liability in case of breach of such Party’s obligations (other than the payment obligations) hereunder, and (ii) this Section 6.1.3, Section 20 (Miscellanea) and Section 21 (Governing Law and Jurisdiction) shall survive any termination of this Agreement.
| 6.2 | Milestone Payments |
| 6.2.1 | In addition to the Consideration, the Buyer shall pay to the Sellers, as conditioned variable consideration for their respective Quota, the additional payments provided in the table below if and to the extent due pursuant to this Section 6.2.1 (the “Milestone Payments”), which shall be paid by the Buyer to the Sellers within thirty (30) Business Days after (i) achievement of the respective milestone event as provided in the below table (the “Milestone Event”) as it will be confirmed by the Buyer, which shall provide this confirmation without undue delay but no later than thirty (30) Business Days after achievement of the respective Milestone Event, and (ii) receipt by Buyer of a proper invoice with respect to the relevant Milestone Payment: |
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Development and Regulatory Milestone Events for PC111 |
Milestone Payment | |||
| 1 | [***] | [***] | ||
| 2 | [***] | [***] | ||
| 3 | [***] | [***] | ||
| 4 | [***] | [***] | ||
| 5 | [***] | [***] | ||
| 6 | [***] | [***] | ||
| 7 | [***] | [***] | ||
| 8 | [***] | [***] | ||
| 9 | [***] | [***] | ||
| 10 | [***] | [***] | ||
| 11 | [***] | [***] | ||
| Total Potential Milestone Payments with all accelerated or conditional approvals | [***] | |||
| Total Potential Milestone Payments with all full approvals only | [***] | |||
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| 6.2.2 | With reference to the Milestone Payments, the Parties agree the following: |
| ( ) | the Milestone Payments shall be payable only [***]; |
| (a) | in the case that Scinai or its Affiliate decides to [***]; |
| (b) | in the case that Scinai or its Affiliate decides to [***]; |
| (c) | with respect to Milestone Event no. 10 and 11 under the table above [***]: |
| (i) | when for the first time the reported annual Net Sales achieve US$ [***] ([***]), an amount equal to [***]; and |
| (ii) | when for the first time the reported annual Net Sales achieve US$ [***] ([***]), an amount equal to [***], |
it being further understood that:
| ( ) | such amounts shall be paid by the Buyer when the achievement of the annual Net Sales thresholds provided above are reported in the relevant financial statements, financial reports or otherwise in the accounts of Scinai and/or its Affiliates; |
| (a) | if the [***] are paid and label extensions that would otherwise qualify for a Milestone Payment pursuant to Milestone Events under points 10 and/or 11 of the table above are subsequently achieved, such Milestone Payment [***]. |
| 6.2.3 | The Parties agree that the defined terms under Section 6 shall have the following meaning in this Agreement: |
“Clinical Studies” means collectively Phase 1 Clinical Studies, Phase 2 Clinical Studies and Phase 3 Clinical Studies (or a combination thereof, e.g. Phase 1/2a Clinical Studies or Phase 2b/3 Clinical Studies).
“Clinical Study” means any of a Phase 1 Clinical Study, a Phase 2 Clinical Study, or a Phase 3 Clinical Study, as applicable.
“Commercialization” or “Commercialize” means, with respect to a Product, any and all activities undertaken usually after obtaining Regulatory Approval for a Product that relate to the pre-marketing, marketing, promoting, distributing, importing or exporting for sale, offering for sale, and selling of a Product, including, without limitation, (i) conducting clinical trials conducted after Regulatory Approval for a biologics license application (BLA) of a Product, so-called phase IV clinical trials, (ii) interactions with governmental or other responsible authorities regarding all other applicable approvals required to market and sell Products, including pricing and reimbursement approvals, (iii) manufacturing for selling purposes, handling, storing and shipping of Products, (iv) following receipt, on a country-by-country basis, of all required Regulatory Approvals and all other applicable approvals required to market and sell a Product, effecting the Commercial Sale (as defined below) of a Product in the respective country, and keeping a Products reasonably available to the public, and (v) modification, enhancement, improvement, and optimization of Products.
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“Development” or “Develop” means, with respect to a Product and/or the Company Assets, the performance of any and all activities undertaken regarding research, pre-clinical and clinical development (including, without limitation, toxicology, pharmacology, test method development and stability testing, process development, formulation development, quality control development, statistical analysis), Clinical Studies (but excluding clinical trials conducted after Regulatory Approval for a BLA of a Pharmaceutical Product, so-called phase IV clinical trials), manufacturing for pre-clinical, clinical and regulatory purposes, and regulatory affairs (including, without limitation, the determination of the nature and content of any submissions to Regulatory Authorities) that are required to obtain Regulatory Approval for such Product.
“Indication” means a separate and distinct disease or medical condition in humans which a Product is intended to treat, prevent or diagnose, where treatment, prevention or diagnosis of such disease or medical condition by a Product requires receipt of a separate Regulatory Approval, or for which a Product has received Regulatory Approval for that purpose.
“Phase 1 Clinical Study” means a clinical investigation of a pharmaceutical product in humans, the principal purpose of which is preliminary determination of safety and/or tolerability (which may include, without limitation, studies to determine absorption, distribution, metabolism, excretion and/or toxicity, structure-activity relationship, mechanism of action, dosing regimen, pharmacokinetics and pharmacological effects), conducted in healthy volunteers or patients and for which there are no primary endpoints (as understood by a Regulatory Authority) in the protocol relating to efficacy, as described in 21 C.F.R. §312.21(a), or a similar clinical study in a country other than the United States of America.
“Phase 2 Clinical Study” means a clinical investigation of a pharmaceutical product in humans (usually the target human patient population), the principal purpose of which is a determination of the safety, dose ranging or efficacy, as described in 21 C.F.R. §312.21(b), or a similar clinical study in a country other than the United States of America, by, for example, (a) a dose exploration, dose response, duration of effect, kinetics, dynamic relationship and/or preliminary efficacy and safety study of a product, or (b) a controlled dose ranging study to evaluate further the efficacy and safety of a product, and to define the optimal dosing regimen.
“Phase 3 Clinical Study” means a randomized and controlled clinical investigation of a pharmaceutical product in humans (usually the target human patient population) on an adequate number of patients that is designed to demonstrate whether such product is efficacious and safe for use in a particular Indication being studied, with the purpose of filing a BLA for Regulatory Approval for such product, as described in 21 C.F.R. §312.21(c), or a similar clinical study in a country other than the United States of America.
“Product” means a pharmaceutical product for human use containing PC111 which is using, in all or in part, the Company Assets and which is Developed and Commercialized by Scinai or its Affiliates.
“Regulatory Approval” means any and all approvals, licenses, registrations or authorizations of any Regulatory Authority necessary for the clinical testing, manufacture, marketing, use and/or sale of a Product in a country, including without limitation the acceptance of INDs and BLAs, or a similar dossier in a country other than the United States of America.
“Regulatory Authority” means any local, state, federal, national, supranational or international regulatory agency, department, bureau or other governmental entity with authority over the clinical testing, manufacture, marketing, use, and/or sale of a Product in a country, including, without limitation, the FDA and the EMA.
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| 6.3 | Sublicense Consideration and royalty-based payments |
| 6.3.1 | In addition to the Consideration and the Milestone Payments, the Buyer shall pay to the Sellers, as conditioned variable consideration for their respective Quota, if and to the extent due pursuant to this Section 6.3, the following additional amounts (the “Sublicense Payments”): |
| ( ) | with respect to transactions in which the Product and the Company Assets are sub-licensed, in any form whatsoever, by the Buyer or its Affiliates to a third party (the “Sub-license”): |
| (i) | if the Sub-license is entered into prior to the earlier of: |
| (aa) | securing by the Buyer of own funds (i.e. of Scinai (or other Scinai Affiliates)) or funding commitments from third parties (including funding authorities), in both cases for at least [***] ([***]) earmarked for the development of PC111 (the “Earmarked Funds”); or |
| (bb) | completion of the dosing of the first patient of a Phase 1/2 Clinical Study involving a Product and the Company Assets, |
an amount equal to 15% (fifteen percent) of the Sublicense Consideration received by Buyer or its Affiliates from the licensee and attributable to the sublicensed Product and Company Assets;
| (ii) | if the Sub-license is entered into after the earlier of: |
| (aa) | securing by the Buyer of Earmarked Funds for at least [***] ([***]); or |
| (bb) | completion of the dosing of the first patient in a Phase 1/2 Clinical Study involving a Product and the Company Assets, |
an amount equal to [***],
it being understood that:
| (1) | if for any Milestone Event set forth in the table under Section 6.2 [***], provided that: |
| (x) | such [***] payment shall be [***]; |
| (y) | in the event the sublicensee of the Sub-license is [***]; |
| (z) | in the event the sublicensee of the Sub-license is [***]; |
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| (2) | “Sublicense Consideration” shall mean any consideration, whether (i) in cash (e.g. initial or upfront payments, technology access fees, annual fixed payments, development and milestone payments, royalties on sales of Products), less value added tax, and/or (ii) in non-cash as in kind (e.g. devices, services, licenses or any other use rights) and/or as financial securities (e.g. shares, options, warrants or any other kind of financial securities), in each case received by Scinai (or its Affiliates) from third-party sublicensees as consideration for or otherwise in connection with a sublicense, or an option to obtain a sublicense, under the Company Assets with respect to the Product. For the avoidance of doubt, any (sub-)license grant with respect to the Product and/or the Company Assets to an Affiliate of Scinai (including the License according to Section 5) shall not be deemed a sublicense and payments under such (sub-)license, if any, are no Sublicense Consideration, it being further understood that: |
| I. | Sublicense Consideration does not include loans, purchases of securities or refundable or recoupable payments or any payments made by a third party to fund a joint enterprise (whether in the form of, without limitation, a joint venture, jointly owned company or entity, special purpose vehicle, or other joint effort; “Joint Enterprise”) to Develop the Company Assets or any equity in a Joint Enterprise which was acquired before or independently from the grant of the relevant sublicense; |
| II. | any payments specifically committed and allocated by the sublicensee to reimburse Scinai (or its Affiliates) for costs of Development activities (including allocable overhead costs) to be performed by or on behalf of Scinai (or its Affiliates) in the course of the sublicense, or option to obtain a sublicense, with respect to the sublicensed Product and/or the Company Assets, as documented in the agreement between Scinai and the sublicensee, in accordance with industry practice and at arm’s length terms, shall not be considered as Sublicense Consideration; |
| III. | payments of a sublicensee to Scinai (or its Affiliates) as consideration for an (internal) sale of Products by Scinai or its Affiliates to a sublicensee for the purpose of further resale of such Products by the sublicensee to Third Parties shall not be regarded Sublicense Consideration, to the extent the payments for such (internal) sales do not include any consideration for the grant of the sublicense to the sublicensee with respect to the sublicensed Product and/or the Company Assets; |
| IV. | any non-cash in kind Sublicense Consideration, at the sole choice of Buyer, can either be distributed pro rata to the Sellers or substituted by a cash payment of Buyer or Scinai representing the Fair Market Value of the non-cash in kind Sublicense Consideration; |
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| (a) | with respect to the Product using, in all or in part, the Company Assets and Developed by Buyer or its Affiliates through Regulatory Approval and Commercialized by Buyer or its Affiliates, an amount equal to [***]. The Parties agree that: |
| (i) | “Net Sales” means, on a Product-by-Product and country-by-country basis, the gross amounts invoiced by or on behalf of each of Scinai or its Affiliates for the Commercial Sale of a Product, less the following: |
| (1) | to the extent separately stated on the document of sale, any trade, cash and quantity discounts, bonuses, credits, chargebacks, premiums, rebates and allowances actually granted or allowed and taken specifically with respect to sales or other dispositions of the Product (including, without limitation, discounts actually granted or allowed for Products sold in connection with patient assistance programs designed to aid in patient compliance with medication schedules); |
| (2) | any tariffs, duties, excises, sales, value-added and other taxes imposed upon and paid directly with respect to such Commercial Sale of Products which are actually paid and can be proved by written records; |
| (3) | amounts repaid or credited by reason of rejections, damaged or expired goods, recalls, returns, or billing errors; |
| (4) | government mandated rebates (such as those granted pursuant to programs similar to any state or federal Medicare, Medicaid or similar program); |
| (5) | amounts invoiced for freight, shipping, insurance and other transportation expenses, including distribution, packing and handling charges for the Product; |
| (6) | with respect to bad debts, which have actually occurred with respect to the Commercial Sale of a Product, the gross amount invoiced, but actually not received for such Product due to bad debts; and |
| (7) | any item substantially similar in character or substance to the above, |
it being understood that:
| (1) | each of the foregoing deductions shall be determined as incurred in the ordinary course of business in type and amount consistent with good industry practice and in accordance with generally accepted accounting principles; |
| (2) | if the term “on a Product-by-Product basis” is used in this Agreement, it shall mean that the respective provision shall apply in each case to different Products that require either a new Regulatory Approval process or address a different Indication; |
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| (3) | Net Sales shall not include internal distributions, transfers or “sales” of Product by or among Scinai and its Affiliates and/or its sublicensees for a subsequent resale of such Product by such Affiliate or sublicensee to a third party. In the case of internal sales of a Product to an Affiliate, Net Sales shall be calculated on the amount invoiced by such Affiliate to a third party upon resale in a Commercial Sale to such third party, and in case of internal sales of a Product by Scinai or its Affiliates to a sublicensee for resale by such sublicensee, the resale by the sublicensee to such third party shall be regarded as Commercial Sale, and the Licensors shall participate in the respective Sublicensee Consideration as set forth in this Agreement. |
| (ii) | “Commercial Sales” means, on a Product-by-Product and country-by-country basis, the sale or other disposition of a Product in an arm’s length transaction by or on behalf of Scinai or its Affiliates to an independent third party distributor or end user customer in exchange for cash, or cash equivalent to which monetary value can be readily assigned, in such country, after applicable Regulatory Approval for a BLA for such Product, and after all other applicable approvals required to market and sell such Product, including pricing and reimbursement approvals, have been granted, or otherwise permitted, by governmental or other responsible authorities in such country. For the avoidance of doubt, there shall be no Commercial Sale if: |
| (1) | Product is used by or on behalf of each of Scinai or its Affiliates for the sole purpose of performing Development; or |
| (2) | Product is provided to a third party by each of Scinai or its Affiliates, and used by such third party solely to conduct Clinical Studies with respect to Product; or |
| (3) | limited reasonable amounts of Product are used as promotional free samples, free goods, or other marketing programs to induce sales, or for compassionate or similar uses or donations to non-profit organizations, in connection with which Product is supplied without charge, |
it being understood that in the event that Product is sold as Combination Product, then Net Sales, for purposes of determining royalty payments on the Combination Product, shall be calculated as follows: (1) In the event the Product and the other pharmaceutically active ingredient(s) are sold separately during the royalty period in question in the country in question, then Net Sales shall be calculated by multiplying the Net Sales of the Combination Product in such country by the fraction A/(A+B), where A is the average gross selling price of the Product sold separately in the country in question during the royalty period in question, and B is the average gross selling price of the other pharmaceutically active ingredient(s) sold separately in the country in question during the royalty period in question; (2) if, on a country-by-country basis, the other pharmaceutically active ingredient or ingredients in the Combination Product are not sold separately in that country, Net Sales shall be calculated by multiplying the actual Net Sales of such Combination Product by the fraction A/C, where A is the invoice price of the Product if sold separately, and C is the invoice price of the Combination Product. If, on a country-by-country basis, neither the Product nor the other pharmaceutically active ingredient(s) of the Combination Product is sold separately in a country, the value of the pharmaceutically active ingredient(s) for the purpose of determining Net Sales shall be determined between the Parties in good faith; In case of Sub-license, the Sellers shall only participate in Sublicense Payments set forth under Section 6.3.1(a), and the Milestone Payments set forth in Section 6.2 shall only be payable if the Buyer or its Affiliates themselves achieve any of the listed Milestone Events.
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| (iii) | “Combination Product” means a Product containing, as its pharmaceutically active ingredients, (1) Product, and (2) one or more other pharmaceutically active ingredients. For the avoidance of doubt, drug delivery technologies, adjuvants, excipients and the like shall not be deemed to be “active ingredients”, except in the case where a Regulatory Authority recognizes such delivery technologies, adjuvant, excipients or the like as an active ingredient. |
| 6.3.2 | Sublicense Payments will terminate on a country-by-country basis earlier of patent expiration (or market exclusivity) or 10 (ten) years after the first Commercial Sale of the Product in the applicable country. |
| 6.4 | No Double Payments of Sublicense Payments and Milestone Payments |
| 6.5 | Participation in Company’s shareholders contingent payback to Sofinnova |
In addition to the Consideration, the Milestone Payments and the Sublicense Payments, the Buyer shall pay to the Sellers as conditioned variable consideration for their respective Quota - and then the Sellers shall pay to Sofinnova Telethon SCA-RAIF (“Sofinnova”) - (a) an amount equal to [***], and/or (b) an amount equal to [***] (the “Sofinnova’s Payments”), until the earlier of (i) the aggregate amounts paid to the Sellers under letters (a) and (b) are equal to [***] ([***]), and (ii) the expiry of the payment obligation of the Sellers towards Sofinnova as provided in the separate agreement among them but in no event longer than until December 31, 2034 (it being understood that to this aim, the Sellers shall notify the Buyer in writing without undue delay of expiry of this payment obligation).
| 6.6 | Pass through on sale of Rare Pediatric Disease Priority Review Voucher (“RPV”) |
In addition to the Consideration, the Milestone Payments, the Sublicense Payments and the Sofinnova’s Payments, the Buyer shall pay to the Sellers as conditioned variable consideration for their respective Quota, subject to the Voucher program being re-activated after the Signing Date, an amount equal to 5% (five percent) of the net receipts (i.e., gross amount received from a third party minus direct costs of securing a sale of the voucher, payments to a broker and legal fees in connection with securing the sale of the voucher and the costs of developing the Product and securing the approval that gave rise to the voucher) received by Buyer or its Affiliates for the sale of a Rare Pediatric Disease Priority Review Voucher - pursuant to Section 529 of the Federal Food, Drug and Cosmetic Act obtained for PC111 by Buyer or its Affiliates (the “RPV Consideration” and, jointly with the Milestone Payments, the Sofinnova’s Payments and the Sublicense Payments, the “Additional Payments”).
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| 6.7 | Anti-stacking |
All Additional Payments provided under Sections 6.2 through 6.6 will be subject to anti-stacking reductions equal to 50% of all third-party royalties or other third-party payments due with respect to a product incorporating Company Assets; however, such anti-stacking reductions shall in no event result in a reduction of the Additional Payments exceeding 50% (therefore, achieved such threshold, no further reduction will be applied).
| 6.8 | VAT |
The Parties assume that Buyer itself should not owe payment of value added tax (or any similar tax under the law of any other jurisdiction (“VAT”) in addition to any amount set forth herein as Consideration, but rather VAT is deemed included in such amounts and VAT needs to be deducted from such amounts and transferred to the competent tax authorities by Sellers if it applies.
| 6.9 | Sellers’ oversee right |
In order to allow the Sellers to check whether the conditions for the Additional Payments have been met and in which measure, Scinai shall, and shall cause its Affiliates and the Company to, (i) allow the Sellers and its advisors to reasonably access the relevant books and records of Scinai, its Affiliates and the Company during normal business hours as needed to carry out such review, and (ii) cooperate in good faith with the Sellers and its advisors in connection with the review of the relevant documents and the matters connected thereto, it being understood that this right shall be limited to the documents and information needed to check whether the conditions for the Additional Payments have been met and in which measure. The oversee right shall be limited to one review per calendar year and, with regard to each Additional Payment, shall only be exercisable during a period of two (2) years after Sellers’ receipt of Scinai’s or Buyer’s notification about the amount of the respective Additional Payment.
7. NO LEAKAGE
| 7.1 | No leakage undertakings |
| 7.1.1 | The Sellers hereby warrant (in the form of an independent warranty) that: |
| ( ) | in the period from (and including) January 1, 2025 and up to (and including) the Signing Date, no Leakage, other than Permitted Leakage, has occurred which has not been remedied prior to or on the Signing Date, if not agreed otherwise by the Parties; |
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| (a) | in the period from (and excluding) the Signing Date and up to (and including) the Closing Date, no Leakage, other than Permitted Leakage, will occur which will not have been remedied prior to the Closing Date, if not agreed otherwise by the Parties. |
| 7.1.2 | The Sellers hereby undertake to procure that in the period after (and excluding) the Signing Date and up to (and including) the Closing Date, no Leakage, other than the Permitted Leakage, will occur without the Buyer’s prior written consent. |
| 7.2 | Remedies |
| 7.2.1 | Subject to the occurrence of Closing, in the event that, after the Closing Date, the Buyer (i) discovers any Leakage occurred in the period from (and including) January 1, 2025 and up to (and including) the Closing Date, the Buyer shall give written notice to the Sellers of any such circumstance (the “Leakage Claim”). The Leakage Claim shall be accompanied by reasonable details thereof and to the extent available reasonable supporting evidence. The right of the Buyer to raise Leakage Claims shall elapse on [***]. |
| 7.2.2 | Following delivery of a Leakage Claim, the Sellers shall have thirty (30) Business Days to review the Leakage Claim and the underlying documentation, and, if they dissent with the Leakage Claim, to send (under penalty of forfeiture, “a pena di decadenza”) to the Buyer a notice of disagreement setting out the matters and the reasons of the disagreement (the “Challenge Notice”). If the Sellers does not deliver a Challenge Notice within such term, then the relevant Leakage Claim shall become final and binding between the Parties. |
| 7.2.3 | In order to allow the Sellers to review any Leakage Claim, the Buyer shall, and shall cause the Company to, (i) allow the Sellers and its advisors to reasonably access the relevant books and records of the Company during normal business hours as needed to carry out such review, and (ii) cooperate in good faith with the Sellers and its advisors in connection with the review of the relevant Leakage Claim and the matters connected thereto. |
| 7.2.4 | Following delivery of a Challenge Notice, the Buyer and the Sellers shall negotiate in good faith to resolve the disagreements contained in the Challenge Notice (it being agreed that all matters contained in a Leakage Claim that are not disagreed in the relevant Challenge Notice shall be considered accepted by the Sellers). |
| 7.2.5 | If the Buyer and the Sellers are unable to reach an amicable solution within 15 (fifteen) Business Days of the receipt by the Buyer of a Challenge Notice, such disagreements and the related matters in dispute (the “Disputed Matters”) may be submitted by either Party to the decision of the Independent Expert, and the following provisions will apply. |
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| 7.2.6 | The Independent Expert shall: |
| ( ) | consider only the Disputed Matters; |
| (a) | allow the Sellers and the Buyer to present their reasons and objections; |
| (b) | provide reasonably detailed written explanations of its determination with respect to any Disputed Matter; |
| (c) | act as an expert (perito contrattuale) and not as an arbitrator (arbitro), provided that the Independent Expert shall have the power to independently construe the provisions of this Agreement which are relevant for the performance of its services under this Section 7.2.6 and to resolve any dispute arising between the Parties in respect of the construction of such provisions. |
| 7.2.7 | The Sellers and the Buyer agree and undertake that, if the Independent Expert requires the execution of an engagement letter, or similar document or agreement, as a condition for its agreeing to perform the services called for under this Agreement, they undertake to negotiate the engagement letter with the Independent Expert in good faith and to accept all customary terms and conditions that the Independent Expert might request as a condition for its agreeing to perform such services, including, but not limited to, fees at market conditions and any indemnity and hold harmless clauses in favour of the Independent Expert. |
| 7.2.8 | Within 45 (forty-five Business Days following its appointment (or within the different term set out in the engagement agreement between the Sellers, the Buyer and the Independent Expert), the Independent Expert shall prepare and deliver to the Sellers and the Buyer its determination of the Disputed Matters, determination that will be final and binding among the Parties and not subject to any appeal (except in the event of fraud). |
| 7.2.9 | The Buyer and the Sellers shall be copied on any communication between the Independent Expert and, respectively, the Sellers and the Buyer. Whenever the Independent Expert wishes to meet or discuss with the Sellers or the Buyer, it will also enable the other to participate in such meeting or discussion. |
| 7.2.10 | The Sellers and the Buyer shall, and the Buyer shall cause the Company to, provide the Independent Expert with all information and documents, assistance and cooperation, and access that the Independent Expert may reasonably require for the purpose of carrying out its tasks. |
| 7.2.11 | The costs and expenses (including any applicable Taxes charged by the Independent Expert) of the Independent Expert shall be equally shared between Buyer, on the one hand, and the Sellers, on the other hand. |
| 7.2.12 | The amount of any Leakage, as finally determined by the Parties or by the Independent Expert pursuant to Sections 7.2.4 and 7.2.5 above or however not subject to a Challenge Notice within the term set forth in Section 7.2.1 (as the case may be), that has not been already repaid or reimbursed to the Buyer or the Company by the Sellers, shall be paid to the Buyer by the Sellers on an Euro for Euro basis within twenty (20) Business Days of the final determination by the Parties or by the Independent Expert or by the expiration of the term set forth in Section 7.2.1 (as the case may be). |
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| 7.2.13 | Any payment made by the Sellers to the Buyer under this Section 7.2 shall be treated to the maximum extent permitted by Law as a reduction of the Consideration. |
| 7.2.14 | Any amount of Leakage will be calculated on an after-Tax basis (it being understood that, for this purpose, “on an after-Tax basis” means the amount of each Leakage item minus (a) the amount of VAT due in respect of such Leakage items, and (b) an amount equal to such portion of the Leakage item as is identified as deductible for corporate income tax purposes multiplied by the corporate income tax rate under applicable Law). |
| 7.2.15 | For the purposes of this Agreement: |
| ( ) | “Leakage” means, with the express exclusion of any Permitted Leakage and without prejudice to Section 10: |
| (i) | any dividend, withdrawal or other form of distribution, whether in cash or in kind, declared, paid or made by the Company to any Seller; |
| (ii) | the grant of any loan by the Company to any Seller; |
| (iii) | any repayment of any shareholder loan or the payment of any interest on any shareholder loan granted by any Seller to the Company; |
| (iv) | any waiver or release, or commitment to waive or release, by the Company of any amount or obligation owed or due to it, towards or to the direct benefit of any Seller without adequate consideration; |
| (v) | any assumption or grant of any guarantee or security by the Company for any financial debt owed by a Seller; |
| (vi) | any assumption by the Company or discharge of, or indemnity from, any liability (including any recharge of costs of any kind) of a Seller, or of a third party for the direct benefit of any Seller, without adequate consideration; |
| (vii) | any payment by the Company of any advisory, management, transaction or other fees or expenses, service charges, license or royalty fees to the Sellers other than pursuant to commercial agreements entered into (a) in the ordinary course of Company’s trading/business and (b) for the benefit of the Company; |
| (viii) | any return of capital (whether by way of a reduction of capital or redemption or purchase of its own shares or otherwise) to any Seller by the Company; |
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| (ix) | any payment by, or on the account of the Company, of any brokerage, finder’s fee, commission, advisory fees or expenses, bonus, extra compensation, severance payment or other incentive to any third party (including to any Seller) in connection with or in respect of (a) the preparation, negotiation or execution of this Agreement, or (b) the preparation and consummation of the Transaction; |
| (x) | any payment of bonuses or provision of other benefits by the Company to any Seller, as well as the payment by the Company of any taxes, including wage tax and social security contributions, due by any Seller, in each case in connection with (a) the execution of this Agreement, or (b) the preparation and consummation of the Transaction; |
| (xi) | any other transfer of any asset or right from Company to any Seller, or to a third party for the direct benefit of any Seller, without adequate consideration; or |
| (xii) | any obligation to do any of the matters listed in points (i) to (xi) in each case irrespective of whether any performance is made or becomes due prior to or after the Closing Date; |
| (a) | “Permitted Leakage” means: |
| (i) | payment of any trade debt to any Seller incurred in the ordinary course of business; |
| (ii) | payment of any third party financial debt and operational debt including operational leasing obligations incurred in the ordinary course of business; |
| (iii) | any payment made to or benefit received under or in connection with (a) an employment agreement, contract for services, consultancy, directorship or other advisor agreement between Company and a Seller, any Affiliate of a Seller, and/or (b) the resolutions taken by the competent corporate bodies of the Company, and which has not been entered into in connection with or anticipation of (1) the preparation, negotiation or execution of this Agreement, or (2) the preparation and consummation of the Transaction; |
| (iv) | any payments made or liability incurred or paid or agreed to be paid or payable in connection with any matter undertaken by or on behalf of Company at the written request or with the written agreement of Scinai and/or its Affiliates, |
all of the liabilities mentioned under letters (i), (ii) and (iii) limited to the amount provided under Exhibit 10 and without prejudice to the provisions of Section 10.
| 7.2.16 | The Parties agree that the provisions in this Section 7 are conclusive with respect to Leakage and Permitted Leakage and no further rights shall accrue in connection therewith, any other remedy being expressly excluded, and, for the sake of clarity, there shall be no double counting in respect of any Leakage. |
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8. INTERIM PERIOD
| 8.1 | After the Signing Date and until the Closing Date, the Sellers will procure that the Company carries on the Business in the ordinary course, except (i) if expressly provided otherwise in this Agreement, (ii) for matters or acts which are required to be done according to Law, or (iii) for matters or acts which are done or omitted to be done with the approval of the Buyer. |
| 8.2 | In particular, after the Signing Date the Sellers shall cause the Company not to take any of the following acts or measures: |
| ( ) | purchase any real estate property, in part or in whole or purchase any similar rights; |
| (a) | purchase or sell interests or shares in other companies or set up new companies; |
| (b) | sell, lease, license or encumber in any way the business operation of the Company in whole or material parts thereof or any of the Company Assets, or engage in any activity that could have the effect of frustrating the intent of this Agreement vis-a-vis the Buyer and its purpose in entering into this Agreement; |
| (c) | filing of a petition in insolvency or for reorganization or similar arrangement for the benefit of creditors, commencement of bankruptcy or insolvency proceedings, assignment of all or substantially all of its assets for the benefit of its creditors, or liquidation for other reasonsfiling for insolvency or bankruptcy proceedings or any general assignment of assets or quota for the benefit of creditors; |
| (d) | commence business in new areas outside the business; |
| (e) | make material changes to the payment targets or conditions of suppliers; |
| (f) | exchange information on the Company and/or the Company Assets, or make any commitments, to (potential) third-party investors - except for potential investors in Buyer/Scinai SPV - without the prior written consent of the Buyer and/or Scinai. |
| 8.3 | After the Closing date and until June 30, 2029, Scinai and the Buyer shall not, and shall cause their Affiliates not to: |
| ( ) | take or order any acts or measures with regard to the Company which are likely to result in an indebtedness or bankruptcy of the Company (excluding any indebtedness related to normal course of business); |
| (a) | merge the Company with other entities, de-merge the Company or the Company Assets or liquidate the Company, |
all without the prior written consent of Sellers.
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9. CONDITIONS TO CLOSING
| 9.1 | Closing Condition |
| 9.1.1 | Subject to (i) the delivery of the Option Notice pursuant to Section 3.5 and (ii) the payments provided under Section 6.1.1 having occurred in full and, therefore, the Agreement not having been terminated pursuant to Section 6.1.3, the Closing of the Acquisition shall only take place if the Golden Power Clearance has been obtained (the foregoing, as the “Closing Condition”). |
| 9.1.2 | The Closing Condition is provided in the interest of both Sellers and Buyer, and, therefore, it may be waived only with the written consent of both Sellers and Buyer. |
| 9.2 | Golden power |
| 9.2.1 | The Parties shall use their best efforts in order to enable the satisfaction of the Golden Power Clearance as soon as possible. In particular: |
| ( ) | no later than 10 (ten) Business Days from the Signing Date, the Company and the Buyer shall jointly file with the Golden Power Authority all applications, requests and other documents that are required under the Golden Power Law to obtain the Golden Power Clearance. In this respect the Company and the Buyer (each to the extent of its competence): |
| (i) | shall provide the Company and the Buyer (as the case may be) a copy of all drafts of the notifications to any Golden Power Authority reasonably in advance before submission; |
| (ii) | take into account any reasonable comments made by the Company and the Buyer (as the case may be); |
| (iii) | timely comply with any request of information received from any competent Golden Power Authority in order to procure the obtainment of the Golden Power Clearance; |
| (a) | the Company and the Buyer shall keep each other timely informed in the event of requests of information from any Golden Power Authority. |
| 9.3 | Cooperation regarding Closing Condition |
Where fulfilment of any Closing Condition requires a Party’s active involvement or assistance, or where a Party is capable of preventing its fulfilment, that Party is obligated to use Commercially Reasonable Efforts to procure that the Closing Condition is fulfilled as soon as practicable.
| 9.1 | Costs of proceedings, permits or authorisations |
Each Party will bear its own costs incurred in connection with all proceedings, permits or authorisations required or foreseen or otherwise required in connection with the consummation of the transactions contemplated by this Agreement subject to the reimbursement as set forth in Section 20.4.3.
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10. RUNNING COSTS OF THE COMPANY
| 10.1 | In addition to reimbursement of Transaction Costs pursuant to Section 20.4.3, the Buyer agrees that the Company will assume and pay the expenses required for the day-to-day operation of the Company (the “Running Costs”) actually incurred by the latter until the Closing Date (included) as follows: |
| ( ) | in case (i) the Grant is awarded fully and (ii) the Closing of the Acquisition occurs, the Company shall sustain and pay, or reimburse to the Sellers if they have funded the Company in the meanwhile, at the latest on the Closing Date, the Running Costs actually incurred until the Closing Date up to the amounts provided under Exhibit 10; or |
| (a) | in case (i) the Grant is not fully awarded and (ii) the Closing of the Acquisition occurs before or on September 30, 2025, the Company shall sustain and pay, or reimburse to the Sellers if they have funded the Company in the meanwhile, at the latest on the Closing Date, the Running Costs actually incurred until the Closing Date up to the amounts provided under Exhibit 10; |
| (b) | in case (i) the Grant is not fully awarded and (ii) the Closing of the Acquisition occurs after September 30, 2025, the Company shall sustain and pay, or reimburse to the Sellers if they have funded the Company in the meanwhile, at the latest on the Closing Date, the Running Costs actually incurred from September 1, 2025 to the Closing Date up to the amounts provided for this period under Exhibit 10, |
it being understood that, at the Closing Date, the Buyer shall inject into the Company the equity resources needed by the latter to perform the payments and/or the reimbursements pursuant to the above.
| 10.2 | Should the Running Costs actually incurred from the Company until the Closing Date be in excess to the ones provided under Section 10.1 (depending on the different scenarios thereto provided), the Sellers shall, at the latest on the fifth (5th) Business Day before the Closing Date, fund the Company in cash with the amount necessary to balance the difference (the “Balance”) providing written evidence of this funding to the Buyer. |
| 10.3 | Subject to the occurrence of Closing, in the event that, after the Closing Date, the Buyer discovers any Running Cost not covered pursuant to Section 10.2, the Buyer shall give written notice to the Sellers of any such circumstance. The right of the Buyer to raise this challenge shall elapse on June 30, 2026. Sections from 7.2.1 to 7.2.14 and Section 7.2.16 shall apply, mutatis mutandis. |
11. CLOSING
| 11.1 | Closing Date |
| 11.1.1 | Subject to the occurrence of the Closing Conditions, the performance of the Closing Actions (“Closing”) will take place in Milan, before the Notary Public: |
| ( ) | as soon as reasonably practical after the delivery of the Option Notice but not later than 20 (twenty) Business Days thereafter; or |
| (a) | on such other day, or at such other place, the Parties may agree in writing. |
(“Closing Date”).
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| 11.2 | Closing Actions |
| 11.2.1 | On the Closing Date, the Parties shall perform the following actions (the “Closing Actions”): |
| ( ) | the Sellers shall: |
| (i) | cause all the directors of the Company to resign from their office, effective as of the Closing Date, and deliver to the Company, with copy to the Buyer, letters of resignation in the form enclosed under Exhibit 11.2.1 (a) (i); |
| (ii) | exercise his/her option rights under the ESOP; |
| (iii) | cause the ordinary Quotaholders’ meeting of the Company to be validly held to (1) appoint new directors to be designated by the Buyer and (2) discharge all resigning directors under Section 11.2.1(a)(i) from any liabilities incurred by reason of their offices up until the Closing Date and renounce to vote in favour of any liability action against them (except for any liabilities arising from willful misconduct (“dolo”)); |
| (iv) | provide their consent to the release of the Deed of Pledge 1 and perform the relevant formalities; |
| (a) | the Buyer and the Seller enter into, before the Notary Public, the deed of transfer pursuant to article 2470 of the Civil Code - without any novation of this Agreement - providing the sale and purchase of the Quota from the Sellers to the Buyer as provided under Section 3.7.1; |
| (b) | Scinai shall deliver to the Company a signed letter of release and discharge and hold harmless addressed to each resigning director under Section 11.2.1(a)(i) in the form attached as Exhibit 11.2.1 (c); |
| (c) | the Buyer and AA, CP, RL and BB shall enter into the Executive Agreements; |
| (d) | the Buyer shall (i) inject into the Company the equity resources needed pursuant to Section 10.1 and (ii) cause the Company to perform the payments and/or reimbursements provided under Section 10.1 (including the Transaction Costs pursuant to Section 20.4.3); |
| (e) | the Company, the Sellers and the Buyer shall enter into the Deed of Pledge 2 and perform all the relevant formalities thereto provided; |
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| (f) | the Sellers shall provide a written confirmation to the Buyer that the Seller’s Warranties are still true and correct at Closing Date, as possibly updated by the Updated Disclosure Schedule; |
| (g) | all Parties shall execute any other document and/or instrument and comply (or procure compliance) with any other formality necessary to achieve the completion of the Closing. |
| 11.3 | One Transaction - No Novation |
| 11.3.1 | Any and all conditions, actions and transactions constituting the Closing (including without limitation all the documents to be executed at the Closing Date and deliveries to be carried out at the Closing Date pursuant to this Agreement) shall be regarded for the purposes of the Closing as a single transaction so that such conditions, actions and transactions shall be deemed to occur simultaneously, and no such transaction shall be deemed to have been consummated until all such conditions, actions and transactions have been consummated. In the event that any action or transaction constituting the Closing fails to be fulfilled by a Party or is defective, at the option of the Party having interest to the fulfilment or proper execution of the specific action or transaction, such Party shall be entitled to refuse to fulfil its obligations unless and until all the other actions and transactions constituting the Closing shall have taken place as provided in this Agreement. |
| 11.3.2 | The consummation of all conditions, actions and transactions at the Closing shall not affect, be deemed a waiver of or to, amend, nor have any effect of novation (effetto novativo) upon this Agreement, which shall remain effective as stated herein also after the Closing without the necessity for the Parties to reiterate or otherwise confirm their commitment with respect thereto. |
12. RIGHT TO WITHDRAW
| 12.1 | Right to withdraw |
| 12.1.1 | The Buyer, Scinai SPV and Scinai may jointly withdraw from the Agreement by written notice to the Sellers: |
| ( ) | if the Updated Disclosure Schedule Discloses any credible Third-Party Claims or regulatory measures which: |
| (i) | are directed against the use of a material part of the Company Assets (e.g. cease-and-desist/injunctive relief claims); or |
| (ii) | amount to a total potential Loss of the Company which exceeds [***] ([***]). |
| (a) | if the Sellers fail, in breach of Section 10.2, to fund the Balance for a total amount exceeding [***] ([***]). |
| 12.2 | Exercise of Right to Withdraw |
| 12.2.1 | Scinai shall exercise for itself and on behalf of Buyer and/or Scinai SPV the right to withdraw according to Section 12.1 by written notice to the Sellers at the latest until and including 2 (two) Business Days before the planned Closing Date (the “Rescission”). |
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| 12.3 | Legal Consequences of Rescission |
| 12.3.1 | In the event of any Rescission under Section 12.2: |
| ( ) | this Agreement (including the License Agreement) will be automatically terminated and no Party will have any liability or responsibility to the other except as specified in the remaining sub-clauses of this Section 12.3 and in Section 12.3.2, which continue in full force and effect; and |
| (a) | all amounts due and payable under this Agreement up to but not including the date of Recission shall remain due and payable. |
| 12.3.2 | Section 1, this Section 12, and Section 20 survive any Rescission, without limit in time. |
| 12.3.3 | A Rescission of this Agreement in accordance with Section 12.2 is without prejudice to any Claim by Buyer or Scinai against the Sellers for reimbursement of the payments of the Consideration made by Scinai and/or Buyer to the Sellers prior to the date of Rescission, it being understood that the liability of the Sellers will always be limited to the Consideration actually received from Scinai. |
13. SELLERS’ WARRANTIES
| 13.1 | Sellers warrants to the Buyer (in the form of independent warranties) that, to Sellers’ Knowledge, each of the warranties set out in Exhibit 13.1 (each a “Sellers’ Warranty” and collectively the “Sellers’ Warranties”) is true and correct as at the Signing Date and will be true and correct as at the Closing Date, or at any such other date specifically mentioned in any respective Sellers’ Warranty. Seller’s Warranties are therefore understood to be given limited to Sellers’ Knowledge. |
| 13.2 | The scope and limits of the warranties given in Section 13.1 are determined by Sections 14 and 15 which form an integral part of that Sellers’ Warranties. Should there nevertheless in an individual case be an unresolvable contradiction between individual Sellers’ Warranties and liability limitations in this Agreement, the Parties agree that the liability restriction takes precedence. |
| 13.3 | The Sellers’ Warranties and Buyer’s Warranties and the consequent indemnification obligations constitute, as a whole, an ancillary warrantee agreement - aimed at voluntarily sharing certain risks between the Parties in order to restore their financial and economic position in case of inaccuracy of any representation or warranty - and that, therefore, are not subject to the prescriptions and limitations provided by Article 1495 (Termini e condizioni per l’azione) of the Civil Code. |
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14. BREACH OF SELLERS’ WARRANTIES
| 14.1 | General provisions |
| 14.1.1 | Subject to the occurrence of the Closing, on the terms and subject to the exclusions, deductions and limitations under this Agreement (including Section 15), without prejudice to Section 13.3, the Sellers shall indemnify and hold harmless: |
| ( ) | the Buyer in respect of 100% of any Losses that it has incurred or suffered as a direct consequence of any of the Sellers’ Warranties under paragraphs 1 and 2 of Exhibit 13.1 being untrue or incorrect; and |
| (a) | the Buyer (or, at the Buyer’s request, in its discretion, the Company) in respect of 100% of any Losses other than those indemnified under previous letter (a), incurred or suffered by the Company as a direct consequence of any of the Sellers’ Warranties under paragraphs 3 to 12 of Exhibit 13.1 being untrue or incorrect. |
| 14.1.2 | Any amounts paid by the Sellers to the Buyer under this Section 14.1.1 shall be treated for all purposes, to the extent permitted under applicable Law, as an adjustment to the total sum of the Consideration, Milestone Payments and Additional Payments paid to Sellers. |
| 14.2 | Notice of Warranty Breach |
| 14.2.1 | If, after Closing, the Buyer becomes aware of any Sellers’ Warranties being untrue or incorrect or any circumstances which are reasonably likely to result in any Sellers’ Warranties being untrue or incorrect (the “Warranty Breach”), the Buyer will notify the Sellers within twenty (20) Business Days of becoming aware of such Warranty Breach. Such notification must state the nature of the Warranty Breach and, to the extent reasonably possible at that point in time, a good faith estimate of the amount of the Losses which are likely to be suffered by the Buyer or the Company as a result of such Warranty Breach. Failure to timely or correctly make such notification shall only reduce the Sellers’ liability if and to the extent such failure has prejudiced the Sellers’ rights or increased the Losses. |
| 14.3 | No other Remedies |
The Buyer acknowledges and agrees that all legal remedies for a breach or incorrectness of Sellers’ Warranties other than those specified in Section 14.1 are hereby excluded. In particular, claims for or based on a reduction of the Consideration and/or Additional Payments, rescission or other claims for defects, culpa in contrahendo, breach of contract or frustration of contract are excluded except in the case of wilful misconduct (dolo). Therefore, no breach or incorrectness of any Sellers’ Warranties shall entitle the Buyer to terminate this Agreement or not perform the Closing or the obligations under this Agreement, including under Article 1460 of the Civil Code or to commence any action under Articles 1492, 1494 and 1497 of the Civil Code.
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15. LIMITATION OF SELLERS’ LIABILITY
| 15.1 | Limitation Period |
| 15.1.1 | In no event shall the Sellers be responsible to the Buyer in respect of any issue, event and/or circumstance giving rise to indemnification pursuant to Section 14.1 which is notified (the “Claims”) to the Sellers after: |
| ( ) | twenty-four (24) months after the Closing in respect of Claims concerning the Sellers’ Warranties set out in paragraphs 1 and 2 of Exhibit 13.1; and |
| (a) | twelve (12) months after the Closing in respect of Claims concerning all the other Sellers’ Warranties. |
| 15.2 | De Minimis |
The Sellers shall not be liable for any Loss suffered by the Buyer relating to any individual Claim having a value lower than Euro 5,000.00 (five thousands/00) (the “De Minimis”), nor shall the amount of any such De Minimis be taken into account to calculate the Basket (as defined below), except for serial claims arising from the same cause and/or event which in aggregate are higher than the De Minimis.
| 15.3 | Basket |
The Sellers shall not be liable for any Loss unless and until the aggregate amount of any and all Claims relating to Loss indemnifiable by the Sellers to the Buyer pursuant to this Agreement exceeds Euro 20,000.00 (twenty thousands/00) (the “Basket”); provided that once this Basket is exceeded the Sellers’s liability shall be limited to the amount exceeding the Basket.
| 15.4 | Cap |
The liability of the Sellers pursuant to Section 14.1 shall, in any event, be limited to the total amount of the Consideration and Additional Payments already paid up to the date on which the respective Claim is raised or due and payable in the future by Buyer or Scinai to Sellers.
| 15.5 | Limitations on Sellers’ Liability |
| 15.5.1 | Any liability of the Sellers in respect of any Claim pursuant to Section 14.1 is excluded or reduced to the extent that: |
| ( ) | the facts forming the basis of the Claim: |
| (i) | are referred to in this Agreement (including the Exhibits); |
| (ii) | are referred to in the draft financial statements of the Company for the fiscal year ending on December 31, 2024 attached as Exhibit 15.5.1(a)(ii); |
| (iii) | have been taken into account in the determination of the Consideration; |
| (a) | any measure or action has been taken or omitted to be taken with respect to the subject matter of the Claim prior to the Closing Date at the written request, or with the express written approval or acquiescence, of the Buyer; |
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| (b) | the Buyer or the Company has caused or contributed to such claim after the Closing Date; |
| (c) | the Buyer or the Company has actually recovered any amounts from any third party (including any insurance company), it being therefore understood that the Buyer shall promptly reimburse or cause to be reimbursed to the Sellers any amount received from third parties (including insurance companies) that the Buyer and/or the Company have actually received with respect to a Loss which has previously been indemnified pursuant to the provisions hereof. |
| 15.5.2 | The Sellers’ indemnification obligation pursuant to Section 14.1 shall be reduced by the amount of any liability, loss, cost or damage if, and to the extent that, such liability, loss, cost or damage would not have arisen or would have been reduced if the Buyer or the Company after the Closing Date has used its reasonable diligence to mitigate any cost or loss resulting from a breach of any Seller’s Warranties. |
| 15.5.3 | The Sellers shall not be liable at any time for indemnification under Section 14.1 to the extent that the acts, omissions, circumstances or events giving rise to Sellers’s liability are arising from all matters Disclosed in the Annexes to the Sellers’ Warranties and/or from the updated Disclosure Schedule that the Sellers will be entitled to deliver to the Buyer until no later than 10 (ten) Business Days prior to the Closing (the “Updated Disclosure Schedule”). |
| 15.5.4 | The Sellers’s shall not be required to indemnify the Buyer under Section 14.1 in respect of any claim notified by the Buyer to the extent that it arises or is increased as a result of any change in Law or in Accounting Principles occurring after the date hereof (irrespective of the change purporting to be effective retroactively in whole or in part). |
| 15.5.5 | The indemnification due by the Sellers to the Buyer under Section 14.1 shall be computed without regard to any multiple, price-earnings or other ratio implicit in the negotiation or determination of the Consideration or the Additional Payments. |
| 15.6 | Contingent Liability |
If any Claim against the Sellers arises by reason of a liability of the Company which is a contingent liability when the Claim is notified to the Sellers, the Sellers are not obliged to make any payment to the Buyer but shall indemnify and keep indemnified the Buyer or, at the request of the Buyer, the Company, upon the contingent liability ceasing to be contingent and becoming an actual liability and due and payable. So long as any Claim against the Sellers arising by reason of a contingent liability has been notified to the Sellers in accordance with Section 14.2 the limitation period pursuant to Section 15.1 shall be suspended until the Claim is no longer contingent.
| 15.7 | Indemnification procedure |
| 15.7.1 | After having received a Claim for a Warranty Breach, the Sellers shall be entitled to challenge in writing such Claim within 40 (forty) Business Days from the day of receipt of it. |
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| 15.7.2 | If the Claim sent by the Buyer for a Warranty Breach is challenged by the Sellers according to Section 15.7.1, then during a period of 20 (twenty) Business Days following the receipt by the Buyer of the challenge notice sent by the Sellers, the concerned Parties shall attempt to resolve any differences which they may have on any matters of such notice. If, at the end of such period, the concerned Parties fail to reach an agreement in writing with respect to all such matters, then the concerned Parties may submit such unresolved matters pursuant to Section 21. |
| 15.7.3 | If, conversely, the Claim for a Warranty Breach sent by the Buyer is not challenged by the Sellers according to Section 15.7.1, the Claim raised by the Buyer shall be considered definitively accepted by the Sellers and the latter shall be bound by it and be obliged to indemnify the Buyer for the amount indicated in the Claim sent by the latter. |
| 15.8 | Third-Party Claims |
| 15.8.1 | If the matter or circumstance that may give rise to a Claim against the Sellers under this Agreement is a result of, or is in connection with, a (i) any claim made against, or request or demand made to, the Buyer or the Company by any third party (including arbitrator or any Authority), and (ii) any investigation by any third party (including arbitrator or any Authority) (the “Third-Party Claim”), then the Buyer shall give notice of such Third-Party Claim to the Sellers within twenty (20) Business Days of becoming so aware (such notice shall be made in writing and contain all reasonable information describing the object of the Third-Party Claim and will include copies of any notice or other documents received from the third party in respect of any such Third-Party Claim), and the following provisions shall apply: |
| ( ) | if the Sellers acknowledge the relevant Loss in principle, they will have the right to conduct (and to determine the strategy of) any negotiations, proceedings or appeals relating to any Third-Party Claim and to use professional advisors nominated by the Sellers; |
| (a) | if the Sellers do not acknowledge the relevant Loss in principle, the Buyer shall: |
| (i) | consult with the Sellers in respect of such Third-Party Claim (but the final decisions of the strategy will remain with the Buyer); |
| (ii) | take all reasonable steps or proceedings, including those the Sellers may reasonable consider reasonable necessary, in order to mitigate, avoid, resist, appeal, dispute, contest, remedy, compromise or defend such Third-Party Claim and any adjudication in respect of such Third-Party Claim or enforce against any person (other than the Sellers) the rights of the Company and the Buyer in relation to the matter of subject of the Third-Party Claim; |
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| (b) | in any event, the Buyer shall, and shall cause the Company to: |
| (i) | at all reasonable times, allow the Sellers and its representatives access to and to inspect, take and retain copies of, all necessary books, correspondence and records of the Company; |
| (ii) | require the personnel of the Company to provide statements and proof of evidence, and to attend at any trial or hearing to give evidence or otherwise, and to provide assistance to mitigate, avoid, resist, appeal, dispute, contest, remedy, compromise or defend any Third-Party Claim; and |
| (iii) | except with the Sellers’ prior written consent, not admit liability in respect of or compromise, or settle any such Third-Party Claims; |
| (c) | if the Buyer and/or the Company receive an offer to settle any Third-Party Claim but, notwithstanding the Sellers’ consent to such proposed settlement, the Buyer elects not to, and/ or to cause the Company not to, so settle such Third-Party Claim, the Sellers, without prejudice to any other exclusion, deduction and / or limitation of the Sellers’ liability under this Agreement, shall not be liable in respect of any Loss exceeding the amount of the proposed settlement. |
| 15.9 | Liability for Third-Party Claims |
The Sellers are not liable for any additional damages in accordance with Section 15.8 arising from or in connection with a Third-Party Claim to the extent the Buyer and/or the Company have not reasonable complied with the provisions of Section 15.8 in respect of such Third-Party Claim. The reasonable costs and expenses incurred by the Buyer and the Company in defending such Third-Party Claim constitute Losses for the Buyer which will be compensated by the Sellers when the Third-Party Claim results in a Warranty Breach. The costs and expenses incurred by the Sellers in connection with any defence against a Third-Party Claim will be borne by the Sellers.
16. SCINAI’S WARRANTIES AND LIABILITY
| 16.1 | Scinai warrants to the Sellers (in the form of independent warranties) that each of the warranties set out in Exhibit 16.1 (“Scinai’s Warranties”) is true and correct as at the Signing Date and will be true and correct as at the Closing Date, or at any such other date specifically mentioned in any respective Scinai’s Warranty. |
| 16.2 | The Buyer shall indemnify the Sellers with respect to any Loss that the Sellers have incurred or suffered resulting from or relating to any breach or incorrectness with respect to any Scinai’s Warranties. |
| 16.3 | Breach of Warranties |
Section 14 shall apply accordingly to any liability of Buyer and Scinai, mutatis mutandis.
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17. EMPLOYMENT OF EXECUTIVES
| 17.1 | On the Closing Date, the Buyer shall employ or retain (as it will be agreed in good faith between the concerned individual and the Buyer) AA, CP, RL and BB (the “Company Executives”) - under respective employment or consulting agreements (as the case may be) in the draft that will be agreed in good faith between the concerned Company’s executive and the Buyer (the “Executive Agreements”) - as part of its senior management, with primary responsibilities, including but not limited to managing the drug development activities, the creation of the required packages for IND, BLA or any similar dossier submission in a country other than the United States of America, IP management and any pre-clinical and clinical development of the Company Assets, all the foregoing according to the terms provided in the respective side letter entered into between Scinai, the Company and the concerned Company Executives on the date hereof (the “Side Letter”). |
| 17.2 | Each Company Executive will have the right to receive from Scinai: |
| ( ) | annual short-term compensation based on his/her performance in accordance with Scinai’s performance-based compensation policy for executives in the form of cash payment equal to a percentage of their annual salary as detailed in the relevant Side Letter; |
| (a) | annual long-term compensation based on his/her performance in accordance with Scinai’s performance-based compensation policy for executives in the form of Restricted Stock Units (“RSUs”) equal to a percentage of their annual salary (as detailed in the relevant Side Letter) vested over 3 years in three equal annual instalments (1/3 annually starting at the first anniversary after the receipt of the first long term compensation allocation of RSUs). In case the Grant is awarded, the vesting of the first RSUs instalment shall be entirely accelerated to the date of the award. |
| 17.3 | The Annual Salaries of the Company Executives (as outlined in the relevant Side Letter) shall begin to accrue from the Closing Date. Payments for the accrued amounts will commence once a minimum of [***] ([***]) has been secured by the Company, by Scinai and/or by the Buyer, or any other vehicle designated for the development of the Company Assets (the “Starting Payment Date”). The accrued salaries between the Closing Date and the Starting Payment Date will be amortized and paid in equal monthly installments over a 12-month period starting from the Starting Payment Date. |
| 17.4 | The Executive Agreements of the Company Executives with the Buyer will have an initial duration of two years from the Closing Date, automatically renewing for successive one-year periods unless either concerned Party provides notice of termination not less than ninety days prior to the expiration of the then current term, it being understood that the Annual Salaries shall be paid, according to Section 17.3 and for the period up to the relevant termination date, even if the Starting Payment Date falls after the termination of the relevant Executive Agreement. |
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| 17.5 | In addition to the above: |
| ( ) | CP will be appointed as member of the Scientific Advisory Board of Scinai, and granted with compensation and duties substantially equivalent to other members serving on the Scientific Advisory Board; |
| (a) | Scinai and the Buyer shall take into duly consideration, without any obligation in this respect, the hiring or retention of selected talent of the Company, whose CV’s have been shared with Scinai, as employees or consultants of the Buyer. |
| 17.6 | The Parties agree that, with effect from the Closing Date, the Executive Agreements concluded according to this Section 17 will replace and supersede the current employment or service agreements of the relevant persons existing as of the Signing Date and/or at the Closing Date and all liabilities of the Company under such employment or service agreements shall be deemed fully discharged upon conclusion of the replacing agreement concluded according to this Section 17. |
18. NON-COMPETE, NON-SOLICITATION
| 18.1 | Non-compete |
Each of the Sellers hereby undertakes for a period until the end of two (2) years from the Closing Date (the “Applicable Period”) not to directly or indirectly, alone or jointly with any other person or entity, carry out, be engaged in, assist or have any ownership or interest in any business anywhere where the Company operates which competes with the Business or any part of the Business as conducted per the Signing Date and/or the Closing Date. This undertaking does not apply to any shareholdings or participation which are for investment purposes only and in which none of the Sellers has, directly or indirectly, a management function or any material influence on the conduct of business.
| 18.2 | Non-solicitation |
| 18.2.1 | Each of the Sellers shall, until the end of the Applicable Period, not: |
| ( ) | solicit or induce, directly or indirectly, any person who is at the Closing Date employed by the Company (a “Restricted Person”) to interfere with the Business or discontinue his or her employment with the Company; or |
| (a) | hire, retain or attempt to hire or retain any Restricted Person, or any person employed by the Company within the twelve (12) months period prior to the Closing Date. |
| 18.2.2 | Notwithstanding the foregoing, general solicitations of employment published in a newspaper, over the internet, or in another publication of general circulation and not specifically directed towards any Restricted Person shall not be deemed to constitute a solicitation or inducement for purposes of Section 18.2. |
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Execution Version March 27, 2025 |
19. CALL-BACK OPTION
| 19.1 | At the terms and conditions set forth under this Section 19 (particularly subject to occurrence of the Triggering Event), the Buyer irrevocably hereby grants to the Sellers, which accept, an irrevocable call option right, pursuant to article 1331 of the Civil Code for the purchase by the Sellers (or by an Affiliate designated by the Sellers under articles 1401 and following of the Civil Code) of all (and not less than all) the Quota (including any further quota or option rights, warrants or other rights to acquire a participation in the corporate capital of the Company) owned by the Buyer in the corporate capital of the Company (the “Call-Back Option Quota”) on the date of exercise of such call option right (the “Call-Back Option”). |
| 19.2 | The Sellers hereby accept the grant of the Call-Back Option to purchase the Call-Back Option Quota as set out in Section 19.1. |
| 19.3 | The Call-Back Option shall be exercisable by all or only part of the Sellers (or by a company wholly owned by the concerned Seller) (the “Beneficiaries”), it being understood that each of the Beneficiaries will be entitled to exercise its Call-Back Option on the Call-Back Option Quota pro rata, based on the percentage of the quotaholding held by the concerned Seller in the Company as of the date hereof (unless the Beneficiaries agree on any other allocation of the balance of the Call-Back Option Quota). |
| 19.4 | The Beneficiaries shall have the right to exercise the Call-Back Option on all the Call-Back Option Quota within (but including) June 30, 2029 but no later (the “Call-Back Option Exercise Period”) in the event the Buyer and/or Scinai and/or their Affiliates have not duly filed, within (and including) December 31, 2028, an IND application for PC111 to the FDA, or any similar dossier application in a country other than the United States of America, providing reasonable evidence to the Sellers of this filing the (the “Triggering Event”). |
| 19.5 | The Call-Back Option shall be exercised by the Beneficiaries by means of a written notice submitted to the Buyer and to the Chairman of board of directors of the Company (the “Call-Back Option Notice”). |
| 19.6 | The Parties agree that the aggregate price to be paid by the Beneficiaries to the Buyer in case of exercise of the Call-Back Option (the “Call-Back Option Price”) shall be an amount equal to the lower of (i) the Fair Market Value, as determined by the Independent Expert, and (ii) the sum of the amounts funded by the Buyer into the Company at that time, but in any event not less than the nominal value of the Quota of the Company at that time. |
| 19.7 | The completion of the sale and purchase of the Call-Back Option Quota as a consequence of the exercise of the Call-Back Option (the “Call-Back Option Closing”) shall take place, before the notary public selected by the Beneficiaries and communicated to the Buyer, no later than the 30th (thirtieth) Business Day following the delivery of the Call-Back Option Notice, save for any delay due to any authorization and/or consent which may be required or appropriate in order to duly implement the relevant transaction under applicable Law. |
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Execution Version March 27, 2025 |
| 19.8 | On the Call-Back Option Closing, the Parties shall take the following actions: |
| ( ) | the Buyer and the Beneficiaries shall execute all the formalities needed to transfer the full ownership of all the Call-Back Option Quota to the Beneficiaries, free and clear from any encumbrance, and execute and deliver such other agreement, letter, instrument or document as may be necessary, under applicable Law, to transfer to the Beneficiaries full ownership rights in, and title to, all the Call-Back Option Quota; |
| (a) | the Beneficiaries shall pay to the Buyer the Call-Back Option Price, by means of wire transfer to the bank account that will be timely communicated in advance by the Buyer; |
| (b) | the Parties shall execute and deliver any other document and/or instrument and comply with any other formality necessary for the transfer of the ownership of all the Call-Back Option Quota of the Buyer in compliance with applicable Law; |
| (c) | the Buyer shall (i) cause all the directors of the Company to resign or otherwise cease from his/her office as of the Call-Back Option Closing by delivering to the Company a letter in the form enclosed hereto under Exhibit 11.2.1 (a) (i), (ii) use its best efforts to cause the statutory auditors (if any) designated by the same to resign or otherwise cease from their office as of the Call-Back Option Closing; |
| (d) | the Company shall discharge all resigning directors under Section 19.8(d) from any liabilities incurred by reason of their offices up until the Call-Back Option Closing and renounce to vote in favour of any liability action against them (except for any liabilities arising from willful misconduct (“dolo”)); |
| (e) | the Buyer and the Sellers shall provide its consent to the release of the Deed of Pledge 2 and perform the relevant formalities. |
| 19.9 | It is understood that all the actions, fulfilments and formalities to be carried out on the Call-Back Option Closing shall be considered as a unitary, coordinated and indivisible operation. Accordingly, none of the above actions, fulfilments and formalities may be considered as validly completed unless all of them are definitively carried out. |
| 19.10 | The Parties agree that the provisions under this Section 19 relating to the Call-Back Option shall be deemed to constitute a wagering agreement (contratto aleatorio) for the purposes of article 1469 of the Civil Code. Therefore, the Parties expressly agree and acknowledge that the remedies provided for in articles 1467 and 1468 of the Civil Code shall not apply. |
| 19.11 | The Parties agree that the Call-Back Option is granted in consideration of the mutual undertakings and transactions contemplated herein and that no further consideration is due by the relevant Party to the other Party in exchange for the granting of the above Call-Back Option. |
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Execution Version March 27, 2025 |
| 19.12 | In the event of breach of Sections 8.3 or 20.8.2 - or should Scinai and/or the Buyer be declared bankrupt or be subject to an insolvency procedure (including an arrangement with its creditors) or winding up or liquidation before June 30, 2029 - the Call-Back Option shall be immediately exercisable and the pledge provided under the Deed of Pledge 2 shall become immediately enforceable. |
20. MISCELLANEA
| 20.1 | Joint Liability |
| 20.1.1 | Scinai will be jointly and severally liable with the Buyer for any obligation arising from this Agreement and relevant Exhibits. |
| 20.1.2 | Sellers shall be severally (and not jointly), pro quota based on the percentage of the quotaholding held by the concerned Seller in the Company as of the date hereof, liable towards the Buyer for any obligation arising from this Agreement and relevant Exhibits. |
| 20.2 | Cooperation |
Sellers on the one side and Buyer on the other side will cooperate, at its own cost and expense, with the other side on the reasonable request of the other side to give full effect to this Agreement, in particular to execute such documents and take such further actions as may be reasonably requested by the other side to carry out the provisions of this Agreement and the transactions contemplated in this Agreement, and unless expressly provided otherwise in this Agreement to obtain in a timely manner all necessary waivers, consents and approvals to effect all necessary registrations and filings. However, Scinai and Buyer shall not be liable to Sellers for any costs, expenses or damages if Buyer in its sole discretion decides not to exercise the Option.
| 20.3 | Payments; No Set-Off or Retention, Taxes |
| 20.3.1 | All payments under this Agreement are to be made in Euro and in full when due without any set-off or counterclaim, except as agreed in Section 20.3.4, in immediately available funds and free from any deduction or withholding, except to the extent as may be required by any applicable requirement of law or of any person who has regulatory authority which has the force of law (“Regulatory Requirements”) and such deduction or withholding must not exceed the minimum amount required by such Regulatory Requirements, by applying the exchange rate in € of the European Central Bank of the second (2) Business Days before the relevant due date as set out in this Agreement. |
| 20.3.2 | All payments owed by Buyer to the Sellers under this Agreement shall be made to the Sellers by payment to the following bank account of the Notary Public: |
Bank account IBAN: IT27U0623052110000015482053
Name: NOTAIO LUCIA FOLLADORI
BIC / SWIFT CRPPIT2PXXX
Bank: Credit Agricole
or to the ones that will be communicated by the Sellers to the Buyer in writing at least 7 (seven) Business Days in advance to the relevant payment date.
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Execution Version March 27, 2025 |
| 20.3.3 | All payments owed by Buyer or Scinai to Sellers under this Agreement shall be deemed paid when transferred to the account referred to above, especially shall not have the obligation to pay directly to each Seller the applicable proportion to each individual Seller. The Sellers themselves shall be solely responsible for the distribution of the Consideration payments amongst the Sellers according to the proportions provided under Exhibit 20.3.3. |
| 20.3.4 | Notwithstanding Section 20.3.1, Buyer shall have the right to set-off any credit arising from a Claim against Sellers resulting from a Warranty Breach for which the Sellers are liable in accordance with Section 15 and which credit is due, enforceable and payable (certo, liquido ed esigibile) according to article 1243, first paragraph, of the Civil Code, against any part of the Consideration and Additional Payments which becomes due in the future. |
| 20.3.5 | Any notarial fees, registration tax, stamp duty and/or other transfer taxes (including financial transaction taxes), costs and expenses payable in connection with the Acquisition shall be borne 100% by the Buyer (except for any taxes on the Consideration and on any direct or indirect capital gain realized by the Sellers as a result of the sale of the Quota under this Agreement which shall be entirely borne and paid by the Sellers). |
| 20.4 | Costs and Expenses |
| 20.4.1 | Unless expressly provided otherwise in this Agreement, each Party pays its own costs and expenses in relation to the negotiation, preparation, execution and performance of this Agreement. |
| 20.4.2 | The Parties shall equally share all fees, duties and levies resulting from the application to or filing with any Authority. |
| 20.4.3 | Buyer agrees that at the Closing Date the Company shall pay evidenced Transaction Costs as outlined in Exhibit 10 as follows (which shall not constitute a Leakage): |
| ( ) | evidenced Transaction Costs up to a maximum amount of [***] (in total) if the Grant is not awarded; or |
| (a) | evidenced Transaction Costs up to a maximum amount of [***] (in total) if the Grant is awarded. |
| 20.4.4 | The term “Transaction Costs” shall mean Sellers’ costs for legal and tax advice in connection with the Transactions contemplated under this Agreement (including) in connection with the review and negotiation of this Agreement, the Golden Power submission, IP and quote pledge, license agreement, tax advisory), but limited to such costs actually incurred as evidenced by written documentation. |
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Execution Version March 27, 2025 |
| 20.5 | Confidentiality, Announcements |
| 20.5.1 | Each Party shall keep confidential, and shall cause that any of its Affiliates keeps confidential: |
| ( ) | the content of the negotiations relating to and concerning this Agreement and its Exhibits; |
| (a) | the subject matter and terms and conditions of this Agreement and its Exhibits; |
| 20.5.2 | Either Party may disclose any information that it is required to keep confidential under Section 20.5.1: |
| ( ) | as follows: |
| (i) | to its employees, professional advisors, consultants, or officers (including its shareholders) as is reasonably necessary to advise on this Agreement, or to perform the transactions provided for in this Agreement; |
| (ii) | to its credit institutions and financing sources dealing with the financing of the transaction contemplated under this Agreement or a subsequent refinancing; |
| (iii) | in the course of other M&A transactions (including to Sofinnova for the purposes of the Sofinnova’s Payments); or |
| (iv) | to its sources of financing, |
to the extent that the disclosing Party procures that any person to whom the information is disclosed pursuant to points ( ) to (iii) above keeps such information confidential according to the provisions of this Section 20.5 as if it were a party to this Agreement;
| (a) | with the other Party’s prior written consent; or |
| (b) | to the extent that the disclosure is required: |
| (i) | by Regulatory Requirements (including IFRS); |
| (ii) | by an Authority; |
| (iii) | to make any filing with, or obtain any authorisation from, an Authority in connection with the transactions contemplated by this Agreement; or |
| (iv) | to protect the disclosing Party’s interest in any legal proceedings, |
but will use reasonable endeavours to consult the other Party in advance to such disclosure and to take into account any reasonable requests it may have received in relation to the disclosure before making it.
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Execution Version March 27, 2025 |
| 20.5.3 | As far as the transactions contemplated by this Agreement are concerned, each Party must supply the other with any information about itself, any Affiliate of such Party, its business or this Agreement as the other may reasonably require for the purposes of satisfying any Regulatory Requirements or requirements of any securities exchange to which the requiring Party is subject. |
| 20.5.4 | No Party is entitled to make any press release or other public announcement in connection with this Agreement except: |
| ( ) | an announcement in a form agreed by the Buyer and the Sellers; and |
| (a) | any announcement required by any applicable Regulatory Requirements (provided that, unless such consultation is prohibited by Regulatory Requirements, it is made only after consultation with the Buyer or the Sellers, as the case may be). The Sellers acknowledge that Scinai is a company listed at the NASDAQ and, therefore, has to comply with certain publication, information and transparency obligations under the applicable laws, and nothing herein shall prevent Scinai, as it deems appropriate, from making any public announcement to the extent required under any publication, information or transparency obligation according to the applicable laws (e.g. public company obligations under U.S. SEC Rules), and such public announcement shall not be regarded a breach of this Section. |
| 20.5.5 | The provisions of this Section 20.5 will continue to have effect for the period of 10 (ten) years from the Closing Date. |
| 20.5.6 | The Parties agree that the confidential disclosure agreement concluded between them on March 30, 2024 shall apply with respect to any information exchanged and the discussions between the Parties in preparation and/or negotiation of this Agreement and/or the Transaction contemplated under this Agreement. |
| 20.6 | Sellers’ Representative |
| 20.6.1 | By executing this Agreement, the Sellers hereby appoint Mr. Antonino Amato to act in their own name and on their own behalf as their common representative (the “Sellers’ Representative”) for the purposes of Section 20.6.2 below. The Parties acknowledge and agree that the Sellers’ Representative is hereby appointed also for the benefit of the Buyer and that such appointment is irrevocable pursuant to article 1723, second paragraph, of the Civil Code. |
| 20.6.2 | In addition to such powers and authority as are necessary to carry out the specific functions expressly assigned to it under this Agreement, the Sellers’ Representative shall have the powers indicated below. The Sellers’ Representative shall have no liability vis-à-vis the Buyer or the Sellers with respect to actions taken or omitted to be taken in its capacity as the Sellers’ Representative, but the Buyer shall be entitled to rely on the exercise of the powers and authority conferred on the Sellers’ Representative as if the relevant Seller is exercising such powers and authorities. The powers (i) to make and give all authorizations, decisions, consents, acknowledgements, acceptances (including with respect to the Consideration), designations and appointments on behalf of the Sellers in connection with the provisions of this Agreement; (ii) to send and receive all notifications, communications and decisions required or permitted hereby; and (iii) to sign all written waivers, integrations and modifications hereof, in each case on behalf and in the name of each of the Sellers and in each case on behalf and in the name of each of the Sellers. The Parties hereby acknowledge and agree that in the event of conflict between the instructions and communication given or provided by any of the Sellers, the instructions given by the Sellers’ Representative shall prevail. |
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Execution Version March 27, 2025 |
| 20.7 | Force Majeure |
| 20.7.1 | No Party shall be liable or responsible to the other Party, nor be deemed to have defaulted under or forfeited rights under or breached this Agreement, for any failure or delay in fulfilling or performing any duty or obligation under this Agreement (except for the payment of the Consideration), for a maximum period of up to one-hundred-and-twenty (120) days, when and to the extent such failure or delay is caused by or results from the following force majeure events that frustrates the purpose of this Agreement: (a) acts of God; (b) flood, fire, earthquake or explosion; (c) war, invasion, hostilities (whether war is declared or not), terrorist threats or acts, riot or other civil unrest; (d) government order or law; (e) actions, embargoes or blockades in effect on or after the date of this Agreement; (f) action by any governmental authority; (g) national or regional emergency; (h) strikes, labor stoppages or slowdowns or other industrial disturbances; (i) epidemic, pandemic or similar influenza or bacterial infection; (j) emergency state; (k) shortage of adequate medical supplies and equipment; (l) shortage of power or transportation facilities. For the sake of clarity, lapsed the above-mentioned period of one-hundred-and-twenty (120) days from the due date of the relevant obligation, the concerned Party shall no longer be entitled to invoke this Section 20.7.1. |
| 20.8 | Assignment |
| 20.8.1 | This Agreement shall be binding on and shall ensure to the benefit of the successors and assignees of each Party. Any assignment to any third party of this Agreement and of the rights and obligations connected or concerning thereto, that either Party is willing to carry out, shall not be valid without the previous written consent of the other Party. |
| 20.8.2 | If the Buyer wishes to transfer, directly or indirectly, all or part of its Call-Back Option Quota or the Company Assets to a third party (including by allowing a third party to subscribe a capital increase of the Company), the Buyer expressly undertakes (as condition of completion of such transfer) to make the concerned third party adhere to (i) this Agreement (including, without limitation, to all the obligations concerning the Additional Payments and the Call-Back Option), and (ii) the Deed of Pledge 2, no later than on the transfer date by signing a deed of adherence, providing evidence to the Sellers. As a result, such third party shall become a Party for the purpose of this Agreement and the Deed of Pledge 2 and shall be subject to the provisions of this Agreement, including the Additional Payments and the Call-Back Option, and of the Deed of Pledge 2. |
| 20.9 | Notices and Communications |
| 20.9.1 | Any notice to be given under this Agreement must be in writing and either be delivered by hand or by e-mail or by courier. |
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Execution Version March 27, 2025 |
| 20.9.2 | Notices must be sent to the following addresses or to such other addresses as may previously have been notified to the sending Party in accordance with this Section 20.7. Each communication must be marked for the attention of such person as is set out below, or has previously been notified to the sending Party in accordance with this Section 20.7 (the “Relevant Person”). |
If to Sellers, to Mr. [***]
| Address: | [***] |
| E-mail: | [***] |
If to Scinai and/or the Buyer, to:
| Address: | Scinai Immunotherapeutics Ltd. Jerusalem BioPark, 2nd floor Hadassah Ein Kerem Campus Jerusalem, Israel |
| E-mail: | [***] |
| Attention: | Chief Executive Officer, Mr. Amir Reichman |
with a copy to:
| Address: | |
| E-mail: | Mr. Perry Wildes, Legal Counsel |
| Attention: | [***] |
| 20.9.3 | A communication is deemed to have been received: |
| ( ) | if delivered by hand or courier company, at the time of delivery; and |
| (a) | if delivered by e-mail, at the time of completion of the transmission to the two Relevant Persons of the respective Party by the sender. |
| 20.9.4 | In proving receipt of notice, it is sufficient to show that: |
| ( ) | delivery by courier was made; or |
| (a) | the e-mail was dispatched to two Relevant Persons of the respective receiving Party, unless the receiving party proves that the e-mail has not been received by both Relevant Persons. |
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Execution Version March 27, 2025 |
| 20.9.5 | A Party may notify the other Parties of a change to its name, Relevant Person, address or e-mail address for the purposes of this Section 20.7 and notification is effective on: |
| ( ) | the date specified in the notification as the date on which the change is to take place; or |
| (a) | if no date is specified or the date specified is less than five (5) Business Days after the date on which notice is deemed to have been received, the date falling five (5) Business Days after notice of any such change is deemed to have been received. |
| 20.9.6 | For the avoidance of doubt, the Parties agree that the provisions of this Section 20.7 do not apply to the service of any writ, summons, order, judgment or other document relating to or in connection with any proceedings. |
| 20.9.7 | Each Party waives the right to reject any notice on the argument that the respective sender is lacking authority due to internal or statutory limitations on representation rights to the extent that such waiver is legally permissible and each Party delegates the relevant authority to each of its Relevant Persons to give any such notice, receive any such notice and respond to such notice. |
| 20.10 | Language |
This Agreement and all notices or formal communications under or in connection with this Agreement must be in English unless otherwise required by law.
| 20.11 | Amendment or Variation |
Any amendment or variation of this Agreement must be in writing. This applies equally to any amendment or variation of the terms set out in the preceding sentence.
| 20.12 | Severance |
| 20.12.1 | Nothing in this Agreement is to be read or construed as excluding any liability or remedy in the event of fraud. |
| 20.12.2 | Should one or more provisions of this Agreement be or become invalid or unenforceable in whole or in parts, or if there is a contractual gap, this does not affect the validity and enforceability of the remaining provisions of this Agreement. In place of the invalid or unenforceable provision, or to fill such contractual gap, such valid and enforceable provision applies which reflects as closely as possible the commercial intention of the Parties as regards the invalid, unenforceable or missing provision. |
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Execution Version March 27, 2025 |
| 20.13 | Entire Agreement |
| 20.13.1 | In this Section 20.13, references to this Agreement include all other written agreements and arrangements between the Parties which are expressed to be supplemental to this Agreement or which this Agreement expressly preserves or requires to be executed. |
| 20.13.2 | This Agreement constitutes the entire and only agreement and understanding between the Parties in relation to its subject matter. All previous drafts, agreements, understandings, undertakings, representations, warranties, promises and arrangements of any nature whatsoever between the Parties with any bearing on the subject matter of this Agreement are superseded and extinguished to the extent that they have such a bearing and each of the Parties acknowledges to the other, after due and careful consideration, that it is not entering into this Agreement in consequence of or in reliance on anything it is the purpose of this Section 20.13.2 to exclude. |
| 20.13.3 | All Exhibits, schedules and annexes form an integral part of this Agreement. |
21. GOVERNING LAW AND JURISDICTION
| 21.1 | This Agreement and its terms are governed by and construed in accordance with Italian law, excluding the United Nations Convention for the International Sale of Goods (CISG) and the conflict of law rules. |
| 21.2 | The Parties recognize that any dispute, controversy or claim arising under, out of or relating to this Agreement (and any subsequent amendments of this Agreement), including, without limitation, its formation, validity, binding effect, interpretation, performance, breach, termination or enforcement, and any remedies relating thereto, as well as non-contractual claims (collectively, a “Dispute”) may from time to time arise between the Parties. Any Dispute shall be first referred to the persons mentioned below for attempted resolution by good faith negotiations within 30 (thirty) days after such notice of Dispute is received. Said designated persons are as follows: |
| For Buyer: | Chairman of the board of directors of Scinai | |
| For Sellers: | Sellers’ Representative |
| 21.3 | In the event the Sellers on the ones side and Buyer on the other side are not able to resolve such Dispute as set forth in Section 21.2 within 30 (thirty) days following the notice, then each Party may submit such Dispute for final settlement to arbitration in accordance with the Arbitration Rules of the Milan Chamber of Arbitration without recourse to the ordinary courts of law. |
| 21.4 | The place of arbitration is Milan, Italy. The language of the arbitration is the English language. The arbitral tribunal consists of three arbitrators. The third arbitrator who acts as chairman of the arbitral tribunal is to be designated by the two arbitrators designated by the Parties upon consultation of the Parties. |
| 21.5 | Nothing in this Agreement restricts or prohibits any Party from applying to any court of competent jurisdiction for any interim or precautionary measure of protection in respect of the subject matter of the Dispute. |
51
Exhibit 8.1
Scinai Immunotherapeutics – List of Subsidiaries
| Subsidiary | Country of Incorporation |
Ownership Interest |
||
| Scinai BioServices Inc. | Delaware (U.S.A) |
100% |
||
|
Scinai Immunotherapeutics Spółka z ograniczoną odpowiedzialnością |
Poland | 100% |
Exhibit 11.2
SCINAI IMMUNOTHERAPUETICS LTD.
INSIDER TRADING POLICY
To Employees, Consultants/Advisors and Members of the Board of Directors
Summary
This Insider Trading Policy is intended to prevent violations of the United States federal securities laws and regulations, and applicable Israeli laws and regulations (collectively “Applicable Laws”), and to protect Scinai Immunotherapuetics Ltd.’s (“Scinai” and/or the “Company”) reputation for integrity and ethical conduct.
The securities laws prohibit trading in Company’s securities on the basis of Material Non-public Information (as defined below). You may have access to material non-public information about the Company and its operations. If you are in possession of such information, you may not trade in Company’s securities and you may not disclose such information to anyone else without prior Company approval. Additionally, even if you are not aware of Material Non-public Information, the policy prohibits you from trading during certain “black-out periods” designated by the Company unless you receive prior written approval to do so from the Compliance Officer of this Policy. Also, directors, officers, employees and consultants of the Company may only trade in the Company’s securities during certain trading periods described below and may not engage in certain transactions such as short sales and other transactions described below. In addition, such persons may not trade in Company securities at any time unless the trade has been approved by the Compliance Officer in writing.
Purpose
This policy sets forth your obligations to the Company and under the Applicable Laws to prevent actual or apparent insider trading.
As noted in the Company’s Code of Ethics, compliance with this policy is essential to conducting business with the utmost integrity and ethical standards.
If you have any questions about this policy or its application to any proposed transaction, you may obtain additional guidance from the Company’s legal counsel, Gross & Co. or the Company’s Chief Financial Officer, Uri Ben-Or.
| A. | Scope |
This policy applies to all Scinai’s employees, directors, officers and consultants (“Insiders”), as well as their family members, and prohibits trading while in possession of Material Non-public Information about the Company and other entities. These restrictions also apply to:
| ● | an Insider’s spouse, child, parent, significant other or other family member, in each case, either: (i) living in the same household; (ii) are financially dependent on the Insider; or (iii) whose transactions in securities are directed by the Insider or are subject to the Insider’s influence or control; |
| ● | all trusts, family partnerships and other types of entities formed for the benefit of the Insider or the Insider’s family members over which the Insider has the ability to influence or direct investment decisions concerning securities; |
| ● | all persons who execute trades on behalf of the Insider; and |
| ● | all investment funds, trusts, retirement plans, partnerships, corporations and other types of entities over which the Insider has the ability to influence or direct investment decisions concerning securities; |
Unless the context otherwise requires, references to “Insiders” in this policy refers collectively to Insiders and their affiliates as mentioned above.
This policy applies to any and all transactions in the Company’s securities, including any other type of securities that the Company may issue.
The special trading restrictions set forth in this policy continue to apply to Insiders following the termination of any such Insider’s service to or employment with the Company until any material, non-public information possessed by such Insider has become public or is no longer material.
This policy applies both to securities purchases and securities sales and other types of transfers, such as gifts and pledges, regardless how or from whom the Material Non-public Information was obtained.
The trade restrictions in this policy extends not only to transactions involving securities of the Company, but also to securities of other companies with which the Company has a business relationship. The existence of a personal financial emergency does not excuse non-compliance with these trading restrictions. The restrictions also apply to the disclosure of non-public information to third parties by employees or Insiders without prior Company approval.
| B. | What is “Material Non-Public Information”? |
“Material Non-public Information” is material information that has not been previously disclosed to the general public through a press release or securities filings and is otherwise not available to the general public. It is not possible to define all categories of material information. However, information should be regarded as material if there is a substantial likelihood that it would be considered important to a reasonable investor in making a voting decision or an investment decision to buy, hold or sell securities. Any information that could be expected to affect the market price of the Company’s securities, whether such information is positive or negative, should be considered material. Because trading that receives scrutiny will be evaluated after the fact with the benefit of hindsight, questions as to the materiality of particular information should be resolved in favor of materiality, and trading should be avoided. No employee, officer or director of the Company shall disclose or pass on (“tip”) Material Non-public Information to any other person, including a Family Member or friend, nor shall such person make recommendations or express opinions on the basis of Material Non-public Information as to trading in the Company’s securities.
While it may be difficult under this standard to determine whether particular information is material, there are various categories of information that are particularly sensitive and, as a general rule, should always be considered material. Examples of such information may include:
| ○ | Financial results; |
| ○ | Results of clinical development or other regulatory matters; |
| ○ | News relating to intellectual property; |
| ○ | Material contracts for manufacturing, or out-licensing or in-licensing of rights to technology or products; |
| ○ | Projections of future earnings or losses; |
| ○ | News of a pending or proposed merger, acquisition or tender offer; |
| ○ | News of a pending or proposed acquisition or disposition of significant assets; |
| ○ | Actions of regulatory agencies; |
| ○ | News of a pending or proposed acquisition or disposition of a subsidiary; |
| ○ | Impending bankruptcy or financial liquidity problems; |
| ○ | Gain or loss of a significant customer or supplier; |
| ○ | Significant pricing changes; |
| ○ | Stock splits and stock repurchase programs; |
| ○ | New equity or debt offerings; |
| ○ | Significant litigation exposure due to actual or threatened litigation; and |
| ○ | Changes in senior management. |
Information generally becomes available to the public after it has been disclosed by the Company or authorized third parties in a press release or other similar public statement, including any filing with the SEC. As a rule of thumb, information is considered non-public until at least two full trading days have passed on the Nasdaq after the Company releases the information to a national wire service. For example, if an announcement is made on Monday after the securities markets have closed, trading is not permitted until Thursday morning. The Compliance Officer will know when information has been released to the public. If you are unsure whether information of which you are aware is material or non-public, you should consult with the Compliance Officer prior to trading.
| B. | Trading Restrictions Applicable to Insiders |
Insiders are subject to the following trading restrictions:
1. No Trading Except During Trading Windows
The announcement of the Company’s quarterly financial results almost always has the potential to have a material effect on the market for the Company’s securities. Although an Insider may not know the financial results prior to public announcement, if an Insider engages in a trade before the financial results are disclosed to the public, such trades may give an appearance of impropriety that could subject the Insider and the Company to a charge of insider trading. To avoid the appearance of impropriety and assist Company personnel in planning transactions in the Company’s securities for appropriate times, no Insider shall purchase or sell any security of the Company during the period beginning on the close of business of the 14th calendar day before the end of any fiscal quarter of the Company and ending upon completion of the second full trading day after the public release of earnings data for such fiscal quarter. o Insider shall purchase or sell any security of the Company during the period beginning on the close of business of the 14th calendar day before the end of any fiscal quarter of the Company and ending upon completion of the second full trading day after the public release of earnings data for such fiscal quarter.
Even if no blackout period is in effect, keep in mind that you may not trade in the Company’s securities if you are aware of Material Non-public Information about the Company. Any person possessing Material Non-public Information concerning the Company is not allowed to engage in any transactions in the Company’s securities until such information has been known publicly for at least two trading days after the date of announcement.
For example, if the Company announces material information before trading begins on a Tuesday, the first time you would be able to buy or sell Company securities would be following the opening of the market on the third day, Friday.However, if the Company announces this material information after trading begins on that Tuesday, the first time that you would be able to buy or sell Company securities would be the opening of the market, on Monday.
In addition to the Blackout Periods described above, the Company may announce “special” Blackout Periods from time to time. Typically, this will occur when there are non-public developments that would be considered material for insider trading law purposes, such as, among other things, developments relating to clinical trials, regulatory proceedings or a major corporate transaction. Depending on the circumstances, a “special” Blackout Period may apply to all employees and Insiders or only a specific group of designated as such. The Compliance Officer will provide written notice of a “special” Blackout Period to certain individuals or to all persons covered, depending on the people who are exposed to the Material Non-public Information. Due to the confidential nature of the events that may trigger these types of blackout periods, the Compliance Officer may find it necessary to inform certain individuals of the Blackout Period without disclosing the reason for it. Any person made aware of the existence of a “special” Blackout Period should not disclose the existence of the Blackout Period to any other person. The failure of the Company to designate a person as being subject to a “special” Blackout Period will not relieve that person of the obligation not to trade while aware of Material Non-public Information.
As used in this Policy, the term “Blackout Period” includes both quarterly Blackout Periods and “special” Blackout Periods announced by the Company.
Exceptions to Blackout Periods apply to:
| ● | purchases of the Company’s securities from the Company or sales of the Company’s securities to the Company; |
| ● | exercises of stock options or other equity awards, the surrender of shares to the Company in payment of the exercise price or in satisfaction of any tax withholding obligations in a manner permitted by the applicable equity award agreement, or the vesting of equity-based awards that do not involve a market sale of the Company’s securities (the cashless exercise of a Company stock option through a broker does involve a market sale of the Company’s securities, and therefore would not qualify under this exception), it being understood that the disposition of shares acquired upon exercise of stock option or other equity awards are subject to this policy.; |
| ● | bona fide gifts of the Company’s securities;, provided that the gift is not made to circumvent the Blackout Period; and |
| ● | purchases or sales of the Company’s securities made pursuant to any binding contract, specific instruction, or written plan entered into while the purchaser or seller, as applicable, was unaware of any Material Non-public Information and which contract, instruction, or plan (i) meets all requirements of the affirmative defense provided by Rule 10b5-1, (ii) was precleared in advance pursuant to this Policy, and (iii) has not been amended or modified in any respect after such initial preclearance without such amendment or modification being precleared in advance pursuant to this Policy. |
The purpose behind the Blackout Period is to help establish a diligent effort to avoid any improper transactions. Trading in the Company’s securities outside a Blackout Period should not be considered a “safe harbor”, and all employees, officers and directors and other persons subject to this Policy should use good judgment at all times. Although the Company may from time to time impose special Blackout Periods, because of developments known to the Company and not yet disclosed to the public, each person is individually responsible at all times for compliance with the prohibitions against insider trading.
2. Pre-Clearance Procedure
No Insider may at any time (or any other person while subject to the restrictions of a Blackout Period) trade in Company securities unless the trade has been pre-approved by the Compliance Officer in writing. The Company has designated Mr. Uri Ben Or, Chief Financial Officer, as its insider trading compliance officer (the “Compliance Officer”). The Compliance Officer will review and either approve or prohibit, in writing, all proposed trades by Insiders. The Compliance Officer may consult with the Company’s other officers and/or outside legal counsel and will receive approval for his own trades from the Chairman of the Board, who shall be the alternate Compliance Officer (the Compliance Officer and the alternate Compliance Officer are collectively referred to as the “Compliance Officer” in this policy). If you are unable to contact the Compliance Officer, or if you do not feel you can discuss the matter with the Compliance Officer, you may contact the Chairman of the Board.
Every employee, officer and director has the individual responsibility to comply with this Policy against insider trading, regardless of whether a transaction is executed outside a Blackout Period or is pre-cleared by the Company. The restrictions and procedures are intended to help avoid inadvertent instances of improper insider trading, but appropriate judgment should always be exercised by each employee, officer and director in connection with any trade in the Company’s securities.
An employee, officer or director may, from time to time, have to forego a proposed transaction in the Company’s securities even if he or she planned to make the transaction before learning of the Material Non-public Information and even though the Insider believes he or she may suffer an economic loss or forego anticipated profit by waiting.
| C. | Additional Transactions to which this Policy is Applicable |
Options Trading: A transaction in options is, in effect, a bet on the short-term movement of the Company’s stock and therefore creates the appearance that the employee, officer or director is trading based on inside information. Transactions in options also may focus the trader’s attention on short-term performance at the expense of the Company’s long-term objectives. Accordingly, transactions in puts, calls or other derivative securities, whether on an exchange or in any other organized market, are prohibited. Option positions arising from certain types of hedging transactions are governed by the section below relating to hedging or monetization transactions.
Hedging: Certain forms of hedging or monetization transactions, such as zero-cost collars and forward sale contracts, allow an employee, officer or director to lock in much of the value of his stock holdings, often in exchange for all or part of the potential for upside appreciation in the stock. These transactions would allow an employee, officer or director to continue to own the covered securities, but without the full risks and rewards of ownership. When that occurs, their interests and the interests of the Company and its shareholders may be misaligned and may send a message to the trading market that may not be in the best interests of the Company and its shareholders at the time it is conveyed. Accordingly, hedging transactions and all other forms of monetization transactions are prohibited.
Margin Accounts: Securities held in a margin account may be sold by the broker without the customer’s consent if the customer fails to meet a margin call. Similarly, securities pledged (or hypothecated) as collateral for a loan may be sold in foreclosure if the borrower defaults on the loan. A margin sale or foreclosure sale may occur at a time when the pledgor is aware of Material Non-public Information or otherwise is not permitted to trade in Company securities pursuant to Blackout Period restrictions. Thus, employees, officers and directors are prohibited from pledging Company securities as collateral for a loan. Additionally, shares of Company stock may not be held in a margin account.
Post Termination Transactions: This Policy continues to apply to transactions in Company securities even after an employee, officer or director has resigned or terminated employment. If the person who resigns or separates from the Company is in possession of Material Non-public Information at that time, he or she may not trade in Company securities until that information has become public or is no longer material.
| D. | Exemptions |
Pre-Approved Rule 10b5-1 Plan. Transactions effected pursuant to a pre-approved Rule 10b5-1 plan will not be subject to the Company’s trading windows or pre-clearance procedures. Rule 10b5-1 of the Exchange Act provides an affirmative defense from insider trading liability under the federal securities laws for trading plans that meet certain requirements. A trading plan, arrangement or instruction that meets the requirements of Rule 10b5-1 (a “Rule 10b5-1 Plan”) enables Insiders to establish certain arrangements ahead of time that permit them to trade in Company securities outside of the Company’s trading windows, even when in possession of material, non-public information. If an Insider intends to trade pursuant to a Rule 10b5-1 Plan, such plan must:
| ● | satisfy the requirements of Rule 10b5-1; |
| ● | be documented in writing; |
| ● | be established during a trading window when such Insider does not possess material, non-public information; and |
| ● | be pre-approved by the Compliance Officer. |
Any deviation from, or alteration to, the specifications of an approved Rule 10b5-1 Plan (including, without limitation, the amount, price or timing of a purchase or sale) must be reported immediately to the Compliance Officer.
The Compliance Officer may refuse to approve a Rule 10b5-1 Plan as he or she deems appropriate including, without limitation, if he or she determines that such plan does not satisfy the requirements of Rule 10b5-1. The Compliance Officer may consult with the Company’s legal counsel before approving a Rule 10b5-1 Plan. If the Compliance Officer does not approve an Insider’s Rule 10b5-1 Plan, such Insider must adhere to the pre-clearance procedures and trading windows set forth above until such time as a Rule 10b5-1 Plan is approved.
Any modification or termination of an Insider’s prior Rule 10b5-1 Plan requires pre-approval by the Compliance Officer. A modification must occur during a trading window and while such Insider is not aware of material, non-public information.
Employee Benefit Plans.
1. Exercise of Share Options. The exercise of options that have been granted to you by the Company under one of the Company’s share option plans is permitted without restriction under this policy. However, this does not include cashless exercise of options, sales to cover, or sales of the shares received upon exercise of the options.
2. Tax Withholding on Restricted Shares/Units. The trading prohibitions and restrictions set forth in this policy do not apply to the withholding by the Company of share capital upon vesting of restricted shares or upon settlement of restricted share units to satisfy applicable tax withholding requirements if (a) such withholding is required by the applicable plan or award agreement or (b) the election to exercise such tax withholding right was made by the Insider in compliance with this policy.
| E. | Waivers |
A waiver of any provision of this policy in a specific instance may be authorized in writing by the Audit Committee of the Board of Directors, and any such waiver shall be reported to the Company’s Board of Directors.
| F. | Acknowledgment |
This policy will be delivered to all current Insiders and to all new Insiders at the start of their employment or relationship with the Company. Upon first receiving a copy of this policy, each Insider must acknowledge that he or she has received a copy and agrees to comply with the terms of this Policy. Such Insider shall return the acknowledgment attached hereto within ten (10) days of receipt to:
Compliance Officer
Uri Ben Or
This acknowledgment will constitute consent for the Company to impose sanctions up to and including termination of employment for violation of the Insider Trading Policy or this policy, and to issue any necessary stop-transfer orders to the Company’s transfer agent to ensure compliance.
Insiders will be required upon the Company’s request to re-acknowledge and agree to comply with this policy (including any amendments or modifications). For such purpose, an Insider will be deemed to have acknowledged and agreed to comply with this policy when copies of such item have been delivered to the Insider by regular or electronic mail (or other delivery option used by the Company) by the Compliance Officer or his or her designee, unless the Insider objects in a written statement received by the Compliance Officer within two (2) business days of such delivery.
____________________
Failure to observe this policy could lead to significant legal problems, and could have other serious consequences, including termination of employment. Questions regarding this policy are encouraged and may be directed to the Compliance Officer.
____________________
ACKNOWLEDGMENT
I hereby acknowledge that I have read, that I understand, and that I agree to comply with this Insider Trading Policy.
| Date: | Signature: | |||
| Name: | ||||
| Title: | ||||
Scinai – Insider Trading Policy Acknowledgment Form
Changes History
|
Revision # |
Changes Summary |
| 1.0 | Initial release |
Document Approval
| Position | Name | Signature | Date (dd/mmm/yy) |
| Director of Communications and Investor Relations | Joshua Phillipson | ||
| CSO | Tammy Ben Yedidia | ||
| CEO | Amir Reichman |
10
Exhibit 12.1
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Amir Reichman, certify that:
1. I have reviewed this report on Form 20-F of Scinai Immunotherapeutics Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 7, 2025
| By: | /s/ Amir Reichman | |
| Name: | Amir Reichman | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 12.2
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Uri Ben-Or, certify that:
1. I have reviewed this report on Form 20-F of Scinai Immunotherapeutics Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 7, 2025
| By: | /s/ Uri Ben-Or | |
| Uri Ben-Or | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) |
Exhibit 13.1
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
In connection with the Annual Report on Form 20-F of Scinai Immunotherapeutics Ltd. (the “Company”) for the period ended December 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Amir Reichman, Chief Executive Officer, of Scinai Immunotherapeutics Ltd., an Israel corporation, do hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) that:
(1) The Report of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: May 7, 2025 | /s/ Amir Reichman |
| Amir Reichman | |
|
Chief Executive Officer (Principal Executive Officer) |
Exhibit 13.2
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
In connection with the Annual Report on Form 20-F of Scinai Immunotherapeutics Ltd. (the “Company”) for the period ended December 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Uri Ben-Or, Chief Financial Officer, of Scinai Immunotherapeutics Ltd., an Israel corporation, do hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) that:
(1) The Report of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: May 7, 2025 | /s/ Uri Ben-Or |
| Uri Ben-Or | |
|
Chief Financial Officer (Principal Financial Officer) |
Exhibit 15.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (Nos. 333-271293 and 333-239344) and Forms F-3 (Nos. 333-274078 and 333-276767) of Scinai Immunotherapeutics Ltd. of our report dated May 7, 2025, relating to the financial statements which appears in Scinai Immunotherapeutics Ltd.’s Annual Report on Form 20-F for the year ended December 31, 2024.
/s/ Kesselman & Kesselman
Certified Public Accountants (Isr.)
A member firm of PricewaterhouseCoopers International Limited
Tel Aviv, Israel
May 7, 2025
Exhibit 15.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the registration statements on Form S-8 (No. 333-271293 and No. 333-239344 ) pertaining to the 2005 Israeli Share Option Plan and the 2018 Israeli Share Option Plan and on Form F-3 (No. 333-274078 and No. 333-276767) of Scinai Immunotherapeutics Ltd. of our report dated April 17, 2023 with respect to the financial statements of Scinai Immunotherapeutics Ltd. included in this Annual Report (Form 20-F) for the year ended December 31, 2024.
| /s/ Kost Forer Gabbay & Kasierer | |
| Kost Forer Gabbay & Kasierer |
A member firm of Ernst & Young Global
Tel Aviv, Israel
May 07, 2025