Protalix BioTherapeutics Inc

NOTE 10 - CONVERTIBLE NOTES

a.7.5% Convertible Notes Due 2021

In December 2016, the Company issued to certain existing note holders and new purchasers $62.7 million aggregate principal amount of its 2021 Notes in a private placement and an exchange pursuant to Section 4(a)(2) under the Securities Act. In July 2017, the Company issued an additional $10.0 million in aggregate principal amount of the 2021 Notes in a private placement pursuant to Section 4(a)(2) under the Securities Act. A portion of the interest payable under the 2021 Notes was allowed to be made in shares of Common Stock at the Company’s election. On November 15, 2021, all the then outstanding 2021 Notes matured and were paid in full.

The following table sets forth total interest expense recognized related to the 2021 Notes:

b.7.5% Convertible Notes Due 2024

On August 25, 2021, the Company completed exchanges (the “Exchanges”) of a substantial majority of the Company’s outstanding 2021 Notes with certain institutional note holders. The Exchanges involved the exchange of an aggregate of $54.65 million principal amount of the Company’s outstanding 2021 Notes for an aggregate of $28.75 million principal amount of newly issued 2024 Notes, $25.90 million in cash, and approximately $1.1 million in cash representing accrued and unpaid interest through the issue date. The initial conversion rate for the 2024 Notes is 563.2216 shares of Common Stock for each $1,000 principal amount of 2024 Notes (equivalent to an initial conversion price of approximately $1.7755 per share of the

Common Stock), subject to adjustment in certain circumstances, which is based on a 32.5% premium to the closing price of the Common Stock on the NYSE American at the close of trading on August 13, 2021, the exchange date.

The 2024 Notes were issued pursuant to an indenture (the “2024 Indenture”) entered into between the Company, the guarantors party thereto, The Bank of New York Mellon Trust Company, N.A., as trustee and Wilmington Savings Fund Society, FSB, as collateral agent (the “Collateral Agent”). Interest on the 2024 Notes is payable semi-annually at a rate of 7.50% per annum. The Notes mature three years after the issuance thereof, unless earlier purchased, converted, exchanged or redeemed and are guaranteed by the Company’s subsidiaries. The 2024 Notes are secured by perfected liens on all of the assets of the Company and its subsidiaries.

For accounting purposes, as the terms of the 2021 Notes and the 2024 Notes are substantially different, the Exchanges were considered an extinguishment of debt. The Company allocated the fair value of the consideration transferred to the participating note holders between the 2021 Notes and their equity component based on the fair value of the liability component before the extinguishment, and the remainder was allocated to the equity component. As a result, the Company recognized a loss from extinguishment in the statement of operations equal to $0.8 million due to derecognition of the liability component and a reduction of stockholders’ equity of $12.2 million.

The Company accounted for the 2024 Notes as a liability (debt) and equity component (conversion option) as the convertible notes may be settled wholly or partly in cash, at the option of the Company, when converted. The equity component with respect to the cash conversion feature net of transaction costs of approximately $12.0 million was recognized in the Company’s additional paid in capital.

Transaction costs in the amount of approximately $869,000 were allocated to the liability and equity component. The debt discount and debt issuance costs regarding the issuance of the 2024 Notes are deferred and amortized over the convertible notes period using the effective interest rate.

Holders may convert their 2024 Notes at any time. The initial conversion rate for the 2024 Notes is 563.2216 shares of Common Stock for each $1,000 principal amount of 2024 Notes (equivalent to an initial conversion price of approximately $1.7755 per share of Common Stock). Upon conversion, the Company may settle the 2024 Notes by paying or delivering, as the case may be, cash, shares of Common Stock or a combination thereof, at the Company’s election.

As of December 31, 2023, a total of $20.42 million aggregate principal amount of the 2024 Notes were outstanding.

Prior to the maturity date, the Company may redeem in cash:

a)any or all of the outstanding 2024 Notes if, on or after March 31, 2023, the last reported sale price of the Common Stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days exceeds 130% of the conversion price on each applicable trading day, or

b)all of the 2024 Notes then outstanding if the aggregate principal amount of the 2024 Notes then outstanding is less than 15% of the aggregate principal amount of the notes issued on August 25, 2021.

To date, there has beenno redemption of 2024 Notes.

The 2024 Notes are guaranteed by the Restricted Subsidiaries (as defined in the 2024 Indenture) and are secured by a first-priority security interest in all of the present and after-acquired assets of the Company and each of the Restricted Subsidiaries (the “Collateral”), including, but not limited to, (i)100% of the capital stock of the Guarantors (as defined in the 2024 Indenture) and each Restricted Subsidiary of the

Company that is held by the Company or any Restricted Subsidiary, (ii) intellectual property, including all copyrights, copyright licenses, patents, patent licenses, software, trademarks, trademark licenses and trade secrets and other proprietary information, including, but not limited to, domain names, (iii) all cash, deposit accounts, securities accounts, commodities accounts and contract rights, (iv) all real property and leased property, subject to applicable minimum thresholds, as set forth in the 2024 Indenture, and (v) all other tangible and intangibles of the Company and the Guarantors. In connection with the grant of such liens, the Company entered into certain agreements with both the Collateral Agent and Altshuler Shaham Trusts Ltd., as security trustee in Israel. The 2024 Indenture restricts the ability of the Company, the Subsidiaries and any future subsidiaries to make certain investments, including transfers of the Company’s assets that constitute collateral securing the 2024 Notes, in its existing and future foreign subsidiaries, subject to certain exceptions.

Upon (i) the occurrence of a fundamental change (as defined in the 2024 Indenture) or (ii) if the Company calls the 2024 Notes for redemption as described below (either event, a “make-whole fundamental change”) and a holder elects to convert its 2024 Notes in connection with such make-whole fundamental change, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares (the “Additional Shares”). In no event will the conversion rate exceed the maximum conversion rate, which is 746.2686 shares per $1,000 principal amount of 2024 Notes, which amount is inclusive of repayment of the principal of the 2024 Notes.

If a fundamental change occurs at any time, holders will have the right, at their option, to require the Company to purchase for cash any or all of the 2024 Notes, or any portion of the principal amount thereof, that is equal to $1,000 or an integral multiple of $1,000 in excess thereof, on a date of the Company’s choosing that is not less than 20 calendar days nor more than 35 calendar days after the date of the applicable fundamental change company notice. The price the Company is required to pay for a 2024 Note is equal to 100% of the principal amount of such 2024 Note plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date. Under the terms of the 2024 Indenture, the Company is required tomeet certain covenants including the requirement tomaintain a minimum cash balance of at least $7.5 million. Failure to meet covenants can be considered an event of default and, accordingly, may result in the acceleration of the payment of the notes or in additional interest payments. As of December 31, 2023, the Company was in compliance with all covenants.

The Company prepared a valuation of the fair value of the 2024 Notes and 2021 Notes (a Level 3 valuation) as of August 25, 2021. The value was estimated by implementing the binomial model. The liability component was valued based on the Income Approach. The following parameters were used:

The following table sets forth total interest expense recognized related to the 2024 Notes:

NOTE 11 - FAIR VALUE MEASUREMENT

The Company discloses fair value measurements for financial assets and liabilities. Fair value is based on the price that would be received from the sale of an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.

The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

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 prices 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 is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

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 fair value of the financial instruments included in the working capital of the Company is usually identical or close to their carrying value.

The fair value of the outstanding $20.42 million 2024 Notes as of December 31, 2023 is approximately $25.6 million based on a level 3 measurement.

The Company prepared the valuation of the fair value of the 2024 Notes (a Level 3 valuation) as of December 31, 2023. The value of these notes was estimated by implementing the binomial model. The liability component was valued based on the Income Approach. The following parameters were used:

NOTE 12 – NET EARNINGS (LOSS) PER SHARE

Basic and diluted net earnings (loss) per share attributable to common stockholders were calculated as follows:

• Financial expenses on 2024 Notes consists of add back of financial expense incurred during the year and inclusion of make-whole interest payments that will be incurred upon conversion.

Diluted loss per share do not include 28,502,017 and 34,097,716 shares of Common Stock underlying outstanding stock options, warrants and convertible notes of the Company for the years ended December 31, 2021 and December 31, 2022, respectively, because the effect would be anti-dilutive. In the year ended December 31, 2023, the diluted earnings per share do not include 18,254,264 shares of Common Stock underlying outstanding warrants and stock options because the effect would be anti-dilutive.

NOTE 13 - TAXES ON INCOME

Protalix BioTherapeutics, Inc. is taxed according to U.S. tax laws. The Company’s income is taxed in the United States at a rate of up to 21%.

The following table summarizes the Company’s taxes on income:

The Company had an effective tax rate of 3% for the year ended December 31, 2023, compared to an effective tax rate of (4)% for the year ended December 31, 2022. For the year ended December 31, 2023, the difference between the Company’s effective tax rate and the U.S. federal statutory rate of 21% was the result of the provision for current taxes on income mainly derived from U.S. taxable GILTI income mainly in respect of milestone payments and Section 174 of the U.S. Tax Cuts and Jobs Act, which was enacted into law in December 2017 (the “TCJA”), partially offset by the release of the valuation allowance on net operating losses (NOLs) in the United States.

Following the regulatory approvals for Elfabrio in May 2023, the receipt of the $20.0 million milestone payment and the launch of Elfabrio in the United States, the Company released the valuation allowance previously recorded on deferred tax assets in respect of its NOLs in the United States resulting in a net tax benefit of $3.1 million. The Company concluded that, based upon the preponderance of positive evidence over negative evidence and the anticipated ability to use the deferred tax assets, it was more likely than not that these deferred tax assets would be realizable due to forecasted profits. The Company considered the following: (i) cumulative profits for tax over the previous 12 quarters in its U.S. operations; (ii) the impact of Section 174 of the TCJA which requires the Company to capitalize and amortize its research and development expenses over 15 years; and (iii) its forecasted profits in the United States following the regulatory approvals of Elfabrio.

The TCJA represents fundamental and dramatic modifications to the U.S. tax system. It contains several key tax provisions that impacted the Company including the reduction of the maximum U.S. federal

corporate income tax rate from 35% to 21%, effective January 1, 2018. Other significant changes under the TCJA includes, among others, a one-time repatriation tax on accumulated foreign earnings, a limitation of NOL deduction to 80% of taxable income, and indefinite carryover of post-2017 NOLs. The TCJA also repealed the corporate alternative minimum tax for tax years beginning after December 31, 2017. Losses generated prior to January 1, 2018 will still be subject to the 20-year carryforward limitation and the alternative minimum tax. Other impacts due to the TCJA included the repeal of the domestic manufacturing deduction, modification of taxation of controlled foreign corporations, a base erosion anti-abuse tax, modification of interest expense limitation rules, modification of limitation on deductibility of excessive executive compensation, and taxation of global intangible low-taxed income.

Modification of interest expense limitation rules under the TCJA provides generally that for taxable years 2019-2022 interest expense deduction shall be limited to 30% of the EBITDA and for taxable years 2022 onwards to 30% of EBIT. Disallowed interest deduction may be carried forward indefinitely. The Company believes that any potential impact (if applicable) of this limitation will be offset by utilization of available NOLs.

Section 174 of the TCJA requires taxpayers to capitalize and amortize research and development expenses for tax years beginning after December 31, 2021. This rule became effective for the Company during the year ended December 31, 2022, and resulted in the capitalization of research and development costs of approximately $28.5 million and $14.4 million in 2022 and 2023, respectively. The Company will amortize these costs for tax purposes over 15 years for research and development performed outside the United States.

The Company believes that all future profits of its subsidiaries will be indefinitely reinvested or that there is no expectation to distribute any taxable dividends from these subsidiaries. The determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings is estimated as an immaterial amount.

b. Protalix Ltd.

The Company as a “foreign-investment company” measures its results for tax purposes in dollar based on Income Tax Regulations (Bookkeeping Principles of Foreign Invested Companies and of Certain Partnerships and the Determination of Their Taxable Income), 1986. The Israeli Subsidiary is taxed according to Israeli tax laws:

The income of the Israeli Subsidiary, other than income from “Approved Enterprises,” is taxed in Israel at the regular corporate tax rates.

The corporate tax rate was 23% for 2018 and thereafter.

Capital gain on a sale of assets is subject to capital gain tax according to the corporate tax rate in effect in the year during which the assets are sold.

Under the Encouragement of Capital Investments Law, including Amendment No. 60 to the Encouragement of Capital Investments Law as published in April 2005, by virtue of the “Approved Enterprise” or “Benefited Enterprise” status the Israeli Subsidiary is entitled to various tax benefits as follows:

a.Reduced tax rates

Income derived from the Approved Enterprise during a 10-year period commencing upon the year in which the enterprise first realizes taxable income is tax exempt, provided that the maximum period to which it is restricted by the Encouragement of Capital Investments Law has not elapsed.

The Israeli Subsidiary has an “Approved Enterprise” plan since 2004 and “Benefited Enterprise” plan since 2009. The period of benefits in respect of the main enterprise of the Company has not yet commenced. The period during which the Company is entitled to benefits in connection with the Benefited Enterprise expired in 2022.

If the Israeli Subsidiary subsequently pays a dividend out of income derived from the “Approved Enterprise” or “Benefited Enterprise” during the tax exemption period, it will be subject to tax on the gross amount distributed (including the company tax on these amounts), at the rate which would have been applicable if such income not been exempted.

b.Accelerated depreciation

The Israeli Subsidiary is entitled to claim accelerated depreciation, as provided by Israeli law, in the first five years of operation of each asset, in respect of buildings, machinery and equipment used by the Approved Enterprise and the Benefited Enterprise.

c.Conditions for entitlement to the benefits

The Israeli Subsidiary’s entitlement to the benefits described above is subject to its fulfillment of conditions stipulated by the law, rules and regulations published thereunder, and the instruments of approval for the specific investment in an approved enterprise. Failure by the Israeli Subsidiary to comply with these conditions may result in the cancellation of the benefits, in whole or in part, and the Subsidiary may be required to refund the amount of the benefits with interest. The Israeli Subsidiary received a final implementation approval with respect to its “Approved Enterprise” from the Investment Center.

d.Amendment of the Law for the Encouragement of Capital Investments, 1959

In recent years, several amendments have been made to the Encouragement of Capital Investments Law which have enabled new alternative benefit tracks, subject to certain conditions.

The Encouragement of Capital Investments Law was amended as part of the Economic Policy Law for the years 2011-2012 (amendment 68 to the Encouragement of Capital Investments Law), which was passed by the Israeli Knesset on December 29, 2010. The amendment sets alternative benefit tracks to those currently in effect under the provisions of the Encouragement of Capital Investments Law. On December 29, 2016, Amendment 73 to the Encouragement of Capital Investments Law was published. This amendment sets new benefit tracks, inter alia, “Preferred Technological Enterprise” and “Special Preferred Technological Enterprise” (the “Capital Investments Law Amendment”).

To date, the Company has elected not to have the Capital Investments Law Amendment apply to the Company.

c. Tax losses carried forward to future years

As of December 31, 2023 and 2022, the Company had aggregate NOL carry-forwards equal to approximately $234.8 million and $247.4 million, respectively, that are available to reduce future taxable income as follows:

The Company’s carry-forward NOLs, equal to approximately $24.4 million and $26.7 million as of December 31, 2023 and 2022, respectively, may be restricted under Section 382 of the Internal Revenue Code (“IRC”). IRC Section 382 applies whenever a corporation with NOL experiences an ownership change. As a result of IRC Section 382, the taxable income for any post change year that may be offset by a pre-change NOL may not exceed the general IRC Section 382 limitation, which is the fair market value of the pre-change entity multiplied by the IRC long-term tax exempt rate.

Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, the Company considered all available evidence, including past operating results, the most recent projections for taxable income, and prudent and feasible tax planning strategies. The Company reassesses its valuation allowance periodically and if future evidence allows for a partial or full release of the valuation allowance, a tax benefit will be recorded accordingly.

At December 31, 2023 and 2022, the Israeli Subsidiary had approximately $210.4 million and $220.7 million, respectively, of carry-forward NOLs that are available to reduce future taxable income with no limited period of use.

d. Deferred income taxes:

The components of the Company’s net deferred tax assets at December 31, 2022 and 2023 were as follows:

Deferred taxes are computed using the tax rates expected to be in effect when those differences reverse.

e. Reconciliation of the theoretical tax expense to actual tax expense

A reconciliation of the statutory U.S. federal income tax rate of 21% in 2023, 2022 and 2021 to the effective income tax rate is as follows:

f. Valuation allowance roll-forward

The following table presents the change in the Company’s valuation allowance during the periods presented:

g. Uncertain tax position

Provisions of ASC 740-10, Income Taxes, clarify whether to recognize assets or liabilities for tax positions taken that may be challenged by a tax authority. A reconciliation of the beginning and ending amount of unrecognized tax benefits, is as follows:

h. Tax assessments

In accordance with the Income Tax Ordinance, as of December 31, 2023, all of Protalix Ltd.’s tax assessments through tax year 2018 are considered final.

A summary of open tax years by major jurisdiction is presented below:

NOTE 14 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION

Balance sheets:

NOTE 15 - RELATED PARTY TRANSACTIONS

NOTE 16 - SUBSEQUENT EVENTS