20-F 1 zk2024165.htm 20-F


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 20-F

☐ 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, 2019
 
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 ________
 
Commission File No. 000-29256
 
G. WILLI-FOOD INTERNATIONAL LTD.
(Exact name of Registrant as specified in its charter
and translation of Registrant’s name into English)
 
Israel
(Jurisdiction of incorporation or organization)

4 Nahal Harif St., Northern Industrial Zone, Yavne 81106, Israel
(Address of principal executive offices)
 
Yitschak Barabi, Chief Financial Officer
4 Nahal Harif St., Northern Industrial Zone,
Yavne 81106, Israel
Tel: 972-8-932-1000
(Name, Telephone, E-mail and/or Facsimile number and Address of Registrant's Contact Person)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading Symbol(s) 
 
Name of each exchange on which registered
Ordinary Shares, NIS 0.10 par value per share
 
WILC
 
Nasdaq Capital Market

Securities registered or to be registered pursuant to Section 12(g) of the Act:
 
None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None



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:
 
The registrant had 13,217,017 ordinary shares, NIS 0.10 nominal value per share, as of December 31, 2019.

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 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 and post such files):
 
Yes ☒          No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated filer ☐
Emerging growth company ☐
Accelerated filer ☐
Non-accelerated filer  ☒


If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP ☐

International Financing Reporting Standards as issued by the International Accounting Standards Board ☒

Other ☐
 
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow:
 
Item 17 ☐          Item 18 ☐
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes ☐          No ☒

2

TABLE OF CONTENTS

   
Page
4
4
PART I
5

5

5

5
 
17
 
29
 
30
 
37
 
54
 
56
 
61
 
61
 
75
 
76
 
76
 
76
 
76
 
78
 
78
 
78
 
78
 
78
 
79
 
79
 
79
  80
PART II
81
 
81
 
81
 
82

3

PRESENTATION OF INFORMATION
 
In this Annual Report, references to the “Company”, “we” and “us” refer to G. Willi-Food International Ltd. and its consolidated subsidiaries. References to “Willi-Food” refer to Willi-Food Investments Ltd., our controlling shareholder.
 
The Company presents its consolidated financial statements in New Israeli Shekels, the currency of the State of Israel.  Unless otherwise specified or the context otherwise requires, references to “$”, “US$”, “Dollars”, “USD” and “U.S. Dollars” are to the United States Dollars and references to "NIS" are to New Israeli Shekels.
 
Solely for the convenience of the reader, this Annual Report contains translations of certain NIS amounts into U.S. Dollars at specified rates. These translations should not be construed as representations that the translated amounts actually represent such dollar or NIS amounts, as the case may be, or could be converted into U.S. Dollars or NIS as the case may be, at the rates indicated or at any other rate.  Therefore, unless otherwise stated, the translations of NIS into U.S. Dollars have been made at the rate of NIS 3.456 = $1.00, the representative exchange rate on December 31, 2019.
 
CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS
 
Certain of the statements contained in this Annual Report that are not historical facts, including, without limitation, certain statements made in the sections hereof entitled “Information on the Company,” “Dividends,” “Operating and Financial Review and Prospects,” and “Quantitative and Qualitative Disclosures about Market Risk” are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements.  Actual results, performance or events may differ materially from those in such statements due to, without limitation, the risks set forth in "Item 3. Key Information – D. Risk Factors", including the following:
 
market risks of our portfolio of marketable securities, such as changes affecting currency exchange rates;
payment default by, or loss of, one or more of our principal clients; the loss of one or more of our key personnel;
termination of, or changes in, arrangements with our key customers;
termination of arrangements with our suppliers;
increasing levels of competition in Israel and other markets in which we do business;
increase or decrease in global purchase prices of food products;
our inability to accurately predict consumption of our products or changes in consumer preferences;
product liability claims and other litigation matters;
interruption to our storage facilities;
our insurance coverage may not be sufficient;
our operating results may be subject to variations from quarter to quarter;
our inability to successfully compete with nationally branded products;
our inability to successfully integrate our acquisitions;
our inability to protect our intellectual property rights;
significant concentration of our shares are held by one shareholder;
we are controlled by and have business relations with Willi-Food Investments Ltd. and its management;
the price of our ordinary shares may be volatile;
our inability to meet the Nasdaq listing requirements;
our inability to maintain an effective system of internal controls;
cyber-attacks on the Company's information systems;
risks related to our non-bank loan business activity;
changes in laws and regulations, including those relating to the food distribution industry, and inability to meet and maintain regulatory qualifications and approvals for our products;
economic conditions in Israel;
changes in political, economic and military conditions in Israel, including, in particular, economic conditions in the Company’s core markets; and
our international operations may be adversely affected by risks associated with international business.

The Company is under no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or for any other reason.  See "Item 3. Key Information – D. Risk Factors” and "Item 5. Operating and Financial Review and Prospects – A. Results of Operations”.
 
4

PART I
 
ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
 
Not applicable.
 
ITEM 2.  OFFER STATISTICS AND EXPECTED TIME TABLE
 
Not applicable.
 
ITEM 3.  KEY INFORMATION
 
A.          SELECTED FINANCIAL DATA

The following selected consolidated financial data for each of the years in the three-year period which ended December 31, 2019, 2018 and 2017 are derived from our audited consolidated financial statements set forth elsewhere in this report, which have been prepared in accordance with IFRS as issued by IASB. The selected consolidated financial data for the years ended December 31, 2016 and 2015 is derived from our audited consolidated financial statements not appearing in this report. All of the financial data set forth below are in thousands (except share and per share amounts). You should read the following selected consolidated financial data in conjunction with "Item 5. Operating and Financial Review and Prospects” and the consolidated financial statements and notes thereto appearing elsewhere herein. Historical results are not necessarily indicative of any results to be expected in any future period.

Income Statement Data:
In accordance with IFRS

For the year ended December 31

   
2019
   
2018
   
2017
   
2016
   
2015
 
   
NIS
   
USD
   
NIS
   
USD
   
NIS
   
NIS
   
NIS
 
Revenue
   
395,637
     
114,478
     
338,245
     
97,872
     
311,978
     
294,202
     
312,514
 
Cost of sales
   
271,784
     
78,641
     
240,032
     
69,454
     
237,645
     
217,585
     
237,452
 
Gross profit
   
123,853
     
35,837
     
98,213
     
28,418
     
74,333
     
76,617
     
75,062
 
Selling expenses          
   
55,490
     
16,056
     
43,823
     
12,680
     
42,090
     
39,405
     
37,294
 
General and administrative expenses
   
21,067
     
6,096
     
16,686
     
4,828
     
15,839
     
14,577
     
32,926
 
Other Income          
   
-
     
-
     
(69
)
   
(20
)
   
(361
)
   
(112
)
   
-2,182
 
Total operating expenses
   
76,557
     
22,152
     
60,440
     
17,488
     
57,568
     
53,870
     
68,038
 
Operating profit          
   
47,296
     
13,685
     
37,773
     
10,930
     
16,765
     
22,747
     
7,025
 
Finance income          
   
20,966
     
6,067
     
(7,212
)
   
(2,087
)
   
17,937
     
(3,425
)
   
3,363
 
Finance expense          
   
3,016
     
873
     
(2,256
)
   
(653
)
   
3,769
     
3,143
     
978
 
Finance income (expense), net          
   
17,950
     
5,194
     
(4,956
)
   
(1,434
)
   
14,168
     
(6,568
)
   
2,385
 
Profit before taxes on income          
   
65,246
     
18,879
     
32,817
     
9,496
     
30,933
     
16,179
     
9,410
 
Taxes on income          
   
(13,735
)
   
(3,975
)
   
(7,850
)
   
(2,271
)
   
(5,910
)
   
(5,327
)
   
(2,566
)
Profit from continuing operations          
   
51,511
     
14,904
     
24,967
     
7,224
     
25,023
     
10,852
     
6,844
 
Profit for the year          
   
51,511
     
14,904
     
24,967
     
7,224
     
25,023
     
10,852
     
6,844
 
Attributable to:
                                                       
Owners of the Company
   
51,511
     
14,904
     
24,967
     
7,224
     
25,023
     
10,852
     
6,844
 
Net Income
   
51,511
     
14,904
     
24,967
     
7,224
     
25,023
     
10,852
     
6,844
 
Basic and diluted earnings per Share
   
3.90
     
1.13
     
1.89
     
0.5
     
1.89
     
0.82
     
0.52
 
Shares Used in Computing Earnings per Share
   
13,217,017
     
13,217,017
     
13,240,913
     
13,240,913
     
13,240,913
     
13,240,913
     
13,090,729
 

5


Balance Sheet Data:
In accordance with IFRS

   
2019
   
2018
   
2017
   
2016
   
2015
 
   
NIS
   
USD
   
NIS
   
USD
   
NIS
   
NIS
   
NIS
 
Working capital
   
452,819
     
131,023
     
399,405
     
115,569
     
374,981
     
374,981
     
108,157
 
Total assets
   
537,235
     
155,450
     
466,413
     
134,957
     
436,922
     
436,922
     
126,023
 
Shareholders' equity
   
491,356
     
142,174
     
440,879
     
127,569
     
415,581
     
415,581
     
119,868
 
Capital stock
   
13,217,017
     
13,217,017
     
13,240,913
     
13,240,913
     
13,240,913
     
13,240,913
     
13,240,913
 

B.          CAPITALIZATION AND INDEBTEDNESS

Not applicable.

C.          REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

D.          RISK FACTORS

Risks Related to Our Business and Industry
 
Our results of operations may be impacted by monetary risk. Our portfolio of marketable securities is subject to various market risks.
 
We are exposed to fluctuations in the rate of the United States Dollar and Euro versus the NIS. Most of our income is in NIS, whereas most of our purchases are in United States Dollars and in Euros. A significant depreciation in the NIS vis-à-vis the United States Dollar and/or Euro could have a material adverse effect on our results of operations and financial condition.
 
We strive to minimize market risks arising from exchange rate fluctuations and the cost of imported goods, especially by opening documentary credit arrangements (a/k/a letters of credit) for suppliers abroad, holding foreign currency reserves and initiating forward transactions and foreign currency options.
 
As a method of investing cash reserves, we hold a portfolio of marketable securities traded on the Tel Aviv Stock Exchange as well as other stock exchanges. This portfolio of marketable securities is subject to various market risks resulting from fluctuations in interest rates, exchange rates, price fluctuations and other market risks in Israel and abroad. We do not utilize derivative securities for trading purposes, enter into swap arrangements or otherwise hedge our currency in a manner that we believe could expose us to significant market risk.
 
6


In order to reduce these risks, the Board has adopted the procedure of regularly removing available funds in the Company's accounts for management by internal investment manager. In addition, the Board has revised the Company's investment policy, has appointed members of the Board to the investment committee and has added both Co-Chairman of the Board to the investment committee.
 
Our financial instruments consist mainly of cash and cash equivalents, current accounts receivable, current accounts payable and accruals. In view of their nature, the fair value of the financial instruments, included in working capital, is usually identical or close to their book value.
 
We depend on a small number of principal clients who have in the past bought our products in large volumes. Our business may be materially affected if any of our major clients default on their payments to us.
 
Financial instruments that potentially subject us to concentrations of credit risk consist principally of trade receivables. Despite our large number of clients (approximately 1,250 customers, 2,500 selling points in Israel and abroad), a major part of our sales is made to a limited number of customers. Our largest customer is Shufersal Ltd. ("Shufersal"), which owns, among other things, supermarkets which accounted for approximately NIS 55.6 million (which represents 14.1%) of our sales revenue during 2019. We generally do not require collateral from our big supermarket chain customers, such as Shufersal, although we do require collateral from most of our remaining clients in Israel to ensure security in collecting payments that are due to us. In addition, we buy credit insurance for many of our customers.  We maintain an allowance for doubtful debts based upon factors surrounding the credit risk of specific customers, historical trends and other information which our management believes adequately covers all reasonably anticipated losses in respect of trade receivables. There can be no assurance that this allowance will be adequate. In the event that any of our major clients default on their payment obligations to us, we will not possess sufficient security to collect the entire debt.
 
We cannot assure that our principal clients or any other client will continue to buy our products in the same volumes, on the same terms or at all.

We do not have long term purchase contracts with our clients, including our major clients like Shufersal, and our sales arrangements do not have minimum purchase requirements. We cannot assure that our major clients will continue to buy our products at all or in the same volumes or on the same terms as they have in the past. Losing one or more of them may adversely affect our business results. In addition, we cannot assure that we will be able to attract new customers. Our failure to do so may significantly reduce our sales.
 
The failure to attract and retain key personnel could adversely affect our business.
 
Our success depends in large part on our ability to continue to attract, retain, develop and motivate highly skilled professional personnel. Competition for certain employees, particularly top management, is intense. We may be unable to continue to attract and retain sufficient numbers of highly skilled employees. Our inability to attract and retain additional key employees or the loss of one or more of our current key employees could adversely impact our business, financial condition and results of operations.

In particular, we depend on the management services provided to us by Mr. Zwi Williger and Mr. Joseph Williger through management companies that they control, each of whom is a director and Co-Chairman of the Board. We do not have any key-man life insurance policy on either Mr. Zwi Williger or Mr. Joseph Williger. See Item 7. Major Shareholders and Related Party Transactions – A. Major Shareholders". The loss of either or both of Mr. Zwi Williger and/or Mr. Joseph Williger could adversely impact our business, financial condition and results of operations.

7

 
We work with a limited number of key suppliers. If these suppliers raise prices or terminate their engagement with us, our operating results could be adversely affected.
 
Although no one company supplies the majority of any of our products, we work with a limited number of key suppliers. If one or more of our key suppliers raises their prices, our operating results may be adversely affected. See risk factor below - "Increases or decreases in global product prices have in the past, and in the future, may continue to have a material adverse effect on our profitability". We believe that there are alternative suppliers for purchasing our products; however, we cannot assure that the products of the alternative suppliers will become immediately available and that the terms of purchase will be similar to those provided by current suppliers.
 
We may not be able to successfully compete with larger competitors who have greater operations, financial, marketing, labor and other resources than we have.
 
               The food distribution business in Israel is highly competitive. We face competition from existing competitors in respect of imported as well as locally manufactured food products. Local producers are not subject to the financial risks of importing food products or to governmental policies regarding taxation of imported food products to which we as importers are subject. We may also face competition from potential newcomers to the local food manufacturing business as well as from existing importers and/or manufacturers not currently offering the same lines of products as us. In addition, in the event we further expand our activity in international food markets, we will also face competition from manufacturers and/or distributors in those markets. Certain of our current and potential competitors are substantially more established, benefit from substantially greater market recognition and have greater financial, marketing, labor and other resources than we have. If any of our competitors materially reduces prices, we may be required to reduce our prices in order to remain competitive. Such reductions, if effected, could have a material adverse effect on our financial condition and results of operations.
 
Increases or decreases in global product prices have in the past, and in the future may continue to have a material adverse effect on our profitability.
 
The cost of food commodities and other food products is cyclical and subject to other market factors and may fluctuate significantly. As a result, our cost in securing these products is subject to substantial increases over which we have no control.  In addition, fuel costs, which represent the most significant factor affecting both utility costs at our facilities and our transportation costs, are subject to wide fluctuations. Although we are making best efforts, we cannot assure that we will be able to pass on to customers any increased costs associated with the procurement of these products. Moreover, there has been in the past, and there may be in the future, a time lag between the occurrence of such increased costs and the transfer of such increases to customers. To the extent that increases in the prices of our products cannot be passed on to customers or there is a delay in doing so, we are likely to experience an increase in our costs which may materially reduce our margin of profitability.
 
Further, there is an additional lag time from the date we purchase inventory from our suppliers situated outside of Israel (or commit to purchase inventory from such suppliers) and the date we sell the inventory to our customers in Israel. To the extent that the price we are able to sell such inventory to customers decreases from the time that we purchases it (or commit to purchase it), our margin of profitability may be materially reduced.

Increases or decreases in global product prices in the future may have a material adverse effect on our profitability.

8

 
Our results of operations may be adversely affected if we do not accurately predict the rate of consumption of our products.
 
We hold inventory of basic foodstuffs (such as preserved food, dairy and dairy substitute products, edible oils, pasta and rice (and other food products, and we accumulate inventories of these products based on our prediction of the rate of consumption of these products by our customers. If actual consumption does not meet our expectations, and the shelf life of such products expires or we cannot otherwise sell such products, this may materially and adversely affect our financial condition and results of operations. On the other hand, to the extent we do not have adequate inventory of our products to meet demand (for example, due to consumer conditions that create unexpectedly high demand or our failure to accurately predict the rate of consumption of our products), we will not be able to meet the needs of our customers and our revenues may be adversely affected.
 
We may be unable to anticipate changes in consumer preferences, which may result in decreased demand for our products.
 
Our success depends in part on our ability to anticipate the tastes and eating habits of our consumers and to offer products that appeal to their preferences. Consumer preferences change from time to time and our failure to anticipate, identify or react to these changes could result in reduced demand for our products, which would adversely affect our operating results and profitability.
 
We may be subject to product liability claims for misbranded, adulterated, contaminated or spoiled food products.
 
We sell food products for human consumption, which involves risks such as product contamination or spoilage, misbranding, product tampering, and other adulteration. Consumption of contaminated, spoiled, misbranded, tampered with or adulterated products may result in personal illness or injury. We could be subject to claims or lawsuits relating to an actual or alleged illness or injury, and we could incur liabilities that are not insured or that exceed our insurance coverage. Even if product liability claims against us are not successful or fully pursued, these claims could be costly and time consuming and may require management to spend significant time defending the claims rather than operating our business. In addition, a product that has been actually or allegedly misbranded or becomes adulterated could result in product withdrawals, product recalls, destruction of product inventory, negative publicity, temporary plant closings, and substantial costs of compliance or remediation. Any of these events, including a significant product liability judgment against us, could result in a loss of confidence in our food products, which could have an adverse effect on our financial condition, results of operations or cash flows.
 
Our insurance coverage may not be sufficient to cover our losses in the event our products are subject to product liability claims or our products are subject to recall.  In such event, it could have a material adverse effect on us.
 
Our products may become the subject of product liability claims and product recalls, and there can be no assurance that our product liability insurance coverage limits will be adequate or that all such claims will be covered by such insurance. A product liability claim or product recall, even one without merit or for which we have substantial insurance coverage, could result in significant expenses, including legal defense costs, thereby lowering our earnings and potentially resulting in additional losses. Successful product liability claims or other judgments against us in excess of our insurance coverage could have a material adverse effect on us and our reputation.

9

 
We may be adversely affected by any interruption to our storage facility.
 
We store most of our products to be distributed to customers in one main location – a logistics center warehouse situated in Yavne, Israel.  Any interruption to this storage facility, whether by power failure, flooding or otherwise, would have a material impact on our ability to trade in the ordinary course of our business.
 
Our operating results may be subject to variations from quarter to quarter.
 
Our operating results may be subject to variations from quarter to quarter depending on, among other things, the timing of sales campaigns and special events initiated both by us and our customers, the major Jewish holidays (such as the Jewish New Year and Passover), our ability to manage future inventory levels in line with business opportunities and anticipated customer demand, competitive developments in the market, changes in government regulations, periodic work stoppages or disruptions, changes in the rates of inflation in Israel and fluctuations in NIS/dollar and NIS/euro exchange rates. There can be no assurance that our sales or net income (if any) in any particular quarter will not be lower than the preceding and/or comparable prior-year quarter or that our sales or net income (if any) in a particular quarter will be indicative of our results of operations for the entire year. The trading prices of our ordinary shares may fluctuate significantly in response to variations in our quarterly operating results.
 
Our branded products may not be able to compete successfully with nationally branded products.
 
Competition to obtain shelf space for our branded products with retailers is primarily based on the expected or historical performance of our product sales relative to our competitors. The principal competitive factors for sales of our branded products to consumers are brand recognition and loyalty, product quality and price. Most of our branded product competitors have significantly greater resources than we do and may have a competitive advantage over our products due to greater brand name recognition.
 
Competitive pressures or other factors could cause us to lose market share, which may require us to lower prices, increase marketing expenditures, and/or increase the use of discounting or promotional programs, each of which would adversely affect our margins and could result in a decrease in our operating results and profitability.
 
We may not successfully integrate our acquisitions.

We have made acquisitions in the past and may do so in the future.  Our success will depend in part on our ability to manage the combined operations of any acquired company, to integrate the operations and personnel of such company together with our other subsidiaries into a single organizational structure, and to replace those subsidiary managers who have departed or may in the future leave our employ. There can be no assurance that we will be able to effectively integrate the operations of our subsidiaries and our acquired businesses into a single organizational structure. Integration of operations could also place additional pressures on our management as well as on our other key personnel. The failure to successfully manage any integration could have an adverse material effect on results of our operations.

10

 
If we are unable to protect our intellectual property rights, our competitive position could be compromised.
 
We market certain products under the trademarks “Willi-Food”, "Euro European Dairies", "Donna Rozza", "Manchow", “Gold Frost”, "Tifeeret", "The Chef Dish", "Art Coffe", "Mr Chang", "Muchi", "Euro Butter", "Euro Spread", "Euro Cheese", Euro Cream", "Euro Dessert", "Euro Veg", "Ha-Bulgaria ", "Gelato",  and "Emma". Although we have registered trademarks for these brands, we cannot assure that the degree of protection from this registration will be sufficient to protect our rights in these trademarks.
 
One shareholder owns a majority of our shares.

As of March 19, 2019, Willi-Food directly owned approximately 62.05% of our ordinary shares (approximately 62.05% on a fully‑diluted basis), and its majority shareholder, B.S.D. Crown Ltd. ("BSD"), counting the holding of Willi-Food and additional ordinary shares that it held directly, beneficially owned approximately 5.83% of our outstanding shares (approximately 5.83% on a fully‑diluted basis). Messrs. Zwi Williger and Joseph Williger together own a majority of the outstanding shares of BSD and therefore may be considered the beneficial owners of all shares beneficially owned by BSD. See "Item 7. Major Shareholders and Related Party Transactions – A. Major Shareholders".

Our Articles of Association do not provide for cumulative voting rights with respect to the election of directors and every resolution in a general meeting of shareholders is deemed duly passed if passed by a simple majority of the shareholders present and voting unless another majority is required by the Israeli Companies Law (the "Companies Law") or by our Articles of Association. Therefore, our majority shareholder, Willi-Food, is able to control the outcome of matters requiring shareholder approval that do not require a special majority.
 
We have business relations with Willi-Food and its management.

Willi-Food, our controlling shareholder, is a holding company whose main asset is the ordinary shares it owns in our company. Willi-Food currently does not directly conduct any material business.
 
Certain of our key personnel also serve in management positions in Willi-Food. By serving in dual capacities, these persons may experience conflicts of interest involving the two companies.  Israeli law imposes procedures, including a requirement of shareholder approval for certain material transactions, as a precondition to entering into interested party transactions. These procedures may apply to transactions between Willi-Food and us.  However, we cannot assure that we will be able to avoid possible detrimental effects of any such conflicts that may arise.

The market price of our ordinary shares on Nasdaq could fluctuate significantly.
 
The market price of our ordinary shares on the Nasdaq Capital Market has in the past fluctuated significantly and may be affected by our operating results, changes in our business, changes in the products we market and distribute, and general market and economic conditions which are beyond our control. In addition, the stock market in general has, from time to time, experienced significant price and volume fluctuations that are unrelated or disproportionate to the operating performance of individual companies. These fluctuations have affected stock prices of many companies without regard to their specific operating performance. For these reasons, the price of our ordinary shares may fluctuate significantly in the future.
 
Also, the financial markets in the Unites States and other countries have experienced significant price and volume fluctuations, and market prices of public companies have been and continue to be volatile. Volatility in the price of our ordinary shares may be caused by factors outside of our control and may be unrelated or disproportionate to our results of operations. In the past, following periods of volatility in the market price of a public company’s securities, shareholders have frequently instituted securities class action litigation against that company. Litigation of this kind could result in substantial costs and a diversion of our management’s attention and resources.

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Our inability to meet the Nasdaq listing requirements could result in delisting.
 
We may in the future fail to comply with the Nasdaq Capital Market regulations and listing requirements as to minimum share price, minimum net income, minimum number of shareholders and public float and other requirements. In addition, under Nasdaq’s Listing Rules, any company whose shares have a closing bid price less than $1.00 for 30 consecutive business days may be subject to a delisting proceeding by Nasdaq.
 
If we fail to meet the continued listing criteria under the Rule, our ordinary shares may be delisted from trading on the Nasdaq Capital Market.
 
           Delisting from the Nasdaq Capital Market could have an adverse effect on our business and on the trading of our ordinary shares. If a delisting of our ordinary shares were to occur, our shares would trade in the over-the-counter market such as on the OTC Bulletin Board or on the “pink sheets”. The over-the-counter market is generally considered to be a less efficient market, and this could diminish investors’ interest in our ordinary shares as well as significantly impact our share price and the liquidity of our ordinary shares. Any such delisting may also severely complicate trading of our shares by our shareholders, or prevent them from re-selling their shares at/or above the price they paid. Furthermore, relatively low trading volumes may make it difficult for shareholders to trade shares or initiate any other transactions.  Delisting may also make it more difficult for us to issue additional securities or secure additional financing.
 
If we fail to maintain an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our ordinary shares may be adversely affected.

Our reporting obligations as a public company place a significant strain on our management, operational and financial resources and systems. We implemented financial and disclosure control procedures and corporate governance practices that enable us to comply, with the Sarbanes-Oxley Act of 2002 and related Securities and Exchange Commission, or the SEC, rules. For example, we developed accounting and financial capabilities, including the establishment of an internal audit function and development of documentation related to internal control policies and procedures. Failure to establish the necessary controls and procedures would make it difficult to comply with SEC rules and regulations with respect to internal control and financial reporting. We need to take further actions to continue to improve our internal controls. If we are unable to implement solutions to any weaknesses in our existing internal controls and procedures, or if we fail to maintain an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud and investor confidence and the market price of our ordinary shares may be adversely impacted.
 
Our results of operations may be impacted by cyber-attacks on the Company's information systems.

Suspension or malfunction of internal or third-party information systems, or unauthorized access, misuse, computer viruses and cyber-attacks affecting such systems, could impact our results of operations. Our businesses rely on secure processing, storage, transmission and reception of personal, confidential and proprietary information on our systems. We may become the target of attempted unauthorized access, computer viruses or malware, and other cyber-attacks designed to access and obtain information on our systems or to disrupt and cause other damage to our services. Although these threats may originate from human error or technological failure, they may also originate from the malice or fraud of internal parties, such as employees, or third parties, including foreign state actors and extremist parties. Additionally, we could also be adversely impacted if any of the third-party vendors, exchanges, clearing houses or other financial institutions to which we are interconnected are subject to cyber-attacks or other informational security breaches. Such events could cause interruptions to our systems, reputational damage, client dissatisfaction, legal liability, enforcement actions or additional costs, any and all of which could adversely affect our financial condition and operations. While we continue to devote significant resources to monitor and update our systems and implement information security measures to protect our systems, there can be no assurance that any controls and procedures we have in place will be sufficient to protect us from future security breaches. As cyber threats are continually evolving, our controls and procedures may become inadequate and we may be required to devote additional resources to modify or enhance our systems in the future.

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Risks Related to Our Non-Bank Loan Business Activity
 
Our credit standards and on-going credit assessment processes might not protect us from significant credit losses.
 
During 2019, the Company began to engage in the non-bank credit field by extending loans to other companies. We manage credit risk in our loans through a program of underwriting standards, the review of certain credit decisions and an ongoing process of assessment of the quality of the credit already extended. In addition, our credit administration function employs risk management techniques intended to promptly identify problem loans. While these procedures are designed to provide us with the information needed to implement policy adjustments where necessary and to take appropriate corrective actions, there can be no assurance that such measures will be effective in avoiding future undue credit risk, and credit losses may occur in the future.
 
   The amount of our future loan losses could be influenced by changes in economic, operating and other conditions, including changes in interest rates, which may be beyond our control, and these losses may exceed current estimates. While the risk of nonpayment is inherent in providing financing, we could experience greater nonpayment levels than we anticipate. Deterioration in the quality of our loan portfolio could cause our interest income and net interest margin to decrease and our provisions for loan losses to increase further, which could adversely affect our results of operations and financial condition.
 
Our allowance for loan losses may not be adequate to cover actual losses, which could materially and adversely affect our operating results.
 
   We maintain an allowance for loan losses that we believe is appropriate to provide for any potential losses in our loan portfolio. The allowance is based upon factors such as the credit risk of specific customers, historical trends and experience, ongoing review of the quality, size and diversity of our loan portfolio, the amount and quality of collateral securing the loans, current economic conditions, geographic and industry loan concentrations and other information which we believe adequately covers all anticipated losses in respect of trade receivables. There can be no assurance that this allowance will be adequate.
 
Our business is subject to interest rate risk, and variations in interest rates may negatively affect financial performance.
 
Changes in the interest rate environment may reduce our profits. Loan volume and yields are affected by market interest rates on loans, and rising interest rates generally are associated with a lower volume of loan originations. We cannot ensure that we can minimize our interest rate risk. While an increase in the general level of interest rates may increase the loan yield and the net interest margin, it may adversely affect the ability of certain borrowers with variable rate loans to pay the interest and principal of their obligations. Accordingly, changes in levels of market interest rates could materially and adversely affect the net interest spread, asset quality, loan origination volume and our overall profitability.

   Over the last several years, there also has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector, raising the possibility that some portion of the non-bank financial sector will be subject to new regulation. While it cannot be known at this time whether any regulation will be implemented or what form it will take, increased regulation of non-bank credit extension could negatively impact our operations, cash flows or financial condition, impose additional costs on us, intensify the regulatory supervision of us or otherwise adversely affect our business.

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Risks Related to Our Location in Israel
 
We are subject to regulations and other policies of the Israeli government and of other countries from which we import and into which we export. If we are unable to obtain and maintain regulatory qualifications or approvals for our products, our business may be adversely affected.
 
Regulatory, licensing and quotas: The import, export, storage, marketing, distribution and labeling of some major food products are subject to extensive regulation and licensing by various Israeli government and municipal agencies, principally the Ministry of Health, the Ministry of Economy, the Ministry of Agriculture and the Ministry of Finance. To the extent that we have imported and exported, or will import and export, food products outside of Israel, we may be subject to quotas and other import and export laws and regulations which may limit our ability to sell or buy certain of our food products into or from these countries. We are required to maintain our distribution processes in conformity with all applicable laws and regulations. In the event that such laws and regulations change, or we fail to comply with such laws and regulations, we may be prevented from trading within Israel or other parts of the world.
 
Tariffs: The Ministry of Finance and the Ministry of Economy of the State of Israel may increase the levels of tariffs on importing goods. This would have a direct impact on us and our financial performance by increasing our costs which we may not be able to pass on to our customers.
 
Kosher Licenses: Under kosher regulations, we are required to ascertain that the food products which we offer for sale bear kosher certification approved by certain authorities such as the Chief Rabbinate of Israel. There is a risk that the relevant authorities in Israel or other areas of the world responsible for issuing kosher licenses may change the criteria for obtaining such licenses. In such circumstances, we may be prohibited from obtaining kosher licenses for various products that we sell into the various kosher markets. Failure to comply with such applicable laws and regulations in relation to kosher licenses could subject us to civil sanctions, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, any of which could have a material adverse effect on us and our financial performance.
 
Economic conditions in Israel affect our financial performance.
 
A major part of our sales is made in Israel, and consequently our financial performance is dependent to a significant extent on the economy of Israel. A deterioration of the economic situation in Israel, or periodic work stoppages or disruptions, may erode the real wages and lower the buying power of our potential customers. This in turn may adversely affect our activities and business results.

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We may be affected by political, economic and military conditions in Israel and the Middle East.
 
We are incorporated under the laws of the State of Israel, our principle offices are located in central Israel and all of our officers, employees and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel have a direct influence on us. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could materially and adversely affect our operations. During the winter of 2012 and the summer of 2014, Israel was engaged in an armed conflict with Hamas, a militia group and political party operating in the Gaza Strip. This conflict involved missile strikes by Hamas against civilian targets in various parts of Israel and negatively affected business conditions in Israel. We estimate that the conflict with Hamas in 2014 reduced the Company's sales by approximately NIS 16 million. Ongoing or revived hostilities related to Israel may have a material adverse effect on our business and on our share price. The political uncertainty in surrounding countries, including Syria, is affecting the political stability of that country. This instability may lead to deterioration of the political relationships that exist between Israel and neighboring countries and has raised concerns regarding security in the region and the potential for armed conflict. In addition, Iran is believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon. The tension between Israel and Iran and/or these groups may escalate in the future and turn violent, which could affect the Israeli economy generally and us in particular.

Many of our executive officers and employees in Israel are obligated to perform annual military reserve duty in the Israeli Defense Forces and, in addition, may be called to active duty under emergency circumstances at any time. If a military conflict or war arises, these individuals could be required to serve in the military for extended periods of time. Our operations could be disrupted by the absence for a significant period of one or more of our executive officers or key employees or a significant number of our other employees due to reserve duty. Any disruption in our operations may harm our business.

Our commercial insurance does not cover property, asset or operational losses that may occur as a result of events associated with the security situation in the Middle East. Although the Israeli government currently reimburses for the value of direct damages that are caused by terrorist attacks or acts of war, and if certain conditions are met covers indirect damages (up to limited amounts) as well, we cannot assure you that this government coverage will be maintained. Any losses or damages incurred by us could have a material adverse effect on our business.

Additionally, several Arab countries restrict business with Israeli companies and these restrictions may have an adverse impact on our operating results, financial condition or the expansion of our business. From time to time pro-Arab organizations in various locations around the world promote local boycotts of products from Israel. Prompted by political, religious or other factors, these and other restrictive laws or policies directed towards Israel and Israeli businesses may affect our financial condition and results of operations.

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It will be extremely difficult to acquire jurisdiction and enforce liabilities against us, our officers and directors who are based in Israel.
 
We are organized under the laws of the State of Israel. The majority of our officers and present directors reside outside of the United States and most of our operations and assets, and the assets of these persons, are located outside the United States. As a result, it may not be possible for United States investors to enforce their legal rights, to effect service of process or to enforce judgments of United States courts against us, our directors or our officers under federal securities laws of the United States. Further, it is unclear if extradition treaties now in effect between the United States and Israel would permit effective enforcement of criminal penalties under such securities laws. It may also be difficult to enforce civil liabilities under such securities laws in actions initiated in Israel.

Our international operations may be adversely affected by risks associated with international business.

We purchase food products from over 120 suppliers located in Israel and around the world, including the Far East (China, India, the Philippines and Thailand), Eastern Europe (Poland, Lithuania and Latvia), South America (Ecuador), the United States, Canada, Western and Central Europe (the Netherlands, Belgium, Monaco, Germany, Sweden, Switzerland, Denmark, and France) and Southern Europe (Spain, Portugal, Italy, Turkey and Greece). Therefore, we are subject to certain risks that are inherent in an international business. These include the adverse effects on our operations from:
 

war, terrorism and public health crises, such as pandemics and epidemics;
 

varying regulatory restrictions on sales of our products to certain markets and unexpected changes in regulatory requirements;
 

tariffs, customs, duties, quotas and other trade barriers;
 

global or regional economic crises;
 

difficulties in managing foreign operations and foreign distribution partners;
 

longer payment cycles and problems in collecting accounts receivable;
 

fluctuations in currency exchange rates;
 

political risks;
 

foreign exchange controls which may restrict or prohibit repatriation of funds;
 

export and import restrictions or prohibitions, and delays from customs brokers or government agencies;
 

seasonal reductions in business activity in certain parts of the world; and
 

potentially adverse tax consequences.
 
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Depending on the countries involved, any or all of the foregoing factors could materially harm our business, financial condition and results of operations. For example, in December 2019, a strain of coronavirus was reported to have surfaced in Wuhan, China, and has reached many other countries worldwide, resulting in government-imposed quarantines, travel restrictions and other public health safety measures in numerous countries around the world. At this point, the extent to which the coronavirus may impact our operations is uncertain; however, the continued outbreak and spreading of the coronavirus may restrict the ability of our suppliers to manufacture of our products in sufficient quantities or at all. Furthermore, as of December 31, 2019 the Company and its subsidiaries hold a diversified securities portfolio listed on the Tel Aviv Stock Exchange and other stock exchanges worldwide (the “Investment Portfolio”), which amounts to approximately NIS 142 million (in addition to approximately NIS 122 million in cash and cash equivalents). The coronavirus outbreak has caused and may continue to cause high volatility in financial markets and sharp slumps in capital markets both in Israel and abroad, which have resulted in and could continue to result in a material adverse impact on the value of the Investment Portfolio. The loss accrued in the Investment Portfolio from the beginning of the year through the date of this report amounts to approximately NIS 24.9 million. Moreover, the coronavirus outbreak has begun to have indeterminable adverse effects on general commercial activity and the world economy, and our business and results of operations could be adversely affected to the extent that this coronavirus or any other epidemic harms the global economy generally. The extent to which the coronavirus impacts our business and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.
 
ITEM 4 INFORMATION ON THE COMPANY

  A.
HISTORY AND DEVELOPMENT OF THE COMPANY
 
The Company was incorporated in Israel in January 1994 under the name G. Willi-Food Ltd. and commenced operations in February 1994. It changed its name to G. Willi-Food International Ltd. in June 1996. The Company's corporate headquarters and principal executive offices are located at 4 Nahal Harif Street, Northern Industrial Zone, Yavne 81106, Israel.  The Company's telephone number in Israel is +972 8-9321000, its fax number is +972-8-9321001, its e-mail address for communications is willi@willi-food.co.il and its website is www.willi-food.com. The information contained in its website, or that can be accessed therefrom, does not constitute a part of this annual report and is not incorporated by reference herein. We have included our website address in this annual report solely for informational purposes.

   In May 1997, the Company completed an initial offering to the public in the United States (the “Initial Public Offering”) of 1,397,500 units, each unit consisting of one ordinary share and one redeemable ordinary share purchase warrant.
 
   In May 2001, the Company acquired all the shares of Euro European Dairies Ltd., formerly Gold Frost Ltd. (hereinafter: “Euro European Dairies”) for NIS 336 thousand (USD 90 thousand). Euro European Dairies, which was registered in 1977 in Israel, is engaged in designing, developing and distributing frozen and chilled food products.
 
   On March 9, 2006, Euro European Dairies completed an initial issuance to the public on the London AIM market which yielded gross proceeds of NIS 36.5 million ($9.8 million). Following this issuance, as of May 30, 2006, the Company held approximately 75.7% of Euro European Dairies’ share capital. From November 2007 to January 2008, the Company purchased on the AIM market approximately an additional 14.3% of Euro European Dairies’ share capital, reaching aggregate holdings of up to 90% of Euro European Dairies’ share capital.

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On May 20, 2008, a special general meeting of shareholders of Euro European Dairies approved the cancellation of its ordinary share listing to the AIM Market of the London Stock Exchange. The cancellation of Euro European Dairies’ AIM admission took place on May 27, 2008. On July 27, 2009, the Company announced that it had successfully completed a tender offer for all of the issued and outstanding share capital of Euro European Dairies which was not already held by the Company. The Company paid an aggregate amount of approximately £370,430 ($619,198) for all such shares and depositary interests.
 
On March 17, 2010, the Company raised net proceeds of approximately a $19 million through a public offering of its ordinary shares.  The Company issued a total of 3,305,786 ordinary shares at a purchase price of $6.05 per share.

On May 4, 2014, Mr. Zwi Williger and Mr. Joseph Williger sold their controlling stake (approximately 58% of the outstanding shares) in Willi-Food to BSD, a company listed on the London Stock Exchange, the ultimately controlling shareholder of which was Mr. Alexander Granovsky.
 
On July 15, 2015, Mr. Granovsky sold his indirect controlling interest in BSD to Mr. Gregory Gurtovoy, according to public filings and information supplied to the Company.
 
On May 7, 2017, Mr. Joseph Williger informed Willi-Food that he was the controlling shareholder of BSD through private companies he owns, and that he was therefore the controlling shareholder of Willi-Food and the Company as of May 5, 2017.

On June 11, 2017, a General Meeting of Willi-Foods' Shareholders approved the appointment of the following BSD nominated directors: Messrs. Joseph Williger, Zwi Williger, Kobi Navon and Bensi Sao, and the termination of the term of office of all then current directors (other than the external directors): Mr. Ilan Admon, Gregory Gurtovoy, Eli Arad, Shalhevet Hasdiel and Arik Safran. On June 12, 2017, Willi-Foods' Board of Directors approved the appointment of Mr. Gil Hochboim as a director.

On June 20, 2017, a General Meeting of Shareholders of the Company approved the appointment of the following directors: Messrs. Yoseph Williger, Zwi Williger, Gil Hochboim and David Donin and the termination of the term of office of all then current directors of the company (other than the external directors): Messrs. Ilan Admon, Gregory Gurtovoy and Ilan Cohen. On June 20, 2017 the Board of Directors of the company approved the appointment of Mr. Victor Bar as a director.

CAPITAL EXPENDITURES
 
Our capital expenditures were $0.52, $0.62 million and $0.76 million for the three years ended December 31, 2019, 2018 and 2017, respectively. Our capital expenditures from January 1, 2020 until March 19, 2020 were approximately $0.1 million. For more information, see "Item 4.  Information on the Company – D. Property, Plants and Equipment".
 
   B.
BUSINESS OVERVIEW
 
Overview
 
The Company is an Israeli-based company engaged, directly and through subsidiaries, in the development, import, export, marketing and distribution of a wide variety of over 600 food products world-wide. In the year ended December 31, 2019, substantially all of our revenue was generated in Israel, with less than 1% of our revenue resulting from exports outside Israel.

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The Company purchases food products from over 120 suppliers located in Israel and throughout the world, including from the Far East (China, India, the Philippines and Thailand), Eastern Europe (Poland, Lithuania and Latvia), South America (Ecuador), the United States, Canada, Western and Central Europe (the Netherlands, Belgium, Monaco, Germany, Sweden, Switzerland, Denmark, and France) and Southern Europe (Spain, Portugal, Italy, Turkey and Greece).
 
The Company's products are marketed and sold to approximately 1,250 customers and 2,500 selling points in Israel and around the world (for example, to customers in the Unites States, England and France), including to supermarket chains, wholesalers and institutional consumers. The Company markets most of its products under the brand name “Willi-Food,” and some of its chilled and frozen products under the brand name “Euro European Dairies”. Certain products are marketed under brand names of other manufacturers or under other brand names. In addition, the Company distributes some of its products on an exclusive basis, as described further below.
 
Following changes in management in recent years, the Company continues to re-evaluate its strategic position and consider other business opportunities. As part of this re-evaluation, the Company is considering forming strategic alliances with or entering into different lines of business, expanding its product lines, and increasing product sales with existing customers while adding new customers. In addition, the Company is examining M&A opportunities to further increase its market presence.
 
As of March 19, 2020, the Company’s principal shareholder, Willi-Food, held approximately 62.05% of our ordinary shares (approximately 62.05% on a fully‑diluted basis). The primary assets of Willi-Food are the Company’s ordinary shares. See “Item 7. Major Shareholders and Related Party Transactions – A. Major Shareholders”. Willi-Food’s securities are traded on the Tel Aviv Stock Exchange.
 
Credit Activity
 
During 2019, the Company began to engage in the non-bank credit field by extending loans to other companies (“credit extension activity”). This activity is executed and managed through W.F.D. (Import, Marketing and Trading) Ltd., a wholly-owned and controlled subsidiary of the Company. The activity is funded from the Company and subsidiaries own resources and executed in parallel to the existing activity of importing, marketing and distributing food products. During 2019, the Company extended loans totaling NIS 43.65 million (USD 12.63 million) for periods ranging from 5 months to 24 months.
 
Business Strategy
 
The Company’s business strategy is:
 

to promote the “Willi-Food” brand name and other brand names used by the Company (such as " Euro European Dairies") and to increase market penetration of products through marketing efforts and advertising campaigns;
 

to expand its current food product lines and diversify into additional product lines, as well as to respond to market demand;
 

to consider new fields of activity/operating segments; and
 

to expand the Company's activity in the international food markets, mainly in the U.S. and Europe.
 
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Utilizing management’s expertise in identifying market demand and preferences, as well as its supplier sourcing abilities, the Company intends:
 

to continue to locate, develop and distribute additional food products, some of which may be new to Israeli consumers;
 

to penetrate new food segments within Israel through the establishment of food manufacturing factories or the establishment of business relationships and cooperation with existing Israeli food manufacturers;
 

to increase its inventory levels from time to time both to achieve economies of scale on its purchases from suppliers and to more fully meet its customers’ demands;
 

to further expand into international food markets, mainly in the U.S. and Europe, by purchasing food distribution companies, increasing cooperation with local existing distributors and/or exporting products directly to customers;
 

to penetrate new markets in other countries through the establishment of business relationships and cooperation with representatives in such markets, subject to a positive political climate; and
 

to further develop the non-bank loan business activity.
 
The Company has developed certain trade relationships locally, as well as in areas administered by the Palestinian Authority, although current sales volumes to Palestinian-administered areas remain low.
 
Principal Products
 
We and Euro European Dairies import a broad variety of over 600 food products, which are sold, marketed and distributed by us in Israel. A small percentage of our products are purchased from suppliers in Israel.
 
We aim to broaden the variety of products we import, and expect to launch additional imported products in the near future while continuing to develop new and innovative food products internally.
 
The principal products in our import segment product line are as follows:
 

Canned Vegetables and Pickles:  including mushrooms (whole and sliced), artichoke (hearts and bottoms), beans, asparagus, capers, corn kernels, baby corn, palm hearts, vine leaves (including vine leaves stuffed with rice), sour pickles, mixed pickled vegetables, pickled peppers, an assortment of olives, garlic, roasted eggplant sun and dried tomatoes. These products are imported primarily from China, Greece, Thailand, Turkey, India, and the Netherlands.
 

Canned Fish:  including tuna (in oil or water), sardines, anchovies, smoked and pressed cod liver, herring, fish paste and salmon. These products are primarily imported from the Philippines, Thailand, Greece, Germany and Sweden.
 

Canned Fruit:  including pineapple (sliced or pieces), peaches, apricots, pears, mangos, cherries, litchis and fruit cocktail. These products are primarily imported from China, Monaco, the Philippines, Thailand, Greece and Europe.
 
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Edible Oils:  including olive oil, regular and enriched sunflower oil, soybean oil, corn oil and rapeseed oil. These products are primarily imported from Belgium, Turkey, Italy, the Netherlands and Spain.
 

Dairy and Dairy Substitute Products:  including hard and semi-hard cheeses (parmesan, edam, kashkaval, gouda, havarti, cheddar, pecorino, manchego, maasdam, rossiysky, iberico and emmental), molded cheeses (Brie, Camembert and Bloose), feta, Bulgarian cubes, goat cheese, fetina, butter, butter spreads, margarine, melted cheese, cheese alternatives, condensed milk, whipped cream, yogurt, frozen pizza and others. These products are primarily imported from Greece, France, Lithuania, Denmark, Germany, Italy and the Netherlands.
 

Dried Fruit, Nuts and Beans:  including figs, apricots and organic apricots, chestnuts organic chestnuts, sunflower seeds, walnuts, pine nuts, cashews, banana chips, pistachios and peanuts. These products are primarily imported from Greece, Turkey, India, China, Thailand and the United States.
 

Other Products:  including, among others, instant noodle soup, frozen edamame soybeans, freeze dried instant coffee, bagels, breadstick, coffee creamers, lemon juice, halva, Turkish delight, cookies, vinegar, sweet pastry and crackers, sauces, corn flour, rice, rice sticks, pasta, organic pasta, spaghetti and noodles, breakfast cereals, corn flakes, rusks, rusks, tortilla, dried apples snacks, deserts (such as tiramisu and pastries), ice cream and light and alcoholic beverages. These products are primarily imported from the Netherlands, Germany, Italy, Greece, Belgium, the United States, Scandinavia, Switzerland, China, Thailand, Turkey, India, and South America.
 
Product Information
 
The products that generated the largest sales volume for the year ended December 31, 2019 were dairy and dairy substitute products (39% of sales), fish products  (12% of sales) and canned vegetables (16% of sales).
 
The products that generated the largest sales volume for the year ended December 31, 2018 were dairy and dairy substitute products (39% of sales), fish products (15% of sales) and canned vegetables (12% of sales).
 
The allocation mentioned above does not include the product line "Other Products" in the import segment, as this product line includes products that have no characteristic definition.
 
Most of the products that we import and market are approved as kosher by, and/or under the supervision of, various supervisory institutions, including the Chief Rabbinate of Israel, Badatz Edah HaChareidis, Badatz Beit Yosef, Chug Chatam Sofer, certain Jewish organizations administering Kashrut procedures and certifications (such as the Union of the Orthodox Jewish Congregation of America (referred to as OU), Badatz Igud Harabanim Manchester, OK, Circle K and Triangle K) and rabbis of local Jewish congregations abroad.  For more information, see “– Government Regulation” in this section below.
 
Our products are packaged by various manufacturers and suppliers abroad and labeled in Hebrew, English and, in certain cases, Arabic and Russian, in accordance with our instructions and applicable law. For more information, see “– Government Regulation” in this section below.
 
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Suppliers
 
We purchase food products from over 120 suppliers, including suppliers located in Israel, the Far East (China, India, the Philippines and Thailand), Eastern Europe (Poland, Latvia, and Lithuania), South America (Ecuador and Argentina), the United States, Canada and in Western, Northern and Southern Europe (Sweden, Denmark, Greece, Monaco, the Netherlands, Italy, Monaco, Portugal, Spain, Belgium, Germany, France, and Turkey).
 
In addition, we actively maintain contact with our suppliers world-wide through which we assess, on an on-going basis, world market trends, fluctuations in prices, and other issues relevant to our business. Our management and personnel visit food trade fairs world-wide on a regular basis and endeavor to create new business relationships with potential suppliers.
 
Certain of the products we import are seasonal agricultural products, such as artichokes, cherries, mushrooms, eggplants and peaches. In order to ensure a continued supply of these seasonal items, we generally make arrangements with the producers of such products at the beginning of the season for the terms of purchase of such items for the upcoming year.
 
A substantial portion of our purchases from suppliers outside of Israel is made in U.S. Dollars (such as purchases from the Far East (China, India, the Philippines and Thailand), the United States, South America and certain European countries) with the remaining purchases usually made in Euros and other foreign currencies. Supply is generally made to us against letters of credit for a period of up to 90 days. No single supplier provides us with the majority of our products, most of which we purchase from several suppliers.

We purchased several products from a single supplier in 2019 and, as a result, that supplier accounted for more than 10% of our total purchases; however, purchases from this supplier were made due to economies of scale, operational efficiency and convenience, and the Company does not consider itself dependent on this supplier.
 
 The average volume of our credit balance with our suppliers in 2019 was NIS 19.9 million (US$ 5.76  million) consisting of 28 days of suppliers credit on average, in 2018 was NIS 16.2 million (US$ 4.3 million) consisting of 24 days of suppliers credit on average and in 2017 was NIS 14.7 million (US$ 3.9 million) consisting of 24 days of suppliers credit on average.
 
Customers
 
The Company's products are marketed and sold to approximately 1,250 customers and 2,500 selling points throughout Israel and outside of Israel.
 
The Company's customers generally fall within one of the following three groups:
 

large retail supermarket chains,
 

small retail supermarket chains, and
 

other customers, including small private grocery shops, government institutions, wholesalers, restaurants, hotels, and hospitals.
 
The first group of customers above includes the large retail food marketing chains: Shufersal Ltd., Yenot Bitan, Rami-Levy Ltd, "Osher-Ad", Viktory, Yohananof and others. Large retail food marketing chains usually have dozens of stores with nationwide deployment.

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The Company contracts with large retail supermarket chains through the buyers in the head office, after which the Company receives orders from the supermarket chain's logistics center or directly from individual stores. Merchandise is then delivered directly to each branch or to the supermarket chain’s distribution centers. Simultaneous with closing of sale prices with the buyers at the chains’ central offices, quantities of the products to be supplied to the branches are routinely determined directly with the branches.
 
A number of provisions of a law entitled "Promoting Competition in the Food Industry" (the "Food Law"), which went into effect on January 15, 2015, regulating the operations of food suppliers and retailers, are applicable to the Company (which is not defined as a large supplier in respect of its engagements with retailers subject to the provisions of the Food Law), including a prohibition on any interference on the part of a supplier in a retailer’s determination of the consumer price that such retailer will collect on another suppliers’ merchandise, or the terms of such sale; a prohibition on retailers interfering in any way with a supplier’s determination regarding what products to sell other retailers and what prices to charge for those products, or the terms of such sale; a ban on suppliers transferring payments (in cash or cash equivalents) to a large retailer, other than by lowering the price per unit of a product, subject to certain exceptions; a prohibition on interfering in any way in the price per product collected by a retailer for that supplier’s products, the allocation of any share of sales space for that supplier’s products, the purchase of products provided by that supplier on any scale in proportion to the retailer’s purchase of the product from alternative suppliers; and a prohibition on interfering in the purchase or sale of products provided to a retailer by another supplier, including quantities and purchase targets, sales space allocated to another supplier in stores and other commercial terms. In 2019, the Company had one retail customer, Shufersal, that is considered a large supplier according to the Food Law. The Company’s sales to Shufersal exceeded 10% of its income in 2019. As a result, the Company's interaction with this customer is required to meet certain principles for engagement, including those impacting commercial agreements, logistics and monetary collection.

The second group of customers includes small retail supermarket chains of up to 15 stores, usually in a regional deployment.
 
Generally, the Company’s engagement with small retail chains does not involve exclusivity, or other obligatory terms of operations. Prior to entering into an engagement with such customer, the Company gauges the customer's financial stability and determines the scope of credit to assign to and the sureties to obtain from such customer. Small retail chains are generally requested to provide deferred checks as sureties, and some are requested to provide additional sureties, including promissory notes, personal guarantees and bank guarantees. In addition, the Company insures most of its small retail chains with credit insurance. In 2019, more than 70% of the Company's small retail chains were insured with credit insurance policies by credit insurance companies.
 
With some small retail supermarket chains not subject to provisions of the Food Law, the Company pays a fixed incentive in the form of a percentage of sales of our products, or other incentive payment in the event the scope of sales exceeds the scope agreed upon between the parties. Towards a small number of small retail supermarket chains the Company provides discounts for the inclusion of new products, limited-time discounts for the opening of new stores, and participates in payments for certain of such customers’ advertisements at rates determined in negotiations between the parties, and subject to the actual execution of the advertisements in various media, including in print newspapers, or in specific advertisement placed inside a customer's stores.
 
The sale prices to small retail chains are determined in negotiations that occur frequently, usually on a monthly basis, owing to the lack of uniformity in the purchase terms for different products from different manufacturers, and to variable market conditions.

23

 
The Company's sales by customer group for the years ended December 31, 2019, 2018 and 2017 were as follows:
 
   
Percentage of Total Sales
Year Ended December 31
 
Customer Groups
 
2019
   
2018
   
2017
 
large retail supermarket chains
   
50
%
   
50
%
   
50
%
other customers
   
50
%
   
50
%
   
50
%
     
100
%
   
100
%
   
100
%

The average aggregate debit balance of the Company's customers with the Company in 2019 was NIS 117.23 million (USD 33.92 million) and the average time period within which our accounts receivable were paid was 92 days, in 2018 was NIS 96.2 million (USD 25.7 million) and the average time period within which our accounts receivable were paid was 88 days and in 2017 was NIS 86.7 million (USD 23.1 million) and the average time period within which our accounts receivable were paid was 86 days.
 
In the event that a small retail supermarket chain or other customer  does not respect its financial commitments, the Company may elect to foreclose on the collateral or the promissory note provided by such customer. Since 2008, the Company has made no significant use of this foreclosure power. The Company strives to minimize its credit risk by constantly reviewing the credit it extends to customers versus the security it receives. As a result of such review, the Company has ceased selling products to certain customers and considerably reduced sales to other customers, and may continue to do so.
 
Distribution, Marketing and Sales
 
The Company principally distributes and markets its products using internal sales agents, although with sales of certain products to clients situated in different areas of Israel, the Company utilizes external distributors, with whom it does not have exclusivity agreements.
 
The Company generally has no written agreements with its customers, nor are its arrangements with its customers on an exclusive or binding basis. The Company generally extends its customers approximately 60-90 days credit, and in limited cases up to 110 days credit, beginning at the end of the month in which the sale took place. Most of the large retail supermarket chains generally effect payment by wire transfers or cash payments on the due date, while other customers are generally required to provide post-dated promissory notes at least one month prior to the date of the expected payment. The Company does not require large retail supermarket chains to provide any kind of security for payments; however, other customers may be required to provide security, including personal guarantees.
 
Sales are made by the placement of customers’ orders (except for part of the dairy and dairy substitute products), which are directed to the Company’s regional office and placed by the sales personnel or directly by the customers. Orders are delivered by the Company’s transport network (including 14 refrigeration trucks and three regular trucks) and by independent transporters.  In certain cases, the Company transports products directly from port to customers, utilizing the services of independent transporters. In some instances, the Company transfers the merchandise to the logistics centers of the supermarket chains, and the supermarket chains themselves are responsible for the distribution of the merchandise to their chain stores for a commission charged to the Company.

24

 
The sale of most of our dairy and dairy substitute products is performed by external distributers, although some of these sales are made by “van sale” sales agents using small terminals. The sales agents supply these products immediately from the stock of products in the refrigeration trucks in which they travel.
 
Some of the marketing and distribution to institutional clients in the private sector (such as hotels, police, prisons, the Ministry of Defense and "kibbutz" collective settlements) is done by winning tenders, direct distribution or by wholesalers.
 
With imported products, the Company generally holds an inventory of products which the Company believes to be sufficient to meet market requirements for a period of up to 70 days. Occasionally, the Company may take advantage of low-priced merchandise and purchase larger amounts than usual of a product with long shelf life. In those cases, the inventory may be sufficient to meet market requirements for more than 70 days. Products ordered by customers in full container loads are generally forwarded directly to the customers’ facilities without being stored in the Company’s facilities. The Company does not regularly maintain a significant backlog of orders from customers; orders received by customers are generally filled within one week. The Company’s inventory as of December 31, 2019 amounted to NIS 71.5 million (USD 20.7 million) compared with NIS 49.3 million (USD 14.3 million) as of December 31, 2018.
 
The Company maintains close contact with its consumers in an effort to be attentive to market needs, market trends, and demand for certain products in various markets. The Company also regularly gathers information on new products manufactured world-wide, including by attending food exhibitions and maintaining close relations with manufacturers and suppliers world-wide.
 
The Company is responsible for the products it markets in Israel under the Israeli Law of "Liability for Defective Products Law, 1980" and it has also purchased an insurance policy for product liability claims.
 
Seasonality
 
Each year as the Jewish holidays of Pesach (Passover, celebrated in March-April), Shavuot (celebrated in May) and Rosh Hashana (celebrated in September-October) approach, the Company normally increases its inventories in order to meet the expected increase in market demand prior to such holidays.  Despite the impact of the holiday season on the Company’s activities, the Company’s quarterly sales are not materially affected as a result of these changes.
 
Competition
 
The food distribution business in Israel is highly competitive with respect to imported, as well as locally manufactured, food products. The Company faces direct competition both from local manufacturers and from a number of importers of food products. The food market in Israel is very price sensitive.
 
For each of the categories of products distributed by the Company, there exists competition from dozens of local manufacturers and importers. The barriers to entry in the food market are low, and new potential competitors are constantly joining the market. In addition to new-comers to the food business, the Company faces competition from existing importers and/or manufacturers currently not offering the same lines of products as the Company.
 
For example, certain of the products imported by the Company, such as canned fish, corn flakes, edible oils, certain pickles, olives, pasta, cereal, sweet pastry and crackers and certain dairy products, are also produced by local manufacturers in Israel. Local producers are not subject to the financial risks of importing food products or to governmental policies regarding taxation of imported food products to which the Company is subject.

25

 
To the Company's knowledge, several of its competitors (for example, Shemen, Tomer, Taaman, Solbar and Y.T.V Foods Industries Ltd with respect to edible oils; Fodor (Starkist and Yona), Posidon and Williger of the Neto Group, Filtuna, Vita Pri HaGalil and Shastowits with respect to fish products; the Vita Pri HaGalil, Yachin-Zan laKol, Williger of the Neto Group, and Tomer with respect to canned fruit and vegetable products; Osem, Barila, Vita Pri HaGalil, Williger of the Neto Group, Taaman and Tomer with respect to pasta products; and Tnuva, Tara, Strauss, Seyman, and Gad Dairy with respect to dairy and dairy substitute products) are substantially more established, have greater market recognition and have greater financial, marketing, human and other resources than those of the Company. If any of the Company’s major competitors materially reduces prices, the Company would experience significantly more competitive pressure and a decrease in profitability. The Company cannot predict whether it could successfully compete with these pressures and, if it were unable to do so, the Company’s business would be adversely impacted.
 
Although the Company does not have precise information regarding the import of food products into Israel, it believes that it is currently one of the leading importers in Israel with regard to its line of products.
 
Intellectual Property Rights
 
The Company markets certain products under the trademark “Willi-Food,” which was approved for registration in Israel in May 1997 for certain uses relating to the food industry. In 2015, the trademark's validity was extended for an additional ten years. The Company markets certain products under the trademark “Gold-Frost,” which was registered in Israel in February 2002. The company markets certain product under the trademark "Euro European Dairies", which was approved for registration in Israel in September 2019.
 
 The Company also markets cheeses and cheese substitutes such as "Ha-Bulgaria", which was registered in Israel in June 2009, and "EMMA", which was registered in Israel in December 2014.
 
The Company also markets Ice-Cream products such as "Muchi-Ice", which was registered in Israel in November 2019, and "Gelato", which was registered in Israel in May 2013.
 
The Company markets frozen edamame soybeans under the trademark "Manchow," which was registered in Israel in October 2007.
 
The Company markets a line of products with kosher supervision by Badatz Edah HaChareidis under the trademark "Tifeeret", which was registered in Israel in September 2010 for different uses in the food industry.
 
The Company also markets pasta and sauces under the trademark "Donna Rozza," which was registered in Israel in December 2005 for different uses in the food industry.
 
The Company also markets coffee products under the trademark "Art Coffee," which was registered in Israel in January 2020.
 
The Company also markets other products which are in the process of being registered in Israel, such as "Super Kidos", "Better Food", "Lucky Cat Ice-Cream", and "Muchi Ice-Dessert".

26

 
Other products marketed by the Company under their original brand names are “Completa”, "Del Monte", "Danesita", "Fiorentini", "Pils", "Wyke", "Muratbey", "Nobeleza Gaucha", "Sera", "Daawat", "Zanetti", "Ferro", "Hahne", "Pastor", "Valio", and "Kolios".
 
The Company imports several products for the Shufersal chain under the brand name “Shufersal”.
 
There can be no assurances as to the degree of protection registration of the Company’s trademarks will afford.
 
The Company's investment in registering these trademarks was insignificant.
 
Government Regulation
 
The import, export, storage, distribution, manufacturing, marketing and labeling of food products is subject to extensive regulation and licensing by various Israeli government and municipal agencies, principally the Ministry of Health, the Ministry of Finance and the Ministry of Economy. Failure to comply with these applicable laws and regulations could subject us to civil sanctions, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, any of which could have a material adverse effect on us. We believe that we comply in all material respects with the above-mentioned requirements. To the extent that the Company exports food products outside of Israel, we may be subject to quotas and other laws and regulations of the country to which we export which may limit our ability to sell certain of our food products into these countries.
 
In 1978, the Israeli government issued the free import decree, which exempted the import of most food products from the requirement to obtain a license. However, preliminary permits from the Ministry of Health or the Ministry of Agriculture are still required. These preliminary permits are granted based on laboratory analysis reports and other data.
 
Customs duties and charges are levied on a portion of the Company’s products imported into Israel. In addition, the Company is required to obtain import licenses for the import of certain food products from the Ministry of Economy. The Company has also obtained the necessary authorization required by the Ministry of Health (Food Authority) for the import of all of its food products to Israel. The Company’s products are packaged by various manufacturers and suppliers abroad and labeled in Hebrew, English and, in certain cases, Arabic and Russian, according to the Company’s instructions and the requirements of the Israeli authorities. In the past, the Company has occasionally been found to have mislabeled packages, as a result of which itwas required to pay an immaterial amount of fines.
 
Customs duty applies to various food products in Israel, including cheese, butter, frozen vegetable, oils, tinned goods and other food products imported by the Company. In May 2014, the Ministry of Finance published a notice regarding a Government decision in connection with increasing the tax-exempt import quotas of hard cheese and butter (hereafter – “Tax Exempt Import Quotas”) whereby importers undertake to sell the products to the end customer at a relatively low price. Further to the aforesaid resolution, the Ministry of Economy published, for the first time, a competitive process in which companies can win Tax Exempt Import Quotas. The Company participated in this process and won some of these quotas while committing to sell the products to the end customer at a relatively low price. In subsequent years, the Ministry of Economy has continued to publish annual tenders for Tax Exempt Import Quotas against winners undertaking to sell the imported products at a relatively low  price to the end customer and to meet a minimum sale target in respect of the goods in question. The Company has participated in these annual tenders and won some of these quotas. As part of the tender process, the Company was required to provide financial guarantees and participate in audit procedures on behalf of the Ministry of Economy for the purpose of assessing its compliance with its undertakings. The Company successfully passed most of the audit procedures, apart from immaterial breaches in which immaterial amounts, which were provided by the Company, were forfeited, and an import quota which the Company was supposed to received was cancelled. Pursuant to the terms of the tenders, a breach of undertakings in the tender process may result, among other things, in the imposition of sanctions in the form of non-issuance of tax-exempt import quotas as part of the competitive process for a period of no more than five years.
 
27

 
On February 26, 2020, a temporary order was issued by the Ministry of the Economy whereby the butter market will be opened for tax-exempt importation through December 31, 2020.
 
The Company estimates that it will take part in future tenders for Tax Exempt Import Quotas, if such tenders will be held; however, it is unable to estimate if it wins any such tenders. Most of the products which the Company imports and markets are approved as kosher by and/or under the supervision of various supervisory institutions including the Chief Rabbinate of Israel, Chug Chatam Sofer, Badatz Edeh HaChareidis, certain Jewish organizations administering Kashrut procedures and certifications (such as the Union of the Orthodox Jewish Congregation of America (OU), Badatz Igud Harabanim Manchester, OK, Circle K and Triangle K) and rabbis of local Jewish congregations abroad.  Such procedures include, in certain cases, personal supervision by a Kashrut supervisor sent by such institutions to the manufacturing facilities from which the Company purchases products, who is present at the plant during the processing of the product. Under Israeli law, the Company is required to ascertain that the kosher foodstuffs which it offers for sale bear kosher certification approved by certain authorities, such as the Chief Rabbinate of Israel, and also bear the name of the individual authorized to certify such product.  Not all products marketed by the Company have been so certified, although they do bear certain kosher certifications from other certification bodies.
 

 C.
ORGANIZATIONAL STRUCTURE
 
The Company’s principal shareholder, Willi-Food, as of March 19, 2020, held approximately 62.05% of our ordinary shares (approximately 62.05% on a fully‑diluted basis). The primary assets of Willi-Food are the Company’s ordinary shares. Willi-Food was established on November 27, 1992 and its securities have been traded on the Tel Aviv Stock Exchange since January 1993.
 
The Company has three active subsidiaries, as follows:
 
Subsidiary
Jurisdiction of Organization
Company's Ownership Interest
W.F.D. (Import, Marketing and Trading) Ltd. ("WFD")
Israel
100%
W. Capital Ltd. (Formerly: B.H.W.F.I. Ltd.”) (“W. Capital”)
Israel
100%
Euro European Dairies Ltd.
Israel
100%

The offices of our active subsidiaries are located in Yavne, Israel, at the offices of the Company.
 
WFD
 
In November 1995, the Company incorporated a wholly-owned subsidiary, WFD.  The Company occasionally imports certain products through this subsidiary, which then sells these products to the Company. Beginning in 2019, the Company began providing loans from WFD under its new credit extension activity.

28

 
W. Capital
 
In June 2014, the Company incorporated a wholly-owned subsidiary, W.Capital, which engages in capital market investments.
 
Euro European Dairies Ltd.
 
In May 2001, the Company acquired all the shares of Euro European Dairies in order to take advantage of Euro European Dairies’ know-how in importing frozen and chilled products into Israel and for its well-known Israeli brand name. Euro European Dairies, which was registered in 1977 in Israel, is engaged in designing and developing frozen and chilled food products, and distributes over 140 products, usually packed for private consumers (in cans, jars, containers and plastic sealed and vacuumed packages), but also for institutional consumers, and labeled in Hebrew, English, and in certain cases, Arabic and Russian. Euro European Dairies’ markets certain products under the trademarks “Euro European Dairies” and “Willi-Food”. Euro European Dairies is working towards broadening the variety of products that it develops and distributes.
 
  D.
PROPERTY, PLANTS AND EQUIPMENT
 
The Company's principal executive offices are situated at a logistics center in the northern industrial zone of Yavne, at 4 Nahal Harif St., Israel, which is approximately 35 kilometers south of Tel Aviv. The logistics center is 8,526 square meters (approximately 92,000 square feet) and is located on a plot of 19,000 square meters (approximately 205,000 square feet).

In addition to the current logistics center, the Company makes use of so-called "free" warehouse services, mainly in the area of the Ashdod seaport. For such services, the Company is charged only for storage per container or pallet (i.e., there is no charge for rental when containers or pallets are not stored there). The Company's expenses for usage of free warehouses services were NIS 446 thousand (USD 129 thousand) for the year ended December 31, 2019, NIS 152 thousand (USD 41 thousand) for the year ended December 31, 2018 and NIS 1,522 thousand (USD 406 thousand) for the year ended December 31, 2017.
 
As of December 31, 2019, the Company owned four refrigeration trucks (each with a capacity of 12 tons), 10 refrigeration trucks (each with a capacity of 15 to 18 tons), three combined trucks (each with capacity of 26 tons) and four private cars. As of December 31, 2019, the depreciated total cost of such vehicles amounted to approximately NIS 1,526 thousand (USD 442 thousand).
 
Since January 22, 2008, the Company has been operating the Yavne facility under a municipal business license as required under Israeli applicable law.
 
ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

29


ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
Overview

The Company was incorporated in Israel in January 1994 and started operations in February 1994.
 
For convenience purposes, the financial data for the years ended December 31, 2019, 2018 and 2017 has been translated into U.S. Dollars using the representative exchange rate. This rate as of December 31, 2019 was NIS 3.456= USD 1.00.
 
The following discussion and analysis should be read in conjunction with the consolidated financial statements of the Company and the related notes thereto submitted in this Annual Report. The Company's financial statements as of December 31, 2019 and for the year then ended have been prepared in accordance with IFRS and interpretations issued by the IASB, which differ in certain respects from U.S. Generally Accepted Accounting Principles, or U.S. GAAP.
 
The Company is engaged, directly and through its subsidiaries, in the design, import, marketing and distribution of a broad range of food products purchased from over 120 suppliers worldwide and marketed throughout Israel and abroad. The products imported by the Company are marketed in Israel and sold to approximately 1,250 customers and 2,500 selling points, including supermarket chains, mini-markets, wholesalers, manufacturers and institutional consumers. The Company also sells its products outside Israel to a variety of customers world-wide.
 
In 2019, the Company entered the non-bank credit field by providing credit to other companies in addition to the existing activity of importing, marketing and distributing food products. The credit extension activity is managed through W.F.D. (Import, Marketing and Trading) Ltd., a wholly-owned subsidiary of the Company, and is funded from the Company's and its subsidiaries' own resources. During 2019, the Company extended loans totaling NIS 43.65 million (USD 12.63 million) for periods ranging from 5 months to 24 months.
 
Critical Accounting Policies

Management’s discussion and analysis is based upon the consolidated financial statements, which have been prepared in accordance with IFRS as issued by the IASB for all reporting periods presented. The use of IFRS Standards requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting accounting periods presented.  These estimates include, among other things, assessing the collectability of accounts receivable and the use of recoverability of inventory. Actual results could differ from those estimates. The markets of the Company’s products are characterized by intense competition and a rapid turnover of products and frequent introductions of new products, all of which may impact future ability to value the Company’s assets.
 
The following critical accounting policies may affect significant judgments and estimates used in the preparation of the consolidated financial statements.
 
Recognition of income

IFRS 15 – “Revenue from Contracts with Customers” is mandatory for reporting periods starting on January 1, 2018.

30

 
Revenue is measured and recognized in accordance with the fair value of the entire amount of proceeds receivable under the terms of the contract, net of the amounts collected on behalf of third parties (such as taxes).
 
Revenue is recognized in the consolidated statements of profit or loss to the extent that it is probable that the economic benefits will flow to the Company and/or its subsidiaries (the “Group”) , and to the extent that the revenues and costs, if relevant, can be reliably measured.
 
The Group is engaged mainly in the sale of food products in the Israeli market. Revenue from sale of goods is recognized when control of the goods has transferred to the buyer, being when the goods arrived to the buyer’s specific location. Upon receipt of the goods, the buyer has full discretion over the distribution channels and price to sell the goods; the buyer has principal responsibility upon sale of the goods and it bears the risks of obsolescence and/or loss of the goods. After delivery of the goods, the Group recognizes receivables in respect of the sale since as of that point in time the consideration is unconditional. In most cases, the Group enables specific customers to return products which they have not sold, despite that there is no agreement between the Group and its customers regarding such returns and the Group does not have a formal policy regarding such returns. Accordingly, the Group recognizes a provision for return of goods against a decrease in revenues and a corresponding inventory asset against the right to return the goods. The amount of the asset is determined based on the lower of cost of net realizable value. Past experience is used by the Group to estimate the number of returns. Based on past experience, the Group estimates, with a high level of probability that no significant portion of revenue recognized in respect of sale of goods will be reversed.
 
Inventories

Inventories are assets held for sale in the ordinary course of business, in the process of production for such sale or in the form of materials or supplies to be consumed in the production process or in the rendering of services.
 
Inventories are stated at the lower of cost and net realizable value. Cost of inventories includes all the cost of purchase, direct labor, fixed and variable production overheads and other cost that are incurred, in bringing the inventories to their present location and condition.
 
Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
 
Cost is calculated using the weighted average cost method.
 
The Group records a provision for slow moving inventory in respect of inventory items estimated by management not to be realized due to expiration date. The slow-moving inventory is based on the historic realization rate of the respective item as well as on management's estimate with respect to its future realization rate.
 
Contingent liabilities and legal proceedings

In estimating the likelihood of the outcome of legal claims filed against the Company and its investees, management considers the facts and circumstances, as well as the opinion of Company's legal counsel. These estimates are based on professional judgment, taking into account, inter alia, the stage of proceedings and legal precedents in respect of the different issues. Since the outcome of the claims will be determined in court, the results could differ from these estimates.

31

 

    A.
RESULTS OF OPERATIONS
 
The following table sets forth for the periods indicated the correlation (in percentages) between items from the Company’s statements of operations to its total sales for such periods:
 
   
Year Ended
December 31, 2019
   
Year Ended
December 31, 2018
 
Revenues
   
395,637
     
338,245
 
Cost of Sales
   
271,784
     
240,032
 
Gross Profit
   
123,853
     
98,213
 
Selling Expenses
   
55,490
     
43,823
 
General and Administrative Expenses
   
21,067
     
16,686
 
Other Income
   
-
     
(69
)
Operating profit
   
47,296
     
37,773
 
Financial Income (Loss), Net
   
17,950
     
(4,956
)
Profit before taxes on income
   
65,246
     
32,817
 
Taxes on income
   
(13,735
)
   
(7,850
)
Net Income
   
51,511
     
24,967
 

Year Ended December 31, 2019 compared with Year Ended December 31, 2018
 
Revenues.  Revenues for fiscal year 2019 increased by NIS 57,392 thousand (USD 16,606 thousand), or 17.0%, to NIS 395,637 thousand (USD 114,478 thousand) from NIS 338,245 thousand (USD 97,872 thousand) recorded in fiscal year 2018. Revenues increased primarily due to a redirection of resources in favor of sales, increasing the range of the Company's products and improved inventory management.

Cost of Sales.  Cost of sales for fiscal year 2019 increased by 13.2% to NIS 271,784 thousand (USD 78,641 thousand), or 68.7% of revenues, from NIS 240,032 thousand (USD 69,454 thousand), or 71.0% of revenues recorded in fiscal year 2018. The increase in cost of sales in fiscal year 2019 compared to fiscal year 2018 was primary due to increase in sales.

Gross Profit.  Gross profit for fiscal year 2019 increased by 26.1% to NIS 123,853 thousand (USD 35,837 thousand), or 31.3% of revenues, from NIS 98,213 thousand (USD 28,418 thousand), or 29.0% of revenues, recorded in fiscal year 2018. The increase in gross profit in fiscal year 2019 compared to fiscal year 2018 was primary due to the sales and gross margin increase resulting from the Company's strategy of selling a more favorable mix of products which generate a higher gross margin and depreciation of the Euro and USD exchange rates against the NIS.

Selling Expenses.  Selling expenses for fiscal year 2019 increased by 26.6% to NIS 55,490 thousand (USD 16,056 thousand), or 14.0% of revenues from NIS 43,823 thousand (USD 12,680 thousand), or 13% of revenues recorded in fiscal year 2018. The increase in selling expenses was primarily due to an increase of salary resulting from an increase in personnel in the sales department, increase of advertising expenses and sales promotion and increase of freight to customers' expenses.

32

 
General and Administrative Expenses. General and administrative expenses for fiscal year 2019 increased by 26.3% to NIS 21,067 thousand (USD 6,096 thousand), or 5.3% of revenues, from NIS 16,686 thousand (USD 4,828 thousand), or 4.9% of revenues recorded in fiscal year 2018. The increase in general and administrative expenses was primarily due to an increase in personnel and in management salaries.
 
Other Income. There was no other income for fiscal year 2019, compared to NIS 69 thousand (USD 20 thousand) recorded in fiscal year 2018.  Other income for fiscal year 2018 consisted of selling fixed assets.

Operating Profit. Operating profit for fiscal year 2019 increased by NIS 9,523 thousand (USD 2,755 thousand), or by 25.2%, to NIS 47,296 thousand (USD 13,685 thousand), or 12.0% of revenues, from NIS 37,773 thousand (USD 10,930 thousand), or 11.2% of revenues, recorded in fiscal year 2018. The increase in operating profit was primarily due to increase in gross profit.

Financing Income (expense), Net.  Financing expense, net, for fiscal year 2019 amounted to NIS 17,950 thousand (USD 5,194 thousand) compared to net income of NIS (4,956) thousand (USD (1,434) thousand) recorded in fiscal year 2018. The increase in Financing income, net, for fiscal year 2019 consisted primarily of change in fair value of financial assets at fair value.
 
Profit before taxes on income.  Profit before taxes on income for fiscal year 2019 increased by NIS 32,429 thousand (USD 9,383 thousand), or by 98.8%, to NIS 65,246 thousand (USD 18,879 thousand) from NIS 32,817 thousand (USD 9,496 thousand) recorded in fiscal year 2018. The increase in profit before taxes on income was primarily due to increase in gross profit.

Taxes on Income.  Taxes on income for fiscal year 2019 increased by 75.0% to NIS 13,735 thousand (USD 3,974 thousand) from NIS 7,850 thousand (USD 2,271 thousand) recorded in fiscal year 2018. The increase in taxes on income in fiscal year 2019 compared to fiscal year 2018 was mainly due to increase in profit before taxes. For more information see Note 11a (Taxes on income) of our financial statements for the year ended December 31, 2019 included in this report.

Net profit for the year.  Net profit for fiscal year 2019 was NIS 51.5 million (USD 14.9 million), or NIS 3.90 (USD 1.13) per share.

Year Ended December 31, 2018 compared with Year Ended December 31, 2017
 
This analysis can be found in Item 5 of the Company’s Annual Report on Form 20-F for the year ended December 31, 2018.


   B.
LIQUIDITY AND CAPITAL RESOURCES.
 
The Company’s operations are funded mainly through its own equity and cash flows from its operating activities. In addition, the Company has unutilized bank credit lines.
 
For fiscal year 2019, cash and cash equivalents decreased from NIS 134.2 million (USD 38.9 million) as of December 31, 2018 to NIS 121.9 million (USD 35.3 million) as of December 31, 2019.

33

 
 During fiscal year 2019, financial assets at fair value through profit or loss increased to NIS 141.5 million (USD 41.0 million) from NIS 137.9 million (USD 39.9 million) as of December 31, 2018.
 
Cash flow from operating activities
 
For fiscal year 2019, the Company generated a negative cash flow from continuing operating activities of NIS 2.6 million (USD 0.7 million) compared to positive cash flow from continuing operating activities of NIS 27.0 million (USD 7.8 million) in fiscal year 2018, a change primarily due to an increase in working capital in 2019, especially inventory and trade receivables.
 
Cash flow from investing activities
 
During fiscal year 2019, the Company utilized cash flow of NIS 8.1 million (USD 2.3 million) for continuing investing activities compared to net cash flow from continuing investing activities of NIS 5.8 million (USD 1.7 million) utilized in fiscal year 2018 primarily due to loans granted to others, net, proceeds from purchases of marketable securities, net and acquisition of property plant and equipment.
 
Cash flow used in financing activities
 
During fiscal year 2019, the Company utilized cash flow of NIS 1.8 million (USD 0.5 million) from financing activities compared to no net cash was used to financing activities in fiscal year 2018, a change as a result of lease liability payments and acquisition of treasury shares.
 
Cash requirements
 
The Company’s cash requirements, net, during the years ended December 31, 2019 and 2018 were met primarily through its working capital. As of December 31, 2019, the Company had working capital of NIS 452.8 million (USD 131.0 million) compared to working capital of NIS 399 million (USD 115.6 million) as of December 31, 2018. The Company believes that its working capital is sufficient for the Company's present requirements.
 
Trade receivables
 
The Company’s trade receivables balance as of December 31, 2019 was NIS 133.0 million (USD 38.5 million) compared to the trade receivables balance as of December 31, 2018 in the amount of NIS 98.0 million (USD 28.4 million). The average time period within which our accounts receivable was paid was 92 days in 2019 compared to 88 days in 2018.
 
Impact of Inflation and Devaluation on Results of Operations, Liabilities and Assets

The representative rate of the U.S. Dollar was NIS 3.456 on December 31, 2019 compared to NIS 3.748 on December 31, 2018, NIS 3.467 on December 31, 2017, NIS 3.845 on December 31, 2016 and NIS 3.902 on December 31, 2015. As of March 18, 2019, the representative rate of the U.S. Dollar was NIS 3.827.
 
The annual rates of inflation (deflation) in Israel during the years ended December 31, 2015, 2016, 2017, 2018 and 2019 were approximately (0.1%), (0.3%), 0.4%,0.8% and 0.6%, respectively, while during such periods the revaluation (devaluation) of the NIS against the U.S. Dollar was approximately (0%), (1.5%), (10%), 8.1% and (9.2%), respectively.

34

 
A revaluation of the NIS in relation to the U.S. Dollar has the effect of increasing the U.S. Dollar value of any assets of the Company which consist of NIS or receivables payable in NIS. Such a revaluation also has the effect of increasing the U.S. Dollar amount of any liabilities of the Company which are payable in NIS (unless such payables are linked to the Dollar). Conversely, any decrease in the value of the NIS in relation to the U.S. Dollar has the effect of decreasing the U.S. Dollar value of any linked NIS assets of the Company and the U.S. Dollar amount of any linked NIS liabilities of the Company.
 
The dollar cost of the Company’s operations in Israel is influenced by the extent to which any increase in the rate of inflation in Israel over the rate of inflation in the United States is offset by the devaluation of the NIS in relation to the U.S. Dollar.
 
Guarantees and Pledges
 
Other than letter of credit granted by the Company to some of its suppliers, the Company has no obligation or use credit lines to the banks or to other party. The outstanding amount of such letters of credit as of December 31, 2019 was approximately NIS 1.68 million (USD 0.49 million).
 
 C.
RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
 
Not applicable.

  D.
TREND INFORMATION
 
In recent years, there has been an increase in the number of small private supermarket stores that have opened in Israel, which has resulted in greater price competition in the stores and in our business. The increased price competition resulted in an increase in our cost of sales as a percentage of total revenues.  In order to maintain our gross margin at its high levels, in the past we were able to change our product mix and introduce new products with higher margins to increase our gross profit.

The food industry is characterized by a high level of competition and limited consumer loyalty. The sector is dynamic, responding to the demands, needs and various tastes of an audience numbering millions of Israeli consumers.

Recent years have seen a strengthening of private brands marketed by the large supermarket chains Shufersal Ltd. ("Shufersal") and Rami Levi Hashikma Marketing Ltd. ("Rami Levy"). The marketing of these private brands strengthens competition; however, it also allows the Company to integrate into this market by marketing its products as private brands to the large supermarket chains.

On January 15, 2015, the Food Law went into effect.  Designed to advance and increase competition in the food industry in order to reduce prices to the consumer, the Food Law is divided into three main sections:

(i) provisions related to increasing the transparency of prices at large retailers ("Large Retailer", as defined therein) – the Food Law requires that large food retail chains advertise on the internet the current prices of their products in each branch, which will enable the development of internet sites to compare prices between food stores close to a consumer's residence.

(ii) provisions related to addressing regional concentration for food retailers – the industry is characterized by high concentration of food retail chains in a single geographic area.  These chains force competitors from the same region and limit competition. The Food Law prohibits, among other things, the large food retail chains that control a specific region from opening new stores without the consent of the Israel Antitrust Commissioner. In addition, the anti-trust court may require these retailers to sell branches suffering from high concentration and low competition.

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(iii)  provisions related to advancement of competition and arrangement of fair competition in the food retail industry – the food industry is characterized by a small number of dominant suppliers, most of which have been declared monopolies. In addition, anti-competitive arrangements have been established in the industry whose purpose is to force products of medium-sized and small suppliers from the shelves and to hurt competition. The Food Law prohibits various anti-competitive arrangements by large suppliers and large food retailers, such as involvement of a supplier in the manner of arrangement of products in the stores, and in setting of prices of products from other suppliers.

In addition, the law includes a temporary order to limit the shelf space of very large suppliers (defined as retailers whose annual sales exceed NIS 1 billion) to 50% of the shelf space at large stores (defined as stores with more than 250 square meters) of larger retailers. The purpose is to enable medium-sized and small suppliers, such as the Company, to obtain shelf space at the large food retailers and thereby increase competition and lower prices for the end customer.  The Company is not currently on the list of large suppliers maintained by the Anti-Trust Authority. A large supplier is defined as a supplier with revenues to retailers, or through retailers, in Israel of more than NIS 300 million, or a supplier who is a monopoly as defined in the Israel anti-trust law, with respect to a particular food products for which it was declared a monopoly.

The Company expects that in the long term the Food Law could positively affect the financial results of the Company because it may provide more shelf space to the small and medium size suppliers such as the Company and lessen the influence of our largest competitors.

In addition, various macro economic factors impact the food industry, including the macro economic environment in Israel, which includes the following:

 Inflation: In 2019, the rate of inflation was 0.3%, which is below the lower level of the inflation target set by the Bank of Israel (1%-3%).

GDP: According to an estimate by the Bank of Israel, in 2019 GDP increased by 3.5%.

Bank of Israel interest: In 2019, the Monetary Committee of the Bank of Israel retained interest levels at 0.25% - interest rates have not changed since November 2018.

Exchange rate: The shekel appreciated against the US dollar and the Euro in 2019. Appreciation in nominal effective exchange rate terms as of the end of 2019 approximated 8% and 9%, respectively.

Labor market: The level of participation in the labor market and employment remain high and stable and the market is at or near full employment. As of the end of the second half of 2019, Israel had a historically low unemployment rate of 3.5%.

In addition, the global economy has experienced a slowdown in economic growth, which started in 2018 and continued in 2019. International entities continue to downgrade growth forecasts, and downward risks accelerated, including the ongoing U.S. – China trade war. According to International Monetary Fund forecasts, global growth in 2019 amounted to 3%, the lowest rate since the 2008 financial crisis. Growth forecasts were downgraded both for developed and developing economies, reflecting a general global trend, which is driven mainly by weakness in industrial activity. This downward trend could be further exacerbated by the coronavirus. For more information on the potential impact of the coronavirus on our business, see “Item 3. Key Information – D. Risk Factors – Our international operations may be adversely affected by risks associated with international business”.

36


In addition, the Company's management is evaluating the financial stability of its customers by entering into agreements with companies for providing business data, examining bank accounts, conducting inquiries, and following negative publicity regarding its customers or other signs indicating financial difficulties.
 
OFF-BALANCE SHEET ARRANGEMENTS
 
Not applicable.
 

E.
TABULAR DISCLOSURE OF CONTRACTURAL OBLIGATIONS
 
Not applicable.

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 

A.
DIRECTORS AND SENIOR MANAGEMENT
 
The directors, executive officers and key employees of the Company as of the date of this Annual Report are as follows:
 
Name
Age  
 
Position with the Company
Joseph Williger
63
Director, Co-Chairman of the Board
Zwi Williger
65
Director, Co-Chairman of the Board
Victor Bar (1) (2)
55
Director
Gil Hochboim
50
Director
Einat Peled-Shapira
42
Chief Executive Officer
Yitschak Barabi
35
Chief Financial Officer
Einav Brar (1) (2)
48
External Director
Idan Ben-Shitrit (1) (2)
45
External Director

(1)
(2)
Members of the Company’s Audit Committee
Members of the Company’s Compensation Committee

The Directors are elected at the annual general meeting of shareholders and hold office until the next annual general meeting of shareholders and until their successors have been elected.  Officers serve at the discretion of the Board, subject to the terms of any agreement between officers and the Company.
 
The business experience of each of the Directors, executive officers and key employees of the Company is set forth below:

          Joseph Williger has served as the active Co-Chairman of the board of the Company (together with his brother Mr. Zwi Williger) and as a director of Willi-Food the controlling shareholder of the Company since June 20, 2017 and June 12, 2017, respectively. From January 1994 until September 2011 he served as the Chief Executive Officer of the Company and from September 2011(when he ceased serving as Chief Executive Officer of the Company) until January 2016 he served as President of the Company.  Mr. Williger has also served as a director of the Company from January 1994 until January 2016 and the chairman of the company's subsidiaries, WFD and Gold Frost, from 1996 and 2001, respectively, until January 2016. Mr. Williger attended Business Administration studies in California State University, Northridge, Los Angeles and attended Business Administration studies in Bar Ilan University, Ramat-Gan, Israel.

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Zwi Williger has served as the active Co-Chairman of the board of the Company (together with his brother Mr. Joseph Williger) and as a Chairman of the board of Willi-Food, the controlling shareholder of the Company, since August 2017 and June 2017, respectively. In addition, From January 1994 until January 2016 he served as an active Chairman of the board of the Company and a director and a CEO of Willi-Food. Prior to that and from inception of the Company in 1994 until 1997, he served as a director and Manager of Marketing Development of the Company.  In addition, Mr. Williger served as Chief Operating Officer of the Company from 1997 until 2011.  Mr. Williger attended Fresno University in California.

    Victor Bar has served as independent director of the Company since June 2017. In addition, Mr. Bar is director at his wholly-owned company, Victor Bar Consultant Ltd, where. since 2015 he has provided financial services including value estimations for companies and other entities.  Between 2014 and 2016, Mr. Bar served as CFO of Edriel Israel Assets Ltd, a real estate company traded on Tel Aviv Stock Exchange. Mr. Bar holds a B.A. in accounting and economy from Bar Ilan University and C.P.A license in Israel since 1992.
 
                   Gil Hochboim
has served as director of the Company and Willi-Food since June 2017. He has also served as a director of B.S.D, the majority shareholder of Willi-Food, since May 2017, and in addition serves as a CFO at S.R. Accord Ltd, a public company active in the non-bank credit field. Mr. Hochboim served as the CEO of the Company and Willi-Food between 2011 and until 2015. Mr. Hochboim is a certified public accountant (Israel) and holds a B.A in Business Management and accounting from the Academic College of Management, Tel-Aviv, Israel.

Einat Peled-Shapira has served as the Company’s Chief Executive Officer since March 10, 2020, when she replaced Mr. Michael Luboschitz, who previously served as CEO. Prior to being appointed CEO, Ms. Peled-Shapira held several senior positions over 14 years at Osem-Nestle group, one of the largest food manufacturers and distributors in Israel, most recently since 2018 as Business Unit Manager of "Bonjour", a leading fresh baked goods company in Israel. Mrs. Peled-Shapira holds an BA in Business Administration with a specialization in information systems from the College of Management Academic Studies in Rishon LeZion, Israel and an MBA with a specialization in marketing from the Peres Academic Center in Rehovot, Israel.

Yitschak Barabi has served as Chief Financial Officer/finance manager of the Company and Willi-Food since September 1, 2019, when he replaced Mr. Amir Kaplan, who previously served as CFO. Prior to his appointment as Finance Manager, Mr. Barabi served as the Company’s Controller and Deputy CFO since October 15, 2017. Mr. Barabi is certified public accountant (Israel) and holds a BA (Accounting & Economic) from the Hebrew University.

Einav Brar has served as external director of the Company since August 2018. Since 2015, Ms. Brar has served as owner and CEO of TLV Medical Center, and from 1994 until 2015, she served as founder and former CEO of DPL - Disposable Hygienic Products LTD. Ms. Brar earned a bachelor's degree in Business Administration from Roppin Academic Center in Emek Hefer, Israel.

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Idan Ben-Shitrit has served as external director of the Company since August 2018. Since 2009, he has served as a self-employed portfolio manager at Meitav Co. & Altris Co. Mr. Idan earned a bachelor of arts degree in Mathematics and Economics from Tel-Aviv University and an MBA in Finance from IDC in Herzliya, Israel.


B.
    COMPENSATION
 
The table below reflects the compensation granted to our five most highly compensated office holders (as defined in the Companies Law) during or with respect to the year ended December 31, 2019. We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.” For purposes of the table below, “compensation” includes amounts accrued or paid in connection with management fees, salary cost, consultancy fees, bonuses, equity-based compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking to provide such compensation. All amounts reported in the table are in terms of cost to the Company, as recognized in our financial statements for the year ended December 31, 2019, plus compensation paid to such Covered Executives following the end of the year in respect of services provided during the year. Each of the Covered Executives was covered by our D&O liability insurance policy and was entitled to indemnification and exemption in accordance with applicable law and our articles of association.

Name and Principal Position
Salary
(1)
Management Fees
 (2)
Bonus
(3)
Total
 
NIS thousands
Zwi Williger (4)
Co-Chairman of the Board and a chairman of the board of Willi-Food
-
1,650
1,500
3,150
Joseph Williger (4)
Co-Chairman of the Board and a director of Willi-Food
-
1,569
1,500
3,069
Michael Luboschitz (5) Former CEO of the Company and Willi-Food
-
936
330
1,266
Ran Asulin
Chief Trade and Selling Officer of the Company.
486
-
72
558
Amir Kaplan (6) Former Chief Financial Officer of the Company and Willi-Food
441
-
71
513


(1)
The aggregate of gross monthly salaries or other payments with respect to the Company's Executive Officers for 2019 exclude annual bonus and include car and mobile phone benefits.

(2)
Management fees includes also tax gross-up payments.

(3)
Annual profit-related bonuses for 2019 to Zwi Williger and Joseph Williger Represents annual bonuses granted to the Covered Executive based on formulas set forth in the Company's compensation policy approved by shareholders in April 2019 (the "Amended Compensation Policy") and the agreements with each of the Covered Executive.

(4)
For additional information on Zwi Williger's and Joseph Williger's compensation arrangements with the Company, see - "Item 7. Major Shareholders and Related Party Transactions – B. Related Party Transactions – Management Service Agreements" with Zwi Williger and Joseph Williger", below.

(5)
Mr. Luboschitz resigned from the Company, effective March 20, 2020.

(6)
Mr. Kaplan resigned from the Company, effective September 1, 2019.

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Terms of Service of Mr. Zwi Williger and Mr. Joseph Williger
 
On August 13, 2017 and on August 17, 2017, the Company’s Compensation Committee and Board, respectively, unanimously approved the following terms of office of each of the co-Chairmen, which were approved by the Company's shareholders on October 17, 2017.
 According to the Management Services Agreements approved by shareholders on October 17, 2017 and approved in amended form by shareholders on April 3, 2019, each of the co-Chairmen will serve as an active co-Chairman of the Board of Directors of the Company in a 100% full time position as of January 1, 2019.

The main terms and conditions of each of the Management Services Agreement are as follows:

 (a)          Monthly service fees of NIS 100,000 (currently approximately USD 28.9 thousand) (excluding VAT).

In addition to the monthly service fees, the co-Chairman will be entitled to annual remuneration, remuneration for participation in meetings of the Board of Directors and/or its committees according the “minimum amount” as set forth in the Israeli Companies Regulations (Rules Regarding Compensation and expenses of an External Director), 5760-2000 (the “Compensation Regulations”) and in accordance with the level of equity of the Company as defined in the Compensation Regulations (as amended from time to time).

(b)          Profit Related Bonus - an annual bonus determined according to measurable quantitative criteria:

 Payment of the Measurable Bonus will be subject to achieving an operating profit target before bonuses to all Company’s officers (the “Bonuses”) of at least NIS 20 million (currently approximately USD 5.78 million) (the “Minimum Operating Profit before Bonuses”).

Achieving or exceeding the Minimum Operating Profit before Bonuses the co-Chairman will entitle to receive a bonus in the following manner: (i) a Bonus of 2% of the actual operating profit before Bonuses up to and including NIS 10 million (currently approximately USD 2.89 million); (ii) a Bonus of 3% of the actual operating profit before Bonuses above NIS 10 million and up to and including NIS 15 million (currently approximately USD 4.34 million); (iii) ) a Bonus of 4% of the actual operating profit before Bonuses above NIS 15 million and up to and including NIS 20 million (currently approximately USD 5.79 million); (iv) a Bonus of 5% of actual operating profit before Bonuses exceeding NIS 20 million.

40


The maximum annual Measurable Bonus to be paid to the co-chairman will not exceed NIS 1.5 million (currently approximately USD 434 thousand).

(c)          The Company may terminate the Management Service Agreements at any time, and for any reason, by prior written notice of at least three months in the first year of acting as co-Chairman and by prior written notice of at least four months after the first year.

The co-Chairman may terminate their respective Management Service Agreement at any time, and for any reason, by prior written notice of at least three months.

During the notice period, the co-Chairman must fulfill his duties in order to ensure the continued and smooth operation of the Company, unless the Board decides to conclude his service before the end of the Notice Period.

(d)          Upon termination of Management Services Agreement by the Company, the co-Chairman will be entitled to a retirement grant in an amount equal to six (6) monthly service fees (provided that the Company did not terminate the Management Services Agreement in circumstances specified in the agreement), and three (3) monthly service fees following termination of the Management Services Agreement by the applicable co-Chairman.

The co-Chairman will be entitled to a retirement grant described above, provided the co-Chairman has been acting as co-Chairman the Company for at least one (1) year.

(e)          The Company will provide the co-Chairman with use of a vehicle, the value of which will not exceed the amount of NIS 400,000 (currently approximately USD 115,740). The Company will cover all the operating expenses of the Company car (excluding fines), including grossing up the related tax. In case, at the request of the co-Chairman, the value of the vehicle will exceed the amount of NIS 400,000, the co-Chairman will reimburse the Company with any amount exceeding NIS 400,000.

(f)          Benefits in general, including the social benefits of the co-Chairman and income tax payments, national insurance payments and other payments due to employees in respect of their employment, are to be paid for at the sole expense of the co-Chairman’s Management Company. The co-Chairman’s Management Company has undertaken to indemnify the Company with respect to any claims against the Company with respect to employer/employee relations.

Terms of Office and Employment of Michael Luboschitz, CEO of the Company and Willi-Food
 
The Board appointed Mr. Michael Luboschitz as CEO effective January 1, 2018 and he resigned from the Company effective March 2, 2020.
 
Effective from the date of his appointment, the terms of office and employment of Mr. Luboschitz were as follows (collectively the “Terms of Office and Employment of Mr. Luboschitz”):

     Monthly Payment – For 100% of a full time position, monthly service fees of NIS 73,000 plus VAT (currently approximately USD 21,123, plus VAT) (“Monthly service fees”);

     Vehicle - In addition to the monthly service fees, NIS 5,000 (currently approximately USD 1,447) per month for vehicle, and the vehicle's operating expenses (including insurance, fuel, tolls and fees);

     Profit Related Bonus an annual bonus determined according to measureable quantitative criteria (the “Measureable Bonus”) as follows:

41


The Measureable Bonus mechanism:

A Measurable Bonus will only be paid if the Company's annual consolidated operating profit before bonuses for all Company officers ("Annual Operating Profit Before Bonuses") is at least NIS 15 million (currently approximately USD 4.34 million).

Achieving or exceeding the Minimum Operating Profit before Bonuses will entitle Mr. Luboschitz to receive a bonus in the following manner: (i) a Bonus of 0.5% of the actual operating profit before Bonuses up to and including the Minimum Operating Profit before Bonuses; and (ii) a Bonus of 0.75% of the actual operating profit before Bonuses exceeding the Minimum Operating Profit before Bonuses.

The maximum annual Measurable Bonus to be paid to Mr. Luboschitz will not exceed NIS 330,000, plus VAT (currently approximately USD 65,486, plus VAT).
 
    Equity based compensation - in the event the Company decides to grant equity based compensation, the Company may grant Mr. Luboschitz Company securities as determined by the Company’s compensation committee and board of directors, and subject to the receipt of all other approvals required by the applicable law.
 
    Termination, Notice Period and Retirement Term –
 
   Each of the Company and Mr. Luboschitz may terminate the Management Service Agreement at any time, and for any reason, by prior written notice of 30 days in the first six months of service and 60 days during the rest of the period. During the notice period Mr. Luboschitz must fulfill his duties in order to ensure the continued and smooth operation of the Company, as well as the handing over of Mr. Luboschitz's duties to such person(s) as will be designated by the Board, unless the Board decides to conclude his service before the end of the notice period. Each of the Company and Mr. Luboschitz may terminate the Management Service Agreement at any time, and for any reason, by prior written notice of 30 days in the first six months of service and 60 days during any time thereafter. During the notice period Mr. Luboschitz must fulfill his duties in order to ensure the continued and smooth operation of the Company, as well as the handing over of Mr. Luboschitz's duties to such person(s) as will be designated by the Board, unless the Board decides to stop his service before the end of the notice period.
 
    Absence of employer/employee relations -
 
    Benefits in general, including the social benefits of the CEO and income tax payments, national insurance payments and other payments due on account of the services to be provided under the Management Services Agreement, are to be at the sole expense of Mr. Luboschitz Management Company. Mr. Luboschitz' Management Company has undertaken to indemnify the Company with respect to any claims against the Company with respect to employer/employee relations.
 
   Mr. Luboschitz will be included in the D&O insurance policy available to the Company and its subsidiaries under the same terms as other officers of the Company, and will be entitled to an exemption and indemnification letter, which is identical to the form of exemption and indemnification approved by the General Meeting of Shareholders on July 20, 2005 for all directors and officers of the Company. 
 

42


Terms of Office and Employment of Ms. Einat Peled-Shapira, CEO of the Company and Willi-Food (effective March 10, 2020)
 
The Board appointed Ms. Shapira as CEO effective March 10, 2020.
 
On January 26, 2020, the Compensation Committee of the Company and the Board each approved the following terms of office and employment of Ms. Shapira, subject to shareholders’ approval:
 

Salary – monthly salary of NIS 53,330 (currently approximately USD 15,431) (“Monthly Payment”);
 

Managers’ Insurance Policy –  monthly payments to be made by the Company towards Ms. Shapira's pension and compensation funds will be in accordance with Israeli law (currently approximately NIS 7,900, or USD 2,288);
 

Study Fund (‘Keren Hishtalmut’) – monthly payment to be made by the Company towards Ms. Shapira's study fund will total 7.5% of the of the sum of the Monthly Payment (currently approximately NIS 4,000 or USD 1,157);
 

Vehicle – Company will provide Ms. Shapira's with a leased vehicle, the value of which will not exceed the amount of NIS 200,000 (currently approximately USD 57,870). The Company will cover all the operating expenses of the Company car (excluding fines). Ms. Shapira's will bear all related tax (known in Hebrew as ‘Shovi Rechev’);
 

Vacation Days – 25 vacation days per year;
 

Convalescence and Illness Days – in accordance with applicable Israeli law; and
 

Profit Related Bonus – an annual bonus determined according to measurable quantitative criteria (the “Measurable Bonus”).
 
The Measurable Bonus mechanism is as follows:
 
Payment of the Measurable Bonus will be subject to achieving the Minimum Operating Profit before Bonuses, and will not be less than the operating profit (excluding bonuses) that will be recorded in 2019 less 12.5%.
 
Achieving or exceeding the Minimum Operating Profit before Bonuses will entitle Ms. Shapira to receive a bonus in the following manner: (i) a Bonus of 0.35% of the actual operating profit before Bonuses up to and including the Minimum Operating Profit before Bonuses; and (ii) a Bonus of 0.7% of the actual operating profit before Bonuses exceeding the Minimum Operating Profit before Bonuses.
 
The maximum annual Measurable Bonus to be paid to Ms. Shapira will not exceed NIS 320,000 or USD 92,592.
 
Termination, Notice Period and Retirement Term is as follows:
 

Each of the Company and Ms. Shapira may terminate Ms. Shapira’s employment at any time, and for any reason, by prior written notice of: 30 days in the first year of employment, 60 days during the period following the first year (the “Notice Period”).
 
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Ms. Shapira will be included in the D&O insurance policy available to the Company and its subsidiaries under the same terms as other officers of the Company, and she will be entitled to an exemption and indemnification letter, which is identical to the form of exemption and indemnification that was approved by the General Meeting of Shareholders on July 20, 2005 for all directors and officers.

 Terms of Office and Employment of Ran Asulin, Chief trade and selling officer of the company

Mr. Asulin has served as Chief Trade and Selling Officer of the company since February 24, 2020. Before that, Mr Asulin served as National Trade Manager of the Company since December 2018.  Mr. Asulin is entitled to a monthly salary in accordance with the terms of his employment agreement as approved by the certified organs of the Company, including salary, car, mobile phone and accepted social conditions. In addition, Mr. Asulin is included in the insurance policy for directors and officers of the Company, and is also entitled to exemption and indemnification from the Company. Pursuant to his employment agreement, Mr. Asulin is entitled to a bonus based on the Company's sales and gross profit.
 
Each party may terminate the agreement by giving 60 days advance notice

 Terms of Office and Employment of Amir Kaplan, CFO and Secretary of the Company and Willi-Food

Mr. Kaplan served as CFO of the Company from October 15, 2017 until he resigned from the Company effective September 1, 2019. Mr. Kaplan was entitled to a monthly salary in accordance with the terms of his employment agreement as approved by the certified organs of the Company, including salary, car, mobile phone and accepted social conditions. In addition, Mr. Kaplan was included in the insurance policy for directors and officers of the Company, and is also entitled to exemption and indemnification from the Company. Pursuant to his employment agreement, Mr. Kaplan was entitled to a bonus based on the Company's operating profit
 
Each party may terminate the agreement by giving 60 days advance notice.

Aggregate Compensation of Directors and Officers
 
The aggregate compensation paid by the Company to its directors and officers as a group for the fiscal year 2019 was approximately NIS 6.4 million (USD 1.9 million), excluding bonuses in an aggregate amount of approximately NIS 3.5 million (USD 1.0 million) paid to Messrs. Joseph and Zwi Williger and other officers. These amounts include all contingent or deferred compensation payable to directors or officers during fiscal year 2019. These amounts also include payments to non-executive directors in the aggregate amount of approximately NIS 551 thousand (USD 159 thousand) during fiscal year 2019.
 
The foregoing includes amounts expended by the Company for motor vehicles made available to its officers. The Company provides motor vehicles to key employees and certain officers, at the Company’s expense.
 
See also “Item 7. Major Shareholders and Related Party Transactions – B. Related Party Transactions”.
 
Compensation Policy
 
Pursuant to Amendment No. 20 to the Companies Law and following approval of the Compensation Committee and Board, a Compensation Policy was approved by shareholders on November 28, 2013 and a revised Compensation Policy was approved by shareholders on October 17, 2017 (the "October 2017 Compensation Policy").  The objective of the October 2017 Compensation Policy is to achieve the goals and work plans of the Company, including its long-term best interests by: (i) creating a reasonable and appropriate set of incentives for the Company’s executives; (ii) providing the tools necessary for recruiting, motivating and retaining talented and skilled executives; (iii) putting an emphasis on performance based compensation; and (iv) creating proper balance between the various compensation components (such as fixed versus variable components and short-term versus long-term).

44


Pursuant to Amendment No. 20 to the Companies Law, a compensation policy must be reviewed and re-approved every three years, whether or not it has been amended. An amendment to the October 2017 Compensation Policy and its approval for a period of additional three years was proposed by shareholders on April 3, 2019.


C.
   BOARD PRACTICES
 
Terms of Office
 
Except as to External Directors, who are discussed below, Directors are elected by the shareholders at the annual general meeting of the shareholders, except in certain cases where Directors are appointed by the Board of Directors, and their appointment is later ratified at the first annual general meeting of the shareholders thereafter. Except for External Directors, Directors serve until the next annual general meeting of the shareholders.
 
Alternate Directors
 
The Articles of Association of the Company provide that any director (except for External Directors) may, by written notice to the Company, appoint another person to serve as an alternate director. Under the Israeli Companies Law, the directors of the Company cannot appoint an incumbent director or an incumbent alternate director as an alternate director. The term of appointment of an alternate director may be for a specified period or until notice is given of the termination of the appointment. A Director who is member of a Board Committee may appoint anyone to be his alternate on that committee provided that the candidate for appointment as alternate is not a member of such committee.
 
Audit Committee
 
Nasdaq Requirements
 
Our ordinary shares are listed for quotation on the Nasdaq Capital Market, and we are subject to the rules of the Nasdaq Capital Market applicable to listed companies.  Under the current Nasdaq rules, a listed company is required to have an audit committee consisting of at least three independent directors, all of whom are financially literate and one of whom has accounting or related financial management expertise. Einav Brar (Chair), Idan Ben-Shitrit, and Victor Bar qualify as independent directors under the Nasdaq requirements and are members of the Audit Committee. The role of the audit committee for Nasdaq purposes includes assisting the Board of Directors in fulfilling its responsibility for oversight of the quality and integrity of the Company's accounting, auditing and reporting practices.
 
Israeli Companies Law Requirements
 
Under the Israeli Companies Law, the board of directors of a public company must appoint an audit committee, comprised of at least three directors including all of the external directors, with a majority of independent directors but excluding a:


The Chairman of the board of directors;

A controlling shareholder or his relative;

Any director employed by or who provides services to the company on a regular basis.

Any director employed by the controlling shareholder or by any corporation controlled by the controlling shareholder or who provides services to the controlling shareholder on a regular basis; and

Any director whose principal livelihood comes from the controlling shareholder.

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The Chairman of the audit committee must be an external director.
 
The responsibilities of the audit committee under the Israeli Companies Law include, among others, identifying irregularities in the management of the company’s business, approving related party transactions as required by law, approving “actions” or “transactions” (as such terms are defined in the Israeli Companies Law), identifying deficiencies in the business management practices of the Company in consultation with the Company’s internal auditor or independent auditors and recommending to the Board ways to improve such practices and approving transactions with affiliates. In addition, the audit committee has certain powers with regard to transactions with controlling shareholders or with persons or entities in which the controlling shareholder has a personal interest, including the power to require a competitive procedure or in some cases other procedure prior to entering into such transactions and the power to establish a procedure for approving such transactions in cases they are not de minimis to the Company.
 
Compensation Committee
 
Israeli Companies Law Requirements
 
Einav Brar (Chair), Idan Ben-Shitrit and Victor Bar are members of the Board’s Compensation Committee. All of our Compensation Committee members have been determined to be eligible to be members of a compensation committee in accordance with the amendments to the Israeli Companies Law.
 
Under the Israeli Companies Law, the compensation committee of a public company is required to consist of at least three members, all the external directors must be members of it and one of them must be appointed as chairperson, and the majority of the members must be independent. The remaining members must be directors who qualify to serve as members of the audit committee as defined in the Israeli Companies Law. The roles of the compensation committee include, among others:
 

Recommending the board of directors, the compensation policy for the company's office holders to be adopted by the company and to recommend to the board of directors, once every three years, regarding any extension or modification of the current compensation policy which had been approved for a period of more than three years;

From time to time, recommending to the board of directors regarding updates required to the compensation policy and examining the implementation thereof;

Determining whether to approve the company’s office holders’ terms of office and employment in situations that require the approval of the compensation committee in accordance with the Israeli Companies Law; and

In certain situations, described in the Israeli Companies Law, determining whether to exempt the approval of the terms of office of the CEO from the requirement to obtain shareholders’ approval.

According to the Israeli Companies Law, the terms of service and employment of a public company’s office holders (including cash and equity-based compensation, exemption from liability, indemnification, D&O insurance and other benefits and payments related to service and employment) must be approved by the board of directors, while, the terms of service and employment of the directors and the CEO must also be approved also by the company's shareholders in accordance with the majority requirements of the Israeli Companies Law.
 
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Independent Directors
 
The Company is a “Controlled Company” within the meaning of the Nasdaq rules since more than 50% of its voting power is held by Willi-Food. As a Controlled Company, the Company is exempt from certain Nasdaq independence requirements, such as the requirement that a majority of the Board of Directors be independent and the rules relating to independence of directors approving nominations and executive compensation.
 
External Directors under the Israeli Companies Law/Financial Experts
 
The Israeli Companies Law requires that the Company have at least two external directors on its Board of Directors. The election of an external director under the Israeli Companies Law must be approved by a general meeting of shareholders provided that either: (a) the majority of shares voted at the meeting, including at least a majority of the shares of non-controlling shareholders and who do not have a personal interest in the appointment (excluding a personal interest which did not result from the shareholder's relation with the controlling shareholder) voted at the meeting, vote in favor of such arrangement (not including abstentions) or (b) the total number of shares voted against such arrangement does not exceed two percent of the aggregate voting rights in the company.
 
A “Controlling Shareholder” is defined in the Israeli Companies Law as a shareholder with the ability to control the actions of the company, whether by majority ownership or otherwise, and for the purpose of transactions with related parties, the definition may include a shareholder who holds at least 25% of the voting rights in the Company, provided that there is no other shareholder who hold more than 50% of the voting rights in the company; if two or more shareholders who hold voting rights in the Company  have a personal interest  in the approval of a transaction with a related party will be seen as holding together. The Israeli Companies Law further requires that at least one external director have financial and accounting expertise, and that the other external director(s) have professional competence, as determined by the company’s board of directors. A director having financial and accounting expertise is a person who, due to his or her education, experience and talents is highly skilled in respect of, and understands, business-accounting matters and financial reports in a manner that enables him or her to understand in depth the company’s financial statements and to stimulate discussion regarding the manner in which the financial data is presented.  Under the regulations, a director having professional competence is a person who has an academic degree in either economics, business administration, accounting, law or public administration or an academic degree in an area relevant to the company’s business, or has at least five years' experience in a senior position in the business management of a corporation with a substantial scope of business, in a senior position in the public service or a senior position in the field of the company’s business.
 
An external director is appointed for a period of three consecutive years and may be re-appointed for two additional three-year periods only, subject to certain conditions (including approval by shareholders at a general meeting) as provided under Israeli regulations. Under the Israeli Companies Law, any committee of the Board of Directors to which the Board of Directors has delegated its powers in whole or in part must include at least one external director. Under the Israeli Companies Law, the Audit Committee and the Compensation Committee must include all the external directors.
 
The External Directors of the Company are Ms. Einav Brar and Mr. Idan Ben-Shitrit. Ms. Brar was elected by the Company shareholders on August 2, 2018 to serve for a period of three years, and was determined by the Board to have “financial and accounting expertise” under Israeli Companies Law. Mr. Ben-Shitrit was elected by the Company shareholders on August 2, 2018 to serve for a period of three years, and was determined by the Board to have “professional expertise” under the Israeli Companies law.
 
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Internal Auditor
 
Under the Israeli Companies Law, Israeli companies whose securities are publicly traded are also required to appoint an internal auditor, as recommended by the audit committee.  The role of the internal auditor is to check, among others, the integrity of the company's operations in terms of compliance with the law and proper business practice. Mr. Doron Yunisy, the Company’s internal auditor, works in accordance with an annual audit plan approved by the Audit Committee.
 
Indemnification
 
In accordance with the Israeli Companies Law and the Company’s Articles of Association, the Company has undertaken to indemnify and insure its directors and senior officers against certain liabilities which they may incur in connection with the performance of their duties. Under the terms of such indemnification provisions, the Company may, to the extent permitted by law, indemnify its directors or officers for legal expenses incurred by him/her in connection with such liabilities.
 
Exemption
 
In May 2005, the Board of Directors and Audit Committee of the Company approved an exemption in advance to any director or officer from any liability to the Company attributed to damage or loss caused by breach of the director or the officer’s duty of care owed to the Company, except for such breach in distribution (as such term is defined in the Israeli Companies Law). Also, the Board of Directors, the Audit Committee and the shareholders approved an irrevocable indemnification of the Company officers with respect to any liability or expense paid for by the officer or that the officer may be obligated to pay.
 
In accordance with the Israeli Companies Law, an agreement with a controlling shareholder, such as the Company's exemption and indemnification letter to its controlling shareholders, must be approved every three years by the Company’s Audit Committee or Compensation Committee (as the case may be), the Board of Directors and a special majority of the Company shareholders.
 
All current officers and directors of the Company have received exemption and indemnification letters, including Joseph Williger and Zwi Williger, Gil Hochboim, Victor Bar, Einav Brar and Idan Ben-Shitrit.
 
Directors and officer's liability insurance policy
 
In accordance with the Israeli Companies Law, an agreement with a controlling shareholder, such as the Company's directors' and officers' liability insurance policy for its controlling shareholders, must be approved every three years by the Company’s Audit Committee or Compensation Committee (as the case may be), by the Board of Directors and by a special majority of the Company shareholders, unless it is approved in accordance with Article 1B(5) of the Israeli Companies Regulations (Relief with Respect to Transactions with Interested Parties), 5760-2000 (the “Relief Regulations”). On October 17, 2017 the Company shareholders approved an insurance policy for Messrs. Zwi Williger and Joseph Williger for a three years period on the same terms such policy applies to the other directors and officers of the Company. The terms of office of Messrs. Williger, including the insurance policy, were re-approved by the Company shareholders on April 3, 2019.

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Approval of Related Party Transactions under the Israeli Companies Law
 
Office Holders
 
The Israeli Companies Law codifies the fiduciary duties that office holders owe to a company. An office holder is defined as a general manager, chief executive officer, deputy general manager, vice general manager, any other person assuming the responsibilities of any of these positions regardless of that person’s title and director or manager directly subordinate to the general manager. Each person listed in the table under "Item 6. Directors, Senior Management and Employees – A. Directors and Senior Management” is an office holder under the Israeli Companies Law.
 
Fiduciary duties. An office holder’s fiduciary duties consist of a duty of loyalty and a duty of care. The duty of loyalty requires the office holder to act in good faith and for the benefit of the company, and includes, among other things, the duty to avoid any conflict of interest between the office holder’s position in the company and his/her personal affairs. In addition, the duty of loyalty proscribes any competition with the company or the exploitation of any business opportunity of the company in order to receive personal advantage for him or herself or others. This duty also requires disclosure to the company of any information or documents relating to the company’s affairs that the office holder has received due to his or her position as an office holder. The duty of care requires an office holder to act with a level of care that a reasonable office holder in the same position would employ under the same circumstances. This includes the duty to use reasonable means to obtain information regarding the advisability of a given action submitted for his or her approval or performed by virtue of his or her position and all other relevant information pertaining to these actions.

Compensation. The Israeli Companies Law requires that the terms of service and engagement of the chief executive officer, directors or controlling shareholders (or a relative thereof) receive the approval of the compensation committee, board of directors, and shareholders, subject to limited exceptions. Similarly, the terms of service and engagement of any officer other than the CEO must receive the approval of the compensation committee and board of directors. However, shareholder approval is only required if the compensation of such officer other than the CEO is not in accordance with the compensation policy. This compensation policy is required to take into account, among other things, providing proper incentives to directors and officers, taking into account the risk management of the company, the officer’s contribution to achieving corporate objectives and increasing profits, and the function of the officer or director. Following the approval of the Compensation Committee and Board, a newly revised Compensation Policy was approved by the Company shareholders on October 17, 2017 at a special meeting of shareholders. An amendment to the October 2017 Compensation Policy was approved by the shareholders for an additional period of three years on April 3, 2019. For more information on the Company's Compensation Policy, see "Item 6. Directors, Senior Management and Employees – B. Compensation". In accordance with the Israeli Companies Law the compensation policy must be re-approved every three years, in the manner described above. The Compensation Committee is responsible for reviewing from time to time the compensation policy and determining whether or not there are circumstances that require adjustments to the current compensation policy.
 
The Israeli Companies Law provides that a compensation policy requires shareholder approval by a special majority vote. Notwithstanding the above, the compensation committee and the board of directors may approve the compensation policy of a company, even if the shareholders do not approve such terms, provided that:
 
1) the compensation committee and after the Board decide, on the basis of detailed reasons and re-discussion of the compensation policy, the approval of the compensation policy despite the shareholders' objection is in favor of the company; and
 
2) the company is not a "Public Pyramid Held Company", which is a public company controlled by another public company (including by a company that only issued debentures to the public), which is also controlled by another public company (including a company that only issued debentures to the public) that has a controlling shareholder.

49

 
As of March 19, 2020, the Company is a "public pyramid held company", with the parent Company, Willi-Food, a public company traded on the Tel-Aviv Stock Exchange, and BSD, Willi-Food's parent company, a public company traded on the London Stock Exchange.
 
Disclosure of personal interest. The Israeli Companies Law requires that an office holder promptly disclose to the company any personal interest that he or she may have and all related material information known to him or her, in connection with any existing or proposed transaction by the company. “Personal interest”, as defined by the Israeli Companies Law, includes a personal interest of any person in an act or transaction of the company, including a personal interest of his relative or of a corporate body in which that person or a relative of that person holds 5% or more, or holds 5% or more of the voting rights, a director or general manager, or in which he or she has the right to appoint at least one director or the general manager. “Personal interest” does not apply to a personal interest stemming merely from the fact that the office holder is also a shareholder in the company. "Personal interest" also includes (1) the personal interest of a person who votes via a proxy for another person, even if the other person has no personal interest, and (2) the personal interest of a person who gives a proxy to vote even if the person who votes on his or her behalf has no personal interest, regardless of whether the discretion of how to vote lies with the person voting or not.
 
The office holder must make the disclosure of his or her personal interest promptly and, in any event, no later than the first meeting of the company’s board of directors that discusses the particular transaction. This duty does not apply to the personal interest of a relative of the office holder in a transaction unless it is an “extraordinary transaction”. The Israeli Companies Law defines an extraordinary transaction as a transaction not in the ordinary course of business, not on market terms or that is likely to have a material impact on the company’s profitability, assets or liabilities, and defines a relative as a spouse, sibling, parent, grandparent, descendent and spouse’s descendant, and includes a sibling, parent and spouse of any of the foregoing.
 
Approvals. The Israeli Companies Law provides that a transaction with an office holder or a transaction in which an office holder has a personal interest may not be approved if it is adverse to the company’s interest. In addition, such a transaction generally requires board approval, unless the transaction is an extraordinary transaction or the articles of association provide otherwise. If the transaction is an extraordinary transaction, or if it concerns exculpation, indemnification or insurance of an office holder, then in addition to any approval stipulated by the articles of association, approval of the company’s audit committee or compensation committee (as the case may be) and board of directors, in that order, is required, and may also require special majority approval by shareholders. In accordance with the Israeli Companies Law, approval by both the compensation committee and the board of directors is required for all arrangements regarding terms of service, including cash and equity based compensation, exemption from liability, indemnification, D&O insurance and other benefits and payments related to the service and employment of an office holder. Except for certain specific exemptions under the Israeli Companies Law, matters referred to herein with respect to the CEO of a public company or a director of a company (including engagement with respect to employment terms of a director in a position other than as a director) also require shareholder approval.
 
With respect to the CEO of a public company, or with respect to a director who is a controlling shareholder, shareholder approval must be by a special majority vote. With respect to transactions described above with the CEO, the compensation committee may determine that such transaction does not require shareholders' approval, provided that: (i) the CEO is considered to be "independent" based on criteria set forth in the Companies Law; (ii) the compensation committee determined, based on detailed reasons, that bringing the transaction to the approval of the shareholders may compromise the entering into the transaction; and (iii) the terms of the transaction are consistent with the company's compensation policy.

50

 
In order to be approved, the terms of employment of Office Holders of a public company must be consistent with the company's compensation policy. However, the compensation committee and the board of directors may, under special circumstances, approve terms of employment which are not in accordance with the company's compensation policy if:
 

1)
the compensation committee and the board of directors have taken into consideration the mandatory considerations and criteria which are specified in the Israeli Companies Law for a compensation policy and the respective employment terms include such mandatory considerations and criteria; and
 

2)
the company's shareholders approved such terms of employment, subject to a special majority requirement.
 
Notwithstanding the above, the compensation committee and the board of directors may approve terms of employment of Office Holders (other than CEO or directors) that are not in accordance with the company's compensation policy, even if the shareholders' do not approve such terms, provided that:
 

1)
both the compensation committee and the board of directors re-discussed the transaction and decided to approve it despite the shareholders' objection, based on detailed reasons; and
 

2)
the Israeli company is not a "Public Pyramid Held Company", which is a public company controlled by another public company (including by a company that only issued debentures to the public), which is also controlled by another public company (including a company that only issued debentures to the public) that has a controlling shareholder.
 
As of March 19, 2020, the Company is a "public pyramid held company", with the parent Company, Willi-Food, a public company traded on the Tel-Aviv Stock Exchange, and BSD, Willi-Food's parent company, a public company traded on the London Stock Exchange.
 
Under the Israeli Companies Law, changes of the terms of a current arrangement regarding service and employment terms of an office holder (other than a director) may require only the approval of the compensation committee if the compensation committee determines that such changes are not material.
 
A director who has a personal interest in a matter that is considered at a meeting of the board of directors, compensation committee or audit committee may not attend that meeting or vote on that matter. However, if the chairman of the board of directors or the chairman of the compensation committee or audit committee determines that the presence of an office holder with a personal interest is required for the presentation of a matter, such officer holder may be present at the meeting. Notwithstanding the foregoing, a director who has a personal interest may be present at the meeting and vote on the matter if a majority of the board of directors, compensation committee or audit committee also has a personal interest in the matter. If a majority of the board of directors, compensation committee or audit committee has a personal interest in the transaction, shareholder approval also would be required.

Shareholders
 
The Israeli Companies Law imposes the same requirements regarding disclosure to the company of a personal interest, as described above, on a controlling shareholder of a public company that it imposes on an office holder. For these purposes, a controlling shareholder is any shareholder who has the ability to direct the company’s actions, including any shareholder holding 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights in the company. Two or more shareholders with a personal interest in the approval of the same transaction are deemed to be one shareholder.

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Unless approved in accordance with the Relief Regulations, approval of the audit committee, board of directors and shareholders, in that order, is required, among others, for:
 

extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest; and
 

the terms of an engagement by the company, directly or indirectly, with a controlling shareholder or a controlling shareholder’s relative (including through a corporation controlled by a controlling shareholder), regarding the company’s receipt of services from the controlling shareholder, and if such controlling shareholder is also an office holder of the company, regarding his or her terms of employment.
 
The shareholder approval must include the majority of shares voted at the meeting. In addition, either:
 

the majority of the shares of the voting shareholders who have no personal interest in the transaction must vote in favor of the proposal (shares held by abstaining shareholders shall not be considered); or
 

the total shareholdings of those who have no personal interest in the transaction and who vote against the transaction must not represent more than 2% of the aggregate voting rights in the company.
 
Furthermore, any extraordinary transaction with a controlling shareholder or in which a controlling shareholder has a personal interest with a term of more than three years requires the abovementioned approval every three years, unless, with respect to transactions not involving the receipt of services or compensation, the audit committee or compensation committee (as the case may be) determines that a longer term is reasonable under the circumstances.
 
In accordance with the recent amendments to the Israeli Companies Law, approval by both the compensation committee and the board of directors is required for all arrangements regarding terms of service. Except for certain specific exemptions under the Companies Law, matters referred to herein with respect to the CEO of a public company or a director of a company (including engagement with respect to employment terms of a director in a position other than as a director) also require shareholder approval. With respect to the CEO of a public company, or with respect to a director who is a controlling shareholder, shareholder approval must be by a special majority vote, provided that either:
 

1)
such majority includes a majority of the total votes of shareholders who have no personal interest in the approval of the transaction and who participate in the voting, in person, by proxy or by written ballot, at the meeting (abstentions not taken into account); or
 

2)
the total number of votes of shareholders mentioned above that vote the transaction do not represent more than 2% of the total voting rights in the company.
 
The Israeli Companies Law requires that every shareholder who participates in person, by proxy or by voting instrument in a vote regarding a transaction with a controlling shareholder must indicate either in advance or on the ballot whether or not that shareholder has a personal interest in the vote in question. Failure to so indicate will result in the invalidation of that shareholder’s vote.
 
Under the Israeli Companies Law, a shareholder has a duty to act in good faith towards the company and other shareholders and to refrain from abusing his or her power in the company including, among other things, when voting in a general meeting of shareholders or in a class meeting on the following matters:
 

any amendment to the articles of association;
 
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an increase in the company’s authorized share capital;
 

a merger; or
 

approval of related party transactions that require shareholder approval.

A shareholder has a general duty to refrain from depriving any other shareholder of their rights as a shareholder. In addition, any controlling shareholder, any shareholder who knows that he/she possesses the power to determine the outcome of a shareholder vote, and any shareholder who has the power to appoint or prevent the appointment of an office holder in the company is under a duty to act with fairness towards the company. The Israeli Companies Law does not describe the substance of this duty of fairness except to state that the remedies generally available for breach of contract would also apply in the event of a breach of the duty to act with fairness toward the company.
 

D.
   EMPLOYEES
 
As of December 31, 2019, the Company, including its subsidiaries, employed a total of 162 persons (all of them are located in Israel), 7 of whom were in management, 33 of whom were in accounting and importing positions, 35 of whom were involved in the Company's sales and marketing departments and 87 of whom were employed in logistics networks (warehousing and transportation). This compares with 159 employees as of December 31, 2018, 6 of whom were in management, 32 of whom were in accounting and importing positions, 35 of whom were involved in the Company's sales and marketing departments and 86 of whom were employed in logistics networks (warehousing and transportation).
 
All the Company's employees are party to written employment contracts.
 
The Company has complied with and is in compliance with all material respects with all laws and other legal requirements relating to the employment of labor (including, without limitation, provisions thereof relating to wages, hours, equal opportunity, collective bargaining and the payment of social pension benefits and the payment or withholding of payroll or similar taxes for employees, or any other applicable law or regulation concerning the employees of the Company).
 
The Extension Order for Mandatory Pension Insurance and the Extension Order for Increasing the Allocations to Pension Insurance (the "Extension Orders") that apply to the Company, require the maintenance of pension insurance for the benefit of its employees (the "Pension Insurance"). The Extension Orders settle the contribution of certain percentages of the employee's monthly insured salary to a Pension Insurance that may be one of the two following types: pension fund or insurance fund. The contribution is made by both the Company and its employees.
 
Each month, the employee contributes an amount equals to 6% of his insured salary, and the Company contributes an additional amount equals to 12.5% or 14.83% of the employee's insured salary. The contributions made by the Company to the pension fund cover 72% or 100% of the Company's severance liability towards its employees in case of termination (the differences in coverage depends on the amount the Company contributes to the severance part of the Pension Insurance). In the event that the Company contributes amounts to the severance part of the pension insurance that cover only 72% of the Company's severance liability, then in the case of termination of employment relations that entitle the employee to a payment of full severance pay under the law, the Company shall pay to the employee a supplementary amount. Furthermore, Israeli employees and employers are required to pay predetermined sums to the Israeli National Insurance Institute (which is similar, to some extent, to the United States Social Security Administration). The payments thereto range from 6.95% to 18.75% of wages; the employee’s share range from 3.5% to 12% (depending on the marginal level of wages) and the employer’s share range from 3.45% to 6.75%.

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 SHARE OWNERSHIP
 
For information regarding the share ownership of Directors and Officers of the Company see “Item 7. Major Shareholders and Related Party Transactions – A. Major Shareholders”.
 
Employee Share Option Plans
 
    In previous years, the Company adopted plans to award options to purchase Company's shares and shares of Willi-Food to senior office holders and other Company’s employees. In October 2013, Willi-Food's Board of Directors adopted an employee stock incentive plan to grant stock options to the Company's employees to acquire up to 100,000 of the Willi-Food's ordinary shares ("2013 Option Plan"). Currently, 70,000 shares are available for issuance under the G. Willi-Food International 2013 Share Option Plan (the “2013 Option Plan”). However, the Company has not awarded options under the 2013 Option Plan since December 2015 and there are currently no options exercisable into Company shares that are outstanding under such plan. The 2013 Option Plan will expire seven years from the date of approval by the Board.

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 
A.          MAJOR SHAREHOLDERS
 
    The following table sets forth, as of March 19, 2020, the number of Ordinary Shares beneficially owned by each shareholder known to the Company to own more than 5% of the Ordinary Shares and (ii) all directors and officers as a group. The information presented in the table is based on 13,217,017 Ordinary Shares outstanding as of March 19, 2020.
 
Name and Address
 
Number of
Ordinary Shares Beneficially Owned
   

Percentage of Ordinary Shares
 
Willi-Food Investments Ltd.
   
8,200,542
     
62.05
%
B.S.D. Crown Ltd. (1)
   
8,971,617
     
67.88
%
Joseph and Zwi Williger (2) (3)
   
9,711,598
     
73.48
%
Brian Gaines (4)
   
1,120,072
     
8.5%
 
Renaissance Technologies Holding Corporation (5)
   
665,812
     
5.04
%

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(1)
Includes (i) 8,200,542 Ordinary Shares held by Willi-Food, and (ii) 771,075 Ordinary Shares held by B.S.D. Crown Ltd. ("BSD"). Willi-Food is controlled by its majority shareholder, BSD, and BSD may be deemed to beneficially own all of the shares owned by Willi-Food.
(2)
Based on a Schedule 13D filed on January 22, 2020, and on information provided to the Company by Joseph Williger (“JW”) and Zwi Williger (“ZW”), JW directly owns though a wholly-owned company 12,000 Ordinary Shares and ZW directly owns though a wholly-owned company 727,981 Ordinary Shares. In addition, JW owns through YMDHI (a company held 100% by him) 7.07% of B.S.D's outstanding shares (excluding dormant shares), through YWMI 29.12% of B.S.D's outstanding shares (excluding dormant shares), and owns directly 4.99% and collectively 41.18% of B.S.D's outstanding shares (excluding dormant shares) and holds the right to vote those shares.  In addition, ZW owns through ZVI&C (a company held 100% by him) 34.78% of B.S.D's outstanding shares (excluding dormant shares), and owns directly 6.38% of B.S.D's outstanding shares (excluding dormant shares), and collectively 41.16% of B.S.D's outstanding shares (excluding dormant shares) and holds the right to vote those shares, which if combined with JW holdings' constitutes a 82.34% holdings of B.S.D. Accordingly, JW and ZW may each be deemed to beneficially own 9,711,598 Ordinary Shares (comprised of 8,200,542 Ordinary Shares held directly by Willi-Food, 771,075 Ordinary Shares held directly by B.S.D, 12,000 Ordinary Shares held directly by JW and 727,981 Ordinary Shares held directly by ZW), or approximately 73.48% of the outstanding Ordinary Shares of the Company. Based on a Schedule 13D filed on January 22, 2020, JW and ZW may be deemed to constitute a "group" for purposes of Section 13(d) of the Exchange Act; however, JW and ZW have not acted in concert in connection with the transactions described herein and have not been, nor are they currently, parties to any voting or other arrangement with respect to their holdings in BSD, and they disclaim the existence of any such group.
(3)
Based on information provided to us, all of the Company's directors and officers as a group hold 9,711,598 Ordinary Shares representing 73.48% of our total shares outstanding.
(4)
Based on a Schedule 13G filed February 13, 2020, this amount consists of 951,522 Ordinary Shares (representing 7.2% of our total shares outstanding) directly held by Springhouse Capital (Master), L.P. (the "Fund"), and 128,959 Ordinary Shares owned by Mr. Gaines for his own account and an additional 39,951 Ordinary Shares held by immediate family members in accounts Mr. Gaines controls, and that Mr. Gaines may be deemed to beneficially own(in total representing 1.28% of our total shares outstanding). Mr. Gaines serves as managing member of Springhouse Capital Management G.P., LLC ("Springhouse") and as a director of Springhouse Asset Management, Ltd. (the "General Partner") and, as a result, may be deemed to beneficially own shares owned by the Fund. Springhouse is the general partner of Springhouse Capital Management, L.P. ("Management") and, as a result, may be deemed to beneficially own shares owned by the Fund. Management is the investment manager of the Fund and as a result, may be deemed to beneficially own shares owned by the Fund. The General Partner is the general partner of the Fund, and, as a result, may be deemed to beneficially own shares owned by the Fund.
(5)
Based on a Schedule 13G filed February 12, 2020, these shares are beneficially owned by Renaissance Technologies LLC, an investment advisor, which is majority-owned by Renaissance Technologies Holding Corporation.

All of the shareholders of the Company (including Willi-Food) have the same number of votes for each Ordinary Share held. Accordingly, the major shareholder of the Company, Willi-Food, does not have voting rights that are different from those of the Company’s other shareholders. The Company believes that, as March 19, 2020, 1,719,535 Ordinary Shares (approximately 12.98% of its outstanding Ordinary Shares) were held by persons who were not officers, directors or the owners of 5% or more of the Company's outstanding Ordinary Shares. As of March 6, 2020, there were 14 holders of Ordinary Shares of record registered with a United States mailing address, including banks, brokers and nominees These holders of record, including a part of the Company’s shares held by Willi-Food through brokers, represented as of March 19, 2020 approximately 74.32% of the total outstanding Ordinary Shares. Because these holders of record include banks, brokers and nominees, the beneficial owners of these Ordinary Shares may include persons who reside outside the United States.

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   B.
RELATED PARTY TRANSACTIONS 
 
Management Service Agreements.
 
For information regarding Management Services Agreements with Messrs. Zwi and Joseph Williger through Williger Management Companies, see "Item 7. Major Shareholders and Related Party Transactions – B. Related Party Transactions – Management Service Agreements".
 
Services to Willi-Food
 
The Company has been providing certain services to Willi-Food on an on-going basis since the Company’s commencement of operations, including office space and certain management, financial and administrative services.  Effective May 19, 1997, the effective date of the Company’s initial public offering, the Company entered into a service agreement with Willi-Food. This agreement was updated on October 2, 2017.

Pursuant to this agreement, Willi-Food is entitled to manage its operations from the Company’s executive offices in Yavne, including use of an office space and facilities and certain management, financial, accounting, legal, administrative and secretarial services.
 
Pursuant to this agreement, Willi-Food is to pay the Company a monthly amount of NIS 10,000 for these services and for external services that are provided at the same time to the Company and to the subsidiary by the same third party, such as legal services, auditing services, etc., but excluding unique and specific services that are provided to the Company or to Willi-Food. This agreement will be effective for a three-year period through October 18, 2020.
 
In light of the enactment of Amendment No. 16, an agreement with a controlling shareholder, such as the Company's service agreement with Willi-Food, must be approved every three years by the Audit Committee, Board of Directors and by a special majority of the General Meeting of Shareholders. Willi-Food is the parent company of the Company and is the controlling shareholder of the Company. On October 18, 2017 following the unanimous approval of the Company's Audit Committee and Board of Directors, the General Meeting of Shareholders of the Company approved the extension of the above service agreement, for a three-year period ending October 18, 2020.
 

   C.
INTERESTS OF EXPERTS AND COUNSEL
 
Not applicable.
 
ITEM 8 FINANCIAL INFORMATION
 

   A.
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
 
The financial statements required by this item are found at the end of this report, beginning on page F-1.

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Dividend Policy
 
On November 22, 2016, the Company announced that it had adopted a dividend policy of issuing a regular annual dividend at a rate of at least 25% of its annual after-tax revenues (out of earnings generated after December 31, 2013). On April 29, 2018, the Board of Directors decided to suspend the current dividend policy and to consider adopting a new policy in the future.

Currently, we do not intend to pay cash dividends. We currently intend to reinvest any future earnings in developing and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our Board of Directors and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects, applicable Israeli law and other factors our Board of Directors may deem relevant.

Legal Proceedings
 

(1)
On February 24, 2016, a motion to certify a derivative action (hereinafter - the “Motion”) was received by Willi-Food. The Motion, filed against all directors and office holders of the Company, was filed with the District Court (Economic Department) in Tel Aviv by Yaad Peer Management Services Ltd. (hereinafter - the “Applicant”), a shareholder of Willi-Food. The Motion deals with the Applicant’s claim for damages suffered by Willi-Food, estimated by the Applicant at approximately $3 million, due to an alleged violation of the directors’ and officers’ fiduciary duty, duty of care and duty of expertise towards Willi-Food in connection with a $3 million investment in a company registered in the Czech Republic and which holds an inactive hotel in the Czech Republic. According to the Applicant, the investment is not related in any way to the activity of the Company and was made to assist the then-current controlling shareholder of Willi-Food in other matters or to cover the then-current controlling shareholder’s other obligations. On August 16, 2018, the Company filed a notice of its intention to file a lawsuit against the office holders in connection with the events which are the subject matter of the derivative action and therefore it is no longer necessary to approve a derivative action. In view of the Company's notice, the Motion was stricken by the court on October 4, 2018 and the case was closed. On November 4, 2018, the Company filed a NIS 4,183,208 lawsuit against the Company’s former controlling shareholder – Mr. Gregory Gurtovoy – and against five (former) Company directors and senior office holders - Israel Joseph Schneerson, Pavel Buber, Iram Ephraim Graiver. Ilan Menachem Admon and Zalman Vigler (hereafter jointly: the “Defendants”). According to the Company, the Defendants conspired to cause the use of millions of NIS of Company funds as collateral to loans extended to foreign private companies related to the Company’s controlling shareholder without obtaining the required approvals from the Company’s organs and without issuing the required report to Company’s shareholders. The lawsuit is based on the claim that an agreement signed by the Company, whereunder it had allegedly invested in the bonds of a Czech company, was not a genuine agreement; rather, it was claimed, the purpose of the agreement was to assist the then-controlling shareholders (Gregory Gurtovoy and others) to secure private loans extended by the Austrian bank Meinl, while using the Company's funds for concealed and inappropriate purposes. The Company demanded that the Defendants compensate the Company for the funds that were not refunded to the Company (in NIS values) plus a compensation at the rate of the alternative yield and a compensation equal to the amounts paid by the Company to enable the refund of the funds. On January 24, 2019, the Defendants filed statements of defense, various motions and a counterclaim against Willi-Food and the Company. In their counterclaim the Defendants claims that they are entitled to funding of their legal defense and/or for indemnification and exemption from the Company in respect of the lawsuit. Since the Defendants are accused of breaching their fiduciary duty to the Company, Company’s management believes that their claims on this matter will be rejected. On December 25, 2019, the Court approved a settlement between Willi-Food and Mr. Ilan Menachem Admon, one of the Defendants, cancelling the mutual claims on behalf of the parties without issuing an order for court costs. The proceedings relating to the other Defendants are continuing with document disclosure. At this preliminary stage, it is not possible to predict the results of the proceedings. A further pre-trial hearing is scheduled for June 4, 2020.
 
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(2)
On July 23, 2017, Mr. Iram Graiver, former CEO of the Company and Willi-Food (hereinafter - “Mr. Graiver”) filed a lawsuit in the Regional Labor Court in Tel Aviv Jaffa (hereinafter - “the Labor Court”) claiming the right to payment of social rights and other compensations from the Company in the total amount of NIS 2,377,305 (USD 687 thousand). On November 26, 2017, the Company filed a statement of defense. On July 27, 2017, the Company filed a separate lawsuit in the Labor Court against Mr. Graiver demanding that he repays funds that he took unlawfully from the Company amounting to NIS 1,694,325 (USD 490 thousand). According to the Company, throughout his term of employment as an office holder of the Company, Mr. Graiver unlawfully took from the company salary, bonus in respect of 2016 and reimbursement of expenses. According to the Company, Mr. Graiver did so while breaching his fiduciary duty and his duty of care towards the Company, as well as provisions of the Companies Law, 5759-1999, which require that payments of the type taken by Mr. Graiver receive approval by the general meeting of the Company’s shareholders, which the Company says was not obtained in this case. On November 26, 2017, Mr. Graiver filed a statement of defense. On November 2, 2017, the court issued a resolution to join the hearings pertaining to the two proceedings described above. A preliminary hearing was held on March 7, 2018. The parties are in the process of document discovery and review. Proof hearing was held on December 18 2019, further proof hearing has yet to be scheduled. At this preliminary stage, it is not possible to predict the result of the proceedings.
 

(3)
A lawsuit and motion to approve a class action was filed on March 26, 2018 against the Company in the Tel Aviv District Court for allegedly breaching certain consumer protection duties in connection with one of the Company’s products, thereby misleading its customers. The amount claimed in the lawsuit was NIS 2.7 million. On July 16, 2019 the Tel Aviv District Court approved a settlement agreement of the matter in amounts that are not material to the Company.
 

(4)
A lawsuit and motion to approve a class action was filed on July 22, 2018 against Euro European Dairies Ltd. (former: "Gold-Frost Ltd")  and eight other companies in the Jerusalem District Court for allegedly not complying with the food labelling regulations in connection with one of the Company’s products, thereby misleading consumers. At this stage, the amount claimed in the lawsuit in NIS 4 million. On April 17, 2019, the court approved a settlement agreement in amounts that are not material to the Company.
 

(5)
On October 29, 2009, the Company and its subsidiary Euro European Dairies Ltd. (former: "Gold-Frost Ltd") (hereafter – the “Companies”) filed a lawsuit in the Rishon-LeZion Magistrates Court demanding the refund of import permit fees from the Ministry of Health in the total amount of approximately NIS 1.3 million.  In a ruling issued on May 13, 2015, the Rishon-LeZion Magistrates Court accepted the position of the Companies that the fees in respect of early registration for food import permits were collected unlawfully and that the Companies and other food importers have independent cause to demand the repayment of the fees that were paid by virtue of the Unjust Enrichment Law, 1979 (hereafter – the “Law”). In addition, a partial exemption from refund was determined in accordance with Section 2 of the Law in respect of an amount equal to 30% of the fee amount, due to the Ministry of Health’s mechanism for regulating imported food, which granted the Companies protection from criminal and civil lawsuits in respect of damage caused to consumers from damaged imported food. As a result of the ruling, the Company received a total of approximately NIS 1.1 million in 2015. After the Ministry of Health appealed the ruling, a partial ruling was issued on April 19, 2017 that upheld the ruling of the Magistrates Court in connection with the refund of fees and the amount of fees to be refunded; however, the question relating to the threshold for proving damage remained outstanding. On November 15, 2015, the Companies filed a second lawsuit against the Ministry of Health for the refund of early registration fees for food import permits in the total amount of approximately NIS 2 million which were paid by the Companies in 2009-2016. On January 1, 2018, the court proposed mediation, and on December 31, 2019 a settlement agreement was signed in which the Company is entitled to receive NIS 0.6 million.
 
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On December 1, 2013, the Companies filed a separate lawsuit in the Rishon-LeZion Magistrates Court against the Ministry of Health demanding the refund of customs clearance fees in the total amount of approximately NIS 2.1 million. The fees were paid to the Ministry of Health in respect of clearance of food products from the port, which, according to the Companies, was in effect carried out by the Customs Authorities with no legal justification and therefore the fees were collected unlawfully. On May 13, 2015, a ruling was issued stating that the closure release fees were collected by the Health Ministry unlawfully. The ruling ordered the Ministry of Health to repay 70% of the fees paid by the companies. On July 8, 2015, appeals were filed by both parties. After several appeals court hearings, the court proposed a mediation proceeding and the parties agreed. On December 31, 2019, a settlement agreement was signed in which a total of NIS 1.3 million will be paid to the Companies. On January 9, 2020, the Magistrate's Court upheld the ruling.
 
In January 2015, a lawsuit was filed in the court of first instance in Valencia, Spain against Euro European Dairies Ltd . (hereinafter – “Euro European Dairies ”) and against the Company (hereinafter – “the Companies”) by a Spanish food manufacturer (hereinafter – “the Plaintiff”) with whom the Companies entered into an agreement for the production of kosher food products in Spain and for the sale of those products by Euro European Dairies. The lawsuit was filed in connection with a financial dispute in respect of a debt which was allegedly not paid to the Plaintiff; the Plaintiff also demanded that the Companies compensate it for products it had produced upon order from the Companies and which, according to the statement of claim, were not collected and paid for by the Companies, as a result of which the Plaintiff had to destroy them. In July and December 2015, the Companies were served judicial documents in Spanish regarding service of a legal procedure in the court of first instance in Valencia. On March 3, 2016, the court of first instance in Valencia approved the lawsuit against the Companies in an ex parte proceeding and ruled payment by the Companies of approximately Euro 530 thousand. In December 2017, an enforcement order  was received at the Company’s offices. In the order, which was issued on November 22, 2017, the Companies were asked to provide details of assets and/or bank accounts for the purpose of enforcing the ruling in Spain. On October 1, 2018, the parties signed a compromise agreement whereby Euro European Dairies would pay a total of Euro 150 thousand in consideration for the withdrawal of all of the Plaintiff’s claims against it. In October 22, 2018, the court of first instance in Valencia approved the compromise agreement as a Court ruling.


(6)
On January 15, 2018, the Tel Aviv District Attorney’s Office (Taxation and Economics) served indictments against Alexander Granovskyi and Gregory Gurtovoy, former (indirect) controlling shareholders and office holders of Willi-Food, the Company and other companies under its control , and against Joseph Schneerson, former office holder of Willi-Food, the Company and other companies under its control (hereinafter jointly: “the Defendants”). The Defendants are accused of the offenses of theft by manager, fraudulent receipt of goods or services under aggravated circumstances, fraud and breach of trust in a corporation, false registration in corporate documents, reporting offenses under the Israeli Securities Law, non-compliance with the provisions of the Israeli Securities Regulations with the intent of misleading a reasonable investor and offenses under Section 4 of the Prohibition on Money Laundering Law. As mentioned above, the Defendants were former (indirect) controlling shareholders of the Company through their control of BGI or senior office holders in, among others, BGI and B.S.D., Willi-Food and the Company.

59


Under the pretext of depositing the said companies’ funds with different banks abroad, the Defendants allegedly agreed with said banks that the companies’ funds would be used to secure loans to be extended to foreign private companies related to the Defendants. Under the indictment, approximately $60 million of the said companies’ funds (mostly BGI and B.S.D) were used in this manner. A total of $3 million out of the said amount was allegedly transferred in January 2016 from a company controlled by the Company for an investment that was recorded as an investment in bonds of a hotel in the Czech Republic, while the investment was actually used to secure the repayment of a loan extended to a company which was related to Granovskyi and Gurtovoy. The investment was carried out by W. Capital Ltd. (former: "B.H.W.F.I. Ltd"), a wholly owned subsidiary of the Company (“W. Capital”), pursuant to subscription forms to purchase 300 bonds (of which 225 were actually purchased) with a nominal value of USD 10,000 each (“Subscription Forms”). The Bonds bear an annual interest rate of 6%, payable semi-annually on June 30 and December 31 of each year as of the issue date until the final maturity date of December 31, 2018. The issuer has the right to repay the Bonds with prior notice of 30 days without penalty. On June 30, 2016, the issuer paid the first interest on account of the bond actually purchased by W. Capital in accordance with the terms thereof. On December 30, 2016, W. Capital and the issuer signed an agreement (the “Agreement”) for an early redemption of the bonds for a total of USD 1.8 million that was to be paid by February 15, 2017. Similarly, as part of the terms of the Agreement, the issuer waived all its claims against W. Capital, including an alleged obligation to make an additional investment in bonds up to an aggregate amount of USD 5 million (as stated above, an amount of USD 2.25 million was invested in the past). On March 21, 2017, a first payment in the amount of USD 200 thousand was received. In view of the uncertainty relating to the collection of the remaining balance of the debt, the Company recorded a loss of USD 1.6 million in the financial statements for the year 2016. On July 6, 2017, a second payment in the amount of USD 400 thousand was received and therefore the Company recorded in its financial statements a finance income at an amount equal to the amount of the Second Payment. On March 26, 2018, a third payment in the amount of USD 1,145 thousand was received by the Company, and therefore, the Company recorded in its financial statements a finance income at an amount equal to the amount of the third Payment.


(7)
In March 2019, the Yavne, Israel municipality issued an amended municipal taxes assessment (hereafter – the “Assessment”) in respect of an asset located in Yavne which the Company operates. As part of the Assessment, land with an area of 3,600 square meters was added to the amount of the Assessment. The municipality also amended the Assessment retroactively in respect of the years 2016-2018, such that according to the municipality the additional amount required for payment amounts to NIS 734,186 as of the end of 2019. Following the said amendment of the Assessment, the Company appealed the Assessment and the additional amount payable in respect of 2019 and thereafter and objected to the municipality’s decision to apply the amendment of the Assessment retroactively to 2016-2018 contrary to a valid compromise agreement which signed on 2015. As part of the negotiations that were conducted at the same time as the legal proceedings, an outline of a compromise was reached with the municipality whereby the Company will pay a total of NIS 380 thousand in settlement of all of the claims made by the municipality with regard to the additional land as mentioned above through December 31, 2020.
 
60



(8)
A lawsuit and motion to approve a class action was filed on July 17, 2019 against the Company and 11 other respondents in the Jerusalem District Court for allegedly not complying with food labelling standards in connection with one of its products, thereby misleading consumers. The applicant claimed generally that the respondents have jointly caused monetary damages of NIS 5 million and more than NIS 3 million to him and the other members of the plaintiff group. The Company filed an application to dismiss the motion in limine. On March 5. 2020 a pre-trial hearing was held, during which the court recommended that the parties consent to withdraw the motion to approve, until March 19, 2020. At this preliminary stage, it is difficult to assess the chances that the motion and the lawsuit will be successful.
 

B.
SIGNIFICANT CHANGES

We are not aware of any significant changes bearing upon our financial condition since the date of the audited consolidated financial statements included in this Annual Report.
 
ITEM 9.  THE OFFER AND LISTING
 

A.
OFFER AND LISTING DETAILS
 
Our ordinary shares have been traded on the Nasdaq Capital Market since May 19, 1997. On March 15, 2006, the ticker symbol of our ordinary shares was changed from “WILCF” to “WILC”.
 

B.
PLAN OF DISTRIBUTION
 
Not applicable.
 

C.
MARKETS
 
In May 1997, our ordinary shares began trading on the Nasdaq Capital Market under the symbol "WILCF". On March 15, 2005, the Company's Nasdaq ticker symbol was changed to "WILC".
 

D.
SELLING SHAREHOLDERS
 
Not applicable.
 

E.
DILUTION
 
Not applicable.
 

F.
EXPENSES ON THE ISSUE
 
Not applicable.
 
ITEM 10.  ADDITIONAL INFORMATION
 

A.
SHARE CAPITAL
 
Not applicable.
 

B.
MEMORANDUM AND ARTICLES OF ASSOCIATION
 
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Purposes and Objects of the Company

We are an Israeli public company registered under the Israeli Companies Law as G. Willi-Food International Ltd.; registration number 52-004320-9.
 
On March 20, 2014, shareholders approved an amendment to Article 6 of our articles of association changing the objectives of the Company from engaging in importing, exporting and marketing of products and other commodities to engaging in any lawful activity. Our Board of Directors is empowered to embark on or withdraw from any business in which we deal. Under our articles of association, our Board of Directors is entitled to donate reasonable amounts to worthy causes, even if such donation is not within the framework of our business considerations.
 
The Powers of Directors

The powers of a Director to vote on a proposal, arrangement or contract in which such Director is materially interested is limited by the relevant provisions of the Israeli Companies Law. In addition, the power of the Directors to vote compensation to themselves or any members of their body requires the approval of the Compensation Committee, the Board of Directors and, unless approved in accordance with the Relief Regulations, the shareholders at a general meeting. Compensation and indemnification of expenses of External Directors must be in accordance with the applicable provisions of the Israeli Companies Law.
 
The Israeli Companies Law and our Articles of Association require that a Director or Office Holder promptly disclose, either at a board meeting or by way of a general notice, any personal interest that he or she may have and all related material information know to him or her in connection with any existing or proposed transaction by the Company. In addition, if the transaction is an extraordinary transaction (as defined in the Israeli Companies Law), the member of the Board of Directors or Office Holder, must also disclose any personal interest held by his or her spouse, siblings, parents, grandparents, descendants, spouse’s descendants and the spouses of any of the foregoing.
 
Once the Director or Office Holder complies with the above disclosure requirements, the Company may approve the transaction in accordance with the provisions of the Articles of Association.  If the transaction is with a third party in which the member of the Board of Directors or Office Holder has a potential interest, the approval must confirm that the transaction is not adverse to the Company’s interest.  Furthermore, if the transaction is an extraordinary transaction, then, in addition to any approval stipulated by the Articles of Association, it also must be approved by the Audit Committee and then by the Board of Directors, and, under certain circumstances, by a meeting of the shareholders of the Company.  See “Item 6. Directors, Senior Management and Employees - C. Board Practices – Approval of Related Party Transactions under the Israeli Companies Law”.
 
Directors with respect to whom the foregoing matters are brought for Board of Directors or Audit Committee approval are not entitled to be present during discussions of, nor to participate in the vote for approval of, such matters at Board and/or Audit Committee meetings, unless a majority of Audit Committee or Board members, as the case may be, have a personal interest in such matter or the matter involves non-extraordinary transactions between the company and either a Director or a third party in which a Director has a personal interest. The Israeli Companies Law further provides that in the event that a majority of board members have a personal interest in such a matter, shareholder approval is also required.

62

 
The Articles of Association provide that the Board of Directors, subject to the Israeli Companies Law, may, at its discretion from time to time in accordance with the needs of the Company, make decisions to borrow and/or obtain credit facilities in any amount and to secure the repayment thereof either by mortgage, charge or other security on the Company’s undertakings or on its property, in whole or in part (both existing and future) including the share capital of the company which is, at the time, uncalled.
 
Subject to applicable provisions of the Israeli Companies Law regarding matters that the Board of Directors may not delegate to a committee or matters for which a committee may only make recommendation to the Board of Directors, the Board of Directors may delegate its powers to committees consisting of at least three (3) Directors, including at least one External Director. A resolution passed or an action taken by a directors’ committee has the same validity as a resolution passed or an action taken by the Board of Directors, unless otherwise specifically expressed in the resolution of the Board of Directors that established said committee.
 
Rights Attached to Shares

The Company is authorized to issue 49,893,520 Ordinary Shares, par value NIS 0.10 and 106,480 Preferred Shares, par value NIS 0.10, each ranking pari passu. The Company may alter the share capital of the Company in accordance with the provisions of the Israeli Companies Law and the Articles of Association. The rights attached to the Company’s Shares are as follows:
 
Dividend Rights

Holders of Ordinary Shares are entitled to participate pari passu with all other shareholders of the Company’s Ordinary Shares in any distribution of a dividend, whether in cash, assets, or in any other legal form, declared, as well as the right to participate pari passu with all other holders of our Ordinary Shares in the distribution of bonus shares resolved by the Company. The Articles of Association note that a shareholder shall not be entitled to receive a dividend or bonus shares as above, and shall not be entitled to exercise any right as a shareholder unless he has paid in full all notices of call delivered to him, together with linkage differences, interest and expenses owed, as applicable, on calls which have not been paid by him on time.
 
Voting Rights

Holders of Ordinary Shares of the Company have the right to receive notices of general meetings of the Company, to be present, and to participate and vote therein. Each holder of Ordinary Shares in the Company has the right to one vote per share in the general meetings of the Company on all matters submitted to a vote of shareholders. A shareholder may vote in person, via proxy, or by means of a written form (“Voting Instrument”) described in the Articles of Association. Any resolution of the Company in a general meeting shall be deemed duly passed if passed by a simple majority of registered shareholders present and voting, unless a different majority is required by the Israeli Companies Law or the Articles of Association.
 
Under the Articles of Association, the Directors (who are not External Directors) are elected annually by the registered shareholders at the annual meeting. Such directors hold office until the conclusion of the next annual meeting or until their earlier removal or resignation. In addition, at least two (2) External Directors who comply with the qualifications described in the Israeli Companies Law must serve on the Board of Directors. External Directors are appointed by a majority vote at a general meeting, provided that: (i) the majority vote includes at least a majority of the shares of non-controlling shareholders who do not have a personal interest in the appointment (excluding a personal interest not resulting from the shareholder's relation with the controlling shareholder), as described in the Israeli Companies Law, voted at the meeting, with abstentions not taken into consideration in calculating the total number of the non-controlling shareholders, and (ii) the total number of shares of such non-controlling shareholders referred to in clause (1) voting against the resolution appointing an External Director is not more than two percent (2%) of the overall voting rights in the Company. External Directors are appointed for a term of three (3) years and their office may be extended by a resolution of the general meeting for an additional two-three (3) years. An External Director may be removed from office only in accordance with the relevant provisions of the Israeli Companies Law.

63

 
If no Directors are elected at an annual meeting, then the persons who served as Directors immediately prior to the annual meeting will continue to serve as directors unless otherwise determined by the annual meeting or by the Board of Directors. A Director who has ceased to serve in office is eligible for reelection. The Board of Directors has the power to appoint additional Directors to fill a vacancy, so long as the number of directors will not exceed a number of Directors approved at a general meeting. Any Director so appointed will hold office until the conclusion of the next annual meeting unless he is removed or resigns earlier.
 
Rights in the Company’s Profits

The shareholders of the Company have the right to share in the Company’s profits distributed as a dividend and any other permitted distribution. See “– Dividend Rights” above.
 
Rights in the Event of Liquidation

Holders of Ordinary Shares are entitled to receive any return of capital, pari passu, with all other ordinary shareholders, upon the dissolution of the Company. Holders of Ordinary Shares are also entitled to participate, pari passu, with all other Ordinary Shareholders in the distribution of the surplus of the Company’s assets available for distribution in the event of dissolution of the Company which remain after the Company has paid the holders of Ordinary Shares all amounts payable as return of capital.
 
Liability to Further Capital Calls by the Company

If the terms of allotment of any shares of the Company do not specify a particular date for the payment of all of the consideration which is to be paid therefore, or any part thereof, our board of directors may, from time to time, as it deems fit, make calls on the shareholders in respect of the amounts not yet paid for their shares, whether on account of the par value of the shares or on the account of the premium, and each shareholder shall be obligated to pay the Company the amount so demanded from him not later than the date of payment set forth in the notice containing the call.  Shareholders shall be given prior notice of at least fourteen (14) days in respect of any call.  In the event that amounts set forth in the call have not been paid in whole or in part as of the date of payment set forth in the call, the shareholders shall be obligated to pay linkage differences or interest (or both) on the outstanding amounts, as determined by the Board of Directors.
 
Changing Rights Attached to Shares

Under the Articles of Association, the Company may, by resolution of a general meeting, vary the rights attached to any class of shares on the Company’s stamp or its printed name (unless otherwise determined in the terms of issue of the shares of such class), after obtaining the written consent of the holders of the majority of the issued shares of said class or with the approval of a resolution duly passed at a class meeting of the holders of such class of shares.
 
64

 
Annual and Special Meetings

The Board of Directors must convene an annual meeting at least once every calendar year, within fifteen months of the preceding general meeting, at a place prescribed by the board so long as it is in the State of Israel. Per the Articles of Association and subject to the provisions of the Israeli Companies Law, notices to shareholders regarding the convocation of a general meeting are to be published in two daily Hebrew language newspapers circulated in Israel. Notice need not be served to our shareholders on an individual basis.
 
The Board of Directors will convene a special meeting upon receipt of a written request from either (i) two directors or 25% of the total number of directors; (ii) one or more shareholders holding at least 5% of the issued share capital and at least 1% of the shareholders’ voting power; or (iii) one or more shareholders holding no less than 5% of the Company’s issued voting shares. If the Board is required to convene a special meeting, it shall convene it at a time which is at least 21 days, but not longer than 35 days after the date of the notice of convening such meeting. In the event that the board of directors does not convene a special meeting within the timeframe set forth above, those that submitted the request for such meeting, or part of them representing more than one-half of the voting rights of all of them, may convene the special meeting themselves, provided that such meeting is held within three months of the time when the special meeting was requested.
 
Limitations on the Rights to Own Securities

The Articles of Association do not place limitations on the rights to own securities.  Under the Articles no limitations apply to the transfer of shares in the Company and the number of shareholders is unlimited.
 
Changes in the Company’s Capital

Changes in the capital of the Company are subject to the approval by ordinary majority of the shareholders at a general meeting, Shareholders may resolve to increase the authorized share capital; consolidate our share capital and divide it into shares of greater value than existing shares; divide existing shares into shares of lesser value; cancel any authorized share capital which has not yet been allotted (provided there is no undertaking to allot such share capital); or reduce the capital by way of a distribution if such distribution has been approved by a court, in accordance with the relevant provisions of the Israeli Companies Law. If the shareholders resolve to increase the share capital, the new shares will be subject to the same provisions applicable to the shares of the original capital.
 
Neither the Memorandum of Association nor Articles of Association of the Company nor the laws of the State of Israel restrict in any way the ownership or voting of ordinary shares by non-residents of Israel, except with respect to citizens of countries which are in a state of war with Israel.
 

  C.
MATERIAL CONTRACTS
 
For information with respect to the Company’s material contracts, see “Item 6.  Directors, senior management and employees – B. Compensation.
 
D.          EXCHANGE CONTROLS

There are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our ordinary shares or the proceeds from the sale of our ordinary shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions.  However, legislation remains in effect, pursuant to which currency controls can be imposed by administrative action at any time and from time to time.

65


E.          TAXATION

The following is a discussion of certain material Israeli tax consequences to purchasers of our ordinary shares. The discussion also contains a description of certain relevant material provisions of the current Israeli income tax system applicable to companies in Israel, with special reference to its effect on us. To the extent that the discussion is based on new tax legislation that has not been subject to judicial or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion.
 
This discussion applies to shareholders that hold our ordinary shares as capital assets and does not address all of the tax consequences that may be relevant to holders of our ordinary shares in light of their particular circumstances or certain types of holders of our ordinary shares subject to special tax treatment.  Because individual circumstances may differ, shareholders should consult their tax advisor to determine the applicability of the rules discussed below to them, including the application of Israeli or other tax laws. The discussion below is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of 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.

Taxation of Israeli Companies
 
General Corporate Tax Structure
 
Israeli companies are generally subject to corporate tax on their taxable income at the rate of 23% for the 2019 tax year.
 
Capital Gains Tax on Sales of Our Ordinary Shares
 
Israeli law generally imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes, and on the sale of assets located in Israel, including shares in Israeli resident companies, by non-residents of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s country of residence provides otherwise. In calculating capital gain, the law distinguishes between real gain and inflationary surplus. The inflationary surplus is the portion of the total capital gain equal to the increase in the relevant asset’s value that is attributable to the increase in the Israeli CPI between the date of purchase and the date of sale. The real gain is the excess of the total capital gain over the inflationary surplus.  A non-resident that invests in taxable assets with foreign currency, or any individual who holds securities the price of which is stated in foreign currency, may elect to calculate the amount of inflationary surplus in that foreign currency.
 
Taxation of Israeli Residents
 
An individual is subject to a tax at a rate of 25% on real capital gains derived from the sale of shares, as long as the individual is not a “substantial shareholder” (generally a shareholder with 10% or more of the right to profits, right to nominate a director or voting rights) in the company issuing the shares.
 
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An individual who is a substantial shareholder is subject to tax at a rate of 30% in respect of real capital gains derived from the sale of shares issued by the company in which he or she is a substantial shareholder.  The determination of whether the individual is a substantial shareholder will be made on the date that the securities are sold.  In addition, the individual will be deemed to be a substantial shareholder if at any time during the 12 months preceding this date, he or she had been a substantial shareholder.
 
An additional income tax at a rate of 3% will be imposed on high earners individuals whose annual income or capital gain in 2019 exceeds NIS 649,560 (USD 187,951).
 
Israeli companies are generally subject to the corporate tax rate (see above) on capital gains derived from the sale of shares listed on a stock market.

Different taxation rules may apply to shareholders who purchased the Shares prior to January 1, 2009 or prior to the listing on the Tel Aviv Stock Exchange or the Nasdaq Global Market. Such Shareholders should consult with their own tax advisors for the tax consequences upon sale.

In general, a partnership will be a transparent entity for tax purposes and the investors will be subject to tax with respect to their share in accordance with the tax rate applies individually.

In general, under the Israel Tax Ordinance, public institutions are exempt from tax.
 
Taxation of Non-Israeli Residents
 
Non-Israeli residents are exempt from Israeli capital gains tax on any gains derived from the sale of shares in an Israeli corporation publicly traded on the Tel Aviv Stock Exchange and/or on a foreign stock exchange, provided such gains do not derive from a permanent establishment of such shareholders in Israel and that such shareholders did not acquire their shares prior to the issuer’s initial public offering. However, non-Israeli corporations will not be entitled to such exemption if Israeli residents (i) have a controlling interest of more than 25% in such non-Israeli corporation, or (ii) are the beneficiaries of or are entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly. Such exemption would not be available to non-Israeli residents dealing in securities in Israel which would be subject to Israeli tax at the rates applicable to business income (at the corporate tax rate for a corporation (23% in 2018 and 23% in 2019) and the marginal tax rate, of up to 50% for an individual in 2018 and in 2019.
 
Additionally, a sale of securities by a non-Israeli resident may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty. For example, under the Convention Between the Government of the United States of America and the Government of the State of Israel with respect to Taxes on Income, as amended, or the United States-Israel Tax Treaty, the sale, exchange or other disposition of shares by a shareholder who (i) is a U.S. resident (for purposes of the treaty); (ii) holds the shares as a capital asset; and (iii) is entitled to claim the benefits afforded to such person by the treaty, is generally exempt from Israeli capital gains tax. Such exemption will not apply if, among other things: (i) the capital gain arising from such sale, exchange or other disposition is treated as industrial or commercial profits attributed to a permanent establishment in Israel, subject to certain conditions; (ii) the shareholder holds, directly or indirectly, shares representing 10% or more of the voting capital of the corporation during any part of the 12-month period preceding the disposition, subject to certain conditions; (iii) the capital gain arising from such sale, exchange or disposition is treated as royalties; or (iv) such U.S. resident is an individual and was present in Israel for 183 days or more during the relevant taxable year. In such case, the sale, exchange or disposition of our securities would be subject to Israeli tax, to the extent applicable; however, under the United States-Israel Tax Treaty, the taxpayer would 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 United States-Israel Tax Treaty does not relate to U.S. state or local taxes.

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In some instances where our shareholders may be liable to Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to Israeli withholding tax.

Taxation of Dividends Paid on Our Ordinary Shares
 
Taxation of Israeli Residents

The following Israeli tax consequences shall apply in the event of actual payment of any dividends on the Shares.
 
As of January 1, 2012, dividends, other than bonus shares (stock dividends), paid to Israeli resident individuals who purchased our Shares will generally be subject to income tax at a rate of 25% for individuals, or 30% if the dividend recipient is a Significant Shareholder (as defined above) at any time during the 12-month period preceding such distribution. Dividends paid to Israeli resident companies will not be included in their tax liability computation. 

Taxation of Non-Israeli Residents
 
Non-residents of Israel are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25% unless the recipient is a significant shareholder at any time during the 12-month period preceding the distribution in which case the applicable tax rate will be 30%. The company distributing the dividend is required to withhold tax at the source at the rate of 25%.

A non-resident of Israel who has dividend income derived from or accrued in Israel, from which tax was withheld at source, is generally exempt from the duty to file tax returns in Israel in respect of such income, provided such income was not derived from a business conducted in Israel by such non-Israeli resident.

Taxation of Residents of the United States under the US Treaty

Residents of the United States generally will be subject to withholding tax in Israel on dividends paid, if any, on Shares. Generally, under the Convention Between the Government of the United States of America and the Government of the State of Israel with Respect to Taxes on Income (the “US Treaty”), the maximum rate of withholding tax on dividends paid to a holder of Shares who is a resident of the United States (as defined in the US Treaty) will be 25%. Under the US Treaty, the withholding tax rate on dividends will be reduced to 12.5% if (i) the shareholder is a U.S. resident corporation which holds during the portion of the taxable year which precedes the date of payment of the dividend, and during the whole of its prior taxable year, at least 10% of the outstanding shares of the voting stock of the Israeli resident paying corporation and (ii) not more than 25% of the gross income of the Israeli resident paying corporation for such prior taxable year consists of certain types of interest or dividends.

The US Treaty exempts from taxation in Israel any capital gains realized on the sale, exchange or other disposition of Shares provided that the following cumulative conditions are met: (a) the seller is a resident of the United States for purposes of the US Treaty; (b) the seller owns, directly or indirectly, less than 10% of our voting stock at all times during the 12-month period preceding such sale, exchange or other disposition; (c) the seller, being an individual, is present in Israel for a period or periods of less than 183 days during the taxable year; and (d) the capital gain from the sale was not generated through a permanent establishment of the seller in Israel.

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Subject to the exemptions from capital gains prescribed in the Israeli Income Tax Ordinance (as described above), purchasers of Shares who are residents of the United States and who hold 10% or more of the outstanding ordinary shares at any time during such 12-month period will be subject to Israeli capital gains tax. However, under the US Treaty, residents of the United States (as defined in the US Treaty) generally would be permitted to claim a credit for this tax against US federal income tax imposed on the sale, exchange or other disposition, subject to the limitations in US laws applicable to the utilization of foreign tax credits generally.

The application of the US Treaty provisions to dividends and capital gains described above is conditioned upon the fact that such income is not effectively connected with a permanent establishment (as defined in the US Treaty) maintained by the non-Israeli resident in Israel.
 
United States federal income taxation
 
The following is a description of the material United States federal income tax consequences of the acquisition, ownership and disposition of our ordinary shares. This description addresses only the United States federal income tax consequences to holders of our ordinary shares and that will hold such ordinary shares as capital assets. This description does not address tax considerations applicable to holders that may be subject to special tax rules, including:
 
 
financial institutions or insurance companies;
 
 
real estate investment trusts, regulated investment companies or grantor trusts;
 
 
dealers or traders in securities or currencies;
 
 
tax-exempt entities;
 
 
certain former citizens or long-term residents of the United States;
 
 
persons that received our shares as compensation for the performance of services;
 
 
persons that will hold our shares as part of a “hedging” or “conversion” transaction or as a position in a “straddle” for United States federal income tax purposes;
 
 
holders that will hold our shares through a partnership or other pass-through entity;
 
 
U.S. Holders (as defined below) whose “functional currency” is not the U.S. Dollar; or
 
 
holders that own directly, indirectly or through attribution 10.0% or more, of the voting power or value, of our shares.
 
Moreover, this description does not address the United States federal estate and gift or alternative minimum tax consequences of the acquisition, ownership and disposition of our ordinary shares.
 
This description is based on the United States Internal Revenue Code, 1986, as amended (the “Code”) existing, proposed and temporary United States Treasury Regulations and judicial and administrative interpretations thereof, in each case as in effect and available on the date hereof. All of the foregoing is subject to change, which change could apply retroactively and could affect the tax consequences described below.

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For purposes of this description, a “U.S. Holder” is a beneficial owner of our ordinary shares that, for United States federal income tax purposes, is:
 
 
a citizen or resident of the United States;
 
 
a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States or any state thereof, including the District of Columbia;

 
an estate the income of which is subject to United States federal income taxation regardless of its source; or
 
 
a trust if such trust has validly elected to be treated as a United States person for United States federal income tax purposes or if (1) a court within the United States is able to exercise primary supervision over its administration and (2) one or more United States persons have the authority to control all of the substantial decisions of such trust.
 
A “Non-U.S. Holder” is a beneficial owner of our ordinary shares that is neither a U.S. Holder nor a partnership (or other entity treated as a partnership for United States federal income tax purposes).
 
If a partnership (or any other entity treated as a partnership for United States federal income tax purposes) holds our ordinary shares, the tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor as to its tax consequences of acquiring, owing and disposing of our ordinary shares.

Distributions
 
Subject to the discussion below under “Passive foreign investment company considerations,” if you are a U.S. Holder, the gross amount of any distribution made to you with respect to your ordinary shares, before reduction for any Israeli taxes withheld therefrom, other than certain distributions, if any, of our ordinary shares distributed pro rata to all our shareholders, will be includible in your income as dividend income to the extent such distribution is paid out of our current or accumulated earnings and profits as determined under United States federal income tax principles. Subject to the discussion below under “Passive foreign investment company considerations,” non-corporate U.S. Holders may qualify for the lower rates of taxation with respect to dividends on ordinary shares applicable to long-term capital gains (i.e., gains from the sale of capital assets held for more than one year), provided that certain conditions are met, including certain holding period requirements and the absence of certain risk reduction transactions. Moreover, such lower rate of taxation shall not apply if we are a PFIC for the taxable year in which we pay a dividend, or if we were a PFIC for the preceding taxable year. However, such dividends will not be eligible for the dividends received deduction generally allowed to corporate U.S. Holders. Subject to the discussion below under “Passive foreign investment company considerations,” to the extent, if any, that the amount of any distribution by us exceeds our current and accumulated earnings and profits as determined under United States federal income tax principles, it will be treated first as a tax-free return of your adjusted tax basis in your ordinary shares and thereafter as capital gain. We do not expect to maintain calculations of our earnings and profits under United States federal income tax principles and, therefore, if you are a U.S. Holder you should expect that the entire amount of any distribution generally will be reported as dividend income to you.

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If you are a U.S. Holder, Israeli tax withheld on dividends paid to you with respect to your ordinary shares may be deducted from your taxable income or credited against your U.S. federal income tax liability. The rules relating to the determination of the foreign tax credit are complex, and you should consult your tax advisor to determine whether and to what extent you will be entitled to this credit. Subject to certain exceptions, dividends paid to you with respect to your ordinary shares will be treated as foreign source income, which may be relevant in calculating your foreign tax credit limitation. However, for periods in which we are a “United States-owned foreign corporation”, a portion of dividends paid by us may be treated as U.S. source solely for purposes of the foreign tax credit. We would be treated as a United States-owned foreign corporation if more than 50% of the total value or total voting power of our stock is owned, directly, indirectly or by attribution, by United States persons. To the extent any portion of our dividends is treated as U.S. source income pursuant to this rule, the ability of a U.S. Holder to claim a foreign tax credit for any Israeli withholding taxes payable in respect of our dividends may be limited. A U.S. Holder entitled to benefits under the United States-Israel Tax Treaty may, however, elect to treat any dividends as foreign source income for foreign tax credit purposes if the dividend income is separated from other income items for purposes of calculating the U.S. Holder’s foreign tax credit. U.S. Holders should consult their own tax advisors about the impact of, and any exception available to, the special sourcing rule described in this paragraph, and the desirability of making, and the method of making, such an election.
 
The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends that we distribute generally should constitute “passive category income,” or, in the case of certain U.S. Holders, “general category income.” A foreign tax credit for foreign taxes imposed on distributions may be denied if you do not satisfy certain minimum holding period requirements.
 
Subject to the discussion below under “Backup withholding tax and information reporting requirements,” if you are a Non-U.S. Holder, you generally will not be subject to United States federal income (or withholding) tax on dividends received by you on your ordinary shares, unless you conduct a trade or business in the United States and such income is effectively connected with that trade or business (or, if required by an applicable income tax treaty, the dividends are attributable to a permanent establishment or fixed base that such holder maintains in the United States).
 
Sale, exchange or other disposition of ordinary shares
 
Subject to the discussion below under “Passive foreign investment company considerations,” if you are a U.S. Holder, you generally will recognize gain or loss on the sale, exchange or other disposition of your ordinary shares equal to the difference between the amount realized on such sale, exchange or other disposition and your adjusted tax basis in your ordinary shares. Such gain or loss will be capital gain or loss. If Israeli tax is imposed on the sale, exchange or other disposition of our ordinary shares, a U.S. Holder's amount realized will include the gross amount of the proceeds of the deposits before deduction of the Israeli tax. The adjusted tax basis in an ordinary share generally will be equal to the cost of such ordinary share. Except as discussed below with respect to foreign currency gain or loss, if you are a non-corporate U.S. Holder, capital gain from the sale, exchange or other disposition of ordinary shares is generally eligible for the preferential rate of taxation applicable to long-term capital gains if your holding period for such ordinary shares exceeds one year (i.e., such gain is long-term capital gain). The deductibility of capital losses for United States federal income tax purposes is subject to limitations.

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Any such gain or loss that a U.S. Holder recognizes generally will be treated as U.S. source income or loss for foreign tax credit limitation purposes. Because gain for the sale or other disposition of our ordinary shares will be so treated as U.S. source income; and you may use foreign tax credits to offset only the portion of U.S. federal income tax liability that is attributed to foreign source income; you may be unable to claim a foreign tax credit with respect to the Israeli tax, if any, on gains. You should consult your tax advisor as to whether the Israeli tax on gains may be creditable against your U.S. federal income tax on foreign-source income from other sources.
 
Subject to the discussion below under “Backup withholding tax and information reporting requirements,” if you are a Non-U.S. Holder, you generally will not be subject to United States federal income or withholding tax on any gain realized on the sale or exchange of such ordinary shares unless:
  
 
such gain is effectively connected with your conduct of a trade or business in the United States; or
 
 
you are an individual and have been present in the United States for 183 days or more in the taxable year of such sale or exchange and certain other conditions are met.
 
Passive foreign investment company considerations
 
         A non-United States corporation will be classified as a “passive foreign investment company,” or a PFIC, for United States federal income tax purposes in any taxable year in which, after applying certain look-through rules, either
 
 
at least 75% of its gross income is “passive income”; or
 
 
at least 50% of the average value of its gross assets (which may be determined, in part, by the market value of our ordinary shares, which is subject to change) is attributable to assets that produce “passive income” or are held for the production of passive income.
 
         Passive income for this purpose generally includes dividends, interest, royalties, rents, gains from commodities and securities transactions, the excess of gains over losses from the disposition of assets which produce passive income, and includes amounts derived by reason of the temporary investment of funds raised in offerings of our ordinary shares. If a non-United States corporation owns at least 25% by value of the stock of another corporation, the non-United States corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation and as receiving directly its proportionate share of the other corporation’s income.
 
         We believe that we were not classified as a PFIC for the taxable year ended on December 31, 2019. Because PFIC status is based on our income, assets and activities for the entire taxable year, it is not possible to determine whether we will be characterized as a PFIC for the 2020 taxable year until after the close of the year. Moreover, we must determine our PFIC status annually based on tests which are factual in nature, and our status in future years will depend on our income, assets and activities in those years. In addition, because the market price of our ordinary shares is likely to fluctuate and because that market price may affect the determination of whether we will be considered a PFIC, there can be no assurance that we will not be considered a PFIC for any taxable year.

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         If we were a PFIC, and you are a U.S. Holder, then unless you make one of the elections described below, a special tax regime will apply to both (a) any “excess distribution” by us to you (generally, your ratable portion of distributions in any year which are greater than 125% of the average annual distributions received by you in the shorter of the three preceding years or your holding period for our ordinary shares) and (b) any gain realized on the sale or other disposition of the ordinary shares. Under this regime, any excess distribution and realized gain will be treated as ordinary income and will be subject to tax as if (i) the excess distribution or gain had been realized ratably over your holding period, (ii) the amount deemed realized in each year had been subject to tax in each year of that holding period at the highest marginal rate for such year (other than income allocated to the current period or any taxable period before we became a PFIC, which would be subject to tax at the U.S. Holder’s regular ordinary income rate for the current year and would not be subject to the interest change discussed below), and (iii) the interest charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those years. In addition, dividend distributions made to you will not qualify for the lower rates of taxation applicable to long-term capital gains discussed above under “— Distributions.”
 
         Certain elections are available to U.S. Holders of shares that may serve to alleviate some of the adverse tax consequences of PFIC status described above. If we agreed to provide the necessary information, you could avoid the interest charge imposed by the PFIC rules by making a qualified electing fund (a “QEF”) election, in which case you generally would be required to include in income on a current basis your pro rata share of our ordinary earnings as ordinary income and your pro rata share of our net capital gains as long-term capital gain. We do not expect to provide to U.S. Holders the information needed to report income and gain pursuant to a QEF election, and we make no undertaking to provide such information in the event that we are a PFIC.
 
         Under an alternative tax regime, you may also avoid certain adverse tax consequences relating to PFIC status discussed above by making a mark-to-market election with respect to your ordinary shares annually, provided that the shares are “regularly traded” on a “qualified exchange.” Shares will be marketable if they are regularly traded on certain United States stock exchanges (including Nasdaq) or on certain non-United States stock exchanges. For these purposes, the shares will generally be considered regularly traded during any calendar year during which they are traded, other than in negligible quantities, on at least 15 days during each calendar quarter. U.S. Holders should be aware, however, that if we are determined to be a PFIC, the interest charge regime described above could be applied to indirect distributions or gains deemed to be attributable to U.S. Holders in respect of any of our subsidiaries that also may be determined to be a PFIC, and the mark-to-market election generally would not be effective for such subsidiaries.
 
         If you choose to make a mark-to-market election, you would recognize as ordinary income or loss each year in which we are a PFIC an amount equal to the difference as of the close of the taxable year between the fair market value of your ordinary shares and your adjusted tax basis in your ordinary shares. Losses would be allowed only to the extent of net mark-to-market gain previously included by you under the election for prior taxable years. If the mark-to-market election were made, then the PFIC rules described above relating to excess distributions and realized gains would not apply for periods covered by the election. If you do not make a mark-to-market election for the first taxable year in which we are a PFIC during your holding period of our ordinary shares, you would be subject to interest charges with respect to the inclusion of ordinary income attributable to each taxable year in which we were a PFIC during your holding period before the effective date of such election.
  
         If we were a PFIC, a holder of ordinary shares that is a U.S. Holder must file United States Internal Revenue Service Form 8621 with respect to the company for each tax year in which the U.S. Holder owns the ordinary shares, generally with such U.S. Holder’s federal income tax return for that year. If we were a PFIC for a given taxable year, then you should consult your tax adviser concerning your annual filing requirements.

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Backup withholding tax and information reporting requirements
 
         United States backup withholding tax and information reporting requirements generally apply to certain payments to certain non-corporate holders of stock. Information reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption of, our ordinary shares made within the United States, or by a United States payor or United States middleman, to a holder of our ordinary shares, other than an exempt recipient (including a corporation, a payee that is not a United States person that provides an appropriate certification and certain other persons). A payor will be required to withhold backup withholding tax from any payments of dividends on, or the proceeds from the sale or redemption of, ordinary shares within the United States, or by a United States payor or United States middleman, to a holder, other than an exempt recipient, if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, such backup withholding tax requirements. Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against the beneficial owner’s United States federal income tax liability, if any, provided that the required information is timely furnished to the IRS.
 
         Certain U.S. Holders who are individuals (or certain specified entities) are required to report information relating to an interest in our common shares by attaching a complete United States Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, to their tax return for each year in which they hold our common shares, subject to certain exceptions (including an exception for our common shares held in accounts maintained by financial institutions in which case the account may be reportable if maintained by a foreign financial institution). U.S. Holders are urged to consult their tax advisers regarding the effect, if any, of this legislation on their ownership and disposition of our common shares.

3.8% Medicare Tax On “Net Investment Income”
 
         Certain U.S. Holders who are individuals, estates or trusts are subject to the requirement to pay a 3.8% tax on, among other things, dividends and capital gains from the sale or other disposition of shares of common stock.

The following description is not intended to constitute a complete analysis of all tax consequences relating to our prior units and our ordinary 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 or other taxing jurisdiction.


F.
DIVIDENDS AND PAYING AGENTS
 
Not applicable.


G.
STATEMENTS BY EXPERTS
 
Not applicable.
 

H.
DOCUMENTS ON DISPLAY
 
We are subject to the information reporting requirements of the Exchange Act, applicable to foreign private issuers, and under those requirements, we file reports with the SEC. Our filings with the SEC are available to the public through the SEC’s website at http://www.sec.gov.

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As a foreign private issuer, we are exempt from the rules under the Exchange Act, related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act, to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we are required to comply with the informational requirements of the Exchange Act, and, accordingly, file current reports on Form 6-K, annual reports on Form 20-F and other information with the SEC.


I.
SUBSIDIARY INFORMATION
 
Not applicable.
 
ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Exchange rate risk: The Company regularly assesses currency rate risks to minimize any adverse effects on the Company’s business as a result of currency fluctuations.

The Company's foreign currency exposure gives rise to market risk associated with exchange rate movements of the NIS, the Company functional and reporting currency, against the USD and Euros. Most of the Company’s purchases are denominated in USD and Euros, whereas its income and other expenses are denominated mostly in NIS. Consequently, devaluation of the NIS against the other currencies may cause a negative impact on the Company profit margins.

The Company strives to minimize market risks arising from exchange rates and the cost of imported goods, especially by opening wide documentary credits for suppliers abroad and holding foreign currency surpluses, initiates forward transactions and foreign currency options.

The table below details the sensitivity analysis in respect to exposure relating to exchange rate risk:

 
Gain (loss) from exchange rate change NIS thousands
Fair net NIS thousands
Gain (loss) from exchange rate change NIS thousands
Change in exchange rate
USD
(10%)
(2,440)
(5%)
(1,220)
 
24,400
 
5%
1,220
10%
2,440
Change in exchange rate
EURO
(10%)
(250)
(5%)
(125)
 
2,502
5%
125
10%
250

Credit risk: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade receivables. Despite the Company's large number of clients (approximately 1,250) a major and significant part of its sales are made to only a limited number of customers (mainly in large retail supermarket chains). The Company generally does not require and does not receive collateral from those major customers. However, it does require and receive collateral from most of the remainder of its clients to insure security of collecting payments. The Company maintains an allowance for doubtful debts, based upon factors surrounding the credit risk of specific customers, historical trends and other information which management believes adequately covers all anticipated losses in respect of trade receivables. There can be no assurance that this allowance will be adequate. In the event that any of the Company's major clients defaults on its payment obligations to us, the Company will not possess sufficient collateral to collect the entire debt. The Company strives to minimize the credit risks by constantly reviewing the credit it extends to customers versus the collateral it receives. As a result, the Company has ceased selling products to certain customers and considerably reduced sales to other customers, and may continue to do so in the future.


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Interest rate risk: The Company invests part of its cash reserves in instruments that bear fixed interest rate. The Company, as part of its investing policy, invests part of its cash reserves in bonds and convertible debentures that bears fixed interest rate; as a result, the Company is espoused to changes in interest rates.

The table below details the sensitivity analysis in respect to exposure relating to investments in instruments with fix interest rates:

 
Gain (loss) from interest change NIS thousands
Fair value NIS thousands
Gain (loss) from interest change NIS thousands
Change in Interest as % of interest rate
(10%)
(5%)
 
5%
10%
Increase\decrease in financial Income
(10,427)
(5,213.5)
104,275
5,213.5
10,427

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
 
Not applicable.
 

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
 
Not applicable.
 
ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
 
Not applicable.
 
ITEM 15.  CONTROLS AND PROCEDURES
 
(a) Disclosure Controls and Procedures
 
Our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, are responsible for establishing and maintaining our disclosure controls and procedures (as defined in Rules13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended).  These controls and procedures were designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. We evaluated these disclosure controls and procedures under the supervision of our CEO and CFO as of December 31, 2019.  Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective to meet these objectives.

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(b) Management’s Annual Report on Internal Control over Financial Reporting.
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
 

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions 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 authorizations 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.
 
 Our management recognizes that there are inherent limitations in the effectiveness of any system of internal control over financial reporting, including the possibility of human error and the circumvention provide only reasonable assurance with respect to financial statement preparation and presentation, and may not prevent or detect all misstatements. In addition, 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 (with the participation of the CEO and CFO) assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In conducting its assessment of internal control over financial reporting, management used the criteria established in "Internal Control - Integrated Framework (2013)" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our management has concluded, based on its assessment, that our internal control over financial reporting was effective as of December 31, 2019 based on these criteria.
 
(c) This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.

 Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management's report in this Annual Report.

77


(d) Changes in Internal Control over Financial Reporting.

 There were no changes in the Company’s internal control over financial reporting that occurred during the year ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 16[RESERVED]
 
ITEM16A. --
AUDIT COMMITTEE FINANCIAL EXPERT
 
The Company’s Board of Directors has determined that Einav Brar, Idan Ben-Shitrit, and Victor Bar are the “Audit Committee Financial Experts” for the Company, as such term is defined in Item 16A of Form 20-F.  Mrs. Brar, Mr. Ben-Shitrit, and Mr. Bar each serve on the Company’s Audit Committee and are “Independent Directors” as defined in the Nasdaq listing standards applicable to us.
 
ITEM 16B. --
CODE OF ETHICS
 
A copy of the Code of Ethics for the Company that applies to all directors, officers and other employees of the Company is available for review on the Company’s website at www.willi-food.com.
 
ITEM 16C. --
PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
The following table presents the aggregate fees for professional services and other services rendered by BDO Ziv Haft ("BDO"), the Company’s independent public accounting firm, in 2019.

 
NIS 2019
USD 2019
Audit Fees and Tax Fees (1)(2)
340,000
86,805
All Other Fees (3)
40,000
11,574
TOTAL
380,000
98,379


(1)     Audit Fees consist of fees billed for the annual audit services engagement and other audit services, which are those services that only the external auditor can reasonably provide, and include the company audit; statutory audits; comfort letters and consents; attest services; and assistance with and review of documents filed with the SEC.

(2)     Tax Fees include fees billed for tax compliance services, including the preparation of original and amended tax returns and claims for refund; tax consultations, such as assistance and representation in connection with tax audits, tax advice related to mergers and acquisitions, transfer pricing, and requests for rulings or technical advice from taxing authority.

(3)      All Other Fees include due diligence performed for the purpose of purchasing a company in the food industry.

During fiscal year 2019, the external auditor performed additional services, other than auditing and tax services, which amounted to NIS 40 thousands. These services did not exceed 45% of the total fee of the external auditor and the audit fee for accounting represents more than 50% of the external auditor's total revenue from the Company.

Audit Committee Pre-Approval Policies and Procedures

Our audit committee’s specific responsibilities in carrying out its oversight of the quality and integrity of the accounting, auditing and reporting practices of the Company include the approval of audit and non-audit services to be provided by the external auditor. The audit committee approves in advance the particular services or categories of services to be provided to the Company during the following yearly period and also sets forth a specific budget for such audit and non-audit services. Additional non-audit services may be pre-approved by the audit committee.

ITEM 16D. --
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
 
Not applicable.

78

 
ITEM 16E. --
PURCHASES OF EQUITY SECURITIES BY THE COMPANY AND AFFILIATED PURCHASERS

The Board of Directors of the Company authorized a share repurchase program on the November 15, 2018. The aforementioned program permits the Company to repurchase the Company's Ordinary Shares for six months following the Board's decision with an aggregate purchase price of up to US$ 1 million.

   The Ordinary Shares may be repurchased from time to time in open market transactions or privately negotiated transactions at the Company's discretion. The timing and number of shares repurchased will be determined by the Company's management based on its evaluation of market conditions, the trading price of the Company's shares and other factors, and subject to the restrictions relating to volume, price and timing under applicable law, including Rule 10b-18 under the Securities Exchange Act of 1934. The repurchase program may be increased, suspended or discontinued at any time.

   Pursuant to this repurchase program, from January 1, 2019 to the termination of the program on June 30, 2019, the Company repurchased 23,898 Company's ordinary shares, in the amount of USD 169,800.

ITEM 16F. --
CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
 
Not applicable.

ITEM 16G. --
CORPORATE GOVERNANCE
 
               The following are the significant ways in which our corporate governance practices differ from those followed by domestic companies under the listing standards of the Nasdaq:


Executive Sessions – Under Nasdaq rules, U.S. domestic listed companies, must have a regularly scheduled meeting at which only independent directors are present. We do not have such executive sessions.


Compensation of Officers - Under Nasdaq rules, the Company must adopt a formal written compensation committee charter addressing the scope of the compensation committee's responsibilities, including structure, processes and membership requirements, among others. We do not have such a formal written charter.


Nominations of Directors - Under Nasdaq rules, U.S. domestic listed companies, must have a nominations committee comprised solely of independent directors and must have director nominees selected or recommended by a majority of its independent directors. Our directors are not nominated in this manner.


Nominations Committee Charter or Board Resolution - Under Nasdaq rules, U.S. domestic listed companies, must adopt a formal written charter or board resolution, as applicable, addressing the nominations process and such related matters as may be required under the federal securities laws. We do not have such a formal written charter or board resolution.


Quorum - Under Nasdaq rules, U.S. domestic listed company's by-laws provide for a quorum of at least 33 1/3 percent of the outstanding shares of the company’s common voting stock. According to our articles our quorum should be at least 25 percent of the outstanding shares of our common voting stock.

79



Review of Related Party Transactions: Under Nasdaq Listing Rules, domestic listed companies must conduct an appropriate review and oversight of all related party transactions for potential conflict of interest situations on an ongoing basis by the company’s audit committee or another independent body of the board of directors. Although Israeli law requires us to conduct an appropriate review and maintain oversight of all related-party transactions similar to the Nasdaq Listing Rules, we follow the definitions and requirements of the Companies Law in determining the kind of approval required for a related-party transaction, which tend to be more rigorous than the Nasdaq Listing Rules.


Shareholder Approval of Certain Equity Compensation: Under Nasdaq Listing Rules, shareholder approval is required prior to an issuance of securities in connection with equity-based compensation of officers, directors, employees or consultants. The Company has indicated that it will receive shareholder approval as required by Israeli law, including upon issuance of options to directors or to controlling shareholders.

ITEM 16H.   MINE SAFETY DISCLOSURE
 
Not applicable.

80

 
PART II
 
ITEM 17.  FINANCIAL STATEMENTS
 
We have responded to Item 18 in lieu of this Item.

ITEM 18.  FINANCIAL STATEMENTS
 
The financial statements required by this item are found at the end of this annual report, beginning on page F-1.

81


ITEM 19.  EXHIBITS
 
Exhibit
Number
Description
2.1
Specimen of Certificate for ordinary shares (1)
 
                                            
English translations from Hebrew original.
   
(1)
Incorporated by reference to the Company’s Registration Statement on Form F-1, File No. 333-6314.
   
(2)
Incorporated by reference to the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2005.
   
(3)
Incorporated by reference to the Company’s Registration Statement on Form F-3, File No. 333-138200.
   
(4)
Incorporated by reference to the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2013.

(*)
Filed Herewith

82



G. WILLI-FOOD INTERNATIONAL LTD.

CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2019



G. WILLI-FOOD INTERNATIONAL LTD.

CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2019

TABLE OF CONTENTS

 
Page
   
Report of Independent Registered Public Accounting Firm
F-2 - F-3
   
Financial Statements:
 
   
Statements of financial position
F-4 - F-5
   
Statements of Income
F-6
   
Statements of comprehensive Income
F-7
   
Statements of Changes in Equity
F-8
   
Statements of Cash Flows
F-9 - F-10
   
Notes to the Financial Statements
F-11 - F-55




Report of Independent Registered Public Accounting Firm
 
Shareholders and Board of Directors of
G. Willi-Food International Ltd.
Yavne, Israel
 
Opinion on the Consolidated Financial Statements
 
We have audited the accompanying consolidated balance sheet of G. Willi-Food International Ltd (the “Company”) and subsidiaries as of December 31, 2019 and 2018, and the related consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows for each of the two years in the period ended, December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2019, in conformity with International Financial Reporting standards as issued by the International Accounting Standards Board.
 
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 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 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 audit, 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. 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.
 
/s/ Ziv Haft
Ziv Haft
Certified Public Accountants (Isr)
BDO Member Firm

Tel Aviv, Israel
March 19, 2020
 
We have served as the Company's auditor since 2018.
 
F - 2


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
G. Willi-Food International Ltd.

Opinion on the Financial Statements
 
We have audited the accompanying consolidated statements of income, comprehensive income, changes in equity and cash flows of G. Willi-Food International Ltd. and subsidiaries (the "Company") for the year ended December 31, 2017, (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the results of the Company's operations and its cash flows for the year ended December 31, 2017, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
 
Emphasis of a Matter

We draw attention to Note 21(J) of the financial statements describing an indictment served against former controlling shareholders of the Company. According to the indictment, the defendants fraudulently transferred USD 3 million from a bank account of a subsidiary of the Company in favor of an investment in bonds of a European company, while the investment was used to secure the repayment of a loan extended to companies affiliated with the defendants. Similarly, we draw attention to Note 21(A) of the financial statements describing a motion to certify a derivative action which was filed in February 2016 against the Company's directors and officers. 
 
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 audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether 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 audit, 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 audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit 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 audit provides a reasonable basis for our opinion.
 
Brightman Almagor Zohar & Co.
Certified Public Accountants
A Firm in the Deloitte Global Network
 
Tel Aviv, Israel
April 29, 2018
 
We began serving as the Company’s auditor in 1994. In 2018, we became the predecessor auditor.


F - 3


G. WILLI-FOOD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(NIS in thousands)

         
December 31,
 
   
Note
   
2 0 1 9
   
2 0 1 8
   
2 0 1 9 (*)

         
NIS
   
NIS
   
US Dollars
 
                           
Assets
                         
                           
Current assets
                         
Cash and cash equivalents
 
4a

   
121,860
     
134,287
     
35,260
 
Financial assets at fair value through profit or loss
 
4b

   
141,543
     
137,904
     
40,956
 
Loans to others
 
4d

   
17,650
     
-
     
5,107
 
Trade receivables, Net
 
4c

   
133,039
     
98,017
     
38,495
 
Other receivables and prepaid expenses
 
4e

   
9,360
     
3,744
     
2,708
 
Inventories
 
4f

   
71,548
     
49,289
     
20,703
 
Current tax assets
   
   
-
     
862
     
-
 
Total current assets
   
   
495,000
     
424,103
     
143,229
 
     
                       
Non-current assets
   
                       
Property, plant and equipment
   
   
81,402
     
79,611
     
23,554
 
Less -accumulated depreciation
   
   
43,881
     
40,219
     
12,697
 
   
7

   
37,521
     
39,392
     
10,857
 
     
                       
Right of use asset
 
6

   
3,860
     
-
     
1,117
 
Goodwill
   
   
36
     
36
     
10
 
Deferred taxes
 
10b

   
818
     
2,882
     
237
 
Total non-current assets
         
42,235
     
42,310
     
12,221
 
                               
Total assets
         
537,235
     
466,413
     
155,450
 

(*)          Convenience Translation into US Dollars.

The accompanying notes are an integral part of the financial statements.
F - 4

G. WILLI-FOOD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(NIS in thousands)
(Cont.)

         
December 31,
 
   
Note
   
2 0 1 9
   
2 0 1 8
   
2 0 1 9(*)

         
NIS
   
NIS
   
US Dollars
 
Equity and liabilities
                         
                           
Current liabilities
                         
Current maturities of lease liabilities
 
6

   
1,675
     
-
     
485
 
Trade payables
 
8a

   
24,650
     
16,239
     
7,133
 
Employees Benefits
 
9b

   
2,911
     
2,577
     
842
 
Current tax liabilities
   
   
3,750
     
-
     
1,085
 
Other payables and accrued expenses
 
8b

   
9,195
     
5,882
     
2,661
 
Total current liabilities
   
   
42,181
     
24,698
     
12,206
 
     
                       
Non-current liabilities
   
                       
Lease liabilities
 
6

   
2,212
     
-
     
640
 
Retirement benefit obligation
 
9c

   
1,486
     
836
     
430
 
Total non-current liabilities
   
   
3,698
     
836
     
1,070
 
     
                       
Shareholders' equity
 
12

                       
Share capital
         
1,425
     
1,425
     
412
 
Additional paid in capital
         
128,354
     
128,354
     
37,139
 
Capital fund
         
247
     
247
     
71
 
Treasury shares
         
(628
)
   
-
     
(182
)
Retained earnings
         
362,987
     
311,476
     
105,031
 
Re-measurement of the net liability in respect of defined benefit
         
(1,029
)
   
(623
)
   
(297
)
Equity attributable to Shareholders' of the Company
         
491,356
     
440,879
     
142,174
 
                               
Total equity and liabilities
         
537,235
     
466,413
     
155,450
 

(*)          Convenience Translation into US Dollars.

The accompanying notes are an integral part of the financial statements.

The financial statements were approved by the board of directors of the company on March 19, 2020.
F - 5

G. WILLI-FOOD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(NIS in thousands)

         
Year ended December 31,
 
   
Note
   
2 0 1 9
   
2 0 1 8
   
2 0 1 7
   
2 0 1 9 (*)

         
NIS
   
NIS
   
NIS
   
US Dollars
 
                                 
Revenue
 
13a

   
395,637
     
338,245
     
311,978
     
114,478
 
Cost of sales
 
13b

   
271,784
     
240,032
     
237,645
     
78,641
 
Gross profit
   
   
123,853
     
98,213
     
74,333
     
35,837
 
                                       
Operating costs and expenses
   
                               
Selling expenses
 
13c

   
55,490
     
43,823
     
42,090
     
16,056
 
General and administrative expenses
 
13d

   
21,067
     
16,686