SecProbe.io

CORRESP
1
filename1.htm

VIA
EDGAR

March
11, 2024

U.S.
Securities and Exchange Commission

Division
of Corporation Finance

Office
of Technology

100
F Street, NE

Washington,
D.C. 20549

Attention:
Austin Pattan

Re:
ZOOZ Power Ltd.

Registration
Statement on Form F-4

Filed
February 23, 2024

File
No. 333-277295

Dear
Mr. Pattan,

ZOOZ
Power Ltd. (the “Company,” “ZOOZ,” “we,” “our” or “us”)
hereby transmits the Company’s responses to the comment letter received from the staff (the “Staff”) of the
U.S. Securities and Exchange Commission (the “Commission”), dated March 4, 2024, regarding our Registration Statement
on Form F-4 (the “Registration Statement”), filed with the Commission on February 23, 2024.

For
the Staff’s convenience, we have repeated below the Staff’s comments in bold, and have followed each comment with the Company’s
response. Disclosure changes made in response to the Staff’s comments to the Registration Statement have been made in the Company’s
Amendment No. 1 to the Registration Statement on Form F-4 (the “Amended Registration Statement”), which is being filed
with the Commission contemporaneously with the submission of this letter.

Registration
Statement on Form F-4

Unaudited
Pro Forma Condensed Combined Financial Information Notes to Unaudited Condensed Combined Pro Forma Financial Information Note 2. Accounting
Policies, page 59

1. We
                                            note from your response to prior comment 1 that due to the elimination of the interdependency
                                            of the revenue targets between earnout periods, which previously precluded the earnout from
                                            meeting the conditions to be considered indexed to a Company’s own stock, the earnout
                                            is now classified within equity. Please provide your comprehensive accounting analysis with
                                            reference to the authoritative accounting literature of how you determined that the instrument
                                            is indexed to your own stock, including how you considered the guidance in ASC 815-40-15-7F.

Response
to Comment 1: The Company respectfully acknowledges
the Staff’s comment and has provided its accounting analysis below.

The
Company concluded that the settlement provisions in the earnout arrangement are met, and therefore determined that the instrument is
indexed to the combined company’s own stock and, consequently, according to the guidance in ASC 815-40-15-7F, is classified
as equity. The accounting analysis is set forth below:

First,
the Company analyzed whether the earnout shares are in the scope of ASC 718. If the issuance of shares is contingent on goods or services
being provided by the recipient, ASC 718 applies.

The
Earn-Out shares are issued in connection and as part of the consideration to the holders of ZOOZ’s stockholders as part of the
Business Combination. The Earn-Out shares are not conditioned of future employment nor on goods or services being provided by the recipient
but are only conditioned on the trading price of the shares of common stock achieving a specified target price or Company’s
gross revenues (the issuer’s own operations).

Accordingly,
the Company concluded that the Earn-Out shares are outside the scope of ASC 718. If the Earn-Out shares are not within the scope of ASC
718, earn-out arrangements that represent equity-linked instruments are classified as either liabilities or equity instruments on the
basis of ASC 815-40 and should be analyzed under the equity-linked instrument accounting models. ASC 815-10-15-74 states in part that:

“Notwithstanding
the conditions of paragraphs 815-10-15-13
through 15-139, the reporting entity shall not consider the following contracts to be derivative instruments for purposes of this Subtopic:

    a)
    Contracts
    issued or held by that reporting entity that are both:

    1.
    Indexed
    to its own stock

    2.
    Classified
    in stockholders’ equity in its statement of financial position.”

The
Company analyzed whether the earnout shares are considered “indexed to its own stock” in accordance with the provisions of
ASC 815-40-15-7 which state in part that:

“An
entity shall evaluate whether an equity-linked
financial instrument (or embedded feature), as discussed in paragraphs 815-40-15-5 through 15-8 is considered indexed to its
own stock within the meaning of this Subtopic and paragraph 815-10-15-74(a) using the following two-step approach:

a) Evaluate
                                            the instrument’s contingent exercise provisions, if any.

b) Evaluate
                                            the instrument’s settlement provisions.”

Therefore,
the Company evaluated the indexation requirements by using a two-step process:

    ●
    Step
    1 – The exercise or settlement of the contract (“contingent exercise provisions”).

    ●
    Step
    2 – The monetary value of the settlement amount (i.e., factors that affect the settlement amount, or “settlement
    provisions”).

For
an exercise contingency to not prevent a contract from being indexed to the combined company’s stock, it must meet the guidance
in ASC 815-40-15-7A, which states, in part:

“An
exercise contingency shall not preclude an
instrument (or embedded feature) from being considered indexed to an entity’s own stock provided that it is not based on either
of the following:

 a. An
                                            observable market, other than the market for the issuer’s stock (if applicable)

 b. An
                                            observable index, other than an index calculated or measured solely by reference to the issuer’s
                                            own operations (for example, sales revenue of the issuer; earnings before interest, taxes,
                                            depreciation, and amortization of the issuer; net income of the issuer; or total equity of
                                            the issuer).”

According
to ASC 815-40-17-7A, exercise contingencies do not preclude an instrument from being considered indexed to an entity’s own
stock provided that it is not based on (1) an observable market, other than the market for the issuer’s stock; or (2) An observable
index, other than an index calculated or measured solely by reference to the issuer’s own operations. In the Company’s
circumstances, the contingency relates to whether of the Company’s share price exceeds a targeted price or targeted gross revenues
(the issuer’s own operations). Accordingly, under step 1, the Company concluded that the Earn-out arrangement is not precluded
from being considered indexed to an entity’s own stock pursuant to ASC 815-30-15-7.

The
Company secondarily analyzed the settlement provisions of ASC 815-40-15-7C, which states in part that:

“Unless
paragraph 815-40-15-7A precludes it, an instrument
(or embedded feature) shall be considered indexed to an entity’s own stock if its settlement amount will equal the difference between
the following:

 a. The
                                            fair value of a fixed number of the entity’s equity shares

 b. A
                                            fixed monetary amount or a fixed amount of a debt instrument issued by the entity.

For
example, an issued share option that gives the counterparty a right to buy a fixed number of the entity’s shares for a fixed price
or for a fixed stated principal amount of a bond issued by the entity shall be considered indexed to the entity’s own stock.”

In
addition, ASC 815-40-15-7E states that “a fixed-for-fixed forward or option on equity shares has a settlement
amount that is equal to the difference between the price of a fixed number of equity shares and a fixed strike price. The fair value
inputs of a fixed-for-fixed forward or option on equity shares may include the entity’s stock price and additional variables, including
all of the following:

 a. Strike
                                            price of the instrument

 b. Term
                                            of the instrument

 c. Expected
                                            dividends or other dilutive activities

 d. Stock
                                            borrow cost

 e. Interest
                                            rates

 f. Stock
                                            price volatility

 g. The
                                            entity’s credit spread

 h. The
                                            ability to maintain a standard hedge position in the underlying shares.

Determinations
and adjustments related to the settlement amount (including the determination of the ability to maintain a standard hedge position) shall
be commercially reasonable.”

Finally,
ASC 815-40-15-7F states that “an instrument (or embedded feature) shall not be considered indexed to the entity’s
own stock if its settlement amount is affected by variables that are extraneous to the pricing of a fixed-for-fixed option or forward
contract on equity shares. An instrument (or embedded feature) shall not be considered indexed to the entity’s own stock
if either:

 a. The
                                            instrument’s settlement calculation incorporates variables other than those
                                            used to determine the fair value of a fixed-for-fixed forward or option on equity shares.

 b. The
                                            instrument contains a feature (such as a leverage factor) that increases exposure to the
                                            additional variables listed in the preceding paragraph in a manner that is inconsistent with
                                            a fixed-for-fixed forward or option on equity shares.”

ASC
815-40-15-7C provides guidance on how to evaluate an instrument’s settlement provisions to determine whether the instrument is
indexed to the reporting entity’s own stock. This guidance is often referred to as the “fixed for fixed” rule. The
strike price or the number of shares used to calculate the settlement amount is not considered fixed if the terms of the instrument or
embedded component allow for any potential adjustment (except as discussed allowed by ASC 815-40-15-7E), regardless of the probability
of the adjustment being made or whether the reporting entity can control the adjustment. ASC 815-40-15-7E discusses the exception to
the “fixed for fixed” rule. This exception allows an instrument to be considered indexed to the reporting entity’s
own stock even if adjustments to the settlement amount can be made, provided those adjustments are based on standard inputs used to determine
the value of a “fixed for fixed” forward or option on equity shares (and the step one analysis does not preclude such a conclusion).

In
the Company’s circumstances, the Earn-Out
arrangement provides for multiple settlement alternatives. The contract could result in the issuance of a number of shares ranging from
zero to 4,000,000 based on whether stock exceeds targeted prices. However, although the contract may result in different number
of shares issued, the stock price, which is an input into a “fixed-for-fixed” valuation model, determines the number of shares
to be issued.

In
addition, following the First Amendment to the Business Combination Agreement, dated February 9, 2024, each gross revenues target
earnout provision is commencing with the first full fiscal quarter following the previous Earnout Milestone Achievement Date, therefore
the settlements for each separate, independent earnout are considered fixed-for-fixed since the exercise price is fixed and the number
of shares is fixed (i.e., the settlement amounts are equal to the price of a fixed number of equity shares).

In
conclusion of the above, the conditions set
in ASC 815-40-15-7F does not preclude the earnout shares to be considered indexed to the entity’s own stock since the fixed-for-fixed
requirement are met and there is no feature that increases exposure to the additional variables listed above.

Accordingly,
the Company concluded that the settlement provisions in the earnout arrangement under step 2 (of the 2-step approach in accordance
with the provisions of ASC 815-40-15-7) are met, and therefore determined that the instrument is indexed to the combined company’s
own stock and is, consequently, classified as equity.

Audited
Financial Statements Notes to the Financial Statements Note 9 - Commitments and Contingencies, page F-33

2. We
                                            note your response to prior comment 4. As previously requested, please reconcile the total
                                            amount of grants and the total contingent obligation for royalties in your response to the
                                            disclosures in your filing. That is, your disclosure on page F-33 indicates that total contingent
                                            obligation for royalties as of December 31, 2022 amounts to approximately $1.3 million, but
                                            the total amount of grants received from 2020 through 2022 is $900 thousand per your response
                                            to prior comment 4. Your disclosure on page F-34 indicates that the total aggregate amount
                                            of grants received from the IIA and BIRD foundation until December 31, 2021 amounted to $0.9
                                            million, but the total amount of grants received from the IIA and BIRD foundation from 2020
                                            through 2021 is $616 thousand per your response to prior comment 4. In addition, your disclosure
                                            on page F-11 indicates the total amount of grants received during the six months ended June
                                            30, 2023 was $600 thousand and you recorded a receivable of $270 thousand, so please explain
                                            why the amounts deducted from research and development expenses was only $70 thousand during
                                            the six months ended June 30, 2023.

Response
to Comment 2: The Company
respectfully acknowledges the Staff’s comments and has revised the disclosure on pages F-11, F-33 and F-34 of the Amended Registration
Statement, as follows:

During
the years ended December 31, 2020, 2021 and 2022 and the six-months ended June 30, 2023, the Company received grants from the BIRD Foundation
and various governmental institutes (the IIA, the Ministry of Economy and the Ministry of Energy), as well as from NYPA (this NYPA grant
was only received by the Company in the six-month period ended June 30, 2023).

With
respect to the Staff’s comment regarding the Company’s total contingent obligation for royalties as of December 31,
2022 and the total amount of grants received from 2020 through 2022, the Company notes that for the three-year period ended December
31, 2022, the Company recorded accumulated grants of $1.2 million from the BIRD Foundation, the IIA, the Ministry of Economy
and the Ministry of Energy. The Company respectfully notes that this aggregate amount of $1.2 million included $0.9 million
of grants received in cash until the end of 2022 and a grant from the IIA in the amount of $0.3 million, which was received in
early January 2023 and recorded by the Company in 2022, since the work, for which the grant was to be received, was performed by the
Company in 2022, as detailed in the table below. With the addition of accumulated interest of $0.06 million, the aggregate
amount of contingent obligation is $1.26 million (rounded to $1.3 million in the Company’s financial statements for the year ended
Decemb