UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549










FORM 20-F










| ̈ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------------



OR



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2016



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 number 001-34929



SODASTREAM INTERNATIONAL LTD.

(Exact name of Registrant as specified in its
charter)



Not Applicable

(Translation of Registrant’s name into
English)



Israel

(Jurisdiction of incorporation or organization)



Gilboa Street,

Airport City 7019900, Israel

(Address of principal executive offices)



Daniel Birnbaum
Chief Executive Officer
SodaStream International Ltd.
Gilboa Street
Airport City 7019900, Israel
Telephone: +972 (3) 976-2317
Facsimile: +972 (3) 973-6673

(Name, telephone, e-mail and/or facsimile number
and address of company contact person)



Securities registered or to be registered pursuant to Section 12(b)
of the Act:



|Title of each class                            |  | Name of each exchange on which registered
|---------------------------------------------- |  | -----------------------------------------
|Ordinary Shares, par value NIS 0.645 per share |  | The Nasdaq Stock Market LLC              



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: As of December 31, 2016, the
registrant had outstanding 21,360,756 ordinary shares, par value 0.645 per share.



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yesx
No ̈



If this
report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ̈ Nox



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. Yesx
No ̈



Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 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 file, or a non-accelerated filer. See the definitions of “accelerated filer” and “large
accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):



|Large accelerated filer ̈ |  | Accelerated filerx |  | Non-accelerated filer ̈
|------------------------ |  | ------------------ |  | ----------------------



Indicate by check mark which basis for accounting the registrant
has used to prepare the financing statements included in this filing:



|U.S. GAAP ̈ |  | International
    Financial Reporting Standards as issued by theInternational Accounting Standards Boardx |  | 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 ̈ Nox











TABLE OF CONTENTS



|Introduction                                                                          | 1  
|------------------------------------------------------------------------------------- | ---
|Special Note Regarding Forward-Looking Statements                                     | 1  
|                                                                                      |    
|PART I                                                                               
|Item 1. Identity of Directors, Senior Management and Advisers                         | 2  
|Item 2. Offer Statistics and Expected Timetable                                       | 2  
|Item 3. Key Information                                                               | 2  
|Item 4. Information on the Company                                                    | 18 
|Item 4A. Unresolved Staff Comments                                                    | 24 
|Item 5. Operating and Financial Review and Prospects                                  | 24 
|Item 6. Directors, Senior Management and Employees                                    | 37 
|Item 7. Major Shareholders and Related Party Transactions                             | 50 
|Item 8. Financial Information                                                         | 52 
|Item 9. The Offer and Listing                                                         | 53 
|Item 10. Additional Information                                                       | 54 
|Item 11. Quantitative and Qualitative Disclosures About Market Risk                   | 66 
|Item 12. Description of Securities Other than Equity Securities                       | 67 
|                                                                                      |    
|PART II                                                                              
|Item 13. Defaults, Dividend Arrearages and Delinquencies                              | 67 
|Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds | 67 
|Item 15. Controls and Procedures                                                      | 67 
|Item 16. [Reserved]                                                                   | 68 
|Item 16A. Audit Committee Financial Expert                                            | 68 
|Item 16B. Code of Ethics                                                              | 68 
|Item 16C. Principal Accountant Fees and Services                                      | 68 
|Item 16D. Exemptions from the Listing Standards for Audit Committees                  | 69 
|Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers      | 69 
|Item 16F. Change in Registrant’s Certifying Accountant                                | 69 
|Item 16G. Corporate Governance                                                        | 69 
|Item 16H. Mine Safety Disclosure                                                      | 69 
|                                                                                      |    
|PART III                                                                             
|Item 17. Financial Statements                                                         | 69 
|Item 18. Financial Statements                                                         | 69 
|Item 19. Exhibits                                                                     | 69 
|Signatures                                                                            | 71 
|Index to Consolidated Financial Statements                                            | F-1











INTRODUCTION



In this annual report, the terms “SodaStream,”
“we,” “us,” “our,” “our company” and “the company” refer to SodaStream
International Ltd. and its consolidated subsidiaries. References to “Euros” or “€” are to the Euro,
the official currency of the Eurozone; references to “U.S. Dollars,” “U.S. dollars,” “$” or
“dollars” are to U.S. dollars, the official currency of the United States; and references to “NIS,” “shekel”
or “Israeli shekel” are to New Israeli Shekels, the official currency of the State of Israel.



Throughout this annual report, we refer to various
trademarks, service marks and trade names that we use in our business. SodaStream® and Soda-Club® are some of our registered
trademarks. We also have a number of other registered trademarks, service marks and pending applications relating to our products.
Other trademarks and service marks appearing in this annual report are the property of their respective holders.



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS



This annual report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the safe harbor provisions of the U.S. Private
Securities Litigation Reform Act of 1995, that are based on our management’s beliefs and assumptions and on information currently
available to our management. Forward-looking statements include information concerning our possible or assumed future results of
operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, potential
market opportunities and the effects of competition. Forward-looking statements include all statements that are not historical
facts and, in some cases, can be identified by terms such as “anticipates,” “believes,” “could,”
“seeks,” “estimates,” “expects,” “intends,” “may,” “plans,”
“potential,” “predicts,” “projects,” “should,” “will,” “would”
or similar expressions that convey uncertainty of future events or outcomes and the negatives of those terms. These statements
include, but are not limited to, statements regarding:



| | • | growing our business by continuing to position our brand around health and wellness;                                                                                                
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                     
| | • | our plans to develop and introduce new products;                                                                                                                                    
| |   |                                                                                                                                                                                     
| | • | our plans to increase our installed base in our markets and generate ongoing demand for our consumables;                                                                            
| |   |                                                                                                                                                                                     
| | • | our intention to use certain marketing techniques for expansion into select new markets and broaden our penetration in existing markets;                                            
| |   |                                                                                                                                                                                     
| | • | increasing the number of stores in markets where we sell our products;                                                                                                              
| |   |                                                                                                                                                                                     
| | • | our belief that the sale of sparkling water makers will increase the sale of consumables;                                                                                           
| |   |                                                                                                                                                                                     
| | • | entering select new markets, including in collaboration with distributors;                                                                                                          
| |   |                                                                                                                                                                                     
| | • | our belief regarding our ability to meet demand for our products; and                                                                                                               
| |   |                                                                                                                                                                                     
| | • | our belief that we have sufficient inventory to continue manufacturing during the time it would take us to locate and qualify an alternative source of supply for our raw materials.



The forward-looking statements contained in
this annual report reflect our views as of the date of this annual report about future events and are subject to risks, uncertainties,
assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from
those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements
are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. Readers are
cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results
to differ materially from those indicated by the forward-looking statements, including, but not limited to, those factors described
in “Item 3.D. —Risk Factors,” “Item 4 — Information on the Company” and “Item
5 — Operating and Financial Review and Prospects.”



All of the forward-looking statements included
in this annual report are based on information available to us as of the date of this annual report. Unless we are required to
do so under U.S. federal securities laws or other applicable laws, we undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events or otherwise.



1







PART I



| | Item
                           1. | IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
| | ---------------------------------- | -----------------------------------------------------



Not applicable.



| | Item
                           2. | OFFER
STATISTICS AND EXPECTED TIMETABLE
| | ---------------------------------- | ---------------------------------------



Not applicable.



| | Item
                           3. | KEY
INFORMATION
| | ---------------------------------- | ---------------



| | A. | Selected
Financial Data
| | -- | -----------------------



You should read the following selected consolidated
financial data in conjunction with “Item 5 — Operating and Financial Review and Prospects” and our
consolidated financial statements and the related notes appearing elsewhere in this annual report. The following table sets forth
our selected consolidated financial and other financial and operating data. Historical results are not indicative of the results
to be expected in the future. Our financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”), as issued by the International Accounting Standards Board. The consolidated statements of operations
data for each of the years in the three-year period ended December 31, 2016 and the consolidated balance sheet data as of December
31, 2015 and December 31, 2016 are derived from our audited consolidated financial statements appearing elsewhere in this annual
report. The consolidated statements of operations data for the year ended December 31, 2012 and 2013 and the consolidated balance
sheet data as of December 31, 2012, 2013 and 2014 are derived from our audited consolidated financial statements that are not included
in this annual report. The information presented below under the caption “Other financial and operating data” contains
unaudited information that is not derived from our financial statements.



|(in thousands, except share                             |  | Year Ended December 31, |           
|------------------------------------------------------- |  | ----------------------- | ----------
|and per share amounts)                                  |  | 2012                    |           
|Consolidated statements of operations data:             |  |                         |           
|Revenues                                                |  | $                       | 436,316   
|Cost of revenues                                        |  |                         | 200,491   
|Gross profit                                            |  |                         | 235,825   
|Operating expenses:                                     |  |                         |           
|Sales and marketing                                     |  |                         | 153,009   
|General and administrative                              |  |                         | 37,767    
|Other expenses                                          |  |                         | (484      
|Total operating expenses                                |  |                         | 190,292   
|Operating income                                        |  |                         | 45,533    
|Interest expense, net                                   |  |                         | 169       
|Other financial expenses (income), net                  |  |                         | 767       
|Total financial expenses (income), net                  |  |                         | 936       
|Income before income tax                                |  |                         | 44,597    
|Income tax expense                                      |  |                         | 737       
|Net income                                              |  | $                       | 43,860    
|Net income per ordinary share:                          |  |                         |           
|Basic                                                   |  | $                       | 2.16      
|Diluted                                                 |  | $                       | 2.09      
|Shares used in computing net income per ordinary share: |  |                         |           
|Basic                                                   |  |                         | 20,343,829
|Diluted                                                 |  |                         | 20,968,168



2







|                                                |  | Year Ended December 31, |       
|----------------------------------------------- |  | ----------------------- | ------
|(in thousands)                                  |  | 2012                    |       
|Other financial and operating data (unaudited): |  |                         |       
|Total number of sparkling water makers sold     |  |                         | 3,499 
|Total number of CO2 refills sold (1)            |  |                         | 16,543
|EBITDA(2)                                       |  | $                       | 55,657
|Adjusted EBITDA(3)                              |  | $                       | 55,657
|Adjusted net income (3)                         |  | $                       | 43,860



*
Reclassified

(See the table “Reconciliation of net income to EBITDA”
below)



|                                 |  | As of December 31, |        
|-------------------------------- |  | ------------------ | -------
|(in thousands)                   |  | 2012               |        
|Consolidated balance sheet data: |  |                    |        
|Cash and cash equivalents        |  | $                  | 62,068 
|Bank deposits                    |  |                    | -      
|Working capital (4)              |  |                    | 95,137 
|Total assets                     |  |                    | 412,377
|Loans and borrowings             |  |                    | -      
|Total liabilities                |  |                    | 137,887
|Total shareholders’ equity       |  |                    | 274,490



| | (1) | The
CO2refills are sold in exchangeable CO2 cylinders of different sizes. For the purpose of comparison, we
have adjusted the number of CO2refills to be equivalent to one “standard” 60-liter cylinder size.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | EBITDA
is a non-IFRS measure and is defined as earnings before total financial expense (income), net, taxes, depreciation and amortization.
We present EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons
from period to period and company to company by backing out potential differences caused by variations in capital structures (affecting
financial expenses (income), net), tax positions (such as the impact on periods or companies of changes in effective tax rates)
and the age and book depreciation and amortization of fixed and intangible assets, respectively (affecting relative depreciation
and amortization expense, respectively).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



EBITDA should be considered in addition to results prepared
in accordance with IFRS, but should not be considered in isolation or as a substitute for operating income or other statement of
operations items prepared in accordance with IFRS as a measure of our performance. EBITDA does not take into account our debt service
requirements and other commitments, including capital expenditures, and, accordingly, is not necessarily indicative of amounts
that may be available for discretionary uses. In addition, EBITDA, as presented in this annual report, may not be comparable to
similarly titled measures reported by other companies due to differences in the way that these measures are calculated.



| | (3) | Adjusted
EBITDA is a non-IFRS measure and is defined as earnings before financial expense (income), income tax, depreciation and amortization,
and further eliminates the effect of restructuring costs and impairment of goodwill and other intangible assets. For 2014, Adjusted
EBITDA eliminates the effect of goodwill impairment in addition to eliminating the effect of restructuring costs. For 2015, Adjusted
EBITDA eliminates the effect of impairment of other intangible assets and restructuring costs. For 2016, Adjusted EBITDA eliminates
impairment of other intangible assets. For 2014 and 2015, Adjusted net income is a non-IFRS measure which eliminates the effect
of restructuring costs. We believe that Adjusted net income and Adjusted EBITDA, as described above, should be considered in evaluating
the company’s operations. Adjusted net income excludes restructuring costs because it is mostly a non-cash expense that
does not reflect the performance of the company’s underlying business and operations. Adjusted EBITDA facilitates operating
performance comparisons from period to period and company to company by backing out potential differences caused by variations
in capital structures (affecting financial expenses (income), net), tax positions (such as the impact on periods or companies
of changes in effective tax rates) and the age and depreciation charges and amortization of fixed and intangible assets, respectively
(affecting relative depreciation and amortization expense, respectively) and Adjusted net income and Adjusted EBITDA are useful
to an investor in evaluating our operating performance because they are widely used by investors, securities analysts and other
interested parties to measure a company’s operating performance without regard to one-time costs associated with non-recurring
events and without regard to non-cash items. EBITDA and Adjusted EBITDA presented in this annual report are defined differently
than in the company’s previous annual reports on Form 20-F. EBITDA and Adjusted EBITDA data for all periods presented reflect
such terms as defined above.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Working
capital is defined as (i) total current assets, excluding cash and cash equivalents and bank deposits, minus (ii) total current
liabilities, excluding loans and borrowings.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



3







|                                                |  | Year Ended December 31, |       
|----------------------------------------------- |  | ----------------------- | ------
|(in thousands)                                  |  | 2012                    |       
|Reconciliation of net income to EBITDA:         |  |                         |       
|Net income                                      |  | $                       | 43,860
|Financial expense (income), net                 |  |                         | 936   
|Income tax expense                              |  |                         | 737   
|Depreciation and amortization                   |  |                         | 10,124
|EBITDA                                          |  | $                       | 55,657
|Restructuring costs                             |  |                         | -     
|Goodwill and other intangible assets impairment |  |                         | -     
|Adjusted EBITDA                                 |  | $                       | 55,657



* Reclassified



|                                                     |  | Year Ended December 31, |       
|---------------------------------------------------- |  | ----------------------- | ------
|(in thousands)                                       |  | 2012                    |       
|Reconciliation of net income to adjusted net income: |  |                         |       
|Net income                                           |  | $                       | 43,860
|Restructuring costs                                  |  |                         | -     
|Adjusted net income                                  |  | $                       | 43,860



| | B. | Capitalization
and Indebtedness
| | -- | -------------------------------



Not applicable.



| | C. | Reasons
for the Offer and Use of Proceeds
| | -- | -----------------------------------------



Not applicable.



| | D. | Risk
Factors
| | -- | ------------



Our business faces significant risks. You
should carefully consider all of the information set forth in this annual report and in our other filings with the United States
Securities and Exchange Commission (the “SEC”), including the following risk factors. Our business, financial condition
or results of operations could be materially adversely affected by any of these risks. This report also contains forward-looking
statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking
statements as a result of certain factors, including the risks described below and elsewhere in this report and our other SEC filings.
See also “Special Note Regarding Forward-Looking Statements.”



Risks Related to our Business and Industry



A key element of our strategy is to expand in target markets,
including the United States, and our failure to do so would have a material adverse effect on our business, financial condition,
results of operations and prospects.



A key element of our strategy is to grow our
business by expanding sales of our sparkling water makers, CO2 refills and other consumables in certain existing markets
that we believe have high growth potential and in select new markets. In particular, a significant portion of our growth efforts
are focused on the United States, the world’s largest market for carbonated beverages and an important potential growth market.
Our success depends, in large part, upon long-term consumer acceptance and adoption of our products. We face several challenges
in achieving consumer acceptance and adoption of our home beverage carbonation systems, including, among other things, identifying
and addressing market trends and consumers’ tastes and preferences, which often differ between markets, adapting to changes
in market trends and consumers’ tastes and preferences in our existing markets, encouraging consumers to make sparkling water
beverages at home rather than purchasing sparkling water beverages and consumers’ willingness to exchange empty CO2
cylinders for filled CO2 cylinders. In recent years, we have invested, and we expect to continue to invest, amounts
in positioning our brand around health and wellness. We may not be successful in establishing such positioning and such positioning
might not appeal to consumers. We may not achieve the anticipated positive results or growth from positioning our brand around
health and wellness, even if we succeed in establishing such positioning. There can be no assurance that we will meet any of the
challenges we face in our existing markets or new markets we are targeting, and the failure to do so would materially adversely
affect our growth in a particular market and may materially adversely affect our business, financial condition, results of operations
and prospects.



4







Our marketing campaigns and media spending
might not result in increased sales or generate the levels of product and brand awareness we desire, which may adversely affect
our business and prospects.



Our products are ultimately sold to consumers
and, therefore, our future growth depends in large part on our ability to create and maintain awareness of our products and our
brand in a manner that appeals to consumers. In recent years, we have invested, and we expect to continue to invest, amounts to
establish our positioning around health and wellness and our future growth depends in part on our successfully positioning our
brand and products in a manner that appeals to consumers. To create and maintain product and brand awareness, we engage in extensive
advertising and promotional campaigns in certain key markets that we believe have significant growth potential, such as the United
States. Our future growth and results of operations depend in part on the effectiveness and efficiency of these campaigns and our
media spending, including our ability to:



| | • | raise awareness of our home beverage carbonation systems and brand;                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                 
| | • | determine the appropriate creative message and media mix to raise awareness of our products and our brand in a manner that appeals to consumers;
| |   |                                                                                                                                                 
| | • | create and tailor specific advertisements and promotion campaigns for the consumers we target in the markets in which we sell our products; and 
| |   |                                                                                                                                                 
| | • | effectively manage advertising costs, including creative and media costs.                                                                       



We believe that our ability to drive sales of
our products depends on raising awareness of our brand in a manner that appeals to consumers. Our advertising and marketing campaigns
require significant financial resources and may require additional funds depending on the results they generate.



Our marketing campaigns and messages may not
result in increased revenues or increased product or brand awareness in a manner that appeals to consumers, and we may not be able
to increase our sales at the same rate as we increase our advertising expenditures, any of which could have a material adverse
effect on our business, financial condition, results of operations and prospects.



Our ability to grow our business successfully
depends, among other things, on our ability to develop and implement our production and operating infrastructure in a way that
would effectively support our growth in our target markets.



We are targeting certain markets for growth,
including the United States. Achieving and successfully managing growth in our target markets will require us to continue developing
and implementing our production and operating infrastructure, including, among other things, infrastructure and logistics for our
products’ distribution and supply chain, quality assurance controls, product development, manufacturing of our products,
information technology and financial control systems. In addition, we will need to continue to develop the infrastructure for consumers
to conveniently exchange empty CO2 cylinders for filled ones, whether through retailers or otherwise. The development
and implementation of our infrastructure requires significant investment and can be complex in the markets in which we operate
and seek to operate. We expect that these investments will increase and become increasingly complex as our business grows. Our
future results will depend on our ability to successfully develop and implement these initiatives, particularly in our larger markets.
Failure to do so could negatively impact our efforts to increase our sales in the markets in which we operate and seek to operate
and have a material adverse effect on our business, financial condition, results of operations and prospects.



Our future success also requires that we have
adequate capacity in our manufacturing facilities to manufacture the quantities of products to support our current sales level
and the anticipated increased levels that may result from our growth. There can be no assurance as to the timing or our ability
to achieve planned, needed, or desired manufacturing capacity levels. We believe that the capacity of our current manufacturing
facilities and subcontractors is sufficient to meet anticipated demand for our products through 2017.



In addition, we have experienced, and may in
the future experience, difficulties that are common in the installation, functionality and operation of manufacturing equipment.
Failures or delays in obtaining and installing the necessary equipment, technology and other resources or their malfunction could
result in manufacturing delays, which could harm our business, financial condition and results of operations. There can also be
no assurance that demand for our products will increase commensurate with the increased production capability available following
the completion of the Lehavim facility, which could have a material adverse effect on our business, financial condition, results
of operations and prospects.



5







A single facility houses the majority of our production operations.
Business interruptions at our Lehavim facility or at any of our other manufacturing facilities could adversely impact our production
capabilities for extended periods of time, which would have a material adverse effect on our business, financial condition, results
of operations and prospects.



We currently produce most of our products at
a single facility, the Lehavim facility located in the southern part of Israel, including metals (such as cylinder manufacturing
and cylinder retesting), CO2 refills, plastic injection, bottle blowing and printing, machining and assembly. We continue
to manufacture flavors in Ashkelon, Israel, located on the Mediterranean coast of Israel.



If operations at any of our manufacturing facilities,
and at the Lehavim facility in particular, were to be disrupted as a result of equipment failures, earthquakes or other natural
disasters, fires, accidents, work stoppages, power outages, water shortages, acts of terrorism or war, or other reasons, we may
be unable to produce our products for extended periods of time. A facility and certain equipment located in a facility would be
difficult to replace and could require substantial replacement lead-time. Catastrophic events could also destroy any inventory
located at a facility. Lost sales or increased costs that we may experience due to the disruption of operations may not be recoverable
under our insurance policies, and longer-term business disruptions could result in a loss of customers. The occurrence of any of
such events could have a material adverse effect on our business, financial condition, results of operations and prospects.



We lease some of our facilities from third parties,
including our manufacturing facilities in Ashkelon where we manufacture our flavors. As such, there is a risk that we will not
be able to renew the lease agreements, which could lead to a disruption of our operations, or that the terms of the leases under
any such renewals will be on less favorable terms. The lease for our manufacturing facilities in Ashkelon ends in December 2017
and we do not currently expect to successfully negotiate renewing such lease. If we are not successful in renewing such lease or
in establishing an alternative manufacturing facility in a timely manner, the production of our flavors may be delayed, which could
have a material adverse effect on our business, financial condition and results of operations. While we have commenced the preliminary
works for the construction of a new facility for the production of our flavors in Lehavim, there can be no assurance that we will
be successful in completing the new facility in a timely manner.



We may not be successful in continuing to develop or in maintaining
our presence in retail networks for the sale of our products and the exchange of our empty CO2 cylinders in the markets
we are targeting for growth, which could have a material adverse effect on our business, financial condition, results of operations
and prospects.



Our growth in both existing and new markets
depends significantly on our ability to develop and maintain our presence in retail networks, as retailers are the primary channel
through which consumers initially purchase our home beverage carbonation systems and through which our consumables and other products
are sold. Our ability to successfully expand in our target markets depends, among other things, on whether we are able to establish
relationships with strong retailers in those markets for the sale of our home beverage carbonation systems, the exchange of our
empty CO2 cylinders and the sale of our other consumables and products. There can be no assurance that we will be successful
in establishing or maintaining relationships with strong retailers in the markets we are targeting for growth, or if successful,
that we will do so in a time frame consistent with our plans or that will enable us to achieve significant sales. Our failure to
establish and maintain such relationships will adversely affect our ability to grow in a particular market and may adversely affect
our business, financial condition, results of operations and prospects.



We rely on third-party distributors of
our home beverage carbonation systems and consumables in a number of our markets.



We distribute our home beverage carbonation systems
and consumables through relationships with third-party distributors in 23 countries. Our third-party distributors accounted for
12.4% of our revenues in 2016 and one of our distributors, serving one country in Western Europe, accounted for 8.4% of our revenues
in 2016. Our distribution agreements are generally exclusive agreements for a given territory with a five-year term with an option
to extend the term, and our distributors are generally required to meet defined purchase targets. If our distributors do not meet
their defined purchase targets, they may lose their exclusivity right and we may also seek to terminate our distribution agreement
with them. We may not be successful in terminating our distribution agreements with our distributors and even if we are successful,
we may have to pay statutory compensation to such distributors or fines, and may also experience a delay in retaining new distributors.
Where we rely on third-party distributors, we have less control than when we distribute directly and can be adversely impacted
by the actions of our distributors. Furthermore, our distributors also undertake to manage the reverse logistics needed for customers
to return empty CO2 cylinders and exchange them for filled CO2 cylinders. In the event that any of our distributors
do not successfully manage the reverse logistics, it will make it more difficult for our customers to obtain replacement CO2
cylinders, which could negatively affect our brand and our revenues in that market. Any disruption in our distribution network
could have a negative effect on our ability to sell our products and maintain our customers, which may, in turn, materially adversely
affect our business, financial condition, results of operations and prospects.



6







We may face competition from sales of consumables and, in
particular, with respect to refilling our exchangeable CO2 cylinders, which could adversely impact our business, financial
condition and results of operations.



Our business of refilling our exchangeable CO2
cylinders is important to the long-term success of our business and our future growth. For safety, public health and other reasons,
we retain ownership of the exchangeable CO2 cylinders included in our home beverage carbonation systems and provide
them under license, whether sold with our systems or as a separate component. Our agreements with retailers contain an acknowledgement
that we retain title to the exchangeable CO2 cylinders. In addition, the packaging in which the cylinders are distributed,
as well as the cylinders themselves, bear notices advising consumers that the cylinders are provided under license. Nevertheless,
these contractual arrangements have not always been effective, and in a number of locations, suppliers of CO2 not authorized
by us have sought or may in the future seek, to refill our exchangeable CO2 cylinders or refill other exchangeable CO2
cylinders marketed as compatible with our systems. In addition to creating potential safety and public health risks, such sales
of consumables by third parties unauthorized by us may result in lost sales opportunities for us, negatively impact customer retention
and could harm our reputation if these products cause damage when used with our products.



In 2008, the German Federal Court of Justice, the highest German
court, upheld a decision by the German Federal Cartel Office that preventing end consumers from having their CO2 cylinders
refilled by third parties constituted an abuse of a dominant position in violation of EU and German competition law and requiring
us to permit the end consumers to have their CO2 cylinders refilled by or exchanged with third parties. Although the
decision of the German Federal Court of Justice is not binding on courts in other jurisdictions, it could be cited as a precedent
in other antitrust or competition law proceedings. There can be no assurance that a court of law in any other jurisdiction will
determine that we have not violated applicable competition or antitrust laws. Further, there can be no assurance that a court in
any of the jurisdictions in which we operate will uphold our ownership rights over the exchangeable CO2 cylinders or
find that the cylinder refilling restrictions we impose do not violate applicable competition or antitrust laws. Our failure to
successfully enforce our ownership rights to our exchangeable CO2 cylinders could have a material adverse effect on
our business, financial condition, results of operations and prospects.



We may be unable to compete effectively with other companies
which offer, or may offer in the future, competing products.



We face competition in several of our markets from manufacturers
which offer products that compete with ours, including sparkling water makers, carbonation bottles and flavors. We anticipate that
we will face additional competition from competitors that may enter the home carbonated beverage and sparkling water market, including
from manufacturers of home beverage carbonation systems and consumables and manufacturers of carbonated beverages. Current or future
competitors may, for example, introduce products with features which may cause consumers to stop using our systems or to use them
less frequently, such as sparkling water makers that do not require the exchange of CO2 cylinders or that use other
methods of carbonation. The entry of new competitors into our market or the acquisition of our existing competitors by companies
with substantial resources could result in further increased competition and harm our business. Increased competition from existing
or new competitors may result in price reductions, reduced gross margins and loss of market share, any of which could have a material
adverse effect on our business, financial condition, results of operations and prospects. Additionally, our competitors’
arrangements with their collaborators may prevent us from entering into similar, or other, arrangements with such collaborators.



We also face competition from manufacturers that
sell counterfeit reproductions of our sparkling water makers. Although we monitor and attempt to take action against such manufacturers
when we deem it appropriate, there can be no assurance that we will be successful in deterring competitors from manufacturing and
selling counterfeit reproductions of our products. The sale of counterfeit reproductions of our products may result in lost sales
opportunities and cause harm to our brand and reputation due to the lower quality of these counterfeit products compared to our
products. The risk of counterfeiting may increase with the expansion of our business and increased recognition of our brand name.
Finally, we face competition from beverage companies, including large global companies, for the dollars spent by consumers on non-alcoholic
beverages. These include primarily manufacturers of carbonated soft drinks and sparkling water.



A number of our competitors are substantially
larger than we are and have significantly greater financial, sales and marketing, manufacturing and other resources than are available
to us, and have established brands and greater brand awareness. These competitors may use their resources and scale to respond
more rapidly than us to competitive pressures and changes in consumer preferences by introducing new products, reducing prices
or increasing promotional activities.



We may be unable to retain our customers in markets where
we have an established presence due to changes in consumer preferences, perceptions and spending habits.



Our long-term revenue
growth and profitability depend upon our ability to implement our business model of selling sparkling water makers to new consumers
and our consumables to consumers who already own our sparkling water makers. Since we derive higher profit margins from our consumables,
the continued use of our home beverage carbonation systems by, and the repeat sales of our consumables to, consumers who have already
purchased our systems are important to our business. In markets where we have an established presence, we face the challenge of
retaining customers due to changes in consumer preferences, perceptions and spending habits, as well as the introduction of competing
products, any of which may cause our customers to stop using our systems or to use them less frequently. In order to maintain the
use of our systems by our customers, we will need to identify and respond quickly to such changes, including through creative initiatives,
such as new product offerings and special promotions. For example, in response to what we believe is a shift in consumer preferences
towards health and wellness in the carbonated beverage industry, in recent years, we have made significant efforts to position
our brand around health and wellness. However, we may not be successful in establishing such positioning and such positioning might
not appeal to consumers. Our failure to predict, or respond effectively to changes in consumer behavior, which often differ between
markets, including where they shop, could result in a reduction in the number of our customers, which could lead to lower revenues
and increased inventories, and would have a material adverse effect on our business, financial condition, results of operations
and prospects.



7







If we do not manage our inventory effectively, our business,
financial condition and results of operations could be materially adversely affected.



We must manage our
inventory effectively. If our forecasts of demand for our products exceed actual demand, we could experience excess inventory.
As we innovate and introduce new sparkling water makers and other products to the marketplace, our existing sparkling water makers
and other products are at an increased risk of inventory obsolescence. If we ultimately determine that we have excess inventory,
we may have to reduce our prices and write-down inventory which could have an adverse effect on our business, financial condition
and results of operations. In addition, we may determine that having both older and newer products for sale in the marketplace
is confusing to consumers or interferes with promoting our new products and therefore decide to cease selling our older products,
which would result in our not receiving any revenues for such products. Conversely, if the introduction of new products is delayed,
we may have insufficient existing inventory to meet our customer demand, potentially resulting in lost revenue opportunities and
adversely impacting our financial condition and results of operations. Risks of inventory obsolescence also exist with our products
that are subject to expiration, such as our carbonation bottles and flavors. If we are unable to accurately forecast demand for
our products and inventory expires or becomes unusable, our business, financial condition and results of operations could be materially
adversely affected.



Our home beverage carbonation systems and other products may
fail, whether due to design faults, defects or misuse, and cause personal injury or property damage, which may subject us to product
liability and other claims and harm our reputation.



Our home beverage carbonation systems and other
products may fail and cause personal injury or property damage. Failures of our home carbonation beverage systems may be caused
by, among other things, design defects, defects in workmanship or materials and misuse by consumers. Although we take quality assurance
measures which are intended to ensure that our products are free from design faults and defects in workmanship and materials, there
can be no assurance that our products will not fail. Additionally, although we include explicit instructions for the operation
of our home beverage carbonation systems and place safety warnings on our products, consumers may misuse our products, including
by:



| | • | washing our non-dishwasher safe carbonation bottles in the dishwasher or otherwise exposing them to severe heat, which could cause the bottles to burst during the carbonation process;                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                              
| | • | carbonating substances other than water with our sparkling water makers, which could cause the sparkling water makers to fail and possibly cause damage to the other components of our home beverage carbonation systems; and
| |   |                                                                                                                                                                                                                              
| | • | subjecting our exchangeable CO2 cylinders to pressure beyond their measured stress resistance, which could cause the cylinder to burst.                                                                                      



The failure or misuse of any of the components
of our home beverage carbonating systems may cause personal injury and damage to property. In addition, any unauthorized use of
our home beverage carbonation systems, including by using third-party consumables with our systems, could lead to failure or malfunction
of the systems which in turn could cause personal injury or property damage. Potential personal injury and property damage may
also result from the deterioration of the quality or contamination of the materials used in our systems. Product safety or quality
issues, actual or perceived, including allegations of product contamination or other issues, even when false or unfounded, could
subject us to product liability and other claims, tarnish the image of the affected brands and may cause consumers to choose other
products. Such issues or allegations may also require us to conduct product recalls and result in higher than anticipated rates
of warranty returns and other returns of goods. For example, in the fourth quarter of 2016, we conducted a voluntary recall of
dishwasher safe carbonation bottles. Such recall did not have a material effect on our business or results of operations.



In addition, consumer protection agencies that
have broad authority to order product modifications or recalls may take such actions with respect to our products, even if we include
explicit instructions with our products regarding their use. Under these circumstances, we could be required to offer to exchange
our existing products for new ones or to recall products entirely from the market, which would materially adversely impact our
business, financial condition, results of operations, brand and reputation.



Our product liability insurance for personal
injury and damage to property may not be sufficient or available to cover product liability claims, or similar claims, against
us, which could materially adversely impact our financial condition and results of operations. Whether or not a claim against us
would be successful, defense of a claim may be costly and the existence of any claim may adversely impact our business, financial
condition, results of operations and reputation.



Our inability to protect our intellectual property rights
could reduce the value of our products or permit competitors to more easily compete with us and have a material adverse effect
on our business, brand, financial condition, results of operations and prospects.



While we make efforts to develop and protect
our intellectual property, the validity, enforceability and commercial value of our intellectual property rights may be reduced
or eliminated by the discovery of prior inventions by third parties, the discovery of similar marks previously used by third parties,
non-use or non-enforcement by us of intellectual property rights or the successful independent development by third parties of
the same or similar confidential or proprietary innovations. We have been in the past, and may in the future be, subject to opposition
proceedings with respect to applications for registrations of our intellectual property, including, but not limited to, our marks.
As we rely in part on brand names and trademark protection to enforce our intellectual property rights, barriers to the registration
of our brand names and trademarks in various countries may restrict our ability to promote and maintain a cohesive brand throughout
our key markets.



8







Our ability to compete effectively depends, in
part, on our ability to maintain the proprietary nature of our technologies, which include the ability to obtain, protect and enforce
patents and trade secrets and other know-how relating to our technologies. Our current patent portfolio is limited and certain
patents of ours that cover aspects of our products have expired. Although we hold additional utility patents and design registrations
and patents, as well as have pending patent and registration applications that may protect certain aspects of our products for
an extended period, there can be no assurance that pending U.S. applications or applications in other jurisdictions will be approved
in a timely manner or at all, or that such registrations will effectively protect our intellectual property. There can be no assurance
that we will develop patentable intellectual property in the future, and we may choose not to pursue patents or other protection
for innovations that subsequently turn out to be important.



To protect our intellectual property, including
our know-how and trade secrets, we have implemented a system in most jurisdictions by which we require our relevant employees to
enter into employment contracts which include clauses requiring such employees to acknowledge our ownership of all inventions and
intellectual property rights they develop in the course of their employment and to agree not to disclose confidential information.
Agreements with certain of our employees also typically contain provisions restricting employment with our competitors for a certain
period of time after they stop working for us. These restrictions may be of no or little enforceability under applicable law. We
also typically include similar provisions in our distributor and supplier agreements. These provisions may not be adequate or enforceable,
and despite our efforts, our know-how, confidential information and trade secrets could be disclosed to third parties, or third
parties could independently develop the same or similar information or technologies, which could cause us to lose competitive advantages.



From time to time, we may discover that third
parties are infringing or otherwise violating our intellectual property rights. For example, we are aware of unauthorized third-party
uses of our trademarks and designs, and there may be other third parties using trademarks or names, or designs, similar to ours
of whom we are unaware. Monitoring unauthorized use of intellectual property is difficult and protecting our intellectual property
rights could be costly and time consuming. The monitoring and protection of our intellectual property rights may become more difficult,
costly and time consuming as we expand into new markets, particularly in those markets, such as China, Russia, Argentina and others,
in which legal protection of intellectual property rights is less robust than in the United States and other developed markets
in which we currently operate. We are prepared to protect our intellectual property rights vigorously; however, our patent portfolio
is limited in certain markets and, as such, we may be unable to institute effective legal action against third parties engaged
in copying our sparkling water makers and components.



There can also be no assurance that we will prevail
in any intellectual property infringement litigation we institute to protect our intellectual property rights given the complex
technical issues and inherent uncertainties in litigation. Such litigation may be time consuming, expensive, and may distract our
management from running the day-to-day operations of our business. If we are unable to successfully defend our intellectual property
rights, our business, brand, financial condition, results of operations and prospects could be materially adversely affected. There
can be no assurance that our intellectual property rights can be successfully asserted or will not be invalidated, circumvented
or challenged. In addition, there can be no assurance that these protections will be adequate to deter the unauthorized use of
our intellectual property rights by third parties or to deter the development of products with features based upon, or otherwise
similar to, our products.



We may be subject to claims by third parties asserting that
our products and other intellectual property infringe, or may infringe, their proprietary rights.



We have in the past been, and may in the future
be, subject to claims by third parties asserting misappropriation, or that our products and other intellectual property infringe,
or may infringe, or otherwise violate, their proprietary rights. Any such claims, regardless of merit, could result in litigation,
which could result in expenses, divert the attention of our management from running the day-to-day operations of our business,
cause significant delays in and materially disrupt the conduct of our business. As a consequence of such claims, we could lose
our proprietary rights, become subject to liabilities, including payments of damages, be required to develop non-infringing products,
seek licenses from others, which may not be available on reasonable terms, if at all, stop selling our products or re-brand our
products and could suffer other negative effects to our business. In the event of a successful claim of infringement against us
or our failure or inability to develop non-infringing technology or license the infringed or similar technology or other intellectual
property, our business, financial condition, results of operations and prospects could be materially adversely affected.



If a large number of empty exchangeable CO2 cylinders
are returned to us without having been exchanged for full ones, we would incur costs with no corresponding revenues.



We retain ownership of the exchangeable CO2
cylinders and provide them under license. In most cases, we collect a license fee for each exchangeable CO2 cylinder
from the distributors and retailers who receive them. The amount of the license fee varies from country to country and also changes
over time as market conditions change in a particular country. In addition, in some countries, including certain major markets
in Northern and Western Europe, consumers have paid in the past an advance rental fee when they received their first exchangeable
CO2 cylinder. A portion of these fees may be refundable when an empty exchangeable CO2 cylinder is returned
and not exchanged for a full one. To date, returns of exchangeable CO2 cylinders from our distributors, retailers and
consumers have been negligible. However, if distributors, retailers or consumers in any one or more of the markets in which we
operate return a large number of cylinders without exchanging them for full ones, we may be required to pay a large amount of cash
to refund a portion of the rental or license fees, which could have a material adverse effect on our financial condition and results
of operations.



9







We are subject to currency exchange rate fluctuations and
may not adequately hedge against them.



The dollar is our functional and reporting currency.
However, a significant portion of our cost of revenues and operating expenses are incurred in NIS, and to a lesser extent, in other
currencies, such as the Euro. As a result, we are exposed to the risks that the Israeli shekel or these other currencies may appreciate
relative to the dollar. In any such event, the dollar cost of our non-dollar denominated operations would increase and our dollar-denominated
results of operations would be adversely affected. Furthermore, because a material portion of our revenues is denominated in currencies
other than the dollar, the strengthening of the dollar in relation to other currencies, in particular the Euro, will negatively
affect our results of operations. For example, in 2016, our revenues and operating income were negatively impacted from changes
in foreign currency exchange rates by approximately $2.7 million and $3.9 million, respectively. We cannot predict any future trends
and rates of devaluation (if any) of the Israeli shekel or any of these other currencies against the dollar. Although we currently
engage in hedging transactions to minimize our currency exchange rate risk, future currency exchange rate fluctuations that we
have not adequately hedged could adversely affect our profitability and may vary from quarter to quarter. We are also exposed to
credit risk if counterparties to our derivative instruments are unable to meet their obligations.



Fluctuations in our business caused by
seasonality or unusual weather conditions could cause fluctuations in our quarterly results of operations and volatility in the
market price of our ordinary shares.



Historically, our revenues have generally been
strongest in the third and fourth quarters and weakest in the first quarter. We generally attribute this historical seasonality
to increased demand for our products during the warmer summer months and increased sales associated with holiday shopping. As such,
our revenues may also be impacted by the effects of the weather as our revenues would likely decrease if periods when the weather
is colder are longer than usual. Our operating expenses and, therefore, our overall margins are also seasonally impacted. For example,
we typically increase our advertising and promotional expenditures in the second and fourth quarters. Consequently, our overall
operating income may be lower in these quarters. The impact on sales volume and operating results due to these and other factors
can significantly impact our business. Accordingly, our results for any quarter are not necessarily indicative of the results that
may be achieved in subsequent quarters or for the full fiscal year. Our quarterly operating results should not be relied on as
indications of our future performance. These fluctuations may also cause volatility in the market price of our ordinary shares.



We may have exposure to greater tax liabilities than anticipated.



We have endeavored to structure our activities
in a manner so as to minimize our and our subsidiaries’ aggregate tax liabilities. However, we have operations in various
taxing jurisdictions, and our tax liabilities in one or more jurisdictions could be more than reported in respect of prior taxable
periods and more than anticipated in respect of future taxable periods. In this regard, the amount of income taxes that we pay
in future taxable periods could be higher if earnings are lower than anticipated in jurisdictions where lower statutory tax rates
apply and higher than anticipated in jurisdictions where higher statutory tax rates apply.



In addition, we have entered into transfer pricing
arrangements that establish transfer prices for our inter-company operations. However, our transfer pricing procedures are not
binding on the applicable taxing authorities. No official authority in any country has made a binding determination as to whether
or not we are operating in compliance with its transfer pricing laws. Accordingly, taxing authorities in any of the countries in
which we operate could challenge our transfer prices and require us to adjust them to reallocate our income and potentially to
pay additional taxes for prior tax periods. For example, the tax authorities in the United States, have increased their focus on
transfer pricing procedures generally, which could result in a greater likelihood of a challenge to our transfer pricing arrangements
and the risk that we will be required to adjust them and reallocate our income, which could result in a higher effective tax rate
than that to which we are currently subject. We expect that the issue of the validity of our transfer pricing procedures will become
of greater importance as we continue our expansion in markets in which we currently have a limited presence and attempt to penetrate
new markets. Any change to the allocation of our income as a result of reviews by taxing authorities could have a negative effect
on our financial condition and results of operations.



In addition, the determination of our worldwide
provision for income taxes and other tax liabilities requires significant judgment and there are many transactions and calculations
where the ultimate tax determination is uncertain. Although we believe our estimates are reasonable, our ultimate tax liability
may differ from the amounts recorded in our financial statements and may materially adversely affect our financial condition and
results of operations in the period or periods for which such determination is made. We have created reserves with respect to tax
liabilities where we believe it to be appropriate. However, there can be no assurance that our ultimate tax liability will not
exceed the reserves we have created.



The base erosion and profit shifting (“BEPS”)
project undertaken by the Organization for Economic Cooperation and Development (“OECD”) may have adverse consequences
to our tax liabilities. The BEPS project contemplates changes to numerous international tax principles, as well as national tax
incentives, and these changes, which may be adopted in different manners by individual countries, could adversely affect our provision
for income taxes. It is hard to predict how the principles and recommendations developed by the OECD in the BEPS project will translate
into specific national laws, and therefore we cannot predict at this stage the magnitude of the effect of such rules on our financial
results.



10







Our products are subject to extensive governmental regulation
in the markets in which we operate.



Our products are subject to extensive governmental
regulation in the markets in which we operate. Among the regulations that we must comply with are those governing the manufacturing
and transportation of our exchangeable CO2 cylinders. In the United States, and in certain other markets in which we
currently operate or may in the future operate, our exchangeable CO2 cylinders are considered hazardous materials due
to the highly pressurized CO2 inside, and the applicable regulations consequently restrict our ability to ship our exchangeable
CO2 cylinders by air and also place significant restrictions on their land transportation, which results in additional
costs. There can be no assurance that we will be in compliance with all applicable laws and regulations to which we and our products
are subject. If we fail to comply, we may be subject to civil remedies, including fines, injunctions, recalls or seizures, as well
as criminal sanctions, which could have a material adverse effect on our business, financial condition, results of operations and
reputation.



The flavors we manufacture and distribute are
also subject to numerous health and safety laws regulating the manufacturing and distribution of food products. A failure to plan
and develop effective procedures to address these laws and regulations, new or revised laws or regulations, or new interpretations
or enforcement of existing laws and regulations, may affect our ability to manufacture, distribute and sell our products, which
could have a material adverse effect on our business, financial condition and results of operations.



Furthermore, new government laws and regulations
may be introduced in the future that could result in additional compliance costs, seizures, confiscations, recalls or monetary
fines, any of which could prevent or inhibit the development, distribution and sale of our products. For example, governmental
authorities in certain of our markets, such as Finland, France and certain states in the United States, have imposed taxes on sugar-sweetened
beverages which apply to our flavors, and other governmental authorities, such as the United Kingdom and other states in the United
States, have introduced, or considered levying, similar taxes. If such taxes are introduced and were to apply to our flavors, the
sales and consumption of such flavors might decrease and thereby have a material adverse impact on our financial condition and
results of operations.



An increase in the cost or shortage of supply of the raw materials,
some of which are commodities, for our products could have a material adverse effect on our business, financial condition and results
of operations.



We use certain raw materials to produce our sparkling
water makers, exchangeable CO2 cylinders and consumables. The most important of these materials are aluminum, brass,
certain plastics, flavoring essences, sugar, CO2, sweeteners and fruit concentrate. These materials represent a significant
portion of our cost of goods sold. The availability and cost of such raw materials have fluctuated in the past and may fluctuate
in the future due to movements in currency exchange rates, government policies and regulations, increased demand for, or decreased
supply of, such materials, crop failures, fluctuations in commodity markets, weather conditions, shortages or other reasons or
unforeseen circumstances. To the extent that any of the foregoing or other factors increase the prices or limit the supply of such
materials, and we are unable to increase our prices or adequately hedge against such changes in a manner that offsets such changes,
our business, financial condition and results of operations could be materially adversely affected.



Disruption of our supply chain could adversely affect our
business.



Damage or disruption to our manufacturing or
distribution capabilities due to the financial and/or operational instability of key suppliers, distributors, warehousing and transportation
providers, or brokers, or other reasons, could impair our ability to manufacture or sell our products. To the extent that we are
unable to retain alternative sources of supply, to financially mitigate the impact of such events, such as by identifying an alternative
supplier in a timely and cost-effective manner, or to effectively manage such events if they occur, there could be a material adverse
effect on our sales and profitability, and additional resources could be required to restore our supply chain.



We are subject to certain safety risks in our manufacturing
facilities.



Our business involves complex manufacturing processes
and hazardous materials that can be dangerous to our employees. Although we employ safety procedures in the design and operation
of our facilities, there have been two deaths at our facilities in the past, and there is a risk that an accident or death could
occur in one of our facilities in the future. Any accident could result in manufacturing or other delays, which could harm our
business and our results of operations. The potential liability resulting from any such accident or death, to the extent not covered
by insurance, and any negative publicity associated therewith could harm our business, reputation, financial condition or results
of operations. Whether or not a claim against us succeeds, its defense may be costly and the existence of any claim may adversely
impact our business, reputation, financial condition and results of operations.



11







Higher energy costs and other factors affecting the cost of
producing, transporting and distributing our products could adversely affect our results of operations.



Rising fuel, freight and energy costs have in
the past, and may in the future, have an adverse impact on the cost of our operations, including the manufacture, transportation
and distribution of our products. All of these costs may fluctuate due to a number of factors outside of our control, including
governmental policies and regulations and weather conditions. Additionally, we may be unable to maintain favorable arrangements
with respect to the costs of transporting products, which could result in increased expenses and negatively affect our operations.
If we are unable to hedge against such increases or raise the prices of our products to offset the changes, our results of operations
could be materially adversely affected.



Adverse or uncertain conditions in the global economy could
negatively impact customer demand for our products.



A number of economic factors, including gross
domestic product, availability of consumer credit, consumer sentiment, retail trends, fiscal and credit market uncertainty, and
foreign currency exchange rates, generally affect demand for our products. Consumer purchases of discretionary items tend to decline
during recessionary periods, when disposable income is lower, and may impact sales of our products. If a global recession occurs,
consumers may have less money for discretionary purchases as a result of job losses, foreclosures, bankruptcies and other events.
A prolonged economic downturn or recession in, or the imposition of trade restrictions by, any of the countries in which we conduct
significant business or in any of the markets we are targeting for expansion, may cause significant changes in both the volume
and mix of our product sales, which could materially adversely affect our business, financial condition and results of operations.
We may be required to implement cost reduction efforts, including restructuring activities, which may adversely affect our ability
to capitalize on opportunities in a market recovery. Regional, political and economic instability in countries in which we do business
may adversely affect business conditions, disrupt our operations, and have an adverse effect on our financial condition and results
of operations. Uncertainty about future economic and industry conditions also makes it more challenging for us to forecast demand
for our products, make business decisions, and identify and prioritize the risks that may affect our business, sources and uses
of cash, financial condition and results of operations. In addition, our operations are subject to general credit, liquidity, foreign
exchange, market and interest rate risks.



These conditions may similarly affect key suppliers,
which could impair their ability to deliver parts and result in delays for our products or added costs.



If we do not timely and appropriately adapt
to changes resulting from the uncertain macroeconomic environment and industry conditions, or to difficulties in the financial
markets, our business, financial condition and results of operations may be materially and adversely affected.



We depend on the expertise of key personnel. If these individuals
leave without replacements, our operations could suffer.



Our success depends on the continued service
of our senior management. The loss of the services of any of these individuals could delay or prevent the successful implementation
of our business plans, or could otherwise affect our ability to manage our company effectively. Given their extensive knowledge
of the home beverage carbonation industry, we believe that it would be difficult to find replacements should any of them leave.
Our inability to find suitable replacements for any of the members of our senior management team, particularly our Chief Executive
Officer, Daniel Birnbaum, would adversely impair our ability to implement our business strategies and plans and could have a material
adverse effect on our business and results of operations.



We may need to raise additional capital in the future and
may be unable to do so on acceptable terms, if at all.



Based on current expectations, we believe that
our cash on hand, cash flows from operations and borrowings available under our short-term credit facilities from financial institutions
will be sufficient to meet our currently anticipated cash requirements for the next 12 months. However, in the future, we may require
additional capital in order to finance our activities. We may be unable to obtain requisite financing or such financing may not
be available on terms that are acceptable to us. The incurrence of additional debt would result in increased debt service obligations
and the terms of which may include operating or other covenants that might, among other things, restrict our ability to pay dividends
to our shareholders. Any of the foregoing could have a material adverse effect on our business, financial condition, results of
operations and prospects. If we were to issue equity to raise capital, it would dilute the holdings of our existing shareholders.



Disruptions to our IT systems due to system failures or cybersecurity
attacks may impact our operations, result in sensitive customer information being compromised, which would negatively materially
affect our reputation and materially harm our business.



Our servers and equipment may be subject to computer viruses, break-ins,
and similar disruptions from unauthorized tampering with computer systems. Our systems have been, and are expected to continue
to be, the target of malware and other cyber-attacks. Although we have invested in measures to reduce these risks, there can be
no assurance that our current information technology (IT) systems are fully protected against third-party intrusions, viruses,
hacker attacks, information or data theft or other similar threats. A cyber-attack that bypasses our IT security systems causing
an IT security breach may lead to a material disruption of our IT business systems and/or the loss of business information. A cyber-attack
on our systems or networks that impairs our IT systems could disrupt our business operations and our ability to manufacture or sell our products.
Any such event could have a material adverse effect on our business. To the extent that such disruptions or uncertainties result
in delays or cancellations of customer orders or the manufacture or shipment of our products, or in theft, destruction, loss, misappropriation
or release of our confidential information or our intellectual property, our business, financial condition, results of operations
and prospects could be materially adversely affected.



12







Additionally, we have access to customer information
in the ordinary course of business. If a significant data breach occurred, our reputation may be adversely affected, customer confidence
may be diminished, or we may be subject to legal claims, any of which may contribute to the loss of customers and have a material
adverse effect on us.



Compliance with regulations regarding the use of conflict
minerals may disrupt our operations and harm our operating results.



In August 2012, under the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010, the SEC adopted requirements for companies that use certain minerals and derivative
metals, namely -tantalum, tin, gold and tungsten (referred to as “conflict minerals” regardless of their actual country
of origin) in their products. These rules require us to investigate whether our products contain such “conflict minerals”
and include appropriate disclosures in our filings with the SEC. Potential costs, including costs of remediation and other changes
to products, processes or sources of supply, may arise as a consequence of such activities. Compliance with these rules could adversely
affect the sourcing, supply and pricing of materials used in our products. Also, we may face reputational challenges if we are
unable to sufficiently verify the origins for all conflict minerals used in our products or lose those customers who require that
all of the components of our products be certified as conflict-free. If we are not able to meet customer requirements, customer
demand for our products may decline, and we may have to write off inventory in the event that it cannot be sold. The occurrence
of any of these events could also adversely impact our ability to manufacture and market our products.



Risks Related to our Operations in Israel



We conduct operations in Israel and therefore, political,
economic and military instability in Israel and its region may adversely affect our business.



We are incorporated under the laws of the State
of Israel, and our principal offices and our manufacturing facilities are located in Israel. Accordingly, political, economic and
military conditions in Israel and the surrounding region directly affect our business. Since the establishment of the State of
Israel in 1948, a number of armed conflicts have occurred between Israel and its Arab neighbors, the Hamas (an Islamist militia
and political group that controls the Gaza Strip) and Hezbollah (an Islamist militia and political group based in Lebanon). Although
Israel has entered into peace treaties with Egypt and Jordan, and various agreements with the Palestinian National Authority, it
is unclear whether any negotiations that may occur between Israel and the Palestinian Authority will result in any additional agreements.
In recent years, including in July and August 2014, Israel engaged in an armed conflict with Hamas, which involved missile strikes
against civilian targets in various parts of Israel and negatively affected business conditions in Israel. In addition, Israel
faces threats from more distant neighbors, in particular, Iran, which is believed to have a strong influence among extremist groups
in the region, such as Hamas in the Gaza Strip and Hezbollah in Lebanon.



Recent political uprisings and social unrest
in various countries in the Middle East and North Africa are affecting the political stability of those countries. This instability
may lead to deterioration of the political relationships that exist between Israel and these countries, and have raised concerns
regarding security in the region and the potential for armed conflict. Among other things, this instability may affect the global
economy and marketplace through changes in oil and gas prices.



Any hostilities between Israel and its neighbors
and any future armed conflict, terrorist activity, political instability or violence in the region could adversely affect our operations
in Israel and adversely affect the market price of our ordinary shares. Further escalation of tensions or violence might result
in a significant downturn in the economic or financial condition of Israel, which could have a material adverse effect on our operations
in Israel and our business.



Our commercial insurance does not cover losses
that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli government
is currently committed to covering the reinstatement value of direct damages that are caused by terrorist attacks or acts of war,
there can be no assurance that this government coverage will be maintained, or if maintained, will be sufficient to compensate
us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business, financial
condition and results of operations.



In addition, several countries, principally in
the Middle East, restrict doing business with Israel, and additional countries may impose restrictions on doing business with Israel
and Israeli companies whether as a result of hostilities in the region or otherwise. These restrictions may limit our ability to
distribute our products in these countries or establish distributor relationships with companies operating in these regions. The
State of Israel and Israeli companies have been and are today subjected to threats of economic boycotts. In recent years, there
have been increased efforts by activists to cause companies and consumers to boycott Israeli goods based on Israeli government
policies. Such actions, particularly if they become more widespread, may adversely impact our ability to sell our products. Any
hostilities involving Israel or any interruption or curtailment of trade between Israel and its present trading partners, or a
significant downturn in the economic or financial condition of Israel, could adversely affect our business, financial condition
and results of operations. We may also be targeted by cyber terrorists because we are an Israeli company.



13







Our employees at our Lehavim facility in Israel have recently
joined the Histadrut (General Federation of Labor in Israel) and established an employees’ committee, which may result in,
among other things, our incurring additional labor costs and experiencing work stoppages and/or reduced operational flexibility.



In the fourth quarter of
2016, we were notified by the Histadrut (General Federation of Labor in Israel) that our Israeli subsidiary’s employees at
our Lehavim facility have decided to join the Histadrut and that they have established an employees’ committee. In accordance
with applicable law, we have commenced negotiations with the committee and the Histadrut with respect to entering into a collective
bargaining agreement. In the course of such negotiations, the employees’ committee has the right to issue a dispute notice
to us, which under Israeli law would permit the employees to initiate a work stoppage not earlier than 15 days following the date
of the notice. In March 2017, the employees’ committee issued a dispute notice to us. As of the date of this annual report,
the 15-day period has not lapsed, and while negotiations with the employees’ committee and the Histadrut are continuing,
we cannot predict whether or not a work stoppage will be initiated in connection with such dispute notice. Work stoppages could
adversely impact our ability to meet customer demand for our products. Depending on the course of negotiations with the committee
and the Histadrut, we could incur increased operational costs and/or experience work stoppages. If we enter into a collective bargaining
agreement, such agreement may result in increased labor costs and limit our operational flexibility and we may also experience
work stoppages. Any of the foregoing could adversely affect our business, financial condition and results of operations.



Our operations could be disrupted as a result of the obligation
of certain of our personnel in Israel to perform military service.



Our operations could be disrupted by the obligations
of our employees to perform military service. Generally, adult citizens and permanent residents of Israel until the age of 40 (or
older, for individuals who hold certain positions in the Israeli armed forces reserves) are, unless exempt, obligated to perform
up to 36 days (and in some cases more) military reserve duty annually. Additionally, all Israeli residents of this age may be called
to active duty at any time under emergency circumstances. Many of our employees are currently obligated to perform annual reserve
duty. In response to increased tension and hostilities in the region, there have been, at times, call-ups of military reservists,
and it is possible that there will be additional call-ups in the future. Our operations could be disrupted by the absence of one
or more of our key employees for a significant period due to military service. Such disruption could have a material adverse effect
on our business and results of operations.



The tax benefits and grants that may be available to us may
be terminated or reduced in the future, which could increase our costs and taxes. If we fail to satisfy various conditions, we
may be required to refund the tax benefits and government grants we received.



One of our Israeli subsidiaries is eligible for
tax benefits under the Israeli Law for the Encouragement of Capital Investments, 5719-1959 (the “Investment Law”) and
the Israeli Law for the Encouragement of Industry (Taxes), 5729-1969. To remain eligible for these tax benefits, this subsidiary
must continue to meet certain conditions stipulated in the Investment Law and the regulations promulgated thereunder, as amended.
If this subsidiary does not meet these requirements, the tax benefits could be canceled and it could be required to refund any
tax benefits and investment grants that it received in the past. Furthermore, these tax benefits may be reduced or discontinued
in the future. The termination or reduction of these tax benefits would increase our tax liability, which would harm our financial
condition and results of operations. See “Item 10.E. — Taxation — Israeli tax considerations and
government programs — Law for the encouragement of capital investments, 5719-1959.”



We have received and have been approved to
receive grants under certain Israeli Government programs and may apply from time to time in the future, to receive additional grants,
including under the Investment Law. The receipt of approved grants and future grants, if approved, is subject to our satisfying
certain conditions stipulated in applicable Israeli legislation and letters of approval. If we fail to meet these conditions, the
grants could be canceled and we may be required to refund the amounts received, as adjusted by the Israeli consumer price index,
and interest, and may become subject to other monetary penalties, which would harm our financial condition and results of operations.
In addition, in order to secure fulfillment of the conditions related to the receipt of the grants, a floating lien was registered
in favor of the State of Israel on substantially all of the assets of our Israeli subsidiary. The exercise of such lien could have
a material adverse effect on our business.



It may be difficult to enforce the judgment of a U.S. court
against us, our officers and directors in Israel or the United States, or to assert U.S. securities laws claims in Israel or serve
process on our officers and directors.



We are incorporated in Israel. All of our executive
officers or most of our directors are not residents of the United States, and the majority of our assets and the assets of these
persons are located outside the United States. Therefore, it may be difficult for an investor, or any other person or entity, to
enforce a judgment of a U.S. court based upon the civil liability provisions of the U.S. federal securities laws against us or
any of these persons in a U.S. or Israeli court, or to effect service of process upon these persons in the United States. Additionally,
it may be difficult for an investor, or any other person or entity, to initiate an action with respect to U.S. securities laws
in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel
is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim,
it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content
of applicable U.S. law must be proven as a fact by expert witnesses, which can be a time-consuming and costly process. Certain
matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters
described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able to
collect any damages awarded by either a U.S. or foreign court.



14







Your rights and responsibilities as our shareholder are governed
by Israeli law, which differs in some respects from the rights and responsibilities of shareholders of U.S. corporations.



Since
we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association
and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders
in U.S. corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith towards the company and
other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general
meeting of shareholders on certain matters, such as an amendment to the company’s articles of association, an increase in
the company’s authorized share capital, a merger and approval of related party transactions that require shareholder approval.
In addition, shareholders have a general duty to refrain from discriminating against other shareholders and a shareholder who knows
that it possesses the power to determine the outcome of a shareholders’ vote or to appoint or prevent the appointment of
a director or executive officer in a company has a duty of fairness towards the company with regard to such vote or appointment.
There is limited case law available to assist us in understanding
the nature of these duties or the implications of these provisions. These provisions may be interpreted to impose additional obligations
and liabilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. corporations. See “Item
6.C. — Board Practices — Fiduciary duties and approval of specified related party transactions
under Israeli law — Duties of shareholders.”



As a foreign private issuer whose shares are listed on the
Nasdaq Global Select Market, we follow and we may in the future elect to follow additional home country corporate governance practices
instead of certain Nasdaq requirements.



As a foreign private issuer whose shares are
listed on the Nasdaq Global Select Market, we have elected to follow certain home country corporate governance practices instead
of certain requirements of the Nasdaq Stock Market Rules (the “Nasdaq Rules”). We may in the future elect to follow
Israeli corporate governance practices with regard to, among other things, the composition of our board of directors, compensation
of officers and director nomination procedures. In addition, we may elect to follow Israeli corporate governance practices instead
of the requirements under the Nasdaq Rules to obtain shareholder approval for certain dilutive events (such as for the establishment
or amendment of certain equity-based compensation plans, issuances that will result in a change of control of the company, certain
transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions
of the stock or assets of another company). Accordingly, our shareholders may not be afforded the same protection as provided under
Nasdaq’s corporate governance rules. Following our home country governance practices as opposed to the requirements that
would otherwise apply to a U.S. company listed on the Nasdaq Global Select Market may provide less protection than is accorded
to investors of U.S. domestic issuers. We currently rely on this “foreign private issuer exemption” with respect to
the quorum requirement for meetings of our shareholders. See “Item 16G. — Corporate Governance.”



In addition, as a foreign private issuer, we
are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements and
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. domestic companies whose securities are registered under the Exchange Act. In addition, we
are not required to comply with Regulation FD, which restricts the selective disclosure of material information. Moreover, as a
foreign private issuer, our officers, directors and 10% shareholders are exempt from the reporting and short-swing profit recovery
provisions contained in Section 16 of the Exchange Act. We may from time to time disclose certain purchases or sales of our shares
by certain of our officers and directors, but may not do so consistently and may not disclose sales of shares which we reported
were purchased. Investors should therefore assume that there may be additional purchase and sale information that we may not have
disclosed.



For so long as we qualify as a foreign private
issuer, we are not required to comply with the proxy rules applicable to U.S. domestic companies, including the requirement to
disclose the compensation of our Chief Executive Officer, Chief Financial Officer and other three most highly compensated executive
officers on an individual basis. Nevertheless, pursuant to regulations promulgated under the Israeli Companies Law, 5759-1999 (the
“Companies Law”), we are required to disclose the annual compensation of SodaStream International Ltd.’s five
most highly compensated office holders on an individual basis. Under the Companies Law regulations, this disclosure is required
to be included, or referenced, in the proxy statement for our annual meeting of shareholders each year, which we furnish to the
SEC under cover of a Report of Foreign Private Issuer on Form 6-K. Because of that disclosure requirement under Israeli law, we
are also including such information in this annual report. See “Item 6.B. Directors, Senior Management and Employees —
Compensation.”



We would lose our foreign private issuer status
if, as of the determination date under rules promulgated under the Exchange Act, a majority of our directors or executive officers
are U.S. citizens or residents and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status.
Although we have elected to comply with certain U.S. regulatory provisions, our loss of foreign private issuer status would make
such provisions mandatory. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be
significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements
on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private
issuer. We would also be required to follow U.S. proxy disclosure requirements, including the requirement to disclose more detailed
information about the compensation of our senior executive officers on an individual basis. We may also be required to modify certain
of our policies to comply with accepted governance practices associated with U.S. domestic issuers. Such conversion and modifications
will involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements
on U.S. stock exchanges that are available to foreign private issuers.



15







Provisions of our articles of association, Israeli law and
certain of our agreements may delay, prevent or make undesirable an acquisition of all or a significant portion of our shares or
assets.



Our articles of association contain certain
provisions that may delay or prevent a change of control. These provisions include that our directors (other than external directors,
if applicable) are elected on a staggered basis, and therefore a potential acquirer cannot readily replace our entire board of
directors at a single annual general shareholder meeting. Our articles of association also include the requirement of a supermajority
vote of our shareholders to amend certain provisions of our articles of association. In addition, Israeli corporate law regulates
acquisitions of shares through tender offers and mergers, requires special approvals for transactions involving significant shareholders
and regulates other matters that may be relevant to these types of transactions. See “Item 10.B. — Memorandum
and Articles of Association —Acquisitions under Israeli law.” Further, Israeli tax considerations may make potential
transactions undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty with Israel
exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same
extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the
deferral contingent on the fulfillment of numerous conditions, including, in some cases, a holding period of two years from the
date of the transaction during which certain sales and dispositions of shares of the participating companies are restricted. Moreover,
with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes
payable even if no actual disposition of the shares has occurred. Certain of our agreements require the receipt of consents, including
from governmental authorities, for change of control transactions. These provisions of Israeli law, our agreements and our articles
of association could have the effect of delaying or preventing a change in control in us and may make it more difficult for a third-party
to acquire us, even if doing so would be beneficial to our shareholders, and may limit the price that investors may be willing
to pay in the future for our ordinary shares.



Risks Related to our Ordinary Shares and
the Trading of our Ordinary Shares



The price of our ordinary shares may fluctuate significantly.



Our ordinary shares were first offered publicly
in our initial public offering in November 2010, at a price of $20.00 per share, and our ordinary shares have subsequently traded
on the Nasdaq Global Select Market as high as $79.72 per share and as low as $11.40 per share and were trading at $49.92 per share
as of March 1, 2017.



In the recent past, stock prices generally have
experienced high levels of volatility. The trading price of our ordinary shares may fluctuate significantly. Fluctuations in the
market price of our ordinary shares may be exaggerated if the trading volume of our ordinary shares is too low. The lack of a trading
market may result in the loss of research coverage by any one or more of the securities analysts that may cover our company in
the future. The market price for our ordinary shares is affected by a number of factors, some of which are beyond our control,
including, without limitation:



| | • | an increase or decrease in our revenues;                                                                                                                             
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                      
| | • | quarterly variations in our results of operations or in our competitors’ results of operations;                                                                      
| |   |                                                                                                                                                                      
| | • | announcements or introductions of new products by us or competitors;                                                                                                 
| |   |                                                                                                                                                                      
| | • | rumors about material events involving third parties;                                                                                                                
| |   |                                                                                                                                                                      
| | • | the recruitment or departure of key personnel;                                                                                                                       
| |   |                                                                                                                                                                      
| | • | regulatory developments;                                                                                                                                             
| |   |                                                                                                                                                                      
| | • | recalls and/or adverse events associated with our products;                                                                                                          
| |   |                                                                                                                                                                      
| | • | announcements concerning our products by us or regulatory authorities;                                                                                               
| |   |                                                                                                                                                                      
| | • | changes in earnings’ estimates, if provided, investors’ perceptions or recommendations by securities analysts or our failure to achieve analysts’ earnings estimates;
| |   |                                                                                                                                                                      
| | • | developments in our industry;                                                                                                                                        
| |   |                                                                                                                                                                      
| | • | price and volume fluctuations on other exchanges on which our ordinary shares are listed for trading;                                                                



16







| | • | sales or proposed sales of our ordinary shares by us or our shareholders; and                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                  
| | • | general market conditions and political and other factors unrelated to our operating performance or the operating performance of our competitors.



These factors may materially and adversely affect
the market price of our ordinary shares and result in significant price fluctuations.



In the past, many companies that have experienced
volatility in the market price of their securities have become subject to securities class action litigation. We may be the target
of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s
attention from other business concerns, which could seriously harm our business.



If securities or industry analysts cease to publish research
or publish inaccurate or unfavorable research about our business, the price of our ordinary shares could decline.



The trading price for our ordinary shares may
be affected by any research or reports that securities or industry analysts publish about us or our business. If one or more of
the analysts who cover us or our business publish inaccurate or unfavorable research about us or our business, and in particular,
if they downgrade their evaluations of our ordinary shares, the price of our ordinary shares would likely decline. If one or more
of these analysts cease coverage of our company, we could lose visibility in the market for our ordinary shares, which in turn
could cause the price of our ordinary shares to decline.



We do not expect to pay any dividends for the foreseeable
future.



We do not anticipate that we will pay any dividends
to holders of our ordinary shares in the foreseeable future. In addition, our ability to pay dividends might be limited by the
terms of any future credit facility we may take containing terms prohibiting or limiting the amount of dividends that may be declared
or paid on our ordinary shares. Accordingly, investors must rely on sales of their ordinary shares after price appreciation, which
may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should
not purchase our ordinary shares. In addition, Israeli law limits our ability to declare and pay dividends, and may subject our
dividends to Israeli withholding taxes.



Our ordinary shares are traded on more than one market and
this may result in price variations.



In addition to being listed on the Nasdaq Global
Select Market, our ordinary shares are also listed for trade on the Tel Aviv Stock Exchange (the “TASE”). Trading in
our ordinary shares on these markets takes place in different currencies (U.S. dollars on the Nasdaq Global Select Market and NIS
on the TASE), and at different times (resulting from different time zones, trading days and public holidays in the United States
and Israel). The trading prices of our ordinary shares on these two markets may differ due to these and other factors. Any decrease
in the price of our ordinary shares on one market could cause a decrease in the trading price of our ordinary shares on the other
market.



Our U.S. shareholders may suffer adverse tax consequences
if we are characterized as a Passive Foreign Investment Company.



Generally, if for any taxable year 75% or more
of our gross income is passive income, or at least 50% of our assets are held for the production of, or produce, passive income,
we would be characterized as a passive foreign investment company for U.S. federal income tax purposes. To determine if at least
50% of our assets are held for the production of, or produce, passive income, we are required to use the market capitalization
method. Under the market capitalization method, the total asset value of a company would be considered to equal the fair market
value of its outstanding shares plus outstanding indebtedness on a relevant testing date. Because the market price of our ordinary
shares is likely to fluctuate and may be volatile, the market price may affect the determination of whether we will be considered
a passive foreign investment company. Accordingly, there can be no assurance that we will not be considered a passive foreign investment
company for any taxable year. If we are characterized as a passive foreign investment company, our U.S. shareholders may suffer
adverse tax consequences, including having gains realized on the sale of our ordinary shares treated as ordinary income, rather
than capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who
are United States holders, and having interest charges apply to distributions by us and the proceeds of share sales. See “Item
10.E. — Taxation — United States federal income taxation.”



17







| | Item
                           4. | INFORMATION
ON THE COMPANY
| | ---------------------------------- | --------------------------



| | A. | History
and Development of the Company
| | -- | --------------------------------------



Our History



The SodaStream brand has a history that dates
back to the beginning of the 20th century with the forerunner of our sparkling water makers being invented in London in 1903. During
the 1970s and 1980s, the SodaStream home beverage carbonation system gained substantial popularity in certain markets. In 1998,
Soda Stream Ltd. was acquired by Soda Club Enterprises N.V., which, at the time, was its Israeli distributor.



In March 2007, Fortissimo Capital Fund GP, L.P.
(“Fortissimo Capital”) invested in us, and in connection with that investment, SodaStream International Ltd. was incorporated
under the laws of the State of Israel on March 8, 2007, and all of the shares of Soda Club Enterprises N.V. were exchanged for
our ordinary shares. Following our acquisition by Fortissimo Capital, we restructured our operations significantly, including introducing
a new management team headed by our Chief Executive Officer, Daniel Birnbaum. Our new management team implemented a new corporate
strategy focused on the penetration of new markets, consumer-driven product innovation and capitalizing on the consumer benefits
of our products.



We are registered with the Israeli Registrar
of Companies. Our registration number is 51-395125-1. Our purpose as set forth in our articles of association is to engage in any
lawful act or activity.



In March 2010, we changed our corporate name
from Soda-Club Holdings Ltd. to SodaStream International Ltd. On November 3, 2010, our ordinary shares commenced trading on the
Nasdaq Global Select Market following our initial public offering (“IPO”). On December 15, 2015, our ordinary shares
commenced trading on the TASE.



Our principal executive offices are located at Gilboa Street, Airport
City, Ben Gurion Airport 7019900 Israel and our telephone number is +972-3-976-2317. Our authorized representative in the United
States and agent for service of process in the United States, SodaStream USA, Inc., is located at 136 Gaither Drive, Suite 200,
Mount Laurel, NJ 08054. Our website address is www.sodastream.com. The information contained on, or that can be accessed
through, our website does not constitute a part of this annual report and is not incorporated by reference herein.



Principal Capital Expenditures



Our capital expenditures for fiscal years 2014,
2015 and 2016 amounted to $60.9 million, $53.7 million and $28.0 million, respectively. Capital expenditures are defined as investment
in property, plant and equipment and in intangible assets. The decrease in capital expenditures in 2015 as compared to 2014 was
mainly due to the progress achieved in the construction and ramp-up of the Lehavim facility and the decrease in 2016 as compared
to 2015 was mainly due to the completion of the ramp-up of the Lehavim facility and the new logistics center on the Lehavim site.
Our capital expenditures in 2016 were primarily financed by cash flow from operations. We anticipate our capital expenditures in
2017 to primarily be related to the construction of a new facility for the production of flavors and the completion of the construction
of our new administration building on the Lehavim site, expansion of our production capacity and capabilities, investments in developing
new products, and improvements in our information technology systems. We anticipate our capital expenditures in 2017 to be primarily
financed from cash flow generated from operations and utilization of existing credit facilities. However, we may require additional
new borrowings or additional capital to meet our capital expenditure requirements.



| | B. | Business
Overview
| | -- | -----------------



Overview



SodaStream manufactures, distributes and sells
home beverage carbonation systems, which enable consumers to easily transform ordinary tap water into sparkling water and flavored
sparkling water in seconds. We believe our sparkling water makers offer a highly differentiated and innovative solution to consumers
of bottled and canned carbonated beverages. SodaStream’s home beverage carbonation systems and other products promote health
and wellness and empower people with simple, creative and fun ways to make water exciting and to drink more water. Our products
are also environmentally friendly, cost-effective and are customizable and fun to use. In addition, our products offer convenience
by eliminating the need to carry bottles and cans home from the supermarket, to store them at home or to regularly dispose of empty
bottles and cans. Educating consumers about these benefits is a key element of our strategy to build awareness and strengthen our
brand.



18







We believe that we are the world’s largest
sparkling water company (in terms of volume consumption) and the world’s leading manufacturer of home beverage carbonation
systems. Such belief is based on consumer surveys we commissioned that show that SodaStream has the largest market share in each
of a dozen of the largest markets in which we operate. Based on, among other metrics, an estimated average of three CO2
refills purchased per household and a portion of sparkling water maker sales, we estimate that, as of December 31, 2016, there
were approximately 11 million households that use our sparkling water makers, whom we refer to as active consumers. We continue
to grow our installed base and believe that many of the largest carbonated beverage and sparkling water markets remain virtually
untapped.







We develop, manufacture and sell sparkling water
makers and exchangeable carbon-dioxide (CO2) cylinders, as well as consumables, consisting of CO2 refills,
reusable carbonation bottles and flavors to add to the sparkling water. As of December 31, 2016, we sell our products through more
than 80,000 individual retail stores in 45 countries, including approximately 10,000 retail stores in the United States. In 2016,
we distributed our products directly in 22 countries and indirectly through local distributors in our remaining markets. Our products
are sold under the SodaStream® brand name in most countries and under the Soda-Club® brand name or select other brand names
in certain other countries. While our distribution strategy is customized for each market, we generally employ a multi-channel
distribution approach that is designed to raise awareness and establish positioning of our product offerings, first in specialty
retail and direct marketing channels and then in larger food, drug and mass retailers.



Our revenues decreased by 19.3% from $511.8 million
in 2014 to $413.1 million in 2015 and increased by 15.2% to $476.1 million in 2016. We had net income of $12.3 million, $12.1 million
and $44.5 million in 2014, 2015 and 2016, respectively. From 2014 through 2016, our revenues from sparkling water makers and exchangeable
CO2 cylinders decreased from $172.6 million to $170.8 million, and our revenues from sales of consumables decreased
from $327.4 million to $297.0 million.



Industry background



According to GlobalData, the global carbonated
beverage industry generated approximately $350 billion in sales turnover in 2016. In recent years, we have witnessed a significant
shift toward “health & wellness” in the carbonated beverage industry, as consumers are abandoning traditional soft
drinks in favor of what is popularly referred to as “Water+ beverages” and sparkling waters. For example, in the United
States, consumers have shifted towards natural ingredients, natural sweeteners, reduced calories and products that are considered
to promote “health & wellness.”



In addition to the health and wellness trend,
we believe that consumers are also exhibiting an increased focus on value and personalization. Our products address these long-term
trends in global consumer behavior, including the rapidly growing popularity of health and wellness products. Our products are
also environmentally friendly and offer a simple, fun and sustainable way to enjoy sparkling water by making water exciting.



Consumers initially purchase a “starter
kit,” consisting of a sparkling water maker and one or two carbonation bottles. The starter kit also includes an exchangeable
CO2 cylinder which is provided under license and can produce varying amounts of sparkling water, depending on the CO2
content and other factors.



Sparkling water makers. We currently
offer a variety of sparkling water makers. Our sparkling water makers are free-standing, lightweight and compact, and have a stylish
design. They are made of stainless steel and/or plastic and, other than the “Power” model, do not require electricity.
The CO2 cylinder fits in a rear compartment and with a simple push, carbonates water. Our sparkling water makers are
sold in a variety of designs and colors and accommodate different CO2 cylinder sizes.



Exchangeable CO2 cylinders. The
basis of the SodaStream home beverage carbonation system is the carbonation of water by means of an aluminum or, in some cases,
steel, cylinder containing compressed liquid CO2. The cylinder is inserted by the consumer into the sparkling water
maker. Certain models of sparkling water makers can accommodate more than one size of cylinders, while others fit only one size.
The actual amount of sparkling water produced per cylinder varies based on the CO2 content, the type of sparkling water
maker used, user preference (the amount of carbonation released during each carbonation) and other factors. We only use beverage-grade
CO2 in our cylinders. We also sell natural sourced CO2 (derived from natural underground sources) in certain
markets, in addition to CO2 extracted from other sources.



CO2 refills. We provide
beverage-grade CO2 refills through authorized retailers that participate in our cylinder exchange program. These retailers
generally maintain a stock of filled cylinders in their inventory. Consumers typically exchange their empty cylinders at retail
stores or through online orders for full cylinders and since the cylinders are provided under license, they only pay for the CO2.
In some markets, direct home delivery and exchange is also available, and we use third-party carriers to exchange the empty cylinders
for full ones. Empty cylinders are then delivered to a filling plant where they are inspected, cleaned and refilled for distribution.
We conduct CO2 refilling in the United States, Australia, Germany, Israel, the Netherlands, South Africa and Sweden
and also at a third-party facility in New Zealand. We periodically evaluate opening additional refilling stations in our existing
markets based on demand for CO2 refills and other factors.



Carbonation bottles. Our home beverage
carbonation systems produce sparkling water in a high pressure-resistant plastic or glass bottle, which we manufacture specifically
for repeated usage. These specially-designed carbonation bottles are the only bottles intended for use with our home beverage carbonation
systems. The glass bottle, as well as some versions of the plastic bottle, is dishwasher-safe. For the high-end market, we offer
sparkling water makers specifically intended to be used with glass bottles, which are appropriate for a more formal table setting.
Carbonation bottles can easily be personalized and are offered in a variety of colors, designs and sizes. The plastic bottles are
BPA-free and are designed to have a lifespan of four years. Consumers often purchase additional carbonation bottles to allow for
several bottles of sparkling water and flavored sparkling water to be available at the same time.



19







Flavors. We work with leading international
flavor and essence manufacturers which provide research and product development services, including sensory testing in order to
enhance our flavor offerings and cater to consumers’ tastes and address market trends. Our flavors come in a highly concentrated
form, customized for our home beverage carbonation systems. Our portfolio of flavors includes naturally flavored sparkling water
mixes, as well as our classic flavors. In some markets, our flavors are sold in 440 ml bottles, which typically produce between
seven and nine liters of flavored sparkling water, while in other markets, our flavors are sold in 375 ml, 500 ml or 750 ml bottles,
which typically produce between nine and 18 liters of flavored sparkling water.



We have entered into strategic co-branding
arrangements with third parties relating to flavors. These collaborations allow us to offer our consumers a variety of well-known
brands and flavors.



Other accessories. We also sell additional
accessories for our products that are manufactured by third parties.



Distribution



We mostly market our products through retail
channels. We distribute our products in 45 countries, 22 directly and the remainder indirectly through our distribution partnerships.



We generally employ a multi-channel distribution
strategy in each geographical market that is designed to raise awareness and establish positioning of our product offerings, first
in specialty retail and direct marketing channels and then in larger food, drug and mass retailers. Our products are sold at more
than 80,000 stores worldwide, including stores of many of the largest retailers in our markets.



Direct markets



We historically opened subsidiary offices in
countries in which we sold our products. In these markets, we typically utilize our own internal sales force and, in certain countries,
sub-distributors as well. We distribute our products directly in 22 countries.



Indirect markets



Pursuant to our distribution strategy and in
order to expedite penetration into certain new markets, we contract with third-party distributors who facilitate distribution of
our products. In 2016, our distributors accounted for 12.4% of our total revenues. The gross margin on sales is generally higher
in markets where we distribute directly than markets in which we use third-party distributors.



Distributors sell to retailers in their relevant
markets either through their own sales force or through wholesalers and agents, or a combination of these. Sales activities follow
typical retail sales processes, including initial pitches and offers, periodic product range and price reviews, offers for seasonal
or limited edition activities and promotions. Merchandising and demonstrations of the products are managed by the distributor in
cooperation with the retailers. Delivery to retailer chains can be to central warehouses or to individual stores depending upon
the specific agreements with the retailer.



To ensure promotion of our brand in our indirect
markets, we provide our distributors with various forms of marketing materials. In all cases, materials that use our brands (including
our trademarks) and all promotional and sales and marketing materials must be prepared or approved by us. We agree with our
distributors on an annual advertising and promotional budget, of which we contribute a portion.



When we evaluate potential distributors, we take
into consideration several factors, including their experience with selling and marketing consumer products to retail channels;
existing sales, logistics and distribution capabilities; current product portfolio; financial strength; and suitability to market
our products. We work closely with our distributors to assist them in preparing and executing a multi-year strategy. Most distributors
also operate e-commerce sites in their countries as well as our website in their local language.



We continue to seek to penetrate certain new
markets in collaboration with distributors. Factors that we consider in prioritizing which markets to enter include: the size of
the carbonated beverage and sparkling water market, per capita consumption of carbonated beverages and sparkling water, the perceived
quality of the tap water, household demographics, health and wellness and environmental consciousness.



Our distribution agreements are generally exclusive
agreements for a given territory with a five-year term with an option to renew. Distributors are generally required to meet annual
purchase targets during the term of the agreement, which generally increase from year to year. In addition, annual and semi-annual
discussions with distributors often include more specific volume targets per product type. If our distributors do not meet their
defined purchase targets, they may lose their exclusivity rights and we also generally have the right to terminate the agreement
after a notice period.



20







In addition to carrying a full selection of
our products, the distributor also agrees to manage the reverse logistics needed for our customers to return empty CO2
cylinders and exchange them for filled CO2 cylinders.



In addition, SodaStream Israel Ltd., our Israeli
sales and marketing subsidiary, also serves as the exclusive distributor of Brita water filtration systems in Israel. Brita’s
products sold by SodaStream Israel Ltd. include water containers and filter cartridges used with such water containers. The agreement
is for an indefinite period and can be terminated by either party upon 12 months’ prior written notice from the end of the
month in which notice is given.



Retailers



In both our direct and indirect markets, we sell
our products primarily at retail stores as well as online. We target major retailers with either a national footprint or a significant
regional concentration.



Our retail distribution is an important element
in bringing our products to potential consumers and thereby generating the acquisition of our home beverage carbonation systems
by new customers. Additionally, we believe that the widespread availability and easy access to consumables, primarily CO2
refills, are key to securing ongoing customer retention and loyalty. We believe that one of our most important competitive advantages
is our strong retail distribution network and in particular, that of our CO2 refill exchange program. We intend to further
penetrate our existing markets by selectively increasing the number of stores in which our products are currently being sold.



Marketing



Our marketing objective is to establish and position
SodaStream as a sparkling water brand around health and wellness. A key element of our strategy to achieve this marketing objective
is to build consumer awareness and to educate consumers about the benefits of our products. Consumer demand activities are designed
primarily to increase the installed base of sparkling water makers as measured in terms of percentage of household penetration
in each market. Secondarily, we promote “users for life” so as to generate ongoing demand for our consumables (CO2
refills, flavors and carbonation bottles). We believe that widespread availability and easy access to consumables are key to customer
retention and loyalty.



Our marketing activities include brand and product
marketing and management as well as sales support programs. We use a variety of vehicles, including advertising, direct marketing
and public relations campaigns, using both traditional and digital media, in-store demonstrations, infomercials and our websites
to build brand awareness, educate consumers about the benefits of our home beverage carbonation systems, communicate the advantages
of our products and establish brand positioning, all of which are designed to increase our installed base of sparkling water makers
and active consumers base in our markets. We also use our marketing programs to support the sale of our products through new channels
and to enter new markets. We conduct surveys and use third-party tracking programs in order to track our household penetration,
usage behaviors and consumer opinions across markets, and to measure the success of our marketing activities over time. Our internal
marketing team supports sales at the point-of-sale through trade marketing, developing and executing product and brand initiatives,
and consumer education.



Acquiring a new customer is only the beginning
of a relationship with the customer. To this end, we continuously test and apply various marketing tools to improve customer retention.
In addition to enhancing our product offerings and improving the user experience, we employ subscription programs, newsletters,
warranties, trade-in promotions and various other programs to keep the customer engaged. We offer easy access to CO2
refills through mass distribution of our cylinder exchange program and direct-to-home delivery from online orders. We also encourage
our consumers to purchase additional CO2 cylinders, which also contributes to keeping customers actively using our products
over time. In certain markets, we have implemented customer loyalty programs that reward customers for repeat purchases.



Our marketing activities are managed from our
headquarters in Israel. Each market has a representative (either through one of our subsidiaries or through our distribution partner)
who works closely with our marketing team to localize our marketing activities in accordance with the individual tastes and preferences
in a particular country.



Manufacturing and production



We manufacture substantially all of our products
ourselves in our own production sites or in sites of subcontractors under our guidelines and supervision. We believe that in light
of our strict quality control and the safety and regulatory standards to which we are subject, self-manufacture is the best and
most efficient way to ensure that our customers receive quality products. We manufacture our products primarily in Israel and conduct
CO2 refilling in eight locations around the world.



In 2015, most of our manufacturing operations
were moved to our new manufacturing facility located in the southern part of Israel, the Lehavim facility. The Lehavim facility
houses various manufacturing functions, including metals (such as cylinder manufacturing and cylinder retesting), CO2
refills, plastic injection, bottle blowing and printing, machining and assembly. We manufacture our flavors that are distributed
worldwide at our facility in Ashkelon, located on the Mediterranean coast of Israel. The lease for our manufacturing facilities
in Ashkelon ends in December 2017 and we do not currently expect to successfully negotiate renewing such lease. If we are not successful
in renewing such lease or in establishing an alternative manufacturing facility in a timely manner, the production of our flavors
may be delayed, which could have a material adverse effect on our business, financial condition and results of operations. While
we have commenced the preliminary works for the construction of a new facility for the production of our flavors in Lehavim, there
can be no assurance that we will be successful in completing the new facility in a timely manner.



21







Our future success requires that we have adequate
capacity in our manufacturing facilities to manufacture sufficient products to support our current level of sales and the anticipated
increased levels. We were able to meet demand in 2015 and 2016 and believe that the capacity of our current manufacturing facilities
and subcontractors is sufficient to meet anticipated demand for our products through 2017.



We manufacture our products in accordance with
applicable safety and regulatory requirements around the world. We also have implemented specific quality assurance procedures
throughout the various stages and processes of manufacturing which are intended to ensure the quality of all of our products.



We use certain raw materials, some of which are
commodities, to manufacture our sparkling water makers, carbonation bottles, CO2 cylinders and flavors. The most important
of these materials are aluminum, brass, certain plastics, flavoring essences, sugar, CO2, sweeteners and fruit concentrate.
We believe that these materials are readily available from multiple sources and that we have sufficient inventory to continue manufacturing
during the time it would take us to locate and qualify an alternative source of supply. The cost of such raw materials has fluctuated
in the past. From time to time, we engage in long-term purchase agreements and in hedging transactions to lower the impact of such
fluctuations.



Product development



We maintain an active innovation, design and
product development department, which is engaged in devising new products that offer improved aesthetics and lifestyle appeal,
as well as improved functionality and superior user experience. Over the years, we have introduced several new models of sparkling
water makers, including the “Source,” a sparkling water maker that combines beauty, functionality and efficiency, the
“Crystal,” a higher-end model that utilizes glass carbonation bottles, the “Power,” an electrically powered
innovative sparkling water maker and the “Spirit,” which is sold as the “Fizzi” or the “Easy”
in certain markets, an affordably priced  and elegantly-designed sparkling water maker that incorporates the advanced “snap-n-lock”
bottle mechanism. In 2015, we also unveiled the “Mix,” a new high-end carbonation machine that can carbonate almost
any liquid. We are continuously seeking to enhance our flavor offerings and cater to consumers’ tastes and address market
trends.



Intellectual property



Our intellectual property portfolio is one of
the means by which we attempt to protect our competitive position. We seek to protect our intellectual property, core technologies
and other know-how, through a combination of patents, trademarks, trade secrets, non-disclosure and confidentiality agreements,
licenses, assignments of invention and other contractual arrangements with our employees, consultants, partners, suppliers and
customers, among others. We have a variety of trademarks registrations and pending applications, patents and pending patent applications
and design registrations and pending applications which cover, among other things, the “snap-n-lock” mechanism and
designs for most of the sparkling water makers we introduced in the last few years, including the “Power,” “Source”
and the “Spirit.” We place trademarks on all of our products, including carbonation bottles, CO2 cylinders
and flavors. We have monitored and challenged the sale of products that we believe infringe our intellectual property rights in
the past and we intend to continue to protect our intellectual property rights in the future.



Competition



We face competition from manufacturers of other
home sparkling water makers in certain jurisdictions. New competitors may also enter the home carbonated beverage and sparkling
water market. Current or future competitors may, for example, introduce products with features which may cause our consumers to
stop using our systems or to use them less frequently, such as sparkling water makers that do not require the exchange of CO2
cylinders or that use other methods of carbonation. We also compete with the large global beverage companies for the dollars spent
by consumers on non-alcoholic beverages. These include primarily manufacturers of carbonated soft drinks and sparkling water.



We also face competition with respect to some
of our consumables, in particular in our CO2 refill business and our flavors. Third parties may manufacture and refill
cylinders that can be used with our sparkling water makers. We have generally entered into agreements with distributors and retailers
that prohibit them from providing our cylinders to third parties for refilling. Notwithstanding such arrangements, a court ruling
in Germany allows consumers to have the CO2 cylinders refilled by third parties. With respect to our flavors, we face
competition from various companies that produce syrups to add to sparkling or still water.



Government regulation



Our products, which include both food products
and compressed gas, are subject to governmental regulation in most jurisdictions in which we do business. Food products, such as
flavors and beverage-grade CO2, are subject to regulation both at regional levels such as the European Union, as well
as on a national level. These regulations require us to vary product formulations and labeling. In addition, certain marketing
claims regarding our flavors differ from jurisdiction to jurisdiction as a result of local regulations.



22







The transport of compressed gases, such as the
CO2 in our cylinders, is regulated in most jurisdictions. The manufacturing process and cylinder features vary by jurisdiction,
and we manufacture different cylinders, each of which is subject to a separate regulatory regime, for use in the European Union,
the United States (Department of Transportation) and Canada (Transport Canada). The various regulatory bodies have different requirements
for periodic re-testing of cylinders that vary from between five to 10 years, procedures for which we are largely self-certified.
In addition, the transport of cylinders is regulated on an international level and all of our cylinders and cylinder packaging
bear a “green diamond” precautionary symbol for a Class 2.2 product under the European Agreement Concerning the International
Carriage of Dangerous Goods by Road (ADR). In the United States and certain other jurisdictions, our cylinders are regulated as
hazardous materials.



Facilities



Our headquarters in Airport City, Israel is comprised
of approximately 28,300 square feet of office space, which we lease under a lease agreement that terminates in April 2018. Our
Lehavim facility is located on a plot of land comprising approximately 915,000 square feet in the southern part of Israel. In October
2015, we entered into a long-term lease agreement with the Israel Land Authority pursuant to which we lease the land where the
Lehavim facility is situated for a term ending in February 2061, with an option to extend the lease for an additional term of 49
years. Our Ashkelon facility, located on the Mediterranean coast of Israel, is comprised of approximately 21,500 square feet of
factory, warehouse and office space and is leased under a lease agreement that terminates in December 2017. We do not currently
expect to successfully negotiate renewing such lease. While we have commenced the preliminary works for the construction of a new
facility for the production of our flavors in Lehavim, there can be no assurance that we will be successful in completing the new
facility in a timely manner. (See “Item 3.D. — Risk Factors — A single facility houses the majority of our production
operations. Business interruptions at our Lehavim facility or at any of our other manufacturing facilities could adversely impact
our production capabilities for extended periods of time, which would have a material adverse effect on our business, financial
condition, results of operations and prospects.”) Additionally, we have CO2 refilling facilities in the United
States, Australia, Germany, Israel, the Netherlands, South Africa and Sweden and also at a third-party facility in New Zealand.



Our European commercial and logistics center
is managed from Rijen, the Netherlands. We have sales and marketing offices in Australia, Canada, Denmark, Finland, Germany, Israel,
Italy, Japan, the Netherlands, Norway, South Africa, Sweden, Switzerland, the United Kingdom and the United States. We believe
that our existing facilities are adequate for our current needs and that suitable additional or alternative space will be available
on commercially reasonable terms to meet our future needs.



We have entered into a development agreement
with the Israel Land Authority with respect to an approximately 247,000 square feet plot of land which is adjacent to the land
where our manufacturing facility in Lehavim is located for the potential expansion and/or further consolidation of our manufacturing
capabilities, including for the construction of a new facility for the production of our flavors.



Seasonality



For a discussion of seasonality, see “Item
5.A. — Operating Results — Seasonality.”



| | C. | Organizational
Structure
| | -- | ------------------------



Our company, SodaStream International Ltd., was
formed in March 2007, for the purpose of fully controlling SodaStream Enterprises N.V. (formerly Soda-Club Enterprises N.V.). SodaStream
Enterprises N.V., which is registered in the Netherland Antilles, is wholly-owned by SodaStream International Ltd. Our operational
activities are carried out by SodaStream International B.V., which is registered in the Netherlands, and its direct and indirect
subsidiaries. SodaStream International B.V. is a wholly-owned subsidiary of SodaStream Enterprises N.V.



The following table sets forth the subsidiaries
owned, directly or indirectly, by us as of March 1, 2017:



|Name of Subsidiary                  |  | Jurisdiction             |  | Ownership Interest |    
|----------------------------------- |  | ------------------------ |  | ------------------ | ---
|SodaStream Enterprises N.V.         |  | Netherlands Antilles     |  |                    | 100
|SodaStream International B.V.       |  | The Netherlands          |  |                    | 100
|Soda-Club Worldwide B.V.            |  | The Netherlands          |  |                    | 100
|SodaStream GmbH                     |  | Germany                  |  |                    | 100
|SodaStream Industries Ltd.          |  | Israel                   |  |                    | 100
|SodaStream Israel Ltd.              |  | Israel                   |  |                    | 100
|SodaStream Österreich GmbH          |  | Austria                  |  |                    | 100
|SodaStream Australia PTY Ltd.       |  | Australia                |  |                    | 100
|SodaStream (New Zealand) Ltd.       |  | New Zealand              |  |                    | 100
|SodaStream (SA) (Pty) Ltd.          |  | South Africa             |  |                    | 100
|SodaStream USA, Inc.                |  | Delaware (United States) |  |                    | 100
|Soda-Club CO2 Ltd.                  |  | British Virgin Islands   |  |                    | 100
|Soda-Club (Europe) Limited          |  | United Kingdom           |  |                    | 100
|Soda-Club Switzerland GmbH          |  | Switzerland              |  |                    | 100
|Soda-Club (CO2) SA                  |  | Switzerland              |  |                    | 100
|SodaStream (CO2) SA                 |  | Switzerland              |  |                    | 100
|Soda-Club (CO2) Atlantic GmbH (LLC) |  | Switzerland              |  |                    | 100
|SodaStream (Switzerland) AG         |  | Switzerland              |  |                    | 100
|SodaStream Nordics AB               |  | Sweden                   |  |                    | 100
|SodaStream Professional S.r.l.      |  | Italy                    |  |                    | 100
|SodaStream Canada Ltd.              |  | Canada                   |  |                    | 100
|SodaStream K.K.                     |  | Japan                    |  |                    | 100



23







| | D. | Property,
Plants and Equipment
| | -- | ------------------------------



For a discussion of property, plants and equipment,
see “Item 4.B. — Business Overview — Manufacturing and production,” “Item 4.B. — Business
Overview — Facilities” and “Item 5.A. — Operating Results — Application
of critical accounting policies and use of estimates — Property, plant and equipment.”



| | Item
                           4A. | UNRESOLVED
STAFF COMMENTS
| | ----------------------------------- | -------------------------



Not applicable.



| | Item
                           5. | OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
| | ---------------------------------- | --------------------------------------------



Summary



SodaStream manufactures home beverage carbonation
systems, which enable consumers to easily transform ordinary tap water into sparkling water and flavored sparkling water in seconds.
We develop, manufacture and sell sparkling water makers and exchangeable carbon-dioxide (CO2) cylinders, as well as
consumables, consisting of CO2 refills, reusable carbonation bottles and flavors to add to the sparkling water.



As of December 31, 2016, we sold our products
through more than 80,000 individual retail stores in 45 countries. As of December 31, 2016, we distributed our products directly
in 22 countries and indirectly through local distributors in our remaining markets.



Our products are sold under the SodaStream®
brand name in most countries and under the Soda-Club® brand name or selected other brand names in certain other countries.
While our distribution strategy is customized for each market, we generally employ a multi-channel distribution approach that is
designed to raise awareness and establish the positioning of our product offerings, first in specialty retail and direct marketing
channels and then in larger food, drug and mass retailers.



We employ a “razor/razor blade”
business model, which is designed to increase sales of sparkling water makers (the razor); and to generate recurring sales of higher-margin
consumables, consisting of CO2 refills, flavors and carbonation bottles (collectively, the razor blades). As sales of
our sparkling water makers increase, we expect that the subsequent sales of related consumables will result in increased gross
profits due to the higher gross margins associated with our consumables. However, in order to further develop our customer base,
we plan to continue to focus on increasing sales of our sparkling water makers.



Historically, our growth in revenues was driven by our heightened
focus on promoting sparkling water maker sales in both existing markets and new markets to increase our installed base of sparkling
water makers, particularly in North America and in Western Europe. Historically, the growth of our installed base of sparkling
water makers in turn resulted in an increase in revenues from sales of our consumables. A key element of our strategy is to expand
our active installed base of sparkling water makers by further penetrating existing markets, and by entering select new markets.
Another key element of our strategy is to build consumer awareness and to educate consumers about the benefits of our products.



| | A. | Operating
Results
| | -- | -----------------



Key measures of our performance



Revenues



Our revenues consist primarily of sales of
sparkling water makers and recurring sales of higher-margin consumables, including CO2 refills, flavors and carbonation
bottles. We derive revenues from the sale of goods to our customers, who may be consumers, retail partners or distributors, depending
on the sales channel through which the goods are sold. The majority of our product distribution to our ultimate customers is through
retail stores. Our distribution retail coverage includes many of the leading chain stores in the markets in which we operate. In
some markets, we also distribute our sparkling water makers and consumables directly to consumers through telephone service centers
or the internet.





24







We record revenues from sales of these items at the gross sales
price, net of returns, trade discounts, rebates and provisions for estimated returns. We recognize revenues when persuasive evidence
exists (usually in the form of an executed sales agreement) that the significant risks and rewards of ownership have been transferred
to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated
reliably, there is no continuing management involvement with the goods and the amount of revenues can be measured reliably. If
it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction
of revenue as the sales are recognized. The timing of the transfer of risks and rewards varies depending on the individual terms
of the sale agreement. For sales of products in domestic markets, transfer usually occurs when the product is received at the customer’s
warehouse, but for some international shipments transfer occurs upon loading the goods onto the relevant carrier.



The following tables present our revenues,
by product type for the periods presented, as well as such revenues by product type as a percentage of total revenues:



|(in thousands)                                        |  | Year Ended December 31, |        
|----------------------------------------------------- |  | ----------------------- | -------
|                                                      |  | 2014                    |        
|Sparkling water makers and exchangeable CO2 cylinders |  | $                       | 172,614
|Consumables                                           |  |                         | 327,400
|Other                                                 |  |                         | 11,760 
|Total                                                 |  | $                       | 511,774

* Reclassified



|                                                      |  | Year Ended December 31, |      
|----------------------------------------------------- |  | ----------------------- | -----
|                                                      |  | 2014                    |      
|Sparkling water makers and exchangeable CO2 cylinders |  |                         | 33.7 
|Consumables                                           |  |                         | 64.0 
|Other                                                 |  |                         | 2.3  
|Total                                                 |  |                         | 100.0



We believe that the number of sparkling water
makers and CO2 refills sold during each period is an important indicator of the expansion rate of our business. The
number of sparkling water maker units sold is indicative of the growth of our customer base and the number of CO2 refills
sold is indicative of sales of consumables to our active consumer base. In 2016, the number of sparkling water maker units that
we sold increased by 22% and the number of CO2 refills that we sold increased by 10%, as compared to 2015. Based on,
among other metrics, an estimated average of three CO2 refills purchased per household and a portion of sparkling water
maker sales, we estimate that, as of December 31, 2016, there were approximately 11 million households that use our sparkling
water makers, whom we refer to as active consumers.



We believe that the sale of every sparkling
water maker can have a compounding effect because every sale increases the potential demand for our consumables, which consist
of CO2 refills, flavors and carbonation bottles, over time. Each sparkling water maker that is sold comes with a filled
exchangeable CO2 cylinder, which is recorded in the revenue category referred to above as “Sparkling water makers
and exchangeable CO2 cylinders.” A customer would not typically need to purchase a CO2 refill, which
is recorded in the sales category referred to above as “Consumables,” for several months. Our general historical experience
is that the growth in sales of consumables in a new market arises over a period of time following the growth in sparkling water
maker sales and increases correspondingly to the growth in our active consumer base in such markets. These factors may result in
a lag between the growth in sparkling water maker sales and growth in the sales of consumables.



While we anticipate that this trend will continue,
a variety of factors, including customer retention rates, the growth of our reverse logistics network, weather and competition,
could affect our results in the future.



In some of the markets in which our products
are sold, we operate through local distributors. In 2016, one of our distributors, serving one country in Western Europe, accounted
for 8.4% of our revenues. Distributors are generally required to meet annual purchase targets during the term of the agreement,
which generally increase from year to year. In addition, annual and semi-annual discussions with distributors often include more
specific volume targets per product type. If our distributors do not meet their defined purchase targets, they may lose their exclusivity
rights and we also generally have the right to terminate the agreement after a notice period.



25







Cost of revenues and gross margin



Our cost of revenues consists primarily of
raw materials and components, as well as production and production-related labor, freight costs and other direct and indirect production
costs. We require certain raw materials to manufacture our sparkling water makers, exchangeable CO2 cylinders, carbonation
bottles and flavors, including, in particular, aluminum, brass, certain plastics, flavoring essences, sugar, CO2, sweeteners
and fruit concentrate. In addition, cost of revenues includes the cost of delivery from the production site to our distribution
warehouse where the product is sold. When we sell products to our third-party distributors, they usually collect their orders from
our warehouses and bear the cost of delivery.



Gross profit and gross margin are influenced
by each of the following factors:



| | • | The gross margins of our consumables are typically higher than the gross margin of our sparkling water makers. We have found that as markets mature, sales of our consumables become a larger portion of our total revenues, thus contributing to overall gross margins.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The gross margin on sales in markets where we distribute directly is generally higher than markets in which we use external distributors, due to the elimination of the external distributor’s margin. In certain markets, our expansion strategy is to work with third-party distributors who we believe will be better able to increase revenues in their market than we could if we distributed our products directly. However, in several of our key markets targeted for expansion, we distribute directly, and thus we believe our gross margins will be positively impacted as the portion of our revenues from these markets increases.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Our cost of revenues, and therefore our gross profit, is impacted by several factors, including the prices of commodities and other materials such as aluminum, brass, plastics, flavoring essences, sugar, CO2, sweeteners and fruit concentrates; production labor costs; depreciation expenses of machinery and equipment; certain manufacturing costs, which are fixed in nature; and fuel prices, which affect our freight costs.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Our gross margin is exposed to exchange rate fluctuations. We are primarily exposed to Euro/U.S. Dollar and NIS/U.S. Dollar currencies movements, with the U.S. Dollar and Euro being the principal currencies of our sales and the U.S. Dollar and NIS being the currencies which a significant portion of our material purchasing and production costs and operational expenses is denominated. As a result, the higher the Euro/U.S. Dollar exchange rate and the lower the NIS/U.S. Dollar exchange rate, the higher our gross margin will be. We regularly purchase currency hedging options and enter into forward contracts to hedge against currency exchange risks, in particular, the weakening of the Euro against the U.S. Dollar or the strengthening of the NIS against the U.S. Dollar. See “Item 11 —Quantitative and Qualitative Disclosures About Market Risk.”
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Price changes due to various factors, including market conditions, competition and cost fluctuations.
| | - | -----------------------------------------------------------------------------------------------------



Operating expenses



Our sales and marketing expenses consist primarily
of wages, salaries and other employee remuneration to our marketing, selling, distribution and other sales-support employees; advertising
and promotional expenses; warehousing and distribution costs and commissions.



Our warehousing and distribution expenses primarily
consist of rental fees and the cost of delivering our products to our customers’ premises (central retailer warehouses, individual
stores, homes, offices or other locations, as the case may be). The distribution of our products and the collection of the exchangeable
CO2 cylinders for refill often involve freight costs and require logistical planning and execution. In some countries,
we also deliver our products directly to our customers’ homes. In these cases, we bear high distribution expenses for a small
volume of deliveries. In certain cases, we are able to pass some of the delivery costs on to customers.



Our advertising and promotional expenses consist
primarily of media advertising costs, trade and consumer marketing expenses and public relation expenses. We intend to continue
investing in increasing our sales of sparkling water makers and consumables.



Our general and administrative expenses consist
primarily of wages, salaries and other employee benefits for our managerial and administrative personnel, share-based payment expenses,
rental fees and building maintenance, communications and support costs, as well as legal, professional advisors and audit and review
costs.



Other expenses in 2016 were $2.3 million and
comprised mainly of an impairment of other intangible assets in the amount of $1.8 million. Other expenses in 2015 were $0.6 million,
and comprised of impairment of an intangible asset.



Financial expenses (income)



Financial expenses or income, net, consist
of expenses relating to: (i) borrowing costs which are not capitalized, (ii) interest expense on loans less interest income on
deposits, (iii) foreign currency exchange expenses or income and (iv) gains or losses on derivative instruments.



26







Corporate taxes



The regular corporate tax rate in Israel in
2015 and 2016 was 26.5% and 25%, respectively. The corporate tax rate in Israel for 2017 is 24% and is to be reduced to 23% in
2018 and thereafter. Under the Investment Law and other Israeli legislation, we may be entitled to certain tax benefits, including
reduced tax rates, accelerated depreciation and amortization rates for tax purposes on certain assets and amortization of other
intangible property rights for tax purposes. For more information about certain of the tax benefits available to us under Israeli
law, see “Item 10.E. — Taxation — Israeli tax considerations and government programs.”



Non-Israeli subsidiaries are taxed according to the tax laws in
their respective country of organization. Certain of our subsidiaries benefit from tax incentives, such as reduced tax rates of
approximately 10%.



In addition, we have entered into transfer
pricing arrangements that establish transfer prices for our inter-company operations. However, our transfer pricing procedures
are not binding on the applicable taxing authorities. No official authority in any country has made a binding determination as
to whether or not we are operating in compliance with its transfer pricing laws and regulations. Taxing authorities in any of the
countries in which we operate could challenge our transfer prices and require us to adjust them to reallocate our income.



Because we operate in a number of countries,
our income is subject to taxation in different jurisdictions with a range of tax rates. Therefore, our consolidated income tax
position is subject to the distribution of our income before tax in the different jurisdictions in which we operate.



We estimate our effective tax rate for the
coming years based on our planned future financial results in existing and new markets and the key factors for setting our tax
liability, in particular, our transfer pricing policy and tax loss carry forwards. Accordingly, we estimate that our effective
tax rate will range between 15% and 25% of our income before income tax. There can be no certainty that our plans will be realized
and that our assumptions with regard to the key elements affecting tax rates will be accepted by the tax authorities. Therefore,
our actual effective tax rate might be higher than our estimate.



Over the course of our business operations,
we have accumulated tax loss carry forwards amounting to approximately $20.0 million as of December 31, 2016.



Share-based compensation



During the year ended December 31, 2016, we
granted options to purchase 95,000 ordinary shares under our equity incentive plan and 13,000 restricted share units. The total
amount of share-based compensation expense derived from the options and restricted share units granted in the year ended December
31, 2016 was $0.3 million. The remaining expense will be recognized over the vesting period. For certain arrangements with our
chief executive officer, see “Item 6.B. — Compensation — Compensation of officers and directors
— Certain arrangements with Daniel Birnbaum.”



Segments



We review our performance in distinct operating
segments representing geographical regions. Each region has similar characteristics relevant to our business and usually includes
several markets in which we sell our products.



The sales of our products in each market are
managed either by wholly-owned subsidiaries or by external third party distributors. The reported performances of these markets
are provided periodically and consolidated for presentation to our board of directors, which acts as our Chief Operating Decision
Maker. The data received by the Chief Operating Decision Maker consists of revenues from external customers and segment results
by market, which include items directly attributable to each market as well as those that can be allocated on a reasonable basis.



We have identified four reportable operating
segments, each of which represents a geographical area with similar characteristics. The products sold in all of the segments are
similar and generally produced at the same production sites. The identified segments are:



| | • | The Americas consists of the United States, Canada and other markets in North America, Central America and South America, which are significantly influenced by the consumption culture of the United States.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Western Europe consists of our markets in Western and Northern Europe, which are characterized by high standards of living and high price levels.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Asia-Pacific consists of our markets in Australia and New Zealand, together with other markets in East Asia, including Japan and South Korea, which constitute one unit for the purpose of operations management due to their relative proximity to each other and distance from our main operational units.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Central and Eastern Europe, Middle East and Africa (CEMEA) consists of our markets in Central and Eastern Europe, Israel and South Africa. Most of these markets tend to be characterized by a lower price level in comparison to the other geographic markets in which we operate.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



27







The following table presents our revenues,
by segment for the periods presented, as well as segment results from each segment. Segment results are calculated as follows:
(i) for markets in which marketing is performed by third-party distributors, segment results represent revenues from external customers,
less direct cost of revenues and less participation in advertising expenses for that market; and (ii) for markets in which marketing
is performed by us, segment results represent revenues from external customers, less direct cost of revenues and less other operating
expenses (general and administrative and sales and marketing expenses).



|(in thousands)               |  | The
    Americas |         |   | Western
    Europe |  |         | Asia-Pacific |  |  | CEMEA  |  |  | Reportable
    Segments |        |  | Reconciliation |  |         | Consolidated | 
|---------------------------- |  | ---------------- | ------- | - | ------------------ |  | ------- | ------------ |  |  | ------ |  |  | ----------------------- | ------ |  | -------------- |  | ------- | ------------ | 
|Year ended December 31, 2014 |  |                  |         |   |                    |  |         |              |  |  |        |  |  |                         |        |  |                |  |         |              | 
|Revenues                     |  |                  | 142,301 |   |                    |  | 281,690 |              |  |  | 53,837 |  |  |                         | 33,946 |  |                |  | 511,774 |              | 
|Segment results              |  |                  | (3,556  | ) |                    |  | 60,099  |              |  |  | 8,182  |  |  |                         | 5,249  |  |                |  | 69,974  |              | 
|Year ended December 31, 2015 |  |                  |         |   |                    |  |         |              |  |  |        |  |  |                         |        |  |                |  |         |              | 
|Revenues                     |  |                  | 102,104 |   |                    |  | 251,496 |              |  |  | 40,711 |  |  |                         | 21,644 |  |                |  | 415,955 |              | 
|Segment results              |  |                  | 6,485   |   |                    |  | 48,444  |              |  |  | 5,232  |  |  |                         | 3,272  |  |                |  | 63,433  |              | 
|Year ended December 31, 2016 |  |                  |         |   |                    |  |         |              |  |  |        |  |  |                         |        |  |                |  |         |              | 
|Revenues                     |  |                  | 114,747 |   |                    |  | 286,512 |              |  |  | 49,614 |  |  |                         | 25,192 |  |                |  | 476,065 |              | 
|Segment results              |  |                  | 17,433  |   |                    |  | 71,983  |              |  |  | 10,308 |  |  |                         | 3,678  |  |                |  | 103,402 |              | 



The following table presents the segments’
revenues, as a percentage of total reportable segments revenues:



|               |  | 2014 |       |   | 2015 |  |       | 2016 | 
|-------------- |  | ---- | ----- | - | ---- |  | ----- | ---- | 
|The Americas   |  |      | 27.8  | % |      |  | 24.5  | %    | 
|Western Europe |  |      | 55.0  |   |      |  | 60.5  |      | 
|Asia-Pacific   |  |      | 10.5  |   |      |  | 9.8   |      | 
|CEMEA          |  |      | 6.7   |   |      |  | 5.2   |      | 
|Total          |  |      | 100.0 | % |      |  | 100.0 | %    | 



One of our distributors in Western Europe accounted
for 8.4%, 9.0% and 12.2% of our total revenues in 2016, 2015 and 2014, respectively, and one of our customers in the Americas accounted
for 6.6%, 7.4% and 5.9% of our total revenues in 2016, 2015 and 2014, respectively.



Revenues from customers located in Israel amounted
to $11.5 million in 2014, $11.1 million in 2015 and $ 11.8 million in 2016. Our Israeli sales and marketing subsidiary also serves
as the exclusive distributor of Brita water filtration systems in Israel.



The Americas



Revenues in the Americas increased by $12.7 million, or 12.4%, to
$114.8 million in 2016 from $102.1 million in 2015. The increase was primarily due to higher demand for sparkling water makers
in the United States and Canada. Revenues in the Americas decreased by $40.2 million, or 28.2%, to $102.1 million in 2015 from
$142.3 million in 2014. The decrease was primarily due to lower demand for sparkling water makers and flavors in the United States,
which was partially due to the product transition as part of our repositioning and growth plan that was adopted in October 2014.



Segment results in the Americas increased by
$10.9 million, or 168.8%, to $17.4 million in 2016 from $6.5 million in 2015. This increase was mainly due to a higher demand for
products, the product sales mix and a decrease in general and administrative expenses. Segment results in the Americas increased
by $10.1 million to positive segment results of $6.5 million in 2015 from negative segment results of $3.6 million in 2014. This
increase was mainly due to higher portion of CO2 refills in the sales mix and a decrease in sales and marketing expenses.



Western Europe



Revenues in Western Europe increased by $35.0
million, or 13.9%, to $286.5 million in 2016 from $251.5 million in 2015. This increase was due to higher demand for sparkling
water makers and CO2 refills driven by most of the markets in the region and mainly by Germany, Switzerland and the
Nordics. Revenues in Western Europe decreased by $30.2 million, or 10.7%, to $251.5 million in 2015 from $281.7 million in 2014.
This decrease was mainly due to the impact of changes in foreign currency exchange rates. Excluding the impact of foreign currency
exchange rates, in 2015 as compared to 2014, Western Europe revenue increased approximately 5.8% due to increased sales in Germany,
Austria and Switzerland, partially offset by declines in France and the Nordics.



Segment results in Western Europe increased
by $23.5 million, or 48.6%, to $72.0 million in 2016 from $48.4 million in 2015. This increase was primarily due to an increase
in revenues, price increases, changes in the mix of sparkling water makers sold and a general costs and expenses reduction. Segment
results in Western Europe decreased by $11.7 million, or 19.4%, to $48.4 million in 2015 from $60.1 million in 2014. This increase
was mainly due to the weakening of the Euro against the U.S. dollar.



28







Asia-Pacific



Revenues in Asia-Pacific increased by $8.9
million, or 21.9%, to $49.6 million in 2016 from $40.7 million in 2015. This increase was primarily due to higher demand for products
driven by Japan and South Korea. Revenues in Asia-Pacific decreased by $13.1 million, or 24.4%, to $40.7 million in 2015 from $53.8
million in 2014. This decrease was primarily due to changes in foreign currency exchange rates and a decrease in sparkling water
makers and flavor unit sales in Australia and South Korea, partially offset by increased sales in Japan.



Segment results in Asia-Pacific increased by
$5.1 million, or 97.0%, to $10.3 million in 2016 from $5.2 million in 2015. This increase was primarily due to an increase in revenues,
price increases and changes in the mix of sparkling water makers sold. Segment results in Asia-Pacific decreased by $3.0 million,
or 36.1%, to $5.2 million in 2015 from $8.2 million in 2014. This decrease was primarily due to the negative impact of changes
in foreign currency exchange rates.



CEMEA



Revenues in CEMEA increased by $3.5 million, or 16.4%, to $25.2
million in 2016 from $21.7 million in 2015. This increase was primarily due to higher demand for products driven by the Czech Republic
and Israel. Revenues in CEMEA decreased by $12.3 million, or 36.2%, to $21.7 million in 2015 from $34.0 million in 2014. This decrease
was primarily due to lower sales in the Czech Republic.



Segment results in CEMEA increased by $0.4 million, or 12.4%, to
$3.7 million in 2016 from $3.3 million in 2015. This increase was primarily due to an increase in revenues in the Czech Republic
and Israel. Segment results in CEMEA decreased by $1.9 million, or 37.7%, to $3.3 million in 2015 from $5.2 million in 2014. This
decrease was primarily due to a decrease in revenues in the Czech Republic.



Results of operations



Year ended December 31, 2016 compared to year ended December
31, 2015



Revenuesincreased by $63.0 million,
or 15.2%, to $476.1 million in 2016 from $413.1 million in 2015. The increase was primarily due to increased consumer demand for
sparkling water makers and consumables in the majority of the markets. Sparkling water maker unit sales increased by 22.0% to 2.9
million units in 2016 from 2.4 million units in 2015, CO2 refill unit sales increased by 10.0% to 29.4 million units
in 2016 from 26.8 million units in 2015 and flavor unit sales decreased by 2.0% to 22.0 million units in 2016 from 22.3 million
units in 2015. By segment, revenues increased in each of the regions.



Gross profitincreased by $48.2 million, or 24.5%, to $245.0
million in 2016 from $196.8 million in 2015. Gross profit as a percentage of revenues, or gross margin, increased by 390 basis
points to 51.5% in 2016 compared to 47.6% in 2015. The increase was mainly due to production optimization in the Lehavim facility,
price increases and more favorable changes in the mix of sparkling water makers sold, partially offset by a higher portion of sparkling
water makers in the product mix and unfavorable changes in foreign exchange rates.



Sales and marketing expensesincreased by $6.1 million, or
4.3%, to $144.7 million in 2016 from $138.6 million in 2015. The increase in sales and marketing expenses was mainly due to higher
advertising and promotion expenses, which increased by $9.8 million to $64.9 million, or 13.6% of revenue, from $55.1 million,
or 13.3% of revenue, in 2015. Other selling expenses decreased to $79.8 million, or 16.8% of revenue, from $83.5 million, or 20.2%
of revenue, in 2015.



General and administrative expensesdecreased
by $3.7 million, or 7.9%, to $43.5 million in 2016 from $47.3 million in 2015, partially due to a decrease in share-based payment
expenses of $1.7 million. As a percentage of revenues, general and administrative expenses decreased to 9.1% in 2016 from 11.4%
in 2015.



Other expenseswere $2.3 million, mainly
reflecting the impairment of intangible assets, compared to $0.6 million in 2015, reflecting an impairment of intangible assets.



Operating incomeincreased to $54.5
million, or 11.4% of revenues, compared to $19.8 million or 4.8% of revenues in 2015, due to an increase in revenues, gross margin
improvements and operating expense optimization, partially offset by the negative impact of changes in foreign currency exchange
rates of $3.9 million. For this comparison, operating income in 2015 was calculated excluding the exceptional restructuring costs.



Total financial expenses (income), netwere financial expenses
of $2.1 million in 2016 compared to financial income of $4.8 million in 2015. The 2015 financial income included an exceptional
$5.1 million gain from the devaluation of loans denominated in Euro and income of $2.7 million from derivative financial instruments
following the sharp reduction of the Euro/U.S. dollar exchange rate during the year.



Income tax expensewas $7.9 million
compared to $3.0 million in 2015, representing an effective tax rate of 15.1% in 2016 compared to 19.9% in 2015. The changes in
the effective tax rate reflect the changes in the distribution of profit before tax between territories.



29







Year ended December 31, 2015 compared to year ended December
31, 2014



Revenuesdecreased by $98.7 million,
or 19.3%, to $413.1 million in 2015 from $511.8 million in 2014. The decrease was primarily due to a decrease of 25.0 % in the
volume of sparkling water makers sold to 2.4 million units in 2015, mainly due to a decrease in sales in the United States and
France, partially offset by an increase in sparkling water maker unit sales in Germany, as compared to 3.2 million units in 2014.
The decrease in revenues also includes $58.6 million due to unfavorable changes in foreign currency exchange rates, primarily as
a result of the weakening of the Euro/U.S. dollar exchange rate by 17.0%, the Australian dollar/U.S. dollar exchange rate by 17.0%
and the Swedish Krona/U.S. dollar exchange rate by 19.0% in comparison to their average exchange rates in 2014. CO2
refill unit sales increased by 7.0% to 26.8 million units in 2015 from 25.0 million units in 2014 and flavor unit sales decreased
by 29.0% to 22.3 million units in 2015 from 31.4 million units in 2014. By segment, the key region of decreased revenues was the
Americas with a decrease of $40.2 million.



Gross profitdecreased by $56.3 million,
or 22.2%, to $196.8 million in 2015 from $253.1 million in 2014. Gross profit as a percentage of revenues, or gross margin, disregarding
the impact of restructuring costs, decreased by 150 basis points to 49.6% in 2015 compared to 51.1% in 2014. The decrease was mainly
due to the impact of unfavorable changes in foreign currency exchange rates on revenue, partially offset by a higher portion of
CO2 refills in the sales mix.



Sales and marketing expensesdecreased by $39.1 million,
or 22.0%, to $138.6 million in 2015 from $177.7 million in 2014. The decrease in sales and marketing expenses was mainly due to
lower advertising and promotion expenses, which decreased by $21.8 million to 13.3% of revenues from 15.0% of revenues in the same
period in 2014, and the impact of changes in foreign currency exchange rates. As a percentage of revenues, sales and marketing
expenses decreased to 33.6% in 2015 from 34.7% in 2014.



General and administrative expensesdecreased
by $2.5 million, or 5.1%, to $47.3 million in 2015 from $49.8 million in 2014. As a percentage of revenues, general and administrative
expenses increased to 11.4% in 2015 from 9.7% in 2014. The decrease in general and administrative expenses was mainly due to a
reduction in administrative costs, partially offset by an increase in share-based payment expenses.



Other expenseswere $0.6 million, and
comprised of impairment of an intangible asset. Other expenses in 2014 were $10.7 million, and comprised of restructuring costs
of $7.3 million and the recording of the impairment of goodwill in the amount of $3.3 million.



Operating incomedisregarding the impact
of $9.5 million in restructuring costs, decreased to $19.8 million, or 4.8% of revenues, compared to $30.6 million or 6.0% of revenues
in 2014. Operating income was negatively impacted by changes in foreign currency exchange rates by approximately $14.1 million.



Total financial expenses (income), netchanged by $3.7 million,
to financial income of $4.8 million in 2015 compared to financial income of $1.2 million in 2014. The increase in financial income
was mainly due to the devaluation of long-term loans denominated in Euro due to the weakening of the Euro/U.S. dollar exchange
rate in 2015.



Income tax expensewas $3.0 million
compared to $3.9 million in 2014. Our effective tax rate for 2015 was 19.9% compared to 23.9% for 2014, mainly due to lower income
before tax and changes in the distribution of profit before tax between territories.



Seasonality



We have experienced in the past, and expect to continue to experience,
certain fluctuations in our quarterly revenues. Historically, our revenues have generally been strongest in the third and fourth
quarters and weakest in the first quarter. We generally attribute this historical seasonality to increased demand for our products
during the warmer summer months and increased sales associated with holiday shopping.



Our operating expenses and, therefore, our
overall margins are also seasonally impacted. For example, we typically increase our advertising and promotional expenditures in
the second and fourth quarters. Consequently, our overall operating income may be lower in these quarters.



Our results for any quarter are not necessarily
indicative of the results that may be achieved in subsequent quarters or for the full fiscal year. Our quarterly operating results
should not be relied on as indications of our future performance.



Quarterly financial information



The following table sets forth certain unaudited
consolidated quarterly statements of operations data for each of the eight quarters ended December 31, 2016. This unaudited information
has been prepared on a basis consistent with our annual financial statements. This information should be read in conjunction with
our audited consolidated financial statements and related notes appearing elsewhere in this annual report. The results of operations
for any quarter are not necessarily indicative of results that we may achieve for any subsequent periods.



30







|(in thousands)                                  |  | March
    31, 2015 |        |   | June
    30, 2015 |   |        | Sept.
    30, 2015 |  |   | Dec.
    31, 2015 |   |  | March
    31, 2016 |         |   | June
    30, 2016 |   |         | Sept.
    30, 2016 |  |   | Dec.
    31, 2016 |  
|----------------------------------------------- |  | ------------------ | ------ | - | ----------------- | - | ------ | ------------------ |  | - | ----------------- | - |  | ------------------ | ------- | - | ----------------- | - | ------- | ------------------ |  | - | ----------------- | -
|Consolidated
    statements of operations data: |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                    |         |   |                   |   |         |                    |  |   |                   |  
|Revenues                                        |  | $                  | 90,344 |   |                   | $ | 99,834 |                    |  | $ | 110,015           |   |  | $                  | 112,942 |   |                   | $ | 100,873 |                    |  | $ | 119,164           |  
|Cost of revenues                                |  |                    | 44,893 |   |                   |   | 51,307 |                    |  |   | 59,255            |   |  |                    | 60,909  |   |                   |   | 49,701  |                    |  |   | 58,695            |  
|Gross profit                                    |  |                    | 45,451 |   |                   |   | 48,527 |                    |  |   | 50,760            |   |  |                    | 52,033  |   |                   |   | 51,172  |                    |  |   | 60,469            |  
|Operating expenses:                             |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                    |         |   |                   |   |         |                    |  |   |                   |  
|Sales and marketing                             |  |                    | 32,461 |   |                   |   | 35,118 |                    |  |   | 36,031            |   |  |                    | 35,031  |   |                   |   | 32,671  |                    |  |   | 38,022            |  
|General and administrative                      |  |                    | 11,641 |   |                   |   | 11,456 |                    |  |   | 11,772            |   |  |                    | 12,389  |   |                   |   | 10,581  |                    |  |   | 10,969            |  
|Other
    expenses                              |  |                    | -      |   |                   |   | -      |                    |  |   | -                 |   |  |                    | 631     |   |                   |   | -       |                    |  |   | 2,327             |  
|Total operating expenses                        |  |                    | 44,102 |   |                   |   | 46,574 |                    |  |   | 47,803            |   |  |                    | 48,051  |   |                   |   | 43,252  |                    |  |   | 51,318            |  
|Operating income                                |  |                    | 1,349  |   |                   |   | 1,953  |                    |  |   | 2,957             |   |  |                    | 3,982   |   |                   |   | 7,920   |                    |  |   | 9,151             |  
|Total financial expense
    (income), net       |  |                    | (5,668 | ) |                   |   | 592    |                    |  |   | (72               | ) |  |                    | 306     |   |                   |   | 910     |                    |  |   | 194               |  
|Income before income taxes                      |  |                    | 7,017  |   |                   |   | 1,361  |                    |  |   | 3,029             |   |  |                    | 3,676   |   |                   |   | 7,010   |                    |  |   | 8,957             |  
|Income
    tax expense                          |  |                    | 970    |   |                   |   | 401    |                    |  |   | 787               |   |  |                    | 848     |   |                   |   | 917     |                    |  |   | 1,142             |  
|Net income (loss) for
    the period            |  | $                  | 6,047  |   |                   | $ | 960    |                    |  | $ | 2,242             |   |  | $                  | 2,828   |   |                   | $ | 6,093   |                    |  | $ | 7,815             |  
|                                                |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                    |         |   |                   |   |         |                    |  |   |                   |  
|                                                |  | March
    31, 2015 |        |   | June
    30, 2015 |   |        | Sept.
    30, 2015 |  |   | Dec.
    31, 2015 |   |  | March
    31, 2016 |         |   | June
    30, 2016 |   |         | Sept.
    30, 2016 |  |   | Dec.
    31, 2016 |  
|As a percentage of revenues:                    |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                    |         |   |                   |   |         |                    |  |   |                   |  
|Revenues                                        |  |                    | 100    | % |                   |   | 100    | %                  |  |   | 100               | % |  |                    | 100     | % |                   |   | 100     | %                  |  |   | 100               | %
|Gross profit                                    |  |                    | 50.3   |   |                   |   | 48.6   |                    |  |   | 46.1              |   |  |                    | 46.1    |   |                   |   | 50.7    |                    |  |   | 50.7              |  
|Operating expenses:                             |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                    |         |   |                   |   |         |                    |  |   |                   |  
|Sales and marketing                             |  |                    | 35.9   |   |                   |   | 35.2   |                    |  |   | 32.8              |   |  |                    | 31.0    |   |                   |   | 32.4    |                    |  |   | 31.9              |  
|General and administrative                      |  |                    | 12.9   |   |                   |   | 11.5   |                    |  |   | 10.7              |   |  |                    | 11.0    |   |                   |   | 10.5    |                    |  |   | 9.2               |  
|Other
    expenses                              |  |                    | -      |   |                   |   | -      |                    |  |   | -                 |   |  |                    | 0.6     |   |                   |   | -       |                    |  |   | 2.0               |  
|Total
    operating expenses                    |  |                    | 48.8   |   |                   |   | 46.7   |                    |  |   | 43.5              |   |  |                    | 42.6    |   |                   |   | 42.9    |                    |  |   | 43.1              |  
|Net income (loss) for
    the period            |  |                    | 6.7    | % |                   |   | 1.0    | %                  |  |   | 2.0               | % |  |                    | 2.5     | % |                   |   | 6.0     | %                  |  |   | 6.6               | %
|As a percentage of full year results:           |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                    |         |   |                   |   |         |                    |  |   |                   |  
|Revenues                                        |  |                    | 21.9   | % |                   |   | 24.2   | %                  |  |   | 26.6              | % |  |                    | 27.3    | % |                   |   | 21.2    | %                  |  |   | 25.0              | %
|Gross profit                                    |  |                    | 23.1   |   |                   |   | 24.7   |                    |  |   | 25.8              |   |  |                    | 26.4    |   |                   |   | 20.9    |                    |  |   | 24.7              |  
|Operating expenses:                             |  |                    |        |   |                   |   |        |                    |  |   |                   |   |  |                    |         |   |                   |   |         |                    |  |   |                   |  
|Sales and marketing                             |  |                    | 23.4   |   |                   |   | 25.3   |                    |  |   | 26.0              |   |  |                    | 25.3    |   |                   |   | 22.6    |                    |  |   | 26.3              |  
|General and administrative                      |  |                    | 24.7   |   |                   |   | 24.2   |                    |  |   | 24.9              |   |  |                    | 26.2    |   |                   |   | 24.3    |                    |  |   | 25.2              |  
|Other
    income, net                           |  |                    | -      |   |                   |   | -      |                    |  |   | -                 |   |  |                    | 100.0   |   |                   |   | -       |                    |  |   | 100.0             |  
|Total
    operating expenses                    |  |                    | 23.6   |   |                   |   | 25.0   |                    |  |   | 25.6              |   |  |                    | 25.8    |   |                   |   | 22.7    |                    |  |   | 26.9              |  
|Net income (loss) for
    the period            |  |                    | 50.1   | % |                   |   | 7.9    | %                  |  |   | 18.6              | % |  |                    | 23.4    | % |                   |   | 13.7    | %                  |  |   | 17.6              | %



Application of critical accounting policies and use of estimates



Our accounting policies affecting our financial
condition and results of operations are more fully described in our consolidated financial statements for the years ended December
31, 2016, 2015 and 2014, and as of December 31, 2016 and 2015 included elsewhere in this annual report. The preparation of our
financial statements requires management to make judgments, estimates and assumptions that affect the amounts reflected in the
consolidated financial statements and accompanying notes, and related disclosure of contingent assets and liabilities. We base
our estimates upon various factors, including past experience, where applicable, external sources and on other assumptions that
we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions, and could have a material adverse effect on our reported results.



In many cases, the accounting treatment of
a particular transaction, event or activity is specifically dictated by accounting principles and does not require management’s
judgment in its application, while in other cases, management’s judgment is required in the selection of the most appropriate
alternative among the available accounting principles, that allow different accounting treatment for similar transactions.



We believe that the accounting policies discussed
below are critical to our financial results and to the understanding of our past and future performance, as these policies relate
to the more significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be
critical if (1) it requires us to make assumptions because information was not available at the time or it included matters that
were highly uncertain at the time we were making our estimate; and (2) changes in the estimate or different estimates that we could
have selected may have had a material impact on our financial condition or results of operations.



Revenue recognition



As described in Note 3M to our audited consolidated
financial statements for the year ended December 31, 2016 included elsewhere in this annual report, revenue is recognized when
persuasive evidence exists (usually in the form of an executed sales agreement) that the significant risks and rewards of ownership
have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods
can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenues can be measured
reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized
as a reduction of revenue as the sales are recognized. The timing of the transfer of risks and rewards varies depending on the
individual terms of the sale agreement. For sales of products in domestic markets, transfer usually occurs when the product is
received at the customer’s warehouse, but for most international shipments transfer occurs upon loading the goods onto the
relevant carrier.



31







The exchanging and refilling of exchangeable
CO2 cylinders is a critical component of our operations and, since inception, we have developed various methods to protect
our rights over the manufacturing, trading and refilling of our exchangeable CO2 cylinders. In this regard, we maintain
legal ownership over the exchangeable CO2 cylinders, while establishing the appropriate business and legal framework
in each of our markets for trading and refilling activities related to the exchangeable CO2 cylinders.



The transaction of exchangeable CO2
cylinders with customers is treated as a final sale and the related income is recorded. In certain circumstances, where no full
cylinder is being exchanged for a returned cylinder, we have an obligation to provide a refund upon request for the returned exchangeable
CO2 cylinder. The amount of the refund varies from country to country and from customer to customer (retailer, distributor
and end consumer) and may also change over time as market conditions vary in a particular country. As a result, a provision is
recorded for estimated returns based on historical return patterns of customers and the refundable amounts are recorded as a reduction
of revenue.



Regarding the implementation and impact of
IFRS 15, Revenue from contracts with customers, see Note 3S(2) to our audited consolidated financial statements for the year ended
December 31, 2016 included elsewhere in this annual report.



Trade receivables — bad debt and allowance
for impairment



We make ongoing estimates relating to the collectability
of our accounts receivable and maintain a reserve for estimated losses resulting from the inability of our customers to make required
payments. In determining the amount of the reserve, we consider the payment history of the customers and significant economic developments
within the retail environment that could impact the ability of our customers to pay outstanding balances and make judgments about
the creditworthiness of significant customers based on ongoing credit evaluations. Because we cannot predict future changes in
the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates. If the
financial condition of our customers were to deteriorate, resulting in their inability to make payments, a larger reserve might
be required. In the event we determine that a smaller or larger reserve was appropriate, we would record a benefit or charge to
general and administrative expenses in the period in which we made such a determination.



Inventory



For financial reporting purposes, we evaluate
our inventory to ensure it is carried at the lower of cost or net realizable value. Provisions are made against slow moving, obsolete
and damaged inventories. Damaged inventories are identified and written down through the inventory counting procedures conducted
at each location. Provisions for slow moving and obsolete inventories are assessed by each country as part of their ongoing financial
reporting. Obsolescence is assessed based on a comparison of the level of inventory held to projected future sales. Future sales
are assessed based on historical experience and adjusted where we will no longer continue to manufacture the particular item. To
the extent that future events impact the salability of inventory, these provisions could vary significantly. For example, changes
in specifications or regulations may render certain inventory, previously considered to have a realizable value in excess of cost,
obsolete and require such inventory to be fully written off. Inventories include exchangeable CO2 cylinders that are
provided to customers. Exchangeable CO2 cylinders that are loaned to distributors and exchangeable CO2 cylinders
that are used by us to facilitate the exchange program are included in property, plant and equipment.



Property, plant and equipment



Property, plant and equipment represent a significant
proportion of our assets, constituting 35.3% of total assets as of December 31, 2016 as compared to 34.3% in 2015. Therefore, the
estimates and assumptions made to determine their carrying value and related depreciation are critical to our financial position
and performance.



Exchangeable CO2 cylinders that
are loaned to distributors and certain retailers and exchangeable CO2 cylinders that are used to facilitate the cylinder
exchange program are considered property, plant and equipment. These cylinders represented approximately 15.1% of our total property,
plant and equipment as of December 31, 2016.



The charge in respect of periodic depreciation
of an asset is derived after determining its estimated expected useful life. The useful lives of our assets are determined at the
time they are acquired and reviewed annually for appropriateness. The asset’s life is based on historical experience with
similar assets as well as anticipation of future events, which may impact its life, such as changes in technology. With respect
to the exchangeable CO2 cylinders, although we have no plans to replace the existing aluminum CO2 cylinder
model and to date new machines have been designed to use our existing stock of cylinders, we have a continuous process of introducing
re-designed or newly-designed sparkling water makers that might require a change to the cylinder design in the future. There is
no assurance that future sparkling water maker designs will be compatible with the current models of cylinders or that changes
in governmental regulations, technological developments or other factors will not shorten the useful life of these cylinders in
comparison with the current estimates. Our policy is that, if and when new developments lead to the phase-out of the current model
of cylinders, we will change the estimated useful life and adjust the depreciation rate of the exchangeable CO2 cylinders.



32







We continuously evaluate our estimates and
assumptions for each reporting period, and, when warranted, adjust these assumptions. Generally, these adjustments are accounted
for on a prospective basis, through depreciation expense and impairment.



Impairment of long-lived assets



We periodically evaluate the recoverable amount
of long-lived assets, including goodwill, other intangible assets and property, plant and equipment, relying on a number of factors,
including operating results, business plans and projected future cash flows. Assets that have an indefinite useful life, such as
goodwill, are not subject to amortization and are tested annually for impairment whenever events or changes in circumstance indicate
that the carrying amount may not be recoverable. In addition, at least once a year, we examine the useful life of an intangible
asset that is not periodically amortized in order to determine whether events and circumstances continue to support the decision
that the intangible asset has an indefinite useful life.



Assets that are subject to amortization are
tested for impairment whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. An impairment
loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset’s fair value less costs to sell and value in use. The fair value is in most cases based on the
discounted present value of the future cash flows expected to arise from the cash generating unit to which the goodwill relates,
or from the individual asset or asset group. Estimates are used in deriving these cash flows and the discount rate.



The complexity of the estimation process and
issues related to the assumptions, risks and uncertainties inherent with the application of the intangible assets and property,
plant and equipment accounting policies affect the amounts reported in our financial statements. In particular, if different estimates
of the projected future cash flows or a different selection of an appropriate discount rate or long-term growth rate were made,
these changes could materially alter the projected value of the cash flows of the asset, and as a consequence, materially different
amounts would be reported in our financial statements.



Income tax



Income tax comprises the taxes levied on taxable
income in the individual countries and the changes in deferred tax assets and liabilities. The income taxes recognized are reflected
at the amounts likely to be payable under the statutory regulations in force, or already enacted in relation to future periods,
as of the reporting date.



In compliance with IAS 12 (Income Taxes), deferred
taxes are recognized for temporary differences between the carrying amounts of assets and liabilities in the balance sheet prepared
according to IFRS and those in the balance sheet drawn up for tax purposes. Deferred taxes are also recognized for consolidation
measures and for tax loss carry forwards likely to be realizable. Deferred tax assets relating to deductible temporary differences,
tax credits and tax loss carry forwards are recognized where it is sufficiently probable that taxable income will be available
in the future to enable the tax loss carry forwards to be utilized. Deferred tax liabilities are recognized on temporary differences
taxable in the future. Deferred taxes are calculated at the rates which, on the basis of the statutory regulations in force, or
already enacted in relation to future periods, as of the reporting date, are expected to apply in the individual countries at the
time of realization. Deferred tax assets and deferred tax liabilities are offset if they relate to income taxes levied by the same
taxation authority. The effects of changes in tax rates or tax laws on deferred tax assets and liabilities are generally accounted
for in the period in which the changes are substantively enacted. Such effects are normally recognized in the statement of operations.
Effects on deferred taxes previously recognized in other comprehensive income are reflected in other comprehensive income. The
probability that deferred tax assets resulting from temporary differences or loss carry forwards can be utilized in the future
is the subject of forecasts by the individual consolidated subsidiaries regarding their future earnings situation and other parameters.
The deferred tax liabilities recognized on planned dividend payments by consolidated subsidiaries depend on assumptions regarding
the future earnings situation of the consolidated subsidiaries concerned, their future financing structure and other factors. Changes
in the assumptions or in circumstances may necessitate adjustments that result in allocations to deferred taxes or reversals thereof.



The determination of our worldwide provision
for income taxes and other tax liabilities requires significant judgment and there are many transactions and calculations where
the ultimate tax determination is uncertain.



In addition, we have entered into transfer
pricing arrangements that establish transfer prices for our inter-company operations. However, our transfer pricing procedures
are not binding on the applicable taxing authorities. No official authority in any country has made a binding determination as
to whether or not we are operating in compliance with its transfer pricing laws and regulations.



Share-based compensation



We measure and recognize share-based compensation
expense based on estimated fair values for all share-based payment awards made to our employees and directors. In 2016, total share-based
compensation expense amounted to $4.8 million.



33







The fair value of share-based compensation
for non-market conditions is measured using the Black-Scholes formula. Measurement inputs include share price on the measurement
date, the exercise price of the instrument, expected volatility (weighted average historic volatility of the company’s shares
over the expected term of the awards), expected life of the instruments (based on averaging the vesting schedule of the awards
and the contractual term), expected dividends, and the risk-free interest rate (based on government bonds, denominated in the applicable
currency and with a remaining life equal to the expected life of the awards). Service and non-market performance conditions attached
to the transactions are not taken into account in determining fair value.



We estimate the fair value of our awards with
market conditions using a Monte Carlo simulation in order to take into account the probability of satisfying the market condition.
This approach involves generating random stock price paths through a lattice type structure. Each path results in a certain financial
outcome, such as accelerated vesting or specific option payout. We make this estimate using the conditions that exist at the
grant date. The derived service period, which may be the requisite service period, is also determined at this time. Compensation
cost for our awards with a market condition is recognized ratably using the accelerated attribution method if the award is subject
to graded vesting over the requisite service period. The compensation cost for our awards with a market condition is not reversed
if the market condition is not satisfied. We have estimated the expected term of the awards granted to our chief executive officer
which were approved in December 2015 based on the contractual term of such awards.



If such factors change and we employ different
assumptions for future grants, our compensation expense, in connection with future grants, may differ significantly from the amounts
that we have recorded in the past. In addition, our compensation expense is affected by our estimate of the number of awards that
will ultimately vest. In the future, if the number of equity awards that are forfeited by employees is lower than expected, the
expense recognized in future periods will be higher.



Changes in accounting policies



We have not applied any new standards and amendments
to standards, including any consequential amendments to other standards, as of January 1, 2016.



| | B. | Liquidity
and Capital Resources
| | -- | -------------------------------



Our cash requirements have principally been
for working capital and capital expenditures. Working capital decreased by $15.9 million to $124.8 million as of December 31, 2016
from $140.7 million as of December 31, 2015. The decrease in working capital was mainly due to a decrease in inventories, which
decreased by $25.0 million to $88.0 million as of December 31, 2016 from $113.0 million as of December 31, 2015. Historically,
we have funded a portion of our working capital (primarily inventory) and capital investments from cash flows provided by our operating
activities, cash and cash equivalents on hand and borrowings available under our short-term credit facilities. In 2015, we also
funded a portion of our capital investments with long-term loans. Our capital investments have included the following: completion
of the ramp-up of the Lehavim facility and the new logistics center on the Lehavim site as well as the progress achieved in the
construction of our new administration building on the Lehavim site; investments in developing new products; and investments and
improvements in our information technology systems.



Our inventory strategy has historically included
increasing inventory levels to meet anticipated and a certain level of unexpected consumer demand for our products. This includes
maintaining an inventory of sparkling water makers, exchangeable CO2 cylinders and other consumables at each of our
sites, at levels that we expect to sell during the next three to four months. In addition, our inventory strategy included, for
some products for which we have limited production capacity, high production volumes during the low selling seasons in order to
maximize productivity during our busier seasons and to be prepared with inventory in advance of the high selling seasons.



Based on our current business plan, we
believe that our cash, cash equivalents, borrowings available under our short-term credit facilities and cash flows from operations,
will be sufficient to meet our currently anticipated cash requirements for the next 12 months. We may require new borrowings or
additional capital in order to finance our activities.



Working capital is defined as (i) total current
assets, excluding cash and cash equivalents and bank deposits, minus (ii) total current liabilities, excluding loans and borrowings.



Cash flows



The following table presents the major components
of net cash flows used in and provided by operating, investing and financing activities for the periods presented:



|                                             |  | Year Ended December 31, |        
|-------------------------------------------- |  | ----------------------- | -------
|(in thousands)                               |  | 2014                    |        
|Net cash from operating activities           |  | $                       | 35,585 
|Net cash used in investing activities        |  |                         | (59,974
|Net cash from (used in) financing activities |  |                         | 32,278 



34







Cash from operating activities



Operating activities consist primarily of net
income adjusted for certain non-cash items. Adjustments to net income for non-cash items include mainly depreciation and amortization,
unrealized financial gains and losses, share-based compensation and non-cash movements in our income tax provision and deferred
taxes. In addition, operating cash flows include the effect of changes in operating assets and liabilities, principally inventories,
trade and other receivables, trade payables and accrued expenses.



Cash flow from operating activities increased
by $41.9 million to $81.9 million in 2016 from $40.0 million in 2015. The increase in the operating cash flow was primarily due
to net income in 2016, which increased by $32.4 million to $44.5 million, from $12.1 million in 2015. Adjustments to net income
for non-cash items increased by $7.7 million to $34.3 million in 2016 from $26.6 million in 2015 and included $16.0 million depreciation
of property, plant and equipment, which increased by $2.8 million from $13.2 million in 2015. The 2015 operating cash flow included
an exceptional $6.9 million adjustment for non-cash restructuring costs. Working capital changes added $9.0 million to the operating
cash flow in 2016, primarily due to inventory reduction of $22.4 million resulting from the transfer of production to our new factory
in Lehavim and other inventory management optimization activities.



Cash flow from operating activities was $40.0
million in 2015 as compared to cash flow from operating activities of $35.6 million in 2014. This was primarily due to a decrease
in net cash outflows to working capital by $19.5 million to a net cash inflows to working capital of $7.2 million in 2015 from
a net cash outflow to working capital of $12.3 million in 2014, partially offset by a decrease in adjustments to net income for
a non-cash item of $13.5 million to $26.6 million in 2015 from $40.1 million in 2014 and a decrease in net income of $0.2 million
to $12.1 million in 2015 from $12.3 million in 2014. Adjustments to net income for non-cash items decreased in 2015 as compared
to 2014 primarily due to lower restructuring costs and impairment of goodwill and other intangible assets offset by an increase
in share-based payments expenses. The decrease in cash outflows related to working capital was primarily driven by a decrease in
inventory of $19.9 million and in trade payables and other current liabilities by $24.7 million in 2015 compared to a $12.7 million
increase in inventory and $22.1 million decrease in trade payables and other current liabilities in 2014, partially offset by a
decrease in trade and other receivables of $12.2 million in 2015 compared to a $21.5 million increase in 2014.



Cash used in investing activities



Cash used in investing activities decreased
by $15.6 million to $33.1 million in 2016 from $48.7 million in 2015, primarily due to the reduced capital expenditures needed
for the construction of the Lehavim facility as a result of the near completion of the project.



Cash used in investing activities decreased
by $11.3 million to $48.7 million in 2015 from $60.0 million in 2014, primarily as a result of lower capital expenditures in connection
with the construction and ramp-up of the Lehavim facility.



The majority of our capital expenditures have historically been
related to the purchase of machinery and equipment and information technology, however, in 2014, 2015 and 2016, a material portion
of our capital expenditures was related to the construction and the ramp-up of the Lehavim facility and to the construction of
our new logistics center and new administration building on the Lehavim site. In order to support our business, we intend to continue
to invest in production machinery and equipment, and information technology infrastructure in 2017 and thereafter. See “—
Capital expenditures” below.



Furthermore, we may spend additional amounts
of cash on acquisitions from time to time, if and when such opportunities arise.



Cash from (used in) financing activities



Cash used in financing activities was $32.8
million in 2016 as compared to cash used in financing activities of $1.8 million in 2015. This change was mainly due to repayments
of debt in the amount of $34.2 million in 2016 under long-term loans taken from banks in Israel in prior years, compared to repayments
of $16.2 million in 2015. As of December 31, 2016, we did not have any long-term loans outstanding compared to long-term loans
taken from banks in Israel in the amount of $10.0 million in 2015.



Cash used in financing activities was $1.8
million in 2015 as compared to cash used in financing activities of $32.3 million in 2014. This change was mainly due to long-term
loans taken from banks in Israel in the amount of $10.0 million in 2015, compared to $49.3 million taken in 2014, offset by repayments
of long-term debt of $16.2 million in 2015 as compared to repayments of short-term debt of $15.5 million in 2014.



Credit facilities



Long-term and short-term debt



As of December 31, 2016, we did not have any
long-term debt.



35







As of December 31, 2016, we had short-term credit facilities with
a total borrowing capacity of $11.0 million, of which none was outstanding as of such date. In addition, as at December 31, 2016,
we entered into agreements in principle with financial institutions to receive additional credit in the total amount of up to $47.0
million. As at December 31, 2016, no debt was outstanding in connection with such agreements in principle.



Capital expenditures



Our capital expenditures in 2016 and 2015 amounted
to $28.0 million and $53.7 million, respectively. The decrease in capital expenditures in 2016 as compared to 2015 was mainly due
to the completion of the ramp-up of the Lehavim facility and the new logistics center on the Lehavim site. We anticipate our capital
expenditures in 2017 to primarily be related to the construction of a new facility for the production of flavors and the completion
of the construction of our new administration building on the Lehavim site, expansion of our production capacity and capabilities,
investments in developing new products and improvements in our information technology systems. The Lehavim facility houses various
manufacturing functions, including metals (such as cylinder manufacturing and cylinder retesting), CO2 refills, plastic
injection, bottle blowing and printing, machining and assembly. The Lehavim facility is situated in an industrial park that is
located in a specified development zone. We have received and have been approved to receive certain grants under the Investment
Law regarding our investment in this facility. See “Item 3.D. —Risk Factors – The tax benefits and grants
that may be available to us may be terminated or reduced in the future, which could increase our costs and taxes. If we fail to
satisfy various conditions, we may be required to refund the tax benefits and government grants we received” and “Item
10.E. — Taxation — Israeli tax considerations and government programs — Law for the
encouragement of capital investments, 5719-1959.”



| | C. | Research
and Development, Patents and Licenses, etc.
| | -- | ----------------------------------------------------



Not applicable.



| | D. | Trend
Information
| | -- | -----------------



Other than as disclosed elsewhere in this annual
report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2016 to December
31, 2016 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or
capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results
or financial condition.



| | E. | Off-Balance
Sheet Arrangements
| | -- | ------------------------------



We do not currently engage in off-balance sheet
financing arrangements. In addition, we do not have any interest in entities referred to as variable interest entities, which includes
special purposes entities and other structured finance entities.



| | F. | Contractual
Obligations
| | -- | -----------------------



Our significant contractual obligations and
commitments as of December 31, 2016 are summarized in the following table:



|                            |  | Payments Due by Period |       
|--------------------------- |  | ---------------------- | ------
|(in thousands)              |  | Less Than 1 Year       |       
|                            |  |                        |       
|Operating lease obligations |  | $                      | 5,455 
|Purchase obligations        |  |                        | 29,818
|Total                       |  | $                      | 35,273



The above table does not include obligations
in respect of long-term employee benefits in the amount of $2.3 million as of December 31, 2016.



36







| | Item
                           6. | DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
| | ---------------------------------- | ------------------------------------------



| | A. | Directors
and Senior Management
| | -- | -------------------------------



Executive officers and directors



The following table sets forth the name, age
and position of each of our executive officers and directors as of March 1, 2017:



|Name                              |  | Age |  | Position                            
|--------------------------------- |  | --- |  | ------------------------------------
|Executive officers                |  |     |  |                                     
|Daniel Birnbaum                   |  | 54  |  | Chief Executive Officer and Director
|Daniel Erdreich                   |  | 53  |  | Chief Financial Officer             
|Eyal Shohat                       |  | 43  |  | Chief Corporate Development Officer 
|Matti Yahav                       |  | 40  |  | Vice President, Global Marketing    
|Galit Zucker                      |  | 47  |  | Chief People Officer                
|Directors                         |  |     |  |                                     
|Stanley Stern (1) (2) (3)         |  | 59  |  | Chairman                            
|Lauri A. Hanover (1) (2) (4)      |  | 57  |  | Director                            
|David Morris (1) (2) (3)          |  | 47  |  | Director                            
|Jonathan Kolodny (1)              |  | 47  |  | Director                            
|Richard Hunter (1) (4)            |  | 47  |  | Director                            
|Avishai Abrahami (1)              |  | 45  |  | Director                            
|Yehezkel (Chezy) Ofir (1) (3) (4) |  | 65  |  | Director                            
|Torsten Koster (1) (4)            |  | 48  |  | Director                            



| | (1) | Independent director under the Nasdaq Rules.      
| | --- | --------------------------------------------------
| | (2) | Member of our Compensation Committee.             
| | (3) | Member of our Nominating and Governance Committee.
| | (4) | Member of our Audit Committee.                    



Executive officers



Daniel Birnbaumhas served as our Chief
Executive Officer since January 2007 and as a member of our board of directors since November 2010. From 2003 to 2006, Mr. Birnbaum
was the General Manager of Nike Israel. Mr. Birnbaum was a founding member of Nuvisio Corporation, a technology start-up company,
and served as its Chief Executive Officer from 1999 to 2002. In 1995, Mr. Birnbaum established Pillsbury Israel and served as its
Chief Executive Officer until 1999. Mr. Birnbaum holds a B.A. from The Hebrew University of Jerusalem and an M.B.A. from Harvard
Business School.



Daniel Erdreich has served as our Chief
Financial Officer since March 2007. Mr. Erdreich joined us in 1996, served as our Controller until 2000 and served as the Finance
Manager for some of our affiliated entities from 2003 until 2007. Between 1993 and 1996 and between 2000 and 2003, Mr. Erdreich
was the Chief Financial Officer of public companies traded on Nasdaq and the TASE. Mr. Erdreich is a certified public accountant
in Israel and holds a B.A. in Accounting and Economics and an M.A. in Business Administration, both from The Hebrew University
of Jerusalem.



Eyal Shohat has served as our Chief
Corporate Development Officer since January 2015. Prior thereto, Mr. Shohat served as our Chief Legal Officer since May 2010. From
2007 to April 2010, Mr. Shohat was Vice President, Legal Affairs of Frutarom Industries Ltd., a public company listed on the TASE
and the London Stock Exchange. From 2002 to 2006, Mr. Shohat served as Legal Counsel for Frutarom. Mr. Shohat holds a B.A. in Accounting,
an L.L.B. and an M.B.A., each from Tel Aviv University.



Matti Yahav has served as our Vice President,
Global Marketing since June 2015. Mr. Yahav joined us in January 2015 and served as our Product Marketing Director. From
2008 to 2014, Mr. Yahav worked at Osem-Nestle in various marketing roles, including Marketing Manager and Brand Manager. Mr. Yahav
holds a B.A. in Economics and Management from the Academic College of Tel Aviv - Yaffo and an M.B.A. from Tel Aviv University.



Galit Zucker has served as our Chief
People Officer since November 2016. Prior thereto, Ms. Zucker served as Head of Global Delivery, Human Resources at Amdocs Ltd.
(Nasdaq: DOX) from March 2013 to October 2016. From October 2010 to December 2012, Ms. Zucker served as Head of Learning and Organizational
Development at Better Place Ltd., and from September 2009 to October 2010, as Director of Human Resources, Customer Service Division
at Bezeq International Ltd. Prior to that, from 1999 to 2004, she served as Manager of Human Resources at Cellcom Ltd. (NYSE: CEL).
Ms. Zucker holds a B.A. in Economics and Business Administration from Bar-Ilan University.



37







Directors



Stanley Stern has served as a member
of our board of directors since February 2015 and as Chairman of our board of directors since December 2015. Since February 2013,
Mr. Stern has served as the President of Alnitak Capital Partners, a private merchant bank and strategic advisory firm. Since December
2012, Mr. Stern has served as Chairman of the board of directors of AudioCodes Ltd. (Nasdaq:AUDC). He also currently serves on
the board of directors of Foamix Pharmaceuticals Ltd. (Nasdaq:FOMX), Ormat Technologies, Inc. (NYSE:ORA), Ekso Bionics (OTCQB:EKSO)
and Tigo Energy, Inc. Mr. Stern has over 30 years of experience as an investment banker, holding positions at Salomon Brothers,
C.E. Unterberg, STI Ventures, and between 1982 and 1999, and again between 2004 and 2013, at Oppenheimer & Co., including as
Managing Director and Head of Investment Banking, Head of Technology, Israeli Banking and Financial Institutions Groups (FIG).
From 2012 until its sale in 2014, he served as a director of Given Imaging Ltd., a medical device company. From 2002 until 2013,
Mr. Stern served as a director of Tucows, Inc., a publicly traded internet service provider, including as Chairman of the board
of directors from 2002 until 2012. From 2005 until its sale in 2011, he served as a director and Chairman of the audit committee
of Fundtech Ltd., and from 2004 until 2009, Mr. Stern served as a director of Odimo Inc. (DBA Diamond.com), an online jewelry vendor.
Mr. Stern holds an M.B.A. from Harvard Business School and a B.A. from Queens College.



Lauri A. Hanover has served as a member
of our board of directors since November 2010. Since August 2013, Ms. Hanover has served as Vice President and Chief Financial
Officer of Netafim Ltd. Between May 2009 and July 2013, she served as Executive Vice President and Chief Financial Officer of Tnuva
Group. From January 2008 through April 2009, she served as Chief Executive Officer of Gross, Kleinhendler, Hodak, Halevy and Greenberg
& Co., an Israeli law firm. From August 2004 through December 2007, she served as Senior Vice President and Chief Financial
Officer of Lumenis Ltd., a medical device company, and from 2000 to 2004, she served as Corporate Vice President and Chief Financial
Officer of NICE Systems Ltd., an interaction and transaction analytics company. From 1997 to 2000, she served as Executive Vice
President and Chief Financial Officer of Sapiens International Corporation N.V. From 1984 to 1997, Ms. Hanover served in a variety
of financial management positions, including Corporate Controller at Scitex Corporation Ltd., and from 1981 to 1984 as Financial
Analyst at Philip Morris Inc. (Altria). Ms. Hanover currently serves as an external director of Kornit Digital Ltd. (Nasdaq:KRNT)
and previously served as an external director of Nova Measuring Instruments Ltd. and Ellomay Capital Ltd. Ms. Hanover holds a B.S.
in Finance from the Wharton School of Business and a B.A. from the College of Arts and Sciences, both of the University of Pennsylvania.
Ms. Hanover also holds an M.B.A. from New York University.



David Morris has served as a member
of our board of directors since October 2010. Mr. Morris served as an observer on our board of directors from 2002 to 2006 and,
since 2007, served as an alternate director to his father, the late Conrad Morris, one of the early and active investors in Soda
Club NV, our predecessor company. Mr. Morris is an advisor to a group of companies with extensive business and property investments.
Additionally, he manages an extensive property portfolio in the United Kingdom and the Ukraine. Mr. Morris is a director of PC
Clothing Ltd. and is a partner at K.D.M. Partners LLP, both in the United Kingdom. He is also involved in numerous charitable and
community endeavors in Europe and Israel. Mr. Morris holds a B.A. in Business Studies from the University of Westminster.



Jonathan Kolodny has served as a member
of our board of directors since December 2015. Mr. Kolodny has served as Chief Executive Officer of Keter Plastic Ltd. since October
2016. Prior to that, from 2013 to 2016, he served as Chief Executive Officer of Jardin International Holding of the Keter Group.
Between 1994 and 2013, Mr. Kolodny held various positions at McKinsey & Company, including as a Director and Senior Partner
from 2007 until 2013. Mr. Kolodny received a B.A. in Computer Science from Harvard College and a Ph.D. in Cognitive Neuroscience
from the University of Cambridge.



Richard Hunter has served as a member
of our board of directors since December 2015. Mr. Hunter has served as Chairman of Holmes Place International, a European health
club operator, since 2012, a director of Gad Dairy, an Israeli dairy, since 2016 and SuperCofix, an Israeli discount supermarket
chain, since 2016. In 2013, Mr. Hunter co-founded Green Lantern, a private equity firm focusing on investments in consumer packaged
goods businesses. In addition, from 2012 to 2015, Mr. Hunter has served as Chief Executive Officer of McCann Tel Aviv, an advertising,
media, and digital agency. From 2010 to 2012, Mr. Hunter served as Chief Operating Officer of Shufersal, one of Israel’s
largest supermarket chains. Prior to that, from 2007 to 2010, he served as Chief Executive Officer of 013 Netvision, an Israeli
telecommunications company. From 1999 to 2007, Mr. Hunter held various positions at McKinsey & Company, including Partner,
where he focused on retail and consumer packaged goods (CPG). Mr. Hunter received an LL.B. from the College of Management in Tel
Aviv, and an M.B.A. from INSEAD in Fontainebleau, France.



Avishai Abrahami has served as a member
of our board of directors since May 2016. Mr. Abrahami is the co-founder of Wix.com Ltd. (Nasdaq:WIX), where he has served as the
Chief Executive Officer since September 2010 and as a director since 2006. He also served as Chairman of the board of directors
of Wix from November 2013 until February 2016 and as Co-Chief Executive Officer from 2006 until 2010. From 2004 to 2006, Mr. Abrahami
was the Vice President of strategic alliances at Arel Communications and Software Ltd. In 1998, Mr. Abrahami co-founded Sphera
Corporation, a company which develops software for managing data centers, and served as its Chief Technology Officer from 1998
until 2000 and as its Vice President of product marketing from 2000 until 2003. In 1993, he co-founded AIT Ltd., a software
company, and served as its Chief Technology Officer until the company’s sale in 1997.



38







Professor Yehezkel (Chezy) Ofir has
served as a member of our board of directors since May 2016. Professor Ofir has over 30 years of business consulting experience
and, over the past 25 years, served as a director at various companies, including as an external director of Adama Agricultural
Solutions Ltd. from 2012 until 2015, as a director at Shufersal Ltd. (TASE: SAE) from 2004 to 2010, and as a director at Alon Blue
Square Israel Ltd. (formerly, Blue Square Israel) from 1995 until 2001. He has served as a director at Micronet Enertec Technologies,
Inc. (Nasdaq:MICT) since April 2013 and also serves as acting Chairman of the Board of Directors of the Israeli Postal Bank Company
Ltd. Professor Ofir is a faculty member at The Hebrew University of Jerusalem. Professor Ofir holds a B.Sc. and an M.Sc. in Industrial
Engineering from Ben Gurion University and a Ph.D. and an M.Phil. in Business Administration from Columbia University.



Torsten Kosterhas served as a member
of our board of directors since December 2016. Mr. Torsten has served as a member of the board of directors of Banque Heritage
in Geneva, Switzerland since April 2016. From March to October 2015, Mr. Koster served as group Chief Financial Officer of Nestlé
Skin Health S.A. From March 2011 to March 2015, he served as group Chief Financial Officer of Nestlé Nespresso S.A. From
March 2007 to March 2011, Mr. Koster served as Chief Financial Officer of Nestlé Russia and Eurasia. From June 2006 to March
2007, he served as Finance Project Manager of Nestlé S.A. (VX:NESN) and, prior to that, he served as its Deputy Head Of
Internal Audit from August 2003 to June 2006. Mr. Koster served as Chief Financial Officer of ELCA Informatique S.A. from 2000
to 2003 and as Chief Financial Officer of Lukoil S.A. from 1998 to 2000. Between 1991 and 1999, Mr. Koster served in various finance
positions at Nestlé S.A. Mr. Koster holds an M.B.A. from HEC – Université de Lausanne.



| | B. | Compensation
| | -- | ------------



Compensation of officers and directors



The aggregate compensation expensed by us and
our subsidiaries to our directors and executive officers, including share-based compensation and amounts accrued for pension, severance,
retirement or similar benefits, for the year ended December 31, 2016, was approximately $6.2 million. This amount does not include
any business travel, relocation, professional and business association dues and expenses reimbursed to directors and executive
officers, and other benefits commonly reimbursed or paid by companies in Israel.



We pay each of our non-employee directors an
annual cash retainer of $30,000, a per meeting fee of $500 for any board or committee meeting attended (including via remote communication)
and a fee of $250 per written consent of the board or a committee thereof. The chairman of our board of directors receives an annual
cash retainer of $60,000. We also reimburse our directors for expenses arising from their board membership. Of our current non-employee
directors, each of Ms. Hanover and Mr. Morris was granted options to purchase 30,000 of our ordinary shares upon the consummation
of our IPO, at an exercise price of $20.00 per share and in December 2013, was granted options to purchase 20,000 of our ordinary
shares, at an exercise price of $52.24 per share. All of such options have vested. Of our current non-employee directors, in December
2015, Messrs. Stern, Kolodny and Hunter were each granted options to purchase 30,000 of our ordinary shares, at an exercise price
of $15.49, $15.00 and $15.00 per share, respectively. One third of such options have vested and the remainder will vest in equal
installments in November 2017 and November 2018. Our board of directors has approved grants of options to purchase 30,000 of our
ordinary shares to each of Messrs. Abrahami, Ofir and Koster at an exercise price of $14.73, $14.73 and $40.97 per share, respectively.
Such grants are subject to shareholder approval, which as of the date of this annual report, has not been received.



For certain arrangements with our chief executive
officer, see “Item 6. B. — Compensation — Compensation of officers and directors —
Certain arrangements with Daniel Birnbaum.”



Summary compensation table



The below table presents the compensation,
on an individual basis, of our five most highly compensated office holders with respect to the year ended December 31, 2016 as
required by regulations promulgated under the Companies Law.



All amounts set forth in the below table are
in U.S. dollars and, except as otherwise indicated, represent the cost to our company, as recognized in our audited consolidated
financial statements for the year ended December 31, 2016.



|Name and Position                               |  | Salary(1) |         |  | 2016
    AnnualBonus(2) |  |         | Equity-BasedCompensation(3) |  |  | Total     | 
|----------------------------------------------- |  | --------- | ------- |  | ----------------------- |  | ------- | --------------------------- |  |  | --------- | 
|Daniel Birnbaum Chief Executive Officer         |  |           | 451,444 |  |                         |  | 365,344 | (4)                         |  |  | 1,882,801 | 
|Daniel Erdreich Chief Financial Officer         |  |           | 342,892 |  |                         |  | 117,432 |                             |  |  | 399,653   | 
|Eyal Shohat Chief Corporate Development Officer |  |           | 256,609 |  |                         |  | 117,432 |                             |  |  | 267,339   | 
|Amir Eyal Chief Operations Officer(5)           |  |           | 284,903 |  |                         |  | -       |                             |  |  | 187,086   | 
|Matti Yahav Vice President, Global Marketing    |  |           | 176,498 |  |                         |  | 86,117  |                             |  |  | 123,469   | 



| | (1) | Amounts reported in this column include salary, social
benefits and perquisites, including those mandated by applicable law.
| | --- | ----------------------------------------------------------------------------------------------------------------------------

| | (2) | The payment of the bonus amount is subject to our
revised compensation policy being ratified.
| | --- | ---------------------------------------------------------------------------------------------

| | (3) | Amounts reported in this column represent the expense
recorded in our audited consolidated financial statements for the year ended December 31, 2016 based on the grant date fair value
in accordance with accounting guidance for share-based payment. See Notes 3K(5), 4D and 26 to our audited consolidated financial
statements for the year ended December 31, 2016.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Does not include the Deferred Conditional Bonus Amount.
For details, see “— Certain arrangements with Daniel Birnbaum” below.
| | --- | -----------------------------------------------------------------------------------------------------------------------------

| | (5) | Mr. Eyal ceased serving in the capacity of our Chief
Operations Officer in 2017.
| | --- | --------------------------------------------------------------------------------



39







Certain arrangements with Daniel Birnbaum



On December 20, 2012, our shareholders approved
the following changes to the compensation package given to Mr. Birnbaum including an increase in (1) gross monthly salary to NIS
0.1 million (approximately $27,000) per month, (2) annual paid vacation to 30 days per year and (3) our contribution to the chief
executive officer’s education fund to 7.5% of the chief executive officer’s monthly gross salary without limitation
to the amount that provides a tax benefit under the Israeli Tax Ordinance. The above changes were deemed effective as of January
1, 2012. In addition, our shareholders approved, for the year 2013 and thereafter, an annual cash bonus plan for the chief executive
officer of an amount equal to a maximum of up to an amount that equals 14 months of the chief executive officer’s gross monthly
salary that is in effect at the time of payment, of which an amount equal to up to 12 months of the chief executive officer’s
gross monthly salary will be paid if quantitative targets have been reached and an additional amount equal to up to two months
of the chief executive officer’s gross monthly salary will be paid if qualitative targets have been reached. The quantitative
targets for each fiscal year shall be set by the board of directors at the time of approving the annual budget for such year, provided,
that such approval shall not take place later than March 31 of any given year.



In April 2016, Mr. Daniel Birnbaum unilaterally
notified us that 50% of the 2015 annual bonus amount to which he was entitled under the terms of the annual cash bonus plan for
our chief executive officer for 2015 and 50% of the bonus amount to which he was entitled under the four-year long-term incentive
plan for our chief executive officer that was adopted in December 2012, in the aggregate amount of $726,870 (the “Deferred
Conditional Bonus Amount”) shall, subject to certain conditions, be deferred and only be payable if we achieve a performance
condition that our operating income for the year ending December 31, 2016, as disclosed in our consolidated financial results for
the year ending December 31, 2016 on Form 6-K, equals or exceeds the targeted amount set forth in our annual budget approved by
our board of directors (excluding expenses resulting from exceptional non-recurring events). The Deferred Conditional Bonus Amount
was recognized in our audited consolidated financial statements in 2014 and 2015. The performance condition was achieved and the
Deferred Conditional Bonus Amount was paid to Mr. Birnbaum in 2017.



On December 22, 2015, our shareholders approved
a grant of options to purchase 600,000 of our ordinary shares to Mr. Birnbaum with an exercise price of $15.00 per share. 300,000
of the options vested as of the date of grant; 150,000 of the options vested in November 2016, and are exercisable; and 150,000
of the options vest in November 2017, provided, however, that such options shall only become exercisable if at any time following
November 26, 2017, the closing price of our ordinary shares for any five consecutive trading days exceeds $27.00.



On December 22, 2015, our shareholders also
approved, in the event of a “strategic investment” (as defined below), a one-time grant of options to Mr. Birnbaum
to purchase 100,000 of our ordinary shares, provided that Mr. Birnbaum is serving as our chief executive officer at the time of
the closing of the strategic investment. Such options, if granted, will vest over three years as follows: 33,333 options will vest
on the first year anniversary of the closing of the strategic investment and the remainder will vest at the end of each three-month
period over the second and third year following the closing of the strategic investment. The exercise price of such options will
equal the price paid by the investor at the closing of the strategic investment for one of our shares. A “strategic investment”
means an investment in shares of the Company by a third party who is not a director or officer of the Company or an affiliate of
any of the foregoing, in a transaction or a series of related transactions, in the aggregate amount of not less than $25.0 million
and regarding which, in the reasonable judgment of our board of directors, the identity of such investor or such investor would
make a contribution to the prospects of the Company beyond the actual sum for the purchase of the shares of the Company.



Our shareholders also approved, in the event
of a strategic investment, that a one-time cash bonus be paid to Mr. Birnbaum in an amount equal to 1.0% of the cash amount invested
by the investor at the closing of the strategic investment, up to a maximum bonus amount of $500,000, provided that Mr. Birnbaum
is serving as our chief executive officer at the time of the closing of the strategic investment.



Companies Law requirements



Pursuant to the Companies Law, the compensation
(including insurance, indemnification and exculpation) of our directors requires the approval of our compensation committee, the
subsequent approval of the board of directors and, unless exempted under regulations promulgated under the Companies Law, the approval
of the shareholders at a general meeting. If the compensation of our directors is inconsistent with our stated compensation policy,
then the approval of the company’s shareholders requires that either:



| | • | a majority of the shares held by shareholders who are not controlling shareholders and do not have a personal interest in such matter and who are present and voting at the meeting, are voted in favor of approving the compensation package, excluding abstentions; or
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



40







| | • | the total number of shares voted by non-controlling shareholders and shareholders who do not have a personal interest in such matter that are voted against the compensation package does not exceed 2% of the aggregate voting rights in the company.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The compensation (including insurance, indemnification
and exculpation) of a public company’s office holders (other than directors as described above, and the chief executive officer
as described below) is, subject to certain exceptions, to be approved first by the compensation committee; second by the company’s
board of directors; and third, if such compensation arrangement is inconsistent with the company’s stated compensation policy,
the company’s shareholders provided that either:



| | • | a majority of the shares held by shareholders who are not controlling shareholders and do not have a personal interest in such matter and who are present and voting at the meeting are voted in favor of approving the compensation package, excluding abstentions; or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in such matter voting against the compensation package does not exceed 2% of the aggregate voting rights in the company.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under the Companies Law, if the shareholders
of the company do not approve the compensation arrangement with an office holder who is not a director, including the chief executive
officer, the compensation committee and board of directors may override the shareholders’ decision, subject to certain conditions.
Under certain circumstances, the compensation committee and board of directors may waive the shareholder approval requirement in
respect of the compensation arrangements with a candidate for chief executive officer if they determine that the compensation arrangements
are consistent with the company’s stated compensation policy.



In the event that an existing compensation
arrangement with an office holder who is not a director, including the chief executive officer, is amended, only the approval of
the compensation committee is required, so long as the compensation committee determines that the amendment is not material in
relation to the existing compensation arrangement. With regards to an office holder who is neither a director nor the chief executive
officer, an existing compensation arrangement may be amended with the approval of the chief executive officer, so long as the amendment
is not material and is consistent with the company’s stated compensation policy and that such approval method is provided
for in the company’s stated compensation policy. Where the office holder is also a controlling shareholder, the requirements
for approval of transactions with controlling shareholders apply as described below under “— Disclosure of personal
interests of a controlling shareholders and approval of certain transactions.”



Employment and consulting agreements with executive officers



We have entered into written employment agreements
with each of our executive officers. See “Item 7.B. — Related Party Transactions — Agreements
with directors and officers” for additional information.



Directors’ service contracts



There are no arrangements or understandings
between us and any of our subsidiaries, on the one hand, and any of our non-employee directors, on the other hand, providing for
benefits upon termination of their employment or service as directors of our company or any of our subsidiaries.



Option plans



In 2007, we adopted the 2007 Employee Share
Option Plan (the “2007 Plan”) and, in October 2010, we adopted the 2010 Employee Share Option Plan (the “2010
Plan”, and together with the 2007 Plan, the “ESOP”). The ESOP allows us to grant options to purchase ordinary
shares and other equity awards to our employees, directors, service providers, and consultants, and those of our subsidiaries,
and to others who our compensation committee considers valuable to us. The ESOP is intended to benefit us by enhancing our ability
to attract and retain qualified individuals and increasing their ownership interests in us. The following is a summary of the material
terms of the ESOP.



We currently have outstanding options to purchase our ordinary shares
and restricted share units that were granted under the ESOP. As of December 31, 2016, no ordinary shares remained available for
new equity awards under the 2007 Plan and 550,414 ordinary shares remained available for new equity awards under the 2010 Plan.
As of December 31, 2016, options to purchase 1,430,111 ordinary shares had been granted and were outstanding under the ESOP, at
a weighted average exercise price of $19.07 per share and restricted share units to purchase 90,776 ordinary shares were outstanding.
Of these outstanding awards, as of December 31, 2016, options to purchase 1,019,031 ordinary shares were vested and exercisable.



The vesting schedules for equity awards granted
under the ESOP generally provide that 25% or 33.3% of the equity awards will vest one year after the date of grant and the remainder
will vest in equal portions at the end of each three-month period thereafter over four or three years, respectively. The equity
awards granted as of February 23, 2012, will expire 10 years after the date of grant. Equity awards granted on or after February
23, 2012, but prior to February 26, 2013, will expire six years after the date of grant. Equity awards granted on or after February
26, 2013 generally expire five years after the date of grant if not exercised earlier. In general, when a grantee’s employment
or service with us terminates, his or her equity awards will no longer continue to vest following termination, and the holder may
exercise any vested equity awards for a period of 180 days following termination without cause. If a grantee’s employment
with us terminates due to disability or if the termination of employment results from his or her death, then the grantee or his
or her estate (as applicable) generally has 12 months to exercise the equity award; however, the equity award may not be exercised
after its scheduled expiration date. If termination of employment results from the dismissal of the grantee for cause, his or her
outstanding equity awards will expire upon termination.



41







Under certain circumstances, ordinary shares
underlying equity awards previously granted under the ESOP may again become available for grant. Such circumstances include if
an equity award should expire or become unexercisable without having been exercised in full.



The exercise prices, if applicable, is determined
by the compensation committee and specified in each award agreement. In general, the exercise price for options is the fair market
value of our shares on the date of grant as determined in good faith by our board of directors.



We have elected to issue our options, restricted
share units and shares granted or issued to most of our Israeli participants in the ESOP under Section 102(b)(3) of the Israeli
Income Tax Ordinance, which is the capital gains track. Options, restricted share units and shares granted or issued in accordance
with the capital gains track under the ESOP are granted or issued to a trustee and are held by the trustee for two years from the
date of grant or issuance. Under the capital gains track, we are not allowed an Israeli tax deduction for the grant or issuance
of the options, restricted share units or shares.



Our compensation committee administers the
ESOP. However, our board of directors has residual authority to exercise any powers or duties of the compensation committee concerning
the ESOP. The compensation committee determines the eligible individuals who receive equity awards under the ESOP, the number of
ordinary shares covered by those equity awards, the terms under which such equity awards may be exercised and the other terms and
conditions of the equity awards, all in accordance with the provisions of the ESOP.



Participants in the ESOP may not transfer their
equity awards, except in the event of death or if the compensation committee determines otherwise.



In the case of certain changes in our share
capital structure, such as a consolidation or share split or dividend, appropriate adjustments will be made to the numbers of shares
subject to equity awards and exercise prices, if applicable.



In the event that we undergo a transaction,
as described below, subject to any contrary law or rule, or the terms of any award agreement in effect before the transaction,
any unexercised equity awards will be replaced by equally ranking equity awards of the successor company. If the successor company
refuses to issue replacement equity awards, the vesting and exercisability of outstanding equity awards may (in the discretion
of the compensation committee and the board of directors) be accelerated prior to a transaction. The ESOP defines a transaction
as (a) a merger, acquisition or reorganization of the company with one or more entities in which we are not the surviving entity,
or (b) a sale of all or substantially all of the company’s assets or shares. In the event that a proposal for liquidation
is submitted to shareholders, certain award holders will also be entitled to exercise their awards during a 10-day period to participate
in a liquidation distribution. In the event of a change of control in the company, options granted to our executive officers, including
our chief executive officer, may be accelerated and become exercisable as at the date on which the change of control will become
effective.



Our compensation committee and/or board of
directors may at any time amend or terminate the ESOP; however, any amendment or termination may not adversely affect any options
or shares granted under the ESOP prior to such action. The ESOP provides that if the board of directors desires, it can, with the
consent of the award holder, cancel an outstanding award or amend an outstanding award, including, if applicable, the exercise
price. For amendments affecting our directors and officers, compensation committee and/or shareholder approval may also be necessary.
See “Item 6.C. — Board Practices — Fiduciary duties and approval of specified related party
transactions under Israeli law.”



The following table provides information regarding
the options to purchase our ordinary shares held by each of our directors and officers who beneficially own greater than 1% of
our ordinary shares or options to purchase more than 1% of our ordinary shares as of December 31, 2016:



|Name (Title)                         |  | Number of Option(s) |         |     | Exercise Price |   |       | Expiration Date |  | Total Shares Underlying Options | 
|------------------------------------ |  | ------------------- | ------- | --- | -------------- | - | ----- | --------------- |  | ------------------------------- | 
|Daniel Birnbaum,                     |  |                     | 210,000 | (1) |                | $ | 20.00 |                 |  | Nov. 2, 2020                    | 
|Chief Executive Officer and Director |  |                     |         |     |                |   |       |                 |  |                                 | 
|                                     |  |                     |         |     |                |   |       |                 |  |                                 | 
|                                     |  |                     | 600,000 |     |                | $ | 15.00 |                 |  | Nov. 26, 2020                   | 
|                                     |  |                     |         |     |                |   |       |                 |  |                                 | 



(1)Exercised subsequent to December
31, 2016.



42







| | C. | Board Practices
| | -- | ---------------



Board of directors and officers



Our board of directors currently consists of
nine directors.



Our articles of association provide that we
may have between five and nine directors. Removal of any director shall be upon the vote of the holders of two-thirds of our voting
shares, except as provided by applicable law.



Under our articles of association, our directors
are divided into three classes (other than the external directors, if applicable; see — “External directors”).
Each class of directors consists, as nearly as possible, of one-third of the total number of directors constituting the entire
board of directors (other than external directors when applicable). At each annual general meeting of our shareholders, the election
or re-election of directors following the expiration of the term of office of the directors of that class of directors, will be
for a term of office that expires on the third annual general meeting following such election or re-election, such that each year
the term of office of only one class of directors will expire. Class I directors, consisting of Mr. Daniel Birnbaum, Mr. Jonathan
Kolodny and Mr. Torsten Koster, will hold office until our annual meeting of shareholders to be held in 2017. Class II directors,
consisting of Ms. Lauri Hanover, Mr. Stanley Stern and Mr. Avishai Abrahami, will hold office until our annual meeting of shareholders
to be held in 2018. Class III directors, consisting of Mr. David Morris, Mr. Richard Hunter and Prof. Yehezkel (Chezy) Ofir, will
hold office until our annual meeting of shareholders to be held in 2019. The directors shall be elected by a vote of the holders
of a majority of the voting power present and voting at that meeting (excluding abstentions). Each director will hold office until
the annual general meeting of our shareholders for the year in which his or her term expires, unless the tenure of such director
expires earlier pursuant to the Companies Law or unless he or she is removed from office as described above.



The articles relating to the number of directors,
staggered board and election and removal of a director from office may be changed only by a resolution adopted by two-thirds of
our voting shares. Vacancies on our board of directors, including vacancies resulting from there being fewer than the maximum number
of directors permitted by our articles, may be filled by a vote of a simple majority of the directors then in office, including
if the number of directors then in office is less than five. Directors so chosen or appointed shall be apportioned among the classes
so as to maintain the number of directors in each class as nearly equal as possible.



In addition, under the Companies Law, our board
of directors must determine the minimum number of directors who are required to have financial and accounting expertise. Under
applicable regulations, a director with financial and accounting expertise is a director who, by reason of his or her education,
professional experience and skill, has a high level of proficiency in and understanding of business accounting matters and financial
statements. He or she must be able to thoroughly comprehend the financial statements of the listed company and initiate debate
regarding the manner in which financial information is presented. In determining the number of directors required to have such
expertise, the board of directors must consider, among other things, the type and size of the company and the scope and complexity
of its operations. Our board of directors has determined that we require at least one director with the requisite financial and
accounting expertise. Ms. Hanover has such financial and accounting expertise.



Each of our executive officers serves at the
discretion of the board of directors and holds office until his or her resignation or removal. There are no family relationships
among any of our directors or executive officers.



External directors



Qualifications of external directors



Under the Companies Law, companies incorporated
under the laws of the State of Israel that are “public companies,” including companies with shares listed on the Nasdaq
Global Select Market, are required to appoint at least two external directors. External directors must meet certain independence
criteria to ensure that they are unaffiliated with the company and its controlling shareholder, as well certain other criteria.
External directors are elected for three-year terms in accordance with specific rules set forth in the Companies Law and the regulations
promulgated thereunder and may be removed from office only under limited circumstances. Under the Companies Law, each committee
of a company’s board of directors that is authorized to exercise powers of the board of directors is required to include
at least one external director, and all external directors must be members of the company’s audit committee and compensation
committee.



Pursuant to regulations promulgated under the
Companies Law, companies with shares traded on a U.S. stock exchange, including the Nasdaq Global Select Market, may, subject to
certain conditions, “opt out” from the Companies Law requirements to appoint external directors and related Companies
Law rules concerning the composition of the audit committee and compensation committee of the board of directors. In accordance
with these regulations, we elected to “opt out” from the Companies Law requirements to appoint external directors and
related Companies Law rules concerning the composition of the audit committee and compensation committee of the board of directors.



Under these regulations, the exemptions from
such Companies Law requirements will continue to be available to us so long as: (i) we do not have a “controlling shareholder”
(as such term is defined under the Companies Law), (ii) our shares are traded on a U.S. stock exchange, including the Nasdaq Global
Select Market, and (iii) we comply with the director independence requirements, the audit committee and the compensation committee
composition requirements, under U.S. laws (including applicable Nasdaq Rules) applicable to U.S. domestic issuers.



43







Audit committee



Under the Companies Law, the board of directors
of any public company must appoint an audit committee. Our audit committee consists of Ms. Hanover and Messrs. Hunter, Ofir and
Koster. The chairperson of the audit committee is Ms. Hanover.



Nasdaq requirements



Under the Nasdaq Rules, we are required to
maintain 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.



Ms. Hanover is an audit committee financial expert as defined by
the SEC rules and has the requisite financial sophistication as defined by the Nasdaq Rules. Our board of directors has determined
that each member of our audit committee is independent as such term is defined in Rule 10A-3 under the Exchange Act, and that each
member of our audit committee satisfies the additional requirements applicable under the Nasdaq Rules to members of audit committees.



Approval of transactions with related
parties



Under the Companies Law, the approval of the
audit committee is required to effect specified actions and transactions with office holders and controlling shareholders, or in
which they have a personal interest. See “— Fiduciary duties and approval of specified related party transactions under
Israeli law.” The term “controlling shareholder” means a shareholder with the ability to direct the activities
of the company, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the
shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the
company or its general manager. For the purpose of approving transactions with controlling shareholders, the term “controlling
shareholder” also includes any shareholder that holds 25% or more of the voting rights of the company if no other shareholder
holds more than 50% of the voting rights in the company. For purposes of determining the holding percentage stated above, two or
more shareholders who have a personal interest in a transaction that is brought for the company’s approval are deemed as
joint holders.



Audit committee role



Our board of directors has adopted an audit
committee charter setting forth the responsibilities of the audit committee consistent with the rules of the SEC and the Nasdaq
Rules, which include:



| | • | retaining and terminating our independent auditors, subject to shareholder ratification;
| | - | ----------------------------------------------------------------------------------------



| | • | pre-approval of audit and non-audit services provided by the independent auditors;
| | - | ----------------------------------------------------------------------------------



| | • | examining our quarterly and annual financial reports prior to their submission to the board of directors;
| | - | ---------------------------------------------------------------------------------------------------------



| | • | to determine whether to classify certain arrangements or transactions as requiring special approval under the Companies Law;
| | - | ----------------------------------------------------------------------------------------------------------------------------



| | • | determining whether there are delinquencies in the business management practices of our company, including in consultation with our internal auditor or our independent auditor, and making recommendations to the board of directors to improve such practices;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | determining whether to approve certain related party transactions (including compensation of office holders or transactions in which an office holder has a personal interest and whether such transaction is material);
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | where the board of directors approves the working plan of the internal audit, examining such working plan before its submission to the board of directors and proposing amendments thereto;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of his or her responsibilities (taking into consideration our special needs and size);
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | examining the scope of our auditor’s work and compensation and submitting its recommendation with respect thereto to the corporate body considering the appointment thereof (either the board of directors or the general meeting of shareholders); and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to such employees.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



44







Additionally, under the Companies Law, the
role of the audit committee includes identifying irregularities in our business management in consultation with the internal auditor
or our independent auditors and suggesting an appropriate course of action to the board of directors, and approving the yearly
or periodic work plan proposed by the internal auditor to the extent required.



The audit committee charter states that in
fulfilling its obligations, the committee is entitled to demand from us any document, file, report or any other information that
is required for the fulfillment of its roles and duties and to interview any of our employees or any employees of our subsidiaries
in order to receive more details about his or her line of work or other issues that are connected to the roles and duties of the
audit committee.



Compensation committee



Our compensation committee consists of Ms.
Hanover and Messrs. Stern, and Morris. The chairperson of the compensation committee is Ms. Hanover.



Under the Companies Law, companies incorporated
under the laws of Israel whose shares are listed for trading on a stock exchange or have been offered to the public in or outside
of Israel, such as us, are required to adopt a policy governing the compensation of “office holders” (as defined in
the Companies Law). Following the recommendation of our compensation committee and approval by our board of directors, our shareholders
approved such a compensation policy at our annual general meeting of shareholders held in December 2013 and approved an amendment
thereto at our annual general meeting of shareholders held in December 2015. Our compensation policies are to be approved at least
once every three years, first, by our board of directors, upon recommendation of our compensation committee, and second, by a majority
of the ordinary shares present, in person or by proxy, and voting at a shareholders meeting, provided that either: (a) such majority
includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal
interest in such compensation arrangement and who are present and voting (excluding abstentions); or (b) the total number of shares
of non-controlling shareholders and shareholders who do not have a personal interest in the compensation arrangement and who vote
against the arrangement does not exceed 2% of the company’s aggregate voting rights. We refer to this as the Special Approval
for Compensation. Our board of directors has approved a revised compensation
policy, which is subject to ratification by our shareholders. Under the Companies Law, subject to certain conditions, the board
of directors may ratify the compensation policy even if it is not ratified by the shareholders.



Our board of directors has adopted a compensation
committee charter setting forth the responsibilities of the committee consistent with the Nasdaq Rules which include:



| | • | reviewing and recommending overall compensation policies with respect to our chief executive officer and other executive officers;
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| | • | reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer and other executive officers including evaluating their performance in light of such goals and objectives;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | reviewing and approving the granting of options and other incentive awards; and
| | - | -------------------------------------------------------------------------------



| | • | reviewing, evaluating and making recommendations regarding the compensation and benefits for our non-employee directors.
| | - | ------------------------------------------------------------------------------------------------------------------------



The Compensation Committee is also authorized
to retain and terminate compensation consultants, legal counsel or other advisors to the committee and to approve the engagement
of any such consultant, counsel or advisor, to the extent it deems necessary or advisable.



Our board of directors has determined that each member of our compensation
committee is independent under the Nasdaq Rules, including the additional independence requirements applicable to the members of
a compensation committee.



Nominating and governance committee



Our nominating and governance committee consists
of Messrs. Stern, Ofir, and Morris.



Our board of directors has adopted a nominating
and governance committee charter setting forth the responsibilities of the committee consistent with the Nasdaq Rules which include:



| | • | reviewing and recommending nominees for election as directors;
| | - | --------------------------------------------------------------



| | • | developing and recommending to our board corporate governance guidelines and a code of conduct and ethics for our directors, officers and employees in compliance with applicable law;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | reviewing developments relating to corporate governance issues;
| | - | ---------------------------------------------------------------



45







| | • | reviewing and making recommendations regarding board member skills and qualifications, the nature of duties of board committees and other corporate governance matters; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | establishing procedures for and administering annual performance evaluations of our board.
| | - | ------------------------------------------------------------------------------------------



Our board of directors has determined that
each member of our nominating and governance committee is independent under the Nasdaq Rules.



Internal auditor



Under the Companies Law, the board of directors
of a public company must appoint an internal auditor based on the recommendation of the audit committee. The role of the internal
auditor is, among other things, to examine whether a company’s actions comply with applicable law and orderly business procedure.
Under the Companies Law, the internal auditor may be an employee of the company but not an interested party or an office holder
or a relative of an interested party or an office holder, nor may the internal auditor be the company’s independent auditor
or its representative. An “interested party” is defined in the Companies Law as: (i) a holder of 5% or more of the
issued share capital or voting power in a company, (ii) any person or entity who has the right to designate one or more directors
or to designate the chief executive officer of the company, or (iii) any person who serves as a director or as a chief executive
officer of the company.



Ms. Ilana Shchory serves as our internal auditor. Ms. Shchory is
a certified internal auditor and a certified public accountant and serves as a partner of the Israeli accounting firm of Barzily
& Co.



Fiduciary duties and approval of specified related party transactions
under Israeli law



Fiduciary duties of office holders



The Companies Law imposes a duty of care and
a duty of loyalty on all office holders of a company.



The duty of care of an office holder is based
on the duty of care set forth in connection with the tort of negligence under the Israeli Torts Ordinance (New Version), 5728-1968.
This duty of care requires an office holder to act with the degree of proficiency with which a reasonable office holder in the
same position would have acted under the same circumstances. The duty of care includes a duty to use reasonable means, in light
of the circumstances, to obtain:



| | • | information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | • | all
other important information pertaining to these actions.
| | - | ------------------------------------------------------------



The duty of loyalty requires an office holder
to act in good faith and for the benefit of the company, and includes the duty to:



| | • | refrain from any act involving a conflict of interest between the performance of his or her duties in the company and his or her other duties or personal affairs;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | refrain from any activity that is competitive with the business of the company;
| | - | -------------------------------------------------------------------------------



| | • | refrain from exploiting any business opportunity of the company for the purpose of gaining a personal benefit for himself or herself or for others; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position as an office holder.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We may approve an act performed in breach of
the duty of loyalty of an office holder provided that the office holder acted in good faith, the act or its approval does not harm
the company, and the office holder discloses his or her personal interest, as described below.



Disclosure of personal interests of an
office holder and approval of acts and transactions



The 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 or documents
relating to any existing or proposed transaction with the company. An interested office holder’s disclosure must be made
promptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. An
office holder is not obliged to make such disclosure if the personal interest of the office holder derives solely from the personal
interest of his or her relative in a transaction that is not considered as an extraordinary transaction.



46







A “personal interest” is defined
under the Companies Law to include the personal interest of a person in an action or a transaction of a company, including the
personal interest of such person’s relative or the interest of any corporation in which the person is an interested party,
but excluding a personal interest stemming solely from the fact of holding shares in the company. A personal interest also includes
the personal interest of a person who grants a voting proxy or the interest of the proxy holder (whether or not the person granting
the proxy has a personal interest), in each case, whether or not the proxy holder has discretion how to vote on the matter.



Under the Companies Law, an “extraordinary
transaction” which requires approval is defined as any of the following:



| | • | a transaction other than in the ordinary course of business;
| | - | ------------------------------------------------------------



| | • | a transaction that is not on market terms; or
| | - | ---------------------------------------------



| | • | a transaction that may have a material impact on the company’s profitability, assets or liabilities.
| | - | ----------------------------------------------------------------------------------------------------



Under the Companies Law, once an office holder
has complied with the above disclosure requirements, a company may approve a transaction between the company and the office holder
or a third-party in which the office holder has a personal interest, or approve an action by the office holder that would otherwise
be deemed a breach of duty of loyalty. However, a company may not approve a transaction or action that is not performed by the
office holder in good faith or unless it is in the company’s interest.



Under the Companies Law, unless the articles
of association of a company provide otherwise, a transaction with an office holder, a transaction with a third party in which the
office holder has a personal interest and an action of an office holder that would otherwise be deemed a breach of duty of loyalty
requires approval of the board of directors. Our articles of association do not provide otherwise.



An extraordinary transaction in which an office holder has a personal
interest requires approval first by the company’s audit committee and subsequently by the board of directors. The compensation
of, or an undertaking to indemnify or insure, an office holder who is not a director requires approval first by the company’s
compensation committee, then by the company’s board of directors, and, if such compensation arrangement or an undertaking
to indemnify or insure is inconsistent with the company’s stated compensation policy or if the office holder is the chief
executive officer (apart from a number of exceptions), then such arrangement is subject to a Special Approval for Compensation.
Arrangements regarding the compensation, indemnification or insurance of a director require the approval of the compensation committee,
board of directors and, subject to certain exceptions, shareholders by an ordinary majority, in that order, and under certain circumstances,
a Special Approval for Compensation.



A director who has a personal interest in a
matter that is considered at a meeting of the board of directors or the audit committee may generally not be present at the meeting
or vote on the matter unless a majority of the directors or members of the audit committee have a personal interest in the matter,
or unless the chairman of the audit committee or board of directors (as applicable) determines that he or she should be present
to present the transaction that is subject to approval. If a majority of the directors have a personal interest in the matter,
such matter also requires approval of the shareholders of the company.



Disclosure of personal interests of a
controlling shareholder and approval of transactions



Under the Companies Law, the disclosure requirements
that apply to an office holder also apply to a controlling shareholder of a public company. See “Audit committee — Approval
of transactions with related parties” for a definition of controlling shareholder. Extraordinary transactions with a controlling
shareholder or in which a controlling shareholder has a personal interest, including a private placement in which a controlling
shareholder has a personal interest, transactions for the provision of services whether directly or indirectly by a controlling
shareholder or his or her relative, or a company such controlling shareholder controls, and transactions concerning the terms of
engagement of a controlling shareholder or a controlling shareholder’s relative, whether as an office holder or an employee,
require the approval of the audit committee, the board of directors and a majority of the shares voted by the shareholders of the
company participating and voting on the matter in a shareholders’ meeting. In addition, the shareholder approval must fulfill
one of the following requirements, which we refer to as a Special Majority:



| | • | at least a majority of the shares held by shareholders who do not have a personal interest in the transaction and are voting at the meeting must be voted in favor of approving the transaction, excluding abstentions; or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the shares voted by shareholders who do not have a personal interest in the transaction who vote against the transaction represent no more than 2% of the voting rights in the company.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



To the extent that any such transaction with
a controlling shareholder is for a period extending beyond three years, approval is required once every three years, unless the
audit committee determines that the duration of the transaction is reasonable given the circumstances related thereto.



47







Arrangements regarding the compensation, indemnification
or insurance of a controlling shareholder in his or her capacity as an office holder require the approval of the compensation committee,
board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent with the company’s
stated compensation policy.



Pursuant to regulations promulgated under the
Companies Law, certain transactions and arrangements with a controlling shareholder or his or her relative, or with directors or
office holders, which would otherwise require approval of a company’s shareholders, may be exempt from shareholder approval
under certain conditions.



In addition, under the Companies Law, our audit
committee is obliged to set the approval process for transactions with a controlling shareholder or in which a controlling shareholder
has a personal interest.



Duties of shareholders



Under the Companies Law, a shareholder has
a duty to refrain from abusing its power in the company and to act in good faith and in an acceptable manner in exercising its
rights and performing its obligations to the company and other shareholders, including, among other things, voting at general meetings
of shareholders on the following matters:



| | • | an amendment to the articles of association;
| | - | --------------------------------------------



| | • | an increase in the company’s authorized share capital;
| | - | ------------------------------------------------------



| | • | a merger; and
| | - | -------------



| | • | the approval of related party transactions and acts of office holders that require shareholder approval.
| | - | --------------------------------------------------------------------------------------------------------



A shareholder also has a general duty to refrain
from discriminating against other shareholders.



The remedies generally available upon a breach
of contract will also apply to a breach of the above mentioned duties, and in the event of discrimination against other shareholders,
additional remedies are available to the injured shareholder.



In addition, any controlling shareholder, any
shareholder that knows that its vote can determine the outcome of a shareholder vote and any shareholder that, under a company’s
articles of association, has the power to appoint or prevent the appointment of an office holder, or has another power with respect
to a company, have a duty to act with fairness towards the company. The Companies Law does not describe the substance of this duty,
except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the
duty to act with fairness, taking the shareholder’s position in the company into account.



Approval of private placements



Under the Companies Law, a significant private
placement of securities requires approval by the board of directors and shareholders. A private placement is considered a significant
private placement if it will cause a person to become a controlling shareholder or if:



| | • | the securities issued amount to 20% or more of the company’s outstanding voting rights before the issuance;
| | - | -----------------------------------------------------------------------------------------------------------



| | • | some or all of the consideration is other than cash or listed securities or the transaction is not on market terms; and
| | - | -----------------------------------------------------------------------------------------------------------------------



| | • | the transaction will increase the relative holdings of a shareholder who holds 5% or more of the company’s outstanding share capital or voting rights or that will cause any person to become, as a result of the issuance, a holder of more than 5% of the company’s outstanding share capital or voting rights.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Exculpation, insurance and indemnification of office holders



Under the Companies Law, a company may not
exculpate an office holder from liability for a breach of the duty of loyalty. A company may exculpate an office holder in advance
from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of the duty of care
but only if a provision authorizing such exculpation is included in its articles of association. Our articles of association include
such a provision. An Israeli company may not exculpate a director from liability arising out of a breach of the duty of care with
respect to a dividend or distribution to shareholders.



Under the Companies Law, a company may indemnify
an office holder in respect of the following liabilities and expenses incurred for acts performed as an office holder, either pursuant
to an undertaking made in advance of an event or following an event, provided a provision authorizing such indemnification is contained
in its articles of association:



48







| | • | financial liability imposed on him or her in favor of another person pursuant to a judgment, settlement or arbitrator’s award approved by a court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the board of directors, can be foreseen based on the company’s activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detail the abovementioned events and amount or criteria;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | reasonable litigation expenses, including attorneys’ fees, incurred by the office holder as (1) a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (i) no indictment was filed against such office holder as a result of such investigation or proceeding; and (ii) no financial liability was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; and (2) in connection with a monetary sanction; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf or by a third party or in connection with criminal proceedings in which the office holder was acquitted or as a result of a conviction for an offense that does not require proof of criminal intent.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under the Companies Law, a company may insure
an office holder against the following liabilities incurred for acts performed as an office holder if and to the extent provided
in the company’s articles of association:



| | • | a breach of duty of loyalty to the company, to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a breach of duty of care to the company or to a third party, including a breach arising out of the negligent conduct of the office holder; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------



| | • | a financial liability imposed on the office holder in favor of a third party.
| | - | -----------------------------------------------------------------------------



An Israeli company may not indemnify or insure
an office holder against any of the following:



| | • | a breach of duty of loyalty, except to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a breach of the duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



| | • | an act or omission committed with intent to derive illegal personal benefit; or
| | - | -------------------------------------------------------------------------------



| | • | a fine or forfeit levied against the office holder.
| | - | ---------------------------------------------------



Under the Companies Law, exculpation, indemnification
and insurance of office holders must be approved by the compensation committee and the board of directors and, with respect to
certain office holders or under certain circumstances, also by the shareholders. See “Item 6.C. — Board Practices — Fiduciary
duties and approval of specified related party transactions under Israeli law.”



Our articles of association allow
us to indemnify and insure our office holders for any liability imposed on them as a consequence of an act (including any omission)
which was performed by virtue of being an office holder. Our office holders are currently covered by a directors and officers’
liability insurance policy. As of the date of this annual report, no claims for directors’ and officers’ liability
insurance have been filed under this policy, we are not aware of any pending or threatened litigation or proceeding involving any
of our directors or officers in which indemnification is sought, nor are we aware of any pending or threatened litigation that
may result in claims for indemnification by any director or officer.



We have entered into agreements with each
of our directors and executive officers exculpating them, to the fullest extent permitted by law, from liability to us for damages
caused to us as a result of a breach of duty of care, and undertaking to indemnify them to the fullest extent permitted by law.
The insurance is subject to our discretion depending on its availability, effectiveness and cost. Effective as of the date of our
IPO, the maximum amount set forth in such agreements is (1) with respect to indemnification in connection with a public offering
of our securities, the gross proceeds raised by us and/or any selling shareholder in such public offering, and (2) with respect
to all permitted indemnification, including a public offering of our securities, the greater of (a) an amount equal to 50% of our
shareholders’ equity on a consolidated basis, based on our most recent financial statements made publicly available before
the date on which the indemnity payment is made and (b) $50 million. In the opinion of the SEC, indemnification of directors and
executive officers for liabilities arising under the Securities Act however, is against public policy and therefore unenforceable.



49







| | D. | Employees
| | -- | ---------



As of December 31, 2016, we had 2,194 employees
of whom 1,625 were based in Israel, 134 were in Germany, 152 were in the Netherlands, 106 were in the United States and 177 were
in other countries. Of the total number of employees, approximately 508 were temporary employees (most of whom worked at our manufacturing
facilities).



The breakdown of our employees by main category
of activity is as follows:



|                                               |  | As of December 31, |      
|---------------------------------------------- |  | ------------------ | -----
|Main Category of Activity                      |  | 2014               |      
|Operations, product development and innovation |  |                    | 1,722
|Sales and marketing                            |  |                    | 374  
|General and administration                     |  |                    | 197  
|Management                                     |  |                    | 21   
|Total                                          |  |                    | 2,314



Under applicable Israeli law, we and
our employees are subject to protective labor provisions such as restrictions on working hours, minimum wages, minimum vacation,
sick pay, severance pay and advance notice of termination of employment, as well as equal opportunity and anti-discrimination laws.
Orders issued by the Israeli Ministry of Economy and Industry may make certain industry-wide collective bargaining agreements applicable
to us. These agreements affect matters such as cost of living adjustments to salaries, length of working hours and week, recuperation
pay, travel expenses and pension rights. Our Israeli subsidiary’s employees at our Lehavim facility have joined the Histadrut
(General Federation of Labor in Israel). In accordance with applicable law, we have commenced negotiations with the committee and
the Histadrut with respect to entering into a collective bargaining agreement. In the course of such negotiations, the employees’
committee has the right to issue a dispute notice to us, which under Israeli law would permit the employees to initiate a work
stoppage not earlier than 15 days following the date of the notice. In March 2017, the employees’ committee issued a dispute
notice to us. As of the date of this annual report, the 15-day period has not lapsed, and while negotiations with the employees’
committee and the Histadrut are continuing, we cannot predict whether or not a work stoppage will be initiated in connection with
such dispute notice. Depending on the course of negotiations with the committee and the Histadrut, we could incur increased operational
costs and/or experience work stoppages, which could adversely affect our business, financial condition and results of operations.
See “Item 3.D. — Risk Factors — Our employees at our Lehavim facility in Israel have recently joined the Histadrut
(General Federation of Labor in Israel) and established an employees’ committee. We have commenced negotiations with the
Histadrut and employees’ committee that could cause us to incur additional labor costs or experience work stoppages.”



In general, agreements with our employees
forbid disclosure of our proprietary information and contain customary provisions restricting employment with our competitors for
a certain period after they stop working for us. Certain of these restrictions may be of no or little enforceability under Israeli
law and may be of questionable enforceability in other jurisdictions. In addition, many of the employees in our manufacturing facilities
are employed through third-party manpower agencies. Under Israeli Law, after nine consecutive months of employment with the same
company, employees employed through third-party manpower agencies become employees of the company at which they were placed by
the manpower agency, and are entitled to all related protective labor provisions as of the first day of such individual’s
employment with the company at which they were placed.



Employees that work for our international
subsidiaries are subject to local law and in most cases have entered into personal employment agreements with the particular subsidiary
that they work for. These agreements generally also include non-competition and non-disclosure provisions. Our employees located
in Germany are subject to local collective bargaining agreements.



| | E. | Share
Ownership
| | -- | ---------------



For information regarding the share ownership
of our directors and executive officers, please refer to “Item 6.B. — Compensation — Option
plans” and “Item 7.A. — Major Shareholders.”



| | Item
                          7. | MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
| | --------------------------------- | -------------------------------------------------



| | A. | Major
Shareholders
| | -- | ------------------



The following table sets forth information
with respect to the beneficial ownership of our shares as of March 1, 2017 by:



| | • | each person or entity known by us to own beneficially
5% or more of our outstanding shares;
| | - | -------------------------------------------------------------------------------------------



| | • | each of our executive officers;
| | - | -------------------------------



| | • | each of our directors; and
| | - | --------------------------





| | • | all of our executive officers and directors as a group.
| | - | -------------------------------------------------------



50









Beneficial ownership is determined in accordance
with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared
voting or investment power with respect to those securities and include shares subject to options that are exercisable within 60
days after March 1, 2017. Such shares are also deemed outstanding for purposes of computing the percentage ownership of the person
holding the options, but not the percentage ownership of any other person.



For the purpose of calculating the percentage
of shares beneficially owned by any shareholder, this table lists applicable percentage ownership based on 21,697,861 ordinary
shares outstanding as of March 1, 2017.



Unless otherwise indicated below, to our knowledge,
all persons named in the table have sole voting and investment power with respect to their shares, except to the extent that power
is shared by spouses under community property laws.



Unless otherwise indicated, the address of
each beneficial owner is c/o SodaStream International Ltd., Gilboa Street, Airport City, Ben Gurion Airport 7019900, Israel.



|Name of Beneficial Owner                                         |  | Shares Beneficially Owned |          
|---------------------------------------------------------------- |  | ------------------------- | ---------
|                                                                 |  | Number                    |          
|Real Property International Limited (1)                          |  |                           | 1,267,008
|Executive officers and directors                                 |  |                           |          
|Stanley Stern                                                    |  |                           | *        
|Lauri A. Hanover                                                 |  |                           | *        
|David Morris (2)                                                 |  |                           | *        
|Jonathan Kolodny                                                 |  |                           | *        
|Yehezkel (Chezy) Ofir                                            |  |                           | -        
|Richard Hunter                                                   |  |                           | -        
|Avishai Abrahami                                                 |  |                           | -        
|Torsten Koster                                                   |  |                           | -        
|Daniel Birnbaum (3)                                              |  |                           | 543,420  
|Daniel Erdreich                                                  |  |                           | *        
|Eyal Shohat                                                      |  |                           | *        
|Matti Yahav                                                      |  |                           | *        
|Galit Zucker                                                     |  |                           | -        
|All executive officers and directors
as a group (13 persons) (4) |  |                           | 696,541  










* Less than 1%.



| | (1) | Based on a Schedule 13G/A filed with the SEC on February 14, 2017 and information provided by the shareholder to the Company. Includes 543,842 shares beneficially owned by Real Property International Limited, a British Virgin Islands company (which changed its name from “Real Property Investments Limited” and its domicile from Liberia), and 723,166 shares beneficially owned by Real Property Investment (Guernsey) Limited, a Guernsey company (each, a “Reporting Person”). The shares of each Reporting Person are held by Line Holdings Limited and Line Nominees Limited as bare nominees for Line Trust Corporation Limited, a professional trustee company, in its capacity as trustee of a discretionary settlement constituted under the laws of Gibraltar, with the potential beneficiaries being certain of the remoter issue of Conrad Morris, who is the late father of David Morris, one of our directors. The principal address of Real Property International Limited is 237 Main Street, Gibraltar, GX11 1AA and the principal address of Real Property Investment (Guernsey) Limited is PO Box 119, Martello Court, Admiral Park, St. Peter Port, Guernsey, GY1 3HB.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | The address for Mr. Morris is c/o KDM Partners LLP, Farley Court, Second Floor, Allsop Place, London, NW1 5LG.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (3) | Consists of 93,420 shares purchased in open market transactions and options to purchase 450,000 shares which are currently exercisable or exercisable within 60 days of March 1, 2016.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (4) | Consists of 97,088 shares, options to purchase 597,866 shares and 1,587 restricted share units which are currently exercisable or have vested or exercisable or will become vested within 60 days of March 1, 2016.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               



Significant changes in the ownership of
major shareholders



On February 5, 2014, Real Property International Limited and its
affiliates filed a Schedule 13G/A with the SEC stating that it beneficially owned 1,508,258 ordinary shares. On February 11, 2015,
Real Property International Limited and its affiliates and filed a Schedule 13G/A with the SEC stating that it beneficially owned
1,270,008 ordinary shares. Based on a Schedule 13G/A filed with the SEC on February 14, 2017 and information provided by the shareholder
to the Company, Real Property International Limited and its affiliates beneficially owned 1,267,008 ordinary shares.



51







Based on a Schedule 13G/A filed with the SEC
on February 21, 2017, Teleios Capital Partners GmbH ceased to be the beneficial owner of 5% or more of our ordinary shares. Based
on a Schedule 13G/A filed with the SEC on February 14, 2017, Nantahala Capital Management, LLC ceased to be the beneficial owner
of 5% or more of our ordinary shares.



Shareholders of record



As of March 1, 2017, we had four shareholders
of record of our ordinary shares, all of which were located in the United States. None of our shareholders has informed us that
he, she or it is affiliated with a registered broker-dealer or is in the business of underwriting securities. The record holders
in the United States included Cede & Co., the nominee of the Depositary Trust Company. The actual number of shareholders is
greater than this number of record holders, and includes shareholders who are beneficial owners, but whose shares are held in street
name by brokers and other nominees. All of our ordinary shares have identical voting and other rights.



| | B. | Related Party Transactions
| | -- | --------------------------



The following is a description of material transactions,
or series of related material transactions, since January 1, 2016, to which we were or will be a party and in which the other parties
included or will include our directors, executive officers, holders of 10% or more of our voting securities or any member of the
immediate family of any of the foregoing persons.



Agreements with directors and officers



Employment agreements



We have entered into written employment agreements
with all of our executive officers. These agreements each contain provisions regarding non-competition, confidentiality of information
and assignment of inventions. The non-competition provision applies for a period that is generally between six and 24 months following
termination of employment. The enforceability of covenants not to compete in Israel and the United States is subject to limitations.
In addition, we are required to provide notice of between two and six months prior to terminating the employment of certain of
our senior executive officers other than in the case of a termination for cause.



For certain arrangements with our chief executive
officer, see “Item 6. B. — Compensation — Compensation of officers and directors —
Certain arrangements with Daniel Birnbaum.”



Options



Since our inception, we have granted options
to purchase our ordinary shares and restricted share units to certain of our officers. We describe our equity incentive plans under
“Item 6. B. — Compensation — Option plans.”



Indemnification agreements



Our articles of association permit us to exculpate,
indemnify and insure our office holders to the fullest extent permitted by the Companies Law. We have entered into agreements with
each of our directors and executive officers exculpating them from a breach of their duty of care to us to the fullest extent permitted
by law and undertaking to indemnify them to the fullest extent permitted by law, to the extent that these liabilities are not covered
by insurance. See “Item 6.C. — Board Practices — Exculpation, insurance and indemnification
of office holders.”



| | C. | Interests
of Experts and Counsel
| | -- | --------------------------------



Not applicable.



| | Item
                          8. | FINANCIAL
INFORMATION
| | --------------------------------- | ---------------------



| | A. | Consolidated
Statements and Other Financial Information
| | -- | -------------------------------------------------------



Consolidated financial statements



We have appended our consolidated financial
statements at the end of this annual report, starting at page F-1, as part of this annual report.



Legal proceedings



We are currently party to a number of lawsuits
in various jurisdictions in which we do business, including product liability actions and employee lawsuits. Product liability
suits are generally covered by our product liability insurance. We believe that our product and employer’s liability insurance
provide sufficient protection for such actions.



52







We are engaged in other legal actions arising
out of the ordinary course of business and believe that the ultimate outcome of these actions will not have a material adverse
effect on our results of operations, financial condition or cash flows.



Dividend policy



Since our IPO, we have not distributed our
net income as dividends to our shareholders but rather re-invested such income in our business. We do not currently anticipate
that we will pay any dividends to holders of our ordinary shares in the foreseeable future. Any future determination relating to
our dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including
future earnings, capital requirements, the provisions of applicable Israeli law, financial condition and future prospects and other
factors our board of directors may deem relevant.



Under Israeli law, we may only declare and
pay a dividend if, upon the reasonable determination of our board of directors, the distribution will not prevent us from being
able to meet the terms of our existing and foreseeable obligations as they become due. Under Israeli law, the amount distributed
is further limited to the greater of retained earnings or earnings generated over the two most recent fiscal years. In the event
that we do not meet the retained earnings criteria, as defined in the Companies Law, we may seek the approval of an Israeli court
in order to distribute a dividend. The court may approve our request if it is convinced that there is no reasonable concern that
the payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. See “Item
10.B. — Memorandum and Articles of Association — Dividend and liquidation rights.”



The payment of dividends may be subject to
Israeli withholding taxes. See “Item 10.E. — Taxation — Israeli tax considerations and government
programs — Taxation of our shareholders — Taxation of non-Israeli shareholders on receipt of dividend.”



| | B. | Significant
Changes
| | -- | -------------------



No significant changes have occurred since
December 31, 2016, except as otherwise disclosed in this annual report.



| | Item
                          9. | THE
OFFER AND LISTING
| | --------------------------------- | ---------------------



| | A. | Listing
Details
| | -- | ---------------



Our ordinary shares have been listed on the
Nasdaq Global Select Market under the symbol “SODA” since November 3, 2010. Prior to that date, there was no public
trading market for our ordinary shares. Our IPO was priced at $20.00 per share on November 2, 2010. The following table sets forth
for the periods indicated the high and low sales prices per ordinary share as reported on the Nasdaq Global Select Market:



|                                           |  | Low |       |  | High |  
|------------------------------------------ |  | --- | ----- |  | ---- | -
|Year Ended December 31, 2012               |  |     |       |  |      |  
|Annual                                     |  | $   | 28.28 |  |      | $
|Year Ended December 31, 2013               |  |     |       |  |      |  
|Annual                                     |  | $   | 45.25 |  |      | $
|Year Ended December 31, 2014               |  |     |       |  |      |  
|Annual                                     |  | $   | 19.85 |  |      | $
|First Quarter                              |  | $   | 35.27 |  |      | $
|Second Quarter                             |  | $   | 33.00 |  |      | $
|Third Quarter                              |  | $   | 28.65 |  |      | $
|Fourth Quarter                             |  | $   | 19.85 |  |      | $
|Year Ended December 31, 2015               |  |     |       |  |      |  
|Annual                                     |  | $   | 11.40 |  |      | $
|First Quarter                              |  | $   | 16.80 |  |      | $
|Second Quarter                             |  | $   | 17.42 |  |      | $
|Third Quarter                              |  | $   | 11.40 |  |      | $
|Fourth Quarter                             |  | $   | 13.38 |  |      | $
|Year Ended December 31, 2016               |  |     |       |  |      |  
|Annual                                     |  | $   | 11.66 |  |      | $
|First Quarter                              |  | $   | 11.66 |  |      | $
|Second Quarter                             |  | $   | 13.63 |  |      | $
|Third Quarter                              |  | $   | 20.78 |  |      | $
|Fourth Quarter                             |  | $   | 23.77 |  |      | $
|Most Recent Quarter and Six Months         |  |     |       |  |      |  
|First Quarter 2017 (through March 1, 2017) |  | $   | 38.36 |  |      | $
|October 2016                               |  | $   | 23.77 |  |      | $
|November 2016                              |  | $   | 24.85 |  |      | $
|December 2016                              |  | $   | 35.84 |  |      | $
|January 2017                               |  | $   | 38.36 |  |      | $
|February 2017                              |  | $   | 43.31 |  |      | $
|March 2017 (through March 1, 2017)         |  | $   | 49.27 |  |      | $



53







On March 1, 2017, the last reported
sale price of our ordinary shares on the Nasdaq Global Select Market was $49.92 per share.



Our ordinary shares have been listed on the
TASE under the symbol “SODA” since December 15, 2015. The following table sets forth for the periods indicated the
high and low sales prices per ordinary share as reported on the TASE:



|                                                      |  | Low |        |  | High |    
|----------------------------------------------------- |  | --- | ------ |  | ---- | ---
|Year Ended December 31, 2016(since December 15, 2015) |  |     |        |  |      |    
|Annual                                                |  | NIS | 46.84  |  |      | NIS
|First Quarter                                         |  | NIS | 46.84  |  |      | NIS
|Second Quarter                                        |  | NIS | 51.60  |  |      | NIS
|Third Quarter                                         |  | NIS | 79.55  |  |      | NIS
|Fourth Quarter                                        |  | NIS | 92.65  |  |      | NIS
|Most Recent Quarter and Six Months                    |  |     |        |  |      |    
|First
Quarter 2017 (through March 1, 2017)            |  | NIS | 145.40 |  |      | NIS
|October 2016                                          |  | NIS | 92.65  |  |      | NIS
|November 2016                                         |  | NIS | 92.67  |  |      | NIS
|December 2016                                         |  | NIS | 138.10 |  |      | NIS
|January 2017                                          |  | NIS | 145.40 |  |      | NIS
|February 2017                                         |  | NIS | 163.60 |  |      | NIS
|March 2017 (through March 1, 2017)                    |  | NIS | 178.40 |  |      | NIS



On March 1, 2017, the last reported sale price
of our ordinary shares on the TASE was NIS 181.80 per share.



| | B. | Plan
of Distribution
| | -- | --------------------



Not applicable.



| | C. | Markets
| | -- | -------



See “—Listing Details” above.



| | D. | Selling
Shareholders
| | -- | --------------------



Not applicable.



| | E. | Dilution
| | -- | --------



Not applicable.



| | F. | Expenses
of the Issue
| | -- | ---------------------



Not applicable.



| | Item
                          10. | ADDITIONAL
INFORMATION
| | ---------------------------------- | ----------------------



| | A. | Share
Capital
| | -- | -------------



Not applicable.



54







| | B. | Memorandum
and Articles of Association
| | -- | --------------------------------------



Objects and purposes



We are registered with the Israeli Registrar
of Companies. Our registration number is 51-395125-1. Our purpose as set forth in our articles of association is to engage in any
lawful act or activity.



Voting



Holders of our ordinary shares have one vote
for each ordinary share held on all matters submitted to a vote of shareholders at a shareholder meeting. Shareholders may vote
at shareholder meetings either in person, by proxy or, if applicable, by written ballot. Israeli law does not allow public companies
to adopt shareholder resolutions by means of written consent in lieu of a shareholder meeting. Shareholder voting rights may be
affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized
in the future. The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations
toward the company and its other shareholders, must act in good faith and avoid abusing his or her powers including when voting
at general meetings on matters such as amending the articles of association, increasing the company’s authorized capital
and approving mergers and related party transactions that require shareholder approval. A shareholder also has a general duty to
refrain from discriminating against other shareholders. The remedies generally available upon a breach of contract apply in the
event of breach of the above mentioned duties, and in the event of harm, other remedies shall also be available to the injured
shareholder. In addition, any controlling shareholder, any shareholder who knows that its vote can determine the outcome of a shareholder
vote and any shareholder who, under a company’s articles of association, can appoint or prevent the appointment of an office
holder or has other power with respect to the company, is under a duty to act with fairness towards the company. The Companies
Law does not describe the substance of this duty, except to state that the remedies generally available upon a breach of contract
will apply also in the event of a breach of the duty to act with fairness. Except as otherwise disclosed in this annual report,
an amendment to our articles of association to change the rights of our shareholders requires the prior approval of a simple majority
of our shares represented and voting at a general meeting.



Share ownership restrictions



The ownership or voting of ordinary shares
by non-residents of Israel is not restricted in any way by our articles of association or the laws of the State of Israel. However,
citizens of countries which are, or have been, in a state of war with Israel, and in certain cases, their affiliates, may not be
recognized as owners of ordinary shares.



Transfer of shares



Fully paid ordinary shares are issued
in registered form and may be freely transferred under our articles of association unless the transfer is restricted or prohibited
by another instrument, Israeli law or the rules of a stock exchange on which the shares are traded.



Election of directors



Our ordinary shares do not have cumulative
voting rights for the election of directors. Rather, under our articles of association our directors are elected, upon expiration
of the term of office of any director, by the holders of a simple majority of our ordinary shares at a general shareholder meeting
(excluding abstentions). As a result, the holders of our ordinary shares that represent more than 50% of the voting power represented
at a shareholder meeting and voting thereon (excluding abstentions) have the power to elect any or all of our directors whose positions
are being filled at that meeting, subject to the special approval requirements for external directors, if applicable. Vacancies
on our board of directors may be filled by a vote of a simple majority of the directors then in office as described under “Item
6.C. — Board Practices — Board of directors and officers.” For additional information regarding
the election of and voting by directors, please refer to “Item 6.C. — Board Practices.”



In November 2016, we entered into a Support
Agreement with Teleios Capital Partners GmbH (“Teleios”), further to which we nominated Mr. Torsten Koster for election
as a member of our board of directors at our annual general meeting held in December 2016. Under the agreement, we agreed to nominate
Mr. Koster or a different individual designated by Teleios, and reasonably acceptable to our board of directors, at any subsequent
annual general meeting occurring within 18 months following the 2016 annual general meeting, provided that Teleios continues
to hold at least 2.5% of our outstanding ordinary shares. Under the agreement, Teleios agreed to certain customary standstill
provisions for 18 months following the 2016 annual general meeting, including not to participate in any solicitation of proxies,
not to form a “group” with any other shareholder, nor to acquire shares in excess of 12.99% of the our outstanding
voting securities. In addition, Teleios agreed to abstain or vote against any shareholder proposal that is not supported by our
board of directors.



55







Dividend and liquidation rights



Under Israeli law, we may only declare and
pay an annual dividend if, upon the reasonable determination of our board of directors, the distribution will not prevent us from
being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, the distribution
amount is further limited to the greater of retained earnings or earnings generated over the two most recent years. In the event
that we do not have retained earnings and earnings legally available for distribution, as defined in the Companies Law, we may
seek the approval of the court in order to distribute a dividend. The court may approve our request if it is convinced that there
is no reasonable concern that the payment of a dividend will prevent us from satisfying our existing and foreseeable obligations
as they become due.



In the event of our liquidation, after satisfaction
of liabilities to creditors, our assets will be distributed to the holders of ordinary shares on a pro-rata basis. Dividend and
liquidation rights may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares
with preferential rights that may be authorized in the future.



Redemption rights



Our ordinary shares are not redeemable and
do not have preemptive rights.



Shareholder meetings



We are required to convene an annual general
meeting of our shareholders once every calendar year within a period of not more than 15 months following the preceding annual
general meeting. Our board of directors may convene a special general meeting of our shareholders and is required to do so at the
request of two directors or one quarter of the members of our board of directors, or at the request of one or more holders of 5%
or more of our share capital and 1% of our voting power, or the holder or holders of 5% or more of our voting power. All shareholder
meetings require prior notice of at least 21 days and, in certain cases, 35 days. The chairperson of our board of directors presides
over our general meetings and is appointed by the board of directors. If the chairperson was not appointed or is not present within
15 minutes from the appointed time, the shareholders present shall appoint a chairperson. Subject to the provisions of the Companies
Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetings are the shareholders
of record on a date to be decided by the board of directors, which may be between four and 40 days prior to the date of the meeting,
depending on the type of meeting and whether written proxies are being used.



Quorum



The quorum required for a meeting of shareholders
consists of at least two shareholders present in person, by proxy or by written ballot, who hold or represent between them at least
25% of our voting power. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week
at the same time and place, or to such other time, if indicated in the invitation to the meeting or in the notice of the meeting,
any time and place set forth in the prior notice to the shareholders, or to a later time, as determined by the chairperson with
consent of at least a majority of our voting rights. At the reconvened meeting, if a quorum is not present within half an hour,
the meeting will take place with whatever number of participants are present, unless the meeting was called pursuant to a request
by our shareholders, in which case the quorum required is the number of shareholders required to call the meeting as described
under “— Shareholder meetings.”



Resolutions



Under the Companies Law, unless otherwise
provided in the articles of association or applicable law, all resolutions of the shareholders require a simple majority of the
voting rights represented at the meeting, in person, by proxy or, if applicable, by written ballot, and voting on the resolution
(excluding abstentions). A resolution for the voluntary winding up of the company requires the approval by the holders of 75% of
the voting rights represented at the meeting, in person, by proxy or, if applicable, by written ballot and voting on the resolution.



Under our articles of association, resolutions
to change the minimum and maximum number of our directors require the approval of holders of at least two-thirds of our voting
shares.



Access to corporate records



Under the Companies Law, all shareholders
generally have the right to review minutes of our general meetings, our shareholder register, including with respect to material
shareholders, our articles of association, our financial statements and any document we are required by law to file publicly with
the Israeli Companies Registrar or the Israeli Securities Authority. Any shareholder who specifies the purpose of its request may
request to review any document in our possession that relates to any action or transaction with a related party which requires
shareholder approval under the Companies Law. We may deny a request to review a document if we determine that the request was not
made in good faith, that the document contains a commercial secret or a patent or that the document’s disclosure may otherwise
impair our interests.



56







Acquisitions under Israeli law



Full tender offer



A person wishing to acquire shares of a public
Israeli company and who would as a result hold over 90% of the target company’s issued and outstanding share capital is required
by the Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the issued and
outstanding shares of the company. A person wishing to acquire shares of a public Israeli company and who would as a result hold
over 90% of the issued and outstanding share capital of a certain class of shares is required to make a tender offer to all of
the shareholders who hold shares of the same class for the purchase of all of the issued and outstanding shares of the same class.
If the shareholders who do not respond to or accept the offer hold less than 5% of the issued and outstanding share capital of
the company or of the applicable class, all of the shares that the acquirer offered to purchase will be transferred to the acquirer
by operation of law (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have
approved it, which condition shall not apply if offerees holding less than 2% of the company’s issued and outstanding share
capital failed to approve such tender offer). However, a shareholder that had its shares so transferred, whether the shareholder
accepted the tender offer or not, may, within six months from the date of acceptance of the tender offer, petition the court to
determine whether the tender offer was for less than fair value and that the fair value should be paid as determined by the court
unless the acquirer stipulated that a shareholder that accepts the offer may not seek appraisal rights. If the shareholders who
did not respond or accept the tender offer hold at least 5% of the issued and outstanding share capital of the company or of the
applicable class, or the shareholders who did not accept the tender offer hold 2% or more of the issued and outstanding share capital
of the company (or of the applicable class), the acquirer may not acquire shares of the company that will increase its holdings
to more than 90% of the company’s issued and outstanding share capital or of the applicable class from shareholders who accepted
the tender offer.



Special tender offer



The Companies Law provides that an acquisition
of shares of a public Israeli company must be made by means of a special tender offer if as a result of the acquisition the purchaser
would become a holder of at least 25% of the voting rights in the company. This rule does not apply if there is already another
holder of at least 25% of the voting rights in the company. Similarly, the Companies Law provides that an acquisition of shares
in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a holder
of more than 45% of the voting rights in the company, if there is no other shareholder of the company who holds more than 45% of
the voting rights in the company. These requirements do not apply if the acquisition (i) occurs in the context of a private placement
by the company that received shareholder approval, (ii) was from a shareholder holding at least 25% of the voting rights in the
company and resulted in the acquirer becoming a holder of at least 25% of the voting rights in the company, or (iii) was from a
holder of more than 45% of the voting rights in the company and resulted in the acquirer becoming a holder of more than 45% of
the voting rights in the company. The special tender offer may be consummated only if (i) at least 5% of the voting power attached
to the company’s outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds
the number of shares whose holders objected to the offer (excluding the offeror, controlling shareholders, holders of 25% or more
of the voting rights in the company or anyone on their behalf, or any person having a personal interest in the acceptance of the
tender offer, including their relatives and entities controlled by them).



In the event that a special tender offer is
made, a company’s board of directors is required to express its opinion on the advisability of the offer, or shall abstain
from expressing any opinion if it is unable to do so, provided that it gives the reasons for its abstention. An office holder in
a target company who, in his or her capacity as an office holder, performs an action the purpose of which is to cause the failure
of an existing or foreseeable special tender offer or is to impair the chances of its acceptance, is liable to the potential purchaser
and shareholders for damages, unless such office holder acted in good faith and had reasonable grounds to believe he or she was
acting for the benefit of the company. However, office holders of the target company may negotiate with the potential purchaser
in order to improve the terms of the special tender offer, and may further negotiate with third parties in order to obtain a competing
offer.



If a special tender offer was accepted by
a majority of the shareholders who announced their stand on such offer, then shareholders who did not announce their stand or who
had objected to the offer may accept the offer within four days of the last day set for the acceptance of the offer.



In the event that a special tender offer is
accepted, then the purchaser or any person or entity controlling it or under common control with the purchaser or such controlling
person or entity shall refrain from making a subsequent tender offer for the purchase of shares of the target company and cannot
execute a merger with the target company for a period of one year from the date of the offer, unless the purchaser or such person
or entity undertook to effect such an offer or merger in the initial special tender offer.



Merger



The Companies Law permits merger transactions
if approved by each party’s board of directors and, unless certain requirements described under the Companies Law are met,
a majority of each party’s shareholders and, in the case of the target company, a majority vote of each class of its shares,
voted on the proposed merger at a shareholders meeting. The board of directors of a merging company is required pursuant to the
Companies Law to discuss and determine whether in its opinion there exists a reasonable concern that as a result of a proposed
merger, the surviving company will not be able to satisfy its obligations towards its creditors, such determination taking into
account the financial status of the merging companies. If the board of directors has determined that such a concern exists, it
may not approve a proposed merger. Following the approval of the board of directors of each of the merging companies, the boards
of directors must jointly prepare a merger proposal for submission to the Israeli Registrar of Companies.



57







For purposes of the shareholder vote, unless
a court rules otherwise, the merger will not be deemed approved if a majority of the shares represented at the shareholders meeting
that are held by parties other than the other party to the merger, or by any person who holds 25% or more of the outstanding shares
or the right to appoint 25% or more of the directors of the other party, vote against the merger. In addition, if the non-surviving
entity of the merger has more than one class of shares, the merger must be approved by each class of shareholders. If the transaction
would have been approved but for the separate approval of each class or the exclusion of the votes of certain shareholders as provided
above, a court may still approve the merger upon the request of holders of at least 25% of the voting rights of a company, if the
court holds that the merger is fair and reasonable, taking into account the value of the parties to the merger and the consideration
offered to the shareholders. Pursuant to the Companies Law, if a merger is with a company’s controlling shareholder or if
the controlling shareholder has a personal interest in the merger, then the merger is instead subject to the same special majority
approval that governs all extraordinary transactions with controlling shareholders (as described above under “Item 6.C. — Board
Practices — Fiduciary duties and approval of specified related party transactions under Israeli law.”)



Under the Companies Law, each merging company
must inform its secured creditors of the proposed merger plans. Creditors are entitled to notice of the merger pursuant to regulations.
Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes
that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations
of any of the parties to the merger, and may further give instructions to secure the rights of creditors.



In addition, a merger may not be completed
unless at least 50 days have passed from the date that a proposal for approval of the merger was filed with the Israeli Registrar
of Companies and 30 days from the date that shareholder approval of both merging companies was obtained.



Anti-takeover measures



Our articles of association provide for a
classified board of directors. See “Item 6.C. — Board Practices — Board of directors and
officers.”



The Companies Law allows us to create and
issue shares having rights different from those attached to our ordinary shares, including shares providing certain preferred or
additional rights to voting, distributions or other matters and shares having preemptive rights. Currently, we do not have any
authorized or issued shares other than ordinary shares. In the future, if we do create and issue a class of shares other than ordinary
shares, such class of shares, depending on the specific rights that may be attached to them, may delay or prevent a takeover or
otherwise prevent our shareholders from realizing a potential premium over the market value of their ordinary shares. The authorization
of a new class of shares will require an amendment to our articles of association which requires the prior approval of a simple
majority of our shares represented and voting at a general meeting. Shareholders voting at such a meeting will be subject to the
restrictions under the Companies Law described in “— Voting.” Pursuant to the Israeli Securities Law, 5728-1968,
a company whose shares are traded on the TASE may not have more than one class of shares, except for one additional class of preferred
shares which may have a dividend preference but may not have any voting rights.



| | C. | Material
Contracts
| | -- | ------------------



We have not been party to any
material contracts within the two years prior to the date of this annual report, other than contracts entered into in the ordinary
course of business, or as otherwise described in Item 6.B. regarding the 2007 Employee Share Option Plan and the 2010 Employee
Share Option Plan and Item 10.B. regarding our agreement with Teleios Capital Partners GmbH.



| | 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 the 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.



| | E. | Taxation
| | -- | --------



Israeli tax considerations and government programs



The following is a brief summary of the material
Israeli tax laws applicable to us and some Israeli Government programs benefiting us. This section also contains a discussion of
material Israeli tax consequences concerning the ownership of and disposition of our ordinary shares. This summary does not discuss
all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances
or to some types of investors subject to special treatment under Israeli law. Examples of this kind of investor include residents
of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. Since some parts of this
discussion are based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot
assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion. The discussion
below is subject to change, including due to amendments under Israeli law or changes to the applicable judicial or administrative
interpretations of Israeli law, which change could affect the tax consequences described below.



58







General corporate tax structure in Israel



Israeli companies are generally subject to
corporate tax at the rate of 24% in 2017 of their taxable income (to be reduced to 23% in 2018 and thereafter). The corporate tax
rate for the tax years 2015 and 2016 was 26.5% and 25%, respectively. However, the effective tax rate payable by a company that
derives income from a Preferred Enterprise (as discussed below) may be considerably less. Capital gains derived by an Israeli company
are subject to the prevailing corporate tax rate.



Law for the encouragement of industry
(taxes), 5729-1969



The Law for the Encouragement of Industry
(Taxes), 5729-1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for industrial companies.
We believe that one of our Israeli subsidiaries currently qualifies as an “Industrial Company” within the meaning of
the Industry Encouragement Law. The Industry Encouragement Law defines an “Industrial Company” as a company resident
in Israel, of which 90% or more of its income in any tax year, other than income from defense loans, is derived from an “Industrial
Enterprise” owned by it and which is located in Israel. An “Industrial Enterprise” is defined as an enterprise
whose principal activity in a given tax year is industrial production.



The following corporate tax benefits, among
others, are available to Industrial Companies:



| | • | Amortization
over an eight-year period of the cost of purchased know-how and patents and of rights to use a patent and know-how which are used
for the development or advancement of Industrial Enterprises;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Under
specified conditions, an election to file consolidated tax returns with related Israeli Industrial Companies; and
| | - | -----------------------------------------------------------------------------------------------------------------------



| | • | Expenses
related to a public offering are deductible in equal amounts over three years.
| | - | ---------------------------------------------------------------------------------------



We intend to continue to qualify as an “Industrial
Company” in the future. However, there can be no assurance that we will continue to qualify as an “Industrial Company”
or that the benefits described above will be available in the future.



Law for the encouragement of capital
investments, 5719-1959



The Law for the Encouragement of Capital Investments,
5719-1959, or the Investment Law, was significantly amended as of January 1, 2011 (the “2011 Amendment”). The 2011
Amendment introduced new benefits to replace those granted in accordance with the provisions of the Investment Law in effect prior
to the 2011 Amendment. However, companies entitled to benefits under the Investment Law as in effect prior to January 1, 2011 were
entitled to choose to continue to enjoy such benefits, provided that certain conditions are met, or elect instead, irrevocably,
to forego such benefits and have the benefits of the 2011 Amendment apply.



Tax benefits prior to the 2011 Amendment



The Investment Law provided certain incentives
for capital investments in a production facility (or other eligible assets) made by an “Approved Enterprise”, as defined
by the Investment Law, upon approval by the Investment Center of the Israel Ministry of the Economy and Industry. Each certificate
of approval for an Approved Enterprise relates to a specific investment program, delineated both by the financial scope of the
investment and by the physical characteristics of the facility or the asset. In general, an Approved Enterprise is entitled to
receive a grant from the Government of Israel or an alternative package of tax benefits, known as the alternative benefits track.
The tax benefits from any certificate of approval relate only to taxable income attributable to the specific program. If a company
has more than one approval or only a portion of its capital investments are approved, its effective tax rate is the weighted average
of the applicable rates.



One of our subsidiaries in Israel received
grants and was entitled to tax benefits relating to investment programs that were subject to Approved Enterprise certificates.



The benefits available to an Approved Enterprise
were subject to the fulfillment of conditions stipulated in the Investment Law and its regulations and the criteria in the specific
certificate of approval. If we are found not to have met these conditions, we may be required to refund the amount of tax benefits,
as adjusted by the Israeli consumer price index, and interest.



If a company elected the alternative benefits
track and distributes a dividend out of income derived by its Approved Enterprise during a tax exemption period, it will be subject
to corporate tax in respect of the amount of the dividend distributed (grossed-up to reflect the pre-tax income that it would have
had to earn in order to distribute the dividend) at the corporate tax rate which would have been applicable without the benefits
under the alternative benefits track.



59







Tax benefits under the 2011 Amendment



The 2011 Amendment canceled the availability
of the benefits granted to companies under the Investment Law prior to 2011 and, instead, introduced new benefits for income generated
by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in the Investment
Law) as of January 1, 2011. The definition of a Preferred Company includes a company incorporated in Israel that is not wholly-owned
by a governmental entity, and that has, among other things, Preferred Enterprise status and is controlled and managed from Israel. Pursuant
to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 15% with respect to its income derived
by its Preferred Enterprise in 2011 and 2012, unless the Preferred Enterprise is located in a specified development zone, in which
case the rate will be 10%. Under the 2011 Amendment, such corporate tax rate was changed to 12.5% and 7%, respectively, in 2013,
16% and 9%, respectively, in 2014, 2015 and 2016 and 16% and 7.5%, respectively, in 2017 and thereafter.



Dividends paid out of income attributed to
a Preferred Enterprise are generally subject to withholding tax at source at the rate of 20% or such lower rate as may be provided
in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (although,
if such dividends are subsequently distributed to individuals or a non-Israeli company, withholding tax at a rate of 20% or such
lower rate as may be provided in an applicable tax treaty, will apply).



The 2011 Amendment also provided transitional
provisions to address companies already enjoying existing tax benefits under the Investment Law. These transitional provisions
provide, among other things, that unless an irrevocable request is made to apply the provisions of the Investment Law as amended
in 2011 with respect to income to be derived as of January 1, 2011: (i) the terms and benefits included in any certificate of approval
that was granted to an Approved Enterprise which chose to receive grants before the 2011 Amendment became effective will remain
subject to the provisions of the Investment Law as in effect on the date of such approval, and subject to certain other conditions;
(ii) terms and benefits included in any certificate of approval that was granted to an Approved Enterprise which had participated
in an alternative benefits track before the 2011 Amendment became effective will remain subject to the provisions of the Investment
Law as in effect on the date of such approval, provided that certain conditions are met; and (iii) a Beneficiary Enterprise (as
such term is used in the Investment Law) can elect to continue to benefit from the benefits provided to it before the 2011 Amendment
came into effect, provided that certain conditions are met.



We believe that one of our Israeli subsidiaries,
whose enterprise is located in a specified development zone, known as Development Area A, meets the conditions provided in the
2011 Amendment to the Investment Law and it elected to apply the provisions of the Investment Law as amended in 2011. The 2011
Amendment also provides that companies in Development Area A may be entitled to receive grants. Our Israeli subsidiary has received
and has been approved to receive grants. We intend to continue to qualify for benefits and grants under the Investment Law in the
future. However, there can be no assurance that we will comply with the required conditions or that we will be entitled to any
grants or additional benefits under the Investment Law. If we are found not to have met the required conditions, we may be required
to refund the amount of grants received and the amount of any tax benefits, as adjusted by the Israeli consumer price index, and
interest. In addition, in order to secure fulfillment of the conditions related to the receipt of grants, a floating lien was registered
in favor of the State of Israel on substantially all of the assets of such Israeli subsidiary.



We have been approved to receive grants under
certain other Israeli Government programs. Our receipt of such grants is subject to our satisfying certain conditions.



The termination or substantial reduction of
any of the benefits available under the Investment Law or of any grants we expect to receive could increase our tax liabilities
and harm our financial condition and results of operations.



Israeli transfer pricing regulations



On November 29, 2006, Income Tax Regulations
(Determination of Market Terms), 2006, promulgated under Section 85A of the Tax Ordinance, came into force (the “Transfer
Pricing Regulations”). Section 85A of the Tax Ordinance and the Transfer Pricing Regulations generally require that all cross-border
transactions carried out between parties that have a special relationship be conducted according to an arm’s length principle
standard and be taxed accordingly and that the intercompany prices be supported by a transfer pricing study.



Taxation of our shareholders



Taxation of Non-Israeli shareholders on receipt of dividends. Non-residents
of Israel are generally subject to Israeli withholding tax on the receipt of dividends paid on our ordinary shares at the rate
of 25%, unless relief is provided under a treaty between Israel and the shareholder’s country of residence (subject to receipt
of a valid certificate from the Israeli Tax Authority allowing for a reduce tax rate). With respect to a person who is a “substantial
shareholder” at the time of receiving the dividend or on any date in the preceding 12 months, the applicable withholding
tax rate is 30%. A “substantial shareholder” is generally a person who holds, directly or indirectly, alone or together
with another, at least 10% of any of the “means of control” of the corporation. “Means of control” generally
include the right to vote, to receive profits, to nominate a director or an executive officer, to receive assets upon liquidation,
or to order someone who holds any of the aforesaid rights how to act, and all regardless of the source of such right.



60







A distribution of dividends to non-Israeli
residents is subject to withholding tax at source at a rate of 20% if the dividend is distributed from income attributed to a Preferred
Enterprise, unless a reduced tax rate is provided under an applicable tax treaty. If the dividend is attributable partly to income
derived from a Preferred Enterprise and partly to other sources of income, the withholding rate will be a blended rate reflecting
the relative portions of the types of income.



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 “United States-Israel
Tax Treaty”), the maximum rate of tax withheld in Israel on dividends paid to a holder of our ordinary shares who is a United
States resident (for purposes of the United States-Israel Tax Treaty) is 25%, subject to certain conditions. However, generally,
the maximum rate of withholding tax on dividends not generated by a Preferred Enterprise that are paid to a United States corporation
holding 10% or more of our outstanding voting capital throughout the tax year in which the dividend is distributed as well as the
previous tax year, is 12.5%, provided that no more than 25% of our gross income for such preceding year is derived from certain
types of dividends and interest. Furthermore, dividends paid from income derived from a Preferred Enterprise are subject to withholding
tax at a rate of 15% for such U.S. corporation shareholder, provided that the conditions related to our gross income for the previous
year is met.



U.S. residents who are subject to Israeli
withholding tax on a dividend may be entitled to a credit or deduction for United States federal income tax purposes in the amount
of the taxes withheld, subject to detailed limitations under U.S. laws applicable to foreign tax credits.



A non-resident of Israel who receives
dividends from which tax was duly withheld is generally exempt from the duty to file returns in Israel in respect of such income,
provided such income was not derived from a business conducted in Israel by the taxpayer for more than 180 days, and the taxpayer
has no other taxable sources of income in Israel with respect to which a tax return is required to be filed.



We cannot assure you that, in the
event we declare a dividend, we will designate the profits that are being distributed in a way that will reduce shareholders’
tax liability.



Capital Gains Taxes Applicable
to Non-Israeli Resident Shareholders.  In general, capital gains accrued by individuals on the sale of shares in
an Israeli resident company will be taxed at the rate of 25%. However, if the individual shareholder is a “substantial shareholder”
at the time of sale or at any time during the preceding 12-month period, such gain will be taxed at the rate of 30%. A non-Israeli
resident who derives capital gains from the sale of shares in an Israeli resident company that were purchased after the company
was listed for trading on a stock exchange outside of Israel will be exempt from Israeli tax so long as the shares were not held
through a permanent establishment that the non-resident maintains in Israel. However, non-Israeli corporations will not be entitled
to the foregoing exemption if an Israeli resident (i) has a controlling interest of 25% or more in such non-Israeli corporation
or (ii) is the beneficiary of or is 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 (25% in 2016
and 24% in 2017) and the marginal tax rate of up to 48% and 47% for an individual in 2016 and in 2017 and thereafter, respectively).



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. Under
the United States-Israel Tax Treaty, the sale, exchange (whether from a merger, acquisition or similar transaction) or disposition
of our ordinary shares by a shareholder who is a United States resident (for purposes of that treaty), holding the ordinary shares
as a capital asset is generally exempt from Israeli capital gains tax unless (i) the capital gain arising from the disposition
can be attributed to a permanent establishment in Israel; (ii) the shareholder holds, directly or indirectly, shares representing
10% or more of the voting capital during any part of the 12-month period preceding the disposition, subject to certain conditions;
or (iii) 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 ordinary shares 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.



In some instances where our shareholders
may be liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding
of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order
to avoid withholding at source at the time of sale.



In transactions involving a sale
of all of the shares of an Israeli resident company, such as a merger or other transaction, the Israel Tax Authority may, among
other things, require from shareholders who are not liable for Israeli tax to present a declaration in the form specified by that
authority confirming their status as non-Israeli residents or an exemption from the Israeli Tax Authority, and, in the absence
of such declaration or exemption, may require the purchaser of the shares to withhold taxes. In addition, with respect to mergers
involving an exchange of shares, Israeli tax law allows for tax deferral in certain circumstances, but makes the deferral contingent
on the fulfillment of a number of conditions, including, in some cases, a holding period of two years from the date of the transaction
during which sales and dispositions of shares of the participating companies are subject to certain restrictions. Moreover, with
respect to certain share swap transactions in which the sellers receive shares in the acquiring entity that are publicly traded
on a stock exchange, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition
of such shares has occurred.



61







Excess Tax



Individuals who are subject to tax in Israel,
whether an Israeli resident or a non-Israeli resident, are also subject to an additional tax on annual income exceeding NIS 810,720
in 2016 and 640,000 in 2017 and thereafter (linked to the Israeli consumer price index) at a rate of 2% in 2016 and 3% in 2017
and thereafter, including, but not limited to, dividends, interest and capital gain, subject to the provisions of an applicable
tax treaty.



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.



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.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



62







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.



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 Stated-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 50% or more 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.



63







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
limitationpurposes. 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, 2016. 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 2017 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.



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.



64







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.



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.



| | F. | Dividends
and Paying Agents
| | -- | ---------------------------



Not applicable.



| | G. | Statement
by Experts
| | -- | --------------------



Not applicable.



| | H. | Documents
on Display
| | -- | --------------------



We are currently subject to the informational
requirements of the Exchange Act applicable to foreign private issuers and fulfill the obligations of these requirements by filing
reports with the SEC. As a foreign private issuer, we are exempt from the rules under the Exchange Act relating to the furnishing
and content of proxy statements, and our officers, directors and 10% shareholders are exempt from the reporting and short-swing
profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act
to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities
are registered under the Exchange Act. However, we intend to file with the SEC, within 120 days after the end of each subsequent
fiscal year, an annual report on Form 20-F containing financial statements which will be examined and reported on, with an opinion
expressed, by an independent public accounting firm. We also intend to furnish with the SEC reports on Form 6-K containing quarterly
unaudited financial information.



65







You may read and copy any document we file
with the SEC without charge at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549.
You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F
Street, N.E., Room 1580, Washington, D.C. 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the public reference room. The SEC also maintains an internet site that contains reports and other information regarding
issuers that file electronically with the SEC. Our filings with the SEC are also available to the public through this website at
http://www.sec.gov and as of December 2015, they are also available on the Israeli Securities Authority’s website
at http://www.magna.isa.gov.il and on the TASE’s website at http://maya.tase.co.il. As permitted under NASDAQ
Stock Market Rule 5250(d)(1)(C), we will post our annual reports filed with the SEC on our investors website at http://sodastream.investorroom.com/.
We will furnish hard copies of such reports to our shareholders free of charge upon a written request. The information contained
on, or that can be accessed through, our website is not part of this or any other report filed with or furnished to the SEC.



| | I. | Subsidiary
Information
| | -- | ----------------------



Not applicable.



| | Item
                          11. | QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
| | ---------------------------------- | ----------------------------------------------------------



We are exposed to a variety of risks, including
foreign currency exchange fluctuations, changes in interest rates, inflation and commodity prices. We regularly assess these risks
to minimize any adverse effects on our business as a result of those factors. For sensitivity analysis of our exposure to foreign
currency exchange fluctuations and changes in interest rates, see Note 23C.1.ii to our consolidated financial statements as of
and for the year ended December 31, 2016 included elsewhere in this annual report.



Foreign currency exchange and foreign
currency risk management and derivatives



We conduct business in multiple countries,
which exposes us to fluctuations in currency exchange rates between the U.S. Dollar (our functional and reporting currency) and
certain other currencies in which we conduct business (primarily the Euro and the NIS). As of December 31, 2016, our revenues are
primarily denominated in U.S. Dollars and Euros. Significant material purchasing and production costs and operational expenses
are denominated in the U.S. Dollar and NIS.



Based on our results in 2016, a 1.0% increase/decrease
in the value of the Euro and the NIS against the U.S. Dollar would have increased (decreased) our revenues by $2.5 million. Based
on our results in 2016, a 1.0% increase/decrease in the value of the Euro and the NIS against the U.S. Dollar would have increased
(decreased) our cost of revenues and expenses by $2.7 million.



We engage in hedging transactions to minimize
our currency risk. Total comprehensive income included the following amounts related to changes in foreign currency exchange rates
and derivative foreign currency forward contracts and options:



|                                                                               |  | Year Ended December 31, |        
|------------------------------------------------------------------------------ |  | ----------------------- | -------
|(in thousands)                                                                 |  | 2014                    |        
|Unrealized foreign currency exchange rate gains (losses) of foreign operations |  | $                       | (18,302
|Realized foreign currency exchange rate gains (losses)                         |  |                         | 1,698  
|Derivative gains                                                               |  |                         | 906    



Inflation



Inflationary factors such as increases in
the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation
has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may
have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of revenues
if the selling prices of our products do not increase in line with increases in costs.



66







Commodity price risks



Commodity price fluctuations impact the cost
of certain of the raw materials we use to manufacture our sparkling water makers, carbonation bottles, CO2
cylinders and flavors. From time to time, we engage in long-term purchase agreements and in hedging transactions to lower the impact
of such fluctuations.



| | Item
                          12. | DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
| | ---------------------------------- | ------------------------------------------------------



Not applicable.



PART II



| | Item
13. | DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES
| | -------- | -----------------------------------------------



None.



| | Item
                          14. | MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
| | ---------------------------------- | ----------------------------------------------------------------------------



Not applicable.



| | Item
                          15. | CONTROLS
AND PROCEDURES
| | ---------------------------------- | -----------------------



Disclosure controls and procedures



Our management, including our chief executive
officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2016. Based on such evaluation, our chief executive officer and
chief financial officer have concluded that, as of such date, our disclosure controls and procedures were effective such that the
information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including
our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.



Management annual report on internal control over financial reporting



Our management is responsible for establishing
and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is defined in
Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the company’s
principal executive and principal financial officers and effected by the company’s board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with IFRS and 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 the
assets of the company;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use of disposition of the company’s
assets that could have a material effect on the financial statements.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our management, including our chief executive
officer and chief financial officer, assessed the effectiveness of our internal control over financial reporting as of December
31, 2016. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013).



Based on this assessment, our management has
concluded that as of December 31, 2016, our internal control over financial reporting is effective to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting
purposes in accordance with IFRS.



67







Attestation report of the registered public accounting firm



Our independent registered public accounting
firm, Somekh Chaikin, a member of KPMG International, has audited the consolidated financial statements included in this annual
report on Form 20-F, and as part of its audit, has issued its audit report on the effectiveness of our internal control over financial
reporting. This report is included in pages F-2 and F-78 of this Form 20-F.



Changes in internal control over financial reporting



During the period covered by this report,
no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) have occurred that have materially affected, or that are reasonably likely to materially affect, our internal control
over financial reporting.



| | Item
                          16. | [Reserved]
| | ---------------------------------- | ----------



| | Item
                          16A. | AUDIT
COMMITTEE FINANCIAL EXPERT
| | ----------------------------------- | --------------------------------



Our Board has determined that Ms. Hanover
is an audit committee financial expert as defined by the SEC rules and has the requisite financial sophistication as defined by
the Nasdaq Rules. Ms. Hanover is independent as such term is defined in Rule 10A-3(b)(1) under the Exchange Act and under the Nasdaq
Rules. For Ms. Hanover’s relevant experience, see “Item 6.A. — Directors, Senior Management and Employees —
Directors and Senior Management.”



| | Item
                          16B. | CODE
OF ETHICS
| | ----------------------------------- | --------------



We have adopted a Code of Ethics that applies
to our chief executive officer, chief financial officer and other senior financial officers, including our principal accounting
officer. We also adopted a Code of Conduct that applies to all of our employees. We have posted these codes on our investor relations
website at http://sodastream.investorroom.com/ under “Corporate Governance — Governance Documents.”
Waivers of and amendments to our Code of Ethics may only be approved by the board of directors. Under Item 16B. of Form 20-F,
if a waiver or amendment of the Code of Ethics applies to our chief executive officer, chief financial officer, chief accounting
officer, controller or other persons performing similar functions and relates to standards promoting any of the values described
in Item 16B(b) of Form 20-F, we will disclose such waiver or amendment (i) on our website within five business days following
the date of amendment or waiver in accordance with the requirements of Instruction 4 to such Item 16B. or (ii) through
the filing of a Form 6-K.



| | Item
                          16C. | PRINCIPAL
ACCOUNTANT FEES AND SERVICES
| | ----------------------------------- | --------------------------------------



Somekh Chaikin, a member firm of KPMG International,
has served as our independent registered public accounting firm for 2015 and 2016. The following table provides information regarding
fees paid by us to Somekh Chaikin and/or other member firms of KPMG International for all services, including audit services, for
the years ended December 31, 2015 and 2016:



|           |  | 2015 |         |  | 2016 |  
|---------- |  | ---- | ------- |  | ---- | -
|           |  |      |         |  |      |  
|Audit Fees |  | $    | 705,400 |  |      | $
|Tax Fees   |  |      | 40,577  |  |      |  
|Other Fees |  |      | 1,800   |  |      |  
|Total      |  | $    | 747,777 |  |      | $



“Audit fees” are the aggregate
fees billed for the audit of our annual financial statements. This category also includes services that generally the independent
accountant provides, such as consents and assistance with and review of documents filed with the SEC.



“Tax Fees” are the aggregate fees
billed for services rendered by our auditors related to tax compliance in connection with the
preparation of tax returns.



“Other Fees” are the aggregate
fees billed for consultation in connection with compliance with regulatory disclosure requirements.



Our audit committee has adopted a pre-approval
policy for the engagement of our independent accountant to perform certain audit and non-audit services. Pursuant to this policy,
which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee pre-approves
annually a catalog of specific audit and non-audit services in the categories of audit service, audit-related service and tax services
that may be performed by our independent accountants.



68







| | Item
                          16D. | EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
| | ----------------------------------- | ----------------------------------------------------------



Not applicable.



| | Item
                          16E. | PURCHASES
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
| | ----------------------------------- | ----------------------------------------------------------------------



Not applicable.



| | Item
                          16F. | CHANGE
IN REGISTRANT’S CERTIFYING ACCOUNTANT
| | ----------------------------------- | --------------------------------------------



Not applicable.



| | Item
                          16G. | CORPORATE
GOVERNANCE
| | ----------------------------------- | --------------------



As a foreign private issuer, we are permitted
to comply with Israeli corporate governance practices instead of the requirements under the Nasdaq Rules, provided that we disclose
those Nasdaq Rule requirements with which we do not comply and the equivalent Israeli requirement that we follow instead. We currently
rely on this “foreign private issuer exemption” with respect to the quorum requirement for meetings of our shareholders.
As permitted under the Companies Law, pursuant to our articles of association, the quorum required for an ordinary meeting of shareholders
consists of at least two shareholders present in person, by proxy or by written ballot (where relevant), who hold or represent
between them at least 25% of the voting power of our shares, instead of 33 1/3% of the issued share capital provided under the
Nasdaq Rules. In addition, as permitted under the Companies Law, pursuant to our articles of association, if a quorum is not present
within half an hour from the time scheduled for the meeting, the meeting will be adjourned for one week (to the same day, time
and place), or to a day, time and place proposed by the chairman of our board of directors with the consent of the majority of
the voting power represented at the meeting in person or by proxy and voting on the adjournment.  Any number of shareholders
who attend an adjourned meeting in person or by proxy will constitute a quorum, regardless of the number of shares they hold or
represent.



| | Item
                          16H. | Mine
Safety Disclosure
| | ----------------------------------- | ----------------------



Not applicable.



PART III



| | Item
                          17. | FINANCIAL
STATEMENTS
| | ---------------------------------- | --------------------



Not applicable.



| | Item
                          18. | FINANCIAL
STATEMENTS
| | ---------------------------------- | --------------------



See pages F-2 through F-78 of this annual
report.



| | Item
                          19. | EXHIBITS
| | ---------------------------------- | --------



|Exhibit No. |  | Description                                                                                                                                                                                                                                                                       
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                                                                                                   
|1.1         |  | Amended and Restated Articles of Association of the Registrant (incorporated by reference to Exhibit 3.2 to SodaStream’s Registration Statement on Form F-1, as amended, File No. 333-170007 (“Registration Statement No. 333-170007”), as filed with the SEC on October 19, 2010)
|            |  |                                                                                                                                                                                                                                                                                   
|4.1         |  | Form of Indemnification and Release Agreement (incorporated by reference to Exhibit 10.1 to Registration Statement No. 333-170007, as filed with the SEC on October 19, 2010)                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                   
|4.2(a)      |  | 2007 Employee Share Option Plan (incorporated by reference to Exhibit 10.2(a) to Registration Statement No. 333-170007, as filed with the SEC on October 19, 2010)                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                   
|4.2(b)      |  | 2010 Employee Share Option Plan (incorporated by reference to Exhibit 10.2(b) to Registration Statement No. 333-170007, as filed with the SEC on October 26, 2010)                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                   
|4.2(c)      |  | Amendment to the 2010 Employee Share Option Plan (incorporated by reference to Exhibit 99.3 to SodaStream’s Registration Statement on Form S-8, File No. 333-208811, as filed with the SEC on December 31, 2015)                                                                  
|            |  |                                                                                                                                                                                                                                                                                   
|4.3         |  | Support Agreement between the Registrant and Teleios Capital Partners GmbH, dated November 30, 2016 (incorporated by reference to Exhibit 99.1 to the Form 6-K filed by the Registrant with the SEC on November 30, 2016)                                                         



69







|8.1  |  | List of subsidiaries of the Registrant                                                                                                                                
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  |                                                                                                                                                                       
|12.1 |  | Certificate of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002
|     |  |                                                                                                                                                                       
|12.2 |  | Certificate of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002
|     |  |                                                                                                                                                                       
|13.1 |  | Certificate of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002*
|     |  |                                                                                                                                                                       
|15.1 |  | Consent of Somekh Chaikin, a member firm of KPMG International, independent registered public accounting firm                                                         



| | * | Furnished
herewith.
| | - | -------------------



70







SIGNATURES



The registrant hereby certifies that it meets
all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual
Report on its behalf.



|                    |  | SodaStream International Ltd.
|------------------- |  | -----------------------------
|Date: March 9, 2017 |  | By:                          
|                    |  |                              
|                    |  |                              





71







Index to consolidated financial statements



|                                                                                                               |  | Page
|-------------------------------------------------------------------------------------------------------------- |  | ----
|Audited consolidated financial statements                                                                      |  |     
|Report of independent registered public accounting firm                                                        |  |     
|Consolidated balance sheets as of December 31, 2015 and 2016                                                   |  |     
|Consolidated statements of operations for the years ended December 31, 2014, 2015 and 2016                     |  |     
|Consolidated statements of comprehensive income (loss) for the years ended December 31, 2014, 2015 and 2016    |  |     
|Consolidated statement of changes in shareholders’ equity for the years ended December 31, 2014, 2015 and 2016 |  |     
|Consolidated statements of cash flows for the years ended December 31, 2014, 2015 and 2016                     |  |     
|Notes to the consolidated financial statements                                                                 |  |     



F-1







Report of Independent Registered Public
Accounting Firm



The Board of Directors and Shareholders of

SodaStream International Ltd.:



We have audited the accompanying consolidated
balance sheets of SodaStream International Ltd. (hereinafter “the Company”) and subsidiaries (hereinafter “the
Group”) as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income,
shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2016. We also
have audited the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over
financial reporting based on our audits.



We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether
effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.



A company’s 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. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.



F-2







Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.



In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of the Group as of December 31,
2016 and 2015, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31,
2016, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).



/s/ Somekh Chaikin

Certified Public Accountant (Isr.)

Member Firm of KPMG International



Tel-Aviv, Israel



March 9, 2017



F-3







SodaStream International Ltd.



Consolidated Balance
Sheets as of December 31



(in thousands)



|                                           |  | Note |    |  | 2015 |   |         | 2016 | 
|------------------------------------------ |  | ---- | -- |  | ---- | - | ------- | ---- | 
|Assets                                     |  |      |    |  |      |   |         |      | 
|                                           |  |      |    |  |      |   |         |      | 
|Cash and cash equivalents                  |  |      | 11 |  |      | $ | 34,534  |      | 
|Bank deposits                              |  |      |    |  |      |   | -       |      | 
|Inventories                                |  |      | 9  |  |      |   | 112,973 |      | 
|Trade receivables, net                     |  |      | 23 |  |      |   | 76,566  |      | 
|Other receivables                          |  |      | 10 |  |      |   | 29,099  |      | 
|Assets classified as held for sale         |  |      |    |  |      |   | -       |      | 
|Derivative financial instruments           |  |      | 23 |  |      |   | 631     |      | 
|Total current assets                       |  |      |    |  |      |   | 253,803 |      | 
|                                           |  |      |    |  |      |   |         |      | 
|Property, plant and equipment              |  |      | 7  |  |      |   | 155,294 |      | 
|Intangible assets                          |  |      | 8  |  |      |   | 42,095  |      | 
|Deferred tax assets                        |  |      | 21 |  |      |   | 1,106   |      | 
|Other receivables                          |  |      |    |  |      |   | 431     |      | 
|Total non-current assets                   |  |      |    |  |      |   | 198,926 |      | 
|                                           |  |      |    |  |      |   |         |      | 
|Total assets                               |  |      |    |  |      |   | 452,729 |      | 
|                                           |  |      |    |  |      |   |         |      | 
|Liabilities                                |  |      |    |  |      |   |         |      | 
|                                           |  |      |    |  |      |   |         |      | 
|Loans and borrowings                       |  |      | 13 |  |      |   | 11,917  |      | 
|Trade payables                             |  |      |    |  |      |   | 50,549  |      | 
|Income tax payable                         |  |      | 21 |  |      |   | 7,505   |      | 
|Provisions                                 |  |      | 15 |  |      |   | 2,407   |      | 
|Other current liabilities                  |  |      | 16 |  |      |   | 18,118  |      | 
|Total current liabilities                  |  |      |    |  |      |   | 90,496  |      | 
|                                           |  |      |    |  |      |   |         |      | 
|Loans and borrowings                       |  |      | 13 |  |      |   | 24,905  |      | 
|Employee benefits                          |  |      | 14 |  |      |   | 2,152   |      | 
|Other non-current liabilities              |  |      |    |  |      |   | 156     |      | 
|Deferred tax liabilities                   |  |      | 21 |  |      |   | 832     |      | 
|Total non-current liabilities              |  |      |    |  |      |   | 28,045  |      | 
|Total liabilities                          |  |      |    |  |      |   | 118,541 |      | 
|                                           |  |      |    |  |      |   |         |      | 
|Shareholders’ equity                       |  |      |    |  |      |   |         |      | 
|                                           |  |      |    |  |      |   |         |      | 
|Share capital                              |  |      | 12 |  |      |   | 3,414   |      | 
|Share premium                              |  |      |    |  |      |   | 205,527 |      | 
|Translation reserve                        |  |      | 12 |  |      |   | (29,993 | )    | 
|Retained earnings                          |  |      |    |  |      |   | 155,240 |      | 
|Total shareholders’ equity                 |  |      |    |  |      |   | 334,188 |      | 
|                                           |  |      |    |  |      |   |         |      | 
|Total liabilities and shareholders’ equity |  |      |    |  |      | $ | 452,729 |      | 



The accompanying notes are an integral
part of these consolidated financial statements.



F-4







SodaStream International Ltd.



Consolidated Statements of Operations for the year ended
December 31





In thousands (other than per share amounts)



|                                       |  | Note |    |  | 2014 |   |         | 2015 |  |   | 2016    |  
|-------------------------------------- |  | ---- | -- |  | ---- | - | ------- | ---- |  | - | ------- | -
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Revenues                               |  |      |    |  |      | $ | 511,774 |      |  | $ | 413,135 |  
|Cost of revenues                       |  |      |    |  |      |   | 258,686 |      |  |   | 216,364 |  
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Gross profit                           |  |      |    |  |      |   | 253,088 |      |  |   | 196,771 |  
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Operating expenses                     |  |      |    |  |      |   |         |      |  |   |         |  
|Sales and marketing                    |  |      | 17 |  |      |   | 177,668 |      |  |   | 138,641 |  
|General and administrative             |  |      | 18 |  |      |   | 49,795  |      |  |   | 47,258  |  
|Other expense                          |  |      | 19 |  |      |   | 10,654  |      |  |   | 631     |  
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Total operating expenses               |  |      |    |  |      |   | 238,117 |      |  |   | 186,530 |  
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Operating income                       |  |      |    |  |      |   | 14,971  |      |  |   | 10,241  |  
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Interest expense , net                 |  |      | 20 |  |      |   | 401     |      |  |   | 350     |  
|Other financial expense (income), net  |  |      | 20 |  |      |   | (1,593  | )    |  |   | (5,192  | )
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Total financial expenses (income), net |  |      |    |  |      |   | (1,192  | )    |  |   | (4,842  | )
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Income before income tax               |  |      |    |  |      |   | 16,163  |      |  |   | 15,083  |  
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Income tax expense                     |  |      | 21 |  |      |   | 3,868   |      |  |   | 3,006   |  
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Net income for the year                |  |      |    |  |      | $ | 12,295  |      |  | $ | 12,077  |  
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Net income per share                   |  |      |    |  |      |   |         |      |  |   |         |  
|Basic                                  |  |      | 25 |  |      | $ | 0.59    |      |  | $ | 0.57    |  
|Diluted                                |  |      | 25 |  |      | $ | 0.58    |      |  | $ | 0.57    |  



The accompanying notes are an integral
part of these consolidated financial statements.



F-5







SodaStream International Ltd.



Consolidated Statements
of Comprehensive Income (Loss) for the year ended December 31



(in thousands)



|                                                                                                                                   |  | 2014 |         |   | 2015 |   |         | 2016 | 
|---------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- | 
|                                                                                                                                   |  |      |         |   |      |   |         |      | 
|Net income for the year  Items that after initial recognition in comprehensive income are or may be reclassified to profit or loss |  | $    | 12,295  |   |      | $ | 12,077  |      | 
|                                                                                                                                   |  |      |         |   |      |   |         |      | 
|Foreign currency translation differences of foreign operations                                                                     |  |      | (18,302 | ) |      |   | (15,085 | )    | 
|Items that will never be reclassified to profit or loss                                                                            |  |      |         |   |      |   |         |      | 
|                                                                                                                                   |  |      |         |   |      |   |         |      | 
|Defined benefit plan remeasurements, net of tax                                                                                    |  |      | (115    | ) |      |   | (202    | )    | 
|                                                                                                                                   |  |      |         |   |      |   |         |      | 
|Total comprehensive income (loss) for the year                                                                                     |  | $    | (6,122  | ) |      | $ | (3,210  | )    | 



The accompanying notes are an integral
part of these consolidated financial statements.



F-6







SodaStream International Ltd.



Consolidated Statement
of Changes in Shareholders’ Equity

(in thousands)

|                                                       |  | Attributable to equity holders of the Company |      
|------------------------------------------------------ |  | --------------------------------------------- | -----
|                                                       |  |                                               |      
|                                                       |  | Share                                         |      
|                                                       |  | capital                                       |      
|Balance as of January 1, 2014                          |  | $                                             | 3,378
|Net income for the year                                |  |                                               | -    
|Other comprehensive loss for the year                  |  |                                               | -    
|Total comprehensive income (loss) for the year         |  |                                               | -    
|Share-based payment                                    |  |                                               | -    
|RSU vested in connection with business combination (1) |  |                                               | 1    
|Share-based payment tax benefit                        |  |                                               | -    
|Exercise of employee equity awards                     |  |                                               | 21   
|Balance as of December 31, 2014                        |  | $                                             | 3,400
|Net income for the year                                |  |                                               | -    
|Other comprehensive loss for the year                  |  |                                               | -    
|Total comprehensive income (loss) for the year         |  |                                               | -    
|Share-based payment                                    |  |                                               | -    
|RSU vested in connection with business combination (1) |  |                                               | 1    
|Exercise of employee equity awards                     |  |                                               | 13   
|Balance as of December 31, 2015                        |  | $                                             | 3,414
|Net income for the year                                |  |                                               | -    
|Other comprehensive loss for the year                  |  |                                               | -    
|Total comprehensive income (loss) for the year         |  |                                               | -    
|Share-based payment                                    |  |                                               | -    
|Exercise of employee equity awards                     |  |                                               | 47   
|Balance as of December 31, 2016                        |  | $                                             | 3,461



(1) See Note 12(A)(1).



The accompanying notes are an integral
part of these consolidated financial statements.



F-7







SodaStream International Ltd.

Consolidated Statements
of Cash Flows for the year ended December 31

(in thousands)



|                                                                       |  | 2014 |         |   | 2015 |   |         | 2016 | 
|---------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- | 
|Cash flows from operating activities                                   |  |      |         |   |      |   |         |      | 
|Net income for the year                                                |  | $    | 12,295  |   |      | $ | 12,077  |      | 
|Adjustments:                                                           |  |      |         |   |      |   |         |      | 
|Depreciation of property, plant and equipment                          |  |      | 14,099  |   |      |   | 13,233  |      | 
|Amortization of intangible assets                                      |  |      | 2,948   |   |      |   | 3,710   |      | 
|Impairment of goodwill and other intangible assets                     |  |      | 3,312   |   |      |   | 631     |      | 
|Restructuring costs                                                    |  |      | 15,649  |   |      |   | 6,930   |      | 
|Change in fair value of derivative financial instruments               |  |      | (906    | ) |      |   | (2,678  | )    | 
|Exchange rate differences on short-term loans and borrowing            |  |      | -       |   |      |   | (1,386  | )    | 
|Exchange rate differences on long-term loans and borrowing             |  |      | (2,986  | ) |      |   | (3,675  | )    | 
|Share-based payment                                                    |  |      | 3,760   |   |      |   | 6,471   |      | 
|Interest expense, net                                                  |  |      | 401     |   |      |   | 350     |      | 
|Income tax expense                                                     |  |      | 3,868   |   |      |   | 3,006   |      | 
|                                                                       |  |      | 52,440  |   |      |   | 38,669  |      | 
|                                                                       |  |      |         |   |      |   |         |      | 
|Decrease (increase) in inventories                                     |  |      | (12,658 | ) |      |   | 19,860  |      | 
|Decrease (increase) in trade receivables and other receivables         |  |      | 21,471  |   |      |   | 12,211  |      | 
|Decrease in trade payables and other liabilities                       |  |      | (22,054 | ) |      |   | (24,680 | )    | 
|Increase (decrease) in employee benefits                               |  |      | 49      |   |      |   | (89     | )    | 
|Increase (decrease) in provisions                                      |  |      | 855     |   |      |   | (62     | )    | 
|                                                                       |  |      | 40,103  |   |      |   | 45,909  |      | 
|                                                                       |  |      |         |   |      |   |         |      | 
|Interest paid                                                          |  |      | (438    | ) |      |   | (479    | )    | 
|Income tax received                                                    |  |      | 956     |   |      |   | 565     |      | 
|Income tax paid                                                        |  |      | (5,036  | ) |      |   | (5,987  | )    | 
|Net cash from operating activities                                     |  |      | 35,585  |   |      |   | 40,008  |      | 
|                                                                       |  |      |         |   |      |   |         |      | 
|Cash flows from investing activities                                   |  |      |         |   |      |   |         |      | 
|Interest received                                                      |  |      | 87      |   |      |   | 129     |      | 
|Investment in bank deposits                                            |  |      | -       |   |      |   | -       |      | 
|Proceeds from investment grants                                        |  |      | -       |   |      |   | 2,252   |      | 
|Proceeds from (payment for) derivative financial instruments, net      |  |      | 797     |   |      |   | 2,591   |      | 
|Acquisition of property, plant and equipment                           |  |      | (55,174 | ) |      |   | (49,466 | )    | 
|Acquisition of intangible assets                                       |  |      | (5,684  | ) |      |   | (4,236  | )    | 
|Net cash used in investing activities                                  |  |      | (59,974 | ) |      |   | (48,730 | )    | 
|                                                                       |  |      |         |   |      |   |         |      | 
|Cash flows from financing activities                                   |  |      |         |   |      |   |         |      | 
|Proceeds from exercise of employee share options                       |  |      | 860     |   |      |   | 151     |      | 
|Receipts of long-term loans and borrowings                             |  |      | 49,253  |   |      |   | 10,000  |      | 
|Repayments of long-term loans and borrowings                           |  |      | (2,383  | ) |      |   | (16,246 | )    | 
|Change in short-term debt, net                                         |  |      | (15,452 | ) |      |   | 4,247   |      | 
|Net cash from (used in) financing activities                           |  |      | 32,278  |   |      |   | (1,848  | )    | 
|                                                                       |  |      |         |   |      |   |         |      | 
|Net increase (decrease) in cash and cash equivalents                   |  |      | 7,889   |   |      |   | (10,570 | )    | 
|Cash and cash equivalents at the beginning of the year                 |  |      | 40,885  |   |      |   | 46,880  |      | 
|Effect of exchange rates fluctuations on cash and cash
    equivalents |  |      | (1,894  | ) |      |   | (1,776  | )    | 
|                                                                       |  |      |         |   |      |   |         |      | 
|Cash and cash equivalents at the end of the year                       |  | $    | 46,880  |   |      | $ | 34,534  |      | 



The accompanying notes are an integral
part of these consolidated financial statements.



F-8







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 1 - General



| | A. | Reporting entity
| | -- | ----------------



SodaStream International Ltd.
(hereinafter - the Company) is incorporated in Israel. The address of the Company’s registered office is Gilboa Street, Airport
City 7019900, Israel. The consolidated financial statements of the Company as of and for the year ended December 31, 2016 comprise
the Company and its subsidiaries (together referred to as the “Group” and individually as “Group companies”
or “Group entities”).



The Group is engaged in developing,
manufacturing and marketing sparkling water makers and related products.



The Group’s operational
activities are managed by its wholly owned subsidiary, SodaStream International B.V., registered in the Netherlands. Most of the
Group’s products are manufactured in Israel by SodaStream Industries Ltd., a wholly owned subsidiary. Marketing support and
services are carried out by third-party distributors and wholly owned subsidiaries located in various countries. Such subsidiaries
primarily purchase finished goods directly from other Group companies for marketing in their specific geographic areas.



The ordinary shares of the Company
were listed on the NASDAQ Global Select Market in connection with the Company’s initial public offering (hereinafter –
the IPO) on November 3, 2010, and starting from December 15, 2015 on the Tel-Aviv Stock Exchange. On April 14, 2011, the Company
issued additional shares to the public in a follow-on offering. As of the reporting date, to the best of the Company’s knowledge,
the Company has no shareholder with a controlling interest.



| | B. | Definitions
| | -- | -----------



In these consolidated financial
statements –



| | 1. | The Company – SodaStream International Ltd.
| | -- | -------------------------------------------



| | 2. | The Group - SodaStream International Ltd. and its subsidiaries.
| | -- | ---------------------------------------------------------------



| | 3. | Subsidiaries – Companies, the financial statements
of which are fully consolidated, directly or indirectly, with the financial statements of the Company.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | Related party – "Related party" within
its meaning in IAS 24 (2009) Related Party Disclosures.
| | -- | ----------------------------------------------------------------------------------------------



F-9







SodaStream International Ltd.

Notes to the Consolidated
Financial Statements





Note 2 - Basis of preparation



| | A. | Statement of compliance
| | -- | -----------------------



The consolidated financial statements
have been prepared in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB).



The consolidated financial statements
were authorized for issue by the Board of Directors on March 7, 2017.



| | B. | Basis of measurement
| | -- | --------------------



The consolidated financial statements
have been prepared on the historical cost basis except for derivative financial instruments measured at fair value, contingent
consideration in business combinations measured at fair value, inventories, defined employee benefit liabilities, provisions and
deferred tax assets and liabilities. For further information regarding the measurement of these assets and liabilities see Note
3 regarding significant accounting policies.



| | C. | Functional and presentation currency
| | -- | ------------------------------------



These consolidated financial
statements are presented in USD (“$”), which is the Company’s functional currency, and have been rounded to the
nearest thousand, except where otherwise indicated. The USD is the currency that represents the principal economic environment
in which the Company operates.



| | D. | Use of estimates and judgments
| | -- | ------------------------------



The preparation of consolidated
financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application
of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.



The preparation of accounting
estimates used in the preparation of the Group’s financial statements requires the Company’s management to make assumptions
regarding circumstances and events that involve considerable uncertainty. The Company’s management prepares the estimates
on the basis of past experience, various facts, external circumstances, and reasonable assumptions according to the pertinent circumstances
of each estimate.



Estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised
and in any future periods affected.



F-10







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 2 - Basis of preparation –
(continued)



Information about assumptions
and estimations made by the Group with respect to the future and other reasons for uncertainty with respect to estimates that have
a significant risk of resulting in a material adjustment to carrying amounts of assets and liabilities in the next financial year
are included in the following notes:



| | · | Note 7, Property, plant and equipment.
| | - | --------------------------------------

| | · | Note 8, Intangible assets.
| | - | --------------------------

| | · | Note 9, Inventories.
| | - | --------------------

| | · | Note 14, Employee benefits, regarding the measurement of the defined
benefit obligation.
| | - | ----------------------------------------------------------------------------------------

| | · | Note 15, Provisions.
| | - | --------------------

| | · | Note 21, Income tax, regarding the utilization of tax losses, deferred
taxes and tax assessments.
| | - | -------------------------------------------------------------------------------------------------

| | · | Note 23, Financial instruments.
| | - | -------------------------------

| | · | Note 24, Contingencies.
| | - | -----------------------

| | · | Note 26, Share based payments.
| | - | ------------------------------



F-11







SodaStream International Ltd.

Notes to the Consolidated
Financial Statements





Note 3 - Significant accounting policies



The accounting policies set out
below have been applied consistently in all periods presented in these consolidated financial statements and have been applied
consistently by Group entities.



| | A. | Basis of consolidation
| | -- | ----------------------



| | 1. | Subsidiaries
| | -- | ------------



Subsidiaries are entities controlled
by the Company. Control exists when the Group is exposed, or has rights, to variable returns from its involvement with the entity
and has the ability to affect these returns through its power over the entity. The financial statements of subsidiaries are included
in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting
policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group.



| | 2. | Transactions eliminated on consolidation
| | -- | ----------------------------------------



Intra-Group balances and transactions,
and any unrealized income and expense arising from intra-Group transactions, are eliminated in preparing the consolidated financial
statements.



Unrealized losses are eliminated
in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.



| | B. | Foreign currency
| | -- | ----------------



| | 1. | Foreign currency transactions
| | -- | -----------------------------



Transactions in foreign currencies
are translated into the respective functional currency of the Group entities at exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the respective functional
currency at the exchange rate at the reporting date.



The foreign currency gain or loss
on monetary items is the difference between amortized cost in the functional currency at the beginning of the year, adjusted for
effective interest and payments during the year, and the amortized cost in foreign currency translated at the exchange rate at
the end of the year.



Non-monetary assets and liabilities
denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate
at the date that the fair value was determined.



Non-monetary items that are measured
in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.



Foreign currency differences arising on translation
are recognized in the statement of operations.



F-12









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 3 - Significant accounting policies
– (continued)



| | 2. | Foreign operations
| | -- | ------------------



The assets and liabilities of foreign
operations, including goodwill are translated to USD at exchange rates at the reporting date. The income and expenses of foreign
operations are translated to USD at the average exchange rate for the period.



Foreign currency differences are
recognized in other comprehensive income, and presented in the foreign currency translation reserve (hereinafter – the translation
reserve) in equity. When a foreign operation is disposed of such that control is lost, the cumulative amount in the translation
reserve related to that foreign operation is transferred to the statement of operations as part of the gain or loss on disposal.



Generally, foreign currency differences
from a monetary item receivable from or payable to a foreign operation, including foreign operations that are subsidiaries, are
recognized in profit or loss in the consolidated financial statements.

Foreign exchange gains and losses
arising from a monetary item receivable from or payable to foreign operations, the settlement of which is neither planned nor likely
in the foreseeable future, are considered to be as part of a net investment in a foreign operation and are recognized in other
comprehensive income, and are presented in the translation reserve in equity.



| | C. | Financial instruments
| | -- | ---------------------



| | 1. | Non-derivative financial assets
| | -- | -------------------------------



The Group initially recognizes
receivables and deposits on the date that they are originated. All other financial assets are recognized initially on the trade
date at which the Group becomes a party to the contractual provisions of the instrument.



The Group derecognizes a financial
asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual
cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial
asset are transferred.



Financial assets and liabilities
are offset and the net amount is presented in the balance sheet when the Group has a legal right to offset the amount and intends
either to settle on a net basis or to realize the asset and settle the liability simultaneously.



The Group has the following non-derivative
financial assets:



Receivables, deposits and cash
and cash equivalents



Receivables and deposits are financial
assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair
value plus any directly attributable transaction costs. Subsequent to initial recognition, receivables are measured at amortized
cost using the effective interest method, less any impairment losses.



Receivables consist of trade and
other receivables.



Cash and cash equivalents comprise
cash balances and deposits with original maturities of three months or less.



F-13







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 3 - Significant accounting policies
– (continued)



| | 2. | Non-derivative financial liabilities
| | -- | ------------------------------------



The Group has the following non-derivative
financial liabilities: bank loans, trade payables and other payables. Debt instruments issued are initially recognized on the date
that they are originated. All other financial liabilities are recognized initially on the trade date at which the Group becomes
a party to the contractual provisions of the instrument.



Financial liabilities are recognized
initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities
are measured at amortized cost using the effective interest method.



The Group derecognizes a financial
liability when its contractual obligations are discharged, cancelled or expire.



| | 3. | Derivative financial instruments
| | -- | --------------------------------



The Group has entered into currency
derivative contracts to moderate its global currency risk on the basis of planned transactions. These contracts generally cover
a period of less than one year. The Group’s hedging activities currently do not meet the criteria for hedge accounting.



Derivative financial instruments
are recognized initially at fair value; attributable transaction costs are recognized in the statement of operations as incurred.
Subsequent to initial recognition, derivative financial instruments are measured at fair value, and changes therein are recognized
immediately in the statement of operations, as either operating or financing items depending on the nature of the item being economically
hedged.



| | 4. | Share capital
| | -- | -------------



All shares are classified as equity.

Incremental costs directly attributable
to the issuance of shares and options are recognized as a deduction from equity, net of any tax effects.



| | D. | Property, plant and equipment
| | -- | -----------------------------



| | 1. | Recognition and measurement
| | -- | ---------------------------



Items of property, plant and equipment
are measured at cost less accumulated depreciation and accumulated impairment losses.



Cost includes expenditures that
are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and
direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use and the estimated
cost of dismantling and removing the item and restoring the site on which it is located, when such an obligation exists, and capitalized
borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that
equipment.



F-14







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 3 - Significant accounting policies
– (continued)



When parts of an item of property,
plant and equipment (including costs of major periodic inspections) have different useful lives, they are accounted for as separate
items (major components) of property, plant and equipment.



The cost of assets in respect of
which investment grants are received is stated net of the amount of the grant.



Changes in the obligation to dismantle
and remove the items and to restore the site, on which they are located, other than changes deriving from the passage of time,
are added to or deducted from the cost of the asset in the period in which they are first calculated or changes occur. The amount
deducted from the cost of the asset shall not exceed the balance of the carrying amount, and the remaining balance is recognized
immediately in the statement of operations.



Exchangeable CO2 cylinders
that are loaned to distributors and exchangeable CO2 cylinders that are used by the Group to facilitate the exchange
program are considered property, plant and equipment.



| | 2. | Subsequent costs
| | -- | ----------------



The cost of replacing components
of an item of property, plant and equipment and other subsequent costs are recognized in the carrying amount of property, plant
and equipment if it is probable that the future economic benefits embodied within them will flow to the Group and its cost can
be measured reliably. The carrying amount of the replaced item of property, plant and equipment is derecognized. The costs of the
day-to-day servicing of property, plant and equipment are recognized in the statement of operations as incurred.



| | 3. | Depreciation
| | -- | ------------



Depreciation is a systematic allocation
of the depreciable amount of an asset over its useful life. The depreciable amount is the cost of the asset less its residual value.



Items of property, plant and equipment
are depreciated from the date they are installed and are ready for use in the manner intended by management, or in respect of internally
constructed assets, from the date that the asset is complete and ready for use.



Depreciation is recognized in the
statement of operations on a straight-line basis over the estimated useful lives of each component of an item of property, plant
and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably
certain that the Group will obtain ownership by the end of the lease term. Land owned by the group is not depreciated.



F-15







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 3 - Significant accounting policies
– (continued)



The estimated useful lives for
the current and comparative periods are as follows:



|- | Leasehold improvements         | the shorter of lease term or useful life
|- | ------------------------------ | ----------------------------------------
|- | Machinery and equipment        | 5-10   years                            
|- | Office furniture and equipment | 3-5 years                               
|- | Vehicles                       | 5-7 years                               
|- | Cylinders                      | 20-50 years                             
|- | Buildings                      | 50 years                                





Depreciation methods, useful lives
and residual values are reviewed at each financial year-end and adjusted if appropriate.



| | E. | Intangible assets
| | -- | -----------------



| | 1. | Goodwill
| | -- | --------



Goodwill arising on the acquisition
of subsidiaries is measured at cost less accumulated impairment losses.



| | 2. | Other intangible assets
| | -- | -----------------------



Other intangible assets that are
acquired by the Group and have finite useful lives are measured at cost less accumulated amortization and accumulated impairment
losses.



| | 3. | Subsequent expenditure
| | -- | ----------------------



Subsequent expenditure is capitalized
only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditures,
including expenditures on internally generated goodwill and brands, are recognized in the statement of operations as incurred.



| | 4. | Amortization
| | -- | ------------



Amortization is a systematic allocation
of the amortizable amount of an intangible asset over its useful life. The amortizable amount is the cost of the asset less its
residual value.



Amortization is recognized in the
statement of operations on a straight-line basis over the estimated useful lives of intangible assets from the date that they are
available for use. Goodwill and intangible assets that have an indefinite useful life are not systematically amortized but are
tested for impairment at least once a year.



The estimated useful lives for
the current and comparative periods are as follows:



|- | Software licenses  | 3-10 years
|- | ------------------ | ----------
|- | Customer relations | 5-8 years 
|- | Technology         | 8 years   
|- | Trademarks         | Indefinite



F-16







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 3 - Significant accounting policies
– (continued)



Amortization methods, useful lives
and residual values are reviewed at each financial year-end and adjusted if appropriate.



The Group examines the useful life
of an intangible asset that is not periodically amortized at least once a year in order to determine whether events and circumstances
continue to support the decision that the intangible asset has an indefinite useful life.



| | F. | Leased assets
| | -- | -------------



At inception or upon reassessment
of an arrangement, the Group determines whether such an arrangement is or contains a lease.



Leases under the terms of which
the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition,
the leased asset is measured and a liability is recognized at an amount equal to the lower of its fair value and the present value
of the minimum lease payments. Future payments for exercising an option to extend the lease from the Israel Land Authority are
not recognized as part of an asset and corresponding liability since they constitute contingent lease payments that are derived
from the fair value of the land on the future dates of renewing the lease agreement. Subsequent to initial recognition, the asset
is accounted for in accordance with the accounting policy applicable to that asset.



Other leases are classified as
operating leases and are not recognized on the balance sheet.



When a lease includes both a
land component and a buildings component, each component is considered separately for the purpose of classifying the lease, with
the principal consideration regarding the classification of land being the fact that land normally has an indefinite useful life.



| | G. | Inventories
| | -- | -----------



Inventories are measured at the
lower of cost and net realizable value. The cost of inventories is based on the first-in, first-out (FIFO) principle and includes
expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to
their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate
share of production overhead based on standard operating capacity. Net realizable value is the estimated selling price in the ordinary
course of business, less the estimated costs of completion and selling expenses.



| | H. | Capitalization of borrowing costs
| | -- | ---------------------------------



Specific and non-specific borrowing
costs are capitalized to qualifying assets throughout the period required for completion and construction until they are ready
for their intended use. Non-specific borrowing costs are capitalized in the same manner to the same investment in qualifying assets,
or portion thereof, which was not financed with specific credit by means of a rate which is the weighted-average cost of the credit
sources which were not specifically capitalized. Foreign currency differences from credit in foreign currency are capitalized if
they are considered an adjustment of interest costs. Other borrowing costs are expensed as incurred.



F-17







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 3 - Significant accounting policies
– (continued)



Income earned on the temporary
investment of specific credit received for investing in a qualifying asset is deducted from the borrowing costs eligible for capitalization.



| | I. | Impairment
| | -- | ----------



| | 1. | Non-derivative financial assets
| | -- | -------------------------------



A financial asset not carried at
fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is
impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition
of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated
reliably.



Objective evidence that financial
assets are impaired can include, among others, default or delinquency by a debtor, restructuring of an amount due to the Group
on terms that the Group would not otherwise consider, indications that a debtor will enter bankruptcy, adverse changes in the payment
status of borrowers, changes in the economic environment that correlate with insolvency of issuers or the disappearance of an active
market for a security.



The Group considers evidence of
impairment for receivables at both an individual asset and a collective level. All individually significant receivables are individually
assessed for impairment. All individually significant receivables found not to be impaired are then collectively assessed for any
impairment that has been incurred but not yet identified.



An impairment loss in respect of
a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value
of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in the
statement of operations and reflected in an allowance account against receivables.



An impairment loss is reversed
if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets
measured at amortized cost the reversal is recognized in the statement of operations.



| | 2. | Non-financial assets
| | -- | --------------------



The carrying amounts of the Group’s
non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether
there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. The
Group estimates the recoverable amount of goodwill and intangible assets that have indefinite useful lives once a year and on the
same date for each asset, or more frequently if there are indications of impairment.



F-18







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 3 - Significant accounting policies
– (continued)



For the purpose of impairment testing,
assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating
unit”).



The recoverable amount of an asset
or cash-generating unit (hereinafter – CGU) is the greater of its value in use and its fair value less costs of disposals.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset or CGU, for which the estimated
future cash flows from the asset or cash-generating unit were not adjusted.



The Groups’ corporate assets
do not generate separate cash inflows and are utilized by more than one cash-generating unit.



An impairment loss is recognized
if the carrying amount of an asset or a CGU exceeds its estimated recoverable amount. Impairment losses are recognized in the statement
of operations. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill
allocated to the CGU and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.



An impairment loss in respect of
goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting
date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change
in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no
impairment loss had been recognized.



| | J. | Non-current assets held for sale
| | -- | --------------------------------



Non-current assets are classified
as held for sale if it is highly probable that they will be recovered primarily through a sale transaction and not through continuing
use. The assets are measured at the lower of their carrying amount and fair value less cost to sell.



Impairment losses recognized on
initial classification as held for sale, and subsequent gains or losses on re-measurement, are recognized in profit or loss. Gains
are not recognized in excess of any cumulative impairment loss.



In subsequent periods, depreciable
assets classified as held for sale are not periodically depreciated.



F-19







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 3 - Significant accounting policies
– (continued)



| | K. | Employee benefits
| | -- | -----------------



| | 1. | Post-employment benefits
| | -- | ------------------------



The Group has a number of post-employment
benefit plans. The plans are usually financed by deposits with insurance companies or with funds managed by a trustee, and they
are classified as defined contribution plans or defined benefit plans.



| | a. | Defined contribution plans
| | -- | --------------------------



A defined contribution plan is
a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive
obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognized as an expense in
the statement of operations in the periods during which related services are rendered by employees.



| | b. | Defined benefit plans
| | -- | ---------------------



A defined benefit plan is a post-employment
benefit plan other than a defined contribution plan.



The Group’s net obligation
in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees
have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value,
and the fair value of any plan assets is deducted. The Group determines the net interest expense (income) on the net defined benefit
liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning
of the annual period to the net defined benefit liability.



The discount rate is the yield
at the reporting date on high quality corporate bonds that have maturity dates approximating the terms of the Group’s obligations
and that are denominated in the currency in which the benefits are expected to be paid.



The calculation is performed annually
by a qualified actuary using the projected unit credit method. When the calculation results in a net asset for the Group, the recognized
asset is limited to the present value of economic benefits available in the form of a refund from the plan or a reduction in future
contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum
funding requirements that apply to any plan in the Group. An economic benefit is considered available to the Group if it is realizable
during the life of the plan, or on settlement of the plan obligations.



Remeasurements of the net defined
benefit liability (asset) which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect
of the asset ceiling (if any, excluding interest) are recognized in other comprehensive income. Other expenses related to defined
benefit plans and employee benefit expenses are recognized in the statement of operations.



F-20







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 3 - Significant accounting policies
– (continued)



| | 2. | Other long-term benefits
| | -- | ------------------------



The Group’s obligation in
respect of long-term employee benefits other than post-employment benefit plans is the amount of future benefit that employees
have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value,
and the fair value of any related assets is deducted. The discount rate is the yield at the reporting date on high quality corporate
bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency
in which the benefits are expected to be paid. The calculation is based on the projected unit credit method. Any remeasurements
are recognized in the statement of operations as they occur.



| | 3. | Short-term benefits
| | -- | -------------------



Short-term employee benefit obligations
are measured on an undiscounted basis and are expensed as the related service is provided or upon the actual absence of the employee
when the benefit is not accumulated.



A liability is recognized for the
amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive
obligation to pay this amount as a result of past events and a reliable estimate of the obligation can be made.



On the balance sheet, the employee
benefits are classified as short-term benefits or as other long-term benefits according to the time the liability is expected to
be settled.



| | 4. | Termination benefits
| | -- | --------------------



Termination benefits are recognized
as an expense at the earlier of when the Group can no longer withdraw the offer of those benefits or when the Group recognizes
costs for a restructuring that involves the payment of termination benefits.



| | 5. | Share-based payment transactions
| | -- | --------------------------------



The grant date fair value of share-based
payment awards (equity awards), which include stock options and restricted share units (hereinabove and hereinafter – RSU)
granted to employees is recognized as salary expense, with a corresponding increase in equity, over the vesting periods of the
awards. The amount recognized as an expense in respect of share-based payment awards that are conditional upon meeting employee
service is adjusted to reflect the number of awards that are expected to vest.



For share-based payment awards
with market performance vesting conditions, the grant date fair value of the share-based payment awards is measured to reflect
such conditions, and therefore the Group recognizes an expense in respect of the awards whether or not the conditions have been
met.



F-21







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 3 - Significant accounting policies
– (continued)



When the Company reduces the exercise
price of options granted during the vesting period, the incremental fair value granted, which is the difference between the fair
value of the re-priced options and the original options, both estimated as at the date of modification, is included in the measurement
of the amount recognized for services received over the period from the modification date until the date when the modified options
vest, in addition to the amount based on the grant date fair value of the original options, which is recognized over the remainder
of the original vesting period. When a modification includes a reduction in exercise price and a reduction in the number of granted
instruments, the fair value of the re-priced options is based on the reduced number of granted instruments.



| | L. | Provisions
| | -- | ----------



A provision is recognized if,
as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is
probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting
the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and of the
risks specific to the liability without adjustment for the Company’s credit risk. The unwinding of the discount is recognized
as a financial expense.



| | 1. | Warranties
| | -- | ----------



A provision for warranties is recognized
when the underlying products are sold. The provision is based on historical warranty data and a weighting of all possible outcomes
against their associated probabilities.



| | 2. | Legal claims
| | -- | ------------



A provision for legal claims is
recognized if, as a result of a past event, the Group has a present legal or constructive obligation and it is more likely than
not that an outflow of economic benefits will be required to settle that obligation and the amount of obligation can be estimated
reliably.



| | 3. | Right of return
| | -- | ---------------



A provision for estimated product
returns is recognized when there is an obligation to provide a refund upon the return of products (see also Note 3(L)).



| | 4. | Machinery and plant dismantling
| | -- | -------------------------------



A provision for machinery and plant
dismantling is recognized when there is a contractual obligation for such activities.



| | M. | Revenue
| | -- | -------



Revenue from the sale of goods
in the ordinary course of business is measured at the fair value of the consideration received or receivable, net of returns, trade
discounts and volume rebates. When the credit period is short and constitutes the accepted credit in the industry, the future consideration
is not discounted.



F-22







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 3 - Significant accounting policies
– (continued)



Revenue is recognized when persuasive
evidence exists (usually in the form of an executed sales agreement) that the significant risks and rewards of ownership have been
transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be
estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.
If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a
reduction of revenue as the sales are recognized. The timing of the transfer of risks and rewards varies depending on the individual
terms of the sale agreement. For sales of products in domestic markets, transfer usually occurs when the product is received at
the customer’s warehouse, but for most international shipments transfer occurs upon loading the goods onto the relevant carrier.



The Group recognizes the supply
of exchangeable CO2 cylinders to customers, for which in certain circumstances, there is an obligation to provide a
refund upon their return, as a final sale. The amount of the refund varies by country and customer (retailer, distributor and end-consumer)
and may also change over time as market conditions vary in a particular country. As a result, a provision is recorded for estimated
returns based on historical return patterns of customers, and the refundable amounts are recorded as a reduction of revenue.



| | N. | Government grants
| | -- | -----------------



The Group has entered into an
approved investment program initiated by the State of Israel.

Government grants are recognized
initially at fair value when there is reasonable assurance that they will be received and the Group will comply with the conditions
associated with the grant. Unconditional government grants are recognized when the Group is entitled to receive them. Grants that
compensate the Group for the cost of an asset are presented as a deduction from the related assets and are recognized in the statement
of operations on a systematic basis over the useful life of the asset.



| | O. | Lease payments
| | -- | --------------



Payments made under operating
leases are recognized in the statement of operations on a straight-line basis over the term of the lease. Lease incentives received
are recognized as an integral part of the total lease expense, over the term of the lease.



| | P. | Financial income and expenses
| | -- | -----------------------------



Financial income consists mainly
of interest income on funds invested and fair value gains of financial assets and liabilities at fair value through profit and
loss. Interest income is recognized as it accrues in the statement of operations using the effective interest method.



Financial expenses consist mainly
of borrowing costs, unwinding of the discount on provisions and deferred consideration and fair value losses of financial assets
and liabilities at fair value through profit and loss. Borrowing costs which are not capitalized to qualifying assets are recognized
in the statement of operations using the effective interest method.



In the statements of cash flows,
interest received is presented within cash flows from investing activities. Interest paid is presented within cash flows from operating
activities.



F-23







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 3 - Significant accounting policies
– (continued)



Foreign currency gains and losses
on financial assets and liabilities are reported on a net basis as either financial income or financial expenses depending on whether
foreign currency movements are in a net gain or net loss position.



| | Q. | Income tax
| | -- | ----------



Income tax expense comprises
of current and deferred tax expenses. Income tax expense is recognized in the statement of operations or is recognized directly
in equity or in other comprehensive income to the extent it relates to items recognized directly in equity or in other comprehensive
income, respectively.



Current tax is the expected tax
payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment
to tax payable in respect of previous years.



Current tax assets and liabilities
are offset if there is a legally enforceable right to offset current tax liabilities and assets, and there is intent to settle
current tax liabilities and assets on a net basis or the tax assets and liabilities will be realized simultaneously.



A provision for uncertain tax
positions, including additional tax and interest expenses, is recognized when it is more probable than not that the Group will
have to use its economic resources to pay the obligation.



Deferred tax is recognized in
respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: differences on the
initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting
nor taxable profit or loss, differences relating to investments in subsidiaries to the extent that it is probable that they will
not reverse in the foreseeable future and differences arising on the initial recognition of goodwill. The measurement of deferred
tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period,
to recover or settle the carrying amount of its assets and liabilities. Deferred tax is measured at the tax rates that are expected
to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted
by the reporting date.



A deferred tax asset is recognized
to the extent that it is probable that future taxable profits will be available against which it can be utilized. Deferred tax
assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit
will be realized. Deferred tax assets that were not recognized are reevaluated at each reporting date and recognized if it has
become probable that future taxable profits will be available against which they can be utilized.



Deferred tax in respect of intra-Group
transactions in the consolidated financial statements is recorded according to the tax rate applicable to the buying company.



Deferred tax assets and liabilities
are offset if there is a legally enforceable right to offset tax liabilities and assets, and they relate to income taxes levied
by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle tax liabilities and
assets on a net basis or their tax assets and liabilities will be realized simultaneously.



F-24







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 3 - Significant accounting policies
– (continued)



The Group may be required to
pay additional tax if a dividend is distributed by Group companies. This additional tax was not included in the consolidated financial
statements since the Group’s policy is not to distribute a dividend that creates an additional tax liability for the Group.



| | R. | Net income per share
| | -- | --------------------



The Group presents basic and
diluted net income per share data. Basic net income per share is calculated by dividing the net income attributable to shareholders
of the Company by the weighted average number of shares outstanding during the year. Diluted net income per share is determined
by adjusting the net income attributable to shareholders and the weighted average number of shares outstanding for the effects
of all dilutive potential shares, which consist of the exercise of options and RSUs granted to employees and others.



| | S. | New standards and interpretations not yet adopted
| | -- | -------------------------------------------------



A number of new standards, amendments to standards
and interpretations are not yet in effect for the year ended December 31, 2016 and have not been applied in preparing these consolidated
financial statements:



| | 1. | IFRS 9 (2014) Financial Instruments
| | -- | -----------------------------------



A final version of IFRS 9 (2014),
which includes revised guidance on the classification and measurement of financial instruments, and a new model for measuring impairment
of financial assets. This guidance has been added to the chapter dealing with general hedge accounting requirements issued in 2013.



In accordance with IFRS 9 (2014),
there are three principal categories for measuring financial assets: amortized cost, fair value through profit and loss and fair
value through other comprehensive income. The basis of classification for debt instruments is the entity’s business model
for managing financial assets and the contractual cash flow characteristics of the financial asset. Investments in equity instruments
will be measured at fair value through profit and loss (unless the entity elected at initial recognition to present fair value
changes in other comprehensive income).

IFRS 9 (2014) requires that
changes in fair value of financial liabilities designated at fair value through profit or loss that are attributable to changes
in its credit risk, should usually be recognized in other comprehensive income.



F-25







SodaStream International Ltd.

Notes to the Consolidated
Financial Statements





Note 3 - Significant accounting
policies – (continued)



Impairment of financial assets



IFRS 9 (2014) presents a new ‘expected
credit loss’ model for calculating impairment. For most financial assets, the new model presents a dual measurement approach
for impairment: if the credit risk of a financial asset has not increased significantly since its initial recognition, an impairment
provision will be recorded in the amount of the expected credit losses that result from default events that are possible within
the twelve months after the reporting date. If the credit risk has increased significantly, in most cases the impairment provision
will increase and be recorded at the level of lifetime expected credit losses of the financial asset.



IFRS 9 (2014) is effective for
annual periods beginning on or after January 1, 2018 with early adoption being permitted. It will be applied retrospectively with
some exemptions.



The Group has examined the effects
of applying IFRS 9 (2014) and in its opinion the effect on the financial statements will be immaterial.



| | 2. | IFRS 15 Revenue from contracts with customers
| | -- | ---------------------------------------------



IFRS 15 replaces the
current guidance regarding recognition of revenues and presents a new model for recognizing revenue from contracts with customers.
IFRS 15 provides two approaches for recognizing revenue: at a point in time or over time. The model includes five steps for analyzing
transactions so as to determine when to recognize revenue and at what amount. Furthermore, IFRS 15 provides new and more extensive
disclosure requirements than those that exist under current guidance.



IFRS 15 is applicable for annual periods beginning
on or after January 1, 2018 and earlier application is permitted. IFRS 15 includes various alternative transitional provisions,
so that companies can choose between one of the following alternatives at initial application: full retrospective application,
full retrospective application with practical expedients, or application as from the mandatory effective date, with an adjustment
to the balance of retained earnings at that date in respect of transactions that are not yet complete.



The Group has examined the effects
of applying IFRS 15, and in its opinion the effect on the financial statements will be immaterial.



| | 3. | IFRS 16 Leases
| | -- | --------------



The standard replaces International Accounting Standard
17 – Leases (IAS 17) and its related interpretations. The standard’s instructions annul the existing requirement from
lessees to classify leases as operating or finance leases. Instead of this, for lessees, the new standard presents a unified model
for the accounting treatment of all leases according to which the lessee has to recognize an asset and liability in respect of
the lease in its financial statements. Similarly, the standard determines new and expanded disclosure requirements from those required
at present.



IFRS 16 is applicable for annual
periods as of January 1, 2019, with the possibility of early adoption, so long as the company has also early adopted IFRS 15, Revenue
from Contracts with Customers.

F-26







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 3 - Significant accounting policies
– (continued)



IFRS 16 includes various alternative
transitional provisions, so that companies can choose between one of the following alternatives at initial application: full retrospective
application or application (with the possibility of certain practical expedients) as from the mandatory effective date, with an
adjustment to the balance of retained earnings at that date.



The Group has not yet commenced
examining the effects of adopting the amendments on the financial statements.



| | 4. | IFRIC 22 Foreign Currency Transactions and Advance Consideration
| | -- | ----------------------------------------------------------------



The interpretation provides that
date of the transaction for the purpose of determining the exchange rate for recording a foreign currency transaction that includes
advance consideration is the date of initial recognition of the non-monetary asset/liability from the prepayment. If there are
multiple payments or receipts in advance, a date of transaction is established for each payment or receipt.



IFRIC 22 is applicable for annual
periods beginning on or after January 1, 2018 and earlier application is permitted. IFRIC 22 includes various alternative transitional
provisions, so that companies can choose between one of the following alternatives at initial application: retrospective application;
prospective application from the first reporting period the entity initially applied IFRIC 22; or prospective application from
the first reporting period presented in the comparative data in the financial statements for the period the entity initially applied
IFRIC 22.



The Group is examining the effects
of IFRIC 22 on the financial statements with no plans for early adoption.



F-27







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 4 - Determination of fair values



A number of the Group’s
accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities.
When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to
that asset or liability.



When determining the fair value
of an asset or liability, the Group uses market observable data as far as possible. Fair values are categorized into different
levels of fair value hierarchy based on the inputs used in the valuation techniques as follows:



| | • | Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
| | - | ------------------------------------------------------------------------------------------

| | • | Level 2: inputs other than quoted prices included within Level 1 that are observable, either directly
or indirectly
| | - | -------------------------------------------------------------------------------------------------------------------

| | • | Level 3: inputs that are not based on observable market data (unobservable inputs).
| | - | -----------------------------------------------------------------------------------

| |  | 
| |  | 



| | A. | Trade and other receivables
| | -- | ---------------------------



The fair value of trade and other
receivables is estimated at the present value of future cash flows, discounted at the market rate of interest at the measurement
date. Short-term receivables with no stated interest rate are measured at the original invoice amount if the effect of discounting
is immaterial. Fair value is determined at initial recognition at each annual reporting date.



| | B. | Derivative financial instruments
| | -- | --------------------------------



The fair value of foreign exchange
options is based on bank/broker quotes. If a quoted price is not available, then fair value is calculated based on the Black-Scholes
model.



For further
information regarding the fair value hierarchy, see Note 23.



| | C. | Non-derivative financial liabilities
| | -- | ------------------------------------



Non-derivative financial liabilities
are measured at fair value, at initial recognition, and for disclosure purposes, at each annual reporting date. Fair value of bank
loans is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest
at the measurement date. Trade and other payables with no stated interest rate are measured at the original invoice amount if the
effect of discounting is immaterial.



| | D. | Share-based payment transaction
| | -- | -------------------------------



The fair value of employee options
is measured using the Black-Scholes formula. Measurement inputs include share price on the measurement date, the exercise price
of the instrument, expected volatility (based on the weighted average historic volatility of the Company over the expected term
of the options), expected life of the instruments (based on averaging the vesting schedule of the options and the contractual term),
expected dividends, and the risk-free interest rate (based on government bonds, denominated in the applicable currency and with
a remaining life equal to the expected life of the options). Service and non-market performance conditions attached to the transactions
are not taken into account in determining fair value.



The Company estimates the fair
value of awards with market conditions using a Monte Carlo simulation in order to take into account the probability of satisfying
the market condition. This approach involves generating random stock price paths through a lattice type structure. Each path results
in a



F-28







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 4 - Determination of fair values
– (continued)





certain financial outcome, such
as accelerated vesting or specific option payout. The Company makes this estimate using the conditions that exist at the grant date.
The derived service period, which may be the requisite service period, is also determined at this time. Compensation cost for the
Company’s awards with a market condition is recognized ratably using the accelerated attribution method if the award is subject
to graded vesting over the requisite service period. The compensation cost for the Company’s awards with a market condition
is not reversed if the market condition is not satisfied. The Company has estimated the expected term of the awards granted to
the Company’s chief executive officer which were approved in December 2015 based on the contractual terms of such awards.



F-29







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 5 - Financial risk management



Overview



The Group has exposure to the
following risks from its use of financial instruments:



| | · | credit risk
| | - | -----------

| | · | liquidity risk
| | - | --------------

| | · | market risk (including currency, interest, commodity price
and other market price risks)
| | - | ----------------------------------------------------------------------------------------



This note presents information
about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring
and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these
consolidated financial statements.



The Group’s
risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and
controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect
changes in market conditions and the Group’s activities. The Group, through its training and management standards, aims to
develop a disciplined and constructive control environment in which all employees understand their roles and obligations.



Risk management framework



The Board of Directors has overall
responsibility for the establishment and oversight of the Group’s risk management framework.



The Company’s economic
department is in charge of risk management in three primary levels: currency, interest and commodity.



The Group’s strategy is
to minimize its exposure to currency risk by using derivative instruments such as plain vanilla options, and other various instruments.
The Group’s tendency is not to enter into derivative transactions that can increase its exposure and not to protect immaterial
activity amounts. The Group does not enter into derivative transactions for trading or speculative purposes.



Credit risk



Credit risk is the risk of financial
loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises
principally from the Group’s receivables from customers.



The Group’s exposure to
credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group’s customer
base, including the default risk of the industry and country, in which customers operate, has less of an influence on credit risk.



The Group’s exposure to
credit risk relating to trade receivables is further disclosed in Note 23(A).



The Group has established a credit
policy under which each new customer is analyzed individually for creditworthiness before the Group’s standard payment and
delivery terms and conditions are offered. The Group’s review includes external ratings, when available, and in some cases
bank references. Purchase limits are established for each customer, which represents the maximum open amount without requiring
specific approval from the management.



F-30







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 5 - Financial risk management –
(continued)



These limits are reviewed periodically.
The majority of the balances are secured by letters of credit, bank guarantees or insurance. Customers that fail to meet the Group’s
benchmark creditworthiness may transact with the Group only on a prepayment basis.



The Group establishes an allowance
for impairment that represents its estimate of incurred losses in respect of trade receivables. The main component of this allowance
is a specific loss component that relates to individual exposures. All individually significant receivables found not to be impaired
are collectively assessed for any impairment that has been incurred but not identified.



Liquidity risk



Liquidity risk is the risk of
inability or difficulty in connection with meeting the obligations associated with the Group’s financial liabilities that
are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far
as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the Group’s reputation.



The Group ensures that it has
sufficient cash on demand to meet expected operational expenses for a period of approximately 60 days, including the servicing
of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such
as natural disasters. In addition, the Group maintains secured lines of credit in the amount of $11 million with certain Israeli
banks. To the extent such lines of credit are utilized, interest is payable at a rate of LIBOR (or Prime, with respect to credit
lines denominated in NIS) plus between 75 and 200 basis points.



The Group's exposure to liquidity
risk is further disclosed in Note 23(B).



Market risk



Market risk is the risk of changes
in market prices, such as foreign exchange rates, interest rates and commodity prices affecting the Group’s income or the
value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures
within acceptable parameters, while optimizing the return.



The Group buys and sells derivative
financial instruments in order to manage market risks. Generally, the Group seeks to moderate its exposure to market risks and
manage volatility in the statement of operations.



Currency risk



The Group is exposed to currency
risk on sales and purchases that are denominated in a currency other than the respective functional currencies of Group entities,
primarily the USD and the Euro, but also the Australian Dollar (AUD), Swedish Krona (SEK), Swiss Francs (CHF), Sterling (GBP),
New Israeli Shekel (NIS), Canadian Dollar (CAD), South African Rand (ZAR), Danish Krona (DKK), Norwegian Krona (NOK), Japanese
Yen (JPY) and New Zealand Dollar (NZD).



The Group is primarily exposed
to fluctuations of the Euro and the NIS against the U.S. Dollar. Revenue is primarily denominated in the U.S. Dollar and the Euro.
Significant material purchasing, production costs and operational expenses are denominated in the U.S. Dollar, Euro and NIS.



F-31







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 5 - Financial risk management –
(continued)



The Group uses derivative instruments
in order to reduce the exposure to currency risks.



The Group’s investments
in subsidiaries are not covered by these derivative contracts, as these positions are considered to be long-term in nature.



Interest rate risk



The Group’s bank deposits
and bank overdrafts are subject to fluctuating interest rates, which depend on the loan period and the currency involved. Management
closely monitors the Group’s interest rate exposures on an on-going basis.



Commodity price risk



The Group is exposed to change
in prices of commodities used during the manufacturing process of its products, primarily aluminum and other metals, as well as
plastic components, and sugar prices.



The Group uses hedging from time
to time and for certain commodities, in order to reduce the exposure.



The Group’s exposure to
market risks is further disclosed in Note 23(C).



Capital management



The Board of Directors’
policy is to maintain a strong capital base so as to maintain investor and creditor confidence and to sustain future development
of the business.



F-32







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 6 - Operating segments



The Group’s segment performance
is assessed periodically by the Group’s management and reported to the Board of Directors, which acts as the Group’s
Chief Operating Decision Maker (CODM). These segments are represented by geographical regions. Each region has similar characteristics
relevant to the Group business and usually includes several markets in which it sells its products. The sales of the Group's products
in the markets are managed either by wholly owned subsidiaries or by external third-party distributors. The reported performance
of these markets is provided periodically and is consolidated in the Group's headquarters for the purpose of presentation to the
CODM.



Segment information

Segment information is based
on the geographical location of customers as reported to the CODM. CODM business decisions are primarily based on the market data
of the various markets in which the Group operates. The data received by the CODM consists of revenues from external customers
and segment results by market, which include items directly attributable to each market as well as those that can be allocated
on a reasonable basis. The operating segments’ accounting policies are identical to the accounting policies applied in these
financial statements. Inter-company transactions are not reported in the management reports and thus not presented in the segment
information. Asset and liability data is not reported in the operating segment information since it is not reviewed by the CODM.



The Company aggregates the different
markets in which the Group operates into four main reportable geographical segments as set forth below:



| | - | The Americas
| | - | ------------

| | - | Western Europe
| | - | --------------

| | - | Asia-Pacific
| | - | ------------

| | - | Central and Eastern Europe, Middle East and Africa
| | - | --------------------------------------------------



The Group’s management
aggregates the different markets based on consumer characteristics and geographical proximity.



Segment results are calculated
in accordance with the management reports reported to the CODM and as follows:



| | 1. | For markets in which marketing is performed by third-party
distributors, segment results represent revenues from external customers, less direct cost of revenues and less participation
in advertising expenses for that market.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | For markets in which marketing is performed by the Group’s
wholly owned subsidiaries, segment results represent revenues from external customers, less direct cost of revenues and less other
operating expenses (general and administrative and sales and marketing expenses).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Reconciliation to consolidated
financial statements



The reconciliation amounts include
all other operating and financial expenses that were not related directly to the Group’s sales and distribution activities
and were not included in the expenses allocated to specific segments in the reports to the CODM.



F-33







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 6 - Operating segments –
(continued)



AInformation
about reportable segments



|                                    |  | Year
    ended December 31, 2016 |        
|----------------------------------- |  | -------------------------------- | -------
|                                    |  |                                  |        
|                                    |  |                                  |        
|                                    |  |                                  |        
|                                    |  |                                  |        
|                                    |  | The
    Americas                 |        
|                                    |  | (in
    thousands)               |        
|Revenues                            |  |                                  | 114,747
|                                    |  |                                  |        
|Depreciation and amortization       |  |                                  | 1,993  
|                                    |  |                                  |        
|Segments Results                    |  |                                  | 17,433 
|Financial expense, net              |  |                                  |        
|Reportable income before income tax |  |                                  |        



| | (1) | Revenues from one customer of the Group’s Western
Europe segment represents approximately $40.0 million (2015 and 2014: $37.3 million and $62.0 million respectively) of the Group’s
total revenues.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Reconciling items include impairment of other intangible
assets in the amount of $1.8 million recorded under other expense in the statement of operations in 2016. Other reconciling items
are recurring items that are not related directly to the Group’s sales and distribution activities and were not allocated
to the different segments by the Company’s Chief Operating Decision Maker. Such items include primarily unallocated operating
overhead costs and share based payments.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-34







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 6 - Operating segments –
(continued)





|                                    |  | Year
    ended December 31, 2015 |        
|----------------------------------- |  | -------------------------------- | -------
|                                    |  |                                  |        
|                                    |  |                                  |        
|                                    |  |                                  |        
|                                    |  |                                  |        
|                                    |  | The
    Americas                 |        
|                                    |  | (in
    thousands)               |        
|Revenues                            |  |                                  | 102,104
|                                    |  |                                  |        
|Depreciation and amortization       |  |                                  | 2,233  
|                                    |  |                                  |        
|Segments Results                    |  |                                  | 6,485  
|Financial income, net               |  |                                  |        
|Reportable income before income tax |  |                                  |        



| | (1) | Revenues from one customer of the Group’s Western
Europe segment represents approximately $37.3 million (2014: $62.0 million) of the Group’s total revenues.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Reconciling items include restructuring costs of $9.5 million
comprised of charges to revenue of $2.8 million, impairment of inventory of $3.2 million, impairment of property, plant and equipment
of $1.0 million, employee benefits of $1.9 million and operating expenses of $0.6 million. Other reconciling items are recurring
items that are not related directly to the Group’s sales and distribution activities and were not allocated to the different
segments by the Company’s Chief Operating Decision Maker. Such items include primarily unallocated operating overhead costs
and share based payments.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-35







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 6 - Operating segments –
(continued)





|                                    |  | Year
    ended December 31, 2014 |        
|----------------------------------- |  | -------------------------------- | -------
|                                    |  |                                  |        
|                                    |  |                                  |        
|                                    |  |                                  |        
|                                    |  |                                  |        
|                                    |  | The
    Americas                 |        
|                                    |  | (in
    thousands)               |        
|Revenues                            |  |                                  | 142,301
|                                    |  |                                  |        
|Depreciation and amortization       |  |                                  | 3,143  
|                                    |  |                                  |        
|Segments Results                    |  |                                  | (3,556 
|                                    |  |                                  |        
|Financial income, net               |  |                                  |        
|                                    |  |                                  |        
|Reportable income before income tax |  |                                  |        



| | (1) | Reconciling items include restructuring costs and goodwill
impairment in the amount of $15.6 million and $3.3 million, respectively. Other reconciling items are recurring items that are
not related directly to the Group’s sales and distribution activities and were not allocated to the different segments by
the Company’s Chief Operating Decision Maker. Such items include primarily unallocated operating overhead costs and share
based payments.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-36







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 6 - Operating segments –
(continued)



| | B. | Entity level disclosures
| | -- | ------------------------



Information on geographical
segments



Information regarding the assets
of each geographical segment is detailed below. The information includes non-current assets data, of which the depreciated cost
of property, plant and equipment is allocated to each of the geographical segments, and the intangible assets’ amortized
cost, deferred tax asset and other receivables are not allocated to the geographical segments.



|                       |  |                    |        |  |         |  |        |              |  |  | Central and        |  |  |            |         |  |                        |  |         |              | 
|---------------------- |  | ------------------ | ------ |  | ------- |  | ------ | ------------ |  |  | ------------------ |  |  | ---------- | ------- |  | ---------------------- |  | ------- | ------------ | 
|                       |  |                    |        |  |         |  |        |              |  |  | Eastern            |  |  |            |         |  |                        |  |         |              | 
|                       |  |                    |        |  |         |  |        |              |  |  | Europe,            |  |  |            |         |  |                        |  |         |              | 
|                       |  |                    |        |  | Western |  |        |              |  |  | Middle East        |  |  | Reportable |         |  |                        |  |         |              | 
|                       |  | The
    Americas   |        |  | Europe  |  |        | Asia-Pacific |  |  | and
    Africa (1) |  |  | Segments   |         |  | Reconciliation
    (2) |  |         | Consolidated | 
|                       |  | (in
    thousands) |       
|December  31,
    2016 |  |                    | 8,879  |  |         |  | 16,418 |              |  |  | 4,947              |  |  |            | 134,384 |  |                        |  | 164,628 |              | 
|December  31,
    2015 |  |                    | 10,364 |  |         |  | 13,757 |              |  |  | 6,713              |  |  |            | 124,460 |  |                        |  | 155,294 |              | 
|December  31,
    2014 |  |                    | 14,391 |  |         |  | 18,022 |              |  |  | 6,283              |  |  |            | 86,121  |  |                        |  | 124,817 |              | 



(1)         Includes
the depreciated cost of property, plant and equipment of the manufacturing facilities as of December 31, 2016 is $133.6 million
(2015 and 2014: $122.8 million and $83.9 million, respectively).

| | (2) | Refer to Note 8 for additional information with respect to an impairment of other intangible assets
in the amount of $1.8 million and $0.6 million recorded under other expense in the statement of operations in 2016 and 2015 respectively.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Reconciliation of geographical
segments of non-current assets:





|                                         |  | Year ended December 31 |        
|---------------------------------------- |  | ---------------------- | -------
|                                         |  | 2014                   |        
|                                         |  | (in thousands)         |        
|Geographical segments non-current assets |  |                        | 124,817
|Intangible assets                        |  |                        | 44,389 
|Other non-current assets                 |  |                        | 2,779  
|Consolidated non-current assets          |  |                        | 171,985





F-37









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 6 - Operating segments –
(continued)



Major customers

During 2016, 2015 and 2014 a
distributor, located in Western Europe represented 8.4%, 9.0%, 12.2%, respectively, of the total revenue of the Group.



Information about products



|                                                      |  | Year ended December 31 |        
|----------------------------------------------------- |  | ---------------------- | -------
|                                                      |  | 2014                   |        
|                                                      |  | Revenues              
|                                                      |  | (In thousands)        
|Sparkling water makers and exchangeable CO2 cylinders |  |                        | 172,614
|Consumables                                           |  |                        | 327,400
|Other                                                 |  |                        | 11,760 
|                                                      |  |                        |        
|Total                                                 |  |                        | 511,774





* Reclassified



F-38







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 7 - Property, plant and equipment



|                                         |  |                        |        |   |           |  |        |                             |  |  |                   |   |  |        |                                                   |   | Office    |  |         |           |  |  |          |   |  |       |       
|---------------------------------------- |  | ---------------------- | ------ | - | --------- |  | ------ | --------------------------- |  |  | ----------------- | - |  | ------ | ------------------------------------------------- | - | --------- |  | ------- | --------- |  |  | -------- | - |  | ----- | ------
|(in thousands)                           |  | Land
    and buildings |        |   | Leasehold |  |        | Machinery
    and equipment |  |  | furniture
    and |   |  |        |                                                   |   |           |  |         |           | 
|                                         |  | Cost                   |        |   | Grants    |  |        | improvements                |  |  | Cost              |   |  | Grants |                                                   |   | equipment |  |         | Cylinders |  |  | Vehicles |   |  | Total |       
|Cost                                     |  |                        |        |   |           |  |        |                             |  |  |                   |   |  |        |                                                   |   |           |  |         |           |  |  |          |   |  |       |       
|Balance as of January 1, 2015            |  |                        | 36,554 |   |           |  | (6,487 | )                           |  |  | 15,513            |   |  |        | 117,720                                           |   |           |  | (12,394 | )         |  |  | 20,840   |   |  |       | 38,436
|Additions                                |  |                        | 29,333 |   |           |  | -      |                             |  |  | 403               |   |  |        | 18,954                                            |   |           |  | -       |           |  |  | 1,425    |   |  |       | -     
|Disposals                                |  |                        | -      |   |           |  | -      |                             |  |  | (7                | ) |  |        | (175                                              | ) |           |  | -       |           |  |  | (3,439   | ) |  |       | -     
|Reclassification to Inventories          |  |                        | -      |   |           |  | -      |                             |  |  | -                 |   |  |        | -                                                 |   |           |  | -       |           |  |  | -        |   |  |       | (2,999
|Effect of changes in exchange rates      |  |                        | -      |   |           |  | -      |                             |  |  | (272              | ) |  |        | (594                                              | ) |           |  | -       |           |  |  | (526     | ) |  |       | (2,165
|Balance as of December 31, 2015          |  |                        | 65,887 |   |           |  | (6,487 | )                           |  |  | 15,637            |   |  |        | 135,905                                           |   |           |  | (12,394 | )         |  |  | 18,300   |   |  |       | 33,272
|Additions                                |  |                        | 8,596  |   |           |  | -      |                             |  |  | 274               |   |  |        | 15,849                                            |   |           |  | -       |           |  |  | 1,669    |   |  |       | -     
|Reclassification to assets held for sale |  |                        | (1,702 | ) |           |  | -      |                             |  |  | -                 |   |  |        | -                                                 |   |           |  | -       |           |  |  | -        |   |  |       | -     
|Disposals                                |  |                        | -      |   |           |  | -      |                             |  |  | (156              | ) |  |        | (2,753                                            | ) |           |  | -       |           |  |  | (7,327   | ) |  |       | (987  
|Reclassification from Inventories        |  |                        | -      |   |           |  | -      |                             |  |  | -                 |   |  |        | -                                                 |   |           |  | -       |           |  |  | -        |   |  |       | 1,635 
|Effect of changes in exchange rates      |  |                        | -      |   |           |  | -      |                             |  |  | (52               | ) |  |        | (227                                              | ) |           |  | -       |           |  |  | (96      | ) |  |       | (655  
|Balance as of December 31, 2016          |  |                        | 72,781 |   |           |  | (6,487 | )                           |  |  | 15,703            |   |  |        | 148,
                                         774 |   |           |  | (12,394 | )         |  |  | 12,546   |   |  |       | 33,265
|Accumulated depreciation                 |  |                        |        |   |           |  |        |                             |  |  |                   |   |  |        |                                                   |   |           |  |         |           |  |  |          |   |  |       |       
|Balance as of January 1, 2015            |  |                        | 415    |   |           |  | (26    | )                           |  |  | 11,195            |   |  |        | 57,182                                            |   |           |  | (4,884  | )         |  |  | 15,883   |   |  |       | 5,842 
|Depreciation for the year                |  |                        | 512    |   |           |  | (60    | )                           |  |  | 806               |   |  |        | 9,351                                             |   |           |  | (909    | )         |  |  | 2,491    |   |  |       | 982   
|Disposals                                |  |                        | -      |   |           |  | -      |                             |  |  | (7                | ) |  |        | (127                                              | ) |           |  | -       |           |  |  | (3,398   | ) |  |       | -     
|Restructuring impairment                 |  |                        | -      |   |           |  | -      |                             |  |  | -                 |   |  |        | -                                                 |   |           |  | -       |           |  |  | -        |   |  |       | 1,037 
|Effect of changes in exchange rates      |  |                        | -      |   |           |  | -      |                             |  |  | (158              | ) |  |        | (356                                              | ) |           |  | -       |           |  |  | (407     | ) |  |       | (414  
|Balance as of December 31, 2015          |  |                        | 927    |   |           |  | (86    | )                           |  |  | 11,836            |   |  |        | 66,050                                            |   |           |  | (5,793  | )         |  |  | 14,569   |   |  |       | 7,447 
|Depreciation for the year                |  |                        | 983    |   |           |  | (120   | )                           |  |  | 236               |   |  |        | 12,154                                            |   |           |  | (1,027  | )         |  |  | 2,086    |   |  |       | 1,635 
|Reclassification to assets held for sale |  |                        | (218   | ) |           |  | -      |                             |  |  | -                 |   |  |        | -                                                 |   |           |  | -       |           |  |  | -        |   |  |       | -     
|Disposals                                |  |                        | -      |   |           |  | -      |                             |  |  | (150              | ) |  |        | (2,574                                            | ) |           |  | -       |           |  |  | (7,388   | ) |  |       | (485  
|Effect of changes in exchange rates      |  |                        | -      |   |           |  | -      |                             |  |  | (39               | ) |  |        | (125                                              | ) |           |  | -       |           |  |  | (131     | ) |  |       | (163  
|Balance as of December 31, 2016          |  |                        | 1,692  |   |           |  | (206   | )                           |  |  | 11,883            |   |  |        | 75,505                                            |   |           |  | (6,820  | )         |  |  | 9,136    |   |  |       | 8,434 
|Carrying amounts                         |  |                        |        |   |           |  |        |                             |  |  |                   |   |  |        |                                                   |   |           |  |         |           |  |  |          |   |  |       |       
|As of January 1, 2015                    |  |                        | 36,139 |   |           |  | (6,461 | )                           |  |  | 4,318             |   |  |        | 60,538                                            |   |           |  | (7,510  | )         |  |  | 4,957    |   |  |       | 32,594
|As of December 31,
    2015              |  |                        | 64,960 |   |           |  | (6,401 | )                           |  |  | 3,801             |   |  |        | 69,855                                            |   |           |  | (6,601  | )         |  |  | 3,731    |   |  |       | 25,825
|As of December 31,
    2016              |  |                        | 71,089 |   |           |  | (6,281 | )                           |  |  | 3,820             |   |  |        | 73,269                                            |   |           |  | (5,574  | )         |  |  | 3,410    |   |  |       | 24,831



Depreciation of machinery equipment
(cost and grants), cylinders and vehicles is charged to cost of revenues. Depreciation of other categories of property, plant and
equipment is charged to departments that utilize the relevant assets, primarily in cost of revenues and general and administrative
expenses.



F-39







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 7 - Property, plant and equipment – (continued)



| | A. | Restructuring
| | -- | -------------



In 2015, the Group recognized
an impairment loss of property, plant and equipment in the amount of $1.0 million in connection with its restructuring plan. The
impairment loss is presented in cost of sales.



| | B. | Capitalized borrowing costs
| | -- | ---------------------------



In 2015, specific borrowing costs
in the amount of $584 thousand were capitalized to qualifying assets related to the Group’s construction of its new plant
in Southern Israel.



| | C. | Property,
plant and equipmentunder finance leases
| | -- | -------------------------------------------------



The Group leases certain property,
plant and equipment under a number of finance lease agreements. As of December 31, 2016, the net carrying amount of the leased
land and buildings is $2.1 million (2015: $3.1 million).



| | D. | Property,
plant and equipmentfully depreciated and still in use
| | -- | ---------------------------------------------------------------



The Group has assets that have
been fully depreciated and are still in use. As of December 31, 2016, the original cost of such assets is $45 million (2015: $47
million).



F-40







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 8 - Intangible assets





|(in thousands)                        |  | Trademarks,  |        |   |          |  |        |       | 
|------------------------------------- |  | ------------ | ------ | - | -------- |  | ------ | ----- | 
|                                      |  | patents      |        |   |          |  |        |       | 
|                                      |  | and other    |        |   |          |  |        |       | 
|                                      |  | intellectual |        |   |          |  |        |       | 
|                                      |  | property(1)  |        |   | Software |  |        | Total | 
|Cost                                  |  |              |        |   |          |  |        |       | 
|                                      |  |              |        |   |          |  |        |       | 
|Balance as of January 1, 2015         |  |              | 52,726 |   |          |  | 20,200 |       | 
|Additions                             |  |              | 194    |   |          |  | 3,324  |       | 
|Disposals                             |  |              | -      |   |          |  | (3     | )     | 
|Impairment of other intangible assets |  |              | (881   | ) |          |  | -      |       | 
|Effect of changes in exchange rates   |  |              | (1,587 | ) |          |  | (420   | )     | 
|Balance as of December 31, 2015       |  |              | 50,452 |   |          |  | 23,101 |       | 
|Additions                             |  |              | 50     |   |          |  | 1,932  |       | 
|Disposals                             |  |              | -      |   |          |  | (2,133 | )     | 
|Impairment of other intangible assets |  |              | (3,478 | ) |          |  | (50    | )     | 
|Effect of changes in exchange rates   |  |              | (809   | ) |          |  | (101   | )     | 
|Balance as of December 31, 2016       |  |              | 46,215 |   |          |  | 22,749 |       | 
|                                      |  |              |        |   |          |  |        |       | 
|Accumulated amortization              |  |              |        |   |          |  |        |       | 
|                                      |  |              |        |   |          |  |        |       | 
|Balance as of January 1, 2015         |  |              | 19,185 |   |          |  | 9,352  |       | 
|Amortization for the year             |  |              | 710    |   |          |  | 3,000  |       | 
|Disposals                             |  |              | (250   | ) |          |  | -      |       | 
|Effect of changes in exchange rates   |  |              | (189   | ) |          |  | (350   | )     | 
|Balance as of December 31, 2015       |  |              | 19,456 |   |          |  | 12,002 |       | 
|Amortization for the year             |  |              | 527    |   |          |  | 2,912  |       | 
|Disposals                             |  |              | -      |   |          |  | (1,740 | )     | 
|Impairment of other intangible assets |  |              | (1,659 | ) |          |  | (39    | )     | 
|Effect of changes in exchange rates   |  |              | 29     |   |          |  | (106   | )     | 
|Balance as of December 31, 2016       |  |              | 18,353 |   |          |  | 13,029 |       | 
|                                      |  |              |        |   |          |  |        |       | 
|Carrying amounts                      |  |              |        |   |          |  |        |       | 
|As of January 1, 2015                 |  |              | 33,541 |   |          |  | 10,848 |       | 
|As of December 31, 2015               |  |              | 30,996 |   |          |  | 11,099 |       | 
|As of December 31, 2016               |  |              | 27,862 |   |          |  | 9,720  |       | 



| | (1) | Other intellectual property includes mainly goodwill, customer
relations and technology.
| | --- | ----------------------------------------------------------------------------------------



Amortization of intangible assets is charged
to the departments which utilize the relevant assets (i.e., cost of revenues, sales and marketing expenses or general and administrative
expenses).



F-41







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 8 - Intangible assets – (continued)



| | A. | Intangible assets with indefinite useful life
| | -- | ---------------------------------------------



Other than goodwill, the Group
has intangible assets with indefinite useful life. Indefinite-lived intangible assets are comprised of trademarks in the amount
of $15 million (2015: $15 million) for which there is no foreseeable limit to the period over which they are expected to generate
net cash inflows. These are considered to have an indefinite life given the strength and durability of the Group’s brands
and the level of marketing support.



| | B. | Impairment of Goodwill
| | -- | ----------------------



For the purpose of impairment
testing, goodwill is allocated to the Group’s operating divisions which represent the lowest level within the Group at which
goodwill is monitored for internal management purposes, which is not higher than the operating segments, before the aggregation
of segments, reported in Note 6 regarding operating segments.

During 2014, the Company recorded
goodwill impairment in the amount of $3.3 million. The impairment was in regard to the Group’s subsidiary, SodaStream Professional
S.r.l (formally CEM), which was acquired in 2011. The recoverable amount of the subsidiary was based on its value in use and was
determined by discounting the future cash flows projected to be generated from the continuing use of the unit. The impairment loss
was allocated fully to goodwill and is included in other expenses.



| | C. | Impairment of other intangible assets
| | -- | -------------------------------------



During 2016, the Company recorded
an impairment of $1.8 million in regard to other intellectual property originated from an acquisition of a subsidiary.

During 2015, the Company recorded
an impairment of $0.6 million in regard to a trademark originated from an acquisition of a subsidiary.



Note 9 - Inventories





|                                  |  | As of December 31 |        
|--------------------------------- |  | ----------------- | -------
|                                  |  | 2015              |        
|                                  |  | (in thousands)    |        
|Raw materials and work in process |  |                   | 42,656 
|Finished goods                    |  |                   | 57,500 
|Refill cylinder inventory         |  |                   | 12,817 
|                                  |  |                   |        
|Total                             |  |                   | 112,973





During the current year, the
write-down of inventories to net realizable value, which was recorded in cost of revenues, amounted to $6.5 million (2015: $7.1
million out of which a write down of $3.2 million was in connection with the Group’s restructuring plan).



F-42







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 10 - Other receivables





|                              |  | As of December 31 |       
|----------------------------- |  | ----------------- | ------
|                              |  | 2015              |       
|                              |  | (in thousands)    |       
|VAT refundable                |  |                   | 8,397 
|Customs receivable            |  |                   | 5,130 
|Advances to suppliers         |  |                   | 686   
|Government grants receivables |  |                   | 11,751
|Prepaid expenses              |  |                   | 1,968 
|Other                         |  |                   | 1,167 
|                              |  |                   |       
|Total                         |  |                   | 29,099





Note 11 - Cash and cash equivalents



Cash and cash equivalents



|                  |  | As of December 31 |       
|----------------- |  | ----------------- | ------
|                  |  | 2015              |       
|                  |  | (in thousands)    |       
|Bank balances     |  |                   | 19,138
|Bank deposits (1) |  |                   | 15,396
|                  |  |                   |       
|Total             |  |                   | 34,534



| | (1) | Deposit in New Israeli Shekel (NIS) and USD. Bears nominal interest rate of 0.13%-0.75% as at
                                                                                  December 31, 2016 (2015: 0.24%).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Group’s exposure to
credit and market risks related to cash and cash equivalents is disclosed in Note 23.



F-43







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 12 - Capital and reserves



| | A. | Share capital
| | -- | -------------



|In thousands of shares                 |  | Ordinary Shares |       
|-------------------------------------- |  | --------------- | ------
|                                       |  | 2014            |       
|On issue at January 1                  |  | 20,885          |       
|                                       |  |                 |       
|RSU vested during the period (1)       |  |                 | 7     
|Exercise of employee equity awards (2) |  |                 | 111   
|                                       |  |                 |       
|                                       |  |                 |       
|On issue at December 31                |  |                 | 21,003
|                                       |  |                 |       
|Authorized (3)                         |  |                 | 54,000
|                                       |  |                 |       
|In USD thousands                       |  |                 |       
|Issued and fully paid on December 31   |  |                 | 3,400 



| | (1) | The RSU relate to a deferred consideration with respect
to the shares of an acquired subsidiary, which was accounted for as a compound instrument.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | See Note 26.
| | --- | ------------



| | (3) | Par value NIS 0.645 each.
| | --- | -------------------------



Shareholders’ rights



Holders of ordinary shares are
entitled to participate equally in the payment of cash dividends and in stock dividend distributions. Each ordinary share is entitled
to one vote on all matters to be voted on by shareholders.



Shares reserved for share
option plan



See Note 26.



| | B. | Translation reserve for foreign operations
| | -- | ------------------------------------------



The translation reserve consists
of all foreign currency differences arising from the translation of the financial statements of foreign operations.



F-44







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 13 - Loans and borrowings





|                                                                      |  | As of December 31 |       
|--------------------------------------------------------------------- |  | ----------------- | ------
|                                                                      |  | 2015              |       
|                                                                      |  | (in thousands)    |       
|Current liabilities                                                   |  |                   |       
|Current maturities of long-term loans and short-term credit from bank |  |                   | 11,917
|                                                                      |  |                   |       
|Non-current liabilities                                               |  |                   |       
|Loans from banks                                                      |  |                   | 24,905
|                                                                      |  |                   |       
|Total                                                                 |  |                   | 36,822



Pledges and guarantees



In 2015, for the purpose of constructing its
new factory in Southern Israel, the Group undertook long-term bank loans with respect to which the Group recorded first degree
pledges on its land and land development rights in Southern Israel in favor of the lending banks. As of December 31, 2016, all
long-term bank loans have been repaid.



In addition, in order to secure fulfillment
of the conditions related to the receipt of government grants, a floating lien was registered in favor of the State of Israel on
substantially all of the assets of the Company’s manufacturing subsidiary.



The Group has agreed not to pledge or charge
and not to undertake to pledge or charge its assets (“negative pledge”), following agreements with financial institutions
regarding the receipt of certain bank services, including loans and credit facilities.



F-45







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 14 - Employee benefits



Employee benefits
include post-employment benefits, other long-term benefits, short-term benefits and share-based payments.



The Group’s liability for
employee severance benefits in respect of its Israeli employees is in accordance with the Israeli Severance Pay Law – 1963
(hereinafter – the Severance Law). For employment periods from July 2010 onwards, with respect to most of its Israeli employees,
the Group has a defined contribution plan for which under Section 14 of the Severance Law, contributions to the plan are in lieu
of payments of severance pay. For employment periods before July 2010, with respect to its Israeli employees, and for employment
periods after July 2010 regarding some of its Israeli employees, the Group has defined benefit plans for which it makes contributions
to central severance pay funds and appropriate insurance policies. The Group has an additional reserve deposited in the Group’s
name in a recognized compensation fund.Withdrawal of the reserve
accruals is contingent upon fulfillment of detailed provisions in the Severance Law.



Some of the
non-Israeli subsidiaries calculate an actuarial obligation regarding post-employment benefits according to the local defined benefit
plans employees are entitled to.



Other long-term
benefits consist of seniority grant obligations.



Short-term benefits consist of
salary and related expenses and liability for holiday pay.



For information
regarding share-based payments, see Note 26.



|                                              |  | December 31    |       
|--------------------------------------------- |  | -------------- | ------
|                                              |  | 2015           |       
|                                              |  | (in thousands) |       
|Post-employment benefits                      |  |                | 5,960 
|Present value of funded obligations           |  |                |       
|Less fair value of plan assets                |  |                | (4,415
|Recognized liability for defined benefit plan |  |                | 1,545 
|                                              |  |                |       
|Other long-term benefits                      |  |                |       
|Liability for seniority grant obligations     |  |                | 501   
|                                              |  |                |       
|Short-term benefits                           |  |                |       
|Salary and related expenses                   |  |                | 9,735 
|Liability for holiday pay                     |  |                | 2,431 
|Total short-term benefits                     |  |                | 12,166
|                                              |  |                |       
|Total employee benefits liabilities           |  |                | 14,212
|                                              |  |                |       



F-46







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 14 - Employee benefits – (continued)





|                                            |  | December 31    |       
|------------------------------------------- |  | -------------- | ------
|                                            |  | 2015           |       
|                                            |  | (in thousands) |       
|Presented under the following items:        |  |                |       
|Other current liabilities                   |  |                | 12,166
|Employee benefits (non-current liabilities) |  |                | 2,152 
|Other receivables (non-current assets)      |  |                | (106  





| | A. | Post-employment benefit plans – defined benefit
plan
| | -- | ----------------------------------------------------



| | 1. | Movement in the present value of the defined benefit
obligations
| | -- | ----------------------------------------------------------------



|                                                                 |  | December 31    |       
|---------------------------------------------------------------- |  | -------------- | ------
|                                                                 |  | 2015           |       
|                                                                 |  | (in thousands) |       
|Defined benefit obligations as of January 1                      |  |                | 6,331 
|Benefits paid by the plan                                        |  |                | (1,035
|Current service cost and interest cost                           |  |                | 534   
|Changes in respect of foreign exchange differences               |  |                | (46   
|Remeasurements:                                                  |  |                |       
|- Experience adjustments                                         |  |                | 5     
|- Actuarial (gains) losses from changes in financial assumptions |  |                | 171   
|                                                                 |  |                |       
|Defined benefit obligations as of December 31                    |  |                | 5,960 



| | 2. | Movement in plan assets
| | -- | -----------------------



|                                                   |  | December 31    |      
|-------------------------------------------------- |  | -------------- | -----
|                                                   |  | 2015           |      
|                                                   |  | (in thousands) |      
|Fair value of plan assets as of January 1          |  |                | 4,798
|Contributions paid into the plan                   |  |                | 318  
|Benefits paid by the plan                          |  |                | (694 
|Changes in respect of foreign exchange differences |  |                | -    
|Interest income                                    |  |                | 76   
|Return on plan assets, excluding interest income   |  |                | (83  
|                                                   |  |                |      
|Fair value of plan assets as of December 31        |  |                | 4,415



F-47







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 14 - Employee benefits – (continued)



| | 3. | Expense recognized in the statement of operations
| | -- | -------------------------------------------------



|                                                             |  | Year ended December 31 |    
|------------------------------------------------------------ |  | ---------------------- | ---
|                                                             |  | 2014                   |    
|                                                             |  | (in thousands)         |    
|Current service costs including foreign exchange differences |  |                        | 287
|Net interest on net defined liability                        |  |                        | (13
|                                                             |  |                        |    
|Total                                                        |  |                        | 274



| | 4. | Actual return on plan assets
| | -- | ----------------------------



|                             |  | Year ended December 31 |    
|---------------------------- |  | ---------------------- | ---
|                             |  | 2014                   |    
|                             |  | (in thousands)         |    
|Actual return on plan assets |  |                        | 165



| | 5. | Actuarial assumptions
| | -- | ---------------------



Principal actuarial assumptions
at the reporting date (expressed as weighted averages):



|                                    |  | 2014 |      |   | 2015 |  |      | 2016 | 
|----------------------------------- |  | ---- | ---- | - | ---- |  | ---- | ---- | 
|Discount rate as of December 31     |  |      | 1.62 | % |      |  | 1.12 | %    | 
|Future salary nominal increases (1) |  |      | 2.17 | % |      |  | 2.06 | %    | 



| | (1) | Based on management assessment.
| | --- | -------------------------------



Assumptions regarding future
mortality are based on published statistics and mortality tables.



| | 6. | Plan assets
| | -- | -----------



|                     |  | December 31    |      
|-------------------- |  | -------------- | -----
|                     |  | 2015           |      
|                     |  | (in thousands) |      
|Plan assets comprise |  |                |      
|Equity instruments   |  |                | 349  
|Debt instruments     |  |                | 654  
|Real estate funds    |  |                | 329  
|Investment funds     |  |                | 3,083
|                     |  |                |      
|Total                |  |                | 4,415



F-48







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 14 - Employee benefits – (continued)



| | 7. | Sensitivity analysis
| | -- | --------------------



The calculation of the defined
benefit obligation is sensitive to the assumptions set out above. The following table summarizes the impact of changes in the respective
assumptions on the defined benefit obligation at the end of the reporting period.



Defined benefit obligation



|                                |  | December 31, 2016 |     
|------------------------------- |  | ----------------- | ----
|                                |  | 0.5% increase     |     
|                                |  | (in thousands)    |     
|Discount rate                   |  |                   | (272
|                                |  |                   |     
|Future salary nominal increases |  |                   | 19  



The above sensitivities are based
on the average duration of the benefit obligation determined at the reporting date and are applied to adjust the defined benefit
obligation for the assumption concerned.



| | 8. | Expected contributions in 2017
| | -- | ------------------------------



The Group contribution to its
funded defined benefit plan is expected to be $325,000 in 2017.



| | B. | Post-employment benefit plans - defined contribution
plan
| | -- | ---------------------------------------------------------



The Group has a defined contribution
plan in respect of the Group’s liability to pay the saving component of provident funds and in respect of certain of its
employees who are subject to Section 14 of the Severance Law.



|                                                                     |  | Year ended December 31 |      
|-------------------------------------------------------------------- |  | ---------------------- | -----
|                                                                     |  | 2014                   |      
|                                                                     |  | (in thousands)         |      
|Amount recognized as expense in respect of defined contribution plan |  |                        | 3,488



| | C. | Restructuring
| | -- | -------------



During 2015, employee benefits
in connection with the Group’s restructuring amounted to $1.9 million on the statement of operations.



F-49







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 15 – Provisions





|                                                       |  |                |      |   |          |  |     | Machinery   |  |  |          |   |  |       |      
|------------------------------------------------------ |  | -------------- | ---- | - | -------- |  | --- | ----------- |  |  | -------- | - |  | ----- | -----
|                                                       |  | Legal          |      |   | Right of |  |     | and plant   |  |  |          |   |  |       |      
|                                                       |  | claims         |      |   | return   |  |     | dismantling |  |  | Warranty |   |  | Total |      
|                                                       |  | (in thousands) |     
|                                                       |  |                |      |   |          |  |     |             |  |  |          |   |  |       |      
|Balance as of January 1, 2016                          |  |                | 386  |   |          |  | 430 |             |  |  | 411      |   |  |       | 1,180
|Provision made during the period                       |  |                | 170  |   |          |  | -   |             |  |  | -        |   |  |       | 1,331
|Provisions used during the period                      |  |                | (269 | ) |          |  | (26 | )           |  |  | (411     | ) |  |       | (469 
|Changes in respect of foreign     exchange differences |  |                | (5   | ) |          |  | (10 | )           |  |  | -        |   |  |       | (72  
|                                                       |  |                |      |   |          |  |     |             |  |  |          |   |  |       |      
|Balance as of December 31, 2016                        |  |                | 282  |   |          |  | 394 |             |  |  | -        |   |  |       | 1,970



Legal claims

See Note 24.



Right of return

The Group sells certain specific
products with an unlimited right of return that entitle customers to a refund. In the opinion of the management of the Company,
appropriate provisions have been included in the financial statements to cover the estimated refund obligations. The estimation
was based on previous experience and relevant management assumptions.



Machinery and plant dismantling

The provision based on the Group’s estimation
of dismantling costs related to one of the Israeli production plants was completely utilized during 2016.



Warranties

The Group provides a limited warranty for products
sold to customers.



Note 16 – Other current liabilities



|                                       |  | As of December 31 |       
|-------------------------------------- |  | ----------------- | ------
|                                       |  | 2015              |       
|                                       |  | (in thousands)    |       
|Employees and payroll-related accruals |  |                   | 12,166
|VAT payable                            |  |                   | 3,732 
|Customer prepayments                   |  |                   | 1,802 
|Other                                  |  |                   | 418   
|                                       |  |                   |       
|Total                                  |  |                   | 18,118



F-50







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 17 - Sales and marketing







|                                   |  | For the year ended December 31 |        
|---------------------------------- |  | ------------------------------ | -------
|                                   |  | 2014                           |        
|                                   |  | (in thousands)                 |        
|Wages and salaries                 |  |                                | 33,256 
|Advertising and promotions         |  |                                | 76,906 
|Distribution costs                 |  |                                | 32,840 
|Commissions                        |  |                                | 11,211 
|Travel expenses                    |  |                                | 3,033  
|Storage expenses                   |  |                                | 10,203 
|Depreciation                       |  |                                | 933    
|Other                              |  |                                | 9,286  
|                                   |  |                                |        
|Total sales and marketing expenses |  |                                | 177,668





Note 18 - General and administrative





|                                 |  | For the year ended December 31 |       
|-------------------------------- |  | ------------------------------ | ------
|                                 |  | 2014                           |       
|                                 |  | (in thousands)                 |       
|Wages and salaries               |  |                                | 19,378
|Share-based compensation         |  |                                | 3,760 
|Communication and support costs  |  |                                | 5,507 
|Rental and building maintenance  |  |                                | 3,853 
|Professional advisors            |  |                                | 1,849 
|Legal                            |  |                                | 2,812 
|Audit & review                   |  |                                | 991   
|Depreciation                     |  |                                | 4,245 
|Travel expenses                  |  |                                | 897   
|Other                            |  |                                | 6,503 
|                                 |  |                                |       
|Total general and administrative |  |                                | 49,795





F-51









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 19 – Other expense





|                                      |  | For the year ended December 31 |       
|------------------------------------- |  | ------------------------------ | ------
|                                      |  | 2014                           |       
|                                      |  | (in thousands)                 |       
|Restructuring costs                   |  |                                | 7,342 
|Impairment of goodwill (see Note 8)   |  |                                | 3,312 
|Impairment of other intangible assets |  |                                | -     
|Other                                 |  |                                | -     
|                                      |  |                                |       
|Total other expense                   |  |                                | 10,654





Note 20 - Financial expense (income), net



|                                                                            |  | For the year ended December 31 |       
|--------------------------------------------------------------------------- |  | ------------------------------ | ------
|                                                                            |  | 2014                           |       
|                                                                            |  | (in thousands)                 |       
|Interest expense related to loans and borrowings                            |  |                                | 347   
|Unwind of discount amortization of provisions and other current liabilities |  |                                | 50    
|Interest income on bank balances and bank deposits                          |  |                                | (69   
|Interest expense (income) related to tax authorities, net                   |  |                                | 73    
|Total interest expense, net                                                 |  |                                | 401   
|                                                                            |  |                                |       
|Foreign exchange differences, net                                           |  |                                | -     
|Bank charges                                                                |  |                                | 544   
|Other financial expenses                                                    |  |                                | 544   
|                                                                            |  |                                |       
|Foreign exchange differences, net                                           |  |                                | 1,698 
|Other                                                                       |  |                                | 439   
|Other financial income                                                      |  |                                | 2,137 
|                                                                            |  |                                |       
|Total other financial expense (income), net                                 |  |                                | (1,593
|                                                                            |  |                                |       
|Total financial expense (income), net                                       |  |                                | (1,192





F-52







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 21 - Income tax



| | A. | Details regarding the tax environment of the Group
| | -- | --------------------------------------------------



| | 1. | General
| | -- | -------



The Group subsidiaries are incorporated in various countries
where income is generally taxed at statutory rates. Certain subsidiaries benefit from tax incentives or are subject to specific
tax rulings.



The regular corporate tax rate in Israel in 2016 is
25% (2015: 26.5%; 2014: 26.5%). Tax incentives to the Israeli subsidiaries are described below. Non-Israeli subsidiaries are taxed
according to the tax laws in their respective country of residence.



On January 4, 2016, the Israeli
parliament (the Knesset) passed the Law for the Amendment of the Income Tax Ordinance (Amendment 216) - 2016, pursuant to which,
inter alia, the corporate tax rate was reduced by 1.5% to a rate of 25% as of January 1, 2016.



Furthermore, on December 22, 2016
the Knesset plenum passed the Economic Efficiency Law (Legislative Amendments for Achieving Budget Objectives in the Years 2017
and 2018) – 2016, pursuant to which, inter alia, the corporate tax rate was reduced from 25% to 23% in two steps. The first
step was to a rate of 24% as of January 2017 and the second step will be to a rate of 23% as of January 2018.

As a result of the reduction in
the tax rate to 25%, the deferred tax balances as at January 4, 2016 were calculated according to the new tax rate specified in
the Law for the Amendment of the Income Tax Ordinance, at the tax rate expected to apply on the date of reversal.



As a result of the reduction in
the tax rate to 23% in two steps, the deferred tax balances as at December 31, 2016 were calculated according to the new tax rate
specified in the Economic Efficiency Law (Legislative Amendments for Achieving Budget Objectives in the Years 2017 and 2018), at
the tax rate expected to apply on the date of reversal.



The above- referenced change has no material impact
on the Company’s consolidated financial statements.



F-53







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 21 - Income tax - (continued)



| | 2. | Benefits under the Law for the Encouragement of Capital
Investments - 1959
| | -- | --------------------------------------------------------------------------



An Israeli subsidiary of the Company
was granted “Approved Enterprise” status in accordance with the Law for the Encouragement of Capital Investments –
1959 (hereinafter – the Encouragement Law). The subsidiary received grants and was entitled to tax benefits relating to investment
programs that were subject to Approved Enterprise certificates under the Encouragement Law prior to its 2011 amendment.



On December 29, 2016, the Knesset
approved the Economic Efficiency Law (Legislative Amendments for Achieving Budget Objectives in the Years 2017 and 2018) –
2016. As part of this, inter alia, the Law for the Encouragement of Capital Investments - 1959 was amended. The amendment is effective
from January 1, 2017 and provides that companies in Development Area A will be entitled to a reduced tax rate of 7.5% (2016: 9%)
for all the company’s income entitled to benefits.



The reduction in the tax rate impacted the Company’s
tax benefit in the amount of approximately $0.5 million.



A company having an approved enterprise
that distributes a dividend from exempt income, will be required in the tax year of the dividend distribution to pay company tax
on the amount of the dividend distributed (including the company tax required as a result of the distribution) at the company tax
rate that would have been applicable to it in the year the income was produced if it had not been exempt from tax.



| | 3. | Amendment
to the Law for the Encouragement of Capital Investments – 1959
| | -- | ------------------------------------------------------------------------



On December 29, 2010, the Knesset
approved the Economic Policy Law for 2011-2012, which includes an amendment to the Law for the Encouragement of Capital Investments
– 1959 (hereinafter – the Amendment). The Amendment is effective from January 1, 2011 and its provisions apply to preferred
income derived or accrued in 2011 and thereafter by a preferred company, per the definition of these terms in the Amendment.

The Amendment provides that only companies in Development
Area A will be entitled to the grants track and that they will be entitled to receive benefits under this track and under the tax
benefits track at the same time. In addition, the existing tax benefit tracks were eliminated (the tax exempt track, the “Ireland”
track and the “Strategic” track) and two new tax tracks were introduced in their place, a preferred enterprise and
a special preferred enterprise, which mainly provide a uniform and reduced tax rate for all the company’s income entitled
to benefits. On August 5, 2013 the Knesset passed the Law for Changes in National Priorities (Legislative
Amendments for Achieving Budget Objectives in the Years 2013 and 2014) – 2013, which raised the tax rates on preferred income
as from the 2014 tax year as follows: 9% for Development Area A and 16% for the rest of the country (compared with 7% for Development
Area A and 12.5% for the rest of the country in 2013).



The Amendment also provides that
no tax will apply to a dividend distributed out of preferred income to a shareholder that is an Israeli resident company. A tax
rate of 20% shall apply to a dividend distributed out of preferred income to an individual shareholder or foreign resident, subject
to double taxation prevention treaties.



F-54







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 21 - Income tax– (continued)



Furthermore, the Amendment provides
relief with respect to the non-payment of tax on a dividend received by an Israeli resident company from profits of an approved/alternative/beneficiary
enterprise that accrued in the benefits period according to the version of the law before its amendment, if the company distributing
the dividend notifies the tax authorities by June 30, 2015 that it is applying the provisions of the Amendment and the dividend
is distributed after the date of the notice (hereinafter –the relief). Furthermore, a distribution from profits of the exempt
enterprise will be subject to tax by the distributing company.



The
abovementioned Israeli subsidiary of the Company, whose enterprise is located in Development Area A, elected to be included in
the scope of the amendment of the law as a preferred company as of the 2011 tax year. The subsidiary’s entitlement to be
included in the scope of the amendment is subject to fulfillment of certain conditions.

The subsidiary
is also qualified as “Industrial Companies” as defined in the Law for the Encouragement of Industry (Taxes) –
1969 and accordingly, among other benefits, is entitled to higher rates of depreciation.



B.           Composition
of income tax expense

|                                                  |  | Year ended December 31 |       
|------------------------------------------------- |  | ---------------------- | ------
|                                                  |  | 2014                   |       
|                                                  |  | (in thousands)         |       
|Current tax expense (income)                      |  |                        |       
|Current period (1)                                |  |                        | 7,432 
|Adjustments for prior periods, net                |  |                        | 98    
|                                                  |  |                        | 7,530 
|                                                  |  |                        |       
|Deferred tax expense (income)                     |  |                        |       
|Origination and reversal of temporary differences |  |                        | (3,647
|Change in tax rate                                |  |                        | (15   
|                                                  |  |                        | (3,662
|                                                  |  |                        |       
|Income tax expense                                |  |                        | 3,868 





|                                                                                                                                                                                                                      |  | Year ended December 31 |      
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | -----
|                                                                                                                                                                                                                      |  | 2014                   |      
|                                                                                                                                                                                                                      |  | (in thousands)         |      
|(1) Including benefits arising from previously unrecognized tax loss, tax credit or temporary difference of a prior period (for which deferred taxes were not recognized) that was used to reduce current tax expense |  |                        | 1,451



F-55







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 21 - Income tax – (continued)



| | C. | Reconciliation between the theoretical tax on the income
before income tax and the income tax expense
| | -- | -----------------------------------------------------------------------------------------------------



|                                                                                                           |  | Year ended December 31 |       
|---------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------
|                                                                                                           |  | 2014                   |       
|                                                                                                           |  | (in thousands)         |       
|Income before income tax                                                                                   |  |                        | 16,163
|                                                                                                           |  |                        |       
|Primary tax rate of the Company                                                                            |  |                        | 26.5  
|                                                                                                           |  |                        |       
|Income tax using the Company’s primary tax rate                                                            |  |                        | 4,283 
|                                                                                                           |  |                        |       
|Additional tax (tax saving) in respect of:                                                                 |  |                        |       
|Different tax rate, subsidiaries                                                                           |  |                        | 104   
|Tax exempt income                                                                                          |  |                        | (2    
|Non-deductible expenses                                                                                    |  |                        | 42    
|Utilization of tax losses and benefits from prior periods for which deferred taxes were not
    recognized |  |                        | (1,451
|Current year tax losses and benefits for which deferred taxes were not recognized                          |  |                        | 511   
|Reversal (creation) of prior periods deferred tax losses and tax benefits                                  |  |                        | (17   
|Taxes in respect of prior periods, net                                                                     |  |                        | 98    
|Effect of change in tax rate                                                                               |  |                        | (15   
|Other differences                                                                                          |  |                        | 315   
|                                                                                                           |  |                        |       
|Income tax expense                                                                                         |  |                        | 3,868 



F-56







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 21 - Income tax – (continued)



| | D. | Deferred tax assets and liabilities
| | -- | -----------------------------------



| | 1. | Recognized deferred tax assets and liabilities
| | -- | ----------------------------------------------



Deferred
taxes are calculated according to the tax rate anticipated to be in effect on the expected date of reversal.

Deferred
tax assets and liabilities are attributable to the following items:



|                                                   |  |                    |     |   | Property, |  |        |             |  |  |          |   |  | Carry-forward      |     |   | Unrealized        |  |        | Tax deductible      |  |  |       | 
|-------------------------------------------------- |  | ------------------ | --- | - | --------- |  | ------ | ----------- |  |  | -------- | - |  | ------------------ | --- | - | ----------------- |  | ------ | ------------------- |  |  | ----- | 
|                                                   |  |                    |     |   | plant and |  |        |             |  |  | Employee |   |  | tax losses         |     |   | intra-            |  |        | provisions for      |  |  |       | 
|                                                   |  | Inventories        |     |   | equipment |  |        | Intangibles |  |  | benefits |   |  | and
    deductions |     |   | Group
    profits |  |        | product
    returns |  |  | Total | 
|                                                   |  | (in
    thousands) |    
|Net balance at January 1, 2016                     |  |                    | 352 |   |           |  | (6,824 | )           |  |  | (522     | ) |  |                    | 187 |   |                   |  | 7,385  |                     |  |  | 259   | 
|Changes recognized in the statement of operations: |  |                    |     |   |           |  |        |             |  |  |          |   |  |                    |     |   |                   |  |        |                     |  |  |       | 
|Origination and reversal of temporary differences  |  |                    | (41 | ) |           |  | (299   | )           |  |  | 472      |   |  |                    | 64  |   |                   |  | (5,053 | )                   |  |  | 3,247 | 
|Effect of change in tax rate                       |  |                    | (6  | ) |           |  | 581    |             |  |  | -        |   |  |                    | (17 | ) |                   |  | 38     |                     |  |  | -     | 
|Changes recognized in other comprehensive income:  |  |                    |     |   |           |  |        |             |  |  |          |   |  |                    |     |   |                   |  |        |                     |  |  |       | 
|Changes in respect of foreign exchange differences |  |                    | (12 | ) |           |  | -      |             |  |  | (3       | ) |  |                    | (3  | ) |                   |  | 3      |                     |  |  | -     | 
|Net balance at December 31, 2016                   |  |                    | 293 |   |           |  | (6,542 | )           |  |  | (53      | ) |  |                    | 231 |   |                   |  | 2,373  |                     |  |  | 3,506 | 
|Presented under assets                             |  |                    | 262 |   |           |  | 47     |             |  |  | -        |   |  |                    | 147 |   |                   |  | 192    |                     |  |  | 3,506 | 
|Presented under liabilities                        |  |                    | 31  |   |           |  | (6,589 | )           |  |  | (53      | ) |  |                    | 84  |   |                   |  | 2,181  |                     |  |  | -     | 



|                                                   |  |                    |      |   | Property, |  |        |             |  |  |          |   |  | Carry-forward      |      |   | Unrealized        |  |       | Tax deductible      |  |  |        |  
|-------------------------------------------------- |  | ------------------ | ---- | - | --------- |  | ------ | ----------- |  |  | -------- | - |  | ------------------ | ---- | - | ----------------- |  | ----- | ------------------- |  |  | ------ | -
|                                                   |  |                    |      |   | plant and |  |        |             |  |  | Employee |   |  | tax losses         |      |   | intra-            |  |       | provisions for      |  |  |        |  
|                                                   |  | Inventories        |      |   | equipment |  |        | Intangibles |  |  | benefits |   |  | and
    deductions |      |   | Group
    profits |  |       | product
    returns |  |  | Total  |  
|                                                   |  | (in
    thousands) |     
|Net balance at January 1, 2015                     |  |                    | (294 | ) |           |  | (6,303 | )           |  |  | (801     | ) |  |                    | 403  |   |                   |  | 7,153 |                     |  |  | 1,532  |  
|Changes recognized in the statement of operations: |  |                    |      |   |           |  |        |             |  |  |          |   |  |                    |      |   |                   |  |       |                     |  |  |        |  
|Origination and reversal of temporary differences  |  |                    | 678  |   |           |  | (547   | )           |  |  | 249      |   |  |                    | (199 | ) |                   |  | 313   |                     |  |  | (1,273 | )
|Effect of change in tax rate                       |  |                    | -    |   |           |  | 26     |             |  |  | -        |   |  |                    | -    |   |                   |  | (64   | )                   |  |  | -      |  
|Changes recognized in other comprehensive income:  |  |                    |      |   |           |  |        |             |  |  |          |   |  |                    |      |   |                   |  |       |                     |  |  |        |  
|Origination and reversal of temporary differences  |  |                    | -    |   |           |  | -      |             |  |  | -        |   |  |                    | -    |   |                   |  | (3    | )                   |  |  | -      |  
|Changes in respect of foreign exchange differences |  |                    | (32  | ) |           |  | -      |             |  |  | 30       |   |  |                    | (17  | ) |                   |  | (14   | )                   |  |  | -      |  
|Net balance at December 31, 2015                   |  |                    | 352  |   |           |  | (6,824 | )           |  |  | (522     | ) |  |                    | 187  |   |                   |  | 7,385 |                     |  |  | 259    |  
|Presented under assets                             |  |                    | 352  |   |           |  | (3,801 | )           |  |  | (452     | ) |  |                    | 88   |   |                   |  | 4,461 |                     |  |  | 259    |  
|Presented under liabilities                        |  |                    | -    |   |           |  | (3,023 | )           |  |  | (70      | ) |  |                    | 99   |   |                   |  | 2,924 |                     |  |  | -      |  



F-57







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 21 - Income tax – (continued)



| | 2. | Unrecognized deferred tax assets
| | -- | --------------------------------



Total accumulated tax losses
available for carry forward as of December 31, 2016 amounted to $20 million (2015: $82 million). The Group has not recognized $4.7
million (2015: $10 million) of the potential future tax benefits since it is not probable that future taxable profit will be available
against which the Group can utilize the benefits therefrom.



| | E. | Tax assessments
| | -- | ---------------



During 2015, the Company has reached an agreement with the Israeli
tax authority for finalizing its tax assessments and one of its subsidiaries until and including 2013.



Tax authorities may have different interpretations
than the Group’s interpretations with regard to various tax issues. In the opinion of the Group’s management, appropriate
provisions have been included in the financial statements to cover estimated tax obligations.



Note 22 - Operational leases



The Group leases its headquarters facility,
distribution facilities, one of the manufacturing facilities, sales offices and vehicles under long-term non-cancelable operating
leases, certain of which provide for renewal options.



Leasing expenses for the year 2016 were
$7.4 million (2015 : $5.0 million; 2014: $9.3 million).



Future minimum lease payments for all existing
long-term, non-cancelable operating leases as of December 31, 2016 are as follows:





|                    |  | (in thousands) |       
|------------------- |  | -------------- | ------
|                    |  |                |       
|2017                |  |                | 5,455 
|2018                |  |                | 2,919 
|2019                |  |                | 1,597 
|2020                |  |                | 1,000 
|2021                |  |                | 605   
|2022 and thereafter |  |                | 801   
|                    |  |                |       
|Total               |  |                | 12,377





F-58







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 23 - Financial instruments



| | A. | Credit risk
| | -- | -----------



| | 1. | Exposure to credit risk
| | -- | -----------------------



The financial assets’ carrying amount represents
the maximum credit exposure. The Group’s maximum credit risk exposure, as of the reporting date, was as follows:



|                                 |  | December 31    |       
|-------------------------------- |  | -------------- | ------
|                                 |  | 2015           |       
|                                 |  | (in thousands) |       
|                                 |  |                |       
|Cash and cash equivalents        |  |                | 34,534
|Bank deposits                    |  |                | -     
|Derivative financial instruments |  |                | 631   
|Government grants receivables    |  |                | 11,751
|Trade receivables                |  |                | 76,566
|                                 |  |                |       



| | 2. | Trade receivables
| | -- | -----------------



The Group’s trade receivables
are composed mainly of different retailers or retailer groups in various countries. The Group’s management considers that
there is no significant concentration of credit risk.



The aging of trade receivables
at the reporting date was:



|                                      |  | December 31    |       
|------------------------------------- |  | -------------- | ------
|                                      |  | 2015           |       
|                                      |  | (in thousands) |       
|                                      |  |                |       
|Not past due                          |  |                | 63,188
|Past due 1-30 days                    |  |                | 11,838
|Past due 31-90 days                   |  |                | 1,763 
|Past due more than 90 days            |  |                | 1,658 
|                                      |  |                | 78,447
|                                      |  |                |       
|Allowance for uncollected receivables |  |                | (1,881
|                                      |  |                |       
|Total                                 |  |                | 76,566



F-59







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 23 - Financial instruments –
(continued)



Allowance for uncollected
receivables during the year:



|                                         |  | December 31    |      
|---------------------------------------- |  | -------------- | -----
|                                         |  | 2015           |      
|                                         |  | (in thousands) |      
|                                         |  |                |      
|Balance as of January 1                  |  |                | 1,181
|Provision for non-collection, net        |  |                | 1,478
|Write-offs charged against the allowance |  |                | (778 
|                                         |  |                |      
|Balance as of December 31                |  |                | 1,881





The maximum exposure to credit
risk for trade receivables at the reporting date by geographic region and currency is as follows:



|                   |  |          |        |  | As of December 31 | 
|------------------ |  | -------- | ------ |  | ----------------- | 
|                   |  | Currency |        |  | 2015              | 
|                   |  |          |        |  | (in thousands)    | 
|                   |  |          |        |  |                   | 
|United States      |  |          | Dollar |  |                   | 
|Euro countries (1) |  |          | €      |  |                   | 
|Israel             |  |          | NIS    |  |                   | 
|Switzerland        |  |          | CHF    |  |                   | 
|Australia          |  |          | AUD    |  |                   | 
|South Africa       |  |          | ZAR    |  |                   | 
|United Kingdom     |  |          | GBP    |  |                   | 
|Sweden             |  |          | SEK    |  |                   | 
|Denmark            |  |          | DKK    |  |                   | 
|Norway             |  |          | NOK    |  |                   | 
|Canada             |  |          | CAD    |  |                   | 
|New Zealand        |  |          | NZD    |  |                   | 
|Japan              |  |          | JPY    |  |                   | 
|Others             |  |          |        |  |                   | 
|                   |  |          |        |  |                   | 
|Total              |  |          |        |  |                   | 



| | (1) | Includes Euro-zone countries and other countries that have
sales denominated in Euros.
| | --- | --------------------------------------------------------------------------------------



The Group’s most significant
customer, a retailer located in Western Europe, accounts for $5.6 million of the trade and other receivables carrying amount at
December 31, 2016 (December 31, 2015: $3.9 million). The Group’s most significant customer in 2015, a distributor located
in Western Europe, accounted for $4.5 million of the trade and other receivables carrying amount at December 31, 2016 (December
31, 2015: $4.5 million).



F-60







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 23 - Financial instruments –
(continued)



The maximum exposure to credit
risk for trade receivables at the reporting date by type of counterparty was as follows:



|                    |  | As of December 31 |       
|------------------- |  | ----------------- | ------
|                    |  | 2015              |       
|                    |  | (in thousands)    |       
|Wholesale customers |  |                   | 65,837
|Distributors        |  |                   | 9,294 
|End-user customers  |  |                   | 1,435 
|                    |  |                   |       
|Total               |  |                   | 76,566



Credit enhancements



Most of the Group's trade receivables are insured
by credit insurance policy provided by an international insurer. The insurance coverage is up to a cumulative credit limit of $257
million, providing an indemnification up to a cumulative of the maximum between $19 million or 40 times the current insurance year
premium, per annum.



| | B. | Liquidity risk
| | -- | --------------

The Group maintains credit facilities
in order to meet its obligations. The Group intends to finance its long-term investments by long-term loans.



As of December 31, 2016, the
Group had no debt. As of December 31, 2016, the Company had short-term credit facilities with a total borrowing capacity of $11
million, of which none was outstanding as of such date. In addition, as at December 31, 2016, the Group entered into agreements
in principle with financial institutions to receive additional credit in the total amount of up to $ 47 million (2015: $50.5 million).
In connection with such agreements in principle, as at December 31, 2016, the Group did not borrow any amount (2015: $2.8 million)
as short-term debt.



The following tables present
the Group’s financial liabilities’ contractual payment schedule, including an estimate of interest payments. This disclosure
is based, where relevant, on interest rates and exchange rates as of the reporting date:



F-61







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 23 - Financial instruments –
(continued)



|                                           |  | December
    31, 2016 |       
|------------------------------------------ |  | --------------------- | ------
|                                           |  |                       |       
|                                           |  | Carrying              |       
|                                           |  | amount                |       
|                                           |  | (in
    thousands)    |       
|Non-derivative financial liabilities       |  |                       |       
|Trade payables                             |  |                       | 41,643
|Other current liabilities                  |  |                       | 859   
|Total non-derivative financial liabilities |  |                       | 42,502





|                                           |  | December 31, 2015 |       
|------------------------------------------ |  | ----------------- | ------
|                                           |  | Carrying          |       
|                                           |  | amount            |       
|                                           |  | (in thousands)    |       
|Non-derivative financial liabilities       |  |                   |       
|Loans and borrowings                       |  |                   | 36,822
|Trade payables                             |  |                   | 50,549
|Other current liabilities                  |  |                   | 417   
|Total non-derivative financial liabilities |  |                   | 87,788



F-62







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 23 - Financial instruments –
(continued)



| | C. | Market risk
| | -- | -----------



| | 1. | Foreign currency risk
| | -- | ---------------------



| | i. | Exposure to foreign currency risk
| | -- | ---------------------------------



The Group’s exposure to foreign currency
risk as of the reporting date was as follows:



|                                 |  | December
    31, 2016 |       
|-------------------------------- |  | --------------------- | ------
|                                 |  | (in
    thousands)    |       
|                                 |  | Dollar                |       
|                                 |  |                       |       
|Current assets                   |  |                       |       
|Cash and cash equivalents        |  |                       | 9,087 
|Bank deposits                    |  |                       | 7,000 
|Trade receivables                |  |                       | 13,314
|Other receivables                |  |                       | -     
|Derivative financial instruments |  |                       | 2,112 
|                                 |  |                       |       
|Total assets                     |  |                       | 31,513
|                                 |  |                       |       
|Current liabilities              |  |                       |       
|Trade payables                   |  |                       | 8,541 
|Other current liabilities        |  |                       | -     
|                                 |  |                       |       
|Total liabilities                |  |                       | 8,541 
|                                 |  |                       |       
|Total assets, net                |  |                       | 22,972



F-63







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 23 - Financial instruments –
(continued)





|                                    |  | December
    31, 2015 |       
|----------------------------------- |  | --------------------- | ------
|                                    |  | (in
    thousands)    |       
|                                    |  | Dollar                |       
|                                    |  |                       |       
|Current assets                      |  |                       |       
|Cash and cash equivalents           |  |                       | 3,224 
|Trade receivables                   |  |                       | 9,757 
|Other receivables                   |  |                       | -     
|Derivative financial instruments    |  |                       | 631   
|                                    |  |                       |       
|Total assets                        |  |                       | 13,612
|                                    |  |                       |       
|Current liabilities                 |  |                       |       
|Loans and borrowings                |  |                       | 5,361 
|Trade payables                      |  |                       | 10,354
|Other current liabilities           |  |                       | 26    
|                                    |  |                       |       
|Non-current liabilities             |  |                       |       
|Loans and borrowings                |  |                       | 6,875 
|                                    |  |                       |       
|Total liabilities                   |  |                       | 22,616
|                                    |  |                       |       
|Total assets (liabilities),
    net |  |                       | (9,004
|                                    |  |                       |       



F-64







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 23 - Financial instruments –
(continued)



During 2016 and 2015, the Group held a
number of derivative contracts to offset specific risks resulting from a difference in the currency in which Group entities generate
their revenues and the currency in which part of the raw-material purchases are made.



As of December 31, 2016, the Group’s
notional investment in currency options is $111.4 million
(2015: $99 million) with fair value of $2.1 million (2015: $0.6 million).



Information regarding significant exchange
and spot rates applied during the year:



|      |  | Year ended December 31 |       
|----- |  | ---------------------- | ------
|      |  | 2015                   |       
|      |  | Annual change          |       
|      |  |                        |       
|1 EUR |  |                        | (10.11
|1 NIS |  |                        | 0.20  
|1 CHF |  |                        | (0.14 
|1 AUD |  |                        | (10.65
|1 ZAR |  |                        | (24.65
|1 GBP |  |                        | (4.57 
|1 SEK |  |                        | (7.09 
|1 DKK |  |                        | (10.35
|1 NOK |  |                        | (15.02
|1 CAD |  |                        | (16.14
|1 NZD |  |                        | (12.25
|1 JPY |  |                        | (0.48 



F-65







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 23 - Financial instruments –
(continued)



| | ii. | Sensitivity analysis
| | --- | --------------------



A strengthening or weakening
of the U.S. Dollar, as indicated below, against the following currencies as of December 31, 2016 would have increased (decreased)
equity and net income by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group
considered to be reasonably possible at the end of the reporting period. This analysis assumes that all other variables, in particular
interest rates, remain constant.



|                  |  | December 31, 2016 |       
|----------------- |  | ----------------- | ------
|                  |  | Devaluation       |       
|                  |  | Equity            |       
|                  |  | (in thousands)    |       
|Change of 10% in: |  |                   |       
|EUR               |  |                   | (3,943
|NIS               |  |                   | (2,397
|CHF               |  |                   | 226   
|AUD               |  |                   | (469  
|ZAR               |  |                   | (140  
|GBP               |  |                   | 58    
|SEK               |  |                   | (229  
|DKK               |  |                   | (47   
|NOK               |  |                   | (90   
|CAD               |  |                   | 225   
|NZD               |  |                   | (46   
|JPY               |  |                   | (145  



|                  |  | December 31, 2015 |      
|----------------- |  | ----------------- | -----
|                  |  | Devaluation       |      
|                  |  | Equity            |      
|                  |  | (in thousands)    |      
|Change of 10% in: |  |                   |      
|EUR               |  |                   | (656 
|NIS               |  |                   | 1,573
|CHF               |  |                   | (481 
|AUD               |  |                   | (273 
|ZAR               |  |                   | (120 
|GBP               |  |                   | (272 
|SEK               |  |                   | (437 
|DKK               |  |                   | (90  
|NOK               |  |                   | (72  
|CAD               |  |                   | (308 
|NZD               |  |                   | (51  
|JPY               |  |                   | (267 



F-66







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 23 - Financial instruments –
(continued)



|2. | Interest rate risk
|-- | ------------------



|i. | Interest rate risk profile
|-- | --------------------------



As of the reporting date, the interest rate profile
of the Group’s interest-bearing financial instruments was as follows:



|                          |  | December 31     |       
|------------------------- |  | --------------- | ------
|                          |  | 2015            |       
|                          |  | Carrying amount |       
|                          |  | (in thousands)  |       
|Fixed rate instruments    |  |                 |       
|Financial assets          |  |                 | 15,396
|                          |  |                 |       
|Variable rate instruments |  |                 |       
|Financial liabilities     |  |                 | 36,822



|ii. | Cash flow sensitivity analysis for variable rate instruments
|--- | ------------------------------------------------------------



As of December 31, a change
of 1% in the absolute interest rates at the reporting date would have increased (decreased) equity and net income by the amounts
shown below





|                     |  | December 31, 2015 |      |   | December 31, 2016 | 
|-------------------- |  | ----------------- | ---- | - | ----------------- | 
|                     |  | Equity            |      |   | Net income        | 
|                     |  | (in thousands)    |      |   | (in thousands)    | 
|                     |  |                   |      |   |                   | 
|Increase in interest |  |                   | (368 | ) |                   | 
|                     |  |                   |      |   |                   | 
|Decrease in interest |  |                   | 368  |   |                   | 





F-67







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 23 - Financial instruments –
(continued)



| | 3. | Fair value versus carrying amounts
| | -- | ----------------------------------



The carrying amounts of certain
financial assets and liabilities, including cash and cash equivalents, bank deposits, trade receivables, derivative financial instruments,
loans and borrowings, trade payables and other current liabilities are the same or proximate to their fair value.



For further information regarding
determination of fair values see Note 4.



Fair value hierarchy



The table below analyzes financial
instruments carried at fair value by the valuation method.



The different hierarchy levels
have been defined in Note 4:



|                                 |  | December 31, 2016 |  
|-------------------------------- |  | ----------------- | -
|                                 |  | Level 1           |  
|                                 |  | (in thousands)    |  
|Financial assets                 |  |                   |  
|                                 |  |                   |  
|Derivative financial instruments |  |                   | -
|                                 |  |                   |  
|Total assets                     |  |                   | -



|                                 |  | December 31, 2015 |  
|-------------------------------- |  | ----------------- | -
|                                 |  | Level 1           |  
|                                 |  | (in thousands)    |  
|Financial assets                 |  |                   |  
|                                 |  |                   |  
|Derivative financial instruments |  |                   | -
|                                 |  |                   |  
|Total assets                     |  |                   | -



F-68







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 24 – Contingencies



Legal proceedings



From time to time, the Group
is a party to various legal proceedings (both as claimant and defendant) in the ordinary course of its business. In the opinion
of the management of the Company, which is based on, among other things, the opinion of its legal counsels, appropriate provisions
have been included in the financial statements (see Note 15), where warranted, to cover the exposure resulting from such claims.



Legal claims and proceedings
(excluding claims with no specified amount, claims fully covered by the Group’s insurance policy and claims where the likelihood
of an outflow of resources is considered to be remote) amounted to $0.7 million as of December 31, 2016. The provision included
in the financial statements for such legal claims and proceedings totaled $0.3 million as of December 31, 2016.

The Group is also a party to
various personal injury claims (of employees and consumers), as a direct party or a third party. These claims are handled by the
Group’s insurers.



Contractual Obligations



The Company’s significant contractual obligations
and commitments as of December 31, 2016 amount to $29.8 million. The amount includes purchase obligations for raw material, services
and property plant and equipment for a period of less than 1 year.



F-69







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 25 - Net income per share



|                                                           |  | Year ended December 31 |       
|---------------------------------------------------------- |  | ---------------------- | ------
|                                                           |  | 2014                   |       
|                                                           |  | (in thousands)         |       
|Net income for the year ended December 31                  |  |                        | 12,295
|                                                           |  |                        |       
|Opening balance at January 1                               |  |                        | 20,885
|RSU Adjustment (see note 12A-1)                            |  |                        | 15    
|Effect of employee options exercised (1)                   |  |                        | 68    
|                                                           |  |                        |       
|Weighted average number of shares at December 31 – basic   |  |                        | 20,968
|                                                           |  |                        |       
|Effect of employee options (1)                             |  |                        | 283   
|                                                           |  |                        |       
|Weighted average number of shares at December 31 – diluted |  |                        | 21,251
|                                                           |  |                        |       
|Net income per share (In $)                                |  |                        |       
|Basic                                                      |  |                        | 0.59  
|Diluted                                                    |  |                        | 0.58  



(1) See Note
26.



The average market value of the Company’s shares
for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period that the options
were outstanding.



At December 31, 2016, 236 thousand options (in 2015
and 2014: 1,765 thousand and 609 thousand, respectively) were excluded from the diluted weighted average number of ordinary shares
calculation as their effect would have been anti-dilutive.



F-70







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 26 - Share-based payments



In December 2007 and in October
2010, the Group established two employee share option plans (hereinafter – the 2007 Option Plan and the 2010 Option Plan,
respectively). The 2007 Option Plan and the 2010 Option Plan entitle key management personnel and senior employees to purchase
the Company’s shares. Each option entitles the option holder to purchase one ordinary share of the Company at the exercise
price. The 2007 Option Plan and the 2010 Option Plan are intended to provide an incentive to retain employees and to attract new
employees that the Board of Directors determines provide services that are valuable to the Group. The administration of the 2007
Option Plan and the 2010 Option Plan is under the responsibility of a committee appointed by the Board of Directors.



The use of the term options in
this note includes both share options and RSU unless stated otherwise.



As of December 31, 2016, 2,071,301 ordinary shares
were available for issuance under our option plans of which options to purchase 1,520,887 ordinary shares have been granted and
are outstanding. 90,000 options are reserved for grant to three of the Company's directors subject to general meeting approval
which, as of the date of the Company’s annual report for 2016, has not been received.



The options granted as of February
23, 2012, will expire ten years after the grant date. Options granted on or after February 23, 2012 but prior to February 26, 2013
will expire six years after the grant. Options granted on or after February 26, 2013 will expire five years after the grant date.



The basic terms of the 2007 and
the 2010 Option Plans: 25% or 33.3% of the equity awards will vest one year after the date of grant and the remainder will vest
in equal portions at the end of each three-month period thereafter over four or three years, respectively.



On December 20, 2012, the annual general meeting approved
a grant of options to the CEO, according to which 135,000 options vest in January 2014, and 315,000 options vest in December 2015.
The vesting on December 31, 2015 was subject to achieving a performance condition of Weighted Revenue EBITDA Measurement (as may
be discounted) of at least 100%. In calculating the Weighted Revenue-EBITDA Measurement: “Actual Cumulative Revenue”
equals the aggregate annual revenue as reported in the Company’s annual audited financial statements at the end of each of
the years of 2012 through 2015 (inclusive), and includes all or part of 2016 if the LTIP’s term is extended; “Actual
Cumulative EBITDA” equals the aggregate annual EBITDA as reported in the Company’s disclosures at the end of each of
the years 2012 through 2015 (inclusive), and includes all or part of 2016 if the LTIP’s term is extended; “Cumulative
Revenue Target” equals the aggregate revenue included in the annual budget as approved by the Company’s board of directors
for the four years of 2012 through 2015 (inclusive); and “Cumulative EBITDA Target” equals the aggregate EBITDA included
in the annual budget as approved by the Company’s board of directors for the four years of 2012 through 2015 (inclusive).

As of December 31, 2014, the estimate for achieving
the abovementioned performance condition of Weighted Revenue EBITDA Measurement was less than 100% and was considered remote. Therefore,
an expense of $4.8 million ($2.6 million with respect to prior years and $2.2 million with respect to 2014) related to the CEO
grant of options was reversed. As of December 31, 2015, the above referenced performance conditions were not met.



F-71







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 26 - Share-based payments –
(continued)



In December 2015, the annual
general meeting approved a grant of 600,000 options to the CEO out of which 300,000 options vest at grant date and 300,000 options
are subject to market condition of which 150,000 options shall become exercisable if at any time following the first anniversary
of date of grant the Company’s price per share exceeds $22. The remaining 150,000 options shall become exercisable if at
any time following the second anniversary of date of grant the Company’s price per share exceeds $27. The market condition
regarding the 150,000 which become exercisable following the first anniversary of date of grant has been met.



In December 2015, the annual
general meeting approved to grant to the CEO 100,000 options under the 2010 option plan and a cash bonus in the event of a strategic
investment in the Company. The cash bonus shall be equal to 1% of the cash amount invested in the Company at the closing of the
strategic investment up to a maximum bonus amount of $500,000. The strategic investment shall be in the aggregate amount of not
less than $25 million and the identity of the investor would make a contribution to the Company beyond the actual sum of the purchase
of share of the Company.



Regarding the 2010 Option Plan
with respect to non-employees directors, based on service providing periods, one third of the options included in each grant vest
one year after the grant date, and the rest vest over the sequential two years, annually, in two equal portions.



The grants to employees and to
some non-employees are pursuant to section 102(b) of the Israeli Income Tax Ordinance (capital gain option). The grants to certain
non-employees are pursuant to section 3(i) of the Israeli Income Tax Ordinance (taxed as ordinary income).



The option holder’s rights
to purchase shares will be adjusted upon certain events described in the 2007 Option Plan or in the 2010 Option Plan, subject to
the approval of the applicable tax authority.



F-72







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 26 - Share-based payments –
(continued)



The terms and conditions of the
grants are as follows; all options are to be settled by physical delivery of shares:





|Options grant         |  | Number of |           |   |                        | 
|--------------------- |  | --------- | --------- | - | ---------------------- | 
|Period                |  | options   |           |   | Vesting
    conditions | 
|                      |  |           |           |   | (1)                    | 
|Quarter 4, 2007       |  |           | 660,211   |   |                        | 
|Quarter 1, 2008       |  |           | 92,470    |   |                        | 
|Quarter 2, 2008       |  |           | 90,332    |   |                        | 
|Quarter 3, 2008       |  |           | 147,816   |   |                        | 
|Quarter 4, 2008       |  |           | 82,171    |   |                        | 
|Quarter 1, 2009       |  |           | 8,616     |   |                        | 
|Quarter 3, 2009       |  |           | 34,109    |   |                        | 
|Quarter 4, 2009       |  |           | 29,457    |   |                        | 
|Quarter 1, 2010       |  |           | 26,356    |   |                        | 
|Quarter 2, 2010       |  |           | 94,186    |   |                        | 
|Quarter 4, 2010       |  |           | 727,450   |   |                        | 
|Quarter 3. 2011       |  |           | 63,000    |   |                        | 
|Quarter 4, 2011       |  |           | 183,000   |   |                        | 
|Quarter 1, 2012       |  |           | 40,400    |   |                        | 
|Quarter 2, 2012       |  |           | 9,000     |   |                        | 
|Quarter 3, 2012       |  |           | 97,500    |   |                        | 
|Quarter 4, 2012       |  |           | 457,500   |   |                        | 
|Quarter 1, 2013       |  |           | 328,000   |   |                        | 
|Quarter 2, 2013       |  |           | 92,100    |   |                        | 
|Quarter 3, 2013       |  |           | 5,000     |   |                        | 
|Quarter 4, 2013       |  |           | 110,000   |   |                        | 
|Quarter 1, 2014       |  |           | 147,300   |   |                        | 
|Quarter 3, 2014       |  |           | 13,500    |   |                        | 
|Quarter 4, 2014       |  |           | 179,500   |   |                        | 
|Modification (i)      |  |           | (133,139  | ) |                        | 
|                      |  |           |           |   |                        | 
|Quarter 2, 2015       |  |           | 61,000    |   |                        | 
|Quarter 3, 2015       |  |           | 60,500    |   |                        | 
|Quarter 4, 2015       |  |           | 813,000   |   |                        | 
|Modification (ii)     |  |           | (190,000  | ) |                        | 
|Quarter 1, 2016       |  |           | 78,000    |   |                        | 
|Quarter 2, 2016       |  |           | 13,000    |   |                        | 
|Quarter 4, 2016       |  |           | 17,000    |   |                        | 
|Total
options Granted |  |           | 4,438,335 |   |                        | 



F-73







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 26 - Share-based payments
– (continued)



| | (1) | 25% - vests one year after grant date and an additional
6.25% vests at the end of each quarter beginning one year after the grant date
| | --- | --------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Fully vested at grant date.
| | --- | ---------------------------



| | (3) | 33.33% - vests one year after grant date and an additional
33.33% vests at the end of each year beginning one year after the grant date.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Vests one year after the grant date.
| | --- | ------------------------------------



| | (5) | Vests three years after the grant date, subject to performance
condition as detailed above.
| | --- | -------------------------------------------------------------------------------------------



| | (6) | Vests 11 months after the grant date.
| | --- | -------------------------------------



| | (7) | 33% - vests one year after grant date and an additional
8.33% vests at the end of each quarter beginning one year after the grant date.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------



| | (8) | Other than (1) – (7) above (mainly – quarterly-based,
ten to twelve quarters).
| | --- | ------------------------------------------------------------------------------



| | (9) | 300,000 options fully vested at grant date out of which
190,000 were granted in lieu of 190,000 options which were cancelled. See sub note 9(ii) below. The remaining 300,000 options
are subject to market condition with a service period of one year from grant date for 50% of the options, and a service period
of two years from grant date for the remaining 50% of the options.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) | In November 2014, the Company modified the terms of part
of the above grants by cancelling 494,496 outstanding options and granting in return 361,357 new options with a lower exercise
price. The new options include new vesting conditions as described in sub note 7 above.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | In December 2015, the Company modified the terms of part of the above grants by cancelling 190,000 outstanding options and
granting in return 190,000 options, fully vested, with lower exercise price. See sub note 9 above.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-74







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 26 - Share-based payments
– (continued)



| | A. | The number and weighted average exercise prices of options
are as follows:
| | -- | --------------------------------------------------------------------------



|                                                        |  | Number of optionsand RSUs |           |   | Weighted average exercise price ($) (*) | 
|------------------------------------------------------- |  | ------------------------- | --------- | - | --------------------------------------- | 
|                                                        |  | 2014                      |           |   | 2015                                    | 
|                                                        |  |                           |           |   |                                         | 
|Outstanding at January 1                                |  |                           | 1,870,608 |   |                                         | 
|                                                        |  |                           |           |   |                                         | 
|Forfeited and expired during the period                 |  |                           | (153,552  | ) |                                         | 
|                                                        |  |                           |           |   |                                         | 
|Exercised during the period                             |  |                           | (110,626  | ) |                                         | 
|                                                        |  |                           |           |   |                                         | 
|Granted during the period                               |  |                           | 340,300   |   |                                         | 
|                                                        |  |                           |           |   |                                         | 
|Modification during the period                          |  |                           | (133,139  | ) |                                         | 
|                                                        |  |                           |           |   |                                         | 
|Outstanding at December 31                              |  |                           | 1,813,591 |   |                                         | 
|                                                        |  |                           |           |   |                                         | 
|Exercisable at December 31                              |  |                           | 754,345   |   |                                         | 
|                                                        |  |                           |           |   |                                         | 
|Weighted average remaining contractual life (years) (*) |  |                           | 4.61      |   |                                         | 
|Weighted average contractual life (years) (*)           |  |                           | 6.76      |   |                                         | 



(*) Weighted
average data excludes RSU.



The options outstanding as at December
31, 2016 have an exercise price of NIS 0.645, €1.61, €4.84, €10.32, and $13 - $52 (2015: NIS 0.645, €1.61,
€4.84, €10.32, and $15 - $52 ; 2014: NIS 0.645, €1.61, €4.84, €10.32, $20.00 and $22 - $52). The weighted
average share price at the date of exercise for options exercised in 2016 was $30.30 (2015: $16.75; 2014: $36.9).



| | B. | Information on measurement of fair value of share-based
payment plans
| | -- | ---------------------------------------------------------------------



The grant date fair value of the options
granted through the employee share option plans was measured based on the Black-Scholes formula for options with non-market conditions
and based on Monte Carlo model for options with market conditions. See Note 4D.



Expected volatility is estimated based
on the weighted average historic volatility of the Company's stock over the expected term of the options. The expected life until
exercise date of the option is determined based on averaging the vesting schedule of the options and the contractual term, since
the Company's ordinary shares commenced trading in November 2010 and therefore there is insufficient history of option exercises.
The risk-free interest was determined on the basis of AAA-rated Euro area central government bonds for grants prior to December
31, 2011, and for grants from January 1, 2012 onwards on the basis of the appropriate yield rates of non-indexed linked U.S. Federal
Reserve treasury bonds for the expected term.



F-75







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 26 - Share-based payments
– (continued)



The inputs used in the measurement of the
fair values at grant date of the share-based payment plans were as follows:





|                                                        |  | Year ended December 31 |            
|------------------------------------------------------- |  | ---------------------- | -----------
|                                                        |  | 2014                   |            
|Weighted average fair value at grant date (in USD)      |  |                        | 20.66      
|                                                        |  |                        |            
|The parameters used to calculate fair value:            |  |                        |            
|Share price (on grant date) (weighted average) (in USD) |  |                        | 24.56      
|Exercise price (weighted average) (in USD)              |  |                        | 31.55      
|Expected volatility (weighted average)                  |  |                        | 48%-63%    
|Option life (years)                                     |  |                        | 5          
|Expected dividends                                      |  |                        | 0          
|Risk-free interest rate                                 |  |                        | 0.78%-2.02%





| | C. | Remuneration expenses in respect of share-based payments
and additional details
| | -- | -------------------------------------------------------------------------------



The annual pre-vesting forfeiture rate
is 4.02% for management (including non-employees) and 3.71% for other employees based on the Company’s assessment.



Remuneration expenses



|                                                                                                 |  | Year ended December 31 |      
|------------------------------------------------------------------------------------------------ |  | ---------------------- | -----
|                                                                                                 |  | 2014                   |      
|                                                                                                 |  | (in thousands)         |      
|Expenses arising from share-based payment grants settled by the Company’s equity
    instruments |  |                        | 3,760





See Note 27 regarding options
that were granted to key management personnel.



F-76







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 27 - Related parties



A.           Key
management personnel compensation



In addition to their remuneration,
the Group also provides non-cash benefits (such as vehicles) to key management personnel. Key management personnel are also entitled
to post-employment benefits (for which the Group contributes to a defined benefit plan on their behalf) and participate in the
Company’s share option plan (see Note 14 and Note 26, respectively).



Compensation to key management
personnel:



|                                |  | Year ended December 31 |   
|------------------------------- |  | ---------------------- | --
|                                |  | 2014                   |   
|                                |  | Number of              |   
|                                |  | people                 |   
|                                |  |                        |   
|Short-term employee benefits    |  |                        | 16
|Long-term employee benefits(**) |  |                        | 1 
|Post-employment benefits        |  |                        | 12
|Share-based payments            |  |                        | 16
|                                |  |                        |   
|Total                           |  |                        |   





(*) The share-based payment presented
in this table does not include $4.8 million related to the reversed CEO grant of options. See Note 26.

(**) The long-term employee benefits
include a cash bonus of $1.2 million (of which $0.4 million was recognized in our audited consolidated financial statements for
the year ended December 31, 2015 and $0.75 million was recognized in our audited consolidated financial statements for the year
ended December 31, 2014) in connection with the long-term incentive plan for the Company’s Chief Executive Officer which
was approved by the Company’s shareholders on December 20, 2012 (“the Bonus”). In April 2016, the Company’s
Chief Executive Officer notified the Company unilaterally to defer and condition the payment of 50% of the Bonus with the achievement
or overachievement of the Company’s operating income target for the year ended December 31, 2016 as per its 2016 budget.
The target was achieved and the cash bonus was paid during February 2017.



F-77









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 27 - Related parties – (continued)



| | B. | Exculpation, insurance and indemnification of key management
personnel
| | -- | ----------------------------------------------------------------------



The Group’s key management
personnel and directors are covered by a directors’ and officers’ liability insurance policy. In addition, the Company
has entered into agreements with each of its key management personnel and directors exculpating them, to the fullest extent permitted
by law, from liability to the Company for damages caused to the Company as a result of a breach of duty of care, and undertaking
to indemnify them to the fullest extent permitted by law. The maximum amount set forth in such agreement is (1) with respect to
indemnification in connection with a public offering of the Company’s securities, the gross proceeds raised by the Company
and/or any selling shareholder in such public offering, and (2) with respect to all permitted indemnification, including a public
offering of the Company’s securities, the greater of (a) an amount equal to 50% of the shareholders’ equity on a consolidated
basis, based on the Company's recent financial statements made publicly available before the date on which the indemnity payment
is made and (b) $50 million.



Note 28 – Subsequent events



In March 2017, the Group’s wholly owned
subsidiary, SodaStream Industries Ltd., employees’ committee issued a dispute notice to the Company. The Company cannot
predict whether or not a work stoppage will be initiated in connection with such dispute notice.



F-78