Save Foods Inc.
11/15/2021 | Press release | Distributed by Public on 11/15/2021 15:27
Quarterly Report (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| For the transition period from | to |
Commission File No. 000-56100
| SAVE FOODS, INC. |
| (Exact name of registrant as specified in its charter) |
| Delaware | 26-4684600 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| KibbutzAlonim | ||
| Israel | 3657700 | |
| (Address of Principal Executive Offices) | (Zip Code) |
| (347)468 9583 |
| (Registrant's telephone number, including area code) |
n/a
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
| Common Stock, Par value $0.0001 per share | SVFD | The NasdaqCapital Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☐ | Large accelerated filer | ☐ | Accelerated filer |
| ☒ | Non-accelerated filer | ☒ | Smaller reporting company |
| ☐ | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No☒
As of November 15, 2021, the registrant had 2,806,536shares of common stock, par value $0.0001 (the "Common Stock") issued and outstanding.
As used in this Quarterly Report and unless otherwise indicated, the terms "Save Foods," "we," "us," "our," or "our Company" refer to Save Foods, Inc. and Save Foods Ltd., the 98.48% owned subsidiary of Save Foods, Inc. Unless otherwise specified, all dollar amounts are expressed in United States dollars.
Save Foods, Inc.
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
| Page | ||
| Cautionary Note Regarding Forward-Looking Statements | 3 | |
| PART I - FINANCIAL INFORMATION | ||
| Item 1. | Consolidated Financial Statements (unaudited) | 4 |
| Consolidated Balance Sheets | 5 | |
| Consolidated Statements of Comprehensive Loss | 6 | |
| Statements of Stockholders' Equity | 7 | |
| Consolidated Statements of Cash Flows | 9 | |
| Notes to Consolidated Financial Statements | 10 | |
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 17 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 24 |
| Item 4. | Control and Procedures | 24 |
| PART II - OTHER INFORMATION | ||
| Item 1A. | Risk Factors | 25 |
| Item 6. | Exhibits | 25 |
| SIGNATURES | 26 |
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere herein may address or relate to future events and expectations and as such constitutes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things:
| ● | our current and future capital requirements and our ability to satisfy our capital needs through financing transactions or otherwise; | |
| ● | sales of our products; | |
| ● | the size and growth of our product market; | |
| ● | our activity in the civilian market; | |
| ● | our manufacturing capabilities; | |
| ● | our entering into certain partnerships with third parties; | |
| ● | obtaining required regulatory approvals for sales or exports of our products; | |
| ● | our marketing plans; | |
| ● | our expectations regarding our short- and long-term capital requirements; | |
| ● | our expectation regarding the impact of COVID-19 on our business and operations; | |
| ● | our outlook for the coming months and future periods, including but not limited to our expectations regarding future revenue and expenses; and | |
| ● | information with respect to any other plans and strategies for our business. |
Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words "may," "should," "would," "could," "scheduled," "expect," "anticipate," "estimate," "believe," "intend," "seek," or "project" or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. These statements may be found under the section of our Annual Report on Form 10-K for the year ended December 31, 2020 (filed on March 29, 2021) ("2020 Annual Report") entitled "Risk Factors" as well as in our other public filings.
In light of these risks and uncertainties, and especially given the start-up nature of our business, there can be no assurance that the forward-looking statements contained herein will in fact occur. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
On February 23, 2021, we implemented a one-for-seven reverse stock split of our Common Stock pursuant to which holders of our Common Stock received one share of our Common Stock for every seven shares of Common Stock held. Unless the context expressly dictates otherwise, all references to share and per share amounts referred to herein reflect the reverse stock split.
| 3 |
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
SAVE FOODS, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2021
IN U.S. DOLLARS
TABLE OF CONTENTS
| Page | |
| CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: | |
| Unaudited Condensed Consolidated Balance Sheets as of September 30, 2021 ,and December 31, 2020 | 5 |
| Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Nine and Three Months Ended September 30, 2021 and September 30, 2020 | 6 |
| Unaudited Condensed Consolidated Statements of changes in Stockholders' Equity (Deficit) for the Three, Six and Nine Months period Ended September 30, 2021 and the Year Ended December 31, 2020 | 7 |
| Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and September 30, 2020 | 9 |
| Notes to Unaudited Condensed Consolidated Financial Statements | 10- 16 |
| 4 |
SAVE FOODS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars except share and per share data)
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | 7,771,539 | 242,900 | ||||||
| Restricted cash | 54,506 | 22,395 | ||||||
| Accounts receivable, net | 36,802 | 147,941 | ||||||
| Inventories | 17,974 | 16,356 | ||||||
| Other current assets | 626,520 | 65,579 | ||||||
| Total Current assets | 8,507,341 | 495,171 | ||||||
| Right of use asset arising from operating lease | 146,685 | 14,700 | ||||||
| Property and equipment, net | 56,040 | 55,194 | ||||||
| Funds in respect of employee rights upon retirement | 130,987 | 122,584 | ||||||
| Total assets | 8,841,053 | 687,649 | ||||||
| Liabilities and Shareholders' Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Short-term loan from banking institution | 8,049 | 7,949 | ||||||
| Current maturities of convertible loans | - | 56,250 | ||||||
| Accounts payable | 253,374 | 203,323 | ||||||
| Other liabilities | 593,139 | 517,711 | ||||||
| Total current liabilities | 854,562 | 785,233 | ||||||
| Fair value of convertible component in convertible loans | - | 54,970 | ||||||
| Convertible loans | - | 146,929 | ||||||
| Long term loan from banking institution | 2,025 | 8,115 | ||||||
| Liability for employee rights upon retirement | 158,562 | 157,855 | ||||||
| Total liabilities | 1,015,149 | 1,153,102 | ||||||
| Stockholders' Equity (Deficit) | ||||||||
|
Common stock of $0.0001par value each ("Common Stock"): 495,000,000shares authorized as of September 30, 2021 and December 31, 2020; issued and outstanding 2,792,836shares as of September 30, 2021 and 1,606,765shares as of December 31, 2020. |
280 | 161 | ||||||
|
Preferred stock of $ 0.0001par value: 5,000,000shares authorized as of September 30, 2021 and December 31, 2020; noshares issued and outstanding as of September 30, 2021 and December 31, 2020. |
- | - | ||||||
| Additional paid-in capital | 23,451,533 | 11,867,585 | ||||||
| Foreign currency translation adjustments | (26,275 | ) | (26,275 | ) | ||||
| Accumulated deficit | (15,538,571 | ) | (12,277,647 | ) | ||||
| 7,886,967 | (436,176 | ) | ||||||
| Non-controlling interests | (61,063 | ) | (29,277 | ) | ||||
| Total stockholders' equity (deficit) | 7,825,904 | (465,453 | ) | |||||
| Total liabilities and stockholders' equity (deficit) | 8,841,053 | 687,649 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
| 5 |
SAVE FOODS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(U.S. dollars except share and per share data)
| Nine months ended | three months ended | |||||||||||||||
| September 30 | September 30 | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues from sales of products | 248,840 | 63,566 | 71,363 | - | ||||||||||||
| Cost of sales | (67,931 | ) | (25,686 | ) | (53,644 | ) | - | |||||||||
| Gross profit | 180,909 | 37,880 | 17,719 | - | ||||||||||||
| Research and development expenses | (363,003 | ) | (340,808 | ) | (66,470 | ) | (87,465 | ) | ||||||||
| Selling and marketing expenses | (102,428 | ) | (43,482 | ) | (69,019 | ) | (6,734 | ) | ||||||||
| General and administrative expenses | (2,847,444 | ) | (851,262 | ) | (1,174,737 | ) | (337,886 | ) | ||||||||
| Operating loss | (3,131,966 | ) | (1,197,672 | ) | (1,292,507 | ) | (432,085 | ) | ||||||||
| Financing expenses, net | (163,837 | ) | (206,829 | ) | (7,776 | ) | (6,478 | ) | ||||||||
| Other income | - | 881 | - | 881 | ||||||||||||
| Gain on disposal of affiliated company | - | 15,690 | - | - | ||||||||||||
| Net loss | (3,295,803 | ) | (1,387,930 | ) | (1,300,283 | ) | (437,682 | ) | ||||||||
| Less: Net loss attributable to non-controlling interests | 34,879 | 11,338 | 13,202 | 3,782 | ||||||||||||
| Net loss attributable to the Company | (3,260,924 | ) | (1,376,592 | ) | (1,287,081 | ) | (433,900 | ) | ||||||||
| Loss per share (basic and diluted) | (1.49 | ) | (0.92 | ) | (0.46 | ) | (0.28 | ) | ||||||||
| Basic and diluted weighted average number of shares of common stock outstanding (1) | 2,188,365 | 1,491,833 | 2,786,451 | 1,557,778 |
| (1) | Prior periods results have been adjusted to reflect 7 to 1 reverse stock split in February 2021 (see note 1). |
The accompanying notes are an integral part of the condensed consolidated financial statements.
| 6 |
SAVE FOODS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(U.S. dollars, except share and per share data)
| Number of shares |
Amount |
Additional paid-in capital | Accumulated other comprehensive income (loss) | Accumulated deficit |
Total Company's stockholders' equity |
Non- controlling interests |
Total stockholders' deficit |
|||||||||||||||||||||||||
| BALANCE AT JANUARY 1, 2021 | 1,606,765 | 161 | 11,867,585 | (26,275 | ) | (12,277,647 | ) | (436,176 | ) | (29,277 | ) | (465,453 | ) | |||||||||||||||||||
| Stock based compensation | - | - | 83,605 | - | - | 83,605 | 895 | 84,500 | ||||||||||||||||||||||||
| Comprehensive loss for three months ended March 31, 2021 | - | - | - | - | (492,402 | ) | (492,402 | ) | (1,893 | ) | (494,295 | ) | ||||||||||||||||||||
| BALANCE AT MARCH 31, 2021 | 1,606,765 | 161 | 11,951,190 | (26,275 | ) | (12,770,049 | ) | (844,973 | ) | (30,275 | ) | (875,248 | ) | |||||||||||||||||||
| Issuance of shares, net of issuance costs of $1,542,138 | 1,090,909 | 109 | 10,457,753 | - | - | 10,457,862 | - | 10,457,862 | ||||||||||||||||||||||||
| Conversion of convertible loans | 66,877 | 7 | 648,403 | - | - | 648,410 | - | 648,410 | ||||||||||||||||||||||||
| Stock based compensation | - | - | 60,227 | - | - | 60,227 | 1,331 | 61,558 | ||||||||||||||||||||||||
| Share based compensation for services providers | 12,000 | 1 | 126,599 | - | - | 126,600 | - | 126,600 | ||||||||||||||||||||||||
| Comprehensive loss for three months ended June 30, 2021 | - | - | - | - | (1,481,441 | ) | (1,481,441 | ) | (19,784 | ) | (1,501,225 | ) | ||||||||||||||||||||
| BALANCE AT JUNE 30, 2021 | 2,776,551 | 278 | 23,244,172 | (26,275 | ) | (14,251,490 | ) | 8,966,685 | (48,728 | ) | 8,917,957 | |||||||||||||||||||||
| Stock based compensation | - | - | 56,041 | - | - | 56,041 | 867 | 56,908 | ||||||||||||||||||||||||
| Share based compensation for services providers | 16,285 | 2 | 151,320 | - | - | 151,322 | - | 151,322 | ||||||||||||||||||||||||
| Comprehensive loss for three months ended September 30, 2021 | - | - | - | - | (1,287,081 | ) | (1,287,081 | ) | (13,202 | ) | (1,300,283 | ) | ||||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2021 | 2,792,836 | 280 | 23,451,533 | (26,275 | ) | (15,538,571 | ) | 7,886,967 | (61,063 | ) | 7,825,904 |
| 7 |
SAVE FOODS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(U.S. dollars, except share and per share data)
| Number of Shares (1) |
Amount (1) |
Additional paid-in capital (1) | Accumulated other comprehensive income (loss) |
Proceeds on account of shares |
Accumulated deficit |
Total Company's stockholders' equity |
Non- controlling interests |
Total stockholders' deficit |
||||||||||||||||||||||||||||
| BALANCE AT JANUARY 1, 2020 | 1,458,598 | 146 | 10,329,571 | (26,275 | ) | - | (10,684,508 | ) | (381,066 | ) | (21,053 | ) | (402,119 | ) | ||||||||||||||||||||||
| Stock based compensation | - | - | 35,028 | - | - | - | 35,028 | 375 | 35,403 | |||||||||||||||||||||||||||
| Value of warrant issued in convertible loans | - | - | 34,696 | - | - | - | 34,696 | - | 34,696 | |||||||||||||||||||||||||||
| Comprehensive loss for three months ended March 31, 2020 | - | - | - | - | - | (365,647 | ) | (365,647 | ) | (3,416 | ) | (369,063 | ) | |||||||||||||||||||||||
| BALANCE AT MARCH 30, 2020 | 1,458,598 | 146 | 10,399,295 | (26,275 | ) | - | (11,050,155 | ) | (676,989 | ) | (24,094 | ) | (701,083 | ) | ||||||||||||||||||||||
| Receipts on account of shares | - | - | - | - | 100,000 | - | 100,000 | - | 100,000 | |||||||||||||||||||||||||||
| Stock based compensation | - | - | 182,313 | - | - | - | 182,313 | 1,951 | 184,264 | |||||||||||||||||||||||||||
| Conversion of convertible loans | - | - | 585,931 | - | - | - | 585,931 | - | 585,931 | |||||||||||||||||||||||||||
| Comprehensive loss for three months ended June 30, 2020 | - | - | - | - | - | (577,045 | ) | (577,045 | ) | (4,140 | ) | (581,185 | ) | |||||||||||||||||||||||
| BALANCE AT JUNE 30, 2020 | 1,458,598 | 146 | 11,167,539 | (26,275 | ) | 100,000 | (11,627,200 | ) | (385,790 | ) | (26,283 | ) | (412,073 | ) | ||||||||||||||||||||||
| Issuance of shares | 45,876 | 5 | 349,995 | - | (100,000 | ) | - | 250,000 | - | 250,000 | ||||||||||||||||||||||||||
| Conversion of convertible loans | 67,369 | 7 | (7 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Exercise of warrants | 28,572 | 3 | 59,997 | - | - | - | 60,000 | - | 60,000 | |||||||||||||||||||||||||||
| Stock based compensation | - | - | 167,037 | - | - | - | 167,037 | 1,788 | 168,825 | |||||||||||||||||||||||||||
| Comprehensive loss for three months ended September 30, 2020 | (433,900 | ) | (433,900 | ) | (3,782 | ) | (437,682 | ) | ||||||||||||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2020 | 1,600,415 | 161 | 11,744,561 | (26,275 | ) | - | (12,061,100 | ) | (342,653 | ) | (28,277 | ) | (370,930 | ) |
| (1) | Prior periods results have been adjusted to reflect 7 to 1 reverse stock split in February 2021 (see note 1). |
| 8 |
SAVE FOODS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars except share and per share data)
| Nine months ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Loss for the period | (3,295,803 | ) | (1,387,930 | ) | ||||
| Adjustments required to reconcile net loss for the period to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 34,998 | 42,458 | ||||||
| Gain on disposal of affiliated company | - | (15,690 | ) | |||||
| Increase in liability for employee rights upon retirement | 707 | 4,574 | ||||||
| Stock based compensation | 480,891 | 388,492 | ||||||
| Expenses on loans | 116,100 | 141,981 | ||||||
| Conversion of convertible loans | - | 57,793 | ||||||
| Decrease in accounts receivable, net | 111,139 | 64,003 | ||||||
| Decrease (increase) in inventories | (1,618 | ) | 5,035 | |||||
| Increase in other current assets | (600,941 | ) | (16,094 | ) | ||||
| Increase (decrease) in accounts payable | 41,665 | (25,947 | ) | |||||
| Increase (decrease) in other liabilities | (56,770 | ) | 121,928 | |||||
| Net cash used in operating activities | (3,169,632 | ) | (619,397 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Payments on investment in unconsolidated entity | - | 4,863 | ||||||
| Purchase of property and equipment | (15,357 | ) | - | |||||
| Increase in funds in respect of employee rights upon retirement | (8,403 | ) | (3,054 | ) | ||||
| Net cash provided by investing activities | (23,760 | ) | 1,809 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from secured promissory notes | 274,000 | 135,000 | ||||||
| Convertible loans | - | 125,000 | ||||||
| Repayments of right to use asset arising from operating lease | (20,274 | ) | (27,272 | ) | ||||
| Repayments of long-term banking institutes | (5,829 | ) | (5,384 | ) | ||||
| Exercise of warrants | - | 60,000 | ||||||
| Proceeds from stock issued for cash, net of issuance costs of $1,502,138 | 10,497,862 | 350,000 | ||||||
| Net cash provided by financing activities | 10,745,759 | 637,344 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 8,383 | - | ||||||
| INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 7,560,750 | 19,756 | ||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD | 265,295 | 290,815 | ||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | 7,826,045 | 310,571 | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | - | 316 | ||||||
| Non cash transactions: | ||||||||
| Disposal of affiliated company | - | 2,704 | ||||||
| Termination of lease agreement | 11,590 | |||||||
| Issuance of warrants in convertible loans | - | 53,388 | ||||||
| Conversion of convertible loans | 648,410 | 528,138 | ||||||
| Deferred issuance expenses | 40,000 | - | ||||||
| Initial recognition of operating lease right-of-use assets | 152,472 |
The accompanying notes are an integral part of the condensed consolidated financial statement
| 9 |
SAVE FOODS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERALSave Foods, Inc. (the "Company") was incorporated on April 1, 2009, under the laws of the State of Delaware. On April 27, 2009, the Company acquired from its stockholders 98.48% of the issued and outstanding shares of Save Foods Ltd., including preferred and Common Stock. Save Foods Ltd. was incorporated in 2004 and commenced its operations in 2005. Save Foods Ltd. develops, produces, and focuses on delivering innovative solutions for the food industry aimed at improving food safety and shelf life of fresh produce.
Through May 13, 2021, the Company's common stock was quoted on the OTC Markets, Pink Tier, under the symbol "SAFO". On May 13, 2021, the Company completed an underwritten public offering of 1,090,909shares of its Common Stock at a price to the public of $11.00per share. The gross proceeds to the Company from this offering were $12,000,000, before deducting underwriting discounts, commissions and other offering expenses, and excluding the exercise of the over-allotment option by the underwriter, which were not exercised. The Company granted the underwriter a 45-day option to purchase up to 163,636additional shares of Common Stock of the Company to cover over-allotments at the public offering price, less the underwriting discounts and commissions. The over-allotment option was not exercised by the underwriter. In addition, the Company issued to the underwriter as compensation, warrants to purchase up to 54,545shares of Common Stock (5% of the aggregate number of shares of Common Stock sold in this offering). The underwriter's warrants are exercisable at a per share exercise price equal to 125% of the public offering price per share in this offering. The underwriter's warrants are exercisable at any time and from time to time, in whole or in part, during the four and a half year period commencing 180 days from the effective date of the registration statement.Commencing on May 14, 2021, Company's common stock began to be listed on the Nasdaq Capital under the symbol "SVFD".
In March 2020, the World Health Organization declared the coronavirus (COVID-19) outbreak a global pandemic. To date, the impact of the pandemic on the Company's operations has been mainly limited to a temporary facility closure in the context of a government-mandated general lockdown, which temporary delayed certain development activities. The Company estimates that as of the date of approval of the financial statements, the COVID-19 pandemic is not expected to affect the Company's operations. However, the Company is unable to assess with certainty the extent of future impact, in part due to the uncertainty regarding the duration of the COVID-19 pandemic, its force and its effects on the markets in which the Company operates and the effects of possible government measures to prevent the spread of the virus.
Reverse Stock Split
On February 23, 2021, the Company amended its Certificate of Incorporation to effect a 7 to 1 reverse stock splitof the Company's outstanding Common Stock.
As a result of the reverse stock split, every 7 shares of the Company's outstanding Common Stock prior to the effect of that amendment were combined and reclassified into one share of the Company's Common Stock. No fractional shares were issued in connection with or following the reverse split. The number of authorized capital of the Company's Common Stock and par value of the shares remained unchanged.
All share, stock option and per share information in these condensed consolidated financial statements have been restated to reflect the stock split on a retroactive basis.
| 10 |
SAVE FOODS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATIONUnaudited Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiary, prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). In the opinion of management, the financial statements presented herein have not been audited by an independent registered public accounting firm but include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations for the three and nine-months ended September 30, 2021 and 2020, and cash flows for the nine-months ended September 30, 2021 and 2020. However, these results are not necessarily indicative of results for any other interim period or for the year ended December 31, 2021. The preparation of financial statements in conformity with U.S. GAAP requires the Company to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual amounts could differ from these estimates.
These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
Principles of Consolidation
The consolidated financial statements are prepared in accordance with US GAAP. The consolidated financial statements of the Company include the Company and its majority-owned subsidiary. All inter-company balances and transactions have been eliminated.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, certain revenues and expenses, and disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results could differ from those estimates. As applicable to these financial statements, the most significant estimates and assumptions relate to share based compensation.
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets.
ROU assets represent Company's right to use an underlying asset for the lease term and lease liabilities represent Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, the Company generally uses the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
| 11 |
SAVE FOODS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2020-06, "Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity" ("ASU 2020-06"). The guidance in ASU 2020-06 simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments in the ASU 2020-06 also simplify the guidance in ASC Subtopic 815-40, Derivatives and Hedging: Contracts in Entity's Own Equity, by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity's ability to rebut the presumption of share settlement for instruments that may be settled in cash or other assets. The amendments in ASU 2020-06 are effective for the Company for fiscal years beginning after December 15, 2021. Early adoption is permitted. The guidance must be adopted as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of this new guidance, but does not expect it to have a material impact on its financial statements.
NOTE 3 - CONVERTIBLE LOANS
On September 21, 2020, the Company entered into a series of convertible loan agreements ("September 2020 CLA") with certain lenders ("September 2020 Lenders") to sell convertible promissory notes ("September 2020 Notes") with an aggregate principal amount of $125,000. Whereby, the outstanding loan amount will mature on the earlier of (i) the third anniversary of each September 2020 CLA or (ii) a deemed liquidation event, and the September 2020 Lenders may convert all or any portion of the September 2020 Notes into shares of Common Stock at any time prior to a mandatory conversion event at a conversion price of $7.63per share.During October 2020, the Company entered into a series of additional convertible loan agreements with additional lenders to sell notes with an aggregate principal amount of $100,000, pursuant to the same terms a set in the September 2020 CLAs.
During January 2021, the Company entered into a series of additional convertible loan agreements with additional lenders to sell notes with an aggregate principal amount of $274,000, pursuant to the same terms a set in the September 2020 CLAs.
As part of the convertible loan agreements, the Company entered into a registration rights agreement with each of the lenders, whereby each lender received piggyback registration rights for the shares issuable upon conversion of the notes to shares of Common Stock.
On May 11, 2021 and May 12, 2021, the lenders of the convertible loans utilized their optional conversion, of the entire balance of the convertible promissory notes in the aggregate principal amount of $499,000and of aggregated accrued interest amount of $11,211, at a conversion price of $7.63per share and the Company issued to the Lenders an aggregate amount of 66,877shares of Common Stock following the conversion.| 12 |
SAVE FOODS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMMON STOCKOn May 13, 2021, the Company completed an underwritten public offering of 1,090,909shares of Common Stock of the Company at a price to the public of $11.00per share - see note 1 above.
On May 15, 2021, the Company signed a consulting agreement with a third party according to which the consultant will provide the Company with investor relations services for a period of 12 months following the commencement date. As consideration for the agreement the Company will pay the consultant an annual fee of $40,000and shall issue the consultant 12,000shares of Common Stock of the Company. On June 20, 2021, the Company issued 12,000shares of Common Stock of the Company to the consultant. The Company estimated the value of the shares issue at $126,600.On July 1, 2021, the Company and a consultant signed an Addendum to the October 20, 2020 Service Agreement (the "Original Agreement") according to which the Company agreed to pay the consultant $15,000for digital communication services as per the Original Agreement and to issue the consultant 14,285shares of Common Stock of the Company. The Company estimates the value of the shares issued at $127,622. In addition, the Company agreed to continue the Original Agreement for an additional six months for a monthly fee of $10,000.
On August 5, 2021, the Company signed consulting agreement with a third party according to which the Consultant will provide the Company with strategic consulting and coordination of digital marketing campaigns for a period of 6 months commencing September 1, 2021. As consideration for the agreement the Company will pay the consultant a total fee of $301,000and shall issue the consultant 12,000shares of Common Stock of the Company of which 2,000shares were issued as of September 30, 2021. The Company estimates the value of the shares issued at $17,952. After the balance sheet date the Company issued the Consultant an additional 4,000shares.
NOTE 5 - STOCK OPTIONSThe following table presents the Company's stock option activity for employees, directors and consultants of the Company for the nine months ended September 30, 2021:
|
Number of Options |
Weighted Average Exercise Price | |||||||
| Outstanding at December 31,2020 | 206,862 | 3.37 | ||||||
| Granted | - | - | ||||||
| Exercised | - | |||||||
| Forfeited or expired | - | - | ||||||
| Outstanding at September 30,2021 | 206,862 | 3.37 | ||||||
| Number of options exercisable at September 30, 2021 | 139,543 | 3.31 |
The aggregate intrinsic value of the awards outstanding as of September 30, 2021 is $628,861. These amounts represent the total intrinsic value, based on the Company's stock price of $ 6.41as of September 30, 2021, less the weighted exercise price. This represents the potential amount received by the option holders had all option holders exercised their options as of that date.
Costs incurred in respect of stock-based compensation, for the nine months ended September 30, 2021 and 2020 were $480,891and $388,492, respectively
| 13 |
SAVE FOODS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - COMMITMENT AND CONTINGENT LIABILITIES
| A. | On June 15, 2021, the Company signed consulting agreement with a third party according to which the Consultant will provide the Company with public relations services. Based on the agreement the Company will pay the consultant a monthly fee of $3,500and shall issue the consultant 200shares of Common Stock of the Company on the final day of each month following the commencement date of the agreement. After the balance sheet date the Company issued the consultant 700shares of the Company's common stock. |
| B. | On June 1, 2021 the Company terminated its October 10, 2018, consulting agreements with two of its consultants and signed new consulting agreements with the parties. According to the agreements, the consultants shall provide the Company with business development and strategic consulting services including ongoing consulting for the Company, board and management. The agreement shall be effective until terminated by each of the parties by giving a 30 days prior notice. Based on the agreements the Company would pay each a monthly fee of $13,000, and $2,000as monthly reimbursement of expenses. In addition, the Company agreed to grant the consultants with signing bonuses in the amounts of $150,000and $250,000net of the outstanding debt of the Company to the consultants based on their October 10, 2018 agreements in the amount of $33,000each. In addition, the Company agreed to pay the consultants 5% of any gain generated by the Company exceeding an initial gain of 25% due to any sale, disposition or exclusive license of activities, securities, business, or similar events initiated by each the consultants. In addition, each consultant shall be entitled to a special bonus upon business opportunities or upon other events he assisted with ("Consultant Engagements"), authorized by the CEO or the Chairman of the Board. The special bonus shall not exceed two times each consultant monthly fee. As of the date of the financial statements no bonus was recorded as no such Consultant Engagements were executed. |
| C. | On August 18, 2021, the Company signed consulting agreement with a consultant according to which the consultant will serve as a member of the scientific advisory board of the Company and shall provide the Company with ongoing business consulting services. Based on the agreement, the Company will pay the consultant an hourly fee of NIS 500(approximately $155) with maximum of 15 hour per months unless agreed upon otherwise. The consultant will also be issued, subject to the approval of the Board of Directors of the Company, such number of shares of restricted common stock of the Company as is customarily issued to other directors of the Company. The agreement shall be in effect unless terminated by either one on the parties at any time upon 60 days prior notice. The terms of the grant have not yet been determined. |
| D. | In July 2021, the Company signed a lease agreement for office space in Tel Aviv, Israel for a period of 2 years with monthly payments of $2,900and an option to extend the agreement for an additional 3 years with monthly payments of $3,000. In September 2021 the Company signed an additional lease agreement for office and operational space in Neve Yarak, lsrael for a period of 1 year with monthly payments of $2,000and an option to extend the agreement for an additional 2 years with monthly payment of $2,600. These two agreements are in addition to a lease agreement in Kibutz Alonim, Israel that the Company is engaged in since January 2020. A lease liability in the amount of 146,309and right-of-use asset in the amount of $146,685have been recognized in the balance sheet as at September 30, 2021 in respect of these leases. |
| 14 |
SAVE FOODS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - RELATED PARTIES
A.Transactions and balances with related parties
|
Nine months ended September 30 |
||||||||
| 2021 | 2020 | |||||||
| General and administrative expenses: | ||||||||
| Directors compensation (*) | 85,524 | 311,848 | ||||||
| Salaries and fees to officers (*) | 188,295 | 238,128 | ||||||
| 273,819 | 549,976 | |||||||
| (*) share based compensation included in the above | 8,464 | 309,640 | ||||||
| Research and development expenses: | ||||||||
| Salaries and fees to officers | - | 25,272 | ||||||
| - | 25,272 |
B. Balances with related parties and officers:
| As of September 30, | ||||||||
| 2021 | 2020 | |||||||
| Other accounts payables | 88,951 | 295,413 |
C. Other information:
| 1. | On November 5, 2020, the board of directors of the Company appointed Mr. David Palach, to serve as Chief Executive Officer of the Company, effective as of the same date. In connection with Mr. Palach's appointment, the parties entered into a Consulting Agreement pursuant to which the Company and Mr. Palach agreed upon, inter alia, the following engagement terms: (a) a monthly fee of $8,000, and (b) a grant of options to purchase shares of the Company's common stock, which amount shall be determined by the Board on a future date. On June 17, 2021 the Board of Directors of the Company approved an updated Compensation of its CEO, according to which the CEO shall be entitled to a monthly fee of $14,000and reimbursement of expenses of $500per month. In addition, the CEO shall receive a one-time grant of options to purchase shares of the Company representing 4.5% of the Company's outstanding share capital as of the date of the approval. The terms of the grant have not yet been determined. |
| 2. | On June 17, 2021 the Board of Directors of the Company approved the compensation of its CFO, according to which the CFO shall be entitled to a monthly fee of $8,000and reimbursement of expenses of $500per month. In addition, the CFO shall receive a one-time grant of options to purchase shares of the Company representing 1.5% of the Company's outstanding share capital as of the date of the approval. The terms of the grant have not yet been determined. |
| 15 |
SAVE FOODS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - RELATED PARTIES (continue)
C. Other information (continue):
| 3. | On June 17, 2021 the Board of Directors of the Company approved the compensation of its Chairman of the Board, according to which the Chairman of the Board shall be entitled to a monthly fee of $5,000. In addition, the Chairman of the Board shall receive a one-time grant of options to purchase shares of the Company representing 1.5% of the Company's outstanding share capital as of the date of the approval. The terms of the grant have not yet been determined. |
| 4. | On June 17, 2021 the Board of Directors of the Company approved the compensation for each of members of the board, according to which the each member of the board shall be entitled to an annual fee of NIS 100,000(approximately $30,500). In addition, each member of the board shall receive a one-time grant of options to purchase shares of the Company representing 0.25% of the Company's outstanding share capital as of the date of the approval. The terms of the grant have not yet been determined. |
| 5. | On July 12, 2021 the Company and the Chairman of the Board of Save Foods Ltd. (the "Director") reached a Separation Agreement and Release according to which the consulting agreement with the Director would be terminated as of July 8, 2021. According to the agreement the Company would pay the amounts accrued to the Director under his consulting agreement and in addition the Company agreed to grant the Director with 90 days notice and accelerate the vesting of all the unvested options granted to the Director. |
| A. | On October 5, 2021, the Company signed consulting agreement with a consultant according to which the consultant will serve as a member of the scientific advisory board of the Company and shall provide the Company with ongoing business consulting services. Based on the agreement the Company will pay the consultant a hourly fee of NIS 500(approximately $155) with maximum of 15 hour per months unless agreed upon otherwise. The consultant will also be entitled to receive options under similar terms as the Company's Board of Directors. The agreement shall be in effect unless terminated by either one on the parties at any time upon 60 days prior notice. The terms of any option grant have not yet been determined. |
| B. | On October 24, 2021, the Company signed a consulting agreement with a consultant according to which the consultant will provide the Company with consulting services related to international business development activities. Based on the agreement, the Company will issue the consultant 9,000shares of common stock of the Company upon execution of the agreement and six installments of 12,500 shares of common stock of the Company at each of following 90 days following the execution date. |
| 16 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Readers are advised to review the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our 2020 Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See "Cautionary Note Regarding Forward-Looking Statements". You should review the "Risk Factors" section of our 2020 Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Furthermore, certain disclosures and references made herein apply to Save Foods Ltd., the subsidiary of Save Foods, Inc. The primary business activities and operations discussed herein are performed by Save Foods Ltd., whereas Save Foods, Inc. operates as a holding company and is the Registrant for purposes of this Quarterly Report on Form 10-Q.
We develop eco-friendly "green" solutions for the food industry. Our solutions are developed to improve the food safety and shelf life of fresh produce. We do this by controlling human and plant pathogens, thereby reducing spoilage, and in turn, reducing food loss.
Our products are based on a proprietary blend of food acids which have a synergistic effect when combined with certain types of oxidizing agent-based sanitizers and fungicides at low concentrations. Our green products are capable of cleaning, sanitizing and controlling pathogens on fresh produce with the goal of making them safer for human consumption and extending their shelf life by reducing their decay. One of the main advantages of our products is that our active ingredients do not leave any toxicological residues on the fresh produce we treat. In contrary, by forming a temporary protective shield around the fresh produce we treat, our products make it difficult for pathogens to develop and potentially provide protection which also reduces cross-contamination.
Our Common Stock is listed on the Nasdaq Capital Market under the symbol "SVFD."
As of the date of this report, we did not experience any material impact on our financial condition and results of operations due to COVID-19, and we do not expect to experience any material impact on our overall liquidity positions and outlook as a result of the outbreak. Nevertheless, it is not possible at this time to estimate the full impact that the COVID-19 pandemic, the continued spread of COVID-19, and any additional measures taken by governments, health officials or by us in response to such spread, could have on our business results of operations and financial condition.
| 17 |
Results of Operations
Components of Results of Operation
Revenues and Cost of Revenues
Our total revenue consists of products and our cost of revenues consists of cost of products.
The following table discloses the breakdown of revenues and costs of revenues:
|
Nine Months Ended September 30, |
Three Months Ended September 30, |
|||||||||||||||
| U.S. dollars in thousands, except share and per share data | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Revenues | $ | 248,840 | $ | 63,566 | $ | 71,363 | $ | - | ||||||||
| Cost of revenues | (67,931) | (25,686) | (53,644) | |||||||||||||
| Gross (loss) profit | $ | 180,909 | $ | 37,880 | $ | 17,719 | $ |
Operating Expenses
Our current operating expenses consist of three components - research and development expenses, selling and marketing expenses and general and administrative expenses.
Research and Development Expenses, net
Our research and development expenses consist primarily of salaries and related personnel expenses, share base compensation, professional fees and other related research and development expenses such as field tests.
|
Nine Months Ended September 30, |
Three Months Ended September 30, |
|||||||||||||||
| U.S. dollars in thousands | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Salaries and related expenses | $ | 60,327 | $ | 38,643 | $ | 42,400 | $ | - | ||||||||
| Share based compensation | 16,050 | 68,657 | (15,294 | ) | 35,021 | |||||||||||
| Professional fees | 224,001 | 104,574 | 13,069 | 35,613 | ||||||||||||
| Laboratory and field tests | 15,733 | 86,352 | 8,357 | 7,724 | ||||||||||||
| Depreciation | 21,871 | 27,222 | 7,972 | 9,107 | ||||||||||||
| Other expenses | 25,021 | 15,360 | 9,966 | - | ||||||||||||
| Total | $ | 363,003 | $ | 340,808 | $ | 66,470 | $ | 87,465 |
We expect that our research and development expenses will increase as we continue to develop our products and services, field trials and recruit additional research and development employees.
Selling and Marketing Expenses
Selling and marketing expenses consist primarily of salaries and related expenses, share based compensation and other expenses.
| 18 |
|
Nine Months Ended September 30, |
Three Months Ended September 30, |
|||||||||||||||
| U.S. dollars in thousands | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Salaries and related expenses | $ | 15,931 | $ | 30,152 | $ | 12,517 | $ | - | ||||||||
| Share based compensation | 6,420 | (21,583 | ) | 5,629 | 783 | |||||||||||
| Professional fees | 39,442 | 11,314 | 33,448 | 990 | ||||||||||||
| Commissions | 20,402 | - | 11,342 | - | ||||||||||||
| Transport and storage | 15,268 | - | 4,929 | - | ||||||||||||
| Other expenses | 4,965 | 23,599 | 1,154 | 4,961 | ||||||||||||
| Total | $ | 102,428 | $ | 43,482 | $ | 69,019 | $ | 6,734 |
We expect that our selling and marketing expenses will increase as we continue to increase our selling and marketing efforts including commercial validation pilots and recruit additional employees or contractor to support our selling and marketing efforts in our targeted geographical areas.
General and Administrative Expenses
General and administrative expenses consist primarily of professional services, share based compensation and other non-personnel related expenses.
|
Nine Months Ended September 30, |
Three Months Ended September 30, |
|||||||||||||||
| U.S. dollars in thousands | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Salaries and related expenses | $ | 113,839 | $ | - | $ | 81,783 | $ | - | ||||||||
| Professional services | 2,134,281 | 319,640 | 801,087 | 140,994 | ||||||||||||
| Share based compensation | 134,093 | 338,108 | 21,355 | 133,021 | ||||||||||||
| Legal expenses | 108,473 | 59,785 | 87,720 | 25,203 | ||||||||||||
| Insurance | 310,459 | 48,300 | 163,334 | 15,340 | ||||||||||||
| Other expenses | 46,299 | 85,429 | 19,458 | 23,328 | ||||||||||||
| Total | $ | 2,847,444 | $ | 851,262 | $ | 1,174,737 | $ | 337,886 |
Three months ended September 30, 2021 compared to three months ended September 30, 2020
Revenues.
Revenues for the three months ended September 30, 2021 were $71,363, compared to $0 during the three months ended September 30, 2020. The increase is mainly a result of sales of our products, which commenced in the fourth quarter of 2020.
We do not have backlogs or firm commitments from our customers for our products. Our sales might deteriorate if we fail to achieve commercial success or obtain regulatory approval of any of our products.
Cost of Sales
Cost of sales consists primarily of salaries, materials, transportation and overhead costs of manufacturing our products. Cost of revenues for the three months ended September 30, 2021 was $53,644, compared to total $0 cost of revenues for the three months ended September 30, 2020. The increase is mainly a result of sales of our products, which commenced in the fourth quarter of 2020.
| 19 |
Gross Profit
Gross profit for the three months ended September 30, 2021 was $17,719, compared to $0 for the three months ended September 30, 2020. The increase is mainly a result of the increase in revenues as we commenced commercial sales, as detailed above.
Research and Development
Research and development expenses consist of salaries and related expenses, share base compensation, consulting fees, service providers' costs, related materials and overhead expenses. Research and development expenses for the three months ended September 30, 2021 were $66,470, a decrease of $20,995, or 24%, compared to total research and development expenses of $87,465 for the three months ended September 30, 2020. The decrease is mainly attributable to a decrease in professional fees and share based compensation expenses, offset by an increase in salary and related expenses.
Selling and Marketing Expenses
Selling and marketing expenses consist primarily of salaries and related costs for selling and marketing personnel, travel related expenses and services providers and commissions. Selling and marketing expenses for the three months ended September 30, 2021 were $69,019, an increase of $62,285, or 925%, compared to total selling and marketing expenses of $6,734 for the three months ended September 30, 2020. The increase is mainly attributable to the increase in salaries and related costs, service providers' commissions and delivery costs associated with our sales.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related expenses including share based compensation and other professional services as well as other non-personnel related expenses such as legal expenses and directors and insurance costs. General and administrative expenses for the three months ended September 30, 2021 were $1,174,737, an increase of $836,851, or 248%, compared to total general and administrative expenses of $337,886 for the three months ended September 30, 2020. The increase is mainly a result of the increase in professional services, insurance costs and compensation payable to directors following the listing of our Common Stock on the Nasdaq Capital Market, which occurred during the second quarter of 2021, offset partially by a decrease in expenses associated with share-based compensation to our employees and service providers.
Financing Expenses, Net
Financing income, net, for the three months ended September 30, 2021 were $7,776, an increase of $1,298, compared to total financing expenses of $6,478 for the three months ended September 30, 2020.
Total Comprehensive Loss
As a result of the foregoing, our total comprehensive loss for the three months ended September 30, 2021 was $1,287,081, compared to $433,900 for the three months ended September 30, 2020, an increase of $853,181, or 197%. The increase is mainly a result of the increase in general and administrative expenses following the listing of our Common Stock on the Nasdaq Capital Market, as described above offset partially by increase in gross profit.
Nine months ended September 30, 2021 compared to nine months ended September 30, 2020
Revenues
Revenues for the nine months ended September 30, 2021 were $248,840, an increase of $195,274, or 307%, compared to total revenues of $63,566 for the nine months ended September 30, 2020. The increase is mainly a result of our sales of new products, which we commenced in the fourth quarter of 2020.
We do not have backlogs or firm commitments from our customers for our products. Our sales might deteriorate if we fail to achieve commercial success or obtain regulatory approval of any of our products.
Cost of Sales
Cost of sales consists primarily of salaries, materials, transportation and overhead costs of manufacturing our products. Cost of revenues for the nine months ended September 30, 2021 was $67,931, an increase of $42,245, or 164%, compared to total cost of revenues of $25,686 for the nine months ended September 30, 2020. The increase is mainly a result of the increase in salaries and related expenses offset by a decrease in the overall cost of materials, due to our efforts to outsource production of our new products.
| 20 |
Gross Profit
Gross profit for the nine months ended September 30, 2021 was $180,909, an increase of $143,029, or 378%, compared to gross profit of $37,880 for the nine months ended September 30, 2020. The increase is mainly the result of an increase in revenues and a decrease in cost of revenues, as detailed above.
Research and Development
Research and development expenses consist of salaries and related expenses, share base compensation, consulting fees, service providers' costs, related materials and overhead expenses. Research and development expenses for the nine months ended September 30, 2021 were $363,003, an increase of $22,195, or 7%, compared to total research and development expenses of $340,808 for the nine months ended September 30, 2020. The increase is mainly attributable to the increase in professional fees and in payroll expenses partially offset by a decrease in share based compensation expenses and decrease in expenses associated with international travel and field trials, which were postponed due to COVID-19.
Selling and Marketing Expenses
Selling and marketing expenses consist primarily of salaries and related costs for selling and marketing personnel, travel related expenses and services providers. Selling and marketing expenses for the nine months ended September 30, 2021 were $102,428, an increase of $58,946, or 136%, compared to total selling and marketing expenses of $43,482 for the nine months ended September 30, 2020. The increase is mainly attributable to the increase in service providers and commissions in relation to selling and marketing activities as well as share based compensation expenses mainly associated with the termination of the employment of our former vice president of sales in February 2020.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related expenses including share based compensation, professional fees and other non-personnel related expenses such as legal expenses and directors and insurance costs. General and administrative expenses for the nine months ended September 30, 2021 were $2,847,444, an increase of $1,996,182, or 234%, compared to total general and administrative expenses of $851,262 for the nine months ended September 30, 2020. The increase is mainly a result of the increase in professional services and compensation payable to directors following the listing of our Common Stock on the Nasdaq Capital Market, which occurred during the second quarter of 2021, increase in insurance costs and payroll and related expenses, offset partially by a decrease in share-based compensation to our employees and service providers.
Financing Expenses, Net
Financing expenses, net, for the nine months ended September 30, 2021 were $163,837, a decrease of $42,992, or 21%, compared to total financing expenses of $206,829 for the nine months ended September 30, 2020. The decrease is mainly a result of the decrease in compensation expenses related to the accrued interest and amortization expenses associated with our convertible loans which were fully converted during the three months ended June 30, 2021.
Total Comprehensive Loss
As a result of the foregoing, our total comprehensive loss for the nine months ended September 30, 2021 was $3,260,924, compared to $1,376,592 for the nine months ended September 30, 2020, an increase of $1,884,332, or 137%. The increase is mainly a result of the increase in general and administrative expenses following the listing of our Common Stock on the Nasdaq Capital Market, as described above offset partially by increase in gross profit.
| 21 |
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures. Since our inception through September 30, 2021, we have funded our operations, principally with approximately $23,463,738 (net of issuance expenses), from the issuance of shares of our Common Stock, options and loans.
On May 13, 2021, we completed an underwritten public offering of 1,090,909 shares of Common Stock at a price to the public of $11.00 per share. The gross proceeds we received from this offering were $12,000,000 (net proceeds of $10,457,862) (the "Underwritten Offering").
The table below presents our cash flows for the periods indicated:
|
Nine Months Ended September 30, |
||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (3,169,632 | ) | $ | (619,397 | ) | ||
| Net cash provided by (used in) investing activities | (23,760 | ) | 1,809 | |||||
| Net cash provided by financing activities | 10,745,759 | 637,344 | ||||||
| Effect of exchange rate changes on cash and cash equivalents and restricted cash | 8,383 | - | ||||||
| Increase in cash, cash equivalents and restricted cash | $ | 7,560,750 | $ | 19,756 |
As of September 30, 2021, we had cash of $7,771,539, as compared to $242,900 as of December 31, 2020. As of September 30, 2021, we had a working capital of $7,652,779, as compared to a negative working capital of $290,062 as of December 31, 2020. The increase in our cash balance is mainly attributable to the Underwritten Offering offset by our cash used in operations.
Operating Activities
Net cash used in operating activities was $3,169,632 for the nine months ended September 30, 2021, as compared to $619,397 for the nine months ended September 30, 2020.
Investing Activities
Net cash used in investing activities was $23,760 for the nine months ended September 30, 2021, as compared to net cash used in investing activities of $1,809 for the nine months ended September 30, 2020. The increase is mainly attributable to the increase in funds in respect of employee rights upon retirement and the purchase of property and equipment.
Financing Activities
Net cash provided by financing activities was $10,713,367 for the nine months ended September 30, 2021, as compared to $637,344 for the nine months ended September 30, 2020. The increase is mainly the result of proceeds from to the Underwritten Offering described above.
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Financial Arrangements
Since our inception, we have financed our operation primarily through proceeds from sales of our shares of Common Stock, convertible loan agreements and grants from the Israeli Innovation Authority, or the IIA, formerly known as the Office of the Chief Scientist of the Ministry of Economy and Industry.
During January 2021, we entered into a series of convertible loan agreements with an aggregate principal amount of $274,000 that each bear interest at a rate of 5% per annum.
On May 11, 2021 and May 12, 2021, we issued an aggregate of 66,877 shares of Common Stock following the conversion of convertible promissory notes in the aggregate principal amount of $499,000 and of aggregated accrued interest amount of $11,211, at a conversion price of $7.63 per share.
On May 18, 2021, we closed the Underwritten Offering pursuant to which we issued a total of 1,090,909 shares of our Common Stock at a purchase price of $11.00 per share. In connection with the Underwritten Offering, we agreed to grant ThinkEquity, a division of Fordham Financial Management, Inc. (the "Underwriter"), a 45-day option to purchase up to 163,636 additional shares of Common Stock at the public offering price of $11.00 per share, less the underwriting discounts and commissions solely to cover over-allotments, and to issue the Underwriter a five-year warrant to purchase up to 54,545 shares of Common Stock, at a per share exercise price equal to 125% of the Underwritten Offering price per share of Common Stock. The gross proceeds from the Underwritten Offering were approximately $12,000,000.
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Off-Balance Sheet Arrangements
As of September 30, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
Changes to Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are set forth in our 2020 Annual Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of September 30, 2021, the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, and due to certain material weaknesses identified by management, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at a reasonable assurance level as of September 30, 2021.
In connection with the audit of our 2020 annual consolidated financial statements, we identified a material weakness in our internal control over financial reporting due to (1) the size of the Company and available resources and limited personnel to assist with the accounting and financial reporting functions, which resulted in a lack of segregation of duties, (2) lack of a full time Chief Executive Officer and Chief Financial Officer tasked with overseeing day-to-day operations and the financial reporting functions and (3) lack of an independent audit committee capable of providing management oversight. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected and corrected on a timely basis. The material weakness did not result in any identified misstatements to the financial statements, and there were no changes to previously released financial results.
In light of the material weakness, we performed additional analyses and other post-closing procedures and hired an additional accounting personnel to ensure our consolidated financial statements are prepared in accordance with U.S. GAAP. Accordingly, our CEO and CFO have certified that, based on their knowledge, the consolidated financial statements, and other financial information included in this Form 10-Q, fairly present in all material respects our financial condition, results of operations and cash flows as of, and for, the periods presented in this Form 10-Q.
We began remediation efforts of the aforementioned material weakness during the second quarter of 2021 for our accounting of non-routine complex transactions control by, inter alia, hiring additional finance personnel, appointing a full-time Chief Executive Officer and Chief Financial Officer, both of which have financial expertise, and establishing an independent audit committee that provide management oversight. We continue to evaluate our internal and external technical accounting resources to ensure they are appropriate for us and our needs. Additionally, there is a renewed emphasis on our process going forward for the initial identification of potential contracts and transactions that may be non-routine and complex during a reporting period, and then conducting the necessary procedures with the full internal accounting team and external consultants to review and research the proper guidance and approach toward such accounting.
We believe these measures, and others that may be implemented, will remediate the material weakness in internal control over financial reporting as described above.
The material weakness will not be considered formally remediated until the control has operated effectively for a sufficient period of time, and after management has concluded, through testing, that the control is operating effectively.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1A. RISK FACTORS.
Our business faces many risks, a number of which are described under the caption "Risk Factors" in our 2020 Annual Report. Other than as set forth below, there have been no material changes from the risk factors previously disclosed in our 2020 Annual Report. The risks described in our 2020 Annual Report and below may not be the only risks we face. Other risks of which we are not yet aware, or that we currently believe are not material, may also materially and adversely impact our business operations or financial results. If any of the events or circumstances described in the risk factors contained in our 2020 Annual Report or described below occurs, our business, financial condition or results of operations could be adversely impacted and the value of an investment in our securities could decline. Investors and prospective investors should consider the risks described in our 2020 Annual Report and below, and the information contained under the caption "Forward-Looking Statements" and elsewhere in this Quarterly Report on Form 10-Q before deciding whether to invest in our securities.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Except as set forth below, there were no sales of equity securities sold during the period covered by this Quarterly Report on Form 10-Q that were not registered under the Securities Act and were not previously reported in a Current Report on Form 8-K filed by the Company.
On August 2, 2021, we issued 14,285 shares of Common Stock to a consultant of the Company in exchange for investor relations and public relations services rendered to the Company.
On each of August 27, 2021 and September 30, 2021, we issued an aggregate of 4,000 shares of Common Stock to a consultant of the Company in exchange for investor relations and public relations services rendered to the Company.
We issued these shares pursuant to an exemption from registration contained in Section 4(a)(2) of the Securities Act, and/or Regulation S under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS.
(a) The following documents are filed as exhibits to this Quarterly Report or incorporated by reference herein.
| Exhibit | ||
| Number | Description | |
| 31.1* | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act | |
| 31.2* | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act | |
| 32.1** | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2** | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS* | Inline XBRL Instance Document | |
| 101.INS* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
| * | Filed herewith. | |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: November 15, 2021 | SAVE FOODS INC. | |
| By: | /s/ David Palach | |
| Name: | David Palach | |
| Title: | Chief Executive Officer | |
| Save Foods, Inc. |
| By: | /s/ Vered Raz Avayo | |
| Name: | Vered Raz Avayo | |
| Title: | Chief Financial Officer | |
| Save Foods, Inc. |
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